Standard Chartered Bank Zambia Plc Annual Report 2013

Driving investment, trade and the creation of wealth Here for good across Asia, Africa and the Middle East 2 Standard Chartered Bank Zambia Plc Annual Report 2013

Standard Chartered Bank Zambia Plc has again delivered a strong performance.

The Bank is integral to the development of the country and our performance clearly demontrates our powerful brand promise, Here for good.

Financial highlights

Revenue Profit before taxation ZMW367m ZMW703m 2012: ZMW340m / 2011: ZMW226m 2012: ZMW614m / 2011: ZMW479m

Total assets Earnings per share ZMW5,470m ZMW0.14 2012: ZMW5,164m / 2011: ZMW4,586m 2012: ZMW0.13/2011: ZMW0.08

Return on equity Dividend per share 32% ZMW0.14 2012: 37% / 2011: 36% 2012: ZMW0.00 / 2011: ZMW0.00

Non-financial highlights

Employees Outlets

719 25 2012: 696 / 2011: 650 2012: 24 / 2011: 20 3

What’s inside this report Overview Operating and financialreview

Overview Financial highlights 2 Chairman’s statement 2 - 6 4 Chief Executive Officer’s statement Performance highlights and an introduction to our business structures and strategy Corporate governance

Operating and financial review 7 Consumer Banking 7 - 8 8 Wholesale Banking A review of our businesses, their financial performance and outlook for 2014 Financial statements andFinancial statements notes

Corporate governance 10 Board of Directors 13 Directors’ Report 10 - 18 14 Statement on Corporate Governance An explanation of our approach 16 Executive Management Committee to corporate governance with key 17 Making a lasting impact in our communities developments during the year, together with profiles of our Board Directors

Financial statements and notes 20 Directors’ responsibilities in respect of informationSupplementary 19 - 84 preparations of financial statements 21 Independent auditor’s report on consolidated Detailed financial information for financial statements the year ended 31 December 2013 23 Consolidated statement of comprehensive income 25 Statements of financial position 26 Statement of changes in equity 28 Statement of cash flows 29 Notes to the consolidated financial statements

Supplementary information 85 Five year summary 85- 92 86 Principal addresses and senior management 87 Branch network Additional information for shareholders 88 Dividend 89 Notice of Annual General Meeting and Agenda 91 Form of proxy 4 Standard Chartered Bank Zambia Plc Annual Report 2013

Chairman’s statement

I am delighted to report that Standard Chartered Bank Michael M. Mundashi, SC Zambia Plc has delivered yet another year of record profit in 2013, showing the results of our continuous focus Chairman on delivering innovative solutions to our customers. Our performance continues to demonstrate that we are in the right segments, we have the right strategy, and the right leadership in place to deliver consistent value for our shareholders.

Whilst 2013 was a challenging year, we remained determined and focussed on delivering first-class business services. We strengthened our digital banking offer by launching four new Electronic Banking Centres (EBCs) across the capital. We continue to support our customers and clients by deepening our long term relationships with them. I would like to take this opportunity to thank our customers and clients for their trust, custom and commitment to Standard Chartered Bank Zambia Plc over the years.

As a result, we concluded last year in the enviable position as the leading bank in Zambia. We won several accolades throughout 2013: ‘Best Bank in Zambia’ by the prestigious Financial Times Banker Awards; ‘Best Bank in Zambia’ by Euromoney; and ‘Best Internet Bank in Zambia’ by Global Finance. In addition, during the 87th Agricultural and Commercial Show of Zambia we won the ‘Best Company listed on the Lusaka Stock Exchange (LUSE)’ and ‘Best Banking Exhibit’ categories.

New Chief Executive Officer appointed On 1 September 2013, we announced the appointment of Andrew Okai as our new Chief Executive Officer following a rigorous, comprehensive executive search. The Board “I would like to congratulate Andrew Okai on was unanimous that Andrew had the requisite knowledge, his appointment as our new Chief Executive skills and experience to take the bank to its next stage of Officer. The Board was unanimous that evolution and enable us to deliver on our priorities and the ambitious growth targets we set for ourselves. Andrew had the requisite knowledge, skills and experience to take the bank to its next Andrew brings over 16 years experience in the bank, stage of evolution and enable us to deliver valuable expertise across the wholesale and consumer banking businesses, and international best practices on our priorities and the ambitious growth having worked in diverse markets where the bank targets we set for ourselves.” operates, including Ghana, South Africa and Hong Kong. He previously served as Executive Director of Consumer Banking (CB) in Ghana, where he led a significant Earnings per share turnaround in business performance, doubling operating profit and winning the Bank’s Global CB Award for Best ZMW0.14 Business Performance in 2012. Andrew has also served as 2012: ZMW0.13 Regional Head of Banks for Transaction Banking (Africa) in Johannesburg, where he oversaw the successful integration of the American Express Bank acquisition in the region. I would like to congratulate Andrew on his appointment. Total Revenue Financial Highlights ZMW703m Our financial performance remained strong within the 2012: ZMW614m context of an increasingly competitive financial services sector. Revenue increased by 15 per cent to ZMW703m and profit before taxation increased by 8 per cent to ZMW367m. Basic and diluted earnings per share were 7 per cent higher at ZMW141.97 per share. 5

The Board has therefore proposed a final dividend of Standard Chartered Bank’s Outlook Overview ZMW0.09 per share. This dividend payout gives us the right Globally, our ambition is to continue to be the world’s best balance between bolstering our capital base to enable us to international bank. Our refreshed strategy will focus on pursue growth, continuing to deliver attractive returns to our banking the people and companies driving investment, trade investors, and ensuring that we meet the enhanced capital and the creation of wealth across Asia, Africa and the Middle requirements. East.

The proposed dividend takes into account the fact that the We have built a strong foundation over the past year and Bank did not pay a dividend in 2012. On behalf of the Bank, have continued the strong momentum to grow our franchise. I would like to thank shareholders for graciously agreeing to With 25 outlets (4 of them Digital Branches), 45 Automated retain profits for the year 2012 so as to enable the Bank to Teller Machines (ATMs) and over 700 staff, the Bank’s meet its capital requirements. economic contribution to Zambia has been the culmination of 107 years of sustained and increased investment in the Economic Outlook country. Zambia’s economic mainstay - copper production - is set to almost double over the forecast horizon, to 1.6m Based on our 2013 performance, we remain the most tonnes by 2017, from 800,000 tonnes currently, providing profitable bank in the Zambian market and we will continue strong impetus to growth. Gross Domestic Product (GDP) with this strong momentum to grow our franchise. Our projections for 2013 were lowered to 6 per cent (from 7 success allows us to contribute to the local economy by per cent) due to weak copper prices, and power sector facilitating trade, increasing human resource capabilities, constraints on mining. However, robust Foreign Direct supporting businesses and investing in local communities. Investment (FDI) should drive momentum in the medium- The impact of our activities on Zambia’s socio-economic term. fabric is documented in an independent study, due to be launched in the first quarter of 2014. Government initiatives will still be pivotal to growth. Accelerated public investment in infrastructure, alongside Summary plans to boost financial inclusion will remain key pillars of Standard Chartered Bank Zambia Plc has shown how its medium-term growth plans. strategy in Zambia and the strength of its balance sheet can

deliver record results, even amidst the challenging global Inflation should continue to rise over the coming months, economic environment. Whilst we are not complacent about peaking at just under 8 per cent in early 2014, although it the future, we remain confident that we will deliver another should decelerate from these levels in 2015 and 2016. We strong performance in 2014. forecast further tightening in early 2014, taking the policy rate to 10 per cent, from 9.75 per cent currently. Zambia’s Finally, I wish to express my sincere gratitude to our current account will remain in deficit over the forecast customers for their untiring support. I would like to thank horizon, as capital goods imports required to support the Board, management and staff of the Bank for their hard increased mining output are scaled up. work and dedication to deliver yet another year of excellent performance.

Michael M. Mundashi, SC Chairman 24 February 2014 6 Standard Chartered Bank Zambia Plc Annual Report 2013

Chief Executive Officer’s statement

2013 has been yet another outstanding year for Standard Andrew Okai Chartered Bank Zambia Plc. We delivered strong financial Chief Executive Officer performance and continued to lead the market in profitability, digital innovation and world-class services to our clients. By leveraging on our deep local knowledge and international network, we continued to deliver financial solutions for our customers - corporates, Small and Medium Enterprises (SMEs) and retail clients.

Our outstanding performance was made possible by adhering to our strategy and remaining focussed on servicing the clients and customers with whom we have profound, deep-rooted, long lasting relationships.

Our strategy is clear and consistent - to lead the way in financial services; to focus on being a trusted advisor; to stay true to the basics of banking. As a result, we have continued to deliver consecutive income growth year-on-year.

We have partnered with businesses to help them grow and have enabled people to access smart, convenient banking facilities. Through our community investment initiatives in the areas of health, education, financial literacy and the environment, Standard Chartered Bank Zambia Plc has made a positive impact on lives and the communities in which we operate, demonstrating our commitment to be Here for good.

“I genuinely believe that as a bank, we are Consumer Banking in ‘the right place at the right time,’ ready Our Consumer Banking (CB) business had an outstanding to play a leading role in Zambia’s positive year. CB has continued to deliver excellent results both on growth trajectory.” balance sheet, profit and loss and the non-financial metrics. Income grew by 18 per cent, while operating profit grew by 15 per cent, an exceptional performance.

Among the range of innovative products, services and Total Customer deposits solutions launched in 2013 are four Digital Branches across the capital. These new state-of-the-art branches are ZMW4,267m equipped with new-age ATMs, Internet Banking Kiosks, 2012: ZMW3,681m iPads and Wi-Fi connectivity. Our customers can safely and conveniently perform on-line transactions in a fully digitised environment. We aim to be the digital main bank Total Loans and advances for our customers as we focus on innovation and increased productivity. ZMW2,779m 2012: ZMW2,233m The last quarter of 2013 saw the Bank re-commit to supporting SMEs at a global level. SMEs are the backbone of any economy. They are key players across all the major sectors of Zambia’s economy – as producers or suppliers to mining, agriculture, manufacturing and tourism. As a Bank, our continued focus on SMEs has been a key differentiator for our franchise. Over the years our lending to SMEs has almost doubled. 7 Overview

We will continue our focus on this dynamic segment, At Standard Chartered Bank Zambia Plc we strongly believe that our success depends on the performance, behaviours leveraging our capablilities and reach across Africa and Asia to facilitate trade and investment flows along the Zambia- and commitment of our employees. For us, ‘It is all about China trade corridor. people.’

Our commitment to enhancing convenient banking services Outlook for 2014 for our customers is reflected in extended banking hours and I am confident that the positive trend set by Standard weekend banking at our flagship Manda Hill branch. Chartered Bank Zambia Plc in the Zambian market is likely to continue through 2014 and beyond. The Bank has Wholesale Banking and will continue to demonstrate why we are the leading Our Wholesale Banking (WB) business also experienced international bank through the provision of unique services tremendous growth in 2013, despite operating in a and products that support the sustainable economic challenging economic environment. WB demonstrated the development of Zambia. consistency, diversity and strength of its business strategy. We continue to outperform the industry and deliver for our Our Consumer Banking and Wholesale Banking businesses shareholders by focusing on executing our strategy. are in great shape, with good momentum and are well poised to take advantage of emerging opportunities and Total WB income grew 12 per cent to ZMW360m largely weather the challenges. I therefore expect that we will due to good performance on trade products in the Global continue to deliver on our strategic agenda and live up to the Corporates and Agriculture and Commodity Traders expectations of our various stakeholders – our customers, segments. staff, investors, regulators and the community. We are determined to continue to be a bank of ‘firsts.’ In 2013, we refined our client coverage model by better aligning our sales teams across Transaction Banking, Strategy Refresh Financial Markets and Client Coverage. This is matched In 2014, the Bank will refresh and sharpen its strategy with additional investments in upgrading systems and to focus on banking the people and companies driving standardising processes, enabling our frontline staff to investment, trade and the creation of wealth across Asia, deepen the focus on client-facing activities. Africa and the Middle East. From Quarter 2, we are bringing Our People the two businesses – Consumer Banking and Wholesale With over 700 staff countrywide, we remained committed to Banking – together to better serve our customers with a One providing a compelling employee experience that meets the Bank approach. same high standards we aspire to deliver to our clients and customers. We value our employees for who they are and Our priorities for 2014 will, therefore, focus on: what they bring to the Bank, supporting them to bring out the best of their natural talents and strengths. • Performance - Deliver profitable and capital Our brand promise, Here for good, describes who we accretive growth, strengthening our status as a are, what we stand for and is what makes our culture so trusted advisor by deepening our relationships with distinctive. That and our commitment to live our values the business and other support functions. – courageous, responsive, international, creative and trustworthy – underpins our thinking, decisions and all our • Aspirations - Make tangible progress on our activities. five strategic aspirations (relationships, trade, investment, wealth, relevant scale). In 2013, I am proud to say that we contributed to developing our Zambian talent through the bank’s Short- • Delivery - Innovate, digitise and simplify as ‘One Term Assignment (STA) initiative. Our staff have gone on Bank’ to improve productivity and effectiveness. international STAs to South Africa, Angola and Singapore, amongst others. Furthermore, one of our Priority Banking • Culture - Raise the bar on conduct, demonstrating Advisors made it to the final top 3 staff short-listed for we are Here for good. the Standard Chartered Bank Group Chairman’s Awards. Participants for this prestigious award are drawn from the bank’s global talent pool – we are very proud that Zambia • People - Accelerate our next generation of leaders. made it to the final short-list for the first time ever. 8 Standard Chartered Bank Zambia Plc Annual Report 2013

Summary I genuinely believe that as a bank, we are in ‘the right place I am extremely honoured to serve as Chief Executive Officer at the right time,’ ready to play a leading role in Zambia’s for Standard Chartered Bank Zambia Plc and I would like to positive growth trajectory. We are here for the long-run, here thank the Board of Directors and staff for their sterling efforts for people, here for our communities - Here for good. and the tremendous support I have received. I look forward to the successes we will achieve together in 2014.

Andrew Okai Chief Executive Officer and Managing Director 24 February 2014 9

Consumer Banking Our non-financial customer metrics also continued to Sonny Zulu improve as we continued to re-engineer our processes Head of Consumer Banking to improve the customer experience. We were extremely delighted to achieve the highest Net Promoter Score (NPS) in the market through a countrywide survey that was conducted by Market Probe. Operating and financialreview Our commitment to customers Our Customer Charter, launched in 2010, sets out our commitment to provide fast, friendly and accurate service, to deliver appropriate solutions to our customers’ financial needs and to reward their total banking relationship with us. It is underpinned by a standardised sales, service and relationship management model, the Standard Chartered Bank Way. This enables our teams to deepen customer relationships centred on needs-based conversations.

Innovating to meet customer needs Our products demonstrate our commitment to offer differentiated service and solutions. In 2013, we made significant progress on digitising, simplifying and standardising our business. As a result, we have been able to further improve our turnaround times and to offer extended banking to our customers at our branches. We are proud to launch the first Digital Branches in Zambia and to be the only bank open seven days a week including Saturdays and Sundays and up to 22:00 hours on weekdays at our Manda Hill Branch. We ended 2013 in a very strong “Our unwavering focus on executing position and are well placed to capture the opportunities that our strategy has enabled our lie ahead in 2014 and beyond. business to achieve unprecedented Outlook growth.” In 2014, we will continue to focus on delivering our strategy to become the bank that our customers recommend to Our strategy friends, family and colleagues. We are well positioned to Our strategy is based on three pillars: navigate the uncertain external environment and will continue  Differentiated business models with a focus on high to invest in growing the franchise. As consumer behaviours value segments. shift, we will seek to better serve our customers according  Driving deeper customer relationships through to their needs and preferences in order to provide a more service and solutions to meet customer needs. seamless experience across all our channels while delivering  Back- to- basics focus on cost, productivity, risk on our brand promise to be Here for good. management and liquidity.

2013 Review Consumer Banking achieved an outstanding performance and delivered income growth of 18 per cent and operating profit of 15 per cent. We have a strong balance sheet and our income is well diversified across all our customer segments and products. In line with our strategy, we remained focused on the high value segments while leveraging on the fast growing emerging middle class and deepening our customer relationships.

We continued to manage risk tightly and maintained a very strong costs discipline to create room for further investment in the business. In 2013, our key areas of investment included people, marketing, expanding our branch distribution in Lusaka, branch relocation in Ndola, mobile and internet banking capabilities, productivity and system enhancements. 10 Standard Chartered Bank Zambia Plc Annual Report 2013

Wholesale Banking Leveraging our expertise to build deep and long-term client relationships

• Commercial Banking which includes cash management, trade and lending contributed half of Arjuna Balasingham total client income. Head of Client Coverage Co-Head, Wholesale Banking • Straight 2 Bank continues to be a market leader in facilitating electronic payments, trade and foreign exchange transactions for Wholesale Bank clients.

• Financial Markets remains a market leader in derivatives and secondary market trading. New regulations created both challenges and opportunities that enabled the development of derivatives and secondary market trading in fixed income instruments.

• The market has seen an increased use of hedging instruments such as interest rate swaps, cross currency swaps, yield enhancing deposits, commodity derivatives and foreign exchange forwards and swaps.

Our Strategy Stanley Tamele • Become the core bank to more of our clients. Head of Financial Markets Co-Head, Wholesale Banking • Leverage our international network and cross-border capabilities, and build scale in local markets to better support our clients.

• Maintain our strong balance sheet to support our existing clients.

Our Priorities in 2014

• Continue to build deep and long-term client relationships by leveraging our expertise and experience.

• Stay true to our principles in delivering sustainable value for all our stakeholders.

• Continued efficient balance sheet and capital Key highlights management. • Innovate, digitise and simplify to improve efficiency • Wholesale Banking revenue grew 12 per cent and effectiveness . Year-on-Year. • Strengthen our brand and culture to be Here for • Customer deposits grew by 18 per cent Year-on- good Year. • Focus on people and develop future leaders. • Loan book grew by 10 per cent Year-on-Year. Focus areas Business Review 2013 • Trade: Lead the market in trade, commercial • The loan book grew by 10 per cent Year-on-Year payments and financing. with an increase in balance sheet extended to our top • Investments: Play a leading role in facilitating clients, particularly in the Mining and Agriculture investment and deepening financial markets in sectors. Zambia.

