Annual Report 2010 Zambia
Leading the way in Asia, Africa and the Middle East
Here for good Standard Chartered Zambia Plc has again delivered an outstanding performance. This exceptional performance clearly demonstrates our powerful brand promise, Here for good. It also articulates what makes us different.
Financial highlights
Operating income Profit before taxation ZMK451,138m ZMK229,744m
2009: ZMK391,896m / 2008: ZMK319,187m 2009: ZMK115,024m / 2008: ZMK54,645m
Total assets Normalised earnings per share ZMK4,558,742m ZMK32.52 2009: ZMK2,976,606m / 2008: ZMK2,449,263m 2009: ZMK16.35 / 2008: ZMK6.24 Normalised return on equity
41% ZMK20.0Dividend per share 0
2009: 30% / 2008: 16%
Non-financial highlights
Employees Outlets 650 25 2009: 576 2009: 25
2 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Business review Corporate governance Financial statements and notes
Overview 10 Board of directors 16 Directors’ responsibilities in respect of the IFC Financial highlights 13 Directors’ report preparations of financial statements 1 About Standard Chartered 14 Statement on corporate governance 17 Independent auditor’s report 2 Chairman’s statement 19 Statement of comprehensive income 4 Chief executive’s review 20 Statement of financial position 21 Statement of changes in equity 23 Statement of cash flows Operating and Financial review 24 Notes to the financial statements 6 Consumer banking 8 Wholesale banking
Operational highlights
• Operating income rose 15% to ZMK451 billion.
• Deposits grew 35% to ZMK3,164 billion in 2010.
• Launched Priority Banking, bills payments on mobile banking and Asset-backed Financing for Agriculture.
• Launched rehabilitation of Simwaba Basic School in For further information Mazabuka and the high-flyer girls’ programme. please visit
www.standardchartered.com • Was recognised as the Best Bank in Zambia by the Banker FT and Global Finance.
Consumer Banking Wholesale Banking
Offers a broad range of products and Has a client focused strategy, providing services to meet the borrowing, wealth trade finance, cash management, management and transaction needs of securities services, foreign exchange and individuals and SMEs. Our private bank risk management, capital raising and relationship managers provide customized corporate finance solutions. solutions to meet the unique needs and aspirations of high net worth clients.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 1 Chairman’s statement Delivering strong performance
I am delighted to report that Standard The year 2011 will be characterised by Outlook Chartered Bank Zambia Plc has yet an uneven recovery in the world We have built on our strong foundation again delivered another year of record economy, leading different Governments over the past twelve months and we income and profits in 2010, showing the to adopt diverging policies. This may have continued with strong momentum results of our continued focus on raise conflicts and uncertainties, but it to grow our franchise. However, coming delivering innovative solutions to our will also bring opportunities. The global out of a global recession, few of us could customers’ financial needs. We have recovery in 2011 will still be a tale of two dare to dream of the remarkable continued to build on the strong worlds: a buoyant East contrasting with a performance that Standard Chartered foundations of a successful strategy sluggish West. On the upside, more than Bank Zambia Plc registered in 2010. The that saw us emerge from the financial two-thirds of the world’s growth will Bank has attained a position of crisis unscathed, stronger and more come from emerging economies, driven leadership and it is set to continue resilient This has positioned us to by domestic demand, infrastructure playing a dominant role in supporting the adequately face the challenges that lie development and trade. On the economic and social development of the ahead and exploit the opportunities of downside, the western economies will country for years to come. our market. still be struggling with debt, deflation and deleveraging. The US is past the worst, There is still continued focus on banks Standard Chartered Bank Zambia Plc but it faces a below-trend recovery and other financial institutions to lead the concluded last year in the enviable bordering on stagnation. The biggest recovery from the global downturn that position as the leading bank in Zambia. immediate worry in the West is a was induced by the credit-crunch. In double-dip recession. However, other addition to requirements for preserving Financial highlights risks abound, including geopolitical liquidity and capital strength, we Income increased by 15 per cent to tensions on the Korean peninsula and in anticipate increased requirements for ZMK451bn and Profit before taxation the South China Sea, over-regulation, transparency and risk management from increased 100 per cent to ZMK229.9bn. inflation bubbles across Asia, and trade regulators and other stakeholders. protectionism. Normalised earnings per share were 99 We have remained extraordinarily well per cent at ZMK32.52 per share. So, while we forecast that the Zambian positioned to seize present and future economy will continue to perform opportunities. Our unique international The Board is recommending an annual remarkably well, with a projected GDP network and experience, coupled with dividend of ZMK20.00 per share. growth rate of over 7 per cent for 2011, the scale and breadth of our products the uneven performance in the global and capabilities, has given us a This takes into account the fact that the economic environment will limit the competitive advantage to be bold in Bank did not pay an interim dividend as country’s growth potential. Zambia’s providing financial solutions to our clients was requested by shareholders at the continued dependence on copper and customers. However, the risk last Annual General Meeting. exports poses a significant risk to the environment in which we are operating country’s trade account should the demands that we will remain prudent in The Domestic Economy anticipated commodities bubble our management and pricing of risk. The local economy continued on an materialize. The country will do well to upward trajectory in 2010. This was take advantage of the current high Standard Chartered Bank Zambia Plc mainly driven by high copper prices on copper prices to diligently invest and has a proud customer base that enables the world market on the back of a strong develop other sectors of the economy. the Bank to continually exceed the demand for commodities from emerging Recent advances in the construction and expectations of shareholders. Asian markets, particularly China. agriculture sectors should be nurtured and developed further.
2 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Business review
“We recognise the need to rebuild trust in banking and believe international banks are an essential part of any successful economy”
Our achievements are down to a combination of three key factors: loyal customers, dedicated staff and supportive shareholders.
We have remained true to our commitment of supporting the sustainable development of Zambia. We have a clear strategy of delivering solutions to our customers; of being the best bank for our stakeholders and being the right partner to the communities where we operate.
Standard Chartered Bank Zambia Plc has shown how its strategy in Zambia and the strength of its balance sheet can deliver record results, even during turbulent times. We are not complacent about the future but are confident that Dividend we will deliver another strong performance in 2011. 25
20
15
10
5 Michael M Mundashi, SC Chairman 0 22 February 2011 2006 2007 2008 2009 2010
Normalised earnings per share ZMK32.52 2009: ZMK16.35
Dividend per share ZMK20.00 2009: ZMK10.00
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 3 Chief executive’s review Here for progress
across Asia, Africa, the Middle East and the Americas.
We are confident in our ability to be a force for positive change, driving sustainable development in our communities and enabling our customers and clients to achieve peak performance through a customer-centric strategy that is aimed at delivering client-specific solutions in our Consumer and Wholesale Banking businesses.
Consumer Banking Consumer Banking had an outstanding year in 2010 and is in great shape. Despite a steep decline in margins on the deposit book, we delivered a strong volume performance in deposits and developed additional income streams to achieve revenues of ZMK142 bn. Our deposit base grew by 17% to ZMK1,483 “The Bank is in great shape – we are in the right bn. Additionally, our consumer lending parts of the world and we have got the strategy book, which had seen a decline over the past couple of years, saw a turnaround in right” 2010 and recorded positive growth of 18% to close at ZMK 334 bn.
Consumer Banking has continued to embed a customer-centric approach through our Customer Charter by which we continuously aim to improve our service delivery. Our own as well as independent surveys have shown that we Another year has passed and we have Chartered Bank Zambia Plc has have made remarkable progress in set another record. We have yet again weathered the crisis very well; publishing providing better service to our customers. delivered remarkable financial record profits for 2009, maintaining our This has translated into a higher number performance and I am delighted by our momentum throughout 2010 and of customers who are willing to achievements in 2010. Despite the remaining well capitalised and highly recommend the Bank to their families, challenge of increased competition and liquid. friends and associates. This initial uncertainties about the speed and endorsement by our customers and strength of the economic recovery after Standard Chartered Bank Zambia Plc is clients is very important and encouraging the recession, we continued to leverage indeed a very different bank. A very to us because they are a key pillar of our our deep local knowledge and unique bank. business. We equally value the international network to deliver financial endorsement of professional bodies, solutions for clients and customers – We have continued to drive our such as the Zambia Institute of helping their businesses to grow and performance, deepen client relationships Marketing, who recognised the launch of making a difference in their lives. and cement our position as a truly global our Priority Banking proposition with the financial brand. However, we are not just Best Product Launch Award for 2010. Whilst it has been a very difficult time for a very large and successful institution, many international banks negotiating the we are a bank with a unique history and We remain committed to growing our recent global economic turmoil, Standard a unique global footprint stretching Small and Medium Enterprises (SMEs)
4 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com ChiefBusiness executive’s review review (continued)
sector in 2011 – providing our customers Our Wholesale Bank income grew 20% Investment from Chinese businesses in with innovative solutions for their underpinned by a combination of factors various sectors of the Zambian economy businesses. We have remained the including deepening client relationships has stimulated growth and created jobs. market leader in promoting business in and a shift to higher value products. By especially in the mining sector. It is further the trade corridor between Africa and leveraging our international network and expected that Chinese investment will Asia, particularly between China and deep local knowledge, Standard trigger additional benefits for SMEs and Zambia. Chartered has been a lead arranger for local corporates that supply to the mines. complex syndication facilities in the Wholesale Banking market during 2010. Our Wholesale Bank The emerging markets have led the Standard Chartered Bank Zambia Plc strategy of growing our share-of-wallet global recovery from financial crisis. has continued on a strategy to strengthen from existing key clients has again proved Because of Zambia’s current trade its product capabilities. Over the past few very successful. alignment with these global high-growth years, the Bank has consistently been areas, we are optimistic that the country committed to the growth of the metals Standard Chartered’s strategy is to will continue to deliver remarkable and mining, agrifinance, continue supporting the development of performance in 2011. telecommunications and infrastructure the Zambian economy, further developing development sectors. The Bank is our partnership with the local Despite the global economic dislocation, integral to the development of Zambia communities. Standard Chartered Bank Zambia Plc and we want to continue to help support has continued to be in a privileged the growth agenda of the country. Outlook position - we have a strong franchise and Significant increases in copper output will strong momentum in both our Consumer The mining sector saw a huge rally during continue to underscore Zambian GDP and Wholesale Banking businesses. We 2010 with copper prices reaching an growth in 2011 with progress towards have a clear strategy, a dedicated team of all-time-high of US$9,644 per tonne. This reaching a 2012 production target of 1 staff and loyal customers. We remain had a positive broad effect on the million tonnes (mt) well underway. Zambia committed to promoting the development economy – stimulating an increase in FDI has had several years of strong mining of our markets. and productivity and presenting an growth, with copper output rising an opportunity for the Wholesale Bank to estimated 20% in 2010 to over 720,000 In Zambia, the Bank has continued to deepen relationships with existing clients tonnes. Having already achieved a demonstrate why we are the leading and, at the same time, establish broader doubling of output on the Copperbelt international bank through the provision multi-product relationships. before the crisis, Zambia now looks set to of unique services and products that do it again with copper production now at support the sustainable economic We achieved remarkable results by an all-time high. development of the economy - showing continually focusing on our key client exactly why we are indeed ‘Here for segments – Local Corporates, Global In the medium-term, infrastructure good’ Corporates, Financial Institutions and bottlenecks are likely to pose the most Commodity Traders. We supported the significant challenge to economic growth. I would like to thank my Chairman, Mr. 2009/2010 maize marketing season as Nonetheless, capital spending is likely to Michael Mundashi SC, fellow directors, lead arranger for the loan syndication to rise sharply in 2011 in an attempt to members of staff, the shareholders and the Food Reserve Agency. We have address these infrastructure concerns. all the other stakeholders for their made a significant difference to the local support during 2010. economy, reinforcing our aim to foster the Rising copper prices and a sustained sustainable development of the trade surplus have driven the Zambian agricultural sector in Zambia. kwacha (ZMK) gains. We look for the ZMK appreciation bias to persist in 2011 We have remained the leading Bank for driven by tight monetary policy aimed at the mining sector. With a number of maintaining single-digit inflation. Mizinga Melu (Mrs) Greenfield mining projects coming Managing Director onboard, we have confidence in the The Zambia-China trade corridor will 22 February 2011 long-term resilience of the mining sector continue to develop in 2011 as a result of in Zambia and remain committed to the excellent relations between the playing a leading role in its development. Zambian and Chinese governments.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 5 Consumer banking Building an all-weather business, well positioned for long-term sustainable growth
“We exit 2010 with strong momentum, our strategy is clear and we have a strong team in place ... now it’s all about execution with the customer at the centre of everything we do.”
