TABLE OF CONTENTS

LIST OF ACRONYMS 4

FINANCIAL DEFINITIONS 5

BANK CONTACT INFORMATION 6

CHAIRMAN BOARD OF DIRECTORS’ STATEMENT 11

MANAGING DIRECTOR’S STATEMENT 14

STATEMENT OF CORPORATE GOVERNANCE 18

RISK MANAGEMENT AND CONTROL 28

SUSTAINABILITY REPORTING STATEMENT 34

FINANCIAL REVIEW 49

AUDITED FINANCIAL STATEMENTS

Directors’ Report 56

Directors’ Responsibility for Financial Reporting 58

Report of Independent Auditors 59

Statement of Comprehensive Income 61

Statement of Financial Position 62

Statement of Changes in Equity 63

Statement of Cash flow 64

Notes to the Financial Statements 65

BANK AND ATM NETWORK 127

CENTENARY BANK l Annual Report & Financial Statements 2016 3 LIST OF ACRONYMS

aBi Finance Agriculture Business Initiative Finance Limited aBi Trust Agriculture Business Initiative Trust ACF Agricultural Credit Facility AGM Annual General Meeting ALCO Asset and Liability Committee ATM Automated Teller Machines BCP Business Continuity Plan BCM Business Continuity Management BCMT Business Continuity Management Team BOD Board of Directors BOU Bank of CBS Core Banking System CSI Corporate Social Investment CSR Corporate Social Responsibility EaR Earnings at Risk EIB EAC MF Loan European Investment Bank East African Community Microfinance Loan EIB PEFF European Investment Bank Private Enterprise Finance Facility EIR Effective Interest Rate ERM Enterprise Risk Management FAMOS Female and Male Operated Small enterprises HR Human Resource HRD Human Resource Division IAS International Accounting Standards ICT Information and Communication Technology IFRS International Financial Reporting Standards ILO Intenational Labour Organisation KCCA Capital City Authority LPO Local Purchase Order MOGLSD Ministry of Gender, Labour and Social Development NIM Net Interest Margin NSSF National Social Security Fund NPAT Net Profit After Tax OSH Occupational Safety and Health P.A.Y.E Pay As You Earn QMM Quarterly Management Meeting REPO Repurchase agreement loan ROA Return on Assets ROE Return on Equity RSA Interest Rate Sensitive Assets RSL Interest Rate Sensitive Liabilities SIDI Solidarite’ Internationale pour le Development et l’ investissement SOCI Statement of Comprehensive Income SOFP Statement of Financial Position To T Trainer of Trainers UECCC Uganda Energy Credit Capitalization Company URA w.e.f With effect from WENRECO West Nile Rural Electrification Company

4 l Annual Report & Financial Statements 2016 FINANCIAL DEFINITIONS

Core capital Permanent equity in the form of issued and fully paid-up shares plus all disclosed reserves less goodwill or any intangible assets

Cost-to-income ratio (%) Total operating expenses as a percentage of total income

Credit impairment charge (Shs) The amount by which the period profits are reduced to cater for the effect of non-performing loans for the period

Credit loss impairment [Statement of The amount by which gross loans in the SOFP are written down to cater for Financial Position (SOFP)] (Shs) non-performing loans

Credit loss ratio (%) Provision for credit losses per the Statement of Comprehensive Income as a percentage of average net loans

Dividend cover (times) Earnings Per Share divided by ordinary dividend per share

Dividend per share ( Shs) Total ordinary dividends declared per share with respect to the year

Earnings per share (cents) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares

Effective tax rate (%) The income tax charge as a percentage of income before tax excluding income from associates

Lending Ratio Net loans and advances divided by total deposits

Net interest margin (%) Net interest income as a percentage of average earning assets

Non-performing loans [NPL] (Shs) Loans whose servicing is due but the borrower has no money on the account from which to recover the installment(s)

Percentage change in credit loss ratio (%) Ratio of change in the rate of credit loss impairment between time periods

Percentage change in the impairment Ratio of change in the rate of impairment charge between time periods charge (%)

Profit for the year (Shs) Annual profit attributable to ordinary shareholders and preference shareholders

Return on Assets (%) Earnings as a percentage of average total assets

Return on Equity (%) Earnings as a percentage of average equity

SOFP credit impairment as a % Ratio of SOFP credit impairment to gross loans and advances of gross loans and advances (%)

Supplementary capital General provisions which are held against future and current unidentified losses that are freely available to meet losses which subsequently materialize, and re- valuation reserves on banking premises, and any other form of capital as may be determined from time to time.

Total capital The sum of core capital and supplementary capital

Total capital adequacy Total capital divided by the sum of total risk weighted assets and total risk weighted contingent claims

CENTENARY BANK l Annual Report & Financial Statements 2016 5 BANK CONTACT INFORMATION

1. Principal place of business and registered office Plot 44-46, Kampala Road P. O. Box 1892, Kampala. Tel: +256 414-251276/7 Toll-free line: 0800 200 555 Fax: +256 414-251273/4 E-mail: [email protected] Website: http://www.centenarybank.co.ug

2. Company Secretary Peninnah Tibagwa Kasule Mapeera House Plot 44-46, Kampala Road P. O. Box 1892, Kampala.

3. Correspondent Banks • Citibank NA New York - US • Deutsche Bank AG - Germany • Deutsche Bank Trust Company – USA • Bank of China • Ivory Bank - South Sudan • Sparkase Aachen Bank - UK

4. Auditors Ernst & Young Certified Public Accountants Ernst & Young House Plot 18, Clement Hill Road Shimoni Office Village P. O. Box 7215, Kampala. Uganda.

6 CENTENARY BANK l Annual Report & Financial Statements 2016 VISION MISSION AND OWNERSHIP

We are in a race, and to stay well ahead of the rest, we constantly evolve to compete effectively in the digital era.

CENTENARY BANK l Annual Report & Financial Statements 2016 7 OUR VISION

“To be the best provider of , especially Microfinance.”

OUR MISSION STATEMENT

“To provide appropriate financial services especially microfinance to all people, particularly in rural areas, in a sustainable manner and in accordance with the law.”

OUR VALUES

SUPERIOR INTEGRITY TEAMWORK EXCELLENCE CUSTOMER SERVICE

LEADERSHIP PROFESSIONALISM COMPETENCE

8 CENTENARY BANK l Annual Report & Financial Statements 2016 SHAREHOLDERS

• The Catholic Dioceses, which are all independent legal personalities incorporated as Registered Trusteeships, are: , , , , Jinja, , Kasana-Luwero, Lugazi, Kampala, , Kotido, Lira, , , , Moroto, Nebbi, , and .

• Registered Trustees of the Uganda Episcopal Conference.

• SIDI - Solidarite’ Internationale pour le Development et l’Investissement (International Solidarity for Development and Investment) based in France, invests in developing countries through institutions to foster financial inclusion, social and economic development.

• STICHTING HIVOS-TRIODOS FONDS. An investment fund, specializing in investing in mi- crofinance and trade finance, managed by Triodos Investment Management in the Netherlands.

• Individual shareholders (4 individuals).

OWNERSHIP

The Registered Trustees of Various Catholic Dioceses in Uganda 38.5%

The Registered Trustees of the Uganda Episcopal Conference 31.3%

Solidarité Internationale pour le Développement et l’Investissement (International Solidarity for Development SIDI and Investment) 11.6%

Stichting Hivos-Triodos Fonds 18.3%

Individuals 0.3%

To tal 100%

CENTENARY BANK l Annual Report & Financial Statements 2016 9 We maintained our position as the leading commercial microfinance Bank and plan to reach more people with banking services through financial inclusion in 2017.

Professor John Ddumba-Ssentamu

Chairman Board of Directors

Annual10 ReportCENTENARY & Financial BANKStatements l Annual l 2015 Report & Financial Statements 2016 CHAIRMAN’S STATEMENT

I am pleased to present Centenary Bank’s annual report for the year ended 31st December 2016. Centenary Bank continued to register growth and good performance supported by a more stable macro environment, although to an extent the business environment was still affected by continuous drought, competition and changing trends in the banking environment. We maintained our position as the leading commercial microfinance Bank and plan to reach more people with banking services through financial inclusion in 2017.

The Operating Environment At a macroeconomic level, 2016 was a better year than 2015. The annual headline inflation reduced to 5.7% from the re-based rate of 8.4% in 2015, where the main drivers were stable prices for fuel and utilities and less volatility in exchange rates. The above, coupled with the ’s objective of THE NUMBERS increasing private sector lending, led to the reduction of the central bank rate For the year under review from 17% in December 2015 to 12% as at 31st December 2016. This was aimed at increasing private sector credit which only grew by 3.7% due to other intervening factors such as increasing poor quality of loans, instability in the neighboring countries and overall volatility in the global economy. The average 14.1% prime lending rates in the industry slightly fell from 23% to 22%. 91 DAY TREASURY The Parliament of Uganda further adopted the Financial Institutions Bill 2015, BILL AVERAGE YIELD which introduced amendments to the Financial Institutions Act paving the way for the development of bancassurance and agent banking in the country. Currently the Central Bank is setting up a regulatory framework as many players in the industry prepare for the roll out. Centenary Bank is no exception. Our focus shall be on agent banking and bancassurance. Agent banking fits with our 15.1% mission ‘to provide appropriate financial services especially microfinance to all people, particularly in rural areas in a sustainable manner, and in accordance 182 DAY TREASURY BILL AVERAGE YIELD with the law.’ Bancassurance is a direct response to customer requests. They shall be delivered countrywide. Centenary Bank still maintains its promise of sustainable banking, through managing risk, growing our balance sheet, innovation, and being responsive to customers and other stakeholders. The Bank was adequately capitalized in 15.9% 2016 and its total capital adequacy ratio stood at 25.92%, which is above the statutory capital requirement of 12% and above the industry average of 19.8%. 364 DAY TREASURY BILL AVERAGE YIELD While industry non-performing rates (NPR) was as high as 10.5%, our Bank’s NPR was kept within set limits of 3.5% due to enhanced risk management. During the year, the Uganda shilling weakened from USD/UGX 3,375 as at 31st December 2015 to USD/UGX 3,610 as at end of 31st December 2016 although the depreciation was 5.5% in 2016 compared to 24.7% in 2015. The effect on the bank was that our expenses of dollar dominated operating cost continued to go up in 2016.

CENTENARY BANK l Annual Report & Financial Statements 2016 11 CHAIRMAN’S STATEMENT (continued...)

Regarding money markets, the interest rates reduced in 2016 particularly on short tenors. The 91-day treasury bill average yield for December 2016 closed at 14.1% from 19.7% in December 2015, 182-day treasury bill average yield for December 2016 was 15.1% from 22.8% for December 2015, while the 364-day rate closed at 15.9% in December 2016 compared to 22.7% for December 2015. This negatively impacted the Bank’s return on investment in short-term government paper. THE NUMBERS For the year under review Nevertheless, I am glad to report that the Bank’s basic earnings per ordinary share increased to Ushs 4,392 from Ushs 4,059 the previous year. The Bank achieved a return on equity (ROE) of 24.8% down from 28.3% the previous year although it was still above the Industry ROE of 7.8%. The strides made by the Bank in 2016 are a positive indication of our ability to deliver UGX 4,392 substantial and sustained value for our shareholders and other stakeholders.

EARNINGS PER ORDINARY SHARE Corporate Social Investment Centenary Bank maintained its policy of investing 1% of the previous year’s net profit to Corporate Social Investment (CSI). The activities in the four key areas of health, education, environment and the social mission of the church increased, thereby reaching millions of 24.8% people country wide. We couldn’t have done this without partners, to whom we are grateful. These include; Agriculture Business Initiative Trust (aBi Trust), Private Sector Foundation RETURN ON EQUITY Uganda (PSFU), International Labour Organisation (ILO), Rotary D9211, Hospital and The Catholic Church. We plan to reach more people in 2017.

Corporate Governance The Board remains committed to high standards of corporate governance designed to protect the interests of stakeholders, ensure effective functioning of the Bank, while promoting the highest standards of integrity, transparency and accountability. In 2016, the Central Bank approved appointment of 3 directors to our board. These are; Mr. Caspar Jan Sprokel representing Stichting Hivos – Triodos Fonds, who replaced Mr. Jacco Minnaar; Mr. Richard Thil representing SIDI (International Solidarity for Development and Investment), who replaced Mr. Rene Ehrmann and Dr. Mary Theopista Wenene who was nominated by the majority shareholders representing the Ecclesiastical Province of Tororo.

Environmental Outlook The board is confident about 2017. The economy is projected to grow at about 5.5% in 2017, mainly driven by recovery in private sector consumption and investment and public infrastructure investment. Centenary Bank is well positioned to leverage on its strength and get hold of opportunities in the business environment. The Bank will continue to deliver sustainable performance and to contribute to the country’s economic development mainly through financial inclusion.

Appreciation I take this opportunity to thank our customers and other stakeholders for the partnership and trust throughout 2016. We couldn’t have made it without you. I also extend my gratitude to the regulator for the guidance and to our Shareholders, Board Members, Management and the entire staff of Centenary Bank family who continue to work tirelessly to ensure success. I believe that with your support, we shall achieve more in 2017.

Professor John Ddumba-Ssentamu Chairman of the Board

12 CENTENARY BANK l Annual Report & Financial Statements 2016 We are pleased with the Bank’s continued progress that led to solid results and this aligns well with our vision and our proven track record of sustained growth.

Fabian Kasi

Managing Director MANAGING DIRECTOR’S STATEMENT

I am delighted to report that during financial year 2016, we further improved our performance, despite a volatile operating environment marked by low growth, increasing competition, climate changes and mar- ket volatility. Given the developments in the environment, we maintained a balanced approach to growth, profitability and risk management.

In the year under review, our position in the banking industry got better in terms of market share, distribution network and capital position; thereby creating a platform THE NUMBERS for robust growth. We are pleased with the bank’s continued progress that led to solid results and this aligns well with our vision and our proven track record of For the year under review sustained growth. In this context, I would like to share with you some of our key performance highlights for the year 2016:

2016 Performance review The bank continued its growth drive in all fronts particularly profitability and 8.2% total assets. This growth has been maintained due to continued focus on strategy

PROFIT AFTER execution. TAX The bank posted 8.2% growth in profit after tax to close at UGX 109.9 billion compared to UGX 101.6 billion the previous year, representing a market share of 16.2%. Total income went up by 17.8% to reach UGX 463.8 billion up from UGX 393.9 billion the previous year, mainly driven by growth in loans and advances to customers and increase in transaction volumes. Net interest income rose by 18.9% to UGX 318.4 billion from UGX 267.7 billion the previous year. Total expenses increased by 22.8% to UGX 316.0 billion from UGX 257.4 billion mainly attributed to the bank’s expansion, improvements in staff welfare and increased investments in business technology.

During the year, the balance sheet grew impressively with total assets reaching UGX 2,315.7 billion from UGX 1,974.4 billion the previous year, representing a 17.3% increase and above the total assets industry growth of 9.1%. This impressive growth was reflected in the net loan book that grew to UGX 1,247.7 billion up from UGX 1,020.2 billion the previous year, representing a growth of 22.3% which is above the industry growth of 1.2%. Despite this growth, the bank maintained a high quality asset portfolio with an average non-performing loan book of 2.8%, which is slightly above last year’s figure of 2.5% and below the bank’s set target of 3.5% and 18.9% below the industry rate of 10.5%. NET INTEREST INCOME Customer deposits grew from UGX 1,380.2 billion to UGX 1,626.6 billion, a growth of 17.9% which is above the industry growth of 9.5%. The bank continued to attract new customers and closed the year with 1,482,617 deposit accounts compared to 1,473,958 the previous year, having transferred all dormant accounts to , thereby maintaining the lead position in the industry in terms of customer base. In addition to customer deposits, the other funding sources of the bank are represented by equity which increased by 21.1% to UGX 485.0 billion, up from UGX 400.6 billion the previous year

14 CENTENARY BANK l Annual Report & Financial Statements 2016 MANAGING DIRECTOR’S STATEMENT (continued...)

Business development and innovation With regard to business development and innovation, the bank closed 2016 with 69 branches and 172 ATMs at 127 locations. Over the past years, the bank has been UGX 2,315.7 expanding its footprint in terms of delivery channels. In 2012, we expanded by 2 billion branches and 11 ATMs. In 2013, we opened 4 Branches and 4 offsite ATMs. In order to consolidate our position, we decided to open one branch in 2014 and 5 offsite ATMs. TOTAL ASSETS In 2015, the Bank opened 1 branch and 4 offsite ATMs. In 2016, the Bank opened 6 Branches and 5 offsite ATMs. Due to the growing customer base, the bank will continue to roll out more convenient channels such as agent banking, internet banking and further improve its Mobile Banking platform.

Partnerships and collaborations The Bank continues to respond to some of the challenges that private enterprises and UGX1,247.7 the youth face in accessing credit facilities. The bank continues to collaborate with billion European Investment Bank, aBi-Trust, Kampala Capital City Authority and Government

NET LOAN BOOK of Uganda and the main focus is on financing the agro industry, micro credit projects and supporting expansion of business ventures owned by the youth residents in the country. The bank plans to increase the number of partners in the year 2017 in order to achieve its Financial Inclusion objective. The bank continues to attract, develop and retain the right talent to drive its business strategy through good leadership.

Strategy 2017

The bank will continue to execute a forward-looking strategy that combines financial inclusion and technology driven service delivery. This will result into taking advantage of emerging growth opportunities in Uganda and also manage the ever changing UGX1,626.6 customer needs, preferences and behavior. We expect that the growth momentum will billion be sustained by maintaining efficient operations, prudent lending and risk management. The bank will continue to implement an engaging strategy that focuses on delighting CUSTOMER DEPOSITS customers, enhancing productivity and efficiency and come up with innovations based on technology. The Bank will rollout agent banking and bancassurance in the coming months and also enhance its mobile banking platform by offering more functionality. 1,482,617 The bank successfully completed the implementation of a new core banking system and this is starting to improve service delivery to the clients. In order to manage the DEPOSIT ACCOUNTS emerging industry frauds, the bank will be migrating to a more secure ATM card system which is based on PIN and Chip technology and also introduce a new method of identifying customers based on biometric technology.

Conclusion

We are grateful to our valued customers for the support, trust and confidence you placed in us over the past year, and to our partners for the accomplishments we attained together. I would also like to thank the Board of Directors for their ongoing service 69 and valuable support. Lastly, I am grateful to the management and staff of the bank for branches their dedication and sacrifice that enabled delivery of this good financial performance. In closing, I believe we are better positioned than ever to achieve our goal of building 172 a top-performing bank. We have the right strategy, vision, capabilities and people to ATMS deliver on our commitments. 127 ATM locations Managing Director

CENTENARY BANK l Annual Report & Financial Statements 2016 15 THE EXECUTIVE MANAGEMENT

Mr. Fabian Kasi Dr. Simon M. S. Kagugube Mrs. Peninnah Kasule Managing Director Executive Director Company Secretary

Mr. Godfrey Byekwaso Mr. Joseph Kimbowa Mrs. Beatrice Lugalambi General Manager - Finance General Manager - Operations General Manager - Business Development & Marketing

Mr. Joseph Lutwama Mrs. Florence Mawejje Mr. Denis Echeru General Manager - Credit General Manager-Human General Manager - Risk Resource Management

Mr. Arnold Byansi Mr. Micheal Nyago Mr. George K. Thogo General Manager-Corporate General Manager - Audit General Manager - Business Services Technology

16 CENTENARY BANK l Annual Report & Financial Statements 2016 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT

Leadership is our steering wheel to success. Our foresighted leaders embrace systems and policies that keep us ahead.

CENTENARY BANK l Annual Report & Financial Statements 2016 17 Statement of Corporate Governance

Centenary Bank embraces best corporate governance practices and their implementation is considered fundamental to its growth and sustainability. The Board is therefore consistent in its commitment to keep abreast with new corporate governance initiatives unfolding constantly on both the international, regional and local scenes to uplift corporate governance for the benefit of the company and for all its stakeholders. The Bank has remained a dedicated active member of the Institute of Corporate Governance Uganda and supports other local organizations which promote corporate governance in Uganda.

Compliance with codes and regulations Board Responsibilities

The Bank is supervised by the Central Bank which The business of the Bank is managed by the Board which through legislation and regulation has set corporate exercises all of the powers of the company, subject to the governance principles and practices for compliance by Articles of Association and the Companies Act. The Board financial institutions in Uganda. This along with the Bank’s is collectively responsible for the long-term success of the own Corporate Governance Charter, reviewed annually Bank, and to achieve this the Board’s main responsibility to keep abreast with current best practices and principles and the key actions carried out during the period are set have been one of the fundamental reasons for the Bank’s out below: - steady growth path. (a) Establish strategic objectives; approving both The Bank is reputed for subscribing to sound corporate financial and non-financial targets including new governance which it believes has a direct contribution products and markets. to both bottom line and strategic performance. The (b) Approve large capital investments and Corporate Company as part of its progressive practices conducts Social Investment plans. year on year reviews of various Board and Senior (c) Evaluate Management performance for alignment Management mandates to enhance effectiveness, and with approved strategic objectives, initiatives and improve alignment with emerging trends in the area of targets; the Board sets a fairly high bar of execution corporate governance. and performance to attain maximization of shareholder and other stakeholder values through Leadership a healthy balance of risk and return within the Bank. (d) The Board conducts at least two (2) strategic planning sessions annually with its Senior Board Structure Management at which both the traditional opportunities and challenges of the Banking The Bank has a unitary board structure and is designed Industry as well as innovative disruptors are to ensure that the Board focuses on strategy, evaluation reviewed through a holistic and comprehensive of the performance of the company, and monitoring analysis covering the short, medium and long term governance, risk and control issues. parameters to determine strategic direction. (e) The Board and its respective committees convene The Board delegates specified matters to the Board at least once in every quarter of the financial year. Committees and remains accountable for all decisions An annual activities calendar and work plan are taken by its Committees. Detailed implementation of developed containing specific tasks the Board matters approved by the Board and the day-to-day wishes to have accomplished at its level and or operational aspects of the business are delegated by the shareholders by year end. Board of Directors to the Executive Directors. (f) The Board recognizes the significant importance of the audit process which is therefore communicated throughout the Bank. Findings in both the internal

18 CENTENARY BANK l Annual Report & Financial Statements 2016 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

and external audits are reported and utilized in Directors including the Managing Director who a timely and effective manner for correction by is accountable to the Board of Directors and is Management of lapses, infractions and issues assigned overall control of management of the identified by the Auditors. Bank. In line with the “Four Eye” there is also a (g) Review and set the Bank’s compensation balanced span of control of direct reports to the philosophy for recognition and reward and office of the Managing Director and the Executive approve compensation of senior management Director. The Managing Director is charged and other key human resource. with the responsibility of identifying the business (h) Define and review mandates between the strategy of the Bank. As the Chief Executive Officer, Board and Management to take into account he is also responsible for directing the Bank’s organizational growth requirements and to operations and for acquisition, development and maintain adequate risk control and oversight. retention of critical human capital to drive the (i) Approve internal policies and controls in line with business. The Managing Director ensures that prudent risk management. adequately informative reports on the state of affairs of the business are submitted to the Board Board Roles of Directors on a timely basis along with possible action plans for its alignment with approved The Directors bio data as at the date of this Annual targets. report are set out in the Board of Directors section. Under the board structure the executive and the non- (c) Non-Executive Directors executive directors are brought together in a single The Bank takes cognizance of the increasing body and share collective responsibility. As at the date importance and value of the role of non-executive of this Annual Report, the Board comprises 12 members directors. They bring about independent thinking, including the Chairperson, 2 Executive Directors outsider perspective, expertise and diversification (namely the Managing Director and the Executive of views by generating a wider spectrum of options Director) and 10 non-executive Directors. There are to those proposed by Management. The non- no vacancies on the Board. executive directors consequently enrich the final The key responsibilities of these stated offices are as decision of the Board. At the Bank, the quorum follows: - for all committees of the Board is accordingly comprised of Non-Executive Directors. The 3 (a) Board Chairperson Directors appointed to the Board in 2016 were The office of the Chairperson is non-executive all Non Executive Directors which refreshed the and provides overall leadership including setting level of Independence on the Board. the ethical tone, and setting the Board annual work plan. The Chairperson guides Board (d) Company Secretary meetings and sets a conducive atmosphere for The Board has a service of a full time Company frank discussions and is a vital link between the Secretary who provides guidance to the Board and Management. The Board Chairperson Chairperson and the Board on ethics and ensures that through an annual Board evaluation good corporate governance. The Company process a culture of accountability and Secretary also guides directors in their duties and performance is extended. The Chairperson is also responsibilities in consonance with legislation. responsible for ensuring that the Bank maintains This is mostly with the Financial Institutions Act good relationships with its major shareholders, and relevant regulations and the new Company’s regulators and major stakeholders. Act 2012 which greatly enhanced the standard of care for directors. The office of the Company (b) Executive Directors Secretary supports the Board in the annual The Central Bank under the “Four Eyes” principle evaluation process inclusive of identifying the requires financial institutions to have at least 2 full Board and individual members development Executive Directors, resident in Uganda who needs, plans and appropriate faculty often agreed are knowledgeable in the institution’s long term upon on completion of the evaluation process. strategy to direct the business of the company. The Company Secretary also supports the Board The Bank therefore has two (2) Executive in administering strategic level matters.

CENTENARY BANK l Annual Report & Financial Statements 2016 19 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

The primary responsibilities of the Independent Board mandates of the specialized committees comply with Chairman, Managing Director and the Company relevant legislation and regulations and their performance Secretary are all set out in writing in the Board Charter. and effectiveness is reviewed annually, this also enhances This enhances transparency and the respective positions risk management above the standards set by legislation. are embedded with checks and balances in which no individual has unfettered decision- making power which The specialized committees of the Board are Audit, therefore promotes accountability. Assets & Liability Committee (ALCO), Human Resource and Compensation and Risk Management. Besides these Board Committees the Board has additional committees, Credit and IT (Strategy) to support it in its oversight since the Board Certain aspects of the Board’s responsibilities have reserved certain ‘high’ risk and large investment decisions been delegated to the Committees to assist the Board to itself. by providing in-depth analysis. The members and Chairpersons of the Committees are appointed by the As a private limited liability company, the shareholders Board of Directors which also approves their tenure. are entitled to nominate and elect the Directors of the The Chairman of each committee, on its behalf reports at Company. In the quest of adopting beneficial corporate the subsequent meeting of the full Board on the activities governance practices applied by public liability stature and decisions of the Committee. Directors also have companies, the Board through the Nominations Advisory full and timely access to documents and proceedings Committee supports the shareholders in managing of Committees shared on the Board Portal. The Board succession planning. The Board developed a matrix to Committees comprise of “specialized committees” self-assess the strengths of the Board and the gaps to required under the Financial Institutions Act and be filled ensuring an important balance of continuity and regulations among others. Each committee has elaborate acquisition of relevant competences. This is in light of and clear written Terms of Reference setting out their role, evolving institutional needs that are kept at the forefront function, term of service of members, responsibilities, of changes on the Board of Directors. The mandates of scope of authority and operational matters relating to the Committees and their performance are reviewed quorum, secretary and attendance of Management. The annually.

Some of the key functions of the Board Committees:

Minimum Membership Board No. of Role and Terms of Reference (TORs) Required under the Committee Meetings TORs per year

Audit Reviews and reports to the Board on financial reporting, internal control and risk man- 4 members all non- 4 agement systems, independence and effectiveness of both external auditors and the in- executive directors. ternal audit function and monitoring compliance with legislation. Makes recommenda- tions to the Board for a resolution to be put to shareholders of the company in relation to appointment and remuneration of the external auditors.

Assets and Establishes guidelines in risk tolerance and expectations on investments, financial targets 4 members with at 4 Liability and expenses and supports Board in evaluating business performance. Ensures that Man- least 2 non-executive Committee agement implements the Assets and Liability Management policy and effectively manages directors. the market risks.

Human Makes recommendations to the Board on remuneration and incentive, compensation 4 members all non- 4 Resource and plans (including bonuses), and other benefits and contract terms for Senior Management. executive directors. Compensation This is done in line with the institution’s culture, objectives, strategy and industry trends.

Risk Oversees Operational Risk Management systems, practices and procedures including risk 4 members with at 4 Management identification, management, monitoring and control. The Committee also monitors legal least 2 non-executive suits against the Bank and their materiality and reports on risk assessment levels. directors

20 CENTENARY BANK l Annual Report & Financial Statements 2016 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

Minimum Membership Board No. of Role and Terms of Reference (TORs) Required under the Committee Meetings TORs per year

Credit Considers the Bank’s credit strategy, its implementation and reports on the entire credit 4 members with at 4 portfolio of the Bank as well as compliance with applicable statutory and internal ratios least 2 non-executive and provisioning. directors

IT (Strategy) Reviews and reports on governance of the Bank’s IT resources, services and initiatives for 4 members with at 4 direction and alignment with the business. least 2 non-executive directors

Nominations Reviews and makes recommendations to the Board for it to put to the shareholders for 4 members all inde- 2 (Advisory) consideration on the structure, size and composition of the Board with an appropriate pendent balance of skills, knowledge, experience and diversity.

Management Committees Certain detailed aspects of Board’s responsibilities are delegated, in addition to the Executive Directors, to appropriate management-led committees whose key roles are set out below: -

Management Role and Terms of Reference (TORs) Committee

Executive Comprises of Executive Directors, business line and support function heads. Meetings are attended by the head of Internal Committee Audit. The forum performs an advisory role to the office of the Managing Director on various matters including formulation, implementation and review of strategy, structure and policy and is responsible for making recommendations on reports from all Management Committees

Assets & Ensures the Bank’s balance sheet is managed in accordance with regulatory requirements and policy set by the Board. It also Liability ensures that the financial performance (income/loss) and status (balance sheet) is optimal, stable and positive through implemen- Management tation of appropriate strategies in respect of funding, pricing, liquidity and investments. Committee

Human The Committee is responsible for reviewing, aligning and making recommendations on strategic matters regarding the Bank’s Resource human resource capital. Committee

Credit Reviews the policy, procedures and performance of the credit business in line with applicable legislation, board mandates and Committee performance targets.

Operational Responsible for Risk assessment, management and reporting matters arising from discussions of existing and potential operational Risk risk within the various units across the entire Bank. Committee

ICT Monitors progress, implementation and maintenance of the Bank’s ICT strategic plan and makes recommendations to the Board Committee on adequate policies, standards and procedures especially relating to information security, control and management of data.