• Customer deposits grew by 18 per cent Year-on- • Wealth: Be recognised as a leader in growing and Year with increased penetration of existing clients. protecting our clients’ wealth. 11 Operating and financialreview 12 Standard Chartered Bank Zambia Plc Annual Report 2013

Board of Directors

1 2 3

4 5 6

7

1. MICHAEL M. MUNDASHI, SC 2. EDSON HAMAKOWA 3. ROBIN MILLER Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director / Chairman Appointed to the board on 27 July Appointed to the board on 7 Appointed to the board on 1 March 2009. Mr. Hamakowa is an eminent August 2012. He was appointed 2005 and Chairman in March Accountant with an illustrious career the Managing Director of Farmers 2009. He is an eminent lawyer, in the BP Plc Group both within and House Plc in 1996, renamed to Real enjoying the rank and dignity of outside Zambia. Estate Investments Zambia PLC in State Counsel and Principal Partner 2012. of Messrs Mulenga Mundashi & Mr. Hamakowa has served on Company. the Boards of Zambia National Robin has been a member of the Commercial Bank, Zambia Centre Board of the Zambian Wildlife Mr. Mundashi was the first non for Accountancy Studies, Saturnia Authority, a past Chairman of Executive Chairman of the Revenue Regna Pension Fund, Zesco Ltd, Zambia’s leading independent Appeals Tribunal and has worked on Zambia Airways and Dunrobin Gold newspaper “The Post”, a member a number of Zambia Government Mine, among others. He is also of the Government of the Republic teams on negotiation of double currently a member of CEC Board. of Zambia/European Union Trade taxation agreements with other He chairs the Board Risk Committee Enterprise Support Facility and countries. He also sits on a few and Board Audit Committee. was the founding Chairman of other boards and pension funds, The Tourism Council of Zambia. notably African Life Assurance Robin is a member of several Limited of which he is the Chairman. boards including Madison General He is also a member of the Konkola Insurance Company Ltd and City Copper Mines Plc Advisory Council. Investments Ltd. He chairs the Board Credit Committee. 13

4. EBENEZER ESSOKA 5. ANDREW OKAI 6. KELVIN MUSANA Non Executive Director Managing Director Executive Director - Finance & Appointed to the Board on 27 Appointed to the Standard Administration March 2012 . He joined SCB Chartered Bank Zambia Plc Board Appointed to the Board on 30 in 1986 and is currently Chief on 1 October 2013. January, 2007. He joined Standard Executive Officer, South Africa and Chartered Bank Zambia Plc in1998, Area General Manager Southern He has over 16 years experience in as Financial Controller and was Africa. Prior to this appointment, the Bank having worked in Ghana, appointed Chief Financial Officer in he was Chief Executive Officer of South Africa and Hong Kong. He February, 2005. He has undertaken Standard Chartered Bank, Central has served as Regional Head of assignments within the Group in and West Africa. Banks for Transaction Banking Uganda, UK and Nigeria.He is a (Africa) as well as Executive Director, Fellow of the ACCA and ZICA, a He has served on twelve SCB Consumer Banking in Ghana. holder of a Bachelors Degree in subsidiary Boards, currently as Accountancy from the Copperbelt chairman of SCB Cameroon, He has a Master of Science University and an MBA in Finance Chairman of SCB Securities, South (MSc) and a Chartered Banker from Manchester Business School. Africa and previously Chairman MBA. He holds a post-Graduate He is also a member of the Institute of SCB Côte d’Ivoire and Non Diploma in Management from of Directors. Executive Director of ten others Henley Management College including Nigeria and Pakistan. (UK), the Credit Skills Assessment In South Africa (SA), he currently Certification (SCB), is a Member of serves as Director on the Main the Chartered Institute of Bankers Board of the Banking Association, (Scotland), and a Certificate in

is Vice Chairman of the International Russian Language as an Instructor. Corporate governance Bankers’ Association and Council Member of Business Leadership SA. In addition he serves on the Global Advisory Council of the London Business School and a founding member and trustee of the Global Reach Network Foundation – an organisation focused on bridging opportunity gaps for individuals and communities worldwide.

7. CELINE MEENA NAIR Company Secretary Appointed to the Board as Company Secretary on 17 July Banking and Commercial Law 2006. She joined Standard (UNISA). She is a member of the Chartered Bank Zambia Plc on 17 Institute of Directors. She is also July 2006. Previously she worked a trained trainer in Corporate for the Lusaka Stock Exchange Governance under the International as Legal Counsel and Company Finance Corporation (IFC/World Secretary. Ms. Nair is a vastly Bank). experienced practitioner with over 16 years at the Zambian Bar and holds a Bachelors Degree in Law (UNZA) and a Masters Degree in

Edson Hamakowa (Chairman) Edson Hamakowa (Chairman) Robin Miller (Chairman) Ebenezer Essoka Michael Mundashi, SC Ebenezer Essoka Robin Miller Ebenezer Essoka Edson Hamakowa Andrew Okai Kelvin Musana 14 Standard Chartered Bank Zambia Plc Annual Report 2013

Record of attendance of Board /Board Committee meetings held in 2013

BOARD OF DIRECTORS’ MEETINGS

No. of Board Meeting 2013 1/2013 2/2013 3/2013 4/2013 5/2013 4/2013 (Adhoc 6/2013 Total (Offsite (Adhoc) Strategy offsite) (offsite) adhoc)

Date of Meeting 06/02 21/02 26/03 24/05 28/08 04/12 06/12

Michael Mundashi (Chairman) √ √ √ √ √ √ √ 7/7 Edson Hamakowa √ √ √ √ √ √ √ 7/7 Ebenezer Essoka √ x √ √ x x √ 4/7 Mizinga Melu √ √ √ - - - - 3/3 Kelvin Musana √ √ √ √ √ √ √ 7/7 Robin Miller √ √ √ x √ √ √ 6/7 Andrew Okai - - - - - √ √ 2/2

Note that the CEO/MD Mizinga Melu resigned in March 2013 and Kelvin Musana (CFO) acted as CEO/MD until 30 September 2013 Note that CEO/MD Andrew Okai was appointed to the Board on 1 October 2013

BOARD AUDIT COMMITTEE MEETINGS

No. of AC Meeting 2013 1/2013 Adhoc 2/2013 3/2013 4/2013 Total

Date of Meeting 06/02 06/03 23/05 27/08 05/12 05

Edson Hamakowa (Chairman) √ √ √ √ √ 5/5 Ebenezer Essoka √ √ √ x x 3/5 Robin Miller √ √ x √ √ 4/5

BOARD RISK COMMITTEE MEETINGS

No. of RC Meeting 2013 1/2013 2/2013 3/2013 4/2013 Total

Date of Meeting 05/02 24/05 28/08 05/12 04

Edson Hamakowa (Chairman) √ √ √ √ 4/4 Michael Mundashi √ √ √ √ 4/4 Ebenezer Essoka √ √ x √ 3/4 Robin Miller - - - √ 1/1*

*Note that Director Miller was invited to this meeting

BOARD CREDIT COMMITTEE MEETINGS

No. of CC Meeting 2013 1/2013 2/2013 3/2013 4/2013 Total

Date of Meeting 05/02 23/05 27/08 05/12 04

Robin Miller (Chairman) √ √ √ √ 4/4 Edson Hamakowa √ X √ √ 3/4 Mizinga Melu √ - - - 1/1 Kelvin Musana √ √ √ √ 4/4 Andrew Okai - - - √ 1/1 15 Directors’ Report The Directors are pleased to submit their report and the audited Activities financial statements as at 31 December 2013, of Standard Chartered The bank engages principally in the business of commercial banking in Bank Zambia Plc (“the Bank”) and its subsidiary, Standard Chartered its widest aspects and in the provision of related services. The bank also Nominees Limited (together “the Group”). runs a successful securities services business.

Standard Chartered Plc Related Party Transactions Standard Chartered Plc (“the ultimate parent”) is the ultimate holding Related party transactions are disclosed in Note 31 to the financial company for the Group, incorporated and registered in England statements. and Wales as a Company limited by shares. Its ordinary shares are listed on the London and Hong Kong Stock Exchanges and it Directors’ Emoluments and Interests has Indian Depository Receipts listed on the Bombay and National Directors’ Emoluments and Interests are disclosed in Note 31 to the Stock Exchanges in India. It is consistently ranked among the top 25 financial statements. companies on the FTSE-100 by market capitalisation. Directors’ induction and ongoing development Standard Chartered Bank Zambia Plc The Bank ensures that all new directors to the Board receive a robust Standard Chartered Bank Zambia Plc was incorporated in Zambia in induction. This ensures that the directors have the requisite knowledge 1906. The bank is engaged in the business of retail and commercial and understanding to enable them to effectively carry out their roles as banking as well as the provision of other financial services. directors.

Articles of Association Shareholder concerns The Articles of Association of the Bank may be amended by Special Shareholders are encouraged to raise any concerns they may have Resolution of the shareholders. with any of the Board Directors or with the Company Secretary on the following email address: [email protected] Results and Dividend At a Board meeting held on 24 February 2014, the Directors Electronic communication recommended a final dividend of ZMW0.09 per share for the year ended The annual report, Notice of AGM and dividend circulars are available 31 December 2013. This together with the interim dividend for 2013 electronically and in hard copy. If shareholders would like to receive their already paid of ZMW0.05 per share makes a total dividend for 2013 of corporate documents electronically in future, kindly contact our transfer Corporate governance ZMW0.14 per share. agents at the below address:

Share Capital Corpserve Transfer Agents Limited During the year 2013, the paid up primary capital of the bank was 6 Mwaleshi Road, Olympia Park ZMW416,745,000. The authorised share capital of the bank was PO Box 37522, Lusaka, Zambia ZMW450,000,000. Tel: 00260 211 256969/70 Fax: 00260 211 256975 The Bank has issued 1,666,980,000 ordinary shares with a nominal Email: [email protected] value of ZMW0.25 per share. Group Code of Conduct Gifts and Donations The Board has adopted the Group Code of Conduct relating to the lawful During the year, the Bank made donations of ZMW203,000 (2012: and ethical conduct of business and this is supported by the Group’s ZMW430,000) to charitable organizations and events. core values. All directors and employees of the bank have committed to the Code and we are all expected to observe high standards of integrity Number of Employees and Remuneration and fair dealing in relations to all our stakeholders including customers, The average number of people employed by the Bank during the year staff and regulators. was 709. Research and Development The total remuneration to employees during the year amounted to During the year, the Bank did not incur any research and development ZMW145,659,000 (2012: ZMW125,500,000) and the average number cost (2012: Nil). of employees was as follows: Prohibited Borrowing or Lending Month Number Month Number There was no prohibited borrowings or lending as defined under January 695 July 704 Sections 72 and 73 of the Banking and Financial Services Act, 1994 (as February 701 August 706 March 710 September 713 amended). April 712 October 712 May 710 November 717 Health and Safety June 705 December 719 The Bank has Health and Safety standards, policies and procedures to safeguard the occupational health, safety and welfare of its employees, Property, Plant and Equipment customers and contractors working within our premises. In addition the The Bank purchased property and equipment amounting to Bank has a dedicated Health, Safety and Environment Manager. ZMW4,111,000 (2012: ZMW7,272,000) during the year. In the opinion of the Directors, the carrying value of property, plant and equipment is not Relevant Audit Information less than their recoverable value. As far as the directors are aware, there is no relevant audit information of which the Bank’s auditor KPMG is unaware. The directors have taken all Results reasonable steps to ascertain any relevant audit information and ensure The results for the year are set out in the Consolidated Statement of that the auditors are aware of such information. Comprehensive Income on Page 23. Auditors Directors The Bank’s Auditors, Messers KPMG Chartered Accountants, have Since the date of the last Annual General Meeting, there have been no indicated their willingness to continue in office. A resolution proposing changes to the directorate, save for the appointment of Mr. Andrew Okai their reappointment and authorising the directors to fix their remuneration as Managing Director. A full list of Directors is available on pages 10-11. will be put to the Annual General Meeting. Secretariat There was no change to the Secretariat during 2013. By Order of the Board

Directors’ Interests in ordinary shares Namulundu Investments Limited, a company in which the Board Celine M. Nair Chairman and his wife Mildred Mundashi have an interest, has 50,933 Company Secretary shares in Standard Chartered Bank Zambia Plc. 24 February 2014 16 Standard Chartered Bank Zambia Plc Annual Report 2013

Statement on Corporate Governance

Our Board The Board, guided by specific Terms of Reference and Matters Reserved for the Board, provides oversight, guidance and review to ensure the bank delivers on its strategy. The Board also strives to deliver value to shareholders and other stakeholders. The Board ensures that it has the appropriate skills, knowledge and experience necessary to achieve its mandate.

Board Effectiveness Review An independent Board Effectiveness Review (BER) is conducted annually. This is an online survey, the results of which are shared with the necessary stakeholders.

Human Resources Headcount for 2013 closed at 719 comprising permanent and fixed term contract staff. Our staff span across the consumer banking business, wholesale banking business and support functions.

Performance, Potential and Pay The Bank continues to foster the culture of high performance through its robust Performance Management System. We continue to measure not only the achievement of the job objectives, but also how the job objectives are Our Approach achieved through living our values. The values that we strive Standard Chartered Bank Zambia Plc was the first bank to to continuously attain for our staff are being Responsive, list on the Lusaka Stock Exchange, on 30 November 1998. Creative, International, Courageous and Trustworthy.

As a listed entity we believe that high standards of corporate Sharesave governance are key to our success. It is important to the Standard Chartered Plc operates a range of employee share bank to deliver exemplary governance as this is a key and plans that are designed to: core aspect of our strategic intent. Our governance policies, procedures and practices are clearly articulated and well • be competitive embedded in the bank. • drive performance Our values and culture play an integral role in ensuring effective governance and our employees strive to display this • align interests of employees with those of in all that they do. Every employee commits to the Code shareholders of Conduct which we believe makes a difference in how deeply our culture and values are embedded throughout the • enable employees to build up a stake in Standard organisation. Chartered Plc.

Disclosure Regulatory Compliance Standard Chartered Bank Zambia Plc aims for the highest Standard Chartered Bank Zambia Plc has remained fully standards of corporate governance and disclosure is a key committed to Zambia through its brand promise of Here part of this. Our directors confirm that throughout the year for good, by its demonstration of exemplary governance the bank has ensured substantive compliance with the standards in 2013. The Bank has maintained good relations Bank of Zambia and the Lusaka Stock Exchange (LuSE) with the regulators and is perceived as a compliance Corporate Governance Codes and the Listing Rules. In driven organisation with robust policies and procedures to addition, we have continued to engage proactively with the effectively manage the various risks. LuSE on its expressed desire for Standard Chartered Bank Zambia Plc to raise its public float to a 25 per cent minimum Regulatory Compliance is a key component to the success from its current 10 per cent level. Members will be briefed of our Bank. As such, awareness of and adherence to laws further in due course on this issue. and regulations was key in 2013. Throughout the year, a 17

number of training sessions were conducted for our staff With regards to customer engagement, the Bank organised and customers on compliance requirements to ensure we and hosted two major customer sensitisation workshops operate a business that puts compliance first. for the newly introduced SI 55. The workshops took place in Lusaka and Kitwe in the month of July 2013 to help Our staff were trained in the following areas during the year: with information dissemination regarding the requirements prescribed in the new regulations. • Anti-Money Laundering Standard Chartered Bank Zambia Plc remains committed • Suspicious Activity reporting to operate with the highest compliance standards and will continue to cooperate with and support the regulators in • Customer on-boarding requirements their endeavours to improve the operations of the financial sector. • Treating Customers Fairly and Appropriateness

• Conflicts of Interest

• Gifts and Entertainment Policy Celine Nair Corporate governance Company Secretary • Fraud Prevention 24 February 2014 • General Compliance to new joiners

• New Regulations i.e. Statutory Instrument No. 55 (SI 55) of 2013 on the Monitoring of Balance of Payments 18 Standard Chartered Bank Zambia Plc Annual Report 2013

Executive Management Committee

Back Row (L-R): Arjuna Balasingham – Head of Client Coverage Christine Matambo – Head of Corporate Affairs Peter Zulu – Head of Compliance Andrew Okai - Chief Executive Officer/Managing Director Ruth Simuyemba – Head of Human Resources Anthony Katepa – Country Chief Risk Officer & Senior Credit Officer Kelvin Musana – Executive Director – Finance and Administration

Front Row (L-R): Sonny Zulu – Head of Consumer Banking Celine Nair – Head of Legal & Company Secretary Musonda Musakanya – Chief Information Officer Stanley Tamele – Head of Financial Markets 19

Making a lasting impact in our communities

As the leading international bank in Zambia, we at Standard Health: Chartered are committed to investing in the communities Seeing is Believing (SiB): in which we operate. Our bank is unique in that community Every year people succumb to un-necessary blindness in investment forms a core part of our business. We use the Zambia and indeed many other parts of the developing term ‘Sustainability’ to demonstrate that our impact cuts world, which could have been avoided through proper across both economic and social sectors – for us, it is about eye care. That is why in 2003, Standard Chartered Bank making a real, positive, lasting impact on the economy and launched Seeing is Believing - its flagship global programme our communities. to tackle the challenge of preventative blindness.

In 2013, we continued to invest in key areas of Zambia’s In Zambia, SiB was launched in 2009 and it is the first major socio-economic spectrum: preventative blindness initiative in the country. The bank has since invested a total of USD2m into SiB in Zambia and In Health our flagship preventative blindness programme – works in partnership with Sightsavers and ORBIS. Over one Seeing is Believing – saw the launch of a New Vision Centre million Zambians have benefitted from SiB through free eye at Solwezi General Hospital. We invested an additional screening, cataract surgery and free spectacles, amongst USD1m into the programme through our partnership others. with ORBIS. Our ‘Living with HIV’ workplace awareness programme continued to serve as a model that inspires Standard Chartered’s partnership with ORBIS saw the other companies in the market. opening of a New Vision Eye Centre at Solwezi General Hospital in December 2013. The bank handed over In Education, our flagship GOAL programme has, to date, USD300,000 worth of new, state-of-the-art eye screening Corporate governance seen over 2,000 girls benefit from life skills training using and operating equipment. Through this new centre, SiB has the power of sport. Through our support to Debatemate, expanded to serve communities in Solwezi and the wider we contribute to building young people’s ‘soft skills’ – North Western province. confidence, communication and assertiveness, amongst others. Our support to the Bauleni Special Needs School deserves particular mention – Standard Chartered built a fully accessible library with computers to enable the children to access digital platforms as they pursue their educational aspirations.