Ralph Watungwa Head of Consumer Banking
Our objective CB Operating Income (ZMK billion)
160 140 In 2011 we are further aiming to deepen customer relationships by providing friendly, 120 100 fast and accurate service; to solve their financial needs; and to recognise and reward 80 60 their overall banking relationship. We want to become the bank that customers 40 20 recommend to their friends and colleagues. 0 2006 2007 2008 2009 2010
To be the employer of choice for our staff. Total liabilities Our strategy ZMK1,687bn 2009: ZMK1,309bn Our strategy is based on three key pillars: 1 Accelerating our shift to a “customer-centric” organisation Total assets 2 “Reinforcing basics and standardisation”, focused on simplification and enhancing efficiencies 3 Implementing country “participation models” to gain market share in our chosen ZMK468bn segments or markets 2009: ZMK216bn
Our prioties
Continue transformation of the business, embedding Customer Charter to enable our focus on our customers • Develop distinct customer value propositions for all segments • Deepen customer relationships and increase product holdings per customer • Enhance efficiencies and productivity through re-engineering projects • Continue disciplined management of risk and costs
6 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Business review
Measuring the success of our Strategic priorities for 2011 strategy Consumer Banking will focus on its l Great progress was made on the customers and staff. Consumer Banking transformation in 2010. The transformation was 1. Our customers: We aim to anchored on a set of promises to deliver fast, friendly and our customers under a charter accurate service. We will which we launched in April, where endeavor to solve our we undertook to provide fast, customers’ financial needs and friendly and accurate service, we will take time to recognize provide solutions to our customers our customers for their overall financial needs and recognize banking relationship with the them for their overall banking bank. This way our customers relationship with us. We are proud will recommend the Bank to that this strategy has already their friends and colleagues. started bearing fruit. We also launched our Priority Banking 2. Our staff: We will equip our proposition which afforded our sales staff with tools to conduct customers with more choices and needs based conversations to further aligned us to our global enable them to understand offering. It is our strong belief that customer behavior, identify with greater collaboration with our their needs and deliver relevant customers through need based solutions. We will empower our conversation, we will continue to people with risk management grow our balance sheet, gain tools to create a “best in class” market share, deliver better operations platform. We will customer service and increase the create a world class work number of solutions we offer to our environment that will offer valued customers. growth for our employees and convert them into raving fans . We are delivering financially and for the Bank. non-financially in all the areas where we are represented in Zambia. l In a great retail business, customer focus is everything – the journey has started and we aim to achieve this goal in the near-term. l Our customer loyalty programme which we launched in quarter 4 of 2010 and the Employee Volunteering initiatives have worked well to reinforce our brand promise, “Here for good”.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 7 Wholesale banking Focused execution and consistent client-led strategy delivering sustained growth
“Clients are the heart and soul of our strategy: we have demonstrated both locally and internationally that products are the key enablers. They continue to underpin our commitment to value addition and the strengthening of these relationships with clients; we have continuously demonstrated that we are committed to providing seamless execution and delivery across our footprint in Zambia and providing access to our markets abroad. Last year we were able to use our balance sheet to remain relevant to our customers. We remain committed to greater levels of service and continued innovation”
Robin Bairstow Stanley Tamele Head of Origination & Client Coverage Head of Global Markets Co-Head, Wholesale Banking Co-Head, Wholesale Banking
Our Objective Total liabilities
To become the core bank to more clients, deepening and building multi-product relationships, and delivering solutions ZMK2,604bn seamlessly across Zambia to our clients. 2009: ZMK1,394bn Our strategy Our strategy remains based on three key principles: Total assets • Building deeper core bank client relationships • Growing local scale and cross-border capabilities • Managing our balance sheet strategically to ZMK4,034bn support clients 2009: ZMK2,649bn
And two key enablers: • Enhancing our infrastructure both physical and virtual • Staying true to our values and culture
Our Priorities • Strengthen and deepen relationships with our clients • Continue to build scale in key segments and grow product capabilities • Increase cross-border opportunities by leveraging on our international network • Maintain disciplined management of costs, capital, liquidity and risk • We need to identify challenges around our processes and make improvements, freeing up time to spend with customers
8 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Business review
Focus on growth areas Asset Backed Finance launched them to customers. We are Local Corporate Portfolio growth has relevant in product areas now where as Financial Markets been greatly driven by the introduction of recently as 5 years ago we limited or no The team has continued to provide tailor Asset Backed Finance in 2009 and presence. In some instances we are now made solutions for various customer embedded in 2010. Asset Backed clear market leaders in these products. needs. This includes derivative products Financing supports acquisition of for the hedging of various commodities machinery and equipment. The product Measuring the strength of our Strategy such as copper. Other products include has been well received by the market and We continue to use our balance sheet, FX Options, Interest Rate Swaps, Cross we anticipate even bigger transaction both locally and abroad, as a competitive Currency Swaps & Outright Forwards. In amounts in 2011 aimed at supporting weapon. The success between balance 2010 we were able to manage our risk mostly the construction manufacturing sheet usage and the success of products profile through intelligent position taking within our core risk management and mining industries which are is clear - we stand well positioned to use framework. significant contributors to Zambia’s GDP. this advantage in the coming year. The The Bank is aligning itself with the Wholesale Banking business has Strong balance sheet management country’s long term development continued the intensification curve on continues to be a key focus area for the acknowledging that the aforementioned profits which began in 2002. This has bank and during 2010 this helped us to industries are engines of economic been further shaped by the markets and maintain a strong liquidity position. This growth for Zambia. alignment of strategy in the past 3 years. year saw an increase is activity on the Remaining true to strategy and relevant secondary market for fixed income Revenues to our customers in Zambia has enabled trading and Standard Chartered Bank Strong Client Growth us to more than double profits in the last continues to play an active role in the We have achieved a very strong top line 4 years. development of this market. With our client revenue growth despite a more extensive presence across the globe, competitive market. The Bank has The recovery experienced in 2010 and Financial Markets Zambia has been able archived excellent growth despite net the changing competitive environment to leverage the vast international expertise and knowledge to deliver interest margin challenges, reduced has challenged our business further and solutions to our customers locally. volatility and growing competition. This the results are therefore even more growth – highlights the resilience of our encouraging. We are well supported by business sustainability and diversity of an excellent team who are well trained Commodity Traders and income streams. It shows we have the and professional in their approach Agribusiness correct strategy in our chosen market especially at the customer interface level. Commodity Traders & Agribusiness (CTA) segments. Product innovation and structuring have supports farmers, commodity traders, also contributed to our superior financial processors and other agriculture sector Greater Client Penetration performance. players by providing seasonal/working Revenue from our largest clients capital finance, capital development continued to grow in 2010 and at a much Our key success criteria will remain risk finance and structured agriculture faster rate than our smaller client. This management across the board. Our finance. CTA team apart from the illustrates the fulfillment of our promise to robust controls have contributed to our traditional balance sheet lending has build a large base of core clients. low credit impairment charges. increasingly provided structured Increasing our position within the Operational risk controls have meant a agriculture trade financing such as the strategic realms of our key customers. decrease in operational losses in our Financing Against Warehouse Receipts business. This continued focus is a key (FAWR) facility. These facilities are not Significant Product achievements enabler of growth and differentiates our fully dependant on the size or strength of The franchise has been developing position in the market. the applicants balance sheet, reliance is products at a rapid rate and successfully placed on the underlying commodity trade and in some instances the strength 2010 Loans and Advances of the off take agreement. The facilities 900 are normally short term of nature thus 800 limiting the price and commodity risk. 700 600 Moves in commodity prices have a major 500 impact on profitability; CTA offers 400 commodity hedging products to 300 200 commodity clients. This enables 100 agriculture businesses to protect margins 0 2007 2008 2009 2010 by hedging the commodity price risk on soft commodities. This innovative product development has positively Revenues (ZMKbillion) contributed to the country’s agricultural development; ensuring Standard 350 300 Chartered Bank’s status as one of 250
Zambia’s most preferred Commodity 200
Banks and at the same time propelling 150 the CTA business to an unprecedented 2 100 successive years of growth in excess of 50 fifty percent. 0 2007 2008 2009 2010
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 9 Board of directors
1 3
2 4
1. Michael Mundashi, SC 3. Edson Hamakowa, Non Executive Chairman Non Executive Director
Appointed to the board on 1 March Appointed to the board on 27 July 2005 and as Chairman in March 2009. Mr Hamakowa is an eminent 2009. He is an eminent lawyer at Accountant with an illustrious career Mulenga Mundashi & Company. in the BP Plc Group both within and outside Zambia. Mr. Mundashi was the first non Executive Chairman of the Revenue Mr Hamakowa has served on the Appeals Tribunal and has worked on Boards of Zambia National a number of Zambian Government Commercial Bank, Zambia Centre for teams on negotiation of double Accountancy Studies and Saturnia taxation agreements with other Regna Pension Fund among others. countries. He also sits on a few other boards and pensions funds, notably He now chairs the Board, Risk African Life Assurance Limited of Committee. which he is the chairman.
2. Abel Mkandawire, 4. Washington Matsaira, Non Executive Director Non Executive Director
Appointed to the board on 30 March Appointed to the board on 31 1999. He is the Chairman and Chief January 2005. He joined Standard Executive Officer of Behrens Ltd. Chartered Bank Zimbabwe in 1983. In 1997, he was appointed Chief Previously, he was General Manager Executive Officer for Standard of ZESCO Limited. He is a fellow of Chartered Bank Uganda and later the Institute of Engineering and transferred back to Standard Technology, and served as an Chartered Bank Zimbabwe in 2000. international IET representative in Zambia. He is a fellow of the He is currently Chief Executive Officer Engineering Institute of Zambia and of Standard Chartered Bank the Economic Development Institute Zimbabwe Ltd as well as Area of the World Bank. General Manager for Zambia and Botswana. He is a fellow of the Institute of Bankers (Zimbabwe).
10 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Corporate governance
5 6 7
5. Mizinga Melu, 6. Kelvin Musana, 7. Celine Meena Nair, Managing Director Executive Director Finance & Company Secretary Administration Appointed to the board as Managing Appointed to the board as Company Director on 1 January 2008. Mrs Appointed to the board on 30 Secretary on 17 July 2006. She Melu joined Standard Chartered January 2007. He joined Standard joined Standard Chartered Bank Bank in 1993 and has worked in Chartered Bank Zambia Plc in 1998 Zambia Plc on 17 July 2006. many markets of the Group. Prior to from the then Zambia National Previously, she worked for the her appointment as Managing Provident Fund (ZNPF) as Financial Lusaka Stock Exchange as Legal Director, She was Group Head for Controller and was appointed Chief Counsel and Company Secretary. Development Organisations based in Financial Officer in February 2005. London. She has held various senior Ms Nair holds a Bachelors Degree in positions including Tresurer, Head of He has undertaken assignments Law (UNZA) and Masters Degree in Financial Institutions and also worked within the Group in Uganda and UK. Banking and Commercial Law in over five countries. He is a fellow of the ACCA and ZICA, (UNISA). She is a member of the a holder of a Bachelor Degree in Institute of Directors and the Director Mrs Melu, a Zambian national, is a Accountancy from Copperbelt Training Committee. qualified Banker and an MBA holder University and an MBA in Finance from Henley Management in the from Manchester Business School. UK. He is a member of The Institute of Directors.
Board Committees
Board Audit Risk Committee Board Credit Committee
Edson Hamakowa (Chairman) Edson Hamakowa (Chairman) Abel Mkandawire (Chairman) Michael Mundashi Michael Mundashi Mizinga Melu Mizinga Melu Mizinga Melu Kelvin Musana Abel Mkandawire Abel Mkandawire Edson Hamakowa Kelvin Musana Kelvin Musana
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 11 Record of attendance of Board/Board Committees meetings held on 2010
BOARD OF DIRECTORS’ MEETINGS 6/2010 7/2010 No. of Board Meeting 2/2010 3/2010 (offsite (offsite 2010 1/2010 (Offsite 4/2010 5/2010 (Adhoc) out of strategy adhoc) town) session) Total
Date of Meeting 27/01 26/02 30/03 27/04 27/07 20/10 06/12 Michael Mundashi √ √ √ √ √ √ √ 7/7 Edson Hamakowa √ √ √ √ √ √ √ 7/7 Abel Mkandawire √ √ √ √ √ √ √ 7/7 Mizinga Melu √ √ √ √ √ √ √ 7/7 Kelvin Musana √ √ √ √ √ √ √ 7/7 Washington Matsaira √ X √ X √ √ √ 5/7
BOARD AUDIT COMMITTEE (AC) MEETINGS: Note SCBZ held combined Audit and Risk Committee meetings until October 2010
No. of AC Meeting 2010 1/2010 2/2010 3/2010 4/2010
Date of Meeting 27/01 27/04 27/07 05/10
Michael Mundashi √ √ √ √ Edson Hamakowa √ √ √ √ Abel Mkandawire √ √ √ √ Mizinga Melu √ √ √ √ Kelvin Musana √ √ √ √
BOARD RISK COMMITTEE (RC) MEETINGS : Note SCBZ held combined Audit and Risk Committee meetings until October 2010
No. of RC Meeting 2010 1/2010 2/2010 3/2010 4/2010
Date of Meeting 27/01 27/04 27/07 06/12 Michael Mundashi √ √ √ √ Edson Hamakowa √ √ √ √ Abel Mkandawire √ √ √ √ Mizinga Melu √ √ √ √ Kelvin Musana √ √ √ √
BOARD CREDIT COMMITTEE MEETINGS
No. of Meeting 2010 1/2010 2/2010 3/2010 4/2010
Date of Meeting 16/02 18/05 17/08 16/11 Edson Hamakowa √ √ √ √ Abel Mkandawire √ √ √ X Mizinga Melu √ X √ √ Kelvin Musana √ √ √ X
12 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Business review
Directors’ report
Share Capital Directors’ Interests in ordinary Activities During the year 2010, the authorized shares The Company engages principally in the capital of the Bank was The beneficial interest of Directors and business of commercial banking in its ZMK3,000,000,000, divided into shares their families in the ordinary shares of the widest aspects and in the provision of of 50 ngwee each. The issued and fully Bank were as follows: related services. paid capital of the Company was ZMK2,047,500,000. The Bank did not Mr. Abel Mkandawire comply with the Banking and Financial 31 December 2010 Services Act in relation to Capital 1,623,176 Shares By Order of the Board Adequacy. The Bank’s primary paid up capital was less than the required Employees minimum of ZMK 12,000,000,000. The The average number of people employed Bank has notified the Bank of Zambia by the Bank during the year 2010 was that it will increase its paid up share 650. This comprised both full time as well Celine M. Nair capital to ZMK12,000,000,000 by 31 May as contract staff. During the year, the Company Secretary 2011, which notice has been Bank saw a reduction in attrition from an 22 February 2011 acknowledged by the Bank of Zambia. average of 11% in 2009 to 7% in 2010. The Bank is committed to ensure that its We will be putting a resolution before the employees are highly motivated and AGM to increase our Share Capital to engaged. The Bank prides itself on ZMK12,285,000,000. internal job movements as part of career development. In 2010 over 60 internal placements were made. In addition, we Results sent staff on short term assignments to The results for the year are set out in the countries including Tanzania, Angola, on page 19. Switzerland, Sweden and India. Lastly, as part of the Bank’s partnership with the Dividends Zambia Institute of Banking and Financial At the Board Meeting held on 22nd Services, 55 members of staff were February 2011 the Directors sponsored to complete a professional recommended payment of a final Diploma course in Banking and Financial dividend of ZMK20.00 per share to be Services. This programme will continue in paid to members appearing on the 2011. register as at close of business on 23 April 2011. Registration Standard Chartered Bank Zambia Plc is a Directors public company incorporated in the There have been no changes in the Republic of Zambia on 11 November Directorate since the last AGM in 2010. 1971 to take over the business of Standard Bank Limited, which had Secretariat operated in Zambia since 1906. There was no change to the Secretariat during 2010.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 13 Corporate governance
Statement on corporate governance
Standard Chartered Bank Zambia Plc We have a robust risk governance regular compliance monitoring activities takes the issue of corporate governance structure which is driven by the Board of on various units of the Bank and provides very seriously. In the year under review, Directors through the senior management compliance advisory to all departments. action has been taken to ensure and all staff of the Bank. It is through the compliance with both the Bank of Zambia governance structure that we strive to Environment Corporate Governance Guidelines and always meet regulatory standards and Standard Chartered Bank Zambia Plc the Lusaka Stock Exchange Corporate achieve exemplary governance and has in place an Environment Committee Governance Code. ethical behavior wherever we operate. In that addresses issues of the environment this regard, enterprise-wide risk strategy and governance, the year’s Code of Conduct management at all levels continues to be environment objectives and action plan, The Bank has a Code of Conduct which a primary goal of the Bank. the tools needed to achieve these sets out the standards on how its staff objectives and the environment and should relate with all the Bank’s Our balance sheet, capital and liquidity climate change messages that are stakeholders – customers, communities, position remain strong. cascaded to all staff. investors and regulators. Further, since the code can not cover every situation As a bank, we are committed to grow a In 2010, the Standard Chartered Bank anticipated, each member of staff is sustainable business and focus very Zambia Plc continued with its tree- expected to use their own judgment strongly on risk management. We are planting agenda at Kanyama Basic when making decisions as they arise. continuously improving the way we work, School in Lusaka and at SOS Children’s balancing the pursuit of growth with Village. The Bank also partnered with control of costs and risk. WWF Zambia in spearheading the Risk Management commemoration of Earth Hour activities The management of risk lies at the heart in Zambia. of our business. Exposure to risk is Regulatory Compliance inherent in providing financial services. Standard Chartered Bank Zambia Plc is Standard Chartered Bank Zambia Plc committed to ensuring full compliance to HIV/AIDS POLICY assumes a variety of risks in its ordinary all local laws and regulations in all the Standard Chartered’s HIV/AIDS policy business activities. markets where we operate. Our comes from a desire to protect basic commitment to compliance is human rights, preserve the integrity of its Effective risk management is a central demonstrated by our zero-tolerance labour force, reduce costs associated part of the financial and operational approach to regulatory breaches. with HIV/AIDS, and respond to what the management of the Bank and is company recognizes as a global fundamental to our ability to generate During the year under review, the Bank of challenge. profits consistently and maximise the Zambia conducted a full inspection of the interests of our shareholders and other Bank between May and July, 2010. The We have adopted a holistic approach to stakeholders. Bank’s overall composite risk position the HIV/AIDS pandemic, from the dual was rated as moderate and the overall perspective of an employer and that of a Standard Chartered Bank Zambia Plc financial condition was rated as good corporate citizen, thereby providing has a clearly defined risk management satisfactory. Management was rated valuable, needed and sustainable framework, including policies and satisfactory on account of the stable contributions. procedures for different risk types. overall financial performance and condition of the Bank. The inspection Our policy reflects this comprehensive Through our risk management report noted that the Board and senior approach, including education, de- framework, we manage enterprise-wide management demonstrated ability to stigmatization, non-discrimination, risks, with the objective of optimising identify, measure, monitor and control reducing infections, employee health and returns whilst remaining within the risk in the different functions of the Bank. wellness, and improving the quality of appropriate risk appetite. We remain lives for infected and affected employees committed to maintaining a strong risk Standard Chartered Bank’s fully and their families. culture. This is reflected in our business dedicated compliance department strategies. ensures regulatory compliance, conducts
14 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes StandardStandard Chartered Chartered Bank Bank Zambia Zambia Plc Plc
FinancialFinancial StatementsStatements forfor the the yearyear ended ended 31 31 December December 2010 2009
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 15 Directors’ responsibilities in respect of the preparation of financial statements
The Bank’s Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, the Banking and Financial Services Act and in the manner required by the Company's Act of Zambia.
