2020 SBN Holdings Limited SBN Holdings ANNUAL REPORT REPORT ANNUAL

SBN Holdings Limited ANNUAL REPORT 2020 standardbank.com.na SBN HOLDINGS LIMITED Annual report 2020 1

Our success and growth over the long term is centred on making a difference in the communities in which we operate.

We are commercially and morally bound to serve Namibia and her people in return for the long-term profitable growth we aim to deliver as a leading financial services group in the country. We are committed to moving Namibia forward and driving her growth.

Standard Bank’s first branch opened in 1915 in Lüderitz. Standard Bank is one of Namibia’s oldest companies. The bank’s original vision was to understand its customers better employing people with a strong knowledge of local business conditions and to better connect borrowers with lenders. This vision created the foundation for the kind of bank it would become and the qualities on which its customers and clients expect.

Over its history, Standard Bank has grown from a few employees to over 1 500 today, and extended its roots deep into the fabric of Namibian society. We have evolved and adapted along with our customers and clients, growing a rich heritage while nurturing and protecting our reputation. We uphold high standards of corporate governance and are committed to advancing the principles and practices of sustainable development. We are inspired to advance national development objectives, and thereby make a difference in the lives of Namibia's people.

Standard Bank has a strong presence in Namibia. Standard Bank has always lived up to the promise of bringing banking to the nation and we have succeeded in doing so by having a wide network of branches and ATMs in Namibia, comprising:

Transactional volumes on our digital platforms Internet Banking PayPulse 3 185 377 882 752 2019: 2 747 792 2019: 396 179

Smart App Branches 173 417 63 2019: 153 409 2019: 61 2018: 60

USSD ATMs 1 033 501 372 2019: 797 207 2019: 350 2018: 325

Reporting suite

To meet the information needs of our diverse stakeholders, we produce the following reports:

The annual report Report to society Contents Our primary report to stakeholders This report covers our material focus areas which provides an assessment of our in relation to our strategy and key social, Introduction Our accountability Annexures ability to create value over time. economic and environmental (SEE) impacts. 02 About SBN Holdings 28 Corporate governance report 114 A – Subsidiaries 34 Board of directors 115 B – Joint venture Our value creation story 38 Executive committee 116 C – Risk and capital management 04 Our operating context Additional reports can be found at 136 D – Emoluments of directors 06 Our material issues Annual financial statements www.standardbank.com.na/namibia/ 137 E – Detailed accounting policies personal/about-us/investor-relations 08 Our strategy 42 Directors’ responsibility and approval 10 Our execution model Shareholder information Oversight 43 Independent auditor’s report 160 Notice of annual general meeting The board audit subcommittee is responsible for Our performance 49  Directors’ report 163 Form of proxy providing oversight of the financial reporting process. 14  Chairman’s report 51 Statements of financial position 165 Shareholder analysis The committee recommended the report for approval by 52 Income statements the SBN Holdings Limited (the group) board of directors, 16 Chief executive’s review IBC Contact and other details which was obtained on 24 March 2020. 18 Financial review 53 Statements of other comprehensive income 24 Our SEE impact Feedback 54 Statements of changes in equity We welcome the views of our stakeholders on this report. 57 Statements of cash flows Please contact our group secretary, Sigrid Tjijorokisa, Head: Legal and Governance, at Sigrid.tjijorokisa@ 58 Accounting policy elections and standardbank.com.na with your feedback. restatements 60 Key management assumptions 66 Notes to the annual financial statements SBN HOLDINGS LIMITED INTRODUCTION 2 Annual report 2020 3

Our integrated pillars of operation About SBN Holdings Our business lines provide integrated solutions that drive the financial wellbeing of our diverse clients in Namibia. We opened our first commercial branch in August 1915 in Lüderitz, making the group one of Namibia’s oldest companies today.

Over the years, our customers and clients have come Standard Bank is committed to making banking Personal & Business Banking (PBB) to rely on us to understand their needs, employ people available to all Namibians. with strong knowledge of local business conditions To achieve this, we have evolved and adapted together PBB provides Profit after tax (PAT) What we offer and connect borrowers with lenders. We are proud with our customers and clients, developing a rich banking and other • Transactional products to be part of Standard Bank Group, a financial services heritage while nurturing and protecting our reputation. financial services to • Mortgage lending organisation rooted in Africa and with operations in +N$203m We uphold high standards of corporate governance, individual customers 2019: N$367m • Vehicle and asset finance 20 sub-Saharan countries. and to small- to are committed to advancing the principles and • Lending products medium-sized From humble beginnings of three branches, today, practices of sustainable development and are inspired • Wealth Standard Bank operates a distribution network to advance national development objectives. enterprises (SMEs). of 63 branches and 372 ATMs across Namibia. Contributions to Our success and growth over the long term is centred Our workforce has grown to over 1 500 employees Read more on SBN Holdings PAT around making a difference in the communities in and our roots have extended deep into the fabric page 108. which we operate. We are commercially and morally of Namibian society. bound to serve Namibia and her people, in return for 48% the long-term profitable growth we aim to deliver as a leading financial services group on the continent.

Corporate & Investment Banking (CIB) Namibia is our home, CIB offers corporate PAT What we offer and investment • Client coverage we drive her growth. banking services to its +N$170m • Global markets clients, which include 2019: N$269m • Transactional products governments, and services parastatals, larger • Investment banking corporates, financial institutions and Contributions to OUR COMPANY international SBN Holdings PAT counterparties. STRUCTURE 41% Read more on Standard Insurance page 109. Brokers (Namibia)

General Public 25.1% (including Stanfin (Namibia)

Purros Trust) Other & enablers Arleo Investments Sixteen Our third business PAT 100% area includes the SBN Mobicash Payment results of centralised +N$48m Standard HOLDINGS Solutions (Mobipay) support functions 2019: (N$23m) Bank 50.9% (back office), including 74.9% those functions that Group were previously Standard Bank embedded in the Namibia Contributions to business segments. SBN Holdings PAT The direct costs of support functions are 100% recharged to the 11% Standard Bank business segments. Namibia Nominees

Read more on page 109. Our listings and shareholders Headquartered in Windhoek, SBN Holdings is listed on the Namibian Stock Exchange and is 74.9% owned by Standard Bank Group and 25.1% owned by the general public, including Purros Trust, our staff empowerment scheme. SBN HOLDINGS LIMITED OUR VALUE CREATION STORY 4 Annual report 2020 5

SOCIAL THREATS – Covid-19 RELATED RISKS Client impact FOR THE GROUP: Our operating context • adverse impact on revenue • constrained ability to access finance • credit risk • rising unemployment We operate in a constantly changing environment where a complex and inter-related spectrum of existing and emerging OPPORTUNITIES threats and opportunities influence our business activities Established franchise with a large, growing client base and shape our future sustainability. Developing strong relationships with our clients, as well as a holistic understanding of their businesses and our broader impact, will allow the group to support communities through these difficult times.

TECHNOLOGICAL ADVANCEMENT RELATED RISKS EMERGING THREATS AND OPPORTUNITIES Client impact FOR THE GROUP: • individuals, enterprises and corporates expect embedded financial services • information risk Issues on the horizon that represent external influences, which could impact the that offer intuitive experiences and real-time individualised interactions group in a multitude of ways but may not have materialised as yet. • business risk • seamless service regardless of location or channel • strategic risk

Our approach We identify our emerging threats and opportunities In considering the group’s operating environment OPPORTUNITIES based on an ongoing assessment of global and local and changes in the financial services industry, the Purpose driven organisation trends that are likely to have a material bearing on following emerging threats and opportunities face the group’s operating environments and business the world, the continent, the country, our clients and We have the appetite to invest, deliver and partner together with a strong balance sheet that will allow us to accelerate our strategic models. Early identification enables us to leverage our operations. Accelerating technical advancement transformation. We are building a work environment that enables the development of new ideas and engaging with clients while related opportunities and proactively mitigate in particular is shaping how we operate. challenging the status quo of our processes, products and structures to design and commercialise new products and business negative impacts. models for tomorrow.

ECONOMIC PRESSURES COMPETITIVE LANDSCAPE RELATED RISKS RELATED RISKS FOR THE GROUP: Client impact FOR THE GROUP: Client impact • adverse impact on revenue • clients will move to competitors with lower-cost or more convenient offerings • information risk • credit risk • constrained ability to access finance • ecosystem players that are becoming intrinsic to their lives • business risk • rising unemployment • market risk • strategic risk • higher levels of debt • liquidity and funding risk • Covid-19 OPPORTUNITIES OPPORTUNITIES Unrivalled Namibian-focused capability Strong growth prospects The integration of supply chains and client journeys to build ecosystems will help to protect our client base. The use of artificial As economic reform in Namibia gains momentum, sentiment, investment and economic growth should improve. intelligence (AI), automations and cloud to leverage vast pools of data will drive competitive differentiation.

REGULATORY OVERSIGHT RELATED RISKS POLITICAL AND GEOPOLITICAL SHIFTS FOR THE GROUP: RELATED RISKS Client impact Client impact • onerous • information risk FOR THE GROUP: • compliance risk • adverse impact on revenue • costly • conduct risk • constrained ability to access finance • credit risk • time-consuming processes to ensure regulatory compliance • rising unemployment OPPORTUNITIES OPPORTUNITIES Robust capital and liquidity and strong ethical culture Purpose driven organisation Apply specialist capability to monitor and assess the implications of regulatory developments and engage with relevant external The group interacts with governments directly and through various associations, advocating for enabling policy environments that stakeholders to understand and constructively influence regulation. promote national objectives and beneficial socioeconomic outcomes. SBN HOLDINGS LIMITED OUR VALUE CREATION STORY 6 Annual report 2020 7

STAKEHOLDER PRIORITIES 2020 MATERIAL ISSUES

Focusing on our clients Clients • Always-on, secure, stable and convenient transactional • The ability to deliver solutions to our platforms. clients through their channel of choice • Value for money. despite the restrictions brought about Our material issues • Personalised financial solutions. by Covid-19. • Service concerns around branch closures. • Deliver a compelling value proposition for our clients in an increasingly Investors Our material issues are those that have an impact on our ability • Competitiveness in a crowded market. competitive environment. • Speed and efficiency of the digitisation journey. • Protect and maintain the integrity to create value in the short, medium and long term. of client data. Regulators • Ensure fair outcomes for clients. • Fair treatment of clients. An issue is considered to be material if it has the Our material issues therefore encompass the • Affordability of and access to services. potential to substantially impact on our emerging threats and opportunities facing the • Managing over-indebtedness. commercial viability, our social relevance and the business. While our material issues continue to • Equitable access to credit. quality of our relationships with our stakeholders. evolve in response to changes in our operating • Protection against unfair discrimination. Our material issues are informed by the environment and stakeholder expectations, the expectations of our stakeholders and the broad themes tend to be relatively stable. economic, social and environmental context in which we operate. Engaging our employees Employees • Upskilling for future ways of work. • Diversity and inclusion: focus on gender • Gender equity in top and senior management. equity. • Transformation of top and senior management. • Impact of digitisation and automation on workforce requirements. Investors How we determine • Diversity of the board and workforce, as well as diversity and • Build and retain local skills anti-discrimination policies. and capabilities in countries of operation. our material issues • Access to appropriate skills and talent. Regulators We view the materiality determination process as a • Gender equity. business tool that facilitates integrated thinking. • Employment equity. • Plans for reskilling the workforce and preserving jobs.

Managing our risk and conduct Identify We identify issues based on ongoing engagement with internal and Clients • Cybersecurity. external stakeholders. These insights are supplemented by internal research and • Disruption caused by system outages. • Stability, security and speed of our IT systems. risk reports, media coverage, and national and regional developments. Investors • Governance, ethics, market conduct and internal controls. • Reputational and operational risk associated with third-parties, counterparties and suppliers. Regulators • Impact of fraud on clients and the group. • Deepening of regulatory scrutiny and requirements. • Risk management with varied and evolving policy We review our Approve We discuss the • Protecting clients from fraud and cybercrime and processes Prioritise and regulatory frameworks. material issues annually. A list of refinements and adjustments at the for compensation. • Building trust with regulators through issues is shared with executives to group executive and senior • Potential interest rate or fee cap structures. constructive engagement. identify priorities based on their management level. The issues likelihood and potential impact are then shared with the group board on the group. for discussion and approval. Achieving our financial outcomes Investors and shareholders • Revenue pressure due to Covid-19 and the low interest rate • Finding new and sustainable revenue lines environment. to compensate for the low interest rate • Poor Namibian macroeconomic outlook (loan growth environment. and cost of risk). • Maintain resilience of our balance sheet. • Profitability, earnings and return on equity (ROE). Engaging our stakeholders • Improve efficiencies and manage the cost base. We are committed to building constructive partnerships with all • Returns on IT investment. our stakeholders. Driving positive SEE impact We engage with our stakeholders on a range of diverse issues. We strive to respond to Clients and regulators stakeholder concerns appropriately and in a timely manner. Proactive engagement • Solutions for SMEs, entrepreneurs and the informal sector. • Contribute to job creation, enterprise provides us with insights that help to inform our material issues, shape our business • Impacts and potential impacts of severe weather events. development, education and skills strategy and operations and minimise reputational risk. • Sustainable finance products. development in countries of operation. • Financial inclusion across Namibia with Investors appropriate digital offerings. • Sustainable finance products • Support the supply of low-cost housing. Communities • Social and environmental impacts of fossil fuel projects. SBN HOLDINGS LIMITED OUR VALUE CREATION STORY 8 Annual report 2020 9 Our strategy

Our strategy is underpinned by our purpose and revolves around delivering simple, relevant and holistic solutions to our clients through their channel of choice in a seamless manner. Our strategy provides us with the path to get there.

We are strengthening our digital capabilities and integrating our business to transform client experiences and to drive operational efficiency for a radically different world.

The aspirations associated with the accelerated execution of our strategy, and the expected timeframes Creating sustainable value through diligent execution are reflected below. of our strategy HORIZON 1 The short term Responding and recovering OUR VALUES-DRIVEN CULTURE Our purpose Our values Evolve our response to Facilitate a return to Anticipate and adapt to operating conditions Our values are the behaviours and qualities that define us at our best. the prevailing threats growth coming out of and trends with focus and urgency. associated with Covid-19. the crisis. The reason we exist • Being proactive • Delivering to our stakeholders • Accelerate digital adoption, keeping our clients at the • Implement rapid response • Continue to support our centre of what we do. Namibia is our home, we drive her growth. • Growing our people • Respecting each other strategies that have positive clients and economies to • Reshape our operations, infrastructure and resources to • Constantly raising the bar • Serving our clients societal impacts. recover from the crisis. become more human and more digital. • Working in teams • Upholding the highest levels of integrity • Manage the transformation and renewal of the group. Our vision What we aspire to be Our culture Our purpose, vision, values drive our approach to ethics and inform What if we place the client at the centre HORIZON 2 of who we are and what we do our culture. Our culture comprises specific characteristics required to achieve our strategy and is underpinned by the principle of doing the Becoming a truly human, truly digital group The medium term right business, the right way. providing a comprehensive range of services

Transform client experience Transformed operational efficiency In executing our group strategy our key focus areas are: • Deliver exceptional client experiences. • Efficient, stable, robust, secure technology • Meet clients’ needs with optimal solutions. processing, mostly in the cloud. Leveraging digital to • Modular, agile, reusable optimised capabilities and Delivering personalised drive engagement and Co-creating integrated services. and exceptional client efficiencies, and solutions in selected • Strong data analysis and data monetisation CLIENT experiences. DIGITISATION predictive decision- INTEGRATION client networks. CENTRICITY capabilities. making.

Our strategic value drivers, now deeply embedded within the group, track our performance in delivering value to all our stakeholders. We continue to develop the associated metrics, ensuring they are simple, understandable and credible. HORIZON 3 The long term Namibia’s leading digital financial business

EMPLOYEE CLIENT RISK AND FINANCIAL SEE FOCUS ENGAGEMENT CONDUCT OUTCOME IMPACT In transforming the group, we will become: We will provide We will ensure our We will do the We will deliver We will drive consistently people feel deeply right business, superior value to Namibia’s growth Truly human Truly digital exceptional client connected with the right way by shareholders. by delivering Providing services, solutions and opportunities Serving clients predominantly online, experiences in all our purpose and adhering to our sustainable shared that our clients and employees need to achieve processing in the cloud, embracing our markets. are empowered risk appetite value. growth, prosperity and fulfilment. open innovation underpinned by and recognised. metrics. data and insights. Our inputs 10 responsibly and allows us to deliver the best outcomes for our stakeholders. Our business modelenables usto manage ourresources andrelationships Our execution model Resources and relationships per strategic value driver OUR VALUE CREATION STORY • • • • CLIENT FOCUS • • • • • EXTERNAL ENVIRONMENT ver 343700 clients.

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Our outputs and outcomes

WHAT WE DO FINANCIAL IMPACT AND FINANCIAL VALUE CREATED OUTCOMES Business activities ASSOCIATED RISK FOR STAKEHOLDERS and outputs What this means for the group What this means for stakeholders

Individual clients can access financing to buy houses and cars Net interest income Lend money to our Interest earned on loans granted to clients less and fund their children’s education. Business clients can borrow Interest income and credit loans not repaid. to grow and invest in their businesses, supporting employment clients impairments and inclusive economic growth.

Source funding from Costs incurred on funds raised from depositors Depositors earn a return on the funds they place with client deposits and Interest expense and other funders, used by the group to lend to the group. other funders clients who need finance.

Clients Transactional banking facilitates the movement of money, Provide transactional providing clients with convenient access to their funds. Our banking facilities and Net fee and commission Fee and commission revenue earned knowledge-based services allow our clients to benefit from our knowledge-based revenue N$2.1bn for services provided. experience and track record on the continent, and enables us to services to clients 2019: N$2.4bn connect them to global pools of capital. Value of Covid-19 relief measures provided temporary relief to:

Banking activities Market access enables businesses to grow, providing a conduit for INFLOWS Market access and Fees earned from clients who use our platforms to • Business N$499 million. investment, helping economies monetise resources and diversify. risk mitigation products Trading revenue access and trade foreign exchange, commodity, SME N$51 million. Risk mitigation products enable financial protection and to businesses • credit, interest rate and equity instruments. • Individuals N$1042 million diversification through risk transfer. • Corporate N$94 million Revenue from other Revenue earned from other sources, including Strategic investments support inclusive economic activity and sources linked to core Other revenue income from property, private equity and enable wealth creation, while also contributing to investments businesses and strategic investments in FinTechs. that drive Namibia's socioeconomic development. investments

Long- and short-term Brokerage fees and underwriting profits generated Income from investment Insurance, investment and advisory services enable clients to insurance, investment from the wealth offerings provided to clients and management and life build, diversify and protect their wealth and offer protection from products and advisory earns commission on Liberty and STANLIB risk and insurance activities loss of income due to illness, retirement and death. services investment products held by clients. – Insurance Employees Cost of the people we rely on to consistently deliver exceptional client experiences and the cost of Employees derive value from remuneration and other benefits Invest in our people Staff costs N$804.8m reskilling and upskilling our people to deal with received and training that equips them with relevant skills. 2019: N$868.4m a changing world of work.

Suppliers and third parties Other operating Cost of our day-to-day operations, both internal Invest in our operations Through our activities, we sustain other jobs in local communities. expenses N$698.5m and outsourced. 2019: N$619.6m

Governments Direct and indirect taxes OUTFLOWS Direct and indirect Cost of operating in the various jurisdictions in to governments and Governments earn revenues which support local development. taxes which we do business. regulators N$187.1m 2019: N$258.5m

Shareholders Shareholders earn a return for their investment in the group,

Banking and insurance activities Payment to shareholders for their investment Returns to shareholders Dividends in the form of dividends, consistent dividend policy and in the group N$252.7m capital appreciation. 2019: N$120.0m =

Reinvested to sustain Capital reinvested to support the future growth of the business, Retained equity Capital retained to leverage growth going forward. and grow our business N$168.5m which benefits all stakeholders. 2019: N$493.5m REINVEST

Associated risks: Credit risk Interest rate risk Insurance risk Business and reputational risk Financial and liquidity risk Market risk Operational risk, including compliance, environmental and social risk SBN HOLDINGS LIMITED OUR PERFORMANCE 14 Annual report 2020 15

Chairman’s report

“You are on mute?” . . . And was this not true for 2020. A year where people planned to do, to build, to achieve and to experience life, but which were either put on hold or for some, lost forever.

“We granted payment holidays to more Final dividend per Total capital than 2 000 customers, providing more than ordinary share adequacy ratio N$1.7 billion in relief to clients.” 14.00 cents 14.7% 2019: 27.3 cents 2019: 16.0% HERBERT MAIER – CHAIRMAN

We want to acknowledge the personal We granted payment holidays to more Now in phase 3, we are and will continue Financial performance What does the future hold? Appreciation and professional demands, anxiety, than 2 000 customers, providing more to be working diligently to adapt to the Falling interest rates, reduced The global economy showed signs of I want to conclude with a special word of uncertainty and in many cases the than N$1.7 billion in relief to clients. new normal. We are engaging with our transactional volumes and increases in recovery during the third quarter due to appreciation to the management team losses this last year wrought upon our Business continuity was key, but so was clients and employees to assess and impairments resulted in our PAT reducing improved levels of economic activity due to and employees for their commitment employees, clients and communities. We the safety and wellbeing of our evaluate their behaviours and needs to by 31.3% from the prior year. the lifting of lockdown measures. However, in one of the most demanding and would like to salute you for your resilience employees. Given the continued threat of identify new opportunities to accelerate during December, European countries challenging financial years. Thank you and perseverance as you continue to the pandemic and the need to ensure the digital transformation of our The decision taken by the Board to began to implement new restrictions, for making sure the business continued hope for life, good health and restoration safety for our colleagues, our operations operations and to deliver the future-ready aggressively implement certain including on international travel, due to provide uninterrupted services to our of certainty, maybe even normalcy. continued without disruption while more bank that will thrive in the new digital cost-saving initiatives provided a buffer to a surge in Covid-19 cases. valued clients. than 70% of our workforce worked from economy. in the current weak revenue environment, Covid-19 home since April 2020. We also increased with total expenditures increasing only by It appears that the extreme uncertainty and I also want to thank our clients for their our focus on risk, capital and liquidity 1.0% in 2020. Despite these cost saving dislocation to economic activities during support during 2020 and assure them The truth is that we are all hoping and The economy management and are pleased that our measures and the significantly lower than 2020 may continue to persist for at least of our continued understanding and working toward normalcy, but will it be Risks to the domestic economy were capital and liquidity reserves remained forecast revenues, the business the first half of 2021. The prospect of the support in the coming year. And thank the normal we are used to and knew dominated by the ongoing travel and above the regulatory requirements during continued to invest into and implement global roll-out of vaccines gives hope for you also to all my colleagues on the before the onslaught of Covid-19? lockdown restrictions in many countries, the year. Our regular engagements with key digital transformation measures improvement in the health situation, which board for having followed through and including Namibia, that hindered business Succour, a word that is sometimes used Bank of Namibia during the year resulted toward a future-ready, agile and digital should result in a better economic provided guidance during this difficult activities and caused disruptions to to describe 2020, is very relevant to what in a coordinated approach to dealing with business. Starting with this initiative early environment. time, and not least our shareholders who supply chains. Other challenges included we as a group tried to achieve during the risks presented by Covid-19 to the in the year not only helped the weak have stuck it out with us and continued the volatile and persistently low Amid all of this we continue to focus on 2020. It means ‘to provide assistance and country’s economy and banking system, revenue environment, but also to trust. international prices for some of delivering and accelerating our group support in times of hardship and distress’. and we are appreciative of the support contributed to the operational resilience Namibia’s export commodities. Covid-19 strategy and our key focal areas remain Thank you and please stay safe. and guidance provided by Bank of despite Covid-19 induced disruptions. arrived at a time when the Namibian We implemented a three-phase approach Namibia during the year which enabled client centricity, digitisation and integration. in response to managing the impact of government had precious little fiscal Total loans and advances to customers the banking sector to extend relief to Allow me to at this juncture thank the pandemic. space with which to mitigate the impact decreased by 3.2% given reduced client clients during this difficult time. Vetumbuavi Mungunda, our outgoing of external shocks, with the severity of demand for loans as well as the Chief Executive, for his commitment, Our first approach was to respond to the Next came phase 2, which encompassed the pandemic placing significant pressure imperative to preserve capital and passion and leadership over the last immediate threat and implement the facilitation of the return to growth on the government’s ability to adhere to liquidity during these uncertain times. response strategies that would protect which requires continued support to the its fiscal consolidation strategy and 6.5 years and his continued valuable input the health, safety and livelihoods of our real economy through our clients and provide tangible relief to businesses and Our balance sheet remains robust with to a smooth leadership transition. He has people and our clients and promote communities while managing and individuals impacted by the pandemic. a capital adequacy ratio of 14.7%. The been an outstanding resource, and while it positive societal impact. We provided mitigating against a potential devastating liquidity position has remained strong is sad to see him go, true to his nature, his The impact of the pandemic on the social support to more than 500 000 economic fallout. This is a delicate and within approved risk appetite and succession plan has and will come to bear. economy is evident with real gross people through the distribution of balancing act we are pursuing, providing tolerance limits. Allow me therefore to also take this domestic product (GDP) estimated to sanitisers, food hampers and access to support to clients to revive their opportunity and welcome Mercia Geises as have contracted by 7.3% during 2020. water. We built 20 houses for the businesses and lives while ensuring that our next Chief Executive and wish her the Economic performance is expected to Twaloloka community, where a this does not result in heightened credit best in her new role. recover slightly during 2021 with an devastating fire gutted houses in this risk into the future. informal settlement in Walvis Bay at the expected growth of 2.6% and better peak of the pandemic’s first wave. growth of around 3.0% for 2022. That said, given the news about the new Coronavirus strain and continued restrictions, this recovery may probably come in at less than what most predictions suggest. SBN HOLDINGS LIMITED OUR PERFORMANCE 16 Annual report 2020 17

Credit management Outlook for 2021 The difficult macroeconomic conditions The Covid-19 pandemic is ever evolving worsened by the Covid-19 pandemic have which requires ongoing review of the had a profound impact on the credit impact on our operations, clients and environment, particularly on clients in the business plans. Risks to domestic growth tourism, accommodation, commercial are dominated by expected travel Chief executive’s review real estate and SME sectors. Despite this restrictions and lockdowns in many very difficult environment, non- countries that are restricting business performing loans (NPLs) as a percentage activities and causing supply disruptions, “2020, a year like no other and undoubtedly of total loans increased at a manageable as well as the risk of second and third one of the toughest years in our lifetime.” rate during the last 12 months, to 7.82%, waves of infections, both globally and only 5.30% when excluding one large and domestically. client exposure. We have continued We will continuously assess the impact to follow a cautious approach to risk of Covid-19 on product and sector risk appetite. appetites, particularly home loans and Impairments increased by 6.2% from commercial real estates, and implement N$239 million in 2019 to N$254 million measures to minimise credit losses. in 2020, resulting mainly from providing Despite the above challenges and the for forward-looking credit losses in terms impact on the group’s performance in of IFRS 9. 2020, the pandemic has presented a Profit Buy-a-Brick Credit Given the impact of Covid-19, it was silver lining in the form of accelerating after tax built loss ratio imperative that the group did everything technology-enabled, digitalised flexi-work possible to keep the lives and businesses arrangements and process flows with N$421m 362 1.01% of clients going by providing support and opportunities for more operational relief to clients impacted by Covid-19. The efficiencies which will be explored and 2019: N$613m 2019: 200 houses 2019: 0.91% VETUMBUAVI MUNGUNDA – principles of the relief measures provided scaled in 2021. CHIEF EXECUTIVE DIRECTOR were co-ordinated in conjunction with To ensure the delivery of a client centric Bank of Namibia and the Bankers experience our strategic partnerships Association of Namibia. will be embedded and adopted across the organisation. There will also be an The year started with so much optimism Overview The focus to revamp and scale our digital Digital transformation SEE impact enhanced focus on ecosystem for us at Standard Bank, a few months platforms, specifically PayPulse and The group has reported solid results in We accelerated the implementation of Our signature project, the Buy-A-Brick penetration and the commercialisation of after welcoming Namibians, including a BlueFuel, was rewarded with a healthy the face of the challenges arising from the digital transformation strategy across Initiative, continued to make a real digital platforms in chosen target sectors. number of our own employees, as uptake of these products in the market in the Covid-19 pandemic, delivering profit the group during the year, harnessing our difference in the lives of Namibians, with shareholders after listing SBN Holdings 2020. PayPulse’s transactional volumes As we continue to invest in our digital after tax of N$421 million for the year refocused alignment with respect to the over 362 houses built in 2020, including Limited on the Namibian Stock Exchange increased by 157% year-on-year while platforms and service channels to deliver under review, a decline of 31.3% from the approach, methodology and techniques 20 houses in Twaloloka, Walvis Bay, that in November 2019, a mere month after transactional values increased by 222% an exceptional, safe and secure client N$613 million at the end of 2019. A 11.9% deployed during the group’s digital provided emergency shelter to families we moved to our beautiful new head year-on-year during 2020. BlueFuel, a experience across our client segments, decline in net interest income (NII), on transformation journey. We are focused whose houses were destroyed in a fire office in October 2019, a modern technology-based fleet management we are also hard at work reorganising our account of the reduction in prime on growing our business to provide during the year. state-of-the-art public space designed to system for corporate and retail clients, operating model for better integration interest rate by 275 basis points was the further services and leveraging facilitate enhanced interactions amongst showed strong growth during the year, The group supports efforts in the country across our functions and improved client biggest contributing factor to the ecosystems that connects clients to ourselves and with our clients. No one with a number of clients on-boarded and aimed at exploring new innovative alignment. This includes a re-organisation reduction in profits for the year. Despite suppliers and customers, augmenting it would have predicted the scale and the value of transactions increasing building methods and alternative building of our business into clients’ segments as the hard lockdown enforced across the with value adding tools and services to materials that have the potential of impact of the Covid-19 pandemic on our significantly through the Covid-19 opposed to traditional business units as country during April – May 2020 and connect their daily lives and value chains creating new ecosystems and new lives, livelihoods and businesses resulting pandemic. from 1 April 2021. The client segments other restrictions during the year, using a virtual solution that leverages product innovations while contributing to from the lockdown and travel restrictions include Consumer & High Net Worth non-interest revenue (NIR) reduced by PayPulse. solving the housing crisis in the country. imposed to stem the spread of Covid-19. clients, Business & Commercial clients only 5.6%. The pilot “BioHab” project in Brakwater is Our people and Wholesale clients. New products were developed and are proceeding well and is expected to The impact of the restrictions on The health and safety of our employees We are pleased that total operating now ready to be launched. These are commence with the fabrication of the economic activities is reflected in GDP and clients remained our foremost expenses have increased by only 1.0% expected to drive new revenue streams. first structure made from this alternative Acknowledgements now estimated to have contracted by priority, especially as the number of year on year, while staff costs decreased We have established a full-time dedicated building material during March 2021. I am so immensely proud of each of our 7.3% in 2020 before returning to a Covid-19 cases grew exponentially in by 7.3% on account of good resource team tasked with continuously enabling employees for their understanding, and forecast growth of 2.6% in 2021. Interest Namibia during August 2020 and then planning and natural attrition. There was the work environment for developing new Read more on page 26. support of each other as we turned rates, private sector credit extension again in November/December 2020. We an above-inflation increase in IT costs ideas and challenging the status quo of adversities into opportunities and for growth and inflation are at their lowest continued to maintain maximum “remote during the year due to the need for our processes, products and structures. giving their best, every day. I would like levels in 20 years with the prime interest work” arrangements throughout the year, continued investment in technological They are tasked with investigating, Leadership transition to thank them for their resilience and rate at 7.5% and inflation at 2.2% which saw over 70% of our people capabilities. designing and commercialising new This year also saw the announcement of commitment to continue to provide an year-on-year as of December 2020. continuing to provide uninterrupted products and business models my departure from the group, effective excellent service to our clients while Growth in private sector credit extension services to clients from the safety of their for tomorrow. April 2021, and the appointment by the putting their health and safety at risk. was only 1.4% for 2020, while growth in Covid-19 pandemic homes. We provided health and wellbeing With the massive move toward digital board of Mercia Geises as my successor. our loans and advances to customers The group's response to the pandemic support ranging from psychological, We would also like to thank our clients for products, automated processes and Although it is sad for me to leave an was a negative 2.3% year-on-year, was swift, efficient and effective – we emotional, medical and other material their loyalty and support during these remote work experienced in 2020, we organisation that I have worked very hard reflective of the lack of new investments provided support and assistance to items to employees who have been difficult times and assure them of our increased our focus on the maintenance, to grow, I am convinced that Mercia will by individuals and business during 2020. clients, fellow colleagues and exposed to Covid-19, and have continued commitment to continue to provide them review and monitoring of key strategic work even harder to grow this great communities and continued to provide to evaluate their needs to help them best with the support and assistance they and emerging risks to enhance group and brand. I look forward to services to clients without interruption. deal with the impact of the pandemic. need to keep their lives and businesses capabilities aimed at preventing and working with Mercia over the next few Our investments in technology over the going and thriving beyond the pandemic. monitoring cyber risks across the group. months to ensure a smooth transition last few years have proved their worth – of leadership. our digital products allowed our clients to transact safely and conveniently from their place of safety. SBN HOLDINGS LIMITED OUR PERFORMANCE 18 Annual report 2020 19

Financial review

Covid-19 brought a lot of disruption and Credit impairment charges increased CREDIT IMPAIRMENT CHARGES by 6.2% from N$239 million to N$254 million. Credit loss ratio (CLR) N$’m % impacted each person and business in a unique 300 1.20 increased from 0.9% to 1.0%. Prior way. The heading of one of the Financial Times 250 1.00 year included a large impairment 200 0.80 charge raised in one economic sector articles was “Covid: we’re in the same storm 150 0.60 that did not repeat in 2020. Adjusting 100 0.40 but not in the same boat”. As a group we have for this provision raised in 2019, the 50 0.20 NET INTEREST INCOME current year’s provision would have 0 0.00 been fortunate to weather the storm, not increased by 48.9%. This increase has 2015 2016 2017 2018 2019 2020 N$’m been necessary considering the 85 91 97 96 239 254 1 350 without damage, but we came through it a impact the pandemic had and 0.48 0.47 0.44 0.40 0.91 1.01 1 300 continues to have. stronger and more agile organisation. 1 250 Impairments (N$’m) Credit loss ratio (%) 1 200 1 150 1 100 1 050 NET LOANS AND ADVANCES 2015 2016 2017 2018 2019 2020 1 148 1 205 1 236 1 220 1 333 1 174 Operating expenses increased by only N$’m OPERATING EXPENSES 30 000 1.0%. The group managed to reduce NII reduced by 11.9% from N$1.33 billion to N$’m % 25 000 staff costs by 7.3%. Other operating 1 600 64 N$1.17 billion because of the staggered 20 000 5.2% LETITEA DU PLESSIS – expenses increased by 12.7%, mainly 1 200 62 15 000 reduction in prime interest rate from 10.25% CHIEF FINANCIAL OFFICER driven by continued investment in to 7.50%. Net interest margin decreased from 60 10 000 Average interest our technology, core banking and 800 5 000 4.0% at the end of December 2019 to 3.1% digital platforms to enable the 58 earning assets 400 0 end of December 2020. implementation of key digital 56 2015 2016 2017 2018 2019 2020 transformation measures for a 0 54 17 392 19 399 22 146 23 475 25 635 24 303 future-ready, agile and digital business. 2015 2016 2017 2018 2019 2020 1 170 1 272 1 312 1 452 1 488 1 503 The cost to income ratio increased due 58 60 60 62 57 64 to the 8.8% reduction in income. DEPOSITS FROM CUSTOMERS Operating expenses (N$’m) AND BANKS NON-INTEREST REVENUE Cost to income (%) N$’m N$’m 30 000 1 400 25 000 6.3% 1 200 20 000 1 000 800 15 000 Profit after tax declined 31.3% Average interest- 600 PROFIT AFTER TAX 10 000 400 to N$421 million from N$613 million in bearing liabilities N$’m 5 000 200 2019, largely impacted by reduced NII 700 0 0 and NIR. 600 2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020 500 18 186 21 272 24 567 25 637 27 867 26 120 857 931 957 1 126 1 263 1 193 Profit after tax is 37.6% below our PAT 400 forecast of N$675 million for 2020 as 300 published in the Prospectus issued in 200 NIR declined by 5.6% from N$1.26 billion to October 2019. 100 TRADING AND PLEDGED ASSETS N$1.92 billion in 2020. This is mainly 0 AND FINANCIAL INVESTMENTS attributable to the decline in transactional 2015 2016 2017 2018 2019 2020 volumes and trading activity due to the 525 540 546 552 613 421 N$’m lockdown restrictions and the continued 6 000 muted economic conditions. Other gains and 5 000 0.9% losses reduced by 5.4%, driven by the lower 4 000 interest rate environment that directly 3 000 Net interest 2 000 impacted these revenue lines. margin The reduction in ROE from 17.29% RETURN ON EQUITY 1 000 to 10.16% is driven by reduced PAT 0 for 2020. % 2015 2016 2017 2018 2019 2020 25.00 3 695 3 403 3 826 4 582 4 912 5 204 20.00 15.00 10.00 5.00 0 2015 2016 2017 2018 2019 2020 23.56 18.82 18.56 17.79 17.29 10.16 SBN HOLDINGS LIMITED OUR PERFORMANCE FINANCIAL REVIEW CONTINUED 20 Annual report 2020 21

INCOME STATEMENT for the year ended 31 December 2020

Change 2020 2019 % N$’000 N$’000

PROFIT FOR THE YEAR* Net interest income (11.9) 1 174 462 1 332 543 Non-interest revenue (5.6) 1 192 672 1 262 756 N$’m Net fee and commission revenue (3.7) 849 264 881 640 400 Trading revenue (15.3) 99 561 117 597 Other revenue (10.1) 105 443 117 283 Other gains and losses on financial instruments (5.4) 138 404 146 236

350 PBB Total income (8.8) 2 367 134 2 595 299 NII is the main revenue driver for PBB Credit impairments 6.2 (253 910) (239 165) and, given the significant reduction in Income before operating expenses (10.3) 2 113 224 2 356 134 the prime rate coupled with the Operating expenses 1.0 (1 503 291) (1 488 037) 300 decline of 3.6% in loans and advances, caused PAT to decline by 44.7% Staff costs (7.3) (804 839) (868 400) year-on-year. We have also seen a Other operating expenses 12.7 (698 452) (619 637) reduction in NIR of 5% due to the Net income before equity accounted earnings (29.7) 609 933 868 097 250 decline in transactional volumes (Loss on derecognition)/share of profit from equity accounted investments (140.8) (1 604) 3 929 because of lock down restrictions and reduced spending by customers. Net income before tax (30.2) 608 329 872 026 Taxation (indirect and direct) (27.6) (187 144) (258 528) 200 Profit for the year (31.3) 421 185 613 498

150 STATEMENT OF FINANCIAL POSITION as at 31 December 2020

CIB Change 2020 2019 100 CIB’s PAT declined by 36.8% % N$’000 N$’000 year-on-year, to N$170 million. The main attributable factors were Assets reductions in the prime interest rate Cash and balances with central banks (32.1) 1 035 972 1 526 148 50 as well as the continued difficult and Trading and pledges assets and financial investments 5.9 5 203 869 4 912 067 depressed economic conditions, Loans and advances to banks (21.2) 2 234 596 2 836 210 exacerbated by the Covid-19 Loans and advances to customers (3.2) 22 068 128 22 799 283 pandemic. Despite the tough Other assets (19.1) 2 538 933 3 138 223 0 economic conditions, CIB still 2015 2016 2017 2018 2019 2020 delivered a resilient set of results, by Total assets (6.1) 33 081 498 35 211 931 356 310 321 335 367 203 maintaining and fostering strategic 171 218 217 206 269 170 Liabilities partnerships with existing clients and Deposits from banks (18.0) 1 909 497 2 328 818 PBB providing value adding solutions. CIB Deposits from customers (5.2) 24 210 318 25 538 002 Debt securities 1.9 1 620 305 1 590 750 * Excluding other and enablers Other liabilities (34.1) 1 160 835 1 762 350

Total liabilities (7.4) 28 900 955 31 219 920

Equity 4.7 4 180 543 3 992 011 Total equity and liabilities (6.1) 33 081 498 35 211 931 SBN HOLDINGS LIMITED OUR PERFORMANCE FINANCIAL REVIEW CONTINUED 22 Annual report 2020 23

LOANS AND ADVANCES FUNDING AND LIQUIDITY

Change 2020 2019 Change 2020 2019 % N$’000 N$’000 % N$’000 N$’000

Loans and advances Deposits from banks (18.0) 1 909 497 2 328 818 PBB (3.6) 18 505 077 19 196 457 Deposits from customers (5.2) 24 210 318 25 538 002 Mortgage loans 3.2 12 733 701 12 339 977 Current accounts (12.1) 6 581 100 7 488 563 Vehicle and asset finance (3.6) 2 800 832 2 904 936 Cash management deposits 123.2 1 844 435 826 505 Card debtors (9.6) 158 960 175 900 Card creditors (8.4) 26 746 29 205 Other loans and advances (25.5) 2 811 584 3 775 644 Call deposits 4.7 9 026 868 8 620 081 Savings deposits 11.6 674 335 603 995 CIB 3.8 4 360 510 4 201 232 Term deposits (11.3) 2 051 344 2 312 001 Corporate 43.7 3 555 265 2 474 949 Negotiable certificates of deposit (29.2) 4 005 490 5 657 652 Sovereign (53.4) 805 245 1 726 283 Deposits by customers and banks (6.3) 26 119 815 27 866 820 Gross loans and advances to customers (2.3) 22 865 587 23 397 689 Debt securities 1.9 1 620 305 1 590 750 Banks (21.1) 2 238 427 2 836 906 Total funding (5.8) 27 740 120 29 457 570 Gross loans and advances (4.3) 25 104 014 26 234 595 Credit impairments on loans and advances 33.7 (801 290) (599 102) Net loans and advances (5.2) 24 302 724 25 635 493 COMPOSITION OF DEPOSITS DEPOSITS FROM CUSTOMERS AND BANKS FROM CUSTOMERS AND BANKS (%)

COMPOSITION OF LOANS AND 2020 N$’m GROSS LOANS AND ADVANCES TO CUSTOMERS ADVANCES TO CUSTOMERS (%) 30 000

N$’m 2020 25 000 30 000 2019 20 000 25 000 15 000 2019 20 000 1 0 000 2020 2019 15 000 5 000 Deposits from banks 7 9 Current accounts 25 27 10 000 2020 2019 0 Cash management deposits 7 3 Mortgage loans 56 53 2015 2016 2017 2018 2019 2020 5 000 Call deposits 35 31 Vehicle and asset finance 12 12 18 186 21 272 24 567 25 637 27 867 26 120 0 Savings deposits 3 2 Card debtors 1 1 2015 2016 2017 2018 2019 2020 Term deposits 8 8 Other loans and advances 12 16 17 217 19 021 20 211 22 309 26 235 25 104 Negotiable certificates of deposit 15 20 Corporate 16 11 Sovereign 3 7

Deposits by customers declined by 5.2% from N$25.5 billion to N$24.2 billion in 2020. Nonetheless, strong growth was seen in cash management deposits which grew by 123%, call deposits by 4.7% and savings deposits by 11.6%. Looking at the composition of the total Gross loans and advances to customers declined 2.3% year-on-year mainly due to the already muted economy and the severe impact deposits, the reliance on negotiable certificates of deposit (NCDs) reduced significantly from a concentration level of 20% in 2019 to of the pandemic. However, good growth of 43.7% was recorded for corporate loans, mainly in the mining, consumer, oil and gas 15% in 2020. The reduced reliance on NCDs helped to reduce the negative impact of the significant reduction in interest rates industries. Mortgages showed the second highest growth at 3.2%. considering that NCDs are the most expensive source of funding that do not reprice as quickly as demand deposits.