On the Environment, we supported efforts to tackle the challenge of deforestation through our tree-planting initiative. We planted 1,200 trees during the United Nations World Tourism Organisation (UNWTO) conference in partnership with our colleagues from Standard Chartered Bank Zimbabwe to help off-set the carbon footprint of this historic CEO, Andrew Okai and Deputy Minister of Health, Dr. Chitalu conference. We also digitalised our tree-planting through Chilufya during the launch of the New Vision Centre at Solwezi GPS mapping – this means one can go to Google Earth General Hospital and see where Standard Chartered planted trees in the Livingstone area. “In 2013 alone, 240,000 patients had their eyes screened, including 45,000 children; over 10,000 cataract operations On Financial Literacy our staff used their financial knowledge were carried out; and we handed over 20,000 free and skills to conduct business planning and financial spectacles to communities across Zambia.” management training for civil service employees, including Andrew Okai, CEO Zambia Police Service Officers. HIV/AIDS Programmes Our Employee Volunteering (EV) Policy continues to set us The Bank’s response to HIV/AIDS stems from a desire to protect basic human rights, preserve the integrity of its apart. Our staff are entitled to three paid leave days per labour force, reduce the costs associated with HIV/AIDS, year to volunteer in communities across the country. In and respond to what the company recognises as a global 2013, Standard Chartered Bank staff invested 803 days challenge. of volunteering. We also dedicate a specific month each year – EV Month - to intensify our volunteering efforts in The Bank held a Global training programme in February communities, demonstrating how our staff play an integral 2013 in Singapore to revise and refresh our HIV training role in bringing to life our Here for good brand promise. materials – our Zambia HIV Champion staff participated in this initiative. We re-trained 20 HIV Champions to spearhead We have made great strides during 2013 on the the dissemination of this refreshed information to staff and Sustainability front. I would like to thank all of our partners for our external partners, working in partnership with Kara yet another year of productive collaboration, as well as our Counselling. staff for their admirable commitment. 20 Standard Chartered Bank Zambia Plc Annual Report 2013

We also held a refresher training programme for 22 Zambia Employee Volunteering: Police personnel in May 2013. Our HIV Champions staff also Standard Chartered Bank has a unique ‘Employee participated at the SAFAIDS HIV organised workshop to Volunteering’ (EV) Policy whereby staff get three paid leave showcase and share best practise on Standard Chartered’s days per year to volunteer in communities across Zambia – HIV workplace programme. this is where we really stand out from the rest in the market. In 2013 alone, bank staff invested 803 days to volunteer in a Education: diverse range of causes – from giving educational and career talks to the GOAL girls, helping to build houses for families Standard Chartered is committed to support education for facing the challenge of over-crowding, to tree-planting. For girls. Under the bank’s flagship GOAL programme, which example, during EV Month in September, bank staff built a was launched in Zambia in 2011, GOAL uses the power house for a family in Kamanga Compound, which faced the of sport to empower adolescent Zambian girls aged 12-20 challenge of over-crowding. from low income families with key life skills. To date, over 2,000 girls have benefitted from the programme and 200 life coaches have been trained. The bank also held the second series of Debate Mate - a two-week debating competition which helps secondary school students to build their soft skills - communication, confidence, public speaking and assertiveness.

Then there is on-going support to the Bauleni Special Needs School. The bank built a fully accessible library at Bauleni, equipping it with books and computers in a bid to support accessibility for children with disabilities and the use of digital platforms for education. Employee Volunteering BUILD event in Kamanga Compound The Environment: Standard Chartered is committed to protect the environment Women’s Empowerment: in which it operates. With the challenge of deforestation Standard Chartered Bank Zambia established a Women’s across Zambia, and indeed Africa, the bank has embarked Network two years ago as part of the bank’s Diversity and on a tree-planting initiative across the country. In 2013 during Inclusion (D & I) initiative. This Network provides a focused the historic United Nations World Tourism Organisation platform for female staff not only to network, but also build (UNWTO) conference, Standard Chartered Bank Zambia relationships across the various functions of the bank and Plc partnered with their colleagues in Zimbabwe to plant beyond. The network supports women in their careers by 1,200 trees in the Victoria Falls area in a bid to off-set the teaching new skills, encourages learning through others’ carbon footprint of the conference. In keeping with the experiences and peer education on the importance of gender diversity at all levels. Membership to the Network is bank’s commitment to be ‘first’ in the market, in December open to all women employed by the bank - full time, part 2013, Standard Chartered digitised its tree-planting initiative time, temporary and permanent. through Global Positioning System (GPS) mapping. This means that one can see where the bank planted trees in Standard Chartered Bank has several examples of very Victoria Falls using Google Earth. successful women who have risen through the ranks within the bank. These dynamic women head entire departments Furthermore, we joined several other countries in a massive and branches across Zambia, Africa and indeed, at energy-saving initiative - Earth-hour - by switching off Group Board level. The Bank believes that every woman lights for a full hour at Standard Chartered House. We also should have every opportunity to realise her personal and launched the ‘Go Green Campaign’ at Levy Park Mall were professional aspirations without having to forgo one for the we donated waste bins and sensitised shop owners and the other. public on the need to separate food waste from paper and plastic, and to recycle to reduce our carbon footprint.

Women’s Network event at the Radisson Blu Hotel

Christine Matambo Standard Chartered Bank Zambia Plc Board members planting Head of Corporate Affairs trees in Victoria Falls, Livingstone 24 February 2014 21

Annual financial statements for the year ended 31 December 2013 Financial statements andFinancial statements notes 22 Standard Chartered Bank Zambia Plc Annual Report 2013

Directors’ responsibilities in respect of the preparation of financial statements KPMG Chartered Accountants Telephone +260 2 11372900 The Bank’s Directors are responsible for the preparation and fair presentation of the consolidated and separate financial First Floor, Elunda Two Website www.kpmg.com/zm statements of Standard Chartered Bank Zambia Plc and its subsidiaries, comprising the consolidated and separate Addis Ababa Roundabout statements of financial position as at 31 December 2013, and the consolidated statements of comprehensive income, Rhodes Park, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary P.O Box 31282 of significant accounting policies and other explanatory notes in accordance with International Financial Reporting Standards, Lusaka Zambia the Banking and Financial Services Act and in the manner required by the Companies Act of Zambia. In addition, the directors are responsible for preparing the Director’s report.

The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and for maintaining adequate accounting records and an effective system of risk management as well as the preparation of the supplementary schedules included in these financial statements.

The Directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern in the year ahead.

The auditor is responsible for reporting on whether the Group annual financial statements are fairly presented in accordance with the applicable financial reporting framework.

Approval of consolidated and separate annual financial statements The Group annual financial statements of Standard Chartered Bank Zambia Plc, as identified in the first paragraph, were approved by the board of directors on 24 February 2014 and signed on their behalf by:

M. Mundashi, SC A. Okai Chairman Managing Director

K. Musana Executive Director - Finance and Administration

KPMG Chartered Accountants, a Zambian Partnership, is a member firm of the KPMG network of independent member Partners: A list of the partners is available at the above firms affiliated with KPMG International cooperative (“KPMG mentioned address! International”), .a Swiss entity. All rights reserved. 23

KPMG Chartered Accountants Telephone +260 2 11372900 First Floor, Elunda Two Website www.kpmg.com/zm Addis Ababa Roundabout Rhodes Park, P.O Box 31282 Lusaka Zambia

Independent auditors’ report to the shareholders of Standard Chartered Bank Zambia Plc

Report on the Financial Statements We have audited the consolidated and separate financial statements of Standard Chartered Bank Zambia Plc (the Bank) and its subsidiaries (together, ‘the Group’), which comprise the consolidated and separate statements of financial position as at 31 December 2013, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, as set out on pages 23 to 84.

Directors’ responsibility for the consolidated financial statements The Bank’s Directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards, the Banking and Financial Services Act of Zambia and in the manner required by the Companies Act of Zambia and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit 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 procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Standard Chartered Bank Zambia Plc and its subsidiary as at 31 December 2013, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Banking and Financial Services Act of Zambia and the Companies Act of Zambia.

KPMG Chartered Accountants, a Zambian Partnership, is a member firm of the KPMG network of independent member Partners: A list of the partners is available at the above firms affiliated with KPMG International cooperative (“KPMG mentioned address! International”), .a Swiss entity. All rights reserved.

KPMG Chartered Accountants Telephone +260 2 11372900 First Floor, Elunda Two Website www.kpmg.com/zm Addis Ababa Roundabout Rhodes Park, P.O Box 31282 Other matter Lusaka Zambia The supplementary information set out on page 85 does not form part of the annual financial statements and is presented as additional information. We have not audited this schedule and accordingly we do not express an opinion on it.

Report on other Legal and Regulatory Requirements In accordance with Section 173 (3) of the Companies Act of Zambia, we report that, in our opinion the required accounting records, other records and registers have been properly kept in accordance with the Act.

In accordance with Section 64 (2) of the Banking and Financial Services Act we report that in our opinion: • the Bank made available all necessary information to enable us to comply with the requirements of this Act;

• the Bank has complied in all material respects with the provisions of this Act and the regulations, guidelines and prescriptions under this Act.

• there are no non performing or restructured loans owing to the Bank whose principal amount exceeds 5 per cent of the regulatory capital of the Bank.

KPMG Chartered Accountants

Dumi Tshuma 28 February 2014 Partner Lusaka, Zambia

KPMG Chartered Accountants, a Zambian Partnership, is a member firm of the KPMG network of independent member Partners: A list of the partners is available at the above firms affiliated with KPMG International cooperative (“KPMG mentioned address! International”), .a Swiss entity. All rights reserved. 25

Consolidated statement of comprehensive income for the year ended 31 December 2013

2013 2012 Notes K’000 K’000

Interest income 4 482,050 405,617 Interest expense 5 (77,031) (83,921) Net interest income 405,019 321,696 Fee and commission income 6 188,199 173,815 Fee and commission expense 6 (20,215) (18,183) Net fee and commission income 167,984 155,632

Net trading income 7 106,351 114,055

Net income from financial instruments at fair value through profit or loss 8 23,835 22,452

130,186 136,507 Revenue 703,189 613,835

Other Income 9 5,899 6,582 Personnel expenses 10 (191,931) (169,155)

Depreciation, amortisation, premises and equipment expenses 10 (43,918) (38,202)

Other expenses 10 (91,729) (70,164) Impairment on loans and advances 20 (14,466) (3,278) Financial statements andFinancial statements notes Profit before income tax 367,044 339,618

Income tax expense 11 (130,377) (118,625) Profit for the year 236,667 220,993

Other comprehensive income, net of income tax Items that are or may be reclassified to comprehensive income Net changes in fair value reserve on available for sale securities (13,246) 2,071 Net amount transferred to profit or loss on available for sale securities (231) (1,850) Other comprehensive income for the year, net of income tax (13,477) 221 Total comprehensive income for the year 223,190 221,214

The notes on pages 29 to 84 are an integral part of these financial statements. 26 Standard Chartered Bank Zambia Plc Annual Report 2013

Consolidated statement of comprehensive income (continued) for the year ended 31 December 2013

2013 2012 Notes K’000 K’000 Profits attributable to: Equity holders of the Bank 236,667 220,993 Profit for the year 236,667 220,993

Total comprehensive income attributable: Equity holders of the Bank 223,190 221,214 Total comprehensive income for the year 223,190 221,214

Earnings per share Basic and diluted earnings per share (Kwacha) 12 0.14 0.13

The notes on pages 29 to 84 are an integral part of these financial statements. 27

Statements of financial position As at 31 December 2013 Group Bank 2013 2012 2013 2012 Notes K’000 K’000 K’000 K’000 Assets Cash on hand and balances at Bank of Zambia 14 743,397 680,535 743,397 680,535 Cash and cash equivalents 15 249,867 921,312 249,867 921,312 Pledged assets 16 60,000 50,000 60,000 50,000 Investment securities 17 1,504,339 1,104,442 1,504,339 1,104,442 Investment in subsidiary company 18 - - 5 5 Derivative financial instruments 19 9,350 8,624 9,350 8,624 Loans and advances to customers 20 2,779,470 2,233,265 2,779,470 2,233,265 Operating lease prepayments 23 528 545 528 545 Prepayments and other receivables 24 45,219 101,134 45,219 101,134 Property and equipment 21 22,692 28,449 22,692 28,449 Current tax assets 11 18,445 - 18,445 - Deferred tax assets 11 6,859 - 6,859 - Intangible assets 22 30,236 35,312 30,236 35,312 Total assets 5,470,402 5,163,618 5,470,407 5,163,623

Liabilities Amounts payable to group banks 15 263,931 525,033 263,931 525,033 Amounts payable to non-group banks 15 2,918 40,139 2,918 40,139 Deposits from customers 25 4,267,129 3,681,026 4,267,129 3,681,026 Dividends payable 13 1,489 1,329 1,489 1,329 Derivative financial instruments 19 2,184 5,625 2,184 5,625

Accruals and other payables 28 160,652 240,818 160,657 240,823 andFinancial statements notes Provisions 27 15,923 14,061 15,923 14,061 Current tax liabilities 11 - 35,263 - 35,263 Subordinated liabilities 26 22,045 20,710 22,045 20,710 Deferred tax liabilities 11 - 5,324 - 5,324 Total liabilities 4,736,271 4,569,328 4,736,276 4,569,333

Equity Share capital 29 416,745 416,745 416,745 416,745 Statutory reserves 12,285 12,285 12,285 12,285 Fair value reserves (6,998) 6,479 (6,998) 6,479 Credit reserves 5,261 4,194 5,261 4,194 Capital contribution 17,312 17,312 17,312 17,312 Retained earnings 289,526 137,275 289,526 137,275

Total equity attributable to equity holders of the Bank 734,131 594,290 734,131 594,290

Total liabilities and equity 5,470,402 5,163,618 5,470,407 5,163,623

These financial statements were approved by the Board of Directors on 24 February 2014 and were signed on its behalf by:

M. Mundashi, SC A. Okai K. Musana C. Nair Chairman CEO/Managing Director Executive Director Finance and Company Secretary Administration

The notes on pages 29 to 84 are an integral part of these financial statements. 28 Standard Chartered Bank Zambia Plc Annual Report 2013

Statement of changes in equity for the year ended 31 December 2013

Group and Bank

Share- based Share Statutory Fair value Credit payment Capital Retained capital reserves reserves reserves reserves Contribution earnings Total

K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000

Balance at 1 January 2012 12,285 12,285 6,258 7,220 - 17,312 317,588 372,948

Total comprehensive income for the year

Profit for the year ------220,993 220,993 Other comprehensive income net of income tax ------Fair value reserve on available-for-sale investment securities - Net change in fair value - - 2,071 - - - - 2,071

- Net amount transferred to profit and loss - - (1,850) - - - - (1,850)

Total comprehensive income for the year - - 221 - - - 220,993 221,214

Transfer from retained earnings - - - - 3,026 - - (3,026)

Unclaimed dividend written back - - - - - 128 128 - Transactions with owners, recognised directly in equity

Bonus issue 404,460 - - - - - (404,460) -

Share based payment transactions - - - - 1,617 - (1,617) -

Distribution - - - - (1,617) - 1,617 - Total contributions by and distributions to 404,460 owners - - - - - (404,460) -

Balance at 31 December 2012 416,745 12,285 6,479 4,194 - 17,312 137,275 594,290

Group and Bank

Share- based Statutory Fair value Credit payment Capital Retained Share capital reserves reserves reserves reserves Contribution earnings Total K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000

Balance at 1 January 2013 416,745 12,285 6,479 4,194 - 17,312 137,275 594,290 Total comprehensive income for the year Profit for the year ------236,667 236,667

Other comprehensive income net ------of income tax Fair value reserve on available- for-sale investment securities - Net change in fair value - - (13,246) - - - - (13,246)

- Net amount transferred to - - (231) - - - - (231) profit and loss Total comprehensive income for - - (13,477) - - - 236,667 223,190 the year Transfer from retained earnings - - - 1,067 - - (1,067) - Transactions with owners, recognised directly in equity Dividends paid ------(83,349) (83,349)

Share based payment - - - - 215 - (215) - transactions Distribution - - - - (215) - 215 - Total contributions by and distributions to ------(83,349) (83,349) owners Balance at 31 December 2013 416,745 12,285 (6,998) 5,261 - 17,312 289,526 734,131

The notes on pages 29 to 84 are an integral part of these financial statements. 29

Statement of changes in equity (continued) for the year ended 31 December 2013

Fair value reserve The fair value reserve comprises the fair value movement of financial assets classified as available-for-sale. Gains and losses are deferred to this reserve until such time as the underlying asset is sold or matures.

Credit reserve The credit reserve is a loan loss reserve that relates to the excess of impairment provision as required by the Banking and Financial Services Act of Zambia over the impairment provision computed in terms of International Financial Reporting Standards.

Share based payment reserves This relates to the equity settled share based payment transactions the Bank employees have with Standard Chartered Holdings (Africa) BV.

Capital contribution The capital contribution reserve relates to the franchise value arising from the acquisition of the Standard Chartered Nominees Zambia Limited. The franchise value is the amount paid on behalf of the Bank by Standard Chartered Plc for the acquisition of the subsidiary

Retained earnings Retained earnings are the carried forward recognised income net of expenses of the Bank, plus current period profit attributable to shareholders, less distributions to shareholders.

Statutory reserves Statutory reserves comprise transfers out of net profits prior to dividends, of amounts prescribed under statutory instrument No. 21 of 1995: The Banking and Financial Services (Reserve Account) Regulations 1995. Financial statements andFinancial statements notes

The notes on pages 29 to 84 are an integral part of these financial statements. 30 Standard Chartered Bank Zambia Plc Annual Report 2013

Consolidated statement of cash flows for the year ended 31 December 2013

Notes 2013 2012 K’000 K’000 Cash flow from operating activities Profit before tax 367,044 339,618 Adjustment for items not involving cash or shown separately Depreciation of property and equipment 21 4,636 4,331 Amortisation of intangible assets 22 5,076 5,328 Expensed work in progress 21 4,396 - Equity-settled share-based payments transaction 32 215 1,617 Expensed portion of leasehold land prepayment 23 15 13 Impairment losses and recoveries 20 14,466 3,278 Gain on disposal of equipment 9 (5,744) (6,235) Net interest income (405,019) (322,519) Effect of exchanges rate fluctuations on subordinated loan capital 26 1,335 230 (13,580) 25,661 Change in operating assets and liabilities Pledged assets (10,000) 56,000 Loans and advances to customers (546,205) (436,014) Derivative financial instruments (4,167) 7,264 Prepayments and other receivables 55,916 (14,792) Deposits from customers 586,103 107,204 Provisions 1,862 (1,396) Accruals and other payables (80,166) 63,095 3,343 (218,639)

Interest received 451,969 406,440 Interest paid (64,399) (83,921)

387,570 322,519

Net cash generated from operating activities before taxation 377,333 129,541 Income tax paid 11 (189,010) (132,006)

Net cash generated from/(used) in operating activities 188,323 (2,465)

Cash flows from investing activities Purchase of property and equipment to maintain operations 21 (4,111) (7,272) Investment in government securities (403,959) (150,332) Proceeds from disposal of equipment 6,580 6,316 Net cash used in investing activities (401,490) (151,288)

Cash flows from financing activities Dividends paid 13 (83,189) - Net cash used in financing activities (83,189) - Net decrease in cash and cash equivalents (296,356) (153,753) Cash and cash equivalents at beginning of year 1,036,675 1,194,471 Effect of exchange rate fluctuation on cash held (13,904) (4,043) Cash and cash equivalents at end of year 15 726,415 1,036,675

The notes on pages 29 to 84 are an integral part of these financial statements. 31

Notes to the consolidated financial statements for the year ended 31 December 2013

1 Reporting entity

Standard Chartered Bank Zambia Plc (“the Bank”) and its subsidiary (together “the Group”) are domiciled in Zambia. The address of the Bank’s registered office is Standard Chartered House, Cairo Road, Lusaka. These consolidated financial statements comprise the bank and its subsidiary collectively the “Group” and individually the “Group Companies”. The Group is primarily involved in wholesale and consumer banking and asset management services.

