Barclays Bank of Botswana Limited Annual Report 2014 Bringing Paperless Connectivity To Banking Barclays has been operating in Botswana for Barclays offers personal banking, credit cards, and more than 60 years. It is corporate banking products. Our customers and clients benefit from the strength of the Barclays Group and one of the leading banks are able to access investment banking and wealth in the country, employing management services. over 1,200 people and Our Goal serving over 150,000 To be the ‘Go To’ bank in Botswana; this means that every person who has banking needs should think Barclays. customers. Our Purpose Helping people achieve their ambitions in the right way. Barclays Bank of Botswana has 3 business units: Consumer Our Values Our consumer business serves customers across a network of Our values are the behaviours that shape our culture and are 41 branches, which is the largest branch network in Botswana, what we will be known for in the eyes of our customers and and 112 ATMs. Barclays Bank of Botswana also serves customers the communities in which we operate. through a full suite of digital channels and offers high net worth clients1 bespoke Premier Banking services. These values are: Corporate Banking and Business Banking Respect Integrity Corporate provides banking services and solutions to We respect and value those we work with, and the We act fairly, ethically and businesses, financial institutions, Government and parastatals. contribution that they make openly in all we do Our corporate products include lending, risk management, cash and2 liquidity management, trade finance, and asset financing. Treasury Service Excellence We put our clients and We use our energy, skills and In addition to asset and liability management, capital, funding customers at the centre of resources to deliver the best and liquidity management for the Bank, Barclays Bank of what we do sustainable results Botswana Treasury offers risk management and Foreign exchange services to our clients. 3 Stewardship We are passionate about leaving things better than we found them RISES Key priorities for our strategy
1 Our people are proud to work for Barclays. Accolades 33 young Batswana have been sponsored for their Increase customer convenience by offering more services Masters degree programme under Barclays F.G. 2 through electronic Channels. Mogae Scholarship Fund
Offer our customers and clients a range of alternative 88% of colleagues volunteered their time and skills 3 products such as Foreign exchange and facilitate insurance reaching over 12,000 children and youth products to meet their lifestyle needs and requirements. Award for significant contribution in the Become the ‘Go-To’ bank for Corporate, Public Sector and 4 implementation of Vision 2016 goals SME clients.
Help our customers and clients create wealth through 5 housing financing and be the financier of choice for Best Domestic Cash Management House 2014 customers’ vehicle and asset financing needs. - Euromoney Barclays Africa Our One Africa Strategy
Our growth strategy is based on a unique competitive advantage - we are an African bank that is fully global, fully regional and fully local.
We continue on our journey Delivering on our medium- While planning for the By focusing on... to distinguish ourselves from... term (2015-2016) targets… bank of the future…
Our Retail and Business Banking turnaround Regain our leading market position in South Africa and drive the build-out across the continent; in particular: improve service offerings and customer experience; extend appropriate levels of credit; introduce innovative products; and improve access.
A return on equity in the range of 18% - 20% Investing in • Local and regional banks through Corporate Banking growth our access to global technologies Invest in our people and systems to allow Beyond our strategy and us to develop our expertise and product and products, and ability to Top three revenue medium-term goals, portfolio, in particular: Foreign exchange, position in our five key we recognise that with connect our customers and corporate debt, trade finance and cash markets (Botswana, the pace of change, the clients seamlessly to global management services. Ghana, Kenya, South environment in which markets Africa and Zambia) we operate will be very different in the future.
Growing Wealth, Investment We dedicate our efforts A revenue share of Management and Insurance to shaping our strategy • Global banks by operating a bank Realise the synergies from the combined 20 - 25% from outside for building the future with deep African insights from Wealth, Investment Management and South Africa ‘Go-To’ bank. our local operations Insurance business and build on this platform to expand into new African markets. A cost-to-income ratio in the low 50s
Developing and investing in talent and our people Deliver on our diversity agenda across the Group to make Barclays Africa a pan- African employer of choice and develop and invest in our employees to enhance the leadership skills across the Group.
2014 2015 - 2016
Barclays Bank of Botswana Annual Report 2014 1 Reviews Chairman’s Statement Managing Director’s Review Country Management Committee
Chairman’s Statement
“Our goal is to be the ‘Go-To’ bank for our customers and clients. Customer service is central to our strategy and is equally critical in retaining existing and acquiring new customers and clients.”
I am pleased to introduce our 2014 annual report which provides an overview of our performance and the actions we are taking to strengthen the sustainability of our business.
2014 was a redefining moment for Barclays Bank of Botswana. We entered it with a clear focus to turn around our business performance. In a world where banking is increasingly digital, our strategy was to deliver innovative transactional banking solutions while continuing with responsible lending to our customers and clients. Despite what continued to be challenging macroeconomic conditions, coupled with margin compression due to a low interest rate regime, I am proud to say that we delivered on our strategy and reported good growth in our operating profit and earnings per share. We achieved this through the consistent application of our strategy and also made significant progress in transforming the business to strengthen our future growth potential.
Strong governance is integral to the long-term success of the Bank and the Board is committed to ensuring that the business continues to be governed and managed with openness, honesty and transparency. Our Governance Report in the latter part of this report sets out the approach we took and highlights the key focus areas of the Board in 2014. In my 2013 report, I alluded to the changes in the Board composition, which included the on boarding of the new Managing Director, Reinette van der Merwe. I continue to be impressed by the strength and diversity of Rizwan Desai Chairman the Board. We have a very strong balance of skills, knowledge, experience and diversity among our Directors. Critical to the success of the business is ensuring we maintain this breadth and balance of skills to suit both the existing shape of the business and Return On Equity improved to 23.2% to support our future growth. Equally important, is ensuring that the Board has absolutely the right processes in place to maintain Best Domestic Cash Management efficiency and effectiveness, and that it continues to help to set House 2014 - Euromoney the agenda for the business to succeed both in the short and long term. This will remain a priority in 2015 and beyond.
