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Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report for the year ended 28 February 2015

CONTENTS FINBOND IN FOCUS 1 History and Development 4 2 Business Philosophy 5 3 Vision and Mission & Core Values 6 4 Branch Network 7 5 Products 8 6 Service Standards 10 7 Financial Highlights and Indicators 12 8 Chairman’s Review 14 9 Chief Executive Officer’s Review 17 10 Chief Financial Officer’s Review 23 11 Group Structure 30 RISK MANAGEMENT AND CORPORATE GOVERNANCE 1 Directorate 32 2 Internal Audit 34 3 Compliance 35 4 Regulation 36 5 Risk Management Framework 37 6 Corporate Governance 47 7 King III Material Principles 51 STAKEHOLDERS 1 Economic Value Add Statement 60 2 Customers 61 3 Employees 62 4 Community and Social Responsibility 64 5 Regulators 66 6 Environment 68 7 Shareholders 69 8 Directors’ Responsibility Statement 70 FINANCIAL STATEMENTS 1 Report of the Audit Committee 72 2 Company Secretary’s Certificate 74 3 Audit Report 75 4 Directors’ Report 76 5 Remuneration Report 78 6 Statement of Financial Position 82 7 Statement of Comprehensive Income 83 8 Statement of Changes in Equity 84 9 Statement of Cash Flows 85 10 Accounting Policies 86 11 Notes to the Financial Statements 97 APPENDIX 1 Global Reporting Initiative (GRI) Index 155 2 Declaration 160 3 Corporate Information 161

PB Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 1 SCOPE & BOUNDARY

Finbond proudly presents its 2015 Integrated Annual Report, as References to the specific provisions of the Global Reporting recommended in the King Code of Governance principles for Initiative Index, which are detailed in full from page 155 of this South Africa 2009 (King III). report, are included in blue rectangular graphics at the bottom of the relevant pages in the Annual Report (commencing at the bottom The objective of the 2015 Integrated Report is to provide stake- of this page). holders with insight into the performances of the Group, to focus on the forward-strategy and the Group’s ability to create long-term The integrated reporting function is viewed, not merely as a sustainable value. summary of the performances and governance aspects of the Group, but rather as a process to provide meaningful information Finbond has an essential role to assist in the development of to its users. the society in which it operates. The combined successes of its customers and stakeholders alike, contribute to the foundation of Materiality, defined as an item that affects the Group’s ability to the commercial sustainability of the Group. remain economically viable and socially relevant, was applied in selecting the content and extent of disclosure in the Integrated This Integrated Annual Report covers all relevant aspects of the Report. activities of Finbond Group Limited, including all subsidiaries for the financial reporting period 1 March 2014 to 28 February 2015. A combined approach over the contents of the report was utilised The Integrated Report discusses the operations in South Africa, the to ensure both the appropriate application of integrated reporting only geographic region in which the Group operates. principles and the integrity of data disclosed.

The annual financial statements have been prepared in accordance Financial information contained in the report was extracted from with International Financial Reporting Standards (IFRS). The the audited financial statements. External assurances obtained in audited annual financial statements include the consolidated data the current period included the audit opinion on the Group Annual incorporating the Company and all entities controlled by Finbond Financial Statements, professional valuers’ reports on the value of Group Limited as a single economic entity, Finbond Group Limited investment properties and expert analysis of the significant areas (“the Company”) and the separate financial statements for Finbond of judgement contained within the Annual Financial Statements. Mutual Bank. The responsibility to ensure the integrity and fair presentation of The audited Annual Financial Statements were approved on the material issues and integrated performances of the Group is 16 April 2015. acknowledged by management. The content was reviewed and approved by the Executive Directors and key management. The In addition to IFRS, the King Code of Governance principles for South compliance of this report to the guidelines provided by the Global Africa 2009 (King III) and the Global Reporting Initiative Index (G4), Reporting Initiative Index (G4) was reviewed by Mrs. I Wilken- Finbond also utilises the Sustainability Data Transparency Index Jonker, a Non-Executive Director who is also a member of the (SDTI) designed by IRAS, as a framework for reporting. Group’s Social and Ethics Committee.

External Environment Strategy • Economic • Governance • Regulatory • Risks • Competitive • Operational structure • Technology • Social Integrated Report The following guiding principles are used to develop the content and presentation format of the Integrated Report: Resources and Performance Relationships • Environmental impact • Business model • Wealth creation for • Value to stakeholders stakeholders • Resources

2 GRI4 Reference: 6/17/18/19 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 3 “You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand.”

- Woodrow Wilson -

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2 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 3 HISTORY AND DEVELOPMENT

Dr. Willie van Aardt co-founds Thuthukani Group Limited which lists on the Johannesburg Stock Exchange during 1999. At the 1998 time of its listing Thuthukani had 70 micro lending branches and 120 debt collection branches.

Dr. van Aardt resigns and sells his shares in Thuthukani to Saambou Bank which eventually proceeds to acquire the entire 2000 share capital in Thuthukani. When Saambou Bank was liquidated in 2002 the various divisions of Thuthukani were sold. All of Thuthukani’s various businesses remained profitable and in operation.

Dr. Willie Van Aardt establishes Finbond as a debt consolidation, bridging finance and second bond origination company in 2003 January 2003. Finbond commences the year with 4 employees. Initially due to small origination volumes Finbond is forced to submit all its origination via other origination companies.

Finbond negotiates its own direct origination contracts with ABSA and FNB together with lead originator agreements with 2004 Bondmaster for Nedbank and Standard Bank Business.

In order to position itself as a significant South African mortgage originator and non-bank lender, Finbond, at the beginning of 2007, acquires IBO, Dimension Home Loans and Bondmaster. Following the acquisitions Finbond employs 110 people. Finbond lists on the AltX sector of JSE as 4th Largest Mortgage Originator in South Africa that now originates R1 billion of mortgages per month to the 4 major banks. Finbond acquires Bond Excel and increases mortgage origination volumes to R1.5 billion per month. In the fourth quarter of 2007 following the worldwide sub-prime crisis, and collapse of various large retail and investment 2007 banks in the United States and Europe the South African mortgage origination market declines rapidly as the four major banks lose their appetite for mortgages. Mortgage origination volumes decline by more than 80% in a 6 month period and Finbond makes the strategic decision to diversify its business to Micro Finance by acquiring a 50% of Blue Chip Finance No.1 (formerly part of Thuthukani) with 57 branches and 100% of Blue Chip Finance Western Cape (also formerly part of Thuthukani) with its 17 branches and a number of small micro lenders.

Finbond obtains off-shore funding from the Dutch Development Finance Corporation (FMO) and Standard Chartered Bank to 2008 fund and expand its micro finance operations. Finbond expands its micro finance branch network by opening and acquiring a number of branches in the Eastern and Western Cape, Mpumalanga, Limpopo, Gauteng and North West.

Finbond acquires 60 Moneyline Financial Services Micro Finance Branches from NET 1 UEPS Technologies in order to gain a micro finance footprint in KwaZulu-Natal region. Finbond agrees with the other 50% shareholders in Blue Chip Finance No 1 to evenly divide the branches in order for Finbond 2009 to now directly own and manage 100% of 28 Blue Chip No 1 branches as opposed to indirectly owning 50% of 57 branches. Finbond rebrands all micro finance branches to Finbond Micro Finance. Finbond expands its business to also offer customers Micro Insurance: Credit Life and Funeral Insurance through its own insurance cell captives.

Finbond applies to the South African Reserve Bank, to establish and register a Mutual Bank in terms of the Mutual Banks Act 2010 124 of 1993 in order to provide clients with a full range of low cost banking services through its existing branch infrastructure.

Facing various maturing debt obligations and an extremely difficult and hostile fundraising environment Finbond raises R40 000 000 from the South African debt capital markets thereby refinancing a portion of existing maturing debt. In addition to 2011 this Finbond raises R20 000 000 in equity from its two largest shareholders Dr. Willie van Aardt (Kings Reign) and Net 1 through a rights offer. The rights offer process is finalised in February 2012 with Dr. Willie van Aardt (Kings Reign) and Net 1 taking up 120 000 000 and 80 000 000 million Finbond shares respectively.

During July 2012 Finbond receives formal consent from the Registrar of Banks in terms of section 11(1) and section 13(1) of the Mutual Banks Act, to establish and register a mutual bank, namely Finbond Mutual Bank, in the Republic of South Africa. 2012 Finbond formally starts operating as a Mutual Bank during September 2012 and receives its first deposit from 85 year old Mr. Lambert Petrus van Sittert.

th 2015 Finbond celebrates its 12 anniversary and now has 880 staff members and 286 branches. Finbond’s share price increases to R5.00. Finbond has a market capitalisation of more than R3 billion.

4 GRI4 Reference: 9/10 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 5 BUSINESS PHILOSOPHY

1. Having a high performance culture of 10. Being frugal, cost conscious and excellence and producing sustained expecting all to remain within their results and continually meeting and expense budgets and to meet and exceeding expectations. exceed targets. 2. A strong culture of strict compliance 11. Keeping the Head Office structure lean with all laws and regulations and (wafer thin) and cost effective. The directives from regulatory stakeholders. purpose of all Head Office divisions 3. A+ effort, a fierce resolve and relentless which includes Finance, Risk, Human pursuit to do whatever needs to be Capital Development, Compliance and done to make the company great. Internal Audit is to serve and support 4. Managing for the long term and being the regions and branches, to add value independent, entrepreneurial, rational, to all regions and branches and to assist logical and analytical. them to maximise profitability. 12. Optimising long term value per share through optimal use of free cash flow CULTURE COST and effective allocation of Capital • Frugal (financial and human). • Excellence • Cost conscious • Compliance • Budget • A+ effort • Targets • Independent • Lean structure • Entrepreneurial • Profit • Rational • Cash flow • Logical • Analytical

BUSINESS PHILOSOPHY

CHARACTER 5. Simplifying • matters and Simpifying matters STAKEHOLDERS • focussing on the Focus • Staff training, development • core economic Quality before growth and rewards • characteristics of our Good communication • Customer relations • business. Autonomy • Community development • 6. Quality comes first and Fair compensation • Shareholder returns growth second. • Good to Great • Regulatory compliance 7. Being candid, communicating with • Exceed expectations frankness, being straightforward and to the point. • Share options 8. Managing all areas, regions, divisions and acquired business on a decentralised basis by following a rigorous budgeting process each year, 13. Aligning management compensation with extreme autonomy to the various with shareholders interest through managers. As long as managers meet share options and performance based and exceed profit targets (for which compensation. they are severely accountable) and 14. Continued training and development of remain within all laws and regulations all staff members. they will be left alone to do their jobs. 15. Treating customers fairly and adding 9. All senior managers complying value to our clients’ lives and livelihood. with and adhering to Finbond’s 16. Making a meaningful social Senior Management Expectations, contribution in the communities we Management Dimensions and the operate in and particularly to the most Good to Great Management Principles. vulnerable in those communities.

4 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 56 5 VISION AND MISSION & CORE VALUES

OUR VISION AND MISSION

Vision Mission To be the leading emerging market community bank in To consistently satisfy the needs of our target market South Africa improving the quality of life of our clients by by offering innovative, superior, inclusive investment, offering them access to unique value and solution based saving and credit solutions and better service that savings, credit, transactional and insurance solutions add value to our clients’ lives by empowering them tailored around depositor and borrower requirements and contributing towards their financial growth, that empower, develop and uplift our clients. independence and freedom.

OUR CORE VALUES

Teamwork To strive for the greater Excellence benefit of the organisation To be excellent Integrity To maintain social through an appreciation in everything and ethical norms of the role that at all levels in all activities. each employee plays in at all times. achieving the overall goals.

Human Dignity Accountability To at all-times treat To accept responsibility for people with respect and the work delegated and consideration execute it with excellence. for their unique needs, feelings and opinions.

OUR PURPOSE & BELIEFS ...that a bank should be owned by and managed exclusively for the benefit and in the best interest of its depositors and that all depositors should have an ownership stake in their own bank with the ability to vote at shareholders meetings. We exist...... in challenging the status quo where large corporate banks have lost touch with what their clients really need. ... to improve and transform the lives and livelihoods of our clients ...that banking products and services should improve the quality of life of by availing them of modern We believe... our clients and add real value to their lives and livelihood. inclusive banking products ...in savings and credit solutions tailored around depositor and borrower and services that benefit requirements rather than out-dated institutionalised policies and and empower them. practices.

...that savings should be encouraged through offering superior, high yield } investment and saving solutions. } “We’re here to put a dent in the universe. Otherwise why else even be here?”

- Steve Jobs -

6 GRI4 Reference: 56 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 7 BRANCH NETWORK Number of branches 300

250

200

150

100

50 286 0 2012 2013 2014 2015 number of branches 166 172 200 286

Number of employees

1000

800

600

400

200

880 0 number of employees 2012 2013 2014 2015 460 478 627 880

Number of active clients and investors at year end 120000

100000

80000

60000

40000 119 966 20000 number of active 0 clients and investors 2012 2013 2014 2015

32 381 43 607 71 352 119 966

6 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 9/10 7 PRODUCTS Product Mix

Products Rand value of loans Finbond specialises in the design and delivery of unique value and solution based savings, credit, insurance and transactional banking FIN500 2.32% solutions tailored around depositor and borrower requirements rather FIN1 11.66% than institutionalised policies and practices. FIN2 3.70% FIN3 21.99% C R E D I T FIN4 24.57% FIN6 19.08% FIN12-24 16.69% Micro Credit Products, are offered nationally through Finbond’s 286 micro finance branches to the under banked and underserved market 3+9224231920 of more than 40% of the adult population in South Africa who are Growth in Micro Credit Loans (R’000) actively seeking credit solutions but remaining largely unattended and underserviced due to the traditional banks’ concentration on the higher income brackets of the population.

Finbond offers short term (30 day - 120 day), medium term (6 months) and long term (12 months - 24 months) cash loans. Finbond`s personal cash loans range from R100 - R20 000. The efficient application process guarantees a quick turn-around time of between 20 - 30 minutes for in-branch loans. Once approved, cash is paid out for immediate use by the customer. 2013 2014 2015 Benefits of a Finbond Micro Loan include: 166 459 298 749 374 563 • Repayment options from 30 days to 24 months; • Immediate cash payouts; • No security required. Savings and Investment Product Mix

S A V I N G S & I N V E S T M E N T S

Finbond’s strategy is to stimulate savings through offering superior investment and saving solutions by providing client shareholders with better interest rates, better products and better service. Products 85+1041 Fixed Term Deposit Liabilities 84% Finbond’s product range includes high-yield investment and Indefinite Period Shares 10% saving products, targeted at investors and pensioners looking for a guaranteed higher fixed income in the current environment of Fixed Period Shares 3.5% depressed low yields. The minimum deposit is R100 000 (one hundred Permanent Int-Bearing Shares 2.5% thousand rand) and interest can be capitalised or paid monthly, quarterly, bi-annually or yearly. There are no initiation fees or monthly administration fees payable on Finbond’s Investment and Savings Growth in Savings and Investment Products (R’000) Products.

Products range from 6 – 60 month Fixed Term Deposits, Fixed Period Shares, Indefinite Period Paid Up Shares, Fixed Period Paid Up Shares and Permanent Interest Bearing Shares. The rates vary from 5.5% to 10% depending on the product selected and the number of months invested.

2013 2014 2015 164 038 695 902 921 933

8 GRI4 Reference: 4 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 9 T R A N S A C T I O N A L B A N K I N G I N S U R A N C E

The Finbond Finsave Bundled Account that was launched early Finbond’s combined Credit Life and Retrenchment Cover product in 2015 actively encourages customers to save by paying higher which is underwritten by PSG subsidiary African Unity Insurance interest on low balances. provides insurance cover tailored for Finbond’s target market.

The Finbond Finsave Bundled account is one of the cheapest In the current unstable labour environment our comprehensive bundled accounts in South Africa at only R50 per month. Insurance cover provides customers not only with insurance for the Credit Life Risk, but also for: Product rules and features of the Finbond FinSave Bundled • the Risk of Retrenchment, Account include: • the Loss of Income, • 6% p.a. interest paid on balances up to R20 000, thereafter • the Risk of Permanent Disability, 4% p.a. • the Risk of Temporary Disability, • Cash withdrawals at any ATM or cash back at accredited POS • as well as cover for the Risk of the Loss of Income due to devices , Industrial Action in one combined product. • Cell phone banking, • Internet banking and EFT payments and receipts, Customers can elect to procure their own insurance or make use • Debit Order functionality. of the comprehensive insurance facility arranged by Finbond.

Transactions included in the bundle: 1 ATM withdrawal, 3 POS cash withdrawals, 3 POS purchases combined with cash withdrawals, 10 POS purchases, 12 Electronic account beneficiary payments (internet banking and cell phone banking), 5 Funds transfers and electronic payments (internet banking and cell phone banking), 12 SMS notifications.

“Believe you can and you are halfway there.”

- Theodore Roosevelt -

8 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 4 9 SERVICE STANDARDS

The Finbond Service Standards

Quick & efficient Warm & friendly Never make promises The customer is our that you cannot keep. most important asset.

Trusting Inviting Respectful A customer Nothing is more A lasting relationship that trusts you, inviting than starts with respect. will keep coming back. a neat and tidy environment.

“That’s been one of my mantras - focus and simplicity. Simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

- Steve Jobs -

10 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 11 Which Are You?

There are just two kinds of people on earth today, Just two kinds of people, no more, I say.

Not the sinner and saint, for it’s well understood, The good are half bad, and the bad are half good.

Not the rich and the poor, for to count a man’s wealth You must first know the state of his conscience and health.

Not the humble and proud, for, in life’s little span, Who puts on airs is not counted a man.

Not the happy and sad, for the swift counting years Bring each man his laughter and each man his tears.

No, the two kinds of people on earth I mean Are the people who lift and the people who lean.

Wherever you go you will find the world’s masses Are always divided in just these two classes.

And oddly enough you will find, too, I wean, There’s only one lifter to twenty who lean.

In which class are you? Are you easing the load Of overtaxed lifters who toil down the road?

Or are you a leaner who lets others bear Your portion of labour and worry and care?

- Ella Wheeler Wilcox -

10 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 11 FINANCIAL HIGHLIGHTS & INDICATORS

% 2015 2014 2013 2012 Change

Profitability and performance Revenue from continuing operations R’000 455 438 283 854 198 996 179 230 60.4% Micro finance revenue R’000 370 320 262 125 194 007 174 768 41.3% Operating profit from continuing operations R’000 73 363 46 852 21 174 21 359 56.6% Profit for the period attributable to owners of the company R’000 50 867 36 918 20 733 13 552 37.8% Earnings before interest, taxation, depreciation and R’000 156 671 104 342 53 923 50 196 50.2% amortisation (EBITDA) Shareholders’ equity (net asset value) R’000 346 728 330 427 305 756 247 638 4.9% Net tangible asset value R’000 226 524 267 830 244 494 186 376 (15.4%) Dividend per share cents 3.4 2.1 - - 61.9%

Liquidity and Equity Indicators Share Price cents 321 306 139 7 4.9% Weighted average number of shares in issue shares 593 308 162 605 025 250 581 504 702 382 025 250 (1.9%) Earnings per share cents 8.6 6.1 3.6 3.5 40.5% Headline earnings per share cents 8.6 5.6 3.1 (1.3) 54.8% Net asset value per share cents 58.4 54.6 52.6 64.8 7.0% Return on ordinary shareholders equity 15.0% 11.6% 7.5% 5.6% 3.4% Total Assets R’000 1 349 252 1 085 847 557 467 477 123 24.3% Return on Assets 3.8% 3.4% 3.7% 2.8% 0.4% Cash, cash equivalents and liquid investments R’000 570 272 500 480 87 809 61 840 13.9% Deposits Raised for the period R’000 226 031 531 864 164 038 0 (57.5%) Deposit Book Liabilities R’000 921 933 695 902 164 038 0 32.5% Loan to Deposit Ratio 34.4% 33.1% 82.7% 0% 1.4%

Portfolio quality Gross loans & advances R’000 374 563 298 749 166 459 122 631 25.4% Gross loans & advances excluding unearned revenue R’000 317 602 230 124 135 734 100 343 38.0% Net impairment loss ratio 15.2% 12.0% 15.0% 21.1% 3.2% Net impairment as percentage of cash received 8.2% 7.3% 5.8% 6.0% 0.9% Total arrears (delinquent by one day) to gross loans and 16.5% 16.3% 19.5% 27.9% 0.2% advances Non performing loans (90 days +) 7.0% 6.2% 8.4% 10.0% 0.8% Risk coverage ratio (90 days +) 102.7% 102.5% 95.6% 88.2% 0.2%

Sales and operations Value of loans advanced R’000 765 695 539 264 407 852 378 664 42.0% Number of loans advanced 474 109 311 430 260 303 265 885 52.2% Average loan amount R 1 615 1 732 1 567 1 424 (6.8%) Aggregate annual cash receipts R’000 1 074 478 709 546 563 223 536 337 51.4% Ratio of cash receipts to loans advanced 140% 132% 138% 142% 8.0% Cost to Income Ratio 64.5% 69.6% 76.7% 71.0% (5.1%) Number of branches 286 200 172 166 43.0% Employees 880 627 487 461 40.4%

Refer to Chief Executive Officer’s review for context and further detail behind the ratios above.

12 GRI4 Reference: 13/EC1 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 13 Headline Earnings per share (cents) Revenue from Continuing Operations (R’000)

10.0 144 550 000 8.0 120

95 450 000 6.0 350 000

4.0 35 42 2.0 250 000 2 0 2013 2014 2015 150 000 2013 2014 2015

Cash, cash equivalents and liquid investments Revenue from Continuing Operations

Cash Equivalents & Liquid Investments (R’000) Retail Deposits (R’000)

600 000 121 1 000 000 125 110 800 000

450 000 90 600 000 300 000 400 000

150 000 2

200 000 1 0 0 2013 2014 2015 2013 2014 2015 Cash, cash equivalents and liquid investments Deposit Book Liabilities

EBITDA (R’000) Operating Profit (R’000)

80 000

175 000 147 150 000 127 60 000 125 000 84 68 100 000 40 000 75 000 21 14 50 000 20 000 25 000 0 2013 2014 2015 2013 2014 2015

Earnings before interest, taxation, depreciation and amortisation (EBITDA) Operating profit from continuing operations

Gross Loans and Advances (R’000) Dividend Growth

3.5 179 450 000 3.0 135 350 000 2.5 99 92 2.0 250 000 1.5

30 1.0 150 000 0.5 50 000 0 2013 2014 2015 2013 2014 2015

Gross Loans and Advances Dividends per share (cents)

“What’s measured improves.”

- Peter F. Drucker -

12 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 13 CHAIRMAN’S REVIEW

Dear Shareholders, Board Members and Employees, Our mission “to consistently satisfy the needs of our target market by offering innovative, superior, inclusive investment, saving and Finbond’s business model showed its resilience in the past year credit solutions and better service that add value to our clients’ lives in the face of extremely challenging market conditions. In this by empowering them and contributing towards their financial growth environment Finbond has continued to adapt to changing independence and freedom” still remains unchanged. consumer trends and behaviour by constantly introducing forward- thinking risk management processes to ensure the sustainability of CLIENTS the business. Finbond’s client-centric business model is focused on creating solutions that deliver value to our clients. Our clients are our first ANOTHER SET OF SOLID RESULTS priority, a fact evidenced by the increase in client numbers during Peter Drucker said that “Effective leadership is not about making the last 12 months. Total active loan clients also showed a healthy speeches or being liked; leadership is defined by results not attributes.” rise of 64% to 117 299 from 71 352. The year ending February 2015 once again included a number of achievements and another set of solid results for Finbond that In order to facilitate this significant increase, Finbond’s branch included: network has also expanded, opening 86 new branches during the • Headline earnings per share increasing 53.6% to 8.6 cents. same period. The total number of employees followed the same • Dividend per share increasing 61.9% to 3.4 cents. pattern with total staff numbers increasing from 627 a year ago to • Operating profit from continuing operations increasing by 880 at present. 56.6% to R73.4 million. • Earnings before interest, taxation, depreciation and These figures prove that Finbond provides a quality service by amortisation (EBITDA) increasing 50.2% to R156.7 million. offering excellent products at market-related prices and that clients • Revenue from continuing operations increasing 60.4% to react positively to this quality. Finbond plans to continue this trend R455.4 million. by opening even more new branches during the following twelve months, in line with market demand. Our outstanding results confirm the continuing success of our strategy to transform Finbond from a micro finance institution to a The Finbond Board carries the ultimate responsibility for ensuring Mutual and Savings Bank. that this focus on the client remains a priority across the Group and that all clients are treated fairly. The independent Compliance Our conservative approach to risk management, which sets us department is mandated to oversee this function through it’s apart from our competitors provided stability over the past year of Compliance Monitoring activities and report back to the Board at turmoil in the unsecured lending environment that inter alia saw each Board Meeting. African Bank being placed under curatorship and Bridge applying for business rescue. OUR PEOPLE Sam Walton said that “Outstanding leaders go out of their way to During the past year Finbond again made good progress towards boost the self-esteem of their personnel. If people believe in themselves, the realisation of our vision “to be the leading emerging market it’s amazing what they can accomplish.” The Finbond Human Capital community bank in South Africa improving the quality of life of our Development department facilitates, supports, guides and supplies clients by offering them access to unique value and solution based advice and information to the various regions within Finbond on savings, credit, transactional and insurance solutions tailored around people effectiveness, development and succession planning. The depositor and borrower requirements that empower, develop and main purpose is to build widespread commitment and capabilities uplift our clients” and yet again achieved a number of milestones. amongst all employees to achieve the Finbond vision by developing the organisation into a community of shared purpose marked by In particular, I am proud of the following non-financial achievements: high levels of connection, trust and respect.

Finbond: Emphasis is placed on ensuring that employee competency levels • Successfully piloted our debit card project, with cards being are up to the required levels through training and development rolled out nationally during the remainder of 2015 and that every employee has the correct business tools to be able • Further expanded our branch network to 286 branches to perform their work functions at exceptional levels. Training and • Significantly expanded and increased capacity in respect development of our staff remains a core focus area and one of of our Compliance, Internal Audit, Information Technology, our business priorities. During the period under review the HCD Human Capital Development and Risk functions in order to Training Department added a range of tools to ensure consistency effectively and efficiently manage Finbond Mutual Bank’s Risk in executing the training strategy. Management Framework • Increased capacity at Senior Management Level by appointing Finbond’s human capital is a key value driver for the Group and a Chief Business Development Officer we recognise that we will only remain an employer of choice if we • Significantly improved our Employment Equity scores to include our people in the value chain. become a level 5 BBBEE contributor. Since people are our competitive advantage we have to make sure that we retain and improve skills.

14 GRI4 Reference: 9/10 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 15 Finbond’s succession planning and leadership programmes within Effective corporate governance is of vital importance to a sustainable the various departments aim to identify high growth individuals, business and is therefore critical in ensuring that Finbond conducts train them and feed the pipelines with new talent. The purpose of its affairs in a manner that protects the interests of all stakeholders. the programmes are to ensure replacements for key job incumbents For this reason, effective corporate governance remains one of the in executive, management, technical, and professional positions in top priorities of the Finbond Board and Executive Management. the organisation. The King III Code of Governance, which applies to all companies The desired result of the succession planning programme is to: listed on the JSE, recommends that the Board of a company takes i. Identify high-potential employees capable of rapid advancement full responsibility for its Corporate Governance. During the 2015 to positions of higher responsibility than those they presently financial year the Board performed its annual review of Finbond’s occupy. Corporate Governance framework, including its risk management ii. Ensure the systematic and long-term development of individuals framework, its internal audit functions, compliance functions as to replace key job incumbents as the need arises due to deaths, well as its Five Year Strategic Plan of Action. I am happy to report disabilities, retirements, and other unexpected losses. that Finbond’s Corporate Governance principles and practices iii. Provide a continuous flow of talented people to meet the remain of the highest standards and exceed all regulatory and Bank’s management needs. statutory requirements. iv. Meet the Bank’s need to exercise social responsibility by Finbond’s Corporate Governance Framework is detailed on pages providing for the advancement of previously disadvantaged 47 to 58. This also describes in some detail the nature of the candidates . organisational structure put in place to direct, manage and control CREATING SHAREHOLDER VALUE the Corporate Governance activities of the Group and the Bank. Value creation must be consistent and sustainable over the long POSITIVE SECTION 5 REVIEW term; short-term gains cannot be considered true value creation. In terms of Section 5 of the Mutual Banks Act No 124 of 1993, Looking at the exceptional growth in the Finbond share price over the Registrar of Banks may direct a Mutual Bank to furnish the the past 3 years it is clear that we are making good progress with Registrar with a report by a public accountant on any matter that regards to our commitment to deliver shareholder value over the the Registrar may require for the performance of his functions. long term. The following significant observations were made byErnst & Young Over the past 3 years the Finbond share price grew by 4586% from following a Section 5 Review that was performed and concluded R0.07 at the end of February 2012 to R3.21 a share at the end of shortly after the financial year end: February 2015. This means R100 000 invested in Finbond shares • Finbond’s Executive and Non-Executive Directors materially 3 years ago was worth R4.6 million as at February 2015. This comply with and duly discharge their duties in respect of represents an average return of 358% per annum. section 37 of the Act, Regulation 37 and 38 of the regulations relating to Mutual Banks and sections 3,4,5,6,7 and 8 relating This exceptional growth in the Finbond share price is significant to the Board Approved Charter. for a number of reasons. Firstly, it means Finbond made good • Finbond materially complies with and adheres to the various on its promise to deliver shareholder value. Secondly, it shows Corporate Governance principles in terms of the King III shareholders are willing to invest in Finbond because they believe report on Corporate Governance. Finbond is a viable and sustainable financial services and banking • Finbond materially complies with the relevant requirements group. Thirdly and lastly, it means shareholders share in Finbond’s of Regulation 48 and the IIA Standards with respect to the vision and strategy. independence of the internal audit function. • The quality of management oversight at all levels over the BOARD OF DIRECTORS credit process is effective and appropriate for the nature of As a Board we continually strive to achieve a balance between the lending activity. There is adequate segregation of key governance and entrepreneurship to ensure the Group continues functions which are continuously monitored. to deliver competitive returns to shareholders while meeting its • Management are suitably qualified and the key officers, statutory, regulatory and corporate citizenship obligations. including executive and senior management are fit and proper. We have a strong and experienced Board of Directors with diverse • There are appropriate internal control structures in place and relevant business expertise, most notably in the areas of finance, in the branches. The design of the controls is deemed to be retail and governance. Six of the Non-Executive Directors, including effective, reasonable and accurate. The ongoing monitoring of myself as Chairman, are classified as independent in terms of the the internal controls is appropriately timed and performed by King lll Code. The independence of long-serving Non-Executives is various levels of management and independent review. reviewed annually, as recommended by King lll. • Finbond Mutual Bank’s Compliance function materially com- plies with relevant sections of Regulation 49. An annual Board Evaluation is conducted to assess both the • The current IT Governance processes are adequate for the size effectiveness of the Board as a collective unit and the performance and complexity of Finbond at present. of individual Directors. The outcome of the latest evaluation is • The design of the affordability assessments is in accordance covered in the Corporate Governance Report. with the NCA and the results of Ernst & Young testing of the controls indicate that the controls are effective. EFFECTIVE CORPORATE GOVERNANCE • The management oversight and monitoring of concentration Finbond has long adopted a philosophy that governance extends risk is adequately managed by senior management and beyond compliance with legislation, regulation and voluntary effective within the predetermined risk appetite of the codes. By adopting sound governance principles which are aligned business. to the Finbond business philosophy and values we have developed • The Chief Executive Officer and the Board duly acted in the a culture of good governance across the business. best interests of the Depositors.

14 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 15 SOCIAL RESPONSIBILITY Finbond is also a proud social citizen, confirmed by our recent thank him for taking the role and responsibility to actually realise subscription to the Graham Power Unashamedly Ethical campaign. the ambitions that we have for our organisation. I look forward with This campaign can be summarised as a challenge to people to make enthusiasm to our continued relationship. a public commitment to “good ethics, values and clean living”. I also wish to thank our shareholders, customers and other During the year under review, Finbond also continued our stakeholders for their continued support and relationship with contributions to our main charitable cause, the Tshwane Place Finbond Limited Group. Without you, we would not be able to of Safety Association (“TPOSA”) and the Tshwane Haven which achieve this remarkable progress. focuses on providing orphaned and abandoned babies and babies infected with HIV with good homes, frail care and shelter. In 2014, We share a good open and transparent relationship with our Finbond contributed another R2.1 million to TPOSA in the form Regulators and I sincerely thank the Bank Supervision Department of an additional property situated in Queenswood, Pretoria. This of the South African Reserve Bank, whose relationship continues additional venue will ensure that even more children will find a safe to benefit our organisation in respect of the guidance received home and the appropriate care. Since opening its doors in October throughout the period to the end of the financial year. 2003, TPOSA has saved and made a difference in the lives of more than 1 001 children. The racial breakdown of the children saved I then wish to acknowledge and sincerely thank the Finbond were: 708 Black African, 202 Caucasian, 83 Coloured, 6 Indian and executive team. They again demonstrated commitment, passion, 2 Thai. 504 of the children were boys and 497 were girls. The haven selflessness, and teamwork to both the Chief Executive Officer and cares for up to 250 babies and children per month. the family of Finbond, and were instrumental in enabling Finbond Group Limited to realise these outstanding results. In addition to Finbond’s contributions to TPOSA, Finbond also contributed to Tshwane Haven, Transformation Time, Girls & Boys I commend the Finbond Group family at all levels for their individual Town, Christian Social Council North and Compass Children’s Home. and collective contributions over the last 12 months, and for their continuing commitment. Each member of the family has again CONSUMER EDUCATION given their all during another period of significant change and In line with the letter and spirit of both the Consumer Protection uncertainty. Act No 68 of 2008 and the National Credit Act No 34 of 2005, we again invested in consumer education by updating and distributing I also wish to acknowledge and express many thanks to my the Finbond consumer education book “Budget and Save Wisely” to colleagues on the Board for their insight, passion and commitment. customers and staff in all geographical areas. Their contributions to our deliberations have been of great value and much appreciated. Every lesson and experience along the way The “Budget and Save Wisely” book addresses and educates provides us still with new insights, creates better hope, courage, consumers on important topics such as how to do a personal determination and contribute to the achievement of a sustainable budget, the dangers of too much debt and over indebtedness, competitive organisation that will benefit all stakeholders; an reckless credit, being blacklisted, consumer rights and the rules organisation of choice as defined by those we serve. and regulations of the National Credit Act in easily understandable language with animated pictures and practical examples. Lastly, my special thanks to God for His continued grace, and for continuing to bless us all with the ability to work towards our THE FUTURE ambitions and vision. Finbond will continue to strive to be a leading player in South Africa’s financial services industry. For 2015/2016 in particular, Finbond’s aims are to: • Further increase our branch network • Finalise a number of small micro acquisitions in the 30 day short term unsecured lending market Dr. Malesela Motlatla • Further conservative organic growth in the unsecured short- Chairman term product range • Increase debit card and transactional banking clients 16 April 2015 • Further development of a comprehensive customer call centre • Further diversify FGL’s income streams • Increase our charitable contributions in line with our profit growth.

APPRECIATION I wish to acknowledge and sincerely thank a number of people who have made a significant contribution in assisting Finbond Group Limited to be as well placed as we are today:

My sincere thanks to Dr. Willie van Aardt, Chief Executive Officer of Finbond Group Limited. His contribution was invaluable throughout another year of extremely dynamic and adverse market conditions. His visionary leadership, dedication, and commitment ensured we were able to build on the platform for the future, whilst also meeting the day-to-day demands placed upon the organisation. I further

16 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 17 CHIEF EXECUTIVE OFFICER’S REVIEW

Dear Fellow Shareholders, Our Investment and Savings products, which offer a superior above average rate of return, are offered nationally to investors Finbond once again delivered exceptional shareholder returns for and pensioners looking for guaranteed higher fixed income in the the year ending February 2015. current environment of depressed low yields.

During the twelve months under review, Finbond delivered another It is our mission “To consistently satisfy the needs of our target market set of solid results increasing Headline Earnings by 53.6%, Operating by offering innovative, superior, inclusive investment, saving and profit by 56.6%, Revenue from continuing operations by 60.4%, credit solutions and better service that add value to our clients’ lives EBITDA by 50.2% and Dividend per share by 61.9%, by empowering them and contributing towards their financial growth, independence and freedom.” These excellent results were achieved despite an extremely difficult and challenging operating environment. Conservative We are not focused upon making quick and short-term profits but lending practices, strict upfront credit scoring procedures, effective set out to build critical market momentum that will secure long- collections, an increased distribution footprint and a strong focus term rewards and sustainable benefits for all stakeholders. Our on client service helped us weather this environment. business strategy is to exceed our client shareholders’, business partners’ and regulatory stakeholders’ expectations and, in so We made further good progress towards the realisation of our doing, sustain the organic growth of Finbond. vision “to be the leading emerging market community Bank in South Africa improving the quality of life of our clients by offering them access CHALLENGING EXTERNAL ENVIRONMENT to unique value and solution based savings, credit, transactional In the period under review important changes occurred in and insurance solutions tailored around depositor and borrower the external environment posing interesting challenges and requirements that empower, develop and uplift our clients.” opportunities: • Numerous unsecured lenders that did not manage the credit We remain focused on executing on the Group’s strategy and top risk well were placed under curatorship or failed. business priorities namely optimal capital utilisation, earnings • The South African economy continues to perform below its growth, strict upfront credit scoring, good quality sales, effective potential. ABSA economic research shows that annualised collections, cost containment and training and development of growth in South Africa’s real gross domestic product (GDP) staff members. This enabled us to achieve overall strong operational measured 1.3% in the fourth quarter of 2014, up from growth results despite the current difficult and challenging business of 0.5% in the second quarter. Economic activity was seriously environment. hampered by the five-month-long strike in the platinum mining sector and the strike in the steel and engineering Our strong capital position, significant surplus cash, robust industry in July last year. The South African Reserve Bank liquidity profile together with our conservative approach to risk calculated that the annualised real economic growth would management means that we are well positioned for growth both have been 3.1% in the third quarter of last year if the strike in in the current adverse market conditions and as markets improve. the steel and engineering industry did not occur. According to Andrew Levy Employment Publications, a total number of FINBOND GROUP LIMITED 11.6 million workdays were lost due to industrial action in the Finbond, with its 880 staff members and 286 branches, specialises in first three quarters of 2014 compared with 4.7 million lost in the design and delivery of unique value and solution based savings, the same period in 2013 and 5.2 million lost in the whole of credit, transactional and insurance solutions tailored around 2013. These labour market trends are not conducive to higher depositor and borrower requirements rather than institutionalised levels of confidence, investment and employment in the policies and practices. medium to longer term. According to the World Economic Forums Global Risk Report 2015 the capacity to tackle We exist to improve and transform the lives and livelihoods of our persistent unemployment – an important risk connected with clients by availing them of modern inclusive banking products and social instability – is a major concern in sub-Saharan Africa. services that benefit and empower them. • Headline consumer price inflation came to 6.1% in 2014, up from 5.8% in 2013 and 5.7% in 2012. Underlying core inflation, Finbond Group Limited conducts its business through four divisions i.e. headline inflation excluding the more volatile components focused on: of food, non-alcoholic beverages, petrol and energy, remained 1. Short and Medium Term Micro Credit Products under upward pressure during the course of 2014, ending 2. Investment and Savings Products the year at a level of 5.7% y/y and averaging 5.6% last year 3. Transactional Banking Products compared with 5.2% in 2013 and 4.6% in 2012. 4. Insurance Products • The value of outstanding household credit balances, comprising instalment sales credit, leasing finance, mortgage loans, credit Micro Credit, Transactional and Insurance Solutions are offered card debt, overdrafts and general loans and advances (mainly nationally to the under banked and underserved emerging banking personal and micro loans), showed growth of 3.4% y/y in market actively seeking credit and banking solutions, but remaining 2014. Growth in the value of outstanding household secured largely unattended and underserviced due to the traditional banks credit balances (instalment sales credit, leasing finance and concentration on the higher income brackets of the population. mortgage loans) came to 3.0% y/y at the end of December

16 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 1/9 17 last year, largely driven by low growth of 2.3% y/y in household The sub-components of the CFVI were measured as follows in mortgage balances, which account for more than 77% of total the third quarter of 2014: household secured credit balances. Growth in the value of - Income vulnerability: At 50.9 index points, consumers outstanding household unsecured credit balances (credit card were mildly exposed debt, overdrafts and general loans and advances) dropped - Expenditure vulnerability: At 54.3 index points, consumers to 4.7% y/y at end-December. The relatively low growth in were mildly exposed unsecured credit balances was mainly the result of subdued - Savings vulnerability: At 51.9 index points, consumers growth in the component of general loans and advances were mildly exposed (60.7% of household unsecured credit balances and mainly - Debt service vulnerability: At 48.4 index points, consumers consisting of personal loans and microfinance) of 2.1% last were very exposed year. Factors such as consumers’ poor credit-risk profiles, the • In the latter part of 2014, 23.8% of consumers were regarded banks’ risk appetite, stricter lending criteria and consumer as financially vulnerable (36.8% in the third quarter of 2013), confidence affected the availability and accessibility of and with 49.3% regarded as financially exposed (38.4% in the third demand for credit. quarter of 2013) and 26.9% were regarded as financially secure • The financial pressure experienced by the household sector (24.7% in the third quarter of 2013). This implies that about continued unabated during the course of 2014. The declining 73% of consumers were experiencing financial pressure of trend in the growth of real household disposable income and some or other kind late last year. consumption expenditure, which commenced as far back as late 2010, continued up to the second quarter of the year. GOOD PROGRESS MADE Consumer price inflation is on average above 6%, negatively There are still a number of challenges facing Finbond in the short affecting consumers’ purchasing power, while interest rates and medium term, not only in respect of the prevailing market were hiked on two occasions as a result of inflationary pressures. conditions, but also relating to the on-going process of improving The net household savings ratio remains in negative territory, the scale and overall effectiveness of Finbond to enable it to while an increasing number of credit-active consumers had compete effectively with its much larger peers. impaired credit records at mid-year. Consumer confidence remained low during 2014, negatively affecting the demand In giving effect to our strategic plan of action Finbond made the for credit, goods and services. following progress during the period under review: • Despite the credit amnesty process, consumer credit risk • Headline earnings per share increased 53.6% to 8.6 cents profiles deteriorated even further in 2014. In the third quarter (February 2014: 5.6 cents). of 2014 with a total of 10.05 million credit-active consumers, or • Dividend per share increased 61.9% to 3.4 cents 44.7% of a total of 22.5 million, had impaired credit records, up (February 2014: 2.1 cents). from 9.95 million (45.0%) in the second quarter. The number of consumers in good standing came to 12.45 million (55.3%) • Operating profit from continuing operations increased 56.6% in the third quarter compared with 12.17 million (55%) in the to R73.4 million (February 2014: R46.8 million). second quarter. A total number of 81.18 million consumer • Profit for the period attributable to owners of thecompany credit accounts were active in the third quarter of last year, increased 37.8% to R50.9 million (February 2014: R36.9 million). of which 59.55 million (73.3%) were in good standing and • Earnings before interest, taxation, depreciation and 21.64 million (26.7%) were impaired. Consumers’ credit-risk amortisation (EBITDA) increased 50.2% to R156.7 million profiles impact their access to credit, as reflected by banks’ (February 2014: R104.3 million). risk appetite and lending criteria, which eventually affect • Revenue from continuing operations increased 60.4% to household consumption expenditure against the background R455.4 million (February 2014: R283.9 million). of a continued low level of savings. • Operating cost to Income ratio improved, reducing 5.1% to • Based on the latest Quarterly Labour Force Survey published 64.5% (February 2014: 69.6%). by Statistics South Africa, a total of 15.117 million people were employed in the formal and informal sectors of the economy • Value of loans advanced increased 42.0% to R765.7 million in the third quarter of 2014. The labour market was severely (February 2014: R539.3 million). affected by major strikes in some mining and manufacturing • Cash received from customers increased 51.4% to R1.07 billion sub-sectors in the first seven month of last year, with only (February 2014: R709.5 million). 0.2% more people that were employed in the third quarter • Increased fixed and indefinite term retail deposits 32.5% to compared with the second quarter, while employment growth R921.9 million (February 2014 R695.9 million). was also low in the second quarter at 0.3% compared with the • Successfully completed the development and testing of first quarter. The unemployment rate remained above the 25% the Finbond Debit Card, Internet Banking and Transactional level in the third quarter, with a total of 5.151 million people Banking products. being unemployed in the quarter. • Received an investment grade rating from Global Credit Ratings • Consumer financial vulnerability, as measured by the Bureau of (“GCR”) who upgraded Finbond Group Limited’s national scale Market Research (BMR), remains a concern despite the fact that long term rating to Investment Grade BBB-(ZA), with the the Consumer financial vulnerability improved somewhat in outlook accorded as Stable. the latter part of 2014. At an overall index reading of 51.4 in the • Received a clean bill of health in a Section 5 Review of the third quarter of 2014 (50.4% in the second quarter), consumers Bank’s corporate governance and risk management structures remained financially mildly exposed. An index reading of 50- conducted by Ernst & Young. 59.9 in the Consumer Financial Vulnerability Index (CFVI) and its sub-indices indicates that consumers are financially mildly • Was granted full membership of the Authenticated Early Debit exposed. An index reading of 40-49.9 indicates that consumers Order and Non-Authenticated Early Debit Order Payment are financially very exposed, whereas an index reading of 60- Clearing Houses of the Payments Association of South Africa 79.9 indicates that consumers are financially very secure. (PASA).

18 GRI4 Reference: 1 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 19 • Launched a fully functional debit card transactional banking HEALTHY CAPITAL POSITION product to a portion of the existing base of loan customer Finbond follows a conservative approach to capital management clientele. and holds a level of capital which supports its business while also • Expanded the branch network by 43% to 286 branches growing its capital base ahead of business requirements. nationwide. Finbond’s Capital position remains strong. Finbond Mutual Bank is well above its minimum regulatory capital requirements with CONSERVATIVE UPFRONT CREDIT SCORING PRACTICES an excess of R120 million over and above the 25% required by the While the size of the loan book has increased, the risk profile of the Registrar of Banks and an excess of R298.1 million over and above book has, at the same time been adjusted to take into account the the normal DI 400 required minimum for mutual banks. increased financial pressure on the South African Consumer. Although Finbond as a Mutual Bank is not subject to the Basel III One of our key value drivers is the quality of new business. Without requirements, Finbond already complies with and significantly quality, new business growth is meaningless as it is not sustainable. exceeds all Basel III requirements set for 2018 and 2019. As at 28 Finbond therefore has a policy of only taking on clients who can February 2015 Finbond’s: afford the product we are selling. • liquidity coverage ratio % was 204% (104% more than required from 2019) Detailed affordability calculations are also performed prior to • net stable funding ratio % was 579% (479% more than extending any loans in order to determine whether clients can required from 2018) in fact afford the loan repayments. In line with our conservative • capital adequacy ratio % was 35.1% (25.1% more than approach additional expense buffers are included in all affordability required from 2018). assessments. INCREASED BRANCH NETWORK Over the past twelve months Finbond continued to apply strict Face to face communication and excellent customer service are an upfront credit scoring and affordability criteria. The credit scores integral part of our business model. on the various products are monitored on a monthly basis and continually adjusted to reduce credit risk and further improve the During the past financial year Finbond increased it’s branch quality of assets held. network by 86 branches to 286 branches in South Africa of which 86 are located in Gauteng, Limpopo and Mpumalanga, 57 in KwaZulu- Finbond’s lending practices have been consistently conservative Natal, 59 in the Western Cape, 45 in the Eastern Cape and 39 in the over the past number of years and our rejection or decline rates Free State and North West. As part of our client centric focus we remain higher than those of our major competitors even after ensured that our distribution channels reflect the demographics of their recent tightening of lending criteria. Rejection rates stood at our clients. between 82% – 94% for our 12 – 24 month product range at the end During the past year we also expanded our capacity at existing February 2015. branches by increasing the number of consultant work stations. Across the bank we created an additional 286 jobs.

We intend to open 40 – 60 branches in the 2016 financial year and Monthly Codix Declines to Historic Declines Rates thereafter approximately 40 branches per year for the next five years. 54 + 59 58

100% 52 + 57 56 RESPONSIBLE UNSECURED LENDING

80% 42 + 47 46 AND INCLUSIVE FINANCIAL SERVICES Responsible unsecured lending fulfills an important role in 60% South Africa of including the vulnerable and previously excluded customers and giving them access to credit and will continue to 40% grow rather than diminish in importance.

20% A significant portion of the adult population in South Africa are still actively seeking banking and credit solutions but remain 0% largely unattended and underserviced. These unbanked and FIN12 FIN18 FIN24 underserviced customers do not fall outside the banking sector by FIN12 FIN18 FIN24 choice. An important reason for their predicament is that banks do not offer products tailored to their specific needs. Many of these Dec-14 81.23% 86.85% 93.56% consumers are also in rural areas where the traditional banks do not Jan-15 80.86% 86.71% 93.29% have a footprint or are busy leaving due to the fact that they cannot operate profitably in the small towns and rural areas in South Africa Feb-15 80.84% 86.44% 93.07% due to their high cost structures. Historical 82.04% 87.56% 93.73% Achieving sustainable and inclusive development in the banking Market 54.36% 54.36% 54.36% sector goes hand-in-hand with improving access to financial services, particularly for the poor and vulnerable. Over the past 20 years unsecured lending has become a permanent feature of Furthermore, Finbond’s micro credit portfolio is also not exposed to the South African credit landscape providing credit solutions and any concentration risk and does not have any significant exposure access to funding to the previously disadvantaged, under-banked to any specific employer or industry. and unbanked.

18 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 1 19 There is a need among Finbond’s current customer base and target • Asset quality appeared stable despite gross advances growth market for a Mutual and Savings Bank that specifically caters for of 69.7% in F14 (1H F15: 23.5%). As approximately 80% of their needs with regards to inter alia the following banking products Finbond’s loans issued are short-term, traditional asset quality and needs: measures may overstate the bad debt experience. Gross and • Branch Network in rural areas net impairment ratios (impairments being instalments in • Low monthly bank charges and no cash deposit or cash arrears) have declined since FYE13 to 20.1% and 12.1%, and net handling fees impairments vs. instalments due (management’s key impairment • Innovative and modern cash deposits, transfers and measure) fell from 6.3% (FYE14) to 5.8% (1H F15). Over the same drawings period, collection rates remained strong, loan rejection rates rose, and stability was noted in arrears as a proportion of loans, and • Unsecured Loans with credit guarantee insurance arrears roll-rates. Provisioning appeared adequate. However, • Basic Financial Education close monitoring is required given the challenging market • Savings accounts that earn interest on small amounts conditions. • No minimum operating balance • In F14, operating income rose by 34.3% to R236.1m (net income • Higher interest on small savings deposits, which actively – 80.3% to R36.9m). Despite 21.9% cost growth in F14 driven by encourages saving. loan volumes and risk systems/infrastructure enhancement, the cost/ income ratio declined to 69.6% (F13: 76.7%). Impairment Finbond is well positioned and able to provide much needed inclusive costs grew 25.8% in F14 and 90.0% in 1H F15, highlighting a Banking services and products to the vulnerable, unbanked, under lagged effect of loan book size and term extension. banked and previously disadvantaged in step with the principles set • Finbond appears well placed to develop its business profitably and out in Treasury National Policy Document “A safer financial sector conservatively, despite the challenging operating environment.” to serve South Africa better” with regards to financial inclusion and promoting access to financial services. The ratings upgrade was achieved in an environment which has been characterised by ratings downgrades of other banks and CONTINUALLY GROWING MARKET SHARE financial service institutions. Our share of the short term unsecured market (loans below R8 000 with a tenure of between 30 days and 180 days) grew FIVE YEAR STRATEGIC PLAN AND STRATEGIC INITIATIVES from approximately 12.5% at the end of financial year 2014 to Father Theodore M. Hesburgh said that “The very essence of approximately 20% at the end of financial year 2015 while we still leadership is that you have to have vision. You can’t blow an uncertain have an insignificant share of the total unsecured lending market trumpet.” The Board approved Five Year Strategic Plan of Action in South Africa. very clearly sets out Finbond’s vision and strategic objectives.