CENTENARY BANK l Annual Report & Financial Statements 2016 21 RISK GOVERNANCE STRUCTURE

Centenary Bank Board Board Oversight

Board Risk Board HR and Board IT Board Audit Management Board ALCO Board Credit Compensation (Strategy) Committee Committee Committee Committee Committee Committee

Management Responsibility Managing Director/ Executive Director

Management Management Operation Risk Management Credit Risk ALCO Management Committee ICT Committee Committee HRC

Assurance Internal Audit

22 CENTENARY BANK l Annual Report & Financial Statements 2016 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

Board Attendance Diversity and independence

The Board scheduled quarterly meetings for itself and The Board seeks to ensure that it and its committees its respective committees and all meetings are held in have an appropriate composition to discharge their accordance with the Financial Institutions Act in respect duties effectively and to manage succession issues. to specialized committees. Committees are permitted To enable the Board to meet its responsibilities, it is to convene additional meetings to afford them time to important that the Board’s composition is sufficiently attend to critical matters within their purview. Additional diverse and reflects a broad range of knowledge, meetings were held for the IT Strategy Committee as skills and experience and is committed to the Bank’s the new core Banking project progressed to more mission. The composition of the Board illustrates the critical levels. Overall the Board and its Committees diversity of the Board in terms of skills and experience. achieved the following average attendance score: This can be seen as indicated below:

Board diversity in terms of skills and experience Name of Board Forum Actual attendance of members as % Economics Human Resource Board of Directors 100% • Prof. John Ddumba-Ssentamu • Dr. Mary Theopista Wenene Board ALCO 100% Board Audit Committee 100% Banking Theology & Sociology Board Risk Committee 100% • Mr. Andrew Obol • Archbishop Paul Bakyenga Board Human Resource & Compensation 92% • Mr. Henry Kibirige • Archbishop Cyprian Kizito Lwanga Board IT Strategy 100% • Mr. Richard Thil Board Credit Committee 100% • Mr. Caspar Jan Frits Sprokel Legal, Governance and Business Administration Accounting & Finance • Dr. The Board is aware of the responsibility of the Directors • Mr. Kimanthi Mutua to execute their functions through meetings hence the • Mr. Fabian Kasi Agricultural Economics high record of attendance. • Dr. Peter Ngategize

Board composition The Corporate Governance regulations to the Financial Board Changes: Institutions Act require at least 5 directors to possess Three (3) new Directors were approved by the Central demonstrated expertise and experience relevant Bank and joined the Board in the course of the year, to the functions of the financial institution. They do namely Mr. Richard Thil (French), Mr. Caspar Sprokel include financial control, accounting, Banking, risk and (Dutch) and Dr. Mary Teopista Wenene (Ugandan); corporate planning. The Bank is compliant and further The Board was pleased by the appointment of a female conducts a skills review as part of its self- evaluation. This Director on the Board and maintained international or indicates the main areas of knowledge and experience geographical diversity. of existing Directors and enables the Board to cite skills areas needed for recommendation to its shareholders to observe in submitting nominations of new directors. Tenure of Directors Out of the current Non-Executive Directors only two(2) The company has no restrictions on length of tenure and are employees of shareholding companies, however all age of Directors. It rather recognizes the superseding the non-executive directors are independent in both importance of strong objective judgment, independence character and judgment. of its non-executive Directors, and that it has the right mix of collective knowledge and experience which are In compliance with regulations and best practice, critical for the strategic well-being of the company. members of the Audit Committee, Compensation Due regard has nonetheless been given to ‘new blood’ (which is joined with Human Resource affairs) and the on the Board albeit not at the expense of desired Nominations Advisory Committee are Non-Executive continuity in light of the strategic needs of the company. Directors.

CENTENARY BANK l Annual Report & Financial Statements 2016 23 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

from the Bank’s External Auditors, Ernst and Young to In order to enhance independence and keep abreast of latest financial reporting development. Developments in the tax arena were received from objectivity, the Financial Institutions Act time to time from the Company’s tax consultants (Corporate Governance) regulations also PricewaterhouseCoopers to ensure compliance and require that 50% of the Board should avert legal risk of exposure. comprise of non-executive directors. The Bank had 10 Non-Executive Directors during Information for Directors the period and was above the mark. The Chairman is responsible for ensuring that all of the Directors are properly briefed on issues arising The Bank’s standard Board size is 10 at Board meetings and that they have full and timely Non-Executive Directors and this has been access to relevant information. To enable the Board to maintained and justified. discharge its duties, all Directors receive appropriate information from time to time, including briefing papers distributed in advance of the Board meetings on an E-board reports software. Effectiveness Directors can, where they judge it to be necessary Review of Board effectiveness to discharge their responsibilities as Directors, obtain independent professional advice at the Company’s The effectiveness of the Board is important to the expense. The Board committees therefore have success of the company and for that reason the Board access to sufficient resources to discharge their duties, conducts an annual review to reflect on its collective including external consultants and advisers. performance and that of its individual members. The objective of the latter focuses on identifying External Board appointments and training needs of Individual Directors which areas are conflicts subsequently attended to. The review for 2016 was carried out with the help of an At every meeting directors are expected to disclose External independent consultant who also contributed any area of potential conflict of interest and would to the improvement of evaluation tools and trained the therefore be excluded during consideration of the Board with emphasis placed on succession planning at relevant matter under the company’s governance both Board and Management levels. Otherwise the charter. This principle is also practiced in Management. results generally indicated continued progress of the The Chairman and the Board members are also Bank in its corporate governance. expected to inform of any proposed external appointments they receive as they arise. Each Board induction and professional Director’s biographical details and significant time development commitments outside of the company are set out in the Board of Directors section. The Board received both local and international training during the year in specialist areas including Going Concern strategy, company structures and IT governance. Directors, particularly the new Directors attended Based on performance, mid and long term projections conferences on corporate governance, visited a the Directors believe and continue to view the Bank number of branches and head office operations as part as a going concern. of their induction.

This is typically arranged by the Company Secretary in consultation with the Chairman. The members of the Audit Committee received written technical updates

24 CENTENARY BANK l Annual Report & Financial Statements 2016 BOARD OF DIRECTORS STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

Prof. Board Chairman. (Ugandan) Professor of Economics and holds a PhD in Economics, with various international awards. Currently Vice Chancellor, University Uganda and previously acting Principal, College of Business and Management Sciences. For several years he was Chairman, Microfinance African Institutions Network (based in Lome, Togo), and has contributed greatly to the Centre for Research on Environmental Economics and Policy in Africa as member of its Advisory Board and Committees. Has been Chairman, Academic Board, African Economic Research Consortium (AERC), Nairobi, Kenya and holds an honourary fellowship of the Uganda Institute of Banking and Financial Services (FUIB, HONS). He has made a number of publications on a spectrum of areas in Economics. Previously served as member of the Finance Committee of CARITAS, International based in the Vatican.

Archbishop Cyprian K. Lwanga Non-Executive Director. (Ugandan) Archbishop of Kampala Archdiocese. Is a professor of Canon Law from National Seminary and St. Mbaaga Major Seminary and holds a Doctorate in Canon law from Pontifical Urban University in Rome. As an entrepreneur, he has innovated and set various programmes including Wekembe Corporation Programme (now SACCO), the Uganda Martyrs Development Foundation and Kampala Archdiocese Pro-life Apostolate. Was the World-wide Vice President of Caritas International and Continental President of Caritas Africa and has also served on Board of Governors of various Church founded schools/institutions.

Mr. Henry Kibirige Non-Executive Director. (Ugandan) Chairman of the Audit Committee. He is also a Director on the Board of National Water and Sewerage Corporation and is the Chairman of its Audit Committee. He serves on the Board of Lion Assurance Company Ltd and chairs its Investment Committee. He holds a Bachelor of Arts degree from and most of his career was served in the Bank of Uganda (Central Bank) rising to the level of Executive Director Supervision Function, where he contributed to the liberalization of foreign exchange transactions and implemented legislative and institutional reforms of the country’s financial sector programme, funded by the World Bank under the Financial Sector Adjustment Credit. He worked briefly with Citi Bank (U) as a Banking Consultant after leaving the Central Bank.

Archbishop Paul Bakyenga Non-Executive Director. (Ugandan) Holds a doctorate in Sacred Scripture from Rome LSS. Currently Archbishop of Mbarara Diocese which is a shareholder in the Bank and is an advocate for service to the poor which is a bedrock of the mission of the Bank of providing financial services especially to the rural poor. Previously chaired the Uganda Episcopal Conference, the Association of Members of Episcopal Conferences of Eastern Africa (AMECEA) and was Chancellor of Catholic University of East Africa (Nairobi) and Uganda Martyrs University [].

CENTENARY BANK l Annual Report & Financial Statements 2016 25 BOARD OF DIRECTORS STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

Mr. Kimanthi Mutua Non-Executive Director. (Kenyan) Currently Chairs IT (Strategy) and the Assets and Liability Committees (ALCO). A Certified Public Accountant with considerable experience in banking, finance and information technology. He served as founding Managing Director of K-Rep Bank (now Sidian Bank in Kenya between 1999 – 2010). Currently he serves on boards of several organizations, including Sidian Bank, ECLOF International (Chair), PAMIGA Association (Chair) and K-Rep Group of Companies (CEO). He is a faculty member of the Boulder Microfinance Training Program and also advises several organizations, locally and international, on Regulatory & Supervision issues for financial inclusion, as well as transformation strategies for microfinance institutions.

Dr. Peter Ngategize Non-Executive Director. (Ugandan) Currently Chairman of Credit and Risk Management Committees. Holds a PhD (Agricultural Economics) and is the National Coordinator of the Competitiveness and Investment Climate Strategy (CICS) Secretariat with the Ministry of Finance, Planning and Economic Development of Uganda. Representative of the Government of Uganda on the Founders’ Committee of the Agricultural Business Initiative Trust (aBi) Trust. Has spearheaded many initiatives towards the Private Sector competitiveness and development in Uganda.

Mr. Andrew P.K. Obol Non-Executive Director. (Ugandan) Chairs the Human Resource & Compensation Committee. A qualified professional banker. Served on the top management of Uganda Commercial Bank (now Stanbic Bank) and was the Coordinator of CARITAS Kitgum under Gulu Diocese. He was a member of the District Service Commission.

Mr. Fabian Kasi Managing Director. (Ugandan) Managing Director of Centenary Bank. He was a Board Chairman of the Association of Microfinance Institutions of Uganda and served on the Board of FINCA Uganda and Kampala Club. He is the current Chairman of the Uganda Bankers Association, a member of the Board of Uganda Institute of Bankers, British American Tobacco (U), PAX Insurance and is the Chairman of the Advisory Board of Microfinance Department of Nkozi University. He holds a Bachelor’s Degree in Commerce, a Masters of Business Administration and is a Fellow of the Association of Chartered Certified Accounts (FCCA), United Kingdom.

26 CENTENARY BANK l Annual Report & Financial Statements 2016 BOARD OF DIRECTORS STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

BOARD OF DIRECTORSDr. Simon Kagugube Executive Director. (Ugandan) He holds a Doctorate in the Science of Law (JSD), from Yale Law School (USA), and a Certificate in Public Finance from the University of Bath, (UK). He is an Advocate of the High Court of Uganda. Prior to assuming the office of Executive Director with the Bank, he had served as Chairman of the Board of Directors Centenary Bank in 2002, while also holding the position of Director, Tax and Legal Services PricewaterhouseCoopers. He worked with the Uganda Revenue Authority as Commissioner Value Added Tax and was appointed Deputy Commissioner General. Currently Board Chairman, Monitor Publications Limited, a Nation Media Group subsidiary in Uganda, and is a Member of the Board of Nation Media Group where he also serves as member of its Finance and Audit Committees. He is the Board Chairman, Uganda Revenue Authority and President, East African School of Taxation.

Dr. Mary Theopista Wenene Non-Executive Director. (Ugandan) Member of the Human Resource and Compensation Committee. Holds a PhD in Public Administration. Has risen through the ranks from Human Resource Officer to Permanent Secretary. Has made contribution to public service reforms aimed at improving performance management and public service delivery. Currently Permanent Secretary/Secretary, Health Service Commission.

Mr. Richard Thil Non-Executive Director. (French) Currently member of the Assets & Liability (ALCO) and Credit Committees. He holds a MS in Public Affairs (Institut d’Etudes Politiques de Paris); a Master degree in Law with honor (Paris Assas), a Bachelor degree in History with specialization in international relations (Paris/Pantheon). Prior to assuming the position of non- executive Director with the bank, he had served for 18 years as General Partner and member of the Executive Committee of an important international investment bank based in Paris and London.

Mr. Caspar Jan Frits Sprokel Non-Executive Director. (Dutch)

Member of the Assets & Liability (ALCO). Has experience spanning over 20 years in financial institutions across Europe, Asia and Africa specifically in commercial banking, SMEs and Corporate banking. His experience in Africa involves 17 countries including memberships on Boards of Directors with Akiba Commercial Bank – Tanzania, Novo Banco Mozambique and on the Mozambique Private Equity Fund. Has wide experience in Management of Equity and Debt Investments and exits especially in SMEs and microfinance institutions and has a track record of adding value to and transforming Investee companies through providing strategy, Business Planning and Strategic Direction.

CENTENARY BANK l Annual Report & Financial Statements 2016 27 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

Risk management and control

Centenary Bank uses an Enterprise wide Risk Management (ERM) approach which is governed by the Risk Management Framework Policy. The Bank recognizes that many risks within the organization are interrelated and should not be managed independently, but rather across the Bank. This ERM frame- work sets forth guidance to manage risks across the Bank. It aims to strengthen the Bank’s ability to develop an integrated view of risk and the means to handle risks within a comprehensive approach.

Risk Management Philosophy:

The bank is committed to improving the risk • At an operational level, the bank aims to identify, management framework, capabilities, and culture assess, evaluate and mitigate operational across the bank, so as to ensure the long-term growth hazards and risks in order to create safe, and sustainability of our business. healthy, efficient and environmentally friendly workplace for its employees and contractors Risk is inherent in the bank’s business and the markets whilst ensuring public safety and health, in which it operates. The aim is to identify risks and minimizing environmental impact, and securing then manage them so that they can be understood, asset integrity and adequate insurance. reduced, mitigated, transferred or avoided. This demands a proactive approach to risk management ERM Objectives applicable and an effective enterprise wide risk management framework. Centenary Bank’s ERM program brings risk knowledge and information to the fore in decision-making Centenary Bank’s overall risk management process processes to mitigate the downside of unrewarded is overseen by the Board through the Board Risk risk while exploiting rewarded risks to benefit from Committee as an element of solid corporate business opportunities. governance. Centenary Bank recognizes that risk The ERM objectives are to: management is the responsibility of everyone within the bank. Rather than being a separate and standalone • Support the Bank’s business growth strategy process, risk management is integrated into business through the implementation of well defined and and decision-making processes including strategy common risk management processes, tools, and formulation, business development, business planning, techniques. capital allocation, investment decisions, internal control and day-to-day operations. • Counter losses and improve business value through optimization of risk and return. Risk management objectives: • More knowledgeably seize and exploit opportunities and quickly identify risks to avoid, • At a strategic level, the bank focuses on the both current and emerging risks. identification and management of material risks • Reduce uncertainty and increase the likelihood at the top, business and functional levels, in of success in achieving the bank’s strategic order to better equip itself to pursue the bank’s initiatives. strategic and business objectives. In pursuing growth opportunities, the bank aims to optimize • Build credibility and sustainable stakeholder risk / return decisions whilst establishing confidence in Centenary Bank’s governance and strong and independent review and challenge risk management processes and comply with processes. both regulatory and local laws and jurisdictions.

28 CENTENARY BANK l Annual Report & Financial Statements 2016 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

• Improve the understanding of interactions and Strategic risk was rated medium during the year interrelationships between risks. on account of high interest risk and residual risk. The major drivers of strategic risk were • Establish clear accountability and ownership of technological changes, competition and projects. risk. • Develop a common language that helps to establish the broad scope of risk and to organize ii) Credit Risk risk management activities, and reinforce Centenary Bank’s risk culture. Potential that a bank borrower or counterparty • Develop capacity for continuous monitoring and will fail to meet their obligations in accordance reporting of risk across Centenary Bank, from with agreed terms. the operational level to the Board. Credit was assessed to be low but increasing. Inherent risk was medium and residual risk Risk Categories was low but both were increasing. The year was characterized with unpleasant economic To enhance the understanding of particular sources environment and changes in climate that caused of risk, their possible consequences, and the practical prolonged draught that affected loan repayment. approaches to managing them, Centenary Bank has defined risks into 9 major categories. iii) Liquidity Risk

These risk categories are groupings that help the bank Risk resulting from the Bank’s failure to pay its to consistently identify, assess, measure, monitor debts and obligations when due because of its in- and report across on its overall risk exposure. Using ability to convert assets into cash, or its failure to consistent risk categories across the bank enables procure enough funds, or, if it can, that the funds aggregation and determination of overall risk impact. come with an exceptionally high cost that may affect the bank’s incomes and capital fund now This enhances the understanding of particular sources and in the future. of risk, their possible consequences, and the practical approaches to managing them. Centenary Bank has Liquidity Risk was low and stable throughout the adopted the following risk categories: year. All the key liquidity ratios were adequately managed and Bank of Uganda liquidity i) Strategic Risk requirements were satisfied.

Risk of current and prospective impact on the iv) Market Risk Bank’s earnings and capital arising from poor business decisions, improper implementation This is the risk that the value of the Bank’s of decisions or lack of response to industry, investments will decrease due to unexpected economic or technological changes. and/or adverse changes in market factors such as stock and commodity prices as well as interest Strategic risks and opportunities may affect and foreign exchange rates. Centenary Bank’s strategic ambitions. Strategic risks include economic and political developments Key market risks factors for the Bank include; and anticipating and timely responding to market Interest Rate Risk and Foreign Exchange Risk circumstances. Centenary Bank is prepared which have been described below: to take considerable strategic risks given the necessity to invest in growth& development Interest Rate Risk: The exposure of the Bank’s and manage the portfolio of businesses, financial condition to adverse movements in including Partnerships and corporations, in a interest rates. The year was characterized with highly uncertain global political and economic pressure from Government and demand from environment. the public to reduce interest rates and a volatile Net Interest Margin (NIM) regime. Overall Interest rate risk was medium and stable.

CENTENARY BANK l Annual Report & Financial Statements 2016 29 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

Foreign Exchange Risk: Risk associated with through available means. doing business in two or more currencies. Foreign exchange price risk relates to possible re- valuation losses (or gains) on long/over bought or short/oversold currency positions in Health & Safety Risk: The risk arising from response to movements in exchange rates. non-compliance with or lack of health and safety regulations, policies or procedures. Despite the depreciation of the Uganda Shilling against major currencies, the bank’s foreign Operational risks include; adverse unexpected exchange risk was adequately managed and rated developments resulting from internal processes, low as at 31 December, 2016 with a net open people and systems or from external events that position of 2.16% compared with a threshold of are linked to the actual running of each business. 25%. The Bank aims to minimize downside risks due to the need for high quality of its products and v) Reputation Risk services, reliable IT systems and sustainability commitments. This is the risk arising from changes in public opinion that impact the Bank’s earnings or access Vii) Compliance Risk to capital. This can be mainly thought of as publicity or operational inadequacies that would Risk of legal or regulatory sanctions, material have an adverse effect on the Bank’s public financial loss or loss to reputation. The Bank may image. suffer these as a result of its failure to comply with laws, regulations, prudential guidelines, vi) Operational Risk supervisory recommendations and directives, rules, internal policies and procedural guidelines Risk of direct or failed internal processes, and codes of conduct applicable to its banking people, and systems or from the external activities. events or unforeseen catastrophes. It includes the exposure to loss resulting from the failure Compliance risks cover unanticipated failures to of a manual or automated system to process, implement, or comply with, appropriate laws, produce, or analyze transactions in an accurate, regulations, policies and procedures. timely and secure manner. Viii) Information Technology Risk Operational risks increase the Bank’s exposure to other risks by impairing the Bank’s ability to The risk arising from inadequate information adequately assess, monitor and report on other communication technology (ICT) resources or risks. Operational risks cut across all the Bank’s inappropriate use of available ICT resources. divisions and include, but not limited to: This can result in financial loss and lost business opportunities due to unavailability of the ICT Human Resources Risk: The risk arising from resources, loss of data integrity and confidentiality. inadequate human resources or inappropriate use of available staffing resources. ix) Country Risk

Business Process Risk: The risk arising from Refers to the risk of investing in a country, other inadequate implementation and non-adherence than Uganda, resulting from uncertainties arising to the Bank’s business processes. from the economic, social and political conditions of that country that may cause borrowers in that Legal Risk: The risk arising from contracts or country to be unable or unwilling to fulfill their other arrangements that are not enforceable obligations to the Bank.

30 CENTENARY BANK l Annual Report & Financial Statements 2016 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

The main categories of country risk comprise Based on the above, the bank has established its risk sovereign, transfer and contagion risk and are monitoring in the form of a risk assessment matrix described below: to help rank risks and prioritize risk management efforts at the strategy level. Business units are Sovereign risk: Denotes a foreign required to adopt the same risk matrix structure in government’s capacity and willingness to order to establish their own risk profiling, determine repay its direct and indirect (i.e. guaranteed) consequence and likelihood of identified risks with foreign currency obligations. reference to their own materiality and circumstances as well as establishing risk mitigation strategies. Transfer risk: This is the risk that a borrower may not be able to secure foreign exchange to service its external obligations. Risk Mitigation & Communication:

Risks identified through our risk management Contagion risk: This risk arises where processes are prioritized and, depending on the adverse developments in one country lead to probability and severity of the risk, escalated as a downgrade of rating or a credit squeeze not appropriate. Senior management discusses these only for that country but also other countries risks periodically and assigns responsibility for them in the region. to the businesses. The assigned owners continually monitor, evaluate and report on risks for which they bear responsibility. Enterprise risk leaders within Centenary Bank’s Risk Appetite and each business and unit functions are responsible Risk Profiling Criteria: to present risk assessments and key risks to senior management at least monthly. We have general The bank’s risk appetite represents the amount of response strategies for managing risks, which risk the bank is willing to undertake in pursuit of its categorize risks according to whether the bank will strategic and business objectives. avoid, transfer, reduce or accept the risk. These response strategies are tailored to ensure that risk In line with bank’s Value Framework and expectations levels are within the risk appetite. of its stakeholders, Centenary Bank will only take reasonable risks that (a) fit its strategy and capability, Depending on the nature of the risk involved and (b) can be understood and managed, and (c) do not the particular business or function affected, we use expose the bank to: a wide variety of risk mitigation strategies, including; delegations of authority, standardized processes • material financial loss impacting ability to and strategic planning reviews, operating reviews, execute the bank’s business strategy and / or insurance, and hedging. Our service businesses materially compromising the bank’s ongoing employ a comprehensive tollgate process leading up financial viability, to and through the execution of contractual service agreement to mitigate legal, financial and operational • incidents affecting safety and health of our risks. staff, contractors and the general public, • material breach of external regulations leading Furthermore, we centrally manage some risks to loss of critical operational / business license by purchasing insurance, the amount of which is and / or substantial fines, determined by balancing the level of risk retained or assumed with the cost of transferring risk to others. • damage of the bank’s reputation and brand We manage the risk of fluctuations in economic name, activity and customer demand by monitoring • business / supply interruption leading to industry dynamics and responding accordingly, severe impact on the community, and including by adjusting capacity, implementing cost reductions. • severe environmental incidents.

CENTENARY BANK l Annual Report & Financial Statements 2016 31 STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)

The Bank has a zero tolerance to fraud policy. In responsibility of Senior Management to ensure that 2016 we introduced a fraud risk unit in the risk it is implemented. Senior Management is committed division with the aim of supporting all stakeholders to drive the BCP process, provide adequate be aware and eliminate fraud. The program on resources and ensure that the respective plans are money laundering prevention continued, with a well developed, documented, tested, updated and focus on the ‘know your customer’ initiative. maintained.

Consequently, the following BCP management process has been established to ensure that the Business Continuity Management: plans are developed, documented, tested, updated and maintained; Business Continuity Management (BCM) is a holistic management process that identifies potential • The Bank’s plans are developed according to impacts that threaten an organization and provides the BCP framework and in compliance with a framework for building resilience and the the policies. capability for an effective response that safeguards the interests of its key stakeholders, reputation, • BCP is an ongoing process of development, brand and value creating activities. testing, updating and maintenance, and not just a one off project. It is a part of every The Bank has in place an appropriate business division Head’s normal responsibilities to continuity management program. Its ultimate ensure that the division has not only planned purpose is to minimize the impact on the for the recovery of all critical business organization and recover from loss of information processes of that business unit, but has also assets which may result from natural disasters, tested and maintained those plans. accidents, equipment failures, and deliberate actions • Each division has an approved Business to an acceptable level. This is through a combination Continuity Recovery Plan for the recovery of of preventive and recovery controls. The process its critical business processes. includes the development, maintenance, and testing of contingency plans and work around procedures • Every year, the BCM unit in consultation necessary to sustain the operational continuity of with the BCP Steering Committee/BCMT mission critical processes, information technology establishes the BCP Development Plan systems and resources. for the year. The plan sets out the BCP activities to be undertaken for that year, who is responsible for those activities and the Business Continuity Management timeline for such activities. The BCP Steering Framework Committee reviews and approves the BCP Development Plan. Centenary Bank continues to ensure that a business continuity management process is in place and sufficient financial, organizational, technical, and environmental resources are identified to address the specific requirements for Business Continuity.

A Business Continuity Management Framework was developed in accordance with best practices and standards to ensure all plans are consistent and to identify priorities for testing and maintenance.

Business Continuity Management (BCM) Process BCM is important to the Bank and is the overall

32 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT

We do not exist in a vacuum so we rely on technology to give us a 360 degree view of our environments, the risks to navigate and the opportunities to exploit.

CENTENARY BANK l Annual Report & Financial Statements 2016 33 Sustainability Reporting Statement

Centenary Bank is aware of its role in satisfying short and long term needs of the various stakeholders that it serves and ensures that they gain outstanding value, through commercial Microfinance. The Bank is further using technological interventions to expand financial inclusion. The aim of this report is to provide an objective analysis of sustainability issues that are critical to the Bank’s operations. The report follows guidelines released by the Global Reporting Initiative (GRI), which is a joint initiative coalition for Environmentally Responsible Economies and the United Nations Environment Programme. The guidelines have been issued for voluntary use by organizations for reporting on the economic, environment and social diversion of their activities, products and services aimed in articulating the understanding contribution to sustainable developments.

Responsibility for sustainable development

The Managing Director held the ultimate responsibility for sustainability development of the Bank which cascaded down to staff through the Executive Committee (EXCO). Value Added Statement

The Value Added Statement shows the social value added that the Bank makes through its activities. Value added is calculated as the Bank’s performance minus payments such as cost of materials, depreciation and amortisation. The resulting amount is distributed to the stakeholders who include employees, shareholders and the government

Value Added Statement for the year ended 31 December 2016

2016 2015 Shs’000 % Shs’000 % Value added Interest income 367,590,650 79.2% 305,327,547 77.5% Commission, fee income 76,206,366 16.4% 66,990,666 17.0% Other revenue 20,059,736 4.4% 21,582,433 5.5% Total income 463,856,752 100% 393,900,646 100% Less: Interest paid to depositors 46,817,284 39,108,973 Cost of other services 113,217,631 80,331,284 Wealth created 303,821,837 274,460,389

Distribution of wealth Salaries, wages and other benefits 130,921,674 43.1% 117,502,822 42.8% Government 37,955,689 12.5% 34,910,783 12.7% Shareholders - (dividends) 27,593,817 9.1% 25,516,936 9.3% Retention to support future business growth 107,350,657 35.3% 96,529,849 35.2%

Wealth distributed 303,821,837 100% 274,460,389 100%

Retention surplus 82,314,955 76,084,312 Depreciation 25,035,702 20,445,536

As illustrated by the Value Added Statement, the Bank is a material contributor in the financial sense to various stakeholders. Of the total wealth created in 2016: • Shs 130.9billion (43.1%) was distributed to employees as remuneration and benefits. • Shs 38.0 billion (12.5%) was allocated to Government in form of direct and indirect taxes, including; charges in deferred taxation assets and liabilities. • Shs 107.4 billion (35.3%) was retained for investment in business in order to ensure its profitability and sustainability contentment into the future. • Shs 27.6 billion (9.1%) is to be distributed to shareholders as dividends.

34 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

Key Stakeholders

We continuously engage with our various stakeholders who are the drivers of our business. Below is a detailed discussion of how the various stakeholders impact on the value of the company and how relationships with them are managed;

Stakeholder Effect of performance on business Engagement Activities Carried Out Shareholders Provide long term capital. The capital base stands Annual General Meeting (AGM) is held on a yearly basis. at Ushs.485 billion making us one of most capital- Annual Report is presented at the AGM by the Board of Directors. ized banks in the Uganda. Audit Opinion is presented to the shareholders by External Auditors.

Board of Directors The Board is responsible for the strategic direction The Board sits at least four times a year to review company operations and perfor- of the company, implementation of sound internal mance, internal audit and risk management reports and other reports. control systems, approval of company policies, op- Training sessions are held for the Board. On an annual basis, strategy review sessions erational and capital expenditure budgets amongst attended by the Board of Directors and the management team are held. other roles.

Customers These are the individuals and companies with A call Centre was set up to ensure constant engagement with the customers. whom the Bank conducts business. CRM Model has been institutionalized with different segments attached to various staff that visit and follow up customer issues and needs. Customer days where customers are invited to interact with staff and management as per detailed customer engagement report below. Service contact points: 69 Branches, 172 ATMs and Point Of Sale terminals.

Employees The Bank has close to 2,400 dedicated staff who The Bank trains its staff to be able to deliver its services. Trainings are provided in offer services to our customers and other stake- a workshop setting and on line training as detailed in the employee empowerment holders. The Bank focuses on attracting, recruit- report. ing, training and developing its staff as well as fairly The Bank also has team building exercises to engage staff. For example CenteFusion, remunerating and retaining the best talent in the CenteFun day market.

Regulators (BOU,NSSF Monitoring of the banks compliance with the ap- Taxes to URA and employee contributions to NSSF were paid as stipulated in the law. and URA) plicable laws and regulations. The bank provided all bank returns required by Bank of Uganda and complied with FIA The bank complied with all legal and regulatory 2004 (as amended) and prudential regulations. requirements.

External Auditors Ensure that company’s financial results reported External audits were done by Ernst Young. Quarterly returns were reviewed and sub- are a true and fair representation of the company mitted to BOU, an interim audit was conducted in September 2016 and final audit operations and that internal control systems are was concluded with an unqualified opinion. A management letter highlighting internal functioning as designed. control weaknesses was shared with management and the board.

Suppliers Supply inputs for use in business within stipulated A list of vetted suppliers is in place. Competitive procurement of goods and supplies is delivery times. exercised at all times and fairness is of utmost importance while awarding supply con- tract to selected service providers. Cash outflow towards investing activities during the year 2016 was UGX.36.3bn (2015:78bn) whereas payments to supplier of non-capital goods and services amounted to UGX124.3bn (2015:76bn).

General Public These are our target clients and the communities in These are reached through CSI activities as per detailed CSI report, advertisemnets, which we operate. talkshows, to mention but a few. The products we sell to the market take into account aspects of conservation of nature and the environment.

CENTENARY BANK l Annual Report & Financial Statements 2016 35 SUSTAINABILITY REPORTING STATEMENT (continued...)

Customers Engagement and Support • Toll free line - 0800200555, email address – [email protected] and One of the Bank’s core values is superior customer website – http://www.centenaryBank.co.ug service and the importance of service delivery is were all maintained and available to our fundamental towards achieving the goals of the Bank. customers. The Board of Directors and management have put in place a comprehensive customer service strategy 2. Continuous training of employees - The Bank and customer service standards that drive the Bank’s has continued to train its employees to be service delivery. able to have good product knowledge and customer empathy. Annual refresher trainings In order to achieve the above objective, the Bank has are offered to the front line staff and field staff employed the following strategies; to further strengthen their knowledge.