2 Basis of accounting

2.1 Statement of compliance The Bank’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), the requirements of the Banking and Financial Services Act and the Companies Act of Zambia.

2.2 Basis of measurement The financial statements have been prepared on the historical cost basis except for the following which are measured at fair value:

• derivative financial instruments; • available-for-sale financial assets; and • financial instruments designated at fair value through profit or loss.

2.3 Functional and presentation currency These financial statements are presented in Zambian Kwacha (“Kwacha”), which is the Bank’s functional currency. All financial information presented in Kwacha has been rounded to the nearest thousand, except when otherwise indicated.

The Zambian currency (the Kwacha) was rebased effective 1 January 2013 by dividing the nominal value of the existing currency by a multiple of one thousand so that one thousand Kwacha yielded a face value of one Kwacha. All reporting entities with financial year ends after 31 December 2012 are required to prepare financial statements in the new (rebased) currency. The comparatives have also been rebased for comparability. Financial statements andFinancial statements notes

2.4 Use of estimates and judgments In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

a) Judgments Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognised in the consolidated financial statements is set out below.

Determination of control over investees Management applies its judgment to determine whether control indicators set out in note 37.1( i ) indicate that Group controls an entity.

b) Assumptions and estimation uncertainty Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2013 is set out below in relation to the impairment of financial instruments and in the following notes: • Note 39 - determination of fair value of financial instruments with significant unobservable inputs; • Note 37.7 - recognition of deferred tax assets: availability of future taxable profit against which carry forward tax losses can be used; • Note 37.17 - impairment testing for CGUs containing goodwill: key assumptions underlying • recoverable amounts; and • Notes 30 and 37.20 - recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources. 32 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

2 Basis of accounting (continued)

2.4 Use of estimates and judgments (Continued)

Impairment of financial instruments Assets accounted for at amortised cost are evaluated for impairment on the basis described in Note 37.8. The individual component of the total allowance for impairment applies to financial assets evaluated individually for impairment and is based on management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a debtor’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function.

A collective component of the total allowance is established for: • groups of homogeneous loans that are not considered individually significant; and • groups of assets that are individually significant but that were not found to be individually impaired (loss ‘incurred but not reported’ or IBNR).

The collective allowance for groups of homogeneous loans is established using statistical methods such as roll rate methodology or, for small portfolios with insufficient information, a formula approach based on historical loss rate experience. The roll rate methodology uses statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgement to ensure that the estimate of loss arrived at on the basis of historical information is appropriately adjusted to reflect the economic conditions and product mix at the reporting date. Roll rates and loss rates are regularly benchmarked against actual loss experience.

The IBNR allowance covers credit losses inherent in portfolios of loans and advances, with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired items but the individual impaired items cannot yet be identified.

In assessing the need for collective loss allowance, management considers factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, assumptions are made to define how inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowance depends on the model assumptions and parameters used in determining the collective allowance.

3 Operating segments

The Bank manages and reports its business through two main strategic business units. These operating units offer different products and services and are managed as separate segments of the business for purposes of internal reporting. The results of the units segments are reviewed on a monthly basis by the Chief Executive Officer. The following summary describes the operations of each of the Bank’s reportable segments: Wholesale banking Client coverage Includes the Bank’s trading, corporate finance activities, loans, trade finance, cash management, deposits and other transactions with corporate customers. Financial markets The Treasury unit undertakes the Bank’s management and centralised risk management activities through borrowings, issue of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placements and corporate and government securities. Consumer banking Includes loans, deposits and other transactions with retail customers.

Operating segments pay and receive interest from Treasury on an arm’s length basis to reflect the allocation of capital and funding costs.

Segment capital expenditure is the total cost incurred during the year to acquire property and equipment.

The Bank operates in one geographical segment. 33

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

3 Operating segments (continued)

Wholesale Consumer Group Unallocated Total Banking Banking

2013 Note K’000 K’000 K’000 K’000 External revenue Net interest income 227,629 177,390 - 405,019 Net fee and commission income 6 32,086 135,898 - 167,984 Net trading income 7 76,896 29,455 - 106,351

Net income from financial assets at fair value 8 23,835 - - 23,835 through profit or loss

Total segment income 360,446 342,743 - 703,189

Other material non-cash items:

Impairment losses on loans and advances 20 2,017 12,449 - 14,466 Reportable segment operating 244,486 116,659 5,899 367,044 profit before tax Reportable segment assets 3,740,380 1,631,889 98,133 5,470,402

Reportable segment liabilities and equity 2,372,377 2,200,531 897,494 5,470,402

Consumer Consumer Group Unallocated Total Banking Banking 2012 Note K’000 K’000 K’000 K’000

External revenue andFinancial statements notes Net interest income 175,878 145,818 - 321,696 Net fee and commission income 6 47,152 108,481 - 155,632 Net trading income 7 76,926 37,128 - 114,054

Net income from financial assets at fair value 8 22,452 - - 22,453 through profit or loss

Total segment income 322,408 291,427 - 613,835 Other material non-cash items: Recovery/(impairment losses) on loans and 20 (4,747) 8,025 - 3,278 advances Reportable segment operating 231,681 101,355 6,862 339,618 profit before tax Reportable segment assets 3,849,816 1,219,373 94,428 5,163,618

Reportable segment liabilities and equity 2,590,474 1,920,919 652,225 5,163,618 34 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

3 Operating segments (continued)

Reconciliation of reportable segment revenues, profit or loss and assets and liabilities

Group 2013 2012 K’000 K’000

Revenues

Total revenues for reportable segments 703,189 613,834 Consolidated revenue 703,189 613,834

Profit or loss

Total profit or loss for reportable segments 361,145 332,756 Unallocated amounts 5,899 6,862 Profit before income tax 367,044 339,618

Assets

Total assets for reportable segments 5,372,269 5,069,190 Unallocated amounts 98,133 94,428 Total assets 5,470,402 5,163,618

Liabilities

Total liabilities for reportable segments 4,572,908 4,511,393 Unallocated amounts 897,494 652,225 Total liabilities 5,470,402 5,163,618

4 Interest income

Group and Bank 2013 2012 K’000 K’000 Cash and short term funds 28,332 79,068 Debt securities 167,170 122,799 Loans and advances 286,548 203,750 Total interest income 482,050 405,617

Interest income includes interest on impaired loans and advances of ZMW226,000 (2012: ZMW102,000).

5 Interest expense

Group and Bank

2013 2012 K’000 K’000 Deposits from customers 49,531 52,692 Placements 26,901 30,652 Subordinated loan capital 599 577 Total interest expense 77,031 83,921 35

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

6 Net fee and commission income

Group and Bank

2013 2012 K’000 K’000 Consumer banking customer fees 144,854 117,573 Wholesale banking credit related fees 31,078 36,891 Trade finance fees 12,267 19,351 Total fee and commission income 188,199 173,815

Consumer banking fees and commission expenses (11,768) (10,684) Wholesale banking fees and commission expenses (8,447) (7,499) Total fee and commission expenses (20,215) (18,183) Net fee and commission income 167,984 155,632

7 Net trading income

Group and Bank

2013 2012 K’000 K’000 Foreign currency transaction gains less losses 100,989 96,849 Losses arising from dealing securities (6,238) (6,404) 94,751 90,445 Dealing profits 1,129 1,773 Profit on sale of corporate bond - 4 Financial statements andFinancial statements notes Gain on disposal of investment securities 10,471 21,833

Net trading income 106,351 114,055

8 Net income from financial instruments at fair value through profit or loss

Group and Bank

2013 2012 K’000 K’000 Treasury bills 9,215 20,104

Government bonds 14,620 2,348

Net income from financial instruments at fair value through profit or loss 23,835 22,452

9 Other income

Group and Bank 2013 2012 K’000 K’000 Gain on disposal of property, plant and equipment 5,744 6,235 Rent received 155 347 Other income 5,899 6,582 36 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

10 Operating expenses Group and Bank 2013 2012 K’000 K’000 Personnel expenses: 145,659 125,500 Wages and salaries

Compulsory social security obligations (NAPSA) 4,106 3,431

Contribution to defined contribution pension plan 7,315 6,383

Other staff costs 32,507 31,248

Equity settled share-based payment transactions 215 1,617

Redundancy, severance and gratuity 2,129 976 Total 191,931 169,155

Depreciation, amortisation, premises and equipment expenses: 4,636 4,331 Depreciation of property and equipment

Amortisation of intangible assets 5,076 5,328

Other premises and equipment expenses 34,206 28,543 Total 43,918 38,202

Other expenses: Release of lease prepayment for leasehold land 15 13

Communication expenses 14,738 14,380

Recharges/(recoveries) from group companies 11,324 (7,738)

Other operating expenses 65,652 63,509 Total 91,729 70,164

Other operating expenses include ZMW1,070,000 (2012: ZMW965,000) in respect of auditor’s remuneration for the Bank. The auditors of the Bank, KPMG, did not receive any payments in respect of non-audit services.

Recharges from group companies relates to royalties and head office administration costs. 37

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

11 Income tax expense Group and Bank 2013 2012 K’000 K’000

Current tax expense Current year 135,302 124,219

Deferred tax Origination and reversal of temporary differences (4,925) (5,594)

Total income tax expense 130,377 118,625

The income tax expense for the current year is subject to agreement with the Zambia Revenue Authority.

Group and Bank

2013 2012

K’000 K’000

Reconciliation of effective tax rate:

Profit before tax % 367,044 % 339,618 Tax calculated at the tax rate of 35% (2012: 35%): 35.00 128,465 35.00 118,866 Non - deductible expenses 0.52 1,912 (0.07) (241) Total income tax expense in profit or loss 35.52 130,377 34.93 118,625 Financial statements andFinancial statements notes

Income tax recognised in other comprehensive income Group and Bank 2013 2012

K’000 K’000 Tax Net Tax Net Before tax benefit of tax Before tax (expense) of tax

Available-for-sale investment securities (20,734) 7,257 (13,477) 340 (119) 221 38 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

11 Income tax expense (continued)

Current income tax movement in the statement of financial position

Group and Bank 2012 2013 K’000 K’000 Current tax liabilities at the beginning of the year 35,263 43,050 Current income tax charge 135,302 124,219 Payments made during the year (189,010) (132,006) Current tax (assets)/liabilities (18,445) 35,263

Deferred taxation Deferred taxation is calculated on all temporary differences using tax rates that are substantially enacted at the reporting date. Deferred tax assets and liabilities are attributable to the following:

Group and Bank Group and Bank

2013 2012

Assets Liabilities Net Assets Liabilities Net K’000 K’000 K’000 K’000 K’000 K’000 Property, plant and equipment - (1,127) (1,127) - (1,694) (1,694) Available-for-sale securities 3,769 - 3,769 - (3,488) (3,488) Allowance for loan losses 10,083 - 10,083 7,656 - 7,656 Intangible asset - (5,866) (5,866) - (7,798) (7,798) 13,852 (6,993) 6,859 7,656 (12,980) (5,324)

2013 Group and Bank Opening Recognised Recognised in Closing in profit or Balance loss equity Balance K’000 K’000 K’000 K’000 Property, plant and equipment (1,694) 567 - (1,127) Available-for-sale securities (3,488) - 7,257 3,769 Allowance for loan losses 7,656 2,426 - 10,083 Intangible asset (7,798) 1,932 - (5,866) (5,324) 4,925 7,257 6,859

Group and Bank 2012 Opening Recognised Recognised in Closing Balance in profit or loss equity Balance K’000 K’000 K’000 K’000 Property, plant and equipment (2,044) 350 - (1,694) Available-for-sale securities (3,369) - (119) (3,488) Allowance for loan losses 4,598 3,058 - 7,656 Intangible asset (9,984) 2,186 - (7,798) (10,799) 5,594 (119) (5,324)

Recognition of deferred tax asset Recognition of deferred tax asset of ZMW13,852 (2012:ZMW7,656) is based on management’s profit forecasts, which indicate that the Bank will have future taxable profits against which these assets can be utilsed. 39

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

12 Earnings per share

Group and Bank Group and Bank 2013 2012 Weighted Weighted average Per average Per Number of share Number of Share Profit shares amount Profit shares Amount K’000 ’000 Kwacha K’000 ’000 Kwacha Basic and diluted earnings per share 236,667 1,666,980 0.14 220,993 1,666,980 0.13

The calculation of the basic earnings per share is based on the net profit attributable to ordinary shareholders (profit after taxation) divided by the weighted average number of ordinary shares in issue during the year. There were no dilutive potential ordinary shares at 31 December 2013 (2012: nil) and basic earnings per share equals diluted earnings per share.

13 Dividends payable

Group and Bank

2013 2012 K’000 K’000 Balance at 1 January 1,329 1,329 Approved interim dividends for 2013 at ZMW0.05 per share (2012: approved final dividends for 2012 at ZMW0.00 per share) 83,349 - 84,678 1,329

Less dividends paid during the year (83,189) - andFinancial statements notes

Balance at 31 December 1,489 1,329

Dividends are recognised in the period in which they are declared. The directors recommended that a final dividend of ZMW0.09 per share will be paid for year ended 31 December 2013 (2012: ZMW nil).

14 Cash on hand and balances at Bank of Zambia

Group and Bank 2013 2012 K’000 K’000 Cash on hand 221,464 180,262 Statutory deposit 370,877 222,596 Total cash on hand and bank balances at Bank of Zambia 592,341 402,858 Clearing account with Bank of Zambia 151,056 277,677 Total 743,397 680,535

The statutory deposit held with Bank of Zambia, as a minimum reserve requirement, is not available for the Bank’s daily business. The reserve represents a requirement by the Central Bank and is a percentage of the Bank’s local and foreign currency liabilities to the public. As at 31 December 2013 this stood at 8 per cent (2012: 5 per cent). 40 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

15 Cash and cash equivalents at end of year

Group and Bank At 31 At 1 January Cash flow December 2013 K’000 K’000 K’000 Cash and short term funds at group banks 721,713 (578,942) 142,771 Cash and short term funds at non group banks 18,396 6,030 24,426 Placements with foreign non group banks 181,203 (98,533) 82,670 Cash and cash equivalents 921,312 (671,445) 249,867

Amounts payable to group Banks (525,033) 261,102 (263,931) Amounts payable to non group Banks (40,139) 37,221 (2,918) Cash on hand and balances at Bank of Zambia 680,535 62,862 743,397 Total per statement of cash flows 1,036,675 (310,260) 726,415

Group and Bank At 31 At 1 January Cash flow December 2012 K’000 K’000 K’000

Cash and short term funds at group banks 902,126 (180,413) 721,713 Cash and short term funds at non group banks 43,195 (24,799) 18,396 Placements with foreign non group banks 281,542 (100,339) 181,203 Cash and cash equivalents representing asset 1,226,863 (305,551) 921,312

Amounts payable to groupbanks (357,943) (167,090) (525,033) Amounts payable to non groupbanks (10,405) (29,734) (40,139) Cash on hand and balances at Bank of Zambia 335,956 344,579 680,535 Total per statement of cash flows 1,194,471 (157,796) 1,036,675

16 Pledged assets Group and Bank

2013 2012 K’000 K’000 Treasury bills 60,000 50,000

The pledged assets are those financial assets that may be repledged or resold by counterparties. These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities. These treasury bills are held as collateral at the Zambia Electronic Clearing House.

17 Investment securities Group and Bank

2013 2012

K’000 K’000

Investment securities at fair value through profit or loss 170,245 30,095

Available-for-sale investment securities 1,334,094 1,074,347 Total 1,504,339 1,104,442 41

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

17 Investment securities (continued)

At fair value through profit or loss

Group and Bank Group and Bank

2013 2012 Treasury Government Treasury Government bills bonds Total bills bonds Total K’000 K’000 K’000 K’000 K’000 K’000 Of which mature Within one year 106,102 15,002 121,104 - - - Within one to five years - 49,141 49,141 - 30,095 30,095

Total 106,102 64,143 170,245 - 30,095 30,095

These investment securities are held for trading.

Available - for- sale Group and Bank Group and Bank 2013 2012 Treasury Government Treasury Government bills bonds Total bills bonds Total K’000 K’000 K’000 K’000 K’000 K’000

Of which mature andFinancial statements notes Within one year 990,569 26,591 1,017,160 690,542 81,790 772,332 Within one to five years - 316,934 316,934 - 302,015 302,015 More than five years 990,569 343,525 1,334,094 690,542 383,805 1,074,347

Total 1,096,671 407,668 1,504,339 690,542 413,900 1,104,442

18 Investment in subsidiary

The table below provides details of the subsidiary of the Group:

Interest in subsidiaries companies 2013 2012 Ownership K’000 K’000

Standard Chartered Nominees Zambia Limited 100% 5 5

This is an equity investment in a private company that does not have a quoted market price in an active market which is carried at cost and whose fair value cannot be reliably measured. No dividends are expected from it in the foreseeable future and consequently there are no determinable future cash flows. It is not possible to determine the possible range of estimates within which the fair value of this investment is likely to lie.

There are no significant restrictions on the ability of the subsidiary to transfer funds to the Bank in form of cash dividends or repayments of loans or advances.

In terms of section 57 of the Companies Act of Zambia, the name and address of the subsidiaries’ principal office is: Standard Chartered House, Cairo Road, Lusaka 42 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

19 Derivative financial instruments

The table below analyses the positive and negative fair values of the Bank’s derivative financial instruments. All fair value movements on derivative financial instruments are recognised in the profit or loss.