Given that we are growing from a small base we can keep on Strategic Planning is an organisational management activity that growing for a long time despite the current difficult environment. is used to set priorities, focus energy and resources, strengthen operations, ensure that employees and other stakeholders are Finbond is well positioned for the implementation of its strategic working toward common goals, establish agreement around growth plans in the micro credit market in South Africa and has intended outcomes/results, and assess and adjust the organisation’s significant growth opportunities over the next five to ten years. direction in response to a changing environment.

UPGRADE TO INVESTMENT GRADE CREDIT RATING It is a disciplined effort that produces fundamental decisions and During the 2015 financial year, Finbond was awarded an investment actions that shape and guide what an organisation is, who it serves, grade rating by ratings agency Global Credit Ratings (“GCR”). GCR what it does, and why it does it, with a focus on the future. Effective upgraded Finbond’s BB+(ZA) National Scale Long Term Corporate strategic planning articulates not only where an organisation is Credit Rating with a Stable Outlook to BBB-(ZA), with the outlook going and the actions needed to make progress, but also how it accorded as Stable on 30 October 2014. GCR also affirmed Finbond’s will know if it is successful. Short Term Credit Rating of A3 with a Stable Outlook and Finbond’s Long Term International Scale Corporate Credit Rating of BB with a Simply put, strategic planning determines where an organisation Stable Outlook on the same date. is going over the next year or more, how it’s going to get there and how it’ll know if it got there or not. According to GCR, the ratings are based on the following key factors: • “Finbond Group Limited’s (“Finbond”, “the Group”) growing In terms of the Board approved Five Year Strategic Plan of Action we franchise as a leading player in short-term microfinance, want to inter alia achieve the following key objectives: providing short- and medium-term credit, insurance and savings • Increase our branch network to approximately 550 branches. products through 286 branches, and its transactional banking • Increase our staff numbers to approximately 2 150 creating a ambitions. further 1 300 jobs. • Adequate capital, conservative credit/risk management, and • Increase market share in key segments. improving profitability/earnings diversification (despite regulatory • Significantly Increase our Net Profits by diversifying and risk) support the rating, which excludes the prospect of systemic expanding the base through a combination of support, given its low likelihood. The rating outlooks consider - A) Organic Growth Finbond’s prospects/strategic direction, within the context of the - B) Diversifying Strategic Acquisitions negative consumer health, debt affordability, and credit trends. - C) New Business Lines and Products such as cards, home • High liquidity levels (46% of assets) and adequate capitalisation loans, SME lending and asset finance (Finbond Mutual Bank’s capital adequacy ratio (“CAR”) was 34% • Increase our charitable contributions in line with our profit at 1H F15) support the moderate credit appetite. growth and financially support at least one or two children’s homes in each of the 9 provinces.

20 GRI4 Reference: 1 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 21 Strategic initiatives under way include: • reviewing and updating the Finbond Training and Code of • Rolling out Finbond Mutual Bank transactional bank accounts Conduct and Policy Manuals; and savings accounts to all its micro credit clients. • the identification of new regulatory requirements; employee • Rolling out a Cellular Phone Banking Product and Application. awareness relating to regulatory requirements; and combating • Rolling out an Internet Banking Product and Application. unethical behavior; • Rolling out a MasterCard Debit Card product. • continued compliance risk monitoring in terms of the • Growing market share through the increased sale of short upgraded Compliance Monitoring Methodology and a new and medium term products, specifically the 30 days, 90 days, 2015/2016 risk based Compliance Monitoring Plan; 6 months and 12 – 24 month products. • regulatory on-site visits; • Further refining, developing and improving all information • compliance training in all areas; technology systems and processes in all divisions. • the embedment of Mutual Banks Act and Regulations; • Expansion of the branch network by 40 – 60 branches in high • continued high levels of compliance with the National Credit growth areas. Act; • Selective strategic acquisitions. • continued high levels of compliance with the FAIS and FICA Acts; CONSERVATIVE RISK MANAGEMENT PRACTICES • continued high levels of compliance with the TCF Act; Managing an efficient business requires stringent risk, compliance and corporate governance systems . During the period under review • improving compliance with Anti-Money Laundering legislation; we further expanded our Compliance, Internal Audit, Information • maintaining a good, transparent and trusting relationship Technology, Human Capital Development and Risk and Analysis with Regulators; Departments in order to effectively manage Finbond Mutual Bank’s • ensuring that auditors, Ernst & Young, were provided with any Risk Management Framework. The bulk of the increased expenses and all required information and documentation required for during the period under review relates to increasing capacity their review in terms of Section 5 of the Mutual Banks Act, and improving risk management functions and processes within No 124 of 1994 at the request of the Registrar of Banks of the Finbond Mutual Bank. South African Reserve Bank.

Rigorous focus on the fundamentals of risk management is critical Compliance risk is managed through internal policies and processes for the success of any financial institution. Those who get it right which include legal, regulatory and business-specific requirements. succeed and those who do not, falter or fail. Risk management Regular training and advice is provided to ensure that all employees is a fundamental strength of Finbond. We established a deeply are familiar with their compliance obligations. embedded risk culture that stresses accountability and includes the full involvement of the Board of Directors and the Senior Executive The Finbond Contact with Regulators Policy provides a framework Officers. The tone comes from the top, but the culture is embedded that guides ad hoc contact with any financial services regulatory throughout the organisation. authority relevant to the Group and the Bank, ensuring that communication with regulators is handled promptly and Finbond’s approach to risk management is based on well-established professionally. In terms of the policy the Compliance division governance processes and relies on both individual responsibility is responsible for providing guidance to business before and and collective oversight, supported by comprehensive reporting. during meetings with regulators, for maintaining a log of all This approach balances strong corporate oversight at executive commitments made to regulators and for monitoring the progress management level, beginning with proactive participation by of commitments. the Chief Executive Officer, the Executive Committee and the independent Risk Committee in all significant risk matters, with REGULATION risk management structures, supporting policies, procedures and Finbond engages Regulators in a co-operative way in order to have processes within all regional and divisional business units enabling insight into and implement any new regulations. We have a good, risk assessment in a controlled environment. Risk management is transparent and trusting relationship with its regulators which seen as the responsibility of each and every employee. include the Bank Supervision Department of the South African Reserve Bank, the National Credit Regulator, The Financial Services Finbond’s Risk Management Framework is detailed on pages 37 to Board, The Johannesburg Stock Exchange and the Financial 46. This also describes in some detail the nature of the organisational Intelligence Centre. structure put in place to direct, manage and control the activities of the Group and the Bank. Interaction between industry players and Regulators are of crucial importance in order to ensure that practical and regulatory EFFECTIVE COMPLIANCE MONITORING efficiency are considered to the benefit of all stakeholders. The increasingly more-stringent regulatory environment impacting the financial services sector constantly challenges banks to comply As part of their recent Section 5 Review Ernst & Young inter alia with regulatory requirements. The Compliance Universe of the confirmed that Finbond’s: Bank consists of all the statutory and regulatory requirements of • Executive and Non-Executive Directors materially comply all relevant legislation, regulation codes applicable to the business with and duly discharges their duties in respect of section 37 activities of the Group and the Bank. of the Act, Regulation 37 and 38 of the regulations relating to Mutual Banks and sections 3,4,5,6,7 and 8 relating to the During the period under review the Compliance function focused Board Approved Charter. on the following key areas: • Governance Structures materially comply and adhere to the • employee awareness relating to regulatory requirements various corporate governance principles in terms of the King (compliance culture); III report on Corporate Governance.

20 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 1 21 • Internal Audit Function materially complies with the relevant Institution to a Mutual and Savings Bank in the implementation of requirements of Regulation 48 and the IIA Standards with our strategic action plan will ensure that we achieve results in the respect to the independence of the internal audit function. medium and long term. • Compliance function materially complies with relevant sections of Regulation 49. Finbond continues to manage for the long term and to invest in people, training, information technology, banking systems, BLACK ECONOMIC EMPOWERMENT compliance systems as well as in enhanced collection strategies We believe that BBBEE is an integral driver of economic and social and systems, in order to build a sustainable business that creates transformation in South Africa and therefore an integral component long term economic value and produces significant benefits for the of our business. We are committed to align our business in the wider community. workplace and in society, with the national transformation agenda. We are further committed to the creation and development of an THANK YOU enabling environment, for effective BBBEE within our organisation. Quality staff with enthusiasm is the driving force in creating success in the exciting and volatile environment in which we do business. As a responsible corporate citizen Finbond is committed to I would like to thank each one of them for their individual valuable contribute to the improvement and development of the quality of contributions. life of the communities in which operate, and to support sustainable community development initiatives. Thank you to our Chairman, Dr. Malesela Motlatla, and other Non-Executive Directors Adv. Jasper Noeth, Mrs. Rosetta Xaba, Finbond also allocates resources, within reasonable means, to the Mr. Robert Emslie, Mr. Danie Brits, Adv. Neville Melville and Mrs. pursuit and accomplishment of the aims and goals of BBBEE, in line Ina Wilken-Jonker for their continued support, prudent guidance, with our vision, mission and strategic objectives, and in doing so, input and advice. ensuring that Finbond retains its character, business focus, values and performance standards. I also wish to extend my personal thanks and appreciation to my Finbond has been rated as a level 5 contributor to BBBEE and it is fellow executives Mr. Gary Sayers, Mr. Carel van Heerden, Mr. Hano our aim to achieve level 4 status by 2017. Coetser, Mr. Peter Oeschger, Mr. Fabian Manuel, Mr. Hannes Cloete and Mr. Christo Quinn as well as our able regional operational CAN DO BUSINESS PHILOSOPHY AND CULTURE management, Mr. Louis Galand, Mr. Marthinus Vermaak, Mr. Deon Peter Drucker said that “The best way to predict your future is to create Loots, Mr. Floors van Heerden and Mr. Dewald Vosloo without it”. We are all privileged to be “creating the future” as we work on whose excellent contributions and leadership Finbond would not realising our Finbond dream and vision. In managing and growing be successful. Finbond we will continue to apply the following general principles: • We stick to our core values and core competencies, I would also like to express my gratitude to our clients and share- • We manage and think long term 5 – 10 years, holders for recognising the value that we offer and for trusting us to • We are disciplined to grow conservatively, deliver in line with their expectations. • We continue to hire the best people as the calibre of our people will determine our success in the long term, Last but not least I would like to thank our Lord, Jesus Christ for • We put quality first and growth second, blessing us with the ability to manage our business successfully • We are persistent and unwilling to quit until the end result is through these challenging times. Without His goodness and achieved, abundant grace it will not be possible to truly succeed in all aspects • We use adversity to invent, reinvent and recreate, of life. • We aim to “win when others lose”, • We continue to go forward and continue to act, we do not stand still or do nothing, • We are positive and confidently believe that we will be successful and that we will prevail, • We face the brutal facts squarely. We are realistic. Dr. Willie van Aardt LOOKING AHEAD Chief Executive Officer The challenging and difficult macro-economic environment as well as the adverse market conditions in the markets within which Finbond 16 April 2015 operates, are not expected to abate in the short and medium term. However, we remain confident that we have the required resources and depth in management to successfully confront and overcome these various challenges.

We remain positive about our prospects for the future due to Finbond’s: Improvement achieved in earnings and profitability despite difficult market conditions; Improvement achieved in cash generated from operating activities; Management expertise; Strong Cash Flow; Strong Liquidity and surplus cash position; Uniquely positioned 300 Branch Network; Superior Asset Quality; Access to funding Conservative Risk Management and Growth potential in the Micro Finance and Mutual Banking markets in the lower end of the market. We believe that the evolution from a Micro Finance

22 GRI4 Reference: 1 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 23 CHIEF FINANCIAL OFFICER’S REVIEW

SUSTAINED GROWTH IN EARNINGS Third consecutive year of earnings growth above 50% Sustained and positive sales volume growth, conservative upfront The 2015 financial year included a number of qualitative and credit scoring and effective collections during the 2015 financial quantitative achievements and significant developments for year enabled Finbond to again report solid earnings growth in Finbond. Revenue from continuing operations increased 60.4% a challenging economic environment. Headline earnings for the to R455.4 million (February 2014: R283.9 million) which drove 2015 financial year amounted to R51.2 million, 53.6% more than operating profit from continuing operations up by 56.6% to R73.4 the R33.7 million earned in 2014, while Net Profit After Tax for the million (February 2014: R46.9 million) and earnings before interest, 2015 financial year amounted to R50.9 million, 37.8% more than taxation, depreciation and amortisation (EBITDA) up by 50.2% to the R36.9 million earned in 2014. Headline earnings per share and R156.7 million (February 2014: R104.3 million). The operating Cost earnings per share have thereby grown to 8.6 cents from 5.6 cents to Income ratio improved again this year to end the financial year at and 6.1 cents respectively at the end of the comparative reporting 64.5% (February 2014: 69.6%). period.

Headline Earnings per share (cents) Revenue from Continuing Operations (R’000)

10.0 550 000 130

8.0 120 450 000

6.0 76 350 000 4.0 42 30 2.0 250 000 2 0 150 000 2013 2014 2015 2013 2014 2015 Cash, cash equivalents and liquid investments Revenue from Continuing Operations

Operating Profit (R’000) EBITDA (R’000)

80 000 175 000 147 150 000 127 60 000 125 000 84 68 40 000 100 000 75 000 14 20 000 21 50 000 0 25 000 2013 2014 2015 2013 2014 2015 Earnings before interest, taxation, Operating profit from continuing operations depreciation and amortisation (EBITDA) Figure 1 Figure 2

Organic Growth based on strong fundamentals During the financial period, the Group was upgraded to an The Finbond Group continued expanding the footprint of the investment grade rating by Global Credit Ratings and Finbond business during the 2015 financial year, opening an additional 86 Mutual Bank was given a clean bill of health in a Section 5 Review of branches nationwide during the period and now operates through the Bank’s corporate governance and risk management structures 286 branches in South-Africa. conducted by Ernst & Young and completed shortly after the year- end. On the Group’s Balance Sheet, Total Assets grew to R1.35 billion from R1.09 billion in 2015, reflecting an increase of R264 million or MICRO CREDIT PORTFOLIO 24.3%. Deposits grew by a further R226 million, which is growth of Loan sales improve 42% 32.4% this financial year, to close the year at R921.9 million, (up from For the twelve months ended February 2015 Finbond granted the comparative financial year’s R695.9 million), while the net loans R765.7 million loans which is 42% greater than last year, and received and advances portfolio grew by 37.8% to R290.7 million (from R211 cash payments of R1.07 billion from customers, 51.4% greater million), net of impairment and unearned income provisions. than last year, (February 2014: R539.3 million of loans granted and

22 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 23 R709.5 million in cash received). The year on year movement in the portfolio includes significant increases in numbers of both New Loan Balance by Product Clients Serviced, to 105 304 (41.1% more than in the year ended February 2014: 74 631), and New Contracts Granted, to 474 109 2014 2015

(52.2% more than in the year ended February 2014: 311 430), which 70 54 + 177 set new record highs for the Group in both measures during the 60 24 + 179 financial year. Loans advanced increased across the full spectrum of products offered, with growth being most heavily concentrated in 50 the one month and mid-term products. 40 30 38 + 61 Loans and Advances per Product 20

10 10 + 3 2014 2015 4 + 0 FIN500 FIN1 FIN2 FIN3 FIN4 250 65 + 94

Millions 70

200 40 + 108 60 150 50 28 + 146 100 40 9 + 15

50 6 + 11 30 20 + 46 0 20 4 + 30

FIN500 FIN1 FIN2 FIN3 14 + 11 10

Millions 0 250 FIN6 FIN12 FIN18 FIN24 200 Figure 4 150 Loan Revenues increase 47% Total segment revenue from Finbond’s Micro Finance activities, 100 18 + 48 made up of interest, fees and insurance income (portfolio yield) 50 increased 41.3% to R370.3 million (February 2014: R262.1 million). 8 + 4 6 + 4 4 + The revenue split by product closely resembles the Loans and 0 Advances and overall gross loan split by product. FIN6 FIN12 FIN18 FIN24 Loan Revenue by Product Figure 3 2014 2015 During the period under review Finbond’s loan product offering remained unchanged consisting of 1-month to 24-month micro 140 loans ranging in amount from R100 – R20 000 with an average loan

120 90 + 108 size of R1 615 (February 2014: R1 732) and an average tenure of 3.6 58 + 130 months (February 2014: 3.31 months). 100

80 48 + 76 The overall gross loan book (excluding unearned finance revenue) reflected another year of strong positive growth totalling 38.0%, 60 ending the twelve month period at R317.6 million (February 2014: 40

R230.1 million). 10 + 7 20 7 + 3 Growth took place across the product range but was most 0 FIN500 FIN1 FIN2 FIN3 FIN4 prevalent in the one-month and mid-range terms as depicted in the breakdown in Figure 4: 140 Millions 120 Given the short term nature of Finbond’s products, Finbond’s loan 100

portfolio is cash flow generative and a good source of internally 45 + 100 generated liquidity. The whole loan portfolio turns nearly 4 times a 80 year. This is a key differentiator from longer term lenders. 60 40 By way of example: If a longer term lender’s average tenure is 36

20 9 + 6 months with a book size of R600 million, that lender will collect R200 4 + 7 4 + 3 million cash per year and R600 million over three years. If Finbond’s 0 book is R600 million, Finbond will collect approximately R2.4 billion FIN6 FIN12 FIN18 FIN24 in cash per year and more than R7.2 billion in cash over three years. Figure 5

24 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 25 Finbond’s average loan period is significantly shorter than our larger loan balance growth during the financial year. Overall impairment competitors and our average loan size significantly smaller. Given provisions increased by over 40.5% compared to gross loans and this conservative approach, Finbond does not have any exposure advances growth of 38.0% during the year. to the 36 – 84 month, R30 000 – R180 000 long term unsecured lending market that saw disproportionate growth over the past Aug 2013 Feb 2014 Aug 2014 Feb 2015 24 – 36 months and that caused significantly increased write offs and bad debts among certain larger industry players recently. Gross loans and advances R’000 177 789 230 124 284 137 317 600 Loans past due (arrears) R’000 38 146 48 798 56 666 61 552 Shorter term loans offer lower risk since consumers are more likely Arrears to gross to pay them back as opposed to longer term loans. Finbond’s loans and advances % 21.5 21.2 19.9 19.4 micro credit portfolio is further also not exposed to any significant Provision for concentration risk and does not have any significant exposure to Doubtful Debts R’000 15 342 19 135 22 994 26 887 Provision for Doubtful any specific employer or industry. Debts to gross loans and advances % 8.6 8.3 8.1 8.5 Provision/Arrears CREDIT SCORING PROCESS coverage ratio % 40.2 39.2 40.6 43.7 Conservative Credit Policy Finbond takes a conservative view when managing credit risk Table 1 which begins at the credit granting stage, prior to the advancement of any cash. Over the past twelve months Finbond continued to Arrears to gross loans and advances % improve on and apply strict upfront credit scoring and affordability criteria. The credit scores on the various products are monitored on 22.0 a monthly basis. 21.5

Detailed affordability calculations continue to be performed prior 21.0 to extending any loans in order to determine whether the client can 20.5 in fact afford the loan repayments. It is a testimony to the strictness 20.0 of the built-in criteria used by Finbond that no tightening of these calculations was required when the National Credit Amendment 19.5 Act became effective on 13 March 2015 because Finbond’s existing 19.0 credit granting process already complied with the newly updated 18.5 affordability calculation requirements. 18.0 2013 2014 2014 2015 Finbond’s lending practices have been consistently conservative Aug Feb Aug Feb over the past number of years. Rejection rates now stand at between 39% and 60% (up from 57% at February 2014) for the 3 – 6 month product range, and they remain at 82% – 94% for the 12 – 24 month Arrears to gross loans and advances % product range at the end of February 2015. Provision/Arrears coverage ratio % % Accepted per Product 100% 45.0 90% 44.0 80% 43.0 70% 42.0 60% 41.0 50% 40.0 40% 39.0 30% 38.0 20% 37.0 10% 36.0 2013 2014 2014 2015 0 Aug Feb Aug Feb FIN500 FIN1 FIN2 FIN3 FIN4 FIN6 FIN12 FIN18 FIN24 Figure 6 Provision/Arrears coverage ratio % Figure 7 IMPAIRMENTS, PROVISIONS AND COLLECTIONS Provisions grow by 40% Coverage ratios increase year on year Notwithstanding an increase in the level of impairments during the Notwithstanding the increase in impairment expense, the Group financial year, conservative lending practices, strict upfront credit further increased credit scores in the final quarter of the year, thereby scoring supported by robust collection strategies and processes tightening credit granting criteria to even stricter levels than the continue to ensure better than industry bad debts. Finbond already high levels previously set. The result is that notwithstanding consistently applied the conservative impairment methodology the increase in impairments, the loan loss reserve, also referred to that has been used in prior financial periods, which allowed as the risk coverage ratio (impairment provision/Portfolio at Risk: 90 growth in impairment provisioning to outpace the overall gross days in arrears and longer), which is an indication of a microfinance

24 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 25 institution’s ability to cope with estimated loan losses, is actually of 80% achieved in the comparative financial year. Management marginally improved at the end of the financial year at 102.7% remains focused on ensuring that growth is not obtained at the (February 2014: 102.5%). This improvement occurred as a direct expense of asset quality according to the mandate received from result of continued, consistent conservative provisioning against the Board. future loan losses undertaken by management. Bad Debt Recoveries grow 17% The 30-day arrears coverage ratio (impairment provision/Portfolio The composition of collections is an important differentiator of at Risk: 30 days in arrears and longer), reflects even greater Finbond from other market participants because the proportion improvement, being recorded at 56.5% at the financial year end, of revenue that consists of bad debts recovered is much higher at which is up from a ratio of 51.5% at the end of the preceding Finbond when compared to other unsecured lenders. This is a factor financial year. of both the overall much shorter term of Finbond’s loan portfolio, as well as the conservative write-off policy that has been in place for LOAN IMPAIRMENT EXPENSE a number of years now. Under this stringent write-off policy, any Finbond recorded a moderate but manageable increase in instalments that have reached 150 days in arrears and have seen impairments in 2015. The overall, unadjusted Net Impairment Loss no payment for at least 90 days are written off regardless of the Ratio reverted to levels similar to those recorded 24 months ago, fact that these customers are often still in a position to service their ending this financial year at 15.2% (February 2014: 12.1%). Finbond’s loans. The subsequent receipts are classified as bad debt recovered. significantly lower, and much more accurate, adjusted loan loss Recoveries as a percentage of bad debts written off were negatively ratios trended similarly during the year with Net Impairment as a impacted by an increase in impairments late in 2014, dropping percentage of expected instalments amounting to 6.9% (February to 35.2% from 54.3% for 2015, however recoveries are expected 2014: 6.3%) and Net Impairment as a percentage of cash received to improve to similar levels achieved in 2013/2014 once the legal (which is more conservative than instalments due) stood at 8.2% collections team have been afforded a reasonable opportunity to at the end of February 2015 (February 2014: 7.3%). These adjusted activate the loans that were written off in the final stages of the measures are a more appropriate reflection of the impairment cost financial period. related to a short-term loan portfolio than traditional balance sheet Feb 2012 Feb 2013 Feb 2014 Feb 2015 ratios. Bad debts written off R’000 36 145 33 864 42 167 75 886 Movement in The best measurement of arrears and impairments on the short Impairment Provisions R’000 1 048 2 706 5 672 7 752 term products is against instalments due and not outstanding Bad Debts recovered R’000 (13 473) (16 744) (22 898) (26 710) balances, because a large part of a short term loan is repaid before Net Impairment Charge R’000 23 719 19 826 24 941 56 928 Recoveries as a month-end/year-end and is therefore not reflected on the balance percentage of Bad Debts % 37.3 49.4 54.3 35.2 sheet. Computations based on the outstanding balance therefore distort this ratio on short term products. Table 2 Bad debt collections therefore represent a significant source of profitability for the Finbond Group as a result of the interplay Impairments by Product between customer behaviour and the conservative write off 2014 2015 policy. Note also that write-offs and arrears are not diminished by significant rescheduling of customer loan contracts under Finbond’s 40 current business model.

35 86 + 155 Collections per Product

30 26 + 168 25 2014 2015 10 + 140 20 400

15 350 38 + 200 10 300 35 + 146 45 + 116 4 + 3 5 3 + 4 250 0 200 FIN500 FIN1 FIN2 FIN3 FIN4 150 25 Millions 100 108 + 30 7 + 18 20 50 5 + 10 15 0 10 FIN500 FIN1 FIN2 FIN3 FIN4 200

5 6 + 3 5 + 2 5 + 2 Millions 32 + 65 0 150 FIN6 FIN12 FIN18 FIN24 100 Figure 8 6 + 4 5 + 2 50 5 + 2 Overall collections rates up 4% 0 FIN6 FIN12 FIN18 FIN24 Aggregate loan collections for the year of R1.07 billion averaged 83% of anticipated receipts, showing improvement over the average Figure 9

26 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 27 WRITE-OFF VINTAGES Individual write-off vintages per product continue to reflect higher write-offs in the longer term loan products. The three longest term loans, being the 12, 18 and 24 month products, with by far the highest rejection rates, make up a relatively small portion of the overall loan portfolio amounting to 17% thereof by value, and only 3% by volume of loans at financial year-end. The write-off vintages for the more prevalent loan products are shown below:

Collections and Deposits further extend surplus cash Finbond has rapidly built up a strong base of loyal deposit customers in a relatively short period of time. The gross loan to deposit ratio of 34% reflects how strictly funding raised has been applied to the credit portfolio, and has resulted in an increased surplus funding position at the financial year end. Finbond’s liquidity position at the

26 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 27 end of February 2015 reflects R197.5 million Cash in Bank (February Many of the levers included in the Capital Plan are similarly easily 2014: R86.9 million). Cash, cash equivalents and liquid investments managed due to Finbond’s relatively small scale and dynamic increased by 13.9% to R570.2 million (February 2014: R500.5 million), management principles, which promote rapid implementation of as Finbond has continued to practice extreme conservatism in its changes within the business once these are approved through the approach to liquidity risk management. appropriate Corporate Governance channels.

Cash Received as a percentage of Cash Granted, for the period The Capital position at 28 February 2015 remains very strong. of March 2014 to February 2015, averaged 140%, reflecting an Finbond Mutual Bank continued to trade well above the minimum improved overall collections performance for the financial year regulatory capital requirement throughout the financial year, over that of the comparative period when an average of 132% was reflecting an excess of qualifying capital amounting to R120.8 million achieved. over and above Finbond’s specific prudential minimum requirement at financial year end, and an excess of R298.1 million over and above By the end of February 2015 the deposit book had grown to the standard DI 400 required minimum for Mutual Banks. R921.9 million from R695.9 million, with an average interest rate of 9.38%, an average term of 26.6 months and an average deposit size Although Finbond as a Mutual Bank is not subject to the Basel III of R338 184. The positive liquidity mismatch inherent in the short- requirements, Finbond Mutual Bank already not only complies term portfolio is evident when the 32.5% increase in the deposit with, but significantly exceeds the key Basel III requirements set for portfolio amounting to R226 million is compared to cumulative cash 2018 and 2019. As at 28 February 2015 Finbond’s: received over the past twelve months amounting to R1.07 billion • liquidity coverage ratio % was 204% (104% more than required (February 2014: R709.5 million), which recorded an increase of from 2019) R364.9 million or 51.4% compared to the comparative year. • net stable funding ratio % was 579% (479% more than required from 2018) Cash Equivalents & Liquid Investments (R’000) • capital adequacy ratio % was 35.1% (25.1% more than required from 2018).

600 000 121

110 PROPERTY INVESTMENTS 450 000 Investment Properties declined by 5% to 18.5% of assets Two independent valuations by professional valuers registered 300 000 with the South African Institute of Valuers were again obtained as at

150 000 2 28 February 2015, as required by IAS 40 and the Group’s accounting 0 policy. The independent valuations revalued Finbond’s property portfolio at R248.8 million (February 2014: R242.6 million). 2013 2014 2015 Cash, cash equivalents and liquid investments The R248.8 million in development properties on Finbond’s Balance Sheet are held as passive, non-strategic long term investments. The intention is to realise a profit over the medium to long term and to Finbond is not exposed to the uncertainty that accompanies the use invest the cash realised into the Micro Finance Business. of corporate call deposits as a funding mechanism since Finbond only accepts 6 – 72 month fixed and indefinite term deposits. Given COST STRUCTURE the long term nature of Finbond’s liabilities (fixed term deposits Third consecutive year of leveraging the cost base with average term of 26.6 months) and short term nature of its The Group has successfully improved the operating Cost to Income assets (short term micro loans with an average term just more ratio for the third consecutive year to 64.5% at the end of the than 3 months), Finbond possesses an unusually low risk liquidity financial year (February 2014: 69.6%). structure as a result of this positive liquidity mismatch.

CAPITAL POSITION Cost to Income Capital position remains firm Finbond Mutual Bank follows a conservative approach to capital 75% management holding a level of capital which supports the business

while also growing its capital base ahead of business requirements. 235 70% 222 Capital Planning is the responsibility of the Board who review and

approve the Capital Plan. The Finance and Risk teams within Finbond 65% 156 Mutual Bank compile the Capital Plan under the supervision of the Chief Financial Officer and Chief Risk Officer who are both members 60% of Finbond’s Executive Committee. The Capital Plan is considered monthly by the Executive Committee and the monitoring, testing and summary thereof are included in the monthly Risk and Finance 55% reports. 50% Finbond’s uncomplicated business model means there are relatively 2013 2014 2015 few demands on Capital. The product range increases throughout Finbond Group’s Five Year Strategic Plan of Action which has been Cost to Income taken into account in the Capital Plan. Figure 10

28 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 29 The improvement in this ratio is particularly pleasing in the light of This growth will continue to be managed prudently and in Finbond’s investment in infrastructure and internal controls over the accordance with the conservative lending practices adopted to past two years. During the period under review we further expanded date, in such a manner as to protect and maintain asset quality our Compliance, Internal Audit, Information Technology, Human which remains paramount at all times regardless of the availability Capital Development and Risk and Analysis Departments in order of liquidity and funding. to effectively manage Finbond Mutual Bank’s Risk Management Framework. The bulk of the increased expenses during the period In the transactional banking arena, Finbond will expand its offering under review relates to increasing capacity and improving risk to selected clients including existing loan customers, diversifying management functions and processes within Finbond Mutual Bank. the revenue streams of the Group and significantly growing transactional volumes from the small base established by the end Finbond continues to manage for the long term and to invest of February 2015 to between 300 000 – 350 000 customers. in people, training, information technology, banking systems, compliance systems as well as in enhanced collection strategies Finbond will continue to consider conservative and sound business and systems, in order to build a sustainable, professional business. opportunities which will enable the diversification of revenue streams at an acceptable risk while improving returns on equity and DIVIDENDS assets. Dividends grow by 62% The Board have declared a gross ordinary dividend of 3.4 cents Finbond’s strong capital position, significant surplus cash, robust per share (2014: 2.1 cents) out of income reserves on 16 April 2015 liquidity and funding profile together with its conservative in respect of the financial year ended 28 February 2015 and is approach to risk management, provide an excellent platform from payable to ordinary shareholders in accordance with the timetable which to expand the business both in adverse market conditions presented on page 77. This is in line with Finbond’s dividend policy and as markets improve. to declare a consistently predictable and stable dividend stream for shareholders annually. My gratitude goes to my colleagues, both my excellent team and my outstanding peers within Finbond, my fellow Directors and Dividends are declared in the currency of the Republic of South the long list of external stakeholders including both investors and Africa. The Directors have confirmed that the company will satisfy regulators who, through their on-going, regular and accomplished the liquidity and solvency requirements immediately after the engagement have assisted us in building a credible and successful payment of the dividend. new South African banking option for our customers, while each making their own significant contributions to my own personal TAXATION development and the growth of the Finbond Group. Finbond Group Limited was able to utilise a large portion (88%) of accumulated assessed losses during the financial year as it generated taxable profits in the Group through its insurance contracts and in the ordinary course of administering the Group, which resulted in a positive cash flow for the Group.

LOOKING AHEAD Finbond will continue to pursue market share growth in the short- Gary Sayers term, unsecured lending market and intends to open a further 40 Chief Financial Officer to 60 additional branches in the next financial year and thereafter approximately 40 branches per year for the next five years. 16 April 2015

28 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 29 GROUP STRUCTURE

Investment Micro Credit Products Property Transactional & & Investment Banking Insurance Deposits

“The best way to predict your future is to create it.”

- Peter F. Drucker -

30 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 31 “Leadership – leadership is about taking responsibility, not making excuses.”

- Mitt Romney -

RISK MANAGEMENT AND CORPORATE GOVERNANCE

Save Invest

Transact Borrow

30 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 31 DIRECTORATE

DR. MALESELA MOTLATLA DR. WILLEM (WILLIE) VAN AARDT GARY SAYERS Independent Non-Executive Chairman Chief Executive Officer Chief Financial Officer [BA (UNISA), Post-Graduate Diploma in Marketing (UNISA), [B Proc (Cum Laude), LLM (UP), LLD (PUCHE), Admitted Attorney [B Com (Hons)(UNP), B Comt (Hons) (Unisa), D Com (Honoris Causa (UNISA)), Diploma in Business Manage- of the High Court of South Africa, QLTT (England and Wales), Chartered Accountant (SA)] ment and further studies through the Wharton School of Business Admitted Solicitor of the Supreme Court of England and Wales] • Gary qualified as a chartered accountant in 1999. (Philadelphia)] • Admitted as an Attorney of the High Court of South • Previously financial manager of Nampak Tissue. • Worked for the South African Breweries (SAB) for Africa in 1996. • Former Chief Financial Officer of Flight Centre South more than 20 years, where his main job functions • Founded Finbond in January 2003. Africa. included marketing and sales management, research, • Doctorate in Public Law through the University of • Former Group Chief Financial Officer of African Alliance business development and training, corporate affairs, Potchefstroom in 2005. based in Mauritius. • Admitted as a Solicitor of the Supreme Court of England management consultancy and employee relations. • 16 years’ post articles experience in Financial Management. and Wales in 2008. • Established the first black business consortium in • Executive directorship of Finbond Group Limited and • Completed International Development Ireland’s “Strategy Finbond Mutual Bank. the Northern Cape region, Malesela Holdings (Pty) in Management and Banking Programme” in Dublin in • Experienced in IFRS financial reporting and throughout Limited, operates in the areas of logistics, health, 2009. his career has gained valuable experience initiating and power and energy and the cleaning industries. • Previously Legal Consultant at Sanlam and Executive improving the regulatory reporting and effectiveness of • Serves on the boards of several JSE listed companies Director and co-founder of Thuthukani Group Limited. teams and operations based in a number of Southern as Chairman. • 18 years’ experience in financial services and micro and East African countries. • Former Chairman of Tshwane University of Technology lending sectors. (TUT).

ROBERT EMSLIE DANIE BRITS ROSETTA XABA Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director [B Com Law, B Com (Hons Acc), CA (SA), Rand Afrikaans University] [B Com, MBA (PUCHE)] [B Comt (UNISA), B Comt (Hons)(UNISA), • Robert did his articles at Brink Roos & du Toit (now part of • Danie gained extensive experience in the Banking and Chartered Accountant (SA)] PWC) between 1980 and 1983. Financial Sector over the past 40 years. • A Chartered Accountant with over 12 years’ experience • Between 1984 to 1987 he was a lecturer at the Rand • He started his career in 1980 as a Manager at Volkskas in External Auditing; Internal Auditing and Financial Afrikaans University. Merchant Bank and was appointed in 1992 as Group Management. • Robert then joined ABSA and between 1987 to 2008 Executive Risk and as Executive Director of ABSA Group • IFRS expert. had a very successful career at ABSA where he inter Limited in 1995. • Rosetta is currently involved in the provision of financial alia served as: a Member of the ABSA Group Executive • Danie inter alia served as: Executive Director and Board management services to the recently established Co- Committee (2004 to 2008), Head of ABSA Corporate and Member ABSA Bank Limited, ABSA Corporate and operative Banks Development Agency (CBDA), which is Business Bank (2005 to 2008), Head of ABSA Africa (2007 Merchant Bank and Bankfin; Member of the ABSA Group responsible for providing a regulatory environment on to 2008), Head of ABSA Corporate and Merchant Bank Limited Executive Committee; Head of ABSA Group deposit-taking financial cooperative institutions. including offshore offices (now ABSA Capital) (2003 to Limited Executive Corporate Bank Division. 2005). • He is currently also serving as: Board Member and • Currently also serving as Board Member and Chairman Chairman of the Audit Committee Barclays Bank of Silverbridge Holdings Limited; Board Member of TUHF Mozambique and Board Member of the National Bank (Pty) Ltd (The Trust for Urban Housing Finance); Board of Tanzania. Member of Ambit Properties; and Board Member of Paramount Property Fund Limited.

Dr. Malesela Motlatla Dr. Willem (Willie) van Aardt Gary Sayers Robert Emslie Danie Brits

32 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 33 ADV. NEVILLE MELVILLE INA WILKEN-JONKER ADV. JASPER NOETH Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director [BA Law, LLB (Natal) LLM (Cum Laude) (Natal), Post Graduate [B Com (Hons) (UNISA), Business Economics] [Dip Iuris (Natal), B Iuris LLB (UNISA), Advocate of the High Court, (QC)] Diploma in Company Direction, Senior Executive Programme • Appointed at Santam Bank in 1967 and held positions • Successful career spanning more than 50 years at the (Harvard Business School), AltX Company Directors’ Induction at the Bank of the Orange Free State, Barclays Bank, First Department of Justice and Debt Collectors Council. (Wits Business School), Advocate of the High Court] National Bank and the SA Consumer Council prior to • Served for ten years as Director-General of the • Neville was the Chief Executive Officer of the South joining Finbond in 2003. Department of Justice also in the Nelson Mandela African Ombudsman for Banking Services for seven • Former Chairman of the Estate Agency Affairs Board Government. years, working alongside various top-flight, experienced and former Chairman of the South African National • During this time he exercised control over a budget of Directors of public companies. Consumer Union. R2.3 billion per annum. • First Executive Director of the Independent Complaints • Appointed to the Debt Collectors’ Council by the Minister • Chief researcher of the Hoexter Commission of Inquiry Directorate and practised as an Advocate at the Durban of Justice in 2007, to the Agricultural Research Council into the Structure and Functioning of the Courts. Bar. by the Minister of Agriculture in 2009, by the Minister • Chairman of the Implementation Committee for the • Former office-bearer in various local and international of Trade and Industry to both the Estate Agency Affairs creation of the Small Claims Courts in South Africa. voluntary associations, including chairperson of the Board in 2010 and the FSB’s FAIS Board. • Member of the Legal Aid Board; the Magistrate’s South African Ombudsman Association. • Was Vice Chairman of the Banking Ombudsman between Commission, the International Bar Association, the • Member of the Financial Service Ombuds Schemes 2000-2010 and the vice-president of the Pretoria Australian Institute of Judicial Administration, the Canadian Council and was the FSB/ court appointed Curator of PIT Chamber of Commerce, the president of International Criminal Justice Association, the Audit Committee of Group of Companies. Training and Communication in Pretoria, and a board the Department of Justice and subsequently also of the • Served as a founder Director of the Co-operative Banks member of the SA Pharmaceutical Council. National Prosecuting Authority. Development Agency (CBDA). • Assisted in and developed various publications dealing • Former Chairperson of the Debt Collectors Council of • Honorary Research Fellow at the University of KwaZulu- with the rights and responsibilities of the consumer. South Africa. Natal. • 45 years’ experience in the financial services, banking • Currently acts as a consultant on various legal matters. • Member of Chartered Institute of Arbitrators, London and consumer protection industries. and Institute of Directors, South Africa. • Was Chief Compliance Officer at Finbond up to her retire- • Adv. Melville is currently also the Chief Executive Officer ment in 2013, whereafter she became Non-Executive of the Consumer Goods and Services Ombud of South Director. Africa. • Acts as Consumer Consultant to Finbond Mutual Bank.

“Become the kind of leader that people follow voluntarily, even if you had no title or position.”

- Brian Tracy -

Rosetta Xaba Adv. Neville Melville Ina Wilken-Jonker Adv. Jasper Noeth

32 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 33 INTERNAL AUDIT

The internal audit function reports functionally to the Audit • the reliability, integrity, accuracy, completeness and Committee and administratively to the Chief Executive Officer. timeliness of financial and management information.

The primary objective of the internal audit function is to ensure that SCOPE OF INTERNAL AUDIT adequate measures and procedures are in place for an adequate, The Internal Audit department annually submits a coverage plan, effective, efficient and economic internal control environment. that encompasses the entire business of the organisation, to the Internal Audit submits assessments to the Audit Committee on the Audit Committee for approval. system of internal controls. The Internal Audit function also fulfills the requirements of Regulation 48 of the Banks Act as enforced During risk-based reviews, emphasis is placed on the adequacy by the South African Reserve Bank. The Internal Audit Charter and effectiveness of the control environment as part of Internal approved by the Audit Committee defines the purpose, authority Audit’s assurance function. Control deficiencies that are detected and responsibility of the internal audit activity and is consistent with are referred to management for corrective actions. The extent to the standards of the Institute of Internal Auditors and Regulation which recommendations emanating from internal audit reviews 48 of the Banks Act No 94 of 1990. have been implemented is measured continuously.

ROLE AND FUNCTION OF INTERNAL AUDIT A high-level depiction of the combined assurance model is illustrated Internal audit focuses on adding value to the operations of the below: Group as part of its combined assurance model, by examining and reviewing, amongst others, the following: • the adequacy and effectiveness of the Bank’s internal control First line of defence: i.e. systems; divisional management • the application and effectiveness of the Bank’s risk Strategic risk Second line of defence: management procedures and risk assessment methodologies; Risk and legal based • the accuracy and reliability of the Bank’s accounting records register assurance, i.e. FRM and financial reports; Third line of defence: Independent assurance, • the manner and means in terms of which the Bank safeguards i.e. Internal, External Audit its assets; • the systems and processes established by the Bank in order to ensure compliance with any relevant legal and regulatory COMBINED ASSURANCE requirements, codes of conduct and the implementation of policies and procedures; • the Bank’s compliance with policies and risk controls; and Finbond Combined Assurance Model

“Details matter, it’s worth waiting to get it right.”

- Steve Jobs -

34 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 35 COMPLIANCE

In line with Regulation 49 of the Banks Act No 94 of 1990 and level of compliance within the organisation (the Bank’s Act) Finbond Mutual Bank has a well-integrated, • The effective reporting of the results of compliance monitoring dedicated and independent compliance function as part of its • The quick and effective resolution of compliance issues risk management framework and corporate governance structure • The ability of the compliance function to function inde- managing the Bank’s compliance risk. pendently in terms of Regulation 49 • Enabling the Compliance Officer to have easy access to top Compliance risk is defined as the current and prospective risk of management and all areas of the business damage to the Bank’s business objectives, reputation and financial • The promotion of the desired compliance culture soundness arising from non-adherence to Legal or Regulatory • The avoidance of any conflict of interest requirements, Codes of Conduct and Standards of Good Practice • Adherence to any specific relevant regulatory requirements. applicable to its business. The Board of Directors of the Bank, together with senior The Compliance Universe of the Bank comprises all the statutory management have ultimate responsibility for understanding and and regulatory requirements of relevant legislation, regulations overseeing the management of Compliance Risk across the Bank. and industry codes applicable to Finbond’s business and sound management of the Bank. The compliance risk is managed through The primary role of the Compliance Function is to assist senior and internal policies and processes which include the aforementioned executive management with effectively managing the compliance relevant legislation, regulations and business-specific requirements. risks faced by the Bank.

Compliance Monitoring Officers, Internal Audit and Area Managers The Compliance Function works closely with operational units independently monitor the business units and branches in the to ensure consistent management of Compliance Risk. Through regions to ensure compliance with all policies and procedures. the Finbond “Code of Conduct and Policy Manual”, “Training Regular training and advice is conducted with employees to ensure Manual” and monthly compliance articles in the Finbond Compass adherence to all compliance obligations. Newsletter, employees are made aware of the most pertinent compliance-related policies and behaviours expected of all The Finbond Mutual Bank Compliance Governance Structure is employees. in line with the Generally Accepted Compliance Practice (GACP) framework of the Compliance Institute of South Africa. The GACP In accordance with the prescriptions of Regulation 49, the Head incorporates sound practices recommended inter alia by the Basel of Compliance reports directly to the Audit Committee and Chief Committee on Banking Supervision and the King III Report on Executive Officer of the Bank. RegulationA 49 Compliance report Corporate Governance. is submitted to the Audit Committee, the Board of Directors and the Bank Supervision Department of the South African Reserve This structure facilitates the achievement of the following key Bank on a quarterly basis. For the period under review, the objectives: Compliance Reports indicated a good level of compliance by the • Top management’s awareness of the regulatory requirements Bank to statutory and regulatory requirements and the events of applicable to the organisation non-compliance listed were all non-material and either rectified • Top management’s understanding of the compliance framework effectively and timeously, or are in the process of being rectified. • Top management’s ability to assess and understand the status

“Be a yardstick of quality. Some people aren’t used to an environment where excellence is expected.”

- Steve Jobs -

34 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 35 REGULATION

Finbond Mutual Bank has a good, transparent and trusting • The Income Tax Act No 58 of 1962, relationship with its regulators which include the Bank Supervision • The VAT Act No 89 of 1991, and Department of the South African Reserve Bank, the National Credit • The JSE Listings Requirements. Regulator, the Financial Services Board, the Johannesburg Stock Exchange and the Financial Intelligence Centre. During the period under review, there were no sanctions or penalties issued against the Bank as a result of non-compliance. To ensure that the Bank maintains high levels of compliance, the Bank is a member of the Banking Association of South Africa and in The regulatory landscape in the financial services industry is order to ensure participation in the national payments system, the characterised by constant change, amendments to existing Bank is also a member of the Payment Association of South Africa. regulatory and policy-related requirements and the introduction of new requirements. New legislation that will have an impact on In terms of Finbond’s Regulatory Universe the following legislation the Bank includes The Protection of Personal Information Act No and Regulations form the basis and main focus of the independent 4 of 2013, The Financial Advisory and Intermediary Services Act compliance function and management system activities of Finbond No 37 of 2002, the new FIC Amendment Bill, Treating Customers Mutual Bank: Fairly Outcomes, and The Foreign Account Tax Compliance Act. • The Mutual Banks Act No 124 of 1993 and its Regulations, • The Banks Act No 94 of 1990 and its Regulations, To understand and assess the impact of these changes and • The National Credit Act No 34 of 2005, amendments on the business and the way the Bank conducts • The Basic Conditions of Employment Act No 75 of 1997, business, Finbond utilises the Finbond Regulatory Compliance Model (“FRCM”) as depicted below: • The Labour Relations Act No 66 of 1995, • The Financial Advisory and Intermediary Services Act No 37 of Responsibilities and obligations imposed by new legislation 2002, together with the Treating Customers Fairly Outcomes, are assessed, based on all the identified risk components, and • The Protection of Constitutional Democracy Against Terrorist remediation-related controls are developed and implemented to and Related Activities Act No 33 of 2004, mitigate the assessed risk. • The Financial Intelligence Centre Act No 38 of 2001, Finbond Mutual Bank recognises its accountability to all its • The Consumer Protection Act No 68 of 2008, stakeholders under the legal and regulatory requirements • The Protection of Personal Information Act No 4 of 2013, applicable to its business and is committed to high standards, • The Foreign Account Tax Compliance Act, integrity and fair dealing in the conduct of its business. • The National Payment System Act No 78 of 1998, Finbond is ultimately committed to comply with both the spirit and • The Occupational Health and Safety Act No 85 of 1993, the letter of applicable legislation and requirements and to always • The Companies Act No 71 of 2008, act with due care, skill and diligence.

Finbond Regulatory Compliance Model (“FRCM”)

36 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 37 RISK MANAGEMENT FRAMEWORK

1. Risk Management Framework • providing strategic leadership and guidance; • reviewing and approving annual budgets and forecasts; and a) Approach • regularly reviewing and monitoring the Group’s risk performance through detailed monthly Management Information Packs, Finbond’s approach to risk management is based on well-established Monthly Risk Management Reports and Quarterly Board Reports. governance processes and relies on both individual responsibility and collective oversight, supported by comprehensive reporting. The Board delegates the determination of risk appetite to the Executive and Risk Committees and ensures that risk appetite is in This approach balances strong corporate oversight at executive line with Group strategy and the Group’s desired balance between management level, beginning with proactive participation by the risk and reward. Chief Executive Officer and the Executive Committee in all significant risk matters, with risk management structures, supporting policies, procedures and processes within all regional and divisional business units enabling risk assessment in a controlled environment. Risk management is seen as the responsibility of each and every employee. Risk Appetite b) Governance Strategic Leadership

Risk RISK FRAMEWORK Monitoring Governance

FINBOND BOARD Risk Appetite Framework

d) Stress Testing Stress tests are used in proactively managing the Group’s risk Executive Committee Risk Committee Remuneration Audit Social and Ethics profile, capital, liquidity, strategic business planning and setting of (RISCO) Committee Committee Committee (EXCO) capital buffers. Stress testing is an integral component of Finbond’s internal capital adequacy assessment process (ICAAP), and is used to assess and manage the adequacy of regulatory and economic

Asset & Liability Bank Information capital. Operational Finance & Taxation Committee Credit Committee Technology Committee Committee (OPCO) Committee (ALCO) (BITCO) Stress testing may reveal a reduction in surplus capital or a shortfall Finbond Governance in capital under specific scenarios. This may then serve as a leading indicator to the Group to raise additional capital, reduce capital The various committees’ areas of responsibility, objectives, outflows, adjust the capital structure and/or reduce its risk appetite. members and meeting frequency are set out in the Committee Charters, as summarised in the Corporate Governance Section on The outcome of stress testing on earnings, liquidity, and capital pages 48 to 50. adequacy is considered in determining an appropriate risk appetite to ensure that these remain above the Group’s minimum capital The independent Risk and Analysis department is responsible requirements. for the implementation and management of the Finbond Risk Management Framework that includes the identification, Management further also reviews the outcome of stress tests and, measurement, monitoring, reporting and mitigating of all risks. where necessary, determines appropriate mitigating actions to Findings are immediately communicated to the relevant business minimise and manage the risks induced by potential stresses. unit and escalated through the Chief Risk Officer’s membership of the Risk Committee and Executive Committee and Executive Examples of potential mitigating actions include reviewing and subcommittees; the Credit Committee and the Asset and Liability changing risk limits, increasing credit scores, limiting exposures to Committee. certain longer term product ranges and only selling 30 to 120 day products in certain branches. c) Risk Appetite The objective of stress testing is to support a number of value- Risk appetite is the maximum level of residual risk that Finbond is added business processes that include: prepared to accept to deliver its business objectives. • assessment of potential changes in the risk profile and monitoring of risk appetite; The Board establishes Finbond’s parameters for risk appetite by: • strategic planning and budgeting;

36 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 37 • capital planning and liquidity management, including setting The various risks that Finbond is exposed to are listed in the capital buffers; Finbond Risk Barometer (“FRB”) and Finbond Risk Register (“FRR”). The • communication with internal and external stakeholders; biggest risks reside in credit extension, liquidity and operations and • the assessment of the impact of stresses on headline earnings; therefore emphasis is placed on these three areas. and • Ad hoc assessment of the impact of changes in short-term b) Risk Measurement macro-economic factors on the performance of the Bank. In terms of the Finbond Risk Barometer the various risks are On a bi-annual basis Finbond performs stress tests across all major allocated a risk colour at time of measurement: risk types based on a number of scenarios, each with different levels Blue: No risk of severity. The outcome of these stress tests serve as an indicator, Green: Low to Medium Risk that is manageable as to whether or not, Finbond remains within its risk tolerance levels Orange: Medium to High Risk that is difficult to manage under the various scenarios. Red: High Risk that cannot be managed e) Bankers Algorithm The Finbond Risk Register monitors key risk variables against The Finbond Bankers’ Algorithm is used to proactively manage the predetermined limits to assign a risk status (green, amber or red) to Bank’s risk profile, capital liquidity, strategic business planning, and a specific risk category and risk subcategory. setting of capital buffers. Green: Risk is within acceptable risk limit Orange: Risk is approaching breach of risk limit The Finbond Bankers’ Algorithm is a resource allocation and Red: Risk limit have been breached and requires deadlock avoidance algorithm that tests for safety by simulating the allocation of predetermined maximum possible amounts of all action resources over a one to five year period, and then makes a “safe- state check” to test for possible deadlock conditions for all other c) Risk Monitoring pending activities, before deciding whether allocation should be The various risks that Finbond is exposed to are continuously allowed to continue. monitored on at least a monthly basis and considered by the Executive Committee and Risk Committee that updates the The algorithm avoids deadlock by denying or postponing a resource FRB and FRR. Detailed reports are generated as part of the request if it determines that accepting the request could put the monthly Management Information Pack (“MIP”) and monthly Risk bank in an unsafe state (one where deadlock could occur). Management Report (“RMR”) to enable monitoring of all risk levels.