CREDIT QUALITY OF COVID-19 LOAN BREAKDOWN OF COVID-19 The group’s liquidity position remained strong and within approved risk appetite and tolerance limits. CREDIT RELIEF CREDIT RELIEF

Capital management CAPITAL ADEQUACY RATIOS The group maintained strong capital adequacy ratios % with total regulatory capital at 14.7% (2019: 16.0%) and 2020 2020 17.0 total tier 1 capital at 13.3% (2019: 14.6%). The group manages its capital levels to support business growth, 16.0 maintain deposits and creditor confidence and create 15.0 N$’000 % N$’000 % value for shareholders while ensuring regulatory 14.0 Stage 1 and 2 1 646 648 98 Business 499 257 30 compliance. Stage 3 40 414 2 SME 51 192 3 13.0 Individuals 1 042 386 62 12.0 Corporate 94 227 5 11.0 10.0 The Bank of Namibia issued guidelines to facilitate the granting of credit relief to clients impacted by Covid-19. In terms of these guidelines, 2015 2016 2017 2018 2019 2020 banking institutions were allowed to give capital payment moratoria for a period ranging from six months up to a period of, but not 15.3 15.4 15.2 14.4 16.0 14.7 exceeding 24 months. In response to this, the group invited its clients in the tourism industry, SMEs with revenue below N$10 million, 13.2 12.7 13.3 12.9 14.6 13.3 students and any other clients impacted by Covid-19 to apply for capital and/or interest payment moratoria. Total regulatory capital More than 97% of all applications received were approved, amounting to outstanding capital relief of N$1.7 billion to more than Tier I adequacy ratio 2 000 clients. SBN HOLDINGS LIMITED OUR PERFORMANCE OUR SEE IMPACT 24 Annual report 2020 25

Our SEE impact SEE reflections achieved in 2020 Total SEE spend for 2020 The four Pillars SBN Holdings focus on for SEE are: N$8m

The following projects have been ENTREPRENEURSHIP COMMUNITY EDUCATION HEALTH DEVELOPMENT UPLIFTMENT undertaken and supported in 2020:

Buy-a-Brick Initiative The Buy-a-Brick Initiative runs an annual campaign to raise funds among its own employees, other corporates and individuals. At the end of

2020, close to 362 Buy-a-Brick houses were completed and handed over to their owners in 13 towns across the country. Education Health, wellness and Entrepreneurship Of special significance this year, the Buy-a-Brick Initiative raised funds to build In view of the fundamental poverty alleviation development 20 houses for the victims of a fire that destroyed homes in an informal changes in the country’s Standard Bank believes in the With over 86% of SMEs in community at Walvis Bay. education, particularly the mantra that a healthy nation is a Namibia failing, it is evident school curriculum, Standard productive nation. To that end, that non-financial business Bank remains committed to In 2020, the Initiative launched In addition to the Footprint Socks, health, wellness and poverty development support is needed support the Namibian a flagship project, Buy-a-Brick the Buy-a-Brick fundraising alleviation SBN Holdings efforts to assist these businesses Government's goal to improve Footprint Socks campaign, to campaign also sold specially are aimed at creating meaningful manage the many challenges the quality of education and mobilise schools in a nationwide designed clothing and shopping bags enable young Namibians to and lasting benefits for they face. SBN Holdings effort to raise funds for the produced by local young business reach their highest potential. communities. We undertake partners with organisations and construction of low-cost houses. people, thus enabling Standard Bank initiatives that break barriers, vocational training institutions to help grow the entrepreneurship The Initiative entered into a local creating access to opportunities that provide non-financial culture in the country. for better healthcare, housing business development support partnership with Gweri Vintage and poverty alleviation. through financial literacy Collection to produce specially The Buy-a-Brick Initiative is Community upliftment programmes, business designed socks. managed in conjunction with the In partnership with private Standard Bank places a huge knowledge toolkits and trade Shack Dwellers Federation of sector and NGOs, we provide The socks feature several attractive emphasis on providing support toolkits. Namibia, the lead welfare access to healthcare and designs with the Buy-a-Brick logo on to vulnerable communities, organisation focusing on facilities in under-served or them. The name “footprint socks” particularly orphans, girls and constructing affordable houses marginalised communities was chosen to encourage and other young Namibians in need, for its members. through mobile medical clinics. motivate learners and the general enabling access to education Namibian society to leave a footprint The Initiative is exploring ways to opportunities that will help them in the lives of families living in shacks build houses with affordable to excel in life. by helping them to acquire materials and will soon launch the affordable houses. BioHab project at Brakwater to test using indigenous “encroacher bush” Owner of Gweri Vintage Collection, that is choking essential natural Pinehas Shikulo, had this to say water aquifers, wildlife and cattle about the partnership with Standard grazing lands in the project. Bank: “The partnership helped us Our approach to SEE settle all our manufacturing debt The bush will be used to create with our partners and has helped our substrate (food) for mushroom We pledge 1% of our net business grow to the point where we farming. Nutritious mushrooms can now provide consignment stock will be grown and harvested, and

PAT to SEE initiatives, to our retailers around Namibia. The the resulting material remaining four times the Namibian Financial Sector partnership has also helped us add will be compacted into sustainable, Charter requirement. more products to the brand.” ecologically-friendly building Our SEE investments in initiatives are materials. If successful, the material Despite the prevalence of Covid-19, approved by the board corporate social will be used to construct houses for Standard Bank used the campaign investment subcommittee. the Buy-a-Brick Initiative. to shine light on the plight of the shack dwellers and homeless community by raising funds through the selling of the Footprint Socks. SBN HOLDINGS LIMITED OUR PERFORMANCE OUR SEE IMPACT CONTINUED 26 Annual report 2020 27

FAWENA Standard Bank has donated N$600 000 in 2020 to the Forum for African Women Educationalists in Namibia (FAWENA), as part of total committed amount of N$5 798 000 for the period 2014 to 2022, to support girls from disadvantaged backgrounds. Financial literacy initiative Standard Bank believes that low literacy levels could To date, Standard Bank’s funding has benefited lead to unsustainable debt burdens, poor credit, money 480 secondary school loss and higher risks of being a victim of fraud. girls in all the 14 regions, In that regard, Standard Bank has been supporting the work granting each of them at least N$1 200 for school of the Financial Literacy Initiative, as a platform partner, to uniforms, hostel fees, stationery, cosmetics and transport. create awareness on how Namibians should manage their FAWENA is an organisation that facilitates the education of finances, especially how it can be used in ways that would the girl-child in Namibia. In conjunction with the Ministry of make a person more financially secure in the future. Education, focusing on supporting on secondary school In 2020, we contributed girls from disadvantaged communities who would not be able to excel academically or professionally because of Hope Village constrained circumstances. N250 000 to the FLI to strengthen its work in the area of financial literacy training, Hope Village is an orphanage that provides Remarkably, one of the past beneficiaries of the project, financial literacy research as well as monitoring and evaluating loving and caring homes for children with HIV/AIDS or who Belinda !Gaes now works as a finance officer at the the efficiency of its projects. are abandoned. Located in Greenwell Matongo residential FAWENA head office after she graduated with a Bachelor area, in the south western part of Katutura, it is run by of Accounting degree from the Namibia University of 14 hardworking moms who look after 83 children. Science and Technology (NUST). The children at the Village are provided with food, protection and accommodation as well as love, affection, and security. Wildlife protection Each child at the Village is given the opportunity to reach his or After consultation with the her full potential educationally, psychologically, emotionally and Ministry of Environment physically. and Tourism, Standard Bank All children at the Village go to school, they do sports and are decided to assist with helping supported to excel, like any other child in Namibia, and to in the fight against wildlife become productive members of society. Donation of water tanks and crime. The Village has four houses, a clinic, four vegetable gardens sanitisers to fight Covid-19 Standard Bank donated and a library. Each of the four houses is occupied by 24 Potable water was identified as a key weapon to contain a purpose-fitted and children. One of the four houses on the premises is exclusively the spread of Covid-19 among Namibian communities. Investing in technologically-advanced for girls and is supported by Standard Bank, and is known as Communities without access to water were at great risk academic excellence Toyota Land the Standard Bank House. of contracting and spreading the virus. Education plays a very important role in national development Standard Bank’s investment of To help with measures to prevent community transmissions, and economic growth. That is why Standard Bank has Cruiser Standard Bank donated partnered with the Ministry of Education since 2011 to valued at around encourage academic excellence at secondary school level. N$50 000 in 2020 N$850 000 was used for the maintenance of the Standard Bank House nine 2500 litre Every year, Standard Bank rewards the best Taimi Asino, who completed her Grade 12 at to support the Ministry’s efforts while an additional N$20 000 per month was allocated to the performing learners in Grades 10 and 12. St. Theresa in Tses lost her parents and to protect Namibia’s wildlife operations manager who was hired to support the Hope water tanks These rewards, given to the top three Grade subsequently her aunt, who had taken over population across the length and Village with daily operations, administration and financial with a combined value of N$500 000 for use in the informal 10 and 12 learners, encourages them to parental responsibilities, relying on a breadth of the country. management. settlements of Gobabis, Tsumeb and Grootfontein. In addition continue to do better at school and at network of friends and Good Samaritans to the water tanks, the Bank also distributed sanitizers for use tertiary institutions while also motivating to support her. Despite the odds, she in the informal settlements across the country. others to excel in their studies. persevered and excelled in the 2019 final-year examinations, ranking first overall Due to the changes in the education system, in the Karas Region and sixth nationally. the 2020 awards were restricted to the best performing Grade 12 learners. The top Executive Director of Basic Education, performing Grade 12 learner in each region Sanet Steenkamp, congratulated Taimi received N$5 000, while the second best Asino and encouraged her to never look learner received N$3 000 and the third best back. She also encouraged learners to SME revival support learner N$2 000, totalling N$140 000 for emulate Taimi’s commitment towards The Covid-19 pandemic struck Namibia in March 2020 and has had individual awards. her studies and her future. devastating effect on all sectors of society but most noticeably the business sector. In addition to the individual Grade 12 Micro, small and medium enterprises are mainly owner managed and employ a large awards, Standard Bank also provided number of people were among the most impacted sectors. the best performing learner in the To help mitigate the effects of Covid-19 and revive these businesses, Standard Bank Karas region with “Being a recipient at this award ceremony introduced a series of online business talks. These monthly talks are meant to inspire SME N$50 000 towards owners and prospective entrepreneurs, providing them with guidance, mentoring and her university demonstrates that all of you have the potential management training. to be great achievers beyond formal schooling. The #SME Grow Your Business Talks have a practical focus and cover topics like how studies. Just adopt the culture of a ‘beyonder’. to register a business, conduct effective marketing, hire for success and much more. SBN HOLDINGS LIMITED OUR ACCOUNTABILITY 28 Annual report 2020 29

Independent non-executive directors Strategy Corporate governance report The board annually reviews and confirms the classification of The board is responsible for determining the group’s strategic non-executive directors as independent. Six non-executive direction. Management presents the group’s strategy annually directors are independent. and discusses and agrees it with the board. The board ensures the strategy is aligned with the group’s values, performance and The board operates on the understanding that sound governance practices are Succession planning sustainability objectives, and addresses the associated risks. Succession planning is a key focus and the board considers the Financial performance is monitored through quarterly fundamental to earning the trust of stakeholders, which is critical to sustaining composition of the board and its committees on an ongoing management reports. In line with banking regulations, the board basis. lt aims to retain retention of board members with performance and preserving shareholder value. agrees the group’s corporate governance and risk management considerable experience to ensure that appropriate levels of objectives for the year ahead. The board and the relevant risk management oversight are maintained. The board is satisfied committees monitor performance against governance and risk that the current talent pool available within the group and the objectives respectively. work being done to strengthen it provides adequate succession The group’s governance framework enables the board to balance The board’s approach to governance is to embrace relevant local depth over the short and long term. its role of providing risk oversight and strategic counsel and and international best practice. The principles of the Namcode Board responsibilities ensuring adherence to regulatory requirements and risk inform the governance framework and practices of the group and The board is also satisfied that there is a clearly articulated talent The general powers of the directors are set out in the group’s tolerance. The board is committed to upholding the fundamental its subsidiaries. strategy which focuses on creating a strong talent pool for key articles of association. They have further unspecified powers and tenets of governance, which include discipline, independence, roles, and that the group is building capability on core areas to authority, in respect of matters, which may be exercised and responsibility, fairness, social responsibility, transparency and enable business strategy and ensure regulatory compliance. The dealt with by the group, which are not expressly reserved for the accountability of directors to all stakeholders. board is further pleased to note that the employee value members of the group in general meeting. The main proposition (EVP) has now been implemented. responsibilities of the board as set out in the board mandate are as follows: SBN Holdings board Skills, knowledge, experience and • approval of the strategic plan and the annual business plan, attributes of directors the setting of objectives and the review of key risks and The board ensures that directors possess the skills, knowledge performance areas Board committees and experience to fulfil their duties. The directors bring a • monitoring the implementation of board plans and strategies balanced mix of attributes to the board, including: against a background of economic, environmental and social Board • domestic and international experience issues relevant to the group and international political and Board corporate Board human economic conditions, as well as the mitigation of risks by Board audit Board credit information Board risk • operational experience social investment capital management committee committee technology committee • understanding of macroeconomic and microeconomic factors committee committee • appointment of the chief executive and maintenance of a committee affecting the group succession plan • financial, legal, entrepreneurial and banking skills • appointment of directors, subject to election by the members Management committees • expertise in risk management and internal financial control. in general meeting • determination of overall policies and processes to ensure the The board regularly considers board members individually and integrity of the group’s management of risk and internal collectively to ensure the board remains strategically, control. demographically and operationally appropriate. PROJECT EXCO ALCO HRC CRMC RMC IFC NPC TBC TBC EXCO Access to information and resources Delegation of authority The board retains effective control through a well-developed Executive management and the board interact regularly. This is governance structure that provides a framework for delegation. encouraged and the executive committee attends all board Board committees facilitate the discharge of board EXCO: Executive committee CRMC: Credit risk management committee IFC:  Internal financial control committee meetings. Directors have unrestricted access to management responsibilities and provide in-depth focus on specific areas. The ALCO: Asset and liquidity management committee RMC:  Risk manag ement committee NPC:  New product approval committee and company information, as well as the resources to carry out HRC: High risk committee CC:  Credit committee TBC: Tender board committee board reviews the mandate of each committee at least annually. their roles and responsibilities. This includes external legal advice at the group’s expense. The board delegates authority to the chief executive and executive directors to manage the business and affairs of the group. The executive committee assists the chief executive when the board is not in session, subject to statutory parameters and the board’s limits on the delegation of authority to the chief Governance framework Board and directors executive. The company secretary monitors board-delegated Codes, regulations and compliance The board of directors is the group’s highest decision-making authorities. body and is ultimately responsible for governance. The group has Complying with all applicable legislation, regulations, standards a unitary board structure and the roles of chairman and chief and codes is integral to the group’s culture. The board delegates Board meetings executive are separate. The chairman is an independent responsibility for compliance to management and monitors this The board meets once per quarter. Ad hoc meetings are held when necessary. non-executive director, as are the majority of directors on the through the compliance function. Oversight of compliance risk board. The split of executive, non-executive and independent management is delegated to the audit committee, which reviews BOARD ATTENDANCE 2020 directors ensures a balance of power on the board, so that no and approves the compliance mandate submitted by the head of individual or group can dominate board processes or decision- compliance, who reports on a quarterly basis on, among others, 26 Feb 8 May 24 April 30 June 12 Aug 21 Aug 25 Sept 26 Nov making and ensures the appropriate level of challenge. the status of compliance risk management in the group, 2020 2020 2020 2020 2020 2020 2020 2020 significant areas of non-compliance, as well as feedback on Board interactions with regulators. The compliance function, as well as Covid 19 Special Board the compliance policy and governance standards are subject to DIRECTOR COMPOSITION (%) Q1 Board Q2 Board Update AGM Board Q3 Board Strategy Q4 Board review and audit by the internal audit function. Material 2020 regulatory issues are escalated to the board risk committee. H Maier (chairperson) N Bassingthwaighte M Dax 2019 L Du Plessis A Mangale* N/A N/A N/A N/A N/A N/A N/A A J Muadinohamba 2020 2019 V Mungunda Independent non-executives 55 67 P Nyandoro Non-executives 27 22 B Rossouw Executive 18 11 P Schlebusch I Tjombonde

* – Appointed 9 November 2020 – Attended A – Apologies SBN HOLDINGS LIMITED OUR ACCOUNTABILITY CORPORATE GOVERNANCE CONTINUED 30 Annual report 2020 31

Board effectiveness and evaluation and any of its subsidiary companies. The BAC reviews and Board risk committee An annual evaluation of board performance is conducted, to assesses the integrity and effectiveness of the accounting, The board risk committee has the responsibility of reviewing and recommending the risk philosophy, strategy and policies for approval assess the achievement of goals set against its objectives. The financial, compliance and other control systems. Some of the and adoption by the board of directors. The committee assists the board in the discharge of its duties relating to the corporate aim of the evaluation is to assist the board in improving its duties and responsibilities assigned to the audit committee are accountability and associated risks in terms of management, assurance and reporting. effectiveness. The outcome of the evaluation is discussed at a as follows: board meeting and any areas of concern are addressed. Relevant • to review the audit plan with the external auditor, with specific BOARD RISK COMMITTEE 2020 action points are also noted for implementation. Executive reference to the proposed audit scope and approach to the directors do not participate in discussions regarding group’s activities falling within the high risk areas, the 12 Feb 21 April 22 July 17 Nov management performance or remuneration. effectiveness of the audit and audit fee 2020 2020 2020 2020 Q1 Q2 Q3 Q4 Education and induction • to review the accounting policies adopted by the group and all proposed changes in accounting policies and practices, and The company secretary arranges an appropriate induction recommend such changes where these are considered I Tjombonde (chairperson) programme for new directors. This includes an explanation of appropriate in terms of International Financial Reporting B Rossouw their fiduciary duties, responsibilities and arranging visits to Standards (IFRS) N Bassingthwaighte* N/A N/A operations, where discussions with management facilitate an P Schlebusch A • to review the group’s interim and audited annual financial understanding of the company’s affairs and operations. Directors statements and all financial information intended for are regularly appraised, wherever relevant, of any new legislation * – Appointed July 2020 – Attended A – Apologies distribution to the shareholders and the general public, prior to and changing commercial risks that may affect the affairs of the submission to the full board and to consider the adequacy of group. In terms of the mandate of the board, directors can obtain disclosures Board IT committee independent professional advice in order to act in the best The board IT subcommittee has the authority to review, monitor and provide guidance on matters related to SBN Holdings’ IT strategy, interests of the group, at the cost of the group. Such a director • to assess the performance of financial management and operations, policies and controls. also has unrestricted access to the chairman, executive directors review the quality of internal accounting control systems and reports produced by financial management and the group company secretary. BOARD IT COMMITTEE 2020 • to review the basis on which the company has been determined a going concern and make a recommendation to 20 Feb 23 April 24 July 20 Nov Board committees the board Each board committee’s mandate sets out the role, 2020 2020 2020 2020 • to review the group’s compliance plan, and to consider reports responsibilities, scope of authority, composition and procedures Q1 Q2 Q3 Q4 and letters received from banking supervisory authorities and to be followed. All board committee mandates were reviewed in other regulatory bodies, and management’s responses thereto 2020 to take into account amendments to relevant legislation I Tjombonde (chairperson) where they concern matters of compliance and the duties and and the requirements of the Namcode. B Rossouw* N/A N/A N/A responsibilities of the board of directors of the group H Maier Board audit committee • to monitor ethical conduct of the group and executives and P Schlebusch other senior officials and to review reports from management The board audit committee (BAC) assists the board in on violations of the code of ethics. * – Appointed November 2020 – Attended A – Apologies discharging its duties relating to the safeguarding of assets and evaluation of internal control frameworks within SBN Holdings Board HC committee Board corporate social investment (CSI) The role of the board HC subcommittee is to: committee BOARD AUDIT COMMITTEE 2020 • provide oversight on the compensation of senior management The role of the board CSI committee is to: 12 Aug and other key personnel and ensure that compensation is • ratify the group CSI strategy, policy and guidelines 19 Feb 28 April 23 July 2020 18 Nov consistent with the group’s culture, objectives, strategy and • ratify alignment of the CSI strategy to the business strategy 2020 2020 2020 (Special 2020 control environment • ratify proposed amendments to the focus area of CSI policy Q1 Q2 Q3 BAC) Q4 • perform other duties related to the bank’s compensation from time-to-time structure in accordance with applicable laws, rules, policies B Rossouw (chairperson) and regulations. The term ‘compensation’ includes salary, • note the CSI decisions made by the relevant social investment N Bassingthwaighte allowances, long-term incentives, bonuses, severance committees of SBN P Nyandoro A arrangements and other benefits, rights or remuneration • take overall accountability for the reputation management of received under the group’s policies. all CSI initiatives that impact the Standard Bank brand. – Attended A – Apologies The goal of the subcommittee is to maintain compensation policies, which will attract and retain the highest quality senior BOARD CSI COMMITTEE 2020 Board credit committee The board assigned the following duties and responsibilities to managers, which will reward the senior managers for the group’s The purpose of the board credit committee (BCC) is to ensure the committee: progress and enhancement of shareholder value. Another 10 Feb 16 Nov 2020 2020 that effective credit governance is in place in order to provide for • adoption of the group’s credit standards objective of the subcommittee is to consider and evaluate the adequate management, measurement, monitoring and nominations made for the appointment of independent, • to ensure that all committees within the credit governance J Muadinohamba (chairperson) control of credit risk, including country risk. The BCC has the non-executive and/or executive directors to sit on the board of structure operate within clearly defined mandates and Dr N Hamunime right to recommend to the board the roles and responsibilities for directors and to recommend fees for the directors. delegated authorities, as delegated to them by the board M Dax A the credit risk management committee, with clearly defined • to ensure that an appropriate credit framework and structure mandates and delegated authorities as defined in the bank’s BOARD HUMAN CAPITAL 2020 exists. – Attended A – Apologies credit standards. 19 Feb 18 Nov Community upliftment 2020 2020 BOARD CREDIT COMMITTEE 2020 SBN Holdings pledges 1% of net profit after tax generated by its J Muadinohamba (chairperson) business operations to CSI initiatives. The strategic focus of SBN 18 Feb 22 April 29 July 11 Nov P Nyandoro A Holdings’ CSI programme is on entrepreneurship development, 2020 2020 2020 2020 H Maier education, environmental matters and health and wellness. Q1 Q2 Q3 Q4 M Dax N Bassingthwaighte (chairperson) – Attended A – Apologies H Maier P Schlebusch A

– Attended A – Apologies SBN HOLDINGS LIMITED OUR ACCOUNTABILITY CORPORATE GOVERNANCE CONTINUED 32 Annual report 2020 33

Company secretary Ethics and organisational integrity Board remuneration structure Fees The role of the company secretary is to ensure the board remains The group’s code of ethics is designed to empower employees Non-executive directors The remuneration of board members is reviewed by the board of cognisant of its duties. In addition to guiding the board on and enable effective decision-making at all levels of the business directors and approved and ratified at the AGM. Non-executive Terms of service discharging its responsibilities, she keeps the board abreast of according to defined ethical principles. It also aims to ensure directors receive fixed fees for service on boards and board relevant changes in legislation and governance best practices. that, as a significant organisation in the financial services All non-executive directors are provided with a letter of committees. This includes a retainer that has been calculated in The company secretary also oversees the induction of new industry, the group adheres to the highest standards of appointment setting out the terms of their engagement. line with market practices. There are no contractual arrangements for compensation for loss of office. Non-executive directors, including directors of subsidiary companies, as well as responsible business practice. Directors are appointed by the shareholders at the annual directors do not receive short-term incentives, nor do they the ongoing education of directors. To enable the board to general meeting (AGM) and interim board appointments are The code interprets and defines the group’s values in greater participate in any long-term incentive schemes. The fees for function effectively, all directors have full and timely access to allowed between AGMs. One-third of the longest serving, detail and provides value-based decision-making principles to non-executive directors are reviewed on an annual basis to information that may be relevant to the proper discharge of their non-executive directors are required to retire at each AGM and guide its conduct. It is aligned with other SBN Holdings policies ensure that such fees at all times remain market-related. duties. This includes information such as corporate may offer themselves for re-election. If recommended by the and procedures and supports the relevant industry regulations announcements, investor communications and other directors and supported by the board, the board then proposes and laws. The code specifies acceptable and unacceptable Details of non-executive directors fees can be found in annexure D. developments which may affect the group and its operations. All their re-election to shareholders. practices and assists in making ethical infringements easy to directors have access to the services of the company secretary. identify. It also promotes awareness of, and sensitivity to, ethical Going concern issues. On the recommendation of the BAC, the board considers and The chief executive and ethics officer are the formal custodians Executive directors assesses the going concern basis in the preparation of the annual of the group code of ethics and ultimately responsible for its Executive directors receive a remuneration package and qualify for long-term incentives on the same basis as other employees. financial statements annually at year end. At the interim implementation. Ethics incidents are reported via the ethics and The components of a remuneration package are as follows: reporting period, a similar process is followed to enable the board fraud hotline, human resources department, risk department, to consider whether or not there is sufficient reason for this financial crime control department and the ethics officers. conclusion to be affirmed. Reported incidents include fraud, harassment, ethical dilemmas in procurement and abuse of authority. Quarterly ethics reports Relationship with stakeholders are presented to the board audit committee. share-based pension Regular, pertinent communication with stakeholders is part of the guaranteed annual bonus and incentives – provides a group’s fundamental responsibility to create shareholder value remuneration pension incentive – rewards the executive directors Remuneration competitive and improve stakeholder relationships. In addition to the ongoing – based on market – used to incentivise sustainable creation are not subject to post-retirement engagement facilitated by the company secretary, the chairman Remuneration philosophy value and the role the achievement of of shareholder value retention agreements benefit in line with encourages shareholders to attend the annual general meeting The group’s remuneration philosophy aligns with its core values, they play group objectives and aligns behaviour group employees where interaction is welcomed. The chairman of the board audit including growing our people and delivering value to our to this goal committee and the chairman of the board HC committee are shareholders. The philosophy continues to emphasise the available at the meeting to respond to questions from fundamental value of our people and their role in ensuring shareholders. The group proposes separate resolutions on each sustainable growth. This approach is crucial in an environment issue put forward to shareholders. where skills remain scarce. The group’s board of directors sets Details of director emoluments can be found in annexure D. the principles for the remuneration philosophy in line with Connecting with our stakeholders approved business strategy and objectives. The philosophy aims Transformation SBN Holdings’ relevance to the markets and society in which it to maintain an appropriate balance between employee and The group through the Bankers Association of Namibia is a signatory to the Namibia Financial Services Charter (the Charter). The group operates depends on continued and meaningful engagement shareholder interests. A key success factor for the bank is its is committed to achieving full compliance with the minimum targets set out in the Charter. This is tracked by the board and management with all stakeholders. Stakeholder management involves the ability to attract, retain and motivate the talent it requires to at the highest level. optimal employment of the organisation’s resources to build and achieve its strategic and operational objectives in Namibia. maintain good relationships with stakeholders. This helps the group to manage the expectations of society, minimise Remuneration governance reputational risk and form strong partnerships, which all The following key factors have informed the implementation of underpin business sustainability. reward policies and procedures that support the achievement of business goals: Sustainability • the provision of rewards that enable the attraction, retention The Namcode recommends that a company integrates financial and motivation of employees and the development of a and non-financial reporting. This means that the annual report to high-performance culture stakeholders must reflect how economic, social and • maintaining competitive remuneration in line with our markets, environmental issues impact on the company’s business strategy trends and required statutory obligations and, in turn, how these are considered when making business • rewarding people according to their contribution decisions. This evolution in reporting stems from the growing realisation that environmental and social issues have material • allowing a reasonable degree of flexibility in remuneration costs impacts and could directly impact a company’s long-term processes and choice of benefits by employees viability. Building on the group’s previous non-financial disclosure • educating employees on the full employee value proposition. in its annual reports, this year the group has improved its reporting to include more information on the issues that are material to stakeholders and the group’s long-term sustainability. SBN HOLDINGS LIMITED OUR ACCOUNTABILITY 34 Annual report 2020 35

Board of directors

Non-executive

Herbert Maier Jeremia Adv Natasha COMMITTEE MEMBERSHIPS 1 3 5 Chairman Muadinohamba Bassingthwaighte BCC Board IT BAC Qualifications BCom (UCT), CTA (UCT), Qualifications Master’s Degree in Qualifications BJuris, LLB Board HC BRC CSI CA(SA), CA(Nam), Digital Savvy Board Developmental Finance, Master’s Degree (University of Namibia) Certificate, MIT Sloan School in Administration and Master’s degree in Natasha was admitted as a legal Of Management, Cambridge, Intercultural Management Massachusetts, USA practitioner of the High Court of Namibia Jerry has over 15 years of combined during 2002 and has been practising as During July 2011, Herbert joined experience in development finance and an advocate since 2006. NON-EXECUTIVE IJG Holdings, initially on a consulting public management with the Namibia Appointed 2011 basis, assisting on the corporate advisory Development Trust, African Development and private equity operations. Since Foundation, Social Security Commission Directorships June 2012, in addition to having bought and the Motor Vehicle Accident Fund. • SBN Holdings Ltd into IJG Holdings, Herbert has taken • Standard Bank Namibia Ltd control of the private equity management Appointed 2007 • Standard Insurance Brokers 1 Herbert 2 Isac Hiriua 3 Jeremia business. He was appointed to the Directorships (Namibia) (Pty) Ltd Maier Tjombonde Muadinohamba SBN Holdings board of directors on • SBN Holdings Ltd • PPS Insurance Company 1 October 2010 as an independent • Standard Bank Namibia Ltd (Namibia) Ltd non-executive director and appointed to • Desert SPV One Investments (Pty) Ltd the position of chairman to the board Peter • Old Mutual Black Brokers Trust 4 during 2011. Schlebusch • Rainy Day Investments Eighteen (Pty) Ltd Appointed 2010 Qualifications BCom (Wits), BCom • The Auas View Investment Unit Eight Directorships (Hons), Accounting (Wits), CA(SA), Dip Banking Law (RAU), HDIP Tax Law (Pty) Ltd • SBN Holdings Ltd (RAU), SEP (Stanford University) • Standard Bank Namibia Ltd Birgit 6 • IJG Holdings (Pty) Ltd Peter was appointed to the board of Rossouw • IJG Capital (Pty) Ltd SBN Holdings and Standard Bank Qualifications BPhil (University of • Mobicash Payment Solutions (Pty) Ltd Namibia on 19 January 2019. Peter Stellenbosch), CA(Nam), BCom (UP), • NEC Power & Pumps (Pty) Ltd currently serves as a senior banker for BCom (Hons)(UP) CTA (UP), Digital • Stahl Construction (Pty) Ltd the chief executive of SBG. In the past, he Savvy Board Certificate, MIT Sloan • NEO Paints Holdings (Pty) Ltd also served as chief executive of PBB School Of Management, Cambridge, • Omburu Sun Energy (Pty) Ltd SBG (2008 to 2018). Massachusetts, USA Isac Hiriua Appointed 2019 2 Birgit currently serves as independent 4 Peter 5 Adv Natasha 6 Birgit Directorships Tjombonde non-executive director of Namibia Asset Schlebusch Bassingthwaighte Rossouw Qualifications Master of Science (MSc) • SBN Holdings Ltd Management Limited, an asset manager Information Systems, The American • Standard Bank Namibia Ltd listed on the Namibian Stock Exchange. University, Washington, DC, USA Bachelor • Standard Bank Offshore Group Ltd She currently also serves as independent of Business Administration (B.B.A.) • Standard Bank Jersey Ltd non-executive director on the board of Computer & Information Sciences, • Standard Bank Isle of Man the IJG Frontier Investment Fund. Temple University, Philadelphia, PA, • Standard Bank Insurance Brokers Ltd Appointed 2012 USA Certificate in Corporate Governance, • Melville Douglas Investment Directorships University of Johannesburg, Management Ltd RSA Executive Development Programme, • SBN Holdings Ltd University of Stellenbosch, RSA, Digital • Standard Bank Namibia Ltd Savvy Board Certificate, MIT Sloan • Stanfin (Namibia) (Pty) Ltd School Of Management, Cambridge, • Namibia Asset management Ltd Massachusetts, USA • IJG Frontier Investment Fund • OMDIs Town Transform Agency Head of Information Services at NamPower responsible for information and communication technology. He is a Trustee of NamPower Provident Fund.

Appointed 2015 Directorships • SBN Holdings Ltd • Standard Bank Namibia Ltd • Trustee NamPower Provident Fund SBN HOLDINGS LIMITED OUR ACCOUNTABILITY BOARD OF DIRECTORS CONTINUED 36 Annual report 2020 37

Non-executive

Maria Shivute Letitea COMMITTEE MEMBERSHIPS 7 9 Alpheus 11 Dax Mangale du Plessis BCC Board IT BAC Qualifications Dip Management Studies Qualifications ND: CSc (Eng) (TUT), Chief financial officer Board HC BRC CSI (MANCOSA), MBA (MANCOSA), BA PGMCert (HBS), AMP (Harvard) Qualifications BAcc (University of (Social Science), Accredited Public Alpheus was appointed to the board of Stellenbosch), PDA (University of Relations Practitioner (APR) (PRISA) SBN Holdings and Standard Bank Stellenbosch), ACA (UCT), Namibia on 09 November 2020. Alpheus ACIDealing (Cert), CA(Nam), CA(SA) Maria was appointed to the board of SBN is currently Standard Bank Group Chief Holdings and Standard Bank Namibia on Letitea was appointed to the board of Engineering Officer a position he has NON-EXECUTIVE SBN Holdings and Standard Bank 19 January 2019. She served as acting held since 2020. In the past, he also Namibia on 10 February 2020. Letitea is CEO of the Government Institutions served as Standard Bank Group Chief currently Standard Bank Namibia Chief Pension Fund (GIPF) and prior to that as Information Officer (2017 to 2020). the general manager of Corporate Financial Officer a position she held since July 2019. In the past she also served as Communication and Stakeholder Alpheus is a seasoned senior executive Head: Treasury (2017 to 2019) and Head: Relations for ten years. Maria has also with over 23 years, experience across 7 Maria 8 Pindie 9 Alpheus Investment Banking (2014 to 2017) and served as a trustee on GIPF and Enterprise and Public Sector market in prior Manager: Investment Banking Shivute Dax Nyandoro Mangale TUCSIN’s board of trustees, likewise, she Europe, Middle East and Africa region. He previously was the CEO of MTN (2012 to 2014). Letitea worked as Senior served as the chairperson of PRISA Business base in South Africa for 3 Auditor (2006-2007) and Audit Trainee Namibia and NamibRe. years. He served on various boards in (2003-2005) for Appointed 2019 the past including MTN Foundation, PricewaterhouseCoopers (UK and Namibia) before she joined Standard Directorships MTN Business, Cisco Systems as well as Dimension Data Africa & Middle East. Bank Namibia. • SBN Holdings Ltd • Standard Bank Namibia Ltd Appointed 2020 Appointed 2020 • Government Institutions Pension Fund Directorships Directorships • The University Centre for Studies in • SBN Holdings Ltd • Arleo Investments Sixteen Namibia (Pty) Limited Standard Bank Namibia Ltd • Purros Investments (Pty) Limited • SBN Holdings Ltd Pindie 8 Executive • Standard Bank Namibia Ltd Nyandoro Qualifications BSc (Hons), MBA, LLB 10 Vetumbuavi Pindie was appointed to the board of Mungunda SBN Holdings and Standard Bank Chief executive director 10 Vetumbuavi 11 Letitea Namibia on 24 January 2011. Pindie is Qualifications BCom (UNAM), Mungunda du Plessis currently Standard Bank Group’s HDipAcc (Rhodes), CA(Nam), CA(SA), Regional Chief Executive of Southern and AMP (Harvard) Central Africa which position she has Vetumbuavi was appointed as chief held since 2008. Pindie is also a director executive of Standard Bank Namibia in on the boards of Stanbic Bank Botswana April 2014. He previously worked for Limited, Standard Lesotho Bank Limited, Deloitte for 18 years, where he was EXECUTIVE Standard Bank Eswatini Limited, Stanbic admitted as partner in 2001 and was Bank Zambia and Stanbic Bank appointed as managing partner of Zimbabwe Limited where she was Deloitte Namibia in 2007. He was later managing director from 2002 to 2007. appointed as regional managing partner for Deloitte Southern Corridor (Malawi, Appointed 2011 Botswana, Namibia, Zambia and Directorships Zimbabwe) in 2012, a position held • SBN Holdings Ltd before he joined Standard Bank • Standard Bank Namibia Ltd Namibia. • Stanbic Bank Botswana Ltd Appointed 2014 • Standard Lesotho Bank Ltd Directorships • Stanbic Bank Zambia • Standard Bank Eswatini Ltd • SBN Holdings Ltd • Stanbic Bank Zimbabwe Ltd • Standard Bank Namibia Ltd • Standard Insurance Brokers (Namibia) (Pty) Ltd • Stanfin & United Funerals Insurance (Pty) Ltd

Mr Mungunda has resigned from the group effective April 2021. Ms M Geises has been appointed as CEO designate, effective April 2021. SBN HOLDINGS LIMITED OUR ACCOUNTABILITY 38 Annual report 2020 39

Executive committee

1 Vetumbuavi 2 Mercia 3 Nelson 4 Minullie 9  Nolan 10 Jules 11 Roxzaan 12 Sigrid Mungunda Geises Lucas Daniels Angermund Baruani Witbooi Tjijorokisa

5 Letitea 6 Dirk 7 Samantha 8 Teymour 13 Titus 14 Magreth 15 Jacque 16 Ndina du Plessis Smit Moller-Henckert Kooros Ndove Mengo Marais Modino

1 Vetumbuavi 3 Nelson Lucas 6 Dirk Smit 9 Nolan Angermund 12 Sigrid Tjijorokisa 14 Magreth Mengo Mungunda He ad – Corporate & Investment Head – CIB Credit He ad – Internal Audit He ad – Legal and Governance He ad – Marketing Chief executive Banking Qualifications BCom (USB), Qualifications Certified Internal and Company Secretary Communications and CSI Qualifications BCom (UNAM), Qualifications BCompt (Unisa), MDP (USB), SMP (USB) Auditor (CIA), Master in Internal Audit Qualifications LLB (UWC), MDP Qualifications BCom HDipAcc (Rhodes), CA(Nam), HBCompt (Unisa), CA(Nam), CA(SA), Joined the group 1993 (MPHILL Internal Audit), BCom (Hons) (Damelin College), Advanced Diploma in (International Financial Management, Internal Audit CA(SA), AMP (Harvard) Programme in Advanced VAT (Unisa), Appointed 2013 Banking Law and Practice (UP), Diploma Amsterdam School of Business) Programme in Investment Analysis and in Compliance Risk Management (UP), Joined the group 2014 Joined the group 2015 Joined the group 2015 Portfolio Management (Unisa) IODSA and the Compliance Institute of Appointed 2014 Appointed 2017 Appointed 2019 Joined the group 2019 South Africa Appointed 2020 7 Samantha Joined the group 2012 Appointed 2012 Moller-Henckert Jules Baruani Jacque Marais Mercia Geises Head – Risk Management 10 15 2 He ad – Information Technology He ad – Operations (Acting) He ad – Personal & Business Qualifications BCom (UCT), (Acting) Qualifications MDP(USB), SMDP(USB) Banking 4 Minullie Daniels LLB (UFS), AMBCI (BCI) Qualifications BSc Computer Science Titus Ndove Qualifications BJuris (UNAM), Head – PBB Credit 13 Joined the group 1993 Joined the group 2017 and Mathematics (UNAM), MSc He ad – Public Sector and LLB (UFS), LLM (UFS), MBA (USB) Qualifications Diploma in Human Resource Management, Advanced Appointed 2017 Computer Science (Stellenbosch) Market Intelligence, Joined the group 2016 Diploma in Bank Credit Management; Post-grad diploma in Mathematical Qualifications BEcon (UNAM) Appointed 2016 Sciences (UNAM) MDP (USB) MSc in Financial Economics (University 16 Ndina Modino of London) Macro Economics and Head – Human Capital (Acting) Joined the group 2012 Teymour Kooros Joined the group 2012 Appointed 2012 8 Financial Management Institute of Qualifications Namibia university of Head – Wealth Southern and East Africa’s Graduate science and technology: Masters degree Qualifications BSc (SIS/AU) Roxzaan Witbooi Fellow, specialising in Domestic in leadership and change in progress, International Certificate in Wealth & 11 Debt Markets. He ad – Compliance Polytechnic of Namibia: Bachelor of Investment Management (CISI) technology degree human resources, 5 L etitea du Plessis Qualifications BJuris (UNAM), Joined the group 2018 Polytechnic of Namibia: Management Chief financial officer Joined the group 2010 LLB (UNAM) Appointed 2018 development program, Polytechnic of Qualifications BCom (Stellenbosch), Appointed 2020 Joined the group 2012 CA(Nam), CA(SA) Namibia: Diploma in human resources Appointed 2014 Joined the group 2012 Joined the group 2011 Appointed 2017 SBN HOLDINGS LIMITED 40 Annual report 2020 41

ANNUAL FINANCIAL STATEMENTS

42 43 49 51 52 53 54 57 58 60 66 114 115 116 136 137 Directors’ Independent Directors’ Statements Income Statements Statements Statements Accounting Key Notes to the Annexure A – Annexure B – Annexure C – Annexure D – Annexure E – responsibility auditor’s report of financial statements of other of changes in of cash flows policy management annual Subsidiaries Joint venture Risk and Emoluments Detailed and approval report position comprehensive equity elections and assumptions financial capital of directors accounting income restatements statements management policies

SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS 42 Annual report 2020 43

DIRECTORS’ RESPONSIBILITY AND APPROVAL INDEPENDENT AUDITORS’ REPORT

In accordance with the Companies Act of Namibia (Companies independent auditor to report on the fair presentation of the To the Members of SBN Holdings Limited Our audit approach Act), the directors are responsible for the preparation of the financial statements. group's consolidated and company's separate annual financial Our opinion Overview Based on the information and explanations provided by statements (annual financial statements). In our opinion, the consolidated and separate financial management and the group and company’s internal auditors, the statements present fairly, in all material respects, the Overall group materiality These annual financial statements conform to International directors are of the opinion that the internal financial controls are consolidated and separate financial position of SBN Holdings N$36.4 million, which represents Financial Reporting Standards (IFRS) as issued by the adequate and that the financial records may be relied upon for Limited (the Company) and its subsidiaries (together the Group) 5% of the average consolidated International Accounting Standards Board (IASB), the Institute of preparing the financial statements in accordance with IFRS and as at 31 December 2020, and its consolidated and separate profit before direct tax for the last Chartered Accountants’ of Namibia (ICAN) Financial Reporting to maintain accountability for the group and company’s assets financial performance and its consolidated and separate cash three years. Guides as issued by the Accounting Practices Committee, the and liabilities. Nothing has come to the attention of the directors flows for the year then ended in accordance with International Materiality Namibian Stock Exchange (NSX) Listings Requirements, the to indicate that a breakdown in the functioning of these controls, Financial Reporting Standards and the requirements of the Group audit scope Johannesburg Stock Exchange (JSE) Listing Requirements, resulting in material loss to the group and the company, has Companies Act of Namibia. Full-scope audits were performed Financial Pronouncements as issued by the Financial Reporting occurred during the year and up to the date of this report. on the Company and Standard What we have audited Standards Council, the requirements of the Companies Act The directors have a reasonable expectation that the group and Bank Namibia Limited based and fairly present the affairs of the group and company as at company will have adequate resources to continue going concern SBN Holdings Limited’s consolidated and separate financial Audit on their financial significance 31 December 2020, and the net income and cash flows for the operational existence and as a going concern in the financial year statements set out on pages 49 to 159 comprise: scope to the Group. Analytical review procedures were performed on year then ended. ahead. The 2020 annual financial statements which appear on • the directors’ report for the year ended 31 December 2020; pages 49 to 159, were approved by the board on 24 March 2021 the financially inconsequential The directors are ultimately responsible for the internal controls • the consolidated and separate statements of financial position and signed on its behalf by: components. of the group and company. Management enables the directors to as at 31 December 2020; Key audit meet these responsibilities. Standards and systems of internal • the consolidated and separate income statements for the year matters Key audit matters controls are designed, implemented and monitored by then ended; • Expected credit losses on management to provide reasonable assurance of the integrity • the consolidated and separate statements of other Corporate and Investment and reliability of the financial statements and to adequately comprehensive income for the year then ended; Banking (CIB) loans and safeguard, verify and maintain accountability for shareholder • the consolidated and separate statements of changes in equity advances; and investments and company and group assets. Systems and for the year then ended; • Expected credit losses on controls include the proper delegation of responsibilities within a Mr H Maier Mr VJ Mungunda • the consolidated and separate statements of cash flows for Personal and Business Banking clearly defined framework, effective accounting procedures and Chairman Chief executive the year then ended; and (PBB) loans and advances. adequate segregation of duties. It is the responsibility of the • the notes to the financial statements, which include a summary of significant accounting policies, excluding As part of designing our audit, we determined materiality and the section marked as ‘unaudited’ in Annexure C. assessed the risks of material misstatement in the consolidated and separate financial statements. In particular, we considered Basis for opinion where the directors made subjective judgements; for example, in We conducted our audit in accordance with International respect of significant accounting estimates that involved making Standards on Auditing (ISAs). Our responsibilities under those assumptions and considering future events that are inherently standards are further described in the Auditor’s responsibilities uncertain. As in all of our audits, we also addressed the risk of for the audit of the consolidated and separate financial management override of internal controls, including among other statements section of our report. matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Materiality Independence The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance We are independent of the Group in accordance with the whether the financial statements are free from material International Ethics Standards Board for Accountants misstatement. Misstatements may arise due to fraud or error. International Code of Ethics for Professional Accountants They are considered material if individually or in aggregate, they (including International Independence Standard) (Code of could reasonably be expected to influence the economic Conduct) and other independence requirements applicable to decisions of users taken on the basis of the consolidated financial performing audits of financial statements in Namibia. We have statements. fulfilled our other ethical responsibilities in accordance with the Code of Conduct and in accordance with other ethical Based on our professional judgement, we determined certain requirements applicable to performing audits in Namibia. quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT CONTINUED 44 Annual report 2020 45

How we tailored our group audit scope Overall group N$36.4 million. Key audit matter How our audit addressed the key audit matter materiality We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated Evaluation of SICR taking into account the impact of – Through inquiry of management we obtained an financial statements as a whole, taking into account the structure How we 5% of the average consolidated profit COVID-19 understanding of the process for assigning credit ratings of the Group, the accounting processes and controls, and the determined it before direct tax for the last three based on the exposure type and industry factors; and years. industry in which the Group operates. For CIB exposures, SICR is largely driven through the movement – Performing an independent assessment of the credit risk in credit ratings assigned to counterparties on origination and The consolidated financial statements are a consolidation of the rating assigned to the exposure by assessing the Rationale for We chose consolidated profit before reporting date, based on the Group’s 25-point master rating Company and its five subsidiaries (each a “component”) for quantitative and qualitative factors, including the impact of direct tax as the benchmark because, scale to quantify credit risk for each exposure. the materiality purposes of our group audit scope. Full-scope audits were the COVID-19 pandemic, assigned by management, against in our view, it is the benchmark against benchmark performed on the Company and Standard Bank Namibia Limited, our independent expectation. which the performance of the Group is With regard to COVID-19 related qualifying exposures the credit applied based on its financial significance in relation to its contribution to most commonly measured by users risk grade is assessed at the time of relief and subsequent the Group’s consolidated average profit before direct taxation. All Based on the results of our work performed, we accepted and is a generally accepted benchmark. monthly reviews are performed. other components were considered to be financially management’s assumptions. Due to the volatility of the results in the inconsequential and were subject to analytical review procedures. Incorporation of macro-economic inputs and forward- current year as a result of economic looking information into SICR assessment and ECL For a sample of stage 1 and stage 2 exposures we assessed downturn in the local market and the In establishing the overall approach to the Group audit, we measurement whether the stage classification of these exposures was decrease in repo rates by the Bank of determined the type of work that needed to be performed by us, appropriate in terms of the Group’s accounting policy for SICR Namibia, and to reflect normalised as the group engagement team. Macroeconomic expectations are incorporated in CIB’s client based on the change in credit risk at reporting date since the profitability levels, we used a three-year ratings to reflect the Group’s expectation of future economic and origination date of these exposures. Our procedures included the average consolidated profit before Key audit matters business conditions. inspection of the credit risk ratings at reporting date relative to direct tax. We chose 5% which is origination date to assess whether the Group’s SICR policy has Key audit matters are those matters that, in our professional Input assumptions applied to estimate the PD, EAD and consistent with quantitative materiality been applied consistently. No material exceptions were noted. judgement, were of most significance in our audit of the LGD within the ECL measurement thresholds used for profit-oriented consolidated and separate financial statements of the current companies in this sector. Input assumptions applied to estimate the PD, EAD and LGD as Incorporation of macro-economic inputs and forward period. These matters were addressed in the context of our audit inputs into the ECL measurement are subject to management looking information into SICR assessment and ECL of the consolidated and separate financial statements as a whole, judgement and are determined at an exposure level. measurement and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We selected a sample of exposures and assessed the reasonableness of the forward-looking information incorporated into their assigned credit risk ratings. Through inquiry with Consolidated financial statements management, we obtained an understanding of the forward- looking information that was incorporated into the assigned credit rating for the exposure and evaluated the reasonableness Key audit matter How our audit addressed the key audit matter of the forward-looking information against management’s expectations and other industry factors for the SICR assessment Expected credit losses on Corporate and Investment Our audit procedures addressed the key areas of significant and ECL measurement. Based on our work performed, we Banking (CIB) loans and advances judgement and estimation in determining the ECL on CIB loans accepted the forward-looking information incorporated into and advances as follows: Refer to Expected Credit Loss (ECL) on financial assets – IFRS 9 the model. drivers, included within the Key management assumptions note, We assessed the accounting policies applied to the CIB segment Input assumptions applied to estimate the PD, EAD and note 6 (loans and advances), note 31 (credit impairment against the requirements of IFRS, noting no material LGD within the ECL measurement charges), the credit risk section of annexure C - Risk and Capital inconsistencies. Management, and the impairment section in the detailed Making use of our actuarial expertise, we assessed the Group’s Making use of our internal actuarial expertise, we assessed the accounting policies in the consolidated financial statements, ECL methodology applied in determining the ECL recognised on reasonableness of the input assumptions applied within the PD, for the related disclosures. CIB loans and advances against the requirements of IFRS 9, and EAD and LGD models for compliance with the requirements of IFRS 9, by performing an independent recalculation of PD, EAD The ECL assessment for CIB loans and advances is material to noted no material inconsistencies. and LGD. In addition, our procedures included assessing the consolidated financial statements in terms of their Making use of our actuarial expertise, we also independently the appropriateness of the statistical models by way of magnitude, the level of subjective judgement applied by recalculated the ECL on CIB loans and advances by reperformance and validation procedures. We did not note any management and the effect that the ECL has on the Group’s independently calculating parameters and comparing the results material variances. credit risk management processes and operations. This resulted against the ECL calculated by the Group. We noted no material in this matter being considered a matter of most significance to differences in this regard. the audit of the consolidated financial statements. Evaluation of SICR taking into account the impact of The ECL on CIB loans and advances was calculated by applying COVID-19 International Financial Reporting Standard (IFRS) 9 – Financial Instruments (IFRS 9), as described in the notes to the Through inquiry of management and inspection of underlying consolidated financial statements. documentation we obtained an understanding of and tested relevant controls relating to the approval of credit facilities, ECLs on CIB exposures are calculated separately based on rating subsequent monitoring and remediation of exposures, key models per customer. In calculating the ECL on CIB loans and system reconciliations and collateral management. advances, the key areas of significant management judgement and estimation included: We selected a sample of counterparties and assessed the appropriateness of their assigned credit rating by: • Evaluation of Significant Increase in Credit Risk (“SICR”) taking into account the estimated impact of COVID-19; • Testing the inputs into the credit rating system against the • Incorporation of macro-economic inputs and forward looking financial information relating to the exposure and the Group’s information into SICR assessment and ECL measurement; 25-point rating scale, noting no material exceptions; and • Input assumptions applied to estimate the probability of • Making use of our actuarial expertise, we assessed the default (“PD”), exposure at default (“EAD”) and loss given reasonableness of management’s assumptions made during default (“LGD”) within the ECL measurement; and the credit risk rating process, by performing the following procedures: • Incorporation of the estimated impact of COVID-19 on the key inputs into the ECL pertaining to forward-looking information. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT CONTINUED 46 Annual report 2020 47