P100 million dividend approved by Board
2 Continued focus on customer service We are aware of the Government’s efforts to diversify the economy Our goal is to be the ‘Go-To’ bank for our customers and clients. through agriculture and other sectors. To this end, we have Customer service is central to our strategy and is equally established an Agri-business unit within our business banking critical in retaining existing and acquiring new customers and department. Our strategic thrust here is to finance ground clients. We are cognisant of the fact that today’s customer is breaking agriculture deals. In our quest to help farmers achieve more discerning and demands better and convenient service their ambitions in the right way, we partnered with a number as a basic right. Businesses have to pay particular attention to of farmers associations. We will continue combining our global ever-changing customer needs and expectations. This calls for product knowledge with regional expertise and our extensive and alignment of business operations with the expectations of the well established local presence to serve our customers and clients customer. In some cases, this will call for significant capital and even better. human investment. In 2014, we witnessed our customers and clients becoming more sophisticated as evidenced by complex transactions that we facilitated for our customers who were expanding their businesses into the region. Our business is constantly evolving to adapt to changes in client and customer behaviour, technology, regulation and the competitive landscape. Our ability to support customers and clients hinges on our ability to reach them through channels that are most convenient and useful to them. Underpinning our purpose and our customer service philosophy are our values; Respect, Integrity, Service, Excellence and Stewardship (RISES), which are a primary integrator of our business guiding our decisions and behaviours. We measure our performance against our strategy and values through our balanced score card with the following components (Customer, Colleague, Citizenship, Conduct and Company).
Customer Sustainable success in banking is founded upon meeting the expectations of the market. Fundamentally, this means delivering transparent and fair outcomes to our customers. This synchronises with our goal, which is to help people achieve their ambitions – in the right way.
With the benefit of being part of the wider Group, we have the capability to provide international capital markets access for our local clients. Increasing use of technology is changing the way in which customers choose to do their banking. The enhancement of customer experience through our services and products therefore remains a top priority. I am pleased to say that, in 2014, Our business is constantly evolving to we made significant investments in innovative projects to deliver adapt to changes in client and customer solutions and technologies that enrich the customer experience. behaviour, technology, regulation and These included cutting edge technologies such as intelligent ATMs, paperless banking for cheque and cash transactions to the competitive landscape. improve turnaround time and remote account opening where accounts can be opened remotely at customer premises. We also opened a modern 3-in-1 Branch at Airport Junction in Gaborone.
Barclays Bank of Botswana Annual Report 2014 3 Reviews Chairman’s Statement Managing Director’s Review Country Management Committee
Colleague Citizenship Investing in our people is, without a doubt, the most important Being a responsible corporate citizen is an integral part of investment that we make for the future of our business. The delivering on our strategy. It is not only reflected in our culture, training, development and especially the safety, health and but also in our approach to governance and our efforts to be wellbeing of all our employees is vital to the success and transparent in and accountable for everything that we do. Our sustainability of Barclays. I am pleased to report that through the commitment to serve the local communities in which we operate One Africa strategy we sent some of our colleagues on job swaps is stronger than ever, as demonstrated by our continued efforts to South Africa, Mozambique, Tanzania, Zimbabwe, Zambia, the towards sustainable development. We were recently awarded United Kingdom and the United States. We have also enrolled the Vision 2016 award in recognition of our contribution towards a number of colleagues on the Barclays Pan Africa Graduate attainment of the Government’s Vision 2016 goals. programme. Over the years, as I have engaged with many of our employees, I have continued to be deeply impressed by the skills, Financial inclusion is a strategic imperative in delivering our dedication and energy of our people, and their relentless focus on citizenship agenda. In 2014, over 80% of our colleagues took delivering our strategy. On behalf of the Board, I would therefore part in colleague volunteering, providing money management/ like to extend my sincere thanks to our colleagues in Botswana financial literacy to schools and communities at large. Through who have worked tirelessly to put our customers at the heart of various projects that the Bank funds, we touched the lives of everything they do with pride and dedication. over 7,000 youth by imparting employability, enterprise and money management skills. 63% of these were trained on The One Africa strategy has also provided opportunities not entrepreneurship skills. 2014 key highlights included our ability only for colleagues but for Executive and Non-Executive Boards to combine youth development and conservation through our members to interact and share ideas. Botswana was privileged partnership with the Kalahari Conservation Society. to host the 2014 Barclays Africa Chairmen’s conference which attracted Chairmen and Managing Directors from the Barclays Conduct Africa countries and was a huge success. We aim to proactively develop and foster a culture of healthy borrowing. This is done through customer education initiatives I am excited by our move into a new Head Office, which boasts a and product specific support. We continued to be responsible wellness centre for colleagues and energy and water conservation in our lending as we reviewed our lending framework in the technologies. This will see Barclays reducing its carbon footprint Retail bank, implementing stricter affordability assessments and and overall impact on the environment. monitored our performance through metrics such as the “treating customers fairly” outcome index. This was achieved through rationalising our debt service ratio to ensure that we were giving the right loan amounts to the right customer segments. We continue to strengthen measures to counter money laundering, fraud, bribery and corruption. We launched a revised anti-money laundering, sanctions and anti-bribery and corruption training to all our colleagues. Integral to conduct is ethics management. We continue to build the capacity of management to lead the way in driving high standards of ethics. We remain ever aware and vigilant that we need to raise awareness and educate all our employees on the right behaviours.
Company Effective engagement with shareholders is an important part of my role as Chairman. In this respect, I was pleased to meet a number of shareholders at last year’s Annual General Meeting Investing in our people is, without a doubt, (AGM), and look forward to once again meeting many of you at the most important investment that we this year’s AGM. I am also, of course, available throughout the make for the future of our business. year to meet our larger shareholders on an individual basis. In addition, I attended our investor presentations during the year to listen to shareholders’ questions and hear our management team’s responses.
4 Taking into account our strong capital position and earnings We continued to be responsible performance, I am pleased to say that the Board has approved a dividend payout of P100million, subject to regulatory approval. in our lending as we reviewed our lending framework in the Retail bank, Looking ahead implementing stricter affordability Although we have met our key commitments for the period, we assessments; and monitored our remain focused on our journey to be the ‘Go-To’ bank in Botswana. performance through metrics such as We will continue to make strong progress towards achieving our long-term goals and in delivering high technology products and Treating Customers Fairly outcome index. services to our customers. Despite the economic headwinds, we believe that the key enablers of our strategy, together with our ongoing investment in technology and product innovation, will support the continued growth of Barclays Bank of Botswana Limited in the years ahead. We will focus on refurbishing our branches to improve the customer experience. We will continue to align our segment value propositions to our customers’ needs, focusing on mining, tourism, public sector and SMEs to drive our corporate and business banking portfolios.