1. Built an infrastructure to support customer 3. Instituted a Customer Relationship service and resolve customer issues at the first Management (CRM) Tool to deal with point of contact. The following activities were customer complaints and queries. The CRM undertaken and promoted in 2016; tool provides the Bank with a system to track • Queue Management System piloted in 4 customer feedback and appreciate what is branches namely , Rubaga, and not going on well. Customer interactions are Najjanakumbi. This has enabled the Bank to documented and systematically resolved. measure customer waiting time in the Banking hall, service times at the counter and has 4. Customer Service Weeks and Customer improved teller productivity. Customers are Days were maintained. Customers at every now able to plan for their Banking time and branch have an opportunity to interact with schedule other activities accordingly. top management during the Customer service • A Call Centre that continues to operate week. This has provided a good platform for from 8:00am to 8:00pm with 16 agents per customer feedback. shift. The call Centre operates in 3 languages namely English, Luganda and Runyakitara. This 5. Invested in platforms and products that make is the biggest feedback platform utilized by the it convenient for customers to continue customers. transacting with the Bank away from the banking hall. Below are some of the products; • Social Media grew to over 200,000 followers • CenteMobile – Customers can conveniently on Facebook and 4000 on twitter. This transact in the comfort of their homes and platform is the second biggest feedback offices platform utilized by existing and potential • Push and Pull – Customers are able to transfer customers. money from their accounts to their mobile wallet

36 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

• School Pay – Parents are able to pay school fees disablement caused by accident, death plus funeral with less paper work and without having to expenses. queue in the Banking hall using mobile money, centemobile or payway services. CenteVolution Savings Account As you transform, you discover a new world and Customer Engagement Report for the year ended 31st December 2016 freedom. CenteVolution is the account that understands this journey to meet the financial needs and preference of Students in Tertiary educational institutions that fall in Year Inquiries Complaints Appreciations Totals the age bracket of 18 to 26 years. This account has no 2015 75,369 48,016 530 123,915 monthly maintenance fees, free Bank drafts for school 2016 114,038 91,184 856 206,078 fees payment and a free conspicuous ATM Card

CentePlus This is a special savings account for anyone who wants Financial Products and Services to accumulate savings for financing future investments thus enabling them to realize their dreams. The The Bank offers the following products and services to customer commits to open the account and keep its segmented market; accumulating funds in it till it is enough to buy a stated asset or make a stated investment. A customer can get Retail/Micro Segment a loan equivalent to 100% of the amount on account to pay for the desired asset/ investment Deposit products Micro Loan Products CenteOrdinary Savings Account Deposit account designed for regular savers. Cash Micro business loans withdrawals are made over the counter and by the use of the ATM Card (CenteCard). Short term business loan targeting micro business enterprises for financing any business or productive CenteSupa Woman purpose like working capital. The Bank offers a special program for women dubbed CenteSupa Woman Club to increase financial inclusion Home Improvement Loan for women in business while improving their levels Short-term loan with both regular and irregular of income and livelihoods. The program has seen repayments targeted at home owners with a source over 1500 women trained in financial literacy offering of income earnings for the purpose of financing home sector based specific trainings for the club members improvement either through construction/renovation and tailored solutions based on their sector specific of residential/commercial houses, erecting of perimeter challenges faced in their businesses. Over 600 women wall/fence, and installation of power and or energy leaders have also been equipped with personal systems, kitchenettes, water and sanitation systems. finance management and life skills. The supa Women have access to health insurance at very low insurance CenteSolar premiums that cover upto 6 family members. Centenary Bank’s Solar Loan is a short term loan for financing the purchase and installation of solar power at CenteJunior places of residence or business premises. It is specifically targeted at children from the early age of toddlers up to a maximum of 17 years. The CenteJunior CenteLand account provides a child’s parent or guardian with an Loan designed specifically for the purpose of financing opportunity to start saving early for the benefit of land purchase, survey and registration. The loan is securing the financial future of the children. targeted at the Micro and Retail customer segments. Survey and registration of land is undertaken by the The account has a Life assurance policy cover for Bank’s accredited Land Surveyors who guarantee the parent or guardian, for account with a minimum delivery of the land title or registration certificate. credit balance of UGX 200,000 covering permanent

CENTENARY BANK l Annual Report & Financial Statements 2016 37 SUSTAINABILITY REPORTING STATEMENT (continued...)

CenteHome CenteDiaspora Short to medium term Housing microfinance loan Account for Ugandans in the Diaspora who would for financing construction of houses on a progressive desire to save or make investments back home. basis to habitable or decent standards. This loan is bundled with the provision of housing support SME Loans services. Commercial business loan CenteYouth The Bank extends loans to SME’s engaged in The loan supports the business ventures owned by business in a variety of sectors including trade, young entrepreneurs aged 18 to 35 years and are transport, communication, industry/ manufacturing, engaged in any of the eligible business sectors and agriculture (animal husbandry, fisheries, crop can be accessed by individuals or legal entities. finance), Government sector, building/construction, and service sectors. The loans can be used to finance Salary Loan working capital, acquisition of business assets and The Bank provides financing to salaried employees infrastructural development. of reputable organizations whose salaries are channeled through their accounts at Centenary. CenteLease The Bank leases assets/equipment to the customer Education loan in exchange of payment of periodic rentals for entire This loan facilitates parents, guardians and students lease period. The customer automatically owns the in the payment of school/tuition fees and other asset once all the agreed lease payments/rentals related educational requirements. The loan applies have been made. to all levels of education right from Nursery, Primary, and Secondary to Tertiary or University level as long Trade Finance as the beneficiary student is enrolled or offered a To facilitate the flow of goods and services from place in a study program. the seller to the buyer and the subsequential flow of payments from buyer to seller various trade Small and Medium Enterprises (SME) finance products are offered by the Bank to meet Segment the customers’ vast needs. The products are differentiated by purpose, size, price, maturity and SME Deposit products security requirements. Commodity finance, LPO Financing, Shipment Finance, Letters of Credit, CenteCurrent Account Invoice Discounting, Structured trade finance, Deposit account designed for transactions by Guarantees and Documentary collection cheque, where the customer can draw on demand as long as there are sufficient funds in the account CenteMortgage and the Bank is open for business. It can be operated This is a medium-to-long term housing finance by individuals as a personal current account and product targeting salary earners as well as by Companies, Partnerships, Societies, Clubs and economically active rural and urban low, middle Associations as non-personal account. and high regular income earners engaged in self- employment. The loan can be used for the purpose CenteInvestment Club Accounts of financing housing needs through purchase, Targets investment clubs where members desire construction or completion. to save and invest jointly as a Group or Club in a business or income generating activity with a Agricultural Loans common goal of improving their level of income and The Bank provides an Agricultural Loan Product livelihood, capitalizing on the strength of numbers Suite to finance business activities in the agricultural to boost wealth creation. production, processing & marketing value chain, animal production, fishing, bee keeping and food processing. These include the Production loan,

38 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

revolving production loan, marketing loan and the e-Tax, e-US Visa fees, e-NSSF, KCCA Farm & Asset equipment loan. The loan period and • E- Banking Services – CenteMobile, CentePOS, repayment plan is dependent on the nature and Internet Banking, CentePoint (ATM) season of the agricultural activity to be financed. • Other Services – Forex trading, Safe custody, High Net Worth Segment SMS transaction Alerts, Bulk Salary payment, Treasury Bill/Bond dealership The Bank offers special services to its High Net worth customers and personal loans including all loans under Employee empowerment and the SME segment engagement Corporate Segment At Centenary Bank, we don’t view our employees as resources, instead, we value them as people whose The Bank takes care of banking needs for corporate skills, and abilities represent the most valuable asset in organizations, NGOs, Church, Districts, Public sector the company. Our Human Resource Division actively and value chains under Trade & Commerce supports employees in their careers, professions and encourages them to develop talents. Linkage Banking Segment The bank has special Account offering to SACCOs, MFIs, VSLAs and Women groups. Learning and Development

Products and services available to all segments The Bank employs close to 2,400 full time employees and the target is to have each staff train at least once • Term deposits annually. The Bank spent close to UGX.4.1 billion • Overdraft on training as a way of ensuring that the staff have • School Pay – Payment of school fees without the right skills and knowledge to deliver the bank filling in bank slips services. During the year, 182 training events were implemented. The Bank’s e-learning platform known • Money Transfers - RTGS, EFT, EFT Debit, MTN as click campus has over 500 courses in different Mobile Money, Ezee Money, AirTel Money banking areas. By the end of the year 2016, over • Inter-branch money transfers, standing Orders 88% of the staff had accessed the system, 62.5% • Regional and International Money Transfers had undertaken a course whereas 55.9% were able – TTs, RTGS, East African Payment Services, to complete the course. A total of 78 courses for the Western Union new corebanking were implemented with the support of the vendor, internal Trainers (ToT) and business • E-Payment Services – e-water, e-, champions.

THE NUMBERS

FOR THE YEAR UNDER REVIEW 2,400 Full time employees 182 UGX4.1 Training events Billion Budget Allocation

ACCESSED UNDERTOOK COMPLETED SYSTEM COURSE COURSE 88% 62.5% 55.9%

CENTENARY BANK l Annual Report & Financial Statements 2016 39 SUSTAINABILITY REPORTING STATEMENT (continued...)

Talent Management and Succession • Coordinate sports team building activities with the major aim of encouraging each staff Planning to participate in a sports activity for health purposes and teamwork. The Bank’s people management philosophy is to • Providing gym memberships, a benefit to progressively build its own talent pool to effectively employees at managerial level, not only for support the Bank’s growth. Branch successor pools networking purposes but also for health including; Branch Manager, Manager Credit Services, purposes. We currently have 186 employees Credit Administrators and Branch supervisors were on the gym membership benefit. Weekly fitness updated and approved by management. Development classes and exercises were introduced at the interventions for the identified staff were incorporated Head Office. in the training budget and plan. • The Bank offered food subsubsidies during the year Performance Measurement • Occupational safety and Health (OSH) programs. The Bank complies with Occupational Safety In order to monitor an employee’s contribution to and Health (OSH) regulations under the labour the company, the Bank developed a performance law. All the Bank premises have been certified measurement tool. The performance management as good working environments under the OSH cycle involves goal setting, performance monitoring regulations. conversations and performance reviews for the teams and all individuals. It’s an inclusive, two-way process The Bank has created a “sense of worth” environment that creates feedback and considers future capability in various forms through market based competitive requirements of the Bank, and personal development compensation, merit awards, sports and team building needs and aspirations. models.

Staff Welfare, Rewards and Employee Feedback Recognition The Bank instituted a regular climate survey, an online avenue through which staff views, ideas and The Bank does its best to ensure that the employees’ value adding input is sought. The primary aim of the welfare is prioritized. That it does by making sure both successive climate survey is to track and evaluate the physical and mental wellbeing is taken care of. The progress made in identified employee work related Bank has done this in a number of ways including; challenges and risks. The 2016 annual engagement survey was conducted and the Bank was rated 66% • Partnering with Medical Insurance Companies versus a market benchmark of 64%. (AAR and Liberty) so that each staff has medical coverage. There was continuous use of the HR help desk that responds to staff issues.

Staff engaging in sports during the CenteFun day

40 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

Corporate Social Investment

Centenary Bank has a long history of supporting communities for sustainable development. In 2016, we dedicated up to 1% of the previous year’s after-tax income on Corporate Social Investment (CSI) as per policy. This was coupled with partner support to increase our community activities and reach as summarized in the table below;

Item 2014 2015 2016

Bank CSI Amount (Millions) 580 (5%) 636 (9.7%) Ugx 952 (49.7%)

Number of activities 303 (43%) 359 (18.5%) 485 (35.1%)

People reached (Millions) 16 (6%) 19 (18.8%) 21 (10.5%)

Promoting education by donating desks to Cleaveland Primary School in FortPortal

OUR OBJECTIVES FOR 2016 WERE AS BELOW;

To increase To increase our work To expand the our support in environmental financial literacy to the ‘Bridging conservation. training target the cancer gap group. program’

Our overall goal was to touch more lives to better society through the areas of education, health, environment, social mission of the church and other community interventions through our branch network.

CENTENARY BANK l Annual Report & Financial Statements 2016 41 SUSTAINABILITY REPORTING STATEMENT (continued...)

EDUCATION

390 youth in 13 groups benefitted from the ‘Start and Improve Your Business” trainings

Over 200,000 people were actively reached using our social media channels throughout the year with financial literacy tips and literature through videos and texts

Enhancing financial literacy by training small and medium entreprises

The youth unemployment challenge still stands tall in the nation, at over 70%, hence calling for interventions from all stakeholders. We increased the number of youth benefitting from the ‘Start and Improve Your Business’ by 8% thereby training 390 in 13 groups in 2016. This was done along with our partners International Labour Organisation (ILO). Our 2017 plan is to carry out evaluations for all youth trained in the last two years.

We expanded the financial literacy target group to include the church, and skilled 90 financial managers and administrators in three provinces of Mbarara, Tororo, and Gulu. The key skilling areas were governance, financial management, utilising banking products and personal finance. Evaluation showed that they needed further support in the above areas, which shall be handled in 2017.

The small and medium enterprises (SME) category makes the bulk of our customers, many of whom need financial literacy. We did publish the newspaper column code named ‘CenteBusinessLife’ in 2016, as was the case in 2015, by soliciting questions from the readers, and answering them, although this time it was twice a month for five months other than weekly. Our partners, Private Sector Foundation Uganda (PSFU) and Agriculture Business Initiative Trust (aBi Trust) supported this cause.

Our social media channel remained active throughout the year with financial literacy tips and literature through videos and texts to the public, reaching over 200,000 people. We plan to reach more in 2017.

42 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

HEALTH

With an investment of over UGX 300M, our message reach increased by 50% getting to more than 15 million people, through media and direct intervention

The cry for health is commonly heard in every community. While we cannot support on all diseases, we did choose breast and cervical cancer, because they are increasingly silent killers, yet, they can be avoided. In 2016, we once again partnered with Rotary District 9211 and St. Raphael of St. Francis Hospital Nsambya to reach more women countrywide with the message of avoiding cancer. With an investment of over UGX 300 million, our message reach increased by 50% getting to over 15 million people, through media and direct intervention. The activities we participated in included; Rotary Family health days in 70 districts were we bought the cancer testing kits for the exercise, the cancer run in 5 regions, the Rotary annual conference, launching a youth skilling

Members of staff who also took part in the cancer centre and supporting five hospitals with cancer testing testing exercise at Mapeera house during the cancer kits on women’s day. The awareness messages in these month in October 2016. activities were resounded through electronic, print and social media.

Runners form a human ribbon at Ceremonial Grounds to demostrate their willingness to fight cancer.

CENTENARY BANK l Annual Report & Financial Statements 2016 43 SUSTAINABILITY REPORTING STATEMENT (continued...)

ENVIRONMENT

Change in staff behaviour and use of technology led to reduction in paper usage by 12.5%.

We do appreciate that we have a role in conserving the environment, that is why we set aside activities every year to promote its sustainability. Last year THE NUMBERS we reduced the amount of carbon released by generators in our branches. For the year under review This was achieved by increasing the number of generators whose capacity needed scaling down, from 15-150kva to 15-60kva, by 50%, from 8 to12.

We rolled out the installation of LED lights which minimise consumption of Increased allocation on energy. The exercise commenced with head office, and we plan to expand the banks CSI country wide after the first phase.

49.7% A deliberate agenda was set out to reduce paper usage through changing staff behaviour and use of technology there by reducing paper usage by 12.5%.

The Bank invested in a number of community activities that persevered the 952 environment, which included community cleaning activities, and donation of million water tanks and energy saving cooking charcoal stoves to schools. Was allocated on the banks CSI In 2017, we plan to continue with all the above, along with increasing the number of off-site Automated Teller Machines (ATMs) using the uninterruptable power supply (UPS) system to back up grid power by 50%. Air conditioning systems that minimise energy use shall be installed within Increased number of the year. activities 35.1%

485 activities Were carried out by the bank

21 million People were reached

Bwaise branch represented by Branch Manager Mr. Ojiambo Patrick (back row, second left), donating water tank to Malaika Orphanage Children Foundation

44 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

THE SOCIAL MISSION OF THE CHURCH

450 million allocated in supporting the church through direct sponsoring of various programmes, events and publications country wide.

The Bank’s partnership with the church is as old as the Bank. We do work together to transform communities through numerous interventions. In 2016 we gave over UGX 450 million for constructions, hospital and school equipment, event sponsorships, youth and women activities and publications. General Manager Operations Mr. Joseph Kimbowa (second right) and Branch Manager Wakiso (extreme left) donated chairs to St. Yowana Maria church, Gombe Sub-Parish, Kayunga-Wakiso which was represented by Rev. Father Ronnie Mubiru (second left).

OTHER COMMUNITY ACTIVITIES We were involved in more than 100 community activities

Our Bank is part of communities. What affects the community affects us and what benefits the community benefits us. We supported community interventions by increasing our support by 42%, from 70 to 100. Our role in community transformation shall remain unchanged.

Chief Manager Business Growth, Mr. Michael Jingo and Managing Director, Mr. Fabian Kasi donating UGX 210 million to Buganda kingdom which was represented by Owek. Kattikiro (Prime Minister), Mr. Charles Peter Mayiga.

CENTENARY BANK l Annual Report & Financial Statements 2016 45 SUSTAINABILITY REPORTING STATEMENT (continued...)

GRI Indicators’ report

The index below comprises indicators from the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines.

The index has been abridged to relate it to the Bank’s disclosure status.

PERFORMANCE TOPIC DISCLOSURE DESCRIPTION INDICATORS PAGES 1.1 & 1.2 Vision, Mission and Ownership 8, 9 Mission Statement

PROFILE PERFORMANCE TOPIC DISCLOSURE DESCRIPTION INDICATORS PAGES 2.1 Name of reporting organisation 6 & 66 Centenary Rural Development Bank Limited 2.2 Major products or services, including brands 37 - 39 Financial products and services if appropriate 2.3 Operational structure of the organisation 16 & 25 Excecutive Management, Board of Directors 22 Corporate governance 2.4 Description of major divisions, operating com- 16 & 22 Excecutive Management, panies, subsidiaries and joint ventures Corporate governance 2.5 Countries in which the organisation’s located 6 & 65 Bank contact information, general information 2.6 Nature of ownership 9 Ownership 2.7 Nature of markets served 83 Sectors financed / Industry analysis 2.8 Scale of the reporting organization’s: Number of employees 39 Staffing Products produced/services offered 37 & 38 Products and services

GOVERNANCE STRUCTURE AND MANAGEMENT SYSTEMS

PERFORMANCE TOPIC DISCLOSURE DESCRIPTION INDICATORS PAGES 3.1-3.6 Governance structure of the organisation, in- 18 - 27 Corporate governance cluding major committees under the board of directors that are responsible for strategy and oversight

ECONOMIC PERFORMANCE INDICATORS PERFORMANCE TOPIC DISCLOSURE DESCRIPTION INDICATORS PAGES EC1 Net sales and Increase in retained earnings 61 Statement of Comprehensive Income, 62 Statement of changes in Equity, 63 Financial review EC3 Geographic breakdown of markets 128 -129 Branch and ATM Network EC3 Cost of all goods and services purchased 34 Value added statement Total employee remuneration 34, 61 & 108 Value added statement EC8 Total taxes of all types paid 34 Value added statement/ income statement/ note 14

46 CENTENARY BANK l Annual Report & Financial Statements 2016 SUSTAINABILITY REPORTING STATEMENT (continued...)

SOCIAL LABOUR PERFORMANCE INDICATORS PERFORMANCE TOPIC DISCLOSURE DESCRIPTION INDICATORS PAGES LA1 Breakdown of workforce 39 Staffing highlights LA3 Retention rates 39 Staffing highlights LA4 Policies/procedures on negotiations with em- 39 -40 Employee empowerment and engagement ployees over changes in operations LA5 Health and safety committees 40 Occupational safety and health LA6 Occupational accidents and diseases 40 Occupational safety and health LA6 Injury, lost days and absentee rates and work- 40 Occupational safety and health related fatalities LA8 Policies and programmes on HIV/AIDS 40 Staff welfare issues LA9 Average hours of training per employee 39 Training and Development Programmes for the year 2016

HUMAN RIGHTS PERFORMANCE TOPIC DISCLOSURE DESCRIPTION INDICATORS PAGES HR1 Policies and guidelines dealing with human rights HR2 Consideration of human rights impacts in mak- ing business decisions HR3 Policies/procedures to evaluate human rights Human rights recognized, observed and em- performance within supply chain bedded in the Ugandan’s Constitution. No evi- HR4 Global policy/procedures preventing discrimi- dence of transgressions but Bank’s Policies not nation of any form formally codified. HR5 Policy on freedom of association independent of local laws HR6 Policy excluding child labour HR7 Description of policy to prevent forced and compulsory labour

CENTENARY BANK l Annual Report & Financial Statements 2016 47 FINANCIAL REVIEW

To keep an eye on where we have been and ensure we are on track with where we are going, we embrace near error-free metrics.

48 CENTENARY BANK l Annual Report & Financial Statements 2016 FINANCIAL HIGHLIGHTS FINANCIAL REVIEW (continued...)

Financial Perfomance Trend 2016 2015 2014 2013 2012 2011 2010 Shs’M Shs’M Shs’M Shs’M Shs’M Shs’M Shs’M

Total Assets 2,315,749 1,974,400 1,636,923 1,451,040 1,122,296 944,044 807,238

Loans and Advances to Customers 1,247,703 1,020,227 830,932 672,307 556,960 515,421 395,820

Customer Deposits 1,626,614 1,380,194 1,175,116 965,891 818,479 694,343 630,814

Equity 485,017 400,625 317,501 253,337 205,584 157,547 115,573

Total Revenue 463,857 393,901 324,299 275,579 240,460 189,143 146,544

Net Results after tax 109,909 101,601 73,817 58,006 56,017 47,931 29,397

8.2% 21.1% 17.8%

Shs109.9 Shs485.0 Shs463.9 billion billion billion NET PROFIT EQUITY CAPITAL REVENUE

2.8% 22.3% 17.9%

68.1% Shs1,247.7 Shs1,626.6 COST TO billion billion INCOME RATIO LOAN ASSETS DEPOSITS

CENTENARY BANK l Annual Report & Financial Statements 2016 49 FINANCIAL REVIEW (continued...)

Budget Performance

Actual 2016 Budget 2016 % variance Actual 2015 Budget 2015 Shs.‘000’ Shs.‘000’ +/- Shs.‘000’ Shs.‘000’

Financial data Total assets 2,315,749,311 2,357,066,352 -1.8 1,974,400,355 1,973,577,855 Shareholders’ funds 485,016,969 459,585,755 5.5 400,625,133 377,918,596 Customer deposits 1,626,614,165 1,638,815,897 -0.7 1,380,193,855 1,414,443,439 Net loans to customers 1,247,702,785 1,181,517,829 5.6 1,020,227,352 986,476,641 Total income 463,856,752 463,667,061 0.0 393,900,646 323,554,518 Total expenses 315,992,291 319,582,926 -1.1 257,388,615 217,137,789 Profit before income tax 147,864,461 144,084,135 2.6 136,512,031 106,416,728 Net results after tax 109,908,772 106,296,132 3.4 101,601,248 79,794,882

Key performance ratios Cost to income ratio 68.1% 68.9% -0.8 65.3% 71.3% Return on assets 5.1% 4.9% 0.2 5.6% 4.4% Return on equity 24.8% 24.9% -0.1 28.3% 23.2% Lending ratio 76.7% 72.1% 4.6 73.9% 69.7% Total expenses to loan ratio 25.3% 27.0% -1.7 25.2% 22.0% Capital adequacy ratio (Tier 2) 25.9% 24% 1.9 25.1% 24%

Non-financial data Number of accounts 1,482,617 1,593,457 -7.5 1,473,958 1,433,460

Number of ATMs 172 172 0.0 157 158

Number of Branches 69 69 0.0 63 66

50 CENTENARY BANK l Annual Report & Financial Statements 2016 FINANCIAL REVIEW (continued...)

Statement of Comprehensive Non-interest income:

The Bank’s non-interest income arose from trade Income Analysis financing activities such as letters of credit, transactional activities including Bank drafts, funds transfers, mobile The Bank’s total income is comprised of interest money, trading income and revaluation of currency income, income from commissions and fees and other positions and exchange income on foreign transactions non-operating income. Total income went up by UGX with customers. 70.0billion in 2016 (2015: 69.6 billion), representing a growth of 17.8% when compared to 21.5% in 2015. Net non-interest income: Income moved up as a result of an increase in loans to 2016 2015 customers and short-term investments. % % Growth in net non- interest income 13.3 13.5 Net interest income Net non-interest income as % of 23.7 24.6 total operating income Net interest income, which is the margin between Net non-interest income rose to UGX 98.7 billion interest income and interest expense, remained the (2015: UGX 87.1 billion) following growth in fee main source of income for the Bank. Net interest and commis- sion income by 13.8% (2015: 12.6%). income for the year 2016 was UGX 318.4 billion This growth was mainly driven by higher transaction (2015: UGX 267.7 billion) and it represents 76.3% of volumes initiated through customer interactions with operating income(2015: 75.4%). the branches and expanded ATM network. 2016 2015 % % The trend of the Bank’s net non-interest income as per Growth in net interest income 18.9 27.2 percentage of a total income over the last five years is Net interest margin 19.1 18.4 presented below:

The high growth in Net interest income in 2016 was as a result of an increase in the prime lending rate in 2015 to 23.0% from 21.0% in 2014.This remained constant throughout the year 2016 and was revised downwards to 22.0% in December, 2016.

The Bank’s net interest margin increased by 70 basis points (2015: Increased by 80 basis points) to close at 19.1% (2015: 18.4%). The increase was mainly attributed to an increase in investment in short- government securities. The trend of the Bank’s net interest income and net interest margin over the last five years is presented below:

Non-Interest income has continued to grow steadily however, the rate of growth of interest income supersedes the rate of growth of non-interest income.

CENTENARY BANK l Annual Report & Financial Statements 2016 51 FINANCIAL REVIEW (continued...)

Credit impairment charges Total expenses increased by 22.8% against income growth of 17.8% (2015:12.5% against income growth of The charge for credit losses for the year 2016 (excluding 21.5%). The increase in the cost to income ratio in 2016 interest in suspense) increased by 118.0% to UGX 15.0 was mainly attributed to investment in technology with billion (2015:6.9 billion). This charge to the statement of preliminary costs incurred in the year 2016, improvement comprehensive income as a percentage of gross loans and in staff welfare and bank’s expansion. More technology advances increased to 1.2% (2015: 0.7%). related costs will be reflected in the year 2017 however, this new technology is expected to result into excellent Credit impairment charges: customer service delivery. 2016 2015 Statement of Financial Position Analysis

Percentage change in the 0.2 (0.4) Income and Operating impairment charge Expenses Credit loss ratio 1.2 0.7 450,000 76.0

400,000 Credit impairment as % 1.9 1.9 74.0 350,000 of gross loans and advances 72.0

n 300,000 Non-performing loans 35,641 27,454 70.0 (NPL) - millions 250,000 Shs Millio 68.0 Credit loss provision 23,923 19,789 200,000 66.0 (SOFP) - millions 150,000 64.0 Credit impairment charge - millions 14,9839 6,873 100,000 50,000 62.0

- 6.0 Credit Loss as a Percentage 2011 2012 2013 2014 2015 2016 of Gross Loans and Advances Total IncomeO perating Expenses 3.5

3.0 The Bank’s total assets during the year under review increased by 17.3% (2015: 20.8%) due to the expansion 2.5 in the Bank’s distribution channels by 6 branch, 15 ATMs BS Impairment ) /Total Loans at 12 locations, and a growth in the loans and advances 2.0 portfolio. Percentage (% 1.5 NPL/Total Loans Net loans and advances accounted for 53.9% (2015: 51.7%) of total assets and registered a 22.3% (2015: 1.0 22.8%) growth to close at UGX 1,247.78billion in 2016 Credit Loss Ratio up from UGX 1,020.2 billion in 2015. The loan growth 0.5 was driven by good customer service and increased

0.0 lending opportunities in the market arising from increased 2011 2012 2013 2014 2015 2016 outreach.

Customer deposits, which consist of current accounts, Total expenses savings accounts and time deposits, made up the Bank’s main sources of funding. These deposits grew by 17.9% 2016 2015 (2015: 17.5%) to UGX 1,626.6billion in 2016 from UGX % % 1,380.2 billion in 2015 despite the economic hardships Growth in total operating expense 22.8 12.5 during the year. The good deposit growth is attributed to Change in cost-to-income ratio 2.8 ( 5.2) increased marketing efforts and an increase in the Bank’s distribution channels.

52 CENTENARY BANK l Annual Report & Financial Statements 2016 FINANCIAL REVIEW (continued...)

Deposit composition

The number of deposits accounts increased to 1,482,617 in 2016 (2015: 1,473,958). This came as a result of increased market efforts to bring in more customers. The current account average balance per account in 2016 Increased to UGX 1.1 million (2015: UGX 0.9 million)

Loan Composition

In accordance with the Bank’s mission, its microfi- nance segment continues to constitute over 50% of loans and advances. For the year ended December Funding mix 2016, Micro-finance loans were 55.5% of the gross loans and advances (2015:56.9%). The number of The funding mix has remained rather stable in terms total borrowers increased from 178,576 in 2015 of value. Savings accounts represent 47.1% of total to 200,623 in 2016 of which 190,854 (95.1%) funding compared to 49.0% in 2015. The Bank has were microfinance clients (2015: 178,576; of which been able to maintain a stable deposit mix in 2016 due microfinance 107,729: 60.3 %) to an increase in its loyal customer base and deposit mobilisation. Current accounts represent 16.3% of total funding compared to 14.7% for the same period last year. Time deposits constituted 6.9% of total funding compared to 6.2% for 2015. Borrowed and managed funds contribute only 5.1% of the total funding (2015: 5.7%).

CENTENARY BANK l Annual Report & Financial Statements 2016 53 FINANCIAL REVIEW (continued...)

Equity increased by 16.8% (2015:8.3%). This compares favorably with the regulatory requirement of Equity, which comprises share capital, share 12.0% and 8% respectively. premium and retained earnings, finances 20.9% (2015:20.3%) of the total assets. The level Analysis of Cashflow Statement of equity is a function of earnings which are distributed as dividends and amount of earnings The Bank’s cashflow from operating activities which are ploughed back into the business. The increased to UGX.147.1 billion from Bank’s policy is to maintain a sustainable dividend UGX.130.5billion in the year 2015. growth which satisfies shareholders. Dividend payable during the year represents 25% of Net The increase was mainly due to an increase in profit after tax. business revenue.

Cashflows in investing activities decreased to Capital Adequacy UGX.36.3 billion from UGX. 78.1 billion in 2015. The decrease in investing activities was mainly The Bank monitors its capital adequacy using attributed to the new software payments made ratios established by the Bank for International in the year 2015. Settlement (BIS) as approved by Bank of Uganda, the regulator. The ratios measure capital Cashflows from financing- There was a net cash adequacy by comparing the Bank’s eligible capital outflow of UGX.19.8 billion in the year 2016 as with its statement of financial position assets, a result of less borrowed funds received in the off-statement of financial position commitments year 2016 compared to the year 2015 and an and market and other risk positions at weighted increase in dividend payout. amounts to reflect their relative risk. At 31st December, 2016, the Bank had a regulatory total Dividends paid out in 2016 were UGX.25.5 capital base of 25.9% (2015: 24.7%) of risk- billion(2015: 18.5 billion) and borrowed funds weighted assets and core capital to risk weighted were UGX.16.6 billion (2015: 45. 6 billion). assets of 25.1% (2015:23.9%). Risk weighted assets increased by 19.1% (2015:26.5%) whereas total capital (net of intangible assets)

THE NUMBERS For the year under review

147.1 billion

CASHFLOW FROM OPERATING ACTIVITIES

36.3 billion 25.5 billion Cashflows in investing Dividends paid out activities

19.8 billion 16.6 billion Net cash used in financing Borrowed funds activities

54 CENTENARY BANK l Annual Report & Financial Statements 2016 AUDITED FINANCIAL STATEMENTS

We believe the best thing audits do is to expose areas where we can improve. Once identified, we dedicate man power and technology to turn them into strengths.

CENTENARY BANK l Annual Report & Financial Statements 2016 55 AUDITED FINANCIAL STATEMENTS (continued...)

DIRECTORS’ REPORT

Principal activities Centenary Rural Development Bank (“The Bank or Centenary Bank”) provides a range of banking and related financial services especially to the economically disadvantaged people in rural areas. The Bank is an approved and licensed financial institution under the Financial Institutions Act 2004 and is a member of the Uganda Banker’s Association.

Results The Bank’s results for the year ended 31 December 2016 are indicated in the statement of comprehensive income.

Dividend The directors recommend payment of dividends for the year ended 31 December 2016 of Shs 27,593 million (2015: Shs 25,516 million).

Share capital During the year, no preference shares were issued.

Directors and directors’ interest The directors who held office during the year and to the date of this report were as follows:

Prof. John Ddumba Ssentamu Board Chairman Mr. Fabian Kasi Managing Director Dr. Simon M.S. Kagugube Executive Director Mr. Kimanthi Mutua Member (Chairman IT Strategy Committee & Chairman ALCO) Dr. Peter Ngategize Member (Chairman Credit Committee & Risk Management Committee) Mr. Henry Kibirige Member (Chairman Audit Committee) Mr. Andrew Obol Member (Chairman Compensation and Human Resources Committee) Mt. Rev. Dr. Cyprian K. Lwanga Member Mt. Rev. Paul Bakyenga Member Mr. Thil Richard Member (Appointed May 2016) Mr.Sprokel Casper Jan Frits Member(Appointed August 2016) Dr.Wenene Mary Theopista Member(Appointed October 2016)

None of the directors held any beneficial interest in the ordinary share capital of the Bank as at 31 December 2016.