Group and Bank Group and Bank

2013 2012

2013 Assets Liabilities Assets Liabilities K’000 K’000 K’000 K’000

Interest rate swap 7,662 2,184 7,884 3,159 Cross currency swap 1,688 - - 928 Commodity derivative - - 740 - Forward foreign exchange contracts - - - 1,538 Total 9,350 2,184 8,624 5,625

20 Loans and advances to customers

Group and Bank Group and Bank 2013 2012 Gross Impairment Carrying Gross Impairment Carrying amount allowance amount amount allowance amount K’000 K’000 K’000 K’000 K’000 K’000

Consumer loans: Mortgage lending 52,769 (648) 52,121 57,482 (1,246) 56,236 Personal loans 1,160,817 (17,495) 1,143,322 889,417 (1,406) 888,011 Overdrafts 222,632 (1,762) 220,870 54,562 (265) 54,297 1,436,218 (19,905) 1,416,313 1,001,461 (2,917) 998,544

Wholesale loans: Term loans 1,026,151 (16,245) 1,009,906 971,888 (19,442) 952,446 Overdrafts 354,057 (806) 353,251 291,144 (8,868) 282,275 1,380,208 (17,051) 1,363,157 1,263,032 (28,310) 1,234,721 Total 2,816,426 (36,956) 2,779,470 2,264,493 (31,227) 2,233,265

Maturity analysis of gross loans and advances

The maturity analysis is based on the remaining periods to contracted maturity. Group and Bank 2013 2012 K’000 K’000

Redeemable on demand 927,976 345,706 Maturity within one year 434,024 751,703 Maturity after 12 months 1,454,426 1,167,084 Total 2,816,426 2,264,493

Included in loans and advances are loans to related parties amounting to ZMW26,494,000 (2012: ZMW20,300,000) (see note 31). Loans and advances to customers are measured at amortised cost. 43

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

20 Loans and advances to customers (continued)

Allowances for impairment

Group and Bank 2013 2012 Specific allowances for impairment K’000 K’000

Balance at 1 January 9,349 10,435

Charge for the year 12,988 10,286

Impairment (reversal)/recognised on associate 1,554 (8,146)

Recoveries (7,006) (7,601)

Net charge/ (credit) against profit 7,536 (5,461) Effect of foreign currency movements (377) (533) Discount unwind (1,115) (818) Impairment (charge)/reversal on associate (1,554) 8,146 Reversal on loan written off without provision (3,386) -

Provision no longer required (2,305) (2,420) Balance at 31 December 8,148 9,349

Collective allowances for impairment Balance at 1 January 21,878 13,139

Increase in collective impairment 6,930 8,739 andFinancial statements notes Balance at 31 December 28,808 21,878 Total specific and collective impairment at 31 December 36,956 31,227

Impairment losses on loans and advances in the statement of comprehensive income Group and Bank 2013 2012 K’000 K’000

Specific allowances for impairment/ (recovery) 7,536 (5,461) 6,930 8,739 Collective allowances for impairment Total allowances for year 14,466 3,278

44 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

21 Property and equipment

Group and Bank Property and Equipment Capital Total improvements and motor work-in- vehicles progress

K’000 K’000 K’000 K’000 Cost At 1 January 2012 18,704 37,610 - 56,314 Additions - 1,797 5,475 7,272 Disposals (448) - - (448) Write offs - (19,265) - (19,265) At 31 December 2012 18,256 20,142 5,475 43,873

At 1 January 2013 18,256 20,142 5,475 43,873 Additions - 4,111 - 4,111 Expensed work in progress - - (4,396) (4,396) Capitalised work- in- progress - 1,011 (1,011) - Disposals (884) (150) - (1,034) At 31 December 2013 17,372 25,114 68 42,554

Accumulated depreciation and impairment losses

At 1 January 2012 3,031 27,411 - 30,442 Depreciation charge for the year 420 3,911 - 4,331 Disposals (84) (19,265) (19,349) At 31 December 2012 3,367 12,057 - 15,424

At 1 January 2013 3,367 12,057 - 15,424 Depreciation charge for the year 413 4,223 - 4,636 Disposals (190) (8) - (198) At 31 December 2013 3,590 16,272 - 19,862

Carrying amounts At 1 January 2012 15,673 10,199 - 25,872 At 31 December 2012 14,889 8,085 5,475 28,449 At 31 December 2013 13,782 8,842 68 22,692

A register of properties is maintained by the Bank at its registered office and is available for inspection by the members.

Fully depreciated equipment and motor vehicles included in the above at cost amount to ZMW6,156,000 (2012: ZMW3,732,000). During the year, fully depreciated equipment amounting to ZMW nil (2012: ZMW19,265,000) was written off from the asset register.

There were no capitalised borrowing costs related to the acquisition of property, plant and equipment during the year (2012: ZMW nil)

45

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

22 Intangible assets

Customer Group and Bank Goodwill Total Relationships Cost K’000 K’000 K’000 At 31 December 2012 33,691 13,476 47,167

At 1 January 2013 33,691 13,476 47,167

At 31 December 2013 33,691 13,476 47,167

Accumulated amortisation and impairment losses

At 1 January 2012 6,527 - 6,527 Charge for the year 5,328 - 5,328 11,855 - 11,855 At 31 December 2012

At 1 January 2013 11,855 - 11,855 Charge for the year 5,076 - 5,076 At 31 December 2013 16,931 - 16,931

Carrying amounts At 1 January 2012 27,164 13,476 40,640

At 31 December 2012 21,836 13,476 35,312

At 31 December 2013 16,760 13,476 30,236 Financial statements andFinancial statements notes

Impairment testing for cash-generating units (CGU) containing goodwill For the purposes of impairment testing, the entire goodwill is allocated to the Wholesale Banking unit. No impairment losses on goodwill were recognised during the year (2012: nil).

The recoverable amounts for the Wholesale Banking CGU has been calculated based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of the CGU. Value in use was determined in a similar manner as in 2012.

 Key assumptions used in the calculation of the value in use were the following: Cash flows were projected based on forecasts and budgets for short/medium term growth (one to five years) using budgets compiled in November of the current year through to the end of November for the following year. The cash flows for a further 20 years are extrapolated using a constant growth rate. The long term growth rate management used is based on a forecast for a ten year average GDP for country specific units; or global GDP for business specific units, and is applied after the latest approved budget (one to five years) up to twenty years. The forecast period is based on the Bank’s long term perspective with respect to the operations of this CGU.

 Management uses post tax cash flows hence applies a post-tax discount rate to the cash flows to nullify the double effect of tax from the impairment calculation in determining the recoverable amount of CGU. The resultant net present value derived based on this methodology will be similar to that, had pre-tax discount rates been applied to pre-tax cash flows. Since the CGU is a business unit then SCB Plc’s Weighted Average Cost of Capital is used and is adjusted for systemic risk of the specific CGU.

The assumptions described above may change as the economic and market conditions change. The Bank estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of the CGU to decline below the carrying amount.

The intangible customer relationships will be amortised over the expected customer relationship life initially estimated at 8 -10 years.

46 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

23 Operating lease prepayments

Group and Bank 2013 2012 K’000 K’000 Opening balance 545 660 Disposals (2) (102) Amortisation (15) (13) Carrying amount 528 545

Land is leased from the Government of the Republic of Zambia (GRZ) for a fixed 99 year term (or the unexpired portion thereof). The lease has been classified as an operating lease. IAS 17 Leases requires all amounts paid upfront at the signing of the lease to be amortised on a straight line basis over the unexpired portion of the lease term. At 31 December 2013, the future minimum lease payment under the non cancellable operating lease were payable as follows:

Group and Bank 2013 2012 K’000 K’000 Less than one year 10 19 Between one and five years 53 75 More than five years 465 451 Carrying amount 528 545

There are no contingent rentals or sub-lease payments expected to be received.

24 Prepayments and other receivables

Group and Bank 2013 2012 K’000 K’000 Prepayment of expenditure 5,548 2,480 Sundry debt 4,731 8,393 Capital advances 3,568 2,015 Equity shares – ZECHL 508 508 Prepayments and other receivables 30,864 87,738 Total 45,219 101,134

The investment in Zambia Electronic Clearing House Limited (“ZECHL”) represents the Bank’s contribution to its set up costs. The principal activity of ZECHL is the electronic clearing of cheques and direct debits and credits in Zambia for its member banks. The ZECHL is funded by contributions from member banks. As there is no reliable measure of the fair value of this investment, it is carried at cost, and regularly reviewed for impairment at each reporting date.

47

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

25 Deposits from customers Group and Bank 2013 2012 K’000 K’000 Retail customers: Savings accounts 533,195 463,486 Term deposits 325,104 156,667 Current deposits 1,306,901 1,286,945

Wholesale customers: Savings accounts 4,179 5,738 Term deposits 453,131 341,997 Current deposits 1,644,619 1,426,193

Total 4,267,129 3,681,026

Group and Bank 2013 2012 K’000 K’000

Repayable on demand 3,813,362 3,277,286

Repayable with agreed maturity dates or periods of notice, by residual maturity:

Three months or less 330,581 243,720 andFinancial statements notes Between three months and one year 121,252 153,141 After one year 1,934 6,879 Total 4,267,129 3,681,026

Included in deposits from customers were deposits amounting to ZMW 228,561,000 (2012: ZMW154,715,000) held as collateral for irrevocable commitments under import letters of credit.

Included in deposits from customers are deposits from related parties amounting to ZMW 3,616,000 (2012: ZMW5,141,000)

26 Subordinated liabilities Group and Bank 2013 2012 K’000 K’000 At 1 January 2013 20,710 20,480 Exchange difference 1,335 230 Total 22,045 20,710

The terms and conditions of the subordinated loan are as follows:

The interest charge is 2.3 per cent above 3 months LIBOR and is payable on a quarterly basis. The loan is to be fully repaid in one installment on 31 December, 2019. The outstanding amounts reflected on the statement of financial position are the Kwacha equivalent of USD4m.

The Bank has not had any defaults of interest or other breaches with respect to its subordinated loan during the years ended 31 December 2013 and 2012. 48 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

27 Provisions

Group and Bank 2013 2012 K’000 K’000

Balance at 1 January 14,061 15,457 Provisions raised/ (reversal) during the year 1,862 (1,396) Total 15,923 14,061

Legal proceedings

There were some legal proceedings outstanding against the Bank as at 31 December 2013. Provisions have been raised in the financial statements in respect of such claims, based on professional advice and management’s best estimates of the settlement amount. The timing of any outflows in the form of any settlement is uncertain.

28 Accruals and other payables Group Bank

2013 2012 2013 2012 K’000 K’000 K’000 K’000

Loan settlement suspense 30,775 21,445 30,775 21,445 Accruals 29,154 24,593 29,154 24,593 Royalty payable 28,990 17,666 28,990 17,666 Standing order suspense 25,543 251 25,543 251 Cheques in process of collection 14,639 9,732 14,639 9,732 Accruals and other payable 31,551 167,131 31,556 167,136 Total 160,652 240,818 160,657 240,823

29 Share capital Number of Number Ordinary Ordinary Bank ordinary of ordinary Shares shares shares shares capital (million) K’000 (million) K’000 Authorised 2013 2013 2012 2012

At 1 January - ordinary shares of ZMW0.25 1,800 450,000 30,000 15,000 Issued during the year - - 870,000 435,000 Share consolidation - - (898,200) - At 31 December - ordinary shares of ZMW0.25 1,800 450,000 1,800 450,000

Issued and fully paid

At 1 January ordinary shares of ZMW0.25 1,667 416,745 24,570 12,285 Issued during the year - - 808,920 404,460 Share consolidation - - (831,823) - At 31 December 1,667 416,745 1,667 416,745

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank. 49

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

30 Contingent liabilities and commitments

The Bank provides loan commitments, letters of credit and financial guarantees for performance of customers to third parties. These agreements have fixed limits and are generally renewable annually. Expirations are not concentrated in any period. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the reporting date if counterparties failed completely to perform as contracted. Only fees and accruals for probable losses are recognised in the statement of financial position until the commitments are fulfilled or expire. Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash out flows.

Group and Bank 2013 1 year 1 – 5 years Total K’000 K’000 K’000

Loans commitments 111,230 - 111,230

Guarantees 201,863 107,117 308,980

Letters of credit 21,890 1,563 23,453

Total 334,983 108,680 443,663

Group and Bank 2012 1 year 1 – 5 years Total K’000 K’000 K’000 Financial statements andFinancial statements notes Loans commitments 310,361 - 310,361

Guarantees 239,848 88,587 328,435

Letters of credit 27,134 73,658 100,792

Total 577,343 162,245 739,588

Capital commitments The bank has a capital commitment of ZMW827,000 as at 31 December 2013 (2012: ZMW11,923,000). 50 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

31 Related party transactions

The Bank is controlled by Standard Chartered Holdings (Africa) BV (incorporated in The Netherlands), which owns 90% of the shares. The other shares are widely held. Standard Chartered Plc (“the ultimate Parent”) is the ultimate holding Company for the Group and was incorporated and registered in England and Wales in1969 as a Company limited by shares. The Bank has a related party relationship with its holding company, fellow subsidiaries, non-executive directors, executive directors and key management personnel. Key management personnel include all Management Committee Members and Unit Heads.

A number of banking and other transactions are entered into with related parties in the normal course of business. These include loans, deposits, foreign currency and other transactions for services, such as consulting services that the parent and other related companies provide from time to time and which are charged at market rate. The volumes of related party transactions, outstanding balances at the year end, and the related interest expense and income for the year are as follows:

(i) Related party transactions

Group and Bank Note 2013 2012 K’000 K’000

Amounts due from Group Companies 15 141,772 721,713 Amounts due to Group Companies 15 (263,931) (525,033) Total (122,159) 196,680

Included in group transactions are placements made and received from group related entities. These are entered into at fixed interest rates and maturities periods.

Income and expenditure Group and Bank 2013 2012 K’000 K’000 Recharges and other expenses (42,922) (17,564) Commissions and net interest income 10,363 30,335

Total (32,559) 12,771

(ii) Related party transactions All the employees of the Bank contribute to the employee pension fund that is administered independently and run by trustees picked from within the members who are employees of the Bank

Group and Bank 2013 2012 K’000 K’000 Employee contribution 7,184 6,300 Employer contribution 5,298 4,511

Total 12,482 10,811 51

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

31 Related party transactions (Continued)

Loans

Group and Bank Group and Bank

2013 2012

Connected Key Connected Key Entities to Management Entities to Management Directors directors staff Total Directors Directors staff Total

K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000

Loans outstanding at 1 January 1,451 12,825 16,599 20,300 1,532 - 17,585 19,117

Loans issued during the year - 2,844 14,247 17,091 183 12,825 12,630 15,063

Relocated/resigned - - (1,908) (1,908) - - (3,300) (3,300)

Loan repayments during the year (1,029) (921) (8,381) (8,989) (264) - (10,316) (10,580) Loans outstanding at 422 14,748 20,557 26,494 1,451 12,825 16,599 20,300 31 December Of which: Executive directors 422 - - 422 1,451 - -

Non executive directors - 14,748 - 5,515 - 12,825 - - Total outstanding at 422 14,748 20,557 26,494 1,451 12,825 16,599 20,300 31 December

Interest and fee income earned 69 1,341 1,955 2,024 135 - 2,397 2,532 andFinancial statements notes

Loans to non-executive directors are made under commercial terms in the ordinary course of the Bank’s business. Loans to executive directors are made on the same terms as those of other employees of the Bank.

No impairment allowances have arisen against loans to directors, entities connected to directors and key management staff during the period. 52 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

31 Related party transactions (continued)

Deposits

Group and Bank Group and Bank

2013 2012 Connected Connected Entities to Management Entities to Management Directors Directors Staff Total Directors Directors Staff Total

K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000 Deposit at 1 January 1,151 1,488 2,502 5,141 505 - 1,306 1,811

Deposit received during 10,279 51,930 31,869 94,078 11,001 78,348 46,270 135,619 the year

Retired/resigned (57) - (85) (142) - - (244) (244)

Exchange differences - - 2 2 - - - -

Deposit withdrawn (10,950) (53,297) (31,216) (95,463) (10,355) (76,860) (44,830) (132,045)

Deposits at 31 December 423 121 3,072 3,616 1,151 1,488 2,502 5,141

Interest expense on - - 1 466 7 - 1 8 deposits

Goods and services

Purchase of goods and services - - - - - 163 - 163

Key management compensation Group and Bank 2013 2012 K’000 K’000 Salaries and allowances and short term benefits 38,072 28,378 Pension contributions 1,869 1,345 Total 39,941 29,723

Directors’ remuneration

Group and Bank

2013 2012 K’000 K’000

Executive directors Salaries and allowances 2,385 3,263 Pension contributions 123 145 Non-executive directors’ fees and benefits 482 438 Total 2,990 3,846

Disposal of assets

There were no Bank assets sold to the Directors (2012: nil). 53

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

32 Share-based payment transactions

The holding company (Standard Chartered Plc) operates a number of share based payments schemes for its directors and employees in which employees of Standard Chartered Bank Zambia Plc participate. These schemes are as outlined below. Through a recharge arrangement Standard Chartered Bank Zambia Plc reimburses the group for grant date fair value. The amount charged to the statement of comprehensive income during the year was ZMW215,000 (2012: ZMW1,617,000) and the corresponding amount is in liabilities. The holding company has the obligation to deliver to the respective participants the Standard Chartered Plc’s ordinary shares under the various schemes.

Group and Bank

Employee expenses for share based payments transactions 2013 2012 K’000 K’000 Restricted share scheme (100) 838 Performance share plan (226) 279 Share save scheme 541 500

Total expense recognised as personnel expenses 215 1,617

(a) Restricted share scheme

The restricted share scheme (RSS) is used as an incentive plan to motivate and retain high performing staff at any level of the organisation. It is also used as a vehicle for deferring part of bonuses of certain employees. 50% of the award vests two years after the date of grant and the balance after three years. The awards can be exercised Financial statements andFinancial statements notes within seven years of the grant date. The value of shares awarded in any year to any individual may not exceed two times their basic annual salary. The remaining life of the scheme is eight years. For awards, the fair value is based on the market value less an adjustment to take into account the expected dividends over the vesting period.

Group and Bank

The number and weighted average exercise price of share options is as follows:

Number of Number of options options 2013 2012

Outstanding at the beginning of the reporting period 19,755 29,336

Exercised during the year (11,554) (10,563) Expired during the year (4,948) (4,455)

Granted during the year 4,118 5,437

Outstanding at 31 December 7,371 19,755

Exercisable at 31 December 86 7,270 54 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

32 Share-based payment transactions (continued)

(b) Performance share plan The performance share plan is designed to be an intrinsic part of total remuneration for executive directors and a small number of the most senior executives. It is an incentive plan that focuses executives on meeting and exceeding the long - term performance targets of the group. Awards of nil price options to acquire shares are granted to the executives and will normally be exercisable between three and ten years after the date of grant if the individual is still employed in the group. There is provision for earlier exercise in certain limited circumstances. The remaining life of the scheme is three years.

Group and Bank The number and weighted average exercise price of share options is as follows: Number of Number options of options 2013 2012 Outstanding at the beginning of the reporting period 9,640 74,183 Exercised during the year - (4,157) Expired during the year (9,640) (64,508) Granted during the year 891 4,122 Outstanding at 31 December 891 9,640 Exercisable at 31 December - -

(c) Share save scheme Under the sharesave scheme, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares in the holding company or take all their money in cash. The price at which they may purchase shares is at a discount of up to 20 percent of the share price at the date of invitation. There are no performance condi- tions attached to options granted under the employee sharesave scheme. Options are valued using a binomial option-pricing model.