2. Risk Identification, Measurement, Monitoring, The specific risk relating to the Asset and Liability Committee and Reporting and Mitigation the Credit Committee are also monitored at each of their meetings. Formal Risk Assessments and Stress Tests are conducted at least bi- annually.

d) Risk Reporting

Risk Identification The various risks that Finbond is exposed to are reported in the FRB and FRR that is included in the MIP and RMR, the MIP is distributed to all Executive Directors, Non-Executive Directors, the Internal Auditor, the External Auditors KPMG INC, the Executive Committee, the Operational Committee, the Asset and Liability Committee and Risk Mitigation Risk Measurement the Credit Committee within 10 days after month end.

Risk Management Process The independent Risk and Analysis department immediately reports any adverse findings to senior management and the relevant business units or regions. The Risk and Analysis department also produces a monthly Risk Management Report (“RMR”) that is distributed to all the members of the Risk Committee, the Executive Risk Reporting Risk Monitoring Committee, the Asset and Liability committee and the Credit Committee.

e) Risk Mitigation

Risk Management Process Risk management and reduction is at the core of the operating structure of the Group. The various risks that Finbond is exposed a) Risk Identification to are mitigated through various internal business processes and policies as set out in the Finbond Policy Manual (“FPM”). Risk identification is the first step in the proactive risk management process. It provides the opportunities, indicators, and information Existing controls and policies are assessed and if necessary adjusted that allow the organisation to raise major risks before they adversely and updated. affect the Group or the Bank.

38 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 39 3. Risk Categories Monthly Codix Declines to Historic Declines Rates

100% Credit 80% Risk Market Other 60% Risk Risks 18 + 16 17 40% 8 + 4 5

20% 3 + 2

Operational 0% Risk FIN500 FIN1 FIN2 Fraud Enterprise Risk FIN500 FIN1 FIN2

Dec-14 4.40% 12.58% 27.57% Jan-15 4.59% 11.97% 27.52% Liquidity Business Risk Feb-15 4.76% 10.91% 26.72% Risk Reputational Historical 5.16% 12.52% 28.47% Risk Market 54.36% 54.36% 54.36%

Enterprise Risk Types 100%

a) Credit Risk 80% 38 + 36 37 Credit Risk is the Bank’s most material risk and can be defined as 60% the risk of loss arising from the failure of a client or counterparty to fulfil its financial and or contractual obligations to the Bank. The 40% 22 + 20 21

credit risk that the Bank faces arises mainly from consumer loans 12 + 10 11 and advances. The adjacent present decline rates from the credit 20% scorecard. 0% FIN3 FIN4 FIN6 Credit Risk related to the investment of surplus cash with banks and Fixed Income funds is managed by the Asset and Liability FIN3 FIN4 FIN6 Committee that proposes a list of counter parties and related limits Dec-14 31.31% 46.14% 67.16% for approval by the Credit Committee. Jan-15 31.24% 45.95% 66.82% Given that Credit Risk is the most material risk considerable Feb-15 30.77% 45.85% 67.22% resources are dedicated to control credit risk effectively within the Finbond Credit Risk Control Framework. The Finbond Credit Policy Historical 29.43% 43.07% 62.40% sets out the principles under which the Group and the Bank are Market 54.36% 54.36% 54.36% prepared to assume credit risk.

Credit risk management is overseen by the Credit Committee as 54 + 59 58 100% 52 + 57 56 subcommittee of the Executive Committee. The credit committee meets at least monthly to evaluate the activities of the credit 80% 42 + 47 46 division and operations, new business, results, arrears, provisioning, regulatory compliance and any potential amendment to the Credit 60% Policy or Credit Scores. 40% i) Credit Risk Appetite and Credit Policies Finbond’s strategy does not entail the elimination of credit risk 20% but rather to take on credit risk in a well-controlled, planned and 0% targeted manner pursuant to its business objectives. Its approach FIN12 FIN18 FIN24 to measuring credit risk is therefore designed to ensure that it can be assessed accurately, and that relevant, timely and accurate FIN12 FIN18 FIN24

credit risk information is available both at an operational and a Dec-14 81.23% 86.85% 93.56% strategic level at all times. Jan-15 80.86% 86.71% 93.29% At a strategic level, the Bank seeks to manage its credit risk profile Feb-15 80.84% 86.44% 93.07% within the constraints of its overall risk appetite and to structure its portfolio so that it provides optimal returns for the level of risk Historical 82.04% 87.56% 93.73% taken. Finbond seeks to achieve an appropriate balance between Market 54.36% 54.36% 54.36% risk and reward, and continue to build and enhance credit risk management capabilities that assist in delivering growth in a controlled environment. Score Decline Rates

38 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 39 Finbond’s Credit Risk appetite and credit risk framework is iv) Credit Concentration Risk defined by the Finbond Credit Policy and Finbond Upfront Finbond employs an internal economic capital model and stress Credit Scoring Rules as approved by the Executive Committee tests to adequately measure concentration risk. Concentration and Credit Committee from time to time. Policy changes are risk is managed on a centralised basis through the monitoring recommended to the Credit Committee as and when required. of exposures at Executive Committee, Asset and Liability The Credit committee reviews the various policies at least Committee, Operational Committee and Credit Committee quarterly. Finbond’s Upfront Credit Scoring Rules and Credit Risk level. The measurement methodology for concentration risk is Management Model are continually adjusted to maintain and also commensurate with the complexity/simplicity of the Bank’s improve levels of arrears in a volatile and changing economic business and the environment in which we operate. climate. v) Credit Control and Loss Recovery ii) Sector and geographic exposures With regards to Daily Collections and Early Stage Collections Finbond’s Micro Credit Portfolio is comprised of a large number of Finbond primarily makes use of the Early Debit Order Platform in customers with small short terms loans (45 000), dispersed across the form of AEDO (Authenticated Early Debit Order) facilitated by different geographical areas, different sectors and different LSM Altech Nupay. NuPay AEDO (Authenticated Early Debit Order) is a 1 – 7 groups. terminal based solution which enables a merchant to load future Sector and geographic concentration risk are monitored on a dated, irreversible transactions on a 3rd party’s account. monthly basis through Portfolio Analysis, Detailed Vintage Curves and Loan Spread per Sector Reports. The basic functionality of the NuPay system is to provide a facility whereby a credit provider can process an electronic transaction to iii) Risk acceptance and monitoring of credit risk transfer funds from a client‘s account to his own, similar to what The Credit Risk Control Framework provides a structure within is currently being done with credit and debit card transactions at which credit risk is managed and for which compulsory credit retail outlets. The difference is that, unlike real time transactions, policies are prescribed. These policies are approved by the these transactions will be processed at a later date. Executive Committee and Credit Committee. The collections method involves client authenticated debit order Finbond has implemented a robust Credit Scoring and approval authorisation, through card and PIN verification of the client’s process in line with Finbond’s Credit Policy that makes use of account. A further advantage of the Early Debit Order platform Compuscan’s Compuscore and Codix Upfront Credit Scoring is a tracking facility which tracks the availability of funds in client as well as affordability assessments for each client. The credit accounts for a period of time determined by the user (for instance acceptance decision is based on the applicant’s: start tracking from pay date to three days thereafter). Once the • Behaviour (willingness to pay): debit order is received via BankServ the funds are transferred The willingness to pay is established externally by enquiries directly into a Finbond bank account. performed and credit bureau-related policy rules. This

information is supplemented internally and fraud checks are In case of an initial default by the client, Finbond uses internal and included; external call centre based “soft collection centres” for remedial • Ability to pay: collections. This environment is governed by the Excalibur The ability to pay is assessed after authentication and cap- Collections Call Centre Management System as facilitated by turing of income, expenditure and financial obligation Futuresoft. information, as prescribed by the National Credit Act; and • Source of payment: Legal collections takes the form of matters which are handed The source of payment is established from the salary over to various External Debt Collection agents (“EDC’s”), who slip details, bank statement and again when confirming are responsible for tracing the debtors, facilitating payment employment. arrangement and, if deemed necessary, take legal action (in the Credit Risk is actively monitored on a daily, weekly and monthly form of obtaining emoluments attachment orders). The EDC’s basis through inter alia: are managed in terms of mandates and their performance are • Maximum Exposure to Credit Risk Reports; reviewed monthly. These agents, the handed-over-accounts • Revenue, Asset and Cash Analysis; database and recoveries are managed by the Finbond Collections department. • Loan Balance Analysis; • Portfolio Analysis; a) Provisions and Impairments • Vintage Curves; The Group reviews its loan portfolios to assess impairment • Write Off and Bad Debt Vintages; on a monthly basis. In determining whether an impairment • Net Impairment Loss Ratios; loss should be recorded in the income statement, the Group • Portfolio at Risk (PAR 30 and PAR 90); makes judgements as to whether there is any observable • Risk Coverage Ratios (RCR30 and RCR 90); data indicating that there is a measurable decrease in the • Roll Rate Analysis; and estimated future cash flows from a portfolio of loans (known • Arrears Dashboards. as loss events), before the decrease can be identified with an individual loan in that portfolio. This evidence may include Arrears are actively monitored to ensure operational efficiency by observable data indicating that there has been an adverse identifying changes in trends and variances from tolerance levels. change in the payment status of borrowers in a group, a Arrears percentages are reported monthly and are evaluated on breach of contract such as a default or delinquency in payment product, regional, operational (provincial) manager and national for an individual borrower, or local economic conditions that levels. Branch performance and targets include arrears targets, correlate with defaults on assets in that group. appropriately balanced with sales and profit targets.

40 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 41 Management uses estimates based on industry trends as • ensure a structurally sound statement of financial position; well as historical loss experience for assets with similar credit • manage short- and long-term cash flow; risk characteristics for both identified impairment as well as • preserve a diversified funding base; incurred but unidentified impairment. The methodology and • undertake regular liquidity stress testing and scenario assumptions used for estimating both the amount and timing analysis; and of future cash flows are reviewed regularly to reduce any • maintain adequate contingency funding. differences between loss estimates and actual loss experience. In managing liquidity risk, cognisance is taken of business-as- b) Liquidity Risk usual liquidity conditions, stress liquidity scenarios, liquidity risk Liquidity risk is the risk that Finbond is unable to meet its guidelines and limits. Liquidity risk is managed by maintaining payment obligations when they fall due and to replace funds sufficient liquid assets or assets that can be translated into liquid when they are withdrawn, the consequence of which may be assets at short notice and without capital loss to meet cash flow the failure to meet obligations to repay depositors and fulfil requirement. commitments to lend. Asset Liability and Capital Management are monitored by Liquidity risk refers to a bank’s inability to continue operating the Chief Executive Officer, Chief Financial Officer, Chief Risk as a going concern due to a lack of funding. This type of event Officer, Chief Operating Officer, EXCO and ALCO through: may arise where counterparties who provide the bank with • Daily cash balance analysis, weekly and monthly analysis and funding withdraw or do not roll over that funding, or as a result stress testing and cash monitoring as set out in the Finbond of a generalised disruption in asset markets which results in Cash Management page in the monthly MI Pack setting normally liquid assets becoming illiquid. out detail of cash and cash equivalents available, free cash for growth, cash collateral, working capital cash, cash stock, The appropriate and efficient management of liquidity is of overdraft facilities, micro credit operational weekly cash utmost importance to Finbond in ensuring the confidence of sweepings and net micro credit operational cash flows; the financial markets and to support the Finbond business • Monitoring non-operating cash flow specific to funding plan. The efficient management of liquidity risk is further liabilities (both capital and interest) in cash flow statements essential in order to ensure that: that are updated monthly; • all stakeholders in the Bank are protected; and • Asset and liabilities matching through the maturity ladder; • Liquidity risk is managed in line with regulatory liquidity • Treasury desk deposit book maturity analysis; requirements. Finbond operates an uncomplicated liquidity • Deposit concentration analysis; profile with a preference for long-term funding at interest • Minimum liquid asset and reserve balance compliance rates aligned with the structure of the asset book. The reports; management of liquidity risk takes preference over the • Progress on funding initiative reports; optimisation of interest rate risk. • Stressed cash flow forecast; and • Bankers’ Algorithm. Asset and Liability Matching (Outstanding Maturity) Liquidity Cover ratio (LCR) Weighted Average 61-72 mth Outstanding Deposit Term: The LCR builds on traditional liquidity “coverage ratio” metho- 49-60 mth 26.61 months dologies used internally by banks to assess exposure to contingent liquidity events. The total net cash outflows for the scenario are to 37-48 mth Weighted Average Outstanding Loan Term: be calculated for 30 calendar days into the future. The standard 25-36 mth 4.58 months requires that, absent a situation of financial stress, the value of the 13-24 mth ratio be no lower than 100% on an ongoing basis because the stock 7-12 mth of unencumbered HQLA is intended to serve as a defence against 0-6 mth the potential onset of liquidity stress. The table below presents -230 000 000 -130 000 000 -30 000 000 70 000 000 Finbond’s LCR.

Multiple of 30 Days 2019 Deposits LCR Liquid Assets Required outflows Requirement Asset and liability matching (Outstanding Maturity) Ratio LCR: Liquidity i) Liquidity risk management, measurement Coverage 62 438 246 30 666 623 >100% 2.036 and monitoring Ratio The Assets and Liabilities Committee (ALCO) is responsible for the management of liquidity risk. ALCO meets monthly to Basel III Liquidity Measures - Liquidity Coverage Ratio consider the activities of the treasury desk which operates in terms of an approved Asset and Liability (ALM) policy and in Net Stable Funding ratio (NSFR) line with approved limits. The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal In managing liquidity risk, Finbond aims to maintain a balance to at least 100% on an ongoing basis. “Available stable funding” is between liquidity and profitability in order to effectively defined as the portion of capital and liabilities expected to be reliable manage liquidity risk, the Group and the Bank is required to: over the time horizon considered by the NSFR, which extends to one • maintain a sufficiently large liquidity buffer; year. Finbond’s NSFR is presented in the following table.

40 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 41 unforeseen interruption to cash flow; Multiple of Stable Total Long 2018 NSFR Required • Actively pursuing medium and long term funding Funding Term Assets Requirement Ratio opportunities to fund the budgeted growth opportunities of the Bank (in line with the preference for long-term Net Stable fixed-term funding) in order to achieve an optimal Funding 1 438 488 960 248 251 289 >100% 5. 794 Ratio funding profile and sound liquidity risk management; • Offering retail fixed term deposits with a term between Basel III Liquidity Measures -Net Stable Funding Ratio 6 and 72 months appropriate for clients who want to benefit from the higher deposit rates offered; and ii) Principal Policies and Products • The monitoring and managing of liquidity costs and Given the long term nature of liabilities versus the short average cost of funding. term nature of assets Finbond possesses a low risk liquidity structure. Finbond is not exposed to the uncertainty that iv) Liquidity stress testing and scenario analysis accompanies the use of corporate call deposits as funding ALCO reviews liquidity scenario analysis and stress testing on mechanism and Finbond’s average deposit (liability) is a regular basis in order to assess the adequacy of the Bank’s approximately 27 months while Finbond’s asset structure funding sources, liquidity buffers and contingency funding (loan book) is short term in nature with an average term of strategies to meet unexpected outflows arising from Finbond 3 months. The principle risk management policies governing specific, systemic and market stress events. the management of liquidity risk as set out in the ALM policy are as follows: Concentration risk limits are used to ensure a wide • Wholesale deposit funding is limited to fixed term diversification by provider, product and term. Limits are set contractual maturities of 6 months to 72 months. internally to restrict single and top ten depositor exposures • Surplus short term retail funding is maintained in call to below 10% for a single depositor and 20% for the top ten accounts with AAA rated South African Banks or Fixed depositors of funding related liabilities respectively. Income Unit Trusts operated by large reputable South African Asset Managers, Treasury Bills issued by the v) Deposit Management South African Treasury and South African Reserve Bank Given that Finbond only has fixed term funding of between debentures. 6 and 72 months, efforts are directed towards giving clients • Adequate liquid assets are maintained in terms of the excellent service in order for new clients to continue to invest Mutual Banks Act Regulations to fund the liquid asset and for old clients to re-invest with Finbond on maturity. requirement and reserve account and to maintain Given that Finbond is mainly funded through fixed term retail collateral for clearing balances on the South African Multi deposits with different maturities there is no significant roll- Settlement Option System (SAMOS) account. over risk. Interest rates are reviewed monthly to ensure that • Treasury’s use of interbank facilities is restricted in line deposit rates remain competitive and appropriate. Deposit with specified EXCO and ALCO approved limits. rates are advertised nationally in the print media and on selected radio stations in order to attract deposits. iii) Business-as-usual liquidity risk management Business-as-usual liquidity management refers to the Reinvestment Rate management of the Bank’s inward and outward cash flows experienced in the ordinary course of conducting business. 20 000 150% 15 000 100% The business-as-usual environment tends to result in fairly Thousands 10 000 high probability, low severity liquidity events and requires 5 000 50% 9 365 16 404 14 956 17 151 25 097 12 053 10 421 16 272 10 709 19 792 13 252 16 722 the balancing of the Bank’s day-to-day cash needs. Finbond’s - approach to managing business-as-usual liquidity needs 0% -5 000 focuses on a number of key areas including: -24 829 -23 107 -22 018 -37 927 -18 603 -11 978 -13 949 -18 215 -15 559 -27 891 -25 467 -32 197 • Forecasting daily cash requirements. This is achieved by -10 000 -50% forecasting liquidity commitments which are considered -15 000 -100% as day to day flows and those that relate to large singular -20 000 obligations; -25 000 -150% • Analysing and forecasting the growth in the loan book, inflows from settlements adjusted for expected default Jul-14 Jan-15 Jun-14 Oct-14 Apr-14 Feb-15 Sep-14 Mar-14 Dec-14 Nov-14 Aug-14 as well as expected inflows and outflows in terms of May-14 Finbond’s funding program of retail fixed deposits and periodic commitments such as dividend or tax payments; Maturities • The active daily management of the funding and liquidity Re-Investments profile taking cognisance of historic cash flow patterns to determine business as usual cash flow requirements vi) Diversified funding base including cash stress points in any given month. The Although Finbond employs a diversified funding strategy, modelling is adjusted for seasonal variations based on sourcing funding lines in the domestic and offshore markets historical experience adjusted for expectations around Finbond’s main focus and source of funding is retail deposit projected growth and current market dynamics; funding that is limited to fixed term contractual maturities • The maintenance of a portfolio of highly liquid assets that of 6 months to 72 months. As at the end of February 2015 can easily be liquidated to meet unexpected variances the deposit portfolio consisted of 2 667 depositors with an in forecast requirements as protection against any average deposit size of R338 184.

42 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 43 Number of Depositors The Committee is comprised of the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Chief 3 000 Operating Officer and all Regional General Managers and 2702 2710 2667 2661 2606

2548 Heads of Departments. The Heads of Internal Audit and 2489 2412 2 500 2335 Compliance provide independent monitoring and are invited 2269 2198 2112 2087 2019 to attend OPCO meetings. 2 000 i) Day to Day Operational Risk Management 1 500 The management of operating risk is inherent in the day to 1 000 day execution of duties by management and is the central element of all management processes within Finbond. Line 500 management accepts accountability and responsibility for the identification, management, measurement, monitoring, 0 reporting and mitigation of operational risks.

ii) Insurance program Jul-13 Jul-14 Jan-14 Jan-15 Jun-13 Oct-13 Apr-15 Jun-14 Oct-14 Feb-14 Sep-13 Feb-15 Mar-15 Dec-13 Sep-14 Nov-13 Dec-14 Aug-13 Nov-14 May-13 Aug-14 May-14 A comprehensive insurance program is maintained to cover losses from loss of key personnel, professional liability claims, damage to physical assets and theft of certain assets. Cash Average Deposit Size losses in branches and opportunity cost of lost revenue are not 350 000 insured. 345 000 340 000 338 184 iii) Fraud prevention 331 209 331 574

335 000 329 813 328 017

327 771 A zero tolerance approach is followed with respect to fraud, 330 000 325 515 theft and dishonesty. Information regarding any irregularities 325 000 320 000 335 779 received from employees, management or the independent 329 651 329 058

327 436 fraud hotline are immediately investigated by internal audit 315 000 326 241 326 962 310 000 323 848 and referred to the police’s commercial crimes unit. 305 000 300 000 iv) Information Technology Systems 295 000 All banking systems, credit scoring systems and loan 290 000 management systems (including mission critical systems) are outsourced to reputable external service providers. Jul-13 Jul-14 Jan-14 Jan-15 Jun-13 Oct-13 Apr-15 Jun-14 Oct-14 Feb-14 Sep-13 Feb-15 Mar-15 Dec-13 Sep-14 Nov-13 Dec-14 Aug-13 Nov-14 May-13 Aug-14 May-14 These relationships are formalised by way of Service Delivery Agreements. All incidences of downtime are recorded. c) Operational Risk Operational risk arises from the potential that inadequate The core banking systems of Finbond Mutual Bank are supplied management, information systems, operational problems, by and contracted out to BankServAfrica’s subsidiary BSVA breaches of internal controls, fraud or unforeseen catastrophes Integrated Services (previously EMID Technologies) that has will result in unexpected losses. both the ISO 9001:2007 and ISAE 3402* (SAS70) accreditations.

Operational risk is associated with human error, system failures The BSVA Integrated Services (EMID) information technology and inadequate procedures and controls. Operational risk principles and systems implemented by Finbond Mutual exists in all products and business activities. Operational risk Bank are appropriate for the business activities of the Bank. event types that have the potential to result in substantial BSVA Integrated Services (EMID) currently provides systems losses include Internal fraud, External fraud, employment and technology to inter alia the following banks and financial practices, workplace safety, clients, products and business services groups in the SA banking regulatory environment: practices, business disruption and system failures and damage • Bidvest Bank to physical assets. • First National Bank (Housing Finance) • National Housing Finance Corporation (NHFC) The objective of operational risk management is to quantify the • Standard Chartered Bank extent of Finbond’s operational risk exposure; to understand • VBS Mutual Bank what drives it, to mitigate the impact thereof, to allocate capital • Ithala Limited against it and to identify trends internally and externally that would help to mitigate it. v) Disaster recovery plan/business continuity plan As confirmed by the duly appointed independent auditors The Operational Committee (OPCO) has been established KPMG during June 2014 Finbond has established a proper to oversee the operational risk profile of the Group and the functioning Disaster Recovery Site in case of emergency Bank. The committee executes, recommends and monitors coupled to a Disaster Recovery Plan that has been tested with Finbond’s day to day operations and practices. The committee the South African Reserve Bank. also reviews and implements risk management policies, processes and procedures and business strategies taking into Finbond Mutual Bank utilises the BSVA Integrated Services consideration internal as well as external conditions with (previously EMID) as Disaster Recovery site who are ISO regards to best practice, innovation and financial performance 9001:2008 accredited (Quality Management System within the approved risk management framework. certification) and ISAE 3402 (International Standards for

42 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 43 Assurance Engagements) accredited. BSVA have a Certificate 4.3 Economic Capital Risk Report: from IBM Business Continuity and Recovery Services (“BCRS”) Economic capital (ECap) is the amount of capital needed by in favour of BSVA following disaster recovery rehearsals the Group to cover losses incurred as a result of unexpected or performed at BSVA. extraordinary events. ECap acts as a buffer for financial institutions to absorb large unexpected losses, thereby protecting depositors Finbond successfully completed disaster recovery tests in and other claim holders and providing confidence to external November 2014 and February 2015. investors and rating agencies on the financial health of the Group and the Bank. d) Other Risks In addition to the aforementioned, various other risks The responsibility for managing risk in the Group lies with the Risk are constantly monitored by the Executive Committee, Committee. This Committee meets frequently and its mandate Risk Committee and the Board in terms of Finbond’s Risk is to provide oversight and advice in relation to Finbond’s Risk Barometer and Risk Register that is updated on a monthly Management Framework, current and potential future risk basis. These other Risks include: Market and Securities Price exposures of the Group and the Bank and future risk strategy, Risk; Cash flow and Fair value Interest Rate Risk; Interest Rate including determination of risk appetite and tolerance including Risk; Investment Risk, Foreign Currency Risk, Reputational the Internal Capital Adequacy Assessment Process (ICAAP). Risk, Legal Risk, Financial Crime Risk, Regulatory and Compliance Risk and Insurance Risk. Economic Capital has been calculated for each of the following risk types: 4. Basel III and Regulatory Capital • Operational Risk: defined as the risk of loss resulting from 4.1 Basel III Compliance: inadequate or failed internal processes, people or systems, or The Basel III framework prescribes higher capital ratios, and from external events; introduces new liquidity measures that will be phased in from • Market Risk and Interest Rate Risk: the risk arising from 2015 to 2019. Finbond Mutual Bank already complies with and changes in market variables; significantly exceeds the Basel III rates. • Credit Risk: arising from lending activities from borrowers who defaulted on their loan obligations; and As at 28 February 2015 : • Liquidity Risk: the risk of being unable to raise funds to • Finbond Mutual Bank’s liquidity coverage ratio was 204% support the Bank’s business activities. (minimum of 100% required by 2019); and As the Group grows and become exposed to other risk types, the • Finbond Mutual Bank’s net stable funding ratio was 579% model will be recalibrated accordingly to cover these new risk (minimum of 100% required by 2018). types. As a condition of establishment, the Registrar required Finbond Mutual Bank to hold minimum capital of R250 million. According The Economic Capital has not been disaggregated into lines of to Basel III requirements, minimum Total Capital plus Pillar 2A business or operating units due to the simple structure of the Capital equal to 10.0% of Risk Weighted Assets needs to be held Group and its lines of business. Economic Capital for the Group by South African Banks as of January 2014. as a whole for each risk type is estimated using a Monte Carlo simulation model that parameterises identified risks in each of the 4.2 Regulatory Capital: risk types, using a one year window. The granularity of the model is The following measurements are included in the monthly and deemed as appropriate by management. quarterly DI Returns provided to the South African Reserve Bank at 28 February 2015: The simulation explicitly captures the risk of potentially severe • Finbond Mutual Bank exceeded the SARB’s Regulatory events in the tail of the distribution by using suitably skewed Requirement for Qualifying Capital and Reserves by loss distributions. Distributions have not been truncated as R120.7 million or 40.3% (February 2014: by R129 million this may result in unwarranted reduction in the corresponding or 51.6%). Finbond Mutual Bank projected a positive Economic Capital. For similar reasons it has been assumed that liquidity mismatch of R40 million at 28 February 2015. the major risk types are mutually independent. The risk simulation • Finbond Mutual Bank exceeded the DI400 calculated parameters are based on historical data where available, external minimum share capital and unimpaired reserve funds by data, or estimates considered by management to be appropriately R298 million or 246.8% (February 2014: by R274 million conservative. The dependence between identified risks is modelled or 261.2%). Finbond Mutual Bank exceeded the SARB’s using management estimates of inter-event correlations. The Regulatory Requirement for Capital Adequacy by 10.1% Economic Capital is evaluated at the 99.90% confidence level, (February 2014: by 11.1%). based on 10 000 000 iterations of the Monte Carlo model. Capital Adequacy Forecast 40% Credit risk constitutes the greatest risk to the Group and corre- 35% 26 + 95 spondingly represents the greatest contribution to Economic Risk 35 + 65 29 + 67 30% 33 + 61 25% Capital. Fraud, both internal and external to the Bank, comprises the 20% greatest contribution to operational risk. Liquidity Risk, being the 15% 10% potential losses the Bank will incur if unable to settle obligations 5% timeously, is the predominant component of Liquidity risk. Total 0% Feb-15 Feb-16 Feb-17 Feb-18 available financial resources (net qualifying capital and reserves) of Tier I Capital Ratio 419 million cover the minimum economic capital requirement by a multiple of 4.36 times. Tier II Capital Ratio Minimum Required Capital Ratio Capital Adequacy Ratio

44 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 45 Qualifying issued share capital Capital Adequacy Ratio ZAR Total qualifying issued share capital and unimpaired reserve funds 419 894 231 Accumulated profits 26 112 163 Qualifying issued secondary share capital 70 549 092 Less: Impairments 97 702 004 NET QUALIFYING ISSUED SHARE CAPITAL AND UNIMPAIRED RESERVE FUNDS 35.1% 418 853 482 Required Qualifying Regulatory Capital - Basel III 10.0% 119 229 710 NET QUALIFYING ISSUED SHARE CAPITAL AND UNIMPAIRED RESERVE FUNDS 418 853 482 Required Qualifying Regulatory Capital - SARB 298 074 270 Surplus Qualifying Capital 120 779 212

ZAR 28 FEBRUARY 2015 28 FEBRUARY 2014 DI100 BALANCE SHEET Fixed and Notice Deposits 852 228 214 695 902 092 Qualifying capital and reserves 516 555 486 441 594 630 Less: Impairments (section 70(5) of the Act) 97 702 004 62 596 220 Net qualifying capital and reserves 418 853 482 378 998 410 SARB Regulatory requirement 298 074 270 250 000 000 (Shortfall)/Excess 120 779 212 128 998 410 DI200 INCOME STATEMENT Net Interest Turn 70 573 539 53 976 980 Retained Income at the end of the period 27 993 120 26 112 663 DI300 LIQUIDITY RISK MATURITY LADDER Anticipated future cash flows - inward 1 401 740 955 707 356 862 Anticipated future cash flows - outward 1 422 495 742 1 576 863 755 Anticipated liquidity mismatch per Alco model (20 754 763) 130 493 107 Wholesale deposits (greater than R100 000) - - Retail deposits (Rand) 852 228 214 695 902 092 Total funds supplied by 10 largest depositors 86 821 900 58 265 950 DI310 MIN. RESERVE BALANCE & LIQUID ASSETS Adjusted Liabilities 916 089 039 747 560 568 Reduced Liabilities 799 788 521 685 647 141 Minimum Reserve Balance Held 15 476 000 13 019 190 Average daily minimum reserve balance to be held as from fifteenth business day of the month following on the month to which this return relates (2.5% of Reduced Liabilities) 14 827 547 12 222 404 Liquid Assets Held 62 438 246 48 096 460 Liquid assets required to be held as from fifteenth business day of the following month on 37 378 028 the month to which this return relates at 5 percent of adjusted Liabilities) 45 804 452 (Shortfall)/ Excess 16 633 794 10 718 432 DI400 CAPITAL ADEQUACY Net qualifying issue share capital and unimpaired reserve funds (item 39 Div II) 418 853 482 378 998 410 REQUIRED MINIMUM SHARE CAPITAL & UNIMPAIRED RESERVE FUNDS calculated in last preceding return (item 13 of Div I) 120 761 520 104 917 078 (Shortfall)/Excess 298 091 962 274 081 332 Capital Adequacy: Risk Asset Ratio 35.1% 36.1% REQUIRED CAPITAL ADEQUACY RATIO 25.0% 25.0% (Shortfall)/Excess 10.1% 11.1% DI500 CREDIT RISK Maturity analysis of overdue amounts in terms of bank policy Amount 4 months overdue 35 447 355 30 240 000 Amount 4 to 6 months overdue 26 189 657 18 666 000 Amount overdue > 6 months overdue - -

44 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 45 Economic Capital Economic Capital RISK TYPE Proportion % Proportion % Feb 2015 R’000 Feb 2014 R’000

Operational Risk 23 627 568 24.6 17 292 151 16.9 Interest Rate Risk 6 288 646 6.6 6 321 295 6.2 Credit Risk 53 810 026 56.1 66 684 255 65.0 Liquidiity Risk 12 212 402 12.7 12 213 495 11.9 Overall 95 938 643 100.0 102 511 196 100.0 Available financial resources 418 853 482 - 378 998 410 - Capital coverage ratio 4.36 - 3.69 -

Economic Capital by Risk Type

Economic Capital by Risk Type

Products Credit Risk 56.1% Liquidity Risk 12.7% Operational Risk 24.6% 56+13256 Interest Rate Risk 6.6%

46 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 47 CORPORATE GOVERNANCE

The Finbond Board of Directors sets the Group’s overall policy, COMPOSITION OF THE BOARD and provides guidance and input in areas relating to strategic The Board is of the view that the number of members should be direction, planning, acquisitions, performance measurement, large enough to accommodate the necessary skills, but small resource allocation, key appointments, standards of conduct and enough to promote cohesion and effective participation. communication with shareholders. The Composition of the Board is depicted in the table below: The Board’s objectives are the development and sustainable growth of the Group’s business in accordance with applicable regulatory THE BOARD requirements, for the benefit of all stakeholders. The achievement of NON-EXECUTIVE EXECUTIVE these objectives is dependent on the adherence to good corporate Dr. MDC Motlatla (Chair) Dr. W van Aardt governance throughout the organisation. Mrs. HJ Wilken-Jonker Mr. GT Sayers The Board fully supports and complies with the principles of Adv. JJ Noeth effective corporate governance, and the need for integrity and high ethical standards in the conduct of its business. The Directors have Mr. DJ Brits implemented several key recommendations based on the principles Mr. R Emslie outlined in the King III Report on Corporate Governance, namely: Mrs. RN Xaba • The role of the Chairman and the Chief Executive Officer are Adv. N Melville separated; • A Non-Executive Director serves as Chairman; and NUMBER OF DIRECTORS • The Board is made up principally of Non-Executive Directors.

Finbond complies with King III and the Companies Act No 71 of 2008 in all material respects.

ROLE OF THE BOARD The Board is of the opinion that the corporate governance framework needs to be in line with the size of the Group, its complexity, its structure and the risks that have an influence on it, and should be a Non-Executive7878%+22 structure through which objectives are set and monitored. Executive 22% Dr. Willie van Aardt is the Chief Executive Officer of the Group, and Dr. Malesela Motlatla is its Independent Non-Executive Chairman. HDSA DIRECTORS The Remuneration, Risk, Investment and Audit Committees are Historically disadvantaged South Africans 2 22% Chaired by Non-Executive Directors, neither of whom are also the Chairman of the Board of Directors. The majority of Non-Executive Directors are fully independent of management, and free to make their own decisions and CODE OF CONDUCT independent judgements. They enjoy no benefits for their services The Directors acknowledge the importance of sound corporate as Directors other than their fees. The Non-Executive Directors governance and the guidelines set out in the Principles of Good provide the Board with valuable, independent judgement based Corporate Governance and the Code of Best Practice (the “Combined on their diverse range of skills and commercial experience. Code”). The Directors therefore embrace the Combined Code, with due regard to the size and nature of the various companies which Non-Executive Directors are selected only after completing a make up the Group. The Board takes whatever measures necessary process which includes the identification of candidates with the to comply with the Combined Code in every way practically possible. requisite experience and standing in the banking and financial services environment in order to be able to provide genuine value All Directors and employees are required to maintain the highest to the Group; interviewing and vetting of potential candidates ethical standards in order to ensure that the Group’s business is by the existing Board of Directors as well as the South African conducted in a manner which is beyond reproach. Reserve Bank; and a period of induction during which candidates are exposed to the Group’s existing governance structures before For the year under review, the Board is satisfied that its decision- making appointments final by approval at Board level. making capability and the accuracy of its financial results have been maintained at a high level at all times, with appropriate reliance The Non-Executive Directors are high-calibre professionals, and being placed on management, internal as well as external audit, sufficient in number for their independent views to carry significant and the Group audit committee to raise any issues of financial and weight in the Board’s deliberations and decisions, and the Board risk concerns. retains full and effective control over the Group.

46 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 47 Apart from the quarterly meetings, additional Board Meetings AUDIT COMMITTEE [3.84(d)(g)] are arranged whenever necessary to review strategy, planning, The Audit Committee meets at least quarterly, and meetings are operations, financial performance, risk and capital expenditure, also attended by the Chief Executive Officer, the Chief Financial human resources and environmental management. Officer, the Group Financial Manager, the Head of Compliance, the Head of Internal Audit and a representative of the external auditors. The Board is also responsible for monitoring the activities of the executive management, and is balanced in such a way that no The Audit Committee is constituted as a Committee of the Board individual or small group is able to dominate decision-making. of Directors of Finbond Group Limited and Finbond Mutual Bank (Finbond). The duties and responsibilities of the members of the INTERNAL CONTROL Committee are in addition to those as members of the Board. The The Board of Directors is responsible for the Group’s system of role of the Committee is to provide independent assurance and internal control. The internal controls and systems are designed to assistance to the Board of Directors on control, governance and risk provide reasonable assurance as to the integrity and reliability of management. the financial statements, and to adequately safeguard, verify and The Committee does not replace established management maintain accountability of the assets. responsibilities and delegations. The Committee will provide the Board of Directors with prompt and constructive reports on its BOARD COMMITTEES findings, especially when issues are identified that could present a Both Executive and Independent Non-Executive Directors are material risk to Finbond Group Limited. members of the various Board committees, with Independent Non-Executive Directors being the sole members of the Audit The Audit Committee has set out its role and responsibilities, and the and Remuneration committees. The various committees’ areas of meetings held during the period, in its report which is included in responsibility, objectives, members and meeting frequency are its own section of the Integrated Annual Report on pages 72 to 74. set out in the Committee Charters. The following table reflects a summary of Board Committees that were in operation at REMUNERATION COMMITTEE [3.84(d)] 28 February 2015: The Remuneration Committee is constituted as a committee of the Board of Directors of Finbond Group Limited and Finbond Mutual AUDIT COMMITTEE Bank (Finbond). The duties and responsibilities of the members of the Committee are in addition to those as members of the Board. Mrs. RN Xaba (Chair) Non-Executive Director Mr. DJ Brits Non-Executive Director The role of the Committee is to assist the Board to ensure that: • Finbond remunerates Directors, Executives and staff Mr. R Emslie Non-Executive Director members fairly and responsibly; and • the disclosure of Director and remuneration is accurate, REMUNERATION COMMITTEE complete and transparent. Adv. JJ Noeth (Chair) Non-Executive Director The Committee met on 9 April 2014 and 8 December 2014, all the Dr. MDC Motlatla Non-Executive Director members were present, and Dr. van Aardt attended part of the Mrs. RN Xaba Non-Executive Director meeting as an invitee.

SOCIAL AND ETHICS COMMITTEE The Remuneration Committee undertook the role of a Nominations Committee and the selection and appointment of new Directors Adv. JJ Noeth (Chair) Non-Executive Director was agreed by the Remuneration Committee and recommended Mrs. HJ Wilken-Jonker Non-Executive Director to the Board of Directors. Dr. MDC Motlatla Non-Executive Director SOCIAL AND ETHICS COMMITTEE The Social and Ethics Committee is constituted as a committee THE RISK COMMITTEE of the Board of Directors of Finbond Group Limited and Finbond Mr. R Emslie (Chair) Non-Executive Director Mutual Bank (Finbond). Mr. DJ Brits Non-Executive Director Corporate ethics receives attention from the highest level of Adv. JJ Noeth Non-Executive Director management and is communicated to staff and made available on Adv. N Melville Non-Executive Director the intranet. The Social and Ethics Committee’s function, with its strong community and stakeholder focus, makes this the Board’s Mr. C van Heerden Chief Operating Officer best placed sub-committee to monitor the progress of the Group’s Mr. H Coetser Chief Risk Officer strategic Global Reporting Initiative project to include transparent reporting on the sustainability of the business. Dr. W van Aardt Chief Executive Officer Mr. GT Sayers Chief Financial Officer The duties and responsibilities of the members of the Committee are in addition to those as members of the Board. The role of the THE EXECUTIVE COMMITTEE Committee is to assist the Board to ensure that Finbond complies Dr. W van Aardt (Chair) Chief Executive Director with Regulation 43 of the Companies Act No 71 of 2008. Mr. GT Sayers Chief Financial Director The Committee met on 15 May 2014, 27 October 2014 and Mr. C van Heerden Chief Operating Officer 27 February 2015 and discharged its responsibilities to the Group as mandated by the Board of Directors. All three members of the Mr. H Coetzer Chief Risk Officer Committee were present at these meetings.

48 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 49 THE RISK COMMITTEE • Monitor trends in the economy in general and interest The Risk Committee met on 11 February 2014, 22 May 2014, 28 rates in particular with a view toward limiting any potential October 2014 and 6 March 2015. The Committee is responsible adverse impact on the Company’s earnings; for providing oversight and advice in relation to Finbond’s Risk • Approve interest rate risk tolerances by reviewing how Management Framework (including the significant policies, movements in interest rates may adversely affect Finbond’s procedures, and practices employed), current and potential future earnings and capital using Finbond’s projected earnings risk exposures of the Group and the Bank and future risk strategy, and capital as benchmark; including the determination of risk appetite and tolerance. • Monitor the capital position of Finbond and the capital management activities undertaken to ensure that capital The Risk Committee implements risk management and measurement levels are maintained in accordance with regulatory strategies across the Group and the procedures for monitoring the requirements and management directives; adequacy and effectiveness of those processes. The Committee • Review and approve payment of dividends from the Bank also considers the Group’s risk profile relative to current and future to the Holding Company and from the Holding Company Group strategy and Group risk appetite and identifies any risk trends, to shareholders; concentrations or exposures and any requirements for policy change. • Monitor management’s investment activities such as purchase, sale, exchange and other disposition of the The Committee will consider and recommend the Group’s risk investments; appetite framework and tolerance for current and future strategy • Review the status of the securities and derivatives to the Board of Directors for approval, taking into account the portfolios, including performance, appreciation or Group’s capital adequacy and the external risk environment. depreciation, quality, maturity profile and any actions Another function is to review, consider and update the Finbond Risk taken by management with respect thereto; Barometer after receiving information relative to the bank’s risk. • Review and determine whether to approve the holdings of investment securities (including prudent investments) and Ensuring rigorous stress and scenario testing of the Group’s that are subject to the ALCO’s authority to approve under business; receiving reports that explain the impact of crystallisation the ALM Policy or Board of Directors resolutions; of identified risks and threats to the Group; and ensuring a sufficient • Monitor management of the Bank’s treasury functions, level of risk mitigation is in place are also the responsibility of the Risk including its operations and funds management processes; Committee. So too is considering the adequacy and effectiveness • Review ALM Policy limits relating to interest rate risk, of the technology infrastructure supporting the risk management liquidity and capital levels; framework. • Monitor compliance with both external regulations and the ALM Policy with respect to the asset and liability THE EXECUTIVE COMMITTEE management processes of the Bank and the Company; and The Executive Committee is responsible for the daily management • Delegate specific authority to the Bank’s Chief Financial of the Group, and meets on a monthly basis, reviews current Officer or other appropriate members of management. operations in detail and implements the strategy and policy proposals approved by the Board of Directors. The Committee meets monthly and is comprised of the Chief Executive Officer, the Chief Financial Officer, the Chief Operations There are also a number of committees constituted as sub-commitees Officer and the Chief Risk Officer. of the Executive Committee of which Executive Directors and Senior Management are members. The various committees’ areas of THE CREDIT COMMITTEE responsibility, objectives, members and meeting frequency are set The Credit Committee is a sub-committee of the Executive out in the Committee Charters. The following Executive Committees Committee, established by resolution of the Executive Committee, were in operation at 28 February 2015: to which the Executive Committee has delegated responsibility for exercising oversight of senior management’s identification THE ASSET AND LIABILITY COMMITTEE and management of the Bank’s credit exposures and the Bank’s The Asset and Liability Committee is constituted as a sub-committee responses to trends affecting those exposures, and oversight of the Executive Committee. The committee recommends and of senior management’s actions to ensure the adequacy of the monitors Finbond’s Asset and Liability Management Policy (“ALM allowance for credit losses and credit-related policies. Policy”) and reviews the structure of the balance sheet and business strategies taking into consideration market conditions and main- The objectives of the Committee are: tains liquidity contingency plans. • To approve proposed changes in Lending Prudential Guidelines, major credit policies and credit scoring The objectives and areas of responsibility of the Committee are to: methodologies; • Monitor the liquidity position of Finbond, and liquidity • To approve discretions and onward delegation guidelines management activities undertaken by Finbond, including for the next level of management; wholesale funding activities, contingency funding and any • To consider and determine proposals exceeding other relevant liquidity measurements the ALCO deems management’s discretions; advisable or appropriate; • To receive and review reports on credit quality, credit risk • Approve liquidity risk tolerances by reviewing how the management and policy/procedure adherence; Bank’s inability to meet its obligations when they become • To oversee senior management’s establishment of, due may affect the Bank’s earnings, capital and operations; and adherence to appropriate policies, procedures and • Monitor the management of interest rate risk activities and guidelines that support measurement and control of credit Finbond’s overall interest rate risk profile, the sensitivity of risk, and shall periodically review management’s strategies, Finbond’s earnings under varying interest rate scenarios policies and procedures for managing credit risk, including and potential changes in market interest rates; credit quality administration, underwriting standards,

48 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 49 and the establishment and testing of allowances for credit Due to the high-risk nature of the Group’s product offering, being losses; and unsecured loans to often un-banked individuals, non-adherence • To oversee management’s administration of the credit by sales employees to the Group’s credit policy is another crucial portfolio, including management’s responses to trends in risk element measured closely by the Group’s compliance staff. The credit risk, credit concentration and asset quality, and shall following table summarises transgressions of the credit policy that receive and review reports from senior management. took place during the period found by internal audit, which upon the completion of fair investigations resulted in five individuals being The committee meets monthly and is comprised of the Chief dismissed following their failure to comply with the Group’s credit Executive Officer, the Chief Financial Officer, the Chief Operations policy, thereby enforcing this important internal control (‘Codix’ is Officer and the Chief Risk Officer. the short name for the compulsory credit checking process to be completed in processing all loan applications). THE OPERATIONAL COMMITTEE The committee is charged with the strategic management of The chart below reflects a total rate of transgressions of 2.3%, the Group’s operations including collections and human capital pointing to a high level of compliance. development. The committee is constituted as a sub-committee of the Executive Committee, meeting quarterly. The members of the Operational Committee are the regional and general managers NO PROOF OF % % % NO REGION SUBTOTAL ACCEPTED DECLINED CODIX IN THE of the operations, the Chief Executive Officer, the Chief Financial LOANS APPROVED DECLINED CODIX Officer, the Head of Finance: Micro-credit and the Head of Human PAST 3 MONTHS Capital Development. EC 103 847 101 955 257 1 635 98.18% 0.25% 1.57% FS 82 019 80 397 217 1 405 98.02% 0.26% 1.71% THE BANK INFORMATION TECHNOLOGY COMMITTEE The Bank Information Technology is constituted as a committee GP 102 527 100 875 200 1 452 98.39% 0.20% 1.42% of the Executive Committee. The Bank Information Technology KZN 72 324 69 321 771 2 232 95.85% 1.07% 3.09% Committee (BITCO) was established to, inter alia manage, monitor, review, discuss and track the progress of the various Finbond Mutual OSC 63 60 0 3 95.24% 0.00% 4.76% Bank Information Technology development projects. The committee WC 113 190 110 481 343 2 366 97.61% 0.30% 2.09% is currently meeting weekly and comprises the Chief Information Officer and the National Information Technology Manager. TOTALS 473 970 463 089 1 788 9 093 97.70% 0.38% 1.92%

THE FINANCE & TAXATION COMMITTEES Adherance to Codix by Finbond Staff The Finance Committee is a sub-committee of the Executive Committee, established by resolution of the Executive Committee, COMPANY SECRETARY to which the Executive Committee has delegated responsibility All Directors have access to the Company Secretary, who is for exercising oversight of senior management’s identification and responsible for ensuring that the Board procedures are followed, management of the Bank’s financial and reporting exposures and and who plays an active role in the improvement and monitoring the Bank’s responses to trends affecting those exposures. of corporate government processes, especially in terms of the The Finance Committee meets regularly and comprises of, as a Companies Act of 2008, the King Code on Corporate Governance minimum, the Chief Financial Officer, the Group Financial Manager and the JSE Listings Requirements. and the Head of Finance: Micro-credit. As required by the JSE Listings Requirements, the Board confirms The Taxation Committee acts as a sub-committee of the Finance that: Committee and also meets on a regular basis. • The Company Secretary is competent and has the relevant qualifications and experience to be the Company Secretary; INTERNAL AUDIT & COMPLIANCE • The Company Secretary is not a Director of the Company; and In establishing an effective compliance framework, the Finbond • The Board has an arms-length relationship with the Company Group has a comprehensive set of policies, regularly updated in line Secretary. with changes in legislation and business governance requirements, with which all group companies and employees are obliged to If appropriate, individual Directors are entitled to seek independent comply. professional advice concerning the discharge of their responsibilities at Finbond’s expense. The Company Secretary attends all Board- Chief among operational risks arising from the intrinsic cash nature and Committee meetings. of the personal loans business, is the risk staff may succumb to the temptation to commit fraud and theft, i.e. corruption. The internal The Company Secretary advises the Board, management and audit department, supported by the Group’s flat line-management employees of closed periods when trading Finbond securities structure, is structured in such way as to enable the review of 100% are prohibited. Details of Directors’ and the Company Secretary’s of the Groups business units and therefore all 286 branches, as well dealings in Finbond securities are disclosed to the JSE through the as each of the Group’s support areas were analysed for risks related Stock Exchange News Service (SENS). The Company Secretary’s to corruption, inter alia, during the year ended 28 February 2015. certificate, confirming that all returns and notices have been filed and are true, correct and up to date, can be found on page 74 of this Finbond is intolerant of dishonest or unlawful behaviour. This on- Annual Report. going review process resulted in two cases where employees were found guilty of corruption and were summarily dismissed. A further The checklist confirming Finbond’s compliance with the principles of twelve individuals are under investigation for corruption, following the King Code on Corporate Governance has been completed and is their own voluntary resignation. available on the Company’s website, www.finbondlimited.co.za

50 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 51 KING III MATERIAL PRINCIPLES

APPLICATION OF KING III CORPORATE GOVERNANCE PRINCIPLES

KING III ITEM NUMBER KING III PRINCIPLE APPLICATION OF PRINCIPLE REFERENCE

1 Ethical Leadership and Corporate Citizenship 1 1.1 The Board should provide The Board directs the Group’s activities with integrity, by the tone effective leadership based it sets through its actions, decisions, policies and codes, the culture on an ethical foundation. it instils and the example of its Directors, thereby demonstrating transparency, accountability, fairness, honesty and responsiveness to stakeholders.

2 1.2 The Board should ensure The Board ensures through its Social and Ethics Committee that that the company is and the Group conducts its affairs in a manner that takes into account is seen to be a responsible the realistic expectations of its stakeholders, and is sensitive to corporate citizen. the Group’s social, economic and environmental impacts, and ensures that it reports on its material initiatives in this regard in its Integrated Annual Report.

3 1.3 The Board should ensure The Board has endorsed the code of ethics, business philosophy, that the company’s ethics ethical values, codes of conduct and disciplinary policies are managed effectively. developed by management, and monitors the application and effectiveness thereof through the Social and Ethics Committee.

2 Boards and Directors

4 2.1 The Board should act as The Board’s charter records the Board’s responsibility for good the focal point for and corporate governance by the Group, the Board seeks to practice custodian of corporate good corporate governance through its structures, actions and governance. reporting, and the Board monitors governance policies and practices in the Group through the Social and Ethics Committee.

5 2.2 The Board should appreciate The Board understands and executive management appreciates that strategy, risk, that the Group’s strategy, risk, performance and sustainability are performance and sustain- interrelated, and ensures that the Group’s activities are designed, ability are inseparable. managed and reported on in an integrated manner.

6 2.3 The Board should provide The Board directs the Group’s activities with integrity, through effective leadership based its decisions, policies and codes and the example of its Directors, on an ethical foundation. demonstrating transparency, accountability, fairness and honesty.

7 2.4 The Board should ensure The Board ensures through its Social and Ethics Committee that that the company is and the Group conducts its affairs in a manner that takes into account is seen to be a responsible the realistic expectations of its stakeholders, and is sensitive to the corporate citizen. Group’s social and environmental impacts.

8 2.5 The Board should ensure The Board has endorsed the code of ethics and business philosophy that the company’s ethics developed by management, and monitors the application and are managed effectively. effectiveness thereof through the Social and Ethics Committee.

9 2.6 The Board should ensure The Board has in place an Audit Committee whose responsibilities that the company has an are documented in a written charter, whose members are strongly effective and independent financially literate and constitute Independent Non-Executive Audit Committee. Directors, whose Chairman is not the Chairman of the Board and whose activities, observations and recommendations are reported to the Board.