Auditors The Bank’s external auditor, Ernst & Young, is not eligible for reappointment having reached the mandatory limit of four years of continuous service to the Bank as stipulated in the Financial Institutions Act, 2004.

Management by third parties None of the business of the Bank was managed by a third party or a company in which a director had an inter- est during the financial year.

56 CENTENARY BANK l Annual Report & Financial Statements 2016 AUDITED FINANCIAL STATEMENTS (continued...)

Risk management Managing risk is an integral part of the Bank’s business. The Board of Directors is ultimately responsible for risk management and continues to establish new policies and procedures to control and monitor risk throughout the Bank as market risks continue to change.

Corporate Social Investment Statement The Bank is focused on achieving strong sustainable financial returns while promoting a more decent, dignified and kinder society. We commit considerable amounts of resources every year to the humani- tarian cause both directly and indirectly through our pricing and product mix.

The Bank has adopted the reporting mechanism developed by the Global Reporting Initiatives (GRI) in an attempt to be transparent about our performance on the triple bottom line of people, planet and profit.

Retirement benefits The Bank contributes to a retirement benefits scheme covering all of its employees. On attaining the retirement age or honorably leaving the service of the Bank, all permanent staff are eligible for terminal benefits applicable to them.

By order of the Board:

Mrs. Peninnah T Kasule COMPANY SECRETARY

CENTENARY BANK l Annual Report & Financial Statements 2016 57 AUDITED FINANCIAL STATEMENTS (continued...)

DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The Bank’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Uganda, 2012 and Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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

Under the Companies Act of Uganda, the directors are required to prepare financial statements for each year that give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of the oper- ating results of the Bank for that year. It also requires the directors to ensure the Bank keeps proper accounting records that disclose with reasonable accuracy the financial position of the Bank.

The directors accept responsibility for the financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with Inter- national Financial Reporting Standards, the Companies Act of Uganda, 2012 and Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs and the profit and cash flows for the year ended 31 December 2016. The directors further accept responsibility for the maintenance of account- ing records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

The directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern for the next twelve months from the date of this statement.

The auditor is responsible for reporting on whether the annual financial statements are fairly presented in ac- cordance with the International Financial Reporting Standards, the Companies Act of Uganda, 2012 and Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016.

Approval of the Financial Statements

The financial statements, as indicated above, were approved by the Board of Directors and signed on its behalf on 16th March, 2017 by:

Prof. John Ddumba-Ssentamu Mr. Fabian Kasi Mr. Henry Kibirige Mrs. Peninnah T. Kasule CHAIRMAN, BOARD OF DIRECTORS MANAGING DIRECTOR CHAIRMAN, AUDIT COMMITTEE COMPANY SECRETARY

58 CENTENARY BANK l Annual Report & Financial Statements 2016 AUDITED FINANCIAL STATEMENTS (continued...)

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF CENTENARY RURAL DEVELOPMENT BANK LIMITED

Opinion We have audited the accompanying financial statements of Centenary Rural Development Bank Limited set out on pages 61 to 125, which comprise the statement of financial position as at 31 December 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements present fairly, in all material respects, the financial position of Centenary Rural Development Bank Limited as at 31 December 2016, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of Uganda, 2012 and the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016.

Basis of Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the International Federation of Account- ants’ Code of Ethics for Professional Accountants (IFAC code) and other independence requirements applicable to performing audits of Centenary Rural Development Bank Limited. We have fulfilled our other ethical responsibilities in accordance with the IFAC Code, and in accordance with other ethical requirements applicable to performing the audit of Centenary Rural Development Bank Limited. We believe that the audit evidence we have obtained is suf- ficient and appropriate to provide a basis for our opinion.

Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report as required by the Companies Act of Uganda, 2012. The other information does not include the financial statements and our auditor’s report thereon.

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

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Uganda, 2012 and the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of ac-

59 CENTENARY BANK l Annual Report & Financial Statements 2016 CENTENARY BANK l Annual Report & Financial Statements 2016 59 AUDITED FINANCIAL STATEMENTS (continued...)

counting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suf- ficient 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, in- tentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’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 Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclo- sures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on other legal requirements

As required by the Companies Act of Uganda, 2012, we report to you, based on our audit that: i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of the audit; ii) in our opinion proper books of account have been kept by the Bank, so far as appears from our examination of those books; and iii) The Bank’s statement of financial position and statement of comprehensive income are in agreement with the books of account. The engagement partner on the audit resulting in this independent auditor’s report is CPA Geoffrey Byamugisha – P0231

Certified Public Accountants KAMPALA 19th April, 2017 60 CENTENARY BANK l Annual Report & Financial Statements 2016 CENTENARY BANK l Annual Report & Financial Statements 2016 60 AUDITED FINANCIAL STATEMENTS (continued...)

Statement of comprehensive income

Note 2016 2015 Shs ‘000 Shs ‘000 Interest income 6(a) 365,193,656 306,784,732 Interest expense 7 (46,817,284) (39,108,973) Net interest income 318,376,372 267,675,759 Fee and commission Income 8 76,206,366 66,990,666 Net interest, fee and commission income 394,582,738 334,666,425 Gain/(loss) from financial instruments at fair value 6(b) 2,396,994 (1,457,185) Foreign exchange income 9 7,057,826 9,868,336 Other operating income 10 13,001,910 11,714,097 Operating income 417,039,468 354,791,673

Employee benefits 11 (116,027,009) (105,183,751) Impairment losses on loans and advances 12 (14,983,513) (6,872,858) Depreciation 21(b) (22,947,127) (19,243,295) Amortisation 21(c) (2,088,575) (1,202,240) Operating expenses 13 (113,128,783) (85,777,498) Profit before income tax 147,864,461 136,512,031

Income tax expense 14 (37,955,689) (34,910,783) Profit for the year 109,908,772 101,601,248

Other comprehensive income net of tax - - -

Total comprehensive income, net of tax 109,908,772 101,601,248 Earnings per share Basic earnings per ordinary share (shilling per share) 31 4.392 4.059

CENTENARY BANK l Annual Report & Financial Statements 2016 61 AUDITED FINANCIAL STATEMENTS (continued...)

Statement of financial position

Note 2016 2015 Shs ‘000 Shs ‘000 Assets Cash and balances with Bank of Uganda 15 314,099,382 176,919,896 Placements with other banks 16 56,630,549 92,522,927 Government securities –held for trading 17(a) 90,784,201 31,885,743 Government securities –held to maturity 17(b) 337,141,441 409,067,314 Loans and advances to customers 18 1,247,702,785 1,020,227,352 Other assets 19 54,265,079 37,930,814 Deferred capital expenditure 20 1,902,568 1,801,287 Finance lease on leasehold land 21(a) 2,134,831 2,178,446 Property and equipment 21(b) 202,988,247 197,655,135 Intangible assets 21(c) 4,219,989 1,663,391 Deferred income tax asset 22 3,880,239 2,548,050 Total assets 2,315,749,311 1,974,400,355

Liabilities Customer deposits 23 1,626,614,165 1,380,193,855 Deposits from other banks 24 3,862,194 3,071,430 Inter-bank borrowing 25 - 4,006,082 Managed funds 26 10,431,212 10,284,689 Borrowed funds 27 107,603,439 102,045,662 Current income tax payable 14 6,607,864 5,137,889 Deferred grants 30 391,732 536,587 Other liabilities 28 72,235,114 66,858,407 Provision for litigation 29 2,986,622 1,640,621 Total liabilities 1,830,732,342 1,573,775,222

Equity Ordinary share capital 32 25,000,000 25,000,000 Preference share capital 32 116,624 116,624 Share premium 32 1,138,927 1,138,927 Regulatory reserve 34 8,215,937 5,239,369 Proposed dividends 33 27,593,817 25,516,936 Retained earnings 422,951,664 343,613,277 Total equity 485,016,969 400,625,133

Total equity and liabilities 2,315,749,311 1,974,400,355

The financial statements were approved by the Board of Directors and signed on its behalf on 16th March, 2017 by:

Prof. John Ddumba-Ssentamu Mr. Fabian Kasi Mr. Henry Kibirige Mrs. Peninnah T. Kasule CHAIRMAN, BOARD OF DIRECTORS MANAGING DIRECTOR CHAIRMAN, AUDIT COMMITTEE COMPANY SECRETARY

62 CENTENARY BANK l Annual Report & Financial Statements 2016 AUDITED FINANCIAL STATEMENTS (continued...)

Statement of changes in equity

Year ended December 2016 Note Ordinary Preference Share Regulatory Retained Proposed TOTAL shares shares premium Reserve profits dividends Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

At 1 January 2016 25,000,000 116,624 1,138,927 5,239,369 343,613,277 25,516,936 400,625,133

Total comprehensive income - - - - 109,908,772 - 109,908,772

Transfer to regulatory reserve 34 - - - 2,976,568 (2,976,568) - -

Dividend paid 33 (a) - - - - - (25,516,936) (25,516,936)

Proposed dividends 33 (b) - - - - (27,593,817) 27,593,817 -

At 31 December 2016 25,000,000 116,624 1,138,927 8,215,937 422,951,664 27,593,817 485,061,969

Year ended December 2015 Note Ordinary Preference Share Regulatory Retained Proposed TOTAL shares shares premium Reserve profits dividends Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

At 1January 2015 25,000,000 116,624 1,138,927 3,377,657 269,390,677 18,477,452 317,501,337

To tal comprehensive income - - - - 101,601,248 - 101,601,248

Transfer to regulatory reserve 34 - - - 1,861,712 (1,861,712) - -

Dividend paid 33 (a) - - - - - (18,477,452) (18,477,452)

Proposed dividends 33 (b) - - - - (25,516,936) 25,516,936 -

At 31 December 2015 25,000,000 116,624 1,138,927 5,239,369 343,613,277 25,516,936 400,625,133

CENTENARY BANK l Annual Report & Financial Statements 2016 63 AUDITED FINANCIAL STATEMENTS (continued...)

Statement of cash flows

Note 2016 2015 Shs ‘000 Shs ‘000 Cash flows from operating activities Interest receipts 362,771,632 283,657,004 Interest payments (43,472,897) (37,320,999) Fee and commission income 79,643,658 69,671,724 Other income received 11,416,784 10,490,357 Recoveries from loans previously written off 10 4,469,236 4,063,117 Payments to employees (117,799,895) (101,621,113) Payments to suppliers and other payments (124,286,941) (76,164,903) Grants received 30 - 421,187 Income tax paid 14 (37,817,903) (37,880,750) Cash flows from operating activities before changes in operating assets and liabilities 134,923,674 115,315,624

Changes in operating assets and liabilities Increase in Cash reserve requirement (24,120,000) (13,530,000) Investments 27,730,628 12,060,603 Loans and advances to customers (227,475,433) (189,295,383) Other assets (13,814,010) (6,217,468) Customer deposits 246,420,310 205,078,301 Deposits from other banks (3,215,318) 1,621,123 Other liabilities 6,637,332 5,439,038 12,163,509 15,156,214 Net cash flows generated from operating activities 147,087,183 130,471,838

Cash flows from investing activities Additions to deferred expenses 20 (17,256,950) (21,105,223) Additions to property and equipment 21(b) (4,440,956) (17,796,765) Additions to WIP New Core Banking System 21(b) (13,400,729) (39,239,929) Additions to software 21(c) (1,289,830) (189,599) Proceeds from sale of property and equipment 120,066 244,800 Net cash flows used in investing activities (36,268,399) (78,086,716)

Cash flows from financing activities Dividends paid (25,516,936) (18,477,452) Proceeds from managed/borrowed funds 16,622,919 45,583,828 Repayments of managed/borrowed funds (10,918,619) (16,679,480) Net cash flows generated from / (used in) financing activities (19,812,636) 10,426,896

Net increase / (decrease) in cash and cash equivalents 91,031,158 62,812,018 Net foreign exchange difference 839,163 19,574,158 Cash and cash equivalents at 1 January 333,638,194 251,252,018 Cash and cash equivalents at 31 December 35 425,508,515 333,638,194

64 CENTENARY BANK l Annual Report & Financial Statements 2016 AUDITED FINANCIAL STATEMENTS (continued...)

NOTES TO THE FINANCIAL STATEMENTS

1. General information

The Bank is incorporated in the Republic of Uganda under the Companies Act 2012 and is domiciled in the Republic of Uganda. The address of its registered office is: Mapeera House Plot 44-46 Kampala Road P. O. Box 1892, Kampala

2. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. a. Basis of preparation

The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The financial statements are presented in the functional currency, Uganda Shillings (Shs), rounded to the nearest thousand, and prepared on the historical cost basis, except where otherwise stated in the accounting policies below. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

For purposes of reporting under the Companies Act, 2012 of Uganda, the balance sheet in these financial statements is represented by the statement of financial position and the profit and loss account is represented by the statement of comprehensive income.

New and amended standards and interpretations

The standards and interpretations that were issued and which are effective for annual periods beginning on or after 1 January 2016 are described below. Although these new standards and amendments applied for the first time in 2016, they did not have a material impact on the annual financial statements.

CENTENARY BANK l Annual Report & Financial Statements 2016 65 NOTES TO THE FINANCIAL STATEMENTS (continued...)

International Financial Reporting Standards and amendments issued but not effective for 31 December 2016 year-end

Number Title Effective date Executive summary IFRS 14 Regulatory Defer- 1-Jan-16 This is an optional standard that allows an entity, whose activities are subject to rate- ral Accounts regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and OCI. The standard requires disclosure of the nature of, and risk associated with, the entity’s rate-regulation and the effects of that rate-regulation on its financial statements. Since the bank is an ex- isting IFRS preparer and is not involved in any rate-regulated activities, this standard does not apply.

Amendment Joint Arrange- 1-Jan-16 The amendments to IFRS 11 require that a joint operator accounting for the acquisi- to IFRS 11 ments: Accounting tion of an interest in a joint operation, in which the activity of the joint operation con- for Acquisitions of stitutes a business, must apply the relevant. IFRS 3 Business Combinations principles Interests for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation if joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under com- mon control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are applied prospectively. These amendments do not have any impact on the bank as there has been no interest ac- quired in a joint operation during the period.

Amend- Clarification of Ac- 1-Jan-16 The amendments clarify the principle in IAS 16 Property, Plant and Equipment and ments to ceptable Methods IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that IAS 16 and of Depreciation are generated from operating a business (of which the asset is a part) rather than IAS 38: and Amortisation the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are applied prospectively and do not have any impact on the bank, given that it has not used a revenue-based method to depreciate its non-current assets. Amend- Agriculture: 1-Jan-16 The amendments change the accounting requirements for biological assets that ments to Bearer Plants meet the definition of bearer plants. Under the amendments, biological assets that IAS 16 and meet the definition of bearer plants will no longer be within the scope of IAS 41 IAS 41 Agriculture. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are applied retrospectively and do not have any impact on the bank as it does not have any bearer plants. Amend- Equity Method in 1-Jan-16 The amendments allow entities to use the equity method to account for invest- ments to Separate Financial ments in subsidiaries, joint ventures and associates in their separate financial state- IAS 27 Statements ments. Entities already applying IFRS and electing to change to the equity method in their separate financial statements have to apply that change retrospectively. These amendments do not have any impact on the bank’s financial statements. Annual Improvements 2012-2014 Cycle IFRS 5 Non-current As- 1-Jan-16 Assets (or disposal groups) are generally disposed of either through sale or distribu- sets Held for Sale tion to the owners. The amendment clarifies that changing from one of these dis- and Discontinued posal methods to the other would not be considered a new plan of disposal, rather Operations it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

66 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Number Title Effective date Executive summary IFRS 7 Financial Instru- 1-Jan-16 (i) Servicing contracts ments: Disclo- The amendment clarifies that a servicing contract that includes a fee can constitute sures continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial state- ments The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amend- ment is applied retrospectively. These amendments do not have any impact on the bank’s financial statements.

Clarification of Ac- 1-Jan-16 The amendments clarify the principle in IAS 16 Property, Plant and Equipment and ceptable Methods IAS 38 Intangible Assets that of Depreciation and Amortisation IAS 19 Employee Benefits 1-Jan-16 The amendment clarifies that market depth of high quality corporate bonds is as- sessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

IAS 34 Interim Financial 1-Jan-16 The amendment clarifies that the required interim disclosures must either be in the Reporting interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial re- port (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments do not have any impact on the Group. Amend- Disclosure Initia- 1-Jan-16 The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 ments to tive requirements. The amendments clarify: IAS 1 • The materiality requirements in IAS 1 • That specific line items in the statement(s) of profit or loss and OCI and the state- ment of financial position may be disaggregated • That entities have flexibility as to the order in which they present the notes to financial statements • That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Agriculture: 1-Jan-16 The amendments change the accounting requirements for biological assets that Bearer Plants meet the definition of bearer Equity Method in 1-Jan-16 The amendments allow entities to use the equity method to account for investments Separate Financial in subsidiaries, joint Statements Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the bank.

CENTENARY BANK l Annual Report & Financial Statements 2016 67 Number Title Effective date Executive summary Amend- Sale or Contribu- 1-Jan-16 The amendments address the conflict between IFRS 10 and IAS 28 in dealing with ments to tion of Assets be- the loss of control of a subsidiary that is sold or contributed to an associate or joint IFRS 10 and tween an Investor venture. The amendments clarify that the gain or loss resulting from the sale or con- IAS 28 and its Associate tribution of assets that constitute a business, as defined in IFRS 3, between an inves- or Joint Venture tor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefi- nitely, but an entity that early adopts the amendments must apply them prospec- tively. This is not expected to have any impact on the Bank’s financial statements.

IFRS 5 Non-current As- 1-Jan-16 Assets (or disposal groups) are generally disposed of either through sale or distribu- sets Held for Sale tion to the owners. The amendment clarifies that changing from one of these dis- and Discontinued posal methods to the other would not be considered a new plan of disposal, rather Operations it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

IFRS 7 Financial Instru- 1-Jan-16 (i) Servicing contracts ments: Disclo- The amendment clarifies that a servicing contract that includes a fee can constitute sures continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial state- ments The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amend- ment is applied retrospectively. These amendments do not have any impact on the bank’s financial statements.

IAS 19 Employee Benefits 1-Jan-16 The amendment clarifies that market depth of high quality corporate bonds is as- sessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

IAS 34 Interim Financial 1-Jan-16 The amendment clarifies that the required interim disclosures must either be in the Reporting interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial re- port (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments do not have any impact on the Group.

Amend- Disclosure Initia- 1-Jan-16 The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 ments to tive requirements. The amendments clarify: IAS 1 • The materiality requirements in IAS 1 • That specific line items in the statement(s) of profit or loss and OCI and the state- ment of financial position may be disaggregated • That entities have flexibility as to the order in which they present the notes to financial statements • That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the bank.

68 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Number Title Effective date Executive summary Amend- Sale or Contribu- 1-Jan-16 The amendments address the conflict between IFRS 10 and IAS 28 in dealing with ments to tion of Assets be- the loss of control of a subsidiary that is sold or contributed to an associate or joint IFRS 10 and tween an Investor venture. The amendments clarify that the gain or loss resulting from the sale or con- IAS 28 and its Associate tribution of assets that constitute a business, as defined in IFRS 3, between an inves- or Joint Venture tor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefi- nitely, but an entity that early adopts the amendments must apply them prospec- tively. This is not expected to have any impact on the Bank’s financial statements.

Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Bank’s financial statements are disclosed below. The Bank intends to adopt these standards, if applicable, when they become effective.

International Financial Reporting Standards and amendments issued but not ef- fective for 31 December 2016 year-end

Number Title Effective date Executive summary IFRS 9 Financial 1-Jan-18 In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement and all previ- ous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Bank plans to adopt the new standard on the required effective date. During 2015, the Bank has performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional rea- sonable and supportable information being made available to the Bank in the future. Overall, the Bank expects no significant impact on its statement of financial position and equity except for the effect of applying the impairment requirements of IFRS 9. The Bank expects a higher loss allowance resulting in a negative impact on equity and will perform a detailed assessment in the future to determine the extent.

IFRS 15 Revenue from 1-Jan-18 IFRS 15 was issued in May 2014 and establishes a five-step model to account for Contracts with revenue arising from contracts with customers. Under IFRS 15, revenue is recog- Customers nised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition require- ments under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Bank plans to adopt the new standard on the required effective date using the full retrospective method. During 2015, the Bank performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Bank is considering the clarifications issued by the IASB in an exposure draft in July 2015 and will monitor any further developments. The Bank is still assessing the impact the new standard will have on its revenue.

CENTENARY BANK l Annual Report & Financial Statements 2016 69 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Number Title Effective date Executive summary IFRS 16 Leases 1-Jan-2019 The IASB issued the new standard for accounting for leases - IFRS 16 Leases in Janu- ary 2016. The new standard does not significantly change the accounting for leases for lessors. However, it does require lessees to recognise most leases on their bal- ance sheets as lease liabilities, with the corresponding right of- use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. Generally, the profit or loss recognition pattern for recognised leases will be similar to today’s finance lease accounting, with interest and depreciation expense recognised separately in the statement of profit or loss. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full retrospective or a modified retrospective approach. The Bank does not anticipate early adopting IFRS 16 and is currently evaluating its impact.

Amendments Income Taxes 1-Jan-2017 In January 2016, through issuing amendments to IAS 12, the IASB clarified the to IAS 12 accounting treatment of deferred tax assets of debt instruments measured at fair value for accounting, but measured at cost for tax purposes. The amendment is effective from 1 January 2017. The Bank is currently evaluating the impact, but does not anticipate that adopting the amendments would have a material impact on its Financial statements.

Amendments Statement of 1 January 2017 In January 2016, the IASB issued amendments to IAS 7 Statement of Cash Flows to IAS 7 Cash Flows with the intention to improve disclosures of financing activities and help users to better understand the reporting entities’ liquidity positions. Under the new require- ments, entities will need to disclose changes in their financial liabilities as a result of financing activities such as changes from cash flows and non-cash items (e.g., gains and losses due to foreign currency movements). The amendment is effective from 1 January 2017. The Bank is currently evaluating the impact

Amendments Classification 1 January 2017 The IASB issued amendments to IFRS 2 Share-based Payment that address three to IFRS 2 and main areas: the effects of vesting conditions on the measurement of a cash-settled Measurement share-based payment transaction; the classification of a share-based payment trans- of Share-based action with net settlement features for withholding tax obligations; and accounting Payment where a modification to the terms and conditions of a share-based payment trans- Transactions action changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amend- ments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. This is not expected to have any impact on the Bank’s financial statements.

IAS 40 Investment 1 January 2018 The amendments clarify when an entity should transfer property, including property Property under construction or development into, or out of investment property. The (Amendments amendments state that a change in use occurs when the property meets, or ceases to IAS 40) to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.

Transition Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IAS 8 is only permitted if that is possible without the use of hindsight. Early application of the amendments is permitted and must be disclosed. The Bank is still assessing the impact the new standard will have on it.

70 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Number Title Effective date Executive summary IFRS 9 and Applying IFRS 1 January 2018 The amendments address concerns arising from implementing the new financial IFRS 4 9 Financial instruments Standard, IFRS 9, before implementing the new insurance contracts Instruments with standard that the Board is developing to replace IFRS 4. The amendments introduce IFRS 4 Insurance two options for entities issuing insurance contracts: a temporary exemption from Contracts - applying IFRS 9 and an overlay approach. Amendments to IFRS 4 Transition The temporary exemption is first applied for reporting periods beginning on or after 1 January 2018. An entity may elect the overlay approach when it first applies IFRS 9 and apply that approach retrospectively to financial assets designated on transi- tion to IFRS 9. The entity restates comparative information reflecting the overlay approach if, and only if, the entity restates comparative information when applying IFRS 9.

Impact The overlay approach requires an entity to remove from profit or loss additional volatility that may arise if IFRS 9 is applied with IFRS 4. When applying the temporary exemption, entities must still provide extensive dis- closure that require the application of some aspects of IFRS 9. The change will have no impact on the bank as it does not have insurance contracts.

IFRIC Foreign Curren- 1 January 2018 The interpretation clarifies that in determining the spot exchange rate to use on Interpretation cyTransactions initial recognition of the related asset, expense or income (or part of it) on the 22 and Advance derecognition of a non-monetary asset or non-monetary liability relating to advance Consideration consideration, the date of the transaction is the date on which an entity initially rec- ognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This is not expected to have an impact on the bank as it already uses the methodology stated above.

2014-2016 cycle (issued in December 2016) IFRS 1 First-time 1 January 2018 Deletion of short-term exemptions for first-time adopters Adoption of • Short-term exemptions in paragraphs E3–E7 of IFRS 1 were deleted because they International have now served their intended purpose. This is not expected to have any impact Financial Report- on the Bank’s financial statements. ing Standards

IAS 28 Investments in 1 January 2018 Clarification that measuring investees at fair value through profit or loss is Associates and an investment-by investment choice. Joint Ventures The amendments clarifies that: • An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. • If an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment en- tity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint ven- ture first becomes a parent. This is not expected to have any impact on the Bank’s financial statements. IFRS 12 Disclosure of In- 1 January 2017 Clarification of the scope of the disclosure requirements in IFRS 12 terests in Other • The amendments clarify that the disclosure requirements in IFRS 12, other than Entities those in paragraphs B10–B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. This is not expected to have any impact on the Bank’s financial statements.

CENTENARY BANK l Annual Report & Financial Statements 2016 71 NOTES TO THE FINANCIAL STATEMENTS (continued...)

b. Interest income and expense e. Financial instruments

Interest income and expense on all interest bearing A financial instrument is any contract that gives rise to instruments are recognised using the effective interest a financial asset of one entity and a financial liability or method in profit or loss. equity instrument of another entity. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability i) Financial assets and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the Initial recognition and measurement rate that exactly discounts financial instruments estimated Financial assets are classified, at initial recognition, as future cash payments or receipts through its expected financial assets at fair value through profit or loss, loans and life or, where appropriate, a shorter period, to the net receivables, held-to-maturity investments or available- carrying amount. for-sale financial assets. All financial assets are recognised Once a financial asset or a group of similar financial assets initially at fair value plus, in the case of financial assets not has been written down as a result of an impairment loss, recorded at fair value through profit or loss, transaction interest income is recognised based on the rate of interest costs that are attributable to the acquisition of the that was used to discount the future cash flows for the financial asset. Purchases or sales of financial assets that purpose of measuring the impairment loss. require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the c. Fees and commission income date that the Bank commits to purchase or sell the asset.

Fees and commissions are generally recognised on an Subsequent measurement accrual basis when the service has been provided. Loan For purposes of subsequent measurement financial assets commitment fees for loans that are likely to be drawn are classified in four categories: down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest • Financial assets at fair value through profit or loss. rate on the loan. • Loans and receivables. • Held-to-maturity investments. Other fees and commissions include; Loan and • Available-for-sale financial investments. lease processing fees, Commitment Fees Overdraft to Customers, commissions on Advance Payment Financial assets at fair value through profit or loss Guarantees, bid bonds & Guarantees, drafts Payable, bills Financial assets at fair value through profit or loss include Payable, Inter-branch, RTGS /EFT Transfers, Cheques, financial assets held for trading and financial assets uncleared effects and ledger fees. designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling d. Translation of foreign currencies or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held The accounting records are maintained in the currency for trading unless they are designated as effective hedging of the primary economic environment in which the Bank instruments as defined by IAS 39. The Bank has designated operates, Uganda Shillings (“the functional currency”). its financial assets as held for trading, at fair value through Transactions in foreign currencies during the year profit or loss. Financial assets at fair value through profit are converted to Uganda shilling using the exchange or loss are carried in the statement of financial position at rates prevailing at the dates of the transaction. Foreign fair value with net changes in fair value presented as a line exchange gains and losses resulting from the settlement item in the statement of comprehensive income. of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities Loans and receivables denominated in foreign currencies are recognised in This category is the most relevant to the Bank. Loans profit or loss. and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in Non–monetary items that are measured in terms of an active market. After initial measurement, such financial historical cost in a foreign currency are translated using assets are sub-sequently measured at amortised cost the spot exchange rates as at the date of recognition.

72 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

using the Effective Interest Rate (EIR) method, obligation to pay the received cash flows in less impairment. Amortised cost is calculated by full without material delay to a third party taking into account any discount or premium on under a ‘pass-through’ arrangement; and acquisition and fees or costs that are an integral either part of the EIR. The EIR amortisation is included in (a) The Bank has transferred substantially all finance income in profit or loss. The losses arising the risks and rewards of the asset, or from impairment are recognised as a line item in (b) The Bank has neither transferred nor the statement of comprehensive income. This retained substantially all the risks and category generally applies to loans and advances rewards of the asset, but has transferred to customers and other receivables. control of the as- set

Held-to-maturity investments When the Bank has transferred its rights to receive Non-derivative financial assets with fixed or cash flows from an asset or has entered into a determinable payments and fixed maturities are pass-through arrangement, it evaluates if and to classified as held to maturity when the Bank has what extent it has retained the risks and rewards the positive intention and ability to hold them of ownership. When it has neither transferred nor to maturity. After initial measurement, held to retained substantially all of the risks and rewards maturity investments are measured at amortised of the asset, nor transferred control of the asset, cost using the EIR, less impairment. Amortised the Bank continues to recognise the transferred cost is asset to the extent of the Bank’s continuing involvement. In that case, the Bank also recognises calculated by taking into account any discount or an associated liability. The transferred asset and premium on acquisition and fees or costs that are the as- sociated liability are measured on a basis an integral part of the EIR. The EIR amortization is that reflects the rights and obligations that the included as interest income in profit or loss. The Bank has retained. losses arising from impairment are recognized in profit or loss as finance costs. ii) Financial liabilities

Available-for-sale (AFS) financial investments Initial recognition and measurement AFS financial investments include equity Financial liabilities are classified, at initial investments and debt securities. Equity recognition, as financial liabilities at fair value investments classified as AFS are those that are through profit or loss, loans and borrowings, neither classified as held for trading nor designated payables, or as derivatives designated as hedging at fair value through profit or loss. Debt securities instruments in an effective hedge, as appropriate. in this category are those that are intended to All financial liabilities are recognised initially at fair be held for an indefinite period of time and that value and, in the case of loans and borrowings may be sold in response to needs for liquidity or and payables, plus directly attributable transaction in response to changes in the market conditions. costs. The Bank’s financial liabilities include The Bank did not have any available-for-sale assets customer deposits, deposits from other banks, as at loans and bor- rowings and managed funds. 31 December, 2016 or 31 December, 2015. Subsequent measurement Derecognition The measurement of financial liabilities depends A financial asset (or, where applicable, a part of a on their classification, as described below: financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed Financial liabilities at fair value through profit from the Bank’s statement of financial position) or loss when: Financial liabilities at fair value through profit or • The rights to receive cash flows from the loss include financial liabilities held for trading asset have expired, or and financial liabilities designated upon initial • The Bank has transferred its rights to receive recognition as at fair value through profit or loss. cash flows from the asset or has assumed an Financial liabilities are classified as held for trading

CENTENARY BANK l Annual Report & Financial Statements 2016 73 NOTES TO THE FINANCIAL STATEMENTS (continued...)

if they are incurred for the purpose of repurchasing in f. Impairment of financial assets the near term. This category also includes derivative financial instruments entered into by the Bank The Bank assesses at each reporting date whether that are not designated as hedging instruments in there is objective evidence that a financial asset or a hedge relationships as defined by IAS 39. Separated group of financial assets is impaired. A financial asset or embedded derivatives are also classified as held for a group of financial assets is impaired and impairment trading unless they are designated as effective hedging losses are incurred if, and only if, there is objective instruments. evidence of impairment as a result of one or more events that occurred after initial recognition of the Gains or losses on liabilities held for trading are asset (a “loss event”) and that loss event (or events) recognized in profit or loss Financial liabilities has an impact on the estimated future cash flows of designated upon initial recognition at fair value the financial asset or group of financial assets that can through profit or loss are designated at the initial date be reliably estimated. of recognition, and only if the criteria in IAS 39 are satisfied. The Bank has not designated any financial Objective evidence that a financial asset or group of liability as at fair value through profit or loss. assets is impaired includes observable data that comes to the attention of the Bank about the following loss Loans and borrowings events: This is the category most relevant to the Bank. After initial recognition, interest-bearing loans and • Significant financial difficulty of the borrower borrowings, customer deposits and managed funds are • A breach of contract, such as default or sub- sequently measured at amortised cost using the delinquency in interest or principal repayments; EIR method. Gains and losses are recognised in profit • The granting to the borrower, for economic or or loss when the liabilities are derecognised as well legal reasons relating to the borrower’s financial as through the EIR amortisation process. Amortised difficulty, a concession that the lender would not cost is calculated by taking into account any discount otherwise consider; or premium on acquisition and fees or costs that are • It becoming probable that the borrower an integral part of the EIR. The EIR amortisation is will enter bankruptcy or other financial re- included as finance costs in profit or loss. organization; • The disappearance of an active market for that Derecognition financial asset because of financial difficulties; or A financial liability is derecognized when the obligation • Observable data indicating that there is a under the liability is discharged or cancelled, or measurable decrease in the estimated future expires. When an existing financial liability is replaced cash flows from a group of financial assets since by another from the same lender on substantially the initial recognition of those assets, although different terms, or the terms of an existing liability the decrease cannot yet be identified with the are substantially modified, such an exchange or individual financial assets in the group, including: modification is treated as the de-recognition of the • Adverse changes in the payment status of original liability and the recognition of a new liability. borrowers in the group; or The difference in the respective carrying amounts is • National or local economic conditions that recognized in profit or loss. correlate with defaults on the assets in the group. Offsetting Financial assets and liabilities are offset and the The estimated period between loss occurring and its net amount presented in the statement of financial identification is determined by management for each position when, and only when, the bank has a identified portfolio. In general, the periods used vary currently enforceable legal right to set off the between 3 months and 6 months. recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability Assets carried at amortised cost simultaneously. In- come and expenses are presented The Bank first assesses whether objective evidence on a net basis only when permitted under IFRSs. of impairment exists individually for financial assets

74 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

that are individually significant, and individually Provisions for impairment on assets assessed or collectively for financial assets that are not individually are referred to as specific provisions, individually significant. whilst provisions for such losses on assets assessed collectively are referred to as general If the Bank determines no objective evidence provisions. of impairment exists for an individually assessed financial asset, whether significant or not, it When a loan is uncollectible, it is written off includes the asset in a group of financial assets against the related provision for loan impairment. with similar credit risk characteristics and Such loans are written off after all the necessary collectively assesses them for impairment. Assets procedures have been completed and the amount that are in- dividually assessed for impairment of the loss has been determined. Subsequent and for which an impairment loss is or continues recoveries of amounts previously written off are to be recog- nised are not included in a collective reported as other income in the statement of assessment of impairment. comprehensive income.