Group and Bank The number and weighted average exercise price of share options is as follows: Weighted Weighted Number Number average average of of exercise exercise options options price price 2013 2013 2012 2012 GBP GBP

Outstanding at the beginning of the reporting period 11.51 47,914 11.51 49,651 Exercised during the year 12.31 (5,517) 10.56 (5,411) Expired during the year 11.94 (11,674) 11.79 (12,760) Granted during the year 11.78 17,850 11.40 16,434 Outstanding at 31 December 11.41 48,573 11.51 47,914 Exercisable at 31 December 12.79 2,845 10.76 4,638

33 Ultimate holding company

The Bank, which is a registered commercial bank under the Zambian Banking and Financial Services Act 1994, is owned 90 per cent by Standard Chartered Holdings (Africa) BV, a company incorporated in the Netherlands, which in turn is wholly owned by Standard Chartered Plc, a company incorporated in the England and Wales. 55

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management

Through its risk management structure, the Bank seeks to manage efficiently the core risks: credit, market and liquidity risks. These arise directly through the Bank’s commercial activities whilst business, regulatory, operational and reputational risks are normal consequences of any business undertaking. The key element of risk management philosophy is for the risk functions to operate as an independent control working in partnership with the business units to provide a competitive advantage to the Bank.

The basic principles of risk management followed by the Bank include:

• ensuring that business activities are controlled on the basis of risk adjusted return; • managing risk within agreed parameters with risk quantified wherever possible; • assessing risk at the outset and throughout the time that the Bank continues to be exposed to it; • abiding by all applicable laws, regulations, and governance standards; • applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and • undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation.

Group Risk Management Structure The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework.

The Group has established the Asset and Liability Committee (ALCO) which ensures that the country’s statement of financial position is managed in accordance with group policy as well as other applicable regulatory requirements. Financial statements andFinancial statements notes

The Group Operational Risk Committee (GORC) has established the Country Operational Risk Committee (CORC), which is responsible for providing a forum for the identification, assessment, mitigation and subsequent monitoring of country level Operational Risk trends and issues. CORC ensures that there is full compliance with internal policies and relevant regulations, as well as the Bank’s Operational Risk Management and Assurance Framework.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group through its training and management standards and procedures aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Board Audit Committee is supported in these functions by the Internal Audit Department, who undertake both regular and ad-hoc reviews of risk management controls and procedures, the results of which are then reported to the Board Audit Committee.

The Board Risk Committee is responsible for considering the Bank’s appetite for risk, review of the appropriateness and effectiveness of the Bank’s risk management system and controls and to consider the implications of changes proposed to regulations and legislation that are material to the Bank’s risk appetite, risk exposure and management of risk.

Credit Risk

Management of credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the loans and advances to customers and other banks and investments in debt securities. The amount of credit exposure in this regard is represented by the carrying amounts of the financial assets on the statement of financial position and financial assets that are not recognised in the statement of financial position. For risk management reporting purposes, the Bank considers all elements of credit risk exposure (such as individual obligor default risk, country and sector risk). 56 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Management of credit risk (continued) Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral against loans and advances in the form of mortgage interests over property, other registered securities over assets and guarantees.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments.

Within the Wholesale Banking business, a numerical grading system (Grades 1 to 14) is used for quantifying the risk associated with counterparty. The grading is based on a probability of default measure with customers analysed against a range of quantitative and qualitative measures.

For Consumer Banking, approval processes are in places that are appropriate for the customer type or the market.

Consumer Banking An account is considered to be in default when payment is not received on the due date. Accounts that are overdue by more than 30 days are considered delinquent. These accounts are closely monitored and subject to a collection process.

The process used for raising impairment allowances is dependent on the product. For mortgages, personal and other SME loans, individual impairment allowances (“IIP”) are generally raised at 150 days past due based on the difference between the outstanding amount of the loan and the present value of the estimated future cash flows. For unsecured products, individual allowances are recognised for the entire outstanding amount at 150 days past due. For all products there are certain accounts, such as cases involving bankruptcy, fraud and death, where the loss recognition process is accelerated.

A collective impairment allowance is held to cover the inherent risk of losses, which although not identified, are known through experience to be present in any loan portfolio. In Consumer Banking, the collective impairment allowance is set with reference to past experience using loss rates and judgmental factors such as the economic environment and the trends in key portfolio indicators.

Wholesale Banking In Wholesale Banking, accounts or portfolios are placed on Early Alert when they display signs of weakness. Such accounts and portfolios are subject to a dedicated process with oversight involving Group Special Asset Management (“GSAM”). Account plans are re-evaluated and remedial actions are agreed and monitored until complete. Remedial actions include, but are not limited to, exposure reduction, security enhancement, and exit of the account or immediate movement of the account into the control of GSAM, the specialist recovery unit.

Loans are designated as impaired and considered non-performing where recognised weakness indicate that full payment of either interest or principal becomes questionable or as soon as payment of interest or principal is 90 days or more overdue. Impaired accounts are managed by GSAM, which is independent of the main businesses of the Bank. Where any amount is considered uncollectable, an individual impairment allowance is recognised, being the difference between the loan carrying amount and the present value of estimated future cash flows. In any decision relating to the raising of allowances, the Bank attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering an element of an account against which an impairment allowance has been raised, then that amount will be written off.

A collective impairment allowance is held to cover the inherent risk of losses, which, although not identified, are known through experience to be present in any loan portfolio. In Wholesale Banking, the collective impairment allowance is set with reference to past experience using loss rates, and judgmental factors such as the economic environment and the trends in key portfolio indicators. 57

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Management of credit risk (continued)

The Bank’s maximum exposure to credit risk is as follows: Group and Bank 2013 2012 K’000 K’000

Balances at Bank of Zambia 521,933 500,273 Cash and cash equivalents 249,867 921,312 Investment securities 1,504,339 1,104,442 Derivative financial instruments 9,350 8,624 Loans and advances to customers 2,779,470 2,233,265 Total assets 5,064,959 4,767,916

Group and Bank Loans and advances to customers Investment securities 2013 2012 2013 2012 K’000 K’000 K’000 K’000 Carrying amount 2,779,470 2,233,265 1,504,339 1,104,442 Assets at amortised costs Individually Impaired:

Wholesale loans andFinancial statements notes Grade 13 25,111 4,033 - - Grade 14 17,681 23,231 - - Consumer loans More than 150 days 3,510 1,584 - - Gross amounts 46,302 28,848 - - Allowance for impairment (8,148) (9,349) - - Net carrying amount 38,154 19,499 - -

Past due but not impaired Wholesale Grade 12 34,987 31,139 - - Consumer over 150 days 3,709 14,817 - -

Carrying amount 38,696 45,956 - - Past due comprises 01 – 30 days 34,987 31,139 - - 30 – 60 days 5,622 6,720 - - 60 – 90 days 2,861 1,708 - - 90 - 180 days 5,243 5,900 - - Over 180 days 3,709 489 - - Carrying amount 52,422 45,956 - - 58 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Management of credit risk (continued)

The Bank’s maximum exposure to credit risk is as follows

Group and Bank Loans and advances to customers Investment securities 2013 2012 2013 2012 K’000 K’000 K’000 K’000

Neither past due nor impaired Wholesale loans 1 – 11 1,311,979 1,200,977 1,504,339 1,104,442 Consumer loans 1,405,723 988,711 - - Gross amount 2,770,124 2,235,644 1,504,339 1,104,442 Collective impairment (28,808) (21,878) - - Carrying amount 2,779,470 2,233,265 - - Carrying amount – amortised cost 2,779,470 2,233,265 1,504,339 1,104,442

The credit quality of the financial assets is a follows:

Group and Bank

2013 2012 Cash and cash equivalents K’000 K’000

Balances at Bank of Zambia 521,933 500,273 Cash and cash equivalents 249,867 921,312 Investment securities 1,504,339 1,104,442 1,826,139 2,526,027

The investments securities are held with Bank of Zambia which is not rated externally.

Group and Bank

2013 2012 K’000 K’000

Derivative financial instruments 9,350 8,624

The derivatives are entered into with counterparties that are vetted internally and are not rated externally.

Group and Bank 2013 2012 K’000 K’000

Loans and advances to customers 2,779,470 2,233,265

Loans and advances are given customers that have undergone credit vetting internally and have a good credit rating with the credit reference bureau. 59

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Management of credit risk (continued)

Impaired loans Impaired loans are loans for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). These loans are graded 13 to 14 in the Bank’s internal credit risk grading system.

Past due but not impaired loans Past due but not impaired loans are loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security/collateral available and / or the stage of collection of amounts owed to the Bank. These loans are graded 12 in the Bank’s internal credit risk grading system.

Allowances for impairment The Bank establishes an allowance for impairment losses that represents its estimate to incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.

Write off policy The Bank writes off a loan balance (and any related allowances for impairment losses) when the Bank Credit determines that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances and standardised loans, charge write off decisions generally are based on a product specific past due status. Financial statements andFinancial statements notes The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except where securities are held as part of reverse repurchase and securities borrowing activity. Collateral is not usually held against investment securities, and no such collateral was held at 31 December 2013.

Details of financial and non-financial assets obtained by the Bank during the year by taking possession of collateral held as security against loans and advances as well as calls made on credit enhancements and held at the year end are shown below: 2013 2012 K’000 K’000

Property 680 2,510

The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The Bank does not use the non- cash collateral for its own operations. 60 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Concentration of credit risk

The Bank monitors concentrations of credit risk by sector and an analysis of concentrations of credit risk from loans and advances and investment securities at the reporting date is shown below:

Group and Bank Loans and advances to customers Investment securities 2013 2012 2013 2012 K’000 K’000 K’000 K’000 Carrying amount 2,779,470 2,233,265 1,504,339 1,104,442 Wholesale: Agriculture 220,468 374,387 - - Mining and quarrying 194,314 181,213 - - Manufacturing 654,630 581,488 - - Energy 1,239 6,633 - - Commerce 88,061 48,103 - - Financial services 82,952 35,761 - - Government - 5 1,504,339 1,104,442 Other 324,221 7,131 - - Consumer: Mortgages 52,769 57,482 - - Unsecured lending 1,160,816 941,062 - - Total 2,779,470 2,233,265 1,504,339 1,104,442

Settlement risk The Bank’s activities may give rise at the time of settlement of transactions and trades to settlement risk, which is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.

To mitigate against this risk, settlement limits form part of the credit approval and monitoring processes. In situations where the Bank is not confident with the accounts, then deals may be done on Delivery Versus Payment basis (DVP).

Liquidity risk Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It includes both the risk of being unable to fund liabilities at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame. Liquidity management is directed towards ensuring that all the Bank’s operations can meet their funding needs, whether this is to replace existing funding as it matures, or is withdrawn, or to satisfy the demands of customers for additional borrowings.

Management of liquidity risk The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.

Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, largely made up of short term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. 61

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Management of liquidity risk (continued) The Bank further has to comply with the liquidity requirements set by the Central Bank which monitors compliance with local regulatory limits on a regular basis.

The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by the Standard Chartered Bank Group Assets and Liabilities Committee (GALCO). A summary report, including any exceptions and remedial action taken, is submitted regularly to Assets and Liabilities Committee (ALCO).

Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month. A similar, but not identical calculation is used to measure the Bank’s compliance with the liquidity limit established by the Bank of Zambia. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows: Group and Bank 2013 2012

At 31 December 49.54% 60.00%

Average for the period 52.12% 49.52%

Maximum for the period 64.49% 64.91%

Minimum for the period 42.83% 39.52% andFinancial statements notes

The minimum required by Bank of Zambia for core liquid assets is 6 per cent (2012: 6 per cent)

The concentration of funding requirements at any one date or from any one source is managed continuously. A substantial proportion of the Bank’s deposit base is made up of current and savings accounts and other short term customer deposits. 62 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

The following table provides an analysis of the financial liabilities of the Bank into relevant contractual maturity groupings:

Group and Bank Gross One month to Three months More than Carrying Less than One to five Nominal three to five amount outflow one month months one year years years 2013 K’000 K’000 K’000 K’000 K’000 K’000 K’000

Non derivative liabilities Amounts payable to 263,931 264,917 109,805 82,671 16,538 55,903 - group banks Amounts payable to 2,918 2,918 2,918 - - - - non-group banks Deposits from 4,267,129 4,315,072 3,861,058 330,581 121,499 1,934 - customers Accruals and other 160,652 160,652 160,652 - - - - payables Subordinated 22,045 25,179 - - - - 25,179 liabilities Total non derivative 4,716,675 4,768,738 4,134,433 413,252 138,037 57,837 25,179 liabilities Derivative liabilities Derivative financial 2,184 2,184 2,184 - - - - instruments Total derivative 2,184 2,184 2,184 - - - - liabilities Unrecognised financial liabilities Loan commitments 111,230 111,230 - - 111,230 - -

Guarantees 308,980 308,980 5,108 49,090 147,666 84,549 22,567

Letters of credit 23,453 23,453 4,559 17,331 - 1,563 - Unrecognised 443,663 443,663 9,667 66,421 258,896 86,112 22,567 financial liabilities

Group and Bank Gross One month Three months One to More than Carrying Less than Nominal to three to five five amount outflow one month months one year years years 2012 K’000 K’000 K’000 K’000 K’000 K’000 K’000 Non derivative liabilities Amounts payable to 525,033 540,330 227,548 248,623 27,212 36,947 - group banks Amounts payable to non- 40,139 40,374 40,374 - - - - group banks Deposits from customers 3,681,026 3,742,011 3,338,271 243,720 153,141 6,879 -

Accruals and other 240,818 240,818 240,818 - - - - payables Subordinated liabilities 20,710 24,832 - - - - 24,832 Total non derivative 4,507,726 4,588,365 3,847,011 (492,343) 180,353 43,826 24,832 liabilities Derivative liabilities Derivative financial 5,624 7,606 7,606 - - - - instruments Total derivative liabilities 5,624 7,606 7,606 - -

Unrecognised financial liabilities Loan commitments 310,361 310,361 - - 310,361 - - Guarantees 328,435 328,435 - 77,530 162,318 88,587 - Letters of credit 100,792 100,792 - 13,811 13,323 73,658 - Unrecognised financial 739,588 739,588 - 91,341 486,002 162,245 - liabilities 63

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Market risk Market risk is the risk that changes in the market prices, such as interest rates and foreign exchange rates will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk. The Bank faces two main risks in this category; interest and foreign exchange rate risk.

Interest rate risk All businesses in the Standard Chartered Group operate within market risk management policies that are set by the Group Risk Committee. Limits have been set to control the Bank’s exposure to movements in prices and volatilities arising from trading, lending, deposit taking and investment decisions.

Exposure to interest rate risk - non-trading portfolios The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times and/or in differing amounts. In the case of floating rate assets and liabilities the Bank is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices. Asset-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes.

The table below indicates the effective interest rates at the reporting date and the periods in which financial assets and liabilities reprice respectively.

The effective interest rates for principal financial assets and financial liabilities averaged as follows: Group and Bank 2013 2012 Financial assets ZMW (%) USD (%) ZMW (%) USD (%) Financial statements andFinancial statements notes Government bonds 15.13 - 12.09 - Treasury bills 12.09 - 10.66 - Loans and advances 16.91 5.41 16.17 5.70 Staff mortgages and other loans 9.00 9.00 -

Financial liabilities

Placements with other banks 5.02 2.06 11.73 0.66 Customer deposits 2.06 0.05 2.24 0.00

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and financial liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 5 per cent and 10 per cent parallel rise in all yield curves and a 2.5 per cent and 7.5 per cent parallel fall in all yield curves. An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial statement position, is as shown on page 62:

Interest rate movements affect reported equity in the following ways: • Retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss. • Fair value reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in other comprehensive income.

Overall non-trading interest rate risk positions are managed by Global markets, which use investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank’s non-trading activities. 64 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Interest rate risk (continued)

Exposure to interest rate risk - non-trading portfolios (continued) Fixed rate instruments Group and Bank Floating Less than Three Between Zero rate Total rate three months to one and instrument instruments months one year five years 2013 K’000 K’000 K’000 K’000 K’000 K’000 Assets

Cash on hand and balances at Bank of 743,397 743,397 - - - - Zambia Cash and cash equivalents 249,867 132,428 - 108,321 9,118 - Investment securities 1,504,339 - - 324,735 873,527 306,077 Derivative financial 9,350 - - 9,350 - - instruments Loans and advances to 2,779,470 - 2,779,470 - - - customers Total assets 5,286,423 875,825 2,779,470 442,406 882,645 306,077 Liabilities Amounts payable to group 263,931 71,035 - 110,226 27,557 55,113 banks

Amounts payable to non- 2,918 2,918 - - - - group banks

Deposits from customers 4,267,129 3,275,741 537,374 330,581 121,499 1,934

Derivative financial 2,184 - - 2,184 - - instruments

Subordinated liabilities 22,045 - 22,045 - - - Total liabilities 4,558,207 3,349,694 559,419 442,991 149,056 57,047 Gap 728,215 (2,473,869) 2,220,051 (585) 733,588 249,030

* Impact of increase in 5% 36,411 - 111,003 - - - interest rate 10% 72,822 - 222,005 - - -

* Impact of decrease in 2.5% (18,205) - (55,501) - - - interest rate 7.5% (54,616) - (166,504) - - -

* Positive means increase in the profit and negative means reduction in the profit. Fair value changes arising from increase or decrease in fair value of available for sale instruments are recorded in equity. 65

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Interest rate risk (continued)

Exposure to interest rate risk - non-trading portfolios (continued)

Fixed rate instruments Less than Three Between Zero rate Floating rate Group and Bank Total three months to one and instrument instruments months one year five years 2012 K’000 K’000 K’000 K’000 K’000 K’000 Assets

Cash on hand and balances at Bank of 680,535 680,535 - - - - Zambia

Cash and cash equivalents 921,312 162,146 - 759,907 - -

Investment securities 1,104,442 - - 162,807 609,680 331,955

Derivative financial - - - - instruments 8,624 8,624 Loans and advances to 2,233,265 - 2,233,265 - - - customers

Total assets 4,948,178 842,681 2,233,265 931,338 609,680 331,955

Liabilities Amounts payable to group 230,707 - - - banks 525,033 294,326 Financial statements andFinancial statements notes Amounts payable to non- 40,139 5,101 - 35,038 - - group banks Deposits from customers 3,681,026 2,808,061 469,225 243,720 153,141 6,879 Derivative financial 5,625 - - 5,625 - - instruments Subordinated liabilities 20,710 - 20,710 - - -

Total liabilities 4,272,533 3,043,869 489,935 578,709 153,141 6,879

Gap 675,645 (2,201,188) 1,743,330 352,629 456,539 325,076

* Impact of increase in 5% 33,782 - 87,167 - - - interest rate 10% 67,565 - 174,333 - - - * Impact of decrease in 2.5% - (43,583) - - interest rate (16,891) - 7.5% (50,673) - (130,750) - - -

* Positive means increase in the profit and negative means reduction in the profit. Fair value changes arising from increase or decrease in fair value of available for sale instruments are recorded in equity. 66 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

34 Risk Management (continued)

Currency risk

The Bank is exposed to currency risk through transactions in foreign currencies.The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognised in the statement of comprehensive income. These exposures comprise the monetary assets and monetary liabilities of the Bank, as follows (in Zambian Kwacha terms):

Group and Bank 2013 ZMW USD GBP ZAR Euro Others Total K’000 K’000 K’000 K’000 K’000 K’000 K’000

Monetary assets 3,796,459 1,586,046 20,544 39,665 90,956 3,231 5,536,901 Monetary liabilities (3,582,845) (1,549,288) (20,719) (40,736) (89,196) 96 (5,282,688 Net position 213,614 36,758 (175) (1,071) 1,760 3,327 254,213

2012 ZMW USD GBP ZAR Euro Others Total K’000 K’000 K’000 K’000 K’000 K’000 K’000 Monetary assets 3,266,127 1,664,363 59,433 28,175 125,108 386 5,143,592 Monetary liabilities (3,196,614) (1,581,665) (59,848) (26,975) (57,880) (386) (4,923,368) Net position 69,513 82,698 (415) 1,200 67,228 - 220,224

In respect of monetary assets and liabilities in foreign currencies that are not economically hedged, the Bank ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.