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10 2.7 The Board should be The Board’s charter records that it is responsible for risk gover- responsible for the nance, and the standard agenda items for its meetings, as well governance of risk. of those of the Audit Committee include the consideration of the report of the Chairman of the Risk Committee.

11 2.8 The Board should be The Board’s charter records that it is responsible for information responsible for information technology governance, and the standard agenda items for technology (IT) governance. meetings of the Audit Committee include the consideration of the reports of the Internal Audit department, which monitor the Group’s information technology governance.

12 2.9 The Board should ensure that The Board is made aware of laws applicable to the Group, has the company complies with tasked the Internal Audit department to conduct an assessment of applicable laws and considers the Group’s compliance with such laws, encourages management adherence to non-binding to adopt non-binding rules and codes, and monitors Group rules, codes and standards. performance in this regard.

13 2.10 The Board should ensure that The Board, through its Audit Committee, promotes the standing there is an effective risk-based and value of the Group’s Internal Audit department, assesses the Internal Audit. adequacy of its resources and the effectiveness of its work and engages with management to ensure audit plans are risk based.

14 2.11 The Board should appreciate The Board is sensitive to the fact that the Group’s reputation is most that stakeholders’ perceptions important and encourages management to engage meaningfully affect the company’s and frequently with the Group’s stakeholders, through a variety reputation. of forums and channels, to ensure that negative perceptions are identified and appropriate remedial action is taken.

15 2.12 The Board should ensure the The Board through its Audit Committee reviews the fairness and integrity of the Company’s adequacy of the disclosures made in the Group’s Integrated Annual Integrated Report. Report and formally approves the report on the recommendation of that committee.

16 2.13 The Board should report Based on assurance provided by the Internal Audit department to on the effectiveness of the the Audit Committee and reported to the Board, the Board reports company’s system of internal in the Integrated Report on the effectiveness of the Group’s controls. systems of internal control.

17 2.14 The Board and its Directors The Directors are aware of their fiduciary duties to act in the best should act in the best interests of the company and to avoid conflicts of interest and interests of the company. disclose periodically to the Board their personal financial interests.

18 2.15 The Board should consider To the extent that this may be necessary, the Board will consider business rescue proceedings such proceedings and mechanisms if and when appropriate. or other turnaround mechanisms as soon as the company is financially distressed as defined in the Companies Act (No 71 of 2008, as amended).

19 2.16 The Board should elect a The Board has since 2008 had a Chairman who is an Independent Chairman of the Board who Non-Executive Director, and accordingly the Chief Executive is an Independent Non- Officer is not the Chairman of the Board. Executive Director. The Chief Executive Officer of the company should not also fulfil the role of Chairman of the Board.

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20 2.17 The Board should appoint the The Board has appointed the Chief Executive Officer and through Chief Executive Officer and the Remuneration Committee has communicated the levels of establish a framework for the authority delegated to him. delegation of authority.

21 2.18 The Board should comprise The majority of the Board is Non-Executive, and all but one of the a balance of power, with a Non-Executive Directors are independent. majority of Non-Executive Directors. The majority of Non-Executive Directors should be independent.

22 2.19 Directors should be New Directors are appointed by the Board, based on the appointed through a formal recommendations of the Remuneration Committee, and their process. appointments are confirmed by shareholders at the Annual General Meeting.

23 2.20 The induction of and ongoing New Directors undergo a formal induction programme structured training and development with reference to their experience and requirements, and ongoing of Directors should be Director education and development takes place through conducted through formal presentations by management and attendance at Board-approved processes. external educational events.

24 2.21 The Board should be assisted The Board is assisted by a Company Secretary and according to the by a competent, suitably most recent assessment the Board is satisfied that he is suitably qualified and experienced competent, qualified and experienced for the role. Company Secretary.

25 2.22 The evaluation of the Board, The formal evaluation of the Board and individual Directors, and its committees and the the informal assessment of Board committees take place annually. individual Directors should be performed every year.

26 2.23 The Board should delegate The Board has established the Social and Ethics Committee, the certain functions to well- Audit Committee, the Risk Committee, the Executive Committee structured committees but and the Remuneration Committee as committees of the Board in without abdicating its own terms of written charters and reporting obligations to the Board. responsibilities.

27 2.24 A Governance Framework The Board has considered the respective responsibilities of the should be agreed between Board of the company on the one hand and of the Board of its the Group and its subsidiary principal operating subsidiary, Finbond Mutual Bank, on the Boards. other, and certain governance structures such as the Audit, Remuneration and Social and Ethics Committees have a group- wide mandate.

28 2.25 Companies should The Board believes that the Group’s remuneration policy and remunerate Directors strategy are designed to ensure that executives are appropriately and Executives fairly and remunerated, with an acceptable balance between guaranteed responsibly. and performance-based elements, as well between short and long-term incentives, and ensures that reward levels benchmark fairly against sector norms.

29 2.26 Companies should disclose The Company discloses in its Integrated Annual Report the the remuneration of each remuneration of Directors and prescribed officers in accordance individual Director and with the requirements of the Companies Act (No 71 of 2008, as certain Senior Executives. amended) and the JSE Listings Requirements.

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30 2.27 Shareholders should approve The Group’s remuneration policy is tabled at the Annual General the company’s remuneration Meeting of shareholders for consideration by way of a non-binding policy. advisory vote, and has been suitably approved by shareholders at the most recent Annual General Meeting.

3 Audit Committees

31 3.1 The Board should ensure that The company’s Audit Committee operates in terms of a written the company has an effective charter, performs the duties prescribed by the Companies Act (No and independent Audit 71 of 2008, as amended), meets three times annually, considers Committee. detailed reports from management, and reports and makes recommendations to the Board.

32 3.2 Audit Committee members The company’s Audit Committee comprises financially literate, should be suitably skilled and professionally qualified and commercially astute members and is experienced Independent constituted only by Independent Non-Executive Directors. Non-Executive Directors.

33 3.3 The Audit Committee should The Audit Committee is chaired by an Independent Non-Executive be chaired by an Independent Director. Non-Executive Director.

34 3.4 The Audit Committee should The Audit Committee does oversee the Group’s integrated oversee integrated reporting. reporting process, and does review the content of the Integrated Annual Report.

35 3.5 The Audit Committee should The Audit Committee ensures that it obtains regular and ensure that a combined comprehensive assurance from the external auditor, the Internal assurance model is applied Audit department and/or management in relation to matters to provide a co-ordinated such as financial reporting, legal compliance, adequacy of internal approach to all assurance controls and veracity of risk management processes. activities.

36 3.6 The Audit Committee should The Audit Committee annually conducts an assessment to satisfy itself of the expertise, satisfy itself as to the expertise, resources and experience of the resources and experience company’s finance function, and reports on the outcome of this of the company’s finance assessment in the Integrated Annual Report. function.

37 3.7 The Audit Committee should The Audit Committee’s mandate imposes an oversight role in be responsible for overseeing regard to Internal Audit, and the committee monitors internal of Internal Audit. audit resources, activities, findings and coverage plans via the comprehensive reports submitted by Internal Audit management to each committee meeting.

38 3.8 The Audit Committee should The Audit Committee considers the effectiveness of the risk be an integral component of management process on the Group’s financial reporting, while the the risk management process. Chairman of the Risk Committee is a permanent member of the Audit Committee.

39 3.9 The Audit Committee In terms of the Audit Committee’s charter and its mode of is responsible for operation, the Audit Committee is responsible for recommending recommending the the appointment of the external auditor and overseeing the appointment of the external external audit process, including receiving reports on the external auditor and overseeing the auditor’s findings during the annual audit. external audit process.

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40 3.10 The Audit Committee should The Audit Committee reports to each Board meeting, and reports report to the Board and to shareholders by way of the Audit Committee Report which shareholders on how it has forms part of the Group’s Annual Financial Statements, on its discharged its duties. activities, findings and recommendations.

4 The Governance of Risk

41 4.1 The Board should be The Board’s charter reflects its responsibility for risk governance, responsible for the governance and it discharges this responsibility by receiving reports from of risk. the Chairman of the Risk Committee at its quarterly meetings, and by making recommendations to management on its risk management programme.

42 4.2 The Board should determine The Board has adopted the levels of risk tolerance utilised by the the levels of risk tolerance. Risk Committee and management in determining the Group’s risk management framework and the methodology for rating risks in the Group’s risk registers.

43 4.3 The Risk Committee or Audit The Charters of both the Risk and Audit Committees require these Committee should assist the committees to assist the Board in carrying out its risk governance Board in carrying out its risk responsibilities, and they provide this assistance by monitoring responsibilities. the Group’s risk management activities.

44 4.4 The Board should delegate to The Board has delegated to management, the responsibility to management the responsibility design, implement and monitor the Group’s risk management to design, implement and plan, and management has appointed the Chief Risk Officer to monitor the risk management have line responsibility for this function, and has entrusted the Risk plan. Committee to monitor the said manager’s activities and processes.

45 4.5 The Board should ensure that The Board receives assurance from the Risk Committee that risk risk assessments are performed assessments are carried out continually and that the Group’s risk on a continual basis. registers are updated at least annually by management.

46 4.6 The Board should ensure that The Board receives assurance from the Risk Committee that the frameworks and methodologies process of continual risk assessment by management takes are implemented to increase into account emerging and unusual risks not typical of normal the probability of anticipating operating and environmental conditions. unpredictable risks.

47 4.7 The Board should ensure that The Board receives assurance from the Risk Committee that management considers and management appropriately identifies, manages, transfers and implements appropriate risk mitigates risks facing the Group. responses.

48 4.8 The Board should ensure The Board receives assurance from the Risk Committee that it and continual risk monitoring by management continually monitor risks facing the Group. management.

49 4.9 The Board should receive The Board receives assurance from the Internal Audit department assurance regarding the and management, via the Audit Committee and from the Risk effectiveness of the risk Committee, as to the adequacy of the risk management process. management process.

50 4.10 The Board should ensure The Board ensures that the Group’s Integrated Annual Report, as that there are processes in well as its public announcements where necessary, appropriately place enabling complete, disclose risk-related information of importance to stakeholders. timely, relevant, accurate and accessible risk disclosure to stakeholders.

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5 The Governance of Information Technology 51 5.1 The Board should be The written charter of the Board records its responsibility for IT responsible for information governance, and it discharges this duty by monitoring reports technology (IT) governance. on IT governance-related matters provided by the Audit and Risk Committees.

52 5.2 IT should be aligned with The Group’s IT strategy is designed to support the Group’s business the performance and strategy and with the aim of ensuring that the Group will operate sustainability objectives of effectively and remain sustainable. the Company.

53 5.3 The Board should delegate The Board has delegated to management, the responsibility to to management the design, implement and monitor the Group’s IT governance plan, responsibility for the and management has appointed the Chief Information Officer to implementation of an IT have line responsibility for this function, and has entrusted the governance framework. Risk Committee to monitor the said executive’s activities.

54 5.4 The Board should monitor The Board monitors material IT investments through its and evaluate significant IT consideration of the Group’s capital expenditure budget, and investments and expenditure. evaluates the performance of such investments through reports made by management and the Chief Information Officer to the Risk Committee.

55 5.5 IT should form an integral The risks associated with the Group’s IT infrastructure, applications part of the company’s risk and networks are identified, managed and mitigated as a key management. element of the Group’s risk management processes that are overseen by the Board of the Group and by the Chief Risk Officer.

56 5.6 The Board should ensure The Board receives assurance from management through the Risk that information assets are Committee that the Group’s IT assets are suitably safeguarded and managed effectively. effectively deployed, and that the Group has in place a business continuity plan.

57 5.7 A Risk Committee and Audit Both the Risk and Audit Committees assist the Board in carrying Committee should assist the out its IT governance responsibilities, as required by their written Board in carrying out its IT charters. responsibilities.

6 Compliance with Laws, Rules, Codes and Standards

58 6.1 The Board should ensure that The Board has determined that compliance with laws is the the Company complies with minimum standard of conduct, is made aware of applicable applicable laws and considers laws and regulations and voluntary codes by the Compliance adherence to non-binding division, and monitors compliance/adherence through the rules, codes and standards. Audit Committee which receives reports from the Internal Audit department following its annual legal compliance audit.

59 6.2 The Board and each individual The Board is made aware of applicable legislation and codes Director should have a through the legislation updates and presentations made by the working understanding of the Compliance division and the Company Secretary, and through effect of the applicable laws, material on relevant topics that is distributed to Directors from rules, codes and standards on time to time. Through presentations made by management at the company and its business. meetings of the committees of the Board the Directors are further exposed to the impact of key legislation on the Group’s business.

60 6.3 Compliance risk should Compliance risk is a key area of focus of the Group’s risk manage- form an integral part of the ment programme, and business unit heads actively consider Company’s risk management regulatory compliance when compiling and annually reviewing process. the risk registers for their business units.

56 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 57 KING III ITEM NUMBER KING III PRINCIPLE APPLICATION OF PRINCIPLE REFERENCE

61 6.4 The Board should delegate The Board has tasked management with the design and imple- to management the mentation of an effective compliance framework, key elements implementation of an of which include the appointment and work of the Group’s effective compliance Compliance Officer, the establishment, activities and reporting framework and processes. of the Compliance Team, the establishment of project teams to ensure compliance with material new legislation and the work of the Company Secretary in making management aware of relevant legislation.

7 Internal Audit

62 7.1 The Board should ensure that The Group has a well-established and appropriately resourced there is an effective risk-based Internal Audit function that the Board considers to be effective Internal Audit. and substantially risk based.

63 7.2 Internal Audit should follow The Internal Audit department’s coverage plan is informed by the a risk-based approach to its Group’s risk registers, the audit plan of the external auditor and plan. the requirements of top management, and is endorsed annually by the Audit Committee as being appropriately risk based.

64 7.3 Internal Audit should The Internal Audit department annually provides to the Audit provide a written assessment Committee a written assessment of the effectiveness of the Group’s of the effectiveness of system of internal controls and risk management programme. the company’s system of internal controls and risk management.

65 7.4 The Audit Committee should The Internal Audit department reports on its work, findings and be responsible for overseeing recommendations at each meeting of the Audit Committee, Internal Audit. presents its coverage plan annually to the Audit Committee for approval, and the manager of the department periodically meets with the Chairman of the Audit Committee.

66 7.5 Internal Audit should be The stature of the Internal Audit department within the Group, strategically positioned to the appropriateness of its resources, its reporting line to the Chief achieve its objectives. Executive Officer and its regular reporting to the Audit Committee indicate that the department is well positioned to fulfil its mandate.

8 Governing Stakeholder Relationships

67 8.1 The Board should appreciate The Board recognises that perceptions of its key stakeholders can that stakeholders’ perceptions impact on the Group’s reputation and encourages management affect a company’s reputation. to engage meaningfully with such stakeholders with a view to upholding the Group’s reputation.

68 8.2 The Board should delegate to The Board has tasked management with the responsibility of management to proactively engaging with the Group’s key stakeholders, being customers, deal with stakeholder shareholders and employees, as well as suppliers, regulators relationships. and community organisations, of devising suitable forums and communication channels for such interaction and of responding appropriately following such engagements, in the interests of the Group.

69 8.3 The Board should strive to The Board aims to ensure that the interests of the Group’s different achieve the appropriate stakeholders are suitably considered and appropriately balanced, balance between its various with a view to ensuring the Group’s relevance and sustainability. stakeholder groupings, in the best interests of the Company.

56 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 57 KING III ITEM NUMBER KING III PRINCIPLE APPLICATION OF PRINCIPLE REFERENCE

70 8.4 Companies should ensure The company does not have a controlling or majority shareholder, the equitable treatment of and has only one class of share, and ensures all shareholders are shareholders. treated in a fair manner, through the public dissemination of price-sensitive information, its transparent financial reporting and announcements, its dividend policy and its encouragement of shareholder involvement at meetings.

71 8.5 Transparent and effective The Board and management work to ensure that communication communication with with the Group’s stakeholders is frequent, substantive, transparent stakeholders is essential for and credible, recognising that such communication leads to trust building and maintaining and mutual respect and helps to ensure the sustainability of their trust and confidence. the Group.

72 8.6 The Board should ensure The Board encourages management to resolve disputes with that disputes are resolved customers, suppliers, employees and regulators in an effective as effectively, efficiently and and reasonable manner and in appropriate forums including expeditiously as possible. alternative dispute resolution mechanisms, having due regard for contractual and legislative obligations and the best interests of the Group.

9 Integrated Reporting and Disclosure

73 9.1 The Board should ensure the The Board ensures the integrity of the Group’s Integrated Annual integrity of the company’s Report by requiring management to draft it in a fair, balanced and Integrated Report. transparent manner, through requiring an initial review thereof by the Audit Committee, by subsequent reviews by the Chairman of the Board, and by the Chief Executive Officer.

74 9.2 Sustainability reporting The Group has reviewed its reporting to shareholders and produces and disclosure should an Integrated Annual Report that suitably combines reporting on be integrated with the material sustainability and risk issues, Annual Financial Statements company’s financial reporting. and more detailed reports on corporate social responsibility and corporate governance.

75 9.3 Sustainability reporting The Group is committed to ensuring sustainability reporting is and disclosure should be independently assured over a period of time, and assurance on the independently assured. reporting is currently provided by management and independent technical consultants.

58 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 59 “The two most important requirements for major success are: First, being in the right place at the right time, and second, doing something about it.”

- Ray Kroc -

STAKEHOLDERS

Save Invest

Transact Borrow

58 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 59 ECONOMIC VALUE ADD STATEMENT

Finbond contributed value to the local economy and created wealth for its stakeholders for the current and prior reporting periods as reflected below:

Figures in Rand 2015 2014 Direct economic value generated Interest income 145 456 503 93 018 672 Interest expense (76 136 528) (44 286 052) Fee income 170 127 896 112 731 141 Management fee income 27 765 974 20 736 996 Other micro finance income 79 685 790 28 499 859 Operating profit from cell captive arrangement 30 611 709 22 804 330 Fair value adjustments 1 790 807 4 957 526 Net commission expense (3 384 258) (2 374 768) Net impairment charge on loans and advances (60 136 892) (24 940 770) 315 780 701 211 146 934

Economic value distributed 249 942 768 163 861 926 To suppliers in payment of operating expenses 28 265 044 25 233 511 To employees 87 243 536 58 126 864

To providers of funds 88 714 407 44 485 296 Ordinary dividends 12 554 828 - Interest paid to providers of funding 460 721 553 827 Interest paid to savings and investment clients 75 698 858 43 931 469

Taxation 52 517 201 35 663 054 Normal tax 22 187 000 11 705 328 Value added taxation 13 694 791 11 137 016 PAYE 12 457 318 10 088 490 Unemployment insurance 1 302 676 854 710 Skills development levies 991 606 707 282 Property rates and taxes 1 883 810 1 170 228

To the community 815 705 353 201

Economic value retained for expansion and growth 58 224 808 47 285 008 Retained income 38 321 547 36 901 714 Depreciation 7 171 530 3 151 844 Deferred taxation 12 731 731 7 231 449

60 GRI4 Reference: EC1 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 61 CUSTOMERS

CUSTOMER CENTRICITY Key to the success of Finbond has been our commitment to putting Finbond branch network, serves as a guide to budgeting, personal the needs of our customers first. Our customer-centric approach financial planning, managing credit and achieving financial forms an integral part of our business philosophy and constitutes security. It also provides useful information on credit services, as the foundation of our business model. outlined by the National Credit Act and the Regulator. It is the first of a planned series of booklets and pamphlets aimed at fulfilling Finbond’s customer-centric business model is focused on creating Finbond’s customer education objectives, and building strong, solutions that deliver value to our clients. We specialise in the design lasting relationships with clients. and delivery of unique value and solution based savings and credit solutions tailored around depositor and borrower requirements The Consumer Protection Act entrenches the consumer’s right to rather than institutionalised policies and practices. fair value, good quality and safe products, while protecting them against defective or inferior goods. To further advance consumer Our: education, Finbond also distributes a second booklet, written • Micro Credit, Transactional and Insurance Solutions are offered by Adv. Neville Melville, under the title “Know Your Customer nationally to the under banked and underserved emerging Rights”, nationally through the Finbond branch network, which banking market actively seeking credit and banking solutions, is a pocket guide to the Consumer Protection Act intended to but remaining largely unattended and underserviced due assist consumers in understanding the Consumer Protection Act, to the traditional banks concentration on the higher income knowing their rights and protecting themselves. brackets of the population. We promise our customers affordable, responsible and hassle-free credit. Our products meet our customers’ credit needs. We empower our customers to make good credit decisions.

• Investment and Savings products, which offer a superior above average rate of return, are offered nationally to investors and pensioners looking for guaranteed higher fixed income in the current environment of depressed low yields.

Key to customer-centricity is product innovation that addresses the needs of the client first. Product innovation alone does not create sustainable value. However, in combination with strong customer focus, consumer education and service excellence in line with Finbond’s service standards of being warm and friendly, inviting, quick and efficient, trusting and respectful, product innovation becomes a powerful competitive advantage.

Client centricity is ingrained in Finbond’s organisational culture and unlike product design, it is not something that can easily be copied by competitors. It is this culture which helps Finbond to create sustainable value. INCREASED BRANCH NETWORK Face to face communication and excellent customer service are EMPOWERING AND EDUCATING OUR CLIENTS integral parts of our business model. We go the extra mile to provide simple and easy to understand financial education material such as our “Budget and Save Wisely” During the past financial year, Finbond increased its branch booklets that teach customers how to do a monthly budget and network by 86 branches to 286 branches in South-Africa. As part of warns customers not to take out any unnecessary debt that they our client centric focus we ensured that our distribution channels cannot afford. reflect the demographics of our clients. We intend to open 40 - 60 branches in the current financial year and thereafter approximately Finbond is committed to educating South African consumers about 40 - 50 branches per year for the next five years. the credit industry, their rights and their responsibilities when using credit facilities, and the role of the National Credit Regulator. For this TREATING CUSTOMERS FAIRLY reason, the Group distributes accessible and easy-to-read booklets A true client-centric approach also requires a firm commitment to and pamphlets to customers on a regular basis. treat clients fairly. Finbond therefore considers the TCF legislation good business practice and a core part of our commercial and “Budget & Save Wisely”, which was developed and written by Mrs. customer strategy. For this reason, a key focus area for Finbond is Ina Wilken-Jonker, and distributed nationally to clients through the the successful implementation of TCF.

60 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 8 61 EMPLOYEES

HUMAN CAPITAL Our employees are the backbone of our business. We have a high to achieve the Finbond vision by developing the organisation into a growth rate, a servanthood mindset and a culture of excellence. community of shared purpose marked by high levels of connection, It is expected of ALL employees to represent Finbond well and to trust and respect. adhere to the “Finbond Business Philosophy and Culture” and live out our values and beliefs. EVERYONE, EVERYWHERE, EVERYDAY! In order to continually improve two way communications with employees, employees are encouraged and empowered to raise Nelson Mandela said that: “What counts in life is not the mere fact their concerns through the following platforms: that we have lived. It is what difference we have made to the lives of • Anonymous surveys where employees can bring various others that will determine the significance of the life we lead.” matters that they want addressed, changed or improved to senior management’s attention; Finbond’s single biggest value driver consists of our people, who • Anonymous Report Fraud internet and telephonic hotlines deliver on the commitments and promises we make. At the core of where suspicious or fraudulent actions by fellow employees Finbond’s business are the commitments to different stakeholders. can be reported; A promise: • Line management where employees have an open invitation • to provide excellent service, to discuss matters of concern with their line managers; • General Managers, Regional Managers, Area Managers, • to treat customers with dignity and respect, Training Managers, Internal Audit and Compliance regularly • to pay an insurance claim, visit branches to interact with branch employees and to • to manage our depositors’ money effectively, discuss matters of concern with them; and • to create long term value for shareholders, • The Chief Executive Officer and Chief Operating Officer also • to be a responsible corporate citizen. visit the regions and branches to discuss matters of concern These promises are only as good as the people who make these with branch and regional personnel directly. promises, namely the Finbond staff. Employees are also kept abreast of company related issues through The Finbond “Senior Management Expectations and Management a monthly electronic magazine, The Finbond Compass. Dimensions” that all managers commit to and sign at the beginning of each financial year provides all Finbond employees with 23 Employee wellness is important to us and we encourage and principles or enablers that are necessary to ensure our success. promote wellness events such as charity days, blood donation, HIV/ All Finbond employees are expected to apply the “Finbond Senior AIDS testing and national Breast Cancer Awareness day. In addition Management Expectations and Management Dimensions” principles employees that excel in sports are also sponsored for events such in everything they do to ensure that we take Finbond from “Good as the Iron Man and the Two Oceans. to Great”. TRAINING AND EDUCATION PERFORMANCE MANAGEMENT The sustainable performance of our business is directly linked to and What truly motivates employees is a sense of pride in their work. If dependent on the performance of our people. Staff development work is not a sense of pride, employees will never be motivated, only and training are key priorities. moved. An experience of success, responsibility and recognition for achievement are the three key factors that give employees a sense It takes skilled, committed, competent and motivated people of pride in their work. to deliver on promises such as treating clients fairly, providing innovative and appropriate product solutions and providing Finbond follows an integrated management approach based on excellent customer service to clients. Therefore, investing in people the principles set out in Dr. Arnold Mol’s book “Creating Winners in is one of the ways that Finbond nurtures this important value driver. the Work Place” that are based on the following key principles: In 2015, Finbond invested more than R1 508 486 in the training and • Ownership development of our people. Two of Finbond’s Senior Managers also • Pre agreed performance areas and yard sticks obtained their MBA degrees which were paid for by Finbond. • Confirming the target • Letting them prove themselves Finbond has a comprehensive Policy and Training Manual to guide • Stimulating Innovation managers and employees in best practice. Employees’ performance • Keeping Score of Performance is measured monthly and continuous feedback is provided to them. • Dealing with Non Performance All employees receive regular training on all policies and processes. • Providing Rewards that motivate. Emphasis is placed on ensuring that employee competency levels are up to the required levels through training and development The Finbond Performance Management framework allows us to and that every employee has the correct skill set to be able to measure the Key Performance Areas of our people on a monthly perform their work function at an exceptional level. Training and basis and provides us with the tools needed to motivate people to development of our staff remains a core focus area and one of our strive for excellence. business priorities. EMPOWERING EMPLOYEES Managament is dedicated to the development of staff as set out The Human Capital Development Department’s main purpose is to in Finbond’s Senior Management Expectations. On-going training build widespread commitment and capabilities amongst all employees is provided to staff by regional training managers, who focus

62 GRI4 Reference: EC1/EC9 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 63 on compliance and enhancing staff capabilities as well as the • a further 33% when Finbond Group Limited achieves an audited distribution of a Training and Compliance Manual to all employees. consolidated Net Profit After Tax of R200 000 000 (two hundred Finbond also has study loans and bursaries available to its million Rand). employees to enable them to study further. • the balance when Finbond Group Limited achieves an audited consolidated Net Profit After Tax of R300 000 000 (three hundred An 8-week view of training priorities and activities, completed by the Regional Trainer A view of all national (always in communication with the MANCO) million Rand). priorities which impact all units/regions, but always National Training Plan Regional A means by which Area integrated with the RTP Training Plan Managers record specific training needs to The Conditionality Periods applicable to these tranches are equal to the the Regional Trainers to ensure Knowledge that capacity and priorities Assessment Skills amount of time it takes to reach the Net Profit After Tax targets. Only Training are well managed Request Form after the Audited Consolidated Net Profit After Tax Performance Targets have been achieved will the awards become unconditional. Skills Training Register FAQ’s Pre-work on every Policy/ Module to ensure that delegates Simplified internal prepare before the trainer facilitates COMPENSATION PAID TO EMPLOYEES report, which creates the actual session (to be handed to direct alignment to the Training Skills Training the trainer 2 days before Regulatory Report Control Sheet Content the training session) Rand Value of Net Profit per Employee 57 814 Checklist

Records all internal and external Provides list and guideline of all content of either Rand Value of Total Compensation Paid to training engagements as a Policy/Module to be covered during a training session Employees, including – Overtime, Travel, RKm Tax, supporting audit document for the R99 530 975 recording in the STR RKm N/T, A Bonus, Leave Paid, Back pay, Lump sum, Reimbursement, Fuel, P Bonus, Prize M, Meeting, Tolls SHARE INCENTIVE SCHEME Contractors R853 441 The purpose of the scheme is to issue Finbond shares or options to acquire Finbond shares to certain key staff members of the company. Rand Value of Total Compensation Paid to Employees The ultimate aim is to: including Contractors R100 384 416 • Recognise contributions made by Directors and selected Average Compensation per Employee and employees Contractors (Rands) (R100 384 416/880) R114 073 • Provide an incentive for the continuing relationship with selected Ratio of Net Profit After Tax per Employee to Average employees Compensation per Employee 0.5 • Provide the selected employees with an incentive to advance the Group’s interests • Ensure that the Group attracts and retains the core competencies EMPLOYEE LEVELS 2015 required for formulating and implementing the Group’s business strategies. TOP MANAGEMENT 13 SENIOR MANAGEMENT 14 Following the initial approval of the new Share Incentive Scheme at the Annual General Meeting that was held on 30 June 2013, the MIDDLE MANAGEMENT 49 Remuneration Committee again met and made awards in terms of the JUNIOR MANAGEMENT 301 rules of the Scheme to an additional 5 key senior employees during SEMI-SKILLED 490 December 2014, bringing the total number of employees rewarded under the Scheme to 15. These awards were offered subject to the UNSKILLED 13 achievement of Net Profit After Tax Performance Targets and the TOTAL STAFF 880 employees will only be entitled to the award on achievement of the following Net Profit After Tax Targets: *Trade Unions and Freedom of Association There is no representative trade union for Finbond, nor is the company aware of any employees • 33% when Finbond Group Limited achieves an audited who are part of a trade union. During the period under review, no work days were lost due consolidated Net Profit After Tax of R100 000 000 (one hundred to industrial action. Finbond however, recognises the constitutional rights of employees to million Rand). freedom of association, collective bargaining and to be a member of a union.

“I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance.”

- Steve Jobs -

62 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: EC1/EC9 63 COMMUNITY AND SOCIAL RESPONSIBILITY

Finbond aims to improve the quality of life of our customers and TPOSA - BOYS vs GIRLS (Oct 2003 - March 2015) employees by empowering them and contributing towards their financial growth, independence and freedom.

Micro credit has been made more accessible to communities, Boys 504 including those in rural areas by opening 86 more branches during the year, in areas where South Africans work and live. Girls 497

Investing in the communities in which we operate is something that has always been important to Finbond. Finbond is committed to the principles of socio-economic upliftment of the marginalised and previously disadvantaged in society. 51+49 TPOSA - RACIAL BREAKDOWN OF CHILDREN ADMITTED Finbond contributed more than R810 000 (an increase of more than R460 000 from 2014) to a number of charitable causes through cash donations. These include: Tshwane Place of Safety, Tshwane Haven, African 708 Transformation Time, Girls & Boys Town, Christian Social Council White 202 North and Compass, along with various other smaller donations. Coloured 83 Indian 6 Thai 2 68+2074+1

Finbond contributes to and is proud to be associated with Tshwane Place of Safety Association (“TPOSA”) which focuses on providing orphaned and abandoned babies as well as babies infected with HIV with good homes, frail care and shelter. Transformation Time (previously Prevention Time-SA) is a non- Since opening it’s doors in October 2003, TPOSA has saved and denominational Christian organisation that invests in the lives made a difference in the lives of more than 1 001 children. The of young people in South Africa. The program advocates AIDS racial break-down of the children saved is: 708 Black African, 202 prevention and youth development. Biblica’s Reach4Life® program Caucasian, 83 Coloured, 6 Indian and 2 Thai. 504 of the children were is used in many of their activities. The program encourages boys and 497 were girls. Finbond continues to make its properties abstinence as the primary behavior, but recommends the use of in Waterkloof Ridge and Queenswood available to TPOSA free condoms for those who choose not to adopt that practice, in order of charge. The Waterkloof Ridge house is used as a haven to to protect others from being infected with the deadly virus. accommodate children with different kinds of medical problems, while the house in Queenswood is used for financial administration Transformation Time thoroughly trains and deploys unemployed and the distribution of basic supplies. The two properties, when young adults in disadvantaged communities to be Peer Educators combined, are valued at R6 million and the provision of these to teach good moral values essential for a better life to local school resources to TPOSA saves the charity an estimated R630 000 p.a. learners using their Life Skills curriculum. They train and regularly The haven on average cares for up to 250 babies and children per mentor the Peer Educators to teach effectively and be wholesome month. TPOSA has admitted 54 sets of siblings of 2+ children, 16 role models. sets of siblings of 3+ children and 15 sets of twins. In 2014 although they experienced a shortage of their overseas For further info see: www.placeofsafety.org.za. funding, they deployed 12 Peer Educators in 15 schools in Zandspruit Squatter Camp in Gauteng, and in KwaHlati and Bergville in the Natal Midlands – in the epicenter of the country’s worst HIV/AIDS epidemic. 3803 learners were taught from the Life Skills curriculum throughout the school year from February to October.

64 GRI4 Reference: LA1b)/EC1/EC7 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 65 Compass feeds, trains, educates and nurtures, abused and aban- doned women, children and families. They have developed a one year programme that nurtures the people in their care back into society as whole, independent and self-sufficient individuals. They Girls and Boys Town provides residential care to over 300 youths from are taught basic computer skills, go for training and get certificates all communities in ten nationally located residential centres. Girls in pre-school education as well as care-giving skills. and Boys Town has two alternative residential programme options: Four Youth Development Centres and six Family “Group” Homes. COMPASS - RACIAL BREAKDOWN OF CHILDREN ADMITTED This organisation is 57 years old and was founded by late Bishop Reginald Orsmond in 1958. Girls and Boys Town has, historically, made every effort to ensure that no young person is excluded from receiving care, based on religion, ethnicity or economic African 84 circumstances. White 18 Coloured 5 +5484+18 + Indian 4 84 +54

COMPASS - MALE vs FEMALE The vision of the Christian Social Council North (CSC North) is to give hope to individuals and families in despair, of which the majority Male 50 consists of children. Many of these children live in poverty or had to be removed from parental care, due to physical and/or Female 61 sexual abuse or neglect. Most of these children’s lives have been a nightmare, but have been changed into hope, by means of CSC’s involvement.

One of the CSC’s main goals and programmes is Child Protection. There has been a marked increase in cases requiring legal action 61+50 + 61 and rising pressures on society are believed to be the main cause for this increase. The CSC North Child Centre is one of the resources TOTAL CSI SPEND RAND they have at their disposal to offer Child Protection services. Consumer Education 123 773 906 Children were reached through this process in 2013/14. Bursaries 169 091

The services in this program have been ongoing for the past 12+ Skills Development 1 339 395 years. Services such as foster care, adoption and assessment and Other Donations 13 205 therapy are rendered by specially trained senior social workers, as Basic need and Social Development donations 670 000 these kinds of services require specific expertise and knowledge. TPOSA’s right to use property 630 000 Arts, Sports and Culture 132 500 Total Spend 3 077 964

“The more I help others to succeed, the more I succeed.”

- Ray Kroc -

64 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 65 REGULATORS

Finbond engages Regulators in a co-operative way in order to • Finbond materially complies with and adheres to the various obtain insight into and implement any new regulations. We have corporate governance principles in terms of the King III Report a good, transparent and trusting relationship with our regulators on Corporate Governance. which include the Bank Supervision Department of the South • Finbond materially complies with the relevant requirements African Reserve Bank, the National Credit Regulator, The Financial of Regulation 48 and the IIA Standards with respect to the Services Board, The Johannesburg Stock Exchange and the Financial independence of the Internal Audit Function. Intelligence Centre. • The quality of management oversight at all levels over the credit process is effective and appropriate for the nature of Interaction between industry players and regulators are of crucial the lending activity. There is adequate segregation of key importance in order to ensure that practical and regulatory functions which are continuously monitored. efficiency are considered to the benefit of all stakeholders. • Management are suitably qualified and the key officers, including executive and senior management are fit and proper. In terms of Section 5 of the Mutual Banks Act No 124 of 1993, • There are appropriate internal control structures in place the Registrar of Banks may direct a Mutual Bank to furnish the in the branches. The design of the controls is deemed to be Registrar with a report by a public accountant on any matter that effective, reasonable and accurate. The ongoing monitoring of the Registrar may require for the performance of his functions. the internal controls is appropriately timed and performed by During the last quarter of the financial period the Registrar of Banks various levels of management and independent review. of the South African Reserve Bank requested a special audit to be • Finbond Mutual Bank’s Compliance function materially conducted in terms of Section 5 of the Mutual Banks Act No 124 complies with relevant sections of Regulation 49. of 1993. Finbond Mutual Bank engaged Ernst & Young Incorporated • The current IT Governance processes are adequate for the size to conduct the Audit. and complexity of Finbond at present. • The design of the affordability assessments is in accordance The following significant observations were made by Ernst & Young with the NCA and the results of our testing of the controls following a Section 5 Review that was performed and concluded indicate that the controls are effective. shortly after the financial year end: • The management oversight and monitoring of concentration • Finbond’s Executive and Non-Executive Directors materially risk is adequately managed by senior management and comply with and duly discharges their duties in respect of effective within the predetermined risk appetite of the section 37 of the Act, Regulation 37 and 38 of the regulations business. relating to Mutual Banks and sections 3,4,5,6,7 and 8 relating • The Chief Executive Officer and the Board duly acted in the to the Board Approved Charter. best interests of the Depositors.

66 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 67 Finbond Mutual Bank makes the following disclosure of the revised Basel III Leverage Ratio Framework and related definitions and requirements as published by the Basel Committee on Banking Supervisi BASEL III LEVERAGE RATIO Summary comparison of accounting assets vs leverage ratio exposure measure Table 1 Item R’000 1 Total consolidated assets as per published financial statements 1 435 026 2 Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation - 3 Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure - 4 Adjustments for derivative financial instruments - 5 Adjustment for securities financing transactions (ie repos and similar secured lending) - 6 Adjustment for off-balance sheet items ( ie conversion to credit equivalent amounts of off-balance sheet exposure) - 7 Other adjustments - 8 Leverage ratio exposure 1 435 026 Leverage ratio common disclosure template Table 2 Item R’000 1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 1 435 026 2 (Asset amounts deducted in determining Basel III Tier 1 capital) (135 589) 3 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2) 1 299 437 4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) - 5 Add-on amounts for PFE associated with all derivatives transactions - 6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework - 7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) - 8 (Exempted CCP leg of client-cleared rade exposures) - 9 Adjusted effective notional amount of written credit derivatives - 10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) - 11 Total derivative exposures (sum of lines 4 to 10) - 12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions - 13 (Netted amounts of cash payables and cash receivables of gross SFT assets) - 14 CCR exposure for SFT assets - 15 Agent transactions exposures - 16 Total securities financing transaction exposures (sum of lines 12 to 15) - 17 Off-balance sheet exposure at gross notional amount 41 385 18 (Adjustments for conversion to credit equivalent amounts) - 19 Off-balance sheet items (sum of lines 17 and 18) 41 385 20 Tier 1 capital 348 304 21 Total exposures (sum of lines 3, 11, 16 and 19) 1 340 822 22 Basel III leverage ratio 25.98% Explanatory table for the common disclosure template Table 3 Row no Explanation 1 On-balance sheet assets according to paragraph 15 2 Deductions from Basel III Tier 1 capital determined by paragraphs 9 and 16 and excluded from the leverage ratio 3 Sum of lines 1 and 2 4 Replacement cost (RC) associated with all derivatives transactions (including exposures resulting from transactions 5 Add-on amount for all derivative exposures according to paragraph 19-21 6 Grossed-up amount for collateral provided according to paragraph 24 7 Deductions of receivables assets from cash variation margin provided in derivatives transactions according to paragraph 8 Exempted trade exposures associated with the CCP leg of derivatives transactions resulting from client-cleared 9 Adjusted effective notional amount (ie the effective notional amount reduced by any negative change in fair value) for 10 Adjusted effective notional offsets of written credit derivatives acording to paragraph 30 and deducted add-on 11 Sum of lines 4-10 12 Gross SFT assets with no recognition of any netting other than novation with QCCPs as set out in footnote 19, removing 13 Cash payables and cash receivables of gross SFT assets netted according to paragraph 33(i), reported as negative 14 Measure of counterparty credit risk for SFTs as determined by paragraph 35 to 37 15 Agent transaction exposure amount determined according to paragraph 35 to 37 16 Sum of lins 12-15 17 Total off-balance sheet exposure amounts on a gross notional basis, before any adjustment for credit conversion 18 Reduction in gross amount of off-balance sheet exposures due to the application of credit conversion factors in 19 Sum of lines 17 and 18 20 Tier 1 capital as determined by paragraph 10 21 Sum of lines 3, 11, 16 and 19 22 Basel III leverage ratio according to paragraph 54

66 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 67 ENVIRONMENT

Finbond is predominantly “office based” and has a limited carbon The following indicators calculated according to “per person hours footprint on the environment. However, Finbond acknowledges worked”, returned insignificant results and have therefore not been the importance of the responsibility towards the environment to reported. ensure that future generations can enjoy the environment that we • Total electricity consumed per person hour worked (MWh/HW) are ultimately investing in. • Average volume of carbon emissions per person worked (Tons

CO2e/HW) As such, Finbond actively seeks to reduce its carbon footprint and • Average volume of non-hazardous waste per person hour

CO2 emissions and promote a healthy and sustainable environment worked (Tons/HW) for all our branches in our regions. We do this by complying with local and international legislation regarding the environment and The Group does not report: recycling as far as possible all materials used. • A target for electricity consumption; • A target for total energy consumption; The total number of Person Hours Worked (HW) for Finbond was • A target for carbon emissions; or calculated as 1 608 768 for the reporting period. • A target for water consumption.

ENVIRONMENT Total Direct Energy Consumption (Gigajoules, GJ) - i.e. from fuels burned 22.41

Total Direct Energy Consumed per person hour worked (MJ/HW) 0.987

Total Electricity Consumption (MWh) 441.02

Total Electricity Consumed per person hour worked (MWh/HW) 0.987

Total Energy Consumption in Gigajoules - calculated (NEW) 1587.67

Total Carbon Emissions (Tons of Carbon Dioxide equivalents, CO2e) - calculated 323.72 Total Water Consumption (Kilolitres, or Kl) 33998.76

Average Volume of Water (Litres) Consumed per person hour worked (l/HW) 21.13

Total Volume of Non-Hazardous Waste Disposed (Tons) 4

Total Volume of Waste sent for Recycling (Tons) 4

Percentage of Waste disposed of that is sent for recycling 100.00%

68 GRI4 Reference: EN3a)/EN5/EN3c)/EN3e)/EN15/EN16/ Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 69 EN17/EN18/EN19/EN8/EN23/EN25 SHAREHOLDERS

Finbond is an owner managed company, with management holding Finbond engages with shareholders and the investment community 38% of the issued shares in the Group. in order to provide timeous and relevant information on the strategy, financial performance and future prospects to enable Finbond’s current institutional shareholders include: shareholders and investors to make informed decisions with • Riskowitz Capital Management LLC (New York) regards to their investment in Finbond. • Khrom Capital Management LLC (New York) • Investec Bank Limited Finbond achieves these by engaging with them in the following ways: • Net 1 UEPS Technologies Limited (Nasdaq Listed) • Johannesburg Stock Exchange News Service (SENS) • Buckley Capital Partners (Miami) Announcements • Integrated Annual Report Value creation must be consistent and sustainable over the long • Monthly capital adequacy reports to the South African Reserve term; short-term gains cannot be considered true value creation. Bank Over the past 3 years the Finbond share price grew by 4 586% from • Annual General Meeting R0.07 at the end of February 2012 to R3.21 per share at the end of • Updates on ratings received from ratings agencies February 2015. This means R100 000 invested in Finbond shares • Group and Bank website 3 years ago was worth R4.6 million as at 28 February 2015. This • Press releases represents an average return of 358% per annum. • Media Interviews

“Whether you think you can, or think you can’t - you’re right.”

- Henry Ford -

68 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 69 DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors are responsible for the preparation and fair well as the preparation of the supplementary schedules included in presentation of the consolidated and separate annual financial these financial statements. statements of Finbond Group Limited and the separate financial statements of Finbond Mutual Bank, comprising the statements The Directors have made an assessment of the ability of the of financial position at 28 February 2015, and the statements of company and its subsidiaries to continue as going concerns and comprehensive income, changes in equity and cash flows for the have no reason to believe that the businesses will not be going year then ended, and the notes to the financial statements which concerns in the year ahead. include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial The auditor is responsible for reporting on whether the consolidated Reporting Standards and the requirements of the Companies Act and separate financial statements are fairly presented in accordance of South Africa for Finbond Group Limited and in accordance with with the applicable financial reporting framework. International Financial Reporting Standards for Finbond Mutual Bank. In addition, the Directors are responsible for preparing the Directors’ report. APPROVAL OF CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTS The Directors are also responsible for such internal control as the The consolidated and separate annual financial statements of Directors determine is necessary to enable the preparation of Finbond Group Limited, and separate financial statements of financial statements that are free from material misstatement, Finbond Mutual Bank as identified in the first paragraph, set out whether due to fraud or error, and for maintaining adequate on pages 82 to 138, were approved by the Board of Directors on accounting records and an effective system of risk management as 16 April 2015.

Dr. MDC Motlatla Dr. W van Aardt Chairman Chief Executive Officer

Pretoria 16 April 2015

“A genuine leader is not a searcher for consensus but a molder of consensus.”

- Martin Luther King, Jr. -

70 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 71 “Don’t ever be impressed with goal setting; be impressed with goal getting. Reaching new goals and moving to a higher level of performance always requires change, and change feels awkward. But take comfort in the knowledge that if a change doesn’t feel uncomfortable, then it’s probably not really a change.”

- John C. Maxwell -

FINANCIAL STATEMENTS

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70 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 71 REPORT OF THE AUDIT COMMITTEE

The Audit Committee (“the Committee”) has pleasure in submitting • Satisfy itself that it has appropriately addressed the following its report for the year ended 28 February 2015, as required by areas: section 94 of the Companies Act, Act 71 of 2008 (hereafter referred - financial eportingr risks, including the risk of fraud; to as “the Companies Act”). - internal financial controls; and - IT risks as they relate to financial reporting. The Committee is a statutory committee appointed by the Board of Directors, in terms of section 94(2) of the Companies Act, Act 71 of Internal Control 2008, and whose duties were delegated to it by the Board during • Review the adequacy of the internal control system, including the financial year under review. information technology security and control; • Understand the scope of internal and external auditors’ review The Committee acknowledges its responsibilities assigned by the of internal control over financial reporting, and obtain reports Board as well as its mandated tasks, which are outlined in the Audit on significant findings and recommendations, together with Committee Charter which has been set up in accordance with the management’s responses; King III guidelines on best practice corporate governance. The Audit • Review whether relevant policies and procedures are in place Committee Charter contains the terms of reference that govern and up to date, and whether they are complied with; and the mandate and functional responsibilities of the Committee, • Review whether the financial internal controls are operating which are reviewed periodically in order to ensure alignment with efficiently, effectively and economically. the latest corporate governance guidelines and principles. The Committee’s roles and responsibilities include the statutory duties Internal Audit as required by the Companies Act, which include: • Review the Internal Audit Charter, budget, activities, staffing, skills and organisational structure of Internal Audit; Financial Statements • Review and approve the Internal Audit plan, its scope and • Review the appropriateness of accounting policies; any major changes to it, ensuring that it covers the key risks • Review the appropriateness of assumptions made by and that there is appropriate co-ordination with the External Management in preparing the financial statements; Auditor; • Review the significant accounting and reporting issues, and • Review and concur in the appointment, replacement, or understand their impact on the financial statements; dismissal of the Audit Engagement Partner; • Review the annual financial statements, and consider whether • Resolve any difficulties or unjustified restrictions or limitations they are complete, consistent with prescribed accounting and on the scope of Internal Audit work; information known to Committee members; • Resolve any significant disagreements between Auditors and • Obtain assurance from Management with respect to the Management; accuracy of the financial statements; • Review significant findings and recommendations by Internal • Review with management and the external auditors the results Audit and Management responses thereof; of external audit, including any significant issues identified; • Review implementation of Internal Audit recommendations and by Management; • Review the Annual Report and related regulatory filings before • Review the performance of the Audit Engagement Partner; release and consider the accuracy and completeness of the • Review the effectiveness of the Internal Audit function, information. including compliance with The Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Risk Management Auditing; and • Review the risk management framework for identifying, • Meet separately with the Audit Engagement Partner to discuss assessing, monitoring and managing significant risks; any issues that the Committee or Internal Audit believes • Review the report of significant changes to Finbond’s risk should be discussed privately. Barometer; • Liaise with Management to ensure that there is a common External Audit understanding of the key risks to Finbond; • Review the External Auditors’ proposed audit scope, approach • Review whether risk management is carried out in a manner and audit fees for the year; that really benefits Finbond; • Review the findings and recommendations by External Auditor • Assess and contribute to the audit planning processes relating and Management responses thereof; to the risks of Finbond; • Review implementation of External Auditor’s recommen- • Review and recommend disclosures on matters of risk in the dations by Management; Annual Financial Statements; • Review the performance of External Auditors; • Review and recommend disclosures on matters of risk and risk • Ensure that there is proper co-ordination of audit efforts management in the Annual/Integrated Report; between Internal and External Auditors; and • Provide regular feedback to the Board of Directors on the • Meet separately with the External Auditors to discuss any adequacy and effectiveness of risk management in Finbond, matters that the Committee or External Auditors believe including recommendations for improvement; and should be discussed privately.

72 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 73 Compliance INTERNAL AUDIT • Review whether Management has considered legal and The Committee fulfills an oversight function in respect of the compliance risks as part of the Institution’s risk assessments; Group’s system of internal financial control. • Review the effectiveness of the system for monitoring compliance with laws and regulations; The Committee is also responsible for ensuring that the Group’s • Review the findings of any examinations by regulatory Internal Audit function remains independent and has the necessary agencies, and any auditor observations; resources, standing and authority within the organisation to enable • Review the process for communicating the code of conduct it to discharge its duties. to Finbond’s personnel, and for monitoring compliance therewith; and Furthermore, the Committee oversees the co-operation between • Obtain regular updates from Management regarding the Internal and External Auditors as assurance providers, as well as compliance matters. serving a link between the Board of Directors and these respective functions. Reporting Responsibilities ROLES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE • Regularly report to the Board of Directors about Committee The Committee has discharged the functions outlined in its charter activities, issues, and related recommendations; and ascribed to it in terms of the Companies Act as follows: • Report annually to the Board of Directors, describing the Reviewing the year-end financial statements, culminating in a Committee’s composition, responsibilities and how they were recommendation to the Board for approval. In the course of its discharged, and any other information required, including review, the Committee: approval of non-audit services; • Took the necessary steps to ensure that the financial state- • Submit a summary of its activities for inclusion in the Annual ments are prepared in accordance with International Financial Report; and Reporting Standards (IFRS) and the requirements of the • Review any other reports the Institution issues that relate to Companies Act; the Committee’s responsibilities. • Considered and, where appropriate, made recommendations on internal financial controls; Other Responsibilities • Ensured that a process is in place to be informed of any • Perform other activities related to this Charter as requested by reportable irregularities (as per the Auditing Professions Act, the Board of Directors; 2005) identified and reported by the External Auditor; • Safeguard all the information supplied to it within the ambit • Received and dealt appropriately with any concerns or of the law; complaints, whether from within or outside the Company, • Investigate matters within its powers as identified in this or on its own initiative, relating to the accounting practices Charter; and and internal audit of the Group, the content of the financial • Confirm annually that all responsibilities outlined in this statements, the internal financial controls of the company or Charter have been carried out. any related matters. During the financial year under review, no such matters, concerns or complaints were raised; MEMBERS OF THE AUDIT COMMITTEE • Reviewed the external audit reports of the Group’s Annual AND ATTENDANCE AT MEETINGS Financial Statements; The Committee consists of the Non-Executive Directors listed in the • Nominated and verified the independence of the External table hereunder and meets a minimum of three times per annum. Auditors, KPMG, as the auditors for the year under review, Committee members are re-appointed at the Annual General noting that Mr. Jan Vliegenthart (accredited as such and on Meeting in terms of the Companies Act. the JSE List of Auditors and registered in accordance with the Auditing Professions Act, 2005) was appointed as designated During the period since 1 March 2014 to date, the following auditor for the financial year; meetings were held: • Determined and approved the audit fees and the terms of engagement of the external auditors; AUDIT COMMITTEE MEETINGS - Meetings attended • Determined, subject to the provisions of the Companies Act, the nature and extent of allowable non-audit services to the 27 March 16 September 2 December 10 April Director 2014 2014 2014 2015 Group and approved the contract terms thereof; • Pre-approved any proposed agreement with the external Mr. Brits º º º º auditors for proposed non-audit services to the Group; • Confirmed and approved the internal audit charter and annual º º º º Mr. Emslie internal audit plan; Ms. Xaba º º º º • Ensured that risk management procedures are adequate and applicable; All members were required to act independently, as described in • Reviewed the internal audit reports and, where relevant, the Companies Act, the King III code of corporate governance and made recommendations to the Board concerning the Group’s the JSE listings requirements. accounting policies, financial control, records and reporting; • Evaluated the effectiveness of internal controls; The Internal and External Auditors, in their capacity as assurance • Oversaw the integrated reporting process. providers to the Group also attended and reported to the majority • Satisfied itself as to the appropriateness of management’s of meetings of the Committee. The Chief Executive Officer, Chief assumption regarding going concern; and Financial Officer and Heads of both Internal Audit and Compliance • Satisfied itself as to the adequacy of the information technology are permanent invitees. controls.