Key audit matter How our audit addressed the key audit matter Key audit matter How our audit addressed the key audit matter

Expected credit losses Personal and Business Banking Our audit procedures addressed the key areas of significant Incorporation of macro-economic inputs and forward Application of out-of-model adjustments into the ECL (PBB) loans and advances judgement and estimation in determining the ECL on PBB loans looking information into SICR assessment and ECL measurement and advances as follows: measurement Refer to Expected Credit Loss (ECL) on financial assets - IFRS 9 For a sample of out-of-model adjustments we evaluated drivers, included within the Key management assumptions note, We assessed the accounting policies applied to the PBB segment Forward-looking expectations are included in the ECL for PBB the reasonableness of the adjustments by assessing key note 6 (loans and advances), note 31 (credit impairment against the requirements of IFRS 9, noting no material loans and advances based on the Group’s macro-economic assumptions, inspecting the calculation methodology charges), the credit risk section of annexure C - Risk and Capital inconsistencies. outlook, using models that correlate these parameters with and tracing a sample of out-of-model adjustments back Management, and the impairment section in the detailed macro-economic variables. Where modelled correlations are not to source data. accounting policies in the consolidated financial statements, for Making use of our actuarial expertise, we assessed the Group’s viable or predictive, adjustments are based on judgement to predict the outcome based on the Group’s macro-economic Assessment of ECL raised for individual exposures the related disclosures. ECL methodology applied in determining the ECL recognised on PBB loans and advances against the requirements of IFRS 9, and outlook expectations. For a sample of stage 3 exposures, we independently The ECL assessment for PBB loans and advances is material to noted no material inconsistencies. In the determination of the forward- looking impact, the Group recalculated the impairment losses based on our assessment of the consolidated financial statements in terms of their the expected cash flows and the recoverability of collateral at an Making use of our actuarial expertise, we also independently applied judgement in assessing the impact of the COVID-19 magnitude, the level of subjective judgement applied by pandemic on forward-looking information. individual exposure level. No material differences were noted. management and the effect that the ECL has on the Group’s recalculated the ECL on PBB loans and advances by For collateral held in respect of the sample of stage 3 exposures credit risk management processes and operations. This resulted independently calculating parameters and comparing the results Application of out-of-model adjustments into the ECL referred to above, we inspected legal agreements and other in this matter being considered a matter of most significance in against the ECL calculated by the Group and noted no material measurement documentation to assess the existence and legal right to the audit of the consolidated financial statements. differences. Management may identify that due to modelling complexity, collateral. No material exceptions were noted. ECLs on PBB loans and advances are based on the product Evaluation of SICR taking into account the impact of certain aspects of the ECL may not be fully reflected by the COVID-19 underlying model and an out-of-model adjustment is required. We assessed the collateral valuation techniques applied by categories or subsets of the product categories, with tailored management against the Group’s valuation guidelines. Making ECL models per portfolio. The key areas of significant Making use of our actuarial expertise, we reperformed the Assessment of ECL raised for individual exposures use of our valuation expertise we performed an independent management judgement within the ECL calculation include: calculation of the significant deterioration roll rates per product reasonability test on the valuation of collateral. Although our A lifetime ECL is calculated on stage 3 exposures that are • Evaluation of SICR taking into account the estimated impact category and compared these rates per product category to independent internal reasonability tests differed from external assessed to be credit impaired due to evidence of default, of COVID-19; those used by management and noted no material differences. valuations in some instances, no material adjustments to the significant financial difficulty of the borrower and/or ECLs on PBB loans and advances were considered necessary.. • Incorporation of macro-economic inputs and forward-looking For a sample of exposures which were manually transferred by modification, probability of bankruptcy or financial information into SICR assessment and ECL measurement; management we assessed if these transfers were appropriate reorganisation or disappearance of an active market due to Input assumptions applied to estimate the PD, EAD and • Application of out-of-model adjustments into the ECL through discussions with management and inspection of financial difficulties. This assessment relates primarily to LGD within the ECL measurement measurement; underlying documentation. No material exceptions were noted. business lending accounts and incorporates judgement in determining the foreclosure value of the underlying collateral. Making use of our actuarial expertise, we assessed the • Assessment of ECL raised for individual exposures; For a sample of stage 1, 2 and 3 exposures, we evaluated if the assumptions relating to historical default experience, estimated • Input assumptions applied to estimate the PD, EAD and LGD exposures are appropriately classified by recalculating the days Input assumptions applied to estimate the PD, EAD and timing and amount of forecasted cash flows and the value of within the ECL measurement; and in arrears. For exposures that were more than 30 days past due, LGD within the ECL measurement collateral applied within the PD, EAD and LGD models for • Incorporation of the estimated impact of COVID-19 on the key we confirmed that these were appropriately classified. No compliance with the requirements of IFRS 9. In addition, our The ECL is calculated using statistical models which incorporate inputs into the ECL pertaining to forward-looking information. material exceptions were noted. procedures included assessing the appropriateness of the observable data, assumptions and estimates relating to statistical models by way of reperformance and validation For a sample of exposures classified as COVID-19 related historical default experience, timing and amount of forecasted procedures. We did not note any material differences on the Evaluation of SICR taking into account the impact of restructures we assessed the reasonableness of the staging and cash flows and the value of collateral. assumptions applied in the calculation of the ECL at year end. COVID-19 classification assigned to these exposures by assessing the payment history before and after the relief term. We found no The Group determines the SICR threshold by utilising an material exceptions in the staging and classification of these appropriate transfer rate of exposures that are less than 30 days exposures. past due (DPD) to Stage 2. This transfer rate is such that the Separate financial statements Responsibilities of the directors for proportion of the 0-29 DPD book transferred into Stage 2 is no Incorporation of macro-economic inputs and forward We have determined that there are no key audit matters in the consolidated and separate less than the observed 12-month roll rate of 0-29 day accounts looking information into SICR assessment and ECL respect of the separate financial statements. into 30 or more days in arrears. The SICR thresholds are measurement financial statements reviewed regularly to ensure that they are appropriately The directors are responsible for the preparation and fair Making use of our actuarial expertise, we evaluated the Other information presentation of the consolidated and separate financial calibrated to identify SICR by portfolio vintage and to appropriateness of forward-looking economic expectations The directors are responsible for the other information. The other consequently facilitate appropriate impairment coverage. included in the ECL model which included the impact of statements in accordance with International Financial Reporting information comprises the information included in the document Standards and the requirements of the Companies Act of As a result of Bank of Namibia's response to the economic and COVID-19 by comparing the forward-looking expectations to titled “SBN Holdings Limited Annual report 2020”. The other Namibia, and for such internal control as the directors determine financial stability challenges posed by the COVID-19 pandemic, independently sourced industry data, and noted no material information does not include the consolidated or the separate is necessary to enable the preparation of consolidated and where a restructure is considered by the counterparty as a result inconsistencies. financial statements and our auditor’s report thereon. separate financial statements that are free from material of COVID-19, the Group applies judgement in determining the misstatement, whether due to fraud or error. following: Our opinion on the consolidated and separate financial statements does not cover the other information and we do not • determining whether the exposure is expected to remain in In preparing the consolidated and separate financial statements, express an audit opinion or any form of assurance ‘a not overdue status’ subsequent to the relief period, and the directors are responsible for assessing the Group and the conclusion thereon. Company’s ability to continue as a going concern, disclosing, as • assessing whether the restructure can be classified as a applicable, matters related to going concern and using the going temporary or permanent distress. In connection with our audit of the consolidated and separate concern basis of accounting unless the directors either intend to financial statements, our responsibility is to read the other liquidate the Group and/or the Company or to cease operations, information identified above and, in doing so, consider whether or have no realistic alternative but to do so. the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT CONTINUED 48 Annual report 2020 49

DIRECTORS’ REPORT for the year ended 31 December 2020

Auditor’s responsibilities for the audit of We communicate with the directors regarding, among other Review of activities Events after the reporting period matters, the planned scope and timing of the audit and There were no events after the reporting date to report. the consolidated and separate financial significant audit findings, including any significant deficiencies in Main business and operations statements internal control that we identify during our audit. SBN Holdings Limited is the holding company for Standard Bank Namibia Limited. Authorised and issued share capital We also provide the directors with a statement that we have Our objectives are to obtain reasonable assurance about whether The company’s authorised share capital consisted of the consolidated and separate financial statements as a whole complied with relevant ethical requirements regarding It conducts its operations through the following businesses: independence, and to communicate with them all relationships 800 000 000 ordinary shares of 0.002 cents each, of which are free from material misstatement, whether due to fraud or • Banking services through its subsidiary Standard Bank and other matters that may reasonably be thought to bear on our 522 471 910 have been issued. The authorised and issued share error, and to issue an auditor’s report that includes our opinion. Namibia Limited, a registered Namibian commercial bank. independence, and where applicable, actions taken to eliminate capital remained unchanged for the year. Reasonable assurance is a high level of assurance, but is not a • Insurance broking services through subsidiary companies guarantee that an audit conducted in accordance with ISAs will threats or safeguards applied. Stanfin (Namibia) (Proprietary) Limited and Standard Borrowings always detect a material misstatement when it exists. From the matters communicated with the directors, we Insurance Brokers (Namibia) (Proprietary) Limited. Misstatements can arise from fraud or error and are considered determine those matters that were of most significance in the The group’s borrowings consist mainly of deposit and current • Personal lines insurance through Hollard Insurance Limited. material if, individually or in the aggregate, they could reasonably audit of the consolidated and separate financial statements of accounts originated through banking operations and long-term be expected to influence the economic decisions of users taken the current period and are therefore the key audit matters. We • Safe custodianship through its 100%-owned subsidiary financing. on the basis of these consolidated and separate financial describe these matters in our auditor’s report unless law or company Standard Bank Namibia Nominees statements. regulation precludes public disclosure about the matter or when, (Proprietary) Limited. Property and equipment in extremely rare circumstances, we determine that a matter • Asset management and unit trust services through a related The group’s property and equipment is disclosed in note 9 to the As part of an audit in accordance with ISAs, we exercise should not be communicated in our report because the adverse company, Liberty Life Namibia Limited. professional judgement and maintain professional scepticism annual financial statements. consequences of doing so would reasonably be expected to • Property investment and construction through subsidiary throughout the audit. We also: outweigh the public interest benefits of such communication. company Arleo Investments Sixteen (Proprietary) Limited. • Identify and assess the risks of material misstatement of the • Mobile payment and services through subsidiary company Dividends consolidated and separate financial statements, whether due Mobicash Payment Solutions (Proprietary) Limited. to fraud or error, design and perform audit procedures 2020 2019 responsive to those risks, and obtain audit evidence that is The group operates in all main areas within Namibia and its head Cents N$’m Cents N$’m sufficient and appropriate to provide a basis for our opinion. PricewaterhouseCoopers office is located in Windhoek. The risk of not detecting a material misstatement resulting Interim dividend declared from fraud is higher than for one resulting from error, as fraud Registered Accountants and Auditors The group also offers an international banking service through its 30 October 2020 and may involve collusion, forgery, intentional omissions, Chartered Accountants (Namibia) association with Standard Bank Group Limited, a company paid 4 December 2020. misrepresentations, or the override of internal control. Per: Louis van der Riet registered in the Republic of South Africa and dual listed on No interim dividend was • Obtain an understanding of internal control relevant to the Partner the JSE and NSX, with representation throughout Africa. declared in 2019. 21.00 109.7 audit in order to design audit procedures that are appropriate Final dividend declared in the circumstances, but not for the purpose of expressing an 344 Independence Avenue Registered and business address 4 March 2021 (2019: opinion on the effectiveness of the Group’s and the Company’s PO Box 1571 1 Chasie Street, Kleine Kuppe, Windhoek, Namibia 20 February 2020) and internal control. Windhoek will be paid 7 May 2021 • Evaluate the appropriateness of accounting policies used and Date: 24 March 2021 Registration number (8 May 2020) 14.00 73.0 27.37 143.0 the reasonableness of accounting estimates and related 2006/306 disclosures made by the directors. Total dividends declared • Conclude on the appropriateness of the directors’ use of the County of incorporation and paid in respect of the annual financial year 35.00 182.7 27.37 143.0 going concern basis of accounting and, based on the audit Republic of Namibia evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt Results for the period on the Group’s and the Company’s ability to continue as a Net profit of the group was N$421 million (2019: N$613 million), going concern. If we conclude that a material uncertainty after deducting taxation of N$187 million (2019: N$259 million). exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and/or Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS DIRECTORS’ REPORT CONTINUED 50 Annual report 2020 51

STATEMENTS OF FINANCIAL POSITION as at 31 December 2020

Ownership Compliance with BID-2 GROUP COMPANY At 31 December 2020, Standard Bank Group Limited owned The group’s annual financial statements comply with the Bank 1 January 74.9% of the issued share capital. The general public, including of Namibia's (BoN) Determination on Asset Classification, 2019 2019 the staff share scheme, owned 25.1% of the issued share capital. Suspension of Interest and Provisioning (BID-2) except for 2020 Restated1 Restated1 2020 2019 paragraph 10.(e) regarding when an asset must be classified as Note N$’000 N$’000 N$'000 N$’000 N$’000 The following directors each hold issued shares as follows: a ’loss’. The guidance received from BoN indicated that if an asset Number of ordinary shares which is overdue for 360 days is well secured, legal action has Assets commenced but it takes more than one year after judgement Cash and balances with the central bank 1 1 035 972 1 526 148 1 546 357 194 115 372 742 2020 2019 to realise the collateral then the asset must be classified as a loss Derivative assets 2 372 288 149 910 33 237 and must be written-off within 90 days after being classified as Beneficial shares, all Trading assets 3 383 240 268 177 134 812 such. IFRS 9.5.4.4 states that an entity shall directly reduce the Pledged assets 4 520 956 580 098 indirectly held gross carrying amount of a financial asset when the entity has no Financial investments 5 4 299 673 4 063 792 4 452 053 Mr VJ Mungunda 248 624 248 624 reasonable expectation of recovering a financial asset or Current tax asset 99 525 80 181 59 497 Adv N Bassingthwaighte 118 395 118 395 contractual cash flows in its entirety or a portion thereof. The Loans and advances 6 24 302 724 25 635 493 23 475 367 Mr JL Muadinohamba 118 395 118 395 BID-2 requirement to write off an asset is if it takes more than Other assets 7 181 967 966 164 515 685 43 600 27 554 Mr IH Tjombonde 118 395 118 395 one year after judgement to realise the collateral even though the Interest in subsidiaries and joint venture 8 15 435 11 506 921 986 921 986 Mrs L du Plessis 2 385 asset is well secured, is not aligned with IFRS 9 which requires an Property, equipment and right-of-use 606 194 603 809 entity to only write off if there is no reasonable expectation of assets1 9 1 083 502 1 121 668 986 719 recovery. Given the fact that the asset is well secured and there Goodwill and other intangible assets1 10 500 769 503 765 372 058 is reasonable expectation of recovery in terms of IFRS 9 it cannot Deferred tax asset 14 300 882 301 100 214 764 Directors be written off. The directors of the company during the year and to the date of Total assets 33 081 498 35 211 931 31 802 055 1 159 701 1 322 282 this report are as follows: Covid-19 Equity and liabilities Equity 4 180 543 3 992 011 3 291 137 1 139 112 1 114 164 Name Nationality The group has a three-phase approach to respond to the effects of the Covid-19 pandemic. Equity attributable to the ordinary Executive directors shareholders 4 166 513 3 977 842 3 291 137 1 139 112 1 114 164 The first phase was implemented to manage the immediate threat to the group’s human element by putting response Ordinary share capital 11 1 045 1 045 1 000 1 045 1 045 Mr VJ Mungunda Namibian strategies in place to protect the health, safety and livelihoods of Ordinary share premium 12 642 189 642 189 442 234 642 189 642 189 Mrs L du Plessis1 Namibian staff and their families and to promote a positive societal impact. Reserves 3 523 279 3 334 608 2 847 903 495 878 470 930 During this phase, the group also placed focus on risk, capital Non-controlling interest 14 030 14 169 Non-executive directors and liquidity management in order to safeguard all stakeholders’ interests which resulted in all capital and liquidity requirements Liabilities 28 900 955 31 219 920 28 510 918 20 589 208 118 Mr H Maier (Chairperson) Namibian remaining above the regulatory levels during the year. The group Derivative liabilities 2 362 123 142 511 25 714 regularly engaged with BoN which resulted in a coordinated Trading liabilities 13 230 14 881 980 Adv N Bassingthwaighte Namibian approach in dealing with the risks which Covid-19 has brought to Current tax liability 4 109 5 400 the country’s economy and banking system. Mrs MS Dax Namibian Deposits and debt funding 15 26 119 815 27 866 820 25 637 359 The second phase encompasses the facilitation of the return to Debt securities issued 16 1 620 305 1 590 750 1 792 115 2 Provisions and other liabilities 17 515 694 1 348 527 858 074 16 480 202 718 Mr AN Mangale South African growth which requires the group’s continued support to the real Deferred tax liability 14 282 788 256 431 196 676 economy through its clients and surrounding communities whilst Mr JL Muadinohamba Namibian mitigating against an economic fallout. This phase involves Total equity and liabilities 33 081 498 35 211 931 31 802 055 1 159 701 1 322 282 Ms PM Nyandoro Zimbabwean providing support to clients to revive their business without causing heightened credit risk to the group in the future. 1 Refer to page 59 for information regarding the correction of the classification of property and equipment and right-of-use assets and intangible assets in the group. Mrs B Rossouw Namibian There was no restatement required for the company. Phase three is about the group working towards adapting to the Mr P Schlebusch South African current circumstances. The effects of the continued strain on the economy through trade restrictions are dynamically being Mr IH Tjombonde Namibian evaluated by and addressed within the group through the identification of new business opportunities, cost-saving 1 Appointed 10 February 2020. initiatives and the acceleration of the digital transformation and 2 Appointed 9 November 2020. deliver the future-ready bank.

Through these phases, risk, capital and liquidity management Company secretary remain key focus areas to ensure the going concern ability of S Tjijorokisa, based at 1 Chasie Street, Kleine Kuppe, Windhoek, the group. Namibia

Interest in subsidiaries The company owns 100% of the share capital of Standard Bank Namibia Limited, Standard Insurance Brokers (Namibia) (Proprietary) Limited, Arleo Investment Sixteen (Proprietary) Limited and Stanfin (Namibia) (Proprietary) Limited. The company also owns 50.91% of the share capital of Mobicash Payments Solutions (Proprietary) Limited.

Refer to Annexure A for further information on interests in subsidiaries. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS 52 Annual report 2020 53

INCOME STATEMENTS STATEMENTS OF OTHER for the year ended 31 December 2020 COMPREHENSIVE INCOME for the year ended 31 December 2020

GROUP COMPANY GROUP COMPANY 2019 2020 2019 2020 2019 2020 Restated1 2020 2019 N$’000 N$’000 N$’000 N$’000 Note N$’000 N$’000 N$’000 N$’000 Profit for the year 421 185 613 498 277 668 142 457 Net interest income 1 174 462 1 332 543 Other comprehensive income – net of taxation1 20 067 3 617 Interest income 24 2 178 139 2 784 482 Items that may be subsequently reclassified to profit or loss Interest expense 25 (1 003 677) (1 451 939) Net change in fair value of debt financial assets measured at fair value through other comprehensive income (FVOCI) 4 681 3 617 Non-interest revenue 1 192 672 1 262 756 280 068 144 078 Net change in expected credit loss (ECL) 1 133 706 Net fee and commission revenue 849 264 881 640 Net change in fair value 3 548 2 911 Fee and commission revenue1 26 1 066 853 1 076 438 Fee and commission expense1 27 (217 589) (194 798) Items that may not be subsequently reclassified to profit or loss Trading revenue 28 99 561 117 597 Fair value movement on post-employment benefit 15 386 Other revenue1 29 105 443 117 283 280 068 144 078 Other gains and losses on financial instruments 30 138 404 146 236 Total comprehensive income for the year 441 252 617 115 277 668 142 457

Total income 2 367 134 2 595 299 280 068 144 078 Attributable to ordinary shareholders 441 391 616 619 Credit impairment charges 31 (253 910) (239 165) Attributable to non-controlling interest (139) 496 Income before operating expenses 2 113 224 2 356 134 280 068 144 078 1 Operating expenses 32 (1 503 291) (1 488 037) (2 400) (177) Income tax relating to each component of other comprehensive income is disclosed in note 33. Net income before capital items and equity accounted earnings 609 933 868 097 277 668 143 901 Loss on derecognition of joint venture 8 (1 604) Share of post-tax profit from joint venture 8 3 929 Net income before indirect taxation 608 329 872 026 277 668 143 901 Indirect taxation 33 (30 634) (33 005) (1 444) Profit before direct taxation 577 695 839 021 277 668 142 457 Direct taxation 33 (156 510) (225 523) Profit for the year 421 185 613 498 277 668 142 457 Attributable to ordinary shareholders 421 324 613 002 Attributable to non-controlling interest (139) 496

Basic and diluted earnings per ordinary share 39 81 122

1 Refer to page 59 for information regarding the reclassification of certain commission income.

. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS 54 Annual report 2020 55

STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2020

Fair value adjustments Post- Ordinary Share-based on FVOCI employment Statutory Ordinary Non- share capital payment financial benefit credit risk Retained shareholders controlling Total and premium reserve assets1 reserve reserve earnings equity interest equity Note N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP Balance at 1 January 2019 443 234 37 442 (613) 19 823 2 791 251 3 291 137 3 291 137 Total comprehensive income for the year 3 617 613 002 616 619 496 617 115 Profit for the year 613 002 613 002 496 613 498 Other comprehensive income after tax for the year 3 617 3 617 3 617 Transactions with the shareholders, recorded directly in equity 200 000 1 051 (130 965) 70 086 13 673 83 759 Equity-settled share-based payment transactions 1 051 1 051 1 051 Issue of share capital and share premium 200 000 (10 965) 189 035 189 035 Transactions with non-controlling interest 13 673 13 673 Dividends paid 34.7 (120 000) (120 000) (120 000)

Balance at 1 January 2020 643 234 38 493 3 004 19 823 3 273 288 3 977 842 14 169 3 992 011 Total comprehensive income for the year 4 681 15 386 421 324 441 391 (139) 441 252 Profit for the year 421 324 421 324 (139) 421 185 Other comprehensive income after tax for the year 4 681 15 386 20 067 20 067 Transactions with the shareholders, recorded directly in equity (38 493) 58 510 (272 737) (252 720) (252 720) Transfer of vested equity options (38 493) 38 493 Transfer between reserves 58 510 (58 510) Dividends paid 34.7 (252 720) (252 720) (252 720)

Balance at 31 December 2020 643 234 7 685 35 209 58 510 3 421 875 4 166 513 14 030 4 180 543

1 The FVOCI reserve comprises of the FVOCI reserve for debt financial investments.

Accounting policies regarding reserves are detailed in Annexure E.

All balances are stated net of tax where applicable. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN EQUITY CONTINUED 56 Annual report 2020 57

STATEMENTS OF CHANGES IN EQUITY CONTINUED STATEMENTS OF CASH FLOWS for the year ended 31 December 2020 for the year ended 31 December 2020

Ordinary GROUP COMPANY share capital Retained 2019 and premium earnings Total equity 2020 Restated1 2020 2019 Note N$’000 N$’000 N$’000 Note N$’000 N$’000 N$’000 N$’000

COMPANY Net cash flows from operating activities (119 077) 446 735 73 868 545 942 Balance at 1 January 2019 443 234 459 438 902 672 Total comprehensive income for the year 142 457 142 457 Net income before capital items and equity accounted earnings 609 933 868 097 277 668 143 901 Profit for the year 142 457 142 457 Adjusted for non-cash items and other adjustments Transactions with the shareholder, recorded directly in equity 200 000 (130 965) 69 035 included in the income statements 34.1 (758 966) (973 757) (232 684) (87 944) Decrease/(increase) in income earning assets 34.2 1 322 548 (3 283 795) (16 046) 608 187 Issue of share capital and share premium 200 000 (10 965) 189 035 (Decrease)/increase in deposits and other liabilities 34.3 (2 248 885) 2 798 145 (186 463) (199 302) Dividends paid 34.7 (120 000) (120 000) Interest received 2 198 581 2 776 465 Dividends received 1 940 3 804 232 684 86 500 Balance at 1 January 2020 643 234 470 930 1 114 164 Interest paid (1 085 695) (1 465 527) Total comprehensive income/(loss) for the year 277 668 277 668 Direct taxation paid 34.4 (158 533) (276 697) (1 291) (5 400) Profit for the year 277 668 277 668 Net cash flows used in investing activities (127 040) (313 181) (253 200) Transactions with the shareholder, recorded directly in equity (252 720) (252 720) Capital expenditure on property and equipment (91 492) (180 885) Dividends paid 34.7 (252 720) (252 720) Proceeds from sale of property and equipment 34.5 1 260 9 204 Capital expenditure on intangible assets (37 204) (109 867) Balance at 31 December 2020 643 234 495 878 1 139 112 Proceeds from sale of intangible assets 34.6 396 Payment for acquisition of subsidiary, net of cash acquired (31 633) (53 200) Accounting policies regarding reserves are detailed in Annexure E. Increase in investment in subsidiaries (200 000)

All balances are stated net of tax where applicable. Net cash flows (used in)/from financing activities (245 297) (154 071) (252 495) 80 000 Subordinated debt redeemed (100 000) (Share issue expenses)/issuance of ordinary share capital 200 000 200 000 Share issue expenses (10 965) Principal element of lease payments 17. 1 (29 502) (23 106) Senior debt issued 300 000 Senior debt redeemed (263 300) (100 000) Dividends paid 34.7 (252 495) (120 000) (252 495) (120 000)

Net (decrease)/increase in cash and balances with central banks (491 414) (20 517) (178 627) 372 742 Cash and balances with central banks at the beginning of the year 1 1 526 148 1 546 357 372 742 Effects of exchange rate changes on cash and balances with central banks 1 238 308 Cash and balances with central banks at the end of the year 1 1 035 972 1 526 148 194 115 372 742

1 In the current year, the group and company aligned the presentation of the statements of cash flows with that of SBG. The group also corrected certain errors. Details of the effect of the restatements are presented on page 59. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS 58 Annual report 2020 59

Restatement ACCOUNTING POLICY ELECTIONS Correction of the classification of property, equipment, right-of-use assets and intangible assets AND RESTATEMENT During 2020, it was identified that computer software costs were incorrectly capitalised to IT equipment and included in property, equipment and right-of-use assets instead of intangible assets. The error has been corrected by restating the comparatives of the group. The company is not affected.

The principal accounting policies applied in the presentation • IFRS 7 Financial Instruments: Disclosures (IFRS 7), IFRS 9 The restatement has no impact on total assets, profit for the year, earnings per share, headline earnings or net cash used in investing activities. of the group and company’s annual financial statements are Financial Instruments (amendments) (IFRS 9) and IAS 39 set out below. Financial Instruments: Recognition and Measurement (IAS 39). The correction of this error resulted in a reclassification between two line items in the statement of financial position as indicated below: Interest Rate Benchmark Reform resulted in amendments to 2019 1 January 2019 Basis of preparation IFRS 9, IAS 39 and IFRS 7 requirements for hedge accounting Previously Previously The group’s consolidated and company’s separate annual to support the provision of useful financial information during reported Restatement Restated reported Restatement Restated financial statements (annual financial statements) are prepared the year of uncertainty caused by the phasing out of interest- N$'000 N$'000 N$'000 N$'000 N$'000 N$'000 in accordance with IFRS as issued by the IASB, its interpretations rate benchmarks such as interbank offered rates (IBORs) on adopted by the IASB, and the Companies Act. The annual hedge accounting. The amendments modify some specific GROUP financial statements have been prepared on the historical cost hedge accounting requirements to provide relief from potential Assets basis except for the following material items in the statements of effects of the uncertainty caused by the IBOR reform. In Property, equipment and financial position: addition, the amendments require companies to provide right-of-use assets 1 172 065 (50 397) 1 121 668 1 059 817 (73 098) 986 719 • Financial assets classified at FVOCI financial assets and additional information to investors about their hedging Intangible assets 453 368 50 397 503 765 298 960 73 098 372 058 liabilities classified at fair value through profit or loss (FVTPL) relationships which are directly affected by these uncertainties. 1 625 433 1 625 433 1 358 777 1 358 777 and liabilities for cash-settled share-based payment The amendment will be applied retrospectively. arrangements. • Conceptual Framework for Financial Reporting (revised) Reclassification of commission income • Post-employment benefit obligations that are measured in (Conceptual Framework). The revised Conceptual Framework Certain commission income has been reported on a net basis where it was previously separated into other revenue and fee and terms of the projected unit credit method. includes a comprehensive set of concepts for financial commission expense. With reference to IFRS 15‘s agent considerations, it is correct to record the net result in fee and commission income in order to reflect the nature of the income and accordingly, the respective line items for the comparative periods have been reporting, replacing the previous version of the Conceptual The following principal accounting policy elections in terms of adjusted. The effect of the reclassification is presented below: Framework. These concepts are used by the IASB as the IFRS have been made, with reference to the detailed accounting framework for setting IFRS standards. 2019 policies shown in brackets: • investments in associates and joint ventures are initially Early adoption of revised standards: Previously measured at cost and subsequently accounted for using the reported Restatement Restated • IFRS 3 Business Combinations (amendments). This standard Note N$'000 N$'000 N$'000 equity method in the separate financial statements requires an entity to refer to the Conceptual Framework in (accounting policy 2) determining what constitutes an asset or a liability. The GROUP • purchases and sales of financial assets under a contract whose amendments update the reference from the previous version Fee and commission revenue – other 26 1 075 310 1 128 1 076 438 terms require delivery of the asset within the time frame of the Conceptual Framework that existed up to the version Fee and commission expense 27 (237 353) 42 555 (194 798) established generally by regulation or convention in the Other revenue 29 160 966 (43 683) 117 283 issued in March 2018 and adds an exception for some types of marketplace concerned are recognised and derecognised liabilities and contingent liabilities to refer to IAS 37 instead of using trade date accounting (accounting policy 3) the Conceptual Framework. The amendments will be applied Change in presentation and correction of errors • commodities acquired principally for the purpose of selling in prospectively. In the current year the group aligned the presentation of the statements of cash flows with that of SBG, which is considered to be more the near future or generating a profit from fluctuation in price correct. In addition, the correction of the classification of property, equipment and right-of-use assets and intangibles disclosed above or broker-traders’ margin are measured at fair value less cost • IAS 16 Property, Plant and Equipment (amendments) (IAS 16). affected certain line items within investing activities. to sell (accounting policy 3) Narrow-scope amendments to IAS 16 for the accounting of Non-cash adjustment errors relating to various items that were identified have been corrected. • the portfolio exception to measure the fair value of certain amounts received when selling items produced while an entity groups of financial assets and financial liabilities on a net basis is preparing an asset for its intended use. The amendments 2019 (accounting policy 4) clarify the accounting requirements in prohibiting the entity Previously from deducting such amount from the cost of property, plant • intangible assets and property and equipment are accounted reported Restatement Restated and equipment and instead recognising such sales proceeds for at cost less accumulated amortisation and impairment N$'000 N$'000 N$'000 (accounting policy 6). and related cost in profit or loss. The amendments will be applied retrospectively. GROUP Functional and presentation currency • IAS 37 Provisions, Contingent Liabilities and Contingent Assets Net cash flows from operating activities 373 749 72 986 446 735 (amendments) (IAS 37). Narrow-scope amendments to IAS 37 The annual financial statements are presented in Namibian Net income before capital items and equity accounted earnings 872 026 (3 929) 868 097 in determining which costs to include in estimating the cost of Adjusted for non-cash items and other adjustments included in the income statements (963 884) (9 873) (973 757) dollars, which is the presentation currency of the group and the fulfilling a contract for the purposes of assessing whether that Decrease /(increase) in income earning assets (3 436 583) 152 788 (3 283 795) functional and presentation currency of the company. All (Decrease)/increase in deposits and other liabilities 2 860 729 (62 584) 2 798 145 contract is onerous. The amendments clarify that the cost of amounts are stated in thousands of Namibian dollars (N$’000), Interest paid (1 462 111) (3 416) (1 465 527) unless indicated otherwise. fulfilling the contract includes both the incremental costs of Net cash flows from other operating activities 2 503 572 2 503 572 fulfilling the contract and an allocation of costs that relate Net cash flows from investing activities (247 436) (65 745) (313 181) Changes in accounting policies directly to fulfilling contracts. The amendments will be applied retrospectively. Adjusting prior years is not required, but rather Capital expenditure on property and equipment (118 164) (62 721) (180 885) The accounting policies are consistent with those reported in the Capital expenditure on intangible assets (106 843) (3 024) (109 867) adjusting the opening retained earnings with the cumulative previous year except as required in terms of the adoption of the Net cash flows from other investing activities (22 429) (22 429) effect of the amendments on transition date. following: Net cash flow from financing activities (146 522) (7 549) (154 071) Adoption of new and amended standards The adoption of the above new and amended standards on Share issue expenses (10 965) (10 965) Principal element of lease payments (26 522) 3 416 (23 106) effective for the current financial year 1 January 2020 did not affect the group and company’s previously reported financial results, disclosures or accounting Net cash flows from other financing activities (120 000) (120 000) • IFRS 3 Business Combinations (amendment) (IFRS 3). policies and did not impact the group and company’s results The amendment clarifies the definition of a business, with Total cash and balances with central banks movement for the year (20 209) (308) (20 517) upon transition. Accounting policies have been amended the objective of assisting entities to determine whether a Cash and balances with central banks at beginning of the year 1 546 357 1 546 357 as relevant. transaction should be accounted for as a business Effects of exchange rate changes on cash and balances with central banks 308 308 combination or as an asset acquisition. The amendment Total cash and balances with central banks at end of the year 1 526 148 1 526 148 will be applied prospectively. Refer to Annexure E – detailed accounting policies. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS 60 Annual report 2020 61

KEY MANAGEMENT ASSUMPTIONS

In preparing the group and company annual financial statements, The group and company determine the SICR threshold by assessment considers both qualitative and quantitative Group master rating SICR trigger estimates and assumptions are made that could materially affect utilising an appropriate transfer rate of exposures that are less information, such as past performance, behaviour and recoveries. scale band (from origination) the reported amounts of assets and liabilities within the next than 30 days past due (DPD) to stage 2. This transfer rate is such The group assesses whether there is a reasonable expectation of financial year. Estimates and judgements are continually that the proportion of the 0 – 29 DPD book transferred into stage recovery at an exposure level. As such once the below criteria are SB 1 – 12 Low credit risk evaluated and are based on factors such as historical experience 2 is no less than the observed 12-month roll rate of 0 – 29 days met at an exposure level, the exposure is written off. and current best estimates of future events. The estimates and accounts into 30 or more days in arrears. The SICR thresholds SB 13 – 20 3 rating or more The following criteria must be met before a financial asset can be judgements below have remained unchanged unless otherwise are reviewed regularly to ensure that they are appropriately written off: stated. The following represents the most material key calibrated to identify SICR by portfolio vintage and to SB 21 – 25 1 rating or more management assumptions applied in preparing these financial consequently facilitate appropriate impairment coverage. • the financial asset has been in default for the period defined for the specific product (i.e. vehicle and asset finance, statements. The key management assumptions below apply to From a Namibian perspective, for Covid-19 related qualifying Where behaviour scores are not available, historical levels of mortgage loans, etc.) which is deemed sufficient to determine both the group and company, unless otherwise stated. exposures the SICR methodology remains unchanged delinquency are applied in determining whether there has been whether the group is able to receive any further economic (comparing the credit risk grading) to determine whether these SICR. For all exposures, the rebuttable presumption of 30 days benefit from the impaired loan. The period defined for Expected credit loss (ECL) on financial exposures are classified within stage 1 or stage 2. The credit risk past due as well as exposures classified as either debt review or unsecured PBB products are determined with reference to grade is assessed at the time of the relief, and subsequently assets – IFRS 9 drivers as ’watch-list’ are used to classify exposures within stage 2. post-default payment behaviour such as cumulative monthly reviews of the status of the request and client’s Covid-19 placed considerable strain on our operations specifically delinquency, as well as an analysis of post write off recoveries In accordance with the BoN policy directives in response performance are conducted. retail, business and corporate clients, however the group’s to economic and financial stability challenges, following the fallout which includes an assessment of the factors resulting in post risk appetite remained unchanged. As such the below significant write off recoveries. Factors that are within the group’s control of the Covid-19 pandemic where a restructure is considered due Incorporation of forward-looking increase in credit risk (SICR) and default assumptions, thresholds to Covid-19 related factors, the group determines whether the are assessed and considered in the determination of the and/or triggers were not amended. exposure is expected to remain in a not overdue status subsequent information (FLI) in ECL measurement period defined for each product. The post-default payment For the purpose of determining the ECL: to the relief period. These restructured exposures are classified as The group determines the macroeconomic outlook, over a period is generally once the rehabilitation probability (repayment of arrear instalments) is considered low to zero, • The PBB portfolios are based on the product categories or Covid-19 related restructures and the determination of temporary planning horizon of at least three years. or permanent distress is assessed on a regular basis. Temporary and a period of 180 days in arrears; and subsets of the product categories, with tailored ECL models For PBB these forward-looking economic expectations are distressed accounts are classified as stage 1 or stage 2 based on • at the point of write-off, the financial asset is fully impaired per portfolio. The impairment provision calculation excludes included in the ECL where adjustments are made based on the the risk profile and permanently distressed accounts are classified (i.e. 100% ECL allowance) with no reasonable expectation post-write-off recoveries (PWOR) from the loss given default group’s macroeconomic outlook, using models that correlate as stage 3. of recovery of the asset, or a portion thereof. (LGD) in calculating the ECL. These LGD parameters are these parameters with macroeconomic variables. Where aligned to market practice. The determination of temporary or permanently distressed is modelled correlations are not viable or predictive, adjustments As an exception to the above requirements: • CIB exposures are calculated separately based on rating made by assessing various customer, transactional and are based on expert judgement to predict the outcomes based on • where the exposure is secured (or for collateralised models for each of the asset classes. the group’s macroeconomic outlook expectations. In addition to delinquency variables (included but not limited to customers that structures), the impaired exposure can only be written off once forward-looking macroeconomic information, other types of FLI, were up to date at 29 February 2020 were deemed to be the collateral has been realised. Post-realisation of the such as specific event risks and industry data, have been taken ECL measurement period temporary in nature if it was expected that the customer would collateral, the shortfall amount can be written off if it meets into account in ECL estimates when required, through the • The ECL measurement period for stage 1 exposures is remain up to date post the relief period and customers the second requirement listed above. 12-months (or the remaining tenor of the financial asset for experiencing financial distress and in arrears prior to 29 February application of out-of-model adjustments. These out-of-model • CIB products write off are assessed on a case-by-case basis, CIB exposures if the remaining lifetime is less than 12-months). 2020 were deemed to be permanent in nature) to estimate a adjustments are subject to group credit committee governance and approved by CIB credit governance committee based on probability of default (PD). and oversight. • A loss allowance over the full lifetime of the financial asset is the individual facts and circumstances. required if the credit risk of that financial instrument has Risk profile N$’000 The group’s macroeconomic outlooks are incorporated in CIB’s increased significantly since initial recognition (stage 2). client rating and include specific forward-looking economic For unsecured exposures, post write off collection and • A lifetime measurement period is applied to all credit impaired Stage 1 and 2 – temporary 1 646 647 considerations for the individual client. The client rating thus enforcement activities include outsourcing to external debt (stage 3) exposures. Stage 3 – permanent 40 414 reflects the expected client risk for the group’s expectation of collection agents as well as, collection/settlement arrangements • The measurement periods for unutilised loan commitments Total 1 687 061 future economic and business conditions. Further adjustments, to assist clients to settle their outstanding debt. The group utilise the same approach as on-balance sheet exposures. based on point-in-time market data, are made to the PDs continuously monitors and reviews when exposures are written assigned to each risk grade to produce PDs and ECL off, the levels post write off recoveries as well as the key factors CIB (including certain PBB business banking representative of existing market conditions. causing post write off recoveries. This ensures that the group’s Significant increase in credit risk and low exposures) credit risk point of write off remains appropriate and that post write off The group uses a 25-point master rating scale to quantify the Default recoveries are within expectable levels after time. PBB credit risk for each exposure. On origination, each client is The definition of default, which triggers the credit impaired All exposures are assessed to determine whether there has assigned a credit risk grade within the group’s 25-point master classification (stage 3), is based on the group and company’s Curing been a SICR at the reporting date, in which case an impairment rating scale. Ratings are mapped to PDs by means of calibration internal credit risk management approach and definitions. Continuous assessment is required to determine whether the provision equivalent to the lifetime expected loss is recognised. formulae that use historical default rates and other data for the While the specific determination of default varies according to conditions that led to a financial asset being considered to be SICR thresholds, which are behaviour score based, are derived applicable portfolio. These credit ratings are evaluated at least the nature of the product, it is compliant to the Basel definition of credit impaired (i.e. stage 3) still exist. Distressed restructured for each portfolio vintage of exposures with similar credit risk annually or more frequently as appropriate. default, and generally determined as occurring at the earlier of: financial assets that no longer qualify as credit impaired remain and are calibrated over time to determine which exposures within stage 3 for a minimum period of six months (i.e. six full CIB exposures are evaluated for SICR by comparing the credit • where, in the group and company’s view, the counterparty is reflect deterioration relative to the originated population and consecutive monthly payments per the terms and conditions). risk grade at the reporting date to the origination credit risk considered to be unlikely to pay amounts due on the due date consequently reflect an increase in credit risk. Behaviour In the case of financial assets with quarterly or longer dated grade. Where the relative change in the credit risk grade exceeds or shortly thereafter without recourse to actions such as the scorecards are based on a combination of factors which include repayment terms, the classification of a financial asset out of certain pre-defined ratings’ migration thresholds or, when a realisation of security; or the information relating to customers, transactions and stage 3 may be made subsequent to an evaluation by the group’s contractual payment becomes more than 30 days overdue • when the counterparty is past due for more than 90 days (or, delinquency behaviour (including the backstop when contractual CIB or PBB credit governance committee (as appropriate), such (IFRS 9’s rebuttable presumption), the exposure is classified in the case of overdraft facilities, in excess of the current limit). payments are more than 30 days past due) to provide a evaluation will take into account qualitative factors in addition to within stage 2. These pre-defined ratings’ migration thresholds quantitative assessment (score), and more specifically, a ranking compliance with payment terms and conditions of the have been determined based on historic default experience The group and company have not rebutted the 90 days past due of customer creditworthiness. The creditworthiness of a agreement. Qualitative factors include compliance with which indicate that higher rated risk exposures are more rebuttable presumption. customer is summarised by a score, with high scores covenants and with existing financial asset terms and conditions. sensitive to SICR than lower risk exposures. Based on an analysis corresponding to low-risk customers, and conversely, low scores of historic default experience, exposures that are classified by the Write off policy corresponding to high-risk customers. These scores are often Where it has been determined that a financial asset no longer group’s master rating scale as investment grade (within credit An impaired loan is written off once all reasonable attempts at taken into account in determining the probability of default (PD) meets the criteria for SICR, the financial asset will be moved from risk grade 1 – 12 of the group’s 25-point master rating scale) are collection have been made and there is no material economic including relative changes in PD. Credit risk has increased since stage 2 (lifetime ECL model) back to stage 1 (12-month ECL assessed for SICR at each reporting date but are considered to benefit expected from attempting to recover the balance initial recognition when these criterion are met. model) prospectively. be of a low credit risk customer. To determine whether a client’s outstanding (i.e. no reasonable expectation of recovery). This credit risk has increased significantly since origination, the group and company would need to determine the extent of the change in credit risk using the table on the next page. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED 62 Annual report 2020 63

The group’s forward-looking economic commodity prices. In this scenario, worsening public finances Sensitivity analysis of CIB forward-looking scenario. The impact of each scenario is N$54 million (41% expectations were applied in the in South Africa would trigger a ratings downgrade by Moody’s impact on the total ECL provision on all increase in the total provision) for the Base scenario, N$57 and result in significant capital outflows. Additionally, Eskom’s financial instruments million (48% increase in total provision) for the Bear scenario determination of the ECL at the delayed turnaround would deepen electricity shortfalls and and N$52 million (35% increase in total provision) for the Bull reporting date ultimately constrain economic output. Management assessed and considered the sensitivity of the scenario. The income statement impact of N$8 million for 2020 provision against the forward-looking economic conditions at a was assessed by applying the same sensitivity analysis principles A range of base, bullish and bearish forward-looking economic • The effects of the economic downturn in South Africa would client level. The reviews and ratings of each client are performed mentioned above. The impact for each scenarios is N$24 million expectations were determined, as at 30 November 2020, for carry over into the Namibian economy and likely weigh at least annually. This process entails credit analysts completing (increase of N$16 million) for the Base scenario, N$27 million inclusion in the group’s forward-looking process and ECL negatively on growth. a credit scorecard and incorporating FLI. The weighting is (increase of N$19 million) for the Bear scenario and N$22 million calculation. • Downside risks to the domestic economic outlook are reflected in both the determination of significant increase in dominated by the persistence of the pandemic, a potential (increase of N$14 million) for the Bull scenario. credit risk as well as the measurement of the resulting provision Namibia economic expectation slow vaccine rollout as well as pre-existing structural for the individual client. Therefore, the impact of forward-looking constraints. Furthermore, debt sustainability concerns, which Sensitivity analysis of PBB forward-looking Base scenario economic conditions is embedded into the total provision for may require fiscal consolidation, which, if prematurely impact on ECL provision • Due to the negative impact of the Covid-19 outbreak both implemented will likely further dampen economic recovery and each CIB client and cannot be stressed or separated out of the The following table shows a comparison of the forward-looking globally and domestically in 2020, Namibia’s economic growth efforts. overall CIB provision. Thus, a sensitivity analysis of the total CIB impact on the provision as at 31 December 2020, based on the prospects have weakened substantially. provision of N$38 million, which includes off-balance sheet ECL, • In this scenario, the recession would continue and deepen as probability weightings of the above three scenarios resulting from • In this scenario, real gross domestic product (GDP) is expected as at 31 December 2020 was performed. This analysis entailed domestic demand remains subdued, partly owing to larger recalculating each of the scenarios using a 100% weighting to contract by around 8.0% in 2020. Local lockdowns for recalculating the total provision, using a 100% weighting of each permanent destruction of businesses and jobs in key sectors of the above factors. six months and border closures resulted most tourist of the economy. accommodation establishments closing down, which significantly hampered the tourism sector. Additionally, under the lockdown there was limited activity in the mining, transport Bull scenario 2020 2019 • Generally, there is a low probability of a bullish scenario – and storage, manufacturing and wholesale and retail trade % change % change sectors, which ultimately negatively impacted growth prospects. however, if it were to occur it would hinge on better-than- of total PBB of total PBB • Continued investments in the health and information, expected traction with broader economic reform ECL provision ECL provision communication and technology (ICT) sectors, coupled with implementation in South Africa, this in turn would attract on loans and on loans and recoveries in agriculture (as a result of above average rainfall), portfolio inflows, leading to the exchange rate strengthening as N$’000 advances N$’000 advances manufacturing and mining and quarrying, should lead to a global growth and commodity prices pick up. In addition, slight economic recovery in 2021, with a growth estimated at Namibia would also fast track implementation of the envisaged Forward looking impact on IFRS 9 provision 84 979 35 360 2.1%. Growth is expected to average above 2% by structural reforms and some key identified projects. Scenarios the end 2024. • In this scenario, domestic GDP growth would pick up Base 72 302 (15) 32 596 (8) significantly (easily around 3.5% in 2021). The turnaround Bearish 214 284 152 114 840 225 Bear scenario would be supported by a recovery in commodity prices, Bullish 1 022 (99) 15 512 (56) coupled with improved rainfall supporting growth in the • Material risks of a more bearish scenario do exist and a largely agriculture sector. Refer to note 6 loans and advances, for the carrying amounts of the loans and predicated on failure to contain the outbreak of the Covid-19 advances and the credit risk section of the risk and capital management report in annexure C for the group’s assessment of the risk arising out of the failure of pandemic, reform failure in South Africa and depressed counterparties to meet their financial or contractual obligations when due.