35 Capital management

Regulatory capital The Bank’s main objectives when managing capital are:

• to comply with the capital requirements set by the Banking and Financial Services Act; • to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • to maintain a strong capital base to support the development of its business.

Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed and maintained by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.

In implementing current capital requirements, Bank of Zambia requires banks:

• Maintain primary or Tier 1 capital of not less than 5 per cent of total risk weighted assets plus risk-weighted items not recognised in the statement of financial position; and • To maintain a minimum 10 per cent ratio of total capital to total risk-weighted assets plus risk-weighted items not recognised in the statement of financial position or hold a minimum of ZMW520,000 thousand whichever is higher;

There was no change in the capital regulation during the year under review. The Bank’s regulatory capital is analysed into two tiers:

• Primary (Tier 1) capital, which includes paid-up common shares, retained earnings, statutory reserves less adjustment of assets of little or no realisable value. • Secondary (Tier 2) capital, which includes qualifying subordinated term debt and revaluation reserves limited to a maximum of 40 per cent. The maximum amount of total secondary capital is limited to 100 per cent of primary capital. 67

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

35 Capital management (continued)

Computation of capital position Bank 2013 2012 K’000 K’000 I Primary (Tier 1) Capital (a) Paid-up common shares 416,745 416,745 (b) Eligible preferred shares - - (c) Capital contributed 17,312 17,312 (d) Retained earnings 289,526 137,275 (e) General reserves - - (f) Statutory reserves 12,285 12,285 (g) Minority interests (common shareholders’ equity) - - (h) Sub-total A (items a to g) 735,868 583,617 Less: (i) Goodwill and other intangible assets (30,236) (35,312) (j) Investments in unconsolidated subsidiaries and associates - - (k) Lending of a capital nature to subsidiaries and associates - - (l) Holding of other banks’ or financial institutions’ capital instruments - - (m) Assets pledged to secure liabilities - - (n) Sub-total B (items i to m) (30,236) (35,312)

Other adjustments andFinancial statements notes Provisions - - Assets of little or no realised value - - Statutory stocks sundry debtors, cash advances - - Other adjustments (prepayment) (7,267) (2,480) (o) Sub-total C (other adjustments) (7,267) (2,480)

(p) Total primary capital [ h – ( n to o)] 698,365 545,825 II Secondary (tier 2) capital (a) Eligible preferred shares - - (b) Eligible subordinated term debt 22,045 20,710 (c) Eligible loan stock / capital - - (d) Revaluation reserves. (Maximum is 40% of revaluation reserves) - - (e) Other - -

(f) Total secondary capital 22,045 20,710

III Eligible secondary capital 22,045 20,710

(The maximum amount of secondary capital is limited to 100% of primary capital)

IV Eligible total capital (I(p) + III) (Regulatory capital) 720,410 566,535 V Minimum total capital requirement (10% of total on and off balance 327,666 274,511 sheet risk weighted assets) VI Excess (IV minus V) 392,744 292,024 68 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

36 Changes in accounting policies

Except for the changes below, the Group has consistently applied the accounting policies as set out in note 37 to all periods presented in these consolidated financial statements.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2013. • IFRS 10 Consolidated Financial Statements • IFRS 12 Disclosure of Interests in Other Entities. • IFRS 13 Fair value Measurement. • Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7). • Presentation of Items of Other Comprehensive Income (Amendments to IAS 1).

The nature and the effects of the changes are explained below.

(a) Subsidiaries As a result of IFRS 10, the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates other entities. IFRS 10 introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect those returns.

In accordance with the transitional provisions of IFRS 10, the Group reassessed its control conclusions as of 1 January 2013. The change did not have a material impact on the Group’s financial statements.

(b) Interests in other entities and joint arrangements As a result of IFRS 12, the Group has expanded disclosures about its interests in subsidiaries (see Note 37.1).

(c) Fair value measurements In accordance with the transitional provisions of IFRS 13, the Group has applied the new definition of fair value, as set out in Note 37.8, prospectively. The change had no significant impact on the measurements of the Group’s assets and liabilities, but the group has included new disclosures in the financial statements, which are required under IFRS 13. These new disclosure requirements are not included in the comparative information. However, to the extent that disclosures were required by other standards before the effective date of IFRS 13, the Group has provided the relevant comparative disclosures under those standards.

(d) Offsetting financial assets and financial liabilities As a result of the amendments to IFRS 7, the Group has expanded disclosures about offsetting financial assets and financial liabilities. The change did not have a material impact on the Group’s financial statements.

(e) Presentation of items of other comprehensive income As a result of the amendments to IAS 1, the Group has modified the presentation of items of OCI in its statement of comprehensive income, to present items that would be reclassified to profit or loss in the future separately from those that would never be. Comparative information has been re-presented on the same basis. 69

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies

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

37.1 (a) Basis of consolidation

(i) Business combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.

(ii) Non-controlling interests NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. andFinancial statements notes

(iii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(iv) Loss of control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

(v) Interests in equity-accounted investees The Group’s interests in equity-accounted investees comprise interests in associates and a joint venture.

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Interests in associates and joint ventures are accounted for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements includes the Group’s share of the profits or loss and Other comprehensive Income (OCI) of equity accounted investees, until the date on which significant influence or joint control ceases.

(vi) Transactions eliminated on consolidation Intra- group balances and transactions, and unrealised income and expenses arising from intra-group transactions are eliminated. Unrealised gains arising from transactions with equity accounted for investees are eliminated against the investments to the extent of the Group’s interests in the investee. Unrealised losses are eliminated in the same way as gains, but only to the extent that there is evidence of impairment. 70 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

b) Discontinued operations A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and:

• represents a separate major line of business or geographical area of operations; • is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or • is a subsidiary acquired exclusively with a view to re-sale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale.

When an operation is classified as a discontinued operation, the comparative statement of profit or loss and OCI is re-presented as if the operation had been discontinued from the start of the comparative year.

37.2 Interest income and expense Interest income and expense are recognised in statement of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate ,a shorter period to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument (for example, repayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.

Interest income and expense presented in the statement of comprehensive income includes: • interest on financial assets and financial liabilities at amortised cost on an effective interest basis; • interest on available-for-sale investment securities on an effective interest basis; and • Interest on financial assets at fair value through profit or loss on an effective interest basis.

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Bank’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest continues to be recognised on the impaired asset using the original effective interest rate.

37.3 Fees and commissions Fees and commissions income is recognised on an accrual basis when the service has been provided. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank retained no part of the loan package for itself or retained a part at the same effective interest rate as the other participants. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided, which is usually on a time basis. Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees, investment management fees, sales commission, and placement fees, are recognised as the related services are performed. When a loan commitment is not expected to result in a draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. 71

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.3 Fees and commissions (continued) ther fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.

37.4 Net trading income Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest and foreign exchange differences.

37.5 Net income from financial instruments at fair value through profit or loss Net income from other financial instruments at fair value through profit or loss relates to gains and loss arising from changes in the fair value of the financial assets at fair value through profit or loss, financial assets mandatorily measured at fair value through profit or loss other than those held for trading, and financial assets and liabilities designated at fair value through profit or loss.

37.6 Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

37.7 Income tax

Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

The current tax charge is determined in accordance with the provisions of the Income Tax Act 1966 (as amended) andFinancial statements notes (Chapter 323 of the laws of Zambia), and is based on taxable income for the year using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The current tax charge is recognised as an expense in the period in which profits arise.

Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 72 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.7 Income tax (continued)

Tax that arises on distribution of dividends by the Bank is recognised at the same time the liability to pay the related dividend is recognised.

37.8 Financial assets and financial liabilities

Policy applicable before 1 January 2013

Recognition The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Bank commits to purchase or sell the asset. All other financial assets and financial liabilities (including assets and liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability is initially measured at fair value including (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.

De-recognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, repurchase transactions.

Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) remain on the statement of financial position. The counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recognised as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

Securities lent to counterparties are also retained in the financial statements. Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recognised with the gain or loss included in trading income.

Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 73

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.8 Financial assets and financial liabilities (continued) Income and expenses are presented on a net basis only when permitted by the international financial reporting standards, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.

Amortised cost measurement The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment (for financial assets only).

Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The Bank uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options, interest rate and currency swaps.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, that is, the fair value of the consideration given or received. However, in some cases, the fair value of a financial instrument on initial recognition may be different from its transaction price. If such fair value is evidenced by comparison andFinancial statements notes with other observable current market transactions in the same instrument (that is, without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in profit or loss on initial recognition of the instrument. In other cases the difference is not recognised in the profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or fair value becomes observable.

Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Bank has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Bank believes a third-party market participant would take them into account in pricing a transaction.

Identification and measurement of impairment The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the loss events.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the financial asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. 74 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.8 Financial assets and financial liabilities (continued)

Identification and measurement of impairment (continued) Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or debt issuers in the Bank, or economic conditions that correlate with defaults in the Bank.

In assessing collective impairment the Bank uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments measured at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in statement of comprehensive income. Interest on the impaired asset continues to be recognised through the unwinding of the discount.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

When a loan is uncollectible, it is impaired. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss.

Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss. The cumulative loss that is reclassified from other equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Interest calculated using the effective interest method is recognised in profit or loss. Reversals of impairment loss on available-for-sale debt instruments are recognised in profit or loss, however any subsequent recovery of the fair value of an impaired available-for-sale equity instrument is recognised in other comprehensive income. 75

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.8 Financial assets and financial liabilities (continued)

Policy applicable after 1 January 2013 ‘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 the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with suf- ficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price -i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.

If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. andFinancial statements notes

Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell the net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.

The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

36.9 Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, balances held with the central bank and group banks and highly liquid financial assets with original maturities of less than three months. Cash and cash equivalents are subject to insignificant risk of changes in fair value, and are used by the Bank in the management of its short term commitments.

Cash and cash equivalents are measured at amortised cost in the statement of financial position. 76 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.10 Loans and advances

Loans and advances are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market and the Bank does not intend to sell immediately or in the near future. Loans and advances include Mortgage, Term loans, Personal loans and Overdrafts.

Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method less impairment losses. Loans are recognised when cash is advanced to the borrowers.

37.11 Collateral The Bank obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the form of a lien over the customer’s assets and gives the Bank a claim on these assets for both existing and future liabilities.

The Bank receives collateral in the form of cash or debt securities in respect of other financial instruments in order to reduce credit risk. Collateral received in the form of debt securities is not recognised on the statement of financial position. Collateral received in the form of cash is recognised on the statement of financial position with a corresponding liability. These items are assigned to deposits received from banks or other counterparties. Any interest payable or receivable arising is recognised as interest expense or interest income respectively.

37.12 Investment securities Investment securities are initially measured at fair value and subsequently measured depending on their classification as either held-to-maturity, fair value through profit and loss, or available-for-sale. Management determines the classification of its investments at initial recognition.

(a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss are initially and subsequently measured at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate

Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit or loss in the period in which they arise.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of the derivatives are recognised in profit or loss. Transaction costs are recognised in profit or loss as incurred. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

(b) Available-for-sale Available-for-sale investments are non-derivative investments that are designated as available-for-sale or are not classified as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are initially and subsequently measured at fair value.

Interest income is recognised in profit or loss using the effective interest method. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in the profit or loss. The fair value movement for Available-for-sale investments is recorded in other comprehensive income until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss. 77

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.13 Borrowings Borrowings are recognised initially at fair value, being the issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently measured at amortised cost, any difference between the initial amount net of transaction costs and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

37.14 Deposits, debt securities and subordinated liabilities Deposits, debt securities and subordinated liabilities are the Bank’s sources of debt financing. When the Bank sells a financial asset and simultaneously enters a “repo” agreement to repurchase the asset (or similar asset) at a fixed price or on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements. Deposits, debt securities and subordinated liabilities are initially measured at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest method.

37.15 Non Derivatives Financial Liabilities The Bank classifies non derivative financial liabilities into other financial liabilities category. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amoritsed cost using the effective interest method. Other financial liabilities include accruals and other payables.

37.16 Property and equipment

Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Property comprises offices and residential buildings. andFinancial statements notes

The gain or loss on disposal of an item of property and equipment is determined by comparing the net proceeds from disposal with the carrying amount of the item of property and equipment, and is recognised in other income/other expenses in the profit or loss.

Subsequent costs The cost of replacing a part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

Depreciation Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each part of an item of property and equipment. The useful lives are as follows:

Properties up to 50 years Improvements to properties life of lease, up to 50 years Equipment and motor vehicles 3 to 10 years

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. There has been no significant change in the useful lives from prior period.

Capital work-in-progress Capital work-in-progress represents assets in the course of development which at reporting date would not have been brought to use. 78 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.17 Intangibles assets The assets that are classified as intangible assets include customer relationships and goodwill relating to the Security Services business. The customer relationships are amortised over the expected customer lives, initially estimated at 8 -10 years. They are initially measured at cost and subsequent to initial measurement; they are carried at cost less accumulated amortisation and impairment.

Goodwill is initially measured at cost and subsequently reviewed annually for impairment.

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

37.18 Leased assets

Leases of land Leases of land are classified as operating leases on the basis that significant risks and rewards of ownership are not transferred to the Bank. The leases are for 99 years which is significantly less than the useful economic life of the land. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease term as an operating lease expense.

Ownership of land ultimately vests in the Government of the Republic of Zambia and title does not transfer to the lessee.

37.19 Impairment of non-financial assets The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets and prepayments, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the greater of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purposes of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash-generating unit” or “CGU”). Impairment losses are recognised in profit or loss. Impairment on goodwill never reverses.

Non-financial assets that have been impaired are reviewed for possible reversal of the impairment at each reporting date. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.

37.20 Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

37.21 Foreign currency Transactions in foreign currencies are translated to Kwacha at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognised in profit or loss.

Non-monetary items that are measured based on historical costs in a foreign currency are translated using the spot rate at the date of the transaction. 79

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.22 Segment reporting An operating segment is a component of the Bank that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Bank’s other components. All operating segments’ operating results are reviewed regularly by the Bank’s CEO (who is the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 8).

37.23 Financial guarantees and loan commitments Financial guarantees are contracts that require the Bank to make specific payments to reimburse the holder for a loss it incurs because a specified debtors fails to make payment when due in accordance with the terms of the debt instrument. Loan commitments are firm commitments to provide credit under pre specified terms and conditions.

37.24 Employee benefits

(a) Defined contribution plan A defined contribution plan is a post - employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as expense in profit or loss when they are due in respect of service rendered before the end of the reporting period. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

Retirement benefits for members of staff are provided through a defined contribution fund.

The Bank contributes 6 per cent of employees’ basic pay to the defined contribution pension fund. andFinancial statements notes Obligations for contributions to the defined contribution pension plans are due in respect of services rendered before the end of the reporting period.

(b) Termination benefits Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be wholly settled within 12 months of the reporting date, then they are discounted.

(c) Short – term employee benefits Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

37.25 Earnings per share The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss that is attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees

36.26 Share capital and reserves - share issue costs Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

36.27 Dividends payable Dividends are recognised as a liability in the period in which the dividends are approved by the shareholders. 80 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

37 Significant accounting policies (continued)

37.28 Fiduciary activities The Bank acts in a fiduciary capacity which results in the holding or placing of assets on behalf of individuals, trusts and other institutions. These assets are excluded from these financial statements, as they are not assets of the Bank.

37.29 Share based payments The Bank’s employees participate in a number of share based payment schemes operated by Standard Chartered Plc, the ultimate holding company of Standard Chartered Bank Zambia Plc.

Participating employees are awarded ordinary shares in Standard Chartered Plc in accordance with the terms and conditions of the relevant scheme. In addition, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares of Standard Chartered Bank Plc. The price at which they may purchase shares is at a discount of up to twenty per cent on the share price at the date of invitation. There are no performance conditions attached to options granted under all employee share save schemes. Equity settled options or share awards are calculated at the time of grant based on the fair value of the equity instruments granted and that grant date fair value is not subject to change. The fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instrument is estimated using an appropriate valuation technique, such as a binomial option pricing model.

38 New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2013, and have not been applied in preparing theses financial statements. The following standards and interpretations will have an impact on the financial statements of the Bank:

Effective date Standard, Amendment or Interpretation Summary of Requirements

1 January 2014 IAS 32 Financial Instruments: The amendments clarify when an entity can offset Presentation: Offsetting Financial financial assets and financial liabilities. This amend- Assets and Financial Liabilities ment will result in the Group no longer offsetting two of its master netting arrangements. This amend- ment is effective for annual periods beginning on or after 1 January 2014 with early adoption permitted. The impact of the adoption of the standard on the financial statements for the Bank has not yet been quantified.

1 January 2014 Recoverable Amount Disclosures for Non- The amendments reverse the unintended requirement in Financial Assets (Amendments to IAS 36) IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed.

The amendments apply retrospectively for annual periods beginning on or after 1 January 2014 with early adoption permitted.

The impact of the adoption of the standard on the financial statements for the Bank has not yet been quantified. 81

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

38 New standards and interpretations not yet adopted (continued)

Effective date Standard, Amendment or Interpretation Summary of Requirements

1 January 2014 IFRIC 21 Levies Levies have become more common in recent years, with governments in a number of jurisdictions introducing levies to raise additional income. Current practice on how to account for these levies is mixed. IFRIC 21 provides guidance on accounting for levies in accordance with IAS 37 Provisions, Contingent Liabilities and Assets. The Interpretation is effective for annual periods commencing on or after 1 January 2014 with retrospective application.

The impact of the adoption of the standard on the financial statements for the Bank has not yet been quantified.

Unknown IFRS 9 ( 2012): Financial Instruments IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements andFinancial statements notes to address the impairment of financial assets and hedge accounting.