As Barclays we are uniquely positioned to - Help corporate and private banking clients; - Support the public sector, for example, the Government’s Economic Diversification programme; - Drive growth of key sectors such as mining, Tourism and Agriculture and; - Help our Retail customers in Botswana.
2015 will therefore be another year where we redefine banking. We look forward to it.
A Word of Thanks Over the last year we have created further value for our customers and shareholders in challenging conditions. I would like to thank our colleagues for all their hard work. I would also like to thank my fellow Board Members for their unparalleled support. It has been a privilege to continue to serve as Chairman of the Board and I am confident that the Bank’s continued focus on transforming the business will drive sustainable growth.
Rizwan Desai Chairman
Barclays Bank of Botswana Annual Report 2014 5 Reviews Chairman’s Statement Managing Director’s Review Country Management Committee
Managing Director’s Review
“Our results demonstrate the great talent and professionalism that is embedded in the Bank - a great strength for us in taking the business forward.”
Strategic Context In my report last year, I highlighted that we laid out our five-year strategy and embarked on a journey to transform the business. I am pleased to report that our 2014 performance demonstrates the substantial progress we have made in taking this strategy forward. Our good performance can be attributed to the support we received from various quarters, notably our customers, clients, stakeholders and colleagues. I would like to thank everyone who contributed to these excellent results which demonstrate the great talent and professionalism that is embedded in the Bank.
Our transformation programme has three components: Turnaround, Return to Acceptable Numbers and Sustainable Forward Momentum. 2014 was the year in which our strategy really started to work. Our performance shows that we have turned the corner and our strategy implementation is on track. This required focus on a number of strategic areas: finding efficient and convenient ways of serving our customers; improving the efficiency of the operating processes; providing relevant solutions to our customers; developing our people and building the brand. As we continue to execute our strategy, my priority will be to drive the delivery of this vision in the years to come. Our strategic commitments were: To be in the top three by revenue in our market; a Cost-to-Income ratio in the lower 50s; and delivery of Return-on-Equity (ROE) of between 18% and 20%. We have
Reinette van der Merwe surpassed some of these commitments; we are placed second by Managing Director revenue in our market and achieved an ROE of 23.2%.
Economic Context The economic environment was stable with GDP growth estimated at 4.4% in 2014. This was driven largely by Transport Profit Before Tax up 5.6% and Communication; Trade, Hotels and Restaurants; and Mining, which contributed 7.4%, 7.1%, and 4.5% respectively. Headline inflation remained within the Central Bank’s objective range of 3 12.8% growth in Net Fee – 6% during the period under review. The 2015 outlook remains and Commission Income positive as GDP is expected to continue growing, though at a slower pace with a growth estimate of 4.9% on the back of a low inflationary environment benefiting largely from weak domestic 1,200 colleagues demand and a reduction in fuel prices.
6 Business Review Balanced Score Card Our goal is to become the ‘Go-To’ bank for our customers, clients Our balanced scorecard is supported by the 5C’s – Customer, and colleagues. Our 2014 financial performance was delivered in Colleague, Citizenship, Conduct and Company. an operating environment characterised by a relatively low interest rate regime, diminishing disposable incomes as household Customer debt ballooned, increased competition, and low deposit growth We remain resolute in pursuance of our goal to become the ‘Go- when compared to credit growth. Despite these challenges, our To’ bank for our customers and clients across all segments. We strategic imperatives continued to be our guiding principles as we believe that our customer-centric approach can only strengthen sought to grow the business. our relationships with customers. Our innovative cradle-to-grave approach ensures that we understand the needs of each and Our strategic priorities were: to grow our Corporate and SME every customer – individual and corporate; and can provide the business while investing in our people and leadership; selectively relevant financial solutions for each of their life stages. grow the Retail Banking secured lending portfolio; and optimise our balance sheet, while ensuring that we continually invest in the business.
With this as our goal, our Profit Before Tax increased by 5.6%. We also increased Return On Equity as we returned to posting acceptable numbers. Net fee and commission income rose during the year by 12.8%. These achievements were attained as transactional activity increased due to greater focus on engaging and involving our customers, coupled with higher insurance commissions.
Retail Banking Key highlights in the Retail Business were Asset growth and growth in Non-Interest income. Asset growth came from Loans and Advances underpinned by strong growth in Mortgages. As a result Retail Asset growth was 9.6%.
In my 2013 report, I mentioned our commitment to improving our income mix as well as customer service through our digital offering and improving our overall customer experience. I am A 17.5% growth in Loans and Advances delighted to say that we rolled out new product innovations such to customers resulted in Corporate and as Cash-Send, cash deposits at some of our intelligent ATMs; and Remote Account Opening. We also successfully transitioned to Investment Banking (CIB) increasing Paperless Banking across all our branches. its contribution to the overall business performance. Corporate and Investment Banking A 17.5% growth in Loans and Advances to customers resulted in Corporate and Investment Banking (CIB) increasing its contribution to the overall business performance. Driving this solid performance has been lending to support our regionally outbound Botswana corporates. We laid a solid foundation through segmenting our business and aligning the customer value propositions to these segments. Our wide footprint and channel strategy played to our advantage as we saw transactional activity grow by 25%, leading to a reduction in interest expense of 23%, ultimately resulting in an income growth of 39% in CIB.