The Directors’ are also responsible 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 and for maintaining adequate accounting records and an effective system of risk management as well as the preparation of the supplementary schedules included in these financial statements.
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 in the year ahead.
Approval of the financial statements
The financial statements, of the Bank as indicated above and set out on pages 19 to 72 were approved by the Directors on 22 February 2011 and were signed on its behalf by:
M. Mundashi M. Melu Chairman Managing Director
K. Musana Executive Director – Finance and Administration
16 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes
KPMG KPMG, ZAMBIA Telephone + 260 211 228 874 Nkwazi House Stand No. 25/26 + 260 211 225 903 Corner Nkwazi/Cha Cha Cha Roads Fax + 260 211 228 883 P O Box 31014, Lusaka, Zambia
Independent Auditor's Report to the Members of Standard Chartered Bank Zambia Plc
Report on the Financial Statements We have audited the annual financial statements of Standard Chartered Bank Zambia Plc which comprises the statement of financial position as at 31 December 2010, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting principles and other explanatory notes, as set out on pages 24 to 72.
Directors’ responsibility for the financial statements The Bank’s Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, the Banking and Financial Services Act and in the manner required by the Companies Act of Zambia, 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.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Standard Chartered Bank Zambia Plc as at 31 December 2010 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.
KPMG Zambia, a partnership registered under the Zambia Business Names Act is a member A list of the Partners is available firm of the KPMG network of independent member firms affiliated with KPMG International at the registered office Cooperative ("KPMG International"), a Swiss entity.
17 KPMG
Other matter Supplementary information set out on page 73 does not form part of the annual financial statements and is presented as additional information. We have not audited this schedule and accordingly we do not express an opinion on it.
Report on Other Legal and Regulatory Requirements In accordance with Section 173 (3) of the Companies Act of Zambia, we report that, in our opinion the required accounting records, other records and registers have been properly kept in accordance with the Act.
In accordance with Section 64 (2) of the Banking and Financial Services Act we report that in our opinion: . the Bank made available all necessary information to enable us to comply with the requirements of this Act;
. the Bank has complied in all material respects with the provisions of this Act and the regulations, guidelines and prescriptions under this Act except the Bank's primary paid up capital was less than the minimum requirement of ZMK12,000 million as indicated in note 5 (capital management); and
. except for one non performing loan, there are no other non performing or restructured loans owing to the Bank whose principle amount exceeds 5% of the regulatory capital of the Bank.
KPMG Chartered Accountants of Zambia
Hastings Mtine 22 February, 2011 Partner Lusaka, Zambia
18 Financial statements and notes
Statement of comprehensive income for the year ended 31 December 2010
2010 2009 Notes K’million K’million
Interest income 9 228,495 267,132
Interest expense 10 (33,003) (57,532)
Net interest income 195,492 209,600
Fee and commission income 11 109,658 90,062
Fee and commission expense 11 (11,908) (12,532)
Net fee and commission income 97,750 77,530
Net trading income 12 129,588 95,932
Net income from financial instruments at fair value through profit or loss 13 27,658 8,182
Other income 14 650 652
157,896 104,766
Operating income 451,138 391,896
Personnel expenses 15 (134,343) (122,443) Depreciation, amortisation, premises and equipment expenses 15 (30,149) (27,146) Other expenses 15 (64,911) (102,244) Impairment losses on loans and advances 26 8,009 (25,039)
Profit before income tax 229,744 115,024
Income tax expense 17 (96,592) (48,057)
Profit for the year 133,152 66,967
Other comprehensive income, net of income tax
Net changes in fair value reserve on available-for-sale government securities (364) 15,629
Net amount transferred to profit or loss on available-for-sale (7,291) (55)
Other comprehensive income for the year, net of income tax 17 (7,655) 15,574
Total comprehensive income for the year 125,497 82,541
Basic and diluted earnings per share (Kwacha) 18 32.52 16.35
The notes on pages 24 to 72 are an integral part of these financial statements.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 19 Statement of financial position as at 31 December 2010 2010 2009 Notes K’million K’million Assets Cash on hand and balances at Bank of Zambia 20 1,332,221 720,097 Cash and short term funds at group banks 21 366,446 179,119 Cash and short term funds at non – group banks 21 56,415 21,045 Placements with foreign non – group banks 21 119,850 232,485 Pledged trading assets 22 - 872 Investment securities 23 979,184 766,646 Derivative financial instruments 24 382,536 6,436 Loans and advances to banks 25 83,101 6 Loans and advances to customers 26 1,151,385 948,087 Operating lease prepayments 29 677 695 Prepayments and other receivables 30 27,857 75,807 Intangible assets 28 32,973 - Property and equipment 27 26,097 25,311 Total assets 4,558,742 2,976,606
Liabilities Amounts payable to non – group banks 21 387 1,029 Amounts payable to group banks 21 497,637 228,797 Cheques in course of collection 5,875 4,074 Deposits from customers 31 3,164,587 2,347,127 Dividends payable 19 1,355 2,228 Derivative financial instruments 24 382,448 6,033 Provisions 33 15,744 15,871 Accruals and other payables 34 107,132 94,713 Current tax liabilities 17 34,779 31,696 Subordinated liabilities 32 19,120 18,600 Deferred tax liabilities 17 4,307 2,926 Total liabilities 4,233,371 2,753,094
Equity Share capital 35 2,048 2,048 Statutory reserves 2,048 2,048 Fair value reserves 9,374 17,029 Credit reserves 1,634 - Property revaluation reserves - 4,580 Capital Contribution 17,312 - Retained earnings 292,955 197,807
Total equity attributable to equity holders of the Bank 325,371 223,512
Total liabilities and equity 4,558,742 2,976,606
These financial statements were approved by the Board of Directors on 22 February, 2011.
M. Mundashi M. Melu K. Musana C. Nair Chairman Managing Director Executive Director – Finance and Administration Company Secretary The notes on pages 24 to 72 are an integral part of these financial statements.
20 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes
Statement of changes in equity As at 31 December 2010
Share Property Fair 2010 Share Statutory Credit based revaluation Capital Retained value capital reserves reserves payment reserves contribution earnings reserves Total reserves K’million K’million K’million K ’million K ’million K ’million K’ million K’ million K’million Balance at 1 January 2010 2,048 2,048 17,029 - - 4,580 - 197,807 223,512
Total comprehensive income for the year Profit for the year ------133,152 133,152 Other comprehensive income, net of income tax Fair value reserve on available- for-sale government securities - Net change in fair value - - (364) - - - - - (364) - Net amount transferred to - - (7,291) - - - - - (7,291) profit and loss Realisation of property - - - - - (4,580) - 4,580 - revaluation reserves Transfer to credit reserves - - - 1,634 - - - (1,634) - Total other comprehensive - - (7,655) 1,634 - (4,580) 2,946 (7,655) income for the year Total comprehensive income for - - (7,655) 1,634 - (4,580) - 136,098 125,497 the year Transactions with owners, recognised directly in equity Capital contributions ------17,312 - 17,312 Share based payment - - - - 1,600 - - - 1,600 transactions Distribution - - - - (1,600) - - - (1,600) Dividend to equity holders ------(40,950) (40,950) Total contributions by and distributions to owners ------17,312 (40,950) (23,638) Balance at 31 December 2010 2,048 2,048 9,374 1,634 - - 17,312 292,955 325,371
Property Share Capital revaluation Share Statutory Fair value Credit based contribution Retained reserves 2009 capital reserves reserves reserves payment earnings Total reserves K’million K’million K’million K ’million K'million K’ million K’ million K’ million K’million Balance at 1 January 2009 2,048 2,048 1,455 - - 4,606 - 151,289 161,446 Total comprehensive income for the year Profit for the year ------66,967 66,967 Other comprehensive income- net of income tax Fair value reserve on available- for-sale government securities - Net change in fair value - - 15,629 - - - - - 15,629 - Net amount transferred to - - (55) - - - - - (55) profit and loss Realisation of property - - - - - (26) - 26 - revaluation reserves Transfer to credit reserves ------Total other comprehensive - - 15,574 - - (26) - 26 15,574 income for the year Total comprehensive income for - - 15,574 - - (26) - 66,993 82,541 the year Transactions with owners, recognised directly in equity Capital Contribution ------Share based payment - - - - 2,006 - - - 2,006 transactions Distribution - - - - (2,006) - - - (2,006) Dividend to equity holders ------(20,475) (20,475) Total contributions by and distributions to owners ------(20,475) (20,475) Balance at 31 December 2009 2,048 2,048 17,029 - - 4,580 - 197,807 223,512
The notes on pages 24 to 72 are an integral part of these financial statements.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 21 Statement of changes in equity (continued) As at 31 December 2010
Fair value reserve Fair value reserves are the fair value movement of financial assets classified as available-for-sale. Gains and losses are deferred to this reserve until such time as the underlying asset is sold or matures.
Credit reserve The credit reserve is a loan loss reserve that relates to the excess of impairment provision as required by the Banking and Financial Services Act of Zambia over the impairment provision computed in terms of International Financial Reporting Standards.
Share based payment reserves This relates to the equity settled share based payment transactions the Bank employees have with the holding company.
Property revaluation reserves Property revaluation reserves relate to revaluation of properties. The revaluation were realised to revenue reserves as the related properties were disposed of or depreciated. Property revaluation reserves have been transfered to retained earnings reserves in accordance with the revised accounting policy.
Capital contribution The capital contribution reserve relates to the franchise value arising from the acquisition of the Security Services.
Retained earnings Retained earnings are the carried forward recognised income net of expenses of the Bank plus current period profit attributable to shareholders. Statutory reserves comprise transfers out of net profits prior to dividends, of amounts prescribed under statutory instrument No. 21 of 1995: The Banking and Financial Services (Reserve Account) Regulations 1995.
22 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes
Statement of cash flows for the year ended 31 December 2010 Notes 2010 2009 K’million K’million Cash flow from operating activities Profit before tax 229,744 115,024 Adjustment for items not involving cash flow or shown separately: Depreciation of property and equipment 27 5,532 6,580 Amortisation of intangible asset 28 718 - Expensed portion of leasehold land prepayment 15 18 17 Interest paid on subordinated loan capital 10 519 438 Gain on disposal of equipment 14 (48) (285) Net interest income (195,492) (209,601) Effect of exchange rate fluctuations on subordinated loan capital (520) (600) 40,471 (88,427) Changes in operating assets and liabilities Cheques in the course of collection 1,801 (482) Pledged trading assets 872 128 Loans and advances to banks (83,095) 24,469 Loans and advances to customers (203,298) 58,050 Derivative financial instruments 315 (2,717) Prepayments and other receivables 47,950 (51,189) Deposits from customers 817,460 231,359 Provisions (127) (11,328) Accruals and other payables 12,419 36,229
Interest income 9 228,495 267,133 Interest expense 10 (33,003) (57,532) Net cash from operating activities before taxation 830,260 405,693
Income tax paid 17 (88,823) (22,696) Net cash flows from operating activities 741,437 382,997
Cash flows from investing activities Purchase of property and equipment to maintain operations 27 (6,432) (3,073) Investment in government securities (222,438) (497,657) Acquisition of intangible assets 28 (16,379) - Proceeds from disposal of equipment 162 348 Net cash used in investing activities (245,087) (500,382)
Cash flows from financing activities Interest paid on subordinated loan capital 10 (519) (438) Dividends paid 19 (41,843) (19,639)
Net cash flows from financing activities (42,362) (20,077)
453,988 (137,462) Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year 922,920 1,060,382
Cash and cash equivalents at end of year 21 1,376,908 922,920
The notes on pages 24 to 72 are an integral part of these financial statements.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 23 Notes to the financial statements for the year ended 31 December 2010
1 Reporting entity
Standard Chartered Bank Zambia PLC (“the Bank”) is a company domiciled in Zambia. The address of the Bank’s registered office is Standard Chartered House, Cairo Road, Lusaka. The Bank is primarily involved in wholesale and consumer banking.
2 Basis of preparation
2.1 Statement of compliance
The Bank’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), the requirements of the Banking and Financial Services Act and the Companies Act of Zambia.
2.2 Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following:
• derivative financial instruments are measured at fair value; • available-for-sale financial assets are measured at fair value; and • financial instruments at fair value through profit or loss are measured at fair value.
2.3 Functional and presentation currency
These financial statements are presented in Zambian Kwacha (“Kwacha”), which is the Bank’s functional currency. Except as indicated, financial information presented in Kwacha has been rounded to the nearest million.
2.4 Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in note 6.
3 Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
3.1 Interest income and expense
Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument (for example, repayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.
24 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.1 Interest income and expense (continued)
Interest income and expense presented in the statement of comprehensive income includes: • interest on financial assets and liabilities at amortised cost on an effective interest rate basis; • interest on available-for-sale investment securities on an effective interest basis; and • Interest on financial assets at fair value through profit or loss.
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Bank’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest continues to be recognised on the impaired asset using the original effective interest rate.
3.2 Fees and commissions
Fees and commissions are recognised on an accrual basis when the service has been provided. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank retained no part of the loan package for itself or retained a part at the same effective interest rate for the other participants. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided, which is usually on a time basis.
Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in a draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period.
Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
3.3 Net trading income
Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest and foreign exchange differences.
3.4 Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
3.5 Income tax
Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.
The current tax charge is determined in accordance with the provisions of the Income Tax Act 1966 (as amended) (Chapter 323 of the laws of Zambia), and is based on the adjusted profit for the year using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The current tax charge is recognised as an expense in the period in which profits arise.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 25 Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.5 Income tax (continued)
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Tax that arises on distribution of dividends by the Bank is recognized at the same time the liability to pay the related dividend is recognized.
3.6 Financial assets and financial liabilities
Recognition
The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Bank commits to purchase or sell the asset. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value including (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.
De-recognition
The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.
The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.
26 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.6 Financial assets and financial liabilities (continued)
De-recognition (continued)
The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, repurchase transactions.
Sale and repurchase agreements
Securities sold subject to repurchase agreements (‘repos’) remain on the statement of financial position. The counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recognised as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.
Securities lent to counterparties are also retained in the financial statements. Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recognised with the gain or loss included in trading income.
Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.
Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment (for financial assets only).
Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The Bank uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options, interest rate and currency swaps. For these financial instruments, inputs into models are market observable.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, that is, the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (that is, without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss depending on the individual facts and circumstances of the transaction but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 27 Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.6 Financial assets and financial liabilities (continued)
Fair value measurement (continued)
Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Bank has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Bank believes a third-party market participant would take them into account in pricing a transaction.
Identifcation and measurement of impairment
The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the loss events.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the financial asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or debt issuers in the Bank, or economic conditions that correlate with defaults in the Bank.
In assessing collective impairment the Bank uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments measured at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest on the impaired asset continues to be recognised through the unwinding of the discount.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.
28 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.6 Financial assets and financial liabilities (continued)
Identifcation and measurement of impairment (continued)
When a loan is uncollectible, it is impaired. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss.
Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Interest calculated using the effective interest method is recognised in profit or loss. Reversals of impairment loss on available-for-sale debt instruments are recognised in profit or loss, however any subsequent recovery of the fair value of an impaired available-for-sale equity instrument is recognised in other comprehensive income.
3.7 Cash and cash equivalents
Cash and cash equivalents include notes and coins on hand, balances held with the central bank and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in fair value, and are used by the Bank in the management of its short term commitments, cash and bank balances with group and non - group banks, and overdrafts with these banks.
Cash equivalents are measured at amortised cost.
3.8 Loans and advances
Loans and advances are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market and the Bank does not intend to sell immediately or in the near future. Loans and advances include Mortgage, Term loans, Personal loans and Overdrafts.
Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method less impairment losses.
Loans are recognised when cash is advanced to the borrowers.
3.9 Collateral
The Bank obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the form of a lien over the customer’s assets and gives the Bank a claim on these assets for both existing and future liabilities.
The Bank receives collateral in the form of cash or debt securities in respect of other financial instruments in order to reduce credit risk. Collateral received in the form of debt securities is not recognised on the statement of financial position. Collateral received in the form of cash is recognised on the statement of financial position with a corresponding liability. These items are assigned to deposits received from banks or other counterparties. Any interest payable or receivable arising is recognised as interest expense or interest income respectively.
3.10 Investment securities
Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently measured depending on their classification as either held-to-maturity, fair value through profit and loss, or available-for- sale. Management determines the classification of its investments at initial recognition.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 29 Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.10 Investment securities (continued)
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss are initially and subsequently measured at fair value.
Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the statement of comprehensive income in the period in which they arise.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of the derivatives are recognised in profit or losss. Transaction costs are recognised in profit or loss as incurred. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
(b) Available-for-sale
Available-for-sale investments are non-derivative investments that are designated as available-for-sale or are not classified as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value.
Interest income is recognised in profit or loss using the effective interest method. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss.
3.11 Borrowings
Borrowings are recognised initially at fair value, being the issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently measured at amortised cost, any difference net of transaction costs and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest rate method.
3.12 Deposits, debt securities and subordinated liabilities
Deposits, debt securities and subordinated liabilities are the Bank’s sources of debt financing. When the Bank sells a financial asset and simultaneously enters a “repo” agreement to repurchase the asset (or similar asset) at a fixed or on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements.
Deposits, debt securities and subordinated liabilities are initially measured at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest method.
3.13 Property and equipment
Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Property comprises offices and residential buildings.
30 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.13 Property and equipment (continued)
Subsequent costs
The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
Depreciation
Depreciation is recognised in the profit or loss on a straight line basis over the estimated useful lives of each part of an item of property and equipment. The useful lives are as follows:
Properties up to 50 years Improvements to properties life of lease, up to 50 years Equipment and motor vehicles 3 to 15 years
The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. There has been no significant change in the useful lives from prior period.
Capital work-in-progress
Capital work-in-progress represents assets in the course of development which at reporting date would not have been brought to use.
3.14 Intangibles assets
The main types of assets that are classified as intangible assets include customer relationships relating to the Security Services business. The intangible assets will be amortised over the expected customer life, initially estimated at 8 -10years. They are initially measured at cost and subsequent to initial measurement; they are carried at cost less amortisation and impairment.
3.15 Leased assets
Leases of land
Leases of land are classified as operating leases on the basis that significant risks and rewards of ownership are not transferred to the Bank. The leases are for 99 years which is significantly less than the useful economic life of the land. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease term as an operating lease expense.
Ownership of land ultimately vests in the Government of the Republic of Zambia and title does not transfer to the lessee.
3.16 Impairment of non-financial assets
The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.
Assets that have indefinite useful lives are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the greater of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 31 Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.16 Impairment of non-financial assets (continued)
For the purposes of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash-generating unit” or “CGU”). Impairment losses are recognised in profit or loss.
Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.
3.17 Provisions
A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
3.18 Foreign currency
Transactions in foreign currencies are translated to Kwacha at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss.
3.19 Segment reporting
An operating segment is a component of the Bank that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Bank’s other components. All operating segments’ operating results are reviewed regularly by the Bank’s CEO (who is the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 8).
3.20 Acceptances and letters or credit
Acceptances and letters of credit are not recognised in the statement of financial position. They are disclosed as contingent liabilities.
3.21 Employee benefits
(a) Defined contribution plan
A defined contribution plan is a post – employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as expense in profit or loss when they are due in respect of service rendered before the end of the reporting period. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Retirement benefits for members of staff are provided through a defined contribution fund.
The Bank contributes 6% of employees’ basic pay to the defined contribution pension fund. Obligations for contributions to the defined contribution pension plans are due in respect of services rendered before the end of the reporting period.
(b) Termination benefits
Termination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Bank has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
32 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
3 Significant accounting policies (continued)
3.22 Earnings per share
The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. The Bank’s basic EPS is the same as the diluted EPS as there are no potential dilutive ordinary shares.
3.23 Share capital and reserves – share issue costs
Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
3.24 Dividends
Dividends are recognised as a liability in the period in which the dividends are approved by the shareholders.
3.25 Fiduciary activities
The Bank acts in a fiduciary capacity which results in the holding or placing of assets on behalf of individuals, trusts and other institutions. These assets are excluded from these financial statements, as they are not assets of the Bank.
3.26 Share based payments
The Bank’s employees participate in a number of share based payment schemes operated by Standard Chartered Plc, the ultimate holding company of Standard Chartered Bank Zambia Plc. Participating employees are awarded ordinary shares in Standard Chartered Plc in accordance with the terms and conditions of the relevant scheme.
In addition, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares of Standard Chartered Bank Plc. The price at which they may purchase shares is at a discount of up to twenty per cent on the share price at the date of invitation. There are no performance conditions attached to options granted under all employee share save schemes.
Equity settled options or share awards are calculated at the time of grant based on the fair value of the equity instruments granted and that grant date fair value is not subject to change. The fair value of the options is recognised in profit or loss over the vesting period.
4 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2010, and have not been applied in preparing theses financial statements. The following standards and interpretations will have an impact on the financial statement of the Bank:
. IFRS 9 Financial instruments deals with classification and measurement of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held for within a business model whose objective is to hold assets in order to collect contractual cash flows, and the assets contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be at measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables.
The Bank has not yet made an assessment of the impact the adoption of the standard will have on the financial statements.
The standard is effective for annual periods beginning on or after 1 January 2013 with earlier application permitted.
. Revised IAS 24 Related Party Disclosures. The revised IAS 24 is likely to effect the Bank’s related party disclosures but will not have an impact on the measurement of transactions and balances with related parties. It is effective for annual periods beginning on or after 1 January 2011.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 33 Notes to the financial statements (Continued) For the year ended 31 December 2010
4 New standards and interpretations not yet adopted (continued)
. Improvements to International Financial Reporting Standards 2010, effective for annual periods beginning on or after 1 July 2010 or 1 January 2011. The Bank has not yet made an assessment of the impact the amendments will have on the financial statements.
. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. The interpretation will be effective 1 July 2010. The Bank has not yet made an assessment of the impact the interpretation will have on the financial statements.
. IAS 32 Financial Instruments: Presentation – Classifcation of Rights Issues, effective for annual periods beginning on or after 1 February 2010. The amendment requires that rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The amendment is not expected to impact the Bank’s financial statements.
. An amendment to IFRS 7 Disclosures – Transfer of Financial Assets, is effective for annual periods beginning on or after 1 July 2011. In terms of the amendments additional disclosure will be provided regarding transfers of financial assets that are:
• not derecognised in their entirety; and
• derecognised in their entirety but for which the Bank retains continuing involvement.
The Bank has not yet made an assessment of the impact the interpretation will have on the financial statements.
5 Risk Management
Through its risk management structure, the Bank seeks to manage efficiently the core risks: credit, market and liquidity risks. These arise directly through the Bank’s commercial activities whilst business, regulatory, operational and reputational risks are normal consequences of any business undertaking. The key element of risk management philosophy is for the risk functions to operate as an independent control working in partnership with the business units to provide a competitive advantage to the Bank.
The basic principles of risk management followed by the Bank include:
• ensuring that business activities are controlled on the basis of risk adjusted return; • managing risk within agreed parameters with risk quantified wherever possible; • assessing risk at the outset and throughout the time that the Bank continues to be exposed to it; • abiding by all applicable laws, regulations, and governance standards; • applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and • undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation.
Group Risk Management Structure
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework.
The Group has established the Asset and Liability Committee (ALCO) which ensures that the country’s balance sheet is managed in accordance with group policy as well as other applicable regulatory requirements.
The Group Operational Risk Committee (GORC) has established the Country Operational Risk Group (CORG), which is responsible for provide a forum for the identification, assessment, mitigation and subsequent monitoring of country level Operational Risk trends and issues. CORG ensure that there is full compliance with internal policies and relevant regulations, as well as the Bank’s Operational Risk Management and Assurance Framework.
34 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Group Risk Management Structure (continued)
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group through its training and management standards and procedures aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.
The Board Audit is supported in these functions by the Internal Audit Department, who undertake both regular and ad-hoc reviews of risk management controls and procedures, the results of which are then reported to the Board Audit Committee.
Board Risk Committee is responsible for considering the Bank’s appetite for risk, review the appropriateness and effectiveness of the Bank’s risk management system and controls and to consider the implications of changes proposed to regulations and legislation that are material to the group’s risk appetite, risk exposure and management of risk.
Credit Risk
Management of credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Bank is subject to credit risk through its trading, lending, and investing activities and in cases where it acts as an intermediary on behalf of customers or other third parties or issues guarantees. The amount of credit exposure in this regard is represented by the carrying amounts of the assets on the statement of financial position and financial assets that are off balance sheet. For risk management reporting purposes, the Bank considers all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral against loans and advances in the form of mortgage interests over property, other registered securities over assets and guarantees.
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments.
Within the Wholesale Banking business, a numerical grading system (Grades 1 to 14) is used for quantifying the risk associated with counterparty. The grading is based on a probability of default measure with customers analysed against a range of quantitative and qualitative measures.
For Consumer Banking, approval processes are in place that are appropriate for the customer type or the market.
Consumer Banking
An account is considered to be in default when payment is not received on the due date. Accounts that are overdue by more than 30 days are considered delinquent. These accounts are closely monitored and subject to a collection process.
The process used for raising provisions is dependent on the product. For mortgages, personal and other SME loans, individual impairment provisions (“IIP”) are generally raised at 150 days past due based on the difference between the outstanding amount of the loan and the present value of the estimated future cash flows. For unsecured products, individual provisions are raised for the entire outstanding amount at 150 days past due. For all products there are certain accounts, such as cases involving bankruptcy, fraud and death, where the loss recognition process is accelerated.
A portfolio impairment provision is held to cover the inherent risk of losses, which although not identified, are known through experience to be present in any loan portfolio. In Consumer Banking, the portfolio impairment provision is set with reference to past experience using loss rates and judgmental factors such as the economic environment and the trends in key portfolio indicators.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 35 Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Management of credit risk (continued)
Wholesale Banking
In Wholesale Banking, accounts or portfolios are placed on Early Alert when they display signs of weakness. Such accounts and portfolios are subject to a dedicated process with oversight involving Group Special Asset Management (“GSAM”). Account plans are re-evaluated and remedial actions are agreed and monitored until complete. Remedial actions include, but are not limited to, exposure reduction, security enhancement, exit of the account or immediate movement of the account into the control of GSAM, the specialist recovery unit.
Loans are designated as impaired and considered non-performing where recognised weakness indicate that full payment of either interest or principal becomes questionable or as soon as payment of interest or principal is 90 days or more overdue. Impaired accounts are managed by GSAM, which is independent of the main businesses of the Bank. Where any amount is considered uncollectable, an individual impairment provision is raised, being the difference between the loan carrying amount and the present value of estimated future cash flows. In any decision relating to the raising of provisions, the Bank attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering an element of an account against which an impairment provision has been raised, then that amount will be written off.
A portfolio impairment provision is held to cover the inherent risk of losses, which, although not identified, are known through experience to be present in any loan portfolio. In Wholesale Banking, the portfolio impairment provision is set with reference to past experience using loss rates, and judgmental factors such as the economic environment and the trends in key portfolio indicators.
36 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Management of credit risk (continued)
The Bank’s exposure to credit risk is analysed as follows:
Loans and advances Loans and advances Loans and advances to customers to banks Investment securities K’million K’million K’million K’million K’million K’million 2010 2009 2010 2009 2010 2009
Carrying amount 1,151,385 948,087 83,101 6 979,184 767,518
Assets at amortised cost
Individually impaired:
Wholesale loans
Grade 13 4,541 30,360 - - - -
Grade 14 50,425 58,273 - - - -
Consumer loans
More than 150 days 1,262 11,629 - - - -
Gross amounts 56,228 100,262 - - - -
Allowance for impairment (35,769) (35,268) - - - -
Net carrying amount 20,459 64,994 - - - -
Past due but not impaired
Wholesale Grade 12 27,134 8,478 - - - - Consumer over 150 days 14,669 22,892 - - - -
Carrying amount 41,803 31,370 - - - -
Past due comprises:
30 – 60 days 4,827 9,452 - - - -
60 – 90 days 1,613 3,831 - - - -
90 – 180 days 4,514 6,938 - - - -
Over 180 days 30,849 11,149 - - - -
Carrying amount 41,803 31,370 - - - -
Neither past due nor impaired
Wholesale loans 767,866 630,861 83,101 6 979,184 767,518
Consumer loans 332,690 243,742 - - - -
Gross amount 1,142,359 905,973 83,101 6 979,184 767,518
(11,433) (22,880) - - - - Portfolio impairment Carrying amount 1,130,926 883,093 - - - -
Carrying amount – amortised cost 1,151,385 948,087 83,101 6 979,184 767,518
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 37 Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Management of credit risk (continued)
Impaired loans
Impaired loans are loans for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). These loans are graded 13 to 14 in the Bank’s internal credit risk grading system.
Past due but not impaired loans
Past due but not impaired loans are loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security/collateral available and / or the stage of collection of amounts owed to the Bank. These loans are graded 12 in the Bank’s internal credit risk grading system.
Allowances for impairment
The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.
Write off policy
The Bank writes off a loan balance (and any related allowances for impairment losses) when the Bank Credit determines that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances and standardised loans, charge off decisions generally are based on a product specific past due status.
