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A N N U A L R E P O R T 2 0 1 5

Your Partner in Sustainable Socio-economic Development

CLIMATE CHANGE

FOOD SECURITY

INFRASTRUCTURE

REGIONAL INTEGRATION

SKILLS DEVELOPMENT EAST AFRICAN DEVELOPMENT BANK MEDICAL TRAINING AND FELLOWSHIP PROGRAMME ANNUAL REPORT 2015

CORPORATE PROFILE

ESTABLISHMENT The East African Development Bank (EADB) was established in 1967.

SHAREHOLDING The shareholders of the EADB are Kenya, Uganda, Tanzania and Rwanda. Other shareholders include the African Development Bank (AfDB), the Netherlands Development Finance Company (FMO), German Invest- ment and Development Company (DEG), SBIC-Africa Holdings, Commercial Bank of Africa, Nairobi, Nordea Bank of Sweden, Standard Chartered Bank, London, Barclays Bank Plc., London and Consortium of former Yugoslav Institutions.

VISION To be the partner of choice in promoting sustainable socio-economic development.

MISSION To promote sustainable socio-economic development in East Africa by providing Development Finance, Support and Advisory Services.

OUR CORE VALUES Service Integrity Leadership Innovation Teamwork

ii CONTENTS

ABBREVIATIONS AND ACRONYMS...... v LETTER OF TRANSMITTAL ...... vii BOARD OF DIRECTORS AND DIRECTOR GENERAL ...... viii CHAIRPERSON’S STATEMENT...... ix DIRECTOR GENERAL’S STATEMENT...... xi GOVERNING COUNCIL...... xii ADVISORY PANEL ...... xiii

1. ECONOMIC REVIEW...... 01 1.1 RECENT PERFORMANCE...... 03 1.2 ECONOMIC PROSPECTS...... 17 1.3 RISKS AND CHALLENGES...... 19

2. OVERVIEW OF THE YEAR’S ACTIVITIES...... 23 2. 1 LENDING OPERATIONS...... 25 2.2 FOCUS AREAS...... 25 2.3 PARTNERSHIPS...... 25 2.4 INTERNATIONAL CREDIT RATING ...... 27 2.5 TREASURY SERVICES AND MANAGEMENT...... 27 2.6 RISK MANAGEMENT...... 27 2.7 ORGANISATIONAL DEVELOPMENT...... 28

3. GOVERNANCE AND CORPORATE AFFAIRS...... 29 3.1 GOVERNING COUNCIL ...... 31 3.2 ADVISORY PANEL ...... 31 3.3 BOARD OF DIRECTORS ...... 31

4. DIRECTORS’ REPORT AND FINANCIAL STATEMENTS ...... 33 4.1 REPORT ON THE FINANCIAL STATEMENTS...... 37 4.2 STATEMENT OF COMPREHENSIVE INCOME ...... 38 4.3 STATEMENT OF FINANCIAL POSITION...... 39 4.4 STATEMENT OF CHANGES IN EQUITY...... 41 4.5 STATEMENT OF CASH FLOWS...... 42 4.6 NOTES...... 43

iii iii ANNUAL REPORT 2015

LIST OF FIGURES

Figure 1 : Economic Growth for EA Countries...... 05 Figure 2 : Inflation rates for EA Countries in 2015 ...... 06 Figure 3 : Exchange rate movements (Local Currency against the USD) ...... 07 Figure 4 : Budget Balance for EA Countries (% of GDP)...... 09 Figure 5 : Chancing composition of External Financing in East Africa...... 11 Figure 6 : Country decomposition of external financing to East Africa ...... 12 Figure 7 : Current Account (as a % of GDP)...... 14 Figure 8 : Reserves Import Cover (months) for EA Countries ...... 15 Figure 9 : Commercial Bank Average Lending rates in East Africa (%)...... 20 Figure 10 : Exchange rate movements against the USD (percentage change) ...... 21

iv ABBREVIATIONSABBREVIATIONS AND ACRONYMSAND ACRONYMS

AADFI AADFI Association Association of African of Development African Development Finance Institutions Finance Institutions IRENA IRENA International International Renewable Renewable Energy Agency Energy Agency

ADF ADF African DevelopmentAfrican Development Fund Fund IUCEA IUCEA Inter-University Inter-University Council for Council East Africa for East Africa

AfDB AfDB African DevelopmentAfrican Development Bank Bank KES KES Kenyan ShillingKenyan Shilling

ALCO ALCO Assets and Assets Liabilities and LiabilitiesCommittee Committee KfW KfW KreditanstaltKreditanstalt für Wiederaufbau für Wiederaufbau

BADEA BADEA Arab Bank Arab for EconomicBank for Economic Development Development in Africa in Africa KPMG KPMG Klynveld Peat Klynveld Marwick Peat GoerdelerMarwick Goerdeler - (accounting - (accounting firm) firm)

BIF BIF BurundianBurundian Franc Franc ODA ODA OverseasOverseas Development Development Assistance Assistance

CBR CBR Central BankCentral Rate Bank Rate OPEC OPEC Organization Organization of the Petroleum of the Petroleum Exporting Exporting Countries Countries

CDM CDM Clean DevelopmentClean Development Mechanism Mechanism PWC PWC PricewaterhouseCoopersPricewaterhouseCoopers

DEG DEG German InvestmentGerman Investment and Development and Development Company Company RCC RCC Reginal CollaborationReginal Collaboration Centre (UNFCCC) Centre (UNFCCC)

DTU DTU DanmarksDanmarks Tekniske UniversitetTekniske Universitet (Danish Technical (Danish TechnicalUniversity) University) RWF RWF RwandanRwandan Franc Franc

EA EA East AfricaEast Africa SBIC-AfricaSBIC-Africa Standard StandardBank Investment Bank Investment Corporation Corporation -Africa -Africa

EACDF EACDF East African East Community African Community Development Development Fund Fund SBLs SBLs StandardisedStandardised Baselines Baselines

EU EU EuropeanEuropean Union Union SIDA SIDA Swedish InternationalSwedish International Development Development Cooperation Cooperation

EUR EUR Euro Euro TANCIS TANCIS Tanzania TanzaniaCustoms CustomsIntegrated Integrated Systems Systems

FDI FDI Foreign DirectForeign Investment Direct Investment TZS TZS TanzanianTanzanian Shilling Shilling

FMO FMO The NetherlandsThe Netherlands Development Development Finance Company Finance Company UNDP UNDP United Nations United Development Nations Development Programme Programme

GDP GDP Gross DomesticGross DomesticProduct Product UNEP UNEP United Nations United Environment Nations Environment Programme Programme

GIZ GIZ GesellschaftGesellschaft für Internationale für Internationale Zusammenarbeit Zusammenarbeit UNFCCCUNFCCC United Nations United Framework Nations Framework Convention Convention on Climate on Change Climate Change

IAS IAS InternationalInternational Accounting Accounting Standards Standards UGX UGX UgandanUgandan Shilling Shilling

IASB IASB InternationalInternational Accounting Accounting Standards Standards Board Board US US United StatesUnited of AmericaStates of America

IFC IFC InternationalInternational Finance Corporation Finance Corporation USD USD United StatesUnited Dollar States Dollar

IFRIC IFRIC International International Financial FinancialReporting Reporting Interpretations Interpretations Committee Committee VAT VAT Value AddedValue Tax Added Tax

IFRS IFRS InternationalInternational Financial FinancialReporting Reporting System System WEO WEO World Economic World Economic Outlook Outlook v ANNUAL REPORT 2015

ABBREVIATIONSABBREVIATIONS AND ACRONYMSAND ACRONYMS

AADFI AADFI Association Association of African of Development African Development Finance Institutions Finance Institutions IRENA IRENA International International Renewable Renewable Energy Agency Energy Agency

ADF ADF African DevelopmentAfrican Development Fund Fund IUCEA IUCEA Inter-University Inter-University Council for Council East Africa for East Africa

AfDB AfDB African DevelopmentAfrican Development Bank Bank KES KES Kenyan ShillingKenyan Shilling

ALCO ALCO Assets and Assets Liabilities and LiabilitiesCommittee Committee KfW KfW KreditanstaltKreditanstalt für Wiederaufbau für Wiederaufbau

BADEA BADEA Arab Bank Arab for EconomicBank for Economic Development Development in Africa in Africa KPMG KPMG Klynveld Peat Klynveld Marwick Peat GoerdelerMarwick Goerdeler - (accounting - (accounting firm) firm)

BIF BIF BurundianBurundian Franc Franc ODA ODA OverseasOverseas Development Development Assistance Assistance

CBR CBR Central BankCentral Rate Bank Rate OPEC OPEC Organization Organization of the Petroleum of the Petroleum Exporting Exporting Countries Countries

CDM CDM Clean DevelopmentClean Development Mechanism Mechanism PWC PWC PricewaterhouseCoopersPricewaterhouseCoopers

DEG DEG German InvestmentGerman Investment and Development and Development Company Company RCC RCC Reginal CollaborationReginal Collaboration Centre (UNFCCC) Centre (UNFCCC)

DTU DTU DanmarksDanmarks Tekniske UniversitetTekniske Universitet (Danish Technical (Danish TechnicalUniversity) University) RWF RWF RwandanRwandan Franc Franc

EA EA East AfricaEast Africa SBIC-AfricaSBIC-Africa Standard StandardBank Investment Bank Investment Corporation Corporation -Africa -Africa

EACDF EACDF East African East Community African Community Development Development Fund Fund SBLs SBLs StandardisedStandardised Baselines Baselines

EU EU EuropeanEuropean Union Union SIDA SIDA Swedish InternationalSwedish International Development Development Cooperation Cooperation

EUR EUR Euro Euro TANCIS TANCIS Tanzania TanzaniaCustoms CustomsIntegrated Integrated Systems Systems

FDI FDI Foreign DirectForeign Investment Direct Investment TZS TZS TanzanianTanzanian Shilling Shilling

FMO FMO The NetherlandsThe Netherlands Development Development Finance Company Finance Company UNDP UNDP United Nations United Development Nations Development Programme Programme

GDP GDP Gross DomesticGross DomesticProduct Product UNEP UNEP United Nations United Environment Nations Environment Programme Programme

GIZ GIZ GesellschaftGesellschaft für Internationale für Internationale Zusammenarbeit Zusammenarbeit UNFCCCUNFCCC United Nations United Framework Nations Framework Convention Convention on Climate on Change Climate Change

IAS IAS InternationalInternational Accounting Accounting Standards Standards UGX UGX UgandanUgandan Shilling Shilling

IASB IASB InternationalInternational Accounting Accounting Standards Standards Board Board US US United StatesUnited of AmericaStates of America

IFC IFC InternationalInternational Finance Corporation Finance Corporation USD USD United StatesUnited Dollar States Dollar

IFRIC IFRIC International International Financial FinancialReporting Reporting Interpretations Interpretations Committee Committee VAT VAT Value AddedValue Tax Added Tax

IFRS IFRS InternationalInternational Financial FinancialReporting Reporting System System WEO WEO World Economic World Economic Outlook Outlook

vi LETTER OF TRANSMITTAL

The Cabinet Secretary, the National Treasury The Republic of Kenya

The Honourable Minister for Finance and Economic Planning The Republic of Rwanda

The Honourable Minister for Finance The United Republic of Tanzania

The Honourable Minister for Finance, Planning and Economic Development The Republic of Uganda

In accordance with Articles 26 and 35 of the Charter for the East African Development Bank (the “Bank”), the Board of Directors herewith submits to the Honourable Members of the Governing Council and to the Members of the Bank, the Annual Report of the Bank for the period from 1 January to 31 December, 2015. This Report describes the activities of the Bank during the year and shows the Bank’s financial position as at 31 December 2015. The Report also presents a review of the economic performance of the member states of EADB. Honourable Members of the Governing Council, please accept the assurances of my highest consideration and esteem.

Kampeta Pitchette Sayinzoga, CHAIRPERSON BOARD OF DIRECTORS

vii ANNUAL REPORT 2015

BOARD OF DIRECTORS AND DIRECTOR GENERAL

Kampeta Pitchette Sayinzoga Trevor de Kock Permanent secretary, Secretary to the African Development Bank Treasury, Ministry of Finance and Representative - Member Economic Planning, Republic of Rwanda - Chairperson

Keith Muhakanizi Jeremiah Mutonga Permanent secretary, Secretary to the African Development Bank Treasury, Ministry of Finance, Representative Planning and Economic Development, – Alternate member Republic of Uganda - Member

Dr. Servacius Likwelile Faustin Mbundu Permanent secretary, Pay Master Private sector representative, General, Ministry of Finance, Republic of Rwanda United Republic of Tanzania – - Member Member

Dr. Kamau Thugge James Tumusiime Principal Secretary, Private sector representative, The National Treasury, Republic of Uganda Republic of Kenya - Member - Member

Francis N. Karuiru Vivienne Yeda Private sector representative, East African Development Republic of Kenya - Member Bank – Director General

Khadija I. Simba Private sector representative, United Republic of Tanzania - Member

viii CHAIRPERSON’S STATEMENT

East Africa has faced considerable challenges in 2015, many of them unexpected, which have adversely impacted economic growth in the region. Average economic growth in the East Africa Community fell to 4.1% in 2015, compared to 5.8% in 2014, as Burundi fell into a sharp recession. However, excluding Burundi, average economic growth remained relatively unchanged at 5.9% and 6.1% in 2014 and 2015 respectively.

The region has been externally affected by subdued global trade. Reduced consumption in advanced and emerging market economies has lowered their demand for imports, which has adversely affected both the balance of payments and private sector development in manufacturing and services for export in East Africa. Indeed the region has been affected by escalating Balance of Payments imbalances, particularly emanating from the current account.

Furthermore, wideningFurthermore, current widening account deficits,current accountheightened deficits, global heightened investor risk global aversion investor and risk the aversion strengthening and the of strengtheningthe US of the US dollar have seendollar currencies have depreciatingseen currencies across depreciating emerging across markets emerging and developing markets countries,and developing including countries, in East includingAfrica(EA). in East Africa(EA). Currency depreciationCurrency in thedepreciation EA countries in thehas EA severely countries impaired has severely corporate impaired liquidity corporate positions, liquidity where positions,liabilities frequentlywhere liabilities frequently are denominatedare in denominatedforeign exchange. in foreign Equally, exchange. demand Equally, for US demanddollar denominated for US dollar EADB denominated facilities has EADB not facilities expanded has not expanded significantly. significantly.

Domestically, CentralDomestically, Banks have Central typically Banks sought have totypically prevent sought the pass-through to prevent the of exchangepass-through rate of depreciation exchange rate into depreciation inflation into inflation by pre-emptivelyby raising pre-emptively their policy raising rates. their As expected, policy rates. this As has expected, also increased this has lending also increased interest rates.lending In 2011-12,interest rates. interest In 2011-12, interest rates peaked in Eastrates Africa peaked in intandem East Africa with mountingin tandem inflation with mounting pressure, inflation yet they pressure, did not fallyet theyback did to anot normal fall back level to after a normal level after inflation pressureinflation receded. pressure The fiscal receded. policies The pursued fiscal policies have had pursued a bearing have onhad financial a bearing markets. on financial Governments markets. are Governments are increasingly financingincreasingly growing financing fiscal deficits growing by fiscalborrowing deficits on by domestic borrowing markets, on domestic but in doingmarkets, so havebut in maintained doing so have high maintained high interest rates andinterest priced ratesmany and out pricedof domestic many markets.out of domestic Equally markets.EADB was Equally priced EADB out of was issuing priced a regionalout of issuing bond ain regional 2015, bond in 2015, owing to prohibitivelyowing high to prohibitively yields in the high market. yields in the market.

The year 2015 hasThe alsoyear faced 2015 challenges has also faced from challengesconflicts in fromboth conflictsBurundi inand both South Burundi Sudan, and the South EAC’s Sudan, newest the members, EAC’s newest members, which threatens towhich undermine threatens stability, to undermine trade and stability, economic trade growth and economic in the region. growth In inparticular, the region. after In beingparticular, awarded after EADB being awarded EADB membership last membershipyear, Burundi last is yetyear, to Burundicomplete is the yet processto complete for full the membership. process for full membership.

In spite of the challengingIn spite of theoperating challenging environment operating in Eastenvironment Africa, investorin East confidenceAfrica, investor is very confidence high, the is Bank’s very high, capital the Bank’s capital adequacy and leverageadequacy have and improved leverage significantly. have improved By the significantly. close of 2015, By the the close total of assets 2015, of the the total Bank assets stood of at the USD Bank 381 stood at USD 381

ix ANNUAL REPORT 2015

million, an increasemillion, of 9% an upon increase 2014. of The9% uponportfolio 2014. has The expanded portfolio by has 48% expanded over 2014, by 48%granting over the 2014, Bank granting USD 6.6 the million Bank USD 6.6 million in profit. Lookingin forward, profit. Looking increased forward, profitability increased and assetprofitability growth and will assetescalate growth and will strengthen escalate the and Bank. strengthen the Bank.

The East AfricanThe Community East African Partner Community States face Partner a challenging States face near-term a challenging outlook: near-term tight financial outlook: conditions, tight financial domestic conditions, domestic instability and theinstability risk of terrorism and the forrisk some, of terrorism all threaten for some, economic all threaten activity. economic The impact activity. of low The commodity impact of prices low commodity may slow prices may slow investments in naturalinvestments gas and in oilnatural exploration gas and and oil extractionexploration in and Kenya, extraction Tanzania in Kenya,and Uganda Tanzania and and has Uganda already andsignificantly has already significantly reduced mineral reducedexport revenues mineral exportin Rwanda. revenues Yet inlow Rwanda. commodity Yet priceslow commodity may have pricesa larger may effect have on a thelarger region effect through on the region through stifling global activity.stifling Financial global activity. sector alsoFinancial remains sector shallow also remainsand the businessshallow and environment the business sensitive environment to speculation. sensitive to speculation.

Governments areGovernments investing heavily are investingto bring heavilysustainable to bring development sustainable to thedevelopment region, but to largethe region, scale investments,but large scale such investments, as such as those to address thoseinfrastructure to address deficits, infrastructure will take deficits,time to yieldwill take dividends. time to Nonetheless,yield dividends. we Nonetheless,expect that EADB we expect will continue that EADB to will continue to work alongside governmentswork alongside to supportgovernments economic to support development economic and development we predict strong and we internal predict growth strong for internal the Bank. growth for the Bank.

Ms. Kampeta PitchetteMs. Kampeta Sayinzoga Pitchette Sayinzoga Permanent secretary,Permanent Secretary secretary, to the Treasury, Secretary to the Treasury, Ministry of FinanceMinistry and Economic of Finance Planning, and Economic Planning, Republic of RwandaRepublic - Chairperson of Rwanda - Chairperson

x DIRECTORDIRECTOR GENERAL’S GENERAL’S STATEMENT STATEMENT

This year, EADBThis hasyear, completed EADB has another completed five-year another medium-term five-year medium-term strategy. Initially,strategy. the Initially,strategy the was strategy implemented was implemented to address to address weaknesses weaknessesand develop and the developBank under the Bankthree understages: three reposi stages:- reposi- tioning, consolidationtioning, consolidation and growth. and We growth. have beenWe havemore been more successful thansuccessful we envisaged than we inenvisaged transforming in transforming the Bank and the Bank and currently standcurrently in a very stand strong in a financialvery strong position, financial congratulat position, -congratulat- ed by internationaled by international rating agencies rating and agencies entrusted and by entrusted some of by some of the largest globalthe largest development global development donors. donors.

Building on Buildingsupport fromon support its regional from itsand regional international and international share- share- holders, theholders, Bank’s assetsthe Bank’s increased assets by increased 70% from by USD70% 224from USD 224 million in 2010million to USD in 2010 381 tomillion USD 381by 2015. million Improved by 2015. portfo Improved- portfo- lio size andlio quality size andensured quality a consistentensured a rise consistent in profitability. rise in profitability. EADB’s portfolioEADB’s increased portfolio from increased USD 112 from million USD 112in 2010 million to in 2010 to USD 165 millionUSD 165by 2015,million causing by 2015, income causing to increaseincome tofrom increase from USD 2.2 millionUSD in2.2 2010 million to an in average2010 to anof USDaverage 7.5 millionof USD per7.5 million per annum thereafter.annum thereafter.

In 2015, theIn Bank 2015, posted the Bank profit posted of USD profit 6.6 ofmillion. USD 6.6Stronger million. governance Stronger governanceand risk-management and risk-management policies drove policies a sharp drove a sharp decline in non-performingdecline in non-performing loans from 32%loans in from 2010 32% to less in 2010 than to1% less in 2015.than 1% in 2015.

In 2015, Moody’sIn 2015, upgraded Moody’s the upgraded Bank’s ratingthe Bank’s to Baa3 rating stable to Baa3 (investor stable grade) (investor which grade) is the which highest is ratingthe highest in East rating Africa in East Africa accorded toaccorded both sovereign to both and sovereign non-sovereign and non-sovereign entities. Equally, entities. AADFI Equally, has ratedAADFI EADB has ratedas the EADB best performingas the best performingdevelop- develop- ment financialment institution financial in institution Africa for inthree Africa consecutive for three consecutiveyears between years 2013 between and 2015. 2013 Anand improved 2015. An rating improved positions rating the positions the Bank at advantageBank at overadvantage its peers over with its respect peers withto the respect mobilisation to the mobilisation of resources of from resources international from international capital markets. capital markets.

Looking forward,Looking we forward, are in a wevery are exciting in a very position exciting to launch position a tonew launch five-year a new medium-term five-year medium-term strategy for strategy2016-20. for During 2016-20. During the period, wethe intendperiod, to we increase intend ourto increase portfolio our size, portfolio asset base size, and asset profitability base and further,profitability partly further, through partly widening through our widening range our range of products andof products services, and but services, also we intendbut also to we focus intend more to onfocus specific more development on specific development outcomes: sustainable outcomes: enterprisesustainable devel enterprise- devel- opment, accessopment, to physical access infrastructureto physical infrastructure and human andcapital human development. capital development. I am excited I toam enter excited this tonew enter period this fornew EADB period for EADB and to personallyand to oversee personally the overseedifference the we difference can make we as can a development make as a development bank. bank.

Vivinne YedaVivinne Yeda Director General,Director General, East African DevelopmentEast African DevelopmentBank Bank

xi xi ANNUAL REPORT 2015

GOVERNING COUNCIL

Mr. Henry K. Rotich Cabinet Secretary, National Treasury, Republic of Kenya - Chairman

Amb. Claver Gatete Minister for Finance and Economic Planning, Republic of Rwanda - Member

Hon. Maria Kiwanuka (up until 1st March 2015) Minister for Finance, Planning and Economic Development, Republic of Uganda - Member

Hon. Matia Kasaija (From 2nd March 2015) Minister for Finance, Planning and Economic Development, Republic of Uganda - Member

Hon. Saada Mkuya Salum (up until 22 December 2015) Minister for Finance, United Republic of Tanzania - Member

Hon. Dr. Philip Mpango (from 23 December 2015) Minister for Finance, United Republic of Tanzania - Member

xii ADVISORY PANEL

Mr. Mahesh K. Kotecha Former Managing Director, Capital Markets Assurance Corporation, New York and Capital Markets Assurance Corporation, Asia and former Managing Director of Mbia Insurance Corporation

Mr. Toyoo Gyohten President, Institute for International Monetary Affairs, Japan and Senior Adviser, Bank of Tokyo, Mitsubishi Limited

Mr. Lars Ekengren Former Deputy Director General, SIDA

Mr. Jannik Lindbaek Former Executive Vice President and CEO of the International Finance Corporation (IFC)

xiii ANNUAL REPORT 2015

AUDITORS

PricewaterhouseCoopers Certified Public Accountants, 10th Floor, Communications House, 1 Colville Street, P.O. Box 882, Kampala, Uganda

LAWYERS

UGANDA KENYA TANZANIA Sebalu and Lule Advocates Kaplan and Stratton Adept Chambers 4 Nile Avenue Advocates 1st Floor, Peugeot House, EADB Building P O Box 40111 Fourth 36 Ali Hassan Mwinyi Road, P O Box 2255, Kampala Ngong Avenue P O Box 79651 Uganda Nairobi, Kenya Dar es Salaam, Tanzania.

REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS

UGANDA KENYA RWANDA TANZANIA (HEADQUARTERS) 4 Nile Avenue 7th Floor, The Oval Ground Floor, 349 Lugalo/ EADB Building Office, Ring Road, Glory House Urambo street Upanga P O Box 7128 Parklands, Westlands Kacyiru P.O. Box P. O. Box 9401, Kampala, P O Box 47685 6225, Kigali, Dar Es Salaam, Uganda Nairobi, Kenya Rwanda Tanzania

xiv ECONOMICECONOMIC REVIEWREVIEW

01 ANNUAL REPORT 2015

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02 02 1.1 RECENT PERFORMANCE

1.1.1 GLOBAL ECONOMIC GROWTH Global economic growth slowed to 3.1% in 2015, from 3.4% in 2014 (Table 1). The unexpected slowdown reflects a general contraction in trade volumes and prices, subdued global industrial production and investment and declining capital flows to emerging market and developing economies. Oil and non-fuel commodity prices declined by 47% and 17% respectively. According to the IMF, global industrial production, particularly of capital goods, remained subdued in 2015, driven by slower industrial production in China and by reduced global investment, particularly in the energy and mining sectors.

Growth in high income countries remained lacklustre, with low potential growth. In 2015, advanced economies grew by 1.9%, supported by the US where GDP growth reached 2.4% on the back of employment growth. However, productivity is yet to recover and legacies still persist from the financial crisis, which combined will reduce potential economic activity.

Growth in the Euro area has picked up, but still remains below pre-crisis levels. Economic activity grew by 1.7% in 2015, above the 0.9% growth achieved in 2014. Credit growth is beginning to recover and unemployment is starting to fall, although from very weak levels.

Emerging markets experienced uneven growth and an overall slowdown from 4.6% in 2014 to 4.0% in 2015. Many low-income commodity exporters have suffered from low commodity prices and a lack of economic diversity to offset the price falls. The economies of Brazil and Russia contracted in 2015, undermined by low commodity prices, political instability and, in Russia, economic sanctions. Meanwhile, China’s planned economic slowdown to rebalance their economy has had adverse global spillover effects.

Sub-Saharan Africa continues to face slowing growth. Growth in Sub-Saharan Africa averaged 3.3% in 2015, down from 5.1% in 2014. Weak external conditions, lower commodity prices, a partial reversal of capital flows and lower growth among trading partners have imposed a substantial impact on many Sub-Saharan economies.

03 ANNUAL REPORT 2015

Table 1: Economic Growth (Annual Percentage Change)

Projections 2011 2012 2013 2014 2015e 2016e 2017f

World Output 3.9 3.4 3.3 3.4 3.1 3.1 3.4

Advanced Economies 1.7 1.2 1.3 1.9 1.9 1.8 1.8

- United States 1.9 2.3 2.2 2.4 2.4 2.2 2.5

- Japan -0.6 1.5 1.6 0.0 0.5 0.3 0.1

Euro Area 1.5 -0.7 -0.5 0.9 1.7 1.6 1.4

- United Kingdom 1.0 0.3 1.7 3.1 2.2 1.7 1.3

Emerging Markets & Developing Economies 6.2 5.1 4.7 4.6 4.0 4.1 4.6

Middle East, North Africa, 3.9 4.9 2.2 2.7 2.3 3.4 3.3 Afghanistan and Pakistan

Sub-Saharan Africa 5.5 4.4 5.2 5.1 3.3 1.6 3.3

EAC-5 Partner States 6.5 5.1 5.2 5.9 4.1 5.6 5.0

Burundi 4.0 4.4 4.5 4.7 -4.1 3.4 3.9

Kenya 6.1 4.6 5.7 5.3 5.6 6.0 6.1

Rwanda 7.8 8.8 4.7 7.0 6.9 6.3 6.7

Tanzania 7.9 5.1 7.3 7.0 6.9 6.9 6.8

Uganda 6.8 2.6 4.0 4.9 5.0 5.3 5.7

Memorandum Items

Commodity Price (percentage change)

Oil 31.6 1 -0.9 -7.5 -47.2 -15.5 16.4

Nonfuel 17.9 -10 -1.2 -4 -17.5 -3.8 -0.6

Consumer prices (percentage change)

Advanced Economies 2.7 2.0 1.4 1.4 0.3 0.7 1.6

Emerging Markets and Developing Economies 7.1 6.1 5.9 4.7 4.7 4.6 4.4

London Interbank Offered Rate per cent

On USD deposits (6 months) 0.5 0.7 0.4 0.3 0.5 0.9 1.2

On Euro deposits (3 months) 1.4 0.6 0.2 0.2 0.0 -0.3 -0.4

On Japanese Yen Deposits (6 months) 0.3 0.3 0.2 0.2 0.1 -0.1 0.2

1. Average based on world Commodity export weights 2. e=estimates; f=forecasts

Sources: WEO Update, April 2016; Ministries of Finance for EADB Member States; EADB

04 04 1.1.2 GROWTH IN EAST AFRICA Average economic growth in East Africa fell to 4.1% in 2015, compared to 5.8% in 2014, as Burundi fell into a sharp recession. However, excluding Burundi, average economic growth was stable at 6.1% from 6% in 2014. Lesser consumption in advanced and emerging market economies has reduced their demand for imports, which adversely affected both the balance of payments and private sector development in manufacturing and services for export in East Africa. Indeed the region has been affected by escalating Balance of Payments imbalances, particularly emanating from the current account. Consequently, widening current account deficits, alongside heightened global investor risk aversion and the strength- ening of the US dollar have seen currencies depreciate across emerging markets, including in East Africa. Currency depreciations have severely impaired corporate liquidity positions, where liabilities are denominated in foreign exchange.

Figure 1: Economic Growth for EA Countries

10.0

8.0

6.0

4.0 BURUNDI

2.0 KENYA Real GDP Growth (%) -2.0 RWANDA

-4.0 -4.1 TANZANIA -6.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 UGANDA

Source: EADB; Bureau of Statistics for the EAC Partner States and the IMF

Burundi: Fell into recession, whereby real GDP growth declined by 4.1%. Political uncertainties spurred an economic contraction that affected almost all sectors of the economy especially agriculture, which employs 80% of the popula- tion, tourism and industrial activity. The contraction also caused revenue collections to decline significantly. Kenya: The economy is estimated to have expanded by 5.6% on the back of public infrastructure projects, buoyant credit growth and strong consumer demand. However, this was below expectations (the IMF projected a growth rate of 6.9%), due to weaknesses in tourism, delays in planned infrastructure spending and volatile external financing conditions. Rwanda: GDP growth remains buoyant at 6.9%. The industrial and services sectors grew evenly at 7.0% each, whilst agriculture, forestry and fishing grew by 5.0%. The economy grew in spite of lower commodity prices, combined with lower mineral demand, which halved the country’s mineral exports and led to a significant loss of export revenue. Tanzania: Real GDP growth is estimated to have increased by 6.9% in 2015 driven by high demand. The services and construction sectors drove economic activity: the service sector contributed to over 50% of total GDP growth. Uganda: Real GDP growth reached 5.0% in 2015 driven by public investment, robust private consumption and growth in the services sector, particularly information, communication and support services. The industrial and agricultural sectors also grew robustly. However, GDP was less than expected due to sluggish exports and a weaker than expected private sector.

05 05 ANNUALANNUAL REPORT REPORT2015 2015 1.1.2 GROWTH IN EAST AFRICA Average economic growth in East Africa fell to 4.1% in 2015, compared to 5.8% in 2014, as Burundi fell into a sharp recession. However, excluding Burundi, average economic growth was stable at 6.1% from 6% in 2014. Lesser consumption in advanced and emerging market economies has reduced their demand for imports, which 1.1.3 PRICES1.1.3 AND PRICES MONETARYadversely AND MONETARY affected POLICY both IN POLICY THEthe balance EAC IN THE of payments EAC and private sector development in manufacturing and services for INFLATION INFLATIONexport in East Africa. Indeed the region has been affected by escalating Balance of Payments imbalances, particularly emanating from the current account. Inflation in InflationEast Africa in remainedEast Africa benign remained and benign generally and low generally (See figure low (See2 below). figure The 2 below). average The inflation average rate inflation for all EACrate for all EAC member statesmember in Consequently, 2015 states was in 5%,2015 widening predominantly was 5%,current predominantly accountsupported deficits, bysupported rising alongside domestic by rising heightened food domestic prices global food and investor priceswidespread andrisk aversionwidespread currency and currency the strength - depreciations.depreciations. Unusuallyening of the lowUnusually US oil dollar prices low have imposed oil pricesseen less currencies imposed pressure lessdepreciate on pressure import across billson import and emerging moderated bills andmarkets, moderateddomestic including inflation. domestic in East The inflation. Africa. CurrencyThe following sectionfollowingdepreciations provides section analysis provides have on severely analysis inflation impairedon developments inflation corporate developments amongst liquidity EAC amongst positions,member EAC states.where member liabilities states. are denominated in foreign exchange. Burundi: TheBurundi: average The inflation average rate inflation in Burundi rate wasin Burundi 5.5% in was 2015, 5.5% compared in 2015, tocompared 4.4% in 2014.to 4.4% Inflation in 2014. is Inflationexpected is expected to increase toin increasethe medium in the term medium on account term on of accountrising food of risingprices food and pricesfurther and currency further depreciation. currency depreciation. The risk to Thethe risk to the inflation forecastinflation is forecasthigh on isthe high upside on theowing upside to Burundi’sowing to vulnerabilityBurundi’s vulnerability to weather toconditions. weather conditions.There is also There a is also a likelihood thatlikelihood the growing that the fiscal growing deficit fiscal will be deficit financed will be by financed the central by bank,the central which bank, would which also wouldhave adverse also have inflation adverse- inflation- ary consequences.ary consequences. Kenya: despiteKenya: high despite food priceshigh food and pricesthe shilling and thedepreciation, shilling depreciation, annual inflation annual declined inflation slightly declined to 6.5%slightly in to2015, 6.5% in 2015, compared tocompared 6.8% in to2014. 6.8% Monetary in 2014. policy Monetary has beenpolicy effective has been in effectivecurbing inflation:in curbing the inflation: CBR was the increased CBR was byincreased 300 by 300 basis pointsbasis over pointsthe year, over from the 8.5%year, fromin May 8.5% to 11.5% in May by to July, 11.5% where by July,it has where been itheld has everbeen since. held ever since. Rwanda: InflationRwanda: in InflationRwanda inis Rwandathe lowest is amongstthe lowest the amongst EAC: compared the EAC: tocompared the bloc’s to averagethe bloc’s of average5.0% inflation of 5.0% in inflation in 2015, Rwandan2015, inflation Rwandan averaged inflation just averaged 2.5%, upjust from 2.5%, 1.7% up fromin 2014. 1.7% Headline in 2014. inflation Headline increased inflation throughout increased throughout2015 2015 under risingunder food risingprices. food However, prices. there However, was a there quick was pass-through a quick pass-through from subdued from oil subdued prices to oil transport prices to prices, transport which prices, which has helped hasto keep helped inflation to keep low. inflation Inflation low. is expectedInflation isto expected pick up in to 2016 pick up under in 2016 rising under domestic rising demand domestic and demand a depre and- a depre- ciating currency.ciating currency.

Figure 2: Inflation rates for EA Countries in 2015

9.0

Burundi:8.0 Fell into recession, whereby real GDP growth declined by 4.1%. Political uncertainties spurred an economic

contraction7.0 that affected almost all sectors of the economy especially agriculture, which employs 80% of the popula- tion, tourism and industrial activity. The contraction also caused revenue collections to decline significantly. 6.0 BURUNDI

Kenya:5.0 The economy is estimated to have expanded by 5.6% on the back of public infrastructure projects, buoyant

credit4.0 growth and strong consumer demand. However, this was below expectations (the IMFKENYA projected a growth rate of 6.9%), due to weaknesses in tourism, delays in planned infrastructure spending and volatile external financing 3.0

Annual % Change conditions. 2.0 RWANDA Rwanda: GDP growth remains buoyant at 6.9%. The industrial and services sectors grew evenly at 7.0% each, whilst 1.0 agriculture, forestry and fishing grew by 5.0%. The economy grew in spite of lower commodity prices, combined with 0.0 TANZANIA lower mineralJAN demand,FEB MAR whichAPR halvedMAY theJUN country’sJUL mineralAUG SEP exportsOCT andNOV led toDEC a significant loss of export revenue. Tanzania: Real GDP growth is estimated to have increased by 6.9% in 2015 driven by highUGANDA demand. The services and construction sectors drove economic activity: the service sector contributed to over 50% of total GDP growth. Source: EA Countries’ Bureau of Statistics; EADB Uganda: Real GDP growth reached 5.0% in 2015 driven by public investment, robust private consumption and growth in the services sector, particularly information, communication and support services. The industrial and agricultural sectors also grew robustly. However, GDP was less than expected due to sluggish exports and a weaker than expected private sector.

06 06

Tanzania: Annual headline inflation declined to an average of 5.5% in 2015, from 6.1% in 2014. However, inflation has been trending upwards throughout the year, from 3.9% in January to 6.5% by December, again driven by increasing food prices. Inflation is forecasted to accelerate further in 2016 due to the lagged impact of currency depreciation and rising food prices, undermined by uncertainty surrounding the El Nino. Uganda: Year on year core inflation increased consistently from January through to December, from 2.8% to 7.4%. The sharp exchange rate depreciation exerted a lot of pressure on inflation. Similarly, market uncertainties during the election period and elevated domestic food prices exerted upwards inflation pressures. However, a tight monetary policy stance was effective in preventing a full pass through to domestic inflation. Indeed, the CBR increased from 11% to 17% over the course of the year, which is expected to start easing inflation substantially by mid-2016.

EXCHANGE RATES Across the EAC, currencies depreciated significantly against the USD in 2015. However, East African currency depreciations were more a result of the global USD appreciation as the outlook for the US economy improved and market expectations forecast tighter US monetary policy in the near term. Tight monetary policy within the EAC has been instrumental in containing the pass through of exchange rate depreciations to inflation, although this has been partly supported by low oil prices. Figure 3 depicts the currency movements against the USD, with upward positive shifts showing percentage depreciations.