The effective date of IFRS 9 was 1 January 2015. The effective date has been postponed and a new date is yet to be specified. The company will adopt the standard in the first annual period beginning on or after the mandatory effective date (once specified). The impact of the adoption of IFRS 9 has not yet been estimated as the standard is still being revised and impairment and macro-hedge accounting guidance is still outstanding.

The Bank will assess the impact once the standard has been finalised and the effective date is known.

The impact on the financial statements for the Bank has not yet been quantified. 82 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

39 Use of estimates and judgments

The preparation of financial statements in accordance with IFRS requires that the Bank make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertainty and or judgments

Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recognised in profit or loss, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan portfolio. This evidence may include observable data that there has been an adverse change in the payment status of borrowers in a group, or local economic conditions that correlates with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Fair value of financial instruments The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

— Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. — Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. — Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. his category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Bank determines fair values using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected prices volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length. 83

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

39 Use of estimates and judgments (continued)

Valuation of financial instruments The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categories:

Group and Bank

Level 1 Level 2 Level 3 Total

31 December 2013 Note K’000 K’000 K’000 K’000 Assets Pledged assets 16 - 60,000 - 60,000 Derivative financial assets 19 - 9,350 - 9,350 Investment securities 17 - 1,504,339 - 1,504,339

- 1,573,689 - 1,573,689 Liabilities

Derivative financial liabilities 19 - 2,184 - 2,184

Level 1 Level 2 Level 3 Total

31 December 2012 Note K’000 K’000 K’000 K’000 Assets Financial statements andFinancial statements notes 16 - 50,000 - 50,000 Pledged assets Derivative financial assets 19 - 8,624 - 8,624 Investment securities 17 - 1,104,442 - 1,104,442

Liabilities - 1,163,066 - 1,163,066

Derivative financial liabilities 19 - 5,625 - 5,625

Level 2: the fair value is determined using valuation models with directly or indirectly market observable inputs. Major groups of assets and liabilities classified as level 2: corporate and other government bonds and debt instruments, over the counter derivates and Asset Backed Securities which are included in the Liquid Assets List of the Bank of Zambia.

Investment securities: The investment securities designated as available for sale are carried at fair value. The fair value is determined based on a Mark-to-Market (MTM) approach, which involves revaluation of cash flows based on the market yield curve maintained by Group Market Risk.

Derivative financial instruments: Derivative financial instruments are carried at fair value which is determined based on a discounted cash flow approach. The cash flows are discounted at a discount factor that is based on observable market data maintained by Market Risk 84 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

39 Use of estimates and judgments (continued)

Impairment of non financial assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. An assessment as to whether an asset is impaired may be complex and in making such assessments the Bank considers the following factors:

— the obsolescence or physical damage of an asset; — significant change in the manner or extent an assets will be used that will have an adverse effect on the entity; — plan to dispose of an asset before the previously expected date of disposal; — indications that performance of an assets will be worse than expected; — perform being below than budget; and — net cash outflows or operating losses.

Taxes Determining income tax provisions includes judgement on the tax treatments of certain transactions. Deferred tax is recognised on temporary differences where it is probable that there will be taxable profits against which these can be offset.

Provisions for legal claims and charges The Bank receives legal claims against the normal course of business. Management has made judgements as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depend on the due legal process.

Share based payments Equity settled share awards are recognised as an expense based on their fair value at the grant date. The fair value of equity settled share options is estimated through the use of option valuation models - which require inputs such as risk-free interest rate, expected dividends, expected volatility and the expected option life and is expensed over the vesting period. Some of the inputs used are based on estimates derived from available data, such as employee exercise behaviour. 85

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

40 Financial assets and financial liabilities

Accounting classification and fair values

The Bank’s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances:

— In classifying financial assets or liabilities as trading, the Bank has determined that it meets the description of trading assets and liabilities set out in accounting policy 37.12.

— In designating financial assets or liabilities at fair value through profit or loss, the Bank has determined that it has met one of the criteria for this designation set out in accounting policy 37.12.

— In classifying financial assets as held-to-maturity, the Bank has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy.

The table below sets out the carrying amounts and fair values of the Bank’s financial assets and financial liabilities:

Group and Bank

Other Total Loans and Available Fair amortised carrying Trading receivables for-sale value cost amount

2013 Note K’000 K’000 K’000 K’000 K’000 K’000

Financial Assets

Cash and cash equivalents 15 - 249,867 - - 249,867 249,867

Pledged assets andFinancial statements notes 16 - - 60,000 - 60,000 60,000 Investment securities 17 170,245 - 1,334,094 - 1,504,339 1,504,339 Derivative financial instruments 19 - - - 9,350 9,350 9,350 Loans and advances to customers 20 - 2,779,470 - - 2,779,470 2,779,470

Total 170,245 3,029,337 1,394,094 9,350 4,603,026 4,603,026

Financial Liabilities Amounts payable to group 15 - - - 263,931 263,931 263,931 banks Amounts payable to non 15 - - - 2,918 2,918 2,918 group banks Deposits from customers 25 - - - 4,267,129 4,267,129 4,267,129 Derivative financial 19 - - - 2,184 2,184 2,184 instruments Subordinated liabilities 26 - - - 22,045 22,045 22,045 Total - - - 4,558,207 4,558,207 4,558,207

For some instruments their carrying amounts approximate their fair values due to the short term nature of the investments 86 Standard Chartered Bank Zambia Plc Annual Report 2013

Notes to the consolidated financial statements (continued) for the year ended 31 December 2013

40 Financial assets and financial liabilities

Other Total Loans and Available Group and Bank amortised carrying Fair value Trading receivables for-sale cost amount

2012 Note K’000 K’000 K’000 K’000 K’000 K’000

Financial Assets

Cash and cash equivalents 15 - 921,312 - - 921,312 921,312

Pledged assets 16 - - 50,000 - 50,000 50,000

Investment securities 17 30,095 - 1,074,347 - 1,104,442 1,104,442

Derivative financial instruments 19 8,624 - - - 8,624 8,624

Loans and advances to customers 20 - 2,233,265 - - 2,233,265 2,233,265

Total 38,719 3,154,577 1,124,347 4,317,643 4,317,643

Financial Liabilities

Amounts payable to group banks 15 - - - 525,033 525,033 525,033

Amounts payable to non group banks 15 - - - 40,139 40,139 40,139

Deposits from customers 25 - - - 3,681,026 3,681,026 3,681,026

Derivative financial instruments 19 5,625 - - - 5,625 5,625

Subordinated liabilities 26 - - - 20,710 20,710 20,710

Total 5,625 - 4,266,908 4,272,533 4,272,533

For some instruments their carrying amounts approximate their fair values due to the short term nature of the investments. 87

Appendix I

Five year summary

2013 2012 2011 2010 2009

K’000 K’000 K’000 K’000 K’000

Operating profit before impairment provisions 381,510 342,896 233,406 221,735 140,063

Net impairment provisions against loans and advances (14,466) (3,278) (7,319) 8,009 (25,039)

Profit before taxation 367,044 339,618 226,087 229,744 115,024

Profit attributable to shareholders 236,667 220,993 132,453 133,292 66,967

Loans and advances to 2,779,470 2,233,265 1,797,251 1,151,385 948,087 customers Total assets 5,470,402 5,163,618 4,585,674 4,572,218 2,976,606

Deposits from customers 4,267,129 3,681,026 3,573,822 3,164,587 2,347,127

Shareholders’ funds 734,130 594,290 372,948 325,511 223,512

Earnings per ordinary share Basic earnings per share (Kwacha) 0.14 0.13 0.08 0.00 0.01

Dividends per share (Ngwee) 14 0 0 2 1

Ratios 32% 36%

Post-tax return on ordinary shareholders’ funds 37% 41% 30% andFinancial statements notes Basic cost/income ratio 46% 45% 51% 51% 63% 88 Standard Chartered Bank Zambia Plc Annual Report 2013

Principal addresses

Head Office Standard Chartered Bank Zambia Plc Standard Chartered House, Cairo Road P.O. Box 32238 Lusaka 10101, Zambia Tel: +260 (211) 229242-50 Fax: +260 (211) 222092

Senior Management Musonda Musakanya Chief Information Officer

Standard Chartered Bank Zambia Plc Andrew Okai st CEO/Managing Director 1 Floor Standard Chartered House, Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka 4th Floor Standard Chartered House, Cairo Road Tel: + 260 (211) 225138 P.O. Box 32238, Lusaka Fax: + 260 (211) 222092 Tel: +260 (211) 222046 Fax: +260 (211) 225148 Ruth Simuyemba Head of Human Resources Arjuna Balasingham Standard Chartered Bank Zambia Plc Head of Client Coverage 3rd Floor Standard Chartered House, Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka 2nd Floor Standard Chartered House, Cairo Road Tel: +260 (211) 224838 P.O. Box 32238, Lusaka Fax: + 260 (211) 225337 Tel: + 260 (211) 222983 Fax: + 260 (211) 227805 Celine Nair Head of Legal & Company Secretary Sonny Zulu Standard Chartered Bank Zambia Plc Head of Consumer Banking 5th Floor Standard Chartered House, Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka st Floor Northend, Cairo Road 1 Tel: +260 (211) 221518 P.O. Box 32238, Lusaka Fax: +260 (211) 225148 Tel: +260 (211) 225257 Fax: +260 (211) 228353 Christine Matambo Head of Corporate Affairs Stanley Tamele Standard Chartered Bank Zambia Plc Head of Financial Markets th Standard Chartered Bank Zambia Plc 4 Floor Standard Chartered House, Cairo Road 2nd Floor Standard Chartered House, Cairo Road P. O. Box 32238, Lusaka P.O. Box 32238, Lusaka Tel: +260 (211) 227616 Tel: +260 (211) 221235 Fax: +260 (211) 225148 Fax: +260 (211) 222090 Peter Zulu Fanwell Phiri Head of Compliance Head of Audit Standard Chartered Bank Zambia Plc Standard Chartered Bank Zambia Plc 5th Floor Standard Chartered House, Cairo Road 5th Floor Standard Chartered House, Cairo Road P.O. Box 32238, Lusaka P.O. Box 32238, Lusaka Tel: +260 (211) 224825 Tel: +260 (211) 222076 Fax: +260 (211) 235007 Fax: +260 (211) 235007 Anthony Katepa Kelvin Musana Country Chief Risk Officer & Senior Credit Officer – Executive Director – Finance and Administration Wholesale Banking Standard Chartered Bank Zambia Plc Standard Chartered Bank Zambia Plc st Floor Standard Chartered House, Cairo Road 1 2nd Floor Standard Chartered House, Cairo Road P.O. Box 32238, Lusaka P.O. Box 32238, Lusaka Tel: + 260 (211) 225252 Tel: +260 (211) 229242 - 59 Fax: +260 (211) 225337 89

Branch network

Lusaka Branch Livingstone Branch P.O. Box 32238, Lusaka P.O. Box 60592, Livingstone Tel: +260 (211) 229242 - 59 Tel: +260 (213) 321745 Fax: +260 (211) 220106/227679 Fax: +260 (213) 321721

North End Branch Mazabuka Branch P.O. Box 31353, Lusaka P.O. Box 670002, Mazabuka Tel: +260 (211) 2285114/5 Tel: +260 (213) 230727 / 230688 / 230031 Fax: +260 (211) 221857 Fax: +260 (213) 230727 / 230162

Manda Hill Branch Choma Branch P.O. Box 31934, Lusaka P.O. Box 630070, Choma Tel: +260 (211) 255484 Tel: +260 (213) 220199/20489/20784 Fax: +260 (211) 255485 Fax: +260 (213) 220784

Kabulonga Branch Mongu Branch P.O. Box 31934, Lusaka P.O. Box 910090, Mongu Tel: +260 (211) 261339 Tel: +260 (217) 221456 Fax: +260 (211) 262593 Fax: +260 (217) 221281

Crossroads Branch Kasama Branch P.O. Box 31934, Lusaka P.O. Box 410060, Kasama Tel: +260 (211) 264080 Tel: + 260 (214) 222051 Fax: +260 (211) 262593 Fax: + 260 (214) 221316

Zambia Way Branch Ody’s Preferred Centre, Arcades P.O. Box 20061, Kitwe P.O. Box 32238, Lusaka Tel: +260 (212) 224944 Tel: +260 (211) 292876 - 79 Fax: +260 (212) 224269 Fax: +260 (211) 292868

Luanshya Branch Manda Hill Branch P.O. Box 90097, Luanshya P.O. Box 32238, Lusaka Tel: +260 (212) 510132 Tel: +260 (211) 255484 Fax: +260 (212) 510484 Fax: +260 (211) 255485 Supplementary informationSupplementary Jacaranda Mall Branch Priority Banking P.O. Box 230021, Ndola Northend Branch Tel: +260 (212) 651013 Tel: +260 (211) 228551 Fax: +260 (212) 650583 Fax: +260 (211) 228553

Chingola Branch Priority Banking P.O. Box 71665, Chingola Lusaka Branch Tel: +260 (212) 312227 P.O. Box 32238, Lusaka Fax: +260 (212) 313827 Tel: +260 (211) 229242 - 59 Fax: +260 (211) 220106/227679 Buteko Branch P.O. Box 71665, Ndola Priority Banking Tel: +260 (212) 613225 Zambia Way Branch Fax: +260 (212) 620943 P.O. Box 20061, Kitwe Chililabombwe Branch Tel: +260 (212) 224944 P.O. Box 210119, Chililabombwe Fax: +260 (212) 224269 Tel: +260 (212) 382209 Fax: +260 (212) 382213 90 Standard Chartered Bank Zambia Plc Annual Report 2013

Dividend

At the Board Meeting on 24 February 2014, the Directors recommended that a final dividend of ZMW0.09 be paid to shareholders for the year ended 31 December 2013.

The dividend will be paid to shareholders registered in the books of the company at close of business on 17 April 2014 and payable on 17 June 2014.

By Order of the Board

Celine M. Nair Company Secretary 24 February 2014 91

Notice of Annual General Meeting and Agenda

Notice is hereby given that the 43rd Annual General Meeting (AGM) of Standard Chartered Bank Zambia Plc in respect of the period ended 31 December 2013, will be held at the Taj Pamodzi Hotel, in the Baobab Room, in Lusaka, Zambia on 28 March 2014 at 09:00 hours for the following purposes:

1. Call to order, tabling proxies, and announcement regarding quorum

2. Resolution 1 – Adoption of Minutes To confirm, adopt and sign the Minutes of the AGM held on 27 March 2013.

3. Resolution 2- Adoption of Chairman’s Report, Directors’ Report and Financial Statements To receive and adopt the Financial Statements as at 31 December 2013 and the reports of the Chairman, Directors and Auditors.

4. Resolution 3 – Dividend To approve a final Dividend recommendation of the Directors of ZMW0.09 per share for the year ended December 2013 payable to all shareholders registered in the books of the company at close of business on 17 April 2014 and payable on 17June 2014.

5. Resolution 4 – Amendment of Articles of Association To approve by Special Resolution, the amendment of the Company’s Articles of Association.

6. Resolution 5 – Appointment of Auditors To appoint auditors from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorise the Directors to set their remuneration.

7. Resolution 6 – Appointment of Directors

(i) To confirm the appointment of Mr. Andrew F. Okai who was appointed as Managing Director since the previous Annual General Meeting.

(ii) To confirm the retirement of Ebenezer N. Essoka from the Board.

(iii) To re-elect each of Messrs Michael M. Mundashi; SC, Edson M. Hamakowa, Robin P. Miller, Kelvin M. Musana who retire by rotation, in terms of the Companies Act, and who, being eligible, offer themselves for re-election. Supplementary informationSupplementary

(iv) To authorise the Board to fix the remuneration of the Directors.

8. To transact any other business that may properly be transacted at the Annual General Meeting.

A member entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend, speak, and, on a poll, vote in his/her stead. Proxy forms are available from the Company Secretary and enclosed in the Annual Report. A proxy need not also be a member of the company.

By Order of the Board

Celine M. Nair Company Secretary 24 February 2014 92 Standard Chartered Bank Zambia Plc Annual Report 2013 93

FORM OF PROXY

………...... …………. 2014

I/We, ……………………………………………...... …… (full names in block letters) of

………………………………………………………...... ……………………………………… member/members of Standard Chartered Bank Zambia Plc, hereby appoint

………………………………………………...... ……………………………………………… of ………………………………………...... ………………………………………………….. as my/our proxy to attend, and speak, on poll, vote instead of me/us at the forty-third

Annual General Meeting of the Company, to be held on 28 March 2014 and at every

Adjournment thereof:

Signature(s) ……………………………………………………………

Certificate Number(s) …………………………..…………………………

NOTE:

The Form of Proxy shall be: a) In the case of an individual, signed by the appointer or by his Attorney b) In the case of a corporation, signed either by an Attorney or Officer of the Corporation on its behalf or be given under its common seal. c) A member entitled to attend and vote at the meeting may appoint one or more proxies to attend, speak and on a poll, to vote on his/her behalf. A proxy need not also be a member. 94Standard CharteredStandard CharteredBank Zambia Bank Plc Zambia Annual PlcReport Annual 2013 Report 2013

Standard Chartered Bank Zambia Plc has again delivered a strong performance.

The Bank is integral to the development of the country and our performance clearly demontrates our powerful brand promise, Here for good.

Financial highlights

Revenue Profit before taxation ZMW367m ZMW703m 2012: ZMW339m / 2011: ZMW226m 2012: ZMW620m / 2011: ZMW479m

Total assets Earnings per share ZMW5,470m ZMW141.97 2012: ZMW5,164m / 2011: ZMW4,586m 2012: ZMW132.57/2011: ZMW79.46

Return on equity Dividend per share 32% ZMW0.14 2012: 37% / 2011: 36% 2012: ZMW0.00 / 2011: ZMW0.00

Non-financial highlights

Employees Outlets

719 25 2012: 696 2012: 24 Standard Chartered Bank Zambia Plc Annual Report 2013 95

Standard Chartered Bank Zambia Plc has again delivered a strong performance.

The Bank is integral to the development of the country and our performance clearly demontrates our powerful brand promise, Here for good.

Financial highlights

Revenue Profit before taxation ZMW367m ZMW703m 2012: ZMW339m / 2011: ZMW226m 2012: ZMW620m / 2011: ZMW479m

Total assets Earnings per share ZMW5,470m ZMW141.97 2012: ZMW5,164m / 2011: ZMW4,586m 2012: ZMW132.57/2011: ZMW79.46

Return on equity Dividend per share 32% ZMW0.14 2012: 37% / 2011: 36% 2012: ZMW0.00 / 2011: ZMW0.00

Non-financial highlights

Employees Outlets

719 25 2012: 696 2012: 24 96 Standard Chartered Bank Zambia Plc Annual Report 2013 Standard Chartered Bank Zambia Plc Annual Report 2013

Driving investment, trade and the creation of wealth Here for good across Asia, Africa and the Middle East