Set out below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired assets:
Loans and advances to 2010 customers Wholesale loans Gross Net K’million K’million
Grade 13 4,541 3,924 Grade 14 50,425 16,134
54,966 20,058
Consumer loans Past due over 150 days 1,262 401
Total 56,228 20,459
2009 Gross Net
K’million K’million
Wholesale loans
Grade 13 30,360 22,230 Grade 14 58,273 39,817
88,633 62,047 Consumer loans Past due over 150 days 11,629 2,947
Total 100,262 64,994
38 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Management of credit risk (continued)
The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except where securities are held as part of reverse repurchase and securities borrowing activity. Collateral is not usually held against investment securities, and no such collateral was held at 31 December 2010.
An estimate of the fair value of collateral held against loans and advances to customers is shown below:
Loans and advances to customers 2010 2009 K’million K’million Against individually impaired: Property 64,374 106,647 Against neither past due nor impaired: Property 327,616 404,679 Total 391,990 511,326
Details of financial and non-financial assets obtained by the Bank during the year by taking possession of collateral held as security against loans and advances as well as calls made on credit enhancements and held at the year end are shown below: 2010 2009 K’million K’million
Property 14,534 -
The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The Bank does not use the non-cash collateral for its own operations.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 39 Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Concentration of credit risk
The Bank monitors concentrations of credit risk by sector and an analysis of concentrations of credit risk from loans and advances and investment securities at the reporting date is shown below:
Loans and advances to Loans and advances to Investment securities customers banks 2010 2009 2010 2009 2010 2009 K’million K’million K’million K’million K’million K’million
Carrying amount 1,151,385 948,087 83,101 6 979,184 766,646
Wholesale: Agriculture 308,366 155,339 - - - - Mining and quarrying 14,606 28,165 - - - - Manufacturing 325,981 84,150 - - - - Energy - 8,776 - - - - Commerce 101,075 287,536 - - - - Financial services - 34,905 - - 41,161 9,375 Government - - - - 938,023 757,271 Banks - - 83,101 6 - - Other 67,685 66,409 - - - - Consumer: Mortgages 76,963 85,945 - - - - Unsecured lending 256,709 196,862 - - - -
Total 1,151,385 948,087 83,101 6 979,184 766,646
Settlement risk
The Bank’s activities may give rise at the time of settlement of transactions and trades to settlement risk, which is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.
To mitigate against this risk, settlement limits form part of the credit approval and monitoring processes. In situations where the Bank is not confident with the accounts, then deals may be done on Delivery Versus Payment basis (DVP).
Liquidity risk
Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It includes both the risk of being unable to fund liabilities at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame. Liquidity management is directed towards ensuring that all the Bank’s operations can meet their funding needs, whether this is to replace existing funding as it matures, or is withdrawn, or to satisfy the demands of customers for additional borrowings.
Management of liquidity risk
The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.
Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, largely made up of short term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.
40 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Management of liquidity risk (continued)
The Bank further has to comply with the liquidity requirements set by the Central Bank which monitors compliance with local regulatory limits on a regular basis.
The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by the Group Assets and Liabilities Committee (GALCO). A summary report, including any exceptions and remedial action taken, is submitted regularly to Assets and Liabilities Committee (ALCO).
Exposure to liquidity risk
The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month.
The concentration of funding requirements at any one date or from any one source is managed continuously. A substantial proportion of the Bank’s deposit base is made up of current and savings accounts and other short term customer deposits.
A similar, but not identical calculation is used to measure the Bank’s compliance with the liquidity limit established by the Bank of Zambia. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:
2010 2009
At 31 December 72.97% 67.69%
Average for the period 66.88% 42.84%
Maximum for the period 85.04% 68.76%
Minimum for the period 56.45% 25.56%
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 41 Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
The following table provides an analysis of the financial liabilities of the Bank into relevant contractual maturity groupings:
Gross One to Three One More Carrying nominal Less than three months to to five than five amount outflow one month months one year years years 2010 K’million K’million K’million K’million K’million K’million K’million Non derivative liabilities Amounts payable to non-group banks 387 (387) (387) - - - - Amounts payable to group banks 497,637 (497,637) (497,637) - - - -
Cheques in course of collection 5,875 (5,875) (5,875) - - - -
Deposits from customers 3,164,587 (3,164,587) (2,823,187) (268,111) (70,098) (3,191) -
Dividends payable 1,355 (1,355) - - - - -
Subordinated liabilities 19,120 (21,222) - (531) (2,122) - (18,569)
Total Non derivative liabilities 3,688,961 (3,691,063) (3,327,086) (268,642) (72,220) (3,191) (18,569)
Derivative liabilities
Derivative financial instruments 382,448 (382,448) (382,448) - - - -
Total derivative liabilities 382,448 (382,448) (382,448) - - - -
Gross One to Three More Carrying nominal Less than three months to One to than five amount outflow one month months one year five years years 2009 K’million K’million K’million K’million K’million K’million K’million Non derivative liabilities Amounts payable to non-group banks 1,029 (1,029) (1,029) - - - - Amounts payable to group banks 228,797 (228,797) (228,797) - - - -
Cheques in course of collection 4,074 (4,074) (4,074) - - - -
Deposits from customers 2,347,127 (2,347,127) (2,055,277) (121,281) (170,569) - -
Dividends payable 2,228 (2,228) (2,228) - - - -
Subordinated liabilities 18,600 (18,959) - (474) (1,896) - (16,589)
Total Non derivative liabilities 2,601,855 (2,602,214) (2,291,405) (121,755) (172,465) - (16,589)
Derivative liabilities Derivative financial instruments 6,033 (6,033) (6,033) - - - -
Total derivative liabilities 6,033 (6,033) (6,033) - - - -
42 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Market risk
Market risk is the risk that changes in the market prices, such as interest rates and foreign exchange rates will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk. The Bank faces two main risks in this category; interest and foreign exchange rate risk.
Interest rate risk All businesses in the Standard Chartered Group operate within market risk management policies that are set by the Group Risk Committee. Limits have been set to control the Bank’s exposure to movements in prices and volatilities arising from trading, lending, deposit taking and investment decisions.
Exposure to interest rate risk – non-trading portfolios
The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times and/or in differing amounts. In the case of floating rate assets and liabilities the Bank is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices. Asset-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes. The table below indicates the effective interest rates at the reporting date and the periods in which financial assets and liabilities reprice respectively.
The effective interest rates for principal financial assets and financial liabilities averaged as follows:
2010 2009
ZMK (%) USD (%) ZMK (%) USD (%) Government bonds 8.65 - 16.65 -
Treasury bills 9.12 - 14.93 -
Loans and advances 15.16 7.31 21.60 6.53
Staff mortgages and other loans 9.00 - 9.00 -
Placements with other banks 4.75 0.45 8.91 0.86 Customer deposits 1.50 0.03 3.71 0.21
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and financial liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 5% and 10% parallel rise in all yield curves and a 2.5% and 7.5% parallel fall in all yield curves. An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial statement position, is as follows:
Interest rate movements affect reported equity in the following ways: • Retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss. • Fair value reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in equity.
Overall non-trading interest rate risk positions are managed by Global markets, which use investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank’s non- trading activities.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 43 Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Interest rate risk (continued)
Exposure to interest rate risk – non-trading portfolios (continued)
Fixed rate instruments
Three Less than Between Floating rate months 2010 Total Zero rate three one and instruments and one instruments months five years year
K’million K’million K’million K’million K’million K’million
Assets
Cash on hand and balances at Bank of Zambia 1,332,221 842,221 - 490,000 - -
Cash and short term funds at group banks 366,446 - - 274,746 91,700 -
Cash and short term funds at non-group banks 56,415 3,165 - 53,250 - -
Placement with foreign non-group banks 119,850 - - 119,850 - -
Investment securities 979,184 - - 156,274 423,971 398,939
Derivative financial instruments 382,536 144,236 238,300 - - -
Loans and advances to banks 83,101 - 83,101 - - -
Loans and advances to customers 1,151,385 - 1,071,183 - - 80,202
Total assets 4,471,138 989,622 1,392,584 1,094,120 515,671 479,141
Liabilities
Amounts payable to non-group banks 387 387 - - - -
Amounts payable to group banks 497,637 232,344 - 265,293 - -
Cheques in course of collection 5,875 5,875 - - - -
Deposits from customers 3,164,587 2,437,851 385,336 268,111 70,098 3,191
Derivative financial instruments 382,448 143,849 238,599 - - -
Dividends payable 1,355 1,355 - - - -
Subordinated liabilities 19,120 - 19,120 - - -
Total liabilities 4,071,409 2,821,661 643,055 533,404 70,098 3,191
Gap 399,729 (1,832,039) 749,529 560,716 445,573 475,950
Impact of increase in interest rate 5% 19,986 - 37,476 28,036 22,279 23,798
10% 39,973 - 74,953 56,072 44,557 47,595
Impact of decrease in interest rate 2.5% (9,993) - (18,738) (14,018) (11,139) (11,899)
7.5% (29,980) - (56,215) (42,054) (33,418) (35,696)
44 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Interest rate risk (continued)
Exposure to interest rate risk – non-trading portfolios (continued)
Fixed rate instruments
Floating Less than Three Between Zero rate 2009 Total rate three months and one and five instruments instruments months one year years K’million K’million K’million K’million K’million K’million
Assets
Cash on hand and balances at Bank of Zambia 720,097 437,097 - 283,000 - -
Cash and short term funds at group banks 179,119 - - 179,119 - -
Cash and short term funds at non-group banks 21,045 1,045 - 20,000 - -
Placement with foreign non-group banks 232,485 - - 232,485 - -
Investment securities 766,646 - - 78,264 375,359 313,023
Derivative financial instruments 6,436 6,436 - - - -
Loans and advances to banks 6 - 6 - - -
Loans and advances to customers 948,087 - 879,102 - - 68,985
Total assets 2,873,921 444,578 879,108 792,868 375,359 382,008
Liabilities
Amounts payable to non group banks 1,029 1,029 - - - -
Amounts payable to group banks 228,797 228,797 - - - -
Cheques in course of collection 4,074 4,074 - - - -
Deposits from customers 2,347,127 1,222,554 315,117 638,887 152,840 17,729
Derivative financial instruments 6,033 6,033 - - - -
Dividends payable 2,228 2,228 - - - -
Subordinated liabilities 18,600 - 18,600 - - -
Total liabilities 2,607,888 1,464,715 333,717 638,887 152,840 17,729
Gap 266,033 (1,020,137) 545,391 153,981 222,519 364,279
Impact of increase in interest rate 5% 13,302 - 27,270 7,699 11,126 18,214
26,609 - 54,539 15,398 22,252 36,428 10%
Impact of decrease in interest rate 2.5% (6,651) - (13,635) (3,850) (5,563) (9,107)
7.5% (19,953) - (40,904) (11,549) (16,689) (27,321)
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 45 Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Currency risk
The Bank is exposed to currency risk through transactions in foreign currencies. The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognised in profit or loss. These exposures comprise the monetary assets and monetary liabilities of the Bank, as follows (in Zambian Kwacha terms):
2010 ZMK USD GBP ZAR Euro Others Total
K’million K’million K’million K’million K’million K’million K’million
Monetary assets 3,082,491 1,000,214 22,842 10,824 149,770 5,496 4,271,637
Monetary liabilities (2,925,512) (1,020,549) (23,027) (9,882) (148,721) (1,483) (4,129,174)
Net position 156,979 (20,335) (185) 942 1,049 4,013 142,463
2009 ZMK USD GBP ZAR Euro Others Total K’million K’million K’million K’million K’million K’million K’million
Monetary assets 1,885,861 924,447 12,834 10,623 103,836 6,247 2,943,848
Monetary liabilities (1,828,467) (912,412) (15,009) (9,320) (101,912) (2,216) (2,869,336)
Net position 57,394 12,035 (2,175) 1,303 1,924 4,031 74,512
In respect of monetary assets and liabilities in foreign currencies that are not economically hedged, the Bank ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.
Capital management
Regulatory capital
The Bank’s main objectives when managing capital are:
• to comply with the capital requirements set by the Banking and Financial Services Act; • to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • to maintain a strong capital base to support the development of its business.
Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed and maintained by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.
In implementing current capital requirements Bank of Zambia requires banks:
• To maintain a minimum 10% ratio of total capital to total risk-weighted assets or hold a minimum K12,000 million whichever is higher; • Maintain primary or Tier 1 capital of not less than 5% of total risk weighted assets; and • Maintain total capital of not less than 10% of risk-weighted assets plus risk-weighted off-balance sheet items.
There was no change in the capital regulation during the year under review.
The Bank’s regulatory capital is analysed into two tiers:
• Primary (Tier 1) capital, which includes paid-up common shares, retained earnings, statutory reserves less adjustment of assets of little or no realizable value. • Secondary (Tier 2) capital, which includes qualifying subordinated term debt and revaluation reserves limited to a maximum of 40%. The maximum amount of total secondary capital is limited to 100% of primary capital.
The Bank did not comply with the Banking and Financial Services Act in relation to Capital Adequacy; The Bank’s primary paid up capital was less than the required minimum of ZMK 12,000million. The Bank has notified the Bank of Zambia that it will increase its paid up share capital to ZMK12,000 million by 31 May 2011, which notice has been acknowledged by the Bank of Zambia.
46 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
5 Risk Management (continued)
Computation of capital position I Primary (Tier 1) capital 2010 2009 K’million K’million (a) Paid-up common shares 2,048 2,048 (b) Eligible preferred shares - - (c) Capital Contribution 17,312 - (d) Retained earnings 292,955 197,807 (e) General reserve - - (f) Statutory reserve 2,048 2,048 (g) Minority interest (common shareholders’ equity) - - (h) Sub-total A (items a to g) 314,363 201,903 Less (i) Goodwill and other intangible assets (32,973) - (j) Investments in unconsolidated subsidiaries and associates - - (k) Lending of a capital nature to subsidiaries and associates - - (l) Holding of other banks’ or financial institutions’ capital instruments - - (m) Assets pledged to secure liabilities - - (n) Sub-total B (items i to m) (32,973) - Other adjustments
Provisions - -
Assets of little or no realised value - - Stationery stocks, sundry debtors, cash advances, product project accounts (27) (874)
Other adjustments (prepayments) (2,657) (2,165)
(o) Sub-total C (other adjustments) (2,684) (3,039) (p) Total primary capital [h – (n to o)] 274,126 198,864
II Secondary (Tier 2) capital
(a) Eligible preferred shares - - (b) Eligible subordinated term debt 19,120 18,600 (c) Eligible loan stock/capital - -
(d) Revaluation reserves (Maximum is 40% of revaluation reserves) - 1,832 (e) Other - -
(f) Total secondary capital 19,120 20,432
III Eligible secondary capital 19,120 20,432
(The maximum amount of secondary capital is limited to 100% of primary capital)
IV Eligible total capital (I (p) + III) (Regulatory capital) 293,246 219,296
V Minimum total capital requirement
(10% of total on and off balance sheet risk - weighted assets) 137,187 102,528
VI Excess (IV minus V) 156,059 116,768
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 47 Notes to the financial statements (Continued) For the year ended 31 December 2010
6 Use of estimates and judgements
The preparation of financial statements in accordance with IFRS requires that the Bank make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Key sources of estimation of uncertainty
Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recognised in profit or loss, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan portfolio. This evidence may include observable data that there has been an adverse change in the payment status of borrowers in a group, or local economic conditions that correlates with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective. The methodology and assumptions used for estimating both the amount and timing of cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
Fair value of fnancial instruments
The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
. Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. . Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. . Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Bank determines fair values using valuation techniques.
Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected prices volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.