Figure 3: Exchange rate movements (Local Currency against the USD)

45.0

40.0

35.0

30.0 BIF

25.0 KES 20.0

15.0

Annual % Change RWF 10.0

5.0 DEPRECIATION TZS 0.0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC UGX

Source: EAC Partner States Central Banks; EADB

07 ANNUALANNUAL REPORT REPORT 2015 2015

Burundian Franc: The Franc depreciated by 1.6 per cent over 2015, although the rate of depreciation steadily increased throughoutBurundian theFranc: year Thefrom Franc an appreciation depreciated of by 0.4% 1.6 perin January cent over 2015, 2015, rising although to a depreciation the rate of ofdepreciation 4.1% by steadily December.increased By December throughout 2015, the the year currency from anhad appreciation hit its weakest of 0.4% ever in exchange January 2015, rate against rising to the a depreciationUS dollar at of 4.1% by BIF/USD 1,614.05.December. Although By December the rate 2015, of depreciation the currency of the had Burundian hit its weakest Franc isever the lowestexchange in the rate region, against monetary the US dollar at authoritiesBIF/USD have almost 1,614.05. reached Although their limit the to rate intervene of depreciation in foreign of exchange the Burundian markets Franc due is to the a significantlowest in the decline region, in monetary foreign exchangeauthorities reserves have almostand a wideningreached theircurrent limit account to intervene deficit in in foreign the face exchange of a small markets export due base. to a significant decline in Kenyan Shilling:foreign exchange increased reserves volatility and in aglobal widening financial current markets account and deficit ongoing in the facesecurity of a challengessmall export have base. put pressure onKenyan the Kenyan Shilling: exchange increased rate andvolatility international in global reserves. financial The markets currency and experienced ongoing security its highest challenges annual have put rate of depreciationpressure on in theSeptember Kenyan atexchange 18.5%, reachingrate and KES/USDinternational 105.20. reserves. By the The end currency of the year,experienced the shilling its highest had annual stabilised slightlyrate of todepreciation KES/USD 102.10in September and to at an 18.5%, annual reaching depreciation KES/USD rate of105.20. 12.9%. By The the Central end of Bankthe year, of Kenya the shilling had tightened liquiditystabilised conditions slightly to andKES/USD made 102.10 use of itsand international to an annual reserves depreciation to successfully rate of 12.9%. mitigate The exchange Central Bankrate of Kenya volatility. tightened liquidity conditions and made use of its international reserves to successfully mitigate exchange rate Rwandanvolatility. Franc: The Rwandan Franc depreciated consistently throughout 2015, reaching its highest rate of annual deprecationRwandan in Franc: December, The Rwandanat 7.4% and Franc RWF/USD depreciated 744.00. consistently The Franc throughout depreciation 2015, was reachingmainly caused its highest by rate of high importannual demand, deprecation a relatively in December,narrow export at 7.4% base and and RWF/USD a decline 744.00.in budget The support Franc by depreciation development was partners. mainly caused by In efforts tohigh dampen import thedemand, currency a relatively depreciation, narrow the export authorities base and responded a decline by in tighteningbudget support the monetary by development policy partners. stance, by Inimplementing efforts to dampen frontloaded the currencydonor assistance depreciation, and by the using authorities international responded reserves by to tightening cushion the the immedi monetary- policy ate impact.stance, by implementing frontloaded donor assistance and by using international reserves to cushion the immedi- Tanzanianate Shilling: impact. The shilling experienced heightened volatility and a depreciation against the USD through- out 2015. TanzanianThe highest Shilling:rate of annual The shilling depreciation experienced was experienced heightened in volatility September and and a depreciation October when against the currency the USD through- depreciatedout by 2015. 29.7% The and highest 29.5% rate respectively. of annual depreciationBy the end of was the experiencedyear the percentage in September depreciation and October had reachedwhen the currency 24.9% anddepreciated the currency by stood 29.7% at andTZS/USD 29.5% 2,154.50. respectively. The By shilling the end is expectedof the year to continuethe percentage to depreciate, depreciation albeit hadat reached a slower pace24.9% in 2016.and the The currency depreciation stood atof TZS/USDthe shilling 2,154.50. reflects global The shilling strength is ofexpected the dollar to continueand a lagged to depreciate, impact albeit at of looseneda slowermonetary pace policy. in 2016. The depreciation of the shilling reflects global strength of the dollar and a lagged impact Ugandanof Shilling: loosened The monetary shilling policy.depreciated by more than any other East African currency throughout 2015, by 24.7% on Ugandanaverage, on Shilling: account Theof investor shilling speculation,depreciated butby morealso high than import any other demand East Africanand the currency appreciation throughout of the 2015, by US dollar. 24.7% The rate on average,of depreciation on account peaked of investor at 40.1% speculation, in September, but also before high the import Bank demand of Uganda and intervened the appreciation to of the quash speculators.US dollar. Beyond The rate 2016 of depreciationthe twin fiscal peaked and current at 40.1% account in September, deficits will before outweigh the Bankthe impact of Uganda to steady intervened to growth andquash robust speculators. foreign investment Beyond causing2016 the further twin fiscalslide ofand the current shilling account against deficits the USD. will outweigh the impact to steady growth and robust foreign investment causing further slide of the shilling against the USD.

1.1.4 FISCAL SUSTAINABILITY East1.1.4 Africa FISCAL is characterized SUSTAINABILITY by high fiscal deficits and very low resource mobilization. Recently, regional fiscal deficits haveEast been Africa driven is characterized by elevated government by high fiscal expenditure deficits and to investvery low in infrastructure. resource mobilization. Yet, whilst Recently,infrastructure regional fiscal is a productivedeficits investment, have been the driven level by of elevatedgovernment government investment expenditure and related to investcapital in imports infrastructure. for infrastructure Yet, whilst hasinfrastructure had some isadverse a productive consequences investment, including: the level rising of government debt levels, investmentincreasing andgovernment related capitalsecurity imports yields andfor infrastructureconse- has quently widerhad commercial some adverse bank consequences lending interest including: rates and rising exchange debt levels, rate depreciations. increasing government All of the aforementionedsecurity yields and conse- risk the sustainabilityquently wider of prolongedcommercial fiscal bank deficits. lending interest rates and exchange rate depreciations. All of the aforementioned Burundi: Budgetedrisk the sustainability expenditure of is prolongedexpected to fiscal declined deficits. by 27% to around USD 0.7 billion in 2016/17, compared to 2015/16.Burundi: However, Budgeted revenues expenditure are expected is expected to fall more to declined so, by 29%by 27% over to thearound year, USD and 0.7to their billion lowest in 2016/17, in seven compared years. A weakto 2015/16. revenue performanceHowever, revenues is expected are expected as a result to fallof themore GDP so, contraction, by 29% over which the year, will obviouslyand to their hamper lowest in seven tax collection.years. The A Governmentweak revenue is performanceexpected to control is expected its expenditure as a result nevertheless; of the GDP thecontraction, budget deficit which as will a percentobviously- hamper age of GDP,tax is collection. expected Theto narrow Government to 4.4% is expected(2016) down to control from its5.3% expenditure (2015) reflecting nevertheless; limited the financing budget deficit options. as a percent- The deficitage is expectedof GDP, isto expected be covered to narrow mostly tothrough 4.4% (2016) external down and from domestic 5.3% borrowing(2015) reflecting and partially limited throughfinancing options. central bankThe financing. deficit is expected to be covered mostly through external and domestic borrowing and partially through central bank financing.

08 Figure 4: Budget Balance for EA Countries (% of GDP)

0

-2

-4 BURUNDI -6 KENYA -8

Fiscal balance (% of GDP) Fiscal RWANDA -10

-12 TANZANIA

2010 2011 2012 2013 2014 2015 2016 2017 UGANDA

Source: Economist Intelligence Unit; EADB

Kenya: has consistently demonstrated the highest budget deficit in East Africa throughout the past five years and is expected to continue to do so in the medium term. In 2015/16, the fiscal deficit amounted to 7.2% of GDP. Revenue collection, targeted at USD 12.9 billion (17.7% of GDP), is still lower than usual. The considerable fiscal deficit, driven by high expenditure, reflects large scale infrastructure investments and recurrent expenditure for new counties.

09 ANNUAL REPORT 2015

Table 2: Fiscal Indicators (in billions of USD unless indicated)

2010 2011 2012 2013 2014 2015 2016 2017 Budget balance (% of GDP) Burundi -3.6 -4.0 -3.7 -1.7 -4.5 -5.3 -4.4 -3.5 Kenya -8.4 -5.6 -7.1 -9.8 -6.2 -7.2 -8.0 -7.1 Rwanda -0.1 -3.4 -1.2 -5.0 -4.0 -5.3 -5.2 -4.4 Tanzania -4.8 -5.0 -3.6 -4.2 -3.3 -4.2 -4.5 -4.2 Uganda -4.0 -3.6 -2.5 -3.5 -3.4 -4.5 -6.8 -6.6 Budget revenue Burundi 0.8 0.9 0.8 0.8 0.8 0.7 0.5 0.6 Kenya 7.5 8.3 10.4 11.3 10.8 12.9 13.6 14.2 Rwanda 1.4 1.4 1.7 1.7 2.0 2.0 1.9 2.0 Tanzania 4.4 4.7 5.7 6.1 7.1 6.0 6.3 6.5 Uganda 2.4 2.9 3.1 3.2 3.6 3.4 3.7 3.9 Budget expenditure Burundi 0.8 0.9 0.9 0.9 0.9 0.9 0.7 0.7 Kenya 10.0 9.2 10.8 14.7 14.6 14.8 17.8 18.4 Rwanda 1.4 1.6 1.8 2.1 2.3 2.4 2.3 2.4 Tanzania 5.8 6.2 7.0 7.9 8.6 7.3 8.1 8.3 Uganda 3.1 3.6 3.7 4.1 4.5 4.4 5.4 5.6 Budget revenue (% of GDP) Burundi 37.3 36.1 31.9 29.7 25.6 24.1 17.7 18.0 Kenya 23.9 23.8 21.7 18.3 19.1 17.7 19.3 18.8 Rwanda 25.3 24.1 25.3 23.7 26.1 25.0 23.7 23.9 Tanzania 15.2 15.2 15.9 14.8 15.6 14.8 16.9 16.9 Uganda 12.7 15.5 13.1 13.0 13.7 14.8 15.4 15.4 Budget expenditure (% of GDP) Burundi 40.9 40.0 35.6 31.4 30.1 29.3 22.2 23.5 Kenya 32.2 29.4 28.8 28.1 25.4 25.0 27.5 26.4 Rwanda 25.4 27.5 26.5 28.7 30.0 30.3 29.0 28.6 Tanzania 20.0 20.2 19.5 19.1 19.0 23.2 27 27 Uganda 16.8 18.4 16.0 16.5 17.0 19.4 20.7 20.0 Public debt (% of GDP) Burundi 47.1 42.7 43.0 36.9 34.9 39.8 43.4 41.6 Kenya 41.7 39.9 42.1 44.5 45.9 48.0 50.3 46.9 Rwanda 20.0 20.1 21.7 28.4 30.7 33.5 35.8 37.4 Tanzania 27.8 28.8 29.0 30.8 31.4 34.7 37.3 37.7 Uganda 21.0 21.4 24.0 28.9 29.1 31.0 36.3 37.2

Source: Ministry of Finance for Member States and Economist Intelligence Unit

10 Rwanda: Budget revenues stagnated at USD 2.0 billion in 2014/15 and 2015/16, while expenditure has increased slightly causing the fiscal deficit to worsen from 4.5% to 5.3%. The authorities are implementing new tax measures to boost revenue mobilization, including import levies to help finance infrastructure projects, excise taxes on strategic reserves, higher tobacco taxes and procedures to improve tax compliance. Tanzania: Tanzania is running a relatively stable fiscal deficit. Although the fiscal deficit is expected to increase to 4.3% in 2016, up from 3.1% in 2015, it is the lowest in the region. Significant tax policy measures to reduce non-pri- ority expenditures and to clear arrears, will be implemented in 2016/17. Tax revenue to GDP is expected to improve slightly to 14.6% in 2016, compared to 14% in 2015, backed by the recent presidential drive to fight tax evasion. Fiscal discipline is likely to enable the government to scale up social spending, with plans to provide universal free secondary education, to improve health care and to provide support to farmers. Uganda: The fiscal deficit has been steadily widening over the recent period, from 2.5% of GDP in 2012 to 6.8% of GDP in 2016. Fiscal policy is expected to remain expansionary given government efforts to increase infrastructure spending under National Development Program II. Given the mounting deficit, Uganda is expected to finance its infrastructure investments through external borrowing, with the hope of creating public private partnerships in the future. Yet the fiscal deficit is exacerbated by Uganda’s poor domestic resource mobilization. The revenue to GDP was 4.8% in 2015. Nonetheless, the debt to GDP ratio stands at only 35.8% of GDP and so there is room to increase external borrowing without compromising debt sustainability.

1.1.5 EXTERNAL FINANCING Just before the financial crisis, total financial inflows to East Africa averaged USD 6,648 million per year, of which 13% were incoming remittance transfers, 23% were FDI inflows and 64% were in the form of overseas development assistance (ODA) and aid (Figure 5- inner cycle). Figure 5 presents the changing share of financial inflows in terms of FDI inflows, ODA and aid and remittances. Moving outwards, the circles show the total annual financial inflows to East Africa from 2011 to 2015, although 2015 FDI data is not yet available. Total financial inflows to East Africa have increased dramatically since the financial crisis, from USD 12,142 million in 2011 and to USD 15,958 million in 2014. Whilst the region remains heavily dependent on ODA and aid, which accounted for 54% of all financial inflows in 2014, aid dependence is lessening even compared to 2011 when ODA and aid accounted for 66% of all financial inflows.

Figure 5: Changing composition of External Financing in East Africa

FDI FLOWS 2005-07 PRE-CRISIS ODA AND AID AVERAGE REMITTANCES

Source: World Bank

11 ANNUAL REPORT 2015

ODA and aid inflows are not declining however, rather FDI and remittance inflows have expanded considerably: both FDI and remittance inflows separately increased by 77 % between 2011 and 2014. FDI inflows to East Africa have increased from USD 2,580 million in 2011 to USD 4,578 million by 2014; whilst remittance inflows have increased from USD 1,573 million in 2011 to USD 2,743 million in 2014 and USD 2,799 million in 2015. Increasing FDI and remittance inflows presents a real development opportunity to the region, and if well-managed may be more sustain- able and beneficial to economic growth than ODA and aid. Financial inflows are obviously not uniform across the region. Tanzania has steadily attracted the largest inflows, predominantly in FDI, ODA and aid, while Rwanda attracted the lowest inflows (figure 6). ODA and aid accounted for 53% of external financial inflows to Tanzania in 2014, and grew further from USD 2,832 million in 2014 to USD 3,430 million in 2015, making Tanzania the prime destination for ODA and aid inflows in East Africa, closely followed by Kenya, most likely a result of their larger populations. However, ODA and aid inflows to Tanzania may fall in 2016 given donor withdrawals following concerns surrounding elections in Zanzibar. Donor withdrawal will increase the importance of attracting FDI, something which Tanzania already prioritises under favour- able investment policies. Indeed, Tanzania’s FDI inflows were comfortably the largest in East Africa in 2014 at USD 2,142 million, largely directed towards investments in their natural gas reserves and gold deposits (Tanzania is Africa’s third largest producer of gold). Uganda boasted the second largest FDI inflows in 2014, at USD 1,147 million, as overseas investors sought to develop Uganda’s newly discovered oil fields.

Figure 6: Country decomposition of external financing to East Africa

6000

5000

4000

3000 USD million 2000

1000

0 2005-07 2011 2012 2013 2014 2015 PRE-CRISIS AVERAGE

KENYA FDI FLOWS KENYA ODA AND AID KENYA REMITTANCES RWANDA FDI FLOWS RWANDA ODA AND AID RWANDA REMITTANCES TANZANIA FDI FLOWS TANZANIA ODA AND AID TANZANIA REMITTANCES UGANDA FDI FLOWS UGANDA ODA AND AID UGANDA REMITTANCES

Source: World Bank

12 Throughout East Africa, FDI is likely to continue to grow as new natural resource discoveries are developed and the EAC common market becomes better integrated. Furthermore, as the region seeks to upgrade its transport infrastruc- ture and energy production, it will directly attract FDI in the construction of the above, but will also indirectly attract further FDI as it gains a reputation as a more favourable investment environment. In the above example, Rwanda leads the way: by investing heavily in energy and communications infrastructure and implementing more business-friendly regulatory reforms, Rwanda jumped to 32nd position in the World Bank’s global 2014 Doing Business Report, which encouraged a 125% increase in FDI inflows since 2011. Rwanda’s global ranking has since fallen consecutively in 2015 and 2016, which may encourage some FDI elsewhere, thereby also demonstrating the importance of maintaining a healthy business environment. Whilst Kenya’s FDI inflows are constantly below those of Uganda and Tanzania, they have been growing markedly (by 195% from 2011 to 2014 and by 96% from 2013) and in 2015 Kenya hopes to attract USD 1 billion in FDI inflows as sizeable geothermal power generation contracts have been awarded and several publicly-held companies have been listed for sale to international investors. Increased FDI inflows across East Africa should have a real development impact on the region, by supporting job creation, necessary infrastructure development and international business best practice. At present, governments are successfully attracting nervous international investors, despite the subdued global economic outlook. Finally, remittance inflows constitute the smallest proportion of external financial inflows, particularly in Tanzania where despite a growing middle class, remittance inflows only accounted for 7%, or USD 390 million, of external financial inflows in 2014, falling to USD 382 million in 2015. By contrast, remittance inflows made up 25% of finan- cial inflows in Kenya and Uganda in 2014, and in Kenya grew from USD 1,211 million in 2014 to USD 1,304 million in 2015, in Uganda from USD 913 million in 2014 to USD 941 million in 2015. Indeed, early reports indicate that in 2015, Kenya will be the third largest destination for remittances globally, encouraged by government initiatives to engage the diaspora and present them with attractive investment options, such as Treasury bonds. In many ways, Uganda has tried to emulate Kenya’s example. As the middle class expands, the region may benefit further from engaging a diaspora that will grow in wealth and number.

1.1.6 EXTERNAL SECTOR AND TRADE IN EAST AFRICA High current account deficits and costly external and domestic financing conditions are affecting price stability and increasing macroeconomic vulnerabilities. The current account deficit is exacerbating exchange rate pressures and inducing some central banks to intervene in foreign exchange markets to stem the rate of depreciation. The East African economies have entered this episode of pressure with lower buffers thus limiting the room for additional coun- tercyclical policies. Burundi: The external sector in Burundi is underperforming owing to its limited export base. In 2015 Burundi contin- ued to record a high current account deficit, at USD 468 million (the current account to GDP was 15.2% in 2015). In 2016 the current account deficit is expected to remain the same as domestic demand falters and is expected to be increasingly financed by creditors from China and Russia. Nonetheless, the deteriorating economic situation, forced protectionism by the state and donor outflows have caused international foreign exchange reserves to fall from 3.3 months of import cover in 2014 to 1.4 months in 2015; in 2016 import cover is expected to fall further to 0.8 months, which is far below the IMF’s 3 month recommendation for developing countries.

13 ANNUAL REPORT 2015

Figure 7: Current Account (as a % of GDP)

0 -2 -4 -6 -8 -10 -12 -14 -16

Curremt account/GDP -18 -20

2010 2011 2012 2013 2014 2015 2016 2017

Source: Economist Intelligence Unit and EADB

BURUNDI KENYA RWANDA TANZANIA UGANDA

Kenya: The current account deficit narrowed to an estimated 6.8% of GDP in 2015, compared to 10.4% in 2014. The balance of payments deficit is expected to remain unchanged in 2016 because of large capital equipment imports to support major infrastructure projects and growing demand for consumer goods. The upsurge in the current account deficit in 2014 was mainly attributed to a decline in exports of major export crops namely tea, horticulture products and coffee. The trade balance for Kenya reached a deficit of USD 11.4 billion, though this has since narrowed and exports are further expected to pick up in 2016. EAC integration will help to drive demand for Kenyan manufactures. Horticulture may benefit from the signing of a new economic partnership agreement between the EAC and the EU. Kenya maintains a strong international reserves position covering 4.7 months of imports in 2015 against the EAC average of 3.7 months. Rwanda: is estimated to have recorded a balance of payments deficit of USD 103 million at the end of 2015. The current account deficit deteriorated to USD 1,193 million, or 14.4% of GDP, as the trade deficit escalated, driven by falling mining export revenues and growing imports, particularly in the construction sector. The current account deficit is expected to deteriorate further in 2016, to 15% of GDP, due to a continued increase in imports and fall in exports, especially in mining and services. Rising coffee and tea prices may slightly offset the negative trade balance. Tanzania: The current account deficit improved significantly in 2015, from USD 5 billion in 2014 to USD 3 billion, as manufactured goods and travel receipts pushed exports upwards, whilst falling oil prices offered relief to the import bill. Indeed, the value of oil imports fell by 24% in 2015. The value of construction-related imports also fell by 21% over 2015. Nonetheless, the trade deficit is expected to persist into 2016 as the slowdown in export demand from China and the EU offsets gains from reduced oil prices on imports. The current account deficit is expected to improve slightly from 7.9% in 2015 to 7.5% in 2016.

14 Figure 8: Reserves Import Cover (months) for EA Countries

6.00

5.00

4.00

3.00

2.00

Import cover (months) 1.00

0.00 2014 2015 2016 2017

BURUNDI KENYA RWANDA TANZANIA UGANDA

Source: Economist Intelligence Unit and EADB

Uganda: Despite falling oil prices benefitting the import bill, the trade deficit remains sizeable under high capital goods imports to support many large infrastructure projects. Nonetheless, the current account deficit improved some- what in 2015, from 9.7% of GDP in 2014, to 8.8% of GDP, boosted by low oil prices and robust grants and remit- tances. Looking forward the trade deficit, and current account balance, are likely to improve further as global food prices pick up and benefit agricultural exports, particularly coffee.

1.1.7 BUSINESS ENVIRONMENT The World Bank Doing Business survey of 189 economies (including 47 in Sub-Saharan Africa) provides a useful measure of the business environment and reflects the low overall ranking of the East Africa region. The survey provides an aggregate ranking based on 10 subsidiary indicators: starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; and resolving insolvency. Whilst the survey suggests significant challenges to doing business in the East Africa region, the 2016 survey reflects a modest improvement in the average aggregate ranking of EAC member states relative to 2015, and a notable improvement in the ranking of Kenya and Uganda. Aggregate data for the EAC member states in the 2015 and 2016 surveys are reflected in Table 3. The survey highlights considerable variations in the ranking of individual member states. Rwanda ranks far ahead in its overall ranking of 62, whilst all other member states rank in the second half of the table. In terms of specific indica- tors, trading across borders and getting electricity are identified by the survey as particular challenges in all EAC member states.

15 15 ANNUAL REPORT 2015

Table 3. Ease of Doing Business (EAC average and member states)

EAC Burundi Kenya Rwanda Tanzania Uganda

Ease of doing business ranking (2016) 117 152 108 62 139 122 Ease of doing business ranking (2015) 122 151 129 55 140 135

Source: World Bank Doing Business 2016

EAC member states have continued to take steps to improve the business environment and to support private sector development. Key measures taken in 2015 are summarised in Box 1. EADB recognizes that it can play an important role in strengthening the business environment and East Africa regional competitiveness. The Bank continues to work with the EAC Secretariat, Member Country governments, international development partners and private sector participants towards identifying opportunities to support improvements and to promote the sharing of best practice between member states.

Box 1. Improving the Business Environment EADB member states recognise the importance of providing a positive business environment and have taken the following steps during the year:

Kenya: Assessment and payment of stamp duties on starting a business has been expedited; the time for new electricity connections has been reduced through increased hiring of contractors for meter installation; property transfers have been expedited through electronic document handling and introduction of a standardized registration form at the Land Registry; the government has provided direct support for increased electricity generation, e.g. the $698m Lake Turkana Wind Power project.

Rwanda: Starting a business has been simplified by eliminating the need for new companies to open a bank account in order to register for VAT; the issue of construction permits has been expedited through adopting a new building code and new urban planning regulations; access to credit information has been enhanced through extended borrower coverage and improved credit reporting; protection of minority shareholders has been improved; the tax system has been simplified through introduction of electronic tax filing; insolvency procedures have been improved through provisions on voidable transactions and additional safeguards for creditors in reorganiza- tion proceedings; the government has provided direct support to foreign direct investments, e.g. the $23.7m solar field at Agahozo Shalom Youth Village.

Tanzania: Processing of export and import documents has been expedited through implementing the Tanzania Customs Integrated System (TANCIS), an online system for downloading and processing customs documents.

Uganda: Starting a business has been simplified through introducing an online system for obtaining a trading licence and by reducing business incorporation fees; new electricity connections have been expedited through increased deployment of customer service engineers and reduced time for inspection and meter installation; credit bureau services have been enhanced to provide extended borrower coverage and improved access to credit information.

16 16 1.2 ECONOMIC PROSPECTS Global growth is projected to remain modest in 2016, at 3.1%, with 1.8% growth for advances economies and 4.1% for emerging and developing economies. East Africa is expected to grow by 5.6%. Growth in emerging and developing econo- mies will remain 2 percentage points below the average of the past decade. Growth stagnation is a reflection slow recovery in the advanced economies. China’s shift away from manufacturing and investment to more consumption and services-led growth is expected to slow down the economy. Global inflation is expected to increase moderately as commodity prices start to pick up. The section below analyses the prospects for growth in the EAC.

ECONOMIC PROSPECTS IN EAST AFRICA The average growth in East Africa is estimated to have declined to 4.1% in 2015. Growth is projected to grow by 5.6% in 2016 and at an average of 5.8% in medium term (Table 4). The slowdown in 2015 is mainly on account of anticipated reces- sion in Burundi.

Burundi: Political uncertainties will continue to constrain economic growth in 2016, but a partial return to business as usual should see a rebound in economic activity by 3.9% in 2017. Better weather conditions, a more stable economic environment and an increase in global commodity prices should stimulate agricultural performance, although low productivity and insuffi- cient access to finance will remain a constraint. The political situation remains a major risk to growth as output will stagnate or decline, should the political turmoil worsen. Furthermore, inflation will continue to rise in 2016 averaging 7.6% on account of rising food prices, but is expected to decline to 6.2% in 2017. Yet, the risks to inflation are biased upwards due to Burundi’s vulnerability to international prices and unusual weather conditions.

Kenya: Growth is expected to remain above 6% in 2016 and in the medium term will be driven by on-going investment in infrastructure supported by increased domestic consumption, particularly in the services sector, and closer economic integration. Risks to growth are on the downside. According to the IMF, a potential increase in volatility of capital flows is the major down- side risk. Other constraints include infrastructure bottlenecks, skills shortages, vulnerabilities in the banking system, and uncertainties about FDI in oil and gas exploration and possible spending pressure in the run-up to the 2017 presidential elections. Inflation is expected to be contained at an average of 6.3% in 2016 from 6.6% in 2015.

17 17 ANNUAL REPORT 2015

Table 4: Selected Economic Indicators

Projections 2010 2011 2012 2013 2014 2015 2016 2017 GDP (Current Prices, USD Billions) Burundi 2.0 2.2 2.3 2.5 2.9 2.9 2.8 3.0 Kenya 40.0 42.0 50.4 54.9 60.9 61.4 64.7 69.1 Rwanda 5.7 6.4 7.2 7.5 7.9 8.3 8.5 9.1 Tanzania 31.1 33.6 39.1 44.4 48.1 44.9 45.9 49.5 Uganda 20.2 21.1 24.6 25.6 27.5 24.7 25.0 27.6 EAC total 99.0 105.3 123.7 135.0 147.3 142.2 146.8 158.2 GDP growth (constant prices) Burundi 5.1 4.0 4.4 4.5 4.7 -4.1 3.4 3.9 Kenya 8.4 6.1 4.6 5.7 5.3 5.6 6.0 6.1 Rwanda 7.3 7.8 8.8 4.7 7.0 6.9 6.3 6.7 Tanzania 6.4 7.9 5.1 7.3 7.0 6.9 6.9 6.7 Uganda 7.7 6.8 2.6 4.0 4.9 5.0 5.3 5.7 EAC average 7.0 6.5 5.1 5.2 5.8 4.1 5.6 5.8 GDP per capita (current prices, USD) Burundi 243 261 266 283 315 306 287 301 Kenya 1,039 1,062 1,239 1,314 1,417 1,388 1,422 1,477 Rwanda 570 628 688 700 717 732 732 762 Tanzania 726 765 870 969 1,029 942 944 998 Uganda 594 601 678 681 711 620 608 651 EAC average 634 664 748 790 838 798 799 838 Inflation (annual average) Burundi 6.5 9.6 18.2 7.9 4.4 5.6 7.6 6.2 Kenya 4.3 14.0 9.4 5.7 6.9 6.6 6.3 6.0 Rwanda 2.3 5.7 6.3 4.2 1.8 2.5 4.8 5.0 Tanzania 7.2 12.7 16.0 7.9 6.1 5.6 6.1 5.1 Uganda 4.0 18.7 14.0 4.8 4.6 5.8 6.7 5.9 Population (millions) Burundi 8.4 8.6 8.8 9.0 9.2 9.4 9.6 9.9 Kenya 38.5 39.5 40.7 41.8 42.9 44.1 45.2 46.4 Rwanda 10.0 10.2 10.5 10.8 11.1 11.4 11.7 12.0 Tanzania 42.8 43.9 44.9 46.3 47.7 49.1 50.6 52.1 Uganda 33.4 34.5 35.6 36.8 38.0 39.2 40.4 41.6 EAC total 133 137 141 145 149 153 158 162

Source: IMF WEO, April 2016

18 18 Rwanda: OverRwanda: the medium Over the term, medium growth term, prospects growth will prospects remain willin line remain with inRwanda’s line with high Rwanda’s potential high at potentialan average at anof average7%. of 7%. Economic growthEconomic will begrowth supported will be by supported robust performance by robust performance across services, across industry services, and industry agriculture. and agriculture.Growth will Growthbe bolstered will be bolstered by rising commodityby rising commodityprices particularly prices particularlycoffee and tea.coffee The and external tea. The outlook external is subject outlook to is downside subject to risks. downside A further risks. decline A further of decline of commodity commodityprices or shocks prices affecting or shocks the affecting tourism thesector tourism could sector result couldin lower result growth. in lower A worsening growth. A situation worsening in Burundisituation couldin Burundi could have implicationshave implications in Rwanda asin moreRwanda refugees as more escape refugees from escape the crisis. from the crisis. Lower food Lowerand oil food prices and have oil pricesbeen instrumental have been instrumental in containing in inflationcontaining to 2.5%inflation in 2015. to 2.5% Rising in 2015. world Rising commodity world pricescommodity and prices and high domestichigh demand domestic will demand exert a littlewill exertpressure a little on pressure inflation onin 2016.inflation in 2016.

Tanzania: TheTanzania: broad macroeconomicThe broad macroeconomic outlook is expected outlook isto expectedremain strong to remain at 6.9% strong in 2016.at 6.9% Growth in 2016. will Growthbenefit fromwill benefit the from the positive termspositive of trade terms impact of trade from impact lower oilfrom prices. lower Manufacturing oil prices. Manufacturing is expected tois expectedcontinue registeringto continue steady registering growth. steady The growth. pass The pass through fromthrough a weaker from currency a weaker is expectedcurrency tois expectedkeep inflation to keep slightly inflation elevated slightly into elevated 2016. into 2016. Inflation willInflation be contained will be at contained an average at anof 6.1%average in 2016 of 6.1% up infrom 2016 5.6% up infrom 2015. 5.6% Supply in 2015. side Supplyfactors, side mainly factors, food mainly prices foodand prices and exchange rateexchange depreciation rate depreciation will be key driverswill be forkey inflation. drivers for inflation.

Uganda: RealUganda: economic Real growth economic is projected growth isat projected 5.3% in 2016,at 5.3% and in to2016, average and 6.1%to average over the 6.1% medium over the term. medium Growth term. will Growthbe will be driven by increaseddriven by public increased infrastructure public infrastructure investment, investment,a recovery ina recoverydomestic indemand domestic and demand increased and private increased investment private oninvestment on account of monetaryaccount of policy monetary easing. policy A rebound easing. inA reboundinternational in international commodity commodityprices will also prices support will also trade. support Key risks trade. to Keygrowth risks to growth include marketinclude volatility, market especially volatility, regarding especially theregarding exchange the rate, exchange bad weather rate, bad and weather conflict and in neighboringconflict in neighboring South Sudan. South Sudan. Inflation pressureInflation will pressure remain willhigh remain in 2016 high on inaccount 2016 onof highaccount demand of high for demand imports andfor imports a weaker and shilling. a weaker shilling.

1.3 RISKS1.3 AND RISKS CHALLENGES AND CHALLENGES The East AfricanThe East Community African Communityfaces a challenging faces a challengingnear-term outlook. near-term So outlook.far the impact So far ofthe low impact commodity of low commodityprices have priceshad a have had a beneficial impactbeneficial to EA, impact apart to from EA, inapart Rwanda. from inHowever, Rwanda. weakness However, in weakness the financial in the sector financial and politicalsector and instability political (for instability some (for some EAC states) EACpose states) challenges pose tochallenges growth. Into agrowth. bid to addressIn a bid infrastructureto address infrastructure challenges, challenges,the governments the governments of the EAC ofmember the EAC member states will continuestates will to continueinvest heavily to invest in energy heavily and in energytransport and infrastructure transport infrastructure to improve theirto improve business their environments. business environments.

WeaknessesWeaknesses in Financial in sector Financial sector Globally, theGlobally, legacy of the both legacy the financialof both the and financial euro area and crises euro leftarea international crises left international banks weak banks and higher weak globaland higher levels global of public, levels of public, corporate andcorporate household and debt.household This has debt. constrained This has constrainedconsumption consumption in advanced in economies advanced andeconomies consequently and consequently exports from exports from emerging andemerging developing and developingeconomies. economies.As a result, Asprivate a result, sector private growth sector has growthtypically has slowed typically in East slowed Africa in andEast willAfrica continue and will continue to slow in theto near-term.slow in the near-term.

GeopoliticalGeopolitical tension and tension threats and of terrorismthreats of terrorism Growth weakenedGrowth substantially weakened substantially in Burundi and in Burundi South Sudan and South amid Sudan political amid instability political and instability civil strife. and Burundi civil strife. and Burundi South Sudan and South Sudan went into a recessionwent into awith recession real GDP with growth real GDP declining growth by declining 4.1% and by 0.2% 4.1% respectively and 0.2% respectivelyin 2015. In inBurundi, 2015. theIn Burundi, political theuncer political- uncer- tainties spurredtainties an economicspurred an contraction economic contractionhitting almost hitting all sectors almost of all the sectors economy. of the As economy. a result ofAs decreased a result of output,decreased revenue output, revenue collection hascollection declined has significantly. declined significantly. The situation The in situationBurundi hasin Burundi delayed has the delayed negotiations the negotiations to formalize to Burundi’s formalize joining Burundi’s of joining of EADB and hasEADB affected and has regional affected trade. regional trade. In Kenya, al-Shabab,In Kenya, al-Shabab,a Somali based a Somali Islamist based group Islamist which group has carried which hasout acarried string outof attacks a string in of recent attacks years in recent poses yearsa major poses a major threat to thethreat tourism to thesector. tourism Failure sector. to tackle Failure security to tackle and security ethnic tensionsand ethnic could tensions erode could support erode for thesupport current for administration.the current administration.

19 19 ANNUAL REPORT 2015

High interestHigh rates interest in East rates Africa in East Africa Interest ratesInterest are always rates aboveare always the global above normthe global in East norm Africa, in Eastbut fromAfrica, 2011 but fromQ4 to 2011 2012 Q4 Q3 to they 2012 jumped Q3 they further jumped above further above global rates,global partly rates, in response partly into responseelevated toinflation. elevated Banks inflation. were Banksforced were to maintain forced tohigh maintain interest high rates interest to maintain rates topositive maintain positive real interests.real However, interests. interest However, rates interest remained rates elevated remained post elevated the surge post in the inflation surge (seein inflation figure 9)(see as figuregovernments 9) as governments borrowed borrowed heavily on domesticheavily on markets domestic to financemarkets mountingto finance fiscal mounting deficits. fiscal High deficits. interest High rates interest have constrainedrates have constrainedprivate sector private credit sector credit growth (see growthtable 5) (see as governmenttable 5) as government borrowing, throughborrowing, raising through interest raising rates, interest has priced rates, manyhas priced other manyplayers other out ofplayers domestic out of domestic capital markets.capital Equally, markets. high Equally, interest high rates interest led EADB rates to led postpone EADB to the postpone issuing ofthe a issuingregional of domestic a regional bond domestic to finance bond to finance its operations.its operations. a a

Figure 9: Commercial Bank Average Lending rates in East Africa (%)

28

26

24

22 BURUNDI 20

18 KENYA

16

14 RWANDA

Weighted average lending rates (%) Weighted 12 TANZANIA 10 2010 2011 2012 2013 2014 2015

Year UGANDAUGANDA

Source: EADB based on data from Central Banks

Table 5: Domestic Credit Growth

Projections 2010 2011 2012 2013 2014 2015 2017 Burundi 25.75 25.27 12.76 7.62 17.76 -6.40 -18.10 4.00 Kenya 27.79 19.27 15.90 13.20 17.24 17.79 15.10 12.10 Rwanda 23.51 8.10 89.20 3.43 56.80 12.60 7.70 6.70 Tanzania 32.78 33.76 21.47 17.22 24.07 26.85 21.70 19.40 Uganda 68.05 27.15 7.66 10.86 27.06 17.60 13.00 15.10

Source: Economist Intelligence Unit

20 20 High exchange rate volatilities From the second half of 2014 and throughout 2015, the USD appreciated dramatically, forcing many emerging and develop- ing market currencies to depreciate. Figure 10 shows significant depreciation of East African currencies against the USD. On average in 2015, the Ugandan shilling (UGX), Tanzania shilling (TZS) and Kenyan shilling (KES) depreciated by 24.7%, 20% and 12% annually respectively. Sizable external trade deficits and uncertainties leading to the general election in February 2016 could account for high depreciation of the UGX and to some extent of the TZS in 2015. Both the Rwandan Franc (RWF) and Burundian Franc (BIF) experienced modest depreciation of 6% and 2% respectively. The currency depreciation implies that enterprises borrowing in foreign currency to finance projects whose cash flows (revenues) are in local currencies incur significant exchange rate losses when repaying in USD. The liquidity position and foreign currency debt service capacity of these firms is weakened. EADB typically raises funds internationally, in EUR and USD, and on-lends to enterprises in these currencies. Whilst the Bank is cushioned against exchange rate losses, the borrowing entities are exposed to exchange rate risks. The depreciation of local currencies has therefore suppressed demand for EADB loans, a factor that may also influence future demand.

Figure 10: Exchange rate movements against the USD (percentage change)

30.0 BRF 25.0

20.0 KES 15.0

10.0 RWF 5.0

0.0 TZS -5.0 Local currency/USD. (Annual % depreciation) currency/USD. Local -10.0 UGX 2010 2011 2012 2013 2014 2015

Source: EADB based on data from EAC Central Banks

21 21 ANNUAL REPORT 2015

22 22 OVERVIEWOVERVIEW OFOF THE THE YEARYEAR’S ’S ACTIVITIESACTIVITIES

23 23 ANNUAL REPORTANNUAL 2015 REPORT 2015

24 24 2.1 LENDING OPERATIONS In 2015, EADB approved USD 184 million of facilities, a 2.4 times increase on 2014, and disbursed USD 82 million, 2.1 times higher than in 2014. The number of facility approvals was 27, whilst disbursements were made on 25 facilities during the year. Significant portfolio developments include EADB support for the state owned electricity utilities in Kenya and Tanzania, a participation in the Lake Turkana Wind Power project and lines of credit to financial intermediaries to support the financing of micro, small and medium enterprises (MSMEs). Outstanding loans and advances increased by 52% over the course of the year from USD 106.7 million as at 31st December 2014 to USD 162 million as at 31st December 2015.

2.2 FOCUS AREAS EADB lending operations were targeted on enterprises operating in the Bank’s focus areas of food security, infrastructure, skills development, climate change and regional integration. Examples of EADB activities in each of these areas are provided in Box 2.

2.3 PARTNERSHIPS The Bank has well-established relationships with key development partners. The African Development Bank (AfDB) currently provides over USD 40 million of funding to EADB under lines of credit and provides technical assistance to support EADB capacity development under the Fund for Africa Private Sector Assistance (FAPA) programme. These facilities provide a high degree of flexibility to EADB in determining their appropriate use: AfDB lines of credit have been utilised to support a range of EADB lending operations, whilst FAPA funds have contributed to significant development of the Bank’s policies and procedures, and enhancement of EADB operations, notably related to product devel- opments, the assessment of development outcomes, and the development of its monitoring and evaluation capabilities.