Barclays Bank of Botswana Annual Report 2014 7 Reviews Chairman’s Statement Managing Director’s Review Country Management Committee
Paperless Banking not only provides an Colleague improved customer experience, but also I would like to pay tribute to my colleagues who are the foundation of our business – our most important asset as we rely on them further reduces our carbon footprint. to service our customers and clients effectively. Maintaining and nurturing our people is a core focus and is central to our future In fulfilment of our customer philosophy, our 2014 investments were success. focused on delivering customer-centric banking innovations. We simplified our banking processes, making us more accessible and We adopted a Human Resource (HR) strategy anchored by easy to do business with. We launched a number of technological three pillars: People, Culture and Leadership. Our approach is to and digital innovations. Among these were financial inclusion position leadership at the forefront of our HR strategy, ensuring banking solutions such as Cash-Send, a money transfer service that we make Barclays a great place to work for and that our available on our intelligent ATMs and mobile phones which enable people are proudly Barclays. We continued with our recruitment customers to send money to anyone, including the unbanked. Our drive, filling critical vacancies and up-skilling talent through job customers have been quick to take advantage of this easy and swaps and the provision of technical training in specialised areas convenient service to send money to their families in remote parts of the business. We have also made a concerted effort to attract of the country where Barclays is the only bank. In addition, we young talent to the Bank, as they are the future of our business. launched a Cash Deposit service on ATMs. For the convenience of new-to-bank customers and customers increasing their product In line with our One Africa strategy, we were proud to host the holding, we were the first bank that enabled customers to open Barclays Pan African Graduate Summit which attracted over current and savings accounts remotely using iPads, removing the 200 graduates from the 12 African countries in which Barclays inconvenience of having to come into our banking halls to open an has a presence. In addition to learning, the event allowed us to account. Towards the end of the year under review, we also rolled showcase Botswana to the rest of Africa. out Paperless Banking by eliminating use of cash withdrawal and cash deposit slips across our branches. This not only provides an We also developed a leadership and colleague curriculum for all improved customer experience, but it also further reduces our staff and leaders, which we believe will enable us to retain talent carbon footprint. and create a robust succession planning programme.
All these innovations were proof points of our purpose: ‘helping We worked hard at improving the diversity of our work force people achieve their ambitions in the right way.’ We launched while ensuring we remain the bank of choice for the best talent the ‘Prosper’ campaign which gave customers an opportunity in Botswana. One strategy is to offer colleagues an opportunity to reflect on what the word ‘prosper’ really means to them, thus to grow and gain experience they would not be able to receive giving us feedback on things that matter to them and how we, as in their current role, and job swaps to countries like Zambia, a bank, can help them achieve their ambitions in the right way. Mozambique, South Africa, Tanzania and the USA offer such We are grateful for the feedback that we received as we continue opportunities. In 2014 we sent several of our talented colleagues to roll out more customer-centric products and services. on job swaps to those countries and we will continue this practice in the future.
Citizenship Barclays Bank of Botswana continues to be a developmental partner in Botswana through our Citizenship agenda and we constantly look for innovative ways to serve our communities. I am proud that this work was recognised by Government which awarded us the Vision 2016 Long Term Vision award for our efforts in sustainable development.
Through our Citizenship agenda, we actively manage our impact on the communities we serve and our environment. For example, we developed an innovative approach to extending financial literacy to villages and the investing public at large through a radio programme “Madi Majwana”, which also included a series of road shows to areas that are under-serviced. We partnered
8 with the Kalahari Conservation Society to launch the Youth Our future financial performance will hinge on how effectively we Development and Rhino Conservation Project which not only grow our top line revenue. Our success will depend on: creates employment opportunities for the youth, but also empowers communities to protect wildlife and generate income • Corporate and Business Banking: We will keep improving our in a sustainable manner. As a result, they are able to increase and business by picking up the pace in growing these businesses. better manage their incomes. We will also continue to add value to our clients who are expanding across Africa by following them into markets where In the third quarter of the review period, we moved into our we can leverage our competitive advantage of being one bank new “green” Head Office, which incorporates environmental in Africa. Our main priority, however, will be to consistently conservation technologies aimed at reducing our carbon footprint provide more value to all our clients. and thus contains our impact on the environment. • Grow Retail lending book: We will continue to grow Retail Bank We have also been contributing to economic growth through lending with a skew towards secured lending on the back of strategic partnerships. We partnered with USAID on a US$15million the rate cut of 100bps that was announced in February 2015. credit guarantee scheme for the underserved small businesses. In We will continue to diversify our revenue streams in response the Agriculture sector, we partnered with Sandveldt, Ghanzi and to margin compression on lending products. Pandamatenga farmers in our effort to support the Government’s Economic Diversification programme. We will continue to forge • Investments: We will continue to invest for the future such partnerships in 2015 as we support capacity building efforts. through the launch of more innovative products, leveraging new technologies to drive non-interest revenue, enhancing Through the Barclays F.G Mogae Scholarship Fund, we continue customer convenience, as well as improve our operational to provide scholarships to young Batswana pursuing studies that efficiencies. The investments we have made and continue to will allow them to contribute towards sustainable development. make are geared towards this. During the year under review, 10 schools benefited from our sponsorship of the Barclays Kabelano Charity soccer tournament • Customer Service: As Barclays, we have an extremely strong where each of the schools walked away with P50,000. brand and a solid and growing customer and client base in the local market. We are determined to improve service to our Conduct customers and clients. The way we do business is anchored in our values: Respect, Integrity, Service, Excellence and Stewardship (RISES). We Appreciation commit to serve all our stakeholders in a manner that reflects all I am excited about the future and the opportunities that lie ahead. our values. We are determined to be a values-led organisation. I would like to thank my Board and Colleagues for their continued We want to be recognised not just for what we achieve, but the support and unwavering dedication to our Customers and Clients. way in which we go about our daily business and whether we help Finally I wish to thank all our Customers and Clients for their people achieve their ambitions in the right way. support. My purpose is to continue to improve our service to you.
Company As a company, we remain committed to delivering acceptable returns to our shareholders. Barclays remains well capitalised with a capital adequacy ratio of 18.4%. This strong capital position supports our anticipated growth across all business segments. Reinette van der Merwe Looking Ahead Managing Director Looking ahead, we will continue to build on the solid foundation we laid in 2014. We recognise that there are likely to be short-term economic challenges, but the fundamentals for long-term growth in Botswana remain strong.
We will continue to refine our strategy, by for example optimising our balance sheet. We are focused on Revenue growth despite the challenging and very competitive environment in which we operate.