If there is objective evidence that an impairment If, in a subsequent period, the amount of the loss on loans or held-to-maturity investments impairment loss decreases and the decrease carried at amortised cost has been incurred, the can be related objectively to an event occurring amount of the loss is measured as the difference after the impairment was recognised (such as between the asset’s carrying amount and the an improvement in the debtor’s credit rating), present value of estimated future cash flows the previously recognised impairment loss is (excluding future credit losses that have not been reversed by adjusting the allowance account. incurred) discounted at the financial instrument’s The amount of the reversal is recognised in profit original effective interest rate. or loss.

The carrying amount of the asset is reduced In addition to the measurement of impairment through the use of an allowance account and losses on loans and advances in accordance with the amount of the loss is recognised in profit IFRS as set out above, the Bank is required by the or loss. If a loan or held-to-maturity investment Financial Institutions Act 2004 to estimate losses has a variable interest rate, the discount rate for on loans and ad- vances as follows: measuring any impairment loss is the current effective interest rate determined under the Specific provision for the loans and advances contract. As a practical expedient, the Bank considered to be non-performing (impaired) may measure impairment on the basis of an based on the criteria and classification of such instrument’s fair value using an observable loans and advances established by the Bank of market price. Uganda, as follows:

The calculation of the present value of the Commercial, Salary, Home Improvements estimated future cash flows of a collateralised and Micro finance loans above UGX 5 million finan- cial asset reflects the cash flows that may • Substandard loans with arrears period result from foreclosure less costs for obtaining between 91 to 180 days – 20% and selling the collateral, whether or not • Doubtful loans with arrears period foreclosure is probable. between 180 to 365 days – 50% • Loss with arrears period exceeding For the purposes of a collective evaluation of 365 days –100% provision impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those Microfinance loans up to UGX 5 million characteristics are relevant to the estimation of • Substandard loans with arrears period future cash flows for groups of such assets by between 30 to 59 days – 25% being indicative of the debtors’ ability to pay all • Doubtful loans with arrears period amounts due according to the contractual terms between 60 to 89 days – 50% of the assets being evaluated. • Loss with arrears period exceeding 89 days –100% provision

CENTENARY BANK l Annual Report & Financial Statements 2016 75 NOTES TO THE FINANCIAL STATEMENTS (continued...)

• General provision of 1% of credit facilities less amount that would have been determined, net of specific provision and suspended interest depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised In the event that provisions computed in accordance in the income statement. with the Financial Institution Act 2004 materially The Bank looks at both external and internal indicators exceed provisions determined in accordance with to determine if an asset is impaired. IFRS, the excess is accounted for as an appropriation of retained earnings. External Indicators: • Decline in market value g. Impairment of non-financial • Negative changes in technology, markets, economy, or laws assets • Increases in market interest rates • Net assets of the Bank higher than market At the end of each reporting period, the Bank assesses capitalisation whether there is any indication that an asset is impaired, that is, whether its carrying amount is higher than its Internal Indicators: recoverable amount. If there is an indication that an • Obsolescence or physical damage of the asset asset is impaired, then the asset’s recoverable amount • Asset is idle as part of a restructuring or held for is calculated. The recoverable amount is determined disposal by assessing; • Worse economic performance than expected • If the fair value less costs of disposal or value in use is more than carrying amount, then it is not necessary to calculate the other amount since h. Property and equipment the asset is not impaired. • If an impaired loss is determined, the loss is Recognition and measurement recognised through profit and loss. Items of property and equipment are measured at • If fair value less costs of disposal cannot be cost less accumulated depreciation and accumulated determined, then recoverable amount is value impairment losses. in use. • For assets to be disposed of, recoverable Cost includes expenditures that are directly amount is fair value less costs of disposal. attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials In assessing value in use, the estimated future cash and direct labour, any other costs directly attributable flows are discounted to their present value using a to bringing the assets to a working condition for their pre–tax discount rate that reflects current market intended use, the costs of dismantling and removing assessments of the time value of money and the risks the items and restoring the site on which they are specific to the asset. In determining fair value less costs located and capitalised borrowing costs. Purchased to sell, an appropriate valuation model is used. These software that is integral to the functionality of the calculations are collaborated by valuation multiples, related equipment is capitalised as part of that quoted share prices for publicly traded subsidiaries or equipment. other available fair value indicators. When parts of an item of property or equipment For assets excluding goodwill, an assessment is made have different useful lives, they are accounted for as at each reporting date as to whether there is any separate items (major components) of property and indication that previously recognised impairment equipment. losses may no longer exist or may have decreased. If such indication exists, the Bank estimates the asset’s or Subsequent costs CGU’s recoverable amount. A previously recognised The cost of replacing a part of an item of property or impairment loss is reversed only if there has been a equipment is recognised in the carrying amount of the change in the assumptions used to determine the item if it is probable that the future economic benefits asset’s recoverable amount since the last impairment embodied within the part will flow to the bank and loss was recognised. The reversal is limited so that its cost can be measured reliably. The costs of the the carrying amount of the asset does not exceed day-to-day servicing of property and equipment are its recoverable amount, nor exceeds the carrying recognised in profit or loss as incurred.

76 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Depreciation The principal or the most advantageous market must Depreciation is recognised in profit or loss on a be accessible to by the Bank. The fair value of an straight-line basis over the estimated useful lives asset or a liability is measured using the assumptions of each part of an item of property and equipment that market participants would use when pricing the since this most closely reflects the expected pattern asset or liability, assuming that market participants of consumption of the future economic benefits act in their economic best interest. embodied in the asset. Leased assets under finance leases are depreciated over the shorter of the lease A fair value measurement of a non-financial asset term and their useful lives. land is not depreciated takes into account a market participant’s ability to The estimated useful lives for the current and generate economic benefits by using the asset in its comparative periods are as follows: highest and best use or by selling it to another market participant that would use the asset in its highest and Leased buildings Shorter of 50 years best use. The Bank uses valuation techniques that or lease period are appropriate in the circumstances and for which Computer hard ware 3 years sufficient data are available to measure fair value, Core Banking software 7 years maximising the use of relevant observable inputs Core Banking Hardware 5 Years and minimising the use of unobservable inputs. Furniture, fixtures and fittings 5 years Motor vehicles 5 years All assets and liabilities for which fair value is Motor cycles 4 Years measured or disclosed in the financial statements Generators & office equipment 8 years are categorised within the fair value hierarchy, described as follows, based on the lowest level input Depreciation methods, useful lives and residual val- that is significant to the fair value measurement as a ues are reassessed at each financial year-end and whole: adjusted prospectively, if appropriate. • Level 1 — Quoted (unadjusted) market pric- Derecognition es in active markets for identical assets or Property and equipment is derecognised on disposal liabilities or when no future economic benefits are expected • Level 2 — Valuation techniques for which the from its use. Any gain or loss arising on derecognition lowest level input that is significant to the fair or the asset (calculated as the different between the value measurement is directly or indirectly net disposal proceeds and the carrying amount of observable the asset) is recognized in other operating income • Level 3 — Valuation techniques for which the in profit or loss in the year the asset is derecognised. lowest level input that is significant to the fair value measurement is unobservable i. Fair value measurement The Bank measures some financial instruments at For assets and liabilities that are recognised in fair value at each reporting date. Also, fair values of the financial statements on a recurring basis, the financial instruments measured at amortised cost Bank determines whether transfers have occurred are disclosed in Note 4(d). between levels in the hierarchy by reassessing categorisation (based on the lowest level input that Fair value is the price that would be received to sell is significant to the fair value measurement as a an asset or paid to transfer a liability in an orderly whole) at the end of each reporting period. transaction between market participants at the measurement date. The fair value measurement j. Intangible assets is based on the presumption that the transaction to sell the asset or transfer the liability takes place An intangible asset is recognised only when its cost either: can be measured reliably and it is probable that • In the principal market for the asset or the expected future economic benefits that are liability, or attributable to it will flow to the bank. • In the absence of a principal market, in the most advantageous market for the asset or The useful lives of intangible assets are assessed to liability be either finite or indefinite. Intangible assets with

CENTENARY BANK l Annual Report & Financial Statements 2016 77 NOTES TO THE FINANCIAL STATEMENTS (continued...)

finite lives are amortised over the useful economic amount of income tax payable on the taxable profit life. The amortisation period and the amortisation for the year determined in accordance with the method for an intangible asset with a finite useful Ugandan Income Tax Act. Current income tax assets life are reviewed at least at each financial year end. and liabilities for the current period are measured at Changes in the expected useful life, or the expected the amount expected to be recovered from or paid pattern of consumption of future economic benefits to the taxation authorities. embodied in the asset, are accounted for by changing the amortisation period or methodology, appropriate, Current income tax relating to items recognised which are then treated as changes in accounting directly in equity or other comprehensive income is estimates. The amortisation expense on intangible recognised directly in equity or other comprehensive assets with finite lives is recognised in profit or loss. income and not in profit or loss. Management periodically evaluates positions taken in the tax Computer software returns with respect to situations in which the Acquired computer software licenses are capitalized tax regulations are subject to interpretation and on the basis of the costs incurred to acquire and establishes provisions where appropriate. bring to use the specific software. These costs are amortised on the basis of the expected useful lives Deferred income tax of 3 years. Deferred income tax is provided using the liability method on temporary differences between the tax The useful life of the new Core Banking System bases of assets and liabilities and their carrying amounts (CBS), was revised to 7 years w.e.f year 2014. for financial reporting purposes at the reporting date. Deferred income tax liabilities are recognised for all Costs associated with developing or maintaining taxable temporary differences, except: computer software programs are recognized as an expense as incurred. Costs that are directly • When the deferred income tax liability arises associated with the production of identifiable and from the initial recognition of goodwill or an unique software products controlled by the bank, asset or liability in a transaction that is not a and that will probably generate economic benefits business combination and, at the time of the exceeding costs beyond one year, are recognized transaction, affects neither the accounting as intangible assets. Direct costs include software profit nor taxable profit or loss development employee costs and an appropriate • In respect of taxable temporary differences portion of relevant overheads. associated with investments in subsidiaries, associates and interests in joint ventures, when k. Tax the timing of the reversal of the temporary differences can be controlled and it is probable The Bank is subject to various government taxes that the temporary differences will not reverse under the Ugandan tax laws. Significant judgement is in the foreseeable future. required in determining the provision for income taxes. Deferred tax assets are recognised for all Significant estimates and judgements are required deductible temporary differences, the carry in determining the provision for taxes on certain forward of unused tax credits and any unused transactions. For these transactions, the ultimate tax losses. Deferred tax assets are recognised to tax determination is uncertain during the ordinary the extent that it is probable that taxable profit course of business. Where the final tax outcome of will be available against which the deductible these matters is different from the amounts that were temporary differences, and the carry forward initially recorded, such differences will impact the of unused tax credits and unused tax losses can current and deferred income tax assets and liabilities be utilised, except: in the period in which such determination is made. • When the deferred tax asset relating to the The deferred tax asset /liability is indicated in note 20. deductible temporary difference arises from the initial recognition of an asset or liability in Current income tax a transaction that is not a business combination Income tax expense is the aggregate of the charge and, at the time of the transaction, affects to profit or loss in respect of current income tax neither the accounting profit nor taxable profit and deferred income tax. Current income tax is the or loss.

78 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

• In respect of deductible temporary differences l. Employee benefits associated with investments in subsidiaries, associates and interests in joint ventures, The Bank and all its employees contribute to the deferred tax assets are recognised only to the National Social Security Fund, which is a defined extent that it is probable that the temporary contribution scheme. differences will reverse in the foreseeable future and taxable profit will be available against which The Bank also operates a defined contribution benefits the temporary differences can be utilised scheme for its employees. The Bank has no legal or constructive obligation to pay further contributions Deferred income tax relating to items recognised if the fund does not hold sufficient assets to pay all outside profit or loss is recognised outside profit or employees the benefits relating to employee service in loss. Deferred income tax items are recognised in the current and prior periods. The assets of the scheme correlation to the underlying transaction either in OCI are held in separate trustee administered funds, which or directly in equity. is funded by contributions from both the Bank and employees. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that The Bank’s contributions to the defined contributions it is no longer probable that sufficient taxable profit schemes are charged to profit or loss in the year in will be available to allow all or part of the deferred tax which they relate. to be utilised. Unrecognized deferred tax assets are reassessed at each reporting date and are recognised to The estimated monetary liability for employees’ the extent that it becomes probable that future taxable accrued annual leave entitlement at the reporting date profit will allow the deferred tax asset to be recovered. is recognised as an expense accrual. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when m. Contingent liabilities and the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or commitments substantively enacted at the reporting date. Contingent liabilities and commitments comprised letters of credit, acceptances, guarantees and Deferred income tax assets and deferred income tax commitments to extend credit are not included in liabilities are offset if a legally enforceable right exists assets and liabilities in note 36. They are accounted for to set off current income tax assets against current as off-statement of financial position transactions and income tax liabilities and the deferred income taxes are disclosed as contingent liabilities and commitments. relate to the same taxable entity and the same taxation authority. n. Share capital Withholding tax Withholding tax is deducted at source at 20% on Ordinary shares are classified as ‘share capital’ in equity. income earned on treasury bills and bonds. This amount Any premium received over and above the par value is included under the income tax charge for the year. of the shares is classified as ‘share premium’ in equity. Preference shares (irredeemable) classified as share Value Added tax capital in equity. Value added tax is chargeable at a rate of 18%. Output VAT is the value added tax you calculate and charge Dividends on shares are charged to equity in the period on your own sales of goods and services if you are in which they are declared. Proposed dividends are registered. Input VAT is the value added tax added to shown as a separate component of equity until declared. the price when you purchase goods or services liable o. Cash and cash equivalents to VAT. VAT payable arises when the output VAT is in excess of input VAT. Cash and cash equivalents include cash at hand, depos- its held at call with banks, other short term highly liquid The net amount of VAT recoverable from, or payable to, investments with original maturities of three months or the taxation authority is included as part of receivables less, including: cash and unrestricted balances with the or payables in the statement of financial position.

CENTENARY BANK l Annual Report & Financial Statements 2016 79 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Bank of Uganda, Treasury and other eligible bills, and Bank as a lessee amounts due from other banks. Leases that do not transfer to the Bank substantially all the risks and benefits incidental to ownership of p. Comparatives the leased items are operating leases. Operating lease payments are recognised as an expense in No comparative figures have been adjusted. profit or loss on a straight-line basis over the lease term. Contingent rental payable is recognised as an expense in the period in which they are incurred. q. Grants Bank as a lessor Grants are recognised where there is reasonable When assets are leased out under a finance lease, the as- surance that the grant will be received and all present value of the lease payments is recognised attached conditions will be complied with. When the as a receivable. The difference between the gross grant relates to an expense item it is recognized as receivable and the present value of the receivable income over the period necessary to match the grant is recognised as unearned finance income. Lease on a systematic basis to the costs that it is intended income is recognised over the term of the lease using to compensate. Where the grant relates to an asset, the net investment method. The Bank has entered it is recognized as deferred income and released to into finance lease transactions as a lessor (Note18(b) income in equal amounts over the expected useful – Finance Leases). life of the related asset. 3 Critical Accounting r. Provisions Estimates and Judgments in A provision is recognised if, as a result of a past event, Applying Accounting Policies the Bank has a present legal or constructive obliga- tion that can be estimated reliably, it is probable that The Bank makes estimates and assumptions that an outflow of economic benefits will be required to affect the reported amounts of assets and liabilities settle the obligation and a reliable estimate can be within the next financial year. Estimates and made of the amount of obligation. judgments are continually evaluated and are based on historical experience and other factors, including s. Managed funds and expectations of future events that are believed to be reasonable under the circumstances. borrowed funds i) Impairment losses on loans The Bank manages funds on behalf of others in and advances terms of specific agreements. The funds are The Bank reviews its loan portfolios to assess recorded as a liability on receipt of the funds and the impairment at least on a quarterly basis. In corresponding investments (as per the agreement) determining whether an impairment loss are recorded under cash and cash equivalents or should be recorded in profit or loss, the Bank loans and advances to customers. Details of the makes judgments as to whether there is any funds are included in note 26 and 27. observable data indicating that there is a measurable decrease in the estimated future t. Leases cash flows from a portfolio of loans before the decrease can be identified with an individual The determination of whether an arrangement is a loan in that portfolio. This evidence may lease, or contains a lease, is based on the substance include observable data indicating that there of the arrangement and requires an assessment has been an adverse change in the payment of whether the fulfilment of the arrangement is status of borrowers in a group, or national or dependent on the use of a specific asset or assets and local economic conditions that correlate with the arrangement conveys a right to use the asset. defaults on assets.

80 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Management uses estimates based on Level 1: Quoted market price (unadjusted) in an historical loss experience for assets with credit active market for an identical instrument. risk characteristics and objective evidence of Level 2: Valuation techniques based on observable impairment similar to those in the portfolio inputs, either directly (i.e., as prices) or indirectly when scheduling its future cash flows. (i.e., derived from prices). This category includes instruments valued using: quoted market prices in The methodology and assumptions used for active markets for similar instruments; quoted prices estimating both the amount and timing of for identical or similar instruments in markets that future cash flows are reviewed regularly to are considered less than active; or other valuation reduce any differences between loss estimates techniques where all significant inputs are directly or and actual loss experience. indirectly observable from market data.

The carrying amount of loans and advances is Level 3: Valuation techniques using significant indicated in note 18(a). unobservable inputs. This category includes all instruments where the valuation technique includes ii) Held-to-maturity investments inputs not based on observable data and the The Bank follows the guidance of IAS 39 unobservable inputs have a significant effect on on classifying non-derivative financial assets the instrument’s valuation. This category includes with fixed or determinable payments and instruments that are valued based on quoted prices for fixed maturing as held-to-maturity. This similar instruments where significant unobservable classification requires significant judgment. In adjustments or assumptions are required to reflect making this judgment, the Bank evaluates its differences between the instruments. intention and ability to hold such investments The fair value disclosures are included in note 4. to maturity. If the Bank fails to keep these investments to maturity other than for the 4 Financial Risk Management specific circumstances – for example, selling a insignificant amount close to maturity – it The Bank’s activities expose it to variety of financial will be required to reclassify the entire class and non-financial risks. These activities involve the as available-for- sale. The investments would analysis, evaluation, acceptance and management therefore be measured at fair value and not of some degree of risk or combination of risks. amortised cost. The carrying amount of held- Taking risk is core to the Bank’s business, and the to-maturity investments is indicated in note operational risks are inevitable consequences 17(b). of being in business. The effective management of risk is critical to earnings and balance sheet iii) Determining fair values growth within Centenary Bank where the culture The determination of fair value for financial encourages sound commercial decision making, assets and liabilities for which there is no which adequately bal- ances risk and reward. The observable market price requires the use of identification and management of risk remains a high valuation techniques. For financial instruments priority and under- pins all business activities. that trade infrequently and have little price transparency, fair value is less objective, The Bank’s approach to risk management is and requires varying degrees of judgement based on a well-established risk, compliance and depending on liquidity, concentration, governance process and relies both on individual uncertainty of market factors, pricing responsibility and collective oversight supported by assumptions and other risks affecting the comprehensive reporting. This approach balances specific instrument. strong corporate oversight at head office level with risk management structures within the business The Bank measures fair value using the following fair units. value hierarchy that reflects the significance of the inputs used in making the measurements:

CENTENARY BANK l Annual Report & Financial Statements 2016 81 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The Bank has governance standards for all major risk • Market risk types. All standards are applied consistently across • Liquidity risk the Bank and are approved by the Board through • Taxation risk either Bank’s Board Risk Management Committee or Board ALCO Committee. A combination of these risks occurring concurrently would be the most likely cause of significant loss. The standards form an integral part of the Bank’s The Bank’s approach to managing risk on a holistic governance infrastructure reflecting the expectations basis therefore ensures that risk types are not and requirements of the Board in respect of key managed in isolation. areas control across the Bank. The standards ensure alignment and consistency in the manner major risk a) Credit Risk types across the Bank are identified, measured, managed, controlled and are reported. Comprehensive resources, expertise and control The standards underpin the Bank’s governance are in place to ensure efficient and effective principles, which are: management of credit risk. In lending transactions, credit risk arises through non-performance by Shareholder value counter party for facilities used. The Bank’s primary objective is to protect and enhance shareholder value. As such the risks to this These facilities are typically loans and advances, objective drive the Bank’s system of internal control. including the advancement of securities and contracts to support customer obligations (such as Embedded letters of credit and guarantees). The Bank’s culture reflects its appetite for risk. Risk management is achieved at all levels of the Approach to managing credit risk business through a suitable organisational structure, Credit risk is managed by means of a governance policies, and procedure, and appropriate staff structure with clearly defined mandates and training. Responsibility for risk resides at all levels delegated authorities. The Board Risk Committee of management from the Board down through the delegates authority to the Management Credit Risk organisation to individuals in office. Each business Committee for the approval of credit proposals. manager is accountable for managing risk in his or The management further delegates authority within her business area. its limits, primarily on a risk adjusted basis.

Supported and assured The system of governance and internal control pro- vide management and Board with assurance that risks are being managed appropriately. The designated executives and Board Committees regularly receive and review reports on risks, compliance, governance and control process.

Reviewed The Board of Directors considers the effectiveness of the internal control system and risk management processes, at least annually. The major risks to which the Bank is exposed, including non – financial risks are: - • Credit risk • Operational risk • Compliance risk • Reputation risk • Business risk • Strategic risk

82 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Credit Risk Measurement Industry Analysis The Bank analyses its customers per industry using Internal Risk Ratings vari- ous portfolio segmentation techniques. These The Bank assesses the credit quality and assigns include the use of Bank of Uganda categories as – watch and standard for performing loans and well as International Standard Classification (SIC) substandard, doubtful and loss for non-performing codes whilst ensuring compliance with regulatory borrowers. requirements.

• Agriculture • Manufacturing Standard Items that are fully current and the and current: full repayment of the contractual • Trade and commerce principal and interest amounts are • Transport and utilities expected. • Building and construction • Other services

Watch list: Items for which the borrower is ex- The Bank takes on exposure to credit risk which periencing difficulties. Ultimate loss is not expected but could occur if is the risk that a counterparty will be unable to adverse conditions persist. pay amounts in full as and when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in Substandard1 Items that show underlying well de- relation to one borrower, or groups of borrowers, fined weaknesses that could lead to and to industry segments. Such risks are monitored probable loss if not corrected. The on a revolving basis and are subject to an annual or risk that these items may be impaired is probable and the Bank relies to a more frequent review. Limits on the level of credit large extent on the available security. risk by product, and industry sector are approved by the Board of Directors.

Doubtful1 Items that are considered to be im- The exposure to any one borrower including paired, but are not yet considered fi- banks and brokers is further restricted by sublimits nal losses because of pending factors, which may strengthen the quality of covering on and off-statement of financial position the items. exposures and daily delivery risk limits in relation to trading items. Actual exposures against limits are monitored daily. Loss1 Items that are considered to be un- collectible and where the realization Exposure to credit risk is managed through regular of collateral and institution of legal analysis of the ability of borrowers and potential proceedings have been unsuccess- ful. These items are considered of borrowers to meet interest and capital repayment such little value that they should no obligations and by changing these lending limits longer be included in the net assets where appropriate. Exposure to credit risk is of the Bank. also managed in part by obtaining collateral and corporate and personal guarantees, but a significant 1Classified as impaired for accounting purposes portion is personal lending where no such security/ undertaking can be obtained.

CENTENARY BANK l Annual Report & Financial Statements 2016 83 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Maximum exposure to credit risk before collateral held:

2016 2015 Shs ‘000 Shs ‘000

Credit risk exposure relating to statement of financial position items: Balances with Bank of Uganda (Note 15) 226,920,198 97,215,868 Placements with other banks (Note 16) 56,630,549 92,522,927 Investment securities – held to maturity (Note 17) 337,141,441 409,067,314 Investment securities – held for trading (Note 17) 90,784,201 31,885,743 Loans and advances (Note 18 (a)) 1,271,626,340 1,039,965,420 Other assets () 37,006,187 26,616,926 2,020,108,916 1,697,274,198

Credit risk exposures relating to off-statement of financial position items: - Letters of credit, guarantees and performance bonds (Note 36) 30,178,036 31,123,717 - Commitment to extend credit (Note 36) 8,255,036 6,328,088 38,433,072 37,451,805 Total 2,058,541,988 1,734,726,003

The above table represents the worst case scenario of credit risk exposure to the Bank at 31 December 2016 and 2015, without taking into account any collateral held or other credit enhancements attached. The exposures set out above are based on carrying amounts as reported in the statement of financial position.

As shown above, 61.8% (2015: 59.9%) of the total maximum exposure is derived from loans and advances to banks and customers. Investment in debt securities represents 20.8% (2015: 25.4%) of the total maximum exposure.

The table below shows the collateral coverage for secured loans as at year end. The type of collateral held includes land titles, motor vehicles and chattels.

As at Dec 2016 Total loan Netting off Exposure Collateral portfolio agreements after 51-100% Coverage Shs 000 (cash accured) netting off Shs 000 over 100% Shs000 Shs000

Secured loans 905,334,142 5,822,464 899,511,678 107,595,667 791,916,011 Partly secured loans by cash 366,292,198 - 366,292,198 197,308,171 168,984,027

Total 1,271,626,340 5,822,464 1,265,803,876 304,903,838 960,900,038

As at Dec 2015 Total loan Netting off Exposure Collateral portfolio agreements after 51-100% Coverage Shs 000 (cash accured) netting off Shs 000 over 100% Shs000 Shs000

Secured loans 750,896,923 2,410,956 784,485,966 71,811,327 679,085,596 Partly secured loans by cash 289,068,497 - 289,068,497 13,807,116 275,261,381

Total 1,039,965,420 2,410,956 1,073,554,463 85,618,443 954,346,977

84 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Loans and advances to customers are secured mainly by collateral in the form of charges over land and buildings and/or plant and machinery or corporate guarantees. Micro loans can also be secured by chattels.

Loans and advances are summarised as follows: 2016 2015 Shs ‘000 Shs ‘000

Neither past due nor impaired 1,205,868,036 973,990,998 Past due but not impaired 30,117,205 38,520,080 Impaired 35,641,099 27,454,342

Gross loans and advances 1,271,626,340 1,039,965,420 Less: Allowance for impairment (23,923,555) (19,738,068)

Net loans and advances 1,247,702,785 1,020,227,352

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loans and advance portfolio and debt securities based on the following:

• The Bank exercises stringent controls over granting new loans. • 94.8% (2015: 93.7%) of the loans and advances portfolio are neither past due nor impaired. • 100.0% (2015: 100.0%) of the investments in debt securities are government securities.