48 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
6 Use of estimates and judgements (continued)
Valuation of financial instruments
The table below analyses financial iinstruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categories:
Level 1 Level 2 Level 3 Total 31 December 2010 Note K‘million K’million K’million K’million Assets
Pledged trading assets 22 - - - -
Derivative financial assets 24 - 382,536 - 382,536
Investment securities 23 - 973,535 5,649 979,184
- 1,356,071 5,649 1,361,720
Liabilities
Derivative financial instruments 24 - 382, 448 - 382, 448
31 December 2009 K‘million K’million K’million K’million Assets
Pledged trading assets 22 - 872 - 872
Derivative financial assets 24 - 6,436 - 6,436
Investment securities 23 - 757,104 9,542 766,646
- 764,412 9,542 773,954
Liabilities
Derivative financial instruments 24 - 6,033 - 6,033
Level 3 movements
2010 Corporate bond Total K’million K’million 1 January 9,542 9,542
Matured (9,542) (9,542)
Acquisition 5,649 5,649
31 December 5,649 5,649
Corporate bond Total 2009 K’million K’million
1 January 33,545 33,545
Matured (33,545) (33,545)
Acquisition 9,542 9,542
31 December 9,542 9,542
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 49 Notes to the financial statements (Continued) For the year ended 31 December 2010
6 Use of estimates and judgements (continued)
Available-for-sale investments
The non-derivative financial assets classified as available-for-sale are initially recognised at fair value including direct and incremental transaction costs and subsequently held at fair value. Gains and losses (except impairment losses and certain fair value changes as a result of foreign exchange rates) arising from changes in fair value are included in a separate component of equity until sale when the cumulative gain or loss is transferred to the statement of comprehensive.
Impairment of non financial assets
The carrying amount of the Bank’s assets other than financial assets is reviewed at each reporting date to determine whether there is an indication of impairment. If any such exists, the asset’s recoverable amount is estimated. This estimation requires significant judgement. An impairment loss is recognised in the income statement whenever the carrying amount exceeds the recoverable amount.
Taxes
Determining income tax provisions, includes judgement on the tax treatments of certain transactions. Deferred tax is recognised on temporary differences where it is probable that there will be taxable profits against which these can be offset.
Provisions for legal claims and charges
The Bank receives legal claims against the normal course of business. Management has made judgements as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depend on the due legal process.
Share based payments
Equity settled share awards are recognised as an expense based on their fair value at the grant date. The fair value of equity settled share options is estimated through the use of option valuation models – which require inputs such as risk-free interest rate, expected dividends, expected volatility and the expected option life and is expensed over the vesting period. Some of the inputs used are based on estimates derived from available data, such as employee exercise behaviour.
50 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
7 Financial assets and financial liabilities
Accounting classification and fair values
The table below sets out the carrying amounts and fair values of the Bank’s financial assets and financial liabilities: Loans Other Total and Available- amortised carrying 2010 Trading receivables for-sale cost amount Fair value Note K’million K’million K’million K’million K’million K’million
Cash and cash equivalents 21 - 1,376,908 - - 1,376,908 1,376,908 Pledged trading assets 22 ------Investment securities 23 264,336 - 714,848 - 979,184 979,184
Derivative financial instruments 24 382,536 - - - 382,536 382,536
Loans and advances to banks 25 - 83,101 - - 83,101 83,101
Loans and advances to 26 customers - 1,151,385 - - 1,151,385 1,151,385 Total 646,872 2,611,394 714,848 - 3,973,114 3,973,114
Cheques in course of - - - 5,875 5,875 5,875 collection Deposits from customers 31 - - - 3,164,587 3,164,587 3,164,587
Derivative financial instruments 24 382,448 - - - 382,448 382,448
Subordinated liabilities 32 - - - 19,120 19,120 19,120
Dividends payable 19 - - - 1,355 1,355 1,355
Total 382,448 - - 3,190,937 3,573,385 3,573,385
Loans Other Total and Available- amortised carrying Trading receivables for-sale cost amount Fair value 2009 Note K’million K’million K’million K’million K’million K’million
Cash and cash equivalents 21 - 922,920 - - 922,920 922,920
Pledged trading assets 22 - - 872 - 872 872
Investment securities 23 205,236 - 538,303 - 743,539 766,646
Derivative financial instruments 24 6,669 - - - 6,669 6,436
Loans and advances to banks 25 - 6 - - 6 6 Loans and advances to 26 - 948,087 - 948,087 948,087 customers Total 211,905 1,871,013 539,175 - 2,622,093 2,644,967
Cheques in course of collection - - 4,074 - - 4,074 4,074
Deposits from customers 31 - - - 2,347,127 2,347,127 2,347,127
Derivative financial instruments 24 6,244 - - - 6,244, 6,033
Subordinated liabilities 32 - - - 18,600 18,600 18,600
Dividends payable 19 - - - 2,228 2,228 2,228
Total 6,244 4,074 - 2,367,955 2,378,273 2,378,062
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 51 Notes to the financial statements (Continued) For the year ended 31 December 2010
8 Operating segments
The Bank manages and reports its business through three main strategic business units. These operating units offer different products and services and are managed as separate segments of the business for purposes of internal reporting. The results of the units segments are reviewed on a monthly basis by the Chief Executive Officer. The following summary describes the operations of each of the Bank’s reportable segments:
Origination client coverage Includes the Bank’s trading, corporate finance activities, loans, trade finance, cash management, deposits and other transactions with corporate customers.
Consumer banking Includes loans, deposits and other transactions with retail customers.
Global markets The Treasury unit undertakes the Bank’s management and centralised risk management activities through borrowings, issue of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placements and corporate and government securities.
Operating segments pay and receive interest from Treasury on an arm’s length basis to reflect the allocation of capital and funding costs.
Segment capital expenditure is the total cost incurred during the period to acquire property and equipment.
52 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
8 Operating segments (continued)
Origination Client Consumer Global Coverage Banking Markets Unallocated Total 2010 Note K’million K’million K’million K’million K’million
External revenue
Net interest income 73,178 42,332 79,982 - 195,492
Net fee and 11 39,578 59,778 (1,606) - 97,750 commission income
Net trading income 12 45,033 39,952 44,603 - 129,588
Net income from financial assets at fair value through profit or 13 - - 27,658 - 27,658 loss Other operating 14 income - - 650 - 650
Inter segment income - - - -
Total segment 157,789 142,062 151,287 - 451,138 income
Other material non- cash items: Impairment losses on loans and advances 26 10,502 (2,493) - - 8,009
Reportable segment operating profit/ (loss) before 60,682 20,372 174,141 (25,451) 229,744 tax
Reportable segment 1,347,058 468,003 2,686,519 57,162 4,558,742 assets
Reportable segment (1,845,902) (1,687,314) (758,224) (267,302) (4,558,742) liabilities
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 53 Notes to the financial statements (Continued) For the year ended 31 December 2010
8 Operating segments (continued)
Origination Client Consumer Global Coverage Banking Markets Unallocated Total 2009 Note K’million K’million K’million K’million K’million External revenue Net interest income 84,112 57,753 67,735 - 209,600 Net fee and commission 11 31,507 49,850 (3,827) - 77,530 income
Net trading income 12 38,466 26,337 31,129 - 95,932
Other operating income 13 - - 8,182 - 8,182
Inter segment income 14 - - 652 - 652
Total segment income 154,085 133,940 103,871 - 391,896
Other material non-cash items:
Impairment losses on loans and advances 26 (10,833) (14,216) 10 - (25,039)
Reportable segment operating profit/ (loss) before tax 70,031 (14,945) 73,981 (14,043) 115,024
Reportable segment 776,266 216,305 1,873,208 110,827 2,976,606 assets
Reportable segment 1,145,299 1,309,387 248,484 273,436 2,976,606 liabilities
54 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
8 Operating segments (continued)
Reconciliation of reportable segment revenues, profit or loss and assets and liabilities
2010 2009 K’million K’million Revenue
Total revenue for reportable segments 451,138 391,896
Operating revenue 451,138 391,896
Profit or loss
Total profit or loss for reportable segments 255,195 129,067
Unallocated amounts (25,451) (14,043)
Profit before income tax 229,744 115,024
Assets
Total assets for reportable segments 4,501,580 2,865,779
Other unallocated amounts 57,162 110,827
Total assets 4,558,742 2,976,606
Liabilities
Total liabilities for reportable segments 4,291,440 2,703,170
Other unallocated amounts 267,302 273,436
Total liabilities 4,558,742 2,976,606
9 Interest income 2010 2009 K’million K’million Cash and short term funds 9,987 34,314
Debt securities 84,616 69,389
Loans and advances 133,892 163,429
Total interest income 228,495 267,132
Interest income includes interest on impaired loans and advances of ZMK 1,232 million (2009: ZMK 3,031 million).
10 Interest expense 2010 2009 K’million K’million
Deposits from customers 28,876 46,294
Placements 3,608 10,800
Subordinated loan capital 519 438
Total interest expense 33,003 57,532
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 55 Notes to the financial statements (Continued) For the year ended 31 December 2010
11 Net fee and commission income 2010 2009 K’million K’million
Consumer banking customer fees 68,658 55,686
Wholesale banking credit related fees 27,281 25,221
Trade finance fees 13,719 9,155
Total fee and commission income 109,658 90,062
Fee and commission expense (11,908) (12,532)
Net fee and commission income 97,750 77,530
12 Net trading income 2010 2009 K’million K’million
Foreign currency transaction gains less losses 102,696 82,971
Gains less losses arising from dealing securities (5,186) 11,494
Dealing profits 2,016 1,467
Gain on disposal of investment securities 30,062 -
Net trading income 129,588 95,932
13 Net income from financial instruments at fair value through profit or loss
2010 2009 K’million K’million
Treasury bills 28,038 7,290
Government bonds (380) 892
Total 27,658 8,182
14 Other income 2010 2009 K’million K’million
Gain on disposal of equipment 48 285
Others 602 367
Total 650 652
56 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
15 Operating expenses 2010 2009 K’million K’million
Notes toPersonnel the financial expenses: statements (continued) For the year ended 31 December 2009 Wages and salaries 101,779 90,906 8 Segment reporting (continued) Compulsory social security obligations (NAPSA) 2,556 2,162 Operating segments (continued) Contribution to defined contribution pension plan 4,453 3,427
Other staff costs 23,443 25,314
Equity settled share-based payment transactions 1,600 2,006
Redundancy and severance 512 (1,372)
Total 134,343 122,443
Depreciation, amortisation, premises and equipment expenses:
Depreciation of property and equipment 5,532 6,580
Amortisation of intangible assets 718 -
Other premises and equipment expenses 23,899 20,566
Total 30,149 27,146
Other expenses: 18 17 Release of lease prepayment for leasehold land
Communication expenses 3,490 3,280
Recharges from group companies 6,886 55,764
Other operating expenses 54,517 43,183
Total 64,911 102,244
Other operating expenses include ZMK870 million (2009: ZMK638 million) in respect of auditor’s remuneration for the Bank. The auditors of the Bank, KPMG, did not receive any payments in respect of non-audit services.
In addition to the above services, the Bank’s auditors acted as auditor to the Bank’s staff pension plan. The appointment of auditors to the Bank’s pension scheme and the fees paid in respect of these audits are agreed by the Trustees of the Scheme, who act independently from the management of the Bank. The aggregate fees paid to the Bank’s auditors for audit services to the pension scheme during the year were ZMK58 million (2009: ZMK49 million).
16 Directors’ emoluments
Details of Directors’ pay and benefits, and transactions with directors and other senior officers are disclosed under related parties in note 38.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 57 Notes to the financial statements (Continued) For the year ended 31 December 2010
17 Income tax expense
Recognised in profit or loss 2010 2009 K’million K’million Current tax expense
Current year 91,754 47,470 Under provision in prior year 152 924
91,906 48,394
Deferred tax
Origination and reversal of temporary differences 4,686 (337)
Total income tax expense 96,592 48,057
The income tax expense for the current year is subject to agreement with the Zambia Revenue Authority.
Income tax recognised in other comprehensive income
2010 2009 K’million K’million
Tax Tax (expense) (expense) Before tax benefit Net of tax Before tax benefit Net of tax
Available-for-sale investment 4,350 3,305 7,655 24,143 (8,569) 15,574 securities
Reconciliation of effective tax rate: 2010 2009 K’million K’million Profit before tax % 229,744 % 115,024
Tax calculated at the tax rate of 40% (2009: 40%): 40.00 91,898 40.00 46,010
Non – deductible expenses 2.39 5,494 2.66 3,063
Tax exempt income (0.41) (940) (1.68) (1,928)
Effect of the first ZMK250 million at 35% (0.01) (12) (0.01) (12)
Under provision of income tax in prior year 0.07 152 0.80 924
Total income tax expense in profit or loss 42.04 96,592 41.77 48,057
58 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
17 Income tax expense (continued)
Current income tax movement in the statement of financial position 2010 2009 K’million K’million Current tax liabilities at the beginning of the year 31,696 5,998
Current income tax charge 91,754 47,470
Payments made during the year (88,823) (22,696)
Under provision of prior period 152 924
Current tax liabilities 34,779 31,696
Deferred taxation
Deferred taxation is calculated on all temporary differences under the balance sheet method using an effective tax rate of 40% (2009: 40%). Deferred tax liabilities are attributable to the following:
2010 2009 Assets Liabilities Net Assets Liabilities Net K’million K’million K’million K’million K’million K’million
Property and equipment - (2,631) (2,631) - (2,524) (2,524)
Available-for-sale securities - (6,249) (6,249) - (9,554) (9,554)
Allowance for loan losses 4,573 - 4,573 9,152 - 9,152
4,573 (8,880) (4,307) 9,152 (12,078) (2,926)
Recognised Opening in profit or Recognised in Closing balance loss equity Balance 2010 K’million K’million K’million K’million
Property and equipment (2,524) (107) - (2,631)
Available-for-sale securities (9,554) - 3,305 (6,249)
Allowance for loan losses 9,152 (4,579) - 4,573
(2,926) (4,686) 3,305 (4,307)
Recognised in Opening profit Recognised in Closing balance or loss equity Balance 2009 K’million K’million K’million K’million
Property and equipment (2,871) 347 - (2,524)
Available-for-sale securities (985) - (8,569) (9,554)
Allowance for loan losses 9,162 (10) - 9,152
5,306 337 (8,569) (2,926)
In the opinion of the Directors, the deferred tax assets are recoverable. The utilisation of deferred tax assets is dependent on future taxable profits in excess of profits arising from the reversal of existing taxable temporary differences.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 59 Notes to the financial statements (Continued) For the year ended 31 December 2010
18 Earnings per share
2010 2009 Weighted Weighted average Per average Per number of share number of share Profit shares amount Profit shares amount K’million (millions) Kwacha K’million (millions) Kwacha
Basic and diluted earnings per share 133,152 4,095 32.52 66,967 4,095 16.35
The calculation of the basic earnings per share is based on the net profit attributable to ordinary shareholders (profit after taxation) divided by the weighted average number of ordinary shares in issue during the year. There were no dilutive potential ordinary shares at 31 December 2010 (2009: nil) and basic earnings per share equals to diluted earnings per share.
19 Dividends payable 2010 2009 K’million K’million
Balance at 1 January 2,228 1,392
Approved dividends for 2009 at K10.00 per share (2009: approved final dividends 40,950 20,475 for 2008 at K5.00 per share)
43,178 21,867
Less dividends paid during the year (41,843) (19,639)
Balance at 31 December 1,335 2,228
Dividends are recognised in the period in which they are declared. Accordingly, the final dividends set out above relate to the respective prior periods. A final dividend of ZMK 20.00 (2009: ZMK10.00) per share will be paid to shareholders on the register of members at the close of business on 23 April 2011.