Main macroeconomic factors The income statement impact of N$49 million for 2020 was The following table shows the main macroeconomic factors used to estimate the forward-looking impact on the ECL provision Derivatives held-for-hedging assessed by applying the same sensitivity analysis principles on financial assets. For each scenario the average values of the factors over the next 12-months, and over the remaining forecast period, Interest rate benchmarks and reference are presented. mentioned above. The impact for each scenario is N$72 million (decrease of N$13 million) for the Base scenario, N$214 million interest rate reform Base scenario1 Bearish scenario1 Bullish scenario1 (increase of N$129 million) for the Bear scenario and N$1 million The Financial Stability Board has initiated a fundamental review (decrease of N$84 million) for the Bull scenario. Remaining Remaining Remaining and reform of the major interest rate benchmarks used globally by financial market participants. This review seeks to replace Next forecast Next forecast Next forecast Post-model adjustments 12 months period2 12 months period2 12 months period2 existing IBORs with alternative risk-free rates (ARRs) to improve Covid-19 has had a profound impact globally and there remains market efficiency and mitigate systemic risk across financial Macroeconomic factors much uncertainty as to the future economic path and recovery. markets. This reform is at various stages globally. Accordingly, 2020 As mentioned in the sections above in determining the forward- there is uncertainty surrounding the timing and manner in which Namibia looking impact, from an IFRS 9 perspective, the group has the transition would occur and how this would affect various Inflation (%) 2.20 3.80 2.90 3.84 3.50 4.20 forecasted three possible future macroeconomic scenarios, being financial instruments held by the group. The group and Real GDP (%) (8.00) 2.10 (12.00) 2.60 0.30 (3.50) the Base, Bear and Bull scenarios and attributed weightings to company’s derivative instruments are governed by International Exchange rate (USD/NAD) 17.02 15.82 17.36 17.85 16.22 15.04 these three scenarios. The outcome of the Covid-19 pandemic is Swaps and Derivatives Association (ISDA) 2006 definitions. ISDA Prime (%) 8.20 8.15 8.25 9.48 8.20 7.72 unpredictable and this makes determining these scenarios and is currently reviewing its definitions in light of IBOR reform and 2019 the assumptions underlying them complex. Given this the group and company expects it to issue standardised uncertainty, the forward-looking scenario ratios have been Inflation (%) 4.30 4.80 4.80 5.50 4.10 4.20 amendments to all impacted derivative contracts at a future date. Real GDP (%) 0.40 2.10 (0.20) 0.70 1.70 3.10 changed from base case (60%), bullish (20%) and bearish No derivative instruments have been modified as at the reporting Exchange rate (USD/NAD) 14.83 14.43 16.44 15.40 13.70 13.58 (20%) to base case (55%), bullish (15%) and bearish (30%). date. Consequently, significant judgement is applied in Prime (%) 10.00 10.25 10.75 11.00 9.75 9.75 The current period ECL charge has increased from N$239 million determining whether certain interest rate risk hedge relationships to N$254 million which is a 6% increase. Adjusting for the large will continue to qualify for hedge accounting. As at 31 December 1 In 2020, the scenario weighing is: Base at 55%, Bull at 15% and Bear at 30%. In 2019, the scenario weighting is: Base at 60%, Bull at 20% and Bear at 20%. provision raised in 2019, our provision increased by N$83 million 2020, the group has applied the amendments to IAS 39 and the The scenario weighting has been revised from 2019 to 2020 due to the changes in the macroeconomic factors including the impact of Covid-19. (48.9%) reflective of the impact of Covid-19 on credit existing hedge relationships referencing IBORs continue to 2 The remaining forecast period is 2021 to 2024. impairments compared with the prior period. Gross loans and qualify for hedge accounting. The group and company will advances decreased from N$26.2 billion at 31 December 2019 to continue to apply the amendments to IAS 39 until the N25.1 billion as at 31 December 2020 and the related ECL uncertainty arising from the interest rate benchmark reforms in allowance increased from N$599 million to N$801 million. respect of the timing and amount of the underlying cash flows SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED 64 Annual report 2020 65

that the group and company are exposed to, ends. The group and financial models that are populated using market parameters Consolidation of entities The following table summarises the impairment test methodology applied and the key inputs used in testing the company have assumed that this uncertainty will not end until that are corroborated by reference to independent market data, The group controls and consolidates an entity where the group group’s goodwill relating to Mobicash Payment Solutions the group and company's contracts referencing IBOR's are where possible, or alternative sources, such as, third-party has power over the entity’s relevant activities; is exposed to amended to specify the implementation date of the alternative (Propriety) Limited. quotes, recent transaction prices or suitable proxies. The fair variable returns from its involvement with the investee; and has benchmark and cash flows. Management is monitoring market value of certain financial instruments is determined using the ability to affect the returns through its power over the entity. Mobicash Payment Solutions and accounting developments in this regard. The group and industry standard models such as, discounted cash flow analysis Determining whether the group controls another entity requires (Proprietary) Limited company have established a committee and within treasury and and standard option pricing models. These models are generally judgement by identifying an entity’s relevant activities, being capital management to manage the transition to alternative 2020 2019 used to estimate future cash flows and discount these back to those activities that significantly affect the investee’s returns, and rates. The objectives of the committee working group would the valuation date. For complex or unique instruments, more whether the group controls those relevant activities by include evaluating the extent to which loans advanced and Discounted cash flow sophisticated modelling techniques may be required, which considering the rights attached to both current and potential liabilities reference IBOR cash flows, whether such contracts Discount rate (nominal) (%) 14.36 16.02 require assumptions or more complex parameters such as voting rights, de facto control and other contractual rights, need to be amended as a result of IBOR reform and how to Forecast period (years) 5 5 correlations, prepayment spreads, default rates and loss severity. including whether such rights are substantive. manage communication about IBOR reform with counterparties. Terminal growth (nominal) (%) 3.5 4.5 The committee and working group are working closely with Valuation adjustments: Valuation adjustments are an integral business teams across the group to establish pricing for new part of the valuation process. Adjustments include, but are not Computer software intangible assets lending products indexed to the ARR in impacted jurisdictions. limited to: credit spreads on illiquid issuers, implied volatilities on The group reviews its assets under construction and assets Current and deferred tax thinly traded instruments, correlation between risk factors, brought into use for impairment at each reporting date and tests The group and company are subject to direct and indirect prepayment rates and other illiquid risk drivers. In making Fair value the carrying value for impairment whenever events or changes in taxation requirements which are determined with reference to appropriate valuation adjustments, the group applies circumstances indicate that the carrying amount (or components transactions and calculations for which the ultimate tax Financial instruments methodologies that consider factors such as bid-offer spreads, of the carrying amount) may not be recoverable. These determination has an element of uncertainty in the ordinary In terms of IFRS, the group is either required to, or elects to, liquidity, counterparty and own credit risk. Exposure to such circumstances include, but are not limited to, new technological course of business. The group and company recognise provisions illiquid risk drivers is typically managed by: measure a number of its financial assets and financial liabilities developments, obsolescence, changes in the manner in which the for tax based on objective estimates of the amount of taxes that at fair value, being the price that would, respectively, be received • using bid-offer spreads that are reflective of the relatively low software is used or is expected to be used, changes in discount may be due. Where the final tax determination is different from to sell an asset or paid to transfer a liability in an orderly liquidity of the underlying risk driver rates, significant changes in macroeconomic circumstances or the amounts that were initially recorded, such differences will impact the income tax expense and deferred tax provisions, transaction in the principal (or most advantageous) market • raising day one profit or loss provisions in accordance with changes in estimates of related future cash benefits. The disclosed in note 33 and note 14, respectively, in the period in between market participants at the measurement date. IFRS impairment tests are performed by comparing an asset’s Regardless of the measurement basis, the fair value is required to recoverable amount to its carrying amount. which such determination is made. Uncertain tax positions are • quantifying and reporting the sensitivity to each risk driver be disclosed, with some exceptions, for all financial assets and provided for in accordance with the criteria defined within IAS 12 prepayment rates The recoverable amount is determined as the higher of an asset’s financial liabilities. Fair value is a market-based measurement • Income Taxes and IFRIC 23. Deferred tax assets are reviewed at fair value less cost of disposal and its value in use. The value in and uses the assumptions that market participants would use • limiting exposure to such risk drivers and analysing exposure each reporting date and are reduced to the extent that it is no use is calculated by estimating future cash benefits that will when pricing an asset or liability under current market on a regular basis. longer probable that the related tax benefit will be realised. The result from each asset and discounting those cash benefits at an conditions. When determining fair value it is presumed that the most significant management assumption is the forecasts that appropriate discount rate. entity is a going concern and is not an amount that represents a Validation and control: All financial instruments carried at fair are used to support the probability assessment that sufficient value, regardless of classification, and for which there are no forced transaction, involuntary liquidation or a distressed sale. The review and testing of assets for impairment inherently taxable profits will be generated by the entities in the group in quoted market prices for that instrument, are fair valued using Information obtained from the valuation of financial instruments requires significant management judgement as it requires order to utilise the deferred tax assets. models that conform to international best practice and is used to assess the performance of the group and, in particular, management to derive the estimates of the identified assets’ established financial theory. These models are validated provides assurance that the risk and return measures that the independently by the group’s model validation unit and formally future cash flows in order to derive the asset’s recoverable Provisions group has taken are accurate and complete. reviewed and approved by the market risk methodologies amount. The principal assumptions taken into account in determining the Valuation process committee. This control applies to both off-the-shelf models, as value at which provisions are recorded, include determining well as those developed internally by the group. Further, all inputs Goodwill impairment whether there is an obligation, as well as assumptions about the The group’s valuation control framework governs internal control into the valuation models are subject to independent price probability of the outflow of resources and the estimate of the standards, methodologies and procedures over its valuation In terms of IFRS, the group is required on an annual basis to test validation procedures carried out by the group’s market risk unit. amount and timing for the settlement of the obligation. For legal processes, which include: its recognised goodwill for impairment. The impairment tests are Such price validation is performed on at least a monthly basis, performed by comparing the cash-generating units’ (CGU) provisions, management assesses the probability of the outflow Prices quoted in an active market: The existence of quoted but daily where possible given the availability of the underlying recoverable amounts to the carrying amounts in the functional of resources by taking into account historical data and the status prices in an active market represents the best evidence of fair price inputs. Independent valuation comparisons are also currency of the CGU being assessed for impairment. The of the claim in consultation with the group’s legal counsel. In value. Where such prices exist, they are used in determining the performed and any significant variances noted are appropriately recoverable amount is defined as the higher of the entity’s fair determining the amount and timing of the obligation once it has fair value of financial assets and financial liabilities. investigated. value less costs of disposal and its value in use. The review and been assessed to exist, management exercises its judgement by testing of goodwill for impairment inherently requires significant taking into account all available information, including that Valuation techniques: Where quoted market prices are Less liquid risk drivers, which are typically used to mark level 3 management judgment as management needs to estimate the arising after the reporting date up to the date of the approval of unavailable, the group establishes fair value using valuation assets and liabilities to model, are carefully validated and tabled identified CGU’s future cash flows. The principal assumptions the financial results. techniques that incorporate observable inputs, either directly, at the monthly price validation forum to ensure that these are considered in determining an entity’s value in use include: such as quoted prices, or indirectly, such as those derived from reasonable and used consistently across all entities in the group. Refer to note 17 for provisions and other liabilities disclosures. quoted prices, for such assets and liabilities. Parameter inputs Sensitivities arising from exposures to such drivers are similarly • Future cash flows – the forecast periods adopted reflect a set are obtained directly from the market, consensus pricing services scrutinised, together with movements in level 3 fair values. They of cash flows which, based on management’s judgement and or recent transactions in active markets, whenever possible. are also disclosed on a monthly basis at the market risk and expected market conditions, could be sustainably generated Post-employment benefits asset and liability committees. over such a period. A forecast period of five years has been Where such inputs are not available, the group makes use of The group and company’s post-employment benefits consist of theoretical inputs in establishing fair value (unobservable inputs). used. Portfolio exception: The group has, on meeting certain both post-employment retirement funds and healthcare benefits. • Discount rates – the weighted average cost of capital (WACC) Such inputs are based on other relevant input sources of qualifying criteria, elected the portfolio exception which allows an The group and company’s obligations to fund these benefits are was calculated based on comparable companies in the information and incorporate assumptions that include prices for entity to measure the fair value of certain groups of financial derived from actuarial valuations performed by the appointed industry. In determining the WACC, we have used the capital similar transactions, historic data, economic fundamentals, and assets and financial liabilities on a net basis similar to how actuaries taking into account various assumptions. The funds are asset pricing model (CAPM). Cost of debt was calculated using research information, with appropriate adjustments to reflect the market participants would price the net risk exposure at the subject to a statutory financial review by the group’s independent the risk-free rate in Namibia of 5.61% – 6.13% and adding a terms of the actual instrument being valued and current market measurement date. actuaries at intervals of not more than three years. conditions. Changes in these assumptions would affect the credit spread of 2.0% – 3.0%. The after tax cost of debt was reported fair values of these financial instruments. Valuation derived after taking into account the Namibian tax at a rate Refer to note 19 for assets and liabilities at fair value disclosures. The principal assumptions used in the determination of the group and techniques used for financial instruments include the use of of 32%. company’s liability are set out in note 35. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS 66 Annual report 2020 67

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

1. Cash and balances with the central bank 2.3 Derivatives held-for-hedging GROUP COMPANY Derivatives and other financial instruments held-for-hedging Wher e all relevant criteria are met, derivatives are classified as derivatives held-for-hedging and hedge accounting is applied to 2020 2019 2020 2019 remove the accounting mismatch between the derivative (hedging instrument) and the underlying instruments (hedged item). N$’000 N$’000 N$’000 N$’000 All qualifying hedging relationships are designated as fair value hedges. The group applies hedge accounting in respect of interest rate risk. Coins and bank notes1 417 531 470 316 1, 2 Balances with the Bank of Namibia 618 441 1 055 832 2.3.1 Derivatives designated as hedging instruments in fair value hedging relationships Cash balances 194 115 372 742 Fair value Maturity Total 1 035 972 1 526 148 194 115 372 742 Between Contract/ Fair value 1 Coins and bank notes and the reserve balance with the BoN are classified as FVTPL while temporary excess balance with BoN is classified Net fair Less than one to five Over five notional gain/ at amortised cost. Assets Liabilities value one year years years amount1 (loss) 2 These balances primarily comprise reserving requirements levied by BoN. These balances are available for use by the group subject to certain N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 restrictions and limitations imposed by BoN. These balances are held at fair value through profit or loss. GROUP 2. Derivative instruments 2020 All derivatives are classified as either derivatives held-for-trading or derivatives held-for-hedging. A summary of the fair values Interest rate risk of the derivative assets and derivative liabilities is as follows: fair value hedging relationships Fair value of assets Fair value of liabilities Interest rate swaps 6 125 6 125 6 125 79 256 (2 008) 2020 2019 2020 2019 Total 6 125 6 125 6 125 79 256 (2 008) N$’000 N$’000 N$’000 N$’000 2019 GROUP Interest rate risk Held-for-trading 366 163 145 793 (362 123) (142 511) fair value hedging relationships Held-for-hedging 6 125 4 117 Interest rate swaps 4 117 4 117 538 3 579 147 693 447 Total 372 288 149 910 (362 123) (142 511) Total 4 117 4 117 538 3 579 147 693 447

2.1 Use and measurement of derivative instruments 1 The notional amount is the sum of the absolute value for both derivative assets and liabilities. The amount cannot be used to assess the market risk The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks associated with the positions held and should be used only as a means of assessing the group’s participation in derivative contracts. The notional amount is directly impacted by the JIBAR interest rate benchmark reform. are also measured across the product range in order to take into account possible correlations.

In the normal course of business, the group enters into a variety of foreign exchange and interest rate derivative transactions 2.3.2 Hedged items classified as fair value hedges for trading and hedging purposes. Derivative instruments used by the group in trading activities include swaps and other Fair value similar types of instruments. Accumulated (loss)/gain Accumulated fair value used fair value 2.2 Derivatives held-for-trading Fair value gain/(loss) at to test hedge hedge The group transacts derivative contracts to address client demand, both as a market maker in the wholesale markets and in Liabilities 31 December ineffectiveness adjustments structuring tailored derivatives for clients. Trading derivative products include the following: N$’000 N$’000 N$’000 N$’000 Fair value of assets Fair value of liabilities Notional amount1 GROUP 2020 2019 2020 2019 2020 2019 2020 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 Interest rate risk fair value hedging relationships Deposits and debt funding (85 442) 2 135 2 135 2 135 GROUP Total (85 442) 2 135 2 135 2 135 Foreign exchange derivatives 355 536 140 281 (362 123) (136 964) 369 918 650 739 2019 Interest rate derivatives 10 627 5 512 (5 547) 79 256 147 693 Interest rate risk fair value hedging relationships Deposits and debt funding (151 744) (395) (395) (395) Total 366 163 145 793 (362 123) (142 511) 449 174 798 432 Total (151 744) (395) (395) (395) 1 The notional amount is the sum of the absolute value of all bought and sold contracts for both derivative assets and liabilities. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group’s participation in derivative contracts. 2.3.3 Hedge ineffectiveness recognised in profit or loss Net interest income 2020 2019 N$m N$m

Fair value hedges Interest rate risk fair value hedging relationships 127 842 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 68 Annual report 2020 69

3. Trading assets 6. Loans and advances 3.1 Classification 6.1 Classification GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

Government, municipality and utility bonds 9 149 Net loans and advances measured at amortised cost 24 302 724 25 635 493 Treasury bills 383 240 248 680 Gross loans and advances measured at amortised cost 25 104 014 26 234 595 Reverse repurchase and other collateralised agreements 10 348 Mortgage loans2 12 733 701 12 339 977 Total 383 240 268 177 Vehicle and asset finance (note 6.2) 2 800 832 2 904 936 Card debtors 158 960 175 900 4. Pledged assets Corporate lending 3 555 265 2 474 949 Sovereign lending 805 245 1 726 283 The following table presents details of other financial assets which have been sold or otherwise transferred, but which have not Banks 2 238 427 2 836 906 been derecognised in their entirety or which were partially derecognised, and their associated liabilities. Other loans and advances2 2 811 584 3 775 644 Carrying Carrying Credit impairments on loans and advances (note 6.3)1 (801 290) (599 102) amount of amount of Fair value of Fair value of transferred associated transferred associated Net Net loans and advances 24 302 724 25 635 493 assets liabilities assets liabilities fair value N$’000 N$’000 N$’000 N$’000 N$’000 1 The overall higher expected credit losses are mainly attributable to constrained collections and further protraction in the legal environment stemming from the national Covid-19 lockdown, increased forward-looking provisioning on the back off the weakened economic outlook (refer to the key GROUP management assumptions for further information in this regard), and changes from stage 1 to stage 2 and 3 based on risk profile assessments and stress caused by the impact of Covid-19. 2020 2 The comparatives for this line has been updated to reclassify a commercial property loan from other loans and advances to mortgage loans. Treasury bills 520 956 (515 153) 520 956 (515 153) 5 803 Pledged assets (as recognised on 6.2 Vehicle and asset finance 1 the statement of financial position) 520 956 (515 153) 520 956 (515 153) 5 803 GROUP COMPANY 2019 2020 2019 2020 2019 Treasury bills 580 098 (579 837) 580 098 (579 837) 261 N$’000 N$’000 N$’000 N$’000 Pledged assets (as recognised on the statement of financial position)1 580 098 (579 837) 580 098 (579 837) 261 Gross investment in vehicle and asset finance 3 172 611 3 420 622 Receivable within one year 314 763 353 334 1 Total amount financial assets that the group and company have pledged as collateral liabilities. Receivable after one year but within five years 2 590 797 3 067 288 The assets pledged by the group are strictly for the purpose of providing collateral to the counterparty. To the extent that the Receivable after five years 267 051 counterparty is permitted to sell and/or repledge the assets in the absence of default, they are classified in the statement of Unearned finance charges deducted (371 779) (515 686) financial position as pledged assets. These transactions are conducted under terms that are customary to standard repurchase agreements and securities borrowing activities. Net investment in vehicle and asset finance 2 800 832 2 904 936 Receivable within one year 305 694 279 045 5. Financial investments Receivable after one year but within five years 2 283 465 2 625 891 Receivable after five years 211 673 GROUP COMPANY

2020 2019 2020 2019 Leases entered into are at market-related terms. Under the terms of the lease agreement, no contingent rentals are payable. N$’000 N$’000 N$’000 N$’000 Moveable assets are leased or sold to customers under finance leases and instalment sale agreements for periods varying between 12 and 60 months. Depending on the terms of the agreement, the lessee may have the option to purchase the asset Government bonds and treasury bills 1 783 053 2 130 278 at the end of the lease term. The decrease in the net investment in vehicle and asset finance during the year was due to Mutual funds and unit-linked investments 2 516 620 1 933 514 repayments from customers Total 4 299 673 4 063 792 IFRS 9 classification: Net debt financial investments measured at amortised cost 54 732 54 754 Gross debt financial investments measured at amortised cost 54 732 54 756 Less: ECL for debt financial investments measured at amortised cost1 (2)

Financial investments measured at FVTPL 2 516 620 1 933 514 Debt financial investments measured at FVOCI 1 728 321 2 075 524 Total 4 299 673 4 063 792

1 Refer to the credit impairment charges note 31 for the current year impairment charge of N$1.1 million (2019: N$708 thousand) on debt financial investments measured at amortised cost. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 70 Annual report 2020 71

6. Loans and advances continued 6. Loans and advances continued 6.3 Reconciliation of ECL for loans and advances measured at amortised cost 6.3 Reconciliation of ECL for loans and advances measured at amortised cost continued A reconciliation of the ECL for loans and advances, by product: Closing Stage 3 Opening Total ECL Stage 1 Stage 2 (including IIS) Total ECL Transfer Transfer Transfer transfers Net ECL Impaired Exchange 31 N$’000 N$’000 N$’000 N$’000 1 January Stage 1 Stage 2 Stage 3 between raised/ accounts and other December 2020 (to)/ (to)/ (to)/ stages (released) written off movements 2020 GROUP N$’000 from from from N$’000 N$’000 N$’000 N$’000 N$’000 Opening ECL 1 January 2019 88 338 157 707 220 690 466 735 Transfers between stages1 41 274 (23 998) (17 276) GROUP Mortgage Transfers to/(from) stage 1 (23 774) (17 500) (41 274) loans1 277 767 (10 535) 7 477 3 058 95 479 (15 821) 40 384 397 809 Transfers to/(from) stage 2 23 774 224 23 998 Stage 1 18 382 5 951 4 584 10 535 (3 305) (2 508) 23 104 Transfers to/(from) stage 3 17 500 (224) 17 276 Stage 2 38 461 (5 951) (1 526) (7 477) 23 905 (3 267) 51 622 Net ECL (released)/raised (44 403) 8 124 310 143 273 864 Stage 3 ECL on new exposures raised2 18 414 4 722 23 136 (including IIS) 220 924 (4 584) 1 526 (3 058) 74 879 (15 821) 46 159 323 083 Subsequent changes in ECL (57 935) 6 717 310 143 258 925 Vehicle and Change in ECL due to derecognition (4 882) (3 315) (8 197) asset finance 100 582 (15 763) 3 876 11 887 38 824 (22 559) 116 847 Impaired accounts written off3 (125 775) (125 775) Stage 1 9 424 2 922 12 841 15 763 (15 640) (1) 9 546 Exchange and other movements4 3 199 (18 921) (15 722) Stage 2 38 703 (2 922) (954) (3 876) 15 482 50 309 Stage 3 Closing ECL 31 December 2019 88 408 141 833 368 861 599 102 (including IIS) 52 455 (12 841) 954 (11 887) 38 982 (22 559) 1 56 992 Opening ECL 1 January 2020 88 408 141 833 368 861 599 102 Card debtors 10 842 (583) 530 53 16 220 (8 463) 18 599 Transfers between stages1 29 488 (15 433) (14 055) Stage 1 1 457 401 182 583 (398) 1 642 Transfers to/(from) stage 1 (10 579) (18 909) (29 488) Stage 2 6 343 (401) (129) (530) (1 870) 3 943 Transfers to/(from) stage 2 10 579 4 854 15 433 Stage 3 Transfers to/(from) stage 3 18 909 (4 854) 14 055 (including IIS) 3 042 (182) 129 (53) 18 488 (8 463) 13 014 Net ECL (released)/raised (24 833) 40 340 268 884 284 391 Corporate 22 155 602 (602) 9 358 270 31 783 ECL on new exposures raised2 28 365 12 110 2 413 42 888 Stage 1 22 198 (602) (602) (3 773) (3 560) 14 263 Subsequent changes in ECL (39 629) 29 826 266 471 256 668 Stage 2 (177) 602 602 10 765 3 830 15 020 Change in ECL due to derecognition (13 569) (1 596) (15 165) Stage 3 Impaired accounts written off3 (115 896) (115 896) (including IIS) 134 2 366 2 500 Exchange and other movements4 (400) 109 33 984 33 693 Sovereign 19 19 Closing ECL 31 December 2020 92 663 166 849 541 778 801 290 Stage 1 3 3 1 The group policy is to transfer opening balances based on the ECL stage at the end of the reporting period. Therefore, exposures can be transferred Stage 2 16 16 directly from stage 3 to stage 1 as the curing requirements would have been satisfied during the reporting year. Stage 3 2 The ECL recognised newon exposures originated during the reporting year (which are not included in opening balances) are included within the line (including IIS) ‘ECL on new exposures raised’ ECL stage as at the end of the reporting year. 3 The contractual amount outstanding on loans and advances that were written off during the reporting year that are still subject to enforcement Bank (696) (1 512) 6 039 3 831 activities is N$101 million. 4 Exchange and other movements include the time value of money (TVM) unwind and net interest in suspense (IIS) raised and released. Stage 1 (695) (2 042) 6 493 3 756 Stage 2 (1) 530 (454) 75 Stage 3 (including IIS) Other loans and advances2 188 452 (3 209) 4 152 (943) 126 003 (69 053) (13 000) 232 402 Stage 1 37 642 1 907 1 302 3 209 322 (824) 40 349 Stage 2 58 504 (1 907) (2 245) (4 152) (8 488) 45 864 Stage 3 (including IIS) 92 306 (1 302) 2 245 943 134 169 (69 053) (12 176) 146 189

Total3, 4 599 102 (29 488) 15 433 14 055 284 391 (115 896) 33 693 801 290

1 Comprises residential and commercial property loans. 2 Comprises personal unsecured lending and business and other lending. 3 “Corporate”, “Sovereign” and “Bank” categories relate to ECL on CIB loans and advances while the remaining categories relateadvances. to PBB loans and 4 The overall higher expected credit losses is mainly attributable to constrained collections and further protraction in the legal environment stemming from the national Covid-19 lockdown, increased forward-looking provisioning on the back off the weakened economic outlook (refer to the key management assumptions for further information in this regard), and changes from stage 1 to stage 2 and 3 based on risk profile assessments and stress caused by the impact of Covid-19. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 72 Annual report 2020 73

6. Loans and advances continued 7. Other assets 6.3 Reconciliation of ECL for loans and advances measured at amortised cost continued GROUP COMPANY Closing 2020 20192 2020 20192 Opening Total ECL N$’000 N$’000 N$’000 N$’000 ECL Transfer Transfer Transfer transfers Net ECL Impaired Exchange 31 1 January Stage 1 Stage 2 Stage 3 between raised/ accounts and other December Financial assets1 102 049 910 568 43 600 27 554 2019 (to)/ (to)/ (to)/ stages (released) written off movements 2019 N$’000 from from from N$’000 N$’000 N$’000 N$’000 N$’000 Trading settlement assets 6 485 791 956 Other debtors 95 564 118 612 43 600 27 554 GROUP Mortgage Non-financial assets 79 918 55 596 loans1 179 665 (12 266) 4 045 8 221 149 132 (8 012) (43 018) 277 767 Prepayments 17 591 7 027 Stage 1 16 929 4 848 7 418 12 266 (10 813) 18 382 Accrued income 13 258 11 674 Stage 2 51 712 (4 848) 803 (4 045) (9 207) 1 38 461 Items in the course of collection 35 827 25 836 Stage 3 Properties in possession 13 242 11 059 (including IIS) 111 024 (7 418) (803) (8 221) 169 152 (8 012) (43 019) 220 924 Vehicle and Total2 181 967 966 164 43 600 27 554 asset finance 95 765 (11 157) 6 368 4 789 38 859 (34 042) 100 582 Stage 1 10 838 5 429 5 728 11 157 (12 571) 9 424 1 Due to the short-term nature of these assets and historical experience, debtors are regarded as having a low PD. Therefore, the ECL has been assessed Stage 2 37 355 (5 429) (939) (6 368) 7 716 38 703 to be insignificant. Stage 3 2 The presentation of this note has been updated to show the split between financial assets and non-financial assets and to further show “prepayments”, “accrued income” and “properties in possession” separately on the note. These were previously included as part of “Other debtors”. There was no (including IIS) 47 572 (5 728) 939 (4 789) 43 714 (34 042) 52 455 change to total other assets. Card debtors 12 971 (2 612) 1 363 1 249 3 987 (6 116) 10 842 Stage 1 1 735 1 522 1 090 2 612 (2 890) 1 457 8. Interest in subsidiaries and joint venture Stage 2 7 433 (1 522) 159 (1 363) 273 6 343 Stage 3 GROUP COMPANY (including IIS) 3 803 (1 090) (159) (1 249) 6 604 (6 116) 3 042 2020 2019 2020 2019 Corporate 20 795 174 (18) (156) (1 839) 3 199 22 155 N$’000 N$’000 N$’000 N$’000 Stage 1 16 506 (174) (174) 2 667 3 199 22 198 Stage 2 3 120 174 (156) 18 (3 315) (177) Interest in subsidiary companies (note 8.1) 921 986 921 986 Stage 3 Interest in joint venture (note 8.2) 15 435 (including IIS) 1 169 156 156 (1 191) 134 Sovereign 2 564 (2 564) Total 15 435 921 986 921 986 Stage 1 2 050 (2 050) Stage 2 514 (514) 8.1 Interest in subsidiary companies Stage 3 (including IIS) GROUP COMPANY Bank (967) 271 (696) 2020 2019 2020 2019 Stage 1 (967) 272 (695) N$’000 N$’000 N$’000 N$’000 Stage 2 (1) (1) Stage 3 Shares at cost 921 986 668 786 (including IIS) Acquisition of subsidiary 53 200 Other loans Contributions to subsidiary 200 000 and advances2 155 942 (15 413) 12 240 3 173 86 018 (77 605) 24 097 188 452 Total 921 986 921 986 Stage 1 41 247 12 149 3 264 15 413 (19 018) 37 642 Stage 2 57 572 (12 149) (91) (12 240) 13 172 58 504 Stage 3 Further information on interest in subsidiary companies is disclosed in Annexure A. (including IIS) 57 123 (3 264) 91 (3 173) 91 864 (77 605) 24 097 92 306

Total3, 4 466 735 (41 274) 23 998 17 276 273 864 (125 775) (15 722) 599 102 8.2 Interest in joint venture 1 Comprises residential and commercial property loans. 2 Comprises personal unsecured lending and business and other lending. GROUP COMPANY 3 ’Corporate’, ’Sovereign’ and ’Bank’ categories relate to ECL on CIB loans and advances while the remaining categories relate to PBB loans and advances. 4 The overall higher expected credit losses is mainly attributable to constrained collections and further protraction in the legal environment stemming from the 2020 2019 2020 2019 national Covid-19 lockdown, increased forward-looking provisioning on the back off the weakened economic outlook (refer to the key management assumptions for N$’000 N$’000 N$’000 N$’000 further information in this regard), and changes from stage 1 to stage 2 and 3 based on risk profile assessments and stress caused by the impact of Covid-19. Carrying value at the beginning of the year 15 435 11 506 Changes in gross exposures relating to changes in ECL (group) Share of profit 3 929 The below is an explanation of significant changes in the gross carrying amount on financial instruments used to determine the Loss on derecognition (1 604) above changes in ECL: Amount transferred to interest-bearing loans (13 831) • The ECL on new exposures raised of N$42.9 million (2019: N$23.1 million) primarily relates to the growth in gross carrying Carrying value at the end of the year 15 435 amount of: – mortgage loans of N$928 million (2019: N$1.3 billion) Comprising: Cost of investments 1 154 – vehicle and asset finance of N$1.07 billion (2019: N$1.03 billion) Share of reserves 14 281 – other loans and advances of N$379 million (2019: N$1.2 billion). Carrying value at the end of the year 15 435 • The decrease in ECL due to impaired accounts written-off of N$108 million (2019: N$125 million) resulted in an equal decrease to the gross carrying amount of loans and advances as exposures are fully provided for before being written off. Amounts recognised in the income statement: • The company policy is to transfer between stages using opening ECL balances based on the exposures’ ECL stage at the Share of profit 3 929 end of the reporting period. Therefore, the related gross carrying amount of the significant transfers (primary as a result of Covid-19, however includes positive collection trends and strong performance observed in the latter part of 2020). On 31 January 2020, Namclear (Proprietary) Limited converted to a non-profit organisation registered under section 21 of the N$256 million that were in stages 2 and 3 were transferred to stage 1. In the prior year, the significant transfers were Namibian Companies Act. Accordingly, the group no longer applies the equity method of accounting to the investment. mortgage loans with gross carrying amounts N$427 million that were in stage 2 and 3 were transferred to stage 1. The carrying amount of the investment was derecognised and N$13.8 million recognised as a loan receivable and has been Modifications on loans and advances measured at amortised cost included in loans and advances. The remaining loss on derecognition of N$1.6 million has been recognised in profit or loss in the current year. The gross carrying amount for modifications during the reporting year that resulted in no economic gain or loss (i.e. no net modification gain or loss) is N$2.5 billion (2019: N$761 million). Further information on the joint venture is disclosed in Annexure B. This includes N$1.6 billion of client relief provided to PBB clients to assist with temporary liquidity constraints as a result of the impact of Covid-19. CIB clients with exposure totalling N$94 million qualified for Covid-19 relief, including increased liquidity facilities, loan restructuring, covenant relaxations and payment holidays. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 74 Annual report 2020 75

9. Property, equipment and right-of-use assets Property Equipment Right-of-use assets IT equipment Motor Office Furniture ATM spacing Total Freehold Leasehold Restated1 vehicles equipment and fittings Buildings Branches and other Restated1 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP Net book value 1 January 2019, as previously reported1 593 040 82 278 263 522 7 131 13 829 100 017 1 059 817 Restatement1 (73 098) (73 098) Net book value 1 January 2019, restated1 593 040 82 278 190 424 7 131 13 829 100 017 986 719 IFRS 16 transition 1 January 2019 11 055 54 216 474 65 745 Movements 100 876 (21 715) (26 869) (2 364) (1 982) 37 407 (3 660) (12 212) (277) 69 204 Additions1 92 259 422 17 777 646 993 68 788 719 8 059 189 663 Addition due to acquisition of subsidiary 2 293 115 462 2 870 Disposals (2 165) (93) (460) (8 406) (11 124) Transfers 10 251 (9 932) 2 308 149 (2 776) Depreciation (1 634) (10 040) (49 154) (3 125) (3 126) (20 199) (4 379) (20 271) (277) (112 205)

Net book value at the beginning of the year1 693 916 60 563 163 555 4 767 11 847 137 424 7 395 42 004 197 1 121 668 Cost 700 870 130 288 528 683 26 765 38 530 265 671 11 774 62 275 474 1 765 330 Accumulated depreciation (6 954) (69 725) (356 128) (21 998) (26 683) (128 247) (4 379) (20 271) (277) (643 662) Movements 34 984 (32 902) (12 071) (1 487) (1 358) (6 694) (1 000) (17 441) (197) (38 166) Additions 19 993 4 538 45 649 1 283 1 577 18 452 91 492 Disposals (387) (880) (108) (319) (11) (311) (2 016) Transfers 29 533 (28 174) (1 237) (122) Depreciation (14 155) (8 386) (56 375) (2 451) (2 924) (24 713) (1 000) (17 441) (197) (127 642)

Net book value 31 December 2020 728 900 27 661 151 484 3 280 10 489 130 730 6 395 24 563 1 083 502 Cost 749 995 103 052 579 290 26 203 39 946 282 149 11 774 62 275 474 1 855 158 Accumulated depreciation (21 095) (75 391) (427 806) (22 923) (29 457) (151 419) (5 379) (37 712) (474) (771 656)

1 Refer to page 59 for information regarding the correction of the classification of property, equipment and right-of-use assets and intangible assets. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 76 Annual report 2020 77

10. Goodwill and other intangible assets 11. Ordinary share capital 10.1 Group 11.1 Authorised Computer GROUP COMPANY Customer software Total 2020 2019 2020 2019 Goodwill relationships Restated1, 2 Restated2 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 800 000 000 ordinary shares at N$0.002 per share 1 600 1 600 1 000 1 000 Net book value 1 January 2019, as previously reported2 298 960 298 960 Restatement2 73 098 73 098 11.2 Issued Net book value 1 January 2019, restated 372 058 372 058 Movements 39 020 10 103 82 584 131 707 GROUP COMPANY Additions2 109 867 109 867 2020 2019 2020 2019 Addition due to acquisition of subsidiary 39 020 10 103 3 385 52 508 N$’000 N$’000 N$’000 N$’000 Amortisation (30 668) (30 668) 522 471 910 ordinary shares at N$0.002 per share 1 045 1 045 1 045 1 045 Net book value at the beginning of the year, restated2 39 020 10 103 454 642 503 765 Number ordinary shares Cost2 39 020 10 103 552 518 601 641 Accumulated amortisation (97 876) (97 876) GROUP Movements (1 768) (1 228) (2 996) Reconciliation of shares issued Shares in issue at 31 December 2018 100 000 000 Additions 37 204 37 204 Increase as a result of subdivision of shares 400 000 000 Disposals (396) (396) Shares issued during 2019 22 471 910 Amortisation (1 768) (38 036) (39 804) Shares in issue at 31 December 2019 522 471 910 Net book value 31 December 2020 39 020 8 335 453 414 500 769 Shares in issue at 31 December 2020 522 471 910 Cost 39 020 10 103 588 216 637 339 Accumulated amortisation (1 768) (134 802) (136 570) 11.3 Unissued

1 Computer software mainly comprises the company’s core banking system, Finacle, with a carrying amount of N$245 million (2019: N$275 million) GROUP COMPANY and a remaining amortisation period of 10 years. 2 Refer to page 59 for information regarding the correction of the classification of property, equipment and right-of-use assets and intangible assets. 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 10.2 Goodwill composition 277 528 090 ordinary shares at N$0.002 per share 555 555 555 555 2020 2019 Accumulated Accumulated 12. Ordinary share premium Gross impairment Total Gross impairment Total N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 GROUP COMPANY

GROUP 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 Mobicash Payment Solutions (Proprietary) Ltd 39 020 39 020 39 020 39 020 Share premium on issue of shares 642 189 642 189 642 189 642 189 Total 39 020 39 020 39 020 39 020

Based on the impairment test performed, no impairment was recognised for 2020 (2019: nil). Details on key management 13. Trading liabilities assumptions used to determine the recoverable amount are disclosed on page 65. GROUP COMPANY 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000

Government, municipality and utility bonds 230 14 881 Total 230 14 881 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 78 Annual report 2020 79

14. Deferred tax 15. Deposits and debt funding 14.1 Deferred tax analysis GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 Deposits from banks 1 909 497 2 328 818 Deposits from customers 24 210 318 25 538 002 Deferred tax asset Impairment charges on loans and advances 63 313 56 328 Current accounts 6 581 100 7 488 563 Post-employment benefits 34 916 38 376 Cash management deposits 1 844 435 826 505 Provisions and other differences 205 399 207 129 Card creditors 26 746 29 205 Fair value adjustments of FVOCI financial investments (2 746) (733) Call deposits 9 026 868 8 620 081 Savings accounts 674 335 603 995 Deferred tax asset closing balance 300 882 301 100 Term deposits 2 051 344 2 312 001 Deferred tax liability Negotiable certificates of deposit 4 005 490 5 657 652 Property, equipment and intangible assets (249 851) (225 480) Assets on lease (20 518) (10 229) Total 26 119 815 27 866 820 Other differences (12 419) (20 722) Deferred tax liability closing balance (282 788) (256 431) 16. Debt securities issued Carrying Notional Carrying Notional 14.2 Deferred tax reconciliation value1 value1 value1 value1 GROUP COMPANY 2020 2020 2019 2019 Maturity date N$’000 N$’000 N$’000 N$’000 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 GROUP SBKN20 10/25/2020 203 230 200 000 Deferred tax asset SBKN212 7/31/2021 540 739 536 000 543 629 536 000 Deferred tax asset balance at the beginning SBNA21 7/13/2021 209 402 207 000 238 300 234 000 of the year 301 100 214 764 SBNA22 5/24/2021 466 445 463 500 504 409 499 800 Originating temporary differences for the year: (218) 86 336 SBNA23 10/26/2023 302 540 300 000 Fair value adjustments included in FVOCI financial Subordinated debt 30/04/2025 101 179 100 000 101 182 100 000 investments (2 013) (1 383) 1 620 305 1 606 500 1 590 750 1 569 800 Impairment charges on loans and advances 6 985 (2 724) Post-employment benefits (3 460) 1 980 1 The difference between the carrying and notional value represents transaction costs included in the initial carrying amounts and accrued interest. Provisions and other differences (1 730) 88 463 2 This debt security is listed on the JSE.

Deferred tax asset balance at the end of the year 300 882 301 100 Deferred tax liability Deferred tax liability balance at the beginning of the year (256 431) (196 676) Originating temporary differences for the year: (26 357) (59 755) Property, equipment and intangible assets (24 371) (60 912) Assets on lease (10 289) (2 822) Other differences 8 303 3 979

Deferred tax liability balance at the end of the year (282 788) (256 431)

Net deferred tax balance at the end of the year 18 094 44 669 Temporary differences for the year comprise: Recognised in profit or loss 17 321 (30 491) Recognised in OCI (note 33.2) 9 254 1 383 Total 26 575 (29 108) SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 80 Annual report 2020 81

17. Provisions and other liabilities 17. Provisions and other liabilities continued GROUP COMPANY 17.1 Reconciliation of lease liabilities continued 2020 20191 2020 20191 Maturity analysis of discounted lease liabilities: N$’000 N$’000 N$’000 N$’000 2020 2019 Financial liabilities 25 443 55 398 Within From 1 to 5 Within From 1 to 5 ECL for off-balance sheet exposures 3 900 4 353 1 year years Total 1 year years Total N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 Lease liabilities (note 17.1) 21 543 51 045 Non-financial liabilities 490 251 1 293 129 16 480 202 718 GROUP Obligation toward post-employment benefits (note 35) 109 114 120 010 Buildings 3 053 242 3 295 3 585 4 205 7 790 Other liabilities and accruals 302 319 1 082 985 16 480 202 718 Branches 12 386 5 781 18 167 15 917 27 114 43 031 Staff-related accruals 78 818 90 134 ATM spacing and other 81 81 224 224 Total 15 520 6 023 21 543 19 726 31 319 51 045 Total1 515 694 1 348 527 16 480 202 718

1 The presentation of this note has been updated to show the split between financial liabilities and non-financial liabilities. There was no change to total Maturity analysis of undiscounted contractual cash flows: provisions and other liabilities 2020 2019 17.1 Reconciliation of lease liabilities Within From 1 to 5 Within From 1 to 5 1 year years Total 1 year years Total Balance at Balance at N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 1 January Additions/ Interest 31 December 2020 modification expense Payments1 2020 N$’000 N$’000 N$’000 N$’000 N$’000 GROUP Buildings 3 061 1 312 4 373 3 820 4 629 8 449 GROUP Branches 14 426 9 136 23 562 19 381 27 761 47 142 Buildings 7 790 348 (6 238) 1 900 ATM spacing and other 213 17 230 104 125 229 Branches 43 031 1 940 (25 409) 19 562 Total 17 700 10 465 28 165 23 305 32 515 55 820 ATM spacing and other 224 28 (171) 81 Total 51 045 2 316 (31 818) 21 543

Balance at Balance at 1 January Additions/ Interest 31 December 2019 modification expense Payments1 2019 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP Buildings 10 900 718 533 (4 361) 7 790 Branches 54 002 8 058 2 864 (21 893) 43 031 ATM spacing and other 473 19 (268) 224 Total 65 375 8 776 3 416 (26 522) 51 045

1 These amounts include the principal lease payments as disclosed in the statement of cash flows of N$29.5 million (2019: N$23.1 million) for the group. The remainder is the interest expense paid during the year. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 82 Annual report 2020 83

18. Classification of assets and liabilities Accounting classifications and fair values of assets and liabilities The tables that follow set out the group and company classification of assets and liabilities, and their fair values.