Loans and advances neither past due nor impaired

The quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Bank, as follows:

2016 2015 Shs ‘000 Shs ‘000 Standard 1,157,002,417 932,918,680 Watch 48,860,768 41,072,318

Total 1,205,863,185 973,990,99

Loans and advances past due but not impaired

Micro loans that are less than 30 days overdue and other loans that are less than 90 days past due are not considered im- paired, unless other information is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows:

2016 2015 Shs ‘000 Shs ‘000

Past due up to 30 days 13,381,888 24,011,595 Past due 31-60 days 15,491,136 7,813,362 Past due 61-89 days 1,244,181 6,695,123

Total 30,117,205 38,520,080

CENTENARY BANK l Annual Report & Financial Statements 2016 85 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Of the total gross amount of impaired loans, the following amounts have been individually assessed for impairment:

2016 2015 Shs ‘000 Shs ‘000

Loans individually assessed for impairment by category

Commercial loans 11,465,779 7,994,307 Micro loans 7,777,038 5,223,478 Home improvement loans 1,305,797 892,422 Agricultural loans 9,679,014 5,752,261 Salary loans 3,405,364 7,233,459 Overdrafts 2,008,107 358,415

35,641,099 27,454,342

Gross loans and advances by category

Commercial loans 434,363,218 381,170,822 Micro loans 190,398,516 167,374,534 Home improvement loans 62,526,723 46,018,861 Agricultural loans 210,555,752 125,090,281 Salary loans 304,129,711 252,889,344 Overdrafts 36,025,021 35,545,430 Staff loans 33,627,399 31,876,148

Gross loans and advances 1,271,626,340 1,039,965,420

Less: Provision for impairment of loans and advances

Individually assessed (15,764,514) (12,892,365) Collectively assessed (8,159,041) (6,845,703)

Net loans 1,247,702,785 1,020,227,352

Other financial assets not impaired

Carrying amounts: Balances with Bank of Uganda 226,920,198 97,215,868 Placements with other banks 56,630,549 92,522,927 Investment securities- Held-to-maturity 337,141,441 409,067,927 Investment securities- Held for trading 90,784,201 31,885,743 Other assets 37,006,187 26,616,926

Total 748,482,576 657,309,391

86 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

These are low risk assets which did not exhibit any indicators of impairment as at year end. Movement in provisions for impairment of loans and advances in the statement of financial position are as follows:

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

Non-performing loans - Identified loss:

At 1 January 2016 41,569 708,984 11,918,444 142,388 80,980 12,892,365 Impaired accounts written off - (3,843,046) (7,141,836) (35,488) (242,972) (11,263,342) Additional identified impairment 618,604 5,606,653 10,268,278 364,248 184,986 17,042,769 Impairments released due (10,875) (185,467) (3,117,819) (37,248) (21,184) (3,372,593) to improved status Movement in interest suspended during the year 0 614,706 (149,644) - 253 2,607,015 At 31 December 2016 649,298 2,901,830 11,777,423 433,900 2,063 15,764,514

Performing loans - Unidentified loss:

At 1 January 2016 267,604 1,182,292 4,843,239 159,508 393,060 6,845,703 Net provisions raised 29,407 391,980 589,473 21,800 280,678 1,313,338 At 31 December 2016 297,011 1,574,272 5,432,712 181,308 673,738 8,159,041 Total 946,309 4,476,102 17,210,135 615,208 675,801 23,923,555

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

Non-performing loans - Identified loss:

At 1 January 2015 147,396 395,872 13,619,950 108,404 80,980 14,352,602 Impaired accounts written off (78,283) (1,200,197) (6,025,002) (157,864) - (7,461,346) Additional identified impairment 120,777 1,703,144 13,679,404 204,827 - 15,708,152 Impairments released due (167,811) (383,317) (9,680,162) (12,979) - (10,244,269) to improved status Movement in interest suspended during the year 19,490 193,482 324,254 - - 537,226 At 31 December 2015 41,569 708,984 11,918,444 142,388 80,980 12,892,365

Performing loans - Unidentified loss: At 1 January 2015 229,859 807,579 4,215,263 129,458 54,569 5,436,728 Net provisions raised 37,745 374,713 627,976 30,050 338,491 1,408,975 At 31 December 2015 267,604 1,182,292 4,843,239 159,508 393,060 6,845,705 Total 309,173 1,891,276 16,761,683 301,897 474,040 19,738,068

CENTENARY BANK l Annual Report & Financial Statements 2016 87 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

Non-performing loans - Identified loss:

At 1 January 2016 41,569 708,984 11,918,444 142,388 80,980 12,892,365 Impaired accounts written off - (3,843,046) (7,141,836) (35,488) (242,972) (11,263,342) Additional identified impairment 618,604 5,606,653 10,268,278 364,248 184,986 17,042,769 Impairments released due to (10,875) (185,467) (3,117,819) (37,248) (21,184) (3,372,593) improved status Movement in interest 0 614,706 (149,644) - 253 465,315 suspended during the year At 31 December 2016 649,298 2,901,830 11,777,423 433,900 2,063 15,764,514

Performing loans - Unidentified loss: At 1 January 2016 267,604 1,182,292 4,843,239 159,508 393,060 6,845,703 Net provisions raised 29,407 391,980 589,473 21,800 280,678 1,313,338 At 31 December 2016 297,011 1,574,272 5,432,712 181,308 673,738 8,159,041 Total 946,309 4,476,102 17,210,135 615,208 675,801 23,923,555

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

Non-performing loans - Identified loss:

At 1 January 2015 147,396 395,872 13,619,950 108,404 80,980 14,352,602 Impaired accounts written off (78,283) (1,200,197) (6,025,002) (157,864) (7,461,346) Additional identified impairment 120,777 1,703,144 13,679,404 204,827 - 15,708,152 Impairments released due to (167,811) (383,317) (9,680,162) (12,979) - (10,244,269) improved status

Movement in interest 19,490 193,482 324,254 - - 537,226 suspended during the year At 31 December 2015 41,569 708,984 11,918,444 142,388 80,980 12,892,365

Performing loans - Unidentified loss: At 1 January 2015 229,859 807,579 4,215,263 129,458 54,569 5,436,728 Net provisions raised 37,745 374,713 627,976 30,050 338,491 1,408,975 At 31 December 2015 267,604 1,182,292 4,843,239 159,508 393,060 6,845,703 Total 309,173 1,891,276 16,761,683 301,897 474,040 19,738,068

88 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Movement in provisions for impairment of loans and advances in the statement of comprehensive income are as follow:

2016 2015 Shs ‘000 Shs ‘000 Provision for impairment losses

Additional identified impairment 17,042,769 15,708,152 Additional unidentified impairment 1,313,337 1,408,975 18,356,106 17,117,127

Reduction due to improved status Identified impairment (3,372,593) (10,244,269) 3,372,593 10,244,269

Provisions for the year 18,356,106 17,117,127 Reductions in provision for impairment 3,372,593 (10,244,269) Total statement of comprehensive income movement 14,983,513 6,872,858

Concentration of Risk

Economic sector risk concentrations within the customer loan portfolio were as follows: 2016 2016 Shs ‘000 Shs ‘000 % Credit commitments Sector analysis by industry Agriculture 218,648,695 17.2 1,136,636 Manufacturing 8,292,795 0.7 10,405 Trade and commerce 231,312,941 18.2 31,112,445 Transport and utilities 25,593,245 2.0 334,295 Building and construction 303,136,043 23.8 2,240,021 Other services 484,642,621 38.1 3,599,564 1,271,626,340 100 38,433,366

2015 2015 Shs ‘000 Shs ‘000 % Credit commitments Sector analysis by industry Agriculture 180,047,716 17.3 1,002,610 Manufacturing 7,890,510 0.8 1,970,418 Trade and commerce 205,952,558 19.8 14,026,154 Transport and utilities 22,443,306 2.2 122,600 Building and construction 245,999,992 23.7 16,253,330 Other services 377,631,338 36.3 4,076,694 1,039,965,420 100 37,451,806

CENTENARY BANK l Annual Report & Financial Statements 2016 89 NOTES TO THE FINANCIAL STATEMENTS (continued...)

As at 31 December 2016, the Bank had no loans and as standard and watch in the bank’s internal credit risk advances to a single borrower or group of related grading system. Investments in debt securities carried borrowers exceeding 25.0% of core capital (31 at fair value through profit or loss are not assessed for December 2015: Nil). impairment but are subject to the same internal grading system. Credit Related Commitments Past due but not impaired loans The primary purpose of these instruments is to ensure that funds are available to a customer as required. Past due but not impaired loans other than those carried Guarantees and standby letters of credit, which at fair value through profit or loss, are those for which represent irrevocable assurances that the Bank will contractual interest or principal payments are past due, make payments in the event that a customer cannot but the bank believes that impairment is not appropriate meet its obligation to third parties, carry the same credit on the basis of the level of securit/collateral available risk as loans. Documentary and commercial letters of and/or the stage of collection of amounts owed to the credit, which are written undertakings by the Bank on bank. behalf of the customer authorizing a third party to draw drafts up to a stipulated amount under specific terms Loans with renegotiated terms and conditions, are collateralized by the underlying shipments of goods to which they relate and therefore Loans with renegotiated terms are loans that have been carry less risk than a direct borrowing. restructured due to deterioration in the borrower’s financial position and where the bank has made Commitments to extend credit represent unused concessions that it would not otherwise consider. Once portions of authorizations to extend credit in the form the loan is restructured it remains in this category for at of loans, guarantees or letters of credit. With respect to least one year and returned to normal category there credit risk on commitments to extend credit, the Bank after satisfactory performance. is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since Allowances for impairment most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank establishes an allowance for impairment losses on assets carried at amortized cost or classified The Bank monitors the term of maturity of credit as available for sale that represents its estimate of commitments because longer-term commitments incurred losses in its loan and investment debt security generally have a greater degree of credit risk than portfolio. The main components of this allowance are shorter-term commitments. a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous Impaired loans and advances assets in respect of losses that have been incurred but have not been identified on loans that are considered Individually impaired loans and securities are loans and individually insignificant as well as individually significant advances and investments in debt securities (other exposures that were subject to individual assessment for than those carried at fair value through profit or loss) impairment but not found to be individually impaired. for which the bank determines that there is objective Assets carried at fair value through profit or loss are evidence of impairment and it does not expect to collect not subject to impairment testing as the measure of fair all principal and interest due according to the contractual value reflects the credit quality of each asset. terms of the loan agreement. These loans are graded

90 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Write-off policy from legal and regulatory requirements and generally accepted standards of corporate behavior. Operational The Bank writes off a loan or an investment debt risks arise from all the Bank’s operations. security balance, and any related allowances for The Bank’s objective is to manage operational risk impairment losses, when the Bank Credit Committee so as to balance the avoidance of financial losses and determines that the loan or security is uncollectible. damage to the Bank’s reputation with overall cost ef- fectiveness and to avoid control procedures that This determination is made after considering restrict initiative and creativity. information such as the occurrence of significant changes in the borrower’s/issuer’s financial position c) Market Risk such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not Market risk arises from decrease in the market value be sufficient to pay back the entire exposure. For of portfolio of financial instruments caused by adverse smaller balance standardized loans, write-off decisions movements in the market variables such as currency generally are based on a product-specific past due exchange rates, interest rates, credit spreads and status. implied volatilities on all the above. The objective of market risk management is to manage and control Collateral held market risk exposures within acceptable limits, while optimizing the return on risk. The Board grants the The Bank holds collateral against loans and advances general authority to take on market risk exposures to to customers in the form of mortgage interests the Board Asset and Liability Committee (ALCO). over property such as land and buildings and plant and machinery, other registered securities over The ALCO sets market risk standards and policies to assets e.g. chattels for micro loans, and corporate ensure that the measurement, reporting, monitoring guarantees. Estimates of fair value are based on the and management of market risk is maintained. The day value of collateral assessed at the time of borrowing, to day implementation of these policies rests with the and generally are not updated except when a loan is Treasury Department. individually assessed as impaired. Collateral generally is not held over loans and advances to banks within The Bank manages risk through a range of market the board approved risk tolerance limit, except when risk and capital risk limits. Stress testing and basic securities are held as part of reverse repurchase risk management measures (permissible instruments, and securities borrowing activity. Collateral usually concentration of exposures, gap limits and maximum is not held against investment securities and no such tenor) are used to facilitate this process. collateral was held at 31 December, 2015 or 31 December, 2014. As an internal requirement, the (i) Interest Rate Risk forced sale value of the col- lateral security is over and above the amount of loans and advances disbursed. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest b) Operational Risk rates on its financial position and cash flows. Interest margins may increase as a result of such changes Operational risk is the risk of direct or indirect loss but may reduce or create losses in the event that arising from a wide variety of causes associated with unexpected movements arise. The Asset and Liability the Bank’s processes, personnel, technology and Committee sets limits on the level of mismatch of infrastructure, and from external factors other than interest rate repricing that may be undertaken, which credit, market and liquidity risks such as those arising is monitored monthly.

CENTENARY BANK l Annual Report & Financial Statements 2016 91 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Methods of Measuring and Managing The positive or negative gap is multiplied by the assumed interest rate changes to derive the Earnings at Risk the Interest Rate Risk: (EaR). The EaR method helps to estimate how much the earnings might be impacted by an adverse movement in There are a good number of techniques and tools interest rates. The assumed changes in interest rate are available for measuring and managing interest rate estimated on basis of past trends, forecasting of interest risk ranging from simple calculation to highly complex rates, etc. The off-statement of financial position items simulations and modeling. The technique that Centenary are excluded from the gap report because the Bank Bank utilizes is explained below: does not bear any interest rate risk on these items.

Gap Analysis: The table on page 85 summarizes the Bank’s exposure to interest rate risks. Included in the table are the Bank’s Under this, interest sensitive assets and liabilities are assets and liabilities at carrying amounts, categorized by classified into various time bands according to their the earlier of contractual re-pricing or maturity dates. maturity in the case of fixed interest rates, and residual maturity towards next repricing date in the case of The carrying amounts of derivative financial instruments floating interest rates. which are principally used to reduce the exposure to interest rate movements are included in ‘Other Assets’ The size of the gap in a given time band is analyzed to and ‘Other Liabilities” under the heading ‘Non-interest study the interest rate exposure and the possible effects Bearing’. The off-statement of financial position gap on the Bank’s earnings. Items in assets and liabilities are represents the net notional amounts of all interest- captured into various buckets, using judgmental factors sensitive derivative financial instruments. by studying behavioral patterns, customer segmentation, and roll over history, etc., on a continuous basis which eventually leads to a dynamic gap analysis.

In order to evaluate the earnings exposure, interest Rate Sensitive Assets (RSA) in each time band are netted off against the interest Rate Sensitive Liabilities (RSL) to produce a repricing “Gap” for that time band.

A positive gap indicates that the Bank has more RSA than RSL. A positive or asset sensitive gap means that an increase in market interest rates could cause an increase in the net interest margin and vice versa. Conversely, a negative or liability sensitive gap implies that the Bank’s net interest margin could decline as a result of increase in market rates and vice versa.

92 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Interest rate risk exposure Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016 Financial assets Cash and short-term funds 140,139,726 - - - 173,959,656 314,099,382 Due from other banks 38,847,822 - - - 17,782,727 56,630,549 Investments 120,977,569 306,948,073 - - - 427,925,642 Loans and advances to customers 14,898658 374,226,582 773,461,964 54,998,321 30,117,260 1,247,702,785 Other financial assets - - - - 37,006,187 37,006,187 Total financial assets 314,863,775 681,174,655 773,461,964 54,998,321 258,865,830 2,083,364,545

Non-financial assets Property & Equipment and intangible assets - - - - 213,309,662 213,309,662 Other assets - - - - 19,075,104 19,075,104 Total non-financial assets - - - - 232,384,766 232,384,766 Total assets 314,863,775 681,174,655 773,461,964 54,998,321 491,250,596 2,315,749,311

Financial Liabilities Due to customers and other banks 33,675,809 1,215,714,655 350,778 380,735,117 - 1,630,476,359 Managed/ borrowed funds - - 107,603,439 - 10,431,213 118,034,652 Other liabilities - - - - 25,560,242 25,560,242 Total liabilities 33,675,809 1,215,714,655 107,954,217 380,735,117 35,991,455 1,774,071,253

Non-financial liabilities Other non-financial liabilities - - - - 56,661,089 56,661,089 Total liabilities 33,675,809 1,215,714,655 107,954,217 380,735,117 92,652,544 1,830,732,342

Net on-SOFP gap 281,187,966 (534,540,000) 665,507,747 (325,736,796) 222,874,375 309,293,292 Net off-SOFP gap - - 38,433,366 - - 38,433,366 Total interest sensitivity gap 281,187,966 (534,540,000) 703,941,113 (325,736,796) 222,874,375 347,726,658

CENTENARY BANK l Annual Report & Financial Statements 2016 93 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

31 December 2015 Financial assets Cash and short-term funds - - - - 176,919,896 176,919,896 Due from other banks 81,933,951 - - - 10,588,976 92,522,927 Investments 67,777,422 373,175,635 - - - 440,953,057 Loans and advances to customers 11,761,829 255,438,624 471,382,697 52,953,389 228,690,813 1,020,227,352 Other financial assets - - - - 26,616,926 26,616,926 Total financial assets 161,473,202 628,614,259 471,382,697 52,953,389 442,816,611 1,757,240,158

Non-financial assets Property & Equipment and intangible assets - - - - 199,318,526 199,318,526 Other assets - - - - 17,841,671 17,841,671 Total non-financial assets - - - - 219,160,197 217,160,197 Total assets 161,473,202 628,614,259 471,382,697 52,953,389 659,976,808 1,974,400,355

Financial Liabilities Due to customers and other banks 20,249,258 1,072,048,661 732,145 - 294,241,303 1,387,271,367 Managed/ borrowed funds - - 102,045,663 - 10,284,689 112,330,352 Other liabilities - - - - 17,252,167 17,252,167 Total financial liabilities 20,249,258 1,072,048,661 102,777,807 - 321,778,159 1,516,853,886

Non-financial liabilities Other non-financial liabilities - - - - 56,921,336 56,921,336 Total liabilities 20,249,258 1,072,048,661 102,777,807 - 378,699,495 1,573,775,222

Net on-SOFP gap 141,223,944 (443,434,402) 368,604,890 52,953,389 121,038,452 240,386,273 Net off-SOFP gap - - 37,451,805 - - 37,451,805 Total interest sensitivity gap 141,223,944 (443,434,402) 406,056,695 52,953,389 121,038,452 277,838,078

94 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The re-pricing gaps for the Bank’s portfolios are shown below. Positions are managed by currency to take account of the fact that interest rates are unlikely to move together. All assets and liabilities are sited in gap intervals based on their re-pricing characteristics. Assets and liabilities, for which no specific contractual re-pricing or maturity dates exist are placed in gap intervals based on management judgment, where appropriate, based on the most likely re-pricing behavior. The gap is the difference between the rate sensitivity of each asset and the rate sensitivity of each liability.

>3months >6months Within 3 but within 6 but within After 12 months months 12 months months Shs million Shs million Shs million Shs million

2016 Interest rate sensitivity gap 751,120 170,559 327,209 828,110 Cumulative interest rate sensitivity gap (751,120) (580,561) (253,353) 574,757 Cumulative interest rate sensitivity gap as a percentage of total assets (32%) (25%) (11%) 25%

2015 Interest rate sensitivity gap 745,335 131,323 311,802 523,604 Cumulative interest rate sensitivity gap (745,335) (614,012) (302,210) 221,393 Cumulative interest rate sensitivity gap as a percentage of total assets (38%) (31%) (15%) 11%

Interest sensitivity analysis

The table below shows the increase / (decline) in 12-month earnings for upward and downward instantaneous parallel rate shocks.

Impact on profit before tax 2016 2015 Shs million Shs million + 500 bps rate shock 92,422 16,125 - 500 bps rate shock (92,422) (16,125) + 100 bps rate shock 18,484 3,225 - 100 bps rate shock (18,484) (3,225)

Assuming no management intervention, a parallel 500bps increase in all yield curves would increase the forecast net interest income for the next financial year by Shs 92,422 million. A parallel decrease in all yield curves would decrease the forecast net interest income for the next financial year by Shs 92,422 million. Whilst a parallel 100bps increase in all yield curves would increase the forecast net interest income for the next financial year by Shs 18,484 million. A parallel decrease in all yield curves would decrease the forecast net interest income for the next financial year by Shs 18,484 million.

Impact on equity 2016 2015 Shs million Shs million + 500 bps rate shock 24,295 20,031 - 500 bps rate shock (24,295) (20,031) + 100 bps rate shock 4,859 4,006 - 100 bps rate shock (4,859) (4,006)

CENTENARY BANK l Annual Report & Financial Statements 2016 95 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Assuming no management intervention, a parallel 500bps increase in all yield curves would increase the equity for the next financial year by Shs 24,295 million. A parallel decrease in all yield curves would decrease the equity for the next financial year by Shs 24,295 million. Whilst a parallel 100bps increase in all yield curves would increase the equity for the next financial year by Shs 4,859 million. A parallel decrease in all yield curves would decrease the equity for the next financial year by Shs 4,859 million.

(ii) Currency risk

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Asset and Liability Committee sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December 2016 and 31 December 2015. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by currency.

EUROS GBP USD TZ & Kshs TOTAL 31 December 2016 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets

Cash and balances at the Central Bank 1,188,582 11,286,970 2,800,142 15,275,694 Due from other banks 35,966 22,316,153 5,939,610 28,291,729 Investments - - 18,834,466 18,834,466 Loans and advances to customers - 36,009,216 - 36,009,216 Other accounts receivable 29,139 1,613,333 11,779 1,654,251 Total assets 1,253,687 71,225,672 27,585,997 100,065,356

Liabilities

Cuustomer deposits and balances due to other banks 620,746 67,474,291 16,530,004 84,625,041 Managed funds Other accounts payable 2,487 1,679,168 19,292 1,700,947 Total liabilities 623,233 69,153,459 16,549,296 86,325,988 Net on-SOFP position 630,454 2,072,213 11,036,701 13,739,368 Net off-SOFP position - 10,922,416 - - Overall net position 630,454 12,994,629 11,036,701 24,661,784 % of Net position over core capital 0.16 3.26 2.77 6.19

GBP USD OTHERS TOTAL 31 December 2015 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Total assets 2,460,695 52,953,457 10,869,187 66,283,339 Total liabilities 1,286,449 53,709,967 11,949,843 66,946,259 Net on-SOFP position 1,174,246 (756,510) (1,080,656) (662,920) Net off-SOFP position 168,986 7,192,088 146,776 7,507,850 Overall net position 1,343,232 6,435,578 (933,880) 6,844,930 % of Net position over core capital 0.42 2.03 (0.30) 2.16

96 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The table below shows the increase (decline) in 12 month earnings for upward (appreciation) and downward (de- preciation) of the shilling on all foreign currencies on instantaneous parallel rate changes over the next 12 months.

Parallel rate shocks: 2016 2015 Shs million Shs million +500bps exchange rate change 587 331 -500bps exchange rate change (587) (331) +100bps exchange rate change 117 66 -100bps exchange rate change (117) (66)

Assuming no management intervention, a parallel appreciation of the shilling by 500bps on all foreign currencies would increase the forecast earnings by Shs 587 million whilst a fall or depreciation would reduce forecast earn- ings by Shs 587 million.

A 100bps appreciation of the shilling on all currencies would increase forecast earnings for the next financial year by Shs 117 million whilst a full or depreciation shall reduce forecast earnings by Shs 117 million. a. Liquidity Risk

Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, ma- turing deposits, and calls on cash settled contingencies. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. Bank of Uganda requires that the Bank maintain a cash reserve ratio of 8.0% of total depos- its. In addition, Bank of Uganda sets limits on the minimum proportion of liquid funds available to meet such calls at 20% and other borrowing facilities that should be in place to cover withdraws at unexpected levels of demand. The treasury department monitors liquidity ratios on a daily basis

The Bank incorporates the following elements as part of a cohesive liquidity management process:

• Short term and long term cash flow managements • Maintaining a structurally sound financial position • Foreign currency liquidity management • Preserving a diversified funding base • Undertaking regular liquidity stress testing • Maintaining adequate liquidity contingency plan

CENTENARY BANK l Annual Report & Financial Statements 2016 97 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The table below presents the undiscounted cash flows of the bank’s financial assets and liabilities by remaining contractual maturities at the reporting date.

2016 <1month 1-12 months 1-5 years over 5 years Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets Cash and short-term funds 314,099,382 - - - 314,099,382 Due from other banks 56,630,549 - - - 56,630,549 Investments 120,977,569 306,948,073 - - 427,925,642 Loans and advances at amortized cost 18,778,631 471,684,290 958,854,965 182,598,049 1,631,915,935 Other assets 16,949,685 18,130 20,038,372 - 37,006,187 527,435,816 778,650,493 978,893,337 182,598,049 2,467,577,695 Liabilities Due to customers and other banks 1,504,429,690 125,695,891 350,778 - 1,630,476,359 Managed funds - - 10,431,212 - 10,431,212 Borrowed funds - 10,478,570 81,080,038 16,044,832 107,603,439 Other liabilities 2,707,500 2,170,713 20,682,029 - 25,560,242 1,507,137,190 138,345,174 112,544,057 16,044,832 1,774,071,252

Liquidity gap (979,701,374) 640,305,319 866,349,280 166,553,217 693,506,443

Off balance sheet items - - 38,433,366 - 38,433,366

Net liquidity gap (979,701,374) 640,305,319 904,782,646 166,553,217 731,939,809

The table below presents the maturity analysis of the bank’s assets and liabilities at their carrying amounts.

2015 <1month 1-12 months 1-5 years over 5 years Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Assets Cash and short-term funds 176,919,896 - - - 176,919,896 Due from other banks 92,522,927 - - - 92,522,927 Investments 67,777,422 373,175,635 - - 440,953,057 Loans and advances at amortized cost 18,646,871 404,965,169 747,339,479 83,928,124 1,254,879,643 Other assets 9,413,115 826,664 16,377,147 - 26,616,926 365,280,231 778,967,468 763,716,626 83,928,124 1,991,892,449 Liabilities Due to customers and other banks 1,281,084,057 105,455,165 732,145 - 1,387,271,367 Managed/Borrowed Funds - - 10,284,689 - 10,284,689 Other liabilities - - 65,411,310 36,634,352 102,045,662 Capital and Reserves - 262,291 16,989,876 - 17,252,167

1,281,084,057 105,717,456 93,418,020 36,634,352 1,516,853,885

Liquidity gap (915,803,826) 673,250,012 670,298,606 47,293,772 475,038,564

Off balance sheet items 14,123,870 21,998,716 1,329,219 - 37,451,805

Net liquidity gap (901,679,956) 695,248,728 671,627,825 47,293,772 512,490,369

98 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The table below presents the cash flows of the bank’s financial assets and liabilities at the net carrying amounts by remaining contractual maturities at the reporting date.

2016 <1month 1-12 months 1-5 years over 5 years Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets Cash and short-term funds 314,099,382 - - - 314,099,382 Due from other banks 56,630,549 - - - 56,630,549 Investments 120,977,569 306,948,073 - - 427,925,642 Loans and advances at amortised cost 15,267,180 383,483,163 779,556,882 69,395,560 1,247,702,785 Other assets 27,642,547 27,061,828 214,686,578 - 269,390,953 534,617,227 717,493,064 994,243,460 69,395,560 2,315,749,311 Liabilities Due to customers and other banks 33,675,809 1,215,714,655 350,778 380,735,117 1,630,476,359 Managed funds - - 10,431,212 - 10,431,212 Borrowed funds - 10,478,570 81,080,038 16,044,832 107,603,439 Other liabilities 8,709,395 6,982,677 66,529,260 - 82,221,332 42,385,204 1,233,175,902 158,391,288 396,779,949 1,830,732,342

Net liquidity gap 492,232,023 (515,682,838) 835,852,172 (327,384,389) 485,016,969

Off balance sheet gap - - 38,433,366 - 38,433,366

Net liquidity gap 492,232,023 (515,682,838) 874,285,538 (327,384,389) 523,450,335

2015 <1month 1-12 months 1-5 years over 5 years Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets Cash and short-term funds 176,919,896 - - - 176,919,896 Due from other banks 92,522,927 - - - 92,522,927 Investments 67,777,422 373,175,635 - - 440,953,057 Loans and advances at amortised cost 15,160,058 329,239,975 607,593,072 68,234,247 1,020,227,352 Other assets 20,029,196 19,094,369 126,798,109 77,855,449 243,777,123 372,409,499 721,509,979 734,391,181 146,089,696 1,974,400,355 Liabilities Due to customers and other banks 1,281,084,057 105,455,165 732,145 - 1,387,271,367 Managed funds - - 10,284,689 - 10,284,689 Borrowed funds - - 65,411,310 36,634,352 102,045,662 Other liabilities 7,856,919 6,299,212 60,017,373 - 74,173,504 1,288,940,976 111,754,377 136,445,517 36,634,352 1,573,775,222

Net liquidity gap (916,531,477) 609,755,602 597,945,664 109,455,344 400,625,133

Off balance sheet gap 14,123,870 21,998,716 1,329,219 - 37,451,805

Net liquidity gap (902,407,607) 631,754,318 599,274,883 109,455,344 438,076,938

CENTENARY BANK l Annual Report & Financial Statements 2016 99 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Fair value measurement

Fair value versus carrying amounts of financial assets and liabilities carried at amortized cost. The fair values of financial assets and liabilities together with the carrying value shown in the statement of financial position are analyzed as follows:

31 December 2016 31 December 2015 Carrying Amount Fair Value Carrying Amount Fair Value Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Assets Cash and short-term funds 314,099,382 314,099,382 176,919,896 176,919,896 Due from other banks 56,630,549 56,630,549 92,522,927 92,522,927 Investments 427,925,642 427,925,642 440,953,057 440,953,057 Loans and advances at amortized cost 1,247,702,785 1,631,915,935 1,020,227,352 1,280,635,278 Other assets 37,006,187 45,140,224 26,616,926 32,765,779 2,083,364,545 2,475,711,732 1,757,240,158 2,023,796,937

Liabilities Due to customers and other banks 1,630,476,359 1,630,618,748 1,387,271,367 1,387,519,869 Managed funds 10,431,212 14,665,481 10,284,689 13,775,486 Borrowed funds 107,603,439 151,282,153 102,045,662 153,336,422 Other financial liabilities 25,560,242 33,955,554 17,252,167 72,628,067 1,774,071,252 1,830,521,936 1,516,853,885 1,627,259,844

Fair value hierarchy

At 31 December 2016 Level 1 Level 2 Level 3 Total Shs‘000 Shs‘000 Shs‘000 Shs‘000 Assets measured at fair value - - Government securities at fair value - 90,784,201 - 90,784,201

Assets and liabilities not measured at fair value for which fair values have been disclosed Loans and advances - - 1,631,915,935 1,631,915,935 Government securities held to maturity - 337,141,441 - 337,141,441 Other Assets - - 45,140,224 45,140,224 Managed funds - - 14,665,481 14,665,481 Borrowed funds - - 151,282,153 151,282,153 Other liabilities - - 33,955,554 33,955,554

At 31 December 2015 Level 1 Level 2 Level 3 Total Shs‘000 Shs‘000 Shs‘000 Shs‘000 Assets at fair value - - Government securities at fair value - 31,885,743 - 31,885,743

Assets and liabilities not measured at fair value for which fair values have been disclosed Loans and advances - - 1,280,635,278 1,280,635,278 Government securities held to maturity - 409,067,314 - 409,067,314 Other Assets 32,765,779 32,765,779 Managed funds - - 13,775,486 13,775,486 Borrowed funds - - 153,336,422 153,336,422 Other liabilities - - 72,628,067 72,628,067

100 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The fair value of the financial assets and liabilities is included at the price that would be received to sell an asset or paid. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

• Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Bank based on param- eters such as interest rates, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.

• Fair value of the treasury bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by dis- counting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

• Fair values of the Bank’s interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. The own non- performance risk as at 31 December 2015 was assessed to be insignificant. b. Financial instruments not measured at fair value i. Loans and advances The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. ii. Government securities and investments held-to-maturity The fair value for these held-to-maturity assets is based on market prices. Where this information is not avail- able, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. The carrying amount of investment securities is a reasonable approximation of fair value. iii. Deposits due to customers and other banks The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand and this is the carrying amount. The estimated fair value of interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity. The carrying amounts are a reasonable approximation of this. iv. Borrowings and managed funds The interest rates charged on borrowings held by the bank based on WACC or other bases for determining market interest rates. The interest rates are variable and in line with market rates for similar facilities. The fair values of such interest bearing borrowings not quoted in an active market is based on discounted cash flows using interest rates for similar facilities.