72 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 73 The Committee considered the Group’s information pertaining EXPERTISE AND EXPERIENCE OF FINANCIAL OFFICER AND FUNCTION to its non-financial performance as disclosed in the Integrated As required by the JSE Listings requirement 3.84(h), as well as the Report and has assessed its consistency with operational and other recommended practice as per King III, the Committee has satisfied information known to Committee members, and for consistency itself that the Chief Financial Officer has the appropriate expertise with the Annual Financial Statements. and experience. In addition the Committee also considered and has satisfied itself of the appropriateness of the expertise and adequacy The Committee is satisfied that the sustainability information of resources of the finance function and the experience of the presented is reliable and consistent with the financial results. senior members thereof.

Rosetta Xaba Chair: Audit Committee

16 April 2015

“What is the difference between an obstacle and an opportunity? Our attitude toward it. Every opportunity has a difficulty, and every difficulty has an opportunity.”

- J. Sidlow Baxter -

COMPANY SECRETARY’S CERTIFICATE

TO THE MEMBERS OF FINBOND GROUP LIMITED AND FINBOND MUTUAL BANK:

In my capacity as Company Secretary, I hereby certify that for the year 28 February 2015, the Company has filed all such returns and notices as are required by the Companies Act No 71 of 2008 and that all such returns and notices appear to be true, correct and up to date.

Dora du Plessis Company Secretary

16 April 2015

74 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 75 AUDIT REPORT

To the Shareholders of Finbond Group Limited and Finbond Mutual We believe that the audit evidence we have obtained is sufficient Bank and appropriate to provide a basis for our audit opinions.

We have audited the Consolidated Financial Statements and OPINION financial statements of Finbond Group Limited and the Financial In our opinion, these Financial Statements present fairly, in all Statements of Finbond Mutual Bank, which comprise the statements material respects, the consolidated and separate financial position of financial position at 28 February 2015, and the statements of of Finbond Group Limited at 28 February 2015, and its consolidated comprehensive income, changes in equity and cash flows for the and separate financial performance and consolidated and separate year then ended, and the notes to the financial statements which cash flows for the year then ended in accordance withInternational include a summary of significant accounting policies and other Financial Reporting Standards and the requirements of the explanatory notes, as set out on pages 82 to 139. Companies Act of South Africa, and the financial position of Finbond Mutual Bank at 28 February 2015, and its financial DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS performance and cash flows for the year then ended in accordance The Company’s Directors are responsible for the preparation and fair with International Financial Reporting Standards. presentation of the financial statements of Finbond Group Limited in accordance with International Financial Reporting Standards OTHER REPORTS REQUIRED BY THE COMPANIES ACT and the requirements of the Companies Act of South Africa, and As part of our audit of the financial statements for the year ended the financial statements of Finbond Mutual Bank in accordance 28 February 2015, we have read the Directors’ Report, the Audit with International Financial Reporting Standards, and for such Committee’s Report and the Company Secretary’s Certificate for the internal control as the Directors determine is necessary to enable purpose of identifying whether there are material inconsistencies the preparation of financial statements that are free from material between these reports and the audited financial statements. misstatement, whether due to fraud or error. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material AUDITOR’S RESPONSIBILITY inconsistencies between these reports and the audited financial Our responsibility is to express an opinion on these financial statements. However, we have not audited these reports and statements based on our audits. We conducted our audits in accordingly do not express an opinion on these reports. accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The KPMG Inc. procedures selected depend on the auditor’s judgement, including Registered Auditor the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk Per J Vliegenthart assessments, the auditor considers internal control relevant to the Chartered Accountant (SA) entities’ preparation and fair presentation of the financial statements Registered Auditor in order to design audit procedures that are appropriate in the Director circumstances, but not for the purpose of expressing an opinion 16 April 2015 on the effectiveness of the entities’ internal control. An audit also includes evaluating the appropriateness of accounting policies KPMG Forum used and the reasonableness of accounting estimates made by 1226 Francis Baard Street management, as well as evaluating the overall presentation of the Hatfield financial statements. 0083

74 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 75 DIRECTORS’ REPORT

The Directors present their Annual Report, which forms part of the 5. Directors’ interests and shareholding in the Group audited Annual Financial Statements of the Group, for the year 5.1 The Company’s Directors listed in the following table, held the ended 28 February 2015. following number of shares in Finbond Group Limited at year-end:

1. Incorporation Beneficial The Company was incorporated in the Republic of South Africa on 20 July 2001 and obtained its certificate to commence business on Direct Indirect Percentage held the same day. 2015 Director 2. Review of activities and operations Dr. W van Aardt* - 234 240 732 38.7% Nature of Business Mr. R Emslie 260 991 - 0.04% Finbond Group Limited is a leading South African Financial Services institution that specialises in the design and delivery of unique 2014 Director value and solution based savings, credit and insurance solutions tailored around depositor and borrower requirements rather than Dr. W van Aardt* - 270 240 732 44.7% institutionalised policies and practices. Mr. R Emslie 260 991 - 0.03%

Finbond Group Limited conducts its business through four divisions No shares or share options were issued to the Directors in the focused on: current reporting period. No non-beneficial interests existed. There 1. Short and Medium Term Micro Credit Products; have been no changes to the interests of Directors in the Group 2. Investment and Savings Products; since the year end. 3. Transactional Banking Products; and 4. Insurance Products. 5.2 Directors’ remuneration for services as Director in respect of the Financial year ended 28 February 2015 are outlined in note 41. Review of operations and financial results The financial statements on pages 82 to 138 set out fully the financial Share options granted to Directors positions, results of operations and cash flows of the Group and the Company for the financial year ended 28 February 2015. Shares granted 26 August 2013 3 October 2013 Value of shares Refer to note 46 for segmental information.

The Group net profit attributable to ordinary sharholders for the 2015 Director reporting period amounts to R50 867 375 (2014: R36 917 621). The Dr. W van Aardt* 4 377 555 - 5 909 699 Company’s net profit/(loss) for the reporting period amounts to a profit of R74 532 400 (2014:R29 082 319). Mr. GT Sayers 1 983 630 516 370 3 607 367

*Shareholding via Kings Reign Investments (Pty) Ltd, of which Dr. van Aardt was the 3. Going Concern founder, and of which Dr. van Aardt is a Director and the van Aardt Family Trust is the The Annual Financial Statements have been prepared on the going ultimate beneficial shareholder with 100% shareholding in Kings Reign Investments (Pty) concern basis. This basis presumes that management neither intends Ltd. Dr. van Aardt is the settlor of the van Aardt Family Trust. to cease trading nor has reason to believe that the foreseeable 6. Share capital future of the Company is in doubt. There were no changes in the authorised and issued share capital of the Company during the period under review. 4. Events after reporting date The following events took place after the reporting date of the Shareholder spread and major shareholders Group: Refer to shareholder analysis on page 139.

A gross ordinary dividend of R20 570 858.50 was declared out of 7. Borrowings income reserves in Finbond Group Limited on 16 April 2015 in In terms of the articles of association of the Company, the Directors respect of the financial year ended 28 February 2015. may exercise all the powers of the Company to borrow money, as they consider appropriate. Refer to note 45 in the Financial Statements for further details regarding the events after reporting date. Refer to note 20 for further details.

76 GRI4 Reference: EC1 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 77 8. Dividends 10. Secretary A gross ordinary dividend of R12 705 530.25 was paid during the There was no change to the Company Secretary during the year. year in respect of the year ended 28 February 2014. A gross ordinary The Secretary of the Company is Ms. CD du Plessis of: dividend of R20 570 858.50 was declared after the reporting date of the Group on 16 April 2015 in respect of the year ended Business Address: Postal Address: 28 February 2015 and is payable to shareholders in accordance with First Floor, Block A, Centurion Close P.O. Box 14195 the timetable below: 119 Gerhard Street Lyttelton Centurion 0140 In terms of dividend tax effective since 1 April 2012, the following 0157 additional information is disclosed: • The local dividend tax rate is 15%; The Board of Directors has considered and is satisfied with the • 605 025 250 shares are in issue, of which 15 411 082 are held competence, qualifications and experience of the Company by the Group; Secretary. • The net ordinary dividend is 2.89 cents per share for ordinary shareholders who are not exempt from dividends tax; and 11. Investments in Subsidiary • Finbond Group Limited’s tax reference number is 9194313145. Name of Subsidiary Timetable: • Finbond Mortgage Origination (Pty) Ltd • Declaration date Th, 16 April 2015 (previously Independent Bond Originators (Pty) Ltd) • Last day to trade cum dividend Fr, 8 May 2015 • Zevoli 182 (Pty) Ltd • Shares commence trading ex dividend Mo, 11 May 2015 • Record date Fr, 15 May 2015 • ABC Cash Loans (Pty) Ltd (Namibia) • Dividend payment date Tu, 19 May 2015 • Mzanzi Finance (Pty) Ltd

No dematerialisation or rematerialisation of shares will be allowed • Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd) for the period from Monday, 11 May 2015 to Friday, 15 May 2015, • Finbond Mutual Bank both dates inclusive. • Finbond Micro Finance (Pty) Ltd (previously Blue Chip Finance Western Cape (Pty) Ltd) Dividends are declared in the currency of the Republic of South Africa. The Directors have confirmed that the Company will satisfy • Finbond Micro Finance 2 (Pty) Ltd (previously Bondmaster the liquidity and solvency requirements immediately after the Group (Pty) Ltd) payment of the dividend. • Dimension Home Loans Group (Pty) Ltd

9. Directors 12. Special resolutions The Directors of the Company during the year, and to the date of During the year ending 28 February 2015 the following special issue of the report are as follows: resolutions were made:

Name • Resolved that the remuneration of the Non-Executive Directors, Dr. MDC Motlatla (Chairman) as set out on page 126 of the previous Annual Report, to be paid by Finbond Mutual Bank, be fixed from 1 June 2014. (Independent Non-Executive) • It was resolved that the inter-group loans of the Company be Dr. W van Aardt (Executive) (Chief Executive Officer) ratified for the period ended 28 February 2014. Mr. GT Sayers (Executive) (Chief Financial Officer) • It was resolved that, subject to compliance with the require- Mrs. HJ Wilken-Jonker (Non-Executive) ments of the JSE, the Directors of the Company were authorised, at their discretion, to procure that the Company Adv. N Melville (Independent Non-Executive) or subsidiaries of the Company acquire by purchase on the JSE Adv. JJ Noeth (Independent Non-Executive) ordinary shares issued by the Company. Mrs. RN Xaba (Independent Non-Executive) 13. Auditors Mr. R Emslie (Independent Non-Executive) KPMG Inc. will continue in office in accordance with section 270(2) of Mr. DJ Brits (Independent Non-Executive) the Companies Act of South Africa, No 71 of 2008 (as amended).

76 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 77 REMUNERATION REPORT

REMUNERATION PHILOSOPHY Being a financial services organisation, Finbond is dependent ration policy for whether the set objectives are being achieved; on its human resources for its success. Finbond recognises that • Ensure that the mix of fixed and variable pay, in cash, shares its people are critical to enable it to meet its business goals and and other elements, meets the Company’s needs and strategic strategic objectives. The Board determines the broad principles for objectives; the Group’s remuneration philosophy, taking into consideration • Satisfy itself as to the accuracy of recorded performance the Group’s strategy and objectives. Finbond’s remuneration measures that govern the vesting of incentives; philosophy is to employ the highest calibre individuals, who are • Ensure that all benefits, including retirement benefits and characterised by integrity, intellect and innovation and who adhere other financial arrangements, are justified and correctly and subscribe to our culture, values and philosophies. We strive to valued; inspire entrepreneurship by providing a working environment that • Consider the results of the evaluation of the performance of stimulates extraordinary performance, so that Executive Directors the Chief Executive Officer and other executive Directors, both and employees may be positive contributors to our clients, their as Directors and as Executives in determining remuneration; communities and the Group. • Select an appropriate comparative group when comparing remuneration levels; In order to sustain this on a consistent basis, the organisation • Review incentive schemes to ensure continued contribution continuously: to shareholder value and that these are administered in terms • Develops and retains talent that is currently employed in the of the rules. Group; • Attracts and retains the right people with the appropriate skills EXECUTIVE DIRECTOR’S REMUNERATION to meet the present and future demands; and Executive Directors’ remuneration consists of: • Develops a high performance culture in an organisation which • Payment of an industry competitive annual guaranteed is focused on achieving results. package (base salary and benefits); • An incentive bonus where rewards are determined against We have a strong entrepreneurial, merit and values-based culture, achievement of individual performance criteria and annual characterised by passion, energy, commitment and perseverance. financial targets; and The ability to live and perpetuate our values, culture and • Ownership in the form of share incentive scheme participation. philosophies in the pursuit of excellence in a regulated industry and within an effective risk management environment is considered Remco has the authority to approve guaranteed packages that paramount in determining overall reward levels. will attract and retain the correct calibre of talent. Guaranteed packages are recommended by the Chief Executive Officer after REMUNERATION PRINCIPLES taking into account individual experience, current performance Our remuneration policy is consistent with the following overarching and contribution. These are then benchmarked against the market principles: on an annual basis. • Remuneration policies, procedures and practices are consistent with, and promote, sound and effective risk management, and Salaries and benefits are reviewed annually and reflect the relative do not encourage risk taking that exceeds the level of tolerated skills and experience of, and contribution made by, the individual. risk of Finbond. It is the Group’s policy to seek to set base salaries and benefits • Our remuneration policy is in line with the business strategy, (together known as gross remuneration) at medium market levels objectives, values and long-term interests of the Finbond when compared like for like with peer group companies.The Group. Human Capital Resource division provides guidelines to business • The payment of variable remuneration does not limit Finbond’s units on recommended salary levels for all employees within the ability to maintain or strengthen its capital base. organisation to facilitate the review. These guidelines include a strategic message on how to set salary levels that will aid Finbond REMUNERATION COMMITTEE (Remco) in meeting its objectives while remaining true to corporate values Details of the Remco, its members and activities, are set out under and incorporate guidance on increasing levels to take account of the corporate governance statement. The Committee assists the change in the cost of living over the year to ensure that salary levels Board in formulating and monitoring the implementation of the always allow employees to afford a reasonable standard of living Group’s remuneration policy. and do not encourage a reliance on variable remuneration.

The role of the Committee is to assist the Board to ensure that: Finbond considers the aggregate of the above as the overall staff • Finbond remunerates Directors, Executives and staff members remuneration package designed to attract, retain, incentivise and fairly and responsibly; and that the disclosure of Director drive the behaviour of our employees over the short, medium remuneration is accurate, complete and transparent. and longer term in a risk conscious manner. Overall rewards are considered as important as our core values of work content (greater The objectives and areas of responsibility of the Committee are to: responsibility, variety of work and high level of challenge) and work • Ensure that the remuneration policy is adhered to and affiliation (entrepreneurial feel to the Company and unique culture) implemented; in the attraction, retention and motivation of employees. • Review the outcomes of the implementation of the remune-

78 GRI4 Reference: EC1/LA12/38/39 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 79 REMUNERATION REPORT - KEY STATISTICS

Total Rand Value of Compensation Paid to Executive Directors - Excluding Gains on the Exercise of Share Options 10 929 632

Average Compensation per Executive Director (Rands) - Excluding Gains on the Exercise of Share Options 5 464 816

Ratio of Average Compensation paid to Executive Directors relative to Average Compensation Paid to Employees - Excluding ‘Gains’ 47.9

Total Rand Value of Gains on the Exercise of Share Options - Executive Directors 0

Average Compensation per Executive Director (Rands) - Including ‘Gains on the exercise of share options’ 5 464 816

Ratio: Average Compensation paid to Executive Directors relative to Average Compensation Paid to Employees - Including ‘Gains’ 47.9

Total Compensation Paid to Prescribed Officers - Excluding Gains on the Exercise of Share Options 3 028 750

Average Compensation per Executive Director & Prescribed Officers Excluding- Gains on the Exercise of Share Options 3 489 596

Ratio: Average Executive Directors & Prescribed Officers Compensation relative to Average Employee Compensation Excluding- Gains 30.6

Total Rand Value Gains on the Exercise of Share Options - Prescribed Officers 0

Average Compensation per Executive Director & Prescribed Officers Including- ‘Gains on share options exercised’ 3 489 596

Ratio: Average Executive Directors & Prescribed Officers relative to Average Employee Compensation - Including Gains 30.6

Number of Board Members 9

Number of Board Members who are Non-Executive 7

Percentage of Board Members who are Non-Executive 78%

Number of Board Members who are deemed ‘Independent’ 6

Percentage of Board Members who are deemed ‘Independent’ 67%

Number of Board Members who are deemed ‘HDSA’ 2

Percentage of Board Members who are deemed ‘HDSA’ 22%

Number of Board Members who are Women 2

Percentage of Board Members who are Women 22%

Average Length of Executive Director Service (in years) 6

Average Length of Non-Executive Director Service (in years) 5

Average Length of Director (full Board) Service (in years) 5

Average Age of Directors (in years) 59

Overall Board and Committee Meeting attendance N1

Auditor Remuneration: % of Non-audit Fees 13%

Length of Current Auditor’s service 4 years

Independence of Board Chairman Ind

Number of Prescribed Officers 2

EXECUTIVE DIRECTORS’ REMUNERATION FOR THE YEAR TO 28 FEBRUARY 2015 (Gross before deductions)

Figures in Rand Salary Bonus Total Remuneration

Dr. Willie van Aardt 5 801 745 2 695 547 8 497 292 Mr. Gary Sayers 1 666 249 766 091 2 432 340

78 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 38/39/EC1/LA12 79 SERVICE CONTRACTS Each of the Executive Directors and prescribed officers has a letter of appointment from the Company which is subject to a 30-day notice period. The Executive Directors and prescribed officers retire from their positions and from the Board at the age of 65.

BOARD MEETINGS - Meetings attended Board Meeting attended 28 March 2014 26 June 2014 19 August 2014 2 December 2014

Dr. Malesela Motlatla (Chair) º º º º Dr. Willie van Aardt º º º º Mr. Gary Sayers º º º º Mr. Danie Brits º º º º Mr. Robert Emslie º º º º Adv. Neville Melville º º º º Adv. Jasper Noeth º º º º Ms. Ina Wilken-Jonker º º º º Ms. Rosetta Xaba º º º º

AUDIT COMMITTEE MEETINGS - Meetings attended Audit Committee Meeting attended 27 March 2014 16 September 2014 2 December 2014 Ms. Rosetta Xaba (Chair) º º º Mr. Danie Brits º º º Mr. Robert Emslie º º º Dr. Willie van Aardt (Invitee) º º º Mr. Gary Sayers (Invitee) º º º

Risk Committee RISK COMMITTEE MEETINGS - Meetings attended Meeting attended 22 May 2014 28 October 2014

Mr. Robert Emslie (Chair) º º Mr. Danie Brits º º Adv. Neville Melville º º Adv. Jasper Noeth º º Mr. Hano Coetser º º Dr. van Willie Aardt (Invitee) º º Mr. Gary Sayers (Invitee) º º

Social and Ethics Committee SOCIAL AND ETHICAL COMMITTEE MEETINGS - Meetings attended Meeting attended 15 May 2014 27 October 2014 27 February 2015

Adv. Jasper Noeth (Chair) º º º Ms. Ina Wilken-Jonker º º º Dr. Malesela Motlatla º º Mr. Gary Sayers (Invitee) º º º

Remuneration Committee REMUNERATION COMMITTEE MEETINGS - Meetings attended Meeting attended 9 April 2014 8 December 2014

Adv. Jasper Noeth (Chair) º º Dr. Malesela Motlatla º º Ms. Rosetta Xaba º º Dr. Willie van Aardt (Invitee) º º

80 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 81 SHARE PLANS NON-EXECUTIVE DIRECTORS’ REMUNERATION FOR THE YEAR TO During the 2015 financial period, Finbond Group Limited has 28 FEBRUARY 2015 implemented an employee share incentive scheme. 5 053 166 share Non-Executive Directors receive a fixed level of remuneration for options were granted during the period under review. their services based on their participation in Board meetings and Refer to note 22. other Committees. The Non-Executive Directors do not participate in incentive bonus schemes, nor have they been granted share Following the approval of the Share Incentive Scheme at the Annual options. Their remuneration was approved at the previous Annual General Meeting that was held on 30 June 2013 the Remuneration General Meeting of the Group. Committee met and made awards in terms of the rules of the scheme to 12 key senior employees during the course of August and September 2013. A further 5 key senior employees were awarded NON-EXECUTIVE DIRECTORS’ REMUNERATION FOR THE YEAR shares by Remco at a meeting held during December 2014. TO 28 FEBRUARY 2015 (Gross before deductions)

Consulting Directors’ Committee Total Figures in Rand These awards were offered subject to the achievement of Net Profit fees fees fees Remuneration After Tax Performance Targets and the employees will only be entitled to the award on achievement of the following Net Profit Dr. Malesela Motlatla - 113 163 222 297 335 460

After Tax. Mr. Robert Emslie 346 058 80 832 167 012 593 902

TARGETS: Ms. Rosetta Xaba - 80 832 186 185 267 017 • 33% when Finbond Group Limited achieves a consolidated Adv. Neville Melville - 80 832 94 126 174 958 audited Net Profit After Tax of R100 000 000 (one hundred million Rand). Adv. Jasper Noeth - 80 832 205 036 285 868 • a further 33% when Finbond Group Limited achieves a Mr. Danie Brits - 80 832 161 715 242 547 consolidated audited Net Profit After Tax of R200 000 000 (two hundred million Rand). Mrs. Ina Wilken-Jonker 883 765 80 832 125 011 1 089 608 • the balance when Finbond Group Limited achieves a consolidated audited Net Profit After Tax of R300 000 000 (three hundred million Rand).

The Conditionality Periods applicable to these tranches are equal to the amount of time it takes to reach the Net Profit After Tax targets. Only after the Audited Net Profit After Tax Performance Targets have been achieved will the awards become unconditional.

“The three great essentials to achieve anything worthwhile are: Hard work, ‘Stick-to-itiveness’, and Common sense.”

- Thomas A. Edison -

80 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 81 STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2015 Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand Note(s) 2015 2014 2015 2014 2015 2014

Assets Cash and cash equivalents 3 197 499 520 86 759 771 46 009 091 3 125 691 148 084 013 82 688 589 Other financial assets 4 372 772 262 413 720 500 821 826 30 965 069 369 719 612 402 901 938 Loans and other advances to customers 5 290 715 142 210 988 685 - - 278 379 172 210 990 805 Other receivables 6 57 553 494 18 132 659 28 435 708 1 389 253 29 160 930 13 416 918 Loans to group companies 7 - - 50 069 161 37 201 211 214 503 866 154 805 986 Inventories 8 2 566 657 - - - 2 566 657 - Current tax receivable 2 531 705 3 759 606 - - 2 447 390 3 759 606 Investments in subsidiaries 9 - - 451 471 958 471 838 556 - - Property, plant and equipment 10 46 044 154 22 567 979 - - 43 471 407 22 567 979 Investment property 11 248 820 000 242 620 028 - - 248 820 000 242 620 028 Goodwill 12 120 033 629 62 596 218 - - 97 702 004 62 596 218 Intangible assets 13 171 000 - - - 171 000 - Deferred taxation 14 10 544 541 24 701 780 2 426 125 19 028 430 - 641 855

Total Assets 1 349 252 104 1 085 847 226 579 233 869 563 548 210 1 435 026 051 1 196 989 922

Liabilities Trade and other payables 15 26 297 683 20 100 205 3 267 607 6 212 183 24 759 084 12 899 596 Fixed and Notice Deposits 16 921 933 480 695 902 092 - - 921 933 480 695 902 092 Transactional deposits 69 220 - - - 69 220 - Current tax payable 1 947 8 726 116 2 440 - - Finance lease obligation 17 1 532 266 1 327 599 - - 1 532 266 1 327 599 Loans from shareholders 20 15 000 000 - 15 000 000 - - - Loans from group companies 7 - - 216 970 343 232 991 995 - - Deferred taxation 14 38 513 237 38 905 996 - - 36 896 905 38 905 996

Total Liabilities 1 003 347 833 756 244 618 235 238 066 239 206 618 985 190 955 749 035 283

Equity Capital and reserves Share capital 18 201 522 768 225 952 568 194 580 802 239 162 377 457 781 488 457 781 488 Reserves 19 3 428 404 4 875 698 3 428 404 4 875 698 (35 939 512) (35 939 512) Retained income 141 777 151 99 598 394 145 986 597 80 303 517 27 993 120 26 112 663 Share capital and reserves attributable to ordinary shareholders 346 728 323 330 426 660 343 995 803 324 341 592 449 835 096 447 954 639 Non-controlling interest (824 052) (824 052) - - - -

Total Equity 345 904 271 329 602 608 343 995 803 324 341 592 449 835 096 447 954 639

Total Equity and Liabilities 1 349 252 104 1 085 847 226 579 233 869 563 548 210 1 435 026 051 1 196 989 922

82 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 83 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2015

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank

Figures in Rand Note(s) 2015 2014 2015 2014 2015 2014 Interest income 23 145 456 503 93 018 672 167 769 105 168 137 520 764 92 886 327 Interest expense 24 (76 136 528) (44 286 052) (88) (72 522) (74 696 379) (44 213 519) Net interest income/margin 69 319 975 48 732 620 167 681 32 646 62 824 385 48 672 808 Fee income 25 170 127 896 112 731 141 - - 159 710 851 112 731 141 Management fee income 26 27 765 974 20 736 996 19 872 714 18 485 589 27 758 609 20 504 551 Fair value adjustments 27 1 790 507 4 957 526 - - (690 567) 11 985 172 Other microfinance income 28 79 685 790 28 499 859 31 984 071 196 604 49 316 877 28 297 620 Operating profit from cell captive arrangement 29 30 611 709 22 804 330 30 611 709 22 804 330 - - Net commission expense 30 (3 384 258) (2 374 768) 72 - (3 414 645) (3 033 016) Net impairment charge on loans and advances 31 (60 136 892) (24 940 770) - - (52 872 125) (24 940 770) Operating expenses (242 417 723) (164 294 444) (26 118 693) (9 995 410) (219 811 464) (172 405 493) Operating profit 34 73 362 978 46 852 490 56 517 554 31 523 759 22 821 921 21 812 013 Dividends received - - 34 617 151 - 160 702 - Profit before taxation 73 362 978 46 852 490 91 134 705 31 523 759 22 982 623 21 812 013 Taxation 32 (22 495 603) (9 934 869) (16 602 305) (2 441 440) (8 396 636) (7 286 312) Total profit and comprehensive income for the year 50 867 375 36 917 621 74 532 400 29 082 319 14 585 987 14 525 701

Profit attributable to: Owners of the parent 50 867 375 36 917 621 74 532 400 29 082 319 14 585 987 14 525 701

Earnings per share Per share information Basic earnings per share (cents) 44 8.6 6.1 - - - - Diluted earnings per share (cents) 44 8.6 6.1 - - - -

82 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: EC1 83 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2015

Total Non Share Retained Attributable Total Reserves Controlling Capital Income to Equity Equity Interest Holders of the Group/ Figures in Rand Company GROUP Balance at 1 March 2013 239 162 377 3 913 339 62 680 773 305 756 489 (824 052) 304 932 437

Total comprehensive income for the year - - 36 917 621 36 917 621 - 36 917 621 Equity settled share based payment charge - 962 359 - 962 359 - 962 359 Treasury shares purchased (13 209 809) - - (13 209 809) - (13 209 809)

Balance at 1 March 2014 225 952 568 4 875 698 99 598 394 330 426 660 (824 052) 329 602 608

Total comprehensive income for the year - - 50 867 375 50 867 375 - 50 867 375 Equity settled share based payment charge - 2 408 916 - 2 408 916 - 2 408 916 Transfer between reserves - (3 856 210) 3 856 210 - - - Treasury shares purchased (24 429 800) - - (24 429 800) - (24 429 800) Dividends - - (12 544 828) (12 544 828) - (12 544 828)

Balance at 28 February 2015 201 522 768 3 428 404 141 777 151 346 728 323 (824 052) 345 904 271 Note(s) 18 19

FINBOND GROUP LIMITED COMPANY Balance at 1 March 2013 239 162 377 3 913 339 51 221 198 294 296 914 - 294 296 914

Total comprehensive income for the year - - 29 082 319 29 082 319 - 29 082 319 Equity settled share based payment charge - 962 359 - 962 359 - 962 359

Balance at 1 March 2014 239 162 377 4 875 698 80 303 517 324 341 592 - 324 341 592

Total comprehensive income for the year - - 74 532 400 74 532 400 - 74 532 400 Equity settled share based payment charge - 2 408 916 - 2 408 916 - 2 408 916 Transfer between reserves - (3 856 210) 3 856 210 - - - Treasury shares purchased (44 581 575) - - (44 581 575) - (44 581 575) Dividends - - (12 705 530) (12 705 530) - (12 705 530)

Balance at 28 February 2015 194 580 802 3 428 404 145 986 597 343 995 803 - 343 995 803 Note(s) 18 19

FINBOND MUTUAL BANK COMPANY Balance at 1 March 2013 457 781 488 (35 939 512) 11 586 962 433 428 938 - 433 428 938

Total comprehensive income for the year - - 14 525 701 14 525 701 - 14 525 701

Balance at 1 March 2014 457 781 488 (35 939 512) 26 112 663 447 954 639 - 447 954 639

Total comprehensive income for the year - - 14 585 987 14 585 987 - 14 585 987 Dividends - - (12 705 530) (12 705 530) - (12 705 530)

Balance at 28 February 2015 457 781 488 (35 939 512) 27 993 120 449 835 096 - 449 835 096 Note(s) 18 19

84 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 85 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 2015

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand Note(s) 2015 2014 2015 2014 2015 2014 Cash flows from operating activities Cash generated from operations 35 161 165 587 477 213 193 16 626 026 47 349 971 182 140 749 442 910 542 Tax paid 36 (8 542 750) (13 292 248) (2 324) 2 440 (8 451 656) (11 284 806)

Net cash from operating activities 152 622 837 463 920 945 16 623 702 47 352 411 173 689 093 431 625 736

Cash flows from investing activities Purchase of property, plant and equipment 10 (31 946 505) (9 117 732) - - (29 797 507) (9 117 732) Sale of property, plant and equipment 10 1 740 518 691 084 - - 1 734 085 691 084 Purchase of investment property 11 (2 197 627) (5 571 292) - - (2 197 627) (5 571 292) Purchase of other intangible assets 13 (57 608 411) (1 333 915) - - (35 732 907) (1 333 915) Movement on group loans - - (28 298 583) - (54 782 449) 1 046 607 Repayment of loans from group companies - - - (15 676 658) - - Purchase of financial assets (589 187 327) (387 967 244) - (6 331 038) (589 187 327) (394 954 050) Sale of financial assets 660 977 240 - 59 320 418 - 615 796 865 - Cash outflow from common control transaction - - - - (285 263) -

Net cash from investing activities (18 222 112) (403 299 099) 31 021 835 (22 007 696) (94 452 130) (409 239 298)

Cash flows from financing activities Reduction of share capital or buy back of shares (24 819 437) (13 209 809) (19 762 137) - - - Repayment of other financial liabilities - (23 488 649) - (22 841 529) - (635 201) Proceeds from shareholders loan 15 000 000 - 15 000 000 - - - Finance lease payments (1 136 009) (133 733) - - (1 136 009) (133 733) Dividends paid (12 705 530) - (12 705 530) - (12 705 530) - Dividends received - - 12 705 530 - - -

Net cash from financing activities (23 660 976) (36 832 191) (4 762 137) (22 841 529) (13 841 539) (768 934)

Total cash movement for the year 110 739 749 23 789 655 42 883 400 2 503 186 65 395 424 21 617 504 Cash at the beginning of the year 86 759 771 62 970 116 3 125 691 622 505 82 688 589 61 071 085

Total cash at end of the year 197 499 520 86 759 771 46 009 091 3 125 691 148 084 013 82 688 589

84 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 85 ACCOUNTING POLICIES

1. Presentation of Financial Statements Finbond Group Limited (“the Company”) is a listed entity on the Johannesburg Stock Exchange (‘JSE). The Company and Finbond Mutual Bank (‘the Bank’) are both domiciled in South Africa.

The Consolidated Financial Statements comprise of the Company and its subsidiaries, which include the Bank, together referred to as ‘the Group’.

The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the listing requirements of the JSE, the Companies Act of South Africa, and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council.

Unless otherwise stated, the accounting policies are consistent with those adopted in the prior year and have been applied consistently within the Group.

The Group’s consolidated and separate financial statements have been prepared on the historical cost basis, except for the following items carried at fair value: • Investment Properties • Financial assets at fair value through profit or loss

Functional and presentation currency The consolidated and separate financial statements are presented in South Africa Rand (ZAR), which is the functional currency of the Company.

All amounts have been rounded to the nearest rand.

Use of estimates and judgement The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in policy 1.2.

1.1 Consolidation Basis of consolidation The consolidated financial statements incorporate the financial statements of the Group and all investees (including special purpose entities) which are controlled by the Group.

The Group has control of an investee when it has power over the investee; it is exposed to or has rights to variable returns from involvement with the investee; and it has the ability to use its power over the investee to affect the amount of the investor’s returns.

In assessing control, the entity is required to identify the entity structure of the investee. An investee would generally be a separate legal entity, or may also be a legally ring-fenced group of assets and liabilities within a legal entity, commonly referred to as a silo. Unstructured entities (where control is not definitive), are not consolidated, but are instead accounted for as an investment under other financial assets.

The results of subsidiaries are included in the consolidated financial statements from the date when control commences to the date on which control ceases.

All intragroup transactions, balances and unrealised gains or losses are eliminated in full in preparing the consolidated financial statements.

Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the Group’s interest therein, and are within equity required. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interest.

Business combinations The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred and equity instruments issued.

Costs directly attributable to the acquisition were capitalised to the cost of the acquisition prior to 28 February 2010, but are expensed for business combinations from 1 March 2010.

86 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 87 Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liabilities or equity which arise as a result of the contingent consideration are not affected against goodwill, but instead are recognised in profit and loss. Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.

On acquisition, the Group assesses the classification of the acquiree’s assets and liabilities and reclassifies them where the classification is inappropriate for group purposes. This excludes lease agreements and insurance contracts, for which items classification remains as per their inception date.

Non-controlling interests arising from a business combination, which are present ownership interests, and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation, are measured either at the present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets or at fair value. The treatment is not an accounting policy choice but is selected for each individual business combination, and disclosed in the note for business combinations. All other components of non- controlling interests are measured at their acquisition date fair values, unless another measurement basis is required by IFRS.

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a gain on a bargain purchase.

Goodwill is not amortised, but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed.

Common control transactions A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination, and control is not transitory. Common control transactions are accounted for using book value accounting, whereby all assets acquired and all liabilities assumed are recognised at their carrying amount in the financial statements of the parent, as at the acquisition date. Any excess or premium paid for the acquisition of the net assets of the business acquired shall be recognised directly in equity as a nondistributable reserve.

1.2 Significant judgements, estimates and sources of uncertainty In preparing the consolidated and Company Financial Statements, management is required to make estimates and assumptions that affect the amounts represented in the financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which estimates are revised and in any future periods. Significant judgements include:

Impairment testing Impairment losses on loans and advances Loans and advances are stated net of identified impairments and incurred but unidentified impairments.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate.

The estimation of allowances for impairments is inherently uncertain and depends on many factors, including general economic conditions, structural changes within industries, changes in individual customer circumstances and other external factors such as legal requirements, regulatory specifications and governmental policy changes.

The Group reviews its loan portfolios to assess impairment on a monthly basis. In determining whether an impairment loss should be recorded in profit or loss, the Group 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 (known as loss events), before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, a breach of contract such as a default or delinquency in payment for an individual borrower, or local economic conditions that correlate with defaults on assets in that group(eg strike action).

Management uses estimates based on industry trends as well as historical loss experience for assets with similar credit risk characteristics for both identified impairment as well as incurred but unidentified impairment. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Judgemental and non-judgemental inputs are required in estimating future cash flows.

Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Refer to note 6.

86 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 87 In addition to impairment estimates for assets with recognised objective evidence of impairment, estimates are made for impairments associated with assets that are impaired but for which objective evidence of impairment is not yet available. Estimates are based primarily on industry trends for this class of impairment. Loan write-offs Clients balances (and the related impairment allowances accounts) are written off at the earliest of when: • any part of the loan is over 150 days and no payment have been received within 90 days; or • legal handover

Impairment of goodwill and intangible assets The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the assumption may change which may impact estimations and may then require adjustments to the carrying value of goodwill and intangible assets.

The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets.

Expected future cash flows used to determine the value-in-use of goodwill and intangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including NCR regulations, supply demand for loans, together with economic factors such as inflation and interest rates. For futher details about the Group’s goodwill and intangible assets refer to note 11 and 12 respectively.

Taxation The Group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the end of the reporting period could be impacted.

Fair value adjustments of investment property The Directors draw attention to the risks associated with property investments.

Although over the long term property is considered a low risk asset, investors are reminded that significant short and medium term risk factors are inherent in the asset class. Investments in property are relatively illiquid and usually more difficult to realise than listed equities or bonds which restricts the Group’s ability to realise value in cash in the short term.

The property valuations in this period have been prepared in a period of market uncertainty. The current turmoil in the world’s financial markets has resulted in commercial and residential properties selling in much reduced quantities with virtually little or no market activity in some areas. The lack of market activity and the resulting lack of market evidence means that it is generally not possible to value with as high a degree of certainty as would be the case in a more stable market with a higher, active level of market evidence. The best evidence of fair value is current prices in an active market for similar property investments, which emphasises that fair value reflects the best available use of an asset class (in this case investment property).

In obtaining evidence to support fair value the Group has gone to great lengths and obtained and considered information from a variety of sources.

For further details about the Group’s investment properties refer to note 10.

Insurance claims provisions The Group’s managing agent primarily manages insurance programs in cell structures and where information for a particular program is not available, they use industry data for determining the liability for claims incurred but not reported for the Company’s cell (IBNR provision).

The Group’s managing agent uses industry data accumulated on the Alexander Forbes Risk and Insurance Services claim system (MCS) to develop an estimate of the incurred but not reported (IBNR) claims according to specific classifications. The claims have been classified in eight categories of risk as defined by the Short Term Insurance Act No 53 of 1998.

For the IBNR calculations, the Inflation Adjusted Chain Ladder or the BornhuetterFerguson method is used. The Inflation Adjusted Chain Ladder method is used in order to deal with past inflation. It is assumed that claims inflation is at the same annual rate for all claims within a particular calendar year of payment. The chain ladder technique is based on the assumption that payments from each underwriting year

88 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 89 will develop in the same way. It is assumed that weighted average past inflation will be repeated in the future. The BornhuetterFerguson method combines the estimated loss ratio with a projection method. The main concept behind this method is, whatever claims have already developed in relation to a given origin year, the future development pattern will follow that experience for other origin years. Ten years of data was used to determine the IBNR for the liability classes of the business. As the aforementioned methods use historical claims development information, they assume that the historical claims development patterns will occur again in the future. There are reasons why this may not be the case, which, insofar as they can be identified, have been allowed for by modifying the methods.

Such items include: • changes in processes that affect the development/recording or claims paid and incurred; economic, legal, political and social trends; • changes in one mix of business; and • random fluctuations, including the impact of large losses.

Share based payments IFRS 2 requires recognition of the cost of share based payments at the fair value of the instrument. Fair value is measured as the market price of the Finbond share options, adjusted for the terms and conditions applicable to the options.

Due to the fact that employee options are not traded, there is no market price available. The fair value has been determined using the BlackScholes option pricing model.

Valuation assumptions used as the inputs into the option pricing model are as follows: • Term of the options; • Current/spot price; • Exercise/strike price; • Riskfree rate; • Volatility; and • Dividends.

Refer to note 20.

1.3 Investment property Investment property is recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the enterprise, and the cost of the investment property can be measured reliably.

Investment property is initially recognised at cost. Transaction costs are included in the initial measurement.

Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or to service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised.

Property interests held under operating leases are not classified or accounted for as investment property. Investment property comprises land and non-owner occupied buildings held to earn rentals and for capital appreciation.

Investment property is subsequently measured at fair value based on an independent valuation performed annually. A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises.

Transfers to, or from, investment property are made when there is a change in use from investment property to owner-occupied property. The investment property will be carried at fair value up to the date of change in use and derecognised. After derecognition, owner-occupied property will be recognised as property in accordance with the policies for Property, Plant and Equipment. The fair value at the date of change in use would be the cost for the purpose of accounting for the owner-occupied property.

1.4 Property, Plant and Equipment The cost of an item of Property, Plant and Equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the Company; and • the cost of the item can be measured reliably.

Property, Plant and Equipment is initially measured at cost and is subsequently carried at cost less accumulated depreciation and any impairment losses.

Costs include costs incurred initially to acquire or construct an item of Property, Plant and Equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of Property, Plant and Equipment, the carrying amount of the replaced part is derecognised.

Property, Plant and Equipment are depreciated on the straight line basis over their expected useful lives to their estimated residual value.

88 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 89 The useful lives of items of Property, Plant and Equipment have been assessed as follows: Item Average useful life Property Not Depreciated Furniture and fixtures 6 years Motor vehicles 5 years Office equipment (including leased) 6 years IT equipment 3 years Computer software 2 years Leasehold improvements 6 years

Property held under Property, Plant and Equipment consists of land and buildings. Land has an infinite useful life, and thus is not depreciated. The buildings are not depreciated, as the residual value of the buildings are estimated to be equal, or more than the carrying amount.

The residual value, useful life and depreciation method of assets are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

Each component part of an item of Property, Plant and Equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Subsequent expenditure is included in the assets carrying amount or is recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance are charged to the statement of comprehensive income in the period in which the expense is incurred.

The Group reviews and tests the carrying value of Property, Plant and Equipment when events or changes in circumstances suggest that the carrying amount may not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets.

The gain or loss arising from the derecognition of an item of Property, Plant and Equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of Property, Plant and Equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.5 Intangible assets An intangible asset is recognised when: • it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and • the cost of the asset can be measured reliably.

Goodwill Goodwill is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest of the net fair value of the identifiable assets, liabilities and contingent liabilities.

Subsequently goodwill is carried at cost less any accumulated impairment. Testing for impairment is performed annually by an independent valuator.

Contingent consideration before 28 February 2010 was recognised as soon as payment became probable and the amount could be measured reliably. The price was subsequently adjusted against goodwill as the estimate of the amount payable was revised. Any shares issued subsequent to the date of acquisition in settlement of such contingent consideration was recorded at the share price on the date that the shares were issued, with a resultant adjustment to goodwill and the share reserve within equity.

Internally generated goodwill is not recognised as an asset.

Intangible assets (Trade marks and brand names) Separately acquired trademarks and brand names are shown at historical cost. Trademarks and brand names acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and brand names have a finite useful life of 5 years, which is unchanged from prior years and are carried at cost less accumulated amortisation. Amortisation is calculated using the straightline method to allocate the cost of trademarks and brand names over their estimated useful lives. The useful lives are reassessed on an annual basis.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets.

1.6 Investments in subsidiaries Company financial statements In the Company’s separate financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.

90 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 91 The cost of an investment in a subsidiary is the aggregate of: • the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Company; plus • any costs directly attributable to the purchase of the subsidiary.

An adjustment to the cost resulting from a business combination contingent on future events is included in the cost if the adjustment is probable and can be measured reliably.

At each reporting date it is determined whether there is objective evidence that the investment in the subsidiaries is impaired. If this is the case the difference between the recoverable amount of the subsidiary and its carrying value is recognised in the statement of comprehensive income.

1.7 Interest-free loans granted Interest-free group loans with no fixed maturities are viewed as part of the Company’s investment in subsidiaries, and are carried at cost net of impairments.

1.8 Financial instruments Initial recognition and measurement Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments.

The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned. These investments are measured initially and subsequently at fair value. Gains and losses arising from changes in fair value are recognised in profit and loss, until the security is disposed of or is determined to be impaired, at which time the gain or loss is included in the profit or loss for the period.

Financial assets are derecognised when rights to receive cash flows from the financial asset have expired or where the Group has transferred substantially all risks and rewards of ownership. The Group derecognises financial liabilities when its contractual obligations are discharged or cancelled, or expire.

Financial instruments are measured initially at fair value. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Transaction costs on financial instruments at fair value through profit or loss are immediately recognised in profit or loss.

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceed received, net of direct issue costs.

Financial liabilities Financial liabilities comprise trade and other payables, deposits received from customers, other financial liabilities and loans from group companies.

Financial liabilities are classified as financial liabilities at fair value through profit and loss, or other financial liabilities.

Financial liabilities at fair value through profit or loss are classified as such where the financial liability is either held for trading or it is designated as at fair value through profit and loss.

The Group derecognises financial liabilities when its contractual obligations are discharged, expired or cancelled.

Other financial liabilities, comprising of trade and other payables, deposits received from customers, other financial liabilities and loans from group companies, are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Financial assets Financial assets comprise cash and cash equivalents, other financial assets, loans and other advances, other receivables and loans to group companies.

The Group classifies financial assets as loans and receivables, held-to-maturity and designated as at fair value through profit and loss.

Loans and receivables Loans and receivables include loans and advances, trade and other receivables and loans to group companies. Loans and receivables are subsequently measured at amortised cost using the effective interest rate method.

90 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 91 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 within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in profit or loss.

Cash and cash equivalents Cash and cash equivalents comprise balances with less than twelve months maturity from date of acquisition including cash on hand and demand deposits and other highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash and cash equivalents is measured at amortised cost and approximates fair value due to the short- term nature of these instruments.

Designated as at fair value through profit and loss, Held-for-trading financial assets and Held-to-maturity financial assets Other financial assets include investments classified as designated as at fair value through profit and loss, held for trading and held to maturity investments.

Designated as at fair value through profit and loss Financial assets are designated as at fair value through profit and loss upon initial recognition to the extent it produces more relevant information because it forms part of a group of assets which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally to management on that basis. Subsequent gains and losses arising from changes in fair value are recognised in profit and loss.

Held-for-trading financial assets Financial assets are classified as held for trading if it has been acquired or incurred principally for the purpose of selling or repurchasing in the near term, or on initial recognition it is part of an identified portfolio of identifiable financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit taking.

Subsequents gains and losses arising from changes in fair value are recognised in profit and loss.

Held-to-maturity financial assets If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. These financial assets are initially measured at fair value plus direct transaction costs.

Held to maturity investments are measured at amortised cost using the effective interest method, less any impairment.

Fair value determination Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measure date.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group and separate companies establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Group and seperate Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); • Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and • Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

Fair value determination as included in the measurement and disclosure requirements of IFRS 13 is applicable to all elements of the statement of financial position, and not only financial instruments.

Offsetting financial instruments The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

92 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 93 Effective interest method Financial assets and liabillities are offset and the net amount is 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 to realise the asset and settle the liability simultaneously. Deferred loan income reduces the outstanding loans and advances balance on the basis that the revenue will be recognised over the terms of the loans.

Effective for periods ending 28 February 2015, IFRS 7 clarified the offsetting requirements. The standard clarified that “legal enforceable right to set off” is not contingent on a future event and enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and counterparties. The revised guidance did not affect the Group.

The amendments further introduced additional disclosures. Where applicable, the Group has implemented these disclosures.

1.9 Taxation Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: • a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or • a business combination.

Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.

Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity.

Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the intial recognition of an asset or liability in a transaction which is not a business combination or at the time of the transaction, affects neither accounting profit nor taxable profit (or tax loss).

A deferred tax asset is recognised for deductable temporary differences to the extent that it is probable that taxable profit will be available against which the deductable temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit (or tax loss).

Deferred tax is calculated using the liability method based on the expected manner of recovery, i.e. sale or use at an effective rate of 18.67% or 28% respectively (2014: 18.67% or 28%).

A deferred tax asset is recognised for the carry forward of unused tax losses, unused STC credits (originating prior to 1 April 2012), and dividend withholding tax (after 1 April 2012), to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits or dividend withholding tax can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. • a transaction or event which is recognised, in the same or a different period, to other comprehensive income, or • a business combination.

1.10 Segment reporting: determination and presentation of operating segments The Group determines and presents operating segments based on the information that internally is provided to the Chief Operating Officer (COO) and all the Executive Committee members.

Segment results that are reported to the Chief Executive Officer include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly insignificant corporate assets, unallocated head office expenses, and income tax assets and liabilities, which are reported as reconciling.

92 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 93 On a primary basis, the Group is organised into three major operating divisions, namely; deposit taking, microfinance and property investment. These divisions are the basis on which the Group reports its primary segment information for internal purposes. The Group operates in one principal geographical area, namely South Africa.

1.11 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Finance leases – lessee Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability.The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.

Operating leases lessor Operating lease income is recognised as income on a straightline basis over the lease term.

There are no lease incentives recognised as an integral part of lease payments.

Income from leases is disclosed under other micro finance income in profit or loss.

Operating leases – lessee Operating lease payments are recognised as an expense on a straightline basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments is recognised as an operating lease asset. This liability is not discounted.

The asset recognised as part of the operating lease is accounted for in accordance with the policies applicable to property, plant and equipment. Any contingent rents are expensed in the period that they are incurred.

1.12 Share capital and equity Ordinary shares are classified as equity.

If the Group reacquires its own equity instruments (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) on those instruments is deducted from equity until the shares are cancelled or reissued. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Consideration paid or received shall be recognised directly in equity.

Dividends on ordinary shares and preference shares are recognised in equity in the period in which they have been approved by the Group’s Directors.

Dividends for the year that are declared after the statement of financial position date are dealt with in the Directors’ report, and in note 41.

1.13 Share based payments Goods or services received or acquired in a share-based payment transaction are recognised when the services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled sharebased payment transaction.

Services received in a share-based payment transaction do not qualify for recognition as assets, they are recognised as expenses.

For equity-settled share-based payment transactions the services received and the corresponding increase in equity are measured, directly, at the fair value of the services received provided that the fair value can be estimated reliably.

If the fair value of the services received cannot be estimated reliably, or if the services received are employee services, their value and the corresponding increase in equity, are measured, indirectly, by reference to the fair value of the equity instruments granted.

Vesting conditions which are not market related (i.e. service conditions and nonmarket related performance conditions) are not taken into consideration when determining the fair value of the equity instruments granted. Instead, vesting conditions which are not market related shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

94 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 95 Market conditions, such as a target share price, are taken into account when estimating the fair value of the equity instruments granted. The number of equity instruments are not adjusted to reflect equity instruments which are not expected to vest or do not vest because the market condition is not achieved.

If the share-based payments granted do not vest until the counterparty completes a specified period of service, the Group accounts for those services as they are rendered by the counterparty during the vesting period, (or on a straight line basis over the vesting period).

For share-based payment transactions in which the terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets), or by issuing equity instruments, the components of that transaction are recorded, as a cash-settled share-based payment transaction if, and to the extent that, a liability to settle in cash or other assets has been incurred, or as an equitysettled sharebased payment transaction if, and to the extent that, no such liability has been incurred.

1.14 Employee benefits Shortterm employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and bonuses), are recognised in the period in which the service is rendered and are not discounted.