20 Cash on hand and balances at Bank of Zambia 2010 2009 K’million K’million
Cash on hand 131,225 107,319
Balances at Bank of Zambia:
Statutory deposit 266,271 210,062
Open market operations placements 490,000 278,000
Total cash on hand and bank balances at Bank of Zambia 887,496 595,381
Clearing account with Bank of Zambia 444,725 124,716
Total 1,332,221 720,097
The statutory deposit held with Bank of Zambia, as a minimum reserve requirement, is not available for the Bank’s daily business. The reserve represents a requirement by the Central Bank and is a percentage of the Bank’s local currency and foreign currency liabilities to the public. At 31 December 2010 the percentage was 8% (2009: 8%).
60 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
21 Cash and cash equivalents at end of year At 1 January Cash flow At 31 December K’million K’million K’million
2010
Cash on hand and balances at Bank of Zambia 720,097 612,124 1,332,221
Cash and short term funds at group banks 179,119 187,327 366,446
Cash and short term funds at non–group banks 21,045 35,370 56,415
Placements with foreign non-group banks 232,485 (112,635) 119,850
Amounts payable to non-group banks (1,029) 642 (387)
Amounts payable to group banks (228,797) (268,840) (497,637)
Total 922,920 453,988 1,376,908
2009 Cash on hand and balances at Bank of Zambia 410,961 309,136 720,097
Cash and short term funds at group banks 408,009 (228,890) 179,119
Cash and short term funds at non–group banks 32,995 (11,950) 21,045
Placements with foreign non-group banks 249,967 (17,482) 232,485
Amounts payable to non-group banks (40,305) 39,276 (1,029)
Amounts payable to group banks (1,245) (227,552) (228,797)
Total 1,060,382 (137,462) 922,920
22 Pledged trading assets 2010 2009 K’million K’million Treasury bills - 872
The pledged trading assets presented in the table above are those financial assets that may be repledged or resold by counterparties. These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities.
23 Investment securities 2010 2009 K’million K’million
Investment securities at fair value through profit or loss 264,336 205,290
Available-for-sale investment securities 714,848 561,356
Total 979,184 766,646
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 61 Notes to the financial statements (Continued) For the year ended 31 December 2010
23 Investment securities (continued)
Investment securities at fair value through profit or loss
2010 2009 K’million K’million K’million K’million K’million K’million Treasury Government Government bills Bonds Total Treasury bills bonds Total
Of which mature: Within one year - 17,998 17,998 120,313 - 120,313
Within one to five - 246,338 246,338 - 60,955 60,955 years
More than five years - - - - 24,022 24,022
Total - 264,336 264,336 120,313 84,977 205,290
These investment securities are held for trading.
Available – for- sale 2010 2009 K’million K’million K’million K’million K’million K’million K’million K’million
Treasury Government Corporate Treasury Government Corporate Bills bonds bonds Total bills bonds bond Total
Of which mature: Within one year 445,174 75,912 41,160 562,246 275,928 47,841 9,542 333,311
Within one to five years - 99,570 - 99,570 - 212,093 - 212,093
More than five - 53,032 - 53,032 - 15,952 - 15,952 years
Total 445,174 228,514 41,160 714,848 275,928 275,886 9,542 561,356
24 Derivative financial instruments
The table below analyses the positive and negative fair values of the Bank’s derivative financial instruments. Positive and negative fair values are the mark-to-market values of the derivative contracts adjusted for any amounts recognised in profit or loss for non-trading items. Trading activities are defined as positions held in financial instruments with the intention of benefiting from short-term rates or price movements.
2010 2009
Assets Liabilities Assets Liabilities K’million K’million K’million K’million
Derivative fnancial instruments
Interest rate swap 238,300 238,598 - -
Cross currency swap 143,400 143,850 - -
Forward foreign exchange contracts 836 - 6,436 6,033
Total 382,536 382,448 6,436 6,033
62 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
25 Loans and advances to banks 2010 2009 K’million K’million
Loans and advances to banks 83,101 6
26 Loans and advances to customers
2010 2009
Gross Impairment Carrying Gross Impairment Carrying amount allowance amount amount allowance amount
K’million K’million K’million K’million K’million K’million
Consumer loans:
Mortgage lending 77,046 (83) 76,963 86,612 (667) 85,945
Small and Medium 46,393 (654) 45,739 36,680 (773) 35,907 Enterprises
Personal loans 217,160 (7,110) 210,050 164,676 (5,473) 159,203
Overdrafts 759 161 920 1,884 (131) 1,753
341,358 (7,686) 333,672 289,852 (7,044) 282,808
Wholesale loans:
Term loans 301,641 (32,632) 269,009 331,877 (44,310) 287,567
Overdrafts 555,588 (6,884) 548,704 384,506 (6,794) 377,712
857,229 (39,516) 817,713 716,383 (51,104) 665,279
Total 1,198,587 (47,202) 1,151,385 1,006,235 (58,148) 948,087
Maturity analysis of gross loans and advances
The maturity analysis is based on the remaining periods to contracted maturity. 2010 2009 K’million K’million
Redeemable on demand 610,759 390,633
Maturity within one year 74,450 125,187 Maturity after 12 months 513,378 490,415 1,198,587 1,006,235
Included in loans and advances are loans to related parties amounting to ZMK11, 595 million (2009: ZMK11, 308 million) (see note 38). Loans and advances to customers are measured at amortised cost.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 63 Notes to the financial statements (Continued) For the year ended 31 December 2010
26 Loans and advances to customers (continued)
Allowances for impairment 2010 2009 Specific allowances for impairment K’million K’million
Balance at 1 January 35,268 33,627
Charge for the year 14,710 31,762
Recoveries (11,272) (6,648)
Net charge against profit 3,438 25,114
Effect of foreign currency movements (57) 1,061
Discount unwind (1,232) (3,031)
Write-offs (1,648) (21,503)
Balance at 31 December 35,769 35,268
2010 2009
Collective allowances for impairment K’million K’million
Balance at 1 January 22,880 22,902
Decrease (11,447) (75)
Effect of foreign currency movements - 53
Balance at 31 December 11,433 22,880
Total specific and collective impairment at 31 December 47,202 58,148
Impairment losses on loans and advances in the statement of comprehensive income 2010 2009
K’million K’million
Specific allowances for impairment 3,438 25,114
Collective allowances for impairment (11,447) (75)
Total allowances for impairment (8,009) 25,039
64 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
27 Property and equipment
Property Equipment Capital and and motor work - in improvements vehicles progress Total K’million K’million K’million K’million Cost
At 1 January 2009 15,645 30,612 182 46,439
Additions - 2,871 202 3,073
Capitalised work- in- progress - - (182) (182)
Disposals (73) (3,707) - (3,780)
At 31 December 2009 15,572 29,776 202 45,550
At 1 January 2010 15,572 29,776 202 45,550
Additions - 1,836 4,596 6,432
Capitalised work- in- progress - 404 (404) -
Disposals - (121) - (121)
At 31 December 2010 15,572 31,895 4,394 51,861
Accumulated depreciation and impairment losses
At 1 January 2009 1,989 15,387 - 17,376
Depreciation charge for the year 334 6,246 - 6,580
Disposals (10) (3,707) - (3,717)
At 31 December 2009 2,313 17,926 - 20,239
At 31 January 2010 2,313 17,926 - 20,239
Depreciation charge for the year 332 5,200 - 5,532
Disposals - (7) - (7)
At 31 December 2010 2,645 23,119 - 25,764
Carrying amounts
At 1 January 2009 13,656 15,225 182 29,063
At 31 December 2009 13,259 11,850 202 25,311
At 31 December 2010 12,927 8,776 4,394 26,097
A register of properties is maintained by the Bank at its registered office and is available for inspection by the members.
Fully depreciated equipment and motor vehicles (still in use) are included in the above at cost amount to ZMK 6,704million (2009: ZMK 3,780 million).
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 65 Notes to the financial statements (Continued) For the year ended 31 December 2010
28 Intangible assets
Customer Relationships 2009 2010 K’ million K’ million K’ million K’ million K’ million K’ million K’ million Capital 1 January Acquisition 31 December 1 January Acquisition Contribution 31 December
- - - - 16,379 17,312 33,691
- - - - 16,379 17,312 33,691
Accumulated amortisation and Impairment 2009 2010 K’ million K’ million K’ million K’ million K’ million K’ million K’ million Capital 1 January Acquisition 31 December 1 January Acquisition Contribution 31 December
- - - - 340 378 718
- - - - 340 378 718
Carrying amount
2009 2010 K’ million K’ million K’ million K’ million K’ million K’ million K’ million
Capital 1 January Acquisition 31 December 1 January Acquisition Contribution 31 December
- - - - 16,039 16,934 32,973
The Bank successful completed the acquisition of Barclays’ custody business; the acquisition price was split between an amount paid locally (the local consideration) and an amount paid by Standard Chartered Bank Group (the Group consideration) which largely related to the split between the local clients and international clients acquired. The Standard Chartered Bank Group payment was ‘pushed down’ to the local subsidiary as a deemed capital contribution. The intangible assets will be amortised over the expected customer life, initially estimated at 8 -10 years.
29 Operating lease prepayments 2010 2009 K’million K’million
Opening balance 695 712
Amortisation (18) (17)
Carrying amount 677 695
Land is leased from the Government of the Republic of Zambia (GRZ) for a fixed 99 year term (or the unexpired portion thereof). The land has been classified as an operating lease. IAS 17 Leases requires all amounts paid upfront at the signing of the lease to be amortised on a straight line basis over the unexpired portion of the lease term. There are no contingent rentals or sub-lease payments expected to be received.
66 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
30 Prepayments and other receivables 2010 2009 K’million K’million
Prepayments and other receivables 27,857 47,907
Bills received - 27,900
Total 27,857 75,807
31 Deposits from customers 2010 2009 K’million K’million Customer accounts 3,164,587 2,347,127
Consumer customers:
Savings accounts 379,009 306,022
Term deposits 170,205 150,297
Current deposits 933,858 813,341
Wholesale customers:
Saving 6,326 9,095
Term deposits 357,613 348,888 Current deposits 1,317,576 719,484
Total 3,164,587 2,347,127
2010 2009 K’million K’million
2,823,187 2,055,277 Repayable on demand Repayable with agreed maturity dates or periods of notice, by residual maturity: Three months or less 268,111 121,281
Between three months and one year 70,098 170,569
After one year 3,191 -
Total 3,164,587 2,347,127
Included in customer accounts were deposits of ZMK87, 540 million (2009: ZMK44, 113 million) held as collateral for irrevocable commitments under import letters of credit.
32 Subordinated liabilities 2010 2009 K’million K’million
Subordinated liabilities repayable after ten years 19,120 18,600
The interest charge is 2.3% above 3 months LIBOR and is payable on a quarterly basis. The loan is to be fully repaid in one instalment on 31 December, 2019. The outstanding amounts reflected on the statement of financial position are the Kwacha equivalent of USD4 million.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 67 Notes to the financial statements (Continued) For the year ended 31 December 2010
33 Provisions
2010 2009 K’million K’million
Balance at 1 January 15,871 27,199
Provisions made during the year 1,100 961
Provisions used during the year (1,227) (9,956)
Provisions reversed during the year - (2,333)
Balance at 31 December 15,744 15,871
The redundancy and other severance costs provisions represent management’s estimates of the liabilities in relation to redundancy and other staff severance costs.
34 Accruals and other payables 2010 2009 K’million K’million
Bank cheques 4,839 1,845
Accruals and other payables 102,293 92,868
Total 107,132 94,713
35 Share capital Ordinary Number of share Number of Ordinary ordinary shares capital ordinary shares share capital (millions) K’million (millions) K’million
Authorised 2010 2010 2009 2009
Ordinary shares of K0.50 each 6,000 3,000 6,000 3,000
Issued and fully paid
Ordinary shares of K0.50 each 4,095 2,048 4,095 2,048
68 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
36 Contingent liabilities and commitments
The Bank provides loan commitments, letters of credit and financial guarantees for performance of customers to third parties. These agreements have fixed limits and are generally renewable annually. Expirations are not concentrated in any period. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the reporting date if counterparties failed completely to perform as contracted. Only fees and accruals for probable losses are recognised in the statement of financial position until the commitments are fulfilled or expire. Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash out flows.
1 year 1 – 5 yrs Over 5 years Total 2010 K’million K’million K’million K’million
Loan commitments 121,459 - - 121,459
Guarantees 79,556 9,024 - 88,580
Letters of credit 30,372 - 71,775 102,147
Total 231,387 9,024 71,775 312,186
1 year 1 – 5 yrs Over 5 years Total 2009 K’million K’million K’million K’million
Loan commitments 103,969 - - 103,969
Guarantees 38,154 25,000 - 63,154
Letters of credit 17,031 18,000 - 35,031
Total 159,154 43,000 - 202,154
Included in guarantees is a guarantee of ZMK4,463,326,193.22 (2009: ZMK1,034,062,512) provided to Behrens Limited a company in which a director, Abel Mkandawire, has shares, see note 38 (Related party transactions).
Capital commitments There were no capital commitments as at 31 December 2010 (2009: Nil).
37 Legal proceedings
There were some legal proceedings outstanding against the Bank at 31 December 2010. Provisions have been made in the financial statements in respect of such claims, based on professional advice and management’s best estimates of the settlement amount.
38 Related party transactions
The Bank is controlled by Standard Chartered Holdings (Africa) BV (incorporated in The Netherlands) which owns 90% of the shares. The other shares are widely held. The ultimate parent of the Bank is Standard Chartered Plc (incorporated in the United Kingdom). The Bank has a related party relationship with its holding company, fellow subsidiaries, non-executive directors, executive directors and key management personnel. Key management personnel includes all Management Committee Members and Unit Heads.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 69 Notes to the financial statements (Continued) For the year ended 31 December 2010
38 Related party transactions (continued)
A number of banking and other transactions are entered into with related parties in the normal course of business. These include loans, deposits, foreign currency and other transactions for services, such as consulting services that the parent and other related companies provide from time to time and which are charged at market rate.
The volumes of related party transactions, outstanding balances at the year end, and the related interest expense and income for the year are as follows:
Group transactions
Note 2010 2009 K’million K’million
21 366,446 179,119 Amounts due from Group Companies
Amounts due to Group Companies 21,32 (516,757) (247,397)
(150,311) (68,278)
Income and expenditure
Recharges and other expenses (20,746) (76,420)
Commissions and net interest income 6,159 11,953
(14,587) (64,467)
Loans
2010 2009 Connected Key Connected Key entities to Management entities to Management Directors directors staff Total Directors directors staff Total K’million K’million K’million K’million K’million K’million K’million K’million Loans outstanding at 1 January 1,980 - 9,328 11,308 1,851 1,600 11,451 14,902
Loans issued during the year - - 2,729 2,729 433 - 5,062 5,495
Relocated/ Resigned / Promoted - - (260) (260) - - (3,859) (3,859)
Loan repayments during the year (208) - (1,974) (2,182) (304) (1,600) (3,326) (5,230) Loans outstanding at 1,772 - 9,823 11,595 1,980 - 9,328 11,308 31 December Of which: Executive directors 1,707 - - 1,707 1,859 - - 1,859
Non executive directors 65 - - 65 121 - - 121 Total outstanding at 1,772 - 9,823 11,595 1,980 - 9328 1,980 31 December Interest and fee income earned 173 - 860 1,033 178 - 1,766 1,944
Non executive directors 20 - - 20 37 - - 37
Interest and fee income earned 173 - 860 1,033 178 - 1,766 1,944
Loans to non-executive directors are made under commercial terms in the ordinary course of the Bank’s business. Loans to executive directors are made on the same terms as those of other employees of the Bank.