25 25 ANNUAL REPORT 2015

Box 2. EADB Focus Areas

Food security: Under funding provided by KfW, EADB entered into an EUR 8 million ‘Rural Finance Enhancement Programme’ targeted at providing medium to long-term loans to financial institutions for on-lending to farmers and MSMEs in rural areas of Uganda. Final beneficiaries under the scheme include farmers, agricultural traders, fish mongers, community social service providers, house builders, transport operators, communication service providers and general business services. These activities have created significant employment opportunities as well as contributing to higher disposable incomes and improved infrastructure in the targeted rural areas.

Infrastructure: EADB continues to engage in regional infrastructure development, notably in the electricity sector, in which the Bank has significant exposure to the state-owned electricity utilities to support the extension of electricity supply and increased efficiency in electricity generation, particularly from renewable sources. The Bank has also engaged in the development of social infrastructure, such as the funding of schools and hospitals.

Skills development: EADB recognises the contribution of small and medium enterprises (SMEs) to economic growth, skills development and improved livelihoods. The Bank provides support to SMEs through lines of credit to financial intermediaries for on-lending to SME final beneficiaries. With its considerable experience of working with financial intermediaries in each of its member states, EADB is well placed to select partners with the capacity to support business and technical skills development as well as providing financial support.

Climate change: The Regional Collaboration Centre (RCC) Kampala, a collaboration between the United Nations Framework Convention on Climate Change (UNFCCC) and EADB was established at EADB Headquarters in February 2013 as one of five global centres. The centre continues to operate as an UNFCCC/EADB partnership, working with governments, non-governmental organizations and private sector actors in Eastern and Southern African regarding the use of Clean Develop- ment Mechanism (CDM) tools. The centre also aims to increase the ability of these actors to participate effectively in the Paris Agreement through article 6 of the agreement and through implementation of climate change mitigation initiatives. In another climate change initiative, EADB commenced the application process to become an accredited Regional Implementing Entity (RIE) of the Green Climate Fund (GCF), which will enable the Bank to work with Member Country governments and private sector actors to access GCF funds for climate mitigation and adaptation activities.

Regional integration: EADB recognises the benefits of regional integration and supports trade reform efforts and regional infrastructure development as contributory measures towards increased intra-regional trade and balanced development. The Bank is involved in the financing of regional infrastructure projects and the promotion of mechanisms and institutions to support regional programmes and projects on behalf of its member states.

26 26 Other lines of credit are provided by the European Investment Bank (EUR 25 million) and the OPEC Fund for International Development (USD 15 million), both provided to support EADB lending to SMEs, and KfW for the purposes of supporting lending to MSMEs in rural areas. Also during 2015, EADB entered into an agreement with the Arab Bank for Economic Devel- opment in Africa (BADEA) for a line of credit for USD 12 million to support private sector capital formation and entered into a cooperation agreement with the African Finance Corporation to collaborate in the promotion of trade finance in the EAC member states including the co-financing of transactions, financial risk sharing, project identification, preparation and appraisal, project monitoring and evaluation, and exchanging information on country risks and project analysis. Full details of the Bank’s lines of credit are provided in Note 24 of the Financial Statements for the year ended 31st December 2015. As noted above, EADB continues to partner with the UNFCCC in hosting the RCC for East and Southern Africa. To date, activi- ties have been focused on providing technical and procedural support for CDM projects and programmes of activities and facilitating access to finance and capacity development of government and private stakeholders. Following adoption of the Paris Agreement at the 21st meeting of the Conference of the Parties in December 2015, RCCs have been further mandated to support least developed countries in areas such as capacity building for the implementation of nationally determined contributions (NDCs) and nationally appropriate mitigation actions (NAMAs). The RCC has established partnerships with several international agencies such as GIZ, UNDP, the UNEP-DTU Partnership and IRENA, and sponsored over 15 regional and international capacity building events in 2015 with strategic support from EADB. EADB continues its partnership with DLA Piper, a global law firm, towards strengthening capacity related to extractive industry contract negotiations in East Africa. This partnership takes the form of co-hosting workshops to train public sector lawyers and law professors on structuring and negotiating international commercial contracts and agreements. Three workshops took place during 2015 in Kigali, Rwanda (March 2015), in Kampala, Uganda (June 2015), and in Dar es Salaam, Tanzania (September 2015). EADB also continues to collaborate with the Inter-University Council of East Africa (IUCEA) to promote enterprise evolution and growth through research and innovation, capacity building, and knowledge development/transfer for strengthening entrepreneurship and enterprise development in East Africa. In 2015, EADB and IUECA hosted an Academia Public Private Partnership Forum and Exhibition in October with the theme of ‘Developing an Ideal Graduate for East Africa’s Sustainable Socio-Economic Development’.

2.4 INTERNATIONAL CREDIT RATING In June 2015, Moody’s Investors Service announced their upgrade of EADB’s long-term issuer rating to Baa3 with a stable outlook (from Ba1 previously). The main drivers for the upgrade were (i) a significant improvement in the Bank’s capital buffer due to a material increase in paid-in capital by the Bank’s shareholders, and (ii) a sharp decline in non-performing loans as a result of the Bank’s sustained efforts to improve its loan portfolio quality.

2.5 TREASURY SERVICES AND MANAGEMENT During 2015, EADB implemented its treasury activities in accordance with the provisions of Treasury Policies and Procedures under the supervision of the Assets and Liabilities Committee (ALCO). These operations mainly included investments, resource mobilization and hedging of currency risk exposures arising from its financing operations.

2.6 RISK MANAGEMENT In 2015, the Bank continued to focus on managing risk exposures assumed in the normal course of providing development banking services. Over the year, EADB identified risks inherent in its business activities and systematically categorized these into five primary areas namely: credit; operational; market; liquidity; and compliance/legal risks. Subsequently, the Bank allocated these risks to three secondary generic categories comprising strategic, business and reputation risks. These stringent risk management practices contributed to consolidating the Bank’s capital base and improving the credit quality of its loan portfolio.

27 ANNUAL REPORT 2015

Credit risk management is fundamental to the sustainability of EADB’s lending activities. As in previous years, in 2015 the Bank managed its business in a way that is consistent with its risk appetite. Specifically, the EADB continued to be guided by its investment policy and credit risk professionals sanctioned new risk exposures; ensured all elements of post sanction fulfilment are completed in line with the terms of sanction; maintained robust systems, gathered data and submitted credit risk assessment reports within a clearly defined delegated authority. With the financial support of the African Development Bank and technical support from Frankfurt School of Finance and Management, the EADB upgraded its Enterprise Risk Management Framework in 2015. This has helped the Bank to calibrate its approach to provide direction on understanding the principal risks in order to achieve its strategy, establish risk appetite and internally communicate its risk management framework. The Bank has also received financial support from the African Development Fund (ADF), Technical Assistance Fund, towards the cost of the East African Development Support Project to develop a ‘web based Credit Knowledge Management Software’. This constitutes Phase II of the ERM Project. The system will enable EADB to capture, analyze and assess the credit risk of existing and future clients customized to EADB policies and procedures, which can be accessed on a real-time basis from web browsers and mobile tablets. The system provides a repository to manage, share and update knowledge, centralize assess- ments across the whole portfolio and to support the loan officers at various stages.

2.7 ORGANISATIONAL DEVELOPMENT Throughout 2015, EADB sustained its efforts to develop its internal policies, processes and systems. Notable developments included: drafting of an ERM framework (see above); a review of EADB products, assessment of development outcomes, and monitoring and evaluation system; the drafting of updated policy documents, procedures manuals, legal templates and job descriptions; and initial steps in the development of a customised human resources information system to improve data management and operational efficiency in the department.

28 GOGOVERNANCEVERNANCE ANDAND CORPORACORPORATETE AFFAFFAIRSAIRS

29 29 ANNUAL REPORT 2015

30 30 3.1 GOVERNING3.1 GOVERNING COUNCIL COUNCIL The GoverningThe GoverningCouncil, comprising Council, comprisingof the Ministers of the responsible Ministers responsible for Finance for from Finance each offrom the each Bank’s of themember Bank’s States, member is the States, is the supreme governingsupreme authoritygoverning of authority the Bank. of Thethe GoverningBank. The GoverningCouncil met Council once, onmet 10th once, April on 2015,10th April to discharge 2015, to itsdischarge duties. its duties. During the Duringmeeting the the meeting Council the undertook Council theundertook following: the following: • Adopted• the Adopted EADB Annual the EADB Report Annual for theReport year for 2014 the andyear commended2014 and commended management management and staff for and the staff good for performance; the good performance; • Appointed• PriceWaterhouseCoopers Appointed PriceWaterhouseCoopers (PWC) as external (PWC) asauditors external of auditorsthe Bank of for the the Bank year for 2015; the year 2015; • Admitted• the Admitted Republic the of RepublicBurundi toof MembershipBurundi to Membership of the EADB; of the EADB; • Agreed •to increase Agreed tothe increase authorised the authorisedshare capital share of EADB capital to ofUSD EADB 2.16 to billionUSD 2.16 from billion USD 1.08from billion.USD 1.08 The billion.increase The in increasethe in the authorised authorisedshare capital share of EADB capital will of consist EADB willof 80,000 consist newof 80,000 shares new at par shares value at of par 13,500 value each.of 13,500 The 100%each. increaseThe 100% in increase in the authorisedthe shareauthorised capital share of EADB capital is intendedof EADB isto intendedcater for tothe cater Republic for the of RepublicBurundi’s of admission Burundi’s andadmission to increase and tothe increase “class the “class B” authorisedB” authorisedshareholding shareholding such that the such “class that B” the shareholding “class B” shareholding is maintained is maintained at 10% of totalat 10% authorised of total authorisedshares in line shares in line with EADB’swith Charter EADB’s and Charter Governing and GoverningCouncil resolutions; Council resolutions; • Agreed •to waive Agreed generally to waive all generally immunities all immunitiesof the EADB of in the respect EADB of in the respect line ofof creditthe line agreement of credit agreementwith the AfDB; with and the AfDB; and • Provided• guidance Provided on guidance equity subscription on equity subscription and allotment and of allotment shares and of sharesprogress and on progress the establishment on the establishment of the Multinational of the Multinational Umoja Bond.Umoja Bond.

3.2 ADVISORY3.2 ADVISORY PANEL PANEL The AdvisoryThe Panel Advisory comprises Panel ofcomprises eminent ofpersons eminent in personsinternational in international finance who finance provide who the provide Bank with the strategicBank with guidance strategic guidance during formalduring sessions formal held sessions alongside held the alongside meetings the of meetings the Governing of the GoverningCouncil. The Council. current The Advisory current Panel Advisory members Panel are; members Mr. are; Mr. Lars Ekengren,Lars Mr.Ekengren, Mahesh Mr. K. MaheshKotecha, K. Mr. Kotecha, Jannik LindbaekMr. Jannik and Lindbaek Mr. Toyoo and Gyohten. Mr. Toyoo Gyohten.

3.3 BOARD3.3 BOARD OF DIRECTORS OF DIRECTORS The Bank’s TheBoard Bank’s of Directors Board of is Directorsrequired isto requiredmeet at leastto meet once at everyleast oncequarter every to conductquarter tothe conduct business the of businessthe Bank. of Indeed,the Bank. Indeed, the Board ofthe Directors Board of met Directors four times met infour 2015 times to inundertake 2015 to theundertake following: the following: • Noted the• progress Noted the made progress to establish made to the establish East African the East Development African Development Fund. Fund. • Noted the• progress Noted the made progress in institutional made in institutional capacity building capacity with building respect with to: (a)respect enhancement to: (a) enhancement of operations; of operations; (b) reinforce (b)- reinforce- ment of riskment operations; of risk operations; (c) review of (c) policies review andof policies procedures and proceduresand (d) training and (d)of staff;training of staff; • Congratulated• Congratulated the Bank’s themanagement Bank’s management and KPMG andon the KPMG excellent on the work excellent done workin assessing done in the assessing Bank’s theinternal Bank’s controls internal controls and on theirand transparency on their transparency in reporting in areas reporting of improvement; areas of improvement; • Reviewed• the Reviewed PWC valuation the PWC of valuation the Bank of and the recommendedBank and recommended the discounted the discountedcash flow method cash flow as methodthe primary as the valuation primary valuation approach toapproach provide ato benchmark provide a benchmark for negotiations for negotiations and to determine and to thedetermine required the equity required contribution equity contribution from the Republic from the Republic of Burundi. of Burundi.

31 31 ANNUAL REPORT 2015

The BoardThe also Board tabled also recommendations tabled recommendations to the Governing to the Governing Council for Council approval: for approval: • The Bank’s• The financial Bank’s statements financial statements for the year for ending the year 31st ending December 31st December2014, as presented 2014, as by presented Bank management by Bank management and and external auditors;external auditors; • The EADB• Amendment The EADB Amendment Bill, which incorporatesBill, which incorporates the Charter the Amendments Charter Amendments to Articles 3,to 4,Articles 24, 44 3, and4, 24, 45 44into and relevant 45 into relevant legislations legislationsso that the soGovernment that the Government of Uganda ofmay Uganda ensure may that ensure the Bank’s that theprivileges Bank’s andprivileges immunities and immunitiesare recognised are recognised and observed;and observed; • Appointment• Appointment of the recommended of the recommended external auditors external for auditors 2015; for 2015; • Noted the• equity Noted subscription;the equity subscription; as at 31st Decemberas at 31st December2014, the total2014, shareholders’ the total shareholders’ equity was equityUSD 219.4 was USD million. 219.4 The million. The GovernmentGovernment of Uganda ofcompleted Uganda completedits capital subscription its capital subscription under programme under programme II, whilst other II, whilst countries’ other capitalcountries’ subscrip capital- subscrip- tions were alsotions recognised. were also recognised. • Noted that• Bank Noted struggled that Bank to struggled attain affordable to attain long-termaffordable financing long-term between financing 2011 between and 2014 2011 following and 2014 the following Blue Line the litiga Blue- Line litiga- tion. Furthermore,tion. Furthermore, high interest high rates interest have delayedrates have the delayed listing of the local listing currency of local bonds currency and bondsthe exemption and the ofexemption withholding of withholding tax may impacttax may the impactmarketability the marketability of the Umoja of thebond. Umoja The bond.Bank enjoys The Bank strong enjoys shareholder strong shareholder support which support accounted which foraccounted for 75% of its total75% funding of its total in 2014;funding in 2014; • The Bank’s• Thebudget Bank’s for thebudget year for 2016; the yearand 2016; and • The following• The policy following documents: policy documents: (a) economic (a) and economic sector classificationand sector classification limits; limits; (b) enterprise-wide (b) enterprise-wide risk management; risk management; and and (c) compliance (c) compliance and pricing and policy. pricing policy.

32 32 DIRECTDIRECTORS'ORS' REPORTREPORT AND AND FINANCIALFINANCIAL STSTATEMENTSATEMENTS

33 33 ANNUAL REPORT 2015

34 34 East African Development Bank Financial Statements For the year ended 31 December 2015

The directors submit their report together with the audited financial statements for the year ended 31 December 2015, which disclose the state of affairs of East African Development Bank (“EADB” or “the Bank”).

INCORPORATION The Bank was created under the Treaty for the East African Co-operation of 1967, which was subsequently amended and re-enacted as the Treaty and Charter of the East African Development Bank in 1980.

PRINCIPAL ACTIVITY The principal activity of the Bank is development finance lending under the Bank’s Charter.

RESULTS The results for the year are set out on page 38 of the financial statements.

DIVIDEND The directors do not recommend the payment of dividends for the year (2015: Nil).

DIRECTORATE The Directors who served during the year are set out on page viii of this report.

AUDITOR The Bank’s auditor, PricewaterhouseCoopers, has indicated willingness to continue in office.

APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved at a meeting of the Board of Directors and Governing Council held on 20 March 2016.

By order of the Board

Director 2016

35 35 ANNUAL REPORT 2015

East African Development Bank Statement of Directors’ Responsibilities For the year ended 31 December 2015

The directors are responsible for the preparation and fair presentation of the financial statements, comprising the statement of financial position at 31 December 2015, statement of comprehensive income, the statement of changes in equity and statement of cash flows for the year then ended, and the notes to the financial state- ments, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards, and in the manner required by the Bank’s Charter. The directors accept responsibility for the financial statements set out on pages 38 to 96 which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial Reporting Standards and the Bank’s Charter. The directors are of the opinion that the financial statements give a true and fair view of the financial position of the Bank and of its performance for the year ended 31 December 2015. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the Bank will not be a going concern for the twelve months from the date of this statement.

APPROVAL OF THE FINANCIAL STATEMENTS The financial statements, as indicated above, were approved by the board of directors and Governing council on 20 March 2016 and were signed on its behalf by:

Chairperson:

Director General:

36 36 East African Development Bank Financial Statements For the year ended 31 December 2015

REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF EAST AFRICAN DEVELOPMENT BANK

4.1 REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of East African Development Bank (“the Bank”) as set out on pages 38 to 96. These financial statements comprise the statement of financial position at 31 December 2015, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ Responsibility for the Financial Statements The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and in the manner required by the Treaty and Charter of the East African Devel- opment Bank (the “Bank’s Charter”), and for such internal control as the directors determine is necessary to enable the prepa- ration of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility Our responsibility is to express an independent opinion on the 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 require- ments and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from mate- rial misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s 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, the auditor consid- ers 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 effective- ness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors 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 reasonable basis for our opinion.

Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Bank at 31 December 2015 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards.

Certified Public Accountants Kampala, Uganda 2016

37 37 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

4.2 STATEMENT OF COMPREHENSIVE INCOME

Notes 2015 2014 USD'000 USD'000

Interest income 3 17,572 15,142

Interest expense 4 (3,817) (2,753)

Net interest income 13,755 12,389

Fee and commission income 5 544 772

Net foreign exchange gains/(losses) 6 (971) (656)

Other operating income 7 2,003 3,713

Net fair value gain on investment property 21 50 1,472

Net fair value gain on financial assets at fair value 18 (31) 201

Net fair value (losses)/ gains on equity investments at fair value 19 (230) 2

Net operating income 15,120 17,893

Increase in provision for impairment of loans and lease receivables 16(a) (1,038) (332)

Operating income after impairment charges 14,082 17,561

Employee benefits expense 8 (4,165) (4,119)

Depreciation and amortization 21 (671) (613)

Other operating expenses 9 (2,569) (3,009)

Profit before income tax 10 6,677 9,820

Income tax expense 11 - -

Profit for the year 6,677 9,820

Other comprehensive income

Revaluation surplus on land and buildings 22 - 8,052

Total comprehensive income 6,677 17,872

Earnings per share-Basic 12 500 788

Earnings per share-diluted 12 500 787

38 38 East African Development Bank Financial Statements For the year ended 31 December 2015

4.3 STATEMENT OF FINANCIAL POSITION

Notes 2015 2014 USD'000 USD'000

ASSETS Cash at bank 13 4,922 10,306 Deposits due from commercial banks 14 177,491 142,095 Investment security held to maturity 15 378 644 Loans and lease receivables 16 161,985 106,750 Derivative financial instruments 18 - 108 Equity investments at fair value 19 483 713 Other assets 20 1,122 860 Investment property 21 19,185 18,688 Property, plant and equipment 22 15,146 14,261 Total assets 380,712 294,425 LIABILITIES Derivative financial instruments 18 32 - Other liabilities 23 1,898 2,039

Borrowings 24 125,141 58,282 Special funds 25 3,990 3,990 Grants 26 3,186 3,244 Capital fund 27 7,479 7,479 Total liabilities 141,726 75,034 CAPITAL AND RESERVES Share capital 28 185,787 173,097 Share premium 28 3,309 3,084 Funds awaiting allotment 29 105 102 Special reserve 30 11,783 11,030 Fair value reserve 31 496 566 Revaluation reserves 33 8,002 8,052 Retained earnings 29,504 23,460 Total shareholders’ equity 238,986 219,391 Total shareholders’ equity and liabilities 380,712 294,425 Off balance sheet items and contingencies 38 5,606 6,229

The financial statements set out on pages 38 to 96 were approved by the Board of Directors on 20 March 2016 and were signed on its behalf by:

Chairperson: Director General: 39 39 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015 - - -

- - - 19,511 - - 182,007 - 9,820 Total Revaluation

- - - 8,052 8,052

- - - (406) - 9,820 - - 9,820 8,052 17,872

- 91 (91) - - - -

- - (21,490) - 19,511 - - - Comprehensive income

- - - 406 - - - Transactions with owners recorded directly in equity Transactions Funds

------Share Share Special awaiting Fair value Retained capital premium reserves allotment reserve earnings reserve equity allotment reserve reserves premium capital 20,938 552 173,097 3,084 11,030 102 566 23,460 8,052 219,391 152,159 2,532 10,624 2,081 475 14,137 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 Transfer to fair value reserve Transfer At end of year Issue of shares Receipts from shareholders Year ended 31 December 2014 Year of year At start for the year Profit Other comprehensive income Transfer to special reserve Transfer Total comprehensive income Total Revaluation surplus on land and buildings

4.4 OF CHANGES IN EQUITY STATEMENT

40 40 41 For theyearended31December2015 East AfricanDevelopmentBankFinancialStatements 4.4 STATEMENT OF CHANGES IN EQUITY

Funds Share Share Special awaiting Fair value Retained Revaluation Total capital premium reserves allotment reserve earnings reserve equity USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000 USD ‘000

Year ended 31 December 2015

At start of year 173,097 3,084 11,030 102 566 23,460 8,052 219,391

Comprehensive income

Profit for the year

Other comprehensive income - - - - - 6,677 - 6,677

Revaluation surplus on land and buildings ------

Total comprehensive income - - - - - 6,677 6,677

Transactions with owners recorded directly in equity

Transfer to special reserve - - 753 - - (753) - -

Receipts from shareholders - - - 12,918 - - - 12,918

Issue of shares 12,690 225 - (12,915) - - - -

Revaluation reserve - - - - - 50 (50) -

Transfer to fair value reserve - - - - (70) 70 - -

At end of year 185,787 3,309 11,783 105 496 29,504 8,002 238,986 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

4.5 STATEMENT OF CASH FLOWS

Note 2015 2014 USD'000 USD'000

Cash flows from operating activities

Interest receipts 15,538 13,161

Interest payments (3,252) (2,743)

Net fee and commission receipts 1,075 1,150

Other income received 816 1,590

Payments to employees and suppliers (10,293) (8,426)

Cash outflows from operating activities 3,884 4,732

Net receipts from loans and advances (57,290) (9,063)

Net other receipts from customers 1,185 2,877

Settlement of other liabilities (286) (537)

Settlement of medium and long term borrowings (17,000) (7,860)

Exchange gains 1,683 1,427

Net cash generated from operating activities (67,824) (8,424

Investing activities

Purchase of property and equipment (8,433) (2,024)

Deposits with Banks 62,898 (21,882)

Proceeds from sale of property and equipment - 16

Net cash used in investing activities 54,465 (23,890)

Financing activities

Receipts from member states towards share capital 28,29 12,918 19,511

Borrowings 82,284 15,808

Net cash generated from financing activities 95,202 35,319

Net increase in cash and cash equivalents 81,843 3,005

Cash and cash equivalent at the start of the year 90,007 88,429

Exchange losses (1,683) (1,427)

At end of year 32 170,167 90,007

42 East African Development Bank Financial Statements For the year ended 31 December 2015

4.64.64.6 NOTES4.6NOTESNOTES4.64.6 NOTESNOTESNOTES 1 1R EPORTING1R EPORTINGREPORTING1 R1 1EPORTINGENTITY RENTITYREPORTINGEPORTING ENTITY ENTITY ENTITYENTITY East East African East African African East Development Development East EastAfrican Development AfricanAfrican Development Bank Development DevelopmentBank Bank(the (the “Bank”)(the Bank “Bank”) “Bank”) BankBank (the is a is(the“Bank”)(the regionalisa regionala“Bank”)“Bank”) regional is banka isregionalbankis a bankaestablished regionalregional established established bank bankbank establishedunder under established establishedunder the the Bank’s theunder Bank’s Bank’s underunder Charterthe Charter Bank’stheCharterthe ofBank’sBank’s 1980ofCharter of1980 Charter1980 Charterwith ofwith itswith1980 ofofits 1980 its1980 with withwithits itsits currentcurrentcurrent membership membershipcurrent membershipcurrentcurrent membership comprising membershipcomprisingmembership comprising thecomprising the four comprising comprisingthe four Eastfour Eastthe AfricanEast four theAfricanthe African four EastfourCountries Countries EastAfricanEast Countries AfricanAfrican of Countries Uganda,of of Uganda,CountriesCountries Uganda, ofKenya, Uganda,Kenya, ofof Kenya, Uganda, Uganda,Tanzania Tanzania Kenya, Tanzania Kenya, Kenya,and Tanzaniaand Rwandaand Tanzania TanzaniaRwanda Rwanda and with andwithRwandaand itswith RwandaheaditsRwanda itshead with head withitswith head itsits headhead officeofficeoffice in Kampala,in inKampala,office Kampala,officeoffice in Uganda. Kampala, Uganda. inin Uganda. Kampala,Kampala, The Uganda. The Bank The Uganda.Uganda. Bank Bankis Theprimarily is primarilyis TheBank Theprimarily Bank Bankinvolvedis primarilyinvolved isisinvolved primarilyprimarily in developmentininvolved indevelopment involveddevelopmentinvolved in development financeinin developmentfinancedevelopment finance lending lending finance lending financeandfinance and lending theand the lendingprovisionlending the provisionand provision andtheand of provision therelatedofthe ofrelated provisionprovision related of related ofof relatedrelated servicesservicesservices as stipulatedasservices as stipulated servicesstipulatedservices as under stipulated asunderas under stipulatedstipulatedits Charter.its itsunderCharter. Charter. underunder its Charter. itsits Charter.Charter. The The Bank’s The Bank’s Bank’s principal The principal TheBank’s Theprincipal Bank’sBank’soffice principaloffice office address principalprincipal address addressoffice is: officeoffice is:address is: addressaddress is: is:is: PlotPlot 4Plot Nile 4 Nile4 AvenueNilePlot Avenue Plot4AvenuePlot Nile 44 NileAvenueNile AvenueAvenue EADBEADBEADB Building Building BuildingEADBEADBEADB Building BuildingBuilding P. O.P. O.P.Box O. Box 7128 Box P.7128 O. 7128P. P.Box O.O. Box7128Box 71287128 Kampala,Kampala,Kampala, UgandaKampala, Uganda UgandaKampala,Kampala, Uganda UgandaUganda For For purposes For purposes purposes For of purposes For Fortheof of the purposespurposesBank’s the Bank’s ofBank’s Charter,the of ofCharter, Bank’sthetheCharter, Bank’stheBank’s Charter,the profit the profitCharter,Charter, profit and the and loss and profitthethe loss statement profitlossprofit andstatement statement andandloss is lossstatementloss representedis is representedstatementstatement represented is represented by isis by therepresentedrepresented by the Statement the Statement byStatement the byby of Statementthethe Comprehensiveof ofStatementComprehensiveStatement Comprehensive of Comprehensive ofof ComprehensiveComprehensive IncomeIncomeIncome and and Income theand the IncomebalanceIncome the balanceand balance and theandsheet sheet balance thethe sheetby balancebalance bythe by the sheetStatement the Statement sheetsheet Statementby the by byof Statement the theFinancialof of FinancialStatementStatement Financial ofPosition Financial Position ofof Position FinancialFinancial in thesein Position inthese these PositionfinancialPosition financialin financial these inin statements. thesethese financialstatements. statements. financialfinancial statements. statements. statements.

2 2 PRINCIPAL 2 PRINCIPAL PRINCIPAL2 PRINCIPALACCOUNTING22 ACCOUNTING PRINCIPAL PRINCIPALACCOUNTING ACCOUNTING ACCOUNTINGACCOUNTINGPOLICIES POLICIES POLICIES POLICIES POLICIESPOLICIES The The principal The principal principal The accounting principal Theaccounting The accounting principal principal policiesaccounting policies accountingpoliciesaccounting applied applied policies applied policies inpolicies thein applied inthe preparation theapplied appliedpreparation preparation in the in in preparationofthe the theseof preparation preparation ofthese thesefinancial financial of financial these of of statements these these financialstatements statements financial financial are statements are set statements arestatements setout set out below. areout below. setbelow.are are These out set setThese below.Theseout outpolicies below. policiesbelow. policiesThese These These policies policies policies havehave havebeen been beenconsistentlyhave consistently haveconsistently havebeen beenbeen consistentlyapplied applied consistently consistentlyapplied to allto applied toallthe all appliedappliedthe years the toyears allyears presented, toto the presented, allall presented, years thethe years yearsunless presented, unless presented,unlesspresented, otherwise otherwise unlessotherwise unlessunlessstated. otherwise stated. stated. otherwiseotherwise stated. stated.stated. a) a) Basis a) Basis Basis ofa) preparationof of Basispreparationa)a) preparation Basis Basis of preparation ofof preparationpreparation The The Bank’s The Bank’s Bank’s Thefinancial financial The Bank’s Thefinancial Bank’s Bank’sstatements financialstatements statements financialfinancial havestatements have statements havestatementsbeen been beenpreparedhave prepared have havepreparedbeen beeninbeen prepared accordancein in accordancepreparedprepared accordance in accordance with inin with accordance accordance Internationalwith International International with withwithInternational Financial InternationalFinancialInternational Financial Reporting Financial Reporting Reporting FinancialFinancial Standards Reporting Standards Standards ReportingReporting Standards StandardsStandards (IFRS)(IFRS)(IFRS) as issuedas as issued(IFRS) issued by(IFRS)(IFRS) astheby byissued the Internationalas as the Internationalissued issued Internationalby the by by International the theAccounting AccountingInternational International Accounting StandardsAccounting Standards Accounting AccountingStandards Board. Standards Board. Board.Standards Standards Additional Additional Board.Additional Board. Board. information Additional information informationAdditional Additional informationrequired required information information required by thebyrequired by the Charter required requiredthe Charter Charterby isthe by includby is Charter the theincludis includ Charter -Charter- is- includ is is includ includ- -- ed edwhereed where where appropriate.ed appropriate. whereappropriate.eded wherewhere appropriate. The appropriate.Theappropriate. financialThe financial financial The statements ThefinancialThestatements statements financialfinancial havestatements have statements havestatementsbeen been beenpreparedhave prepared have havepreparedbeen beenunderbeen prepared under under preparedpreparedthe the historical underthe historical historicalunderunder the cost historicalthethecost convention,cost historical historicalconvention, convention, cost cost costconvention,except except convention, convention,except for for exceptfor exceptexcept for forfor available-for-saleavailable-for-saleavailable-for-saleavailable-for-saleavailable-for-saleavailable-for-sale financial financial financial assets, financialassets, assets, financial financial financial assets,financial assets,assets assets, financialassets assets and financial financial and financial andassets financial financialassets assets and liabilities and financialliabilitiesand liabilities financial financial held liabilitiesheld atheld liabilities fairliabilitiesat atfair value held fair value held value heldatthrough fair through at at through valuefair fair profit value valueprofit through profit or through throughloss,or or loss,profit allloss, profit allderivprofit or all deriv loss, - derivor or -loss, loss,all- deriv all all deriv deriv- -- ativeative ativecontracts contracts contractsative andative ative contractsand investmentand contracts contractsinvestment investment and properties,andinvestmentand properties, investmentproperties,investment whichproperties, which properties,whichproperties, have have havewhichbeen been which which been measuredhave measured havemeasured havebeen beenatbeen measured fairat at measuredfair measuredvalue. fair value. atvalue. 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It ItIt alsoalso requiresalso requires requiresalso the alsothealso requiresdirectors the directors requiresrequires directors the to directorsexercise tothethe toexercise directors directorsexercise judgementto judgementexercise tojudgementto exerciseexercise injudgement thein judgement injudgementthe process the process processin theof in inapplying of process the the ofapplying processapplyingprocess ofthe applyingthe Bank’sof ofthe applyingBank’sapplying Bank’s accountingthe accounting Bank’s theaccountingthe Bank’sBank’s policies.accounting policies. accountingaccountingpolicies. Changes Changespolicies. 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The TheThe areasareasareas involving involving involvingareas aareasareas higher involvinga highera involvinghigherinvolving degree adegree higherdegree aofa higher higher judgementof degree ofjudgement judgement degreedegree of or judgement ofcomplexity,ofor judgementorjudgementcomplexity, complexity, or orcomplexity, or orareasor complexity, complexity,orareas areas where whereor whereareas assumptions oror assumptions areasareas assumptionswhere wherewhere assumptions and and assumptionsassumptions estimates and estimates estimates and are andestimates andare significant are estimatessignificantestimates significant are to significant are are to to significantsignificant to toto thethe financialthe financial financialthe statements financialstatementsthethe statements financialfinancial are statements are disclosed statementsarestatements disclosed disclosed are in disclosed areNoteinare inNote discloseddisclosed Note34. 34. in 34. Note inin NoteNote 34. 34.34. b) b) Changes b) Changes Changesb) in Changes b)b)accountingin inaccounting Changes Changes accounting in accounting policy inin policy accountingaccounting policy and and policydisclosuresand disclosures policy policydisclosures and andanddisclosures disclosuresdisclosures (i) (i) New (i) New Newand (i) and amendedand New (i) (i) amended amended New New and standards andandamended standards amendedstandardsamended adoptedstandards adopted standardsadoptedstandards by adopted bythe by the adopted adoptedbank the bank bybank the byby bankthethe bankbank The The following The following following The standards following The Thestandards standards following following and standards and amendments and standards standards amendments amendments and and amendmentsand have amendments haveamendments havebeen been beenapplied have applied appliedhave havebeen by been thebybeen applied by the bank appliedthe applied bank bankbyfor the forthe by byfor thebank firstthe the the first banktimebank forfirst time the forfor timefor forfirst thethe the for the financialtimefirst first the financial time timeforfinancial the yearfor for financial yearthe the beginyear financial financialbegin begin- year- -year yearbegin begin begin- -- ningning 1ning January 1 January1 ningJanuary 2015:ning ning1 2015:January 2015: 11 JanuaryJanuary 2015: 2015:2015: Annual Annual Annual Improvements Improvements Annual Improvements Annual Annual Improvements to ImprovementsImprovements IFRSsto toIFRSs IFRSs2010-2012 2010-2012to 2010-2012IFRSs toto IFRSsIFRSs 2010-2012and and 2010-2012 2010-2012 2011-2013and 2011-2013 2011-2013 and and 2011-2013andcycles. cycles. 2011-20132011-2013 cycles. The The followingcycles.The following cycles.cycles.following The amendments Thefollowing Theamendments amendments followingfollowing amendments are amendmentsamendmentsare effective are effective effective are 1 July 1effectiveareare 1July effectiveJulyeffective 1 July 11 JulyJuly 2014:-2014:-2014:-2014:-2014:-2014:- • IFRS• IFRS• 2IFRS –2 clarifies •–2 IFRSclarifies– •clarifies• IFRS IFRS2the – the clarifies2definition2 the – –definition clarifies clarifiesdefinition the of definition thethe‘vestingof of ‘vesting definitiondefinition ‘vesting condition’of condition’‘vesting ofcondition’of ‘vesting‘vesting and condition’ and now and condition’condition’ now distinguishesnow anddistinguishes distinguishes andnowand nownowdistinguishes between distinguishesbetweendistinguishes between ‘performance between‘performance ‘performance betweenbetween ‘performance condition’ ‘performance ‘performancecondition’ condition’ and condition’ and and condition’condition’ and andand ‘service‘service‘service condition’ condition’‘service condition’‘service‘service condition’ condition’condition’ • IFRS• IFRS• 3IFRS – 3 clarifies –•3 clarifiesIFRS– clarifies•• IFRS IFRS3that – that clarifies 3an 3that –– anobligation clarifiesclarifies an obligation that obligation thatanthat to obligation an payanto to obligationpayobligation contingent pay contingent tocontingent pay toto consideration paycontingentpay consideration contingentconsiderationcontingent consideration is considerationclassified considerationis classifiedis classified asis classified financialas is isas financial classifiedclassified financial asliability financialliability as asliability financialfinancialor equityor liability orequity equity liability liabilityunder orunder underequity oror equityequity under underunder thethe principlesthe principles principlesthe in principles the IASthein inIAS principlesprinciples32 IAS 32and 32in and IASthatand inin that 32 IAS allIASthat and allnon-equity 3232 all non-equity andthat andnon-equity thatallthat contingentnon-equity allall contingent non-equitycontingentnon-equity consideration contingent consideration contingentconsiderationcontingent consideration (financial consideration consideration(financial (financial and (financial and non-financial)and (financial(financial non-financial) non-financial) and andnon-financial)and is non-financial)non-financial) measuredis measuredis measured is measured isis measuredmeasured at fairat atfair value fair value value atat fair eachatatat at eachvalue fairfair eachreporting valuevaluereporting at reporting each atat date. each eachreporting date. date. reportingreporting date. date.date. • IFRS• IFRS• 3IFRS – 3 clarifies –•3 clarifiesIFRS– clarifies•• IFRSIFRS3that – that clarifies 3IFRS 3that –– IFRS clarifiesclarifies 3IFRS does that3 does3 thatIFRSdoesnotthat not IFRSapplyIFRS3 not doesapply 3apply3 to does doesnot theto to theapply notaccounnot the accoun applyapply accountoting the totingto for accoun tingthethe forthe accounaccounfor the formationting the formation tingfortingformation the forfor of formation the theanyof ofany formation formationjoint any joint arrangementofjoint anyarrangement of ofarrangement anyjointany joint jointarrangement arrangementarrangement • IFRS• • IFRS 8IFRS – 8 • requires 8– IFRS requires–• • requires IFRS IFRS 8 disclosure – 8requires disclosure 8 –disclosure – requires requires of disclosure ofthe ofdisclosure disclosurethe judgements the judgements ofjudgements the of of judgementsthe madethe made judgements judgements made by by management bymade management management made made by management by by in management management aggregatingin in aggregating aggregating in aggregating operatingin in aggregatingoperating aggregating operating segments operating segments segments operating operating and segments and and segments segments and and and clarifiesclarifiesclarifies that thatclarifies a that reconciliation aclarifiesclarifies reconciliationa reconciliationthat thatathat reconciliation of aa reconciliation segmentreconciliationof ofsegment segment assetsof segmentassets ofofassets must segmentsegment must mustassetsonly only assets assetsbeonly must bedisclosed be mustdisclosed mustonly disclosed onlybeonly if segmentdisclosed if bebe segmentif discloseddisclosedsegment assets if segmentassets ifassetsif are segmentsegment are reported. areassets reported. reported. assetsassets are reported. areare reported.reported. • IFRS• IFRS• 13IFRS 13confirms •13 confirmsIFRS confirms•• IFRSIFRS13 that confirmsthat 13 13 short-termthat confirmsconfirmsshort-term short-term that receivables thatshort-termthat receivables short-termreceivablesshort-term andreceivables and receivables payablesreceivablesand payables payables and can and payablesandcan continue can payables payablescontinue continue can to cancontinuebetocan tobemeasured continue continuebe measured measured to be toatto measured beinvoicebeat at measuredinvoicemeasured invoice amounts at amounts invoice amounts atat invoice invoiceif the amountsif the if amountstheamounts if the ifif thethe impactimpactimpact of discountingof impact ofdiscounting discountingimpactimpact of discountingis of ofimmaterial. is discounting discountingimmaterial.is immaterial. is immaterial. isis immaterial.immaterial.