The significant unobservable inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy are as shown below:

Valuation technique Significant Range (weighted average) unobservable inputs 2016 2015 Loans and advances DCF method WACC 24.5% 21.8% Managed funds and borrowed funds DCF method WACC 9.9% 10.3% Other assets DFC method WACC 14.6% 12.4%

CENTENARY BANK l Annual Report & Financial Statements 2016 101 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Current and Non-Current Assets and Liabilities

The tables below show the current and non-current assets and liabilities as at 31 December 2016 and 2015 respectively:

Current and non-current assets and liabilities as at 31 December 2016

Not more than 12 More than 12 Note months after the months after the Total reporting period reporting period Shs ‘000

Assets

Cash and balances with Bank of Uganda 15 314,099,382 - 314,099,382

Placements with other banks 16 56,630,549 - 56,630,549

Government securities –held for trading 17(a) 79,390,295 11,393,906 90,784,201

Government securities –held to maturity 17(b) 337,141,441 - 337,141,441

Loans and advances to customers 18 492,612,877 818,089,908 1,247,702,785

Other assets 19 30,781,697 23,483,382 54,256,079

Deferred capital expenditure 20 1,902,568 - 1,902,568

Finance lease on leasehold land 21(a) - 2,134,831 2,134,831

Property and equipment 21(b) - 202,988,247 202,988,247

Intangible assets 21(c) - 4,219,989 4,219,989

Deferred income tax asset 22 - 3,880,239 3,880,239

Total assets 1,249,558,809 1,066,190,502 2,315,749,311

Liabilities

Customer deposits 23 1,504,429,690 122,184,475 1,626,614,165

Deposits from other banks 24 3,862,194 - 3,862,194

Inter-bank borrowing 25 - - -

Managed funds 26 657,000 9,774,212 10,431,212

Borrowed funds 27 12,942,864 94,660,575 107,603,439

Current income tax payable 14 6,607,864 - 6,607,864

Deferred grants 30 144,855 246,877 391,732

Other liabilities 28 69,888,036 2,347,078 72,235,114

Provision for litigation 29 2,986,622 - 2,986,622

Total liabilities 1,601,519,125 229,213,217 1,830,732,342

102 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Current and non-current assets and liabilities as at 31 December 2015

Not more than 12 More than 12 Note months after the months after the Total Shs ‘000 reporting period reporting period Shs ‘000

Assets

Cash and balances with Bank of Uganda 15 176,919,896 - 176,919,896

Placements with other banks 16 92,522,927 - 92,522,927

Government securities –held for trading 17(a) 10,882,881 21,002,862 31,885,743

Government securities –held to maturity 17(b) 409,067,314 - 409,067,314

Loans and advances to customers 18 290,939,908 729,289,444 1,020,227,352

Other assets 19 19,182,826 18,747,988 37,930,814

Deferred capital expenditure 20 1,801,287 - 1,801,287

Finance lease on leasehold land 21(a) - 2,178,446 2,178,446

Property and equipment 21(b) - 197,655,135 197,655,135

Intangible assets 21(c) - 1,663,391 1,663,391

Deferred income tax asset 22 - 2,548,050 2,548,050

Total assets 1,001,317,039 973,083,316 1,974,400,355

Liabilities

Customer deposits 23 1,276,519,446 103,674,409 1,380,193,855

Deposits from other banks 24 3,071,430 - 3,071,430

Inter-bank borrowing 25 4,006,082 - 4,006,082

Managed funds 26 647,771 9,636,918 10,284,689

Borrowed funds 27 12,274,358 89,771,304 102,045,662

Current income tax payable 14 5,137,889 - 5,137,889

Deferred grants 30 198,420 338,167 536,587

Other liabilities 28 64,686,030 2,172,377 66,858,407

Provision for litigation 29 1,640,621 - 1,640,621

Total liabilities 1,368,182,047 205,593,175 1,573,775,222 c. Capital Management

The Bank monitors the adequacy of its capital using ratios established by Bank of Uganda, which ratios are broadly in line with those for the Bank for International Settlements (BIS). These ratios measure capital adequacy by comparing the Bank’s eligible capital with its statement of financial position assets, off-statement of financial position commitments and market and other risk positions at weighted amounts to reflect their relative risk.

The market risk approach covers the general market risk and the risk of open positions in currencies and debt and equity securities. Assets are weighted according to the amount of capital deemed to be necessary to support them. Four categories

CENTENARY BANK l Annual Report & Financial Statements 2016 103 NOTES TO THE FINANCIAL STATEMENTS (continued...)

of risk weights (0%, 20%, 50%, 100%) are applied; for example, cash and money market instruments have a zero risk weighting which means that no capital is required to support the holding of these assets. Property and equipment carries a 100% risk weighting, meaning that it must be supported by capital equal to 100% of the carrying amount. Certain asset categories have intermediate weightings. Off-statement of financial position credit related commitments and forwards are taken into account by applying different categories of credit conversion factors, designed to convert these items into balance sheet equivalents. The resulting credit equivalent amounts are then weighted for credit risk using the same percentages as for statement of financial position assets.

The Bank’s objectives when managing capital, which is broader than the equity on the face of the statement of financial position, are: • To comply with the capital requirement set by Bank of Uganda; • To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns to the shareholders and; • To maintain a strong capital base to support the development of the Bank’s business.

Capital adequacy and the use of regulatory capital are monitored monthly by management, employing techniques based on guidelines developed by Basel committee as implemented by Bank of Uganda, for supervisory purposes. The required information is filled with Bank of Uganda on a quarterly basis. Bank of Uganda requires each bank to: a. Hold the minimum level of the regulatory capital of UGX 25,000,000,000 (Twenty-five billion); b. Maintain a ratio of total regulatory capital to the risk –weighted assets of not less than 12.0%; and c. Maintain core capital of not less than 8.0% of risk weighted assets. The Bank’s regulatory capital is divided into two tiers: Tier 1 capital (core capital): Share capital, share premium, retained earnings and reserves created by appropriations of retained earnings. The book value of goodwill, current year losses, prohibited loans to insiders; investments in un- consolidated financial statements, deficiencies in provisions for losses and other deductions determined by BOU are deducted in arriving at tier 1 capital.

Tier 2 capital (Supplementary Capital): Revaluation reserves, unidentified impairment allowance, statutory regulatory reserves (reserves created by appropriations of retained earnings), subordinated debt and hybrid capital instruments.

The table below summaries the composition of regulatory capital and the ratios of the Bank, for the years ended 31 December 2016 and 2015. During those two years, the Bank complied with all of the externally imposed capital re- quirements.

2016 2015 Shs 000 Shs 000 Core Capital (Tier 1) Permanent equity 25,116,624 25,116,624 Share premium 1,138,927 1,138,927 Retained earnings 422,951,664 343,613,277 449,207,215 369,868,828 Core Banking System-WIP (43,013,433) (48,728,661) Computer software (4,219,989) (1,663,391) Deferred income tax asset (3,880,239) (2,548,050) Fair value gain on held for trading gains (2,396,994) - Unrealized foreign exchange gains - (377,366) Tier 1 Capital 395,696,560 316,551,360 Supplementary Capital (Tier 2) Unencumbered general provisions for losses 13,097,163 10,796,131 Tier 2 Capital 13,097,163 10,796,131 Total Capital (Tier 1+Tier 2) 408,793,723 327,347,491

The increase of the regulatory capital in the year 2016 is mainly due to the contribution of the current-year profit.

104 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The risk–weighted assets are measured by means of hierarchy of four risk weights classified according to the nature of portfolio holding and reflecting an estimate of credit and market risks associated with each asset and counterparty, tak- ing into account any eligible collateral or guarantees. A similar treatment is adopted for off-statement of financial position exposure, with some adjustments to reflect the more contingent nature of potential losses.

The table on the next page summarizes the composition of the risk weighted assets of the Bank for the years ended 31 December 2016 and 31 December 2015. Statement of financial position

Nominal amounts Risk weighted amounts 2016 2015 2016 2015 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets Notes, coins & other cash assets 87,179,184 79,704,028 0% - - Balances with Bank of Uganda 226,920,198 97,215,868 0% - - Due from commercial banks in Uganda 20,013,356 76,058,502 20% 4,002,671 15,211,700 Due from commercial banks outside Uganda

(1) Rated AAA to AA (-) - - 20% - - (2) Rated A (+) to A (-) 25,584,306 16,281,447 50% 12,792,153 8,140,724 (3) Rated A (-) and non-rated 11,032,887 182,978 100% 11,032,887 182,978 Investment securities 427,925,642 440,953,057 0% - - Loans and advances to customers 1,270,718,858 1,041,300,492 100% 1,270,718,858 1,041,300,492 (net of those secured by cash) Other accounts receivable 58,302,478 41,910,547 100% 58,302,478 41,910,547 Property and equipment 202,988,247 197,655,135 100% 202,988,247 197,655,135

Off-statement of financial position items Contingencies secured by cash collateral 8,654,347 6,407,205 0% - - Guarantees & acceptances 9,726,846 11,937,764 100% 9,726,846 11,937,764 Performance bonds 3,568,036 8,317,813 50% 1,784,018 4,158,907 Documentary credits (trade related) 8,229,101 4,460,935 20% 1,645,820 892,187 Other commitments 8,255,036 6,328,088 50% 4,127,519 3,164,044 Total risk-weighted assets 2,369,098,522 2,028,713,859 1,577,121,497 1,324,554,478

2016 Ratio 2015 Ratio Shs ’000 Shs ‘000 Capital ratios Tier 1 Capital (Core) 395,696,560 25.09% 316,551,360 23.9% Tier 1 + Tier 2 Capital (Total) 408,793,723 25.92% 327,347,491 24.7%

FIA 2004 minimum ratio capital requirement Core capital 8% 8% Total capital 12% 12%

The Bank’s total capital adequacy ratio improved slightly from 24.7% as at December 2015 to 26.0% as at December 2016 mainly due to less cost incured on the new core banking system in the year 2016. Most of the cost were paid for in the year 2015.

CENTENARY BANK l Annual Report & Financial Statements 2016 105 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Tier 1 capital decreased from 28.5% to 24.3% as at 31 December 2015 showing that the Bank is well capitalised. The drop was due to deduction of costs related to the new Core banking system.

The Bank’s total capital adequacy ratio went down from 25.3% as at December 2015 to 26.5% as at December 2016 mainly due to less costs incurred on the New Core banking system in the year 2016. Most of the costs were paid for in the year 2015.

The analysis of Loans and advances to customers (net of those secured by cash) is as below;

2016 2015 Shs 000 Shs 000 Loans and advances to customers Overdrafts 36,025,021 35,545,430 Commercial loans 469,621,690 352,872,208 Micro finance loans 706,234,139 591,373,020 Finance leases 26,118,092 28,298,614 Staff loans 33,627,398 31,876,148 Gross loans and advances 1,271,626,340 1,039,965,420

Add/(Less): Off-market loan Discount 19,035,552 16,377,147 Cash secured loans (900,705) (860,769) Specific provisions (15,070,799) (10,674,838 Interest in suspense (3,971,530) (3,506,468) Net loans and advances 1,270,718,858 1,041,300,492

Trend in risk-weighted assets

Shs million 2012 2013 2014 2015 2016 Total assets 1,122,296 1,451,040 1,635,071 1,974,000 2,315,749 Risk-weighted assets 725,911 862,538 1,029,819 1,324,554 1,577,121

Trends in Risk Weighted Assets

2,500,000

2,000,000

n 1,500,000 Total Assets Shs Millio

1,000,000 Risk-weighted assets

500,000

0 2010 2011 2012 2013 2014 2015 2016

106 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

5 Turnover

The Bank’s turnover is derived substantially from the business of banking and related activities and comprises net interest income, fees and commission income, trading income and other income. These revenues are shown in the statement of comprehensive income and accompanying notes and represent the most appropriate equivalent of turn- over compared with other forms of business enterprise.

6(a) Interest income

2016 2015 Shs ‘000 Shs ‘000 Interest on loans 287,573,689 238,991,345 Interest on treasury bills held to maturity 63,289,753 60,477,780 Interest on treasury bills held for trading 4,504,958 738,291 Interest on treasury bonds 2,282,474 3,008,090 Interest on inter-bank placements 7,542,782 3,569,226 365,193,656 306,784,732

The interest on impaired loans as at 31 December 2016 was Ushs 3.971 billion (2015: Ushs 3.506 billion).

6(b) Gain/Loss from financial instruments at fair value

2016 2015 Shs ‘000 Shs ‘000 Fair value gain/loss on held for trading securities 2,396,994 (1,457,185) 2,396,994) (1,457,185)

7. Interest expense

2016 2015 Shs ‘000 Shs ‘000 Savings accounts 18,082,515 16,139,076 Current accounts 832,720 527,676 Fixed deposit accounts 16,675,854 11,423,325 Managed/borrowed funds 10,218,134 9,276,729 Other financial costs 106,373 109,117 Inter-bank borrowings 901,688 1,633,050 46,817,284 39,108,973

8 Fee and commission income

2016 2015 Shs ‘000 Shs ‘000 Loan processing fees and Commitment fees on overdrafts 18,903,526 16,319,536 Ledger fees 23,870,187 19,059,069 Other commissions and fees 33,432,653 31,612,061 76,206,366 66,990,666

CENTENARY BANK l Annual Report & Financial Statements 2016 107 NOTES TO THE FINANCIAL STATEMENTS (continued...)

9 Foreign exchange income 2016 2015 Shs ‘000 Shs ‘000 Foreign currency trading commission 4,670,640 3,907,899 Revaluation gain 2,607,332 5,583,071 Unrealized revaluation (loss)/gain (220,146) 377,386 7,057,826 9,868,336

10 Other operating income

2016 2015 Shs ‘000 Shs ‘000 Income from bullion van hire 80 1,021 Recovery of written off loans 4,469,236 4,063,117 Sale of ATM cards & banking stationery 5,485,366 4,703,874 Release of unutilized accruals 1,486,789 948,778 Grant income 144,855 631,176 Uncollected ATM cards 498,265 526,601 Other income* 917,319 839,530 13,001,910 11,714,097

*Other income 2016 2015 Shs ‘000 Shs ‘000 Fees on current accounts 79,487 51,238 Gain on sale of securities 51,061 285 Penalties 31,918 37,058 Profit on sale of assets 100,907 230,470 Cash overages 216,660 174,645 Miscellaneous income 97,382 - Early redemption fees 339,904 345,834 917,319 839,530

11 Employee benefits expense 2016 2015 Shs ‘000 Shs ‘000 Staff salaries 80,580,373 73,986,655 Staff bonuses 19,630,928 17,397,398 NSSF contributions 9,373,656 8,202,860 Retirement plan contributions 6,442,052 5,596,838 116,027,009 105,183,751

12 Impairment losses on loans and advances

2016 2015 Shs ‘000 Shs ‘000 Credit losses impairment-Identified 13,670,175 5,463,883 Credit losses impairment-Unidentified 1,313,338 1,408,975 14,983,513 6,872,858

108 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

13 Operating expenses

2016 2015 Shs ‘000 Shs ‘000 Auditors’ remuneration and expenses 364,006 317,402 Software costs 13,194,017 5,362,638 Premises cost 17,279,188 14,474,801 Insurance 9,193,702 7,785,244 Security 3,942,822 3,580,718 Office expenses 16,611,555 12,139,803 Equipment lease expenses 5,182,384 3,940,760 Motor vehicle expenses 2,605,923 2,361,766 Telephone, telex and postage 7,875,797 6,309,518 Corporate Social Investment (CSI) 952,797 636,156 Advertising and marketing 6,591,992 5,057,486 Directors’ fees and other expenses 3,644,606 3,572,454 Consultancy and legal fees 1,749,141 2,368,438 Recruitment and training 3,440,460 2,039,755 Staff transfer 1,053,688 1,118,832 Seminars & conferences 262,801 480,889 Subscription 752,680 616,491 Stationery 5,185,546 4,778,976 Transport & travel 7,546,797 6,225,974 Bank charges 886,093 664,606 Long-term rental amortization 43,615 45,532 Cash shortages and other losses 3,054,679 831,760 Other operating expenses* 1,714,494 1,067,499 113,128,783 85,777,498

*Other operating expenses 2016 2015 Shs ‘000 Shs ‘000 Foreign exchange loss 5,949 117,840 Funeral expenses 64,920 81,303 Business promotion account 576,184 246,741 Annual General Meeting expenses 100,233 83,052 Licence (Bank) 12,909 18,762 Cashiers allowance 263,210 249,863 Loss on sale of assets 10,370 19 Management fees expense 220,071 25,660 Meeting expenses 351,663 231,093 Financial card fees expenses 84,178 1,995 Debt Collection Expenses 24,807 11,171 1,714,494 1,067,499

14 Income tax expense 2016 2015 Shs ‘000 Shs ‘000 Current income tax 25,272,441 23,821,612 Withholding tax expense 14,015,437 12,844,832 Prior year over provision (527,277) 1,092,795 Current year deferred tax credit - (1,805,059) Prior year under provision – deferred tax (804,912) (1,043,397) 37,955,689 34,910,783

CENTENARY BANK l Annual Report & Financial Statements 2016 109 NOTES TO THE FINANCIAL STATEMENTS (continued...)

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

2016 2015 Shs ‘000 Shs ‘000 Profit before income tax 147,864,461 136,512,031 Tax calculated at 30.0% (2015: 30.0%) 44,359,338 40,953,609 Tax effect of: - Expenses not deductible for tax 689,363 767,348 - Income not subject to tax (21,023,156) (19,267,248) - Prior year under provision – deferred tax (804,912) (1,043,397) - Prior year over provision – current tax - 1,092,795 - 20% final tax on treasury bills 14,015,437 12,844,832 Adjustment to under taxation on revalued assets not recognized 719,619 (437,156) Income tax expense 37,955,689 34,910,783

Movement in current tax payable is as follows:- 2016 2015 Shs ‘000 Shs ‘000 At 1 January 5,137,889 5,259,400 Over provision in prior years- tax - 1,092,795 Current income tax expense 39,287,878 36,666,444 Tax paid during year (37,817,903) (37,880,750) At 31 December 6,607,864 5,137,889

15. Cash and balances with Bank of Uganda 2016 2015 Shs ‘000 Shs ‘000 Cash in hand – Uganda Shillings 76,872,793 66,937,234 Cash in hand – Foreign Currency 10,306,391 12,766,794 Bank of Uganda clearing account 86,780,472 97,215,868 Bank of Uganda Repo 140,139,726 -` 314,099,382 176,919,896 Due within < 1 month 314,099,382 176,919,896

Balances on hand and with the Central Bank are non-interest bearing and include the minimum cash reserve requirement. The balance as at 31 December 2016 was Shs 226.9 (2015: Shs 97.2 billion). The mandatory reserve is based on the value of deposits as adjusted in accordance with Bank of Uganda Regulations.

Banks are required to maintain a prescribed minimum cash reserve comprising cash in hand and balances with Bank of Uganda. This reserve is available to finance the Bank’s day-to-day activities; however, there are restrictions as to its use and sanctions for noncompliance. The amount is determined as a percentage of the average outstanding customer depos- its over a cash reserve cycle period of fourteen days. Bank of Uganda Repo and deposit auction is a form of short-term borrowing for Bank of Uganda in government securities. Bank of Uganda sells the government securities to commercial banks, usually on an overnight basis, and buys them back the following day.

110 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

16. Placements with other banks 2016 2015 Shs ‘000 Shs ‘000 Balances with local banks - 3,242 Balances with foreign banks 17,782,727 10,585,734 Placements with local banks 20,013,356 76,055,260 Placements with foreign banks 18,834,466 5,878,691 56,630,549 92,522,927 Due within < 1 month 56,630,549 92,522,927

The weighted average effective interest rate on placement with other banks was 12.0% (2015:12.2%)

17 Government securities

(a) Government securities held for trading 2016 2015 Shs ‘000 Shs ‘000

Government Treasury bills 10,882,881 21,002,862 Government bonds 79,390,295 11,393,906 90,784,201 31,885,743

(b) Government securities held to maturity

2016 2015 Shs ‘000 Shs ‘000 Government treasury bills 337,141,441 409,067,314 337,141,441 409,067,314

Treasury bills are debt securities issued by the Central Bank for a term of three months, six months and twelve months, whilst bonds are also issued for a term of two years, three years, five years and ten years.

The weighted average effective interest rate on treasury bills and bonds was 16.7% (2015: 18.2%) and 17.4% (2015:14.2%) respectively.

Maturity analysis of government securities held-to-maturity

2016 2015 Shs ‘000 Shs ‘000 Short Term (1-3 months) 92,924,383 137,119,628 Medium Term (3-6 months) 131,800,796 115,037,292 Long Term (Over 6 months and within 12 months) 112,416,262 156,910,394 337,141,441 409,067,314

CENTENARY BANK l Annual Report & Financial Statements 2016 111 NOTES TO THE FINANCIAL STATEMENTS (continued...)

18(a) Loans and advances to customers 2016 2015 Shs ‘000 Shs ‘000 Overdrafts 36,025,021 35,545,430 Commercial loans 469,621,690 352,872,208 Micro finance loans 706,234,139 591,373,020 Finance leases (18b) 26,118,092 28,298,614 Staff loans 33,627,398 31,876,148 Gross loans and advances 1,271,626,340 1,039,965,420 Provision for loan impairment – identified losses (15,764,514) (12,892,365) Provision for loan impairment – unidentified losses (8,159,041) (6,845,703) Net loans and advances 1,247,702,785 1,020,227,352

Maturity analysis of loans and advances

2016 2015 Shs ‘000 Shs ‘000 Short Term (1-3 Months) 115,338,916 42,769,615 Medium Term (3-6 Months) 87,563,674 21,622,424 Long Term (Over 6 Months and within 12 months) 250,633,842 246,285,937 Long Term (Over 12 months) 818,089,908 729,287,444 1,271,626,340 1,039,965,420

% 2016 % 2015 Shs ‘000 Shs ‘000 Sector Analysis

Agriculture 17.2 218,648,695 17.3 180,047,716 Manufacturing 0.7 8,292,795 0.8 7,890,510 Trade and Commerce 18.2 231,312,941 19.8 205,952,558 Transport and Utilities 2.0 25,593,245 2.2 22,443,306 Building and Construction 20.1 303,136,043 23.6 245,999,992 Other Services 38.1 484,642,621 36.3 377,631,338 100 1,271,626,340 100 1,039,965,420

18 (b) Finance leases 2016 2015 Shs ‘000 Shs ‘000 Gross investments in finance leases No later than 1 year 7,651,716 713,943 Later than 1 year but no later than 5 years 23,196,188 30,678,922 Later than 5 years 635,733 4,314,451 31,483,637 35,707,316

Unearned future finance income on finance leases (5,365,545) (7,408,702) Net investment in finance leases 26,118,092 28,298,614

Analysis of net investment in finance leases No later than 1 year 6,121,998 674,936 Later than 1 year but no later than 5 years 19,606,620 24,898,041 Later than 5 years 389,474 2,725,637 26,118,092 28,298,614

112 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

This is a form of financing an asset where the asset serves as the main security. The leases are offered for a period between 1 to 7 years depending on the type of equipment financed and the anticipated cash flows. The average interest rate on these facilities for 2016 was 22.0% for Ushs facilities and 9.0% for USD facilities (2015: 20.8% and 9.09% respectively).

19 Other assets 2016 2015 Shs ‘000 Shs ‘000 Cheques in transit - 89,441 Staff advances 18,130 16,113 Accrued late fee payment 1,002,820 826,664 Accounts receivable 1,408,655 135,537 Prepaid expenses 10,318,676 7,057,838 Sundry stationery stock 967,534 912,957 Western Union commission receivable 414,531 418,015 Outward clearing 1,124,409 843,897 Mobile E-money 14,241,764 9,397,002 Deferred staff loan off market discount 19,035,552 16,377,147 Unsettled interbank trading deals 2,707,921 - Value Added Tax recoverable 839,661 38,684 Other sundry assets 2,185,426 1,817,519 54,265,079 37,930,814 All other assets are due within one year.

20 Deferred Capital expenses 2016 2015 Shs ‘000 Shs ‘000 At start of year 1,801,287 9,233,400 Additions 17,256,950 21,105,223 Transfer to property and equipment, and operating expenses (17,155,669) (28,537,336) At end of year 1,902,568 1,801,287

The closing balance includes capital expenses incurred but for which assets are not yet put to use. The transfers to property and equipment and operating expenses are analyzed in the table below;

2016 2015 Shs ‘000 Shs ‘000 Computer equipment & accessories 5,370,269 6,430,575 Furniture, fixtures & equipment 10,048,780 11,089,681 Intangible assets - 678,671 Motor vehicles 868,826 391,210 Work in progress-core banking system - 9,488,732 Operating expenses 867,794 458,467 17,155,669 28,537,336

21(a) Finance lease on leasehold land 2016 2015 Shs ‘000 Shs ‘000 Cost At 1 January and 31 December 2,536,543 2,536,543 Amortization At 1 January 358,097 312,566 Charge for the year 43,615 45,531 At 31 December 401,712 358,097 Net carrying amount 2,134,831 2,178,446

CENTENARY BANK l Annual Report & Financial Statements 2016 113 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The finance lease relates to costs incurred when acquiring the leasehold land on plot 44-46 Kampala Road. The costs are being amortized on a straight line basis over the life of the lease agreement. The lease agreement for plot 44 – 46 Kampala Road became effective November 2009 for ninety-nine years. As at 31st December 2015 the remaining lease period is 92 years. At the inception of the lease, the obligations associated with the acquisition was all paid up front in full as required by the local laws. Therefore, all the lease payments/installments were paid upfront at the beginning of the lease and as at 31 December 2016 there were no other lease obligations outstanding. 21(b) Property and Equipment

At 31 December 2016 Computer Work In Buildings Motor Equipment & Furniture Work In Progress Vehicles & Accessories Fixtures & Progress Core Banking Total Cycles Equipment Mapeera System Cost At 1 Jan 2016 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080 Additions - - - - 4,440,956 13,400,729 17,841,685 Transfers from 868,826 5,370,269 10,048,781 16,287,876 Deferred Expenses Disposals - (449,864) (1,690,675) (1,355,576) - - (3,496,115) Transfer from WIP 4,440,985 - 12,916,026 - (4,440,956) (19,115,957) (6,199,902) (Note 21 ( c) & 13) Reclassification 14,291,026 - (3,104,846) (11,186,180) - - - At 31 Dec 2016 102,043,516 11,026,405 61,155,547 95,019,723 - 43,013,433 312,258,624

Depreciation At 1 January 2016 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945 Charge for the Period 1,943,994 1,202,067 7,824,700 11,976,366 - - 22,947,127 On disposals - (449,864) (1,672,028) (1,344,694) - - (3,466,586) Reclassification 476,020 - (344,983) (511,146) - - (380,109) At 31 Dec 2016 7,876,098 9,573,087 40,377,418 51,437,774 - - 109,270,377

Net Carrying Amount At 31 Dec 2016 94,167,418 1,453,318 20,778,129 43,575,949 - 43,013,433 202,988,247 At 1 Jan 2015 82,720,610 10,981,966 38,433,275 61,830,063 11,418,222 - 205,384,136 Additions 590,895 391,210 9,969,319 24,756,807 - 48,728,661 84,436,892 Disposals - ( 765,733) (737,821) (492,394) - - (1,995,948) Transfer from WIP - - - 11,418,222 (11,418,222) - - At 31 Dec 2015 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080

Depreciation At 1 Jan 2015 3,803,566 7,882,183 29,820,220 31,402,223 - - 72,908,192 Charge for the year 1,652,518 1,694,149 5,483,357 10,413,271 - - 19,243,295 On disposals - (755,448) (733,848) (492,246) - - (1,981,542) At 31 Dec 2015 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945

Net Carrying Amount At 31 Dec 2015 77,855,420 1,786,558 13,095,044 56,189,450 - 48,728,661 197,655,135

114 CENTENARY BANK l Annual Report & Financial Statements 2016 ( Other Assets continued...)

NOTES TO THE FINANCIAL STATEMENTS (continued...)

The reclassifications relate to property and equipment that had been wrongly classified. This led to an over deprecia- tion and thus the reversal of Ushs 380 million. Transfers from Work in Progress relate to items that have now been capitalized amounting to Ushs 16.3 billion and license fees that had been wrongly capitalized and are now expensed amounting to Ushs 2.8 billion.

21(c) Intangible assets

Deferred income taxes are calculated on all temporary differences under the liability method at the applicable rate of 30.0%. The movement on the deferred income tax account is as follows: At 31 December 2016 Computer Work In 2016 2015 Buildings Motor Equipment & Furniture Work In Progress Shs ‘000 Shs ‘000 Vehicles & Accessories Fixtures & Progress Core Banking Total Cost Cycles Equipment Mapeera System At 1 January 9,015,178 8,146,907 Cost Additions 1,289,830 868,270 Transfers from WIP 3,355,342 - At 1 Jan 2016 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080 At 31 December 13,660,350 9,015,177 Additions - - - - 4,440,956 13,400,729 17,841,685 Transfers from 868,826 5,370,269 10,048,781 16,287,876 Amortisation Deferred Expenses At 1 January 7,351,786 6,149,546 Disposals - (449,864) (1,690,675) (1,355,576) - - (3,496,115) Charge for the year 2,088,575 1,202,240 At 31 December 9,440,361 7,351,786 Transfer from WIP 4,440,985 - 12,916,026 - (4,440,956) (19,115,957) (6,199,902)

(Note 21 ( c) & 13) Net Carrying Amount Reclassification 14,291,026 - (3,104,846) (11,186,180) - - - At 31 December 4,219,989 1,663,391 At 31 Dec 2016 102,043,516 11,026,405 61,155,547 95,019,723 - 43,013,433 312,258,624 22 Deferred income tax asset Depreciation At 1 January 2016 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945 Deferred income taxes are calculated on all temporary differences under the liability method at the applicable rate of 30.0%. The movement on the deferred income tax account is as follows: Charge for the Period 1,943,994 1,202,067 7,824,700 11,976,366 - - 22,947,127

On disposals - (449,864) (1,672,028) (1,344,694) - - (3,466,586) 2016 2015 Reclassification 476,020 - (344,983) (511,146) - - (380,109) Shs ‘000 Shs ‘000 At 31 Dec 2016 7,876,098 9,573,087 40,377,418 51,437,774 - - 109,270,377 At 1 January (2,548,050) 300,406 Prior year understatement (804,912) (1,043,436) Credit to statement of comprehensive income (Note 14) (527,277) (1,805,020) Net Carrying Amount At 31 December (3,880,239) (2,548,050) At 31 Dec 2016 94,167,418 1,453,318 20,778,129 43,575,949 - 43,013,433 202,988,247 At 1 Jan 2015 82,720,610 10,981,966 38,433,275 61,830,063 11,418,222 - 205,384,136 Additions 590,895 391,210 9,969,319 24,756,807 - 48,728,661 84,436,892 1 Jan 2016 Movement 31 Dec 2016 Shs’000 Shs’000 Shs’000 Disposals - ( 765,733) (737,821) (492,394) - - (1,995,948) Transfer from WIP - - - 11,418,222 (11,418,222) - - Deferred income tax liability At 31 Dec 2015 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080 Accelerated tax depreciation 5,493,095 (171,683) 5,321,412 Fair value adjustments (561,058) 719,098 158,040 Depreciation 4,932,037 547,415 5,479,452 At 1 Jan 2015 3,803,566 7,882,183 29,820,220 31,402,223 - - 72,908,192 Deferred income tax asset Provisions (2,545,897) (797,801) (3,343,698 ) Charge for the year 1,652,518 1,694,149 5,483,357 10,413,271 - - 19,243,295 Deferred income (4,934,190) (1,081,803) (6,015,993 ) On disposals - (755,448) (733,848) (492,246) - - (1,981,542) (7,480,087) (1,879,604) (9,359,691) At 31 Dec 2015 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945 Net deferred tax asset (2,548, 050) (1,332,189) (3,880,239)

Net Carrying Amount

At 31 Dec 2015 77,855,420 1,786,558 13,095,044 56,189,450 - 48,728,661 197,655,135

CENTENARY BANK l Annual Report & Financial Statements 2016 115 NOTES TO THE FINANCIAL STATEMENTS (continued...)

(Deferred income tax asset continued...) 1 Jan 2015 Movement 31 Dec 2015 Shs’000 Shs’000 Shs’000 Deferred income tax liability Accelerated tax depreciation 6,131,942 (638,847) 5,493,095 Fair value adjustments (123,902) (437,156) (561,058) 6,008,040 (1,076,003) 4,932,037 Deferred income tax asset Provisions (1,804,631) (741,266) (2,545,897) Deferred income (3,903,003) (1,031,187) (4,934,190) (5,707,634) (1,772,453) (7,480,087) Net deferred income tax liability 300,406 (2,848,456) (2,548,050)

23 Customer deposits 2016 2015 Shs ‘000 Shs ‘000 Current accounts 376,871,220 291,169,869 Savings accounts 1,090,019,614 966,593,498 Time deposits 159,723,331 122,430,488 1,626,614,165 1,380,193,855

The weighted average effective interest rate on customer deposits was 2.2% (2015: 2.0%). Customer deposit bal- ances are due within one year.

24 Deposits and balances due to banks and other financial institutions

2016 2015 Shs ‘000 Shs ‘000 Deposits and balances due to banks and other financial institutions Balances from local banks 2,655,771 395,748 Other finance institutions 1,206,423 2,675,682 3,862,194 3,071,430

Deposits and balances due to banks and other financial institutions are due within one year. The average interest rate on the deposits and balances due to banks and other financial institution was 11.8% (2015: 11.5%)

25 Inter-bank borrowing 2016 2015 Shs ‘000 Shs ‘000 Borrowings from banks - 4,006,082 - 4,006,082

Interbank borrowings by close of year 2015 were from Equity bank Uganda at an interest rate of 18.5% for 7 days. The bank had no Interbank borrowings by close of year 2016.