FVTPL FVOCI Fair value through Other profit non-financial Total Held-for- or loss – Debt Equity Total Amortised assets/ carrying Fair trading default instruments instruments fair value cost1 liabilities amount value2 Note N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP 2020 Assets Cash and balances with the central bank 1 730 494 730 494 305 478 1 035 972 1 035 972 Derivative assets 2 372 288 372 288 372 288 372 288 Trading assets 3 383 240 383 240 383 240 383 240 Pledged assets 4 520 956 520 956 520 956 520 956 Financial investments 5 2 516 620 1 728 321 4 244 941 54 732 4 299 673 4 299 673 Loans and advances 6 24 302 724 24 302 724 24 994 388 Other financial assets3 102 049 102 049 Other non-financial assets 2 064 596 2 064 596 Total assets 1 276 484 3 247 114 1 728 321 6 251 919 24 764 983 2 064 596 33 081 498 Liabilities Derivative liabilities 2 362 123 362 123 362 123 362 123 Trading liabilities 13 230 230 230 230 Deposits and current accounts with banks 15 1 909 497 1 909 497 1 909 497 Deposits and current accounts with customers 15 24 210 318 24 210 318 24 220 526 Debt securities issued 1 620 305 1 620 305 1 657 018 Other financial liabilities3 25 443 25 443 Other non-financial liabilities 773 039 773 039 Total liabilities 362 353 362 353 27 765 563 773 039 28 900 955 COMPANY 2020 Assets Cash and cash equivalents 1 194 115 194 115 194 115 Other financial assets3 43 600 43 600 Other non-financial assets 921 986 921 986 Total assets 237 715 921 986 1 159 701 Liabilities Other non-financial liabilities3 20 589 20 589 Total liabilities 20 589 20 589

1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedge risks. 2 Carrying value has been used where it closely approximates fair values, excluding non-financial instruments. Refer to the fair value section in accounting policy 4 – Fair value and key management assumptions for a description on how fair values are determined. 3 The fair value of other financial assets and liabilities approximates the carrying value due to their short-term nature. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 84 Annual report 2020 85

18. Classification of assets and liabilities continued Accounting classifications and fair values of assets and liabilities continued FVTPL FVOCI Fair value through Other profit non-financial Total Held-for- or loss – Debt Equity Total Amortised assets/ carrying trading default instruments instruments fair value cost1 liabilities amount Fair value2 Note N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP 2019 Assets Cash and balances with the central bank 1 801 472 801 472 724 676 1 526 148 1 526 148 Derivative assets 2 149 910 149 910 149 910 149 910 Trading assets 3 268 177 268 177 268 177 268 177 Pledged assets 4 580 098 580 098 580 098 580 098 Financial investments 5 1 933 514 2 075 523 4 009 037 54 754 4 063 791 4 063 792 Loans and advances 6 25 635 493 25 635 493 27 174 075 Other financial assets3, 4 910 568 910 568 Other non-financial assets4 2 077 745 2 077 745 Total assets 998 185 2 734 986 2 075 523 5 808 694 27 325 491 2 077 745 35 211 930 Liabilities Derivative liabilities 2 142 511 142 511 142 511 142 511 Trading liabilities 13 14 881 14 881 14 881 14 881 Deposits and current accounts with banks 15 2 328 818 2 328 818 2 328 818 Deposits and current accounts with customers 15 25 538 002 25 538 002 26 071 317 Debt securities issued 16 1 590 750 1 590 750 1 052 916 Other financial liabilities3, 5 55 398 55 398 Other non-financial liabilities5 1 549 560 1 549 560 Total liabilities 157 392 157 392 29 512 968 1 549 560 31 219 920 COMPANY 2019 Assets Cash and cash equivalents 1 372 742 372 742 372 742 Other financial assets3, 4 27 554 27 554 Other non-financial assets4 921 986 921 986 Total assets 400 296 921 986 1 322 282 Liabilities Other non-financial liabilities3 208 118 208 118 Total liabilities 208 118 208 118

1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair values due to designated hedge risks. 2 Carrying value has been used where it closely approximates fair values, excluding non-financial instruments. Refer to the fair value section in accounting policy 4 – Fair value and key management assumptions for a description on how fair values are determined. 3 The fair value of other financial assets and liabilities approximates the carrying value due to their short-term nature. 4 This line has been updated to exclude other non-financial assets as per note 7 which were incorrectly included as part of other financial assets on the classification of assets and liabilities table. These are now included as part of other non-financial assets. There was no change to total assets. 5 This line has been updated to exclude other non-financial liabilities as per note 17 which were incorrectly included as part of other financial liabilities on the classification of assets and liabilities table. These are now included as part of other non-financial liabilities. There was no change to total liabilities. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 86 Annual report 2020 87

19. Assets and liabilities at fair value 19. Assets and liabilities at fair value continued 19.1 Financial assets and liabilities measured at fair value 19.1 Financial assets and liabilities measured at fair value continued The table below sets out the financial assets and liabilities measured at fair value for the group. Valuation Observable 2020 2019 technique input Valuation and level Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 Derivatives Options Black-Scholes Market discount Spot prices of Standard derivative Level 2 model and rate and curves underlying contracts are GROUP discounted cash transactions valued using Assets flow model or and correlation market-accepted Cash and balances with combination of factors models and quoted the central bank 730 494 730 494 801 472 801 472 both parameter inputs Derivative assets 372 288 372 288 149 910 149 910 Trading assets 383 240 383 240 268 177 268 177 Swaps Discounted cash Market discount Spot prices of A forward curve is Level 2 Pledged assets 520 956 520 956 580 098 580 098 flow model rates and curves underlying used to calculate Financial investments 1 728 321 2 516 620 4 244 941 2 075 523 1 933 514 4 009 037 transactions future cash flows and then Total 3 363 011 2 888 908 6 251 919 3 725 270 2 083 424 5 808 694 discounted using a Liabilities discount curve over Derivative liabilities 362 123 362 123 142 511 142 511 the contractual Trading liabilities 230 230 14 881 14 881 period

Total 230 362 123 362 353 14 881 142 511 157 392 Forward Discounted cash Market discount Spot prices of A forward curve is Level 2 agreements flow model rates and curves underlying used to calculate Assets and liabilities transferred between level 1 and level 2 transactions future cash flows During the year no significant assets or liabilities were transferred between level 1 and level 2 (2019: N$nil). and then discounted using a discount curve over the contractual period

Financial Treasury Discounted cash Market discount Interest rate Future cash flows Level 2 investments bills flow model rates and curves curve are discounted and trading using a market- securities related interest rate

Money Discounted cash Market discount JIBAR rate and Future cash flows Level 2 market flow model rates and curves spread are discounted funds using a market- related interest rate

Liabilities NCDs Discounted cash Market discount JIBAR rate and Future cash flows Level 2 flow model rates and curves spread are discounted using a market- related interest rate

Promissory Discounted cash Market discount JIBAR rate and Future cash flows Level 2 notes flow model rates and curves spread are discounted using a market- related interest rate SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 88 Annual report 2020 89

19. Assets and liabilities at fair value continued 20. Financial instruments subject to offsetting, enforceable master netting 19.2 Assets and liabilities not measured at fair value for which fair value is disclosed arrangements or similar agreements 19.2.1 Fair value hierarchy of items for which fair value is disclosed IFR S requires a financial asset and a financial liability to be offset and the net amount presented in the statement of financial position when, and only when, the group and company has a current legally enforceable right to set off recognised amounts, as 2020 2019 well as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. There are no other instances apart from the cash management accounts, where the group has a current legally enforceable right to offset as well Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. The following table sets out the impact of offset, as well as the required disclosures for financial assets and financial liabilities GROUP that are subject to an enforceable master netting arrangements or similar agreements, irrespective of whether they have been Assets offset in accordance with IFRS. It should be noted that the information below is not intended to represent the group and Cash and balances company’s actual credit exposure, nor will it agree to that presented in the statement of financial position. with the central bank 305 478 305 478 724 676 724 676 Net Financial investments 54 732 54 732 54 754 54 754 Financial amount Loans and advances 24 994 388 24 994 388 27 174 075 27 174 075 Gross liabilities of financial amount of set off in the assets Total 360 210 24 994 388 25 354 598 779 430 27 174 075 27 953 505 recognised statement subject Liabilities financial of financial to netting Collateral Net Deposits from banks 1 909 497 1 909 497 2 328 818 2 328 818 assets1 position2 agreements3 received4 amount Deposits from N$’000 N$’000 N$’000 N$’000 N$’000 customers 24 220 526 24 220 526 26 071 317 26 071 317 Debt issued GROUP securities 1 657 018 1 657 018 1 052 916 1 052 916 2020 Assets 1 Total 27 787 041 27 787 041 29 453 051 29 453 051 Derivative assets 372 288 372 288 (372 288) Loans and advances5 24 302 724 (1 844 435) 22 458 289 (18 578 205) 3 880 084 1 The fair value hierarchy of deposits from banks and customers and debt securities issued for 2019 comparatives have been updated to level 2 which is deemed to be the appropriate fair value hierarchy level of these instruments. Total 24 675 012 (1 844 435) 22 830 577 (18 950 493) 3 880 084

2020 2019 Net Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Financial amounts N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 Gross assets of financial amount of set off in the liabilities COMPANY recognised statement subject Assets financial of financial to netting Collateral Net liabilities1 position2 agreements3 pledged6 amount Cash and cash N$’000 N$’000 N$’000 N$’000 N$’000 equivalents 194 115 194 115 372 742 372 742 Total 194 115 194 115 372 742 372 742 GROUP 2020 The hierarchy of levels is explained below: Liabilities Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the company can access Derivative liabilities (362 123) (362 123) 362 123 5 at measurement date. Deposits and current accounts (26 119 815) 1 844 435 (24 275 380) (24 275 380) Level 2: Input s other than quoted prices included in level 1 that are observable for the asset or liability either directly Total (26 481 938) 1 844 435 (24 637 503) 362 123 (24 275 380) or indirectly. 1 Gross amounts are disclosed for recognised financial assets and financial liabilities that are either offset in the statement of financial position Level 3: Unobservable inputs for the asset or liability. or are subject to a master netting arrangement or a similar agreement, irrespective of whether the IFRS offsetting criteria is met. 2 Gross amounts of recognised financial assets or financial liabilities that qualify for offset in accordance with the criteria per IFRS. The offsetting has not Significant unobservable inputs been applied. 3 Related amounts not offset in the statement of financial position that are subject to a master netting arrangement or similar agreement. The fair value of level 3 assets and liabilities is determined using valuation techniques that include reference to recent arm’s 4 This could include financial collateral (whether recognised or unrecognised), cash collateral as well as exposures that are available to the group length transactions, discounted cash flow analyses, pricing models and other valuation techniques commonly used by market to be offset in the event of default. In most cases the group is allowed to sell or repledge collateral received. participants. However, such techniques typically have unobservable inputs that are subject to management judgement. These 5 The most material amounts offset in the statement of financial position pertain to cash management accounts. The cash management accounts allow inputs include credit spreads on illiquid issuers, implied volatilities on thinly traded stocks, correlation between risk factors, holding companies (or central treasury functions) to manage the cash flows of its group by linking the current accounts of multiple legal entities within a group. This allows for cash balances of the different legal entities to be offset against each other to arrive at a net balance for those groups. prepayment rates and other illiquid risk drivers. 6 In most instances, the counterparty may not sell or repledge collateral pledged by the group. Exposure to such illiquid risk drivers is typically managed by:

• using bid-offer spreads that are reflective of the relatively low liquidity of the underlying risk driver; • raising day one profit provisions in accordance with IFRS; • quantifying and reporting the sensitivity to each risk driver; • limiting exposure to such risk drivers; and • analysing this exposure on a regular basis. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 90 Annual report 2020 91

20. Financial instruments subject to offsetting, enforceable master netting 21. Maturity analysis of assets arrangements or similar agreements continued 21.1 Financial assets Financial Net amount The following table discloses the maturity analysis for the group and company’s financial assets on a contractual Gross liabilities of financial discounted basis. amount of set off in the assets Maturing recognised statement subject Redeemable Maturing within 1 to 5 Maturing financial of financial to netting Collateral Net on demand within 1 year years after 5 years Total assets1 position2 agreements3 received4, 7 amount7 Note N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 GROUP GROUP 2020 2019 Cash and balances with Assets central banks1 1 1 035 972 1 035 972 Derivative assets 149 910 149 910 (149 910) Derivative assets 2 337 941 34 347 372 288 Loans and advances5 25 635 493 (1 295 658) 24 339 835 (21 092 195) 3 247 640 Trading assets 3 383 240 383 240 Total 25 785 403 (1 295 658) 24 489 745 (21 242 105) 3 247 640 Pledged assets 4 520 956 520 956 Financial investments 5 2 516 618 1 735 127 44 015 3 913 4 299 673 Loans and advances 6 2 651 881 2 987 413 4 821 351 14 643 369 25 104 014 Financial Net amounts Other assets 7 102 049 102 049 Gross assets of financial amount of set off in the liabilities 6 306 520 5 964 677 4 899 713 14 647 282 31 818 192 recognised statement subject financial of financial to netting Collateral Net 2019 liabilities1 position2 agreements3 pledged6 amount Cash and balances with 1 N$’000 Rm Rm Rm Rm central bank 1 1 526 148 1 526 148 Derivative assets 2 138 990 10 920 149 910 GROUP Trading assets 3 (50) 258 934 9 293 268 177 2019 Pledged assets 4 580 098 580 098 Liabilities Financial investments 5 1 933 514 902 742 1 180 677 46 859 4 063 792 2 Derivative liabilities (142 511) (142 511) 142 511 Loans and advances 6 3 147 808 2 814 721 2 498 764 17 773 302 26 234 595 3 Deposits and current accounts5 (27 866 820) (1 295 658) (29 162 478) (29 162 478) Other assets 7 910 568 910 568 Total (28 009 331) (1 295 658) (29 304 989) 142 511 (29 162 478) 7 517 988 4 695 485 3 699 654 17 820 161 33 733 288

1 Gross amounts are disclosed for recognised financial assets and financial liabilities that are either offset in the statement of financial position Maturing or are subject to a master netting arrangement or a similar agreement, irrespective of whether the IFRS offsetting criteria is met. Redeemable Maturing within 1 to 5 Maturing 2 Gross amounts of recognised financial assets or financial liabilities that qualify for offset in accordance with the criteria per IFRS. The off setting on demand within 1 year years after 5 years Total has not been applied. Note N$’000 N$’000 N$’000 N$’000 N$’000 3 Related amounts not offset in the statement of financial position that are subject to a master netting arrangement or similar agreement. 4 This could include financial collateral (whether recognised or unrecognised), cash collateral as well as exposures that are available to the group to be offset in the event of default. In most cases the group is allowed to sell or repledge collateral received. COMPANY 5 The most material amounts offset in the statement of financial position pertain to cash management accounts. The cash management accounts allow 2020 holding companies (or central treasury functions) to manage the cash flows of its group by linking the current accounts of multiple legal entities within Cash and cash equivalents 194 115 194 115 a group. This allows for cash balances of the different legal entities to be offset against each other to arrive at a net balance for those groups. Other financial assets 43 600 43 600 6 In most instances, the counterparty may not sell or repledge collateral pledged by the group. 7 2019 collateral received for loans and advances has been updated to exclude collateral related to off balance sheet items. As a result, the net amount 237 715 237 715 column has also been updated. 2019 The table below sets out the nature of agreements and the types of rights relating to items which do not qualify for offset but Cash and cash equivalents 372 742 372 742 that are subject to a master netting arrangement or similar agreement. Other financial assets3 27 554 27 554

Nature of agreement Related rights 400 296 400 296

Derivative assets and derivative International swaps and The agreement allows for offset in the event 1 On demand cash and balances with the central bank includes notes and coins. 2 liabilities derivatives association of default This line has been updated to age loans and advances on a gross basis (before ECL) and not on a net basis as previously presented. 3 This line has been updated to exclude non-financial assets from this table and include them as part of note 21.2. agreements

Loans and advances Customer agreement In the event of liquidation or bankruptcy, offset and Banks Act shall be enforceable subject to all applicable laws and regulations

Deposits and debt funding Customer agreement In the event of liquidation or bankruptcy, offset and Banks Act shall be enforceable subject to all applicable laws and regulations SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 92 Annual report 2020 93

21. Maturity analysis of assets continued 22. Maturity analysis of liabilities continued 21.2 Non-financial assets 22.2 Non-financial liabilities Less than More than Less than More than 12 months 12 months 12 months 12 months after reporting after reporting after after period period Total reporting reporting Note N$’000 N$’000 N$’000 period period Total Note N$’000 N$’000 N$’000 GROUP 2020 GROUP Current tax asset * * 99 525 2020 Property and equipment and right-of-use assets 9 1 083 502 1 083 502 Provisions and other liabilities 17 381 137 109 114 490 251 Goodwill and other intangible assets 10 500 769 500 769 Deferred tax liability 14 * * 282 788 Deferred tax asset 14 * * 300 882 Other assets 7 79 918 79 918 381 137 109 114 773 039 79 918 1 584 271 2 064 596 20191 20191 Provisions and other liabilities 17 1 173 119 120 010 1 293 129 Current tax asset * * 80 181 Deferred tax liability 14 * * 256 431 Interest in joint venture and subsidiaries 8 15 435 15 435 1 173 119 120 010 1 549 560 Property and equipment and right-of-use assets 9 1 121 668 1 121 668 Goodwill and other intangible assets 10 503 765 503 765 COMPANY Deferred tax asset 14 * * 301 100 2020 Other assets 7 55 596 55 596 Provisions and other liabilities 17 16 480 16 480 55 596 1 640 868 2 077 745 16 480 16 480 COMPANY 20191 2020 Provisions and other liabilities 17 202 718 202 718 Interest in subsidiaries and joint venture 8 921 986 921 986 202 718 202 718 921 986 921 986 20191 * Undated 1 Table has been updated to include non-financial liabilities as per note 17. Interest in subsidiaries and joint venture 8 921 986 921 986 921 986 921 986 23. Contingent liabilities and commitments * Undated. 23.1 Contingent liabilities 1 Table has been updated to include non-financial assets as per note 7. GROUP COMPANY 22. Maturity analysis of liabilities 2020 2019 2020 2019 22.1 Financial liabilities N$’000 N$’000 N$’000 N$’000 The following table discloses the maturity analysis for the group financial liabilities on a contractual discounted basis. Letters of credit 25 432 62 451 Guarantees 1 767 877 2 086 955 Maturing Maturing Unutilised borrowing facilities 4 683 065 4 329 351 Maturing between between Maturing within 1 – 6 6 – 12 after Total 6 476 374 6 478 757 On demand 1 month months months 12 months Total Note N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 23.2 Capital commitments GROUP GROUP COMPANY 2020 Derivative liabilities 2 333 901 28 222 362 123 2020 2019 2020 2019 Trading liabilities 13 230 230 N$’000 N$’000 N$’000 N$’000 Deposits and current Contractual capital expenditures 30 702 42 418 accounts 15 15 854 221 848 961 1 797 117 5 873 125 1 746 391 26 119 815 Debt securities issued 16 1 216 583 403 722 1 620 305 Total 30 702 42 418 Lease liabilities 17 1 626 8 100 5 794 6 023 21 543 Other financial The expenditure relates to property and equipment and will be funded from internal resources. liabilities 17 1 968 1 932 3 900 15 854 221 852 785 3 021 800 6 212 820 2 186 290 28 127 916 2019 Derivative liabilities 2 135 777 6 734 142 511 Trading liabilities 13 4 512 10 369 14 881 Deposits and current accounts 15 16 212 346 541 796 3 810 601 4 003 182 3 298 895 27 866 820 Debt securities issued 16 203 230 1 387 520 1 590 750 Lease liabilities 17 2 880 13 452 3 394 31 319 51 045 Other financial liabilities1 17 2 422 1 931 4 353 16 212 346 547 098 3 824 053 4 350 095 4 736 768 29 670 360

1 This line has been updated to exclude non-financial liabilities from this table and include them as part of note 22.2

Refer to page 127 for funding and liquidity risk information in Annexure C. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 94 Annual report 2020 95

23. Contingent liabilities and commitments continued 26. Fee and commission revenue 23.3 Lease commitments GROUP COMPANY 23.3.1 The future minimum payments under non-cancellable operating leases are as follows: 2019 2020 Restated 2020 2019 GROUP COMPANY N$’000 N$’000 N$’000 N$’000 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 Account transaction fees 312 331 351 263 Card-based commission 197 187 89 644 Low value assets and short term leases Electronic banking fees 285 103 375 492 Within one year 5 306 5 762 Foreign currency service fees 21 134 16 059 After one year but within five years 2 788 4 074 Documentation and administration fees 95 938 105 824 Custody fees 32 115 30 977 Total 8 094 9 836 Trustees and executors fees 10 079 7 472 Arrangement fees 18 033 33 524 23.4 Legal proceedings Guarantees commission 19 785 16 973 In the ordinary course of business, the group is involved as a defendant in litigation, lawsuits and other proceedings. Other 75 148 49 210 Management recognises the inherent difficulty of predicting the outcome of defended legal proceedings. Nevertheless, based Total1 1 066 853 1 076 438 on management’s knowledge from investigation, analysis and after consulting with legal counsel, management believes that there are no individual legal proceedings that are currently assessed as being ’likely to succeed and material’ or ’unlikely to 1 Refer to page 59 for information regarding the reclassification of certain commission income. succeed but material should they succeed’. The group is also the defendant in some legal cases for which the group is fully indemnified by external third parties, none of which are individually material. Management is accordingly satisfied that the legal All fee and commission revenue reported above relates to financial assets or liabilities not carried at FVTPL for the group. proceedings currently pending against the group should not have a material adverse effect on the group’s consolidated financial position and the directors are satisfied that the group has adequate insurance programmes and, where required in 27. Fee and commission expense terms of IFRS for claims that are probable, provisions in place to meet claims that may succeed. GROUP COMPANY 24. Interest income 2019 2020 Restated 2020 2019 GROUP COMPANY N$’000 N$’000 N$’000 N$’000 2020 2019 2020 2019 Account transaction fees 13 398 15 354 N$’000 N$’000 N$’000 N$’000 Card-based commission 80 088 68 959 1 Effective interest rate income on: Documentation and administration fees 103 020 99 726 Electronic banking fees 18 512 10 759 Financial investments 163 324 204 121 Other fees 2 571 Loans and advances 1 934 852 2 489 370 Interest income on credit impaired financial assets 79 963 90 991 Total 217 589 194 798 Total 2 178 139 2 784 482 1 Refer to page 59 for information regarding the reclassification of certain commission income. Comprising: All fee and commission expenses reported above relate to financial assets or liabilities not carried at fair value through profit or Interest income on items measured at amortised cost 2 014 815 2 580 361 loss for the group. Interest income on items measured at FVOCI 163 324 204 121 28. Trading revenue 25. Interest expense GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 Foreign exchange 79 536 95 183 Interest on current accounts 58 339 60 855 Net fair value adjustments on held-for-trading financial Interest on savings and deposit accounts 91 937 115 876 assets 20 025 22 414 Interest on lease liabilities 2 316 3 416 Total 99 561 117 597 Interest on other interest-bearing liabilities 851 085 1 271 792 Total 1 003 677 1 451 939 29. Other revenue Comprising: Interest expense on items measured at amortised cost 1 003 677 1 451 939 GROUP COMPANY 2019 2020 Restated 2020 2019 N$’000 N$’000 N$’000 N$’000

Property-related revenue 775 783 Commission revenue from insurance broking services 43 188 41 318 Profit share income 47 384 57 578 47 384 57 578 Other non-banking related revenue1 12 156 13 800 Dividends on unlisted financial investments2 1 940 3 804 232 684 86 500 Total 105 443 117 283 280 068 144 078

1 Refer to page 59 for information regarding the reclassification of certain commission income. 2 Included in Dividends on unlisted financial investments for the company is dividend from subsidiaries. SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 96 Annual report 2020 97

30. Other losses on financial instruments 33. Taxation GROUP COMPANY 33.1 Indirect taxation 2020 2019 2020 2019 GROUP COMPANY N$’000 N$’000 N$’000 N$’000 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 Fair value loss on debt financial instruments measured at FVTPL – default 138 404 146 236 Value-added tax 20 728 23 217 Total 138 404 146 236 Duties and other 9 906 9 788 1 444 Total 30 634 33 005 1 444 31. Credit impairment charges 33.2 Direct taxation GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 Net ECL raised and released: 285 069 276 077 Normal taxation 139 189 256 014 Financial investments (note 5) 1 131 708 Loans and advances (note 6.3) 284 391 273 864 Current year charge 134 125 261 024 Letters of credit, bank acceptances and guarantees (453) 1 505 Adjustments to prior years 5 064 (5 010) Recoveries on loans and advances previously written off (31 159) (36 912) Deferred taxation 17 321 (30 491) Total 253 910 239 165 Current year charge 17 321 (30 491)

Total 156 510 225 523 32. Operating expenses GROUP COMPANY Income tax recognised in OCI The table below sets out the amount of income tax relating to each component within OCI: 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 Tax (charge)/ Before tax credit After tax Auditors’ remuneration 11 843 6 101 1 570 N$’000 N$’000 N$’000 Audit fees 11 671 6 024 1 570 Other services 172 77 GROUP Amortisation 39 804 30 668 2020 Communication expense 17 968 21 646 Change in fair value of post-employment benefit obligations 22 627 (7 241) 15 386 Depreciation 127 642 112 205 Change in fair value of FVOCI debt financial assets – IFRS 9 6 694 (2 013) 4 681 IT expenses 188 898 125 300 29 321 (9 254) 20 067 Lease rentals on operating lease 10 189 31 396 2019 Professional fees 140 061 144 675 409 Change in fair value of FVOCI debt financial assets – IFRS 9 5 000 (1 383) 3 617 Loss on sale of property and equipment 756 1 920 Premises costs 44 170 56 360 Total 5 000 (1 383) 3 617 Staff costs 804 839 868 400 Salaries and allowances 720 890 757 049 Namibian tax rate reconciliation Equity-settled share-based payments1 34 385 GROUP COMPANY Post-employment benefits – pension – defined contribution plan 68 131 65 989 2020 2019 2020 2019 Post-employment benefits – medical expenses 15 818 10 977 % % % %

2 Other expenses 117 121 89 366 421 177 The total tax charge for the year as a percentage of net Total 1 503 291 1 488 037 2 400 177 income before indirect tax 30.8 29.6 2.5 Indirect taxation (5.1) (3.8) (2.5) 1 Equity-settled share-based payments in the prior year relate to the Purros Trust share scheme. All rights attached to this scheme vested on Direct taxation charge for the year as a percentage 31 December 2019. 2 Other expenses mainly comprise marketing and advertising expenses, operational risk losses, security expenses and travel and entertainment of profit before indirect taxation 25.7 25.8 expenses. The charge for the year has been reduced as a consequence of: Dividends received 5.8 4.6 33.7 32.1 Other non-taxable income 0.1 0.2 Other non-deductible expenses (0.3) (0.3) (1.7) (0.1) Other permanent differences 1.5 1.1 Prior year tax adjustments (0.8) 0.6 Standard rate of Namibian tax 32.0 32.0 32.0 32.0 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 98 Annual report 2020 99

34. Statements of cash flows notes 34. Statement of cash flows notes continued 34.1 Non-cash items and other adjustments included in the income statement1 34.4 Direct taxation paid GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

Depreciation of property, equipment and right-of-use Current tax at beginning of the year 80 181 59 498 (5 400) assets (note 9) 127 642 112 205 Recognised in income statement (139 189) (256 014) Amortisation of intangible assets (note 10) 39 804 30 668 Current tax at end of the year (99 525) (80 181) 4 109 (5 400) ECL raised and released (note 31) 285 069 276 077 Total (158 533) (276 697) (1 291) (5 400) Interest income (2 178 139) (2 784 482) Interest expense 1 003 677 1 451 939 34.5 Proceeds from the sale of property and equipment Equity-linked transactions 40 604 Fair value adjustments (5 201) (65 879) GROUP COMPANY Indirect taxation (note 33.1) (30 634) (33 005) (1 444) 2020 2019 2020 2019 Loss on disposal of property and equipment (note 34.5) 756 1 920 N$’000 N$’000 N$’000 N$’000 Dividend income (note 29) (1 940) (3 804) (232 684) (86 500) Total (758 966) (973 757) (232 684) (87 944) Net book value of disposals 2 016 11 124 Loss on disposal (756) (1 920) 1 In the current year, the group and company aligned the presentation of the statements of cash flows with that of SBG. The group also corrected Total 1 260 9 204 certain errors. Details of the effect of the restatements are presented on page 59. 34.2 Decrease/(increase) in income-earning assets1 34.6 Proceeds from the sale of intangible assets GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

Financial investments (245 142) 380 083 Net book value of disposals 396 Pledged assets 59 142 (580 098) Total 396 Trading assets (96 113) (109 622) Loans and advances 1 042 842 (2 413 280) 34.7 Dividends paid Derivative assets (222 378) (116 673) Other assets 784 197 (444 205) (16 046) 608 187 GROUP COMPANY Total 1 322 548 (3 283 795) (16 046) 608 187 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 1 In the current year, the group and company aligned the presentation of the statements of cash flows with that of SBG. The group also corrected certain errors. Details of the effect of the restatements are presented on page 59. Dividend declared during the year (252 720) (120 000) (252 720) (120 000) Movement in accrual for dividend 225 225 34.3 (Decrease)/increase in deposits and other liabilities1 Total (252 495) (120 000) (252 495) (120 000) GROUP COMPANY 2020 2019 2020 2019 35. Post-employment benefits N$’000 N$’000 N$’000 N$’000 GROUP COMPANY Deposit and current accounts (1 672 132) 2 244 581 2020 2019 2020 2019 Trading liabilities (14 651) 13 901 N$’000 N$’000 N$’000 N$’000 Derivative liabilities 219 612 116 797 Provisions and other liabilities (781 714) 422 866 (186 463) (199 302) Amounts recognised as liabilities in the Total (2 248 885) 2 798 145 (186 463) (199 302) statement of financial position Post-employment healthcare benefit medical aid 109 114 120 010 1 In the current year, the group and company aligned the presentation of the statements of cash flows with that of SBG. The group also corrected Amounts recognised as expenses in profit certain errors. Details of the effect of the restatements are presented on page 59. and loss for the year Retirement fund 68 131 65 989 Post-employment healthcare benefit medical aid 15 818 10 977 Total 83 949 76 966

35.1 Retirement fund GROUP COMPANY 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000

All eligible full-time employees are members of the Standard Bank Namibia Pension Fund, which has been registered in Namibia in accordance with the requirements of the Pension Funds Act. The fund is a defined contribution fund and is governed by the Pension Funds Act of 1956, and is actuarially valued every three years. An actuarial valuation was conducted as at 30 June 2020 and the actuary certified the fund as being financially sound as at that date. Members of the fund comprise 99% of the full-time staff. The contribution to the pension fund is based on a percentage of pensionable earnings and charged to income as incurred. Employer’s contribution for the year 68 131 65 989 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 100 Annual report 2020 101

35. Post-employment benefits 35. Post-employment benefits 35.2 Post-employment healthcare benefits 35.2 Post-employment healthcare benefits GROUP COMPANY Sensitivity analysis 2020 2019 2020 2019 % change in obligation N$’000 N$’000 N$’000 N$’000 GROUP COMPANY Post-employment medical scheme Assumption Change in assumption 2020 2019 2020 2019 The liability represents a post-employment healthcare benefit scheme that covers all employees who joined on Healthcare cost inflation: 1% increase 15.30 17.40 or before 1 March 2009. The liability is unfunded and is 1% decrease (12.50) (14.00) valued every year using the projected unit credit method. Mortality rate PA (90)-1 2.80 3.20 The latest full statutory actuarial valuation was Discount rate 1% increase (12.00) (12.00) performed on 30 June 2020. 1% decrease 14.00 14.00 Expected premiums to post-employment medical The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In schemes for the year ending 31 December 2021 are practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity N$4.41 million. of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit Movement in the present value of defined medical obligation calculated with the projected unit credit method at the end of the reporting year) has been applied as when scheme benefit obligation: calculating the pension liability recognised within the statement of financial position.

Balance at beginning of the year 120 010 113 738 Through its defined post-employment medical plan, the company is exposed to a number of risks, the most significant of which Current service cost 3 027 2 394 are detailed below: Interest cost 12 791 7 606 Remeasurement of post-employment benefit obligations Changes in bond yields A decrease in corporate bond yields will increase plan liabilities. relating to change in actuarial assumptions (22 627) Change in financial assumptions (24 522) Inflation risk The company post-employment medical obligation is linked to inflation, and higher inflation will Change in demographic assumptions 4 913 lead to higher liabilities. Change in other assumptions (3 018) Life expectancy The company post-employment medical obligation is to provide benefits for the life of the Contributions by employer (4 087) (3 728) member, so an increase in life expectancy will result in an increase in the plan’s liabilities. Balance at end of the year 109 114 120 010 Consisting of: Present value of unfunded obligations 109 114 120 010 Obligation recognised in the statement of financial position 109 114 120 010 The amounts recognised in profit or loss are determined as follows: Current service cost 3 027 2 394 Interest cost 12 791 7 606 Included in staff costs 15 818 10 000 The amounts recognised in statements of other comprehensive income Remeasurement of post-employment benefit obligations relating to change in financial and demographic assumptions (22 627) The principal actuarial assumptions used for accounting purposes were: Discount rate 14.10% 10.75% Medical inflation 10.35% 8.57% Remaining life of employees post employment 18.0 – 22.5 years 17.7 years Mortality rates used: During employment: SA85-90 (Light) ultimate table Post-employment: PA (90) ultimate table. Current active employee members: Particulars in respect of the current employee members belonging to the medical scheme for which there is a post-retirement medical aid liability as at the reporting date are as follows: Number of employees 307 310 Average age 43.9 years 43.1 years Current pensioner members Details of the current pensioner members belonging to the medical aid fund are as follows: Number of employees 98 91 Average age 67.1 years 67.2 years SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 102 Annual report 2020 103

36. Related party disclosures 36. Related party disclosures 36.1 Parent 36.4 (Purchase)/rendering of services SBN Holdings Limited is a subsidiary of Standard Bank Group Limited. GROUP 36.2 Subsidiaries and joint venture 2020 2019 R efer to note 8.1 and Annexure A for further disclosure on investments in subsidiaries. Also refer to note 8.2 and Annexure B Relationship Type N$’000 N$’000 for further disclosure on the investment in joint venture. The Standard Bank of South 36.3 Key management personnel Africa (SBSA) Fellow subsidiary Royalty fees (70 137) (79 083) SBSA Fellow subsidiary Information technology (20 885) (20 945) K ey management personnel has been defined as directors of the group companies and executive management of Standard SBSA Fellow subsidiary License fees (34 168) (19 767) Bank Namibia Limited. Non-executive directors are included in the definition of key management personnel as required by SBSA Fellow subsidiary Other services 1 592 1 792 IFRS. The definition of key management includes the close members of family of key management personnel and any entity SBSA Fellow subsidiary Training (233) (548) over which key management exercises control or joint control. Close members of family are those family members who may be Stanbic Bank Kenya Limited Fellow subsidiary Other services 56 (1 314) expected to influence, or be influenced by, that person in their dealings with Standard Bank Namibia Limited. They may include Stanbic Bank Uganda Fellow subsidiary Other services 38 580 the individual’s domestic partner and children, the children of the person’s domestic partner, and dependants of the individual Standard Bank Malawi Fellow subsidiary Other services 59 or the individual’s domestic partner. Namclear (Proprietary) Limited Joint venture Interbank clearing costs 20 342 GROUP COMPANY (123 737) (98 884) 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 36.5 Commissions and dividends received/(paid) Key management compensation GROUP Salaries and other short-term benefits 41 716 45 429 2020 2019 Post-employment benefits 156 3 262 Relationship Type N$’000 N$’000 IFRS 2 value of share options and rights expensed 5 879 7 332 47 751 56 023 SBSA Fellow subsidiary Commission paid (10 052) (3 061) SBSA Fellow subsidiary Commission received 865 429 The transactions below are entered into in the normal SBSA Parent company Dividends paid (189 287) (108 000) course of business. Purros Investments Employee share trust Dividends paid (21 892) (12 000) Loans and advances Loans outstanding at beginning of the year 27 330 33 533 (220 366) (122 632) Change in key management structure (1 331) (1 829) Net loans granted/(repaid) during the year 4 121 (4 374) 36.6 Interest income/(expense) Loans outstanding at end of the year 30 119 27 330 GROUP Loans include mortgage loans, vehicle and asset finance and 2020 2019 credit cards. No specific impairments have been Relationship Type N$’000 N$’000 recognised in respect of loans granted to key management in the current or prior year. SBSA Fellow subsidiary Interest income 32 453 104 324 The mortgage loans and vehicle and asset finance are SBSA Fellow subsidiary Interest expense (51 602) (85 297) secured by the underlying assets. (19 149) 19 027 All other loans are unsecured. Deposit and current accounts Deposits outstanding at beginning of the year 4 878 2 165 36.7 Trading income Change in key management structure (1 553) (144) GROUP Net deposits (withdrawn)/received during the year (832) 2 857 2020 2019 Deposits outstanding at end of the year 2 493 4 878 Relationship Type N$’000 N$’000

Interest received on loans and advances and interest paid on deposit and current accounts is in the ordinary course of SBSA Fellow subsidiary Trading income 202 959 22 590 business. 202 959 22 590 Deposits include current and savings accounts. 36.8 Contributions to funds GROUP 2020 2019 Relationship Type N$’000 N$’000

Standard Bank Namibia Defined contribution Pension Fund plan Contributions 68 131 65 989 68 131 65 989 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 104 Annual report 2020 105

36. Related party disclosures continued 37. Equity-linked transactions 36.9 Related party year end balances 37.1 Share-based payments The group’s share incentive schemes enable key management personnel and senior employees to benefit from the GROUP performance of Standard Bank Group Limited and Liberty Holdings Limited shares. 2020 2019 Relationship Type N$’000 N$’000 GROUP COMPANY 2020 2019 2020 2019 Receivables from N$’000 N$’000 N$’000 N$’000 related parties SBSA Fellow subsidiary Trading assets 10 348 Summary of the company’s share SBSA Fellow subsidiary Loans and advances 1 131 591 1 599 399 incentive schemes and expenses Stanbic Bank Botswana Limited Fellow subsidiary Loans and advances 1 282 487 recognised in staff costs: Stanbic Bank Zambia Limited Fellow subsidiary Loans and advances 342 Equity-settled share-based payments (GSIS and Purros) 34 385 Stanbic Bank Kenya Limited Fellow subsidiary Loans and advances 104 1 179 Cash-settled share-based payments (EGS) SBSA Fellow subsidiary Derivatives 307 332 93 571 Deferred Bonus Scheme 2012 (DBS 2012) 5 177 6 219 SBSA Fellow subsidiary Other assets 20 634 12 972 Stanbic Bank Zimbabwe Limited Fellow subsidiary Other assets 90 90 Total expense recognised in staff costs 5 177 40 604 Standard Bank Mauritius Fellow subsidiary Other assets 31 30 Summary of liabilities recognised Stanlib (Proprietary) Limited Fellow subsidiary Other assets 23 in other liabilities: Purros Investment Employee share trust Other assets 361 EGS 2 610 2 516 (Proprietary) Limited 4 183 DBS 617 1 465 612 1 718 437 Performance reward plan 211 1 693 Total liability recognised in other liabilities 2 821 4 826 The loans issued to subsidiaries and fellow subsidiaries are repayable on demand. Interest is charged based on the prevailing market rate. The loans are unsecured and the loans are fully performing. 37.2 Equity compensation plans D erivatives are carried at fair value. The group has two equity compensation plans, namely the company Share Incentive Scheme (GSIS) and the Equity Growth Sundr y receivables with subsidiaries and fellow subsidiaries are repayable on demand and attract no interest. All related party Scheme (EGS). The GSIS, which is equity-settled, confers rights to employees to acquire ordinary shares at the value of the transactions were made on terms equivalent to those that prevail in arm’s length transactions. SBG share price at the date the option is granted. The EGS, which is cash-settled, was implemented in 2005 and represents appreciation rights allocated to employees. The eventual value of the right is effectively settled by the issue of shares GROUP equivalent in value to the value of the rights.

2020 2019 The two schemes have five different sub-types of vesting categories as illustrated by the table below: Relationship Type N$’000 N$’000 Vesting categories Year % vesting Expiry Payables to related parties Type A 3, 4, 5 50, 75, 100 10 years SBSA Fellow subsidiary Deposit and current accounts 1 057 023 1 394 362 Stanbic Bank Botswana Limited Fellow subsidiary Deposit and current accounts 26 26 Type B 5, 6, 7 50, 75, 100 10 years Stanbic Bank Zambia Limited Fellow subsidiary Deposit and current accounts 293 Standard Bank Angola Fellow subsidiary Deposit and current accounts 53 118 Type C 2, 3, 4 50, 75, 100 10 years Purros Investment Employee share trust Deposit and current accounts (Proprietary) Limited 900 Type D 2, 3, 4 33, 67, 100 10 years SBSA Fellow subsidiary Derivatives 64 109 55 470 Type E 3, 4, 5 33, 67, 100 10 years SBSA Fellow subsidiary Other liabilities 26 902 64 155 Purros Investment Employee share trust Other liabilities 3 (Proprietary) Limited 37.2.1 Equity-settled share-based payments Stanbic Bank Uganda Fellow subsidiary Other liabilities 222 Group Share Incentive Scheme Stanlib (Pty) Limited Fellow subsidiary Other liabilities 18 A reconciliation of the movement of share options is detailed below: Stanbic Bank Zimbabwe Limited Fellow subsidiary Other liabilities 60 60 SBSA Fellow subsidiary Subordinated debt 101 179 101 776 Option price range (N$) Number of rights 1 250 252 1 616 503 2020 2019 2020 2019

D eposit and current accounts held with subsidiaries and fellow subsidiaries are repayable on demand. Interest is charged Options outstanding at beginning of the year 6 250 32 200 based on the prevailing market rate. Sundry payables with subsidiaries and fellow subsidiaries are repayable on demand and Exercised 62.39 – 98.80 (17 200) attract no interest. Lapsed (12 500) Transferred in 3 750 Options outstanding at the end of the year 6 250 6 250

No options were exercised during the current year. The weighted average share price for the year was ZAR116.16 (2019: ZAR183.51).

The following options granted to employees, including executive directors, had not been exercised at 31 December 2020 or at 31 December 2019:

Number of Option Weighted Option ordinary shares price range average price expiry year

6 250 98.8 98.8 Year to 31 December 2021 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 106 Annual report 2020 107

37. Equity-linked transactions continued 37. Equity-linked transactions continued 37.2 Equity compensation plans continued 37.3 Deferred bonus scheme (DBS) 37.2.1 Equity-settled share-based payments It is essential for the group to retain key skills over the longer term. This is done particularly through share-based incentive plans. The purpose of these plans is to align the interests of the group, its subsidiaries and employees, as well as to attract and Purros Trust Share Scheme retain skilled, competent people. All rights attached to this scheme vested on 31 December 2019. The group has implemented a scheme to defer a portion of incentive bonuses over a minimum threshold for key management The scheme consisted of restricted shares granted to all qualifying employees. The beneficial ownership of the shares resided and executives. This improves the alignment of shareholder and management interests by creating a closer linkage between with the participants, including the voting and dividend rights. No dealing in the shares was permitted before 31 December risk and reward, and also facilitates retention of key employees. 2019. Forfeiture was applicable if employee was dismissed. The purpose of the DBS 2012 is to encourage a longer-term outlook in business decision making and closer alignment of Option price range (N$) Number of rights performance with long-term value creation.

2020 2019 2020 2019 All employees granted an annual performance award over a threshold have part of their award deferred. The award is indexed to the group’s share price and accrues notional dividends during the vesting year, which are payable on vesting. The awards Shares outstanding at beginning of the year 5 092 780 vest in three equal amounts at 18 months, 30 months and 42 months from the date of award. The final pay-out is determined Increase due to subdivision of shares 25 463 900 with reference to the group’s share price on vesting date. Shares allocated during the year 29.84 4 078 308 Forfeited (19 210) Units Vested during the year (34 615 778) 2020 2019 Shares outstanding at the end of the year Reconciliation 37.2.2 Cash-settled share-based payments Units outstanding at beginning of the year 7 821 33 853 Exercised (7 821) (23 289) All employees granted an annual performance award over a threshold and who is in employment in a company entity Lapsed (2 061) domicile outside of South Africa have part of their award deferred. In addition the company makes special awards to qualifying Transfers (682) employees in employment of a company entity. The awards are classified as cash-settled awards. Units outstanding at end of the year 7 821 The award units are denominated in employee’s host countries’ local currency, the value of which moves parallel to the changes in the price of the SBG shares listed on the JSE and accrue notional dividends over the vesting period which are payable on vesting. 37.4 Performance reward plan The Performance Reward Plan (PRP) is performance-driven share plan which rewards value delivered against specific targets. Awards vest in three equal tranches at 18 months, 30 months and 42 months from the date of award. Final pay-out is determined with reference to SBG share price on vesting date. The PRP incentivises a group of senior executives to meet the strategic long-term objectives that deliver value to shareholders, to align the interests of those executives with those of shareholders and to act as an attraction and retention mechanism in a 2020 units highly competitive marketplace for skills. The PRP operates alongside the existing conditional, equity-settled long-term plans, Weighted Expected Transferred namely the EGS, DBS, and other share incentive schemes. average fair life at between The awards are indexed to the group’s share price and accrues notional dividends during the vesting period, which are payable value at grant date Opening group Currency grant date (years) balance Granted Exercised Forfeited companies Outstanding on vesting. Shares that vest (if any), and that are delivered to the employee, are conditional on the pre-specified performance metrics. These awards have been partially hedged through the use of equity forwards. NAD N$152.64 2.51 42 336 29 292 (22 085) (7 856) 41 687 Awards are issued to individuals in employment of a group entity domiciled outside of South Africa are classified as cash- settled. 2019 units Units Weighted Expected Transferred 2020 2019 average fair life at between value at grant date Opening group Currency grant date (years) balance Granted Exercised Forfeited companies Outstanding Movement summary Units outstanding at beginning of the year 38 400 47 900 NAD N$182.43 2.51 42 481 20 138 (15 370) (4 913) 42 336 Granted 13 200 13 170 ZAR 2 415 (2 415) Exercised (16 000) (22 670) Lapsed Transfers Units outstanding at end of the year 35 600 38 400 Weighted average fair value at grant date N$152.64 N$182.43 Expected life (years) 3 3 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 108 Annual report 2020 109

38. Segment reporting 38. Segment reporting continued The group is organised on the basis of products and services and the segments have been identified on this basis. Scope of operations continued The principal business units in the group are as follows: Business unit continued Scope of operations Corporate & Client coverage Business unit Investment • Relationship management Banking Personal & Transactional products • Sector expertise Corporate and Business Comprehensive suite of transactional, saving, investment, trade, foreign exchange, payment and investment Banking Global markets liquidity management solutions made accessible through a range of physical and digital channels . banking services Banking and other to clients • Money Market Instruments financial services Mortgage lending including • Commodity trading to individual Residential accommodation loans to mainly personal market customers. governments, • Equities customers and parastatals, larger • Foreign exchange SMEs. We enable Card products corporates, • Interest rates trading and structuring customers to take • Credit card facilities to individuals and businesses (credit card issuing) financial control of all their • Exchange trade products • Merchant transaction acquiring services (merchant solutions) institutions and financial aspects multinational • Credits such as Vehicle and asset finance corporates transacting, Transactional products and services saving, borrowing • Finance of vehicles for retail market customers • Transactional banking or planning by • Finance of vehicles and equipment in the business and corporate assets market • Investor services making use of the • Fleet solutions following product • Trade finance sets either Lending products • Cash management through face to • Lending products offered to both personal and business markets face interaction or Investment banking digitally according • Business lending offerings constitute a comprehensive suite of lending product offerings, • Advisory to their structured working capital finance solutions and commercial property finance solutions preference • Principle finance Wealth • Debt solutions • Short- and long-term insurance products comprising: • Structured finance – simple products, including loan protection plans sold in conjunction with related banking • Structured trade finance and commodity finance products, homeowners’ insurance, funeral cover, household contents and vehicle insurance • Debt capital markets – complex insurance products, including life, disability and investment policies sold by qualified • Real estate and principal investment management intermediaries Other services Includes the results of support functions, which are either centralised or embedded in the business • Financial planning and modelling segments. The direct costs of support functions are recharged to the business segments. These • Integrated fiduciary services, including fiduciary advice, will drafting and custody services, as well functions include: as trust and estates administration • legal & compliance • Tailored banking, wealth management, investment and advisory services solutions for private high • human capital net worth individuals • finance • Investment services, including global asset management • governance • assurance • IT • procurement • marketing • real estate • risk management • group shared services • corporate social investment SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 110 Annual report 2020 111

38. Segment reporting continued Scope of operations continued The segment report includes the consolidated results of each business unit containing all the activities of the business units across the group. No geographical segment information is disclosed due to the fact that business activities predominantly relate to Namibia.