The expected cost of compensated absences is recognised as an expense and associated liability as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

Defined contribution plans Payments to defined contribution provident benefit plans are charged as an expense as they fall due.

1.15 Revenue Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Interest revenue is recognised, in profit or loss, for all interest bearing instruments on an accrual basis using the effective interest rate method. For further details about interest revenue refer to accounting policy 1.8.

Service fees, (part of Fee Income) included in the price of the product are recognised as revenue over the period during which the service is performed.

Initiation fees, (part of Fee Income), being the portion of the loan origination fees that relates to the creation of the financial asset, are deferred and recognised, in profit and loss, in a pattern consistent with the effective interest rate method on the original loan.

Management fee income is earned in terms of the Group’s Transfer Pricing Policy for the provision of support and administrative services.

Royalty revenue is earned on the rental of the Company’s intellectual property consisting of trademarks, copyright and knowhow.

Commission revenue, (part of Net commission expense) is recognised at the later of transfer at the deeds office and formal grant date from the Bank. Dividends are recognised, in profit or loss, when the right to receive payment has been established.

Rental revenue, (part of Other Micro Finance Income) is recognised on a straight line basis over the term of the lease contract.

Operating profit Operating profit is defined as the residual profit or loss from all operations before accounting for tax, dividends and non-trading items and has been consistently applied in the consolidated and separate financial statements.

Operating profit from Cell captive arrangement is recognised as the profit from the insurance cells, reflecting Finbond’s net interest in the cell captive.

1.16 Interest expense Interest expense is recognised for all instruments measured at amortised cost, in profit or loss, using the effective interest rate method.

1.17 Accounting for Cell Captive Arrangement Consolidation The cell captive is not consolidated because it does not meet the requirements of IFRS 10. Instead, the separate financial statements of the Company will only reflect its net interest in the cell captive.

94 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 95 The cell captive arrangement with Guardrisk has been created through a preference shareholders’ agreement. The Company, as the cell’s shareholder, is allocated the economic benefits from the underwriting and investment activities in the cell.

Conversely, the Company, as the cell’s owner, is accountable for any losses to the extent that the cell has funds available for offset against the losses. Future profits that arise in the cell or recapitalisation by the cell owner, (that is the obligation of the Company as the cell’s owner) will be utilised to offset losses in excess of the funds available.

This cell arrangement enables the Group to provide the opportunity to its own client base to purchase branded life insurance products where an existing life insurance policy cannot be ceded to the Company as security for the amount borrowed.

In addition, the Group is able to purchase a cell in the registered insurance Company, (Guardrisk) which undertakes the professional insurance and financial management of the cell, including underwriting, reinsurance, claims management, actuarial and statistical analyses and investment and accounting services.

Insurance premium revenue Premiums are recognised as revenue as and when the cash premium is received and is shown as part of Operating profit from Cell captive arrangement.

Premiums are shown before deduction of commission and are gross of any taxes or duties levied on premiums.

Insurance claims incurred Claims are charged to income as incurred based on the estimated liability for compensation owed to contract holders. They arise from events that have occurred up to the reporting date even if they have not yet been reported to the Company. The Company does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of assessments for individual cases reported to the Company or its agent and statistical analyses for the claims incurred but not reported, and an estimate of the expected ultimate cost of more complex claims that may be affected by external factors (such as court decisions).

1.18 Common control reserve The common control reserve comprises of the difference between the value of shares issued by Finbond Mutual Bank and the net asset value of assets and liabilities transferred from Finbond Group Limited to Finbond Mutual Bank as part of a common control transaction on 1 September 2012.

1.19 Inventories Inventories relate to card stock held and are carried at the lower of cost and net realisable value. Cost is determined using the first-in, first- out method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and applicable variable selling expenses.

Costs include all cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost of purchase comprises the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.

Finbond orders cards to be produced in line with expected sales on transactional banking products. The cards are then expensed when the client takes receipt of the card in the branch.

96 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 97 NOTES TO THE FINANCIAL STATEMENTS

2. New Standards and Interpretations 2.1 Standards and Interpretaions early adopted The Group has chosen not to early adopt any standards and interpretations not yet effective in the reporting period.

2.2 Standards and Interpretations not yet effective A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 March 2015, and have not been applied in preparing these consolidated and separate financial statements. Those which may be relevant to the Group and Company are set out below. The Group and Company do not plan to adopt these standards early. These will be adopted in the period that they become mandatory unless otherwise indicated:

IFRS 15 Revenue from contracts with customers This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue – Barter of Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised.

This new standard will most likely have an impact on the Group, which will include a possible change in the timing of when revenue is recognised and the amount of revenue recognised. The Group is currently in the process of performing a more detailed assessment of the impact of this standard on the Group and will provide more information in the year ending 28 February 2016 financial statements.

The standard is effective for annual periods beginning on or after 1 January 2017, with early adoption permitted under IFRS.

IFRS 9 Financial Instruments On 24 July 2014 the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9 and completes the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.

This standard will have a significant impact on the Group, which will include changes in the measurement bases of the Group’s financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an “incurred loss” model from IAS 39 to an “expected credit loss” model, which is expected to increase the provision for bad debts recognised in the Group.

The standard is effective for annual periods beginning on or after 1 January 2018 with retrospective application, early adoption is permitted. The Group is currently in the process of performing a more detailed assessment of the impact of this standard on the Group and will provide more information in the year ending 28 February 2016 financial statements.

Disclosure Initiative (Amendments to IAS 1) The amendments provide additional guidance on the application of materiality and aggregation when preparing financial statements.

96 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 97 3. Cash and cash equivalents Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Cash and cash equivalents consist of: Cash on hand (1) 5 695 971 4 177 740 - - 5 167 166 4 177 740 Bank balances (2) 171 047 101 70 447 012 46 009 091 3 125 691 122 160 399 66 375 830 Central Bank Balances (3) 11 739 313 3 657 874 - - 11 739 313 3 657 874 Short-term deposits (4) 9 017 135 8 477 145 - - 9 017 135 8 477 145

Current assets 197 499 520 86 759 771 46 009 091 3 125 691 148 084 013 82 688 589

Cash and Cash equivalents are stated at cost which approximates fair value due to short term nature of these instruments. (1) Cash on hand is non-interest bearing. (2) The effective rate of interest earned on bank balances varies between 2.5% - 4.75% (2014: 3.3% - 5.53%). (3) Mandatory reserve deposits with the SARB must be maintained at the average required by the SARB over a one-month period and are non-interest bearing. These deposits may be used to manage significant intra- and inter-day cash outflows but are not taken into consideration for cash planning purposes. (4) Short term deposits consists of a twelve month ABSA fixed deposit at an effective rate of 6.65% (2014: 5.53%)

98 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 99 4. Other financial assets

Finbond Group Limited Finbond Group Limited Finbond Mutual At fair value through Consolidated Company Bank profit or loss - designated 2015 2014 2015 2014 2015 2014 Investment in Cell Captive arrangement (1) 3 052 650 31 056 018 821 826 30 965 069 - -

At fair value through profit or loss - held for trading

Listed shares (2) - 8 957 - - - 20 246 413 Stanlib Corporate Money Market Fund (3) 17 041 - - - 17 041 - Stanlib Extra Income Fund and Money Market (3) - 139 625 269 - - - 139 625 269 Investec Corporate Money Market Fund (4) 10 110 542 - - - 10 110 542 - Investec High Income Fund (4) - 194 774 493 - - - 194 774 493 Cadiz Enterprise Development Fund (5) 1 079 733 - - - 1 079 733 - Nedgroup Flexible Income Fund (6) 104 328 391 - - - 104 328 391 - Coronation Strategic Income Fund (7) 51 750 916 - - - 51 750 916 - Sanlam SIM Active Income Fund (8) 139 994 743 - - - 139 994 743 - 307 281 366 334 408 719 - - 307 281 366 354 646 175 Held to maturity Treasury Bills (9) 62 438 246 48 255 763 - - 62 438 246 48 255 763 Total other financial assets 372 772 262 413 720 500 821 826 30 965 069 369 719 612 402 901 938 Current assets At fair value through profit or loss - designated 3 052 650 31 056 018 821 826 30 965 069 - - At fair value through profit or loss - held for trading 307 281 366 334 408 719 - - 307 281 366 354 646 175 Held to maturity 62 438 246 48 255 763 - - 62 438 246 48 255 763 372 772 262 413 720 500 821 826 30 965 069 369 719 612 402 901 938

(1) Investment in Insurance cell captive, held at net asset value. Fair value hierarchy: Level 3 (2014: Level 3) (2) FGL shares (2014). Fair value hierarchy: Level 1 (2014: Level 1) (3) The investment is carried at market value, with an average yield of 6.32% (2014: 6.24%). Fair value hierarchy: Level 2 (2014: Level 2) (4) The investment is carried at market value, with an average yield 6.32% (2014: 6.50%). Fair value hierarchy: Level 2 (2014: Level 2) (5) The investment is carried at market value, with an average yield of 4.85%. Fair value hierarchy: Level 2 (6) The investment is carried at market value, with an average yield of 7.42%. Fair value hierarchy: Level 2 (7) The investment is carried at market value, with an average yield of 8.40%. Fair value hierarchy: Level 2 (8) The investment is carried at market value, with an average yield of 8.88%. Fair value hierarchy: Level 2 (9) The treasury bills are purchased from South African Reserve Bank, they carry an average interest rate of 5.95% (2014: 5.7%) and mature between 3 and 12 months. Fair value hierarchy: Level 2 (2014: Level 2)

The Group has not reclassified any financial assets from cost or amortised cost to fair value orvice versa during the current or prior year and there have not been any transfers of investments between fair value hierarchy classes.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of asset mentioned above.

98 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 99 5. Loans and other advances to customers

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Maturity analysis of loans and advances Demand to one month 47 091 584 34 304 297 - 1 323 143 44 081 891 32 981 155 Two to six months 252 949 259 198 224 465 - 19 255 196 240 508 814 178 969 269 Seven months to one year 23 662 530 23 095 006 - 1 951 763 23 119 631 21 143 243 More than one year 50 859 146 43 124 745 - 7 063 010 50 115 747 36 063 854 Gross loans and advances 374 562 518 298 748 513 - 29 593 112 357 826 083 269 157 521 Deferred future income (56 960 379) (68 624 458) - (29 593 112) (54 255 988) (39 031 346) Loans and advances before impairment 317 602 139 230 124 055 - - 303 570 095 230 126 175 Allowances for impairment to loans and advances (26 886 998) (19 135 370) - - (25 190 923) (19 135 370) Net loans and advances (*) 290 715 142 210 988 685 - - 278 379 172 210 990 805 Current assets 290 715 142 210 988 685 - - 278 379 172 210 990 805 Movement of allowance for impairment Opening balance 19 135 370 13 299 884 - - 19 135 370 13 299 884 Acquisitions - - - - 361 079 - Opening balance through disposal - - - - (413 171) - Increase/(decrease) in provision 7 751 628 5 835 486 - - 6 107 645 5 835 486 Closing balance 26 886 998 19 135 370 - - 25 190 923 19 135 370 Impairment of due and past due loans and advances on a net basis Not past due 255 150 617 180 665 267 - - 245 329 570 185 024 550 Loans and advances before impairment 256 048 429 181 325 077 - - 246 172 135 185 684 360 Impairment (897 812) (659 810) - - (842 565) (659 810) Past due 35 564 525 30 323 418 - - 33 049 602 25 966 255 Loans and advances before impairment 61 553 710 48 798 978 - - 57 397 960 44 441 815 Impairment (25 989 185) (18 475 560) - - (24 348 358) (18 475 560) 290 715 142 210 988 685 - - 278 379 172 210 990 805

The maximum exposure to credit risk at the reporting date is the gross portfolio as indicated above, as loans and advances are unsecured. Included in loans and advances is related accrued interest receivable of R22 120 651 (2014: R16 863 625).

Past due loans and advances are delinquent by one day, to date of write-off to legal. All loans have been assessed for impairment, including not past due loans, in terms of the Group allowance policy.

Deferred future income consists of interest and fees, deferred and earned over the period of the loan using the effective interest rate method.

The creation and release of allowance for impaired loans and advances have been included in the impairment line in profit and loss. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash in terms of Group write-off policy. The Group considers the following write-off indicators/triggers of the borrower: • Unemployed; • Uncontactable; • Administration/Debt review; • Deceased; or • Any part of the loan over 150 days and no payment within 90 days.

Included in loans and advances past due are financial assets that would otherwise be written off to legal, but have been renegotiated. Management do not consider the effect of past due renegotiated loans to be material in terms value or disclosure. Renegotiated loans and advances are strictly monitored to the extent that three missed payment in terms of the renegotiated terms will automatically lead to write- off.

Loans and advances are valued at amortised cost using the effective interest method.

*Current year movement in net loans and advances amounts to a R79 726 457 increase (2014: R88 554 670 increase).

100 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 101 6. Other receivables Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Rental deposits 2 775 271 1 523 364 - - 2 556 823 1 319 984 Prepayments 4 671 504 2 145 113 2 099 124 - 2 572 380 2 145 113 VAT 162 657 2 321 204 115 830 - - 1 939 920 Subscription contracts 19 414 596 5 111 871 - - 19 414 596 5 111 871 Sundry receivables 30 529 466 7 031 107 26 220 754 1 389 253 4 617 131 2 900 030 57 553 494 18 132 659 28 435 708 1 389 253 29 160 930 13 416 918

Fair value of other receivables Fair value approximates carrying value due to the short term nature and effect of discounting being immaterial.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. Fair value approximates carrying value.

Included in sundry receivables of the separate companies in the prior year, are related party transactions between Finbond Group Limited and Finbond Mutual Bank, relating to insurance premiums written. Refer to the related party note 40.

7. Loans to (from) group companies Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Subsidiaries Finbond Micro Finance 2 (Pty) Ltd (previously Bondmaster Group (Pty) Ltd) - - - (29 620 161) - - Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd) - - 50 069 161 37 025 472 36 012 061 70 519 Finbond Micro Finance (Pty) Ltd (previously Blue Chip Finance Western Cape (Pty) Ltd) - - (25 060 468) (25 869 101) - - Finbond Mortgage Origination (Pty) Ltd t/a Independent Bond Originators (Pty) Ltd - - (13 593 831) (19 713 384) - - Greenflash Trading 220 (Pty) Ltd - - - (3 053 904) - - Mzanzi Finance (Pty) Ltd - - 175 761 175 761 - - Finbond Mutual Bank - - (178 491 805) (154 735 467) - - Finbond Group Limited - - - - 178 491 805 154 735 467 - - (166 901 182) (195 790 784) 214 503 866 154 805 986

The loans are unsecured, bear no interest and are repayable on demand.

Current assets - - 50 069 161 37 201 211 214 503 866 154 805 986 Current liabilities - - (216 970 343) (232 991 995) - - - - (166 901 182) (195 790 784) 214 503 866 154 805 986

The maximum exposure to credit risk at the reporting date is the carrying value of each class of loan mentioned above.

100 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 101 8. Inventories

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Finished goods 2 566 657 - - - 2 566 657 -

9. Interests in subsidiaries including consolidated structured entities

The following table lists the entities which are controlled by the group, either directly or indirectly through subsidiaries. % holding % holding Carrying Carrying COMPANY 2015 2014 amount 2015 amount 2014 Finbond Group Limited Finbond Micro Finance (Pty) Ltd Dormant 100.00% 100.00% 13 547 345 13 547 345 (previously Blue Chip Finance Western Cape (Pty) Ltd) The Excel Group (Pty) Ltd Dormant 100.00% 100.00% - 4 162 231 Finbond Micro Finance 2 (Pty) Ltd 100.00% 100.00% - 13 481 723 (previously Bondmaster Group (Pty) Ltd) Finbond Mortgage Origination (Pty) Ltd 100.00% 100.00% 16 048 119 16 048 119 t/a Independent Bond Originators (Pty) Ltd Zevoli 182 (Pty) Ltd Dormant 100.00% 100.00% 100 100 Dimension Home Loans Group (Pty) Ltd Dormant 100.00% 100.00% - 2 722 644 Finbond Mutual Bank 100.00% 100.00% 421 841 976 421 841 976 Supreme Finance (Pty) Ltd 100.00% 100.00% 34 418 34 418 (previously Blue Chip Finance 1 (Pty) Ltd) ABC Cash Loans (Pty) Ltd (Namibia) Dormant 51.00% 51.00% - - Shanike Investments No 155 (Pty) Ltd Dormant 100.00% 100.00% - - Non Current Asset 451 471 958 471 838 556

Opening Purchases/ Reconciliation of investments in subsidiaries - COMPANY 2015 Balance (Disposal) Impairments Total Finbond Group Limited Finbond Micro Finance (Pty) Ltd 13 547 345 - - 13 547 345 (previously Blue Chip Finance Western Cape (Pty) Ltd) Finbond Micro Finance 2 (Pty) Ltd 13 481 723 (13 481 723) - - (previously Bondmaster Group (Pty) Ltd) Dimension Home Loans Group (Pty) Ltd 2 722 644 (2 722 644) - - Finbond Mortgage Origination (Pty) Ltd 16 048 119 - - 16 048 119 t/a Independent Bond Originators (Pty) Ltd The Excel Group (Pty) Ltd 4 162 231 (4 162 231) - - Zevoli 182 (Pty) Ltd 100 - - 100 Supreme Finance (Pty) Ltd 34 418 - - 34 418 (previously Blue Chip Finance 1 (Pty) Ltd) Finbond Mutual Bank 421 841 976 - - 421 841 976 471 838 556 (20 366 598) - 451 471 958

102 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 103 Opening Purchases/ Reconciliation of investments in subsidiaries - COMPANY 2014 Balance (Disposal) Impairments Total Finbond Group Limited Finbond Micro Finance (Pty) Ltd 13 547 345 - - 13 547 345 (previously Blue Chip Finance Western Cape (Pty) Ltd) Finbond Micro Finance 2 (Pty) Ltd 13 481 723 - - 13 481 723 (previously Bondmaster Group (Pty) Ltd) Dimension Home Loans Group (Pty) Ltd 2 722 644 - - 2 722 644 Finbond Mortgage Origination (Pty) Ltd 16 048 119 - - 16 048 119 t/a Independent Bond Originators (Pty) Ltd The Excel Group (Pty) Ltd 4 162 231 - - 4 162 231 Zevoli 182 (Pty) Ltd 100 - - 100 Supreme Finance (Pty) Ltd - 34 418 - 34 418 (previously Blue Chip Finance 1 (Pty) Ltd) Finbond Mutual Bank 421 841 976 - - 421 841 976 471 804 138 34 418 - 471 838 556

The carrying amounts of subsidiaries are carried at cost, net of impairment losses.

Zevoli 182 (Pty) Ltd transferred its 100% shareholding in Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd) to Finbond Group Limited during the prior year.

During the current period the following companies were unwound and are in the process of being deregistered. Finbond Micro Finance 2 (Pty) Ltd (previously Bondmaster Group (Pty) Ltd) Dimension Home Loans Group (Pty) Ltd The Excel Group (Pty) Ltd

All the subsidiaries, excluding ABC Cash Loans (Pty) Limited (Namibia) are domiciled in South Africa, which is also their main place of business.

The dormant subsidaries do not form a significant part of the Group’s operations, and most are in the process of being deregistered.

Supreme Finance (Pty) Ltd and Finbond Mutual Bank are the main operating companies in the Group, and are considered to be a material part of the Group’s operating activities.

Finbond Mortgage Origination t/a Independent Bond Originators, contributes a small portion of the Group’s operating income, and is not considered to be material.

102 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 103 10. Property, Plant and Equipment

2015 2014 Cost/ Accumulated Carrying Cost/ Accumulated Carrying GROUP Valuation depreciation Value Valuation depreciation Value Leasehold property 5 300 000 - 5 300 000 5 300 000 - 5 300 000 Furniture and fixtures 6 924 987 (1 286 773) 5 638 214 3 004 198 (511 026) 2 493 172 Motor vehicles 5 314 001 (895 919) 4 418 082 2 113 636 (227 475) 1 886 161 Office equipment 3 267 576 (508 743) 2 758 833 1 186 749 (283 347) 903 402 IT equipment 8 889 537 (2 806 051) 6 083 486 3 649 951 (955 721) 2 694 230 Computer software 1 553 354 (789 482) 763 872 658 977 (212 161) 446 816 Leasehold improvements 24 314 734 (4 186 699) 20 128 035 10 180 212 (2 231 613) 7 948 599 Assets not yet operational 953 632 - 953 632 895 599 - 895 599 Total 56 517 821 (10 473 667) 46 044 154 26 989 322 (4 421 343) 22 567 979

2015 2014 Cost/ Accumulated Carrying Cost/ Accumulated Carrying FINBOND MUTUAL BANK Valuation depreciation Value Valuation depreciation Value Leasehold property 5 300 000 - 5 300 000 5 300 000 - 5 300 000 Furniture and fixtures 6 410 172 (1 262 969) 5 147 203 3 004 198 (511 026) 2 493 172 Motor vehicles 5 314 001 (895 919) 4 418 082 2 105 496 (219 335) 1 886 161 Office equipment 3 129 123 (501 728) 2 627 395 1 186 749 (283 347) 903 402 IT equipment 8 583 066 (2 764 926) 5 818 140 3 649 951 (955 721) 2 694 230 Computer software 1 553 354 (789 482) 763 872 658 977 (212 161) 446 816 Leasehold improvements 22 514 812 (4 071 729) 18 443 083 10 180 212 (2 231 613) 7 948 599 Property, plant and equipment 1 953 632 - 953 632 895 599 - 895 599 Total 53 758 160 (10 286 753) 43 471 407 26 981 182 (4 413 203) 22 567 979

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Non-current asset 46 044 154 22 567 979 - - 43 471 407 22 567 979

Reconciliation of property, plant and equipment Opening Additions at Disposals at Depreciation Closing the carrying charge for the - GROUP 2015 Balance cost amount period Balance Leasehold property 5 300 000 - - - 5 300 000 Furniture and fixtures 2 493 172 4 452 995 (433 794) (874 159) 5 638 214 Motor vehicles 1 886 161 3 396 421 (117 302) (747 198) 4 418 082 Office equipment 903 402 2 162 197 - (306 766) 2 758 833 IT equipment 2 694 230 5 614 201 (152 694) (2 072 251) 6 083 486 Computer software 446 816 918 316 - (601 260) 763 872 Leasehold improvements 7 948 599 15 909 411 (1 160 080) (2 569 896) 20 128 034 Assets not yet operational 895 599 58 033 - - 953 632 22 567 979 32 511 574 (1 863 870) (7 171 530) 46 044 154

104 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 105 Reconciliation of property, plant and equipment Opening Additions at Disposals at Depreciation Closing the carrying charge for the - GROUP 2014 Balance cost amount period Balance Leasehold property 5 300 000 - - - 5 300 000 Furniture and fixtures 1 564 698 1 302 091 (915) (372 702) 2 493 172 Motor vehicles 395 862 1 738 578 (57 345) (190 934) 1 886 161 Office equipment 1 293 048 575 793 (715 011) (250 428) 903 402 IT equipment 926 399 2 577 443 (12 947) (796 665) 2 694 230 Computer software 168 345 466 036 - (187 565) 446 816 Leasehold improvements 5 843 007 3 493 064 (33 922) (1 353 550) 7 948 599 Assets not yet operational 709 732 185 867 - - 895 599 16 201 091 10 338 872 (820 140) (3 151 844) 22 567 979

Reconciliation of property, plant and equipment Opening - FINBOND MUTUAL BANK 2015 Balance Additions Disposals Depreciation Total

Leasehold property 5 300 000 - - - 5 300 000 Furniture and fixtures 2 493 172 3 940 572 (436 186) (850 355) 5 147 203 Motor vehicles 1 886 161 3 396 421 (117 302) (747 198) 4 418 082 Office equipment 903 402 2 023 669 - (299 676) 2 627 395 IT equipment 2 694 230 5 329 938 (175 616) (2 030 412) 5 818 140 Computer software 446 816 918 316 - (601 260) 763 872 Leasehold improvements 7 948 599 14 714 317 (1 764 908) (2 454 925) 18 443 083 Assets not yet operational 895 599 58 033 - - 953 632 22 567 979 30 381 266 (2 494 012) (6 983 826) 43 471 407

Reconciliation of property, plant and equipment Opening - FINBOND MUTUAL BANK 2014 Balance Additions Disposals Depreciation Total

Leasehold property 5 300 000 - - - 5 300 000 Furniture and fixtures 1 564 698 1 302 091 (915) (372 702) 2 493 172 Motor vehicles 395 862 1 738 578 (57 345) (190 934) 1 886 161 Office equipment 1 293 048 575 793 (715 011) (250 428) 903 402 IT equipment 926 399 2 577 443 (12 947) (796 665) 2 694 230 Computer software 168 345 466 036 - (187 565) 446 816 Leasehold improvements 5 843 007 3 493 064 (33 922) (1 353 550) 7 948 599 Assets not yet operational 709 732 185 867 - - 895 599 16 201 091 10 338 872 (820 140) (3 151 844) 22 567 979

104 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 105 Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Pledged as security 2015 2014 2015 2014 2015 2014 Carrying value of assets pledged as security: Motor vehicles 233 054 15 170 - - 233 054 15 170 Outstanding finance lease payments are secured by motor vehicles. Refer to note 17. Leasehold office equipment - 78 411 - - - 78 411 Outstanding finance lease payments are secured by leasehold equipment Refer to note 17. Leasehold IT equipment 1 505 630 1 041 246 - - 1 505 630 1 041 246 Outstanding finance lease payments are secured by Leasehold IT equipment. Refer to note 17. 1 738 684 1 134 827 - - 1 738 684 1 134 827

A register containing the information required by Regulation 25(3) of the Companies Regulations, 2011 is available for inspection at the registered office of the company.

11. Investment Property

2015 2014 Cost/ Accumulated Carrying Cost/ Accumulated Carrying GROUP Valuation depreciation Value Valuation depreciation Value Investment property 248 820 000 - 248 820 000 242 620 028 - 242 620 028 FINBOND MUTUAL BANK Investment property 248 820 000 - 248 820 000 242 620 028 - 242 620 028

Opening Reconciliation of investment property Additions resulting Fair value Balance Additions from capitalised sub- Total - GROUP 2015 sequent expenditure adjustment Investment property 242 620 028 2 100 000 97 627 4 002 345 248 820 000

Opening Reconciliation of investment property Additions resulting Fair value Balance Additions from capitalised sub- Total - GROUP 2014 sequent expenditure adjustment Investment property 233 005 882 5 000 000 571 292 4 042 854 242 620 028

Opening Reconciliation of investment property Additions resulting Fair value Balance Additions from capitalised sub- Total - FINBOND MUTUAL BANK 2015 sequent expenditure adjustment Investment property 242 620 028 2 100 000 97 627 4 002 345 248 820 000

Opening Reconciliation of investment property Additions resulting Fair value Balance Additions from capitalised sub- Total - FINBOND MUTUAL BANK 2014 sequent expenditure adjustment Investment property 233 005 882 5 000 000 571 292 4 042 854 242 620 028

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Non-current asset 248 820 000 242 620 028 - - 248 820 000 242 620 028

Fair value hierarchy of investment property: Level 3 (2014: Level 3).

106 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 107 Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Details of property - R’000 2015 2014 2015 2014 2015 2014 Erf 128 Waterkloof Ridge - Purchase price 1 636 796 1 636 796 - - 1 636 796 1 636 796 - Adjustments to fair value 2187 691 2 187 671 - - 2 387 671 2 187 671 - Capitalised expenditure 75 533 75 533 - - 75 533 75 533 3 900 000 3 900 000 - - 4 100 000 3 900 000 Dullstroom Country Estate Portions 15,16,17,18,19,20,21,22,24, 25,26,27,28,29,30,32,33,34,35,37,38 ,39,41,42,44,45,46,48,49,50,51,52 of Farm Morgenzon 122 JT and Portions 28,36,40,66 of Farm Kareekraal 135 JT - Purchase price (Farm Morgenzon) 16 820 000 16 820 000 - - 16 820 000 16 820 000 - Purchase price (Farm Kareekraal) 1 471 992 1 471 992 - - 1 471 992 1 471 992 - Adjustments to fair value 22 767 515 22 767 515 - - 22 767 515 22 767 515 - Capitalised expenditure 166 715 166 493 - - 166 715 166 493 41 226 222 41 226 000 - - 41 226 222 41 226 000 Portion 10,11 and remaining extent of Portion 6 of Farm Zwartkoppies 316 JT - Purchase price 16 723 826 16 723 826 - - 16 723 826 16 723 826 - Adjustments to fair value 149 085 806 145 083 461 - - 149 083 461 145 083 461 - Capitalised expenditure 386 741 386 741 - - 386 741 386 741 166 196 373 162 194 028 - - 166 194 028 162 194 028 Erf 7/315, 8/315 and 1/316 Hatfield, Pretoria - Purchase price (Erf 7/315, Erf 8/315) 5 511 343 5 511 343 - - 5 511 343 5 511 343 - Purchase price (Erf 1/316) 5 000 000 5 000 000 - - 5 000 000 5 000 000 - Adjustments to fair value 24 131 511 24 131 511 - - 24 131 511 24 131 511 - Capitalised expenditure 657 146 657 146 - - 657 146 657 146 35 300 000 35 300 000 - - 35 300 000 35 300 000 Erf 571 Queenswood, Pretoria - Purchase price 2 100 000 - - - 2 102 595 - - Capitalised expenditure 97 405 - - - 97 405 - 2 197 405 - - - 2 200 000 -

A register containing the information required by Regulation 25(3) of the Companies Regulations, 2011 is available for inspection at the registered office of the company.

DETAILS OF VALUATION

Erf 128 Waterkloof Ridge The valuation performed by independent valuer, Mr RS Monteiro (Dip. Comp. Prog.) of Quality Valuations t/a Q-Val, using the market value, ABSA house price indices and SAPTG reports as the method of valuation on 15 January 2013, was updated in the current financial year by way of an opinion obtained from Mr Monteiro confirming the valuation as unchanged as at 28 February 2015. Q-Val is not connected to the company and have recent experience in the location and category of the investment property being valued.

Sustainable net annual income - Direct operating expenses 108 477

Dullstroom Country Estate The valuation was performed by independent valuer, Mr O Bolweg (B. Comm. CIEA. Dip. Insol.Law N.Dip.Prop.Val) and Mr R.S. Monteiro (Dip. Comp. Prog.) of Quality Valuations t/a Q-Val using the market value as the method of valuation on 28 February 2015. The comparable sales method of valuation entails identification, analysis and application of recent comparable sales involving physically and legally similar properties in the general proximity of the subject property. Q-Val is not connected to the company and have recent experience in location and category of the investment properties being valued.

Sustainable net annual income - Direct operating expenses 833 727

106 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 107 Portion 10,11 and remaining extent of Portion 6 of Farm Zwartkoppies 316 JT A valuation was performed by an independent valuer, Mr TE Schoeman (Dip.Prop.Val) of Rhombus Proprty Valuations, using the Residual Land Valuation method. The Residual Land Valuation method entails preparing an income and expenditure statement based on comparable sales of proclaimed land and estimates of all envisaged expenditure with net receipts discounted to the date of valuation at a suitable discount rate. This valuation put the property value at R171,000,000 on the Residual Land Valuation method. Mr. TE Schoeman is not connected to the company and have recent experience in location and category of the investment properties being valued.

In addition, a second valuation was obtained by an independent valuer, Mr A.D. Visser (Professional Associated Valuer) of Val-Co Property Valuers using the Residual Land Valuation method. The Residual Land Valuation method entails preparing an income and expenditure statement based on comparable sales of proclaimed land and estimates of all envisaged expenditure with net receipts discounted to the date of valuation at a suitable discount rate. This valuation put the property value at R161 000 000 on the Residual Land Valuation method. Val-Co is not connected to the company and have recent experience in location and category of the investment properties being valued.

Having obtained the abovementioned two valuations in keeping with the Company’s accounting policy on investment properties, management is of the opinion that the median between these two valuations represents the most accurate valuation to be disclosed in the financial statements at 28 February 2015. This is consistent with prior year treatment.

On 9 June 2008 the Mpumalanga Development Tribunal in terms of the Development Facilitation Act No 67 of 1995 approved the establishment of a land development area on portion 11, the remaining extent of portion 6 (a portion of portion 1) and portion 10 of the farm Zwartkoppies 316 JT Mpumalanga (the “DFA Approval”) which approval included the development of the following: - 932 residential stands; - 61 special residential stands (2 dwellings per stand (i.e. 122 units)); - 20 residential (maximum of 10 units per stand(i.e. 200 units)); - 3 stands for golf course and ancillary land uses; - 1 clubhouse stand; - 1 stand for hotel purposes; - 1 stand for a sports centre; - 1 stand for access control; - 2 stands for an equestrian and dairy centre; and - 12 private open space stands.

Prior to the DFA Approval, on 17 October 2006 the Mpumalanga Provincial Government’s Department of Agriculture and Land Administration Environmental Management: Nkangala Region, granted authorisation to undertake a listed activity in terms of section 22 of the Environment Conservation Act No 73 of 1989 for the change of land use from agriculture to 6 star boutique hotel, golf estate, polo estate, fly fishing estate and a diary estate on the subject property.

Principal assumptions used in the valuation of the property: - Discount rate used in discounting the cash flows for the Residual Land valuation method 30% - Expected period of completion and cash flows 5 years - Gross sales based on an weighted average selling price per developed stand of R750 000 (median) R908 million - Development costs (median) R519 million

Changes in above assumptions will have the following impact on the fair value: - 5% change in discount rate R35 million - 1 year delay in the period of period of cash flows (discounted at reduced discount rate of 25%) (R40 million) - 10% change in development costs R52 million - 10% change in average selling price per developed stand R91 million

Sustainable net annual income - Direct operating expenses 76 573

Erf 7/315 and 8/315, Erf 1/316 Hatfield, Pretoria Valuations were performed by independent valuer, Mr R.S. Monteiro (Dip. Comp. Prog.) of Quality Valuations t/a Q-Val using the market value as the method of valuation on 28 February 2015. The valuation put the property value at R35 300 000 as at 28 February 2015. The comparable sales method of valuation entails identification, analysis and application of recent comparable sales involving physically and legally similar properties in the general proximity of the subject property. Q-Val is not connected to the company and have recent experience in location and category of the investment properties being valued.

Sustainable net annual income - Direct operating expenses 118 198

108 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 109 Erf 571 Queenswood The valuation performed by independent valuator, Mr RS Monteiro (Dip. Comp. Prog.) of Quality Valuations t/a Q-Val, using the market value, ABSA house price indices and SAPTG reports as the method of valuation on 31 January 2015, was updated in the current financial year by way of an opinion obtained from Mr Monteiro confirming the valuation as unchanged as at 28 February 2015. Q-Val is not connected to the company and have recent experience in the location and category of the investment property being valued..

Sustainable net annual income - Direct operating expenses 17 038

Directors note The Directors again draw attention to the risks associated with property investments. Although over the long term property is considered a low risk asset, investors must be aware that significant short and medium term risk factors are inherent in the asset class. Investments in property are relatively illiquid and usually more difficult to realise than listed equities or bonds and this restricts the Group’s ability to realise value in cash in the short term. The property valuations in this period have been prepared in a period of market uncertainty. The current turmoil in the world’s financial markets has resulted in commercial and residential properties selling in much reduced quantities with virtually little or no market activity in some areas. While management believes that sector performance is cyclical, the current lack of market activity and the resulting lack of market evidence means that it is generally not possible to value with as high a degree of certainty as would be the case in a more stable market with a good level of market evidence. The best evidence of fair value is current prices in an active market for similar property investments. In obtaining evidence to support fair value, the Group has gone to great lenghts obtaining and considering information from a variety of sources.

12. Goodwill

2015 2014 Accumulated Carrying Accumulated Carrying Cost Cost GROUP impairment Value impairment Value Goodwill 167 855 594 (47 821 965) 120 033 629 110 418 183 (47 821 965) 62 596 218

FINBOND MUTUAL BANK Goodwill 97 702 004 - 97 702 004 62 596 218 - 62 596 218

Opening Additions Reconciliation of Goodwill - GROUP 2015 Balance through business Total combinations Goodwill 62 596 218 57 437 411 120 033 629

Opening Additions Reconciliation of Goodwill - GROUP 2014 Balance through business Total combinations Goodwill 61 262 303 1 333 915 62 596 218

Opening Additions Reconciliation of Goodwill - FINBOND MUTUAL BANK 2015 Balance through business Total combinations Goodwill 62 596 218 35 105 786 97 702 004

Opening Additions Reconciliation of Goodwill - FINBOND MUTUAL BANK 2014 Balance through business Total combinations Goodwill 61 262 303 1 333 915 62 596 218

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Non-current asset 120 033 629 62 596 218 - - 97 702 004 62 596 218

Refer to note 9 and 38 for details relating to common control transaction.

108 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 109 Goodwill represents the excess of the purchase price over the assets, liabilities and contingent liabilities identified to date acquired in a business combination. Goodwill is, from date of acquisition, allocated to each of the cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the business combination. The following cash-generating units are identified: Finbond Group Limited, Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd), and Finbond Mutual Bank.

On 1 September 2012 Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd) branches were transfered into Finbond Group Limited, and Finbond Mutual Bank was established. All the branches were transferred from Finbond Group Limited to Finbond Mutual Bank. Goodwill was therefore transferred to Finbond Mutual Bank as the cash generating units are now situated within the Bank.

During the current financial year, 86 additional branches were purchased by Finbond Group as going concern entities, which gave rise to the increase in goodwill.

Supreme Consolidated 2015 Finbond Finance (Pty) Finbond Mutual Bank Other Total Group Limited Ltd Cost/Valuation - - 62 596 218 - 62 596 218 Acquisition - 28 330 736 41 280 576 - 69 611 312 Disposal - (5 999 111) (6 174 790) - (12 173 901) - 22 331 625 97 702 004 - 120 033 629

Supreme Consolidated 2014 Finbond Finance (Pty) Finbond Mutual Bank Other Total Group Limited Ltd Cost/Valuation - - 61 262 303 - 62 262 303 Acquisition - - 1 333 915 - 1 333 915 - - 62 596 218 - 62 596 218

Goodwill is allocated to individual cash-generating units, with impairment testing being performed annually, by comparing the net carrying value of the cash-generating units to the estimated ‘value in use’. The value in use is determined by discounting estimated future cash flows of each cash-generating unit using the discounted cash flow methodology/ income method. The method used was reviewed by an external, independent valuer.

Management regards the useful lives of cash-generating units to be indefinite and no impairments have resulted from impairment testing in the reporting period.

The Group and Company determines the recoverable amount, being the higher of the fair value less cost to sell and the value in use, of individual cash-generating units by discounting the expected future cash flows of each of the identified cash-generating units. The recoverable amount is then compared to the carrying value of the respective cash-generating unit and an impairment loss is raised if required.

The calculation uses cash flow projections from business plans for the forthcoming 5 years, which are then extrapolated for further years. Extrapolation is achieved using a long-term growth rate, that varies as follows:

Finbond Mutual Bank Micro finance lending growth rate 4.5%

The risk-adjustment discount rate is based on the cost of equity and was calculated using the Capital Asset Pricing Model (CAPM):

Finbond Mutual Bank Micro finance cost of equity 17.67%

110 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 111 13. Intangible assets 2015 2014 Accumulated Carrying Accumulated Carrying Cost/Valuation amortisation/ Cost/Valuation amortisation/ GROUP impairment Value impairment Value Trademarks and brand names 101 173 097 (101 002 097) 171 000 101 002 097 (101 002 097) -

Opening Additions Total Reconcilliation of intangible assets - GROUP 2015 Balance

Patents, trademarks and other rights - 171 000 171 000

Acquired trademarks and brand names are allocated to individual cash-generating units. Impairment testing is performed annually by comparing the net carrying value of the cash-generating units to the estimated ‘value in use’. The value in use is determined by comparing the carrying value of the cash-generating units to the estimated ‘value in use’. The value in use is determined by discounting estimated future cash flows of each cash-generating unit using the discounted cash flow methodology/income method. Management regards the useful lives of all cash-generating units to be indefinite, due to the following factors that were considered: • the expected usage of the asset by the entity and whether the asset could be managed efficiently by another management team; • product life cycles and public information on estimates of useful lives of similar assets used in a similar way; • technical, technological, commercial or other types of obsolescence; • the stability of the industry in which the asset operates and changes in the market demand for the products or services output from the assets; • expected actions by competitors or potential competitors; • the maintenance expenditure level required to obtain expected future economic benefits and the entity’s ability and intention to reach such a level; • period of control over the asset and legal or similar limits on the use of the asset, such as the expiry dates of related leases; and • whether the useful life of the asset is dependent on the useful life of other assets of the entity.

During the current financial period Blue Chip Finance 1 (Pty) Ltd acquired a brandname “Supreme Finance” and is now trading as Supreme Finance (Pty) Ltd. Management estimates the useful life as indefinite.

110 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 111 14. Deferred taxation

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Deferred tax liability Property plant and equipment (865 078) (865 278) - - (865 078) (865 278) Investment properties (36 955 208) (36 384 338) - - (36 955 208) (36 384 338) Prepayments and deferred charges (947 888) (88 378) (587 754) - (360 134) (88 378) Other financial assets 254 937 (1 568 002) - - 254 938 (1 568 002) Total deferred tax liability (38 513 237) (38 905 996) (587 754) - (37 925 482) (38 905 996)

Deferred tax asset Provisions and straight lining 1 716 987 1 208 645 772 092 566 790 781 761 641 855 Finance leases 246 816 - - - 246 816 - Deferred tax balance from temporary differences other than unused tax losses 1 963 803 1 208 645 772 092 566 790 1 028 577 641 855 Tax losses available for set off against future taxable income 8 580 738 23 493 135 2 241 787 18 461 640 - - 10 544 541 24 701 780 3 013 879 19 028 430 1 028 577 641 855 Total deferred tax asset 10 544 541 24 701 780 3 013 879 19 028 430 1 028 577 641 855

Deferred tax liability (38 513 237) (38 905 996) (587 754) - (37 925 482) (38 905 996) Deferred tax asset 10 544 541 24 701 780 3 013 879 19 028 430 1 028 577 641 855 Total net deferred tax (liability) asset (27 968 696) (14 204 216) (2 426 125) 19 028 430 (36 896 905) (38 264 141)

Reconciliation of deferred tax asset/(liability) At beginning of year (14 204 216) (5 218 149) 19 028 430 21 469 870 (38 264 141) (33 682 921) Increase (decrease) in finance lease 246 816 - - - 246 816 - Increase (decrease) in tax loss available for set off against future taxable income - gross of valuation allowance (14 912 397) (4 971 637) (16 219 853) (3 008 230) - - Taxable/(deductible) temporary difference movement on tangible fixed assets 200 (858 964) - - 200 (858 964) Taxable/(deductible) temporary difference on provisions and straight lining 508 342 (764 185) 205 302 566 790 139 906 (1 330 976) Taxable/(deductible) temporary difference on prepayments and deferred charges (859 510) (68 610) (587 754) - 271 756 (68 609) Taxable/(deductible) temporary difference movement on investment property at fair value (570 870) (754 669) - - (570 870) (754 669) Taxable/(deductible) temporary difference on other financial assets 1 822 939 (1 568 002) - - 1 822 940 (1 568 002) (27 968 696) (14 204 216) (2 426 125) 19 028 430 (36 896 905) (38 264 141) Non-current assets 10 544 541 24 701 780 - 19 028 430 - 641 855 Non-current liabilities (38 513 237) (38 905 996) (2 426 125) - (36 896 905) (38 905 996)

Recognition of deferred tax asset Deferred tax is calculated on all temporary differences under the balance sheet method using an effective tax rate of 28% (2014: 28%). The deferred tax assets are stated at the rate at which the assets are expected to be realised and are fully recoverable.

Use and sales rate The deferred tax rate applied to the fair value adjustments of investment properties/ financial assets is determined by the expected manner of recovery. Where the expected recovery of the investment property/financial assets is through sale the capital gains tax rate of 18.67% (2014:18.67%) is used. If the expected manner of recovery is through indefinite use the normal tax rate of 28% (2014: 28%) is applied.

112 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 113 If the manner of recovery is partly through use and partly through sale, a combination of capital gains rate and normal tax rate is used.

No movement in deferred taxation is taken to the statement of changes in shareholders equity for the current or prior reporting period.

Capital Gains Tax (CGT) losses calculated and available for set-off against future capital taxable income at reporting date totalled R9 471 055 (2014: R9 471 055).

15. Trade and other payables

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Trade payables 13 629 843 6 372 188 47 000 471 15 900 601 6 445 278 VAT 892 337 3 645 145 - 3 633 241 881 082 - Accrued leave pay 2 659 057 - 171 276 - 1 045 896 - Accruals 5 300 821 3 905 425 24 915 - 4 583 333 3 602 028 Sundry payables 3 815 625 6 177 447 3 024 416 2 578 471 2 348 172 2 852 290 26 297 683 20 100 205 3 267 607 6 212 183 24 759 084 12 899 596

Fair value approximates carrying amount due to the short term nature of liabilities.

16. Deposits received from customers

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Fixed Term Deposit Shares 774 635 614 612 415 497 - - 774 635 614 612 415 497 Indefinite Period Shares 92 788 816 54 737 191 - - 92 788 816 54 737 191 Fixed Period Shares 32 466 527 28 733 279 - - 32 466 527 28 733 279 Permanent interest bearing shares 22 020 988 - - - 22 020 988 - Unallocated deposits 21 535 16 125 - - 21 535 16 125 921 933 480 695 902 092 - - 921 933 480 695 902 092 Non current liabilities 654 585 804 484 110 400 - - 654 585 804 484 110 400 Current liabilities 267 347 676 211 791 692 - - 267 347 676 211 791 692 921 933 480 695 902 092 - - 921 933 480 695 902 092

Deposit products are classified as follows: Class shares: Effective interest rate at 28 February 2015: Fixed Period Shares “B” class shares 10.75% (2014: 9.75%) Fixed Term Deposits “C” class shares 5.90 - 10.00% (2014: 7 - 10%) Indefinite Period Shares “D” class shares 9.75% (2014: 9.5%) Permanent Interest bearing shares “E” class shares 11.5% (2014: 0%)

112 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 113 17. Finance lease obligation

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Minimum lease payments due - within one year 1 248 894 813 039 - - 1 248 894 813 039 - in second to fifth year inclusive 987 973 1 077 185 - - 987 973 1 077 185 2 236 867 1 890 224 - - 2 236 867 1 890 224 less: future finance charges (704 601) (562 625) - - (704 601) (562 625) Present value of minimum lease payments 1 532 266 1 327 599 - - 1 532 266 1 327 599

Present value of minimum lease payments due - within one year 765 849 468 274 - - 765 849 468 274 - in second to fifth year inclusive 766 417 859 325 - - 766 417 859 325 1 532 266 1 327 599 - - 1 532 266 1 327 599 Non-current liabilities 766 417 859 325 - - 766 417 859 325 Current liabilities 765 849 468 274 - - 765 849 468 274 1 532 266 1 327 599 - - 1 532 266 1 327 599

The average lease term is three to five years and the average effective borrowing rate is 7.23% (2014: 6.76%). No breaches or defaults of loan terms of payments have taken place in either the current or prior year.

Interest rates are linked to prime at the contract date. All leases have fixed repayments and no arrangements have been entered into for contingent rent.

The Group’s obligations under finance leases are secured by the lessor’s charge over leased assets. Refer to note 10.

18. Share Capital Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Authorised 1 000 000 000 ordinary shares 1 000 1 000 1 000 1 000 - - of 0.0001 cent each

394 974 750 (2014: 394 974 750) unissued ordinary shares are under the control of the Directors in terms of a resolution of members passed at the last Annual General Meeting. This authority remains in force until the next Annual General Meeting.

Figures in Rand 2015 2014 2015 2014 2015 2014 Issued Issued Share capital* 201 522 768 225 952 568 194 580 802 239 161 377 457 781 488 457 781 488

* FGL: 589 614 168 (2014: 605 025 250) ordinary shares of 0.0001 cent each FMB: 457 781 488 Class A shares of R1.00 each

No ordinary shares were cancelled in the current or prior year.

CONSOLIDATED Share Own shares Capital - R held - R Total - R

At 1 March 2013 239 692 232 (529 855) 239 162 377 Own shares purchased - (13 209 809) (13 209 809) At 28 February 2014 239 692 232 (13 739 664) 225 952 568 Own shares purchased - (24 429 800) (24 429 800) At 28 February 2015 239 692 232 (38 169 464) 201 522 768

114 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 115 COMPANY Share Own shares Capital - R held - R Total - R

At 1 March 2013 239 692 232 (529 855) 239 162 377 Own shares purchased - - - At 28 February 2014 239 692 232 (529 855) 239 162 377 Own shares purchased - (44 581 575) (44 581 575) At 28 February 2015 239 692 232 (45 111 430) 194 580 802

19. Reserves Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Non distributable reserves Equity settled share option reserve 3 428 404 4 875 698 3 428 404 4 875 698 - - Broad based employee share scheme, refer to note 22 for further details. Common transactional reserve - - - - (35 939 512) (35 939 512) 3 428 404 4 875 698 3 428 404 4 875 698 (35 939 512) (35 939 512)

20. Loans from shareholders Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Net 1 Finance Holdings (15 000 000) - (15 000 000) - - - The loan is unsecured, with repayment date 31 August 2015 or such date as mutually agreed upon and bears interest at prime plus 5% per annum. During the current period the shareholders issued a loan to Finbond Group Limited amounting to R15 000 000. ------Non-current liabilities Current liabilities (15 000 000) - (15 000 000) - - - (15 000 000) - (15 000 000) - - -

21. Retirement benefits Defined contribution plan It is the policy of the Group to provide retirement benefits to all its employees below a predetermined salary threshold. The Company provides retirement fund benefits at a percentage of 1.75% of gross salaries, not withstanding prior arrangements with Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd) employees prior to divisionalisation.

The group is under no obligation to cover any unfunded benefits. Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 The total group contribution to such schemes 2 486 182 773 295 - - 2 222 052 773 295

114 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 115 22. Share based options Share Option Group Number Weighted exercise price Outstanding at the beginning of the year 17 777 975 7 768 412 Granted during the year 5 053 166 4 780 058 Outstanding at the end of the year 22 831 141 12 548 470

Weighted average market price at the date of the offer of the first Grant was R1.35 Weighted average market price at the date of the offer of the second Grant was R1.80 Weighted average market price at the date of the offer of the third Grant was R2.85

Outstanding options Exercise date from two to five years Options with exercise price of R1.35 (Grant 1) 13 260 265 Options with exercise price of R1.80 (Grant 2) 4 517 710 Options with exercise price of R2.85 (Grant 3) 5 053 166

Information on options granted to date

Weighted fair value of options issued to date Exercise date from two to five years Total Grant 1 5 794 316 5 794 316 Grant 2 1 974 096 1 974 096 Grant 3 4 780 058 4 780 058 12 548 470 12 548 470

Finbond Share Appreciation Rights The Finbond Share Appreciation Rights (“SARs”) provides participants a conditional right to receive an award equal to the increase in the share price of a number of notional shares over a specified vesting period (the “Award”). The Scheme is subject to performance vesting conditions as follows: - 33% of the Award will vest when Finbond achieves an audited net profit after tax (“NPAT”) of R100 million; - A further 33% of the Award will vest when Finbond achieves an audited net profit after tax (“NPAT”) of R200 million; - The balance of the Award will vest when Finbond achieves an audited net profit after tax (“NPAT”) of R300 million

Vesting of options is conditional on the employee remaining in the employment of the Company.

The SARs shall be settled by the transfer of ordinary shares in the issued share capital of Finbond (“Share”) held by Finbond. The rules of the Scheme specify that once participants are paid cash based in the increase in value of the SARs, the cash must be applied towards the subscription or purchase of shares in Finbond. The participants have no right to receive cash. Finbond does however have the discretion to settle the Awards in cash. However, as it is Finbond’s stated intention to settle the Awards in equity instruments, the Scheme is classified as equity-settled.

IFRS requires that all equity-settled share-based payment transactions be measured at fair value at grant date and be recognised as an expense in the income statement over the vesting period.

Fair value is measured as the market price of the Finbond share options, adjusted for the terms and conditions applicable to the options. As employee options are not traded, there is no market price available. The fair value has been determined using an option pricing model.

A number of option pricing models exist. The widely accepted Black-Scholes model is used to value options traded openly in the market. However, the Black-Scholes model is not suited to valuing certain aspects of employee share options such as early exercise and performance criteria. Essentially, the Black-Scholes model does not allow for restricted trading in terms of the vesting period and employee exercise behaviour.