No impairment allowances have arisen against loans to directors, entities connected to directors and key Management during the period.
70 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes Notes to the financial statements (Continued) For the year ended 31 December 2010
38 Related party transactions (continued)
Deposits
2010 2009 Connected Key Connected Key entities to management entities to management Directors directors staff Total Directors directors staff Total K’million K’million K’million K’million K’million K’million K’million K’million Deposits at 1 January 554 322 5,316 6,192 989 152 4,207 5,348
Deposits received during the year 6,170 14,551 16,736 37,457 5,265 19,998 20,187 45,450
Retired/resigned promoted - - (120) (120) (415) - - (415)
Deposits withdrawn (5,956) (14,496) (20,919) (41,371) (5,285) (19,828) (19,078) (44,191)
Deposits at 31 December 768 377 1,013 2,158 554 322 5,316 6,192
Interest expense on deposits 1 - 2 3 1 - 4 5
Goods and services Purchase of goods and services - 124 - 124 - 104 - 104
Key management compensation 2010 2009 K’million K’million
Salaries and allowances 18,210 15,936
Pension contributions 686 581
Total 18,896 16,517
Directors’ remuneration 2010 2009 K’million K’million Executive directors
Salaries 2,634 2,299
Pension contributions 89 87
Non – executive directors’ fees and benefits 369 424
Total 3,092 2,810
Disposal of assets
There were no Bank assets sold to the Directors (2009: nil).
Directors’ interests in ordinary shares
Directors’ beneficial interests in the ordinary shares of the Bank at 31 December 2010 were 1,623,176 shares held by Abel Mkandawire.
Contingent liabilities
The Bank provided a guarantee to Behrens Limited, a company Abel Mkandawire has shares in. The amount at the year end was K4, 463,326,193.22 (2009: K1, 034,062,512). This amount is included in contingent liabilities and guarantees in note 36.
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 71 Notes to the financial statements (Continued) For the year ended 31 December 2010
39 Share-based payment transactions
The holding company (Standard Chartered Plc) operates a number of share based payments schemes for its directors and employees and in which employees of Standard Chartered Bank Zambia Plc participate. These schemes are as outlined below. Through a recharge arrangement Standard Chartered Bank Zambia Plc reimburses the group for grant date fair value. The amount charged to the statement of comprehensive income during the year was ZMK1, 600 million (2009: ZMK2, 006 million) and the correspodning amount is in the liabilities. The holding company has the obligation to deliver to the respective participants the Standard Chartered Plc’s ordinary shares under the various schemes.
(a) Restricted share scheme
The restricted share scheme (RSS) is used as an incentive plan to motivate and retain high performing staff at any level of the organisation. It is also used as a vehicle for deferring part of bonuses of certain employees. 50% of the award vests two years after the date of grant and the balance after three years. The awards can be exercised within seven years of the grant date. The value of shares awarded in any year to any individual may not exceed two times their basic salary. The remaining life of the scheme is eight years. For awards, the fair value is based on the market value less an adjustment to take into account the expected dividends over the vesting period. Share price at grant date ranged between GBP 8.32 and GBP14.63.
(b) Performance share plan
The performance share plan is designed to be an intrinsic part of total remuneration for executive directors and a small number of the most senior executives. It is an incentive plan that focuses executives on meeting and exceeding the long – term performance targets of the group. Awards of nil price options to acquire shares are granted to the executives and will normally be exercisable between three and ten years after the date of grant if the individual is still employed in the group. There is provision for earlier exercise in certain limited circumstances. The remaining life of the scheme is three years.
(c) Share save scheme
Under the sharesave scheme, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares in the holding company or take all their money in cash. The price at which they may purchase shares is at a discount of up to 20 percent of the share price at the date of invitation. There are no performance conditions attached to options granted under the employee sharesave scheme. Options are valued using a binomial option- pricing model.
40 Subsequent events
There were no material events after the reporting date events that would require disclosure or adjustment to the statement of financial position at 31 December 2010.
41 Ultimate holding company
The Bank, which is a registered commercial bank under the Zambian Banking and Financial Services Act 1994, is owned 90% by Standard Chartered Holdings (Africa) BV, a company incorporated in the Netherlands, which in turn is wholly owned by Standard Chartered Plc, a company incorporated in the United Kingdom.
72 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes
Appendix I
Five year summary
2010 2009 2008 2007 2006
K’million K’million K’million K’million K’million
Operating profit before impairment provisions 221,735 140,063 83,339 135,262 124,477 Net impairment provisions against loans and advances 8,009 (25,039) (28,694) (16,086) (11,731)
Profit before taxation 229,744 115,024 54,645 119,176 112,746
Profit attributable to shareholders 133,152 66,967 25,540 72,786 73,971
Loans and advances to customers 1,151,385 948,087 1,006,137 745,993 651,668
Total assets 4,558,742 2,976,606 2,449,263 1,910,697 1,799,251
Deposits from customers 3,164,587 2,347,127 2,115,768 1,597,080 1,447,211
Shareholders’ funds 325,371 223,512 161,446 177,838 159,344
Earnings per ordinary share
Basic earnings per share (Kwacha) 32.52 16.35 6.24 17.77 18.06
Dividends per share (Kwacha) 20.00 10.00 5.00 14.00 12.00
Ratios
Post-tax return on ordinary shareholders’ funds 41% 30% 16% 41% 46%
Basic cost/income ratio 51% 63% 74% 53% 51%
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 73 Principal addresses
Head Office Standard Chartered Bank Zambia Plc Standard Chartered House, Cairo Road P.O. Box 32238 Lusaka 10101, Zambia Tel: +260 (211) 229242-50 Fax: +260 (211) 222092
Senior Management
Mizinga Melu Kelvin Musana Luke Njovu Managing Director Executive Director – Finance and Area Head of Corporate Affairs, Standard Chartered Bank Zambia Plc Administration Southern Africa 4th Floor Standard Chartered House, Standard Chartered Bank Zambia Plc Standard Chartered Bank Zambia Plc Cairo Road 1st Floor Standard Chartered House, 4th Floor Standard Chartered House, P.O. Box 32238, Lusaka Cairo Road Cairo Road Tel: +260 (211) 222046 P.O. Box 32238, Lusaka P.O. Box 32238, Lusaka Fax: +260 (211) 225148 Tel: + 260 (211) 225252 Tel: +260 (211) 227616 Fax: +260 (211) 225337 Fax: +260 (211) 225148 Robin Bairstow Head of Origination and Client Coverage Samson Shihundu Peter Zulu Standard Chartered Bank Zambia Plc Chief Information Officer Head of Internal Audit, Compliance 2nd Floor Standard Chartered House, Standard Chartered Bank Zambia Plc & Assurance Cairo Road 1st Floor Standard Chartered House, Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka Cairo Road 5th Floor Standard Chartered House, Tel: + 260 (211) 222983 P.O. Box 32238, Lusaka Cairo Road Fax: + 260 (211) 227805 Tel: + 260 (211) 225138 P.O. Box 32238, Lusaka Fax: + 260 (211) 222092 Tel: +260 (211) 224825 Fax: +260 (211) 235007 Ralph Watungwa Head of Consumer Banking Ruth Simuyemba Standard Chartered Bank Zambia Plc Head of Human Resources Anthony Katepa 1st Floor Northend, Cairo Road Standard Chartered Bank Zambia Plc Country Credit Risk Officer & P.O. Box 32238, Lusaka 1st Floor Standard Chartered House, Senior Credit Officer – Wholesale Tel: +260 (211) 225257 Cairo Road Banking Fax: +260 (211) 228353 P.O. Box 32238, Lusaka Standard Chartered Bank Zambia Plc Tel: +260 (211) 224838 2nd Floor Standard Chartered House, Fax: + 260 (211) 225337 Cairo Road Stanley Tamele P.O. Box 32238, Lusaka Head of Global Markets Tel: +260 (211) 229242 - 59 Standard Chartered Bank Zambia Plc Celine Nair 2nd Floor Standard Chartered House, Head of Legal & Company Secretary Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka 5th Floor Standard Chartered House, Tel: +260 (211) 221235 Cairo Road Fax: +260 (211) 222090 P.O. Box 32238, Lusaka Tel: +260 (211) 221518 Fax: +260 (211) 225148
74 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes
Branch management
Leah Munzele Gideon Chibwe Charles Nkunika Regional Branch Manager South Branch Manager Branch Manager Lusaka Branch Chingola Branch Kasama Branch P.O. Box 32238, Lusaka P.O. Box 71665, Chingola P.O. Box 410060, Kasama Tel: +260 (211) 229242 - 59 Tel: +260 (212) 613225 Tel: + 260 (214) 222051 Fax: +260 (211) 220106/227679 Fax: +260 (212) 620943 Fax: + 260 (214) 221316
Jurecca Daka June Chalongwa Regional Branch Manager North Branch Manager Sharon Chibwe North End Branch Luanshya Branch Relationship Manager P.O. Box 31353, Lusaka P.O. Box 90097, Luanshya Excel Banking Centre Tel: +260 (211) 2285114/5 Tel: +260 (212) 512229 Lusaka Main Branch Fax: +260 (211) 221857 Fax: +260 (212) 510407 Tel: +260 (211) 227673 Fax: +260 (211) 227774
Tabu Chewe / Victor Chikafya Rita Mweetwa Branch Manager Annie Kabombo-Nyirenda Branch Managers Chililabombwe Branch Relationship Manager Manda Hill Branch P.O. Box 210119, Chililabombwe Excel Banking Centre P.O. Box 31934, Lusaka Tel: +260 (212) 382209 Northend Branch Tel: +260 (211) 255484 Fax: +260 (212) 382213 Tel: +260 (211) 228551 Fax: +260 (211) 255485 Fax: +260 (211) 228553
Maxwell Mudenda Mwaka Munthali Branch Manager Muziya Nambao Branch Manager Livingstone Branch Relationship Manager Kabulonga Branch P.O. Box 60592, Livingstone Excel Banking Centre P.O. Box 31934, Lusaka Tel: +260 (213) 321745 Zambia Way Branch, Kitwe Tel: +260 (211) 261339 Fax: +260 (213) 321721 Tel: +260 (212) 224485 Fax: +260 (211) 262593 Fax: +260 (212) 224269
Maxwell Mudenda Theresa Mwango Branch Manager Webster Musonda Centre Manager Livingstone Branch Relationship Manager Crossroads Branch P.O. Box 60592, Livingstone Excel Banking Centre P.O. Box 31934, Lusaka Tel: +260 (213) 321745 Chingola Branch Tel: +260 (211) 264080 Fax: +260 (213) 321721 Tel: +260 (212) 313827 Fax: +260 (211) 262593 Fax: +260 (212) 312636
Maxmillian Matongo Gertrude Mbewe Branch Manager Theresa Sinyangwe Branch Manager Mazabuka Branch Relationship Manager Zambia Way Branch P.O. Box 670002, Mazabuka Intercontinental Excel Centre, P.O. Box 20061, Kitwe Tel: +260 (213) 230727 / 230688 / P.O. Box 32238, Lusaka Tel: +260 (212) 224944 230031 Tel: +260 (211) 252357/256595 Fax: +260 (212) 224269 Fax: +260 (213) 230727 / 230162 Fax: +260 (211) 256713
Singi Mbokoshi Thomas Ngoma Christine Willis Branch Manager Branch Manager Relationship Manager Buteko Branch Choma Branch Ody’s Excel Centre, Arcades P.O. Box 71665, Ndola P.O. Box 630070, Choma P.O. Box 32238, Lusaka Tel: +260 (212) 613225 Tel: +260 (213) 220199/20489/20784 Tel: +260 (211) 292876 - 79 Fax: +260 (212) 620943 Fax: +260 (213) 220784 Fax: +260 (211) 292868
Karen Mwamba Peter Mwanaziani Branch Manager Branch Manager Ndola South Branch Mongu Branch P.O. Box 230021, Ndola P.O. Box 910090, Mongu Tel: +260 (212) 651013 Tel: +260 (217) 221456 Fax: +260 (212) 650583 Fax: +260 (217) 221281
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 75 Declaration of final dividend
At the Board Meeting held on 22 February 2011, a Final Dividend of K20.00 per share for the period ended 31 December 2010 was recommended for approval to the Annual General Meeting to be held on 31 March 2011.
In accordance with the requirements of the Securities Act [Act No. 38 of 1993], and the Listing Rules of the Lusaka Stock Exchange, Notice is hereby given that the dividend shall be payable to shareholders registered in the Company’s books at the close of business on 23rd April 2011.
The transfer books will be closed from 26 to 30 April 2011.
Warrants in payment will be posted on or before 18 June 2011.
By Order of the Board
Celine M. Nair Company Secretary
76 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com Financial statements and notes
Notice of annual general meeting and agenda
Notice is hereby given that the Annual General Meeting of Standard Chartered Bank Zambia Plc in respect of the period ended 31 December 2010, will be held in the Amalila of Taj Pamodzi Hotel, Lusaka, Zambia on Wednesday 30 March 2011 at 10:00 hours for the following purposes:
1. To confirm and sign the Minutes of the AGM of 31st March 2010.
2. To receive and adopt the Financial Statements as at 31st December 2010 and the reports of the Chairman, Directors and Auditors.
3. To declare a final dividend of K20.00 per share – if approved, will be declared payable to members registered in the books of the company at the close of business on 23 April 2011 being the date of accrual.
Warrants in payment will be posted on or before 18 June 2011.
4. To appoint auditors from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorize the Directors to fix their remuneration.
5. To authorize the Board to fix the remuneration of the Directors.
6. To re-elect Directors retiring by rotation in accordance with the provision of the Company’s Articles of Association.
7. Standard Chartered Bank Zambia Plc Bonus issue.
8. To transact any other business that may properly be transacted at the Annual General Meeting.
A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend, speak, and, on a poll, vote in his/her stead. Proxy forms are available from the Company Secretary and must be lodged at the Registered Office of the Company not less than 48 hours before the commencement of the meeting.
Please note that the AGM will be preceded by a Shareholders Forum from 0845 to 0945 hours. This will be hosted by one of our Brokers.
By Order of the Board
Celine M. Nair Company Secretary
www.standardchartered.com Standard Chartered Bank Zambia Plc Annual Report 2010 77 Principal addresses
FORM OF PROXY
22 February 2011
I/We, (full names in block letters)
of
member/members of Standard Chartered Bank Zambia Plc, hereby appoint
of
as my/our
proxy to attend, and speak, on poll, vote instead of me/us at the Thirty-Nineth
Annual General Meeting of the Company, to be held on 31 March 2010 and at every
Adjournment thereof:
Signature(s)
Certificate Number(s)
NOTE:
The Form of Proxy shall be:
a) In the case of an individual, signed by the appointer or by his Attorney
b) In the case of a corporation, signed either by an Attorney or Officer of the Corporation on its behalf or be given under its common seal.
An instrument of proxy must be deposited at the Registered Office of the Company not later than 48 hours before the time of the meeting.
78 Standard Chartered Bank Zambia Plc Annual Report 2010 www.standardchartered.com
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