43 43 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

• • IFRS • IFRS 13 IFRS 13–• 13clarifies – IFRS • clarifies•– clarifies IFRS IFRS13 that – 13 that13clarifies thethat –– the clarifiesportfolioclarifies the portfolio that portfolio thatthe thatexception portfolioexception thethe exception portfolioportfolio in exception IFRSin in IFRS exceptionexception 13IFRS 13(measuring in13 (measuringIFRS (measuring inin IFRSIFRS13 (measuringthe 1313 the fair (measuring (measuringthe fair value fair value the value of fair theatheof group of avalue fairfair groupa group value value ofof financialofa of ofgroupfinancial afinanciala groupgroup ofassets financialassets of ofassets and financialfinancial and andassets assetsassets and andand financialfinancialfinancial liabilities financialliabilities liabilitiesfinancialfinancial on liabilities ona onnet a liabilitiesliabilities net abasis) net onbasis) basis) aapplies on onnet applies a a applies basis) netnet to basis) basis)allto applies toallcontracts all appliescontractsapplies contracts to all within toto contracts within allall within thecontractscontracts the scope thewithin scope scope withinofwithin the IASof of scopeIAS the39the IAS 39 scopeorscope 39of IFRSor IAS or IFRS ofof 9 IFRS 39 IASIAS 9 or 39939 IFRS oror IFRSIFRS9 99 • • IAS • IAS 16 IAS 16and• 16 and IAS IASand•• IAS 3816 IASIAS 38 –and 16 clarifies3816 – clarifiesandIAS–and clarifies 38IAS IAShow – how38 38clarifies thehow – – the clarifies grossclarifies the gross how gross carrying how thehowcarrying carrying gross the the amount gross gross amountcarrying amount carrying carryingand and amount accumulated and accumulatedamount amount accumulated and and accumulatedand depreciation accumulated depreciationaccumulated depreciation depreciation are aredepreciation depreciationtreated are treated treated where are where treated are whereare an treated treatedanentity anwhere entity entity where where an entity an an entity entity measuresmeasuresmeasures itsmeasures assetsits itsassetsmeasuresmeasures assets at revalueditsat atassetsrevalued its itsrevalued assetsassets amountsat revaluedamounts at atamounts revaluedrevalued amounts amountsamounts • • IAS • IAS 24 IAS 24–• 24where – IASwhere–•• where 24an IAS IAS anentity– 24 24anwhere entity ––entity receives wherewhere anreceives receives entity anan management entity entity managementreceives management receivesreceives management personnel managementmanagementpersonnel personnel services personnel services services personnelpersonnel from fromservices froma third servicesaservices thirda fromthirdparty party from from a party(a third management(a aa (athird managementthirdparty management partyparty (a management (aentity),(a managementmanagemententity), entity), the the fees entity),the fees entity),feesentity), the fees thethe feesfees paidpaid paidfor forthose for thosepaid those servicespaid paid forservices services those forfor must those those mustservices mustbe services servicesbedisclosed be disclosedmust disclosed must mustbe by disclosed by thebebe by the disclosedreportingdisclosed the reporting byreporting the byentity,by reporting theentity,the entity, reportingbutreporting but not butentity, not the not entity, entity,the compensationbut the compensation not butcompensationbut the notnot compensation thethe paid compensationcompensation paid paidby bythe by thepaidmanagement the management paid paidbymanagement the byby management thethe managementmanagement entityentityentity to itsto toemployeesitsentity itsemployees entityemployeesentity to its to ortoemployees its itsdirectors.or employees oremployeesdirectors. directors. or directors. oror directors.directors. • • IAS • IAS 40 IAS 40–• 40clarifies – IASclarifies–•• clarifies 40 IAS IASthat – 40 that40clarifies IASthat –– IAS clarifies40clarifies IAS 40andthat 40 and thatIASIFRSthatand IFRS 40 IAS IAS3IFRS are and 3 4040 are3 not andIFRSareand not mutually notIFRSIFRS3 mutually are mutually 33 not are areexclusive mutuallyexclusive notnot exclusive mutuallymutually when exclusivewhen when distinguishing exclusiveexclusive distinguishing distinguishing when whenwhen distinguishing between distinguishing distinguishingbetween between investment betweeninvestment investment betweenbetween propertyinvestment property investmentpropertyinvestment property propertyproperty andand owner-occupiedand owner-occupied owner-occupiedand andowner-occupiedand owner-occupiedpropertyowner-occupied property property and andproperty determining and property determiningproperty determining and and determining andwhether whetherdetermining determining whether the thewhetheracquisition the acquisition whether whetheracquisition the of acquisitionthe the anof acquisition ofacquisitionaninvestment an investment investment of an of ofproperty investment an anproperty investment propertyinvestment is a isproperty business ais businessproperty aproperty business is combi a businesscombiis is combia a- business business- -combi combi combi- -- nation.nation.nation.nation.nation.nation. Amendments Amendments Amendments Amendments to Amendments AmendmentsIASto toIAS 19,’DefinedIAS 19,’Defined to19,’Defined IAS toto IAS19,’DefinedIASBenefit Benefit19,’Defined19,’Defined Benefit Plans: Plans: BenefitPlans: Employee Benefit BenefitEmployee Plans:Employee Plans: Plans:Contributions’. Employee Contributions’. Contributions’.EmployeeEmployee Contributions’. EffectiveContributions’.Contributions’. Effective Effective 1 JulyEffective1 1July Effective2014.JulyEffective 2014. 12014. TheJuly 1 1The Julyamendments2014.JulyThe amendments 2014.2014.amendments The TheamendmentsThe amendmentsamendments clarifyclarifyclarify the the accounting theclarify accounting accountingclarifyclarify the foraccounting thethe fordefined accountingaccountingfor defined defined benefitfor benefit defined forforbenefit plans defineddefined plans benefit plans that benefitthatbenefit require thatplans require require plansplans thatemployees employees thatrequirethat employees requirerequire oremployees thirdor employees oremployeesthird thirdparties parties or parties third to oror contribute to third third parties tocontribute contribute partiesparties to towards contribute totowardsto towards contributecontribute the the towardscost the cost towards towards cost the cost thethe costcost of theof ofthe benefits. the benefits. benefits.of the Underofof benefits. Underthethe Under benefits.thebenefits. the previous Underthe previous UnderpreviousUnder the version previous versionthethe version previous previousof IASof version ofIAS 19, IASversionversion 19, mostof19, mostIAS ofmostofentities 19,IASIASentities entities 19,most19, deducted mostdeducted mostentities deducted entitiesentities the deducted the contributions the deducteddeductedcontributions contributions the contributions the thefrom contributionsfromcontributions fromthe the cost the fromcost ofcost from fromtheofthe ofthe costthethe costofcost the ofof thethe benefitsbenefitsbenefits earned earnedbenefits earned inbenefitsbenefits thein earned inthe year the earnedearnedyear the yearin the thecontributions inthein contributions year thethe contributions yearyearthe contributions the thewere contributionswerecontributions werepaid. paid. paid.However, were However, wereHowever, werepaid. the paid.paid. However, the treatment the However,treatmentHowever, treatment the under treatment thetheunder under treatmentthetreatment the 2011 theunder 2011 2011 underrevisedunder the revised revised 2011 thethe standard 2011standard2011 revised standard revised revisedwas standardwas was standardstandard was waswas notnot sonot clear.so so clear. notclear. It could Itsonotnot couldIt clear. could sosobe clear. clear.bequite It be couldquite ItquiteItcomplex couldcould complexbe complex quite bebe to quite quite apply,complexto toapply, complexcomplexapply, as toitas requiresas apply,it to torequiresit apply,requiresapply, as an it asanrequiresestimationas an itestimationit requires requiresestimation an of estimation an antheof ofestimationthe estimationfuture the future futureof contributions the contributions ofof contributions future thethe futurefuture contributions receivable contributionsreceivablecontributions receivable and receivable and and receivablereceivable and andand an anallocationan allocation allocationan over allocation ananover futureover allocationallocation future future serviceover service overserviceoverfuture periods. futurefutureperiods. serviceperiods. serviceToservice Toprovideperiods. Toprovide periods.periods.provide relief,To relief,provide Torelief, Tochanges provide providechanges changesrelief, were relief,relief, changeswere weremade changeschanges made made wereto IASto were were tomadeIAS 19. IAS 19.made madeThese 19.to These IAS These to toallow 19. IASIAS allow allow These19.contributions19. contributions TheseThese contributionsallow allowallow contributions contributionscontributions thatthat arethat are linked are linkedthat linked to thatare that service,to tolinkedservice,are are service, linked linkedbut to but thatservice, butto tothat doservice, service,that donot but do not vary that but notbut vary withthat dovarythat withnot do thedowith varythe notlengthnot the length varywithvary length of with thewith employeeof lengthof employeethe the employee length length of service employee serviceof of service employee employee (eg (eg a service (egfixed a fixedservicea service fixed% (eg of % asalary),%of(eg (eg fixed ofsalary), a asalary), fixed fixed% to of beto % salary),% to bedeductof of be salary), deductsalary), deduct to- be- to to -deduct be be deduct deduct- -- ed edfromed from fromthe the edcost the fromcosted ed ofcost frombenefits fromofthe ofbenefits cost thebenefitsthe earned costofcost earnedbenefits ofearnedof benefitsinbenefits thein earned inthe period the earned earnedperiod periodin that the inthatin theperiod thethatthe the service periodperiodthe servicethat service is thatthethat provided.is service theisprovided.the provided. serviceservice isTherefore provided. Therefore isis Therefore provided.provided. many Therefore many many ThereforeentitiesTherefore entities entitiesmany will manymanywill beentities will beable entitiesentitiesbe able willtoable tobe willwill to able bebe able ableto toto (but(but not(but not be not berequired)(but be required) (butnotrequired)(but be notnotcontinue required) continue bebe continue required)required) accounting continueaccounting accounting continuecontinue foraccounting foremployee accountingaccountingfor employee employee for contributions employee forcontributionsfor contributions employeeemployee contributions using contributionsusingcontributions using their their existingtheir using existing usingexistingusing their accounting accountingtheir theirexisting accounting existingexisting policy.accounting policy. accountingaccountingpolicy. policy. policy.policy. The The adoption The adoption adoption The of Theadoptionthe Theof ofthe adoptionimprovementsadoption the improvements improvementsof the ofof improvements thethe made improvementsimprovements made made in thein inmadethe 2012-2012 the 2012-2012 mademade 2012-2012in the inin 2012-2012 thecyclethe cycle 2012-20122012-2012 cyclehas has required has cycle required required cycle cyclehas additional hasrequiredadditionalhas additional requiredrequired disclosures additional disclosures disclosures additionaladditional indisclosures thein disclosures indisclosuresthe segment the segment segmentin the inin segment thethe segmentsegment note.note. note.Other Other Other note.than thannote. note. that,thanOther that, OtherOtherthethat, than the adoption the than thanadoptionthat, adoption that, that,the of adoptionthese theofthe ofthese adoptionadoption theseamendments amendmentsof amendments these ofof thesethese amendments did amendmentsdidamendments not did not have not have did haveany not anydiddid impact any have notimpactnot impact have haveonany onthe anyimpactanyon the current the impact impactcurrent oncurrent periodthe onon period current theperiodthe or currentcurrent anyor period orany prior any period periodprior orprior any oror anypriorany prior prior periodperiodperiod and and isperiodand not isperiod periodnotis likely notand likely likely andtoisand notaffectto is istoaffect likely not notaffect future likely likely futureto future affectperiods. toto periods. affectaffect periods.future futurefuture periods. periods.periods. (ii) (ii)New(ii) New Newstandards (ii)standards standards New(ii)(ii) New New andstandards and standardsinterpretationsandstandards interpretations interpretations and andandinterpretations interpretationsearlyinterpretations early early adopted adopted adoptedearly earlyearly adopted adoptedadopted The The bank The bank bankhas The has elected has Thebank Theelected elected bankbank tohas adoptto electedhas has toadopt adopt electedelectedthe tothe following theadopt following toto following adoptadopt the two following thetwothe amendments two following followingamendments amendments two amendmentstwotwo early amendmentsearlyamendments early early earlyearly Amendments Amendments Amendments Amendments to AmendmentsIASto Amendments toIAS 1, IAS ‘Presentation1, 1,to‘Presentation ‘PresentationIAS toto 1, IASIAS ‘Presentation 1,of1, ‘PresentationFinancialof‘Presentation ofFinancial Financial ofStatements’: Financial Statements’: ofof Statements’: FinancialFinancial Statements’: The The Statements’: Statements’:amendments The amendments amendments The TheamendmentsThe are amendmentsareamendments made are made made in are thein inthemade arecontextare the context mademade contextin ofthe intheinof context the ofthethe IASB’s the context contextIASB’s IASB’sof the ofof IASB’s thethe IASB’sIASB’s DisclosureDisclosureDisclosure Initiative,Disclosure Initiative, Initiative,DisclosureDisclosure which Initiative,which which explores Initiative,Initiative, explores exploreswhich how whichwhich howexplores financialhow exploresfinancialexplores financial how statement howhowfinancialstatement statement financialfinancial disclosures statement disclosures disclosures statementstatement candisclosures can be disclosurescandisclosures beimproved. be improved. can improved. canbecan The improved. bebeThe amendments, The improved.improved. amendments, amendments, The Theamendments,The effective amendments, amendments,effective effective effective effectiveeffective 1 January1 January1 January 2016,1 2016,January 2016,1 1provide JanuaryJanuary provide 2016,provide clarifications 2016,2016, clarifications provide clarifications provideprovide clarifications on onclarificationsaclarifications onnumber a numbera number on of a onissues, ofonnumber ofissues, aa numberissues,number including: of including: issues,including: ofof issues,issues, including: including:including: • Materiality• •Materiality Materiality• – Materiality an •–• anentityMateriality –Materiality an entity entity should – anshould should– –entity an notan notentity entityaggregate shouldnot aggregate should aggregateshould not or aggregatenot not disaggregateor oraggregatedisaggregateaggregate disaggregate or disaggregate or informationor disaggregateinformationdisaggregate information informationin ain informationmannerinformation ina mannera manner in that a thatin manner inobscures that a a obscuresmanner manner obscures that useful thatobscuresusefulthat useful informaobscures obscures informa informauseful- useful useful- informa- informa informa- -- tion.tion. tion.Where Where Wheretion. items itemstion. tion. Whereitems are WhereWhereare material, areitems material, material,itemsitems are sufficient are material,aresufficient sufficient material,material, information sufficientinformation information sufficientsufficient informationmust must informationinformation mustbe beprovided be mustprovided provided must mustbe to provided beexplaintobe to explainprovidedprovided explain theto the explain impact totheto impact explain explainimpact onthe on the impactthetheon the financial impacttheimpact financial onfinancial the on on financialthethe financialfinancial positionpositionposition or performance.orposition orperformance. positionperformance.position or performance. oror performance.performance. • Disaggregation• •Disaggregation Disaggregation• Disaggregation•• andDisaggregationDisaggregation and subtotalsand subtotals subtotals and – lineand subtotalsand– line– items subtotalslinesubtotals items items–specified line specified – –specified lineitemsline in itemsitems IASspecifiedin inIAS 1 specified specifiedIAS may 1 may1in needmay IAS inneedin 1 need IAStoIAS may be to 11 to bemaydisaggregatedmayneed be disaggregated needdisaggregatedneed to be toto disaggregated bebe where disaggregateddisaggregated where where this this is thiswhere relevant is relevantis wherewhere relevantthis is thisthis relevant isis relevantrelevant to anto toanunderstanding an understanding understandingto antoto understanding anan of understandingunderstanding theof ofthe entity’s the entity’s entity’sof financialthe of offinancial entity’s thefinancialthe entity’sentity’sposition financialposition position financialfinancial or performance.orposition orperformance. positionperformance.position or performance. or orThere performance. performance.There There is also is alsoisThere newalso TherenewThere guidanceisnew alsoguidance isisguidance alsonewalso on newguidancenew onthe on theguidance guidanceuse the use onuse the onon use thethe useuse of subtotals.of ofsubtotals. subtotals.of subtotals.ofof subtotals.subtotals. • Notes• •Notes Notes – confirmation •– confirmation –Notes •confirmation• NotesNotes – confirmation that –– confirmationthatconfirmation the that the notes the notes that notes do thatthe that donot do notesnot thetheneed not need notesnotes do needto notbe to dodo tobe presented need not notbe presented needpresentedneed to be tointo presented beainbe particular ina presentedpresented particulara particular in aorder inparticularin order a aorder. particularparticular. . order orderorder. .. • OCI• OCI• arisingOCI arising arising• OCIfrom• •from OCI arisingOCIfrominvestments investments arising arising investments from from frominvestmentsaccounted accounted investments investmentsaccounted for accounted forunder foraccounted accountedunder under the for the equity theunder for equityfor equity under methodunder the method methodequity the the – equity theequity – method the–share the method sharemethod share of – the OCIof – of –OCIshare the the arisingOCI share arisingshare of arising OCIfrom of of from OCI arisingOCIfromequity-account equity-account arising arising equity-account from from fromequity-account- equity-account equity-account- - - -- ed edinvestmentsed investments investmentsed investmentsiseded grouped is investments investmentsgroupedis grouped basedis groupedbased isbasedis on groupedgrouped onwhether onbased whether whether basedbased theon the whether items on onthe items whetherwhether items will thewill or will items thewillorthe or will itemsnotitems will not subsequently notor willwill subsequently will subsequently oror not willwill subsequently not notbe subsequentlybereclassifiedsubsequently be reclassified reclassified be toreclassified bebe profitto reclassified reclassifiedtoprofit profit to profit toto profitprofit or loss.or orloss. Eachloss. Eachor Eachgroup loss. orgroupor group loss. loss.Eachshould should Each Eachshouldgroup then groupgroupthen shouldbethen be presented shouldshould be presented then presented thenthenbe as presented beaasbe single as presentedapresented singlea single lineas linea item as lineassingle item aa initem singlesingle thelinein inthe statement lineitemlinethe statement itemstatementitemin the inofin statement the othertheof of other statementstatement othercomprehensive comprehensiveof comprehensive other ofof otherother comprehensive income. comprehensivecomprehensive income. income. income. income.income. AccordingAccordingAccording toAccording theto toAccordingthe Accordingtransitional the transitional transitionalto the toto provisions, transitional thethe provisions, transitionaltransitionalprovisions, theprovisions, the disclosures provisions,theprovisions, disclosures disclosures the in disclosures thethe IASin disclosures indisclosuresIAS 8 IAS regarding 8 regarding8in regarding IAS inin 8 IAStheIAS regarding the 8adoption8 the regarding regardingadoption adoption the of adoptionnew theofthe ofnew adoptionadoption standards/accountnew standards/account ofstandards/account new ofof newstandards/accountnew standards/accountstandards/account------inging policiesing policies policies ingare are policiesnoting ingare not required policies policiesnot required are required not are arefor requiredfor notthesenot for these requiredrequired theseamendments. foramendments. amendments. these forfor thesethese amendments. amendments.amendments. As AstheseAs these theseamendments amendmentsAs amendments theseAsAs thesethese amendments merely amendmentsmerelyamendments merely clarify clarify merelyclarify the merelymerelythe existing theclarify existing existing clarifyclarify requirements,the requirements, existing the therequirements, existingexisting requirements, they requirements, requirements,they dothey donot do not theyaffect not affect they dotheyaffect the not dothe dobank’s the affect notnotbank’s bank’s affect affect accountingthe accounting bank’s theaccountingthe bank’sbank’s policiesaccounting policies accountingaccountingpolicies or or policies or policiespolicies or oror anyany ofany theof ofthe disclosures. anythe disclosures. disclosures.anyofany the ofof disclosures. thethe disclosures.disclosures. (iii)(iii) Standards,(iii) Standards, Standards,(iii) Standards,(iii)amendments(iii) amendments Standards, Standards, amendments amendments and amendmentsamendments and interpretationsand interpretations interpretations and and andinterpretations interpretationsinterpretationsto toexisting toexisting existing tostandards existingstandards to tostandards existingexisting thatstandards that standardsstandardsarethat are notare thatnot yetnot thatthatyetare effective yet effectivearenotare effective notyetnot and effective yetyetand haveand effectiveeffective have have notand not and notandhave havehave not notnot beenbeenbeen early early early beenadopted adoptedbeenbeen adoptedearly by earlyearly adopted bythe by the adopted adoptedBank the Bank byBank the byby Bankthethe BankBank A number A number A number of A new ofnumber ofnew A A standardsnewnumber number standards ofstandards new of of and new standardsnew and amendments andstandards standards amendments amendments and and amendmentsand to standardsamendments toamendments tostandards standards to and standards andto to interpretations andstandards standards interpretations interpretations and and interpretationsand are interpretations interpretations are effective are effective effective are for for effectiveannualare are for annual effective effectiveannual periods for periods annual periodsfor for beginannual annual begin periods begin- periods -periods- begin begin begin- -- ningning afterning after after1 ningJanuary 1 January1ning ning afterJanuary 2015, after after1 2015,January 2015, 1 1and JanuaryJanuary and have2015,and have 2015, have2015,not and not been not and haveandbeen beenapplied have have notapplied applied been notnot in beenpreparingbeenin applied inpreparing preparing appliedapplied in these preparing these inin these preparingfinancialpreparing financial financial these statement. thesethese financialstatement. statement. financialfinancial None statement. None Nonestatement. statement.of theseof oftheseNone theseis NoneNoneexpect- isof expect-is these expect- ofof thesethese is expect- isis expect-expect-

44 44 East African Development Bank Financial Statements For the year ended 31 December 2015

ed edto ed haveto tohave haveaed significant a to edsignificantaed have significant toto have havea effect significant effect aa effect significantonsignificant onthe on effectthe financial the financial effecteffect onfinancial the onstatementson financialstatements thethe statements financialfinancial of statements theof statementsofstatementsthe bank, the bank, bank,of except the except ofof except bank, the thethe bank,the bank,following exceptthe following following exceptexcept the set following thesettheout set outfollowing followingbelow. out below. setbelow. out setset below. outout below.below. IFRS IFRS 9IFRS, 9‘Financial , 9‘Financial,IFRS ‘Financial IFRSIFRS9 ,instruments’, ‘Financial 9instruments’,9, , instruments’,‘Financial‘Financial instruments’, addresses instruments’,addressesinstruments’, addresses the addresses the classification, theaddressesaddresses classification, classification, the classification,thethe measurement classification, classification,measurement measurement measurement and measurement measurementand recognitionand recognition recognition and andandrecognitionof financialof recognition recognition offinancial financial ofassets financial assets of ofassets financialandfinancial and assetsand assetsassets and andand financialfinancialfinancial liabilities. financialliabilities. liabilities.financialfinancial The liabilities. The complete The liabilities. liabilities.complete complete The version Thecomplete Theversion version completecomplete of IFRSof version ofIFRS 9IFRS versionversion was9 of was9 issuedIFRSwas of ofissued IFRSIFRS9issued inwas 9Julyin9 was issuedwasinJuly 2014.July issued issued2014. in2014. ItJuly replacesin inIt Julyreplaces2014.ItJuly replaces 2014.2014. theIt replacesthe guidance IttheIt guidance replacesreplaces guidance the in guidance theIASthein in IAS guidance39guidance IAS 39that 39in that IAS that inin 39IAS IAS that 3939 thatthat relatesrelatesrelates to theto relates tothe classification the relatesclassificationrelates classification to the to to classification the theand andclassification classification measurement and measurement measurement and and measurementand of measurement financialmeasurementof offinancial financial instruments.of financialinstruments. of ofinstruments. financial financial instruments. IFRS IFRS instruments. instruments. 9IFRS retains 9 retains9 retainsIFRS but IFRS 9IFRSbut simplifies retainsbut simplifies9 9 retainssimplifies retains but the simplifies but the butmixed the simplifies mixedsimplifies mixed measure the measure measuremixed the the- mixed mixed -measure- measure measure- -- mentment mentmodel model modelment and andmentment modelestablishesand establishes model modelestablishes and andthreeestablishesand three establishes establishesthreeprimary primary primarythree measurement three three measurementprimary measurement primaryprimary measurement categories measurement measurementcategories categories forcategories forfinancial categoriesforcategories financial financial for assets: financial assets:forfor assets: financialfinancialamortised amortised assets:amortised assets:assets: cost, amortised cost, cost,amortisedfairamortised fair value fair cost,value value cost, cost,fair fairvaluefair valuevalue throughthroughthrough OCI OCIthrough andOCI throughandthrough fairand OCIfair value fair OCI valueOCIand value through andfairand through through value fairfair P&L. valuevalue P&L.through P&L.The throughThethrough basis The P&L.basis basisof P&L. P&L.The classificationof of classification ThebasisThe classification basisbasis of classification dependsofof classificationdependsclassification depends on dependsonthe on the dependsentity’sdepends the entity’s onentity’s businessthe onon business entity’s thebusinessthe entity’sentity’smodel businessmodel model businessandbusiness and themodeland the modelmodelthe and andtheand thethe contractualcontractualcontractual contractualcash cashcontractual contractualcashflow flow flowcharacteristicscash characteristics characteristicscash cashflow flowflowcharacteristics of characteristicscharacteristics ofthe ofthe financialthe financial offinancial the ofofasset. financialthetheasset. asset. financialInvestmentsfinancial Investments Investmentsasset. asset.asset. Investmentsin inequity Investments Investments inequity equity instruments ininstruments equity instruments inin equityequity instrumentsare are instruments instrumentsrequiredare required required are to arerequiredaretobe to be required requiredbe to be toto bebe measuredmeasuredmeasured atmeasured fairat atmeasuredfair measuredvalue fair value valueat through fair through atat throughvalue fairfair profit valuevalue profitthrough profit or through throughlossor orlossprofit with loss profitwithprofit orthewith lossthe irrevocable or orthe irrevocable losswithloss irrevocable withthewith optionirrevocable thethe option irrevocableirrevocableoption at inceptionat optionatinception inception optionoption atto inception presentto atat topresent inceptioninception present changes to changes present changes toto present presentin fairchangesin infair value changesfairchanges value value in fair inin value fairfair valuevalue in OCIin inOCI notOCI not inrecycling. not OCIrecycling.in inrecycling. OCI OCInot There recycling.not notThere There recycling.recycling.is nowis isnowThere anow TherenewTherea isnewa nowexpectednew is isexpected now nowaexpected new aacredit new newexpectedcredit credit lossesexpectedexpected losses lossescredit model modelcreditcredit modellosses that losseslossesthat replacesmodelthat replaces model modelreplaces that the thatreplacesthatthe incurred the incurredreplacesreplaces incurred the loss incurredlossthethe impairmentloss incurredimpairmentincurred impairment loss lossimpairmentloss impairment impairment modelmodelmodel used used modelusedin IASinmodelmodel inIAS 39.used IAS 39. used used39.in IAS inin 39. IASIAS 39.39. For For financial For financial financial For liabilities financialliabilities For For liabilities financial financial there liabilitiesthere therewere liabilities liabilities were wereno there nochanges there no there changeswere changes were were noto classificationtochanges no no toclassification changes classificationchanges to classification andto to classification andclassification measurement and measurement measurement and and measurementand except measurement measurementexcept except for forthe exceptfor the recognition the except exceptrecognition forrecognition the for for of recognitionthe the changesof recognition recognitionofchanges changes of changes ofof changes changes in ownin inown creditown credit incredit risk own inriskin in ownriskowncredit otherin inother creditcredit otherriskcomprehensive comprehensive inriskrisk comprehensive other inin otherother comprehensive income, comprehensivecomprehensive income, income, for forincome,liabilities for liabilities income, income,liabilities for designated liabilities designated forfor designated liabilitiesliabilities atdesignated fairat designated designatedatfair value fair value valueat through fair through atat through value fairfair profit valuevalue profitthrough profit or through throughloss.or or loss.profit IFRSloss. profitprofitIFRS or 9IFRS loss. 9 oror 9 loss. loss.IFRS IFRSIFRS9 99 relaxesrelaxesrelaxes the the requirementsrelaxes the requirements relaxesrequirementsrelaxes the requirements thethe for requirements forrequirementshedge for hedge hedge effectiveness for effectiveness hedgeeffectiveness forfor hedgehedge effectiveness by byeffectivenessreplacingeffectiveness by replacing replacing by the replacing bythe bybright the replacingreplacingbright bright line the line hedge linebright thethe hedge brighthedgebright effectivenessline effectiveness linehedgeeffectivenessline hedgehedge effectiveness tests. tests.effectivenesseffectiveness tests.It requires It requiresIt tests. requires tests.antests. It anrequires an It It requires requires an anan economiceconomiceconomic relationshipeconomic relationship relationshipeconomiceconomic relationshipbetween between relationshiprelationship between the thebetween hedged the hedged betweenbetween hedged itemthe item hedged the andtheitem and hedgedhedged hedging and itemhedging hedging itemitemand instrument andinstrumenthedgingand instrument hedginghedging and instrument and for instrumentandinstrument forthe for the ‘hedgedand the ‘hedged andfor‘hedgedand the ratio’ forfor ratio’ ‘hedged thethe ratio’ to ‘hedged ‘hedged beto to betheratio’ be the same ratio’theratio’ tosame besame as toto the as bebe as same thethe samesame as asas thethe onethe one managementone managementthe management onethethe onemanagementone actually management managementactually actually use use actuallyfor use for risk actuallyactually for risk managementuse risk management for use usemanagement risk forfor managementriskrisk purposes. management managementpurposes. purposes. Contemporaneous purposes. Contemporaneous Contemporaneous purposes.purposes. Contemporaneous ContemporaneousContemporaneous documentation documentation documentation documentation is documentationdocumentation still is stillis required still required requiredis still isis required stillstill requiredrequired butbut isbut different is differentis differentbut to isbutbut thattodifferent istothatis currently differentthatdifferent currently tocurrently that topreparedto thatcurrentlypreparedthat prepared currentlycurrently under prepared under under preparedIASprepared IAS 39. IASunder 39. The 39. under underThe IASstandard The standard 39. IAS IASstandard The 39.39. is effective ThestandardisThe effectiveis standardstandardeffective for is foreffectiveaccounting for is isaccounting effective effectiveaccounting for periodsaccounting forfor periods accountingaccountingperiods beginning beginning periods beginning periodsperiods on beginning on on beginningbeginning on onon or afteror orafter 1after January 1or January1 afterJanuaryoror 2018. after after1 2018.January 2018. 1 1Early January January Early Early2018.adoption adoption 2018. 2018.adoption Early is Early Early permitted. adoptionis permitted.is adoption adoptionpermitted. is The permitted. Theis isbank Thepermitted. permitted. bank bankis assessingThe is assessingis bankThe Theassessing bank bank isIFRS assessing IFRS is 9’sisIFRS assessing assessing 9’s full 9’s full impactIFRS full impact IFRS 9’sIFRSimpact and full 9’s 9’s and the impactandfull full the process impact impactthe process and process andshould theand should process the theshould process process should should should be becompletebe complete completebe by complete bythebebe by the completeendcomplete the end of endby 2016.of the byofby2016. end2016. thethe endofend 2016. ofof 2016.2016. IFRS IFRS 15,IFRS 15, ‘Revenue 15, ‘RevenueIFRS ‘Revenue IFRS15,IFRS from ‘Revenue 15,from15, fromcontracts ‘Revenue‘Revenue contracts contracts from with from from contractswith customers’with contracts contractscustomers’ customers’ with deals withcustomers’with deals customers’deals customers’with with revenuewith deals revenue revenue dealsdeals with recognition recognition withrevenuewith recognition revenuerevenue andrecognition and recognitionestablishes recognitionand establishes establishes and principles andestablishesand principles establishesprinciplesestablishes for principles forreport for principlesreportprinciples report- for- - report forfor reportreport- -- inging usefuling useful useful informationing information informationusefulinging usefuluseful informationto usersto informationinformation tousers usersof financialofto of financialusers tofinancialto usersusers ofstatements financialstatements of ofstatements financialfinancial aboutstatements about statementsaboutstatements the the nature, theabout nature, nature, aboutabout amount,the amount, nature, thetheamount, nature, nature,timing amount,timing timing amount,andamount, and uncertaintytimingand uncertainty timingtiminguncertainty and andofuncertaintyand revenueof uncertainty uncertaintyofrevenue revenue of revenue ofof revenuerevenue andand cashand cash cashflowsand flows flows andarisingcashand arising cash arisingcashflows from flowsfromflows arising froman arisinganarisingentity’s an fromentity’s entity’s from fromcontractsan contracts entity’s ancontractsan entity’sentity’s with contractswith customers.with contractscontracts customers. customers. with withRevenuewithcustomers. Revenue customers.customers.Revenue is recognisedRevenueis isrecognised RevenueRevenuerecognised is whenrecognised is iswhen recognisedrecognisedwhen a customera customerawhen customer whenwhen aobtains customer obtains a aobtains customercustomer obtains obtainsobtains controlcontrolcontrol of aof controlgood ofa goodacontrol controlgood or of serviceor a or service ofgoodof service aa and goodgood or and thus serviceand oror thus service hasservicethus andhas the has andthe thusandability the ability thushasthus ability to the has hasdirectto to abilitydirect thethe direct the abilityability the touse the direct use toandto use directanddirect theobtain and obtain use the theobtain the and useuse the benefits andobtaintheand benefits benefits obtainobtain thefrom from benefits the thefromthe benefitsthe benefitsgood the fromgood good or from from theservice.or or service. good thethe service. goodgood or service. oror service.service. TheThe standardThe standard standardThe replaces ThestandardreplacesThe replaces standard standard IAS IASreplaces 18 IAS 18‘Revenue’replaces replaces 18 ‘Revenue’ IAS‘Revenue’ 18IAS IAS and ‘Revenue’ 18and18 IAS and ‘Revenue’ ‘Revenue’ IAS 11 IAS 11 ‘Constructionand 11 ‘Construction and IASand‘Construction 11IAS IAS ‘Construction 11 11contracts’ ‘Construction ‘Constructioncontracts’ contracts’ and contracts’ and related and contracts’ contracts’ related related andinterpretations. interpretations. and related andinterpretations. related related interpretations. Theinterpretations. interpretations. The standard The standard standard The ThestandardThe standard standard is effectiveis effectiveis effective foris foreffectiveannual foris isannual effective effectiveannual periods for periods annual forperiodsfor beginning annualannual beginning periods beginning periodsperiods on beginning onor on beginning afterbeginningor orafter after1 on January 1 or onJanuary1on afterJanuary oror 2018 after after1 2018January 2018 1and1 JanuaryJanuary and earlierand 2018 earlier earlier 20182018 applicationand application andearlierandapplication earlierearlier isapplication permitted. is application applicationpermitted.is permitted. is The permitted. The is isbank The permitted.permitted. bank bankis The is is Thebank The bankbank is isis assessingassessingassessing theassessing the impact the assessingimpactassessing impact of the IFRSof impact theofIFRSthe 15IFRS impactimpact 15and of 15 and IFRS shouldand ofof should IFRSIFRS15 should completeand 1515 complete and shouldandcomplete should shouldthis complete this process this completecompleteprocess process thisby bythe process this thisby the end processtheprocess end of endby 2016.of the byofby2016. end2016. thethe endofend 2016. ofof 2016.2016. IAS IAS 16,IAS 16, ‘Property, 16, ‘Property,IAS ‘Property, 16,IASIAS plant ‘Property, 16, 16,plant plant and ‘Property,‘Property, and equipment’,and plant equipment’, equipment’, plantplant and andequipment’, andand and equipment’, equipment’, IASand IAS 41, IAS 41, and‘Agriculture’, 41, ‘Agriculture’, andIASand ‘Agriculture’, 41, IASIAS ‘Agriculture’, 41, 41,These These‘Agriculture’,‘Agriculture’, These amendments amendments amendmentsThese TheseThese amendments change amendmentschangeamendments change the the financialchange the financial change changefinancial the reporting financialreporting thethe reporting financialfinancial reporting reportingreporting for forbearerfor bearer bearer plants,for plants, bearerforplants,for such bearerbearer such plants, suchas as grapeplants,plants, as grapesuch grape vines, such suchas vines, grapevines, asrubberas graperubbergrape rubbervines, trees vines,vines,trees rubber treesand andrubberrubber oiland trees oilpalms. oil treespalms. treesand palms. The andoiland The palms.IASB Theoiloil IASB palms. palms.IASBdecided Thedecided decided TheIASBThe that IASB IASBthatdecided bearerthat decidedbearerdecided bearer thatplants plants that bearerthatplants should bearer bearershould plantsshould be plants plants be shouldbe shouldshould be bebe accountedaccountedaccounted foraccounted forin for accounted theaccountedin inthe same the forsame same inway for for the way in as inway same the theproperty,as assame property,same wayproperty, wayasplantway property,plant as as plantand property, property, and equipment and plant equipment equipment plant plant and becauseand equipmentand because equipment becauseequipment their theirbecause operationtheir becauseoperationbecause operation their is their theiroperationsimilar is similaris operation operation similar to thatisto similartothat ofis isthat similar manufacsimilarof toofmanufac thatmanufac to to -that ofthat -manufac of -of manufac manufac- -- turing.turing.turing. Consequently, Consequently, turing.Consequently,turing.turing. Consequently, the Consequently,Consequently, the amendments the amendments amendments the amendments the theinclude amendmentsincludeamendments include them them include themwithin includewithininclude within themthe the scope them them thewithin scope scope withinofwithin the IASof of IASscope the16,the IAS 16, scopescopeinstead 16,of instead IAS instead ofof of16, IASIAS IASof instead 16, 16,ofIAS 41. IAS instead instead41. The 41.of The IASproduce The ofof produce 41. IAS IASproduce The 41. 41.grow grow TheproduceThe -grow produceproduce- - grow growgrow- -- inging oning onbearer on bearer ingbearer plants oning ingplants bearer plants on onwill bearer bearerwill remain willplants remain remain plantsplants withinwill within remain will willwithin the remain remainthe scope thewithin scope scope withinofwithin the IASof of scopeIAS the41.the IAS 41. scope scopeThe 41.of The IASamendments The ofof amendments 41. IASIAS amendments The 41.41. TheamendmentsThe are amendmentsareamendments effective are effective effective are for foreffective areannualare for annual effective effectiveannual periods for periods annual forperiodsfor begin annualannual begin periods begin- periods-periods- begin beginbegin- -- ningning onning onor on afterorning orafter ningafter 1ningon January 1 or onJanuary1on afterJanuary oror 2016. after after1 2016.January 2016. 1 1This JanuaryJanuary This amendment2016.This amendment 2016.amendment2016. This Thisamendment Thiswill will amendmentnotamendment will not impact not impact will impact the not willwill the financial impact notthenot financial impactfinancialimpact the statements financialstatements thethe statements financialfinancial of statements theof statementsofstatementsthe Bank. the Bank. Bank.of the ofof Bank. thethe Bank.Bank. IAS IAS 27,IAS 27, ‘Separate27, ‘IASSeparate ‘Separate 27,IASIAS financial 27,‘27, Separatefinancial financial ‘‘SeparateSeparate statements’. financialstatements’. statements’. financialfinancial statements’.These These statements’.statements’. These amendments amendments amendmentsThese TheseThese amendments allow amendmentsamendmentsallow allow entities entities entitiesallow to allowallowuseto entities touse the use entitiesentities the equity tothe equityuse toequityto method usetheuse method equitymethodthethe to equityequity accounttomethod toaccount methodaccountmethod forto foraccount toforto account account for forfor investmentsinvestmentsinvestments investmentsin subsidiaries,ininvestments investments insubsidiaries, subsidiaries, in subsidiaries, joint inin joint subsidiaries,subsidiaries, venturesjoint ventures ventures joint and joint jointandventures associatesand venturesassociatesventures associates and in andassociatesand theirin in associatestheirassociates separatetheir separate in separate their in infinancial their theirseparatefinancial financial separateseparate statements. financialstatements. statements. financialfinancial Thestatements. The statements.amendments statements.The amendments amendments The TheamendmentsThe are amendmentsareamendments are are areare effectiveeffectiveeffective for effectiveforannual for annualeffectiveeffective annual periodsfor periods annual forforperiods annualbeginningannual beginningperiods beginning periodsperiods onbeginning onor beginningon beginningorafter orafter afteron1 January 1 or on on1January after Januaryoror after 2016.after1 2016.January 12016.1 This JanuaryJanuary This amendment2016.This amendment 2016.2016.amendment This ThisThisamendment will willamendment amendmentnot will not impact not impactwill impact thenotwillwill the financial impactnotnotthe financial impactimpactfinancial the financialthethe financialfinancial statementsstatementsstatements ofstatements theof statementsofstatementsthe Bank. the Bank. Bank.of the ofof Bank. thethe Bank.Bank. IFRS IFRS 10,IFRS 10, ‘Consolidated 10, ‘ConsolidatedIFRS ‘Consolidated IFRS10,IFRS ‘Consolidated10, 10, financial ‘Consolidated‘Consolidated financial financial statements’ financialstatements’ statements’ financial financial andstatements’ and statements’ IAS statements’and IAS 28, IAS 28, and‘Investments 28, ‘Investments and IASand ‘Investments 28,IAS IAS ‘Investments28, 28,in associates in‘Investments ‘Investments inassociates associates in and associates andin in joint andassociates associates joint ventures’.joint andventures’. ventures’. and jointand These joint jointventures’. These These ventures’. amendventures’. amend amendThese- These -These amend- amend amend- -- mentsmentsments address address addressments anmentsments aninconsistencyaddress an inconsistency addressaddressinconsistency an inconsistency an anbetween inconsistencybetweeninconsistency between the betweenthe requirements the requirements betweenbetween requirements the requirements thethe in requirementsIFRSinrequirements inIFRS 10IFRS 10and in10 andIFRS those andinin those IFRSIFRS10 those in and 10 IAS10in inandIAS thoseand28 IAS 28in thosethose 28 in dealingin IAS in dealing inin dealing 28 IASIAS with in 28 28with dealing thewith inin the dealingdealingsale the salewith orsale withorthewith or sale thethe saleorsale oror contributioncontributioncontribution contributionof assetsofcontributioncontribution ofassets assets between ofbetween betweenassets ofof an assetsassets betweenaninvestor an investor betweenbetween investor andan and investor an itsanand investorassociateitsinvestor itsassociate and associate anditsand or associate jointor itsits or joint associateassociate venture.joint venture. or venture. joint ororThe joint jointTheventure. mainThe venture.mainventure. mainconsequence The consequence consequence ThemainThe mainmain consequence of consequencetheofconsequence ofthe amend the amend amendof- the of-of amend -thethe amendamend- -- mentsmentsments is that is thatisments a that full amentsments full aisgain fullthat gain is isorgain thatathat lossorfull or alossa gainis fulllossfull recognised is gain gainorrecognisedis recognisedloss oror lossisloss whenrecognised iswhenis recognisedwhenrecognised a transaction a transactiona when transaction whenwhen a involvestransaction ainvolvesa transactiontransactioninvolves a business ainvolves businessa business involvesinvolves (whether a business(whether (whether aa businessbusiness it is (whetherit housed isit housed is(whether(whether housed init is ain housed itsubsidi itina is is subsidi a housedhoused subsidi- in -a insubsidi-in aa subsidisubsidi- -- aryary orary not).or ornot). arynot).A partialA orary arypartialA not). partial oror gain not). not). Again partialgainor AA loss or partialpartial orloss gain isloss recognised is gain gain orisrecognised lossrecognised oror lossisloss whenrecognised isiswhen recognisedrecognisedwhen a transaction a transaction awhen transaction whenwhen a involvestransaction aainvolves transactiontransactioninvolves assets assetsinvolves assets that involvesinvolves that dothatassets donot assetsdoassets not constitutethat not constitute that dothatconstitute not do doa constitute business,notnota business,a constitute constitutebusiness, a business, a a business,business, eveneven evenif these if theseif even theseassets assetseven evenif assets theseare if ifare housedthese these areassets housed housed assets assets inare ain housedsubsidiary.are areina subsidiary.a housed housedsubsidiary. in a The in subsidiary.in Thea aamendments subsidiary. Thesubsidiary. amendments amendments The amendmentsThe The are amendments areamendments effective are effective effective are for for effectiveannualare are for annual effective effectiveannual periods for periods annual periodsfor for beginning annual annual beginning periods beginning periods periods on beginning onor on beginning afterorbeginning orafter after on or on on after or or after after 1 January1 January1 January 2016.1 2016.January 2016.11 JanuaryJanuary 2016. 2016.2016. IAS IAS 1,IAS ‘Presentation1, 1,‘Presentation ‘PresentationIAS 1,IASIAS ‘Presentation 1,of1, financial‘Presentationof‘Presentation offinancial financial statements’of financialstatements’ of ofstatements’ financialfinancial Thesestatements’ These statements’ statements’These amendments amendments amendmentsThese TheseThese amendments are amendmentsareamendments as are partas as part ofarepart theof as are ofarethe IASB partthe asasIASB partinitiativeIASBofpart initiativethe ofinitiativeof IASB thethe to IASB improveIASBtoinitiative toimprove initiativeimproveinitiative presentato presentaimprove topresentato improveimprove- -presenta- presentapresenta- -- tiontion andtion and disclosureand tiondisclosure disclosure tionandtion in anddisclosureand financialin infinancial disclosuredisclosure financial reports.in financialreports. in inreports. financialfinancial Effective Effective reports. Effective reports. reports.for forEffectiveannual for annual Effective Effectiveannual periods for periods annual forperiodsfor beginning annualannual beginning periods beginning periodsperiods on beginning onor on beginning beginningafteror orafter after 1on January 1 or onJanuary1on afterJanuary oror 2016. after after1 2016.January 2016. 11 JanuaryJanuary 2016. 2016.2016.