Barclays Bank of Botswana Annual Report 2014 9 Reviews Chairman’s Statement Managing Director’s Review Country Management Committee
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Reinette van der Merwe Lipalesa Makepe Jeffrey Davis 1 2 3 Managing Director Finance Director Chief Risk Officer
Reinette was appointed Managing Director of Lipalesa Makepe was appointed Finance Director Jeffrey joined Barclays in June 2010 after Barclays Bank of Botswana in 2013. She has for Barclays Bank of Botswana in February 2012, completing an MBA programme in the United more than 20 years’ experience in the banking having joined the Bank as Financial Controller in States. He assumed the Botswana Chief Risk industry, having started her career at First 2005. She is a Chartered Certified Accountant Officer position on an interim basis in March 2014 National Bank South Africa on an Executive by profession and is an Associate member of the and was appointed to the role in February 2015. Trainee Programme. She later joined the Internal Botswana Institute of Chartered Accountants Prior to joining the Barclays Bank Botswana team, Audit team where she was promoted to Head of (BICA) and a Fellow Chartered Certified he was Associate Credit Director supporting the Internal Audit. In 2007, she joined Absa and held Accountant (FCCA). Prior to joining the Bank, African Corporate Credit Function from Barclays a number of key roles including: Head of Audit she has held senior positions at Capital Securities head office in London. His credit experience Retail and Commercial, Chief Internal Auditor, and (Pty) Ltd and KPMG. Lipalesa has served on the includes assignments in Ghana and Mozambique Chief of Staff at Absa Private Bank. Prior to joining Board of Trustees for the Barclays Pension Fund, as interim Corporate Credit Director and Chief Barclays Bank Botswana, she was Chief Internal Capital Securities and has been Chairman of the Risk Officer respectively. Audit Executive for Barclays Africa, responsible Botswana Stock Exchange. She currently sits on for internal auditors across Africa. the Boards of Southview Pty Ltd and Sechaba Breweries Limited. She is a Chartered Accountant CA (SA) with an M.Com in Business Management. She is also a qualified CFP (Certified Financial Planner). Reinette was a member of the IAEP Board (Internal Audit – University of Pretoria, South Africa) and a non-executive member of the HSRC (Human Sciences Research Council) Audit Committee in 2014. She has worked with the University of Pretoria, GIBS Business School (South Africa) and Erasmus University (Amsterdam) on an MPhil for Chief Internal Auditors.
10 Lesley Bradley Brighton Banda Titose Musa 4 7 10 Corporate and Investment Banking Consumer Banking Director Head of Compliance
Lesley joined Barclays in 2003 as Head of Cash Brighton joined Barclays Bank of Botswana as Titose is the Head of Compliance. Titose holds Management and has held various roles at local Consumer Banking Director in 2014. He has a BA in Humanities from the University of and Regional level. She was appointed Interim more than 16 years experience in Retail banking Botswana and Msc in Strategic Management Corporate Director in November 2013. She is a at middle and senior management roles with from University of Derby in the United Kingdom. seasoned banker, with 23 years of experience focus on retail lending products - personal loans, Titose has extensive experience in Organisational gained from working for reputable international mortgages, vehicle loans and credit cards - credit Strategic alignment, Risk Management, banks. She holds a Bachelor of Commerce from risk and credit operations. He has extensive Performance and Financial Management University of Botswana. Lesley has successfully knowledge of the African markets having worked Change as well as People Management. She completed the Executive Development in 4 other countries, namely: Zimbabwe, South previously held several senior positions at Programme with the University of Stellenbosch Africa, Kenya and Nigeria. Prior to joining Barclays Standard Chartered Bank including Cluster Head Business School where she was awarded the Bank of Botswana, he was Head of Retail Lending of Operational Risk - Southern Africa, Head of Directors Award for Best Student 2011 for her for Barclays Africa. He has an Economics honours Operational Risk and Head of Marketing and class. She has also completed various leadership degree from the University of Zimbabwe. Branch Management. programmes with renowned institutions.
Richard Bulayani Malikongwa Ediretse Ramahobo Kealeboga N. Bojosi 5 8 11 Head of HR Acting Chief Operating Officer Interim Head of Legal
Richard joined Barclays in November 2012 as Ediretse Ramahobo is Acting Chief Operations Kealeboga joined Barclays Bank Botswana as a Human Resources Director. He has experience Officer. He joined Barclays in 2013 as Deputy Legal Advisor in 2012 and was appointed interim in both Corporate Affairs and Human Resources Chief Operating Officer responsible for Head of Legal in October 2013. Between 2000 Management. From 1998-2004 he worked Performance Improvement and the Transform and 2006 he was in private practice specialising with the United Nations Secretariat in New agenda in line with One Africa strategy. He in commercial and civil litigation, corporate and York and has held positions of Deputy Chief of has worked extensively in the Consumer and labour law. Whilst in private practice, he also Civilian Personnel Affairs at the United Nations Operations shops at Standard Chartered Bank taught Banking Law, Company Law and Contract Peacekeeping Mission in the Democratic over the last 13 years. He is a member of the Law at the University of Botswana. Prior to joining Republic of Congo and Coordinator of Bank of Botswana National Payments Task Force Barclays Bank Botswana, he spent 6 years in the Recruitment in the Department of Peacekeeping (NPTF) and the Bankers Association of Botswana United Kingdom where at various times; he was Operations. Richard joined Botswana Life (BAB) Technical Committee, which he also a Senior Lecturer in Law (Commercial Law) at Insurance Limited as Assistant General Manager chaired for the last 2 ½ years up until December a London University as well as an International for Human Resources, in 2005. He had stints 2013, driving key projects such as the Cheque Lawyer (Finance) at an International Commercial at Diamond Trading Company, Botswana Truncation and Imaging System (CITS) and the Law firm in London. He was admitted as a Telecommunications Corporation in 2009- SADC Integrated Regional Electronic Settlement Solicitor of the Supreme Court of England 2011 as Group General Manager Corporate System (SIRESS) cross-border payments and Wales in 2009. He holds an LLM from the Affairs and Stanbic Bank Botswana as Head initiative. Whilst at Standard Chartered, Ediretse University Of Cambridge, UK and a DPhil from of Human Resources respectively. He holds a served as the Chief Information Officer for the Oxford University, UK. Bachelor of Arts Degree in Economics and Public 5 ½ years, looking after the Operations and Administration, Diploma in Human Resources Technology teams. He has previously managed Management, Associate Diploma in Banking key technology projects, including regional and MSc in Human Resources Management & implementations, management of outsourced Labour Relations. and right-shored vendors and functions both in Africa and abroad, bank-wide transformation agendas as well as end to end banking operations management. He holds a BA Degree in Accounts Kgotso Bannalotlhe 6 & Economics from the University of Botswana. Treasurer and Head of Markets
Kgotso joined Barclays in November 2012. Prior to that, he had worked for two years for First Racheal Mushaike 9 National Bank and for Standard Chartered Bank Head of Marketing and Corporate Relations for seven years where his last role was Head of Global Markets and Co-Head of Wholesale Racheal Mushaike is Head of Marketing and Banking in Tanzania. He has extensive experience Corporate Relations. She holds a Masters in in the Treasury environment, having worked Business Leadership from University of South in the back office, middle office and the front Africa and has extensive experience in marketing, office in different geographies. Kgotso has held communications, strategy and corporate various positions in Treasury Front Office - from transformation. She has held various positions Corporate Dealer, Head of Assets and Liabilities at Stanbic Bank, UBA, and Standard Chartered Management, Head of Rates and Credit Trading Bank, including the roles of Regional Head of and ultimately as Head of Global Markets. Kgotso Marketing, Divisional Head of Retail Product Sales holds a BCom degree from the University of as well as Head of Product Marketing Strategy. Melbourne and is currently pursuing an Executive Racheal has worked in various markets across the Master in Positive Leadership and Strategy. continent, including Southern Africa, East Africa He has completed several different internal and West Africa. leadership programmes throughout his career.