116 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

26 Managed funds

2016 2015 Shs ‘000 Shs ‘000 Agricultural Credit Facility-Bank of Uganda 612,187 760,618 Rural Electrification Fund - 74,855 Youth Venture capital fund 5,688,249 6,068,778 KCCA Fund 3,126,505 3,180,438 Managed Funds UECCC & WENRECCO 1,004,271 200,000 10,431,212 10,284,689

ACF-BOU

The Government of Uganda through the central bank in partnership with commercial banks, Uganda Develop- ment Bank Ltd and micro-deposit taking institutions (MDIs) created the Agricultural Credit Facility. The facility was created for the provision of medium term credit facilities to agriculture and agro-processing projects on more favorable terms as opposed to the open market. The credit facilities are advanced to customers at an interest rate of 12%. The other objectives of the facility include the promotion of commercial agriculture, increasing access to finance by agribusinesses, increased agricultural production thus food security as well as boosting the confidence of financial institution in lending to agriculture.

Rural Electrification Fund

On 8 August 2011, the Bank signed a Memorandum of Understanding with the Government of Uganda to improve and increase the provision of energy in the rural sector in Uganda. The project was closed during the year 2016. The funds not utilized by then returned to the Government of Uganda.

Government of Uganda Youth Venture Capital Fund

The Bank is a participating partner in the Government of Uganda (GoU) revolving Youth Venture Capital Fund (YVCF) established in Financial Year 2011/12 to facilitate job creation and employment generation targeted at ad- dressing the rampant unemployment problem among the Ugandan youth by supporting financially viable start-up micro, Small and Medium Enterprises operated by Youth Entrepreneurs. Under the scheme the bank makes an equal contribution to the revolving fund and as at 31 December 2016 the fund stood at Shs 5.7 billion (31 December 2015: Shs 6.1 billion).

KCCA Youth Venture Capital Fund

The Bank in collaboration with Kampala Capital City Authority signed a Memorandum of Understanding on 30 October 2012 to take custody and on-lend the authority’s Youth Venture Capital funds worth Shs 3.3 billion to eli- gible youth as per criteria set out and agreed upon. The fund is for 5 years subject to renewal terms and conditions acceptable to both parties. The funds are to support expansion of business ventures owned by the youth residing and working in Kampala District.

UECCC and WENRECO

On 13th June 2014, the Bank signed a Memorandum of Understanding with West Nile Rural Electrification Com- pany Limited (WENERECO) in partnership with Uganda Energy Credit Capitalization Company (UECCC) to col- laborate in financing hydro power connections UECC to avail Shs 200 Million at a zero cost for on lending and to share risk by offering a default risk cover of up to 10%.

CENTENARY BANK l Annual Report & Financial Statements 2016 117 NOTES TO THE FINANCIAL STATEMENTS (continued...)

WENRECO to participate in mobilization of potential applicants for the power connection loan. The project targets West Nile sub regions that can be effectively served by Koboko, Paidha, Nebbi and Arua branches.

In 2016 the bank received an additional funding of USD 650,000 an equivalent of Shs.1.0billion. The facility is a line of credit to commercial enterprises and household (sub-borrowers) interested in connecting to any electricity dis- tribution network anywhere in Uganda. The principle will be refunded back to UECCC in five equal instalments. By close of December 2016 the bank had made one installment as per required terms and conditions.

27 Borrowed funds 2016 2015 Shs ‘000 Shs ‘000

European Investment Bank (EIB PEFF) 3,973,006 10,395,870 Solar loan (UECCC) 439,680 512,846 Agribusiness Business Initiative Trust 27,495,332 29,224,623 EAC MF loan (EIB) 20,536,153 25,253,696 EIB ECA PEFF 55,159,268 36,658,627 107,603,439 102,045,662

EIB PEFF (Private Enterprise Finance Facility) I & II

This was a global loan facility extended to a group of financial institutions in Uganda from Cotonuo Investment facil- ity resources. The availability of this line of credit expired in 2012; the outstanding amount is principal plus interest of already drawn funds.

The facility was used to finance private enterprises in agro industry, fishing, construction, food processing, and manufacturing, tourism and services provided to these sectors and in health and education sectors. Repayments are made semiannually and interest is computed on reducing balance. The interest rate charged on this facility was not fixed or uniform but was dependent on the tenure of the loan for which it was disbursed. In 2016, the EURO equivalent of UGX 6BN was paid off (2015: EURO equivalent of UGX 4BN was paid off).

EIB EAC (European Investment Bank, East African Community) Microfinance facility

This is a Global Facility from the Cotonou Investment Facility which is used by East African Community banks for the financing of micro credit projects. This was a bullet disbursement (in 2014) of the UGX equivalent of EURO 8 million. The loan tenure is 7 years at a fixed interest rate of 10.008%.

EIB ECA PEFF (European Investment Bank, East and Central Africa Private En- terprise Finance Facility)

The loan agreement was signed in December 2014 for an agreed maximum amount of the UGX equivalent of EURO 20M. The first tranche was disbursed in 2015 and as at December 2016, EURO 9.1M had been drawn down. The loan agreement allows for minimum and maximum tenures of 4 years and 7 years respectively. Rates vary by tenure but not exceeding 10%. In 2016, the bank utilized approximately the UGX equivalent of Euro 6M of the available amount of Euros 20M. The facility expired in December 2016

118 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Solar Loan

Centenary Bank signed a Solar Refinance facility of USD 250,000 with Uganda Energy Credit Capitalization Compa- ny on 12th July 2012. The refinance facility is denominated in Uganda Shillings and the Shilling liability is determined at the exchange rate applicable on every release of funds. The Bank drew down Shs 128.8 million in October 2012. The refinance interest rate is 8.15% per annum fixed. The repayment of the principal borrowed is in 18 equal half yearly installments commencing 12 months after draw down. The funds are applied exclusively for the purpose of provision of solar loans to rural households. The loans are secured by promissory notes.

In 2014 there was an additional funding of Shs 255.9 million. In 2015 there was no additional funding received. The Bank expected to sign a new contract of USD 150,000 in 2016 however by close of year 2016 this had not yet been effected.

Agri Business Initiative (aBi) Trust

In the year 2015, two facilities were secured i.e. UGX 3.9BN and 5BN priced at 12.5% and 11.25% respectively. The bank has 5 lines of credit from aBi Trust totaling to UGX 28.9BN (gross with accrued interest) maturing be- tween 2017 and 2022. These lines target mainly the agribusiness sector and SMEs. Interest rate on these facilities range between 11.25% - 12.5%

28 Other liabilities 2016 2015 Shs ‘000 Shs ‘000 Bills payable 1,083,120 959,645 Clearing suspense 64,984 259,138 Unearned fees on late payments 628,720 542,573 Deferred fee income 20,053,309 16,447,303 Guarantees - Cash collateral 2,170,713 262,291 Contract staff (Terminal benefits) 954,154 790,748 Accrued expenses 12,495,505 9,644,100 PAYE payable 4,665,983 3,863,049 N.S.S.F payable 2,285,319 1,906,661 Centemobile service charge 2,915,119 1,507,648 Unsettled Interbank Trading Deals 2,707,500 - Accounts payable 2,801,249 5,354,691 Uganda Revenue Authority collections 13,557,586 19,157,389 Unclaimed balances (Nostro A/cs) 9,784 8,863 Excise duty on bank charges 507,681 439,528 Real Time Gross Settlement 132,970 949,402 Withholding tax payable 1,371,929 1,245,485 Other payables 3,829,489 3,519,893 72,235,114 66,858,407

29 Provisions for litigation 2016 2015 Shs ‘000 Shs ‘000 Legal cases 1,437,954 1,520,636 Defalcations 1,548,668 119,985 2,986,622 1,640,621

CENTENARY BANK l Annual Report & Financial Statements 2016 119 NOTES TO THE FINANCIAL STATEMENTS (continued...)

The Bank is a litigant in several cases which arise from normal day-to-day banking activities. The Directors and Management believe the Bank has strong grounds for success in majority of them and are confident that they should get a ruling in their favor and none of the cases individually or in aggregate would have a significant impact on the Bank’s operations. Management carried out an assessment of all the cases outstanding as at 31 December 2016 and where considered necessary, provisions were made as indicated above.

30 Deferred Grants 2016 2015 Shs ‘000 Shs ‘000 At start of year 536,587 746,576 Additions - 421,187 Transfers to Statement of Comprehensive Income (144,855) (631,176) At end of year 391,732 536,587

The bank did not receive any additional grants in the year 2016:

Additional Grants 2016 2015 Shs ‘000 Shs ‘000 ABI Trust - 390,816 ILO - 16,967 GIZ - 13,404 Agrifin - - 421,187

GIZ Financial Systems Development Program

GIZ Financial Systems development Programme (FSD), through the support of the German Development Coop- eration of the German Government, supported the Bank in financing a baseline survey on SACCOs, Village Savings and Loan Association(VSLAs) and farming groups based in Karamoja to inform whether the groups are bankable and investigate the most effective, impactful financial products and appropriate channels of delivering such products to the sub-region. The Bank, under the same programme, was supported to install solar systems in the service outlets located in Moroto and Kotido. There is no unfulfilled condition as at the year end.

aBi Trust

In July 2015, the bank partnered with Abi Trust to set up a service centre in Adjumani. The aim of this was to trans- form the social and economic livelihoods of Adjumani district through offering affordable financial services to the people in the West Nile and the surrounding areas. The agreement was to support the bank with a total contribu- tion of Shs.403.8 million. This was 47% of the total budget cost of Shs.851.5million.

ILO

The bank received financial support of USD 4,700 (equivalent of UGX 16.9 million) from International Labour Organisation (ILO) under the Women Entrepreneurship Development and Economic Empowerment (WED-EE) Project to organize and conduct a training of trainers on gender sensitive financial services.

22 staff were trained on how to use the FAMOS guide tool kit which kit enables the institution to build a business case of ‘why targeted and holistic interventions for women’ is beneficial and promotes a win-win situation for a better served woman and an expanded client base for the financial institution.

120 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

31 Earnings per ordinary share

Basic earnings per share are calculated by dividing the profit attributable to the ordinary equity holders of the Bank by the weighted average number of ordinary shares in issue during the year

2016 2015 Shs ‘000 Shs ‘000 Net income 109,908,772 101,601,248 Dividends to preference shareholders (116,624) (116,624) Net income attributable to ordinary shareholders 109,792,148 101,484,624 Weighted average number of ordinary shares (No.) 25,000,000 25,000,000

Basic earnings per ordinary share (shillings per share) 4.392 4.059

There were no potentially dilutive shares outstanding at 31 December 2016 or 2015. Diluted earnings per share are there- fore the same as basic earnings per share.

32 Share capital 2016 2015 Shs ‘000 Shs ‘000 Authorized 28,825,356 ordinary shares (2015: 28,825,356) of Shs 1,000 each 28,825,356 28,825,356 150,000 non-redeemable preference shares of Shs 1,000 each 150,000 150,000 28,975,356 28,975,356

Issued and fully paid 25,000,000 ordinary shares (2014:25,000,000)of Shs 1,000 each 25,000,000 25,000,000 116,624 preference shares (2014: 116,624) of Shs 1,000 each 116,624 116,624 25,116,624 25,116,624

The issued number of shares as at year end was 25,000,000 ordinary shares and 116,624 preference shares (2015: 25,000,000 ordinary shares and 116,624 preference shares). All issued shares are fully paid.

There was no movement in share capital and share premium in 2016 and 2015. All amounts are in Ushs ‘000.

Share Premium Preference Ordinary At 1 January and 31 December 2015 1,138,927 116,624 25,000,000

Share Premium Preference Ordinary At 1 January and 31 December 2016 1,138,927 116,624 25,000,000

The holders of ordinary shares are entitled to receive dividend from time to time and are entitled to one vote per share at meetings of the Bank. Holders of preference shares receive a non-cumulative coupon of 100.0% and they do not carry the right to vote. All shares rank equally with regards to the Bank’s residual assets except that the preference shareholders have priority over ordinary shareholders but participate only to the extent of the face value of the shares.

CENTENARY BANK l Annual Report & Financial Statements 2016 121 NOTES TO THE FINANCIAL STATEMENTS (continued...)

33 Proposed dividends 2016 2015 Shs ‘000 Shs ‘000 Preference – 100.0% 116,624 116,624 Ordinary - 25% of NPAT (2015: 16.6%) 27,447,193 25,400,312 27,593,817 25,516,936 Dividend per ordinary share (Shs) 1,099.09 1,016.01

The directors recommend the payment of a dividend of Shs 1,099.09 per share (2015: 1,061.01per share) totaling Shs 27.5BN (2015: Shs 25.5BN). Dividends are subject to withholding tax at rates which vary depending on the tax residence status of the recipient and double tax agreements in place.

34 Regulatory reserve 2016 2015 Shs ‘000 Shs ‘000 At start of year 5,239,369 3,377,657 Transfer from/to retained earnings during the year 2,976,568 1,861,712 At end of year 8,215,937 5,239,369

The regulatory reserve represents amounts by which provisions for impairment of loans and advances determined in accordance with the Financial Institutions Act 2004 exceed those determined in accordance with International Fi- nancial Reporting Standards. These amounts are appropriated from retained earnings in accordance with the Bank’s accounting policy and are not distributable.

2016 2015 Shs ‘000 Shs ‘000 Provisions as per FIA Specific provisions 19,042,329 14,181,306 General provisions 13,097,163 10,796,131 32,139,492 24,977,437

Provisions as per IFRS Individual impairment 15,764,514 12,892,365 Collective impairment 8,159,041 6,845,703 23,923,555 19,738,068

Credit risk reserve 8,215,937 5,239,369

35 Cash and cash equivalents 2016 2015 Shs ‘000 Shs ‘000 Unrestricted Cash and balances with Bank of Uganda 185,169,382 72,109,896 Balances with other financial institutions (Note 16) 56,630,549 92,522,927 Treasury bills and other eligible bills < 91 days (Note 17) 92,924,383 137,119,628 Government securities held for trading (Note 17) 90,784,201 31,885,743 425,508,515 333,638,194

For the purposes of the statement of cash flows, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with Banks, Treasury bills and other eligible bills, and amounts due from other banks and net of amounts due to other banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Uganda.

122 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

Banks are required to maintain a prescribed minimum cash balance with the Bank of Uganda that is not available to finance the bank’s day-to-day activities. The amount is determined by Bank of Uganda as a percentage of the aver- age outstanding customer deposits over a cash reserve cycle period of 2 weeks. Whilst it’s available for use in the bank’s activities and may fall to 50% of the margin on a given day there are sanctions for non-compliance. As at 31 December, the reserve requirement was Ushs 128,930 million (2015: Ushs 104,810 million).

36. Off-statement of financial position financial instruments and capital commitments

36.1 Guarantees and performance bonds

2016 2015 Shs ‘000 Shs ‘000 Acceptances and letters of credit 8,229,101 4,460,935 Performance bonds 6,315,138 12,332,041 Bid securities bond guarantees 15,634,091 14,330,741 Commitments to extend credit 8,255,036 6,328,088 38,433,366 37,451,805

36.2 Capital Commitments 2016 2015 Shs ‘000 Shs ‘000 Capital expenditure authorized and contracted - 12,160,569 - 12,160,569

In 2013, the Bank embarked on Phase three construction of its new headquarters on Plot 44-46 Kampala Road and this was estimated to cost USD 16.3m. In 2013 USD 3.0 million was advanced, by 2014 a total of USD 9.2m and by close of year 2015 a total of USD 12.8 million had been made. By close of December 2016, the project was complete and handed to the bank with an outstanding amount of USD 3.5 million related to defect liability. This was paid in the year 2016 and outstanding by close of year 2016 was USD172, 000.

36.3 Operating lease commitments - Bank as a lessee

The Bank entered into commercial leases for motor vehicles and photocopiers. These leases have an average life of two years with a renewal option included in the contracts. There are no restrictions placed upon the lessee by en- tering into these leases. Future minimum lease payments under non–cancellable operating leases as at 31 December are, as follows:

2016 2015 Shs ‘000 Shs ‘000 Within one year 5,182,384 3,940,760

37 Related party transactions and balances 2016 2015 Shs ‘000 Shs ‘000 Directors’ remuneration Fees to Non-Executive Directors 726,311 654,866 Emoluments to Executive Directors 2,334,117 2,163,873 Emoluments to directors 3,060,428 2,818,739 Other expenses – Non-Executive Directors 584,178 740,081 Other expenses - Executive Directors 132,976 13,634 3,777,582 3,572,454

CENTENARY BANK l Annual Report & Financial Statements 2016 123 NOTES TO THE FINANCIAL STATEMENTS (continued...)

(Related party transactions and balances continued...) Loans and advances to related parties At 1 January 39,603,797 32,167,147 Advanced during the year 16,305,812 20,316,458 Repaid during the year (16,159,432) (12,879,808) At 31 December 39,750,177 39,603,797

Key Management Compensation Short-term employee benefits 6,195,519 5,457,181 NSSF Contribution 736,495 564,278 Gratuity 1,169,430 1,050,837 8,101,444 7,072,296

The loans and advances to related parties are credit faculties issued to shareholders and key management personnel of the bank.

The value of security pledged for the above loans amounts to Ushs 326.0 billion as at 31 December 2016 (2015: Ushs 180.7 billion). The average period of the loans is 48 months.

(iii) Substantial shareholders (>5% of shareholding)

Shareholder name 2016 2015 % % Catholic Archdiocese of Kampala 5.3 5.3 Registered Trustees of the Uganda Episcopal Conference 31.3 31.3 SIDI (France) 11.6 11.6 Stiching Hivos Triodos 18.3 18.3 Total 66.5 66.5

(iv) Loans to shareholders and guarantees by shareholders

Shareholder 2016 2015 Shs ‘000 Shs ‘000 Catholic Diocese of Soroti 262,449 - Catholic Diocese of Kabale 1,093,273 346,257 Catholic Archdiocese of Kampala 16,326,094 21,237,875 Catholic Diocese of Lugazi 2,372,280 2,375,227 Catholic Diocese of Hoima 2,420,692 1,581,009 Catholic Diocese of Gulu 33,573 39,033 Catholic Diocese of Jinja 286,002 349,063 Catholic Diocese of Arua 1,043,266 1,276,729 Catholic Archdiocese of Lira 469,310 717,612 Catholic Diocese of Masaka 6,227,598 6,518,389 Catholic Archdiocese of Tororo 88,825 178,292 Catholic Diocese of Fort Portal 322,231 628,687 Catholic Archdiocese of Mbarara 1,707,809 2,063,385 Catholic Diocese of Kasana, 594,730 566,259 Catholic of Diocese Kasese 17,362 30,000 Catholic Diocese of Mityana 127,720 137,963 Catholic Diocese of Kotido 30,000 - Total 33,423,214 38,045,780

124 CENTENARY BANK l Annual Report & Financial Statements 2016 NOTES TO THE FINANCIAL STATEMENTS (continued...)

(Loans to shareholders and guarantees by shareholders continued...) Executive Directors 369,288 260,716 Non-Executive Directors 5,132,022 45,607 EXCO members 825,654 1,251,694 6,326,964 1,558,017 Total 39,750,178 39,603,797

Below is a table showing the collateral, interest income, average tenor and provisions for bad and doubtful debts as at 31 December 2016 and 31 December 2015 for;

(i) Loans and advances to shareholders:

2016 2015 Average interest rates (%) 21.5 20.2 Collateral (Shs’000) 319,051,562 248,428,200 Interest income (Shs’000) 7,335,631 6,352,189 Average Tenor (months) 53 44

Provisions for bad and doubtful debts - At year end 87,652 105,748 - (Credit) / Charge for the year (18,096) 105,748

(ii) Loans and advances to key management personnel

2016 2015 Average interest rates (%) 9.5 11.8 Collateral (Shs’000) 6,054,000 5,979,000 Interest income (Shs’000) 164,829 156,874 Average Tenor (months) 48 48

Provisions for bad and doubtful debts - At year end - - - Charge for the year - -

CENTENARY BANK l Annual Report & Financial Statements 2016 125 BRANCH AND ATM NETWORK

We put in place a comprehensive customer service strategy and customer service standards that drive the Bank’s service deliverys.

126 CENTENARY BANK l Annual Report & Financial Statements 2016 BRANCH AND ATM NETWORK (continued...)

BRANCH NETWORK Gulu Branch Kamuli Branch Plot 426, Gulu Street Plot 4, Kitimbo Road Mapeera House Branch P. O. Box 957 Gulu Kamuli Town Council Plot 44/46, Kampala Road Tel: +256 471-432572 P. O. Box 168 Plot 2, Burton Street Tel:+256 414 663226 P. O. Box 1892 Kampala Gulu Market Branch Tel: +256 317 202287 Plot 2 Oliya Road Branch Gulu Town Kanungu – Road Apac Branch P.O Box 1892 Kanungu Town Council Plot 22 Akokoro Road P.O. Box 20 Apac Town Hoima Branch Tel: +256 414 663194 Tel: +256 414 663211 Pax Arcade, Fort Portal Road P. O. Box 472 Hoima Kasese Branch Arua Branch Tel: +256 465-440193 Plot 213, Portal Street Plot 3, Avenue Road +256 392-751733 P. O. Box 87 Kasese P. O. Box 246 Arua Tel: +256 483 444041 Tel: +256 476-420013 Ibanda Branch Branch +256 372-260001 Plot 4, Main Street Plot 1, Market Street P. O. Box 395Ibanda P. O. Box 286 Kapchorwa Adjumani Branch Tel: +256 485-426998 Tel: +256 414 663208 LRV 3176 Folio 18 Plot 20 Manyi Road Iganga Branch Kawuku Branch Adjumani Plot 43 Main Street Plot 309, Immaculate Heart of Iganga town Mary Reparatrix Building Branch PO Box 101 Iganga Tel.: 0417 206281 Plot 117, Grant Street Tel: +256 434242143 Iganga-Tororo Highway Branch P. O. Box 137 Bugiri Isingiro Branch Plot 125, Block 204 Tel: +256 434-250074 Plot 17A, High Street Kawempe Town Isingiro Town Council P.O Box 1892 KAMPALA Bundibugyo Branch P. O. Box 1892 Kampala Tel. 031720 Plot II, Block D, Tel: +256 414 663235 Bundibujyo Town Council, Branch Fort Portal Road Highway Ishaka Branch Plot 64, Plot 9, Cell C – Ward IV, Kayabwe Branch Road, Masaka Road Plot 526 Bwaise- Kawempe Ishaka Town P.O Box 1063 Masaka Bombo Road Tel: +256 414 663223 P .O. Box 1982 Kampala Jinja Branch Tel: +256 414-566096 Plot 6, Nizam West Road Kayunga Branch (Opp. Uganda Block 123, Plot 300, Bwera Branch Telecom Office) Main Street, Kayunga Central Plot 102, Bukonjo Block P. O. Box 1767 Jinja P.O Box 18257, Kayunga Tel: +256 712 751729 Tel: +256 434-122007 Tel: +256 414 663207 Bwera Town Branch Branch Road Branch Block 245, Plot 551, Plot 101, Hoima Road Plot 7, Entebbe Road Talenta House Kabalagala Town, P. O. Box 28 Kiboga P. O. Box 1892 Kampala P. O. Box 1892 Kampala Tel: +256 414 663224 Tel: +256 414 506009 Tel: +256 414-501490 Kikuubo Branch Entebbe Road Annex Kabale Branch 1st Floor, Unifam Plaza Plot 18/20, Entebbe Road Annex Plot 129, Kabale Road Plot 15, Nakivubo Road P. O. Box 1892 Kampala P. O. Box 385Kabale P. O. Box 1892 Kampala Tel: +256 414 506009 Tel: +256 486 423671 Tel: +256 414 258795/91

Fort Portal Branch Kagadi Branch Branch Golden Jubilee Building Plot 69 Prime House Plot 1653, Kireka Fort Portal- Kasese Road Fort Portal- Road Tel: +256 414 663193 P. O. Box 124 Fort portal Kagadi Town Council Tel: +256 483-422791/8 P.O. Box 35 Kagadi Tel: +256 392 892372

CENTENARY BANK l Annual Report & Financial Statements 2016 127 BRANCH AND ATM NETWORK (continued...)

Kitgum Branch Branch Nateete Branch Plot 7/8, Ogwok Road Plot 54, Republic Street Plot 3, Old Masaka Road P. O. Box 147 Kitgum P. O. Box 818 Mbale P. O. Box 1892 Kampala Tel: +256 414 663200 Tel: +256 454-434002 Tel: +256 414-660637/1

Kisoro Branch Mbarara Branch Ntinda Branch Plot 27 Kisoro- Kabale Road Plot 25/27, High Street Plot 36 - 38 PO Box 10 P. O. Box 1352 Mbarara Ntinda Capital Shoppers Building Tel: +256 486 430026 Tel: +256 485 421540 Ntinda- Road Tel: +256 414289844 Koboko Branch Branch Plot 19, Central Road, Koboko Town Plot 59/61, Masindi Port Road Branch P. O. Box 194 Kampala P. O. Box 5 Masindi Plot 4C, Tel: +256 414598648 Tel: +256 465-420000 New Mbarara-Kabale Road P. O. Box 136 Ntungamo Kotido Branch Mityana Branch Tel: +256 485 424012 Block 20, Moroto Road, Kotido Town Plot 50, Corner House P.O Box 88 Kotido P. O. Box 156 Mityana Nebbi Branch Tel: +256 392751796 Tel: +256 464-442791 Plot 1/3/5, Bishop Orombi Road P. O. Box 179 Nebbi Kumi Branch Moroto Branch Tel: +256 414598643 Plot 39, Ngora Road, Kumi Plot 25, Lira Street. PO Box 1892, Kampala Paidha Branch Tel: +256 414 663222 Tel: +256 414 663202 Plot 16, Arua Road Tel:+256 716 420013 Kyenjojo Branch Branch Plot 2/6, Nyantungo Road Plot 106, Butambala Road Pallisa Branch P. O. Box 1077 Kyenjojo Mpigi Town Plot 38, Outa Road, Tel: +256 414 663196 Tel: +256 414 664508 Paliisa Town Council

Kyotera Branch Branch Rubaga Branch Plot 6, Kyotera Road Plot 20, Main Street, P. O. Box 116 Kyotera Mubende Town Admission block Tel: +256 481-432676 P. O. Box 332 Mubende PO Box 1892 Kampala Tel: +256 464-444059 Tel:+256 414 271453 Lira Branch Obote Avenue Mukono Branch Rukungiri Branch Plot 4-7, Soroti Road Jinja Road Plot 13 Republic Road Rukungiri P. O. Box 817 Lira P. O. Box 790 Mukono P. O. Box 353 Rukungiri Tel: +256 473-420124 Tel: +256 414-291618/9 Tel: +256 486-442177

Lugogo Branch Branch Soroti Branch Plot 3A2 & 3A3 Sports Lane Plot 1032, Entebbe Road Plot 36, Gweri Road Forest Mall, Ground Floor, Freedom City Mall, P. O. Box 420 Soroti Unit G3 Lugogo Entebbe Road Tel: +256 414 663205 P. O. Box 1892 Kampala P. O. Box 1892 Kampala Tel: 0414 663220 Tel: +256 414 501222 Tororo Branch Plot 3, Uhuru Drive Branch Nakivubo Road Branch P. O. Box 1146 Tororo Plot 226, Lyantonde Town Council Mukwano Arcade Tel: +256 454-445018 P. O. Box 49, Lyantode (Opposite St. Balikudembe Tel: 0382280689 Market) Wakiso Branch P. O. Box 6171Kampala Plot 249, Wakiso District Makerere Branch Tel: +256 414-507047/6 Headquaters Road St. Augatine’s Student Centre P. O. Box 69 Wakiso P. O. Box 1892 Kampala Namirembe Road Branch Tel: +256 414-380501 Tel: +256 (0) 414 535750 Plot 16, Namirembe Road P. O Box 25229. Kampala Branch Masaka Branch Tel: +256 414-345295 Kasana Luweero Diocese Plot 6, Edward Avenue (KALUDO) House P. O. Box 1063. Masaka Branch Plot 249, Gulu Road Tel: +256 481-420406 Plot 2536, Nansana Town P. O. Box 186 Wobulenzi Wakiso District Tel: +256 414 620006 128 CENTENARY BANK l Annual Report & Financial Statements 2016 BRANCH AND ATM NETWORK (continued...)

OFF SITE ATMs

Arua Kasubi Lukaya Nakawa MUBS Catholic Center Building, Petrol City Fuelling Station Mutuba IIBuddu, Lukaya Quality Supermarket Near Christ the King Kasubi town Church, Avenue Road Luwum Street (3 ATMs) Nakulabye Kabalagala JBK Plaza Road Master Hotel, Bugolobi Shell Petrol Station, Balintuma Road Spring Road, Kabalagala, Kampala Middle East Hospital & Next to Bishop Cyprian Nalumunye shopping complex building Kabwohe Kihangire SS, Road Lebron Supermarket Bugolobi Sheema Kabwohe, district SIM Towers, Namugongo Road towards Bugembe Town Council Makindye opposite the Uganda Martyrs Catholic Opp. Kajjansi market Makindye Military Barracks Shrine Busia Customs Road, Makerere Hill Busia town Kakiri Town Ham Towers, Nsike at Christine Motel Tuskys Shopping Mall Kalerwe Near Trading Ntinda UPET Petrol station Road next to Centre Ntinda Road Trading Bweyogerere town, Pearl Micro Finance Centre, Opposite the Kampala-Mukono highway mosque Kalisizo St. Francis of Assis Catholic Dokolo Ziladamu building, Parish Nyendo Angwenchibange Parish New Masaka Road JOBASCA Building, Akaidebe Zone, Parcel Mbale (2 ATMs) Next to St. Joseph’s Dokolo Town Kamwokya Canos Guest House, Nyendo Catholic Church Boxing Supermarket Naboa Road Kitovu Road, Nyendo Masaka Entebbe –Kitooro Kamwokya Market Kitooro Trading Centre Mbarara Oasis Mall Kasana Luweero Masaka Road Nakumatt Shopping Mall, Ggaba Gulu highway next to Mbarara Town Yusuf Lule Road, Kampala Ggaba Trading Centre Diocesan Cathedral Mengo Masengere Rushere Gulu Mengo, Kampala Plot 18 Rushere, Lacor Hospital, Juba Road Kibuga Kiruhura Opposite Total Petrol Mpigi Gulu Station, Katwe Mpigi Town Council Rwebikona Butabala Road Fort Portal Road Kisenyi Park village, Mpigi Gulu Mwanga II Road, Kisenyi, Seeta Andrea Olal Road Kampala. Seeta Trading Centre, Opposite Shell petrol Station Business Centre near Mukono District. Kirinya Hospital Chapel, Gayaza Kirinya Trading Centre Mulago Hospital Sironko Near Mirembe Kapchorwa Road Supermarket, Kyabakuza Mini Price (2 ATMs) Sironko town Gayaza Road Kyabakuza Trading Centre Ben Kiwanuka Street Wandegeya (2 ATMs) Iganga Mukwano Shopping Mall (3 Next to Hotel Main Street, Devine Mercy Arcade, ATMs) Catherine Wandegeya. Iganga town Masaka Road Mukwano Arcade Buiding Kampala

Jinja Road Lira Najeera Coffee Development Gapco Petrol station Najeera II Stage building, Kampala Olwol Roads Nakawa Lugazi Jinja Road Jinja Road. Lugazi Shell Petrol station

CENTENARY BANK l Annual Report & Financial Statements 2016 129 Centenary Rural Development Bank Limited. Head Office: Mapeera House,Plot 44-46, Kampala Road, P. O. Box 1892 Kampala Tel: +256 414-251276/7 Toll free line: 0800 200555 Fax: +256 414-251273/4 E-mail: [email protected] Website; http://www.centenarybank.co.ug

132 CENTENARY BANK l Annual Report & Financial Statements 2016