We have therefore used a variant of the binomial model, modelling the particular aspects of the Finbond share options, including exercise behaviour.

The inputs into the binomial option pricing model are as follows: • Current/spot price; • Exercise/strike price; • Risk-free rate; • Option life; • Volatility; and • Dividends

116 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 117 Number of options and vesting When determining the expected number of options that will ultimately be converted into issued share capital, cognisance of any service or performance conditions needs to be taken into account. For example, a typical condition of any option scheme is that the employee is still employed when the option vests. If the employee leaves, no cost is ultimately recognised. An initial best estimate of the number of shares expected to vest is made in determining the expected cost, then subsequently adjusted until vesting date when the actual number will be known.

Income statement effect Under IFRS 2, the value of the options is spread over the vesting period.

Valuation assumptions The inputs into the option pricing models are as follows: • Term of the options; • Current/spot price; • Exercise/strike price; • Risk-free rate; • Volatility; and • Dividends.

Option term The life of the options has been assumed equal to the estimated vesting period of three years for tranche 1, four years for tranche 2 and five years for tranche 3. The vesting period has been determined based on the estimated vesting date of the SARs using Finbond’s forecast financial information as per its strategic five year plan.

Spot/market Price The spot price is based on the weighted average market price at the date of the offer, as follows: • 26 August 2013: R1.35; and • 3 October 2013: R1.80. • 8 December 2014: R3.18

Strike Price The strike price is the same as the market price above.

Risk-free rate Typically, the risk-free interest rate is the implied yield currently available on zero coupon government issues, with a remaining term equal to the expected term of the option being valued (based on the option’s remaining expected life.

IFRS 2 requires the use of a risk-free interest rate with a remaining term equal to the expected life of the option and risk-free interest rates are typically determined from a bootstrapped zero coupon perfect fit swap curve. The zero coupon swap rate curve as at the Allocation Date was used to determine the risk-free rate.

Expected volatility We have applied a volatility of 25.46% – 35% based on an analysis of the sector in which Finbond operates and an analysis of similar listed businesses. The 35% volatility is the mid-point between the historic volatility of Finbond’s listed peers.

The dividend yield A dividend yield of 1.63% – 2.12% has been assumed, based on the average dividend yields of Finbond’s listed peers, detailed below. This dividend yield is below the dividend yield of the major listed banks of 3.32% – 4.65%. This is to be expected as the micro lending sector would be expected to have a higher re-investment rate than mature established banks.

Total expenses of R2 408 916 (2014: R962 359) related to equity-settled share based payments transactions were recognised.

Fair value of services received The fair value of services received during the year was measured at a market price for those services.

116 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 117 23. Interest Income Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Loans and advances 119 183 065 77 753 966 - - 111 453 575 77 753 966 Cash and cash equivalents 26 273 438 15 264 706 167 769 105 168 26 067 189 15 132 361 145 456 503 93 018 672 167 769 105 168 137 520 764 92 886 327

Included in interest income is R25.8 million(2014: R16.8 million) with respect to interest income accrued on impaired financial assets.

24. Interest Expense Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Interest on bank facility (167 371) 240 688 88 27 148 (181 394) 213 529 Liabilities held at amortised cost - 45 379 - 45 374 (1 420 798) 5 Leased assets 605 041 68 516 - - 599 713 68 516 Interest Expense: Fixed term Deposit Liabilities 64 182 462 38 627 298 - - 64 182 462 38 627 298 Dividend Expense: Indefinite Period Shares 7 596 266 2 596 793 - - 7 596 266 2 596 793 Dividend Expense: Fixed Period Shares 3 119 258 2 707 378 - - 3 119 258 2 707 378 Interest Expense: Permanent Interest bearing shares 800 872 - - - 800 872 - 76 136 528 44 286 052 88 72 522 74 696 379 44 213 519

25. Fee Income Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Initiation fees 89 362 183 59 022 242 - - 82 959 585 59 022 242 Service fees 80 761 109 53 708 899 - - 76 746 662 53 708 899 Card initiation and service fees 4 604 - - - 4 604 - 170 127 896 112 731 141 - - 159 710 851 112 731 141

26. Management fees Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Management fees 27 765 974 20 564 246 109 676 59 694 27 758 609 20 504 551 Royalties - - 10 365 762 7 686 963 - - Service fees - 172 750 9 397 276 10 738 932 - - 27 765 974 20 736 996 19 872 714 18 485 589 27 758 609 20 504 551

27. Fair value adjustments Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Investment property 4 002 345 4 042 854 - - 4 002 345 4 042 854 Financial assets (2 211 838) 914 672 - - (4 692 912) 7 942 318 1 790 507 4 957 526 - - (690 567) 11 985 172

118 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 119 28. Other Micro Finance Income Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Insurance commission revenue 21 477 021 14 010 266 86 825 162 844 20 180 495 13 847 422 Net legal subscriptions received 20 015 101 13 268 563 - - 19 140 377 13 268 563 Prepaid airtime and electricity 4 411 403 278 130 177 143 33 760 4 226 081 238 735 Rental income 827 758 470 454 - - 827 758 470 454 Profit on the disposal of PPE (123 352) (129 056) - - 2 271 688 (129 056) Profit on the disposal of Insurance Cell 31 317 049 - 29 177 175 - - - Hamper sales 116 051 - - - 113 730 - Sundry Income 1 644 758 601 502 2 542 928 - 2 556 748 601 502 79 685 790 28 499 859 31 894 071 196 604 49 316 877 28 297 620

29. Operating profit from Cell captive arrangement Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Insurance premiums written 74 980 250 56 371 011 74 980 250 56 371 011 - - Commission (133 358) (129 398) (133 358) (129 398) - - Fair value adjustments 33 666 (13 171) 33 666 (13 171) - - Insurance claims paid (1 824 753) (1 740 356) (1 824 753) (1 740 356) - - IBNR (1 563 226) (1 016 091) (1 563 226) (1 016 091) - - Operating expenses (29 161 636) (21 664 234) (29 161 636) (21 664 234) - - Taxation (11 719 234) (9 003 431) (11 719 234) (9 003 431) - - Operating profit from cell captive arrangement 30 611 709 22 804 330 30 611 709 22 804 330 - -

30. Net commission expense Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Commission received 800 051 1 105 495 - - 5 538 1 447 Commission paid (4 184 309) (3 480 263) 72 - (3 420 183) (3 034 463) (3 384 258) (2 374 768) 72 - (3 414 645) (3 033 016)

31. Net impairment charge on loans and advances Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Movement in impairment provision (8 669 211) (5 671 975) - - (7 025 229) (5 671 975) Bad debts written off (78 177 279) (42 167 059) - - (72 555 854) (42 167 059) Bad debts recovered 26 709 598 22 898 264 - - 26 708 958 22 898 264 (60 136 892) (24 940 770) - - (52 872 125) (24 940 770)

118 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 119 32. Taxation

Major components of the tax expense (income) Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Current Local income tax - current period 9 724 722 2 732 501 - - 9 724 722 2 732 500 Prior year adjustment 39 150 (27 408) - - 39 150 (27 408) 9 763 872 2 705 093 - - 9 763 872 2 705 092

Deferred Originating and reversing temporary differences 13 246 987 6 823 216 16 648 535 2 757 129 (916 548) 3 858 971 Prior year adjustment (515 256) 406 560 (46 230) (315 689) (450 688) 722 249 12 731 731 7 229 776 16 602 305 2 441 440 (1 367 236) 4 581 220 22 495 603 9 934 869 16 602 305 2 441 440 8 396 636 7 286 312

Reconciliation of the tax expense Reconciliation between accounting profit and tax expense.

Accounting profit 73 362 978 46 852 490 91 134 705 31 523 759 22 982 623 21 812 013 Tax at the applicable tax rate of 28% (2014: 28%) 20 541 634 13 118 697 25 517 717 8 826 653 6 435 134 6 107 364

Tax effect of adjustments on taxable income Non deductable expenses 6 205 393 2 972 219 2 494 769 315 688 2 693 124 484 107 Non taxable income (3 775 318) (6 535 199) (11 363 951) (6 385 212) (320 084) - Prior period adjustment (476 106) 379 152 (46 230) (315 689) (411 538) 694 841 22 495 603 9 934 869 16 602 305 2 441 440 8 396 636 7 286 312

33. Auditors’ remuneration Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Fees 2 753 448 2 120 139 - - 2 753 448 2 120 139 Tax and other services 374 390 94 387 - 41 678 374 390 52 709 3 127 838 2 214 526 - 41 678 3 127 838 2 172 848

120 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 121 34. Operating profit

Operating profit for the year is stated after accounting for the following: Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Income from investments Dividends - - 34 617 151 - 160 702 -

Operating lease charges Premises - Contractual amounts 36 583 683 24 686 728 - - 33 573 597 24 686 728 Equipment - Contractual amounts 1 116 991 1 034 706 - - 1 039 756 1 034 706 37 700 674 25 721 434 34 617 151 - 34 613 353 25 721 434

Impairment on businesses (or subsidiaries, joint ventures and associates) - - 4 162 232 - - - Depreciation on property, plant and equipment 7 171 531 3 151 844 - - 6 983 827 3 151 844 Employee costs - Short-term benefits 78 936 034 69 349 078 12 196 127 8 401 560 78 882 234 60 947 518 Employee costs - Contributions to defined contribution plans 2 486 182 773 295 - - 2 222 052 773 295 Employee costs - Share based payment expense 2 408 916 962 359 2 408 916 962 359 - -

35. Cash generated from operations Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Profit before taxation 73 362 978 46 852 490 91 134 705 31 523 759 22 982 623 21 812 013 Adjustments for: Depreciation and amortisation 7 171 530 3 151 844 - - 6 983 826 3 151 844 Loss/(Profit) on sale of assets 123 352 129 056 - - (2 271 688) 129 065 Dividends received 160 702 - (21 911 620) - - - Fair value loss 2 211 838 - - - 4 692 912 - Fair value adjustments on investment property (4 002 345) (4 957 526) - - (4 002 345) (11 985 172) (Profit)/loss on sale of financial assets (31 317 049) - (29 177 173) - - - Impairment in Investment in Subsidiary - - 4 162 232 - - - Share option costs 2 408 916 962 359 2 408 916 962 359 - - Movements in impairment charge and bad debt 86 846 489 47 839 034 - - 79 581 083 47 839 034 Interest and Service Charge on finance lease 775 608 - - - 775 608 - Other non-cash items (314 081) - - - (314 081) - Changes in working capital: Inventories (2 566 657) - - - (2 566 657) - Loans and advances (166 572 946) (136 393 704) - - (145 922 922) (136 393 754) Other receivables (39 420 834) (11 815 366) (27 046 455) 13 699 138 (15 737 251) (9 825 896) Trade and other payables 6 197 478 (419 088) (2 944 578) 1 164 715 11 839 033 (3 680 686) Deposits received from customers 226 031 388 531 864 094 - - 226 031 388 531 864 094 Transaction deposits 69 220 - - - 69 220 - 161 165 587 477 213 193 16 626 026 47 349 971 182 140 749 442 910 542

120 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 121 36. Tax paid Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Balance at beginning of the year 3 750 880 (6 836 275) (2 440) - 3 759 606 (4 820 108) Current tax for the year recognised in profit or loss (9 763 872) (2 705 093) - - (9 763 872) (2 705 092) Business combinations ------Balance at end of the year* (2 529 758) (3 750 880) 116 2 440 (2 447 390) (3 759 606) (8 542 750) (13 292 248) (2 324) 2 440 (8 451 656) (11 284 806)

*Taxation at the end of the period is payable within 12 months.

37. Business combinations

Group During the current financial period Finbond Group acquired a number of branches as going concerns through business combinations, summarised below: Identifiable assets acquired Debtors Unearned Property, Goodwill at Purchase per Age Future Net plant and acquisition price Analysis Income Debtors equipment date BEC-NEL Beleggings cc t/a Alliance Cash Loans 1 500 000 584 687 (143 500) 441 187 43 500 1 015 313 Alpha Finance Group 2 500 000 1 181 476 (188 159) 993 317 - 1 506 683 HGN Consultants cc t/a First Finance 12 077 056 4 821 183 (1 450 723) 3 370 460 - 8 706 596 Helpmekaar Finansiele Dienste (Pty) Ltd. 6 287 252 3 381 934 (882 683) 2 499 251 - 3 788 001 Hanru Financial and Trading Enterprises 208 896 105 830 (38 183) 67 647 13 119 128 130 Vital Credit (Pty) Ltd. 6 423 519 2 977 486 (527 867) 2 449 619 - 3 973 900 Johnnie Matthew cc t/a Numba 1 Loans 2 775 298 1 364 534 (190 954) 1 173 580 - 1 601 718 Henque 3435 cc t/a Consumer Finance 1 831 688 1 092 557 (295 257) 797 300 - 1 034 388 TC 44 Financial Services cc 3 110 322 1 010 661 (101 807) 908 854 - 2 201 468 Michanie Long Term Financing cc 4 000 000 840 132 (191 594) 648 538 - 3 351 462 Johan Luwes Trucking and Transport cc 1 107 402 540 781 (42 777) 498 004 - 609 398 St Helenabaai Easy Finance (Pty) Ltd t/a Easy Finance 4 000 000 1 528 831 (185 458) 1 343 373 - 2 656 627 Supreme Finance 3 685 250 1 413 824 (244 301) 1 169 523 33 220 2 482 507 Prorex Trading 12 cc t/a Bluefin Houtbay 1 400 000 559 118 (150 100) 409 018 - 990 982 Big Africa 894 cc t/a Marven Finance 5 250 000 1 671 371 (455 892) 1 215 479 - 4 034 521 Lenco Credit cc 22 677 284 7 559 093 (1 751 213) 5 807 880 271 833 16 597 571 ManoCorp Finance cc 6 000 000 3 852 174 (610 493) 3 241 681 173 2 758 146 84 748 395 34 485 672 (7 450 961) 27 034 711 361 845 57 437 411 1 2 2 2.1 2.2 3

1 Consideration was transferred by way of cash payments 2 Summary of the recognition amounts of assets acquired at date of acquisition. The valuation techniques used for measuring the fair value of material assets acquired were as follows: 2.1 Net Debtor- recoverable amount of the debtors book 2.2 Property, Plant and Equipment - Depreciated replacement cost, reflecting adjustments for physical deterioration as well as functional and economic obsolescence. 3 Goodwill arising from the acquisition that has been recognised.

122 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 123 Finbond Mutual Bank During the current financial period Finbond Mutual Bank acquired a number of branches as going concerns through business combinations, summarised below: Identifiable assets acquired Debtors Unearned Property, Goodwill at Purchase per Age Future Net plant and acquisition price Analysis Income Debtors equipment date BEC-NEL Beleggings cc t/a Alliance Cash Loans 1 500 000 584 687 (143 500) 441 187 43 500 1 015 313 Alpha Finance Group 1 746 776 826 908 (126 369) 700 539 - 1 046 237 HGN Consultants cc t/a First Finance 8 262 040 3 283 460 (981 048) 2 302 412 - 5 959 628 Helpmekaar Finansiele Dienste (Pty) Ltd. 5 096 057 2 750 760 (717 437) 2 033 323 - 3 062 734 Hanru Financial and Trading Enterprises 208 896 105 830 (38 183) 67 647 13 119 128 130 Vital Credit (Pty) Ltd. 3 489 713 1 617 582 (321 628) 1 295 954 - 2 193 759 Johnnie Matthew cc t/a Numba 1 Loans 2 775 298 1 364 534 (190 954) 1 173 580 - 1 601 718 Henque 3435 cc t/a Consumer Finance 1 237 050 720 908 (226 433) 494 475 - 742 575 TC 44 Financial Services cc 3 050 000 1 010 661 (101 807) 908 854 - 2 141 146 Michanie Long Term Financing cc 4 000 000 840 132 (191 594) 648 538 - 3 351 462 Johan Luwes Trucking and Transport cc 1 107 402 540 781 (42 777) 498 004 - 609 398 St Helenabaai Easy Finance (Pty) Ltd t/a Easy Finance 3 319 315 1 268 668 (155 384) 1 113 284 - 2 206 031 Supreme Finance 8 753 968 3 676 288 (1 007 004) 2 669 284 62 530 6 022 154 Prorex Trading 12 cc t/a Bluefin Houtbay 1 400 000 559 120 (150 100) 409 020 - 990 980 Big Africa 894 cc t/a Marven Finance 5 250 000 1 671 371 (455 892) 1 215 479 - 4 034 521 51 196 515 20 821 690 (4 850 110) 15 971 580 119 149 35 105 786 1 2 2 2.1 2.2 3

1 Consideration transferred by way of cash payments 2 Summary of the recognition amounts of assets acquired at date of acquisition. The valuation techniques used for measuring the fair value of material assets acquired were as follows: 2.1 Net Debtor - recoverable amount of the debtors book 2.2 Property, Plant and Equipment- Depreciated replacement cost, reflecting adjustments for physical deterioration as well as functional and economic obsolescence. 3 Goodwill arising from the acquisition that has been recognised.

122 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 123 38. Common control transaction

2014 The Supreme Finance (Pty) Ltd (previously Blue Chip Finance 1 (Pty) Ltd) investment held by Zevoli 182 (Pty) Ltd was transferred to Finbond Group Limited. Disposals Acquisitions Finbond Group Limited - Company 2015 2014 2015 2014 Fair value of assets disposed/acquired Investment in subsidiaries - - - 34 418 At aquisition/disposal fair value of net assets - - - 34 418 (Sale)/purchase price - - - 34 418 Financed through long term intergroup loan - - - 34 418 Net cash flow on sale/acquisition of subsidiaries - - - -

2015 During the current financial year, branches were transferred between Finbond Mutual Bank and Supreme Finance (Pty) Ltd (previously Blue Chip Finance (Pty) Ltd.) Disposals Acquisitions Finbond Mutual Bank 2015 2014 2015 2014 Fair value of assets disposed/acquired Property, plant and equipment 636 575 - 18 690 - Other receivables 16 074 - 9 313 - Loans and advances 3 440 306 - 2 393 778 - Goodwill 6 455 232 - 5 999 111 - Cash and cash equivalents 295 243 - 9 980 - Trade and other payables (81 485) - (61 031) - At acquisition/disposal fair value of net assets 10 761 945 - 8 369 841 - Sale/purchase price 10 761 945 - 8 369 841 - Financed through long term intergroup loan 10 761 945 - 8 369 841 - Cash (disposed)/acquired (295 243) - 9 980 - Net cash flow on sale/acquisition of subsidiaries (295 243) - 9 980 - Company - Finbond Mutual Bank (295 243) - 9 980 - (295 243) - 9 980 -

39. Commitments and contingent liabilities

Operating leases - as lessee (expense) At reporting date the Group had commitments for operating leases over premises and equipment which fall due as follow: Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Minimum lease payments due - within one year 25 027 102 18 303 307 - - 21 652 082 18 303 307 - in second to fifth year inclusive 24 022 141 14 461 584 - - 19 732 728 14 461 584 49 049 243 32 764 891 - - 41 384 810 32 764 891 The Group and its Directors are not aware of the existence of any possible contingencies at date of signature of these annual financial statements. No capital commitments, either contracted or not contracted for, have been approved by the Board as at year end.

124 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 125 40. Related parties

Relationships Subsidiaries Refer to note 9

Shareholder with significant influence Kings Reign Investments (Pty) Ltd Konings Genade Beleggings (Pty) Ltd

Members of key management and Directors Dr. W van Aardt Mrs. HJ Wilken-Jonker Mr. GT Sayers MR. MDC Motlala Adv. JJ Noeth Mrs. RN Xaba Adv. NJ Melville Mr. R Emslie Mr. DJ Brits Mr. C van Heerden

Related party balances Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand 2015 2014 2015 2014 2015 2014 Loan accounts - Owing (to) by Group Companies Refer to note 7 - - (166 901 182) (195 760 784) 214 503 866 154 895 986 Related party transactions Royalties paid to (received from) related parties Finbond Mutual Bank - - (10 365 762) (7 686 963) - - Finbond Group Limited - - - - 10 392 651 7 970 837 Service fees paid to (received from) related parties Finbond Mutual Bank - - (9 277 276) (10 566 182) - - Blue Chip Finance 1 (Pty) Ltd - - (120 000) (172 750) - - Finbond Group Limited - - - - 9 325 703 10 956 383 Management fees paid to (received from) related parties Finbond Mutual Bank - - 13 773 311 10 089 435 - - Finbond Group Limited - - - - (13 773 311) (10 089 436) Blue Chip Finance 1 (Pty) Ltd - - - - (102 311) (24 786) Commissions paid to (received from) related parties Guardrisk Insurance Company Ltd - Cell number 187 & 125 (21 263 539) (13 847 422) - - (20 180 495) (13 847 422) Binder fees paid to (received from) related parties Guardrisk Insurance Company Ltd - Cell number 187 & 125 (27 765 973) (20 784 402) (13 882 987) (10 394 073) (13 882 987) (10 390 329) Dividends paid to (received from) related parties Guardrisk Insurance Company Ltd - Cell number 187 & 125 - - (18 299 215) (16 700 000) - - Finbond Micro Finance 2 (Pty) Ltd (previously Bondmaster Group (Pty) Ltd) - - (18 985 021) - - - Dimension Home Loans Group (Pty) Ltd - - (2 177 946) - - - Finbond Mutual Bank - - (12 705 530) - 12 705 530 - Bond Excel - - (748 654) - - - Finbond Group Ltd - - 160 702 - (160 702) -

124 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 125 41. Directors’ emoluments

Executive 2015 Basic Salary Bonusses Total

Dr. W van Aardt 5 801 745 2 695 547 8 497 292 Mr. GT Sayers 1 666 249 766 091 2 432 340 7 467 994 3 461 638 10 929 632

Executive 2014 Basic Salary Bonusses Total

Dr. W van Aardt 4 539 772 1 953 706 6 493 478 Mrs. HJ Wilken-Jonker 328 317 633 991 962 308 Mr. GT Sayers 1 496 084 583 031 2 079 115 Mr. DC Pentz 565 200 500 000 1 065 200 6 929 373 3 670 728 10 600 101

Non-Executive 2015 Committees Consulting Directors’ fees fees fees Total

Mrs. HJ Wilken-Jonker 80 832 125 011 883 765 1 089 608 Dr. MDC Motlatla 113 163 222 297 - 335 460 Adv. N Melville 80 832 94 126 - 174 958 Mrs. R Xaba 80 832 186 185 - 267 017 Adv. JJ Noeth 80 832 205 036 - 285 868 Mr. R Emslie 80 832 167 012 346 058 593 902 Mr DJ Brits 80 832 161 715 - 242 547 598 155 1 161 382 1 229 823 2 989 360

Non-Executive 2014 Directors’ fees Total

Mrs. HJ Wilken-Jonker 664 363 664 363 Dr. MDC Motlatla 275 496 275 496 Adv. N Melville 138 153 138 153 Mrs. R Xaba 261 224 261 224 Adv. JJ Noeth 303 670 303 670 Mr. R Emslie 483 989 483 989 Mr DJ Brits 144 070 144 070 2 270 965 2 270 965

Directors’ emoluments consist of salaries received and bonusses.

In the prior year, the remuneration of the Executive Directors was paid for by Finbond Mutual Bank up untill 31 August 2013, whereafter this was paid for by Finbond Group Limited.

126 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 127 42. Risk Management

Capital management The Group’s objectives when managing capital for the Bank are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Group sets the amount of capital in proportion to risk and to cater for unexpected losses. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the undelying assets and market conditions.

The Bank has complied with all external imposed capital requirements as codified in the Mutual Banks Act 1993 (as amended) and related regulations.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

There have been no changes to what the entity manages as capital, the strategy for capital maintenance or externally imposed capital requirements from the previous year.

The table below summarises the composition of regulatory capital for the Bank:

Finbond Mutual Bank Figures in Rand 2015 2014 Coposition of qualifying regulatory capital Ordinary share capital 457 781 488 457 781 488 Accumulated profit 26 112 163 26 112 663

Regulatory adjustments (135 589 261) (104 895 741)

Common Equity Tier 1 capital (CET1) 348 304 390 378 998 410

Debt instruments issued i.t.o. regulation 23(5) 69 705 266 - Unidentified impairments 843 826 -

Tier 2 capital (T2) 70 549 092 -

Qualifying regulatory capital 418 853 482 378 998 410

T1% 29.2% 36.1% T2% 5.9% 0.0% Total capital adequacy ratio 35.1% 36.1%

Surplus Regulatory capital 120 779 212 116 705 715

Financial risk management The Group’s activities expose it to a variety of financial risks: market risk, (fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by a central risk department, headed up by the Chief Risk Officer (CRO), under policies approved by the Board of Directors.

The CRO identifies, evaluates and economically hedges financial risks (through the use of such tools as a risk barometer) in close co-operation with the Group’s operating units. The Group views risk management as a measure of ensuring a responsible return on shareholders’ equity. Ultimately, the Board remains responsible for risk management.

The Group is managed through a system of internal controls functioning uniformly throughout the entity so that an awareness of risk pervades every aspect of business and is seen as the responsibility of each employee of the Group. The Board of Directors provides written principles for overall risk management, as well as written policies covering specific areas, such as interest rate risk, credit risk and investment of excess liquidity.

126 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 127 Liquidity risk Liquidity risk is the risk that Finbond is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn, the consequence of which may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

Liquidity management is a priority of the Group. The Group ensures that it has adequate liquid assets at all times in order to maintain its current ratio requirements. The short term nature of the loan book versus the long term sources of deposits received from clients, greatly reduces the liquidity risk of the Group. Refer to note 17, and below for a maturity analysis of significant financial liabilities.

The Group is holding additional liquidity and has therefore been able to maintain funding at normal market rates. Liquidity risk is managed using a multifaceted approach, including: • daily cash management procedures; • cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored; • group bank accounts are set up with sweeping facilities based on a predetermined maintain balances per branch to optimise cash utilisation; • prudential limits to restrict concentration of cash flows by maturity or client; • maintaining a stable deposit base; • maintaining a large amount of surplus liquid assets determined by the Board of Directors, in compliance with SARB requirements.

Liquidity determines the day to day viability of the Group and remains one of the principal considerations of asset and liability management. The Group has a detailed Asset and Liability Management Policy which sets out the policies and procedures that are in place and applied within the Group’s Asset and Liability management process. The authority and responsibility for liability and interest rate risk management rests with the Group’s Board of Directors. Liquidity is managed srictly by the Group and involves prudently managing assets and liabilities, both as to cash flow and concentration, to ensure that cash inflows have an appropriate relationship to approaching cash outflows.

Maturity analysis - Group : at 28 February 2015

Total Carrying Consolidated - 2015 Less than Between More than 1 year 1-5 years 5 years Value Loans and advances 300 075 295 48 193 341 - 348 268 636 Cash and cash equivalents 197 499 520 - - 197 499 520 Other financial assets 65 490 896 61 456 273 245 825 093 372 772 262 Property, plant and equipment - - 46 044 154 46 044 154 Investment property - 248 820 000 - 248 820 000 Other assets 135 847 532 - - 135 847 532 Deposits received (267 416 896) (654 585 804) - (922 002 700) Other financial liabilities (26 672 741) (28 374 709) - (55 047 450) Trade and other payables (26 297 683) - - (26 297 683) Total 378 525 923 (324 490 899) 291 869 247 345 904 271

Total Carrying Consolidated - 2014 Less than Between More than 1 year 1-5 years 5 years Value Loans and advances 197 415 581 31 705 763 - 229 121 344 Cash and cash equivalents 86 759 771 - - 86 759 771 Other financial assets 48 255 763 73 092 947 292 371 790 413 720 500 Property, plant and equipment - - 22 567 979 22 567 979 Investment property - 242 620 028 - 242 620 028 Other assets 91 057 604 - - 91 057 604 Deposits received (211 791 692) (484 110 400) - (695 902 092) Trade and other payables (20 100 205) - - (20 100 205) Total 191 596 822 (136 691 662) 314 939 769 369 844 929

128 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 129 Maturity analysis - Company : at 28 February 2015

Total Carrying Company - 2015 Less than Between More than 1 year 1-5 years 5 years Value Loans and advances 24 500 781 3 934 927 - 28 435 708 Cash and cash equivalents 46 009 091 - - 46 009 091 Investment in subsidiaries - - 451 471 958 451 471 958 Other financial assets - 164 365 657 461 821 826 Other assets 52 495 286 - - 52 495 286 Loans from group companies (216 970 343) - - (216 970 343) Other financial liabilities (18 267 722) - - (18 267 722) Total (112 232 907) 4 099 292 452 129 419 343 995 804

Total Carrying Company - 2014 Less than Between More than 1 year 1-5 years 5 years Value Loans and advances 1 197 008 192 245 - 1 389 253 Cash and cash equivalents 3 125 691 - - 3 125 691 Investment in subsidiaries - - 471 838 556 471 838 556 Other financial assets - 6 193 014 24 772 055 30 965 069 Other assets 56 229 641 - - 56 229 641 Loans from group companies (232 991 995) - - (232 991 995) Trade and other payables (6 212 183) - - (6 212 183) Total (178 651 838) 6 385 259 496 610 611 324 344 032

Maturity analysis - Bank : at 28 February 2015

Total Carrying Bank - 2015 Less than Between More than 1 year 1-5 years 5 years Value Loans and advances 264 982 767 42 557 335 - 307 540 102 Cash and cash equivalents 148 084 013 - - 148 084 013 Loans to group companies 214 503 866 - - 214 503 866 Other financial assets 62 438 246 61 456 273 245 825 093 369 719 612 Property, plant and equipment - - 43 471 407 43 471 407 Investment property - 248 820 000 - 248 820 000 Other assets 102 887 052 - - 102 887 052 Deposits received (329 713 987) (592 288 713) - (922 002 700) Other financial liabilities (765 849) (37 663 322) - (38 429 171) Trade and other payables (24 759 084) - - (24 759 084) Total 437 657 023 (277 118 427) 289 296 500 449 835 097

128 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 129 Maturity analysis - Bank : at 28 February 2015

Total Carrying Bank - 2014 Less than Between More than 1 year 1-5 years 5 years Value Loans and advances 193 354 229 31 053 494 - 224 407 723 Cash and cash equivalents 82 688 589 - - 82 688 589 Loans to/from group companies 154 805 986 - - 154 805 986 Other financial assets 48 255 763 70 929 235 283 716 940 402 901 938 Property, plant and equipment - - 22 567 979 22 567 979 Investment property - 242 620 028 - 242 620 028 Other assets 66 997 679 - - 66 997 679 Deposits received (211 791 692) (484 110 400) - (695 902 092) Trade and other payables (12 899 596) - - (12 899 596) Total 321 410 958 (139 507 643) 306 284 919 488 188 234

Interest rate risk Interest rate risk is the potential impact on earnings or the value of the Group’s holdings in financial instruments and on future cash flows from financial instruments due to changes in the interest rate.

The Group operates in a fixed and discretionary interest rate industry for most products. Discretionary rate items are those where the rates are not necessarily linked to a market interest rate but rather where management can, at their discretion, increase or decrease the rate as deemed appropriate, in line with NCA requirements.

Call deposits in which surplus undeployed funds are placed, bank balances, as well as sources of funding vary with the prime interest rate and JIBAR. Loans and advances and deposits received from customers have fixed and discretionary interest rates in line with NCA requirements. The Group policy is to manage interest rate risk so that fluctuations in variable rates do not have a material impact on profits or losses. Refer also to the sensitivity analysis below.

Sensitivity analysis: The sensitivity analyses below have been determined based on the exposure to interest rate instruments at the reporting date. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been on average 100 basis points higher/lower and all other variables were held constant, the Group’s: • profit for the year ended 28 February 2015 would decrease/increase by R1 780 230 (2014: R487 326).

This is mainly attributable to the Group’s exposure to interest rates on its variable rate funding and cash and cash equivalents. Loans and advances exposure to interest rate risk is considered relatively insignificant based on the Group’s product mix. Loan products are predominantly subject to fixed yields (discretionary - also refer 36.2.2 below) based on the Group’s target product mix, as prescribed by the National Credit Act (NCA).

The Group’s sensitivity to interest rates remains relatively unchanged during the current period due to a stable interest rate trend, which is expected to continue in the short term due to market forces, offset by an increased exposure to floating rate financial instruments, as illustrated below.

Significant exposure to interest risk is set out below:

Class of Financial instruments: carrying value - 2015

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand Cash and cash equivalents 197 499 520 46 009 091 148 084 013 Other financial assets 372 772 262 821 826 369 719 612 Finance lease obligations (1 532 266) - (1 532 266) Deposits received from clients (921 933 480) - (921 933 480) Net exposure (353 193 964) 46 830 917 (405 662 121)

130 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 131 Class of Financial instruments: carrying value - 2014

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank Figures in Rand Cash and cash equivalents 86 759 771 3 125 691 82 688 589 Other financial assets 413 720 500 30 965 069 402 901 938 Finance lease obligations (1 327 599) - (1 327 599) Deposits received from clients (695 902 092) - (695 902 092) Net exposure (196 749 420) 34 090 760 (211 639 164)

Credit risk Credit Risk is the Bank’s most material risk and can be defined as the risk of loss arising from the failure of a client or counterparty to fulfil its financial and/or contractual obligations to the Bank. The credit risk the Bank faces arises mainly from consumer loans and advances.

Credit risk consists mainly of cash deposits and cash equivalents R197 499 520 (2014: R86 759 771) and net loans and advances R290 715 142 (2014: 210 988 685). Loans and advances are stated net of impairment allowances on the face of the statement of financial position. The Group only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party.

Loans and advances comprise a widespread demographic and economic customer base. Management evaluate credit risk relating to customers on an on-going basis.

The group structures the levels of credit risks it undertakes, placing limits on the amounts of risk accepted in relation to one borrower, or a group of borrowers based on credit vetting and affordability upfront, as prescribed by the NCR.

Active pay date management compliments the above and ensures maximum pro-active efficiencies on borrower repayments and collections.

Daily monitoring of recoverability and collectability at branch, area, region, as well as from Group level is practiced. Collections strategies for groups of borrowers by demographic and economic customer base ensures effective and efficient collections efforts. A combination of insourced and outsourced collections strategies are followed.

The Group makes allowance for impairment against non-performing accounts, where recoverability is doubtful.

Refer to note 5 for additional disclosure relating to loans and advances.

Foreign exchange risk The Group is currently not exposed to currency risk as all lending operations are based locally or in common monetary areas. All funding is local. Also refer to note 20.

Classification of financial assets and financial liabilities - Consolidated 2015

Consolidated - 2015 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Other financial assets 310 334 016 62 438 246 - - 372 772 262 Loans and advances 290 715 142 - - - 290 715 142 Other receivables 59 553 494 - - - 59 553 494 Cash and cash equivalents 197 499 520 - - - 197 499 520 Total financial assets 858 102 172 62 438 246 - - 920 540 418

Deposits received - - - (921 933 480) (921 933 480) Trade and other payables - - - (26 297 683) (26 297 683) Total financial liabilities - - - (948 231 163) (948 231 163)

130 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 131 Consolidated - 2014 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Other financial assets 365 464 737 48 255 763 - - 413 720 500 Loans and advances 210 988 685 - - - 210 988 685 Other receivables 18 132 659 - - - 18 132 659 Cash and cash equivalents 86 759 771 - - - 86 759 771 Total financial assets 681 345 852 48 255 763 - - 729 601 615

Deposits received - - - (695 902 092) (695 902 092) Trade and other payables - - - (20 100 205) (20 100 205) Total financial liabilities - - - (716 002 297) (716 002 297)

Company - 2015 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Loans to group companies 50 096 161 - - - 50 096 161 Other receivables 28 435 708 - - - 28 435 708 Other financial assets 821 826 - - - 821 826 Cash and cash equivalents 46 009 091 - - - 46 009 091 Total financial assets 125 362 786 - - - 125 362 786

Loans from group companies (216 970 343) - - - (216 970 343) Trade and other payables - - - (3 267 607) (3 267 607) Total financial liabilities (216 970 343) - - (3 267 607) (220 237 950)

Company - 2014 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Loans to group companies 37 201 211 - - - 37 201 211 Other receivables 1 389 253 - - - 1 389 253 Other financial assets 30 965 069 - - - 30 965 069 Cash and cash equivalents 3 125 691 - - - 3 125 691 Total financial assets 72 681 224 - - - 72 681 224

Loans from group companies (232 991 995) - - - (232 991 995) Trade and other payables - - - (6 212 183) (6 212 183) Total financial liabilities (232 991 995) - - (6 212 183) (239 204 178)

Finbond Mutual Bank - 2015 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Loans to group companies 214 503 866 - - - 214 503 866 Loans and advances 278 379 172 - - - 278 379 172 Other financial assets 307 281 366 62 438 246 - - 369 719 612 Other receivables 29 160 930 - - - 29 160 930 Cash and cash equivalents 148 084 013 - - - 148 084 013 Total financial assets 977 409 341 62 438 246 - - 1 039 847 593

Deposits received (921 933 480) - - - (921 933 480) Trade and other payables - - - (24 759 084) (24 759 084) Total financial liabilities (921 933 480) - - (24 759 084) (946 692 564)

132 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 133 Finbond Mutual Bank - 2014 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Loans to group companies 154 805 986 - - - 154 805 986 Loans and advances 210 990 805 - - - 210 990 805 Other financial assets 354 646 175 48 255 763 - - 402 901 938 Other receivables 13 416 918 - - - 13 416 918 Cash and cash equivalents 82 688 589 - - - 82 688 589 Total financial assets 816 548 473 48 255 763 - - 864 804 236

Deposits received (695 902 092) - - - (695 902 092) Trade and other payables - - - (12 899 596) (12 899 596) Total financial liabilities (695 902 092) - - (12 899 596) (708 801 688)

Income, expenses, gains and losses resulting from financial assets and liabilities

Consolidated - 2015 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Interest income 145 456 503 - - - 145 456 503 Interest expense - (76 136 528) - - (76 136 528) Fee income 170 127 896 - - - 170 127 896 Impairment losses (60 136 892) - - - (60 136 892)

Consolidated - 2014 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Interest income 93 018 672 - - - 93 018 672 Interest expense - (44 286 052) - - (44 286 052) Fee income 112 731 141 - - - 112 731 141 Impairment losses 24 940 770 - - - 24 940 770

Company - 2015 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Interest income 167 769 - - - 167 769 Interest expense (88) - - - (88) 167 681 - - - 167 681

Company - 2014 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Interest income 105 168 - - - 105 168 Interest expense (72 522) - - - (72 522) 32 646 - - - 32 646

Finbond Mutual Bank - 2015 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Interest income 137 520 764 - - - 137 520 764 Interest expense (74 696 379) - - - (74 696 379) Fee income 159 710 851 - - - 15 971 081 Impairment losses (52 872 125) - - - (52 872 125) 169 663 111 - - - 169 663 111

132 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 133 Finbond Mutual Bank - 2014 Loans and Held to Designated Other receivables maturity at fair value liabilities Total

Interest income 92 886 327 - - - 92 886 327 Interest expense (44 213 519) - - - (44 213 519) Fee income 112 731 141 - - - 112 731 141 Impairment losses (24 940 770) - - - (24 940 770) 136 463 179 - - - 136 463 179

43. Fair value information

Fair value hierarchy of instruments measured at fair value The table below analyses assets and liabilities carried at fair value, by level of fair value hierarchy. The different levels are based on the extent that quoted prices are used in the calculation of the fair value of the instruments and have been defined as follows:

Level 1: Fair value is based on quoted unadjusted prices in active markets for identical assets or liabilities that the group can access at measurement date.

Level 2: Fair value is determined through valuation techniques based on observable inputs, either directly, such as quoted prices, or indirectly, such as derived from quoted prices. This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Fair value is determined through valuation techniques using significant unobservable inputs. This category includes all assets and liabilities 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.

Levels of fair value measurements

Assets and liabilities measured at fair value: Level 1 Level 2 Level 3 Total Recurring Other financial assets - 369 719 612 3 052 650 372 772 262 Investment property - - 248 820 000 248 820 000 - 369 719 612 251 872 650 621 592 262

Valuation techniques used to derive level 2 and 3 fair values Level 2 fair values of other financial assets have been derived by using the rate as available in active markets. The underlying assets and liabilities of the investment in the cell captive arrangement were mainly cash and cash equivalents, gross debtors and SARS liabilities. These all approximated fair value, and the fair value hierarchy was considered level 1 and level 2, with no elevated risk areas. The IBNR provision was managed from industry data accumulated on the Alexander Forbes Risk and Insurance Services claim system, and was classified as a level 3.

Refer to the accounting policy on insurance claims provisions for further details on the calculations performed.

Level 3 fair values of investment properties have been generally derived using the market value, comparable sales method of valuation, and the residual land valuation method, as applicable to each property.

The fair value is determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the properties being valued. The valuation company provides the fair value of the Group’s investment portfolio every twelve months.

Refer to note 11 for further information on the fair value methodologies and assumptions for Investment Properties.

134 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 135 Reconciliation of assets and liabilities measured at level 3

Gains/losses Unrealised gains or Group - 2015 Opening Closing Notes recognised in Purchase Settlements balance losses included in balance profit or loss profit or loss Investment property Investment properties 11 242 620 028 4 002 345 2 197 627 - 248 820 000 4 002 345

Gains/losses Unrealised gains or Group - 2014 Opening Closing Notes recognised in Purchase Settlements balance losses included in balance profit or loss profit or loss Assets Investment property 11 Investment properties 233 005 882 4 042 854 5 000 000 571 292 242 620 028 4 042 854 233 005 882 4 042 854 5 000 000 571 292 242 620 028 4 042 854

Transfers of assets and liabilities within levels of the fair value hierarchy No transfers of assets and liabilities within levels of fair value hierarchy occurred during the current financial year. There were no transfers in 2014.

Assets and liabilities not measured at fair value, but fair values are disclosed

Level 1 Level 2 Level 3 Finance lease obligations - 1 532 266 -

Cash and cash equivalents are not fair valued and stated at cost, which approximates fair value due to the short-term nature if the instrument..

Short term receivables and short term payables are measured at amortised cost and approximate fair value due to the short term nature of these instruments. These instruments are not included in the fair value hierarchy.

Valuation techniques applied to Loans and advances to customers are discussed in note 5.

44. Earnings per share

Basic earnings per share Basic earnings per share is determined by dividing profit or loss attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank 2015 2014 2015 2014 2015 2014 Basic earnings per share From continuing operations (c per share) 8.6 6.1 - - - -

Basic earnings per share was based on earnings of R50 867 375 (2014: R36 917 621) and a weigthed average number of ordinary shares of 593 308 162 (2014: 605 025 250).

Diluted earnings per share In the determination of diluted earnings per share, profit or loss attributable to the equity holders of the parent and the weighted average number of ordinary shares are adjusted for the effects of all dilutive potential ordinary shares.

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank 2015 2014 2015 2014 2015 2014 Diluted earnings per share From continuing operations (c per share) 8.6 6.1 - - - -

Diluted earnings per share is equal to earnings per share because there are no dilutive potential ordinary shares in issue.

134 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 135 Headline earnings and diluted headline earnings per share Headline earnings per share and diluted headline earnings per share are determined by dividing headline earnings and diluted headline earnings by the weighted average number of ordinary share outstanding during a period.

Headline earnings and diluted headline earnings are determined by adjusting basic earnings and diluted earnings by excluding separately identifiable re-measurement items. Headline earnings and diluted headline earnings are presented after tax and non-controlling interest.

Reconciliation between earnings (loss) and headline earnings (loss) 2015 2014 Gross Nett Gross Nett Basic earnings - 50 867 375 - 36 917 621 Adjusted for: Loss on disposal of Property, plant and equipment 123 352 88 814 129 056 92 920 Fair value of investment properties (4 002 345) (3 255 988) (4 042 854) (3 288 184) Gain/losses on the loss of control of a subsidiary (4 683 216) 3 480 948 - - Headline profit 51 181 149 33 722 357

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank 2015 2014 2015 2014 2015 2014 Headline and diluted headline earnings per share From continuing operations (c per share) 8.6 5.6 - - - - Dividends per share Final 2.1 - - - - -

The final dividend was declared and authorised after the end of the reporting period. The dividend has therefore not been recognised as a liability in the reporting period. It has been disclosed for information purposes only.

45. Dividends paid

Finbond Group Limited Finbond Group Limited Finbond Mutual Consolidated Company Bank 2015 2014 2015 2014 2015 2014 Dividends (12 544 828) - (12 705 530) - (12 705 530) -

Notice is hereby given that a gross ordinary dividend of 3.4 cents per share (2014: 2.1 cents) has been declared out of income reserves on 16 April 2015 in respect of the financial year ended 28 February 2015 and is payable to ordinary shareholders in accordance with the timetable below.

In terms of dividend tax effective since 1 April 2012, the following additional information is disclosed: • The local dividend tax rate is 15%; • 589 614 168 shares are in issue; • The net ordinary dividend is 2.89 cents per share for ordinary shareholders who are not exempt from dividends tax; and • Finbond Group Limited’s tax reference number is 9194313145.

Timetable: Declaration date Thursday, 16 April 2015 Last day to trade cum dividend Friday, 8 May 2015 Shares commence ex-trading Monday, 11 May 2015 Record date Friday, 15 May 2015 Dividend payment date Tuesday, 19 May 2015

No dematerialisation or rematerialisation of shares will be allowed for the period from Monday, 11 May 2015 to Friday, 15 May 2015, both dates inclusive.

Dividends are declared in the currency of the Republic of South Africa. The Directors have confirmed that the company will satisfy the liquidity and solvency requirements immediately after the payment of the dividend.

136 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 137 46. Segment reporting

Investment Micro Property Transactional Reconciling* Consolidated CONSOLIDATED - 2015 Products Finance Investment Banking Interest income 23 576 972 119 768 448 27 798 - 2 083 285 145 456 503 Interest expense (37 700 477) (16 049 451) 112 (127 513) (22 259 199) (76 136 528) Net interest income (14 123 505) 103 718 997 27 910 (127 513) (20 175 914) 69 319 975 Fee income (2 000) 169 835 221 289 965 8 562 (3 852) 170 127 896 Management fee income - - - - 27 765 974 27 765 974 Other micro finance income 515 185 50 104 791 - 11 29 065 803 79 685 790 Operating profit from Cell Captive arrangement - 30 611 709 - - - 30 611 709 Fair value adjustment (2 211 838) - 4 002 345 - - 1 790 507 Net commission income - (3 384 258) - - - (3 384 258) Net impairment charge on loans and advances - (57 959 210) (923 334) - (1 254 348) (60 136 892) Operating expenses (1 654 244) (225 112 409) (926 739) (2 075 799) (12 648 532) (242 417 723) Operating (loss)/profit (17 476 402) 67 814 841 2 470 147 (2 194 739) 22 749 131 73 362 978 (Loss)/profit before taxation (17 476 402) 67 814 841 2 470 147 (2 194 739) 22 749 131 73 362 978 Taxation - 71 234 171 012 - (22 737 849) (22 495 603) (Loss)/profit for the period (17 476 402) 67 886 075 2 641 159 (2 194 739) 11 282 50 867 375 (34%) 133% 5% (4%) - 100% (Loss)/profit for the period attributable to: Owners of the company (17 476 402) 67 886 075 2 641 159 (2 194 739) 11 282 50 867 375 Significant segment assets 524 654 701 494 604 198 248 857 930 4 163 431 6 171 104 1 278 451 364 Cash and cash equivalents 154 925 488 42 536 102 37 930 - - 197 499 520 Other financial assets 369 719 612 3 052 650 - - - 372 772 262 Loans and advances - 290 715 142 - - - 290 715 142 Inventories - - - 2 566 657 - 2 566 657 Property, plant and equipment 9 601 38 266 675 - 1 596 774 6 171 104 46 044 154 Investment property - - 248 820 000 - - 248 820 000 Goodwill - 120 033 629 - - - 120 033 629 Significant segment liabilities 921 933 480 - - 69 220 15 000 000 937 002 700 Deposits received from customers 921 933 480 - - - - 921 933 480 Transactional deposits - - - 69 220 - 69 220 Loans from shareholders - - - - 15 000 000 15 000 000

*The Reconciling column represents Group Shared Services

136 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 137 Investment Micro Property Reconciling* Consolidated CONSOLIDATED - 2014 Products Finance Investment Interest income 13 264 721 78 012 417 27 177 1 714 357 93 018 672 Interest expense (31 005 074) (13 140 106) (11) (140 861) (44 286 052) Net interest income (17 740 353) 64 872 311 27 166 1 573 496 48 732 620 Fee income - 112 731 141 - - 112 731 141 Management fee income - 20 736 996 - - 20 736 996 Other micro finance income - 27 840 164 658 248 1 447 28 499 859 Operating profit from Cell Captive arrangement - 22 804 330 - - 22 804 330 Fair value adjustment 914 672 - - 4 042 854 4 957 526 Net commission income 258 128 (19 827 082) 115 836 17 078 350 (2 374 768) Net impairment charge on loans and advances - (24 899 428) - (41 342) (24 940 770) Operating expenses (1 902 024) (143 162 077) (530 045) (18 700 298) (164 294 444) Operating (loss)/profit (18 469 577) 61 096 355 271 205 3 954 507 46 852 490 (Loss)/profit before taxation (18 469 577) 61 096 355 271 205 3 954 507 46 852 490 Taxation - (13 865) (203 382) (9 717 622) (9 934 869) (Loss)/profit for the period (18 469 577) 61 082 490 67 823 (5 763 115) 36 917 621 (50%) 165% 0.2% (15.8%) 100% (Loss)/profit for the period attributable to: Owners of the company (18 469 577) 61 082 490 67 823 (5 763 115) 36 917 621 Significant segment assets 438 568 800 272 002 607 243 527 577 - 954 098 984 Investment property - - 242 620 028 - 242 620 028 Loans and advances - 210 998 685 - - 210 998 685 Cash and cash equivalents 55 904 318 29 947 904 907 549 - 86 759 771 Other financial assets 382 664 482 31 056 018 - - 413 720 500 Significant segment liabilities 695 902 092 - - - 695 902 092 Deposits received from customers 695 902 092 - - - 695 902 092

*The Reconciling column represents Group Shared Services

138 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 139 SHAREHOLDERS

SHARE REGISTER ANALYSIS Number of % of total shares held issued shares Coetser, M. 10 013 343 1.7% Midbrook Lane (Pty) Ltd 11 586 226 1.9% Snowball Wealth (Pty) Ltd 13 855 248 2.3% IBL Private Placements 14 570 100 2.4% Finbond Group Limited 15 393 082 2.5% Pershing LLC 89 657 529 14.8% Net 1 Finance Holdings 156 788 712 25.9% Kings Reign Investments (Pty) Ltd 234 240 732 38.7%

SHAREHOLDER SPREAD Number of % of total Number of % of total shares held issued shares shareholders shareholders Public shareholders 107 778 168 17.8% 1 648 99.1% Non-Public shareholders Directors 234 501 723 38.8% 2 0.1% Associates of Directors 1 000 0.0% 1 0.1% Shareholders not listed elsewhere with more than 10% share 246 446 241 40.7% 2 0.1% Employees of the Group 887 0.1% 8 0.5% 589 614 168 97.5% 1 661 99.8%

Subsidiaries 18 000 0.0% 1 0.1% Finbond Group Limited 15 393 082 2.5% 1 0.1% 15 411 082 2.5% 2 0.2% 605 025 250 100% 1 663 100%

138 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 139 The Victor

If you think you are beaten, you are. If you think you dare not, you don’t. If you like to win but think you can’t, It’s almost a cinch you won’t. If you think you’ll lose, you’re lost. For out in the world we find Success begins with a fellow’s will. It’s all in the state of mind. If you think you are outclassed, you are. You’ve got to think high to rise. You’ve got to be sure of yourself before You can ever win the prize. Life’s battles don’t always go To the stronger or faster man. But sooner or later, the man who wins Is the man who thinks he can.

- C. W. Longenecker -

140 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 141 “Success or failure depends more upon attitude than upon capacity. Successful men act as though they have accomplished or are enjoying something. Soon it becomes a reality. Act, look, feel successful, conduct yourself accordingly, and you will be amazed at the positive results.”