Personal & Corporate & Investment Business Banking Banking Other Total 2020 2019 2020 2019 2020 2019 2020 2019 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP Net interest income 1 388 728 1 803 928 (212 840) (430 606) (1 426) (40 779) 1 174 462 1 332 543 Inter-segment revenue (497 768) (748 225) 497 421 780 641 347 (32 416) Non-interest revenue 853 249 853 837 346 154 386 199 (6 731) 22 720 1 192 672 1 262 756 Total income 1 744 209 1 909 540 630 735 736 234 (7 810) (50 475) 2 367 134 2 595 299 Credit impairment charges (245 727) (234 324) (8 186) (4 841) 3 (253 910) (239 165) Income after credit impairment charges 1 498 482 1 675 216 622 549 731 393 ( 7 807) (50 475) 2 113 224 2 356 134 Operating expenses (1 186 996) (1 148 171) (391 159) (370 187) 74 864 30 321 (1 503 291) (1 488 037) Net income 311 486 527 045 231 390 361 206 67 057 (20 154) 609 933 868 097 Loss on derecognition of equity accounted investment (1 604) (1 604) Share of profits from associates and joint ventures 3 929 3 929 Net income before indirect taxation 311 486 527 045 231 390 361 206 65 453 (16 225) 608 329 872 026 Indirect taxation (14 520) (16 861) (1 995) (2 440) (14 119) (13 704) (30 634) (33 005) Profit before direct taxation 296 966 510 184 229 395 358 766 51 334 (29 929) 577 695 839 021 Direct taxation (93 890) (142 865) (59 019) (90 016) (3 601) 7 358 (156 510) (225 523) Profit/(loss) for the year 203 076 367 319 170 376 268 750 47 733 (22 571) 421 185 613 498 Operating information Total assets 18 677 159 19 573 557 13 505 534 14 479 608 898 805 1 158 766 33 081 498 35 211 931 Total liabilities 16 822 061 17 787 532 11 936 059 13 362 639 142 835 69 749 28 900 955 31 219 920 Other information Investment in associate 15 435 15 435 Depreciation 85 676 73 370 7 659 1 664 34 307 37 172 127 642 112 206 Amortisation 9 1 276 359 38 519 30 309 39 804 30 668 SBN HOLDINGS LIMITED ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED 112 Annual report 2020 113

39. Earnings per share 41. Dividends The calculation of earnings per share is as follows: GROUP COMPANY GROUP COMPANY 2020 2019 2020 2019 2020 2019 2020 2019 Ordinary dividends The calculations of basic earnings Final dividend declared 143 001 120 000 143 001 120 000 and headline earnings per ordinary share Interim dividend declared 109 719 109 719 are as follows: Total dividends recognised in the statement Basic earnings attributable to shareholders (N$’000) 421 185 613 498 of changes in equity 252 720 120 000 252 720 120 000 Headline earnings (N$’000) (note 40) 422 929 614 308 Weighted average number of ordinary shares A final dividend 14 cents per ordinary share was declared on 4 March 2021, payable on 7 May 2021 to all shareholders in issue (’000)1 522 472 502 832 registered on 23 April 2021, bringing the total dividends declared in respect of 2020 profits earned to 35 cents per share Basic earnings per ordinary share (cents) 81 122 (2019: 27.37 cents per share). Headline earnings per ordinary share (cents) 81 122

Basic and headline earnings per ordinary share equals diluted and headline earnings per share as there are no potential dilutive ordinary shares in issue.

40. Headline earnings 2020 2019 Non- Non- controlling controlling Gross Tax interests Net Gross Tax interests Net N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP Profit for the year 577 695 (156 510) 139 421 324 872 026 (258 528) (496) 613 002 Headline earnings adjustments: 2 360 (755) 1 605 1 920 (614) 1 306 IAS 16 loss on sale of property and equipment 756 (242) 514 1 920 (614) 1 306 IAS 28 loss on derecognition of equity accounted joint venture 1 604 (513) 1 091

Headline earnings 580 055 (157 265) 139 422 929 873 946 (259 142) (496) 614 308 SBN HOLDINGS LIMITED 114 Annual report 2020 115

ANNEXURE A – SUBSIDIARIES ANNEXURE B – JOINT VENTURE

Material subsidiaries Namclear (Pty) Limited

Effective Net indebtedness Ownership structure Joint venture holding by/(to) subsidiary Issued Nature of business Clearing of interbank share capital 2020 2019 2020 2019 transactions Nature of operation N$ % % N$’000 N$’000 Principal place of business and country of incorporation Namibia Standard Bank Namibia Year end December Limited Banking services 2 000 015 100 100 25 525 (186 408) Arleo Investment Sixteen Property holding Accounting treatment Equity accounted (Proprietary) Limited company 1 100 100 Date to which equity accounted 31 December 2019 Standard Insurance Brokers (Namibia) Insurance broking (Proprietary) Limited services 1 100 100 2020 2019 Stanfin (Namibia) Insurance broking Effective holding (%) 25 (Proprietary) Limited services 2 100 100 Mobicash Payment Solutions (Proprietary) Mobile and payment N$’000 N$’000 Limited services 2 312 50.91 50.91 Income statement All subsidiaries are incorporated and operate within Namibia. All subsidiary undertakings are included in the consolidation. The Total income 59 806 proportion of voting rights in the subsidiary undertakings held directly by the company does not differ from the proportion of ordinary Total profit for the year 15 715 shares held. Total comprehensive income 15 715 Statement of financial position Non-controlling interests (NCI) Cash and cash equivalents 40 994 Set out below is summarised financial information for the subsidiary that has NCI that are material to the group. The amounts disclosed Non-current assets 54 227 are before inter-company eliminations. Current assets 54 432 Non-current liabilities (32 007) Mobicash Current liabilities (14 912) Payment Solutions (Proprietary) Limited Net asset value 61 740 2020 2019 Proportion of net asset value based on effective holding 15 435 N$’000 N$’000 Carrying value 15 435 Summarised statement of financial position Share of total comprehensive income from joint venture 3 929 Current assets 36 462 19 072 Current liabilities 23 184 9 949 On 31 January 2020, Namclear (Proprietary) Limited converted to a non-profit organisation registered under section 21 of the Namibian Companies Act. Accordingly, the group no longer applies the equity method of accounting to the investment. Current net assets 13 278 9 123 Non-current assets 6 961 15 920 The carrying amount of the investment was derecognised and N$13.8 million recognised as a loan receivable and has been included in Non-current liabilities 5 070 loans and advances. The remaining loss on derecognition of N$1.6 million has been recognised in profit or loss in the current year. Non-current net assets 6 961 10 850 Namclear (Proprietary) Limited has no quoted market price available for its shares. In the prior year, there were no contingent liabilities relating to the group's interest in the joint venture. There were also no significant Net assets 20 239 19 973 restrictions on the ability of the joint venture to transfer funds to the bank in the form of cash dividends or repayments of loans or Accumulated NCI 14 030 14 169 advances.

Summarised income statement Revenue 52 435 78 881 Total comprehensive income 2 516 1 010

(Loss)/profit allocated to NCI (139) 496

Summarised statement of cash flows Cash flows from operating activities (181) 6 786 Cash flows from investing activities 23 (1 490) Cash flows from financing activities 21 449 Net (decrease)/increase in cash and cash equivalents (158) 26 745 SBN HOLDINGS LIMITED 116 Annual report 2020 117

ANNEXURE C – RISK AND CAPITAL MANAGEMENT

Overview The group also recognised the need for support to vulnerable BASEL III REGULATORY CAPITAL (UNAUDITED) communities that were least prepared and hardest hit by the first Capital management wave of the pandemic and the group donated water tanks and GROUP BANK The group’s capital management function is designed to ensure food packages, amongst other essential supplies. An extensive 2020 2019 2020 2019 that regulatory requirements are met at all times and that the facilities programme was rolled out, which included a N$’000 N$’000 N$’000 N$’000 group and its principal subsidiaries are capitalised in line with the decontamination protocol in the event of any confirmed cases on group’s risk appetite and target ratios, both of which are the group’s premises, and the provision of sanitisers to the public Tier 1 approved by the board. making use of the group’s facilities such as ATMs and point-of- Ordinary share capital and premium 643 234 643 234 593 230 593 230 sale devices. These measures remain in place and are aimed at It further aims to facilitate the allocation and use of capital, such Ordinary shareholders’ reserves 2 857 254 2 784 622 2 626 265 2 347 325 reassuring employees, clients and the public using the facilities that it generates a return that appropriately compensates that their health and safety continue to remain the group’s 3 500 488 3 427 856 3 219 495 2 940 555 shareholders for the risks incurred. Capital adequacy is actively foremost priority. Less: regulatory adjustments (512 647) (318 289) (512 647) (318 289) managed and forms a key component of the group’s budget and forecasting process. The capital plan is tested under a range of The group has performed more frequent risk appetite, product Intangible assets (271 073) (180 741) (271 073) (180 741) stress scenarios as part of the group’s annual ICAAP and parameter, industry and client reviews, to ensure that the group Deferred tax asset (176 774) (89 989) (176 774) (89 989) recovery plan. remains its clients’ financial services partner of choice Defined benefit pension fund assets and liabilities (64 800) (47 559) (64 800) (47 559) throughout this unfolding pandemic. The capital management function is governed primarily by Common equity tier 1 capital 2 987 841 3 109 567 2 706 848 2 622 266 management level subcommittees that oversee the risks Client relief programmes comprised of assisting clients with Tier II associated with capital management, namely the asset and temporary liquidity constraints as a result of the impact of Subordinated debt 80 000 100 000 80 000 100 000 liability committee (ALCO) and one of its subcommittees, the Covid-19 in the form of covenant relaxations and payment Current unappropriated profits 366 713 554 421 361 868 558 680 capital management committee. The principal governance holidays. These relief programmes resulted in no change in the General allowance for credit impairments 274 618 234 696 274 618 234 696 documents are the capital management governance framework present value of the estimated future cash flows resulting in no and the model risk governance framework. economic gain or loss (i.e. no net modification gain or loss) 721 331 889 117 716 486 893 376 refer to note 6.4 for further detail in this regard. Risk management Total eligible capital (including unappropriated profits) 3 709 172 3 998 684 3 423 334 3 515 642 The group’s activities give rise to various financial as well as Capital management insurance risks. Financial risks are categorised into credit, The group manages its capital levels to support business, growth, CAPITAL ADEQUACY RATIOS (UNAUDITED) funding and liquidity and market risk. maintain depositor and creditors confidence, create value for the Including unappropriated Excluding unappropriated shareholders and ensure regulatory compliance. Minimum The group’s approach to managing risk and capital is set out in profits profits regulatory the group’s risk, compliance and capital management (RCCM) The main regulatory requirements to be complied with are those requirement Target ratio 2020 2019 2020 2019 governance framework approved by the group risk and capital specified in the Banks Act and related regulations, which are management committee (GRCMC). aligned with Basel III. % % % % % % Covid-19 Regulatory capital adequacy is measured through the following Group The group’s results for the twelve months ended 31 December three risk-based ratios: Total capital adequacy ratio 10 11 – 12 14.66 15.96 14.66 15.96 Tier I capital adequacy ratio 7.5 8.5 – 9.5 13.26 14.62 11.81 12.41 2020 reflect the very difficult operating environment. Covid-19 Common equity tier 1 (CET 1): ordinary share capital, share Tier I leverage ratio 6 6.6 – 7.2 9.70 9.82 8.64 8.33 placed considerable strain on our retail, business and corporate premium, retained earnings, other reserves and qualifying clients , particularly in South Africa. The group’s strong capital non-controlling interest less impairments divided by total risk Bank position, going into the crisis, enabled us to respond quickly weighted assets (RWA). Total capital adequacy ratio 10 11 – 12 13.53 14.06 13.53 14.06 and significantly. Tier I capital adequacy ratio 7 7.7 – 8.2 12.13 12.72 10.70 10.49 Tier 1: CET 1 and other qualifying non-controlling interest plus Tier I leverage ratio 6 6.6 – 7.2 8.95 7.82 7.89 6.45 Risk management is a cornerstone of the group’s response perpetual, non-cumulative instruments with either contractual or to the Covid-19 crisis, enabling fast, targeted and responsible statutory principal loss absorption features that comply with the support of our clients, at the same time protecting our people Basel III rules divided by total RWA. Perpetual non-cumulative BASEL III RISK-WEIGHTED ASSETS (UNAUDITED) while preserving the group’s financial position. preference shares that comply with Basel I and Basel II rules are GROUP BANK Prior years’ focus on transitioning the group to a digital platform, included in tier I capital but are currently subject to regulatory made it possible to quickly respond to the pandemic. The group phase-out requirements over a 10-year period, which 2020 2019 2020 2019 implemented a pandemic response plan early March 2020 with commenced on 1 January 2013. N$’000 N$’000 N$’000 N$’000 its primary objective being the prevention of the spread of the Total capital adequacy: tier 1 plus other items such as general Credit risk 21 961 911 21 827 334 21 969 420 21 552 357 virus in the country, communities and within the bank. The plan credit impairments and subordinated debt with either Market risk 468 351 413 719 468 351 413 719 was based on four key pillars – employees, clients, facilities and contractual or statutory principal loss absorption features that Operational risk 2 875 358 2 783 568 2 868 295 3 036 583 shareholders – preservation being of utmost importance. Some comply with the Basel III rules divided by total RWA. of the immediate actions therefore included the establishment of Subordinated debt that complies with Basel I and Basel II rules is Total risk-weighted assets 25 305 620 25 024 621 25 306 066 25 002 659 a Covid-19 steering committee; the suspension of physical included in total capital but is currently subject to regulatory meetings in favour of virtual meetings; the suspension of phase-out requirements, over a 10-year period, which international business travel; the implementation of Covid-19 commenced on 1 January 2013. related safety measures at the group’s premises; and the implementation of a work-from-home policy.

In line with the group’s commitment to its employees, the majority of employees were permitted to transition between working from the office premises and working from home interchangeably throughout 2020. The group further enhanced its employee support programme through the provision of employee support packages and ongoing executive engagement sessions with all employees. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CONTINUED RISKS 118 Annual report 2020 119

Credit Funding and Market Operational Credit risk liquidity

Definition Credit risk is the risk of loss arising out of the failure of obligors to meet their financial or contractual obligations when due. It is composed of obligor risk (including borrowers and trading counterparties), concentration risk and country risk.

Approach to managing and measuring parents or third parties, the recognition of parental support, and Wrong-way risk arises in transactions where the likelihood of Credit portfolio characteristics and credit risk the distribution of risk. default PD by a counterparty and the size of credit exposure (as measured by EAD) to that counterparty tend to increase at the metrics The group’s credit risk is a function of its business model and Collateral, parental guarantees, credit derivatives and on- and same time. This risk is managed both at an individual Maximum exposure to credit risk arises from wholesale and retail loans and advances, off-balance sheet netting are widely used to mitigate credit risk. counterparty level and at an aggregate portfolio level by limiting Debt financial assets at amortised cost and FVOCI as well as underwriting and guarantee commitments, as well as from the Credit risk mitigation policies and procedures ensure that risk exposure to such transactions, taking adverse correlation into off-balance sheet exposure subject to an ECL are analysed and counterparty credit risk arising from derivative and securities mitigation techniques are acceptable, used consistently, valued account in the measurement and mitigation of credit exposure categorised based on credit quality using the group’s master financing contracts entered into with our customers and trading appropriately and regularly, and meet the risk requirements of and increasing oversight and approval levels. The group has no rating scale. Exposures within stage 1 and 2 are rated between counterparties. To the extent equity risk is held on the banking operational management for legal, practical and timely appetite for wrong-way risk arising where the correlation between 1 to 25 in terms of the group’s master rating scale. The group book, it is also managed under the credit risk governance enforcement. Detailed processes and procedures are in place to EAD and PD is due to a legal, economic, strategic or similar uses a 25-point master rating scale to quantify the credit risk for framework, except in so far as approval authority rests with group guide each type of mitigation used. relationship (i.e. specific wrong-way risk). General wrong-way each borrower (corporate asset classes) or facility (specialised equity risk committee (ERC). The management of credit risk is In the case of collateral where the group has an unassailable legal risk, which arises when the correlation between EAD and PD for lending and retail asset classes), as illustrated in the table below. aligned to the group’s three lines of defence framework. The title, the group’s policy is such that collateral is required to meet the counterparty, due mainly to macro factors, is closely These ratings are mapped to PDs by means of calibration business function owns the credit risk assumed by the group and certain criteria for recognition in loss given default (LGD) managed within existing risk frameworks. formulae that use historical default rates and other data from the as the first line of defence is primarily responsible for its modelling, including that it: applicable PPB portfolios. The group distinguishes between management, control and optimisation in the course of business To manage actual or potential portfolio risk concentrations in through-the-cycle PDs and point-in-time PDs, and utilises both generation. • is readily marketable and liquid areas of higher credit risk and credit portfolio growth, the group measures in decision-making, managing credit risk exposures • is legally perfected and enforceable implements hedging and other strategies from time-to-time. This The credit function acts as the second line of defence and is and measuring impairments against credit exposures. Exposures • has a low valuation volatility is done at individual counterparty, sub-portfolio and portfolio responsible for providing independent and objective approval and which are in default are not considered in the 1 to 25-point levels through the use of syndication, distribution and sale of oversight for the credit risk-taking activities of business, to • is readily realisable at minimum expense master rating scale. assets, asset and portfolio limit management, credit derivatives ensure the process of procuring revenue, while assuming optimal • has no material correlation to the obligor credit quality and credit protection. risk, is undertaken with integrity. Further second-line oversight is • has an active secondary market for resale. Default provided by the group risk function through independent credit The group’s definition of default has been aligned to its internal risk assurance. The main types of collateral obtained by the group for its banking Use of internal estimates credit risk management definitions and approaches. Whilst the book exposures include: Our credit risk rating systems and processes differentiate and specific determination of default varies according to the nature of The third line of defence is provided by group internal audit (GIA), quantify credit risk across counterparties and asset classes. the product, it is generally determined (aligned to the BASEL under its mandate from the group audit committee (GAC). The • mortgage bonds over residential, commercial and industrial properties Internal risk parameters are used extensively in risk management definition) as occurring at the earlier of: fourth line of defence is provided by external audit. and business processes, including: • cession of book debts • where, in the group’s view, the counterparty is considered to Credit risk is managed through: • pledge and cession of financial assets • setting risk appetite be unlikely to pay amounts due on the due date or shortly • maintaining a culture of responsible lending and a robust risk • bonds over plant and equipment • setting concentration and counterparty limits thereafter without recourse to actions such as the realisation of security; or policy and control framework • the underlying movable assets financed under leases and • credit approval and monitoring • identifying, assessing and measuring credit risk across the instalment sales. • when the counterparty is past due for more than 90 days (or, group, from an individual facility level through to an aggregate Corporate, sovereign and banking in the case of overdraft facilities in excess of the current limit). portfolio level Reverse repurchase agreements and commodity leases to The group will not rebut IFRS 9’s 90 days past due rebuttable • defining, implementing and continually re-evaluating risk customers are collateralised by the underlying assets. portfolios appetite under actual and stressed conditions Corporate entities include large companies, as well as SMEs that presumption. Guarantees and related legal contracts are often required, are managed on a relationship basis. Corporate exposures also • monitoring the group’s credit risk exposure relative to particularly in support of credit extension to groups of companies A financial asset is considered to be in default when there is approved limits include specialised lending (project, object and commodity objective evidence of impairment. The following criteria are used and weaker obligors. Guarantors include banks, parent finance, as well as income-producing real estate (IPRE) and • ensuring that there is expert scrutiny and approval of credit in determining whether there is objective evidence of impairment companies, shareholders and associated obligors. public sector entities. risk and its mitigation independently of the business functions. Creditworthiness is established for the guarantor as for other for financial assets or groups of financial assets: obligor credit approvals. Sovereign and bank borrowers include sovereign government • significant financial difficulty of borrower and/or modification A credit portfolio limit framework has been defined to monitor entities, central banks, local and provincial government entities, (i.e. known cash flow difficulties experienced by the borrower) and control the credit risk profile within the group’s approved risk For trading and derivatives transactions where collateral support bank and non-bank financial institutions. The creditworthiness of • a breach of contract, such as default or delinquency in interest appetite. All primary lending credit limits are set and exposures is considered necessary, the group typically uses internationally corporate (excluding specialised lending), sovereign and bank and/or principal payments measured on the basis of risk weighting in order to best estimate recognised and enforceable International Swaps and Derivatives exposures is assessed based on a detailed individual assessment • disappearance of active market due to financial difficulties exposure at default (EAD). Pre-settlement counterparty credit Association (ISDA) agreements, with a credit support annexure of the financial strength of the borrower. This quantitative • it becomes probable that the borrower will enter bankruptcy or risk (CCR) inherent in trading book exposures is measured on a (CSA). analysis, together with expert judgement and external rating potential future exposure (PFE) basis, modelled at a defined level other financial reorganisation Netting agreements, such as collateral under the CSA of an ISDA agency ratings, leads to an assignment of an internal rating to the of confidence, using approved methodologies and models, and • where the group, for economic or legal reasons relating to the agreement, are only obtained where the group firstly, has a entity. Specialised lending’s creditworthiness is assessed on a controlled within explicit approved limits for the counterparties borrower’s financial difficulty, grants the borrower a legally enforceable right to offset credit risk by way of such an transactional level, rather than on the financial strength of the concerned. concession that the group would not otherwise consider. agreement, and secondly, where the group has the intention of borrower, in so far as the group relies only on repayment from the cash flows generated by the underlying assets financed. utilising such agreement to settle on a net basis. Exposures which are overdue for more than 90 days are also Concentration risk management is performed to ensure that Credit risk mitigation considered to be in default. Wherever warranted, the group will attempt to mitigate credit Other credit protection terms may be stipulated, such as credit exposure concentrations in respect of obligors, countries, risk, including CCR to any counterparty, transaction, sector, or limitations on the amount of unsecured credit exposure sectors and other risk areas are effectively managed. This geographic region, so as to achieve the optimal balance between acceptable, collateralisation if the mark-to-market credit includes concentrations arising from credit exposure to different risk, cost, capital utilisation and reward. Risk mitigation may exposure exceeds acceptable limits, and termination of the entities within an obligor economic group, such as exposure to include the use of collateral, the imposition of financial or contract if certain credit events occur, for example, downgrade of public sector and other government entities that are related to behavioural covenants, the acceptance of guarantees from the counterparty’s public credit rating. the same sovereign. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CREDIT RISK CONTINUED RISKS 120 Annual report 2020 121

Credit Funding and Market Operational liquidity

MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY

SB 1 – 12 SB 13 – 20 SB 21 – 25 Default Total Securities gross and carrying expected Balance Gross amount recoveries IIS sheet ECL Gross Non- carrying of default on default on default on default default performing amount Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 exposures exposures exposures exposures coverage exposures N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 % %

2020 Loans and advances at amortised cost PBB 18 505 077 15 559 423 988 799 1 956 855 1 956 855 1 417 577 63 420 475 858 Mortgage loans 12 733 701 10 545 802 629 200 1 558 699 1 558 699 1 235 616 37 120 285 963 21 12 Vehicle and asset finance 2 800 832 2 532 636 195 441 72 755 72 755 15 763 56 992 78 3 Card debtors 158 960 140 906 14 040 4 014 4 014 (9 000) 13 014 324 3 Other loans and advances 2 811 584 2 340 079 150 118 321 387 321 387 175 198 26 300 119 889 Personal unsecured lending 1 491 992 1 403 911 64 372 23 709 23 709 2 810 847 20 052 88 2 Business lending and other 1 319 592 936 168 85 746 297 678 297 678 172 388 25 453 99 837 42 23

CIB 6 598 937 39 099 5 877 631 352 395 324 409 5 403 5 403 2 903 2 500 Corporate 3 555 265 3 001 468 224 190 324 204 5 403 5 403 2 903 2 500 Sovereign 805 245 2 806 795 814 6 625 Bank 2 238 427 36 293 2 080 349 121 580 205

Gross carrying amount 25 104 014 39 099 21 437 054 352 395 1 313 208 1 962 258 1 962 258 1 420 480 63 420 478 358 Less: total credit impairment on loans and advances (801 290) Net carrying amount of loans and advances measured at amortised cost 24 302 724 Financial investments measured at amortised cost Sovereign 54 732 54 732 Gross carrying amount 54 732 54 732 Net carrying amount of financial investments measured at amortised cost 54 732 Financial investments at FVOCI Sovereign 1 728 321 1 728 321 Gross carrying amount 1 728 321 1 728 321 Add: fair value reserve relating to fair value adjustments (before the ECL balance) (7 672) Total financial investment at FVOCI 1 720 649 Off-balance sheet exposures Letters of credit and banker’s acceptances 25 432 16 613 8 819 Guarantees 1 767 877 1 339 985 380 067 43 363 4 462 Irrevocable unutilised facilities 4 683 065 4 405 916 140 192 134 402 2 555 Total exposure to off-balance sheet credit risk 6 476 374 5 762 514 529 078 177 765 7 017 ECL for off-balance sheet exposures (3 900) Net carrying amount of off-balance sheet exposures 6 472 474 Total exposure to credit risk on financial assets subject to an ECL 32 550 579 Add the following exposures not subject to ECL: Cash and balances with the central bank – held at fair value1 1 035 972 Derivative assets 372 288 Other financial investments 2 516 620 Trading assets 383 240 Pledged assets 520 956 Other financial assets2 102 049 Total exposure to credit risk 37 481 704

1 Balances with central banks are subjected not to ECL considerations due to the rigorous regulatory requirements of these transactions and its link to the underlying entities ability to operate as a bank. Amount represents deposits placed in currencies as issued by the central banks with which they are stored. 2 Due to the short-term nature of these financial assets and historical experience, other amortised cost financial assets are regarded as having a low PD. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CREDIT RISK CONTINUED RISKS 122 Annual report 2020 123

Credit Funding and Market Operational liquidity

MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY CONTINUED

SB 1 – 12 SB 13 – 20 SB 21 – 25 Default Total Securities gross and carrying expected Balance Gross amount recoveries IIS sheet ECL Gross Non- carrying of default on default on default on default default performing amount Stage 1 Stage 2 Stage 1 Stage 2 Stage 1 Stage 2 Stage 3 exposures exposures exposures exposures coverage exposures N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 % %

2019 Loans and advances at amortised cost PBB 19 196 457 15 898 714 1 741 302 1 556 441 1 556 441 1 188 315 48 890 319 235 Mortgage loans3 12 339 977 9 781 485 1 227 452 1 331 040 1 331 040 1 080 753 36 834 213 453 17 6 Vehicle and asset finance 2 904 936 2 541 197 300 638 63 101 63 101 10 645 52 456 76 2 Card debtors 175 900 154 195 18 662 3 043 3 043 3 042 100 2 Other loans and advances3 3 775 644 3 421 837 194 550 159 257 159 257 96 917 12 056 50 284 Personal unsecured lending 1 868 727 1 750 621 100 007 18 099 18 099 933 654 16 512 95 1 Business lending and other3 1 906 917 1 671 216 94 543 141 158 141 158 95 984 11 402 33 772 32 6

CIB 7 038 138 4 437 208 2 516 681 71 585 12 664 (134) 134 Corporate 2 474 949 25 397 2 404 803 32 085 12 664 (134) 134 Sovereign 1 726 283 1 574 905 111 878 39 500 Bank 2 836 906 2 836 906

Gross carrying amount 26 234 595 4 437 208 18 415 395 71 585 1 753 966 1 556 441 1 556 441 1 188 181 48 890 319 369 Less: total credit impairment on loans and advances (599 102) Net carrying amount of loans and advances measured at amortised cost 25 635 493 Financial investments measured at amortised cost Sovereign 54 756 54 756 Gross carrying amount 54 756 54 756 Net carrying amount of financial investments measured at amortised cost 54 756 Financial investments at FVOCI Sovereign 2 075 524 2 075 524 Gross carrying amount 2 075 524 2 075 524 Add: fair value reserve relating to fair value adjustments (before the ECL balance) (3 004) Total financial investment at FVOCI 2 072 520 Off-balance sheet exposures Letters of credit and banker’s acceptances 62 451 62 451 Guarantees 2 086 955 1 179 640 846 856 60 459 Irrevocable unutilised facilities 4 329 351 3 764 710 527 942 36 590 97 12 Total exposure to off-balance sheet credit risk 6 478 757 5 006 801 1 374 798 97 049 97 12 ECL for off-balance sheet exposures (3 955) Net carrying amount of off-balance sheet exposures 6 474 802 Total exposure to credit risk on financial assets subject to an ECL 34 237 571 Add the following exposures not subject to ECL: Cash and balances with the central bank – held at fair value1 1 526 148 Derivative assets 149 910 Other financial investments 1 933 512 Trading assets 268 177 Pledged assets 580 098 Other financial assets2 44 537 Total exposure to credit risk 38 739 953

1 Balances with central banks are subjected not to ECL considerations due to the rigorous regulatory requirements of these transactions and its link to the underlying entities ability to operate as a bank. Amount represents deposits placed in currencies as issued by the central banks with which they are stored. 2 Due to the short-term nature of these financial assets and historical experience, other amortised cost financial assets are regarded as having a low PD. 2 This line has been updated to reclassify a commercial property loan from other loans and advances to mortgage loans. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CREDIT RISK CONTINUED RISKS 124 Annual report 2020 125

Credit Funding and Market Operational liquidity

Credit impairment losses on loans and advances Collateral Loans and advances are assessed for possible impairment at each reporting date. Before impairments are allocated to individual loans, The table on the following page shows the financial effect that collateral has on the group’s maximum exposure to credit risk. The table is consideration is first given to whether there is evidence of a decrease in expected cash flows from a portfolio of loans and advances. This presented according to Basel asset categories and includes collateral that may not be eligible for recognition under Basel but that will include estimations of the emergence period between the date of the occurrence of the loss event and the identification of that loss. management takes into consideration in the management of the group’s exposures to credit risk. All on- and off-balance sheet exposures Portfolio impairments are calculated for both performing and non-performing but not specifically impaired loans. Factors such as that are exposed to credit risk, including NPL, have been included. national- and industry-specific economic conditions, the extent of early arrears and any legislation that could affect recovery, are all considered when calculating the portfolio impairment charge. Collateral includes: • mortgage bonds over residential, commercial and industrial properties For those non-performing loans (NPL) where there is objective evidence of default, specific impairments are calculated using • cession of book debts methodologies that include inputs such as segmentation, modelled expected loss (EL) and PD. Estimates of future cash flows on individually impaired loans are based on historical loss experience for similar loans. • pledge and cession of financial assets • bonds over plant and equipment Concentration risk • the underlying movable assets financed under leases and instalment sales. Concentration risk is the risk of loss arising from an excessive concentration of exposure to a single counterparty, an industry, a product, a geography, maturity, or collateral. The group’s credit risk portfolio is well-diversified. The group’s management approach relies on the Netting agreements, which do not qualify for offset under IFRS but which are nevertheless enforceable, are included as part of the reporting of concentration risk along key dimensions, the setting of portfolio limits and stress testing. group’s collateral. All exposures are presented before the effect of any impairment provisions. IFRS: INDUSTRY SEGMENTAL ANALYSIS GROSS LOANS AND ADVANCES Of the group’s total exposure, 21% (2019: 19%) is unsecured and mainly reflects short-term exposures to individuals. Collateral coverage – 2020 2019 total collateral N$’000 N$’000 Total Agriculture 670 202 742 434 exposure Unsecured Secured 1 to 50 % 50 to 100% Construction 172 162 279 547 N$’000 N$’000 N$’000 N$’000 N$’000 Electricity 1 066 959 1 709 557 Finance, real estate and other business services 5 863 584 6 711 135 2020 Individuals 15 118 111 14 878 991 Corporate 6 174 248 3 555 265 2 618 983 2 618 983 Manufacturing 956 474 648 890 Sovereign 2 364 482 2 364 482 2 364 482 Mining 587 567 295 072 Bank 2 465 115 2 465 115 2 465 115 Other services 428 749 497 653 Retail 20 576 543 2 970 544 17 605 999 16 685 878 Transport 80 775 289 822 Retail mortgage 13 603 027 13 603 027 12 682 906 Wholesale 159 434 181 494 Other retail 6 973 516 2 970 544 4 002 972 4 002 972 Gross loans and advances 25 104 017 26 234 595 Total 31 580 388 6 525 809 25 054 579 2 618 983 21 515 475 All loans are recorded in Namibia. Add: financial assets not exposed to credit risk 6 727 420 Less: impairments for loans and advances (801 290) IFRS: SEGMENTAL ANALYSIS OF STAGE 3 ECL OF LOANS AND ADVANCES Less: unrecognised off-balance sheet items (6 476 374)

2020 2019 Total exposure 31 030 144 N$’000 N$’000 Represented by: Cash and balances with central banks 1 035 972 Agriculture (63 476) (14 657) Derivative assets 372 288 Construction (7 884) (3 068) Trading assets 383 240 Electricity (1 762) (966) Pledged assets 520 956 Finance, real estate and other business services (122 906) (103 569) Financial investments 4 299 673 Individuals (267 905) (176 338) Loans and advances 24 302 724 Manufacturing (3 562) (4 972) Other financial assets1 115 291 Mining (77) (61) Other services (8 425) (12 679) Total 31 030 144 Transport (839) (928) 1 Wholesale (2 648) (1 997) Other financial assets are included in other assets in the statements of financial position. Total ECL for stage 3 loans and advances, excluding IIS (479 484) (319 235)

All impairments relate to loans that are recorded in Namibia. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CREDIT RISK CONTINUED 126 Annual report 2020 127

Funding and liquidity risk Definition Liquidity risk is defined as the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at Collateral continued materially disadvantageous terms. Collateral coverage – total collateral Approach to managing liquidity risk the extensive deposit franchises across the portfolio to ensure Total The nature of the group’s banking and trading activities gives rise that it has the appropriate amount, tenor and diversification of exposure Unsecured Secured 1 to 50 % 50 to 100% to continuous exposure to liquidity risk. Liquidity risk may arise funding to support its current and forecast asset base while N$’000 N$’000 N$’000 N$’000 N$’000 where counterparties, who provide the group with short-term minimising cost of funding. funding, withdraw or do not roll over that funding, or normally 1 The group manages its liquidity through an internal behavioural 2019 liquid assets become illiquid as a result of a generalised profiling of its various portfolios. Through this mechanism, the Corporate 5 306 753 2 474 949 2 831 804 2 831 804 disruption in asset markets. group continuously ensures that it has sufficient marketable Sovereign 2 219 070 2 219 070 2 219 217 The group manages liquidity in accordance with applicable assets available in its portfolio to meet the outflow demand Bank 3 859 217 3 859 217 3 859 217 regulations and within the group’s risk appetite framework. The in both business as usual as well as stress circumstances. Retail 21 328 312 3 951 544 17 376 768 4 365 181 12 411 587 group’s liquidity risk management governance framework Retail mortgage 13 011 587 13 011 587 12 411 587 supports the measurement and management of liquidity across Maturity analysis of financial liabilities Other retail 8 316 725 3 951 544 4 365 181 4 365 181 both the corporate and retail sectors to ensure that payment obligations can be met by the group’s legal entities, under both by contractual maturity Total 37 713 352 6 426 493 26 286 859 4 365 181 21 321 678 normal and stressed conditions. Liquidity risk management The following table analyses cash flows on a contractual, ensures that the group has the appropriate amount, diversification Add: financial assets not exposed to credit risk 7 509 752 undiscounted basis based on the earliest date on which the and tenor of funding and liquidity to support its asset base at all group can be required to pay (except for trading liabilities and Less: impairments for loans and advances (599 102) times. The group manages liquidity risk as three interrelated Less: unrecognised off-balance sheet items (6 478 757) derivative liabilities, which are presented as redeemable on pillars, which are aligned to the Basel III liquidity requirements. demand) and will, therefore, not agree directly to the balances Total exposure 33 145 245 We maintain a prudent approach to liquidity management in disclosed in the consolidated statement of financial position. Represented by: accordance with the applicable laws and regulations. Appropriate Derivative liabilities are included in the maturity analysis on a liquidity buffers were held in excess of the minimum prudential Cash and balances with central banks 1 526 148 contractual, undiscounted basis when contractual maturities are liquid asset requirements as prescribed by the regulator. Derivative assets 149 910 essential for an understanding of the derivatives’ future cash Trading assets 268 177 Proactive liquidity management in line with group liquidity flows. Management considers only contractual maturities to be Pledged assets 580 098 standards ensured that, despite volatile and constrained liquidity essential for understanding the future cash flows of derivative Financial investments 4 063 792 environments at the onset of the Covid-19 pandemic, adequate liabilities that are designated as hedging instruments in effective Loans and advances 25 635 493 liquidity was maintained to fully support balance sheet strategies. hedge accounting relationships. All other derivative liabilities, 2 Other financial assets 921 627 This has been achieved through continuous engagements together with trading liabilities, are treated as trading and are Total 33 145 245 between treasury and capital management, risk and business included at fair value in the redeemable on demand bucket since units in which the liquidity risk with respect to on- and off- these positions are typically held for short periods of time. 1 Certain prior year amounts have been updated for consistency with current year presentation. balance sheet positions was carefully monitored. At the same 2 Other financial assets are included in other assets in the statements of financial position. time consideration has been provided to the adequacy of The table also includes contractual cash flows with respect to contingent funding, ensuring sufficiency to accommodate off-balance sheet items. Where cash flows are exchanged unexpected liquidity demands. The group continues to leverage simultaneously, the net amounts have been reflected.

Maturing Maturing Maturing between between Maturing Redeemable within 1 – 6 6 – 12 after on demand 1 month months months 12 months Total N$’000 N$’000 N$’000 N$’000 N$’000 N$’000

GROUP 2020 Liabilities Derivative liabilities 401 961 4 177 202 412 427 110 590 5 102 180 Trading liabilities 230 230 Deposits and current accounts 16 616 151 848 961 1 797 117 5 873 125 1 746 391 26 881 745 Debt issued securities 4 946 1 221 650 10 448 458 856 1 695 900 Other financial liabilities 3 900 1 626 8 100 7 188 6 023 26 837 Total 16 620 281 1 257 494 7 204 069 6 303 188 2 321 860 33 706 892 Unrecognised financial liabilities Letters of credit and bankers’ acceptances 25 432 25 432 Financial guarantees 215 457 3 489 1 548 931 1 767 877 Unutilised borrowing facilities 4 683 065 4 683 065 Total 4 898 522 3 489 1 574 363 6 476 374 2019 Liabilities Derivative liabilities 235 124 1 988 244 1 514 309 126 261 3 863 938 Trading liabilities 14 881 14 881 Deposits and current accounts 17 176 178 532 107 3 869 251 3 882 457 2 875 979 28 335 972 Debt issued securities 19 400 200 050 1 371 895 1 591 345 Provisions and other liabilities 616 154 616 154 Total 17 176 178 786 631 5 857 495 5 596 816 5 005 170 34 422 290 Unrecognised financial liabilities Letters of credit and bankers’ acceptances 56 632 114 5 705 62 451 Financial guarantees 1 195 109 2 844 16 413 872 589 2 086 955 Unutilised borrowing facilities 4 329 351 4 329 351 Total 5 581 092 2 958 22 118 872 589 6 478 757 SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CONTINUED RISKS 128 Annual report 2020 129

Credit Funding and Market Operational Market risk liquidity

Definition Trading book portfolio characteristics Market risk is the risk of a change in the market value, actual or effective earnings, or future cash flows VaR for the year under review of a portfolio of financial instruments caused by adverse movements in market variables such as Trading book market risk exposures arise mainly from residual exposures from client transactions and limited trading for the group’s own equity, bond prices, currency exchange and interest rates, credit spreads, recovery rates, correlations account. In general, the group’s trading desks have run increased levels of market risk throughout the year for all asset classes when compared to 2018 aggregate normal VaR, and aggregate SVaR. and implied volatilities in all of these variables. TRADING BOOK NORMAL VAR ANALYSIS BY MARKET VARIABLE

The group’s key market risks are VaR and SVaR Normal VaR • trading book market risk The group uses the historical VaR and SVaR approach to quantify Maximum1 Minimum1 Average Closing • Interest rate in the banking book (IRRBB) market risk under normal and stressed conditions. N$’000 N$’000 N$’000 N$’000 • foreign currency risk For risk management purposes VaR is based on 251 days of 2020 unweighted recent historical data updated at least monthly, a Foreign exchange risk 478 21 56 73 holding period of one day and a confidence level of 95%. The Trading book market risk Interest rates 59 4 25 11 historical VaR results are calculated in four steps: Definition Aggregate1 464 19 65 78 • calculate 250 daily market price movements based on 251 Trading book market risk is represented by financial instruments days’ historical data. Absolute movements are used for interest 2019 held in the trading book, arising out of normal global markets’ rates and volatility movements; relative for spot, equities, Foreign exchange risk 671 17 66 18 trading activity. credit spreads, and commodity prices Interest rates 164 3 36 44 • calculate hypothetical daily profit or loss for each day using Aggregate1 670 35 83 39 Approach to managing market risk in the these daily market price movements trading book • aggregate all hypothetical profits or losses for day one across 1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal The group’s policy is that all trading activities are undertaken all positions, giving daily hypothetical profit or loss, and then the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different days. repeat for all other days within the group’s global markets’ operations. TRADING BOOK STRESSED VAR ANALYSIS BY MARKET VARIABLE • VaR is the 95th percentile selected from the 250 days of daily The market risk functions are independent of the group’s trading hypothetical total profit or loss. operations and are overseen by the market risk committee which Stressed VaR is accountable to the relevant legal entity ALCOs. ALCOs have a Daily losses exceeding the VaR are unlikely to occur. Maximum1 Minimum1 Average Closing reporting line into group ALCO, a subcommittee of GROC. N$’000 N$’000 N$’000 N$’000 Limitations of historical VaR are acknowledged globally and All value at risk (VaR) and stressed value at risk (SVaR) limits include: 2020 require prior approval from the respective entity ALCOs. The • the use of historical data as a proxy for estimating future Foreign exchange risk 1 558 114 197 215 market risk functions have the authority to set these limits at a events may not encompass all potential events, particularly Interest rates 1 408 173 698 631 lower level. those which are extreme in nature Aggregate1 1 559 245 745 684 Market risk teams are responsible for identifying, measuring, • the use of a one-day holding period assumes that all positions managing, monitoring and reporting market risk as outlined in can be liquidated or the risk offset in one day. This will usually 2019 the market risk governance standard. not fully reflect the market risk arising at times of severe Foreign exchange risk 1 209 104 263 117 illiquidity, when a one-day holding period may be insufficient to Interest rates 2 831 97 735 846 Exposures and excesses are monitored and reported daily. Where liquidate or hedge all positions fully 1 breaches in limits and triggers occur, actions are taken by market Aggregate 2 704 175 690 755 risk functions to bring exposures back in line with approved • the use of a 95% confidence level, by definition, does not take 1 market risk appetite, with such breaches being reported to into account losses that might occur beyond this level of The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different days. management and entity ALCOs. confidence. VaR is calculated on the basis of exposures outstanding at the Approach to managing IRRBB close of business and, therefore, does not necessarily reflect Banking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on intra-day exposures. VaR is unlikely to reflect loss potential on banking book earnings (net interest income and banking book mark-to-market profit or loss) and the economic value of equity. exposures that only arise under significant market movements. The group’s approach to managing IRRBB is governed by applicable regulations and is influenced by the competitive environment in which the group operates. SBG’s treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of ALCO. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CONTINUED 130 Annual report 2020 131