45 45 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

AnnualAnnualAnnual improvements improvementsAnnual improvementsAnnualAnnual improvements 2014. improvementsimprovements 2014. 2014. These These 2014.These set set2014.of2014. set These amendments,of ofamendments, TheseThese amendments, set of setset amendments, ofofeffective amendments, amendments,effective effective 1 January 1effective January1 January effectiveeffective 2016, 1 2016,January 2016, 1 1impacts JanuaryJanuary impacts 2016,impacts 4 2016, 2016,standards: 4impacts standards:4 standards: impactsimpacts 4 standards: 44 standards:standards: • • IFRS • IFRS IFRS5, ‘Non-current5,• 5,‘Non-current IFRS• •‘Non-current IFRS IFRS5, ‘Non-current 5,5, assets ‘Non-current‘Non-current assets assets held held assets heldfor for assetssaleassets for heldsale andsale held heldandfor discontinuedand sale forfordiscontinued discontinued sale saleand andanddiscontinued operations’ discontinueddiscontinued operations’ operations’ operations’ regarding regardingoperations’operations’ regarding methodsregarding methods regardingregardingmethods of methods disposal.of ofdisposal. methodsmethods disposal. of disposal. ofof disposal.disposal. • • IFRS • IFRS IFRS7, ‘Financ7,• 7,‘Financ IFRS• •‘Financ ial IFRS IFRS7, ialinstruments: ‘Financ ial7, 7,instruments: ‘Financinstruments:‘Financial instruments:ialial Disclosures’, instruments: instruments:Disclosures’, Disclosures’, Disclosures’, (with Disclosures’, Disclosures’,(with (with consequential consequential consequential (with (with(with consequential amendments consequentialconsequential amendments amendments amendments to amendmentsamendments IFRSto toIFRS IFRS1) regarding1) to 1)regarding IFRS regarding toto IFRS IFRS1) servicingregarding 1) 1)servicing regardingservicingregarding servicing servicingservicing contracts.contracts.contracts.contracts.contracts.contracts. • • IAS • IAS 19, IAS 19, •‘Employee 19, ‘Employee IAS• •‘Employee IAS19, IAS 19,‘Employeebenefits’19, benefits’ ‘Employee ‘Employeebenefits’ regarding benefits’ regarding regarding benefits’benefits’ discountregarding discount regardingregardingdiscount rates. discount rates. rates. discountdiscount rates. rates.rates. • • IAS • IAS 34, IAS 34, •‘Interim 34, ‘Interim IAS• •‘Interim IAS34, IAS financi 34,‘Interimfinanci34, financi ‘Interimal‘Interim reporting’al financi alreporting’ reporting’ financifinancial regardingreporting’al alregarding reporting’reporting’regarding disclosureregarding disclosure regardingregardingdisclosure ofdisclosure informationof disclosure disclosureofinformation information of information ofof informationinformation

ThereThereThere are are no areThere noother no ThereotherThere are otherIFRSs no areIFRSsare IFRSsorother nono IFRICor otherother or IFRICIFRSs IFRIC interpretations IFRSsIFRSs interpretationsor interpretations IFRIC oror IFRICIFRIC interpretations that interpretationsinterpretations that arethat are not are not thatyet not yet effective thatarethat yet effective notareeffectiveare yet notthatnot thateffective yetyet wouldthat effectivewouldeffective would bethat beexpected thatbewould thatexpected expected wouldwould be to expectedhave to bebe tohave expected expected havea material a to materiala have material toto haveimpact havea impactmaterial aimpacta materialmaterial impact impactimpact on ontheon the bank. the bank. onbank. theonon bank. thethe bank.bank. c) c)Functional c)Functional Functionalc) Functionalandc)c) andFunctional Functionalpresentationand presentation presentation and andandpresentation currency presentation presentationcurrency currency currency currencycurrency Items Items Itemsincluded included included Items in Items Items theincludedin inthe Bank’s includedincludedthe Bank’s Bank’sin financial the infinancialin Bank’s thefinancialthe Bank’sstatementsBank’s financialstatements statements financialfinancial are statements are measured statementsarestatements measured measured are using measured areare using using measuredthemeasured the currency the using currency currency usingusing the of the currencyof thethe ofthe primary currency currencythe primary primaryof theeconomic ofof economic primary the theeconomic primaryprimary environment economic environment environment economiceconomic environment environmentenvironment in whichin inwhich which the inthe Bank thewhich Bankinin Bankoperates whichwhich theoperates operates Bank thethe (‘the BankBank operates(‘the functional(‘the operates operatesfunctional functional (‘the currency’). (‘the (‘thefunctional currency’). currency’). functionalfunctional Thesecurrency’). These currency’).Thesecurrency’). financial financial financialThese statements TheseThese financialstatements statements financialfinancial arestatements are presented statementsarestatements presented presented are in presented are are Unitedin in Unitedpresentedpresented United States in States UnitedStates inDollarsin UnitedUnitedDollars DollarsStates States States Dollars DollarsDollars (USD),(USD),(USD), which which (USD),which is the (USD),is(USD), theis whichBank’s the Bank’s whichwhich Bank’s is functional the isfunctionalis Bank’s thefunctionalthe Bank’sBank’s currency. functional currency. currency. functionalfunctional Except currency.Except Except currency.ascurrency. indicated,as Exceptas indicated, indicated, ExceptExcept as the indicated, asthe asfinancial the indicated, indicated,financial financial the information financialinformation thethe information financialfinancial informationhas has informationbeeninformation has been beenrounded has rounded rounded been hashas off beenbeen roundedoffto off theto roundedrounded tothe the off to offoff the toto thethe nearestnearestnearest a thousand. anearest thousand.a thousand.nearestnearest a thousand. aa thousand.thousand. Assets Assets Assets and and liabilities Assetsand liabilities Assets Assetsliabilities and expressed and liabilitiesandexpressed expressed liabilitiesliabilities in expressed variousin inexpressedvariousexpressed various currencies in currenciesvarious currenciesinin variousvarious are currencies are translated currenciesarecurrencies translated translated are into aretranslatedare into US intotranslatedtranslated USDollars US Dollarsinto Dollars intoatUSinto rates at Dollars US USatrates ratesDollarsofDollars exchangeofat of exchangerates atexchangeat rates ratesof ruling exchange ofrulingof ruling exchange exchangeat theat atrulingthe the rulingruling at the atat thethe StatementStatementStatement ofStatement Financialof ofFinancialStatementStatement Financial ofPosition Financial Position of ofPosition Financial Financial date. date. Position date.Transactions Position TransactionsPosition Transactions date. date. date. Transactions during duringTransactions Transactions during the the year duringthe year are yearduring during are theconverted are convertedyear the the converted year yearare at converted are exchangeareat at exchangeconverted converted exchange at rates exchange rates at at ratesruling exchange exchange ruling ruling atrates theat rates ratesatthe rulingtransaction the transaction ruling ruling transaction at the at at transaction the the transaction transaction date.date. date.The The resulting Thedate. resulting resultingdate.date. The differences TheresultingdifferencesThe differences resultingresulting fromdifferences from differences fromdifferencesthe the conversion the fromconversion conversion from fromthe and conversion thethe and translationconversionandconversion translation translation and ofandtranslationand allof translation oftranslationalltransactions all transactions transactions of all ofof transactions and allall and transactions transactions balancesand balances balances and are and balancesandare dealt are balancesdealtbalances dealtwith arewith inwith dealt are arethein inthe dealtdealt withthe withinwith the inin thethe StatementStatementStatement ofStatement Comprehensiveof ofComprehensiveStatementStatement Comprehensive of Comprehensive ofof ComprehensiveIncomeComprehensive Income Income in thein Income inthe period the Income Incomeperiod periodin in the which inin period in thewhichthe which theyperiodperiod theyin arise. theywhich inarise.in whicharise.which they theyarise.they arise.arise. d) d) Segment d) Segment Segmentd) reporting Segment d)d)reporting reporting Segment Segment reporting reportingreporting Operating Operating Operating segments Operating segments Operatingsegments Operating are segments are reported are segments segmentsreported reported are in arereportedainare mannerin a reported reportedamanner manner in consistenta ininconsistentmanner aconsistenta mannermanner with consistent with the withconsistentconsistent the internal the withinternal internal with withthereporting reporting internalthethe reporting internalinternal provided reporting provided provided reportingreporting to providedtheto to the providedprovidedchief the chief tochiefoperating the operating toto operating chiefthethe chief chiefoperating operatingoperating decision-makerdecision-makerdecision-makerdecision-maker decision-maker(CODM).decision-maker (CODM). (CODM). The (CODM). The CODM, The (CODM). (CODM).CODM, CODM, The which ThewhichCODM,The which is CODM,CODM, responsibleis isresponsiblewhich responsible whichwhich is responsiblefor is is for allocating responsible responsiblefor allocating allocating for resources allocating for forresources resources allocatingallocating and resources and assessing and resourcesresources assessing assessing and performance andassessingand performance performance assessingassessing performance of performancetheofperformance ofthe the of the ofof thethe operatingoperatingoperating segments,operating segments, segments,operatingoperating has segments, has been has segments,segments, been beenidentified has identified identified beenhashas as beenbeen identified theas as the identifiedBank’sidentified the Bank’s Bank’sas board the asasboard Bank’s theboardthe of Bank’s Bank’sdirectors.of ofboarddirectors. directors. boardboard of directors. ofof directors.directors. e) e) Revenue e) Revenue Revenuee) recognition Revenue e)recognitione) recognition Revenue Revenue recognition recognitionrecognition (i) (i) Interest (i) Interest Interest (i) income income Interest (i) (i) income Interest Interestand andincome expenseand incomeexpenseincome expense and andandexpense expenseexpense The The effective The effective effective The interest Theinteresteffective The interest effectivemethodeffective method interest method interestisinterest a is methodmethod isa methoda methodmethod method isof a calculating of ismethodis of calculatingaa methodcalculatingmethod of thecalculating of ofthe amortised calculatingthecalculating amortised amortised the cost amortised the thecost of cost amortisedamortised aof financial ofa costfinanciala financial costofcost asseta of financialofasset a assetaor financialfinancial aor financial or aasset financiala financial assetasset or liabilitya or orfinancialliability aliabilitya financial financial liability liabilityliability andand ofand allocatingof ofallocating andallocating andofand the allocating the ofofinterest the allocating allocatinginterest interest incomethe income interest theincomethe or interestinterest interestor income orinterest interest incomeincome expense or expense interest expense oror interestoverinterest overexpense theover expensethe expenserelevant the relevantover relevant over overtheperiod. period. relevant thethe period. relevantTherelevant The period.effective The effective period. period.effective The interest interest TheeffectiveThe interest effectiverateeffective rate interest israte the is interest interesttheis rate therate rate rate rateisrate the isis rate thethe raterate thatthat exactlythat exactly exactly discountsthat discounts that exactlythatdiscounts exactly exactlyestimated discounts estimated estimated discountsdiscounts future estimated future future estimatedcashestimated cash cashpaymentsfuture payments futurefuturepayments cash or cash cashpayments receiptsor or receipts paymentspayments receipts through or through receipts orthroughor receiptsreceiptsthe the throughexpected the expected through throughexpected the life expected thelifetheof life theof expectedexpected ofthe financial thelife financial financial of lifelife the instrument ofof financialinstrument thethe instrument financialfinancial instrument instrumentinstrument or, or,whenor, when when appropriate, or,appropriate, appropriate,whenor,or, whenwhen appropriate, a shorter appropriate,aappropriate, shortera shorter period a period shorter period a ato shortershorter theto period tothe net the periodperiodnet carrying netto carrying the carrying toto net theamountthe amountcarrying netnet amount carrying carryingof theofamount ofthe financial amounttheamount financial financialof the assetofof financial theassetthe assetor financialfinancial orfinancial orfinancialasset financial assetasset orliability. financialliability. or orliability. financialfinancial When Whenliability. When liability.liability. When WhenWhen calculatingcalculatingcalculating thecalculating the effective calculatingthecalculating effective effective theinterest interesteffective thethe interest effectiverate,effective rate, interest rate,the theinterest interestBank the rate,Bank Bankestimates rate, rate, theestimates estimates Bank thethe cash BankBank estimates cash cashflows estimatesestimates flows flowsconsidering cash considering cashconsidering cashflows flowsflows consideringall all contractual considering consideringall contractual contractual all termscontractual allall terms contractual contractualterms of theof oftheterms financial the financial termsterms financialof the ofof financial thethe financialfinancial instrumentinstrumentinstrument (forinstrument (for example, instrument(forinstrument example, example, (for prepayment example,(for (forprepayment prepayment example,example, prepayment options) options) prepaymentprepayment options) but but options)does but does options)options) doesnot butnot consider not does butconsiderbut consider does doesnot future consider futurenotnot future credit considerconsider credit creditfuture losses. losses. futurefuture losses.credit The creditThecredit calculation losses.The calculation losses.losses.calculation The includes ThecalculationThe includes calculationincludescalculation all allincludes all includes includes all allall feesfees andfees and pointsand feespoints points paidfeesandfees paid andpaidorpointsand receivedor points points orreceived paid received paid paidbetweenor betweenreceived or orbetween receivedreceived parties betweenparties parties betweentobetween theto parties tothe contract the partiescontractparties contractto thethat toto that contract thetheare that are contract contractan are anintegralthat an integral thatarethatintegral partan areare part integral anofpartan theof integralintegral ofthe effective partthe effective parteffectiveofpart theinterest ofof interest effective thethe interest effectiverate,effective rate, interest rate, interestinterest rate, rate, rate, transactiontransactiontransaction coststransaction coststransaction transactioncostsand and alland costs allother all othercosts costsand otherpremiums andpremiumsalland premiums other allall otherorother premiums discounts.or or premiumsdiscounts.premiums discounts. or discounts. oror discounts.discounts. Once Once Once a financial a financiala Once financial Once Onceasset a financialasset aassetaor financialfinancial aor group or aasset groupa group asset asset ofor similar ofa or ofgrouporsimilar asimilara groupfinancialgroup of financial similarfinancial ofof similarassetssimilar financialassets assets has financialfinancial has been hasassets been been assetswrittenassets has written written beenhas hasdown down beenbeen writtendown as writtenaaswritten result asdowna resulta downresult downof as anof a of asanimpairmentasresult an aaimpairment result resultimpairment of an ofof impairmentloss, anan loss, impairment impairmentloss, loss, loss, loss, interestinterestinterest income incomeinterest income interestisinterest recognised isincome isrecognised recognisedincomeincome is usingrecognised is isusing recognisedrecognisedusing the the rate theusing rate ofrate usingusing oftheinterest ofinterest rate thetheinterest usedraterateof usedinterest ofusedofto interestdiscountinterestto to discountused discount used used tothe discountthe tofuture tothe discountfuturediscount future cash the cash futurecashtheflowsthe flows future future flows forcash for the cash cashfor flowsthe purpose the flowsflowspurpose for purpose the forforof purposeofthethe of purpose purpose of ofof measuringmeasuringmeasuring themeasuring the impairment measuringthemeasuring impairment impairment the impairmentloss. thethe loss. impairment impairmentloss. loss. loss.loss. The The calculation The calculation calculation The Theofcalculation The ofthe calculationcalculation ofthe effectivethe effective ofeffective the ofinterestof effectivetheinterestthe interest effective effectiverate rateinterest includesrate includesinterestinterest includes rate all rate rateincludesallfees all fees includes includes andfees andall pointsand fees allpointsall points feesfeesandpaid paid and andpointspaidor or receivedpoints points or receivedpaid received paid paid ortransaction receivedtransaction or ortransaction receivedreceived transactioncosts, costs, transaction transactioncosts, and and andcosts, costs,costs, and andand discountsdiscountsdiscounts ordiscounts premiumsor orpremiumsdiscountsdiscounts premiums or that premiums orthator arethat premiumspremiums are an are anthatintegral an integral that arethatintegral part anareare partintegral anofanpart the ofintegralintegral ofthe effectivepart the effective parteffectiveofpart the interest ofof interesteffective thethe interest effectiveeffectiverate. rate. interest rate.Transaction interestTransactioninterest Transaction rate. rate. rate.Transactioncosts costs Transaction Transaction costsare are incremental are costsincremental incremental costs costsare incrementalarecostsare costs incrementalincremental costs costs costs costs thatthat arethat are directly are directlythat directly thatattributablearethat attributable directly areareattributable directlydirectly attributableto theto attributable attributable tothe acquisition, the acquisition, acquisition,to the toto acquisition,issue thethe issue acquisition, acquisition, issueor disposalor or disposalissue disposal issue issue ofor aofdisposal orfinancial orofa disposalfinancialadisposal financial of asset a offinancialofasset aassetaor financialfinancial liabilityor or liabilityasset liability assetasset or liability oror liabilityliability Interest Interest Interest income income Interest income and Interest Interest and incomeexpense and expense income income expense and presented presentedand expenseand presented expense expense in presented the in in the presented Statementpresented the Statement Statement in the in ofin Statement the Comprehensivetheof of ComprehensiveStatement Statement Comprehensive of Comprehensive of of Comprehensive IncomeComprehensive Income Income includes includes Income includes Income interestIncome interestincludes interest includes onincludes onfinancial interest on financial financialinterest interest onassets financialassets on on assets financial financial assets assets assets andand liabilitiesand liabilities liabilitiesand at and liabilitiesamortisedandat atamortised liabilities liabilitiesamortised at cost amortised atcostat on cost amortisedamortised onan on aneffective cost an effective costeffectiveoncost aninterest onon interesteffective an aninterest effectiverateeffective rate interest basis.rate basis. interestinterest basis. rate ratebasis.rate basis.basis. (ii) (ii) Fees (ii) Fees Feesand (ii)and commissionand Fees (ii) (ii)commission commission Fees Feesand andandcommission income commissionincomecommission income income incomeincome Fees Fees and Fees and commission and Fees commission commission Fees Feesand and commissionandincome income commissioncommission income that that incomeare that are incomeintegralincome are integral that integral thataretothat theto integral are are tothe effective the integralintegral effective effectiveto theinterest toto interest effective thethe interest effectiverateeffective rate intereston rate ona interestinterest financialon a rate financiala financial rateonrate asset a on onfinancialasset aassetora financialfinancial liabilityor orliability asset liability are assetasset or are includedliability are or orincluded liabilityincludedliability are included areare includedincluded in thein inthe measurement the measurement measurementin theinin measurement thethe of measurement measurementeffectiveof ofeffective effective interestof interesteffective ofinterestof effectiverate.effective rate. interest rate. interestinterest rate. rate.rate.

46 46 East African Development Bank Financial Statements For the year ended 31 December 2015

Other Other Other fees fees andfees Other and commission Otherand Other feescommission commission feesandfees and commissionandincome income commissioncommission income including including income including incomeincome account including account account includingincluding servicing servicingaccount servicing accountaccount fees servicingfees arefees servicing servicingare recognized are recognizedfees recognized feesarefees asrecognized areare theas recognizedrecognizedas the service the service serviceas is the asperformed. asis service theperformed.isthe performed. serviceservice is performed. isis performed.performed. (iii) (iii) Dividend(iii) Dividend Dividend(iii) income Dividend(iii) (iii) income incomeDividend Dividend income income income Dividend Dividend Dividend income Dividend income income Dividend Dividendis recognised is income recognisedis recognised incomeincome is whenrecognised iswhenis recognisedwhenrecognised the the right the when right rightto whenwhen receivetothe toreceive right thereceivethe dividends right rightto dividends receive dividends toto receivereceive is dividendsestablished. is established.is dividendsdividends established. is established. isis established.established. (iv) (iv) Other(iv) Other Other income(iv) income Otherincome(iv)(iv) Other Other income incomeincome Othe OtherOthe incomer incomer incomeOthe comprisesOthe Othercomprises income comprisesrr income income of comprises gainsof ofgainscomprises comprises gains less lessof loss less gains lossof ofrelated loss gains gains relatedless related tolossless less tradingto loss related losstotrading trading related related assets to assets trading assets toandto trading tradingand liabilities, andassets liabilities, liabilities,assets assets and and and liabilities, andand includes and liabilities, liabilities,includes includes and all allrealisedand includesand all realised includes includesrealised andall and realised unreal all andall unrealrealised realised unreal- and- -and unrealand unreal unreal- -- izedized fairized fair va fair luevaized value changes, izedluefairized changes, changes, va fairfairlue and vava changes, lueandlue interest.and changes, changes,interest. interest. and andinterest.and interest.interest. f) f) Property, f) Property, Property,f) plant Property,f) f)plant plant Property,and Property, and equipmentandplant equipment plantequipmentplant and andandequipment equipmentequipment Property,Property,Property, plant Property,plant plantandProperty,Property, and equipment and plant equipment equipment plant plant and are and equipmentand are stated equipment areequipment stated stated at are costat atstatedcostare are or cost stated valuationorstated at orvaluation costvaluation at at cost orcostless valuation less oraccumulatedor less valuation valuationaccumulated accumulated less accumulatedless less depreciation accumulated depreciationaccumulated depreciation depreciation and anddepreciation depreciation impairment and impairment impairment and and impairmentlosses.and losses. impairment impairmentlosses. Cost Cost losses. Cost losses. losses. Cost Cost Cost includesincludesincludes expenditures includesexpenditures expendituresincludesincludes expenditures that expendituresthatexpenditures arethat are directlyare thatdirectly directly that arethatattributable attributable aredirectly areattributable directlydirectly attributableto theto attributable attributable tothe acquisition the acquisition toacquisition the toto ofacquisitionthethe ofthe acquisition acquisitionofthe asset. the asset. ofasset. The the ofTheof cost Theasset.thethe cost asset.ofcostasset. Theofself-constructed of self-constructed Thecost Theself-constructed costcostof self-constructed ofof self-constructedassetsself-constructed assets assets assets assetsassets includesincludesincludes the theincludes cost the costincludes includes ofcost materialsofthe ofmaterials cost thematerialsthe costof costand materials and of of directand materialsmaterials direct direct labour, and labour, andlabour,directand any direct directany labour, otherany other labour, labour, othercosts any costs costs directlyanyotherany directly otherotherdirectly costs attributable costsattributable costsdirectly attributable directlydirectly attributableto bringingto attributable attributable tobringing bringing tothe bringingthe asset to tothe assetbringingbringing assetto theato workingto aasset the theworkinga working assetasset to a totoworking aa workingworking conditionconditioncondition forcondition forits for conditionintendeditscondition itsintended intendedfor itsuse, forfor intendeduse, its itsanduse, intended intendedand theand use,the costs the use,costsanduse, costsof and thedismantlingandof of dismantling costs the thedismantling costs costsof dismantlingand ofof and dismantling dismantling removingand removing removing and the andremovingand the items the removingremovingitems items and the and restoringand items the therestoring restoring itemsitems and the and restoringandthe site the restoringsite restoringon site onwhich the on which site thewhichthe they on sitesitethey theywhich onon whichwhich they theythey areare located.are located. located.are Purchased Purchasedlocated.areare Purchased located.located. software Purchased software PurchasedsoftwarePurchased that softwarethat isthat integral softwareissoftware integralis integralthat to thatisthat the tointegral to theisisfunctionality theintegralintegral functionality functionalityto the toto functionality theofthe the of functionalityfunctionality ofthe related the related relatedof equipmentthe of ofequipment related theequipmentthe relatedrelated isequipment capitalised is equipmentcapitalisedisequipment capitalised is ascapitalised isaspartis capitalisedas capitalisedpart ofpart thatof as ofthat part that asas part ofpart that ofof thatthat equipment.equipment.equipment.equipment.equipment.equipment. FreeholdFreeholdFreehold land Freeholdland landandFreeholdFreehold and buildingsand land buildings buildings land landand are andandbuildings are measured are buildings buildingsmeasured measured are at aremeasuredare fairat atmeasuredfairmeasured valuefair value atvalue less fair atlessat accumulated less fairvaluefair accumulated accumulatedvaluevalue less lessaccumulatedless depreciation accumulateddepreciationaccumulated depreciation depreciation on depreciationondepreciationbuildings on buildings buildings on and buildings onandon impairment and buildingsbuildings impairment impairment and and andimpairment impairment impairment losseslosseslosses recognised recognised recognisedlosseslosseslosses atrecognised theat recognised recognisedatthe date the date dateatof therevaluation.of at at of revaluation. date the therevaluation. date dateof revaluation. Valuations ofof Valuations revaluation.revaluation. Valuations areValuations are performed ValuationsareValuations performed performed are with performedareare with performedsufficientwithperformed sufficient sufficient with frequency with withsufficientfrequency frequency sufficientsufficient to frequency ensureto to frequencyensurefrequency ensure that to that ensurethe that toto the fairensure ensurethe fair that fair thatthethat fair thethe fairfair valuevaluevalue of aof revalued ofavalue revalueda revaluedvaluevalue of asseta of revaluedofasset aassetadoes revaluedrevalued does doesnot asset not differ assetnotasset doesdiffer differ materially does doesnot materially materially differ notnot differfromdiffer materially from fromits materiallymaterially carryingits itscarrying from carrying from fromamount.its amount.carrying itsamount.its carryingcarrying amount. amount.amount.

RevaluationRevaluationRevaluationRevaluation surplus RevaluationsurplusRevaluation surplus surplus surplussurplus In accordanceIn Inaccordance accordanceIn accordancewithInIn with accordance accordance IASwith IAS 16, IAS 16,with the 16, the withIASwithnature the nature 16, IAS IASnature of the16,16, revaluationof nature theofrevaluationthe revaluation naturenature of revaluationsurplus ofof surplus revaluation revaluationsurplus results results surplus results from surplussurplus from resultsfromvaluation valuation resultsresults valuation from of from fromvaluation assetsof of assets valuationvaluation assets with ofwith significantwithassets of ofsignificant assetssignificantassets with changes withsignificantwith changes changessignificantsignificant in changesin in changeschanges in inin fairfair value.fair value. value. Thefair The fairvalue.fairThefair fair value value.fairvalue. valueThe value of ThefairThe landof of landvaluefairfair landand value valueand of buildingsand land buildings ofof buildings land landand is andbuildingsand usuallyis isusually buildings buildingsusually determined is determined usually determined isis usuallyusually determinedfrom from determined determined frommarket-based market-based market-based from from frommarket-based evidence market-based market-basedevidence evidence by evidencebyappraisal by appraisal evidenceevidence appraisal by that appraisal bythatby is that appraisal appraisal is is that thatisthat isis donedone doneby byprofessionally by professionallydone professionallydonedone by professionally by byqualified professionally professionallyqualified qualified valuers qualifiedvaluers valuers qualified qualifiedafter after valuers afterevery every valuersvaluers every three after three afterthree afteryears.every years. everyeveryyears. three threethree years. years.years. ChangesChangesChanges in Changesfairin infairChanges Changes valuefair value invalue are fair inarein recognized arefairvaluefair recognized recognizedvaluevalue are arerecognizedinare otherin recognizedrecognized inother othercomprehensive incomprehensive comprehensiveother inin otherother comprehensive incomecomprehensivecomprehensive income income and andincome accumulatedand incomeaccumulatedincome accumulated and andandaccumulated in accumulatedequityaccumulatedin inequity equity under inunder equityunder inrevaluationin equityequityrevaluation underrevaluation underunder revaluation revaluation revaluation surplussurplussurplus surplus surplussurplus A revaluationA revaluationA revaluationA surplusrevaluationA Asurplus revaluation revaluationsurplus is recorded is surplus recordedis recorded surplussurplus inis recordedotherin is isinother recorded recorded othercomprehensive comprehensivein comprehensive other inin otherother comprehensive income comprehensivecomprehensive income income and and income creditedand credited incomeincome credited and to theandtocreditedand tothe asset creditedthecredited asset assettorevaluation therevaluation to torevaluation asset thethe assetasset reserverevaluation reserve revaluation revaluationreserve in equity.in reserve inequity. equity. reservereserve in equity. inin equity.equity. However,However,However, to However,theto tothe However,extentHowever, the extent extentto that the thattoto it thatextent thethereverses it reversesextentitextent reversesthat a thatit thatrevaluation areverses revaluation aitit revaluationreversesreverses a revaluationdeficit a adeficit revaluation revaluationdeficit of theof ofdeficitthe same the deficitsamedeficit sameof asset the asset ofof asset previouslysame thethe previously same samepreviously asset assetrecognisedasset previously recognised recognised previouslypreviously inrecognised profitin recognised recognisedinprofit profit or loss,orin orloss,profit inloss,inthe profit profitthe or the loss, or or loss, loss,the thethe increaseincreaseincrease is recognisedincreaseis isrecognised increaserecognisedincrease is inrecognised is profitisin recognised recognisedinprofit profit and andin loss. andprofit inloss.in loss.Aprofitprofit and revaluationA Arevaluation and loss.andrevaluation loss. loss.A revaluationdeficit A Adeficit revaluation revaluationdeficit is recognisedis isdeficitrecognised recognised deficitdeficit is inrecognised is profitisin recognised recognisedinprofit profit or orloss,in orprofitloss, ininloss,except profit profit exceptor except loss, to oror the to loss, loss,except tothe extent the exceptextentexcept extentto that the tothatto it thatextent the the it extentitextent that thatitthat itit offsetsoffsetsoffsets an anexisting offsetsan existing existingoffsetsoffsets surplusan surplus existing ansurplusan on existingexisting onthe surplus on the same surplusthesurplus same onsame asset the asset onon assetrecognised same thethe recognised samesamerecognised asset asset asset inrecognised thein recognised inrecognisedthe asset the asset assetrevaluationin therevaluation in inrevaluation asset thethe assetasset reserve.revaluation reserve. revaluation revaluationreserve. reserve. reserve.reserve. An AnannualAn annual annual transferAn transfer annual transferAnAn fromannual annual from transfer fromthe transfer thetransferasset the assetfrom assetrevaluation from fromtherevaluation revaluation asset the the asset assetreserverevaluation reserve revaluation revaluationreserve to retainedto reserve toretained retained reserve reserve earnings to earningsretained to earningsto retained retained is made earningsis madeis earnings madeearnings for for theis formade the difference is isthe madedifference made fordifference the for for between difference the thebetween between difference difference depreciation depreciationbetween depreciation between between depreciation depreciation depreciation basedbasedbased on onthe onbased the revalued the basedrevaluedbased onrevalued the oncarryingon revaluedcarrying thethe carrying revaluedrevalued amount amountcarrying amount carrying carryingof the ofamount ofthe asset amounttheamount asset assetofand theand of depreciationofand asset thethedepreciation depreciation assetasset and anddepreciationand based based depreciationdepreciation based on onthe onbased the asset’s the basedasset’sbased onasset’s original the on onoriginal asset’s theoriginalthe cost. asset’sasset’s cost.original cost. originaloriginal cost. cost.cost. Additionally,Additionally,Additionally,Additionally, accumulated accumulatedAdditionally,Additionally, accumulated accumulated depreciation accumulateddepreciationaccumulated depreciation depreciation as asatdepreciationdepreciation as theat atthe revaluation the asrevaluation revaluationat asas the atat daterevaluation thethe date revaluation revaluationisdate eliminated is eliminatedis dateeliminated date dateis against eliminated isagainstis eliminatedagainsteliminated the the grossagainst the gross againstagainstgross carrying the carrying carrying gross thethe amount grossgross amountcarrying amount carrying carryingof the ofamount ofthe amounttheamount of the ofof thethe assetasset assetand and theandasset the net the assetassetnet andamount net amount and theandamount netis thethe restated is amount net netrestatedis restated amountamount to is the torestated to istheisrevalued restatedtherestated revalued revaluedto the amount toto revaluedamount thethe amount revaluedrevalued of theof amount ofthe asset. the amountamount asset. asset.of Upon the Upon ofof Upon asset. thedisposal,the disposal, asset.asset. disposal,Upon any UponUpon disposal,any revaluation any disposal,revaluationdisposal, revaluation any reserve anyrevaluationany reserve revaluationrevaluationreserve relating relating reserve relating reservereserve relating relatingrelating to theto tothe particular the particular particularto the toassetto particular the theasset asset being particularparticular being being assetsold sold asset isasset soldbeing transferred is beingtransferredisbeing soldtransferred soldissold totransferred isretainedtois transferred totransferredretained retained earnings.to earnings.retained toearnings.to retainedretained earnings. earnings.earnings. DepreciationDepreciationDepreciationDepreciation is calculated DepreciationisDepreciation calculatedis calculated is on calculated ontheis is oncalculated thecalculated straight-line the straight-line straight-lineon the on on straight-line basis,the the basis, straight-line straight-line basis, at annualat atannualbasis, annual basis, ratesbasis, at rates annual ratesestimated at at estimatedannual annual estimated rates to rates ratesestimated writeto towrite estimated estimated writeoff offthe to off thewritecost theto to cost write or writeoffcost valuationor the off oroffvaluation cost valuationthe the cost orcostof valuation theof or or ofthe assetsvaluation valuation the assets assets of the of of assets the the assets assets overover theirover their estimatedtheirover estimated estimatedover overtheir useful their theirestimated useful useful estimatedestimatedlives. lives. lives.useful usefuluseful lives. lives.lives. ManagementManagementManagementManagement andManagement Managementand directorsand directors directors and review anddirectorsandreview review directorsthedirectors the residual reviewthe residual residual reviewreview thevalue value residual thethe value and residualresidual and useful andvalue useful useful value valuelife and life of andlifeusefuland anof of an usefulassetuseful an lifeasset asset at of lifelife theatan of ofat theassetyear ananthe year asset asset endyearat endthe andatendat year theandthe anyand year yearendany change any endchangeandend change and anyandconsid consid anychangeany consid- changechange- -consid considconsid- -- eredered toered beto tobeappropriateered be appropriate appropriateered eredto be toto appropriate in bebe accountingin appropriateappropriate inaccounting accounting in estimateaccounting in inestimate accountingaccountingestimate is recorded isestimate recordedis estimaterecordedestimate throughis recordedthrough isisthrough recordedrecorded the the throughStatement the Statement through throughStatement the of Statement the theComprehensiveof of ComprehensiveStatementStatement Comprehensive of Comprehensive ofof ComprehensiveIncome.Comprehensive Income. Income. Income. Income.Income. DepreciationDepreciationDepreciationDepreciation is calculatedDepreciationisDepreciation iscalculated calculated is to calculated write toisis tocalculatedwritecalculated writeoff off theto off thewrite cost totothe cost write write ofoffcost theofthe off off ofthe property cost thethe property costpropertyofcost the and ofof propertyand thethe equipmentand propertyequipmentproperty equipment and onandequipmentand ona equipmentonequipmentstraight-line a straight-linea straight-line on a on on straight-linebasis aa basis straight-linestraight-line basisover over theover basis the expected thebasisbasis expectedover expected over overthe expected thethe expectedexpected usefulusefuluseful lives lives oflivesuseful theof useful ofusefulthe assetslives the assets livesassetslivesof concerned. the concerned. ofof concerned.assets thethe assetsassets Theconcerned. The rates concerned.concerned.The rates ratesfor The fordepreciation for ThedepreciationratesThe depreciation rates ratesfor depreciation forusedfor used depreciationdepreciation usedare are as are usedfollows:as as follows: used usedarefollows: as areare follows: asas follows:follows:

BuildingsBuildingsBuildings Buildings BuildingsBuildings 5.0%5.0%5.0% 5.0%5.0%5.0% Motor Motor Motor vehicles vehicles vehiclesMotor Motor Motor vehicles vehicles vehicles 25.0%25.0%25.0% 25.0%25.0%25.0% Office Office Office equipment equipment Officeequipment Office Office equipment equipmentequipment 10.0% 10.0%10.0% - 25.0% - 10.0%25.0% - 25.0%10.0%10.0% - 25.0% -- 25.0%25.0%

FurnitureFurnitureFurniture Furniture FurnitureFurniture 12.5%12.5%12.5% 12.5%12.5%12.5%

Gains GainsGains and and lossesandGains losses GainslossesGains on and ondisposal andonlosses anddisposal disposal losseslosses onof propertyofdisposal on on ofproperty disposalpropertydisposal andof propertyand ofequipmentofand propertyequipmentproperty equipment and areandequipmentand are determined equipmentareequipment determined determined are determinedby areare byreference determined determinedby reference reference by to reference theirto byby to their referencereference carryingtheir carrying to carrying their toamountto their theiramountcarrying amount carrying carryingand andamount areand are amountamount are and andareand areare

47 47 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

takentakentaken into into account intotaken account accounttakentaken into in determining in intoaccountinto indetermining accountdeterminingaccount in determining the inin the determiningresultdetermining the result result for the forthe for result the theyear. the year.resultresult for year. the forfor year. thethe year. year. g) g) Intangible g) Intangible Intangibleg) assets Intangibleg)g) assets Intangible Intangibleassets assets assetsassets ComputerComputerComputer softwareComputer software softwareComputerComputer costs softwarecosts costswhich softwaresoftware which which arecosts are clearly costs costsarewhich clearly clearly whichwhich identifiable are identifiable clearly areidentifiableare clearlyclearly andidentifiable and identifiablecontrolledidentifiableand controlled controlled and by andcontrolledand bythe by controlledthe controlledBank the Bank Bankbyand theand byby haveand Bank thethehave have probable BankBank and probable probable andhaveand benefits have haveprobable benefits benefits probableprobable exceeding exceedingbenefits exceeding benefitsbenefits exceeding exceedingexceeding thethe coststhe costs costsbeyond thebeyond beyond coststhe theone costsone costs beyond yearone year beyondbeyond areyear oneare recognised are oneyearrecognisedone recognised year yearare asrecognised areare asan recognisedrecognisedas anintangible an intangible intangibleas an as asasset. intangible an anasset. asset. intangible intangibleIntangible Intangible Intangibleasset. asset. asset.assets Intangible assets assets Intangible Intangibleare are stated areassets stated stated assets assetsat are costat atstated arecostare netcost statedstatednet of atnet accumulated ofcost ofataccumulatedat costaccumulatednetcost of netnet accumulated ofof accumulatedaccumulated amortizationamortizationamortizationamortization and amortizationandamortization impairmentand impairment impairment and andimpairmentlosses.and losses. impairment impairmentlosses. losses. losses.losses. SubsequentSubsequentSubsequent Subsequentexpenditure expenditureSubsequent Subsequentexpenditure expenditureon onsoftware expenditure expenditure on software software onis capitalized issoftware on oncapitalizedis software capitalizedsoftware is only capitalized is onlyis whencapitalized onlycapitalized when when it onlyincreases it increases it onlywhenonly increases when when theit increases the future ittheit increases futureincreases future economic the economic economicfuture the the futurebenefitsfuture economic benefits benefits economic economic embodied embodied benefits embodied benefits benefits in embodied specifin inspecifembodied embodied specif- - in- specif in in specif specif- -- ic assetsic icassets assets to whichtoic toassetswhich icwhichic it assets assetsrelates. toit relates. itwhich relates. toto whichAllwhich it Allother relates. All other itit relates. otherrelates.expenditure Allexpenditure expenditure other AllAll otherother expenditureis expensed is expenditureexpenditure expensedis expensed isas expensed incurred.as is isas incurred. expensedexpensed incurred. as incurred. asas incurred.incurred. AmortizationAmortizationAmortizationAmortization is recognized AmortizationisAmortization recognizedis recognized is inrecognized Statementisinis recognizedinrecognizedStatement Statement in of Statement Comprehensive of inin ofComprehensive StatementStatement Comprehensive of Comprehensive ofof ComprehensiveIncomeComprehensive Income Income on ona Income straighton a straight IncomeaIncome straight on line a line on onstraightbasis line a abasis straight straight basisover line over anover basis lineline anestimated an basisestimatedbasis over estimated overoveran useful estimated anusefulan useful estimatedlifeestimated life of lifeuseful of of usefuluseful life of lifelife ofof softwaresoftwaresoftware from softwarefrom fromthesoftware softwarethe date the fromdate thatdate from fromthatthe it that is date theit theavailable isit date availableisdatethat available thatitthat isfor available it foritusers. is isfor availableusers.available users. The for The estimated Theusers. for forestimated estimated users.users. The useful TheestimatedThe useful useful estimatedestimatedlife life of lifeuseful theof of the usefulsoftwareuseful thelife software software of lifelife the is ofof four softwareis thethe fouris years. softwarefoursoftware years. isyears. four isis fouryears.four years.years. h) h)Leases h)Leases Leasesh) Leasesh)h) LeasesLeases Bank Bank Bank is theis isthe Bank lessee the lessee Bank Bank lesseeis the isis lesseethethe lesseelessee (i) (i) Operating (i) Operating Operating (i) Operatingleases (i) (i) leases Operating Operatingleases leases leasesleases Leases Leases Leases in whichin Leases in which which Leasesa Leases significant ina significantawhich insignificantin whichwhich a portion significant portion aa portion significantsignificant of theof portion ofthe risks the portion portionrisks andrisksof andthe ofrewardsofand risks therewardsthe rewards risks risksand of ownershipandofrewardsand ofownership rewardsownershiprewards of are ownership ofareof retained ownershipareownership retained retained are by byretained anotherareare by another retained retainedanother party,by party,another byparty,by the anotheranother the lessor, theparty, lessor, lessor, party, party, the lessor, thethe lessor,lessor, areare classifiedare classified classifiedare as classifiedareoperatingasare as operating classified classified operating as leases. operating leases.as as leases. operating operating Payments, Payments, leases. Payments, leases. leases. including Payments, including includingPayments, Payments, pre-payments, including pre-payments, pre-payments, including including pre-payments, made pre-payments, pre-payments, made made under under undermade operating operatingmade made operatingunder underleasesunder operating leases leases operating operating(net (net of (netleases anyof leasesofanyleases incen (netany incen (net ofincen-(net any- of of- incenany any incen incen- -- tivestives receivedtives received receivedtives fromtives tivesreceivedfrom fromthe received receivedthe lessor) the fromlessor) lessor) fromare fromthe are charged lessor) thearethe charged lessor)chargedlessor) are to profit chargedtoareare toprofit chargedchargedprofit or lossorto orlossprofit ontolossto profitonprofita or onstraight-line a loss straight-linea oror straight-line lossonloss a on on straight-linebasis aa basis straight-linestraight-line basisover over theover basis the period thebasisbasis periodover period overof overthe theof period theofthe lease. the periodperiodlease. lease.of The the Theofof Thelease. thethe lease.lease. The TheThe totaltotal paymentstotal payments paymentstotal madetotal totalpayments made made paymentspaymentsunder under undermade operating operating mademade operatingunder under underleases operating leases leases operating operatingare are charged leasesare charged charged leasesleases are to ‘othertocharged areare to‘other charged‘othercharged operating tooperating operating‘other toto ‘other ‘otherexpenses’ operating expenses’ expenses’ operatingoperating on expenses’ ona onstraight-line expenses’aexpenses’ straight-linea straight-line on a on on straight-linebasis a abasis straight-linestraight-line basisover over over basis basisbasis over over over thethe periodthe period period ofthe theof periodthe ofthethe lease. the period periodlease. oflease. When the ofWhenof Whenlease. the thean lease.anlease.operating anWhen operating operating WhenWhen an lease operating ananlease lease operatingisoperating terminatedis isterminatedlease terminated leaselease is beforeterminated isisbefore terminatedterminatedbefore the the lease beforethe lease before leasebeforeperiod the period period lease the thehas leasehaslease expired,periodhas expired, periodperiodexpired, has any hasanyexpired,has paymentany expired,paymentexpired, payment any anypaymentany paymentpayment requiredrequiredrequired to berequiredto tobemaderequired requiredbe made made toto be the to toto tomade the belessorbe the lessor mademade lessorto by the by waytoto by lessor thewaythe ofway lessor lessorpenaltyof by ofpenalty way penalty byby is wayofway recognisedis penalty isrecognised ofof recognised penaltypenalty is asrecognised is isasan recognisedrecognisedas anexpense an expense expenseas anin asas theinexpense an an inthe period expensetheexpense period periodin in the inwhichin period theinwhichthe which periodterminationperiod intermination terminationwhich inin whichwhich termination termination termination takestakes takesplace. place. place.takestakestakes place. place.place. (ii) (ii)Finance(ii) Finance Finance(ii) leases Financeleases(ii)(ii) leases FinanceFinance leases leasesleases Leases Leases Leases of assetsof Leases of assets assets Leases Leaseswhere ofwhere assetswhere oftheof assetstheassets Bank wherethe Bank Bankwherewherehas the has substantially has Bankthe thesubstantially substantially BankBank has hassubstantially hasall allsubstantiallythesubstantially all the risks the risks allrisksand theand all all rewardsand risks thetherewards rewards risks risksand of andownershipofrewardsand ofownership rewardsrewardsownership of areownership ofofare classified ownershipareownership classified classified are as classifiedare areasfinance as financeclassifiedclassified finance as finance asas financefinance leases.leases.leases. Finance Financeleases. Finance leasesleases.leases. leases Finance leases are Finance Finance are capitalised areleases capitalised capitalisedleases leases are at capitalisedare are theat capitalised atthe capitalisedlease’s the lease’s lease’s at commencement, the at commencement,at lease’s commencement,the the lease’s lease’s commencement, commencement, commencement,at theat atthe lower the lower lower atof the theof at at of the lower fairthe thethe fair valuelower lowerfair of value the value ofof of fair thethe ofthe ofthe valueleasedfair fair the leased value valueleased of proper the properof of leased properthe the- leased -leased -proper proper proper- -- ty andty tyand theand the present tythe presentand presenttyty andvaluetheand value present the thevalue of present presenttheof ofthe valueminimum the minimum valuevalue minimumof the ofoflease minimum the thelease lease minimumpayments.minimum payments. payments. lease lease leaseEach payments. Each payments.Eachleasepayments. lease lease paymentEach payment Eachpayment Eachlease is leaselease allocatedpaymentis isallocated paymentpaymentallocated isbetween allocated between is isbetween allocatedallocated the betweenthe liability the liability betweenbetween liability andthe and liability thetheand liabilityliability and andand financefinancefinance charges chargesfinance charges financesofinance as socharges so toas charges as achievechargesto toachieve so achieve as so aso toconstant as a asachieve constant ato to constant achieve achieve rate a rateconstant on ratea a constant ontheconstant on the finance rate the finance rate onfinancerate balancethe on on balance finance thebalancethe finance outstanding.finance outstanding.balance outstanding. balance balance outstanding. The Theoutstanding. outstanding.corresponding The corresponding corresponding The correspondingThe The rental corresponding corresponding rental rental obliga obliga obligarental- -rental rental -obliga obliga obliga- -- tions,tions,tions, net net of net tions,financeof offinancetions, tions,finance net charges, of net netcharges, finance charges, of of finance financeare charges,are included are includedcharges, charges, included are in deposits includedinare are indeposits included depositsincluded from in fromdeposits in frombanksin deposits depositsbanks banks orfrom depositsor from from orbanksdeposits deposits banks banks fromor fromdeposits or fromcustomersor deposits depositscustomers customers from dependingfrom fromcustomers depending dependingcustomers customers on depending onthe depending ondepending the count the count oncount- the- on on- count the the count count- -- er party.er erparty. party. The Theer interest Theparty. erinterester interest party.party. Theelement element Theinterest Theelement interestofinterest theofelement ofthe finance elementtheelement finance financeof costthe of ofcost finance theisthecost charged is financefinance chargedis costcharged to costiscost profittocharged istoprofitis chargedprofitcharged or lossorto orlossprofit over tolossto profitoverprofit ortheover lossthe leaseoror the lossleaseoverloss leaseperiod overover theperiod period lease thetheso soas leaselease periodso asto as produce toperiodperiod to produceso produce as so so ato as asaproduce toato produceproduce a aa constantconstantconstant periodic constantperiodic periodicconstantconstant rate rateperiodic ofrate interest periodicofperiodic ofinterest rateinterest on rateofrate onthe interest on oftheof remaining interesttheinterest remaining onremaining the onon balance remaining thethe balance balance remainingremaining of theofbalance ofthe liability balancethebalance liability liabilityof forthe of of foreach liability theforthe each liabilityeachperiod.liability period.for period. each forfor each eachperiod. period.period.

Bank Bank Bank is theis isthe Bank lessor the lessor Bank Bank lessoris the isis lessorthethe lessorlessor WhenWhenW assetshen assets assetsW arehen Ware Wheld henareassetshen held subjectheld assetsassets aresubject subject held areareto ato held heldsubject finance toa finance a subjectsubject finance to lease, a lease, tofinanceto lease, athea financefinance the present thelease, present present lease,lease, valuethe value present the thevalue of present presenttheof ofthe valuelease the lease valuevalue leaseofpayments the payments ofof payments lease thethe leaseislease payments recognisedis isrecognised paymentspayments recognised is asrecognised isisasa recognisedreceivable.recognisedas a receivable.a receivable. as a as asreceivable. aa receivable.receivable. TheThe differenceThe difference differenceThe between ThedifferenceThe between between differencedifference the betweenthe gross the gross betweenbetween gross receivable the receivable receivable gross thethe gross grossand receivable and the andreceivablereceivable the present the presentand present andthevalueand value present the thevalue of present presenttheof ofthevalue receivable the receivable valuevalue receivableof the ofof is receivable the the recognisedis isreceivablerecognisedreceivable recognised is asrecognised is isasunearned recognisedrecognisedas unearned unearned as finance unearned asfinanceas finance unearnedunearned finance financefinance income.income.income. Lease Leaseincome. Lease incomeincome.income. income incomeLease is recognisedLease Leaseis income recognisedis recognised income income is overrecognised is overis recognisedtheoverrecognised the term the termover ofterm over theofoverthe ofthe lease term the thethe lease term leasetermofusing theusing of ofusing thelease the the the net lease leasethe usingnet investment net investmentusing using theinvestment net the the method investment net net method investment methodinvestment (before (before method (before tax),method method tax), (before whichtax), which (before (before which reflect tax), reflect tax), reflectwhichtax),s s which whichs reflect reflect reflects ss a constanta constanta constant periodica constantperiodic aperiodica constantconstant rate rateperiodic ofrate return. periodicofperiodic ofreturn. ratereturn. The rateofrate The return.leases The ofof leases return. return.leases entered The entered TheleasesenteredThe into leasesleases into entered by into bythe enteredentered by the Bank intothe Bank intoBankbyintoare theare byprimarilyby are Bank theprimarilythe primarily BankBank are finance primarily arefinanceare finance primarilyprimarily leases. leases. finance leases. financefinance leases. leases.leases. i) i) Capital i) Capital Capital i)work-in-progress work-in-progress Capital i) i) work-in-progress Capital Capital work-in-progress work-in-progresswork-in-progress Assets Assets Assets in thein Assets in the course the Assets Assetscourse incourse ofthe in inconstructionof thecourse oftheconstruction construction coursecourse of construction (capital ofof (capital constructionconstruction (capital work-in-progress) work-in-progress) (capital work-in-progress) (capital(capital work-in-progress) work-in-progress)work-in-progress) are are not are not depreciated. not depreciated. are depreciated. not areare depreciated. not notUpon depreciated.Upondepreciated. Upon completion completion completionUpon UponUpon ofcompletion theof completion completionofthe project the project projectof the of of project thethe projectproject thethe accumulathe accumula accumulatheted accumulathet theedcostt ed accumulacostaccumula iscost transferred isted transferredis transferredcosttteded costiscost totransferred isantois transferred totransferredanappropriate an appropriate appropriate to an toto appropriate asset anan asset appropriateappropriate assetcategory category category asset where assetasset categorywhere where it categorycategory is it depreciated isitwhere depreciatedis depreciated wherewhere it is depreciated itaccordingit isis according depreciateddepreciated according to according theto to theaccordingaccordingpolicy. the policy. policy.to the toto policy. thethe policy.policy. j) j) Financial j) Financial Financialj) assets Financialj) j)assets assets Financial Financial and and assetsfinancialand financial assets assetsfinancial and liabilities andandfinancial liabilities liabilities financialfinancial liabilities liabilitiesliabilities (i) (i) Financial (i) Financial Financial(i) assets Financial(i) (i)assets assets Financial Financial assets assetsassets The The Bank The Bank Bankclassifies The classifies classifies TheBank The its BankBank classifiesfinancialits itsfinancial classifies classifiesfinancial itsassets financialassets its itsassets in financialfinancial thein inassetsthe following the following assetsassets followingin the incategories:in following thecategories:the categories: followingfollowing financialcategories: financial categories:categories:financial assets financialassets assets at financialfinancial fairat atassetsfair value fair assetsvalueassets valueat through fair through atat through value fairfair profit valuevalue profitthrough profit or through throughloss,or or loss,profit loss, profit profit or loss, oror loss, loss, loansloansloans and and receivablesandloans receivables receivablesloansloans and andandreceivablesand and receivables held-to-maturityreceivablesand held-to-maturity held-to-maturity and andheld-to-maturityand held-to-maturityheld-to-maturityfinancial financial financial assets. financialassets. assets. financialThefinancial The directors assets.The directors assets.assets.directors The determine ThedirectorsdetermineThe determine directorsdirectors the determine the classification the determinedetermine classification classification the classification the theof itsclassificationofclassification offinancialits itsfinancial financial of its of of financial its its financialfinancial assetsassetsassets at initialat atassetsinitial initial recognition.assetsassets recognition.at recognition.initial atat initialinitial recognition.The The recognition.recognition.Bank The Bank Bankuses The uses tradeuses TheBankThe trade trade BankdateBank uses date accountingdateusesusestrade accounting tradeaccountingtrade date date dateforaccounting forregular accountingaccountingfor regular regular wayfor way regular contractsforwayfor contracts regularregular contracts way when way contractswaywhen when recording contractscontracts recording recordingwhen whenfinancialwhen recording financial financial recordingrecording financial financialfinancial assetasset assettransactions. transactions. transactions.assetassetasset transactions. transactions.transactions. (a)(a) (a) Financial Financial Financial(a) (a)assets(a) Financial assets assets Financial Financial at fairat assets atfair value fair assetsassets value atvalue through fair atatthrough fairthroughvaluefair profitvaluevalue throughprofit profit or throughthrough orloss or profitloss loss profitprofit or loss oror lossloss This This category This category category This comprises Thiscategory Thiscomprises comprises categorycategory two comprises two sub-categories: two comprisescomprises sub-categories: sub-categories: two sub-categories:twotwo financial sub-categories:sub-categories: financial financial assets financialassets assets classified financialfinancial classified classifiedassets assetsasassets classified heldas as held classifiedclassified forheld for trading,as for trading,held astrading,as held heldforand andtrading, for financialforand financial trading,trading, financial and assets andfinancialassetsand assets financialfinancial assets assetsassets

48 48 East African Development Bank Financial Statements For the year ended 31 December 2015

designated bydesignated the Bank by as theat fairBank value as at through fair value profit through or loss profit upon or initial loss uponrecognition. initial recognition. A financial asset A financial is classified asset isas classified held for astrading held iffor it tradingis acquired if it isor acquired incurred orprincipally incurred forprincipally the purpose for the of purposeselling or of selling or repurchasingrepurchasing it in the near it termin the or near if it isterm part or of if a it portfolio is part of of a identifiedportfolio of financial identified instruments financial instrumentsthat are managed that are togeth managed- togeth- er and for whicher and there for whichis evidence there ofis evidencea recent actualof a recent pattern actual of short-term pattern of profit-taking. short-term profit-taking. Derivatives are Derivatives also categorised are also categorisedas held for tradingas held unlessfor trading they areunless designated they are designatedand effective and as effectivehedging asinstruments. hedging instruments. All derivativesAll arederivatives carried asare assets carried when as assets fair value when is fairpositive value and is positive as liabilities and aswhen liabilities fair value when is fairnegative. value is negative. The Bank designates The Bank certaindesignates financial certain assets financial upon assets initial uponrecognition initial recognitionas at fair value as at through fair value profit through or loss profit (fair orvalue loss (fair value option). Thisoption). designation This designationcannot subsequently cannot subsequently be changed be and changed can only and be canapplied only whenbe applied the following when the conditions following are conditions are met: met: • the application• the applicationof the fair value of the option fair value reduces option or eliminates reduces or an eliminates accounting an mismatchaccounting that mismatch would otherwise that would arise otherwise arise or or the financial the assets financial are part assets of aare portfolio part of of a financialportfolio ofinstruments financial instrumentswhich is risk which managed is risk and managed reported and to reportedsenior to senior managementmanagement on a fair value on abasis fair valueor basis or • the financial• the assets financial consist assets of debt consist host of and debt an host embedded and an derivativesembedded thatderivatives must be that separated. must be separated. • Financial• instruments Financial instrumentsincluded in includedthis category in this are category recognised are initiallyrecognised at fair initially value; at transaction fair value; transactioncosts are taken costs are taken directly to profitdirectly or loss.to profit Gains or andloss. losses Gains arising and losses from arising changes from in fairchanges value in are fair included value are directly included in profit directly or loss in profit or loss and are reportedand are as reported‘Net gains/(losses) as ‘Net gains/(losses) on financial on instruments financial instrumentsclassified as classified held for trading’.as held for Interest trading’. income Interest income and expenseand and expense dividend and income divide andnd income expenses and on expenses financial on assets financial held forassets trading held are for includedtrading are in ‘Netincluded interest in ‘Net interest income’ or income’‘Dividend or income’, ‘Dividend respectively. income’, respectively. Fair value changesFair value relating changes to financialrelating toassets financial designated assets designatedat fair at fair value throughvalue profit through or loss profit are orrecognised loss are recognisedin ‘Net gains in ‘Neton financial gains on instruments financial instrumentsdesignated designatedat fair value at fair value through profitthrough or loss’. profit or loss’. (b) Loans and(b) Loansreceivables and receivables Loans and receivables Loans and receivablesare non-derivative are non-derivative financial assets financial with fixedassets or with determinable fixed or determinable payments that payments are not thatquoted are innot quoted in an active market,an active other market, than: other than: a. those a.that the those Bank that intends the Bank to sell intends immediately to sell immediately or in the short or interm, the whichshort term,are classified which are as classified held for trading,as held forand trading, and those that thethose Bank that upon the initialBank uponrecognition initial recognitiondesignates asdesignates at fair value as a throught fair value profit through or loss; profit or loss; b. those b.that the those Bank that upon the initialBank uponrecognition initial recognitiondesignates asdesignates available-for-sale; as available-for-sale; or or c. those c.for which those the for holder which may the holdernot recover may notsubstantially recover substantially all of its initial all investment,of its initial investment,other than because other than of creditbecause of credit deterioration.deterioration. Loans and receivables Loans and receivablesare initially arerecognised initially recognisedat fair value at – fairwhich value is the– which cash isconsideration the cash consideration to originate to or originate or purchase thepurchase loan including the loan any including transaction any transactioncosts – and costsmeasured – and subsequentlymeasured subsequently at amortised at costamortised using thecost using the effective interesteffective method. interest method. Advances to Advances projects into exchangeprojects in for exchange shares infor the shares project in theCompany project thatCompany are recoverable that are recoverable at the higher at ofthe higher of amounts advancedamounts plus advanced a fixed plusrate aof fixed return rate or ofa valuationreturn or aof valuation the shares of are the classifiedshares are as classified loans and as advances loans and advances with embeddedwith equityembedded derivatives. equity derivatives. The bank assesses The bank whether assesses the whetherfair value the of fair the valueembedded of the derivativeembedded is derivative material foris material bifurcation for onbifurcation initial recog on initial- recog- nition and nitionat the andreporting at the date. reporting Where date. the Wherefair value the isfair deemed value ismaterial, deemed it material,is reflected it isin reflectedthe financial in the financial statements. statements.Otherwise no Otherwise accounting no entriesaccounting are made.entries are made. The host con Thetract host is accounted contract is for accounted initially at for fair initially value at and fair subsequently value and subsequently at amortised at cost amortised using the cost market using ratethe market rate of interest applicableof interest toapplicable similar instruments to similar instrumentsin similar currencies. in similar currencies. (c) Held-to-maturity(c) Held-to-maturity investments investments Held-to-maturity Held-to-maturity investments investmentsare non-derivative are non-derivative financial assets financial with fixed assets or with determinable fixed or determinable payments and payments fixed matur and -fixed matur- ities that theities directors that the have directors the positive have theintention positive and intention ability toand hold ability to maturity, to hold toother maturity, than: other than: a. those a.that the those Bank that upon the initialBank uponrecognition initial recognitiondesignates asdesignates at fair value as at through fair value profit through or loss; profit or loss; b. those b.that the those Bank that designates the Bank asdesignates available-for-sale; as available-for-sale; and and

49 49 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

c. those c.that meet those the that definition meet the of definition loans and of receivables. loans and receivables. Held-to-maturity Held-to-maturity investments investmentsare initially arerecognised initially recognisedat fair value at including fair value direct including and incrementaldirect and incremental transaction transactioncosts costs and measuredand subsequently measured subsequently at amortised at cost, amortised using thecost, effective using the interest effective method. interest method. (ii) Financial(ii) liabilities Financial liabilities The Bank’s holdingThe Bank’s in financial holding liabilitiesin financial represents liabilities mainly represents medium mainly and medium long term and borrowings long term borrowingsand other liabilities. and other liabilities. Such financialSuch liabilities financial are liabilities initially recognisedare initially atrecognised fair value at and fair subsequently value and subsequently measured at measured amortised at cost. amortised cost. (iii) Determination(iii) Determination of fair value of fair value For financialFor instruments financial instrumentstraded in active traded markets, in active the markets, determination the determination of fair values of of fair financial values instrumentsof financial instrumentsis based is based on quoted marketon quoted prices market or dealer prices price or dealer quotations. price quotations. A financial Ainstrument financial isinstrument regarded is as regarded quoted inas anquoted active in market an active if quoted market prices if quoted are readilyprices areand readily regularly and regularly available fromavailable an exchange, from an dealer, exchange, broker, dealer, industry broker, group, industry pricing group, service pricing or regulatory service or agency, regulatory and agency, those prices and those prices represent actualrepresent and regularlyactual and occurring regularly market occurring transactions market transactions on an arm’s on length an arm’s basis. length If the basis.above Ifcriteria the above are notcriteria are not met, the marketmet, isthe regarded market isas regarded being inactive. as being Indicators inactive. that Indicators a market that is inactivea market are is inactivewhen there are iswhen a wide there bid-offer is a wide bid-offer spread or significantspread or increase significant in theincrease bid-offer in the spread bid-offer or there spread are or few there recent are transactions. few recent transactions. For all otherFor financial all other instruments, financial instruments, fair value is fair determined value is determinedusing valuation using techniques. valuation techniques.In these techniques, In these techniques,fair fair values are estimatedvalues are from estimated observable from dataobservable in respect data of in similar respect financial of similar instruments, financial instruments, using models using to estimate models theto estimate the present valuepresent of expected value offuture expected cash futureflows orcash other flows valuation or other techniques, valuation techniques,using inputs using (for example, inputs (for LIBOR example, yield LIBOR yield curve, FX rates,curve, volatilities FX rates, and volatilities counterparty and counterparty spreads) existing spreads) at the existing reporting at the dates. reporting dates. The Bank usesThe widely Bank recogniseduses widely valuationrecognised models valuation for determining models for determining fair values of fair non-standardised values of non-standardised financial instru financial- instru- ments of lowerments complexity, of lower complexity,such as options such oras interestoptions rateor interest and currency rate and swaps. currency For theseswaps. financial For these instruments, financial instruments, inputs into modelsinputs intoare modelsgenerally are market-observable. generally market-observable. For more complexFor more instruments, complex instruments, the Bank uses the internally Bank uses developed internally models,developed which models, are usually which basedare usually on valuation based on valuation methods andmethods techniques and generallytechniques recognised generally recognisedas standard as within standard the industry. within the Valuation industry. models Valuation such models as present such as present value techniquesvalue aretechniques used primarily are used to primarilyvalue derivatives to value transactedderivatives intransacted the over-the-counter in the over-the-counter market, unlisted market, debt unlisted debt securities (includingsecurities those (including with embedded those with derivatives)embedded derivatives)and other debt and instruments other debt instrumentsfor which markets for which were markets or have were or have become illiquid.become Some illiquid. of the Some inputs of to the these inputs models to these may models not be maymarket not observablebe market observableand are therefore and are estimated therefore estimated based on assumptions.based on assumptions. The impact Theon net impact profit on of net financial profit ofinstrument financial valuationsinstrument reflecting valuations non-market reflecting non-market observ- observ- able inputs (levelable inputs 3 valuations) (level 3 isvaluations) disclosed isin disclosedNote 35. in Note 35. (iv) Derecognition(iv) Derecognition Financial assetsFinancial are derecognisedassets are derecognised when the contractual when the contractualrights to receive rights the to receivecash flows the fromcash theseflows fromassets these have assets have ceased to existceased or the to assetsexist or have the assetsbeen transferredhave been andtransferred substantially and substantially all the risks alland the rewards risks and of ownershiprewards of of ownership the of the assets are alsoassets transferred are also transferred(that is, if substantially (that is, if substantially all the risks alland the rewards risks and have rewards not been have transferred, not been transferred,the Bank the Bank tests controltests to ensure control that to continuingensure that involvementcontinuing involvement on the basis on of theany basis retained of any powers retained of control powers does of control not prevent does not prevent derecognition).derecognition). Financial liabilities Financial are liabilities derecognised are derecognised when they have when been they redeemedhave been or redeemed otherwise or extinguished. otherwise extinguished. (v) Reclassification(v) Reclassification The Bank mayThe chooseBank may to reclassify choose to a reclassifynon-derivative a non-derivative financial asset financial held forasset trading held outfor tradingof the held- out of for-trading the held- for-trading category if thecategory financial if the asset financial is no longer asset is held no longerfor the heldpurpose for the of sellingpurpose it inof theselling near-term. it in the Financialnear-term. assets Financial other assets other than loans andthan receivables loans and receivablesare permitted are to permitted be reclassified to be outreclassified of the held out forof thetrading held categoryfor trading only category in rare onlycircum in -rare circum- stances arisingstances from arising a single from event a single that is event unusual that andis unusual highly unlikelyand highly to recurunlikely in theto recurnear-term. in the Innear-term. addition, Inthe addition, the Bank may chooseBank may to reclassify choose tofinancial reclassify assets financial that wouldassets meetthat would the definition meet the of definition loans and of receivables loans and receivablesout of the out of the held-for-tradingheld-for-trading or available-for-sale or available-for-sale categories ifcategories the Bank ifhas the the Bank intention has the and intention ability toand hold ability these to financialhold these financial assets for theassets foreseeable for the foreseeablefuture or until future maturity or until at thematurity date ofat reclassification.the date of reclassification. ReclassificationsReclassifications are made at are fair made value at as fair of valuethe reclassification as of the reclassification date. Fair value date. becomes Fair value the becomes new cost the or newamor cost- or amor- tised cost astised applicable, cost as applicable,and no reversals and no of reversalsfair value of gains fair valueor losses gains recorded or losses before recorded reclassification before reclassification date are date are subsequentlysubsequently made. Effective made. interest Effective rates interest for financialrates for assets financial reclassified assets reclassifiedto loans andto loansreceivables and receivablesand and held-to-maturityheld-to-maturity categories are categories determined are determinedat the reclassification at the reclassification date. Further date. increases Further in increases estimates in of estimates cash flows of cash flows

50 50 East African Development Bank Financial Statements For the year ended 31 December 2015

adjust effective interest rates prospectively. On reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all embedded deriv- atives are re-assessed and, if necessary, separately accounted for. (vi) Derivative instruments The Bank uses derivative instruments in its portfolios for asset/liability management, and risk management. These instruments are mainly cross-currency swaps and interest rate swaps. The derivatives are used to manage exposure to currency risk which arises when the Bank issues loans in the local currencies of member states out of predomi- nantly USD denominated borrowings. The interest component of the derivatives is reported as part of interest income and expense. The Bank classifies all derivatives as held-for-trading and these are measured at fair value, with all changes in fair value recognised in the Statement of Comprehensive Income. Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss. Where material, such derivatives are separated from the host contract and measured at fair value with unrealised gains and losses reported in the statement of comprehensive income. (vii) Offsetting Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRSs. (viii) Classes of financial instruments The Bank classifies the financial instruments into classes that reflect the nature of information and take into account the characteristics of those financial instruments. The classification made can be seen in the table as follows:

51 51 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

Category (as defined by IAS 39) Class (as determined by the Bank) Subclasses

Debt securities

Financial assets Equity securities held for trading Derivatives – non-hedging Financial assets at fair value through Debt securities profit or loss Financial assets Equity securities designated at fair Loans and advances value through to banks profit or loss Loans and advances Financial assets to customers

Loans and advances to banks

Large corporate customers

Loans and receivables Loans to projects SMEs

Others

Listed Held-to-maturity Investment securities - Unlisted Investments debt securities Unlisted

Financial Financial liabilities held for trading liabilities at fair (derivatives - non hedging only) value through Designated at fair value through profit or profit or loss loss - Debt securities in issue

Deposits from banks Financial liabilities Debt securities in issue Financial liabilities at These are armortised cost additional classes of Convertible bonds financial liabilities at amortised cost

Convertible bonds

Subordinated debt

Loan commitments

Off-balance sheet financial Instruments Guarantees, acceptances and other financial facilities

52 52 East African Development Bank Financial Statements For the year ended 31 December 2015

k) Impairmentk) of Impairmentnon-financial of assetsnon-financial assets The carrying amountsThe carrying of the Bank’samounts assets of the are Bank’s reviewed assets at eachare reviewed Statement at ofeach Financial Statement Position of Financial date to determinePosition date whether to determine whether there is any indicatheretion is ofany impairment. indication ofIf suchimpairment. a condition If such exists, a condition the assets’ exists, recoverable the assets’ amount recoverable is estimated amount and is anestimated and an impairment lossimpairment recognised lossin therecognised Statement in ofthe Comprehensive Statement of ComprehensiveIncome whenever Income the carrying whenever amount the carrying of an assetamount of an asset exceeds the recoverableexceeds theam ount.recoverable amount. l) Identificationl) and Identification measurement and ofmeasurement impairment of impairment At each StatementAt ofeach Financial Statement Position of Financial date the Position Bank assesses date the whether Bank assesses there is whetherobjective there evidence is objective that financial evidence assets that notfinancial assets not carried at fair valuecarried through at fair profit value or through loss are profit impaired. or loss Financial are impaired. assets Financialare impaired assets when are objectiveimpaired evidencewhen objective demon evidence- demon- strates that a lossstrates event that has aoccurred loss event after has the occurred initial recognition after the initial of the recognition asset, and of that the the asset, loss and event that has the an loss impact event on has the an impact on the future cash flowsfuture on the cash asset flows that on can the be asset estimated that can reliably. be estimated reliably. The Bank considersThe evidenceBank considers of impairment evidence at of both impairment a specific at asset both and a specific collective asset level. and Allcollective individually level. significant All individually financial significant financial assets are assessedassets for are specific assessed impairment. for specific All impairment.significant assets All significant found not assets to be specificallyfound not to impaired be specifically are then impaired collectively are then collectively assessed for anyass impairmentessed for anythat impairment has been incurred that has but been not incurred yet identified. but not Assets yet identified. that are notAssets individually that are notsignificant individually are significant are then collectively thenassessed collectively for impairment assessed byfor grouping impairment together by grouping financial together assets (carriedfinancial at assets amortised (carried cost) at withamortised similar cost) risk with similar risk characteristics. characteristics. • objective evidence• objective that financial evidence assets that (includingfinancial assets equity (including securities) equity are impaired securities) can are include: impaired can include: • significant financial• significant difficulty financial of the issuerdifficulty or obligor;of the issuer or obligor; • a breach of contract,• a breach such of as contract, default orsuch delinquency as default inor interest delinquency or principal in interest repayments; or principal repayments; • the Bank granting• the to Bank the granting borrower, to for the economic borrower, or for legal economic reasons or relating legal reasons to the borrowers relating to financial the borrowers difficulty, financial a difficulty, a concession that concessionthe lender would that the not lender otherwise would consider; not otherwise consider; • it becoming •probable it becoming that the probable borrower that will the enter borrower bankruptcy will enter or other bankruptcy financial or reorganization; other financial reorganization; • the disappearance• the ofdisappearance an active market of an for active that financialmarket for asset that because financial of asset financial because difficulties; of financial or difficulties; or • observable data• observable indicating datathat thereindicating is a measurable that there is decrease a measurable in the decreaseestimated in future the estimated cash flows future from cash a group flows of from a group of financial assets financialsince the assetsinitial sincerecognition the initial of those recognition assets, ofalthough those assets, the decrease although cannot the decrease yet be identified cannot yet with be the identified with the individual financialindividual assets infinancial the group, assets including: in the group, including: - adverse changes- adverse in the paymentchanges statusin the ofpayment borrowers status in ofthe borrowers group; or in the group; or - National or local- National economic or conditionslocal economic that correlateconditions with that defaults correlate on withthe assetsdefaults in onthe the group. assets in the group. In assessing collective In assessing impairment, collective the impairment,Bank determines the Bank a loss determines ratio using a historicalloss ratio financialusing historical information. financial Loss information. ratio is Loss ratio is determined as totaldetermined impairment as total as aimpairment fraction of astotal a fractionloans and of totallease loans receivables. and lease This receivables. loss ratio maybe This loss adjusted ratio maybe adjusted depending on management’sdepending on judgementmanagement’s of the judgement current economic of the current and credit economic conditions. and credit The lossconditions. ratio is Thethen loss applied ratio is then applied to those loans andto those lease loansreceivables and lease that receivableshave not been that assessed have not for been specific assessed impairment. for specific impairment. Impairment losses Impairment on assets lossescarried on at assets amortised carried cost at are amortised measured cost as are the measured difference as between the difference the carrying between amount the carrying of amount of the financial assetsthe financialand the presentassets and value the of present estimated value future of estimated cash flows future discounted cash flows at the discounted assets’ original at the assets’effective original effective interest rate. Lossesinterest are rate.recognised Losses inare the recognised Statement in of the Comprehensive Statement of ComprehensiveIncome and reflected Income in andan allowance reflected inaccount an allowance account against loans andagainst advances. loans Interestand advances. on the impaired Interest on asset the continuesimpaired toasset be continuesrecognised to through be recognised the unwinding through of the the unwinding of the discount. discount. When a subsequent When event a subsequent causes the event amount causes of impairment the amount loss of impairmentto decrease, loss the toimpairment decrease, lossthe impairmentis reversed throughloss is reversed through the Statement ofthe Comprehensive Statement of ComprehensiveIncome. Income. Loans and advances Loans are and shown advances at gross are amount shown at adjusted gross amount for any adjusted provision for for any impairment provision losses.for impairment A provision losses. for loan A provision for loan impairment is establishedimpairment if thereis established is objective if there evidence is objective that the evidence Bank will that not the be Bankable towill collect not be all able amounts to collect due all accord amounts- due accord- ing to the originaling contractto the original terms ofcontract the loans. terms The of theamount loans. of theThe provisionamount ofis thethe provisiondifference is between the difference the carrying between the carrying amount and theamount estimated and recoverable the estimated amount. recoverable When amount.a loan is Whendeemed a loan uncollectible, is deemed it uncollectible,is written off againstit is written the off against the related provisionrelated for impairment. provision for Subsequent impairment. recoveries Subsequent are credited recoveries to the are provision credited tofor the loan provision losses in for the loan Statement losses in the Statement of Comprehensiveof ComprehensiveIncome. Income.