Barclays Bank of Botswana Annual Report 2014 11 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Financial Director’s Review
“We continue to focus on strategic investments as we strive to manage overall cost.”
Overview of 2014 We registered good performance in 2014 and this was achieved against a challenging environment, not least of which are the evolving market liquidity conditions and reducing interest rate environment. Delivering growth against this backdrop meant we had to make solid progress in our focus areas to outweigh the impact of these challenges. Earnings per share grew by 15.8% and Profit Before Tax increased by 5.6% to P424.8 million. The largest driver of our earnings growth was lower impairment charge.
Statement of Comprehensive Income Improving our revenue trajectory continues to be a key priority, in particular growing contribution of non-interest income to total income. In 2014, net interest income grew 1.8%, reflective of an environment of lower interest rates and reduced liquidity. Net fee and commission income increased by 12.8% due to higher transactional volumes and increased contribution from insurance commission income. Net other income declined by 13.1%, mainly due to lower gains in investments, as we disposed of our equity investment in Visa shares during the year. However, the income in treasury sales and market making activities increased by 23.7% due to increased transactional activity.
Our credit impairment charge improved significantly by 24.2% to P150.4 million. This was a result of credit strategy changes,
Lipalesa Makepe which sought to improve the performance of new bookings; and Finance Director improved collections execution on our Consumer portfolio. Our credit loss ratio improved to 1.8% from 2.7%. The credit loss ratio for the Consumer book improved to 2.2% from 3.1%, with non- performing loans ratio falling in the reporting period to 5.9% from 6.3%. Non-performing loans impairment coverage ratio improved Earnings Per Share up 15.8% to 80.0% from 76.1%.
We continue to invest in our colleagues and reduce senior level Loans and Advances to Customers vacancies. As a result, staff costs increased by 15.1% to P374.8 up 10.8% million. We continue to focus on strategic investments as we strive to manage overall cost. Our cost containment initiatives are bearing fruit, with administration and general expenses declining Capital Adequacy Ratio of 18.4% by 6.1%. Underlying administration and general costs, excluding the once-offs, increased by 1.1%. We re-negotiated contracts with our major suppliers and re-engineered our internal operating processes to contain costs. As a result, cash in transit expenses and travel and accommodation declined by 29.7% and 14.4% respectively. This resulted in a cost to income ratio of 55.0% reflecting our flat total income.
12 Statement of Financial Position Key Figures: We continued to grow solidly in various targeted areas. Loans and Advances to customers increased by 10.8% to P8.1 billion, 2012 2013 2014 with Retail loans growing by 9.6% on the back of our secured lending and term loans; and Corporate loans increasing by 17.5%. Earnings per share from We focused on foreign currency lending which is not impacted continuing operations (thebe) 51.9 31.4 41.5 by margin compression in the local market, as we supported our regionally outbound Botswana corporates.
Dividend per share This growth was supported by senior debt issuances from our (thebe) 23.5 23.5 23.5 recently listed P2 billion Medium Term Note Programme to match tenure of our longer dated assets, increased deposits to banks and P60.3 million increase in balances with related companies. Revenue (P’m) 1,312 1,271 1,277 This was offset by P317.3 million lower deposits due to customers, as we focused on driving core balances, resulting in a 19.3% decline in our interest expense. We were deliberate in managing Fee income to our cost of funding and reducing wholesale funding to a required total revenue (%) 21 21 23 minimum.
Our shareholders’ equity increased by 11.2% to P1.5 billion, with Cost to income ratio RoE improving to 23.2%. (%) 47 53 55
Capital Total risk-weighted assets grew by 11.2% to P7.9 billion, largely Return on equity (RoE) due to growth in loans and advances. We remain capital (%) 32.9 19.5 23.2 generative, as retained earnings increased our Core Equity Tier 1 ratio to 18.1%. Our total capital adequacy ratio was 18.4% which Loans and advances was comfortably above the minimum supervisory limit of 15% to customers 6,297 7,337 8,133 and is sufficient to support our growth plans. (P’m)
Deposits to customers (P’m) 9,166 9,282 8,964
In 2014, net interest income grew 1.8%, reflective of an environment of lower interest rates and reduced liquidity. Net fee and commission income increased by 12.8% due to higher transactional volumes and increased contribution from insurance commission income.