Operational risk

Measurement Introduction The analytical techniques used to quantify IRRBB include both earnings- and valuation-based measures. The analysis takes into account Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and embedded optionality such as loan prepayments and accounts where the account behaviour differs from the contractual position. systems or from external events. Reputational risk and strategic risk are, in line with general market The results obtained from forward-looking dynamic scenario analyses, as well as Monte Carlo simulations, assist in developing optimal convention, excluded from the definition of operational risk. hedging strategies on a risk-adjusted return basis. INTEREST RATE SENSITIVITY ANALYSIS Operational risk exists in the natural course of business activity. It is not an objective to eliminate all exposure to operational risk as this would be neither commercially viable nor indeed possible. The NAD USD TOTAL group’s approach to managing operational risk is to adopt fit-for-purpose operational risk practices 2020 that assist business line management in understanding their inherent risk and reducing their risk Increase in basis points 200 100 profile in line with the group’s risk tolerance, while maximising their operational performance and Sensitivity of annual net interest income (N$’000) 183 120 341 183 461 efficiency. Decrease in basis points 200 100 Sensitivity of annual net interest income (N$’000) (229 516) (101) (229 617) Framework All incidents relating to the group are consolidated within a 2019 central group database, which is also integrated with risk and Increase in basis points 200 100 The group has set minimum requirements for managing control self-assessments and indicators. Sensitivity of annual net interest income (N$’000) 283 384 5 889 289 273 operational risk through the group operational risk governance Decrease in basis points 200 100 standard. These requirements have been fully implemented and • Reporting: Operational risk reports are produced on both a Sensitivity of annual net interest income (N$’000) (285 078) (7 116) (292 194) embedded across the group. regular and an event-driven basis. The reports include a profile of the key risks to business units’ achievement of their The framework sets out a structured and consistent approach for business objectives, relevant control issues and operational managing operational risk across the group. The risk Foreign currency risk risk incidents. Specific reports are prepared on a regular basis management approach involves identifying, assessing, for the relevant business unit committees and for the board Definition measuring, managing, mitigating, and monitoring the risks risk committee. The group’s primary non-trading-related exposures to foreign currency risk arise as a result of the translation effect on the group’s net associated with operations, enabling comprehensive analysis and assets in foreign operations, intragroup foreign-denominated debt and foreign-denominated cash exposures and accruals. reporting of the group’s operational risk profile. The primary responsibility for managing operational risk forms Approach to managing foreign currency risk The framework is based on the following core components: part of the day-to-day responsibilities of management and employees at all levels. Business line management is ultimately The group foreign currency management committee, a subcommittee of the group capital management committee, manages the risk • Risk identification and control methodology: Facilitates the responsible for owning and managing risks resulting from their according to existing legislation, Namibian exchange control regulations and accounting parameters. It takes into account naturally identification of risks and the management thereof across activities. The risks are managed where they arise. offsetting risk positions and manages the group’s residual risk by means of forward exchange contracts, currency swaps and option each business and operational function. It comprises two contracts. key elements: The operational risk management function is independent from – Risk and control self-assessments: These are performed for business line management and is part of the second line of Foreign currency risk sensitivity analysis all business lines which involves an analysis of business defence. It is organised as follows: The table that follows reflects the expected financial impact, in rand equivalent, resulting from a 5% shock to foreign currency risk activities and critical processes to identify the key • Operational risk managers are dedicated to the various exposures, against N$. The sensitivity analysis is based on net open foreign currency exposures arising from designated net investment operational risks to which it is or may be exposed, and business units and group enabling functions. These individuals hedges, other derivative financial instruments, foreign-denominated cash balances and accruals and intragroup foreign-denominated assess the adequacy and effectiveness of controls. For any are based alongside their business areas and facilitate the debt. The sensitivity analysis reflects the sensitivity to OCI and profit or loss on the group’s foreign denominated exposures. area where management concludes that the level of residual business’s adoption of the operational risk framework. As part risk is beyond an acceptable level, it is required to define FOREIGN CURRENCY RISK SENSITIVITY IN N$ EQUIVALENTS1 of the second line of defence, they also monitor and challenge action plans to reduce the level of risk. The assessments are the business units’ and group enabling functions’ management facilitated, monitored and challenged by the group's USD Euro GBP Other Total of their operational risk profile. operational risk function. • A central function, based at a group level, provides group wide – Indicators: Based on the key risks and controls identified GROUP oversight and reporting. It is also responsible for developing above, relevant indicators are used to monitor key business 2020 and maintaining the operational risk management framework. Total net long position N$’000 3 297 1 746 122 2 730 7 895 environment and internal control factors that may influence • The primary oversight body for operational risk is RMC, which Sensitivity % 5 5 5 5 the group’s operational risk profile. Each indicator has trigger thresholds to provide an early-warning indicator of reports to Exco, the BRC and ultimately the board. RMC is Impact on profit or loss N$’000 165 87 6 137 395 potential risk exposures and/or a potential breakdown of chaired by the group head of risk and includes representation from group specialist functions and business units. RMC is Total net long position N$’000 3 297 1 746 122 2 730 7 895 controls. also responsible for approving group wide operational risk Sensitivity % (5) (5) (5) (5) – Operational risk incidents: All areas are required to report policies and methodologies. Impact on profit or loss N$’000 (165) (87) (6) (137) (395) operational risk incidents to the operational risk function. The definition of operational risk incidents includes not only • In addition to the operational risk management function, there 2019 events resulting in actual loss, but those resulting in are individual focus areas on particular aspects of operational Total net long position N$’000 2 455 1 663 76 2 582 6 776 non-financial impacts and near misses. This process is risk, including: Sensitivity % 5 5 5 5 intended to enable the root cause of individual incidents, or – specialist functions that are responsible for oversight of Impact on profit or loss N$’000 123 83 4 129 339 trends of incidents, to be analysed and actions taken to specific components of operational risk, including reduce the exposure or to enhance controls. compliance, legal, financial crime, information security and Total net long position N$’000 2 455 1 663 76 2 582 6 776 business continuity management Sensitivity % (5) (5) (5) (5) – an internal financial controls framework has been Impact on profit or loss N$’000 (123) (83) (4) (129) (339) established to ensure the robust control over balance sheet substantiation and other key financial controls 1 Before tax. – within the group’s IT and operations functions, there are dedicated areas focused on the day-to-day management of operations control and IT risk. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CONTINUED RISKS 132 Annual report 2020 133

Credit Funding and Market Operational liquidity

Measuring operational risk Taxation risk Compliance risk Regulatory change The group continues to calculate capital based on the In terms of the group tax policy, the group fulfils its Compliance risk is the risk of legal or regulatory sanctions, The group aims to embed regulatory best practice in our standardised approach in accordance with BON requirements responsibilities under tax law in each jurisdiction in which it financial loss or damage to reputation that the group may suffer operations in a way that balances the interests of various operates, both in terms of domestic and international taxes with as a result of its failure to comply with laws, regulations, codes of stakeholders, while supporting the long-term stability and growth Specialist operational risk types specific reference to transfer pricing principles across conduct and standards of good practice that are applicable to its in the markets where we have a presence. jurisdictions, whether in relation to compliance, planning or client financial services activities. The definition of operational risk is very broad. Operational risk The group operates in a highly regulated industry across multiple service matters. Tax law includes all responsibilities which the contains specific sub-risks that are subject to management and jurisdictions, including the need to comply with legislation with group may have in relation to group taxes, personal taxes, Approach to compliance risk management oversight by dedicated specialist functions. extra-territorial reach. The group’s regulator is the Bank of indirect taxes and tax administration. The group’s approach to managing compliance risk is proactive Namibia. BoN supervises both the group and Standard Bank and premised on internationally accepted principles of risk Namibia, the banking entity, on a consolidated basis. Model risk Compliance with this policy is aimed at ensuring that the group management, including those recommended by Basel. It is The term model refers to a quantitative method, system or pays neither more nor less tax than tax law requires. The group aligned with other group risk type methodologies. group Environmental and social risk approach that applies statistical, economic, financial, or continually reviews its existing and planned operations in this compliance supports business in complying with current and mathematical principles and processes to translate input data regard and ensures that, where clients participate in group emerging regulatory developments, including money laundering Environmental and social risk assessment and management into quantitative estimates. The group uses models to measure products, these clients are either aware of the probable tax and terrorist financing control, sanctions management, deals with two aspects, being those over which: risk across the various risk types. Examples include credit implications or are advised to consult with independent identifying and managing conflicts of interest and market abuse, • we do not have control but which have potential to impact on grading, pricing, valuation and risk appetite metrics. professionals to assess these implications, or both. TCF and mitigating reputational risk. our operations and those of our clients • we have direct control such as waste management and the use Model risk is the potential for adverse consequences from The framework to achieve compliance with the group tax policy Framework and governance measurement, pricing and management decisions based on comprises four elements: of energy and water. Compliance risk management is a core risk management activity incorrect or inappropriate use of models. Incorrect or • Identification and management of tax risk overseen by the BRC. The head of compliance has unrestricted inappropriate use of models may arise from incorrect The SBG sustainability management unit develops the strategy, • Human resources policies, including an optimal mix of staffing access to the chief executive and to the chairman of the BAC, assumptions, incomplete information, inaccurate implementation policy and management frameworks which enable the and outsourcing thereby ensuring the function’s independence. and limited model understanding leading to incorrect conclusions identification, management, monitoring and reporting of both of • Skills development, including methods to maintain and by the user. these aspects. improve managerial and technical competency The group’s compliance framework is based on the principles of effective compliance risk management, as outlined in the The uncontrolled aspects include threats to the global The group’s approach to managing model risk is based on the • Communication of information affecting tax within the group. Banking Institutions Act, and recommendations from following principles: environment result from changing global climate and its impact international policy-making bodies. Our business compliance Good corporate governance in the tax context requires that each on weather patterns, fresh water, infrastructure, economic • All new models, both internal and external, are subject to model includes dedicated compliance support and advisory of these elements is in place, as the absence of any one would growth and social resilience. The group uses two approaches to validation and independent review in which the various services to business which is supplemented by training. seriously undermine the others. screen and process projects, namely the Equator Principles for components of a model and its overall functioning are project finance loans and an internally developed appraisal A robust risk management reporting and escalation procedure evaluated to determine whether the model is performing as system for other financial product types. These tools are Legal risk requires both business unit and functional area heads to report intended. designed to identify the risks associated with a transaction and Legal risk is defined as exposure to the adverse consequences of monthly and quarterly on the status of compliance risk • The three lines of defence governance model is adopted, being the customer’s ability to manage environmental and social non-compliance with legal or statutory responsibilities and/or management in the group. model development, independent model validation and issues, as well as the risks associated with the transaction itself inaccurately drafted contracts and their execution, as well as the internal audit oversight functions. such as the nature and value of the loan, and the industry sector absence of written agreements or inadequate agreements. This Money laundering and terrorist financing control • Appropriateness and fit-for-purpose use of models in technical involved. includes exposure to new laws, as well as changes in Legislation across the group pertaining to money laundering and forums is challenged. interpretations of existing law by appropriate authorities. This terrorist financing control imposes significant requirements in All project finance deals will in future be screened for climate • Model validation summaries that highlight model limitations applies to the full scope of group activities and may also include terms of: change risk and human rights impacts. This is in addition to the and recommend improvements. others acting on behalf of the group. • customer identification more traditional environmental and social risks which include • Implementation of approved models into production systems those associated with occupational health and safety, relocation Legal risk arises where: • record keeping is controlled. of communities and the impact on livelihoods of individuals. • Model performance, including requirements for an annual • the group’s businesses or functions may not be conducted in • staff training review process, is monitored on an ongoing basis. accordance with, or benefit from, applicable laws in the • obligations to detect, prevent and report money laundering In relation to the controllable aspects, energy use, water use, • Data that is used as model inputs, which includes independent countries in which it operates and terrorist financing. waste production and carbon emissions resulting from our price testing of mark-to-market positions is reviewed and • regulatory requirements are incorrectly applied operations are recorded within an environmental management system. This is used both for improving efficiency and reporting governed. Where this is not available, industry consensus • the group may be liable for damages to third parties Compliance training to key stakeholders. Environmental efficiency targets have been services are used. • contractual obligations may be enforced against the group in Employees are made aware of their responsibilities in terms of set at a SBN level. • Governance is achieved through committees with appropriate an adverse way, resulting from legal proceedings being current and emerging legislative and regulatory requirements board and executive management members for material instituted against it. through ongoing training and awareness initiatives. Employees, From a governance perspective, the group’s material issues are models, and through policies which deal with minimum including senior management, are made aware of their legislative companied into six broad categories which form the basis of standards, materiality, validation criteria, approval criteria, The following sub-categories of legal risk are recognised: responsibilities either through e-learning, face-to-face engagement on sustainability issues with the group executive interventions or through targeted awareness campaigns. Training roles and responsibilities. • Contract non-conclusion risk committee and the board. These are: is key to embedding a culture of compliance in the group. • Auditable, skilled and experienced pool of technically • Contract unenforceability risk • sustainable long-term financial performance competent staff is maintained. • Security interest failure risk • governance, regulation and stakeholder engagement • Netting and set-off disallowance risk • sustainable and responsible financial services • Adverse tax and regulatory treatment risk • socioeconomic development • Contract breach, damages and fines risk • a positive and consistent employee experience • Copyright loss or contravention risk • the environment. • Litigation risk • Anti-competitive behaviour risk.

The group has processes and controls in place to manage its legal risk. Failure to manage these risks effectively could result in legal proceedings impacting the group adversely, both financially and reputationally. SBN HOLDINGS LIMITED ANNEXURE C – RISK AND CAPITAL MANAGEMENT CONTINUED RISKS 134 Annual report 2020 135

Credit Funding and Market Operational liquidity

Business continuity management and Occupational health and safety Strategic risk resilience The health and safety of all employees remains a priority. Training Strategic risk is the risk that the group’s future business plans Business continuity management is defined as a holistic of health and safety officers and employee awareness is an and strategies may be inadequate to prevent financial loss or management process that identifies potential impacts that ongoing endeavour. group policies are being rolled out to all protect the group’s competitive position and shareholder returns. operations and the number of incidents being reported is threaten the group and provides a basis for planning in mitigation The group’s business plans and strategies are discussed and reducing. to these operational impacts. It further provides a framework for debated by members of management and non-executive board building resilience and the capability for an effective response members. that safeguards the interests of key stakeholders, reputation, Other risk brand and value-creating activities. Business risk Post-retirement obligation risk The group has business resiliency and continuity plans in place to Business risk is the risk of loss due to operating revenue not Post-retirement obligation risk is the risk to the group’s earnings ensure its ability to operate on an ongoing basis and limit losses covering operating costs and is usually caused by the following: that arises from the requirement to contribute as an employer to in the event of severe business disruptions. • inflexible cost structures an under-funded defined benefit plan. The risk arises due to either an increase in the estimated value of medical liabilities or a Crisis management is based on a command and control process • market-driven pressures, such as decreased demand, decline in the market value of the fund’s assets or reduction in for managing the business through a crisis to full recovery. These increased competition or cost increases their investment returns. processes may also be deployed to manage non-operational • group-specific causes, such as a poor choice of strategy, crises, including business crises, at the discretion of senior reputational damage or the decision to absorb costs or losses The group operates a defined contribution plan. The group management. to preserve reputation. maintains a number of defined benefit pension and medical aid provider schemes for past and certain current employees, Contingency and recovery plans for core services, key systems It includes strategic risk and post-retirement obligation risk. collectively termed post-retirement obligations. Refer to note 35. and priority business activities have been developed and are revisited as part of existing management processes to ensure Business risk is governed by Exco which is ultimately responsible that continuity strategies and plans remain relevant. for managing the costs and revenues of the group. Reputational risk Reputational risk results from damage to the group’s image The group mitigates business risk in a number of ways: Information risk management which may impair its ability to retain and generate business. Such • Extensive due diligence during the investment appraisal damage may result in a breakdown of trust, confidence or Information risk is defined as the risk of accidental or intentional process is performed, in particular for new acquisitions. business relationships. unauthorised use, modification, disclosure or destruction of the • New product processes per business line through which the group’s information resources, which compromises risks and mitigating controls for new and amended products Safeguarding the group’s reputation is of paramount importance. confidentiality, integrity or availability. Information risk and services are tabled and discussed. Each business line, legal entity or support function executive is management (IRM) deals with all aspects of information in its responsible for identifying, assessing and determining all • Stakeholder management ensures favourable outcomes from physical and electronic forms. It focuses on the creation, use, reputational risks that may arise within their respective areas of external factors beyond the group’s control. transmission, storage, disposal and destruction of information. business. The impact of such risks is considered alongside • The profitability of product lines and customer segments is financial or other impacts. IRM is responsible for establishing an information security consistently monitored. management system inclusive of an IRM framework, and • Tight control is maintained over the group’s cost base, Matters identified as a reputational risk to the group will be promotes IRM policies and practices across the group. including the management of its cost-to-income ratio. This reported to the group head of governance and assurance who, if required, will escalate these matters to exco. The execution of these policies and standards is driven through a allows for early intervention and management action to reduce costs where necessary. network of information security officers embedded within the Should a risk event occur, the group’s crisis management business lines. This network is functionally overseen by the group • Being alert and responsive to changes in market forces. processes are designed to minimise the reputational impact of chief information security officer. • There is a strong focus in the budgeting process on achieving the event. Crisis management teams are in place both at headline earnings growth while containing cost growth. In executive and business line level to ensure the effective Financial crime control addition, contingency plans are built into the budget that allow management of any such events. This includes ensuring that the for costs to be significantly reduced in the event that expected Financial crime includes fraud, money laundering, violent crime group’s perspective is fairly represented in the media. revenue generation does not materialise. and misconduct by staff, customers, suppliers, business partners, stakeholders and third parties. The group will not • The group continually aims to increase the ratio of variable condone any instance of financial crime and where these costs to fixed costs, allowing for more flexibility to proactively instances arise, the group takes timely and appropriate reduce costs during economic downturn conditions. remedial action.

Financial crime control is defined as the prevention and detection of, and response to, all financial crime in order to mitigate economic loss, reputational risk and regulatory sanction.

The group’s financial crime control unit is mandated by the BAC to provide capabilities which minimise the overall impact of financial crime on the group. This ensures the safety of our people and assets, and builds trust with our stakeholders.

The group’s financial crime control function reports to the head of risk. This function enables a holistic view of the status and landscape of financial crime prevention, detection and response, including emerging threats. The group head of financial crime control has unrestricted access to executives and the chairperson of the BAC, thereby supporting the function’s independence. SBN HOLDINGS LIMITED 136 Annual report 2020 137

ANNEXURE D – EMOLUMENTS OF DIRECTORS ANNEXURE E – DETAILED ACCOUNTING POLICIES

Executive directors and prescribed officers’ emoluments The following are the significant accounting policies were applied in the preparation of the group and company financial statements. Mr V Mungunda Mrs L du Plessis 1 TOTAL 1. Basis of consolidation 2020 2019 2020 2019 2020 2019 Subsidiaries N$’000 N$’000 N$’000 N$’000 N$’000 N$’000 Separate financial statements Cost to company package 4 120 4 041 2 034 1 030 6 154 5 071 Investments in subsidiaries are accounted for at cost less accumulated impairment losses (where applicable) in the separate Basic salary 2 397 2 293 1 610 819 4 007 3 112 financial statements. The carrying amounts of these investments are reviewed annually for impairment indicators and, where an Retirement contributions paid during indicator of impairment exists, are impaired to the higher of the investment’s fair value less costs to sell or value in use. the year 431 417 225 114 656 531 Other benefits and allowances 1 292 1 331 199 97 1 491 1 428 Consolidated financial statements The accounting policies of subsidiaries that are consolidated by the group conform to the group’s accounting policies. Intragroup Short-term cash incentive 2 190 2 120 1 243 3 433 2 120 transactions, balances and unrealised gains/(losses) are eliminated on consolidation. Unrealised losses are eliminated in the same Total reward (excluding conditional manner as unrealised gains, but only to the extent that there is no evidence of impairment. The proportion of comprehensive long-term incentive awards) 6 310 6 161 3 277 1 030 9 587 7 191 income and changes in equity allocated to the group and non-controlling interest are determined on the basis of the group’s DBS vesting cash and notional present ownership interest in the subsidiary. dividends2 1 440 2 583 79 1 519 2 583 Subsidiaries are consolidated from the date on which the group acquires control up to the date that control is lost. Control is PRP vesting cash and notional assessed on a continuous basis. For mutual funds the group further assesses its control by considering the existence of either dividends2 1 980 4 764 1 980 4 764 voting rights or significant economic power. Total reward (including conditional long-term incentive awards) 9 730 13 508 3 356 1 030 13 086 14 538 Type Description

1 The figures for 2019 are from July to December following her appointment to the board. Acquisitions 2 Conditional long-term incentive awards are disclosed in note 37. The acquisition method of accounting is used to account for the acquisition of subsidiaries by the group. The consideration transferred is measured as the sum of the fair value of the assets given, 1 equity instruments issued and liabilities incurred or assumed at the acquisition date. The Non-executive directors consideration includes any asset, liability or equity resulting from a contingent consideration Fixed remuneration arrangement. The obligation to pay contingent consideration is classified as either a liability or equity based on the terms of the arrangement. The right to a return of previously transferred consideration Services as SBN Holdings Services as Total is classified as an asset. Transaction costs are recognised within profit or loss as and when they are directors of committee directors of compensation incurred. Where the initial accounting is incomplete by the end of the reporting period in which the SBN Holdings fees subsidiaries for the year business combination occurs (but no later than 12 months since the acquisition date), the group N$’000 N$’000 N$’000 N$’000 reports provisional amounts. Where applicable, the group adjusts retrospectively the provisional amounts to reflect new information obtained about facts and circumstances that existed at the Mr H Maier 2020 458 249 707 acquisition date and affected the measurement of the provisional amounts. Identifiable assets 2019 411 296 707 acquired, liabilities and contingent liabilities assumed in a business combination are measured Mrs B Rossouw 2020 229 310 137 676 initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess (shortage) of the sum of the consideration transferred (including contingent 2019 206 375 133 714 consideration), the value of non-controlling interest recognised and the acquisition date fair value of Mr IH Tjombonde 2020 229 274 503 any previously held equity interest in the subsidiary over the fair value of identifiable net assets acquired is recorded as goodwill in the statement of financial position (gain on bargain purchase, 2019 206 247 453 which is recognised directly in non-trading and capital related items). When a business combination Mr JL Muadinohamba 2020 229 123 352 occurs in stages, the previously held equity interest is remeasured to fair value at the acquisition date and any resulting gain or loss is recognised in non-trading and capital related items. Increases in 2019 206 280 486 the group’s interest in a subsidiary, when the group already has control, are accounted for as Adv N Bassingthwaighte 2020 229 332 137 698 transactions with equity holders of the group. The difference between the purchase consideration and the group’s proportionate share of the subsidiary’s additional net asset value acquired is 2019 206 267 133 606 accounted for directly in equity. Mrs MS Dax 2020 212 83 295 Disposal of a A disposal arises where the group loses control of a subsidiary. When the group loses control of a 2019 206 54 260 subsidiary subsidiary, the profit or loss on disposal is calculated as the difference between the fair value of the Mr A Gain2 2020 consideration received (including the fair value of any retained interest in the underlying investee) 2019 35 27 62 and the carrying amount of the assets and liabilities and any non-controlling interest. Any gains or losses in OCI that relate to the subsidiary are reclassified to profit or loss at the time of the disposal. Total 2020 1 586 1 371 274 3 231 On disposal of a subsidiary that includes a foreign operation, the relevant amount in the FCTR is Total 2019 1 476 1 546 266 3 288 reclassified to profit or loss at the time at which the profit or loss on disposal of the foreign operation is recognised. 1 Mr AN Mangale, Ms PM Nyandoro and Mr P Schlebusch have not been included as they are remunerated by Standard Bank Group Limited. 2 Mr A Gain resigned in March 2019. Partial disposal of a A partial disposal arises as a result of a reduction in the group’s ownership interest in an investee subsidiary that is not a disposal (i.e. a reduction in the group’s interest in a subsidiary while retaining control). Decreases in the group’s interest in a subsidiary, where the group retains control, are accounted for as transactions with equity holders of the group. Gains or losses on the partial disposal of the group’s interest in a subsidiary are computed as the difference between the sales consideration and the group’s proportionate share of the investee’s net asset value disposed of and are accounted for directly in equity. On the partial disposal of a subsidiary that includes a foreign operation, a proportionate share of the balance of the FCTR is transferred to non-controlling interest.

Initial measurement of The group elects on each acquisition to initially measure non-controlling interest on the non-controlling acquisition date at either fair value or at the non-controlling interest’s proportionate share of the interest investees’ identifiable net assets. SBN HOLDINGS LIMITED 138 Annual report 2020 139

Common control transactions 2. Interest in joint venture 3. Financial instruments Common control transactions, in which the company is the Joint ventures are initially measured at cost and Initial measurement – financial instruments ultimate parent entity both before and after the transaction, subsequently accounted for using the equity method at an All financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those are accounted for at book value. amount that reflects the group’s share of the net assets of financial instruments that are subsequently measured at fair value through profit or loss where such transaction costs and fees are the joint venture (including goodwill). Foreign currency translations immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the group commits to purchase (sell) the instruments (trade date accounting). Group companies E quity accounting is applied from the date on which the entity becomes a joint venture up to the date on which the The results and financial position of foreign operations that group ceases to have joint control. Financial assets have a functional currency that is different from the group’s Nature presentation currency are translated into the group’s Equity accounting of losses is restricted to the interests in presentation currency as follows: these entities, including unsecured receivables or other Amortised cost A debt instrument that meets both of the following conditions (other than those designated at • assets and liabilities (including goodwill, intangible commitments, unless the group has an obligation or has fair value through profit or loss): made payments on behalf of the joint venture. assets and fair value adjustments arising on acquisition) • Held within a business model whose objective is to hold the debt instrument (financial are translated at the closing rate at the reporting date; Unrealised profits from transactions are eliminated in asset) in order to collect contractual cash flows; and • income and expenses are translated at average exchange determining the group’s share of equity accounted profits. • The contractual terms of the financial asset give rise on specified dates to cash flows that rate; and Unrealised losses are eliminated in the same way as are solely payments of principal and interest on the principal amount outstanding. • all resulting foreign exchange differences are accounted unrealised gains (but only to the extent that there is no for directly in a separate component of OCI, being the evidence of impairment). This assessment includes determining the objective of holding the asset and whether the group’s FCTR. contractual cash flows are consistent with a basic lending arrangement. Where the contractual Where there is an indicator of impairment the carrying terms introduce exposure to risk or volatility that are not considered de minimis and are amount of the investment is tested for impairment by Transactions and balances inconsistent with a basic lending arrangement, the financial asset is classified as fair value comparing its recoverable amount with its carrying through profit or loss – default. Foreign currency transactions are translated into the amount. respective group entities’ functional currencies at exchange Fair value through OCI A debt instrument that meets both of the following conditions (other than those designated at rates prevailing at the date of the transactions (in certain Imp airment losses are recognised through non-trading and fair value through profit or loss): instances a rate that approximates the actual rate at the capital related items. Impairment losses recognised in prior date of the transaction is utilised, for example an average periods are assessed at each reporting date for any • Held within a business model in which the debt instrument (financial asset) is managed to rate for a month). Foreign exchange gains and losses indications that the loss has decreased or no longer exists. both collect contractual cash flows and sell financial assets; and resulting from the settlement of such transactions and • The contractual terms of the financial asset give rise on specified dates to cash flows that An impairment loss is reversed if there has been a change from the translation of monetary assets and liabilities are solely payments of principal and interest on the principal amount outstanding. in the estimates used to determine the recoverable denominated in foreign currencies at year end exchange amount, but only to the extent that the investment’s rates, are recognised in profit or loss (except when This assessment includes determining the objective of holding the asset and whether the carrying amount does not exceed the carrying amount that recognised in OCI as part of qualifying cash flow hedges contractual cash flows are consistent with a basic lending arrangement. Where the contractual would have been determined, net of equity accounted and net investment hedges). terms introduce exposure to risk or volatility that are not considered de minimis and are losses, if no impairment loss had been recognised. inconsistent with a basic lending arrangement, the financial asset is classified as fair value Non-monet ary assets and liabilities denominated in foreign For a disposal of a joint venture, being where the group through profit or loss – default. currencies that are measured at historical cost are loses joint control over a joint venture, the difference translated using the exchange rate at the transaction date, Equity financial assets which are not held for trading and are irrevocably elected (on an between the sales proceeds and any retained interest and and those measured at fair value are translated at the instrument-by-instrument basis) to be presented at fair value through OCI. the carrying value of the equity accounted investment is exchange rate at the date that the fair value was recognised as a gain or loss in non-trading and capital determined. Exchange rate differences on non-monetary Held-for-trading Financial assets acquired principally for the purpose of selling in the near term (including all related items. Any gains or losses in OCI reserves that items are accounted for based on the classification of the derivative financial assets) and those that form part of a portfolio of identified financial relate to the associate or joint venture are reclassified to underlying items. instruments that are managed together and for which there is evidence of a recent actual non-trading and capital related items at the time of the pattern of short-term profit taking. F oreign exchange gains and losses on equities (debt) disposal. classified as fair value through OCI are recognised in the The accounting policies of joint ventures have been Included are commodities that are acquired principally for the purpose of selling in the near fair value through OCI reserve in OCI (trading revenue) changed where necessary to ensure consistency with the future or generating a profit from fluctuations in price or broker-trader margin. whereas the exchange differences on equities (debt) that policies of the group. are classified as held at fair value through profit or loss are Designated at fair value Financial assets are designated to be measured at fair value through profit or loss to eliminate reported as part of other revenue (trading revenue). through profit or loss or significantly reduce an accounting mismatch that would otherwise arise.  F oreign currency gains and losses on intragroup loans are Fair value through profit or Financial assets that are not classified into one of the above mentioned financial asset recognised in profit or loss except where the settlement of loss – default categories. the loan is neither planned nor likely to occur in the foreseeable future. In these cases the foreign currency gains and losses are recognised in the group’s FCTR. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES CONTINUED 140 Annual report 2020 141

Subsequent measurement The key components of the impairment methodology are described as follows: Subsequent to initial measurement, financial assets are classified in their respective categories and measured at either amortised Significant increase At each reporting date the group assesses whether the credit risk of its exposures has cost or fair value as follows: in credit risk increased significantly since initial recognition by considering the change in the risk of default Amortised cost Amortised cost using the effective interest method with interest recognised in interest income, occurring over the expected life of the financial asset. less any expected credit impairment losses which are recognised as part of credit impairment Credit risk of exposures which are overdue for more than 30 days are also considered to have charges. increased significantly. Directly attributable transaction costs and fees received are capitalised and amortised through interest income as part of the effective interest rate. Low credit risk Exposures are generally considered to have a low credit risk where there is a low risk of default, the exposure has a strong capacity to meet its contractual cash flow obligations and adverse Fair value through OCI Debt instrument: Fair value, with gains and losses recognised directly in the fair value through changes in economic and business conditions may not necessarily reduce the exposure’s OCI reserve. When a debt financial asset is disposed of, the cumulative fair value adjustments, ability to fulfil its contractual obligations. previously recognised in OCI, are reclassified to the other gains and losses on financial instruments within non-interest revenue. Expected credit impairments losses are recognised Default The group’s definition of default has been aligned to its internal credit risk management as part of credit impairment charges. However, for these FVOCI debt instruments the expected definitions and approaches. A financial asset is considered to be in default when there is credit loss is recognised in OCI and does not reduce the carrying amount of the financial asset objective evidence of impairment. The following criteria are used in determining whether there in the statement of financial position. Interest income on a debt financial asset is recognised in is objective evidence of impairment for financial assets or groups of financial assets: interest income in terms of the effective interest rate method. Dividends received are • significant financial difficulty of borrower and/or modification (i.e. known cash flow recognised in interest income within profit or loss. difficulties experienced by the borrower) Equity instrument: Fair value, with gains and losses recognised directly in the fair value • a breach of contract, such as default or delinquency in interest and/or principal payments through OCI reserve. When equity financial assets are disposed of, the cumulative fair value • disappearance of active market due to financial difficulties adjustments in OCI are reclassified within reserves to retained income. • it becomes probable that the borrower will enter bankruptcy or other financial Dividends received on equity instruments are recognised in other revenue within non-interest reorganisation income. • where the group, for economic or legal reasons relating to the borrower’s financial difficulty, grants the borrower a concession that the group would not otherwise consider. Held-for-trading Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue. Exposures which are overdue for more than 90 days are also considered to be in default.

Designated at fair value Fair value gains and losses (including interest and dividends) on the financial asset recognised Forward-looking information Forward-looking information is incorporated into the group’s impairment methodology through profit or loss in the income statement as part of other gains and losses on financial instruments within calculations and in the group’s assessment of SICR. The group includes all forward looking non-interest revenue. information which is reasonable and available without undue cost or effort. The information will typically include expected macro-economic conditions and factors that are expected to impact FVTPL – default Debt instruments: Fair value gains and losses (including interest and dividends) on the portfolios or individual counterparty exposures. financial asset recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue. Write-off Financial assets are written off when there is no reasonable expectation of recovery. Financial assets which are written off may still be subject to enforcement activities. Equity instruments: Fair value gains and losses on the financial asset recognised in the income statement as part of other gains and losses on financial instruments. Dividends ECLs are recognised within the statement of financial position as follows: received on equity instruments are recognised in other revenue within non-interest revenue. Financial assets measured Recognised as a deduction from the gross carrying amount of the asset (group of assets). Impairment at amortised cost (including Where the impairment allowance exceeds the gross carrying amount of the asset (group of ECLs are recognised on debt financial assets classified as at either amortised cost or fair value through OCI, financial guarantee loan commitments) assets), the excess is recognised as a provision within other liabilities. contracts that are not designated at fair value through profit or loss as well as loan commitments that are neither measured at fair value through profit or loss nor are used to provide a loan at a below market interest rate. Off-balance sheet exposures Recognised as a provision within other liabilities. (excluding loan The measurement basis of the ECL of a financial asset includes assessing whether there has been a SICR at the reporting date commitments) which includes forward-looking information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The measurement basis of the ECL, which is set out in the table Financial assets measured Recognised in the fair value reserve within equity. The carrying value of the financial asset is that follows, is measured as the unbiased and probability-weighted amount that is determined by evaluating a range of possible at fair value through OCI recognised in the statement of financial position at fair value. outcomes, the time value of money and forward-looking information.

Stage 1 A 12-month ECL is calculated for financial assets which are neither credit-impaired on origination nor for which there has been a SICR.

Stage 2 A lifetime ECL allowance is calculated for financial assets that are assessed to have displayed a SICR since origination and are not considered low credit risk.

Stage 3 (credit impaired A lifetime ECL is calculated for financial assets that are assessed to be credit impaired. assets) The following criteria are used in determining whether the financial asset is impaired: • default • significant financial difficulty of borrower and/or modification • probability of bankruptcy or financial reorganisation • disappearance of an active market due to financial difficulties. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 142 Annual report 2020 143

Reclassification Derecognition and modification of financial assets and liabilities Reclassifications of debt financial assets are permitted when, and only when, the group changes its business model or managing Financial assets and liabilities are derecognised in the following instances: financial assets, in which case all affected financial assets are reclassified. Reclassifications are accounted for prospectively from the date of reclassification as follows: Derecognition Modification • Financial assets that are reclassified from amortised cost to fair value are measured at fair value at the date of reclassification with any difference in measurement basis being recognised in other gains and losses on financial instruments Financial Financial assets are derecognised when the contractual rights to Where an existing financial asset or liability assets receive cash flows from the financial assets have expired, or where is replaced by another with the same • The fair value of a financial asset that is reclassified from fair value to amortised cost becomes the financial asset’s new carrying the group has transferred its contractual rights to receive cash counterparty on substantially different value flows on the financial asset such that it has transferred terms, or the terms of an existing financial • Financial assets that are reclassified from amortised cost to fair value through OCI are measured at fair value at the date of substantially all the risks and rewards of ownership of the financial asset or liability are substantially modified, reclassification with any difference in measurement basis being recognised in OCI asset. Any interest in the transferred financial assets that is such an exchange or modification is • The fair value of a financial asset that is reclassified from fair value through OCI to amortised cost becomes the financial asset’s created or retained by the group is recognised as a separate asset treated as a derecognition of the original new carrying value with the cumulative fair value adjustment recognised in OCI being recognised against the new carrying value or liability. asset or liability and the recognition of a • The carrying value of financial assets that are reclassified from fair value through profit or loss to fair value through OCI remains new asset or liability at fair value, including at fair value The group enters into transactions whereby it transfers assets, calculating a new effective interest rate, • The carrying value of financial assets that are reclassified from fair value through OCI to fair value through profit or loss remains recognised in its statement of financial position, but retains either with the difference in the respective at fair value, with the cumulative fair value adjustment in OCI being recognised in the income statement at the date of all or a portion of the risks or rewards of the transferred assets. If carrying amounts being recognised in reclassification. all or substantially all risks and rewards are retained, then the other gains and losses on financial transferred assets are not derecognised. Transfers of assets with instruments within non-interest revenue. Financial liabilities the retention of all or substantially all risks and rewards include The date of recognition of a new asset is Nature securities lending and repurchase agreements. consequently considered to be the date of initial recognition for impairment Held-for-trading Those financial liabilities incurred principally for the purpose of repurchasing in the near term When assets are sold to a third party with a concurrent total rate calculation purposes. (including all derivative financial liabilities) and those that form part of a portfolio of identified of return swap on the transferred assets, the transaction is If the terms are not substantially different financial instruments that are managed together and for which there is evidence of a recent accounted for as a secured financing transaction, similar to for financial assets or financial liabilities, actual pattern of short-term profit taking. repurchase transactions. In transactions where the group neither the group recalculates the new gross retains nor transfers substantially all the risks and rewards of carrying amount by discounting the Designated at Financial liabilities are designated to be measured at fair value in order to eliminate or ownership of a financial asset, the asset is derecognised if control modified cash flows of the financial asset fair value through profit or significantly reduce an accounting mismatch that would otherwise arise where the financial over the asset is lost. The rights and obligations retained in the or financial liability using the original loss liabilities are managed and their performance evaluated and reported on a fair value basis. transfer are recognised separately as assets and liabilities as effective interest rate. The difference appropriate. between the new gross carrying amount Amortised cost All other financial liabilities not included in the above categories. and the original gross carrying amount is In transfers where control over the asset is retained, the group recognised as a modification gain or loss Subsequent measurement continues to recognise the asset to the extent of its continuing within credit impairments (for distressed involvement, determined by the extent to which it is exposed to financial asset modifications) or in other Subsequent to initial measurement, financial liabilities are classified in their respective categories and measured at either changes in the value of the transferred asset. gains and losses on financial instruments amortised cost or fair value as follows: within non-interest revenue (for all other Financial Financial liabilities are derecognised when the financial liabilities’ modifications). Held-for-trading Fair value, with gains and losses arising from changes in fair value (including interest liabilities obligation is extinguished, that is, when the obligation is and dividends) recognised in trading revenue. discharged, cancelled or expires. Designated at Fair value, with gains and losses arising from changes in fair value (including interest fair value through profit or and dividends but excluding fair value gains and losses attributable to own credit risk) Financial guarantee contracts loss are recognised in the other gains and losses on financial instruments as part of non-interest A financial guarantee contract is a contract that requires the group (issuer) to make specified payments to reimburse the holder revenue. for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of Fair value gains and losses attributable to changes in own credit risk are recognised within OCI, a debt instrument. unless this would create or enlarge an accounting mismatch in which case the own credit risk Financial guarantee contracts are initially recognised at fair value, which is generally equal to the premium received, and changes are recognised within trading revenue. then amortised over the life of the financial guarantee. Financial guarantee contracts (that are not designated at fair value through Amortised cost Amortised cost using the effective interest method recognised in interest expense. profit or loss) are subsequently measured at the higher of the: • ECL calculated for the financial guarantee; or • unamortised premium. Derivatives In the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange, interest rate, inflation, credit, commodity and equity exposures. Derivative instruments used by the group in both trading and hedging activities include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, credit risk, inflation risk, interest rates and the prices of commodities and equities.

Derivatives are initially recognised at fair value. Derivatives that are not designated in a qualifying hedge accounting relationship are classified as held-for-trading with all changes in fair value being recognised within trading revenue. This includes forward contracts to purchase or sell commodities, where net settlement occurs or where physical delivery occurs and the commodities are held to settle another derivative contract. All derivative instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

The method of recognising fair value gains and losses on derivatives designated as a hedging instrument depends on the nature of the hedge relationship. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 144 Annual report 2020 145

Hedge accounting Interest rate risk The group and company observe interest rate risk in The group continues to apply IAS 39 hedge accounting requirements for 2020 and 2019. Derivatives are designated by the group Banking book-related market risk exposure principally respect of these exposures using an unfunded cash into the following relationships: involves managing the potential adverse effect of interest collateralised interest rate derivatives discount curve. rate movements on banking book earnings (IRRBB) (net Hedge effectiveness between the hedging instrument and Type of hedge Nature Treatment interest income and banking book mark-to-market profit or the hedged item is determined at the inception of the loss). The group and company’s approach to managing hedge relationship and through periodic effectiveness Fair value hedges Hedges of the fair value Where a hedging relationship is designated as a fair value hedge, the IRRBB is governed by applicable regulations and is assessments to ensure that an economic relationship of recognised financial hedged item is adjusted for the change in fair value in respect of the risk influenced by the competitive environment in which the exists using regression analysis between the hedged items assets, liabilities or firm being hedged. Gains or losses on the remeasurement of both the derivative group and company operate. and the hedging instruments for sensitivity of changes to commitments. and the hedged item are recognised in profit or loss. Fair value adjustments changes in interest rate risk only. The group and company’s treasury and capital relating to the hedging instrument are allocated to the same line item in management team monitors banking book interest rate risk The group and company use a combination of interest rate profit or loss as the related hedged item. Any hedge ineffectiveness is on a monthly basis operating under the oversight of group swaps and interest rate basis swaps to mitigate against the recognised immediately in profit or loss. ALCO. The group and company’s interest rate risk risk of changes in market value of hedged items for

management is predominantly controlled by a central changes in interest rates. The group elects for each fair If the derivative expires, is sold, terminated, exercised, no longer meets the treasury department (group treasury) under approved value interest rate risk hedging relationship, using swaps, to criteria for fair value hedge accounting, or the designation is revoked, then policies. Group treasury identifies, evaluates and hedges include forward points (basis) contained in the derivative hedge accounting is discontinued. The adjustment to the carrying amount financial risks in close co-operation with the group’s instrument in the hedging relationship. Where the basis is of a hedged item measured at amortised cost, for which the effective operating units. ALCO provides written principles for overall included in the hedging relationship this exposes the hedge interest method is used, is amortised to profit or loss as part of the hedged risk management, as well as policies covering specific relationship to hedge ineffectiveness. item’s recalculated effective interest rate over the period to maturity. areas, such as foreign exchange risk, interest rate risk, Other Cash flow hedges Hedges of highly The effective portion of changes in the fair value of derivatives that are credit risk, use of derivative financial instruments and probable future cash designated and qualify as cash flow hedges is recognised in the cash flow non-derivative financial instruments, and investment of Sale and repurchase agreements and lending flows attributable to a hedging reserve. The ineffective part of any changes in fair value is excess liquidity. of securities (including commodities) Securities sold subject to linked repurchase agreements recognised asset or recognised immediately in profit or loss. In adherence to policies regarding interest rate risk (repurchase agreements) are reclassified in the statement liability, a forecasted management the group applies fair value hedge accounting of financial position as pledged assets when the transferee transaction, or a highly Amounts recognised in OCI are transferred to profit or loss in the periods in respect of the interest rate risk element only, present has the right by contract or custom to sell or repledge the probable forecast in which the hedged forecast cash flows affect profit or loss. However, when within the following exposures: intragroup transaction. the forecast transaction that is hedged results in the recognition of a collateral. The liability to the counterparty is included under non-financial asset or a non-financial liability, the cumulative gains or • Specifically identified long-term fixed interest rate Loans deposits and current accounts or trading liabilities, as losses recognised previously in OCI are transferred and included in the and advances and Deposits and debt funding and appropriate. initial measurement of the cost of the asset or liability. Subordinated debt. To manage the risk associated with Securities purchased under agreements to resell (reverse such risk exposures the group uses one or more cash repurchase agreements), at either a fixed price or the If the derivative expires, is sold, terminated, exercised, no longer meets the collateralised fix for floating interest rate swaps that purchase price plus a lender’s rate of return, are recorded criteria for cash flow hedge accounting, or the designation is revoked, then matches the critical terms or that exhibits the same as loans and included under trading assets or loans and hedge accounting is discontinued. The cumulative gains or losses duration as the of the underlying risk exposure. advances, as appropriate. For repurchase and reverse recognised in OCI remain in OCI until the forecast transaction is recognised • Specifically identified long-term interest rate basis risk repurchase agreements measured at amortised cost, the in the case of a non-financial asset or a non-financial liability, or until the (CPI vs. JIBAR) inherent in Loans and Advances. To difference between the purchase and sales price is treated forecast transaction affects profit or loss in the case of a financial asset or manage the basis risk associated with such risk as interest and amortised over the expected life using the a financial liability. If the forecast transaction is no longer expected to exposures the group uses one or more cash effective interest method. occur, the cumulative gains and losses recognised in OCI are immediately collateralised floating for floating basis interest rate reclassified to profit or loss. swaps that matches the critical terms or that exhibits the Securities lent to counterparties are retained in the annual same duration as the of the underlying risk exposure and financial statements. Securities borrowed are not Hedge accounting risk management strategy • Portfolio interest rate risk present within a designated recognised in the annual financial statements unless sold portfolio of Loans and advances and Deposits and debt to third parties. In these cases, the obligation to return the Where all relevant criteria are met, derivatives are classified as derivatives held-for-hedging and hedge accounting is applied to funding. Portfolio interest rate risk hedging is conducted securities borrowed is recorded at fair value as a trading remove the accounting mismatch between the derivative (hedging instrument) and the underlying instruments (hedged item). All on an aggregate asset and liability portfolio basis. The liability. Income and expenses arising from the securities qualifying hedging relationships are designated as either fair value, cash flow, or net investment hedges for recognised financial hedge ratio and rebalancing frequency of portfolio borrowing and lending business are recognised over the assets or liabilities, and highly probable forecast transactions. The group and company apply hedge accounting in respect of the hedges is determined using a dynamic approach period of the transactions. following risk categories. reflecting the duration of portfolio exposure in Offsetting accordance with a exposure bucketing approach. Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis, or to realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the counterparties to the transaction. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 146 Annual report 2020 147

4. Fair value Hierarchy transfer policy The group’s valuation control framework governs internal control standards, methodologies, and procedures over its valuation processes, which include the following valuation techniques and main inputs and assumptions per type of instrument: In terms of IFRS, the group is either required to or elects to Transfers of financial assets and financial liabilities between levels of the fair value hierarchy are deemed to have measure a number of its financial assets and financial Item and description Valuation technique Main inputs and assumptions liabilities at fair value. Regardless of the measurement occurred at the end of the reporting period. basis, the fair value is required to be disclosed, with some Derivative financial instruments Standard derivative contracts are valued For level 2 and 3 fair value exceptions, for all financial assets and financial liabilities. Inputs and valuation techniques Fair value is measured based on quoted market prices or Derivative financial instruments comprise using market accepted models and quoted hierarchy items: F air value is the price that would be received to sell an asset dealer price quotations for identical assets and liabilities foreign exchange, interest rate, commodity, parameter inputs. More complex derivative • discount rate1 or paid to transfer a liability in an orderly transaction in the contracts are modelled using more that are traded in active markets, which can be accessed at credit and equity derivatives that are either • spot prices of the principal (or most advantageous) market between market sophisticated modelling techniques the measurement date, and where those quoted prices held-for-trading or designated as hedging underlying participants at the measurement date under current represent fair value. If the market for an asset or liability is instruments in hedge relationships. applicable to the instrument. Techniques • correlation factors market conditions. Fair value is a market-based not active or the instrument is not quoted in an active include: • volatilities measurement and uses the assumptions that market market, the fair value is determined using other applicable • Discounted cash flow model participants would use when pricing an asset or liability • dividend yields valuation techniques that maximise the use of relevant • Black-Scholes model under current market conditions. When determining fair observable inputs and minimise the use of unobservable • earnings yield • combination technique models. value it is presumed that the entity is a going concern and inputs. These include the use of recent arm’s length • valuation multiples. is not an amount that represents a forced transaction, transactions, discounted cash flow analyses, pricing Trading assets and trading liabilities Where there are no recent market involuntary liquidation or a distressed sale. In estimating models and other valuation techniques commonly used by transactions in the specific instrument, fair the fair value of an asset or a liability, the group takes into Trading assets and liabilities comprise market participants. value is derived from the last available account the characteristics of the asset or liability that instruments which are part of the group’s underlying trading activities. These market price adjusted for changes in risks market participants would take into account when pricing Fair value measurements are categorised into level 1, 2 or 3 instruments primarily include sovereign and and information since that date. Where a the asset or liability at the measurement date. within the fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable corporate debt, commodities, collateral, proxy instrument is quoted in an active Fair value hierarchy and the significance of the inputs to the fair value collateralised lending agreements and equity market, the fair value is determined by securities. adjusting the proxy fair value for differences The group’s financial instruments that are both carried at measurement. between the proxy instrument and the fair value and for which fair value is disclosed are Where discounted cash flow analyses are used, estimated Pledged assets financial investment being fair valued. Where categorised by level of fair value hierarchy. The different future cash flows are based on management’s best Pledged assets comprise instruments that proxies are not available, the fair value is levels are based on the degree to which the inputs to the estimates and a market-related discount rate at the may be sold or repledged by the group’s estimated using more complex modelling fair value measurements are observable and the reporting date for an asset or liability with similar terms counterparty in the absence of default by techniques. These techniques include significance of the inputs to the fair value measurement. and conditions. the group. Pledged assets include sovereign discounted cash flow and Black-Scholes and corporate debt, equities, commodities models using current market rates for credit, Hierarchy levels If an asset or a liability measured at fair value has both a pledged in terms of repurchase agreements interest, liquidity, volatility and other risks. The levels have been defined as follows: bid and an ask price, the price within the bid-ask spread and commodities that have been leased to Combination techniques are used to value that is most representative of fair value is used to measure Level 1 third parties. unlisted equity securities and include inputs fair value. such as earnings and dividend yields of the Fair value is based on quoted market prices (unadjusted) in Financial investments active markets for an identical financial asset or liability. An underlying entity. Financial investments are non-trading active market is a market in which transactions for the financial assets and primarily comprise of asset or liability take place with sufficient frequency and sovereign and corporate debt, listed and volume to provide pricing information on an ongoing basis. unlisted equity instruments, investments in Level 2 mutual fund investments and unit-linked investments. Fair value is determined through valuation techniques

based on observable inputs, either directly, such as quoted 1  Discount rates, where applicable, include the risk-free rate, risk premiums, liquidity spreads, credit risk (own and counterparty as appropriate), timing of prices, or indirectly, such as those derived from quoted settlement, storage/service costs, prepayment and surrender risk assumptions and recovery rates/loss given default. prices. This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3 Fair value is determined through valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instrument being valued and the similar instrument.

SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 148 Annual report 2020 149

Portfolio valuations Item and description Valuation technique Main inputs and assumptions The group has elected the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities. This exception permits the group of financial assets and financial liabilities to be measured at fair value on a net basis, with the net Loans and advances to banks and For certain loans fair value may be For level 2 and 3 fair value fair value being allocated to the financial assets and financial liabilities. customers determined from the market price of a hierarchy items: Loans and advances comprise: recently occurring transaction adjusted for • discount rate1 Day one profit or loss • Loans and advances to banks: call changes in risks and information between the For financial instruments, where the fair value of the financial instrument differs from the transaction price, the difference is loans, loans granted under resale transaction and valuation dates. Loans and commonly referred to as day one profit or loss. Day one profit or loss is recognised in profit or loss immediately where the fair value agreements and balances held with other advances are reviewed for observed and of the financial instrument is either evidenced by comparison with other observable current market transactions in the same banks verified changes in credit risk and the credit instrument, or is determined using valuation models with only observable market data as inputs. spread is adjusted at subsequent dates if • Loans and advances to customers: Day one profit or loss is deferred where the fair value of the financial instrument is not able to be evidenced by comparison with there has been an observable change in mortgage loans (home loans and other observable current market transactions in the same instrument, or is determined using valuation models that utilise credit risk relating to a particular loan or commercial mortgages), other asset- non-observable market data as inputs. advance. In the absence of an observable based loans, including collateralised debt market for these instruments, discounted The timing of the recognition of deferred day one profit or loss is determined individually depending on the nature of the obligations (instalment sale and finance cash flow models are used to determine fair instrument and availability of market observable inputs. It is either amortised over the life of the transaction, deferred until the leases), and other secured and unsecured value. Discounted cash flow models instrument’s fair value can be determined using market observable inputs, or realised through settlement. loans (card debtors, overdrafts, other incorporate parameter inputs for interest demand lending, term lending and loans rate risk, foreign exchange risk, liquidity and granted under resale agreements). 5. Employee benefits credit risk, as appropriate. For credit risk, probability of default and loss given default Statement of financial Statement of other parameters are determined using credit Type and description position comprehensive income Income statement default swaps (CDS) markets, where available and appropriate, as well as the Defined contribution plans Accruals are recognised No direct impact. Contributions are relevant terms of the loan and loan The group operates a number of for unpaid contributions. recognised as an operating counterparty such as the industry defined contribution plans. expense in the periods classification and subordination of the loan. during which services are See note 35 for more rendered by the Deposits and debt funding For certain deposits, fair value may be For level 2 and 3 fair value information. employees. Deposits from banks and customers determined from the market price on a hierarchy items: comprise amounts owed to banks and recently occurring transaction adjusted for all • discount rate1 Defined benefit plans Assets or liabilities Remeasurements of the Net interest income/ changes in risks and information between the customers, deposits under repurchase The group operates a number of measured at the present net defined benefit (expense) is determined on transaction and valuation dates. In the agreements, negotiable certificates of defined benefit retirement and value of the estimated obligation, including the defined benefit asset/ deposit, credit-linked deposits and other absence of an observable market for these post-employment medical aid future cash outflows, using actuarial gains and losses, (liability) by applying the deposits. instruments, discounted cash flow models plans. Employer companies interest rates of the return on plan assets discount rate used to are used to determine fair value based on the contribute to the cost of benefits government bonds (excluding interest measure the defined benefit contractual cash flows related to the taking account of the denominated in the same calculated) and the effect obligation at the beginning instrument. The fair value measurement recommendations of the actuaries. currency as the defined of any asset ceiling are of the annual period to the incorporates all market risk factors, including benefit plan (corporate recognised within OCI. net defined benefit asset/ bonds are used for (liability). a measure of the group’s credit risk relevant See note 35 for more information. currencies for which there for that financial liability. The market risk Other expenses related to parameters are valued consistently to similar is a deep market of high-quality corporate the defined benefit plans are instruments held as assets stated in the bonds), with maturity also recognised in operating section above. The credit risk of the reference dates that approximate the expenses. asset in the embedded CDS in credit-linked expected maturity of the deposits is incorporated into the fair value of obligations, less the fair When the benefits of a plan all credit-linked deposits that are designated value of plan assets. are changed or when a plan to be measured at fair value through profit or is curtailed, the resulting loss. For collateralised deposits that are A net defined benefit asset change in benefit that designated to be measured at fair value is only recognised to the relates to past service or the through profit or loss, such as securities extent that economic gain or loss on curtailment repurchase agreements, the credit benefits are available to is recognised immediately in enhancement is incorporated into the fair the group from reductions operating expenses.

valuation of the liability. in future contributions or future refunds from the The group recognises gains and losses on the 1 Discount rates, where applicable, include the risk-free rate, risk premiums, liquidity spreads, credit risk (own and counterparty as appropriate), timing of plan. settlement, storage/service costs, prepayment and surrender risk assumptions and recovery rates/loss given default. settlement of a defined benefit plan when the settlement occurs.

Short-term benefits A liability is recognised for No direct impact. Short-term employee Short-term benefits consist of the amount expected to be benefit obligations are salaries, accumulated leave paid under short-term measured on an payments, profit share, bonuses cash bonus plans or undiscounted basis and and any non-monetary benefits accumulated leave if the are expensed in operating such as medical aid contributions. group has a present legal expenses as the related or constructive obligation service is provided. to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 150 Annual report 2020 151

6. Non-financial assets

Useful lives, depreciation Useful lives, depreciation or Type and initial and or amortisation method Type and initial and subsequent amortisation method or fair value subsequent measurement or air value basis Impairment measurement basis Impairment

Tangible assets (property, Property and equipment are These assets are reviewed for impairment at each Goodwill Not applicable The accounting treatment is generally equipment and land) depreciated on the straight-line reporting date and tested for impairment whenever Goodwill represents the excess of the the same as that for tangible assets Property and equipment are basis over estimated useful lives events or changes in circumstances indicate that the consideration transferred and the except as noted below. measured at cost less (see below) of the assets to their carrying amount may not be recoverable. acquisition date fair value of any accumulated depreciation residual values. Land is not previously held equity interest over the Goodwill is tested annually for and accumulated impairment depreciated. An impairment loss is recognised in non-trading and group’s interest in the net fair value of the impairment and additionally when an losses. Cost includes capital related items for the amount by which the identifiable assets, liabilities and indicator of impairment exists. Buildings 40 years expenditure that is directly asset’s carrying amount exceeds its recoverable contingent liabilities of the acquired Computer equipment 3 – 5 years attributable to the acquisition amount. The recoverable amount is determined as subsidiary, associate or joint venture at An impairment loss in respect of Motor vehicles 4 – 5 years of the asset. Land is the higher of an asset’s fair value less costs to sell and the date of the acquisition. The group’s goodwill is not reversed. Office equipment 5 – 10 years measured at cost less value in use. interest in acquired subsidiaries takes into accumulative impairment Furniture 5 – 13 years account any non-controlling interest. losses. Leased assets: Fair value less costs to sell is determined by Shorter of useful life or lease term ascertaining the current market value of an asset and Goodwill arising on the acquisition of Costs that are subsequently deducting any costs related to the realisation of the subsidiaries (associates or joint ventures) incurred are included in the The residual values, useful lives and asset. is reported in the statement of financial asset’s related carrying the depreciation method applied are position as part of ’Goodwill and other amount or are recognised as reviewed, and adjusted if In assessing value in use, the estimated future cash intangible assets’ (’Interest in associates a separate asset, as appropriate, at each financial year flows are discounted to their present value using a and joint ventures’). appropriate, only when it is end. pre-tax discount rate that reflects current market probable that future assessments of the time value of money and the risks Computer software Amortisation is recognised in Intangible assets that have an economic benefits will flow to specific to the asset. Costs associated with developing or operating expenses on a straight line indefinite useful life are tested the group and the cost of the basis at rates appropriate to the annually for impairment and For the purposes of assessing impairment, assets maintaining computer software item can be measured programmes and the acquisition of expected lives of the assets (two to 15 additionally when an indicator of that cannot be tested individually are grouped at the reliably. Expenditure, which software licences are generally recognised years) from the date that the asset is impairment exists. lowest CGUs. does not meet these criteria, as an expense as incurred. available for use. The accounting treatment for is recognised in operating Impairment losses recognised in respect of CGUs are expenses as incurred. Amortisation methods, useful lives computer software and other allocated first to reduce the carrying amount of any However, direct computer software and residual values are reviewed at intangible assets is otherwise the goodwill allocated to the CGU, and then to reduce the development costs that are clearly Where significant parts of an each financial year end and adjusted, same as for tangible assets. carrying amounts of the other assets in the CGU on a associated with an identifiable and unique item of property or if necessary pro rata basis. The carrying amount of these other system, which will be controlled by the equipment have different assets may, however, not be reduced below the higher group and have a probable future useful lives, they are of the CGU’s fair value less costs to sell and its value economic benefit beyond one year, are accounted for as separate recognised as intangible assets. major components of in use. property and equipment. Impairment losses recognised in prior periods are Intangible assets are carried at cost less assessed at each reporting date for any indications accumulated amortisation and that the loss has decreased or no longer exists. An accumulated impairment losses from the impairment loss is reversed if there has been a date that the assets are available for use. change in the estimates used to determine the recoverable amount. An impairment loss is reversed Expenditure subsequently incurred on through non-trading and capital related items only to computer software is capitalised only the extent that the asset’s carrying amount does not when it increases the future economic exceed the carrying amount that would have been benefits embodied in the specific asset to which it relates. determined, net of depreciation or amortisation, if no impairment loss had been recognised. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 152 Annual report 2020 153

Useful lives, depreciation or 9. Leases – Lessee accounting policies Type and initial and subsequent amortisation method or fair value Type and description Statement of financial position Income statement measurement basis Impairment

Lessee accounting policies Other intangible assets Amortisation is recognised in The group recognises the costs incurred operating expenses on a straight-line Single lessee accounting Lease liabilities: Interest expense on lease liabilities: on internally generated intangible assets basis over the estimated useful lives model Initially measured at the present value of the A lease finance cost, determined with such as brands, customer lists, customer of the intangible assets, not exceeding All leases are accounted contractual payments due to the lessor over reference to the interest rate implicit in the contracts and similar rights and assets, in 20 years, from the date that the asset for by recognising a the lease term, with the discount rate lease or the group’s incremental borrowing operating expenses as incurred. is available for use. right-of-use asset and a determined by reference to the rate implicit in rate, is recognised within interest expense Amortisation methods, useful lives lease liability except for: the lease unless (as is typically the case for over the lease period. The group capitalises brands, customer • leases of low value lists, customer contracts, distribution and residual values are reviewed at the group) this is not readily determinable, in assets; and forces and similar rights acquired in each financial year end and adjusted, which case the group’s incremental borrowing business combinations. if necessary. • leases with a duration of rate on commencement of the lease is used. twelve months or less. The group’s internal funding rate is the base Capitalised intangible assets are on which the incremental borrowing rate is measured at cost less accumulated calculated. Variable lease payments are only amortisation and accumulated included in the measurement of the lease impairment losses. liability if they depend on an index or rate. In such cases, the initial measurement of the Derecognition lease liability assumes the variable element Non-financial assets are derecognised on disposal or when no future economic benefits are expected from their use or disposal. will remain unchanged throughout the lease The gain or loss on derecognition is recognised in profit or loss and is determined as the difference between the net disposal term. Other variable lease payments are proceeds and the carrying amount of the non-financial asset. expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: 7. Property developments and properties in possession • Amounts expected to be payable under any Property developments residual value guarantee; Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification and • The exercise price of any purchase option includes the cost of acquisition and where applicable, development and borrowing costs during development. granted in favour of the group, should it be reasonably certain that this option will be P roperties in possession exercised; Properties in possession are properties acquired by the group which were previously held as collateral for underlying lending • Any penalties payable for terminating the arrangements that, subsequent to origination, have defaulted. The properties are initially recognised at cost and are subsequently lease, should the term of the lease be measured at the lower of cost and its net realisable value and are included in other assets in the statement of financial position. Any estimated on the basis of this termination subsequent write-down in the value of the acquired properties is recognised as an operating expense. Any subsequent increases in option being exercised. the net realisable value, to the extent that it does not exceed its original cost, are also recognised within operating expenses. Subsequent to initial measurement, lease liabilities increase as a result of interest 8. Equity-linked transactions charged at a constant rate on the balance Equity-settled share-based payments outstanding and are reduced for lease The fair value of the equity-settled share-based payments are determined on grant date and accounted for within operating payments made. expenses (staff costs) over the vesting period with a corresponding increase in the group’s share-based payment reserve. Non-market vesting conditions, such as the resignation of employees and retrenchment of staff, are not considered in the valuation Right-of-use assets: Depreciation on right-of-use assets: but are included in the estimate of the number of options expected to vest. At each reporting date, the estimate of the number of Initially measured at the amount of the lease Subsequent to initial measurement, the options expected to vest is reassessed and adjusted against operating expenses and share-based payment reserve over the liability, reduced for any lease incentives right-of-use assets are depreciated on a remaining vesting period. received, and increased for: straight-line basis over the remaining term of the lease or over the remaining economic On vesting of the equity-settled share-based payments, amounts previously credited to the share-based payment reserve are • lease payments made at or before life of the asset should this term be shorter transferred to retained earnings through an equity transfer. On exercise of the equity-settled share-based payment, any proceeds commencement of the lease; than the lease term unless ownership of the received are credited to share capital and premium. • initial direct costs incurred; and underlying asset transfers to the group at the • the amount of any provision recognised end of the lease term, whereby the right-of-use Cash-settled share-based payments where the group is contractually required assets are depreciated on a straight-line basis Cash-settled share-based payments are accounted for as liabilities at fair value until the date of settlement. The liability is to dismantle, remove or restore the over the remaining economic life of the asset. recognised over the vesting period and is revalued at every reporting date up to and including the date of settlement. All changes in leased asset. This depreciation is recognised as part the fair value of the liability are recognised in operating expenses. of operating expenses. The group applies the cost model subsequent to the initial measurement of the right-of-use assets.

Termination of leases: Termination of leases: When the group or lessor terminates or On derecognition of the right-of-use asset cancels a lease, the right-of-use asset and and lease liability, any difference is recognised lease liability are derecognised. as a derecognition gain or loss in profit or loss. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 154 Annual report 2020 155

Type and description Statement of financial position Income statement Type and description Statement of financial position Income statement

Lessee accounting policies continued Lessor lease modifications

All leases that meet the Accruals for unpaid lease charges, together Payments made under these leases, net of Finance leases When the group modifies the terms of a lease resulting in an increase in scope and the criteria as either a lease of with a straight-line lease asset or liability, any incentives received from the lessor, are consideration for the lease increases by an amount commensurate with a stand-alone price for a low value asset or a short being the difference between actual payments recognised in operating expenses on a the increase in scope, the group accounts for these modifications as a separate new lease. term lease are accounted and the straight-line lease expense are straight-line basis over the term of the lease. All other lease modifications that are not accounted for as a separate lease are accounted for in for on a straight-line basis recognised. When these leases are terminated before the terms of IFRS 9, unless the classification of the lease would have been accounted for as an over the lease term. lease period has expired, any payment operating lease had the modification been in effect at inception of the lease. These lease required to be made to the lessor by way of a modifications are accounted for as a separate new lease from the effective date of the penalty is recognised as operating expenses modification and the net investment in the lease becomes the carrying amount of the underlying in the period in which termination takes place. asset. Reassessment and Reassessment of lease terms and lease modifications that are not accounted for Operating leases Modifications are accounted for as a new lease from the effective date of the modification. modification of leases as a separate lease:

When the group reassesses the terms of any lease (i.e. it re-assesses the probability of exercising an extension or termination option) or modifies the terms of a lease without increasing the scope of the lease or where the increased scope is not commensurate with the stand-alone price, it 10. Equity Provision for onerous contracts adjusts the carrying amount of the lease liability to reflect the payments to be made over the Share issue costs A provision for onerous contracts is recognised when the revised term, which are discounted at the applicable rate at the date of reassessment or expected benefits to be derived by the group from a modification. The carrying amount of lease liability is similarly revised when the variable element Incremental external costs directly attributable to a contract are lower than the unavoidable cost of meeting its of future lease payments dependent on a rate or index is revised. transaction that increases or decreases equity are obligations under the contract. The provision is measured deducted from equity, net of related tax. All other share at the present value of the lower of the expected cost of For reassessments to the lease terms, an equivalent adjustment is made to the carrying amount issue costs are expensed. terminating the contract and the expected net cost of of the right-of-use asset, with the revised carrying amount being depreciated over the revised continuing with the contract. Before a provision is lease term. However, if the carrying amount of the right-of-use asset is reduced to zero any further Dividends established, the group recognises any impairment loss on reduction in the measurement of the lease liability is recognised in profit or loss. Distributions are recognised in equity in the period in which the assets associated with that contract. For lease modifications that are not accounted for as a separate lease, an equivalent adjustment is they are declared. Distributions declared after the reporting made to the carrying amount of the right-of-use asset, with the revised carrying amount being date are disclosed in the distributions note to the annual Contingent assets depreciated over the revised lease term. However, for lease modifications that decrease the scope financial statements. Contingent assets are not recognised in the annual financial of the lease the carrying amount of the right-of-use asset is decreased to reflect the partial or full statements but are disclosed when, as a result of past termination of the lease, with any resulting difference being recognised in profit or loss as a gain or 11. Provisions, contingent assets and events, it is probable that economic benefits will flow to the loss relating to the partial or full termination of the lease. contingent liabilities group, but this will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events Lease modifications that are accounted for as a separate lease: Provisions which are not wholly within the group’s control. Provisions are recognised when the group has a present When the group modifies the terms of a lease resulting in an increase in scope and the legal or constructive obligation as a result of past events, it Contingent liabilities consideration for the lease increases by an amount commensurate with a stand-alone price for is probable that an outflow of resources embodying the increase in scope, the group accounts for these modifications as a separate new lease. This Contingent liabilities include certain guarantees (other than economic benefits will be required to settle the obligation accounting treatment equally applies to leases which the group elected the short-term lease financial guarantees) and letters of credit and are not and a reliable estimate of the amount of the obligation can exemption and the lease term is subsequently modified. recognised in the annual financial statements but are be made. Provisions are determined by discounting the disclosed in the notes to the annual financial statements Separating The group has elected to apply the practical expedient to not separate non-lease components expected future cash flows using a pre-tax discount rate unless they are considered remote. components of a from lease components, and instead account for each lease component and any associated that reflects current market assessments of the time value lease contract non-lease components as a single lease component. The practical expedient is applied to each of money and the risks specific to the liability. The group’s class of underlying asset. provisions typically (when applicable) include the following:

Lessor accounting policies Provisions for legal claims Provisions for legal claims are recognised on a prudent Finance leases Finance lease receivable, including initial Finance charges earned within interest basis for the estimated cost for all legal claims that have Leases, where the group direct costs and fees, are primarily accounted income are computed using the effective not been settled or reached conclusion at the reporting transfers substantially all for as financing transaction in backing interest method, which reflects a constant date. In determining the provision management considers the risk and rewards activities, with rentals and instalments periodic rate of return on the investment in the probability and likely settlement (if any). incidental to ownership, receivable, less unearned finance charges, the finance lease. The tax benefits arising are classified as finance being included in loans and advances. from investment allowances on assets leased Reimbursements of expenditure to settle the provision are leases to clients are accounted for within direct recognised when and only when it is virtually certain that taxation. the reimbursement will be received.

Operating leases The asset underlying the lease continues to Operating lease income net of any incentives All leases that do not meet be recognised and accounted for in terms of given to lessees, is recognised on the the criteria of a financial the relevant group accounting policies. straight-line basis, or a more representative lease are classified as Accruals for outstanding lease charges, basis where applicable, over the lease term operating leases. together with a straight-line lease asset or and is recognised in operating income. liability, being the difference between actual When an operating lease is terminated before payments and the straight-line lease income the lease period has expired, any payment are recognised. received/(paid) by the group by way of a penalty is recognised as income/(expense) in the period in which termination takes place. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 156 Annual report 2020 157

12. Taxation 13. Revenue and expenditure

Type Description, recognition and measurement Offsetting Description Recognition and measurement

Direct taxation: Current tax is recognised in the direct taxation line in the income statement Current and deferred tax Net interest Interest income and expense (with the exception of borrowing costs that are capitalised on qualifying current tax except to the extent that it relates to a business combination (relating to a assets and liabilities are income assets, that is assets that necessarily take a substantial period of time to get ready for their intended use measurement period adjustment where the carrying amount of the goodwill is offset if there is a legally or sale and which are not measured at fair value) are recognised in net interest income using the greater than zero), or items recognised directly in equity or in OCI. enforceable right to effective interest method for all interest-bearing financial instruments. In terms of the effective interest offset current tax method, interest is recognised at a rate that exactly discounts estimated future cash payments or Current tax represents the expected tax payable on taxable income for the liabilities and assets, and receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to year, using tax rates enacted or substantively enacted at the reporting date, they relate to income the net carrying amount of the financial asset or financial liability. Direct incremental transaction costs and any adjustments to tax payable in respect of previous years. taxes levied by the same incurred and origination fees received, including loan commitment fees, as a result of bringing margin- tax authority on the yielding assets or liabilities into the statement of financial position, are capitalised to the carrying Direct taxation: Deferred tax is recognised in direct taxation except to the extent that it relates same taxable entity, or amount of financial instruments that are not at fair value through profit or loss and amortised as interest deferred tax to a business combination (relating to a measurement period adjustment on different tax entities, income or expense over the life of the asset or liability as part of the effective interest rate. where the carrying amount of the goodwill is greater than zero), or items but they intend to settle recognised directly in equity or in OCI. current tax liabilities and Where the estimates of payments or receipts on financial assets or financial liabilities are subsequently assets on a net basis or revised, the carrying amount of the financial asset or financial liability is adjusted to reflect actual and Deferred tax is recognised in respect of temporary differences arising between their tax assets and revised estimated cash flows. The carrying amount is calculated by computing the present value of the the tax bases of assets and liabilities and their carrying values for financial liabilities will be realised adjusted cash flows at the financial asset or financial liability’s original effective interest rate. Any reporting purposes. Deferred tax is measured at the tax rates that are simultaneously. adjustment to the carrying value is recognised in net interest income. expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting When a financial asset is classified as Stage 3 impaired, interest income is calculated on the impaired date. Deferred tax is not recognised for the following temporary differences: value (gross carrying amount less specific impairment) based on the original effective interest rate. The • the initial recognition of goodwill; contractual interest income on the gross exposure is suspended and is only credit impairments when the • the initial recognition of assets and liabilities in a transaction that is not a financial asset is reclassified out of Stage 3. Dividends received on preference share investments business combination, which affects neither accounting nor taxable profits classified as debt form part of the group’s lending activities and are included in interest income. or losses; and Net fee and Fee and commission revenue, including accounting transaction fees, card-based commission, • investments in subsidiaries, associates and jointly controlled arrangements commission documentation and administration fees, electronic banking fees, foreign currency service fees, insurance (excluding mutual funds) where the group controls the timing of the revenue based fees and commissions, and knowledge-based fees and commissions are recognised as the related reversal of temporary differences and it is probable that these differences services are performed. Loan commitment fees for loans that are not expected to be drawn down are will not reverse in the foreseeable future. recognised on a straight-line basis over the commitment period.

The amount of deferred tax provided is based on the expected manner of Loan syndication fees, where the group does not participate in the syndication or participates at the realisation or settlement of the carrying amount of the asset or liability and is same effective interest rate for comparable risk as other participants, are recognised as revenue when not discounted. the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised to the income statement as interest income. The fair value of issued Deferred tax assets are recognised to the extent that it is probable that future financial guarantee contracts on initial recognition is amortised as income over the term of the contract. taxable income will be available against which the unused tax losses can be utilised. Deferred tax assets are reviewed at each reporting date and are Fee and commission expenses, included in net fee and commission revenue, are mainly transaction and reduced to the extent that it is no longer probable that the related tax benefit service fees relating to financial instruments, which are expensed as the services are received. will be realised. Expenditure is presented as fee and commission expenses where the expenditure is linked to the production of fee and commission revenue. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, Trading revenue Trading revenue comprises all gains and losses from changes in the fair value of trading assets and except for deferred income tax liability where the timing of the reversal of the liabilities, together with related interest income, expense and dividends. temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the Dividend income Dividends are recognised in interest income (other revenue) for debt (equity instruments) when the right group is unable to control the reversal of the temporary difference for to receipt is established. Scrip dividends are recognised as dividends received where the dividend associates unless there is an agreement in place that gives the group the declaration allows for a cash alternative. ability to control the reversal of the temporary difference. Other gains/losses Includes: Deferred income tax assets are recognised on deductible temporary on financial • Fair value gains and losses on financial assets that are classified at fair value through profit or loss differences arising from investments in subsidiaries, associates and joint instruments arrangements only to the extent that it is probable the temporary difference (designated and default) will reverse in the future and there is sufficient taxable profit available against • The gain or loss on the derecognition of a debt financial asset classified as at fair value through OCI which the temporary difference can be utilised. • Gains and losses arising from the derecognition of financial assets and financial liabilities classified as at amortised cost Indirect taxation Indirect taxes, including non-recoverable value-added tax (VAT), skills Not applicable • Gains and losses arising from the reclassification of a financial asset from amortised cost to fair value development levies and other duties for banking activities, are recognised in • Gains and losses arising from the modification of a financial asset (which is not distressed) and the indirect taxation line in the income statement. financial liability as at amortised cost. Dividend tax Taxes on dividends declared by the group are recognised as part of the Not applicable • Fair value gains and losses on designated financial liabilities dividends paid within equity as dividend tax represents a tax on the Other revenue shareholder and not the group. Dividends tax withheld by the group on Other revenue includes dividends on equity financial assets, underwriting profit from the group’s dividends paid to its shareholders and payable at the reporting date to the short-term insurance operations and related insurance activities. Other revenue also includes net Namibian Receiver of Revenue (where applicable) is included in ’Other discount received on airtime purchases and sales through the Group’s payments solutions services liabilities’ in the statement of financial position. to mobile network operators. In delivering the airtime purchases and sales services the group acts as an agent and thereafter the income is recognised on a net basis.

Offsetting Income and expenses are presented on a net basis only when permitted by IFRS, or for gains and losses arising from a group of similar transactions. SBN HOLDINGS LIMITED ANNEXURE E – DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED 158 Annual report 2020 159

14. Other significant accounting policies Title: IFRS 4 Insurance Contracts, IFRS Title: IFRS 10 and IAS 28 Sale or is called a contractual service margin (CSM) in the initial measurement of the liability which represents the Segment reporting 7 Financial Instruments: Disclosures, Contribution of Assets between an IFRS 9 Financial Instruments, IFRS 16 Investor and its Associate or unearned profit on the contract and results in no gain on An operating segment is a component of the group initial recognition. The CSM is released over the life of the engaged in business activities, whose operating results are Leases, IAS 39 Financial Instruments: Joint Venture (amendments) contract, but interest on the CSM is locked in at inception reviewed regularly by management in order to make Recognition and Measurement Effective date: deferred the effective date for rates. The CSM will be utilised as a “shock absorber” in the decisions about resources to be allocated to segments and (amendments) these amendments indefinitely event of changes to best estimate cash flows. On loss assessing segment performance. The group’s identification Effective date: 1 January 2021 The amendments address an inconsistency between the making (onerous) contracts, no CSM is set up and the full of segments and the measurement of segment results is loss is recognised at the point of contract inception. The The second phase of Interest Rate Benchmark Reform requirements in IFRS 10 and those in IAS 28, in dealing with based on the group’s internal reporting to the chief GMM is modified for contracts which have participation resulted in amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 the sale or contribution of assets between an investor and operating decision maker. features. An optional simplified premium allocation and IFRS 16 requirements to enable companies to deal with its associate or joint venture. The main consequence of the approach (PAA) is available for all contracts that are less its effect on financial instruments and to continue providing amendments is that a full gain or loss is recognised when a Fiduciary activities than 12 months at inception. The PAA is similar to the useful information to investors. The amendments require transaction involves a business (whether it is housed in a The group commonly engages in trust or other fiduciary entities to update the effective interest rate to reflect the subsidiary or not). A partial gain or loss is recognised when current unearned premium reserve profile over time. The activities that result in the holding or placing of assets on change to the alternative benchmark rate instead of a transaction involves assets that do not constitute a requirement to eliminate all treasury shares has been behalf of individuals, trusts, post-employment benefit plans derecognising or adjusting the carrying amount of financial business, even if these assets are housed in a subsidiary. amended such that treasury shares held for a group of and other institutions. These assets and the income arising instruments for changes required by the reform. An entity The amendments will be applied prospectively and are not direct participating contracts or investment funds are not directly thereon are excluded from these annual financial will not have to discontinue hedge accounting solely expected to have a material impact on the group’s financial required to be eliminated and can be accounted for as statements as they are not assets of the group. However, because it makes changes required by the reform, if the statements. financial assets. These requirements will provide transparent fee income earned and fee expenses incurred by the group hedge meets other hedge accounting criteria. In addition, reporting about an entities’ financial position and risk and relating to the group’s responsibilities from fiduciary the amendments require companies to provide additional Title: IFRS 16 Leases (amendment) will provide metrics that can be used to evaluate the activities are recognised in profit or loss. information to investors about new risks arising from the Effective date: 1 June 2020 performance of insurers and how that performance changes reform and how it manages the transition to alternative over time. An entity may re-assess its classification and Statutory credit risk reserve IFRS 16 requires an entity to account for a change in benchmark rates. The group will transition to alternative consideration or term of a lease contract to be accounted designation of financial instruments under IFRS 9, on The statutory credit risk reserve represents the amount benchmarks as each interest rate benchmark is replaced. for and disclosed as a lease modification. In light of the adoption of IFRS 17. The amendment will be applied by which BoN require in addition to the IFRS impairment The group has established a working group and detailed recent Covid-19 pandemic and resultant rent concessions retrospectively and is not expected to have a material provision. Changes in this reserve are accounted for as project plan, identifying key responsibilities and milestones to be granted by lessors, the amendment permits lessees, impact on the group. transfers to and from retained earnings as appropriate. of the project. The group is in the process of determining as a practical expedient, not to assess whether particular the estimated impact as none of the interest rate Covid-19 related rent concessions are lease modifications Title: IAS 1 Presentation of Financial Non-trading and capital related items benchmarks it is exposed to has been replaced. The group and instead account for those rent concessions as if they Statements (amendments) Non-trading and capital related items primarily include the is also assessing the system design requirements to were not lease modifications. The amendment permits the Effective date: 1 January 2023 following: accommodate the IBOR changes . application of the practical expedient to rent concessions The amendment clarifies how to classify debt and other that meet specific Covid-19 related requirements and • gains and losses on disposal of subsidiaries, joint Title: IFRS 9 Financial Instruments liabilities as current or non-current. The objective of the ventures and associates (including foreign exchange requires specified disclosures. An entity shall apply the amendment is aimed to promote consistency in applying practical expedient as an accounting policy choice and translation gains and losses) General hedge accounting (GHA) the requirements by helping entities determine whether, consistently to contracts with similar characteristics and in • gains and losses on the disposal of property and debt and other liabilities with an uncertain settlement date Effective date: 1 January 2018, but can be similar circumstances. The purpose of the amendment is to equipment and intangible assets should be classified as current (due or potentially due to adopted for any financial period prior to the provide relief to lessees from the complexity arising in • Impairment and reversals of impairments of joint be settled within one year) or non-current. The amendment effective date of the Accounting for Dynamic applying the requirements of IFRS 16 to Covid-19 related also includes clarifying the classification requirements for ventures and associates Risk Management: a Portfolio Revaluation rent concessions. The amendment will be applied debt an entity might settle by converting it into equity. These • impairment of investments in subsidiaries, property and Approach (PRA) which is still to be advised retrospectively and is not expected to have a material are clarifications, not changes, to the existing requirements, equipment, and intangible assets The revised general hedge accounting requirements are impact on the group. and so are not expected to affect entities’ financial • other items of a capital related nature. better aligned with an entity’s risk management activities, statements significantly. However, these clarifications could provide additional opportunities to apply hedge accounting Title: IFRS 17 Insurance Contracts result in reclassification of some liabilities from current to and various simplifications in achieving hedge accounting. Effective date: 1 January 2023 non-current, and vice versa. The amendment will be applied 15. New standards and interpretations The group has decided to adopt the IFRS 9 GHA as at This standard replaces IFRS 4 Insurance Contracts which not yet adopted 1 January 2021 in line with some market competitors both retrospectively. The impact on the annual financial provided entities with dispensation to account for locally and globally. The group will transition to IFRS 9’s statements has not yet been fully determined. The following new or revised standards, amendments and insurance contracts (particularly measurement) using GHA for all current and further micro hedges (hedges interpretations are not yet effective for the year ended local actuarial practice, resulting in a multitude of different that minimises/manages the risk exposure of a single Title: Annual improvements 2018 – 2020 31 December 2020 and have not been applied in preparing approaches. The overall objective of IFRS 17 is to provide a instrument). cycle these annual financial statements. more useful and consistent accounting model for Effective date: 1 January 2022 insurance contracts among entities issuing insurance contracts globally. The standard requires an entity to The IASB has issued various amendments and clarifications measure insurance contracts using updated estimates and to existing IFRS, none of which is expected to have a assumptions that reflect the timing of cash flows and any significant impact on the group’s annual uncertainty relating to insurance contracts. A general financial statements. measurement model (GMM) will be applied to long-term insurance contracts and is based on a fulfilment objective (risk-adjusted present value of best estimate future cash flows) and uses current estimates, informed by actual trends and investment markets. IFRS 17 establishes what SBN HOLDINGS LIMITED 160 Annual report 2020 161

NOTICE OF ANNUAL GENERAL MEETING

SBN Holdings Ltd 9. Ordinary Resolution 9: (Incorporation in the Republic of Namibia) RESOLVED THAT the annual fees of the Non-Executive Directors remain unchanged, as reflected below, to be approved for the (Registration number 206/306) 2020/2021 financial year: ISIN: NA0003475176 Share Code (NSX): SNO Proposed SBN Holdings or the Company No of 2020/2021 Calculated meetings per annual fee fee per Notice is hereby given to all holders of ordinary shares in the Company that the Annual General Meeting of the shareholders of the annum (4%) meeting Company will be held at the Standard Bank Campus, 1 Chasie Street on 9 April 2021 at 09h00 for the following business: Standard Bank Namibia Ltd & SBN Holdings Ltd 1. Ordinary Resolution 1: Members 4 66 493 16 623 Chairperson 4 132 991 33 248 RESOLVED THAT the minutes of the previous Annual General Meeting be, and hereby are, approved. Standard Bank Namibia Ltd & SBN Holdings Ltd Retainer Members 4 80 841 20 210 2. Ordinary Resolution 2: Chairperson 4 161 491 40 373 RESOLVED THAT the Annual Financial Statements for the year ended 31 December 2020 be adopted. Board Audit Committee Members 4 112 050 28 012 3. Special Resolution 3: Chairperson 4 138 112 34 528 Amendment to the Memo and Articles of Association of SBN Holdings to provide for an electronic voting process. Board Risk Committee Member 4 112 050 28 012 4. Ordinary Resolution 4: Chairperson 4 138 112 34 528 RESOLVED THAT the final dividend declared on 4 March 2021 of 14 cents per ordinary share be, and hereby is, approved. Board Human Capital Member 2 56 025 28 012 5. Ordinary Resolution 5: Re-election of directors by way of separate resolution. Chairperson 2 69 056 34 528 The following directors retire in terms of the Articles of Association of the company: Board Credit Committee 5.1 Pindie Nyandoro (Non-Executive Director) Member 4 112 050 28 012 Chairperson 4 138 112 34 528 5.2 Herbert Maier (Independent Non-Executive Director) Board IT Committee 5.3 Birgit Rossouw (Independent Non-Executive Director) Member 4 112 050 28 012 Chairperson 4 138 112 34 528 Ms . P. Nyandoro (Non-Executive Director) is retiring from SBSA and therefore does not offer herself up for re-election. The following directors being eligible offer themselves up for re-election: Board CSI • Herbert Maier (Independent Non-Executive Director) Member 2 56 025 28 012 Chairperson 2 69 056 34 528 • Birgit Rossouw (Independent Non-Executive Director) Stanfin (Namibia) (Pty) Ltd Biographical information of the directors to be re-elected is set out on pages 34 – 35 of the Annual Report. Member 4 112 050 28 012 Chairperson 4 138 112 34 528 6. Ordinary Resolution 6: Election of directors by way of separate resolution. Standard Insurance Brokers (Namibia) (Pty) Ltd To elect the following director of the Company who was appointed by the Board of Directors effective 9 November 2020 and is Member 4 112 050 28 012 now recommended by the Board for election by shareholders. Biographical information of the director to be elected is set out on Chairperson 4 138 112 34 528 page 37 of the Annual Report. 6.1. Alpheus Mangale 10. Ordinary Resolution 10:  RESOLVED THAT the existing remuneration policy remain in force, that no changes are proposed to the current policy and 7. Ordinary Resolution 7: shareholders ratify the current remuneration policy.  RESOLVED THAT all the authorised but unissued shares in the capital of the Company be, and hereby are, placed under the control of the directors who are hereby authorised to allot or issue shares on such terms and conditions as they deem fi t, subject 11. Ordinary Resolution 11: to the provisions of the Banking Institution Act 2 of 1998, Companies Act 28 of 2004 (“the Act”), the Articles of the Company and RESOLVED THAT the following directors be re-appointed as members of the Audit Committee: the Listings Requirements of the Namibia Stock Exchange (“NSX”), which provide, inter alia, that: • B. Rossouw (Chairperson) • Such issue of shares shall not in the aggregate exceed 10% of the Company’s shares in issue; and • N. Bassingthwaighte • The resolution for the issue of shares must be approved by a 75% majority vote cast in favour of such resolution.

8. Ordinary Resolution 8: 12. Ordinary Resolution 12:  RESOLVED THAT any one of the directors and/or the Group Company Secretary be and are authorised to do all such things, sign  RESOLVED THAT PricewaterhouseCoopers be reappointed as auditors of the Company and authorise the directors to determine all such documents, procure the doing of all such things and the signatures of all such documents as may be necessary or the remuneration of the auditors. incidental to give effect to all of the resolutions proposed and passed at which meetings this resolution is proposed. SBN HOLDINGS LIMITED NOTICE OF ANNUAL GENERAL MEETING CONTINUED 162 Annual report 2020 163

FORM OF PROXY

Kindly note that as a result of Covid-19 and the resultant restrictions on public gatherings, voting will be by proxy only. The exact process For completion by the registered ordinary shareholders who hold ordinary shares of the Company for their vote in respect of the items to is set out in the full AGM notice published on our website www.standardbank.com.na. Proxy forms can be obtained there too. Our annual be tabled for approval at the 2020 Annual General Meeting of the Company to be held at the Standard Bank Head Office, 1 Chasie Street report has been placed on the website for your review. You are more than welcome to pose any questions in relation to the matters under on 9 April 2021 at 09h00. discussion at the AGM. These questions will be responded to individually and a consolidated version will be placed on our website within I/We. (Name in full) two weeks of the meeting. Holder number Contact All holders of SBN Holdings Limited shares will be entitled to vote at the Annual General Meeting. As a result of Covid-19 and the associated restriction on public gatherings, no physical attendance will be possible. Voters are required to submit their votes by proxy to being the holder(s) of ordinary shares in the Company do hereby appoint: the Transfer Secretaries of the Company who will submit their votes at the AGM on their behalf. The holders of ordinary shares will each be entitled to one vote for every ordinary share held. as my/our proxy to act for me/us at the Annual General Meeting (as the case may be) which will be held for the purpose of considering and, if deemed fit passing, with or without modification, the resolutions to be proposed thereat and at each adjournment thereof, and to vote on such resolutions in respect of the shares in the issued capital of the Company registered in my/our name/s in accordance with Questions: the following instructions (see note): Any questions on the financial performance of the Company during the period under review can be addressed to the Transfer Secretaries who will solicit a response in writing to the person raising the question from the Company Secretary. Ordinary Resolutions For* Against* Abstain* Ordinary Resolution 1: Approval of minutes of previous Annual General Meeting Proof of Identification Required: Ordinary Resolution 2: Adoption of Annual Financial Statements for 31 December 2020 Kindly note that meeting participants (including proxies) are required to submit reasonably satisfactory proof of identification when submitting their votes to the Transfer Secretary. Forms of identification include valid identity documents and passports. Special Resolution 3: Amendment to the Memo and Articles of Association of SBN Holdings to provide for an electronic voting process. Proxies: Ordinary Resolution 4: Approval of final dividend declared The Form of Proxy for the Annual General Meeting, which sets out the relevant instructions for its completion, accompanies this notice. Ordinary Resolution 5: Re-election of directors by way of separate resolution: In order to be effective, duly completed Forms of Proxy must be received at the office of the transfer secretary of the Company by no later than 15h00 on Tuesday, 5 April 2021. 5.1 Herbert Maier (Independent Non-Executive Director) 5.2 Birgit Rossouw (Independent Non-Executive Director) By order of the board of SBN Holdings Ltd Ordinary Resolution 6: Election of directors by way of separate resolution: Sigrid Tjijorokisa 6.1 Alpheus Mangale Group Company Secretary Ordinary Resolution 7: Control of unissued shares 5 March 2021 Ordinary Resolution 8: Re-appointment of external auditors and authority to determine Registered Office their remuneration Standard Bank Namibia Ltd Ordinary Resolution 9: Approval of Non-Executive Directors’ remuneration 1, Chasie Street, Kleine Kuppe, Windhoek Ordinary Resolution 10: Approval of the existing remuneration policy Transfer Secretaries 44 Robert Mugabe Avenue, Windhoek. Ordinary Resolution 11: Re-appointment of Audit Committee members PO Box 2401, Windhoek, Namibia Ordinary Resolution 12: Authority to sign documentation

Insert an X in the appropriate space above to indicate how you wish your vote to be cast. However, if you wish to cast your vote in respect of less than all of the shares that you own in the Company, insert the number of ordinary shares held in respect of which you desire to vote.

Signed at this day of 2021.

Assisted by me (where applicable)

Signature SBN HOLDINGS LIMITED 164 Annual report 2020 165

SHAREHOLDER ANALYSIS

Notes 2020 2019 1. Please insert an “X” in the relevant spaces according to how you wish your votes to be cast. However, if you wish to cast your vote Number of Number of in respect of a lesser number of shares than you own in the Company, insert the number of ordinary shares held in respect of Spread of ordinary shareholders ('000) shares (’000) % holding shares ('000) % holding which you wish to vote. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fi t in respect of the shareholders’ votes exercisable thereat. A shareholder or his/her Public 86 315 16.5 78 290 15.0 proxy is no obligated to use all the votes exercisable by the shareholder or by the proxy, but the total of the votes cast and in Non-public 436 157 83.5 444 182 85.0 respect whereof abstention is recorded may not exceed the total of the votes exercisable by the shareholder or by the proxy. Directors and prescribed officers of SBN Holdings Limited 2. F orms of proxy must be received at the Company transfer secretaries. Transfer Secretary (Proprietary) Limited, 44 Robert Mugabe and its subsidiaries 606 0.1 604 0.1 Avenue (entrance on Berg Street) Windhoek, (PO box 2401) Windhoek, Namibia by not later than 15:00 on Tuesday, 5 April 2021. Purros Investments (Proprietary) Limited 44 220 8.5 52 247 10.0 Alternatively forms of proxy may be send to the Company’s transfer secretary by way of e-mail to [email protected] provided Standard Bank Group Limited 391 331 74.9 391 331 74.9 that such e-mails are received by the transfer secretary by no later than 15:00 on Tuesday 5 April 2021. Total 522 472 100.00 522 472 100.0 3. D ocumentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the Company’s transfer secretary or waived by the chairperson of the annual general meeting.

4. Any alteration or correction made to this form of proxy must be initiated by the signatory/ies.

5. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretary of the Company.

6. The chairperson of the annual general meeting may reject or accept a form of proxy which is completed and/or received, other than in accordance with these notes, if the chairperson is satisfied as to the manner in which shareholder wishes to vote.

7. A proxy may not delegate his/her authority to any other person.

8. Wher e there are join holders of ordinary shares:

• Any one holder may sign the form of proxy. • The vote of the senior (for that purpose seniority will be determined by the order in which the names of the shareholder appears in SBN Holdings Limited’s of shareholders) who tenders a vote (whether in person or by proxy) will be accepted to the exclusion of the votes/s of the other joint shareholder/s. SBN HOLDINGS LIMITED Annual report 2020 166

Contact and other details

Standard Bank Group Limited Registration number: 2006/306 Country of incorporation: Republic of Namibia

Head office switchboard +26 461 294 2000

Registered address Chief financial officer Standard Bank Campus Letitea du Plessis No 1 Chasie Street, Tel: +26 461 294 2237 Kleine Kuppe, Windhoek

Postal address Head: Legal and Governance PO Box 3327, Windhoek, S Tjijorokisa Namibia Tel: +26 461 294 2036

Please direct all annual report queries and comments to: [email protected]

Please direct all customer-related queries and comments to: [email protected]

Please direct all investor relations queries and comments to: [email protected]

Disclaimer

This document contains certain statements that are ‘forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon.

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