53 53 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

m) Fiduciary assetsm) Fiduciary assets Assets held in aAssets fiduciary held capacity in a fiduciary are not capacity treated are as assetsnot treated of the as Bank assets in ofthe the Statement Bank in ofthe Financial Statement Position. of Financial Position. n) Offsettingn) Offsetting Financial assetsFinancial and liabilities assets areand only liabilities offset areand only the offsetnet amount and the reported net amount in the reported Statement in theof Financial Statement Position of Financial where Position where there is a legallythere enforceable is a legally right enforceable to set off rightthe recognised to set off the amounts recognised and theamounts Bank intendsand the to Bank either intends settle toon either a net settlebasis, on a net basis, or realize the assetor realize and settlethe asset the liabilityand settle simultaneously. the liability simultaneously. Income and expensesIncome areand presentedexpenses areon apresented net basis onwhen a net permitted basis when by the permitted accounting by the standard accounting or for standard gains and or lossesfor gains and losses arising from a arisinggroup offrom similar a group transactions. of similar transactions. o) Borrowingso) Borrowings Borrowings areBorrowings recognised are initially recognised at fair initiallyvalue, beingat fair their value, issue being proceeds their issue (fair proceedsvalue of consideration(fair value of received)consideration net of received) net of transaction coststransaction incurred. costsBorrowings incurred. are Borrowings subsequently are stated subsequently at amortised stated cost; at amortised any difference cost; anybetween difference proceeds between net of proceeds net of transaction coststransaction and the redemptioncosts and the value redemption is recognised value inis therecognised Statement in ofthe Comprehensive Statement of Comprehensive Income over the Income period over of the period of the borrowingsthe using borrowings the effective using interest the effective method interest charges method on borrowings charges onare borrowings accrued when are accruedthey are whenincurred. they are incurred. p) Provisionsp) Provisions A provision is recognisedA provision if, is asrecognised a result of if, a as past a result event, of the a pastBank event, has a the present Bank legalhas a or present constructive legal orobligation constructive that obligation can be that can be estimated reliably,estimated and itreliably, is probable and itthat is probablean outflow that of aneconomic outflow benefitsof economic will be benefits required will to be settle required the obligation. to settle the obligation. Provisions are Provisionsdetermined are by determined discounting by the discounting expected futurethe expected cash flows future at acash pre-tax flows rate at athat pre-tax reflects rate current that reflects market current market assessments ofassessments the time value of theof money time value and, of where money appropriate, and, where the appropriate, risks specific the to risks the liabilityspecific to the liability Where the BankWhere expects the aBank provision expects to abe provision reimbursed, to be for reimbursed, example under for example an insurance under contract,an insurance the reimbursement contract, the reimbursement is is recognised as recogniseda separate assetas a separatebut only whenasset butthe onlyreimbursement when the reimbursement is virtually certain. is virtually certain. q) a) Retirementq) a) obligations Retirement obligations The Bank operates The Banka defined operates contribution a defined retirement contribution benefit retirement scheme benefit to which scheme employees to which contribute employees 10% contribute of their basic 10% of their basic salary and the salaryBank contributesand the Bank 10%, contributes 12.5% or 10%, 15% 12.5% of the oremployees’ 15% of the basic employees’ salary depending basic salary on dependinghis/her length on his/herof length of service. The Bankservice. complies The Bankwith membercomplies states with member regulations states with regulations respect to withsocial respect security to contributionssocial security where contributions applica -where applica- ble. ble. A defined contribution A defined plan contribution is a pension plan plan is a under pension which plan the under Bank which pays fixedthe Bank contributions pays fixed into contributions a separate into entity. a separate The entity. The Bank has no legalBank or has constructive no legal orobligations constructive to payobligations further contributionsto pay further if contributions the fund does if notthe fundhold sufficientdoes not holdassets sufficient to assets to pay all employeespay theall employeesbenefits relating the benefits to employee relating service to employee in the current service andin the prior current periods. and prior periods. A defined benefit A defined plan is benefita pension plan plan is a that pension is not plan a defined that is contributionnot a defined plan. contribution Typically plan.defined Typically benefit defined plans define benefit plans define an amount of pensionan amount benefit of pension that an benefitemployee that will an receiveemployee on willretirement, receive onusually retirement, dependent usually on dependentone or more on factors, one or more factors, such as age, yearssuch ofas service age, years and ofcompensation. service and compensation. The Bank’s contributions The Bank’s to contributions the scheme toare the charged scheme to are the charged Statement to ofthe Comprehensive Statement of Comprehensive Income in the yearIncome in whichin the year in which they are made.they Costs are relating made. toCosts early relating retirement to early are retirementcharged to are the charged Statement to ofthe Comprehensive Statement of Comprehensive Income in the yearIncome in the year in which they arein whichincurred. they are incurred. b) Service gratuity b) Service gratuity The Director General The Director is entitled General to contract is entitled gratuity to contract equivalent gratuity to 20% equivalent of the annual to 20% gross of the salary. annual Gratuity gross salary. is accounted Gratuity is accounted for on an accrualsfor on basis. an accruals An accrual basis. for Anthe accrual amount for payable the amount is made payable each yearis made and each is charged year and to theis charged Statement to ofthe Statement of ComprehensiveComprehensive Income. Income. c) Other entitlements c) Other entitlements The estimated Themonetary estimated liability monetary for employees’ liability for accrued employees’ annual accrued leave entitlement annual leave at theentitlement reporting at date the reportingis recognised date is recognised as an expense asaccrual. an expense accrual. r) Investmentr) properties Investment properties Properties heldProperties for long-term held rentalfor long-term yields that rental is not yields occupied that is by not the occupied Bank is byclassified the Bank as isinvestment classified properties.as investment properties.

54 54 East African Development Bank Financial Statements For the year ended 31 December 2015

Certain properties Certain of the properties Bank consist of theof a Bank portion consist that of is aheld portion for rental that is and held a forportion rental used and for a portionadministrative used for purposes administrative purposes or occupied by Bankor occupied staff. In by respect Bank tostaff. such In properties,respect to suchportions properties, that are portions held for that rental are yields held foror capitalrental yieldsappreciation or capital appreciation and can be leasedand or can sold be separately leased or havesold separatelybeen accounted have been for as accounted investment for property. as investment property. The properties held The purelyproperties for rentalheld purely yields forhave rental been yields classified have underbeen classifiedinvestment under property. investment When property.the use of When property the use of property changes from ownerchanges occupied from owner to investment occupied property, to investment the property property, is re-measuredthe property isat re-measuredfair value and at reclassifiedfair value andas reclassified as investment property.investment Any gain property. arising Any on gainrevaluation arising ison recognized revaluation through is recognized other comprehensive through other comprehensiveincome. Any loss income. Any loss arising on revaluationarising is on recognized revaluation through is recognized the surplus through or deficit. the surplus or deficit. s) Grants s) Grants Grants are recognisedGrants at are their recognised fair value at where their fairthere value is reasonable where there assurance is reasonable that the assurance grant will that be thereceived grant andwill beall receivedattach- and all attach- ing conditions willing be conditions complied will with. be complied with. When the grant Whenrelates the to grantan expense relates item, to an (revenue expense grant)item, (revenueit is recognised grant) itas is income recognised over asperiods income necessary over periods to match necessary to match the grant on a systematicthe grant onbasis a systematicto the costs basis that toit isthe intended costs that to itcompensate. is intended to compensate. Where the grantWhere relates the to grantan asset, relates (capital to an grant) asset, it(capital is recognised grant) itin is the recognised Statement in of the Comprehensive Statement of ComprehensiveIncome on a Income on a systematic basis systematicover the expected basis over useful the expectedlife of the useful relevant life asset. of the relevant asset. t) Cash and casht) Cash equivalents and cash equivalents For the purposesFor of the purposesstatement of of the cash statement flows, cash of cash and flows,cash equivalents cash and cash comprise equivalents of cash comprise with Banks of cashheld withas demand Banks held as demand and time depositsand with time original deposits maturities with original of less maturities than 90 days.of less than 90 days. u) Contingent u)liabilities Contingent liabilities Letters of credit Lettersacceptances of credit and acceptances guarantees andare guaranteesaccounted for are as accounted Off Balance for Sheetas Off items Balance and Sheet described items as and contingent described as contingent liabilities. Estimationliabilities. of the Estimation outcome ofand the financial outcome effect and offinancial contingent effect liabilities of contingent is made liabilities by management is made by based management on the based on the information availableinformation up to theavailable date the up financial to the date statements the financial are approved statements for are issue approved by the directors.for issue by Any the expected directors. loss Any is expected loss is charged to the statementcharged to of the comprehensive statement of income.comprehensive income. v) Taxation v) Taxation No provision is madeNo provision for taxation is made as the for Banktaxation is exempt as the fromBank incomeis exempt tax from under income Article tax 49 under of the Article Bank’s 49 Charter. of the Bank’s Charter. w) Dividends w) Dividends Dividends on ordinaryDividends shares on ordinaryare charged shares to areequity charged in the toperiod equity in inwhich the periodthey are in declared.which they Proposed are declared. dividends Proposed are dividends are shown as a separateshown component as a separate of equity component until declared. of equity until declared. x) Comparativesx) Comparatives Where necessary,Where comparative necessary, figures comparative have been figures adjusted have to been conform adjusted to changes to conform in presentation to changes inin thepresentation current year. in the current year.

55 55 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

3. INTEREST INCOME

2015 2014 USD ‘000 USD ‘000

Interest income on loans to projects

Interest income on unimpaired loans 10,422 9,179

Interest income on impaired loans 398 144

Interest income from lease rentals

Interest income on unimpaired lease receivables 162 237

Interest income on impaired lease receivables 51 15

Income on loans to banks 3 10

Income from investment security held to maturity 66 107

Interest income from short term deposits 6,470 5,449

17,572 15,142

4. INTEREST EXPENSE

2015 2014 USD ‘000 USD ‘000

Interest on loans from banks 94 445

Interest on medium and long term borrowings 1,482 571

Interest on letters of credit 2,241 1,737

3,817 2,753

The above table represents the worst case scenario of credit risk exposure to the Bank as at 31 December 2015 and 2014, without taking account of any collateral held or other credit enhancements attached. For on-statement of financial position assets, their respective carrying amounts represent the bank’s maximum exposure to credit risk. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio:

• The Bank exercises stringent controls over the granting of new loans; • 99% (2014: 98%) of the loans and advances portfolio are neither past due nor impaired; • All loans and advances are backed by collaterals except loans to banks.

56 56 East African Development Bank Financial Statements For the year ended 31 December 2015

5. NET FEE AND COMMISSION INCOME

2015 2014 USD ‘000 USD ‘000

Gross fees and commission income

Appraisal fees 753 406

Other fees and commission income 154 212

Asset leasing income on purchase options & penalties 7 204

Commission from letters of credit 2 11

Commitment fees 113 101

Other fees 137 106

1,166 1,040

Gross fees and commission expense

Commission charges (473) (102)

Commitment fees (110) (166)

Other fees and commission expense (39) -

(622) (268)

Net fee and commission income 544 772

adjust effectiveadjust interest effective rates interest prospectively. rates prospectively. 6. NET FOREIGN EXCHANGEOn reclassificationOn LOSSES reclassification of a financial of asset a financial out of assetthe ‘at out fair of value the ‘at through fair value profit through or loss’ profit category, or loss’ all category, embedded all derivembedded- deriv- atives are re-assessedatives are re-assessedand, if necessary, and, if separately necessary, accounted separately for. accounted for. 2015 2014 (vi) Derivative(vi) Derivativeinstruments instruments USD ‘000 USD ‘000 The Bank usesThe derivative Bank uses instruments derivative instrumentsin its portfolios in its for portfolios asset/liability for asset/liability management, management, and risk management. and risk management. These These Net losses on foreigninstruments currency transactions instrumentsare mainly cross-currency areand mainly revaluation cross-currency swaps and interest swaps andrate interestswaps. rateThe derivativesswaps.(971 The) are derivatives used to manageare used(656) exposureto manage exposure to currency torisk currency which arises risk which when arises the Bank when issues the Bankloans issues in the loanslocal incurrencies the local of currencies member ofstates member out of states predomi out -of predomi- nantly USD nantlydenominated USD denominated borrowings. borrowings. The interest The component interest componentof the derivatives of the isderivatives reported isas reported part of interestas part of interest income andincome expense. and expense. 7. OTHER OPERATING INCOME The Bank classifiesThe Bank all classifies derivatives all asderivatives held-for-trading as held-for-trading and these are and measured these are at measured fair value, at with fair allvalue, changes with allin fairchanges in fair value recognisedvalue inrecognised the Statement in the of Statement Comprehensive of Comprehensive Income. Income. 2015 2014 Derivatives embeddedDerivatives inembedded other financial in other instruments financial instrumentsor other non-financial or otherUSD non-financial host ‘000 contracts host are contracts treatedUSD asare ‘000 separate treated as separate derivatives whenderivatives their riskswhen and their characteristics risks and characteristics are not closely are relatednot closely to those related of tothe those host contractof the host and contract the host and the host Rental income 673 654 contract is notcontract carried is atnot fair carried value at with fair unrealised value with gainsunrealised or losses gains reported or losses in reportedprofit or loss.in profit Where or loss.material, Where such material, such Dividend income derivatives arederivatives separated are fromseparated the host from contract the host and contract measured and atmeasured fair value at 99with fair unrealisedvalue with gainsunrealised and67 lossesgains and losses reported in reportedthe statement in the of statement comprehensive of comprehensive income. income. Recovery of previously written off loans 1,186 2,877 (vii) Offsetting(vii) Offsetting (Loss)/gain on disposal of property and equipment (Note 22) (1) 9 Financial assetsFinancial and liabilities assets and are liabilities offset and are the offset net andamount the netpresented amount in presented the statement in the of statement financial ofposition financial when, position when, Grant income (Noteand 26) only when,and theonly Bank when, has the a Banklegal hasright a to legal set offright the to recognised set off the amountsrecognised and amounts56 it intends and either it intends to settle either 218on ato net settle on a net Other income on assetbasis leasing or to realisebasis or the to asset realise and the settle asset the and liability settle simultaneously.the liability simultaneously. 3 17

Write (off)/back of otherIncome liabilities andIncome expenses and are expenses presented are on presented a net basis on onlya net when basis permitted only when under permitted(14) IFRSs. under IFRSs. (129) (viii) Classes(viii) of Classesfinancial of instruments financial instruments 2,003 3,713 The Bank classifiesThe Bank the classifies financial the instruments financial instrumentsinto classes intothat classesreflect the that nature reflect of the information nature of informationand take into and account take into account 57 57 the characteristicsthe characteristics of those financial of those instruments. financial instruments. The classification The classification made can be made seen can in the be tableseen inas thefollows: table as follows: ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

8. EMPLOYEE BENEFITS EXPENSE

2015 2014 USD ‘000 USD ‘000

Salaries and wages 2,847 2,844

Pension and gratuity (Note 36) 348 346

Other staff costs 970 929

4,165 4,119

9. OTHER OPERATING EXPENSES

2015 2014 USD ‘000 USD ‘000

Rental expense 109 136

Staff duty travel 143 119

Directors expenses 162 130

Insurance 305 338

Advertising and publicity 94 375

Legal fees 538 305

Staff training, seminars and workshops - 17

Repairs and maintenance 78 263

Computer software expenses 170 136

Other IT related expenses 9 16

Internal/special audit costs 60 66

Statutory audit fees 54 42

Consultancy fees 192 366

Subscription to professional bodies 11 19

Other administrative expenses 644 681

2,569 3,009

58 58 East African Development Bank Financial Statements For the year ended 31 December 2015

10. PROFIT BEFORE INCOME TAXES

2015 2014 USD ‘000 USD ‘000

Profit before income tax is stated after charging the following:

Directors emoluments:

- Fees and allowances 70 62

- Other expenses 92 68

Depreciation and amortization of intangible assets and grants 671 673

Impairment of loans and advances 1,038 332

Employee benefits expense (Note 8) 4,165 4,119

Auditors remuneration 54 42

11. TAXATION In accordance with Article 49 of the Bank’s Charter, the Bank, its property, other assets, income and its operations and transactions are exempt from all taxation and custom duties within member states.

12. EARNINGS PER SHARE – BASIC AND DILUTED Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares for the number of shares not yet issued but for which payments have been received by the Bank.

2015 2014 USD ‘000 USD ‘000

Net profit attributable to ordinary shareholders 6,677 9,820

Weighted average number of ordinary shares in issue and paid up during the year (Note 28) 13,347 12,461

Basic earnings per share 500 788

Dilutive number of ordinary shares 8 8

Total issued and dilutive shares 13,355 12,469

Diluted earnings per share 500 787

Dilutive shares represent the number of shares generated from funds awaiting allotment (Note 29).

59 59 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

13. CASH AT BANK

2015 2014 USD ‘000 USD ‘000

Bank deposits 4,922 10,306

14. DEPOSITS DUE FROM COMMERCIAL BANKS

2015 2014 USD ‘000 USD ‘000

Deposits with banks in member states 177,491 142,095

Analysed by maturity

Amounts due within 3 months 172,260 113,958

Amounts due after 3 months 5,231 28,137

177,491 142,095

The weighted average effective interest rate on deposits due from banks was 4.72 % (2014: 4.22%).

15. INVESTMENT SECURITY HELD TO MATURITY

2015 2014 USD '000 USD '000

UGX Corporate bond – Housing Finance Bank Uganda Limited 378 644

The interest rate for the bond, which is denominated in Uganda Shillings, is fixed at 13.5% per annum with remaining maturity period of 2.5 years.

16. LOANS AND LEASE RECEIVABLES

2015 2014 USD‘000 USD‘000

Loans and advances (net) 160,350 104,951

Finance lease receivables (net) 1,635 1,799

161,985 106,750

Loans to projects 163,392 110,326

Finance lease receivables 1,659 2,418

Staff loans 26 26

Gross loans 165,077 112,770

Impairment losses on loans and advances (Note 16a) (3,092) (6,020)

Net carrying amounts 161,985 106,750

60 60 East African Development Bank Financial Statements For the year ended 31 December 2015

Included within loans to projects is financing amounting to USD 1.8 million (2014: USD 2.027 million) extended to projects in exchange for shares in the borrower companies acquired at terms under which the shares are redeemable by the borrower company at the higher of a valuation of the shares or the amount invested plus a guaranteed minimum annual rate of return. Such financing is accounted for as loans and receivables. The directors have assessed the fair value of the embedded equity derivative within these instruments and concluded that it is not material and as such it has not been accounted for in these financial statements.

a) Loan impairment charges

2015 USD’ 000 2015 USD’ 000

Identified Collective Identified Collective allowance allowance allowance allowance for for for for impairment impairment Total impairment impairment Total At start of year 4,456 1,564 6,020 4,336 1,418 5,754 Reversal of impairment (731) (42) (773) (651) (35) (686) Increase in impairment allowances 924 887 1,811 837 181 1,018 Other adjustments - - - Loan impairment charge for the year 193 846 1,038 186 146 332 Amounts written off during the year (3,966) - (3, 966) (66) - (66) Other adjustments ------At end of year 683 2,409 3,092 4,456 1,564 6,020

b) Finance lease receivables

2015 2014 USD ‘000 USD ‘000

Gross lease rentals within one year 178 784

Gross lease rentals after one year but before five years 1,684 1,865

1,862 2,649

Unearned future finance income on finance leases (203) (228)

1,659 2,421

Less: impairment losses

Identified - (595)

Unidentified (25) (26)

1,634 1,800

Analysed by maturity:

Not later than 1 year 172 189

Later than 1 year and not later than 5 years 1,462 1,611

1,634 1,8

61 61 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

17. SEGMENT INFORMATION Management has determined the operating segments based on information reviewed by the board of directors for the purpose of allocating resources and assessing performance. The board of directors considers the business from both a geographic and product perspective. Geographically, the board considers the performance in Kenya, Uganda, Tanzania and Rwanda. The reportable operating segments derive their revenue primarily from lending to foster development through various products such as project loans, leases and equity. The board assesses the performance of the operating segments based on a measure of gross loans and advances to customers, portfolio quality, approvals, disbursements and profit. The measure also excludes the effects of unrealised gains/ losses on financial instruments. Interest expenditure is not allocated to segments, as this type of activity is part of managing the cash position of the bank by treasury. The segment information provided to the board of directors for the reportable segments for the year ended 31 December 2015 is as follows:

a) Loan exposure

Gross Net Balances Balances USD mns Percent USD mns Percent By country

Uganda 52 31% 50 31%

Kenya 53 32% 52 32%

Tanzania 31 19% 30 19%

Rwanda 30 18% 29 18%

Total region 165 100% 162 100

Exposure by product

Long term loans 147 89% 145 89%

Medium term loans 6 4% 6 4%

Short term loans 8 5% 8 5%

Loans sub-total 162 98% 159 98%

Loans with equity features 2 1% 2 1%

Asset Lease 2 1% 2 1%

Total all products 165 100% 162 100%

62 62 East African Development Bank Financial Statements For the year ended 31 December 2015

b) Portfolio quality

Gross portfolio Percent Net Portfolio Percent USD mns USD mns

Performing Portfolio

Normal 149 90.15 147 90.50

Watch 15 9.10 15 8.93

164 99.25 161 99.43

Non-Performing Portfolio

Substandard 1 0.73 1 0.57

Doubtful - - - -

Loss 0 0.02 0 -

1 0.75 1 0.57

165 100 162 100

c) Approvals and disbursements

Approvals Disbursements 2015 Actual 2014 Actual 2015 Actual 2014 Actual (USD M) (USD M) (USD M) (USD M)

By country:

Uganda 52 23 19 10

Kenya 47 40 31 20

Tanzania 56 13 20 -

Rwanda 29 - 13 8

184 76 82 38

By product:

Loans 183 76 81 38

Asset leasing 1 - 1 -

Equity - - - -

184 76 82 38

63 63 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015 - - 50 (31) - - - - (230) (31) 713 2,003 855 14,082 - (3,817) (3,817) - - - - - (971) (971) - - - (1,016) (1,038) (89) (2,228) (2,569) (22) (605) (671) 142 (561) 544 - - - - - 37 (91) (39) 210 756 ------(5) 32 (51) (179) 353 ------(1) (145) (106) 13 401 501 341 (272) (246) (360) (274) (133) (3,152) (4,165) 3,939 4,076 1,535 1,484 6,538 17,572 4,789 3,628 1,849 1,382 (5,130) 6,677 3,939 4,076 1,535 1,484 2,721 13,755 4,948 3,628 1,849 1,382 (5,130) 6,677 5,195 4,138 2,268 1,626 4,948 3,628 1,849 1,382 (5,130) 6,677 4,854 4,410 2,359 1,626 1,871 15,120 Uganda Kenya Tanzania Rwanda Head Office Total USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s Net gains/(losses) on equity investments held at fair value Net gains/(losses) for the year Profit Other comprehensive income comprehensive income Total

Interest income Interest expense Net interest income and commission income Fee Net foreign exchange losses Other operating income value gain on investment property Fair Profit before income tax Profit Income tax expense Net losses on financial assets held at fair value operating income Total Reduction in provisions for loan impairment & lease receivables Operating income after impairment charges Employee benefits expense Depreciation and amortization Other operating expenses d) Comprehensive income

64 64 adjust effectiveadjust interest effective rates interest prospectively. rates prospectively. On reclassificationOn reclassification of a financial of asset a financial out of assetthe ‘at out fair of value the ‘at through fair value profit through or loss’ profit category, or loss’ all category, embedded all derivembedded- deriv- atives are re-assessedatives are re-assessedand, if necessary, and, if separately necessary, accounted separately for. accounted for. (vi) Derivative(vi) Derivativeinstruments instruments The Bank usesThe derivative Bank uses instruments derivative instrumentsin its portfolios in its for portfolios asset/liability for asset/liability management, management, and risk management. and risk management. These These instruments instrumentsare mainly cross-currency are mainly cross-currency swaps and interest swaps andrate interestswaps. rateThe derivativesswaps. The are derivatives used to manageare used exposureto manage exposure to currency torisk currency which arises risk which when arises the Bank when issues the Bankloans issues in the loanslocal incurrencies the local of currencies member ofstates member out of states predomi out -of predomi- nantly USD nantlydenominated USD denominated borrowings. borrowings. The interest The component interest componentof the derivatives of the isderivatives reported isas reported part of interestas part of interest income andincome expense. and expense. The Bank classifiesThe Bank all classifies derivatives all asderivatives held-for-trading as held-for-trading and these are and measured these are at measured fair value, at with fair allvalue, changes with allin fairchanges in fair value recognisedvalue inrecognised the Statement in the of Statement Comprehensive of Comprehensive Income. Income. Derivatives embeddedDerivatives inembedded other financial in other instruments financial instrumentsor other non-financial or other non-financial host contracts host are contracts treated asare separate treated as separate derivatives whenderivatives their riskswhen and their characteristics risks and characteristics are not closely are relatednot closely to those related of tothe those host contractof the host and contract the host and the host contract is notcontract carried is atnot fair carried value at with fair unrealised value with gainsunrealised or losses gains reported or losses in reportedprofit or loss.in profit Where or loss.material, Where such material, such derivatives arederivatives separated are fromseparated the host from contract the host and contract measured and atmeasured fair value at with fair unrealisedvalue with gainsunrealised and lossesgains and losses reported in reportedthe statement in the of statement comprehensive of comprehensive income. income. (vii) Offsetting(vii) Offsetting Financial assetsFinancial and liabilities assets and are liabilities offset and are the offset net andamount the netpresented amount in presented the statement in the of statement financial ofposition financial when, position when, and only when,and theonly Bank when, has the a Banklegal hasright a to legal set offright the to recognised set off the amountsrecognised and amounts it intends and either it intends to settle either on ato net settle on a net basis or to realisebasis or the to asset realise and the settle asset the and liability settle simultaneously.the liability simultaneously. Income andIncome expenses and are expenses presented are on presented a net basis on onlya net when basis permitted only when under permitted IFRSs. under IFRSs. (viii) Classes(viii) of Classesfinancial of instruments financial instruments The Bank classifiesThe Bank the classifies financial the instruments financial instrumentsinto classes intothat classesreflect the that nature reflect of the information nature of informationand take into and account take into account the characteristicsthe characteristics of those financial of those instruments. financial instruments. The classification The classification made can be made seen can in the be tableseen inas thefollows: table as follows:

East African Development Bank Financial Statements For the year ended 31 December 2015 32 - 15,146 - 19,185 - - 161,985 483 32 496 496 105 105 378 378 - 8,002 8,002 - 29,504 29,504 - - 11,783 11,783 - - 3,309 3,309 - 185,787 185,787 - 7,479 7,479 - 3,186 3,186 - 3,990 3,990 - 1,887 1,898 - 125,141 125,141 - - - - - 177,491 177,491 - 380,701 380,712 - 238,986 238,986 - 141,715 141,715 9 9 3,619 4,922 42 1,068 1,122 ------12 22 383 ------2,458 - - - - 11 11 11 100

------1,272 - - - - - 12,854 1,067 1,216 16,727 50,225 52,253 30,179 29,328 79,806 54,692 34,270 29,388 182,556 380,712 Uganda Kenya Tanzania Rwanda Head office Total USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s Total shareholders’ equity and liabilities Total Total shareholders’ equity Total Revaluation reserves Retained earnings Fair value reserve Fair Special reserve Funds waiting allotment Funds Share premium CAPITAL AND RESERVES CAPITAL Share capital Capital fund liabilities Total Grants Borrowings Special funds Total assets Total LIABILITIES Other liabilities Derivative financial instruments Property and equipment Property Investment properties Investment properties Equity investments Other assets Investment securities held to maturity and lease receivables Loans

ASSETS Cash at bank Deposits due from commercial banks e) Financial position The segment information provided to the board of directors for reportable segments year ended 31 December 2014 is as follows:

65 65 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

f) 2014 loan exposure

Gross Balances Percent Net Balances Percent USD mns USD mns

By country:

Uganda 41 36 39 36

Kenya 30 27 29 27

Tanzania 20 18 17 16

Rwanda 22 19 22 21

Total region 113 100 107 100

By product:

Long term loans 93 83 88 82

Medium term loans 11 10 11 10

Short term loans 4 3 4 4

Loans sub-total 108 96 103 96

Equity 2 2 2 2

Asset Lease 2 2 2 2

Total All Products 113 100 107 100

g) 2014 portfolio quality

Gross portfolio Per cent Net Portfolio Per cent USD mns USD mns

Performing portfolio

Normal 105 93 103 97

Watch 6 6 3 3

111 99 107 100

Non-performing portfolio

Substandard - - - -

Doubtful - - - -

Loss/Receivership 2 1 - -

2 1 - -

113 100 107 100

66 66 East African Development Bank Financial Statements For the year ended 31 December 2015

h) 2014 approvals and disbursements

Approvals Disbursements

2014 Actual 2013 Actual 2014 Actual 2013 Actual (USD mns) (USD mns) (USD mns) (USD mns)

By country:

Uganda 23 20 10 9

Kenya 40 39 20 5

Tanzania 13 13 - 10

Rwanda - 20 8 14

76 92 38 39

By product:

Loans 76 92 38 38

Asset leasing - - - 1

Equity - - - -

76 92 38 39

67 67 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

88 (656) (72) 203

- (2,753) (2,753) - - 1,030 1,472 - 5,637 8,052 (1) (1) 2,195 3,713 (91) (2,657) (3,009) (28) (507) (613) 225 (263) 772 250 (222) (332)

- 12 59 (60) 177 442 889 1,787 (826) 9,820 889 1,787 (826) 9,820

- - 30 (594) 33 (18) 312 116 805 1,610

- - - - (2) (124) (135) 321 266 (650) (359) 204 147 (232) (279) (246) (130) (3,232) (4,119) 3,576 2,843 1,593 1,563 5,567 15,142 1,427 3,576 2,843 1,593 1,563 2,814 12,389 5,707 2,263 5,941 2,684 1,330 2,036 5,570 17,561 5,737 2,654 1,924 1,786 5,792 17,893 5,707 3,068 2,499 1,787 4,811 17,872 5,707 2,263 Uganda Kenya Tanzania Rwanda Head Office Total USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s Interest income Interest expense

Net interest income and commission income Fee Net foreign exchange losses Total operating income Total Reduction in provision for impairment of loans and lease receivables Profit before income tax Profit Income tax expense Other operating income /(losses)Net gains on financial assets held at fair value Operating income after impairment charges Employee benefits expense Depreciation and amortization Other operating expenses for the year Profit Fair value gain in investment property value gain in investment property Fair Total comprehensive income Total Other comprehensive income d) Comprehensive income

68 68 69 For theyearended31December2015 East AfricanDevelopmentBankFinancialStatements j) 2014 financial position

Uganda Kenya Tanzania Rwanda Head Office Total 69 USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s ASSETS Cash at bank - 31 - - 10,275 10,306 Deposits due from commercial banks - - - - 142,095 142,095 Investment securities held to maturity - - - - 644 644 Loans and lease receivables 38,996 29,557 16,285 21,912 - 106,750 Derivative financial instruments - - - - 108 108 Equity investments - 151 562 - - 713 Investment properties - - 3,947 - 14,741 18,688 Other assets - - - - 860 860 Property and equipment - 1,120 2,834 5 10,302 14,261 Total assets 38,996 30,859 23,628 21,917 179,025 294,425 LIABILITIES Other liabilities - - - - 2,039 2,039 Borrowings - - - - 58,282 58,282 Special funds - - - - 3,990 3,990 Grants - - - - 3,244 3,244 Capital fund - - - - 7,479 7,479 Total liabilities - - - - 75,034 75,034 CAPITAL AND RESERVES Share capital - - - - 173,097 173,097 Share premium - - - - 3,084 3,084 Funds awaiting allotment - - - - 102 102 Special reserve - - - - 11,030 11,030 Fair value reserve - - - - 566 566 Revaluation reserves - - - - 8,052 8,052 Accumulated profit - - - - 23,460 23,460 Total shareholders’ equity - - - - 219,391 219,391 Total shareholders’ equity and liabilities - - - - 294,425 294,425 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

18. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives are financial instruments that derive their value in response to changes in interest rates, financial instrument prices, commodity prices, foreign exchange rates, credit risk and indices. The entered into deposit transactions with counter parties which have been identified to have similar characteristics with derivative financial instruments. In previous years, these transactions had been recognised in the financial statements as deposits and lending. In the current year, the directors have estimated the fair value of all derivatives, with all fair value gains and losses recognised in the statement of comprehensive income. The table below analyses the notional principal amounts and the positive (assets) and negative (liabilities) fair values of the Bank’s derivative financial instru- ments. Notional principal amounts are the amount of principal underlying the contract at the reporting date. The fair values of derivative financial assets and financial liabilities at 31 December 2015 and 2014 were as follows:

Notional principal Fair value Fair value amounts Assets Liabilities USD’ 000s USD’ 000s USD’ 000s

Cross currency derivative contracts – 31 December 2015 1,536 1,525 1,557

Cross currency derivative contracts – 31 December 2014 5,267 192 84

The table below shows the movement in fair value of financial assets during the year and fair value included in the statement of comprehensive income

2015 2014 USD ‘000s USD ‘000s

Derivative asset 108 72

Fair value loss (gain) on embedded financial instruments (140) 36

(32) 108

The net fair value losses/gains on financial assets held at fair value in the statement of comprehensive is analysed as follows:

2015 2014 USD ‘000s USD ‘000s

Fair value (loss)/ gains on loans with equity options 109 163

Fair value (losses)/gain on derivative financial instruments (140) 36

Gains/(losses) on investments exited - 2

At end of year (31) 201

70 70 East African Development Bank Financial Statements For the year ended 31 December 2015

19. EQUITY INVESTMENTS AT FAIR VALUE The Bank has advanced financing in the form of equity in exceptional cases where the project is assessed to have a significant impact on the community and its development but where the equity participation is necessary for improving the capital structure of the company or where the sponsors are unable to raise additional equity to enable the borrower operate on a commercially sound footing. Usually these are companies, which have substantial development impact but whose cash flows cannot support continuous repayments for long term loans. These investments are reported at their fair values in accordance with the Bank’s accounting policies.

The table below shows the movement in fair values of equity investments:

2015 2014 USD ‘000s USD ‘000s

At start of year 713 711

Fair value (loss) / gain (230) 2

At end of year 483 713

20. OTHER ASSETS

2015 2014 USD ‘000s USD ‘000s

Local debtors 134 65

Deferred bond issue costs 265 254

Other receivables 723 540

1,122 860

21. INVESTMENT PROPERTY

2015 2014 USD ‘000s USD ‘000s

Valuation at start of year 18,688 17,216

Additions 447 -

Net fair value gains 50 1,472

Valuation at end of the year 19,185 18,688

71 71 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

An independent valuation of the bank’s land and buildings was performed by professional valuers Knight Frank Limited and Africa Property Limited to determine the fair value of the land and buildings as at 31 December 2015 based on estimated open market values. Properties that are held by the bank for generation of rental income have been classified under Investment property as per note 21 and 22. Land and buildings occupied by the bank for administrative use is classified under the property, plant and equip- ment (Note 22). Rental income from investment properties during the year ended 31 December 2015 totalled USD 615,379 (2014 USD 589,291). Direct operating expenses totalling USD 27,992 (2014: USD 22,692) which consisted of USD 26,862 (2014: USD 4,538) in expens- es for rented and USD 1,130 (2014: USD 18,154) for unrented investment properties. As at 31 December 2015, the Board had approved USD 4,469,436 (2014: USD 3,019,001) of future expenditure for the develop- ment and enhancement of investment property. Of this, USD 3,626,984 (2014: USD 2,271,549) is contractually committed. The majority of this was spent in year ended 31 December 2015.