Barclays Bank of Botswana Annual Report 2014 13 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Corporate, Investment & Business Banking
2014 was an exciting year for our Corporate business as we re- The CIB One Africa defined our approach in the way we do business in this market. We developed compelling solutions that were aligned to the strategy focuses on needs of our customers and clients, contributing positively to their growth. We continue to see the benefits of the One Africa creating a platform for strategy which gave us a competitive advantage as we supported our customers and clients to expand into regional markets. clients to tap into different Through our robust cash management service, we were awarded the ‘Best Cash Manager in Botswana in 2014’ by Euromoney Cash markets. This created Management Survey, an honour which we are truly proud of. During the year under review, we focused on re-segmenting our an increased demand business into three main segments, Corporate and Investment Banking (CIB), Business Banking and Enterprise Banking. This for capital in 2014, as allowed us to provide bespoke solutions and services to meet the specific needs of our customers, particularly those from the our clients expanded Public Sector, Financial Institutions, Global Corporates, Large Local Corporates, and Global Development Organisations. We into Africa and invariably redefined our approach to Business banking for SMEs across the chose us as their preferred country. This approach has enabled us to provide tailor-made solutions to partner. clients, widen our outreach and provide personalised service thus delivering the right focus and collaboration across the Bank. We were able to improve our operational efficiencies and increase our visibility in the market.
The CIB One Africa strategy focuses on creating a platform for clients to tap into different markets. This created an increased demand for capital in 2014, as our clients expanded into Africa and invariably chose us as their preferred financial partner.
We deliberately adopted an asset led strategy to reposition ourselves. This delivered a strong 17.5% growth in assets across multiple structures, unchartered industries, currencies and jurisdictions.
This was achieved by the closure of the following major transactions:
• A USD20m for Diamond Sight holder financing. • Leveraged the One Africa strategy to partly finance P80m of the P250m for a Non-Banking Financial Institution to While partnering with our clients to assist in its Local and Regional expansion. • Financed equivalent P450m to Local Large Corporates for optimise their working capital, they voted their regional expansions. us Best Domestic Cash Management House.
14 Our wide and diverse geographical footprint and channel strategy Looking Ahead played to our advantage as we saw transactional activity grow In 2015, we will continue to focus on Mining, Global Corporates by 25%, leading to reduction in interest expense of 23%. This and Local Corporates with the intention to continue to support ultimately resulted in an income growth of 39% in CIB. their regional expansions, and to partner with Public Sector for transactional banking solutions and long term Project In line with our people strategy and in order to optimally serve developments. We will foster strategic partnerships to help us our customers and clients, we recruited and deployed resources underscore our critical role in supporting Government grow the throughout our various coverage points. To ensure efficiency in national economy. our delivery, we continuously invest in training our people and attaching them into other markets to build capabilities and gain Harnessing the digital space to offer convenience to our clients expertise to take the business to greater heights. remains top of our agenda.
We have taken a holistic approach to serving our clientele. We We will continue to review our internal processes and systems to chose to understand their needs and took a seamless approach, improve turnaround times and enhance our service delivery. developing end-to-end solutions. We take pride in our people and we will continue to recruit, develop and retain talent. In 2013 we embarked on a rigorous journey to appreciate our customers needs for the SME segment. Following their feedback, As Botswana’s development partner, we will continue aligning we strengthened our Local Business offering, to meet the ourselves to Government strategies to diversify the economy, changing needs of the fast-growing small and medium sized create sustainable enterprises and drive employment creation. enterprises segment in Botswana, while supporting our brand purpose of making people achieve their ambitions in the right way. Our wide and diverse geographical footprint and channel strategy played to In February 2014, we launched the new SME banking proposition for our Enterprise Banking customers. As a bank, we remain our advantage as we saw transactional committed to continually provide ground-breaking and tailored activity grow by 25%, leading to banking solutions for our customers. reduction in interest expense of 23%. This ultimately resulted in an income To underscore this customer value proposition we established growth of 39% in CIB. a strong team of qualified personnel who manage our SME relationships in the different sectors of the economy including amongst others; commercial agriculture, tourism, Business Services, oil & energy, mining & surveying, wholesale & retail trade as well as the entire value chain in these sectors.
We will continue to leverage on our One Africa approach to offer our customers access to expertise from the different markets across Africa who have been successful in delivering this proposition which in addition includes access to skilled and qualified Enterprise Relationship Managers and Enterprise portfolio Bankers who serve as dedicated points of contact across the country.
Barclays Bank of Botswana Annual Report 2014 15 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Retail Banking
Retail Banking’s turnaround gained momentum in 2014 with year- One of our strategic on-year balance sheet growth of 9.5% driven by Schemes and Mortgage lending. The full impact of the 200 basis points rate cut priorities is to increase effected in 2013 was felt in 2014 as the business registered a 5% decline on Net Interest Income (NII) due to margin compression. customer convenience Operating conditions were challenging, characterised by sluggish growth in consumer disposable incomes, intense competition and by offering more services liquidity pressure in the last quarter of 2014. though digital channels. In line with our investment strategy and fully cognisant that our customers’ needs are evolving, we launched a number of innovative lifestyle improving products. These include
Improvements on our personal loan offering: • Increased maximum loan ticket size from P250k to P475k, making Barclays personal loan one of the most competitive in the market • Rationalised loan amounts in line with customer affordability to avoid over indebtedness • Tenor (repayment period) extended to 72 months for selected customer segments
Customer education campaign: • Credit card usage campaign launched during the last quarter of 2014 • Customer financial literacy programme for scheme customers • Fraud awareness campaign
Improvements in operational efficiencies: • Part automation of the credit card loan application process, further improving customer turnaround times and enhancing customer experience
Additional benefits on gold and platinum credit cards: • We negotiated discounts of up to 30% for different items ranging from restaurants and accommodation to retail clothing and transport
Launched Barclays Direct proposition: • Unlike the conventional scheme arrangement where deduction for loan repayments is done by the employer, this proposition allows the employer to pay the employees salaries into Barclays accounts where the loan deduction will be made, thereby relieving the employer of the burden of administering the scheme on behalf of the Bank.