- William James -

APPENDIX

Save Invest

Transact Borrow

140 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 141 NOTICE TO SHAREHOLDERS OF FINBOND GROUP LIMITED

Notice is hereby given that the Annual General Meeting of members of Finbond Group Limited (“the Company”) will be held at Lombardy Estate, Plot no. 4, Lynnwood Road, Tweefontein, 1033, Pretoria on Monday, 29 June 2015 at 10:00 for the following purposes:

1. To receive and consider the consolidated audited Annual Financial Statements of the Company, for the year ended 28 February 2015, including the Directors’ report, the report of the Social and Ethics Committee, the Audit Committee, the Remuneration report and the report of the external auditors thereon. 2. To consider and, if deemed fit, to pass with or without modification, the following resolutions:

Ordinary resolution number 1 It is hereby resolved that the Directors be and are hereby authorised to allot and issue, at their discretion, the unissued share capital of the Company and/or grant options to subscribe for unissued shares, for such purposes and on such terms and conditions as they may determine, provided that such transaction(s) has/have been approved by the JSE Limited as and when required, and are subject to the JSE Listings Requirements and the Companies Act and shareholders hereby waive any pre-emptive rights thereto.

Ordinary resolution number 2 to be passed by 75% of the voting shareholders present Resolved that, subject to meeting the relevant JSE listings requirements and no less than 75% of shareholders present in person or by proxy and entitled to vote at the Annual General Meeting at which this ordinary resolution is to be considered, voting in favour thereof, the Directors of the Company be and are hereby authorised, by way of general authority, to issue all or any of the authorised but unissued shares in the capital of the Company for cash as they in their discretion deem fit, subject to the following limitations: • The securities must be of a class already in issue, • The securities must be issued to public shareholders and not to related parties, • The general issue of shares for cash in the aggregate in any one financial year may not exceed 15% of the Company’s issued share capital of that class (90 753 788 shares), • The maximum discount at which the securities may be issued is 10% of the weighted average traded price of those securities over the 30 business days prior to the date that the price of the issue is determined or agreed by the Directors of the Company, and • That a press announcement giving full details, including the impact on net asset value and earnings per share will be published at the time of any issue representing on a cumulative basis within one year, 5% or more of the number of shares of that class in issue prior to the issues.

Ordinary resolution number 3 Resolved to reappoint KPMG Inc. as auditors of the Company, and Mr. J Vliegenthart as the individual, designated auditor of the Company, for the 2015/2016 financial year, until the next Annual General Meeting.

Ordinary resolutions numbers 4 through 13: Director appointment and re-election

Ordinary resolution number 4: Resolved to re-elect Mr. R Emslie to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 5: Resolved to re-elect Adv. N Melville to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 6: Resolved to re-elect Dr. M Motlatla to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 7: Resolved to re-elect Adv. J Noeth to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 8: Resolved to re-elect Mrs. R Xaba to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered herself for re- election;

Ordinary resolution number 9: Resolved to re-elect Mrs. H Wilken-Jonker to the Board of Directors in the capacity of Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered herself for re-election;

142 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 143 Ordinary resolution number 10: Resolved to re-elect Mr. DJ Brits to the Board of Directors in the capacity of Independent, Non-Executive Director; who, in accordance with the Company’s Articles of Association, may be required to retire by rotation, but offered himself up for re- election.

Ordinary resolution number 11: Resolved to re-elect Mr. DJ Brits to the Audit Committee;

Ordinary resolution number 12: Resolved to re-elect Mr. R Emslie to the Audit Committee;

Ordinary resolution number 13: Resolved to re-elect Mrs. R Xaba to the Audit Committee.

Special resolution number 1 Resolved that the remuneration policy as set out on pages 78 to 81 of the Annual Report of which this notice forms part be approved and the remuneration of the Non-Executive Directors as set out on page 81, to be paid by Finbond Mutual Bank, be fixed from 1 June 2015 as follows: • R22 673 for each attendance of a Board meeting (Chairman); • R18 907 for each attendance of a Board meeting (other members); • R18 079 for each attendance of a Board Committee meeting (Chairman), including meetings of the Remuneration, Social and Ethics, and Audit Committees; • R15 067 for each attendance of a Board Committee meeting (other members), including meetings of the Remuneration, Social and Ethics, and Audit Committees; • R10 546 retainer per month (Chairman); and • R7 533 retainer per month (other members).

It is hereby noted that Executive Directors are contracted as employees of the Company and are not remunerated separately for attending meetings in their capacities as Directors. They are elected as Directors for as long as they continue to serve in their executive capacity, or until they resign such directorships.

Special resolution number 2 Resolved that the inter-group loans of the Company as set out on page 101 of the Annual Report of which this notice forms part, be ratified for the period ended 28 February 2015 as follows:

Figures in Rand 28 Feb 2015 Loans to (from) group companies Subsidiaries

Bondmaster Group (Pty) Limited - The loan is unsecured, interest free and has no fixed terms of repayment. Blue Chip Finance Western Cape (Pty) Limited (25 060 468) The loan is unsecured, interest free and has no fixed terms of repayment. Blue Chip Finance 1 (Pty) Limited 50 069 161 The loan is unsecured, interest free and has no fixed terms of repayment. Finbond Mutual Bank (178 491 805) The loan is unsecured, interest free and has no fixed terms of repayment. Mzanzi Finance (Pty) Limited 175 761 The loan is unsecured, interest free and has no fixed terms of repayment. Finbond Mortgage Origination (Pty) Limited (13 593 831) The loan is unsecured, interest free and has no fixed terms of repayment.

(166 901 182)

Special resolution number 3 Resolved that subject to compliance with the requirements of the JSE, the Directors of the Company be and are hereby authorised at their discretion to procure that the Company or subsidiaries of the Company acquire by purchasing ordinary shares issued by the Company provided that: • the number of ordinary shares acquired in any one financial year, • shall not exceed 20% of the ordinary shares in issue at the date on which this resolution is passed, • this authority shall lapse on the earlier of the date of the next Annual General Meeting of the Company or the date 15 months after the date on which this resolution is passed,

142 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 143 • the price paid per ordinary share may not be greater than 10% above the weighted average of the market value of the ordinary shares for the five business days immediately preceding the date on which a purchase is made, • the number of shares purchased by subsidiaries of the Company shall not exceed 10% in the aggregate of the number of issued shares in the Company at the relevant times, • the repurchase will not be effected during a prohibited period unless the Company has announced a repurchase programme, and • an announcement giving full details, including the impact on the net asset value per share, will be published at the time the Company has cumulatively repurchased 3% of the class of share in issue and for each 3% in aggregate thereafter.

The reason for this special resolution is to authorise the Directors, if they deem it appropriate in the interests of the Company, to procure that the Company or subsidiaries of the Company acquire or purchase ordinary shares issued by the Company subject to the restrictions contained in the above resolution.

The effect of this special resolution will be to authorise the Directors of the Company to procure that the Company or subsidiaries of the Company acquire or purchase shares issued by the Company on the JSE. Such purchases: • may not in any financial year exceed 20% of the Company’s ordinary shares in issue at the date of passing the above resolution; • must be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counterparty; • may not be made at prices in excess of 10% above the weighted average of the market value of the ordinary shares for the five days preceding the date of purchase; • must comply with the requirements of the JSE; and • if made by a subsidiary or subsidiaries may not exceed 10% in the aggregate of the issued shares in the Company.

The general authority granted by this resolution will lapse on the earlier of the next Annual General Meeting of the Company or the date 15 months after the date on which this resolution was passed.

At the present time the Directors have no specific intention with regard to the utilisation of this authority which will only be used if the circumstances are appropriate. If the authority is exercised, the ordinary shares will be purchased on the JSE.

The Directors, after considering the effect of a repurchase of up to 20% of the Company’s issued ordinary shares, are of the opinion that for a period of 12 months after the date of notice of this Annual General Meeting: • the Company and its subsidiaries will be able to pay their debts in the ordinary course of business, • recognised and measured in accordance with the accounting policies used in the latest audited Annual Group Financial Statements, the assets of the Company and its subsidiaries will exceed the liabilities of the Company and its subsidiaries, • the ordinary capital and reserves of the Company and its subsidiaries will be adequate for the purposes the business of the Company and its subsidiaries, and • the working capital of the Company and its subsidiaries will be adequate for the purposes of the business of the Company and its subsidiaries.

Voting procedures and electronic participation On a poll, every shareholder present in person or represented by proxy and entitled to vote shall be entitled to one vote for every share held or represented by that shareholder.

On a poll taken at any such meeting the shareholder entitled to more than one vote need not, if he votes, use all of his votes, or cast all the votes he uses in the same way.

The Directors have not made any provision for electronic participation at the AGM.

Threshold for resolution approval For ordinary resolutions, with the exception of ordinary resolution 2 as detailed above, to be approved by shareholders, the resolution must be supported by more than 50% of the voting rights exercised on the resolution concerned. For special resolutions and ordinary resolution 2 to be approved by shareholders, each resolution must be supported at least 75% of the voting rights exercised on the resolution concerned.

Proxies A shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend, participate in and vote at the meeting in the place of the shareholder. A proxy need not also be a shareholder of the Company.

Shareholders on the Company share register who have dematerialised their ordinary shares through Strate, other than those whose shareholding is recorded in their “own name” in the sub register maintained by their CSDP, and who wish to attend the meeting in person, will need to request their CSDP or broker to provide them with the necessary authority to do so in terms of the custody agreement entered into between the dematerialised shareholders and their CSDP or broker, and: • to furnish them with their voting instructions; or • in the event that they wish to attend the general meeting, to obtain the necessary letter of representation to do so.

144 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 145 Shareholders who have not dematerialised their shares or who have dematerialised their shares with “own name” registration, and who are entitled to attend and vote at the AGM, are entitled to appoint one or more proxies to attend, speak and vote in their stead. A proxy need not be a shareholder and shall be entitled to vote on a show of hands or poll. It is requested that proxy forms be forwarded so as to reach the transfer secretaries at least 48 hours prior to the meeting. If shareholders who have not dematerialised their shares or who have dematerialised their shares with “own name” registration and who are entitled to attend and vote at the AGM do not deliver proxy forms to the transfer secretaries timeously, such shareholders will nevertheless at any time prior to the commencement of the voting on the resolutions at the AGM be entitled to lodge the form of proxy in respect of the AGM, in accordance with the instructions therein with the chairperson of the AGM.

Salient dates applicable to the AGM • Last day to trade to be eligible to vote at the Annual General Meeting: Friday, 12 June 2015 • Record date for determining those shareholders entitled to vote at the Annual General Meeting: Friday, 19 June 2015

Section 63(1) of the Companies Act – Identification of Meeting Participants Meeting participants (including proxies) are required to provide reasonably satisfactory identification before being entitled to attend or participate in shareholders’ meetings. Forms of identification include valid identity documents, drivers’ licences and passports.

Additional Information The following additional information, some of which may appear elsewhere in the Annual Report of which this notice forms part, is provided in terms of paragraph 11.26 of the listing requirements of the JSE: • Directors (page 32), • Major shareholders (page 139), • Directors interests in ordinary shares (page 76), and • Share Capital of the Company (page 114).

Litigation Statement The Directors, whose names appear on page 32 of this Annual Report of which this notice forms part, are not aware of any legal or arbitration proceedings including proceedings that are pending or threatened that may have or have had in the recent past, being at least the previous 12 (twelve) months, a material effect on the Group’s financial position.

Directors’ responsibility statement The Directors, whose names appear on page 32 of this Annual Report of which this notice forms part, collectively and individually accept full responsibility for the accuracy of the information pertaining to the special resolution and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, that all reasonable enquiries to ascertain such facts have been made and that the special resolution contains all information required in terms of the Listings Requirements of the JSE.

Material Changes Other than the facts and developments reported on in the Annual Report, there have been no material changes in the affairs or financial position of the Company and its subsidiaries since the date of signature of the Audit Report for the period ended 28 February 2015.

Shareholders who have dematerialised their shares through their Central Securities Depository Participant (“CSDP”) or broker rather than through own-name registration and who wish to attend the Annual General Meeting must request their CSDP or broker to issue them with a letter of representation.

Dematerialised shareholders, who have elected own-name registration in the sub-register through a CSDP or broker and who are unable to attend but wish to vote at the Annual General Meeting, should timeously provide their CSDP or broker with their voting instructions in terms of the custody agreement entered into between the shareholder and his CSDP or broker.

By order of the Board.

Ms. CD du Plessis Group Secretary

16 April 2015 P.O. Box 2127 Bank Forum Brooklyn Square Corner of Veale and Fehrsen Streets Brooklyn Brooklyn Pretoria Pretoria 0075

144 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 145 NOTICE TO SHAREHOLDERS OF FINBOND MUTUAL BANK

Notice is hereby given that the Annual General Meeting of members of Finbond Mutual Bank (“the Bank”) will be held at Brooklyn Forum Building, Cnr. Veale and Fehrsen Streets, Nieuw Muckleneuk, Pretoria on Friday, 26 June 2015 at 10:00 for the following purposes:

1. To receive and consider the audited annual financial statements of the Bank, for the period ended 28 February 2015, the report of the Board of Directors and the report of the external auditors thereon.

2. To consider and, if deemed fit, to pass with or without modification, the following resolutions, or conduct the following business:

Ordinary Resolution number 1: Automatic re-appointment of auditor (s45) KPMG Inc. as auditors of the Bank, and Mr. J Vliegenthart as the individual, designated auditor of the Bank, for the 2014/2015 financial year, are automatically re-appointed until the next Annual General Meeting.

Director appointment and re-election

Ordinary resolution number 2: Resolved to re-elect Mr. R Emslie to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 3: Resolved to re-elect Adv. N Melville to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 4: Resolved to re-elect Dr. M Motlatla to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 5: Resolved to re-elect Adv. J Noeth to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered himself for re- election;

Ordinary resolution number 6: Resolved to re-elect Mrs. R Xaba to the Board of Directors in the capacity of Independent, Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered herself for re- election;

Ordinary resolution number 7: Resolved to re-elect Mrs. H Wilken-Jonker to the Board of Directors in the capacity of Non-Executive Director who, in accordance with the Company’s Articles of Association, may be required to retire by rotation but offered herself for re-election;

Ordinary resolution number 8: Resolved to re-elect Dr. W van Aardt to the Board of Directors in the capacity of Executive Director;

Ordinary resolution number 9: Resolved to re-elect Mr. GT Sayers to the Board of Directors in the capacity of Executive Director;

Ordinary resolution number 10: Resolved to re-elect Mr. DJ Brits to the Board of Directors in the capacity of Independent, Non-Executive Director; who, in accordance with the Company’s Articles of Association, may be required to retire by rotation, but offered himself up for re- election.

Ordinary resolution number 11: Resolved to re-elect Mr. DJ Brits to the Audit Committee

Ordinary resolution number 12: Resolved to re-elect Mr. R Emslie to the Audit Committee;

Ordinary resolution number 13: Resolved to re-elect Mrs. R Xaba to the Audit Committee;

Ordinary resolution number 14: Directors remuneration Resolved that the remuneration policy as set out on pages 78 to 81 of the Annual Report of which this notice forms part be approved and the remuneration of the Non-Executive Directors as set out on page 81, to be paid by Finbond Mutual Bank, be fixed from 1 June 2015 as follows: • R22 673 for each attendance of a Board meeting (Chairman); • R18 907 for each attendance of a Board meeting (other members); • R18 079 for each attendance of a Board Committee meeting (Chairman), including meetings of the Remuneration, Social and Ethics, and Audit Committees; • R15 067 for each attendance of a Board Committee meeting (other members), including meetings of the Remuneration, Social and Ethics, and Audit Committees; • R10 546 retainer per month (Chairman); and • R7 533 retainer per month (other members).

146 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 147 It is hereby noted that Executive Directors are contracted as employees of the Company and are not remunerated separately for attending meetings in their capacities as Directors. They are elected as Directors for as long as they continue to serve in their executive capacity, or until they resign such directorships.

Special Resolution 1 Resolved that the Articles of Association of Finbond Mutual Bank be amended as follows:

DIRECTORS 1. Until otherwise determined by a meeting of members, the number of Directors shall not be less than 6 (six) nor more than 30 (thirty). 2. Notwithstanding anything to the contrary in these Articles or in any law or the common law or in any agreement contained, not more than 49% (forty nine per cent), rounded off to the next lower integral number, of the Directors of the Bank shall be employees of the Bank; provided that in respect of any matter put to the vote at a meeting of the Board, such Directors who are employees of the Bank shall together not have a vote in excess of 49% (forty nine per cent) of the total votes cast by all the Directors present and voting at the meeting. 3. The first Directors of the Bank shall be: • Dr. MDC Motlatla • Dr. W van Aardt • Adv. JJ Noeth • Mrs. RN Xaba • Mr. DC Pentz • Mr. GT Sayers • Mrs. HJ Wilken-Jonker • Adv. NJ Melville 4. The Directors shall be entitled to such remuneration as the Bank by ordinary resolution in general meeting may from time to time determine, which remuneration shall be divided among the Directors in such portion as they may agree, or in default of such agreement, equally, except that in such event any Directors holding office for less than a year shall only rank in such division in proportion to the period during which such Director had held office during the year. 5. The Directors shall have the power at any time from time to time to appoint any person as Director, either to fill a vacancy or as an addition to the Board, but so that the total number of Directors shall not at any time exceed the maximum number fixed. Any person appointed to fill a casual vacancy or as an addition to the Board shall retain office only until the next following general meeting of the Bank and shall then retire and be eligible for re-election. 6. The Directors shall be paid all their travelling and other expenses properly and necessarily expended by them in and about the business of the Bank and attending meetings of the Directors or committees of the Directors of the Bank. Any Director who serves on any executive or other committee or who devoted special attention to the business of the Bank or who resides outside South Africa for any purposes of the Bank, or who otherwise performs services which, in the opinion of the Directors, are outside the scope of the ordinary duties of a Director, may be paid such remuneration as is determined by a disinterested quorum of Directors, which may either be in addition to or substitution for any other remuneration. 7. If any vacancy in the Board arises, the remaining Directors may continue to act provided that if the number falls below the prescribed minimum of Directors, the remaining Directors shall not act except for the purpose of filling such a vacancy and/or to call a general meeting of the Bank. 8. In addition to, and without liability, the provisions for retirement by rotation or otherwise herein contained, the office of a Director shall be vacated in any of the events following: 8.1 if he becomes insolvent, or assigns his estate for the benefit of his creditors, or suspends payment or files a petition for the sequestration of his estate or for his liquidation, or compounds generally with his creditors; or 8.2 if he becomes of unsound mind; or 8.3 if he is absent from meetings of the Directors for 6 (six) consecutive months without leave of the Directors and is not represented at any such meetings during such 6 (six) consecutive months by an alternate Director and the Directors resolve that the office be vacated, provided that the Directors shall have power to grant any Director leave of absence for any or an indefinite period; or 8.4 if he is removed or becomes disqualified under the Act; or 8.5 1 (one) month or, with the permission of the Directors earlier, after he has given notice in writing of his intention to resign; or 8.6 if he shall pursuant to the provisions of the statutes be disqualified or cease to hold office or be prohibited from acting asDirector a of a company; 8.7 if he shall cease to be a member of the Bank 9. The Bank and the Directors shall comply with the provisions of the statutes with regard to the disclosure of the interests of Directors in contracts or proposed contracts or the participation of Directors in profits of any contract with the Bank or their being Directors or office bearers or officers of any company or member of any firm entering into any contracts with the Bank; subject thereto, no Director or intending Director shall be disqualified by his office from contracting with the Bank, either with regard to such office or as vendor, purchaser or otherwise, nor shall any such contract or any contract or arrangement entered into by or on behalf of the Bank, in which any Director shall be in any way interested, be or be liable to be avoided, nor shall any Directors so contracting or being so interested be liable to account to the Bank for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relationship thereby established. 10. No Director shall, as a Director, vote or take part in the discussions in respect of any contract or arrangement in which he is so interested as aforesaid or any matter arising from it, and if he does so vote, his vote shall not be counted, nor shall he be counted for the purpose of any resolution regarding the same in the quorum present at the meeting, but these prohibitions shall not apply to –

146 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 147 10.1 any contract or dealing with a company or partnership or corporation of which the Directors of the Bank may be Directors, members, managers, officials or employees or otherwise interested; 10.2 any contract by or on behalf of the Bank to give to the Directors any security by way of indemnity or in respect of advances made by them. The above prohibitions may at any time or times be suspended or relaxed to any extent by the Bank in general meeting. 11. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat any other Director is appointed to hold any office or place of profit under the Bank or whereat the terms of any such appointment are arranged, and he may vote on any such appointment or arrangement notwithstanding that at such meeting his own appointment or an arrangement in connection therewith is a matter before the Board. 12. Any general notice given to the Directors of the Bank by a Director to the effect that he is a member of a specified company or firm shall be effective to notify the Directors of his interest in any contract with such company or firm. 13. Nothing in this Article contained shall be construed so as to prevent any Director as a member from taking part in and voting upon all questions submitted to a general meeting whether or not such Director shall be personally interested or concerned in such questions. 14. A Director may be employed by or hold any office of profit under the Bank in conjunction with the office of Director, other than that of auditor of the Bank and upon such terms as to appointment, remuneration and otherwise as the Directors may determine, and any remuneration so paid may be in addition to the remuneration payable in terms of Article 16.4,16.5,16.6; provided that the appointment of a Director in any other capacity in the Bank and his remuneration must be determined by a disinterested quorum of Directors. 15. The Bank may by ordinary resolution remove any Director before the expiration of his period of office and by an ordinary resolution elect another person in his stead. The person so elected shall hold office until the next following annual meeting of the Bank and shall then retire and be eligible for re-election. 16. The Bank may by ordinary resolution in general meeting from time to time increase (or reduce, but not below 5) (five) the number of Directors and may also determine in what manner or rotation such increased (or reduced) number is to go out of office. Whenever such increase is made the members at the said meeting or failing them the Directors may fill the new seats so created. 17. Notwithstanding any other provisions of these Articles, a Director of the Bank who is an executive officer of the Bank shall vacate his office as such a Director when he ceases to be such an officer.

ROTATION OF DIRECTORS 1. At the first annual meeting of the Bank all of the Directors shall retire, and at the annual meeting held in each year thereafter all of the Directors shall retire from office. A retiring Director shall act as a Director throughout the meeting at which he retires. The length of time a Director has been in office shall be computed from the date of his last election or appointment. 2. Subject to the provisions of Article 17.1 retiring Directors shall be eligible for re-election. No person including a Director retiring at the meeting shall be eligible for election to the office of Director at any general meeting unless, not less than 7 (seven) days nor more than 14 (fourteen) days before the day appointed for the meeting, there shall have been given to the secretary notice in writing by some member duly qualified to be present and vote at the meeting for which such notice is given of the intention of such member to propose such person for election and also notice in writing signed by the person to be proposed of his willingness to be elected. 3. Whenever a casual vacancy occurs on the Board the remaining Directors may appoint a person to fill the vacancy until the next Annual General Meeting and the person elected at that meeting shall fill the vacancy for the un-expired period of office of the vacating Director. 4. Save as set out in Article 17.3 and subject to Article 17.2 vacancies on the Board shall be filled at the Annual General Meeting by election by a majority of the members voting in accordance with these Articles. 5. If at any general meeting at which an election of Directors ought to take place, the place of any retiring Director is not filled, he shall if willing continue in office until the dissolution of the Annual General Meeting in the next year, and so on from year to year until his place is filled, unless it shall be determined at such meeting not to fill such vacancy.

Voting procedures and electronic participation On a poll, every shareholder present in person or represented by proxy and entitled to vote shall be entitled to one vote for every share held or represented by that shareholder.

On a poll taken at any such meeting the shareholder entitled to more than one vote need not, if he votes, use all of his votes, or cast all the votes he uses in the same way.

The Directors have not made any provision for electronic participation at the AGM.

Threshold for resolution approval For ordinary resolutions as detailed above, to be approved by shareholders, each resolution must be supported by more than 50% of the voting rights exercised on the resolution concerned.

Salient dates applicable to the AGM Record date for determining those shareholders entitled to vote at the Annual General Meeting: Friday, 19 June 2015

Proxies A shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend, participate in and vote at the meeting in the place of the shareholder.

A proxy need not also be a shareholder of the Company.

148 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 149 Litigation Statement The Directors, whose names appear on pages 32 to 33 of this Annual Report of which this notice forms part, are not aware of any legal or arbitration proceedings including proceedings that are pending or threatened that may have or have had in the recent past, being at least the previous 12 (twelve) months, a material effect on the Bank’s financial position.

Material Changes Other than the facts and developments reported on in the Annual Report, there have been no material changes in the affairs or financial position of the Bank since the date of signature of the audit report for the period ended 28 February 2015.

By order of the Board.

Ms. CD du Plessis Group Secretary

16 April 2015

Bank Forum Corner of Veale and Fehrsen Streets Brooklyn Pretoria

P.O. Box 2127 Brooklyn Square Brooklyn Pretoria 0075

148 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 149 The Lifebuilder’s Creed

Today is the most important day of my life. Yesterday with its success and victories, struggles and failures is gone forever. The past is past. Done. Finished. I cannot relive it. I cannot go back and change it. But I will learn from it and improve my Today. Today. This moment. NOW. It is God’s gift to me and it is all that I have. Tomorrow with all its joys and sorrows, triumphs and troubles isn’t here yet. Indeed; tomorrow may never come. Therefore, I will not worry about tomorrow. Today is what God has entrusted to me. It is all that I have. I will do my best in it. I will demonstrate the best of me in it – my character, giftedness, and abilities – to my family and friends, clients and associates. I will identify those things that are most important to do Today, and those things I will do until they are done. And when this day is done I will look back with satisfaction at that which I have accomplished Then, and only then, will I plan my tomorrow, Looking to improve upon Today, with God’s help. Then I shall go to sleep in peace... content.

- Dale Witherington -

150 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 151 FORM OF PROXY

FINBOND GROUP LIMITED (Incorporated in the Republic of South Africa) Registration number 2001/015761/06 (“Finbond” or “the Group”)

For use by shareholders, that hold shares in certificated form or shareholders who have dematerialised their shares and registered with “own-name” registration only, at the Annual General Meeting to be held at Lombardy Estate, Plot no. 4, Lynnwood Road, Tweefontein, 1033, Pretoria at 10:00 a.m., on Monday, 29 June 2015. I/We

being the holder(s) of ordinary shares in Finbond

do hereby appoint or failing him/her

or failing him/her the Chairperson of the Annual General Meeting, as my/our proxy to vote on my/our behalf at the Annual General Meeting of the Company to be held at Lombardy Estate, Plot no.4, Lynnwood Road, Tweefontein, 1033, Pretoria, on Monday, 29 June 2015, at 10:00 a.m. and at any adjournment thereof, as follows: In favour of Against Abstain To approve the audited financial statements Ordinary resolution number 1 Ordinary resolution number 2 Ordinary resolution number 3 Ordinary resolution number 4 Ordinary resolution number 5 Ordinary resolution number 6 Ordinary resolution number 7 Ordinary resolution number 8 Ordinary resolution number 9 Ordinary resolution number 10 Ordinary resolution number 11 Ordinary resolution number 12 Ordinary resolution number 13 Special resolution number 1 Special resolution number 2 Special resolution number 3 (Indicate instructions to proxy by way of “X” in space provided above) Except as instructed above, or if no instructions are inserted above, my/our proxy may vote as he thinks fit. Signed at this day of 2015

Signature Assisted by (where necessary)

(Note: A member entitled to attend and vote is entitled to appoint a proxy to attend, speak and vote in his stead. Such proxy need not be a member of the Company. See additional notes on the reverse side.)

150 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 151 NOTES TO FORM OF PROXY

ADDITIONAL NOTES

1. An ordinary shareholder may insert the name of a proxy or the names of two alternative proxies of the ordinary shareholder’s choice in the space provided, with or without deleting “the Chairman of the Annual General Meeting”, but any such deletion must be initialed by the shareholder. The person whose name appears first on the form of proxy and has not been deleted shall be entitled to act as proxy to the exclusion of those whose names follow. 2. An ordinary shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that ordinary shareholder in the appropriate spaces provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he deems fit in respect of all the shareholder’s votes exercisable thereat. 3. Forms of proxy must either be lodged at or posted to the registered address of the Company, P.O. Box 2127, Brooklyn Square, 0075, Bankforum Cnr. Veale & Fehrsen Street, Brooklyn, Pretoria, 0181 or the address of the Company’s transfer secretaries, Link Market Services South Africa (Pty) Limited, Rennie House, 19 Ameshoff Street, Braamfontein 2001, P.O. Box 4844, Johannesburg 2000, to be received by no later than 10:00 on Wednesday, 24 June or 48 hours before any adjournment of the Annual General Meeting which date, if necessary, will be notified in the press and on SENS. 4. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 5. The completion and lodging of this form of proxy shall not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof should such shareholder wish to do so. 6. The Chairman of the Annual General Meeting may reject or accept any proxy form which is completed and/or received other than in accordance with these instructions; provided that he is satisfied as to the manner in which a shareholder wishes to vote. 7. This proxy form must be signed by all joint members. 8. A member or proxy is not obliged to vote in respect of all the ordinary shares held or represented by him, but the total number of votes for or against the resolution and in respect of which any abstention is recorded, may not exceed the total number of votes to which the member or his proxy is entitled. 9. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity, must be attached to this form of proxy, unless previously recorded by the Company’s transfer office or waived by the Chairman of the General Meeting.

152 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 153 FORM OF PROXY

FINBOND MUTUAL BANK (Incorporated in the Republic of South Africa) Registration number 011026 (“Finbond” or “the Bank”)

For use by shareholders, that hold shares in certificated form or shareholders who have dematerialised their shares and registered with “own-name” registration only, at the Annual General Meeting to be held at Brooklyn Forum Building, Cnr. Veale and Fehrsen Streets, Nieuw Muckleneuk, Pretoria at 10:00 a.m., on Friday, 26 June 2015. I/We

being the holder(s) of ordinary shares in Finbond

do hereby appoint or failing him/her

or failing him/her the Chairperson of the Annual General Meeting, as my/our proxy to vote on my/our behalf at the Annual General Meeting of the Company to be held at Brooklyn Forum Building, Cnr. Veale and Fehrsen Streets, Nieuw Muckleneuk, Pretoria, on Friday, 26 June 2015, at 10:00 a.m. and at any adjournment thereof, as follows: In favour of Against Abstain To approve the audited financial statements Ordinary resolution number 1 Ordinary resolution number 2 Ordinary resolution number 3 Ordinary resolution number 4 Ordinary resolution number 5 Ordinary resolution number 6 Ordinary resolution number 7 Ordinary resolution number 8 Ordinary resolution number 9 Ordinary resolution number 10 Ordinary resolution number 11 Ordinary resolution number 12 Ordinary resolution number 13 Ordinary resolution number 14 Special resolution number 1

(Indicate instructions to proxy by way of “X” in space provided above) Except as instructed above, or if no instructions are inserted above, my/our proxy may vote as he thinks fit. Signed at this day of 2015

Signature Assisted by (where necessary)

(Note: A member entitled to attend and vote is entitled to appoint a proxy to attend, speak and vote in his stead. Such proxy need not be a member of the Company. See additional notes on the reverse side.)

152 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 153 NOTES TO FORM OF PROXY

ADDITIONAL NOTES

1. An ordinary shareholder may insert the name of a proxy or the names of two alternative proxies of the ordinary shareholder’s choice in the space provided, with or without deleting “the Chairman of the Annual General Meeting”, but any such deletion must be initialed by the shareholder. The person whose name appears first on the form of proxy and has not been deleted shall be entitled to act as proxy to the exclusion of those whose names follow. 2. An ordinary shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that ordinary shareholder in the appropriate spaces provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he deems fit in respect of all the shareholder’s votes exercisable thereat. 3. Forms of proxy must either be lodged at or posted to the registered address of the Company, P.O. Box 2127, Brooklyn Square, 0075, Bankforum Cnr. Veale & Fehrsen Street, Brooklyn, Pretoria, 0181 or the address of the Company’s transfer secretaries, Link Market Services South Africa (Pty) Limited, Rennie House, 19 Ameshoff Street, Braamfontein 2001, P.O. Box 4844, Johannesburg 2000, to be received by no later than 10:00 on Wednesday, 24 June or 48 hours before any adjournment of the Annual General Meeting which date, if necessary, will be notified in the press and on SENS. 4. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 5. The completion and lodging of this form of proxy shall not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof should such shareholder wish to do so. 6. The Chairman of the Annual General Meeting may reject or accept any proxy form which is completed and/or received other than in accordance with these instructions; provided that he is satisfied as to the manner in which a shareholder wishes to vote. 7. This proxy form must be signed by all joint members. 8. A member or proxy is not obliged to vote in respect of all the ordinary shares held or represented by him, but the total number of votes for or against the resolution and in respect of which any abstention is recorded, may not exceed the total number of votes to which the member or his proxy is entitled. 9. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity, must be attached to this form of proxy, unless previously recorded by the Company’s transfer office or waived by the Chairman of the General Meeting.

154 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 155 GRI INDEX (GLOBAL REPORTING INITIATIVE INDEX)

AA GRI Reference

Nr GRI Ref Topic Additional explanations Ref in Annual Report Standard Disclosures 1 G4-1 Statement from the most senior decison-maker of the organisation about the relevance of sustainability and the organisation’s strategy for addressing sustainability. Chief Executive Report CEO report (pg. 17-22) 2 G4-3 Company Name Finbond Group Limited Cover page 3 G4-4 Primary brands, products and services Products pg.8 4 G4-5 Location of the organisation’s headquarters Corporate Information pg.161 5 G4-6 Number of countries where the organisation operates South Africa pg.2 6 G4-7 Nature of ownership and legal form Corporate Information pg.161 7 G4-8 Markets served Customers pg.61 8 G4-9 Scale of the organisation 880 employees including History & Dvlpmnt (pg.4) 2 contractors, Branch Network (pg.7) 286 branches Chairman’s Review (pg.14) CEO’s Report (pg.17) 9 Industry Financial Services 10 G4-13 Significant changes during the reporting period Branches increased Financial Highlights & from 200 to 286 Indicators (pg.12) 11 G4-15 Has the Company made a CDP submission? No 12 G4-15 Has the Company made a WDP submission? No 13 G4-15 Does the report contain a King III compliance checklist? King III Material Principals pg.51 14 G4-16 Is the Company a signatory of the UN Global Compact? No 15 G4-16 Is the Company a signatory of any Industry-specific regulatory body (e.g. ICMM) or the Equator Principles? Yes 16 G4-17 Entities included in the organisation’s consolidated financial statements or Finbond Group equivalent documents Consolidated and Finbond Mutual Bank Scope & Boundary (pg.2) 17 G4-18 Process for defining the report content and the Aspect Boundaries King III, GRI Index & SDTI Scope & Boundary (pg.2) 18 G4-19 Material Aspects identified in the process for defining report content External Environment, Strategy, Performance, Resources & Relationships Scope & Boundary (pg.2) 19 G4-28 Stated reporting period of the report 1 Mrch 2014 - 28 Feb 2015 Cover page 20 G4-28 Month of Financial Year End February Cover page 21 G4-29 Date of most recent previous report Integrated Report for financial year ended February 2014 22 G4-30 Reporting cycle Annual 23 G4-31 Contact point for questions regarding the report or its contents Finbond Group Head Office Tel: 012 460 7288 24 G4-32 Is the report GRI-compliant? Yes 25 G4-32 What Application Level has been declared? Core 26 G4-33 Has the report been assured? No 27 G4-33 If so, by whom? N/A 28 G4-33 Has the AA1000AS Assurance Standard been used by the assurance provider? No 29 G4-33 Has the ISAE3000 Assurance Standard been used by the assurance provider? No 30 G4-33 Has the assurance provider identified specific data points that have been tested? No 31 G4-56 Organisation’s values, principles, standards and norms of behaviour such as Business Philosophy, Business Philosophy (pg.5) codes of conduct and codes of ethics Vision, Mission & Vision, Mission & Core Values Core Values (pg.6)

154 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 155 Nr GRI Ref Topic Additional explanations Ref in Annual Report

Labour 32 G4-10 Total number of Employees 880 incl 2 contractors History & Development (pg.4) Branch Network (pg.7) Chairman’s Review (pg.14) 33 G4-10 Total Number of Contractors 2 Contractors included in History & Development (pg.4) number of employees Branch Network (pg.7) Chairman’s Review (pg.14) 34 G4-10 Total Number of Employees and Contractors 880 incl 2 contractors History & Development (pg.4) Branch Network (pg.7) Chairman’s Review (pg.14) 35 G4-LA12 Percentage of employees who are deemed ‘HDSA’ 78.52% 36 G4-LA12 Percentage of employees who are women 70.00% 37 G4-10 Percentage of employees who are ‘permanent’ 96.90% 38 G4-11 Percentage of employees who belong to a Trade Union None 39 G4 LA1b) Employee Turnover (i.e., number of persons who departed relative to the total number of employees at year end) 19.11% 40 Total Number of Person Hours Worked (PHW) - Reported 2 048 866.84 41 Total Number of Person Hours Worked (HW) - Calculated (i.e., 1 824 HW multiplied by total workforce at year end) 1 608 768 42 Variance in HW reported, versus calculated (percentage) 27.40% 43 Total number of employees trained, including internal and external training interventions 5 612 44 Rand Value of Employee Training Spend Community and Social 1 339 395 Responsibility (pg.64) 45 G4-LA6 Total number of Person Days lost due to Absenteeism 411 46 Percentage of Total Person Days lost due to Absenteeism - Calculated 0.20% 47 Total number of Person Days lost due to Industrial Action (i.e. strike action) None 48 Percentage of Total Person Days lost due to Industrial Action - Calculated None

Economic 49 G4-EC1 Rand Value of Total Revenue Generated 455 438 000 Financial Highlights and Indicators (pg.12) 50 Rand Value of Total Revenue Generated per Employee 517 544 Financial Highlights and 51 G4-EC1 Rand Value of Net Profit Generated 50 867 375 Indicators (pg.12) 52 Rand Value of Net Profit per Employee 57 804 Employees (pg.62) 53 G4-EC1 Rand Value of Total Compensation Paid to Employees and Contractors, including wages and benefits 100 384 416 Employees (pg.62) 54 Average Compensation per Employee and Contractors (Rands) 114 073 Employees (pg.62) 55 G4-EC1 Total Rand Value of Compensation paid to Executive Directors - Remuneration Report - Key Excluding Gains on the exercise of share options 10 929 632 Statistics (pg.78-81) 56 Average Compensation per Executive Director (Rands) - Remuneration Report - Key Excluding Gains on the exercise of share options 5 464 816 Statistics (pg.78-81) 57 Ratio of Average Compensation paid to Executive Directors relative Remuneration Report - Key to Average Compensation Paid to Employees - Excluding “Gains” 47.9 Statistics (pg.78-81) 58 G4-EC1 Total Rand Value of Gains on the Exercise of Share Options - Executive Directors Remuneration Report - Key 0 Statistics (pg.78-81) 59 Average Compensation per Executive Director (Rands) Remuneration Report - Key - Including “Gains on the exercise of share options” 5 464 816 Statistics (pg.78-81) 60 Ratio: Average Compensation paid to Executive Directors relative Remuneration Report - Key to Average Compensation paid to Employees - Including “Gains” 47.9 Statistics (pg.78-81) 61 G4-EC1 Total Compensation Paid to Prescribed Officers Remuneration Report - Key - Excluding Gains on the exercise of share options 3 028 750 Statistics (pg.78-81) 62 Average Compensation per Executive Director & Prescribed Officers Remuneration Report - Key - Excluding Gains on the exercise of share options 3 489 596 Statistics (pg.78-81)

156 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 157 Nr GRI Ref Topic Additional explanations Ref in Annual Report

63 Ratio: Average Executive Directors & Prescribed Officers Compensation relative to 30.6 Remuneration Report - Average Employee Compensation - Excluding “Gains” Key Statistics (pg.78-81) 64 G4-EC1 Total Rand Value Gains on the exercise of share options - Prescribed Officers 0 Remuneration Report - Key Statistics (pg.78-81) 65 Average Compensation per Executive Director & Prescribed Officer Remuneration Report - - Including “Gains on share options exercised” 3 489 596 Key Statistics (pg.78-81) 66 Ratio: Average Executive Directors & Prescribed Officers relative to Remuneration Report - Average Employee Compensation - Including “Gains” 30.6 Key Statistics (pg.78-81) 67 Ratio of Net Profit After Tax per Employee to Average Compensation per Employee 0.5 Employees (pg.62) 68 Rand Value of Total Discretionary/Measure Spend 7 787 697 Employees (pg.62) 69 G4-EC1 Rand Value of Total Taxes Paid, inclusive of VAT, Income Tax, Economic Value Add Royalties, Rates & Taxes, and all other payments to Government 52 517 201 Statement (pg.60) 70 G4-EC1 Rand Value of Dividends Paid to Shareholders 12 544 828 Economic Value Add Statement (pg.60) 71 G4-EC1 Rand Value of Earnings Retained 65 837 932 Economic Value Add Statement (pg.60) 72 Ratio of Payments to Employees relative to Dividends paid to Shareholders 7.9 73 Ratio of Payments to Government relative to Dividends paid to Shareholders 4.2 74 Rand Value of Corporate Social Investment (CSI)/ Socioeconomic Development (SED) expenditures - Reported 3 077 964 75 G4-EC1 Rand Value of CSI/SED Spend on Education 292 864 Community & Social Responsibility (pg.64) 76 G4-EC1 Rand Value of CSI/SED Spend on Skills Development, Community & Social including Adult Basic Eduaction & Training (ABET) 1 339 395 Responsibility (pg.64) 77 G4-EC1 Rand Value of CSI/SED Spend on Health, includinh HIV/AIDS 4 280 Community & Social Responsibility (pg.64) 78 G4-EC1 Rand Value of CSI/SED Spend on Basic Needs & Social Development, Community & Social including Nutrition and/or Feeding Programmes 670 000 Responsibility (pg.64) 79 G4-EC1 Rand Value of CSI/SED Spend on Infrastructure Development 630 000 Community & Social Responsibility (pg.64) 80 G4-EC1 Rand Value of CSI/SED Spend on Arts, Sports & Culture 132 500 Community & Social Responsibility (pg.64) 81 G4-EC1 Rand Value of CSI/SED Spend on Other 13 205 Community & Social Responsibility (pg.64) 82 G4-EC1 Total Rand Value of CSI/SED Spend 3 082 244 Community & Social Responsibility (pg.64) 83 Variance between Total CSI/SED Spend Reported...versus Calculated - Rands 0 84 Variance between Total CSI/SED Spend Reported...versus Calculated - Percentage 0% 85 CSI Spend as a percentage of Net Profit After Tax (NPAT) 6.05% 86 G4-EC7 Does the report include a comprehensive discussion of returns on CSI? Yes Community & Social Responsibility (pg.64) 87 G4-EC1 Rand Value of Enterprise Development Spend (i.e. support of small business) 1 050 000

Environmental 88 G4 EN3a) Total Direct Energy Consumption (Gigajoules, GJ) – i.e. from fuels burned 22.41 Environment (pg.68) 89 Total Direct Energy Consumed per person hour worked (MJ/HW) 0.987 Environment (pg.68) 90 Total Indirect Energy Consumption (Gigajoules, GJ) – i.e. from electricity consumed 0 Environment (pg.68) 91 Total Indirect Energy Consumed per person hour worked (MJ/HW) 0 Environment (pg.68) 92 Total Electricity Consumption (MWh) 441 Environment (pg.68) 93 G4 EN5 Total Electricity Consumed per person hour worked (MWh/HW) 0.987 Environment (pg.68) 94 G4 EN3e) Total Energy Consumption in Gigajoules - calculated (NEW) 1587.67 Environment (pg.68) 95 Does the company report a target for electricity consumption, or reductions, against a specific denominator (e.g. per PHW) (NEW) No Environment (pg.68) 96 Does the company report a target for total energy consumption or reductions, against a specific denominator (e.g. per PHW) (NEW) No Environment (pg.68) G4 EN18 97 Total Carbon Emissions (Tons of Carbon Dioxide equivalents, CO2e) - calculated 323.72 Environment (pg.68)

156 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 157 Nr GRI Ref Topic Additional explanations Ref in Annual Report

98 G4 EN18 Average Volume of Carbon Emissions per Person Hour Worked (Tons CO2e/HW) 0.000 Environment (pg.68) 99 G4 EN19 Does the Company report a target for carbon emissions, or reduction, against a specific denominator (e.g. per PHW). (NEW) No Environment (pg.68) 100 G4 EN8 Total Water Consumption (Kilolitres, or Kl) 33998.76 Environment (pg.68) 101 Average Volume of Water (Litres) Consumed per Person Hour Worked (l/HW) 21.13 Environment (pg.68) 102 Does the Company report a target for water consumption, or reduction, against a specific denominator (e.g. per PHW). (NEW) No Environment (pg.68) 103 G4 EN23 Total Volume of Non-Hazardous Waste Disposed (Tons) 0 Environment (pg.68) 104 Average Volume of Non-Hazardous Waste per Person Hour Worked (Tons/HW) 0 Environment (pg.68) 105 G4 EN25 Total Volume of Hazardous Waste Disposed (Tons) 0 Environment (pg.68) 106 Average Volume of Hazardous Waste per Person Hour Worked (Tons/HW) 0 Environment (pg.68) 107 G4 EN23 Total Volume of Waste sent for Recycling (Tons) 4 Environment (pg.68) 108 Percentage of Waste disposed of that is sent for recycling 100% Environment (pg.68)

Health and Safety 109 G4 LA6 Number of Fatalities (i.e. injuries on duty leading to death… excluding the deaths of workers not occurring ‘at work’) 0% 110 G4 LA6 Number of First Aid Cases (FACs, i.e. injuries on duty leading to minor treatments, such as a plaster or a pain tablet) 1% 111 G4 LA6 Number of Medical Treatment Cases (MTCs, i.e. injuries on duty leading to medical treatment, but no lost days) 0% 112 G4 LA6 Number of Lost Time Injuries (LTIs, i.e. injuries on duty leading to at least one lost day) 0% 113 G4 LA6 Total Number of Recordable Injuries, including MTCs, LTIs and Fatalities - Reported 0% 114 Total Number of Recordable Injuries, including MTCs, LTIs and Fatalities 0 115 G4 LA6 Fatal Injury Frequency Rate (FIFR, i.e. number of Fatalities per 200 000 person hours worked) - Reported 0 116 Fatal Injury Frequency Rate (FIFR, i.e. number of Fatalities per 200 000 person hours worked) 0 117 G4 LA6 Lost Time Injury Frequency Rate (LTIFR, i.e. Number of LTIs per 200 000 person hours worked) - Reported 0 118 Lost Time Injury Frequency Rate (LTIFR, i.e. Number of LTIs per 200 000 person hours worked) 0 119 G4 LA6 Total Recordable Injury Frequency Rate (TRIFR) - Reported 0 120 Total Recordable Injury Frequency Rate (TRIFR) 0 121 Does the company report a LTIFR and/or TRIFR target? No 122 Total Number of Employees & Contractors receiving Voluntary Counselling and Testing (VCT) for HIV/AIDS (i.e. counselled) 0 123 Total Number of Employees & Contractors Tested for HIV/AIDS 0 124 HIV/AIDS Prevalence Rate amongst employees 0%

Governance 125 G4-38 Number of Board Members 9 Remuneration Report - Key Statistics (pg.78-81) 126 G4-38 Number of Board Members who are Non-Executive 7 Remuneration Report - Key Statistics (pg.78-81) 127 Percentage of Board Members who are Non-Executive 77.80% Remuneration Report - Key Statistics (pg.78-81) 128 G4-38 Number of Board Members who are deemed ‘Independent’ 6 Remuneration Report - Key Statistics (pg.78-81) 129 Percentage of Board Members who are deemed ‘Independent’ 66.70% Remuneration Report - Key Statistics (pg.78-81) 130 G4-38 Number of Board Members who are deemed ‘HDSA’ 2 Remuneration Report - Key Statistics (pg.78-81) 131 Percentage of Board Members who are deemed ‘HDSA’ 22.20% Remuneration Report - Key Statistics (pg.78-81)

158 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 159 Nr GRI Ref Topic Additional explanations Ref in Annual Report

132 G4-38 Number of Board Members who are Women 2 Remuneration Report - Key Statistics (pg.78-81) 133 Percentage of Board Members who are Women 22.20% Remuneration Report - Key Statistics (pg.78-81) 134 G4-38 Average Length of Executive Director Service (in years) 6 Remuneration Report - Key Statistics (pg.78-81) 135 G4-38 Average Length of Non-Executive Director Service (in years) 5 Remuneration Report - Key Statistics (pg.78-81) 136 G4-38 Average Length of Director (full Board) Service (in years) 5 Remuneration Report - Key Statistics (pg.78-81) 137 G4 LA12 Average Age of Directors (in years) 59 Remuneration Report - Key Statistics (pg.78-81) 138 Overall Board and Committee Meeting attendance 99% Remuneration Report - Key Statistics (pg.78-81) 139 Auditor Remuneration: % of Non-audit Fees 13% Remuneration Report - Key Statistics (pg.78-81) 140 Auditor’s Rotation Period/Length of Current Auditor’s service 4 Remuneration Report - Key Statistics (pg.78-81) 141 G4-39 Independence of Board Chairman Yes Remuneration Report - Key Statistics (pg.78-81) 142 Number of Prescribed Officers 2 Remuneration Report - Key Statistics (pg.78-81)

158 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 159 DECLARATION

I hereby declare that to the best of my understanding this report is in accordance with the Core Guidelines of the G4 Sustainability Reporting Guidelines.

Any questions regarding this report or its contents can be directed to me directly by telephone or fax on +27 (0)12 460 7288/ +27 (0)12 460 7285.

Gary Thomas Sayers C.A. (SA) Chief Financial Officer

160 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 161 CORPORATE INFORMATION

Company registration number Bank registration number 2001/015761/06 01102

Company Secretary Company Secretary Ms. CD du Plessis Ms. CD du Plessis 136A Burger Avenue, 136A Burger Avenue, Lyttelton, 0157 Lyttelton, 0157 Sekretari Sekretari (P.O. Box 14195, Lyttelton, 0140) (P.O. Box 14195, Lyttelton, 0140)

Auditors Auditors KPMG Inc. KPMG Inc. KPMG Forum KPMG Forum 1226 Francis Baard Street, 1226 Francis Baard Street, Hatfield, 0083 Hatfield, 0083

Business address and registered office Business address and registered office Bank Forum Building Bank Forum Building Cnr. Veale and Fehrsen Street Cnr. Veale and Fehrsen Streets, Nieuw Muckleneuk, Brooklyn, Pretoria, 0181 Nieuw Muckleneuk, Brooklyn, Pretoria, 0181

Share Registrar Commercial Bankers Link Market Services South Africa (Proprietary) Limited ABSA Bank Limited (Registration number 2000/007239/07) Ground Floor, Brooklyn Gardens, Block D, 11 Diagonal Street, Cnr. Middel and Veale Streets, Johannesburg, 2001 Brooklyn, Pretoria (P.O. Box 4844, Johannesburg, 2000) (P.O. Box 2018, Brooklyn Square, 0075)

Sponsor First National Bank Grindrod Bank Limited 4 First Place, Bank City, (Registration number 1994/007994/06) Cnr. Pritchard and Simmonds Streets, Grindrod Tower, 8A Protea Place, Johannesburg, 2000 4th Floor, Sandton, 2146 (P.O. Box 78011, Sandton, 2146)

Commercial Bankers ABSA Bank Limited Ground Floor, Brooklyn Gardens, Block D, Cnr. Middel and Veale Streets, Brooklyn, Pretoria (P.O. Box 2018, Brooklyn Square, 0075)

First National Bank 4 First Place, Bank City, Cnr. Pritchard and Simmonds Streets, Johannesburg, 2000

160 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 GRI4 Reference: 5/7 161 NOTES

162 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 163 NOTES

162 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 163 NOTES

164 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 Finbond Group Limited & Finbond Mutual Bank Integrated Annual Report 2015 PB Designed by CM Steyn Photo&Graphic SOLI DEO GLORIA FINBOND GROUP LIMITED FINBOND MUTUAL BANK Brooklyn Forum Building | 337 Cnr Veale and Fehrsen Streets Brooklyn Forum Building | 337 Cnr Veale and Fehrsen Street Nieuw Muckleneuk | Brooklyn | Pretoria | 0181 Nieuw Muckleneuk | Brooklyn | Pretoria | 0181 Tel: +27 12 460 7288 | Fax: +27 12 460 7285 Tel: +27 12 460 7288 / 0860 44 22 11 | Fax: +27 12 460 7285 / 087 942 6959

www.finbondlimited.co.za www.finbondmutualbank.co.za