The following table analyses the non-financial assets carried at fair value, by valuation method. The different levels have been defined as follows: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). • Inputs for the year ended 31 December 2015 other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

Quoted prices Significant Significant in active markets other observable unobservable for identical assets inputs inputs Totals (Level 1) (Level 2) (Level 3) USD ’000s USD ’000s USD ’000s USD ’000s

DECEMBER 2015

Investment property - Land - 13,967 - 13,967

Investment property - Buildings - 5,218 - 5,218

PPE - Land - 7,827 - 7,827

PPE - Buildings - 5,295 - 5,295

Total assets - 32,307 - 32,307

DECEMBER 2014

Investment property - Land - 13,820 - 13,820

Investment property - Buildings - 4,868 - 4,868

PPE - Land - 7,827 - 7,827

PPE - Buildings - 5,295 - 5,295

Total assets - 31,811 - 31,811

72 72 East African Development Bank Financial Statements For the year ended 31 December 2015

22. PROPERTY, PLANT AND EQUIPMENT

Land and Capital Office Motor Furniture Total building Work in equipment vehicles & fittings progress USD' 000s USD' 000s USD' 000s USD' 000s USD' 000s USD' 000s

Year ended December 2014

Opening net book value 2,044 2,249 95 307 212 4,906

Additions 20 2,024 12 - 261 2,317

Revaluation surplus 8,052 - - - - 8,052

Transfers from WIP 3,317 (3,712) 110 - - (285)

Depreciation charge (373) - (50) (129) (61) (613)

Retirements:

Cost - - (527) - (291) (818)

Depreciation - - 504 - 199 703

Disposals:

Cost - - (6) - (25) (31)

Depreciation - - 6 - 24 30

Net Book Value as at 31 December 2014 13,059 561 144 178 319 14,261

Year ended December 2015

Opening net book value 13,059 561 144 178 319 14,261

Additions - 2,067 902 - 127 3,096

Transfers from WIP - (1,537) - - - (1,537)

Depreciation charge (448) - (53) (110) (60) (671)

Retirement:

Cost - - (60) - (108) (168)

Depreciation - - 57 - 108 165

NBV as at 31 December 2015 12,611 1,091 990 68 386 15,146

NBV as at 31 December 2014 13,059 561 144 178 319 14,261

73 73 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

2015 2014 USD’ 000s USD’ 000s

Cost 7,954 7,954

Accumulated depreciation (3,344) (2,946)

Net book amount 4,610 5,008

23. OTHER LIABILITIES

2015 2014 USD’ 000s USD’ 000s

Deposits on leased assets 185 78

Advances from customers 79 166

Staff payables 10 28

Rent received in advance 27 25

Administrative accruals 501 497

Deferred income 535 606

Tenant deposits 168 187

Other creditors 393 452

1,898 2,039

24. BORROWINGS

2015 2014 USD’ 000s USD’ 000s

Lines of credit with multi-lateral development banks 93,569 40,445

Lines of credit with other Financial Institutions 31,572 17,818

Loans with commercial banks - 19

125,141 58,282

Maturity analysis of loans

Amounts payable within one year 30,372 18,014

Amounts payable after one year but within five years 15,253 17,709

Amounts payable after five years 79,516 22,559

125,141 58,282

74 74 East African Development Bank Financial Statements For the year ended 31 December 2015

2015 2014 USD' 000s USD' 000s

By lender

African Development Bank 30,000 -

Commercial Bank Of Africa Limited 19,531 -

Commercial Bank Of Africa Limited 9,766 -

African Development Bank 10,369 14,517

Development Bank Of South Africa 1,064 3,192

Dfcu Bank Limited 1,928 -

European Investment Bank 2,465 2,913

European Investment Bank 3,500 3,500

European Investment Bank 3,830 -

European Investment Bank 1,597 -

European Investment Bank 699 -

European Investment Bank 2,845 -

European Investment Bank 5,470 -

European Investment Bank 1,704 -

KfW 5,442 -

KfW 1,657 -

European Investment Bank 1,796 -

Nordic Development Fund 5,677 6,645

Opec Fund For International Develop 15,000 9,500

Development Bank Of Kenya Ltd - 2,144

Commercial Bank Of Africa Limited - 11,038

Dfcu Bank Limited - 4,505

Subtotal for borrowings 124,340 57,954

Interest payable 801 328

Total borrowings 125,141 58,282

75 75 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

Tenor (years) Interest rate (%) Fixed/ variable Currency

BY LENDER:

African Development Bank 10 4.1 Variable USD

Commercial Bank Of Africa Limited 1 11.5 Fixed KES

Commercial Bank Of Africa Limited 1 20.0 Fixed KES

African Development Bank 14 1.6 Variable USD

Development Bank Of South Africa 10 2.6 Variable USD

dfcu Bank Limited 3 18.0 Variable UGX

European Investment Bank 7 2.7 Variable USD

European Investment Bank 7 2.7 Variable USD

European Investment Bank 7 9.2 Fixed KES

European Investment Bank 7 9.4 Fixed KES

European Investment Bank 7 8.3 Fixed RWF

European Investment Bank 5 8.6 Fixed UGX

European Investment Bank 7 10.3 Fixed TZS

European Investment Bank 6 9.3 Fixed UGX

KfW 9 8.0 Fixed UGX

KfW 9 8.0 Fixed UGX

European Investment Bank 7 9.4 Fixed KES

Nordic Development Fund 30 0.8 Fixed EUR

Opec Fund For International Develop 7 3.5 Variable USD

Development Bank Of Kenya Ltd 1 1.0 Fixed USD

Commercial Bank Of Africa Limited 2 12 Fixed KES

dfcu Bank Limited 3 15 Variable UGX

The weighted average effective interest rate on borrowings was 5.78% (2014: 5.42%). The bank has not given any security for the borrowings and has not defaulted on any of them.

More information regarding the currency, maturity and contractual repricing rates for the bank’s borrowings are shown in Note 35.

25. SPECIAL FUNDS (NORWEGIAN/EADB FUND)

2015 2014 USD' 000s USD' 000s

At start and end of year 3,990 3,990

76 76 East African Development Bank Financial Statements For the year ended 31 December 2015

Norwegian/ EADB fund This fund was created out of a 1986/7 grant of NOK 30 million by the Norwegian Government to the Government of Uganda towards rehabilitation of Ugandan industries. Under the grant agreement, the bank was allowed to use a portion of interest paid on the loans to cover administrative expenses. Any balance of interest on loans and other interest earned on funds made available under the agreement was to accrue to a special fund to be managed by the Bank. The special fund was to be used for certain expenditure including; a) payments to consultants and experts, b) strengthening the bank’s administrative capacity, c) technical assistance, d) loans on concession- ary terms, e) or any other purpose agreed by the government of Norway and the Bank. The agreement is silent on the use of capital repay- ments. Consultations are underway with the Norwegian Government to determine the utilisation/disposition of the remaining balance.

26. GRANTS

2015 2014 USD ‘000s USD ‘000s

At start of year 3,245 3,373

Grant utilization (59) (129)

3,186 3,244

SIDA / EADB fund for technical assistance 1,983 2,041

SWISS/ EADB fund for technical assistance 1,053 1,053

Housing Finance feasibility study grant 150 150

3,186 3,244

a) The SIDA/EADB fund The SIDA/ EADB fund for technical assistance was established following a grant from the Government of Sweden through SIDA. The funds were meant for EADB’s institutional support and capacity building. As at 31 December 2015 the bank had utilised part of the grant amounting to USD 59,000, (2014: USD 129,000) in regional capacity building by training selected East African lawyers through the extractive industries seminar. The SWISS fund for technical assistance was established following a grant from the Swiss Government. The funds were to be utilised for EADB’s institution building support, staff training, corporate strategy and restructuring study.

b) Housing Finance Feasibility study grant The grant represents funds received from the Government of Tanzania to fund the Housing Finance feasibility study.

27. CAPITAL FUND

2015 2014 USD ‘000s USD ‘000s

At start and end of year 7,479 7,479

This represents the balance of funds received from the Norwegian Government, in 1982 and 1987 for the Norwegian/ EADB fund on a grant basis. In 2012, the Bank initiated the process of obtaining approval from the donors to close the fund and transfer the outstand- ing balance to the Bank’s capital to be allotted amongst member states. As at 31 December 2012, the balance on the fund was trans- ferred to funds awaiting allotment pending receipt of a no objection from the Norwegian Government regarding the treatment proposed by management. During 2013, the Bank received a response from the donor requesting that the capitalisation of the fund be put on hold until the Norwegian Government completes its consultations, the funds were subsequently transferred to capital funds in 2013.

77 77 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

28. SHARE CAPITAL

Paid up Callable Total Paid up Callable Total share share share share capital capital capital capital Number Number Number USD ‘000s USD ‘000s USD' 000s

AUTHORISED SHARE CAPITAL

Class A

At 1 January 2015 12,000 60,000 72,000 162,000 810,000 972,000

Additional authorised 12,000 60,000 72,000 162,000 810,000 972,000

Total Class A 24,000 120,000 144,000 324,000 1,620,000 1,944,000

Class B

At 1 January 2015 8,000 1,037 9,037 108,000 14,000 122,000

Additional authorised 8,000 - 8,000 108,000 - 108,000

Total Class B 16,000 1,037 17,037 216,000 14,000 230,000

Total class A&B 40,000 121,037 282,074 540,000 1,634,000 2,174,000

Issued share capital

Class A

At 1 January 2015 11,041 55,205 66,246 149,054 745,268 894,322

Issue of shares 940 4,700 5,640 12,690 63,450 76,140

At 31 December 2015 11,981 59,905 71,886 161,744 808,718 970,462

Class B

At 1 January 2015 1,781 1,037 2,818 24,044 14,000 38,044

Issue of shares ------

At 31 December 2015 1,781 1,037 2,818 24,044 14,000 38,044

PAID IN CAPITAL

Class A Class B Total Class A Class B Total Number Number Number USD ‘000s USD ‘000s USD ‘000s

At 1 January 2015 11,041 1,781 12,822 149,054 24,043 173,097

Issue of shares 940 - 940 12,690 - 12,690

At 31 December 2015 11,981 1,781 13,762 161,744 24,043 185,787

78 78 East African Development Bank Financial Statements For the year ended 31 December 2015

Authorised share capital In 2015 the authorized capital stock was increased from USD 1,080,000,000 to USD 2,160,000,000 consisting of 80,000 additional shares being 100% increase in capital stock of the bank with a par value of USD 13,500 each. This was to enable admission of new members into the bank.

Class A The authorised number of Class A ordinary shares is 144,000, (2014: 72,000) at a par value of USD 13,500 each. Class A ordinary shares are available for subscription to only member states and in equal proportion.

Class B The authorised number of Class B ordinary shares is 16,000, (2014: 8,000) at a par value of USD 13,500 each. Class B ordinary shares are available for subscription to members other than member states. All issued Class B shares are fully paid up.

Share premium Share premium arose on the shares issued to the Republic of Rwanda on admission at a value of USD 17,913 per share. The total number of shares issued and paid for by the Republic of Rwanda on the admission programme is 750 (2014: 699).

Callable capital The capital stock of paid-in and callable Class A shares shall be available for subscription by member states in such proportion that, for every six shares subscribed, one share shall be fully paid-in with the remaining being callable. The EADB charter provides that the Bank may make calls on its callable share capital in the event that it is unable to repay borrowings and any other eligible payments due out of pre-existing resources. In March 2012 the charter of EADB was amended to allow class B shareholders to subscribe to callable capital of the bank. In 2013, the governing council passed a special waiver on article 4(2)b of the treaty which sets out that for every four shares subscribed every one share is fully paid in and allotted class B callable shares to African Development Bank amounting to 1,037 in number

Dividends Payment of dividends is made to subscribers of Class B shareholders in proportion to the number of shares held by such members. Dividends to Class A shares holders are paid in proportion to the number of shares paid in by each member but only after Class B dividend is paid.

29. FUNDS AWAITING ALLOTMENT

2015 2014 USD ‘000s USD ‘000s

At start of year 102 2,081

Cash received 12,918 19,511

Shares issued in the year (12,915) (21,490)

At end of year 105 102

30. SPECIAL RESERVES

2015 2014 USD ‘000s USD ‘000s

At start of year 11,030 10,624

Transfer of commission and guarantee fees from retained earnings 753 406

At end of year 11,783 11,030

79 79 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

The transfer to the special reserve is made in accordance with Article 17 of the Bank's Charter, the reserve being credited with commissions earned. The special reserve is to enable the Bank meet its liabilities on borrowings or guarantees chargeable. The reserve is not available for distribution

31. FAIR VALUE RESERVES The fair value reserve includes the cumulative net change in the fair value of derivative financial instruments and equity investments measured at fair value through the profit and loss account. The reserve represents an appropriation of unrealised fair value differences which are shown separately from retained earnings until realised. The movement in fair value reserve is shown below

2015 2014 USD ‘000s USD ‘000s

At start of year 566 475

Fair value gain on derivative financial instruments 52 11

Fair value (loss)/gain on equity investments at fair value (122) 80

At end of year 496 566

32. CASH AND CASH EQUIVALENTS

2015 2014 USD ‘000s USD ‘000s

Cash and bank balances (Note 13) 4,922 10,306

Balances due from banks within 3 months 165,245 79,701

170,167 90,007

33. REVALUATION RESERVES The revaluation surplus arose from the revaluation of land and buildings as at 31 December 2014 and is non distributable.

2015 2014 USD ‘000s USD ‘000s

At start of year 8,052 8,052

Transfer of excess depreciation to retained earnings (50) -

At end of year 8,002 8,052

34. USE OF ESTIMATES AND JUDGEMENTS The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments 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. The Bank regularly reviews its assets and makes judgments in determining whether an impairment loss should be recognized in respect of observable data that may impact on future estimated cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

80 80 East African Development Bank Financial Statements For the year ended 31 December 2015

Impairment losses on loans and advances The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon 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 judgments about counterparty’s financial situation. Each impaired asset is assessed on its merits, and the workout unit estimates of cash flows considered recoverable are independently reviewed by the Management Com- mittee. Collectively assessed impairment allowances cover credit losses inherent in portfolios of claims with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identi- fied. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic condi- tions. The accuracy of the allowances depends on how well the estimated future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances.

Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valua- tion techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

General provision sensitivity analysis

Percentage provision 1% 1.50% 2% USD '000s USD '000s USD '000s

Loans and advances 17 25 33

Finance lease receivables 1,589 2,384 3,179

1,606 2,409 3,212

The unidentified impairment rate for 2015 was 1.5%, if the rate was reduced to 1% the impact on the balance sheet would have been USD 1.6 million and if increased to 2% the impact would have been USD 3.2 million.

35. FINANCIAL35. FINANCIAL RISK MANAGEMENT RISK MANAGEMENT (a) Introduction (a) Introduction and overview and overview The Bank has The exposure Bank has to exposurethe following to the risks following from its risks use fromof financial its use ofinstruments: financial instruments: • Credit risk; • Credit risk; • Liquidity risk; • Liquidity and risk; and • Market risk • Market risk This note presents This note information presents informationabout the Bank’s about exposurethe Bank’s to exposureeach of the to eachabove of risks, the above the Bank’s risks, objectives,the Bank’s policiesobjectives, and policies processes and processes for measuringfor andmeasuring managing and risk managing and the risk Bank’s and managementthe Bank’s management of capital. of capital.

Risk management Risk management framework framework The Bank’s Theboard Bank’s of directors board ofhas directors overall hasresponsibility overall responsibility for the establishment for the establishment and oversight and of oversight the Bank’s of riskthe managementBank’s risk management frame- frame- work. The boardwork. has The established board has establishedthe Asset and the Liability Asset and Committee Liability (ALCO),Committee Project (ALCO), Committee Project andCommittee the Risk and Management the Risk Management Unit which Unit which are responsibleare responsiblefor developing for developingand monitoring and themonitoring risk management the risk management policies in their policies specified in their areas. specified The areas.Board AuditThe Board Committee Audit Committee reports regularlyreports to regularlythe Board to of the Directors Board ofon Directors their activities. on their activities.

81 81 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

The board Theof directors board of reports directors to thereports Governing to the Governingcouncil. council. The Bank’s risk The managementBank’s risk management policies are policiesestablished are establishedto identify and to identifyanalyse and the analyserisks faced the by risks the faced Bank, by to the set Bank,appropriate to set appropriate risk limits risk limits and controls,and and controls, to monitor and risks to monitor and adherence risks and toadherence limits. Risk to managementlimits. Risk management policies and policies systems and are systemsreviewed are regularly reviewed to regularlyreflect to reflect changes in changesmarket conditions, in market productsconditions, and products services and offered. services The offered. Bank through The Bank its proceduresthrough its proceduresaims to develop aims ato disciplined develop a anddisciplined and constructive constructivecontrol environment control environment in which all inemployees which all understandemployees understandtheir roles and their obligations. roles and obligations. The Bank’s TheAudit Bank’s and Governance Audit and Governance Committee Committeeis responsible is responsiblefor monitoring for monitoringcompliance compliancewith the Bank’s with riskthe managementBank’s risk management policies policies and procedures,and procedures, and for reviewing and for the reviewing adequacy the of adequacy the risk management of the risk management framework inframework relation to in the relation risks facedto the byrisks the faced Bank. by The the Bank. The Audit CommitteeAudit Committeeis assisted in is theseassisted functions in these by functions Internal Audit.by Internal Internal Audit. Audit Internal undertakes Audit undertakesboth regular both and regular adhoc reviewsand adhoc of risk reviews of risk managementmanagement controls and controls procedures, and procedures, the results of the which results are of reported which are to reportedthe Audit toCommittee. the Audit Committee.

(b) Credit (b)risk Credit risk Credit risk isCredit the risk risk of is financial the risk ofloss financial to the Bank loss toif athe customer Bank if aor customer counterparty or counterparty to a financial to instrumenta financial failsinstrument to meet fails its contractual to meet its contractual obligations,obligations, and arises principally and arises from principally the Bank’s from loans the Bank’s and advances loans and to advances customers, to othercustomers, Banks other and investment Banks and securities.investment For securities. risk For risk managementmanagement reporting purposes, reporting the purposes, Bank considers the Bank all considers elements all of elementscredit risk of exposure credit risk such exposure as individual such as obligator individual default obligator risk default risk and sector risk.and sector risk. In the normal In thecourse normal of its course business, of its the business, Bank incurs the Bankcredit incurs risk from credit counterparties, risk from counterparties, loans and advances loans and to advances customers. to customers.The credit The credit risk exposurerisk is, exposure however, is, managed however, through managed constant through monitoring constant monitoringof the status of of the financial status ofinstitutions financial whereinstitutions deposits where are deposits main- are main- tained. As atained. policy, Asthe a Bank policy, places the Bank its deposits places withits deposits strong localwith strong Banks localand internationallyBanks and internationally rated financial rated institutions. financial institutions.Credit risk is Credit risk is also minimizedalso byminimized the Bank’s by policythe Bank’s of diversification. policy of diversification.

Management Management of credit risk of credit risk The board of The directors board ofhas directors partly delegatedhas partly responsibilitydelegated responsibility for the management for the management of credit risk of tocredit its project risk to committeeits project forcommittee credit for credit exposures belowexposures USD below1 million. USD The 1 million. Board isThe involved Board directlyis involved for loandirectly exposure for loan above exposure USD above1 million USD and 1 millionany equity and investmentsany equity investments above USD above700,000. USD The 700,000. management The management committee is committee responsible is responsiblefor oversight for of oversightthe Bank’s of credit the Bank’s risk, including, credit risk, formulating including, formulatingcredit credit policies, coveringpolicies, collateral covering requirements collateral requirements and credit assessments, and credit assessments, risk grading risk and grading reporting. and Documentary, reporting. Documentary, legal procedures legal proceduresand and compliance compliancewith regulatory with andregulatory statutory and requirements statutory requirements undertaken undertakenin consultation in consultation with the Bank’s with legalthe Bank’s Department, legal Department, establishing establishing the authorizationthe authorization structure for structure the approval for the and approval renewal and of creditrenewal facilities of credit with facilities concurrence with concurrence of the board of of the directors, board of reviewing directors, and reviewing and assessing creditassessing risk. Thecredit Bank risk. assesses The Bank all assessescredit exposures, all credit priorexposures, to facilities prior beingto facilities committed being tocommitted customers. to Renewalscustomers. and Renewals reviews and reviews of facilities areof facilities subject toare the subject same toreview the same process, review limiting process, concentrations limiting concentrations of exposure ofto exposurecounterparties, to counterparties, products and products industries and (for industries (for loans and advances).loans and Newadvances). loan project New loan requests project are requests subject toare Bank’s subject risk to gradingBank’s risk in ordergrading to ensurein order that to ensureonly viable that projectsonly viable are projects are taken into thetaken books. into the books. The Bank alsoThe hasBank a alsoPortfolio has Managera Portfolio who Manager is responsible who is responsiblefor monitoring for monitoringthe credit quality the credit of loans quality and of ensuringloans and appropriate ensuring appropriate corrective actioncorrective is taken. action The is credittaken. administration The credit administration also provides also advice, provides guidance advice, and guidance specialist and skills specialist to Operations skills to OperationsDepartment Department to promote tobest promote practice best in thepractice management in the management of credit risk. of credit risk. The Portfolio The Manager Portfolio prepares Manager regular prepares reports regular for Managementreports for Management and the Board’s and theconsideration Board’s consideration on the performance on the performance of the loan of the loan portfolio. portfolio. The Operations The OperationsDepartment Department is required tois requiredimplement to theimplement Bank’s creditthe Bank’s policies credit and policies procedures, and procedures, and ensure andthat ensurecredit approvalthat credit approval authorities delegatedauthorities from delegated the Bank’s from Projectthe Bank’s Committee Project Committeeare observed. are The observed. Operations The OperationsDepartment Department is responsible is responsiblefor the quality for the quality and performanceand performance of its credit ofportfolio its credit and portfolio for monitoring and for monitoringand controlling and allcontrolling credit risks all incredit its portfolio, risks in its including portfolio, those including subject those to subject to Board approval.Board approval. The Regular The audits Regular of the audits Operations of the OperationsDepartment Department and the Bank’s and creditthe Bank’s processes credit are processes undertaken are undertakenby Internal Audit.by Internal Audit.

82 82 East African Development Bank Financial Statements For the year ended 31 December 2015

Loans and advances to projects Other loans and advances

2015 2014 2015 2014 USD ‘000 USD ‘000s USD ‘000s USD ‘000s

INDIVIDUALLY ASSESSED

Gross amount 2,675 6,236 - -

Allowance for impairment (683) (4,455) - -

Carrying amount 1,992 1,781 - -

COLLECTIVELY ASSESSED

Gross amount 161,091 104,237 1,800 2,027

Allowance for impairment (2,409) (1,563) - -

Carrying amount 158,682 102,674 1,800 2,027

Total carrying amount 160,674 104,455 1,800 2,027

Past due but not impaired comprises:

Watch (31 to 90 days) 13,586 1,398 - -

Substandard (91 to 180) days - - - -

Doubtful (181 to 360) days - - - -

NEITHER PAST DUE NOR IMPAIRED

Normal 147,505 102,840 1,800 2,027

Allowance for impairment – collectively assessed (2,409) (1,564) -

Total carrying amount 158,682 102,674 1,800 2,027

Impaired loans and advances Impaired loans and advances are those 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 agreement(s). These loans are internally classified as substandard, doubtful or loss accounts.

Past due but not impaired loans and advances Loans 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 internally classified as watch, when the account is 31 to 90 days in arrears, substandard if the account is between 91 and 180 days in arrears, doubtful for loans between 181 and 360 days in arrears and loss for loans over 361 days in arrears.

83 83 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

Loans with renegotiated terms Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured, it remains in this category for monitoring purposes independent of satisfactory performance after restructuring, for at least two scheduled payments as a way of demonstrating positive performance.

Allowances for impairment The Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio taking to account prudential guidelines of International Financial Reporting Standards (IFRS). 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 in respect of losses that have been incurred on a collective basis.

Distribution of loans and accrued interest receivable by sector

2015 2014 Per cent Per cent

Agriculture and fisheries 1 2

Forestry and paper 1 3

Agro-marine food and processing 5 17

Construction, building materials and real estate 11 13

Hotel, tourism, leisure and entertainment 15 8

Transport and storage 1 2

Financial Institutions 29 29

Electricity and water 27 23

Oil and gas 0 -

Education, health and other community services 10 3

100 100

Write off policy The Bank writes off a loan balance and any related allowances for impairment losses when the Bank’s Project committee 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 the proceeds from collateral will not be sufficient to pay back the entire exposure. All loan write offs are approved by the board of directors. The Bank holds collateral against loans and advances to customers in the form of mortgages over property. Estimates of fair value are based on the value of the 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. An estimate of fair value of collateral and other security enhancements held against financial assets is shown below:

84 84 East African Development Bank Financial Statements For the year ended 31 December 2015

Legal mortgage

2015 2014 USD ‘000s USD ‘000s

Legal mortgage over individually impaired assets 3,726 155,226

Legal mortgage over assets written off 47,671 28,212

Legal mortgage held over other loans and advances to customers 365,151 191,278

416,548 374,716

Maximum exposure to credit risk before collateral held

2015 2014 USD ‘000s USD ‘000s

Credit exposures relating to off-statement of financial position

Letters of credit 295 -

Loan commitments 5,311 6,229

5,606 6,229

The above table represents the worst case scenario of credit risk exposure to the Bank as at 31 December 2015 and 2014, without taking account of any collateral held or other credit enhancements attached. For on-statement of financial position assets, their respective carrying amounts represent the bank’s maximum exposure to credit risk.

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio:

• The Bank exercises stringent controls over the granting of new loans;

• 99% (2014: 98%) of the loans and advances portfolio are neither past due nor impaired;

• All loans and advances are backed by collaterals except loans to banks.

Settlement risk The Bank’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of the counterparty to honour its obligations to deliver cash, securities or other assets as contractually agreed. Settle- ment limits form part of the credit approval/limit monitoring process described earlier.

(c) Liquidity risk Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations on its financial liabilities. It includes both the risk of being unable to fund assets 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. The Bank has access to a diverse funding base. Funds are raised mainly from borrowings and share capital. This enhances funding flexibility, limits dependence on one source of funds and generally lowers the cost of funds. The Bank strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. The Bank continually assesses liquidity risk by identifying and monitoring changes in funding required in meeting business goals and targets set in terms of the overall Bank strategy. In addition, the Bank has an Asset and Liability Committee that meet on a regular basis to monitor liquidity risk, review and approve liquidity policies and procedures.

85 85 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

Exposure to Liquidity risk The Bank maintains a minimum of 1.33 times coverage of designated liabilities for the next twelve months in liquid assets. Designated liabilities consist of liabilities and budgeted commitments that are due in twelve months.

The liquidity policy ratio as at the end of the year is as follows

2015 2014 USD ‘000s USD ‘000s

Cash and cash equivalents as per liquidity policy 97,722 85,199

Designated liabilities (58,624) (59,624)

Surplus per liquidity policy 39,098 25,575

Liquidity ratio 1.67 1.91

DESIGNATED LIABILITIES

Repayment of term loans 37,727 30,431

Interest on borrowings 6,917 2,902

Acquisition of fixed assets 5,922 3,484

Staff and administration expenses 8,058 7,901

58,624 44,718

Cash and cash equivalents as per liquidity policy is arrived at after deducting loan disbursement commitments of USD 77 million (2014: USD 60 million). The liquidity policy of the bank defines cash and cash equivalents as its operational and strategic liquidity pool which comprises cash and bank deposits with maturity periods not exceeding 3 months. The Bank registered a liquidity ratio of 1.67 (2014: 1.91) which exceeds the required liquidity ratio as per the policy of 1.33 x.

86 86 87

The table below analyses assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2015 to the contractual maturity date. For theyearended31December2015 East AfricanDevelopmentBankFinancialStatements

<6 months <1 years <3 years <5 years Matured <6 months >1 year <3 years >5 years <7 years <7 years Total 87 USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s ASSETS Cash at bank 4,922 4,922 Deposits due from commercial banks - 176,107 - 1,384 - - - 177,491 Investment securities held to maturity - 99 94 252 - - - 445 Loans and lease receivables - 15,782 27,265 71,059 50,973 28,323 12,407 205,809 Equity investments - - - - 645 - - 645 Derivative financial instruments-Inflow - 1,536 - - - - - 1,536 Other assets receivable 1,122 ------1,122 Total assets 6,044 193,524 27,359 72,695 51,618 28,323 12,407 391,970 LIABILITIES AND SHAREHOLDER FUNDS Derivative financial instruments-outflow - 1,581 - - - - - 1,581 Other accounts payable 1,898 ------1,898 Medium and long term loans - 5,189 39,455 33,134 26,939 18,323 28,070 151,109 Total liabilities and shareholder funds 1,898 6,770 39,455 33,134 26,939 18,323 28,070 154,588 Net liquidity gap at 31 December 2015 4,146 186,754 (12,096) 39,561 24,679 10,000 (15,663) 237,382 Net liquidity gap at 31 December 2014 8,446 140,884 10,776 31,421 22,233 8,158 (3,018) 218,900 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

The table below analyses assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2015 to the contractual maturity date.

Derivative assets The table below analyses the Bank’s derivative financial instruments that are settled on a gross basis into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. Contractual maturities are assessed to be essential for an understanding of the timing of the cash flows on all derivatives. Cash flows for those derivatives could occur earlier than the contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows.

<6 months Total USD '000s USD '000s

Outflow 1,581 1,581

Inflow 1,536 1,536

88 88 89 For theyearended31December2015 East AfricanDevelopmentBankFinancialStatements Off balance sheet items The Bank’s off balance sheet items comprise of loans commitments, letters of credit and capital commitments. The dates of the contractual amounts of the Bank’s off-bal- 89 ance sheet financial instruments that it commits to extend credit to customers, letters of credit and capital commitments are summarised in the table below.

<6 months >6 months <1 year <3 years >5 years >7 years >1 year >3 years <5 years <7 years Total USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s

Loan commitments 407 2,525 2,210 169 - - 5,311

Capital commitments - - 10,361 - - - 10,361

Total 407 2,525 12,571 169 - - 15,672

(d) Interest rate risk In broad terms the interest rate risk is the sensitivity of the Bank’s financial performance to changes in the interest rates. The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest earning assets and interest bearing liabilities mature or reprice at different times or in differing amounts. Risk management activities are aimed at optimizing net interest income, given market interest rates levels consistent with the Bank’s business strategies. In order to minimize interest risk, the Bank has a policy where the approved lending commitments are matched to specific lines of credit or source of funds, including adopting the funding interest rate characteristics (fixed or variable) to its on lending activities. As at 31 December 2015, if interest rates on interest bearing assets and liabilities had been 10% higher/lower with all other variables held constant, impact on compre- hensive income would be USD 1.3 million (2014: 0.8 million). ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015 378 483 - 1,536 - 1,581 7 483 801 125,141 - - - 1,122 1,122 - 1,409 177,491 - - 1,898 1,898 - - 4,922 4,922 ------371 - - - - 1,384 ------1,536 - - - 61,335 1,928 30,361 2,845 27,872 - 1,581 - - 62,916 1,928 30,361 2,845 27,872 2,699 128,620 6,098 100,872 9,313 26,482 7,055 10,528 1,637 161,985 Month Months Months Months Years Years bearing Total 66,358 101,998 6,342 72,456 204,406 15,655 26,482 8,810 10,528 9,580 347,917 72,456 141,490 47,693 13,727 88,485 (3,879) 50,501 5,965 7,979 (17,344) 5,492 6,881 (5,511) 219,297 11,921 206,559 Up to 1 1 to 3 3 to 6 6 to 12 1 to 5 Over 5 Non-interest USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s Loans and advances Loans Equity investments at fair value Derivative financial instruments Other Assets receivable Total assets Total LIABILITIES AND SHAREHOLDERS’ FUNDS Other accounts payable Deposits due from banks Investment security Medium and long term loans Derivative financial instruments liabilities and Total shareholder funds Interest sensitivity gap at end 2015 Interest sensitivity gap at end 2014 ASSETS Cash and bank balances

The table below summarizes the exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing an interest rate risk on off balance sheet items. or maturity dates. The Bank does not bear

90 90 91

(e) Currency risk For theyearended31December2015 East AfricanDevelopmentBankFinancialStatements The Bank does not actively engage in dealing and trading operations in currencies and so the Bank’s exposure to currency risk mainly involves the risk of foreign 91 exchange losses or gains arising on the retranslation of monetary assets, liabilities and off balance sheet items denominated in foreign currency. To minimize currency risk in a multi-currency environment, the Bank matches it’s funding in one currency with assets in the same currency.

UGX KES TZS RWF EUR GBP SEK Total USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s USD '000s ASSETS Cash and bank balances 440 1,272 22 9 257 11 1 2,012 Deposits due from banks 4,678 23,691 5,783 702 - - - 34,854 Investment security held to maturity 373 ------373 Loans and advances at amortized costs 10,415 14,693 2,387 - 5,602 - - 33,097 Equity investments - Available for sale - 100 383 - - - - 483 Other assets receivable 1 2 41 - 1 - - 45 Total Assets 15,907 39,758 8,616 711 5,860 11 1 70,864 Shareholders’ Funds And Liabilities Other accounts payable 27 9 16 - - - - 53 Medium and long term borrowings 13,993 36,804 5,444 704 5,503 - - 62,447 Total Shareholders’ Equity & Liabilities 14,020 36,813 5,460 704 5,503 - - 62,500 Net Currency Position 31 December 2015 1,887 2,945 3,156 7 357 11 1 8,364 Net Currency Position 31 December 2014 1,386 2,834 4,475 9 287 12 1 9,005 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

Sensitivity analysis The 10% movement of USD against other currencies at 31 December 2015 would have increased or decreased comprehensive income by USD 0.78 million (2014: USD 0.82 million). This is assuming that all other variables, in particular interest rates remain constant.

(f) Fair value of financial assets and liabilities The carrying amount of financial assets and liabilities approximate to their fair value.

(g) Fair value of financial instruments IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank's market assumptions. These two types of inputs have created the following fair value hierarchy: • Level 1 – Fair value is determined using unadjusted quoted prices in an active market for identical assets and liabilities. Types of financial assets include: actively traded government and other agency securities, listed derivative instruments and listed equities. Types of financial liabilities include listed derivative instruments. • Level 2 – Fair value is determined using valuation models with directly or indirectly market observable inputs. Types of financial assets include: corporate and other government bonds and loans, and over-the-counter (OTC) derivatives. Types of financial liabili- ties include over-the-counter (OTC) derivatives. • Level 3 – Fair value is determined using Valuation models using significant non- market observable inputs. Types of financial assets include: highly structured OTC derivatives with unobservable parameters and corporate bonds in illiquid markets. Types of financial liabilities include highly structured OTC derivatives with unobservable parameters. This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible. See note 22 for disclosures of the land and buildings that are measured at fair value.

Level 2 Level 3 Total

At 31 December 2015:

Financial assets at fair value through profit or loss

Derivative financial instruments (32) - (32)

Equity investments at fair value - 483 483

Total assets (32) 483 451

At 31 December 2014:

Derivative financial instruments 108 - 108

Equity investments at fair value - 713 713

Total assets 108 713 821

92 92 East African Development Bank Financial Statements For the year ended 31 December 2015

Reconciliation of level 3 items Financial assets at fair value through profit or loss

Equity investments USD ’000s

At 1 January 2015 713

Investments exited -

Fair value gain (230)

At 31 December 2015 483

At 1 January 2014 711

Investments exited -

Fair value gain 2

At 31 December 2014 713

The movement in fair value of equity investments has been analysed in Note 18.

(h) Capital management The Bank’s objectives when managing capital, which is a broader concept that the ‘equity’ on the face of the statement of financial position, are: • To comply with the capital requirements set under the Bank’s Charter • To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and bene- fits for other stakeholders; and • To maintain a strong capital base to support the development of its business. The Bank’s capital requirements are strictly observed under Article 11 of the Bank’s Charter which requires that the bank’s outstand- ing loans, equity investments and guarantees do not at any one time exceed three times the bank’s unimpaired subscribed capital plus reserves and surplus relating to its ordinary capital resources but excluding the special reserve. The Bank was well within this limit as of 31 December 2015 computed on paid in capital alone, as shown in the table below:

2015 2014

Capital ratio 0.73 0.53

36. EMPLOYEE RETIREMENT BENEFIT PLANS AND GRATUITY

Notes 2015 2014 USD ‘000s USD ‘000s

Contribution to the retirement benefit plan (i) 288 269

Contribution to the statutory pension scheme (NSSF) (ii) 4 4

Gratuity (iii) 59 73

351 346

93 93 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

(i). The Bank operates a defined contribution retirement benefit scheme to which employees contribute 10% of their basic salary and the Bank contributes 10%, 12.5% or 15% of the employees’ basic salary depending on his/her length of service. A Board of Trustees manages the scheme with the support of various service providers. (ii). The Bank also makes contributions to a statutory pension scheme, the National Social Security Fund for its casual staff. The contri- butions and obligations under the scheme are limited to specific contributions legislated from time to time and the Bank’s contribu- tion is currently 10% of the employees’ gross salary and Kenya Shillings 200 for Kenyan employees resident in Kenya. (iii). Gratuity is paid to the Director General at 20% of annual gross salary at the end of the year.

Other staff benefits The Bank ensures proper welfare of its staff by providing welfare schemes such as car loan purchase scheme, housing and medical schemes. The Bank also pays for professional membership and subscription fees for staff that belong to professional bodies. In addition, employees are eligible for loans subject to prevailing polices and the Bank operates a medical insurance scheme for all its employees.

37. CAPITAL COMMITMENTS

2015 2014 USD ‘000s USD ‘000s

Authorized but not contracted for 4,662 2,924

Authorized and contracted for 5,699 4,531

10,361 7,455

38. OFF BALANCE SHEET ITEMS AND CONTINGENCIES The Bank conducts business involving guarantees, performance bonds and indemnities. The following are the commitments and contingencies outstanding as at year-end.

Notes 2015 2014 USD ‘000s USD ‘000s

Letters of credit a) 295 -

Un-disbursed commitments b) 5,311 6,229

5,606 6,229

94 94 East African Development Bank Financial Statements For the year ended 31 December 2015

Nature of contingent liabilities a) Letters of credit commit the Bank to make payments to suppliers of equipment to approved projects, on presentation of shipping documents. b) Commitments to lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The Bank is a litigant in several cases which arise from normal day to day banking activities. The directors and management believe the bank has strong grounds for success and are confident that they should get rulings in their favor in matters before court. In cases where the Bank may not be successful, directors and management are confident that such cases would not significantly impact the bank’s operations either individually or in aggregate. Management has also carried out an assessment of all the cases outstanding as at 31 December 2015 and did not find any that warranted a provision. This position is supported by independent professional legal advice.

39. RELATED PARTY TRANSACTIONS The Bank is jointly controlled by four East African Community member states of Kenya, Tanzania, Uganda and Rwanda who collec- tively own 87% of the ordinary shares. The remaining 13% of the shares are widely held. A number of banking transactions are entered into with related parties in the normal course of business. These include loans, depos- its with banks, borrowings and capital contributions by the member states. The volumes of related-party transactions and outstand- ing balances at year-end, for the year are as follows:

2015 2014 USD ‘000s USD 000s

Staff loans and advances (Note 16) 26 26

Loans and advances to Directors 36 -

Loan to government of United Republic of Tanzania 12,679 5,869

Deposits held with banks that are shareholders of the Bank and related entities 29,457 85,657

Interest income earned on all of the above 1,823 3,625

Borrowings payable by the Bank to shareholders 69,776 25,555

Interest expense as paid to shareholders 2,005 1,307

No provision has been made for any loans to related parties. Loans to employees are given at concessionary rates.

95 95 ANNUAL REPORT 2015

East African Development Bank Financial Statements For the year ended 31 December 2015

Key management compensation

2015 2014 USD ‘000s USD ‘000s

Salaries and other employee benefits 374 382

Other short-term employee benefits - Gratuity 59 73

433 455

Directors’ remuneration

Fees and allowances 70 62

Salaries and other short-term employee benefits (included within key management compensation above) 433 455

Other expenses 92 68

595 585

96 96