16 One of our strategic priorities is to increase customer convenience Paperless Banking by offering more services through digital channels. Key to In line with our goal to become the ‘Go-To’ bank, we rolled executing the strategy was the delivery of: out Paperless Banking to improve the customer experience and turnaround times. This innovation has made the lives of ATM Enhancements our customers easier as they no longer need to complete any • Cash-Send money transfer – this has enabled customers to transaction slips when making over the counter deposits or send cash to anyone (including non-Barclays customers) and withdrawals. receive cash using Barclays ATMs. Through this service we are able to extend banking services to the unbanked as our Digital Eagles customers are now able to send cash to this segment. We introduced new staff roles in the branches to assist customers • Cash Deposit – through cash accepting ATMs customers can sign up for the digital channels. These we termed ‘Digital Eagles’. deposit cash with instant credit into their accounts. They form an important part of our colleague franchise as we work towards building a “digitally-savvy” banking workforce. Mobile Banking Enhancements This will help us to significantly improve our customers’ banking • Cash Send – this allows Barclays’ customers to send cash to experience. anyone (including non Barclays’ customers) and receive cash using Barclays Mobile Banking – ‘Hello Money’ These innovations are testaments to our commitment to • Purchase of prepaid electricity – customers can purchase providing convenient solutions for our customers and enabling prepaid electricity anytime, anywhere. them to do banking anywhere.
Internet Banking Enhancements • Payment of Barclaycard using Internet Banking provides customers with an additional channel to pay for their credit card at their own convenience without having to wait for the branch to open.
Remote Account Opening (RAO) of Current and Savings Accounts using iPad • This gives our customers the freedom to have their accounts opened wherever is most convenient for them.
SMS Alert Enhancements The SMS Alerts system was enhanced to send an instant SMS Alert immediately when the customer performs a transaction on an ATM or Point of Sale. The main objective of this enhancement is to enable our customers keep track of their spending by receiving the SMS alert instantly every time they transact. This also helps customers mitigate fraudulent transactions.
Barclays Bank of Botswana Annual Report 2014 17 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Treasury
In 2014, a large part of our balance sheet focus was to ensure that We successfully listed we finalised the Bank’s preparations for dealing with two major evolving market changes: the impeding introduction of Basel II a P2 billion Medium and the evolving liquidity landscape as banking balance sheets moved towards being fully lent. Our goal was to ensure that the Term Note Programme Bank remains sufficiently liquid, well capitalised and ready to on the Botswana Stock execute our business plans. For liquidity and balance sheet management, we introduced Exchange and debuted several innovative wholesale deposit products that diversified our funding base and lengthened the duration and tenor of the programme with two our liability book. These included Floating Rate Notes and Step Up Rate Notes. We successfully listed a P2 billion Medium Term senior note issuances that Note Programme on the Botswana Stock Exchange and debuted the programme with two senior note issuances that were fully were fully subscribed for a subscribed for a total of P200 million. total of P200 million. Treasury revenue was impacted by balance sheet growth of 10.8% which reduced funding available for investment into market instruments. This was a positive development, as these funds were employed to support productive economic activity. We sought to optimise the balance sheet through growth of core transactional accounts and reduced reliance on wholesale deposits.
Our markets business consists of trading (which takes proprietary positions on behalf of the Bank in order to profit from movements in underlying instruments) and sales which assists with solutions delivery to our Corporate, Investment, Business Enterprise Banking, and Retail clients. The business focused on acquiring new clients in order to improve the concentration on the Corporate portfolio and also to deepen relationships with a view to capturing a larger wallet share. We made great strides in client acquisition and underlying business growth. We rolled out more foreign currency dispensing ATMs in order to improve customer ease of access to our currency sales business.
Looking Ahead In 2015, our focus will be on leveraging our improved client acquisition to capture greater wallet share and grow the business revenues through both sales and trading. Our journey to be the ‘Go-To’ Treasury and Markets team in Botswana is progressing well and will be enhanced by the launch of more retail innovations, and other product enhancements that are designed to take cognisance of our clients’ changing needs and deliver compelling value.
On the balance sheet side, we look forward to finalising the implementation of Basel II and further optimising our balance sheet as the liquidity landscape changes.
18 In 2015, our focus will be on leveraging our improved client acquisition to capture greater wallet share and grow the business revenues through both sales and trading.
Barclays Bank of Botswana Annual Report 2014 19 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Citizenship Report
Our Citizenship Agenda has three main pillars: We had another exciting 1. Contributing to Growth 2. The way we do Business year in the execution of our 3. Supporting our Communities
Citizenship Agenda which Our strategic emphasis was on sustainable development by providing young people (ages 10-35) with the skills they require included the launch of to live economically active lives. Our efforts and investments have therefore focused on providing enterprise, employability and three innovative projects. money management skills.
We also partnered with the Supporting our Communities Madi Majwana – Stories from Your Pocket United States Embassy to We launched the Madi Majwana drama production about money and its impact on people on International Literacy Day (8th launch the USAID Credit September). The radio drama, which was developed in partnership with Maitisong Theatre, (with an investment of P912,000) Guarantee Scheme as part featured on three radio stations reaching over 200,000 people countrywide. It ran eight weeks generating lively debates and of our contribution to the discussions about money and its impact on our lives. Maitisong also took the production on a road show reaching communities growth of the SME sector in 12 towns and villages across the country. Both the radio and drama production not only entertained the public, they provided in Botswana which we an opportunity for wide-ranging and honest discussions on the believe will help to grow subject of money. Youth Development and Rhino Conservation the Botswana economy. Our Youth Development and Rhino Conservation Project was launched in partnership with Kalahari Conservation Society in July 2014 by the Permanent Secretary of the Ministry of Environment, Wildlife and Tourism. This partnership provides us with a unique opportunity to address two critical areas of concern for Botswana:
• youth unemployment and its associated social ills • environmental sustainability, mainly rhino conservation.
This project skillfully addresses these two issues by providing the training for youth living in the northern part of the country, particularly those living close to game reserves where some animals, including rhino, are threatened with extinction.
This initiative is aimed at encouraging these young people to become aware of conservation issues and to become activists focused on preserving their environment for their own sustenance. The training equips them to work with the skilled rangers to protect the wildlife. We invested P 812,500 and 625 youth will benefit from this programme.
In an effort to mobilise the communities to participate in wildlife management, specifically rhino conservation, Barclays will be launching a rhino-branded debit card. This aims to encourage
20 Our partnership with Bakgatla Bolokang Brothers-For-All Brothers-for-All is a project developed by ‘Mothers-For-All’ in an Matshelo has focused on providing attempt to manage the growing issue of gender-based violence employability and enterprise skills to in the town of Selebi Phikwe. The innovative project – a first for youth in the Bakgatla district. Through Botswana - mobilised young men who are vulnerable and out-of- this programme, 45 young people have school and trained them to produce artefacts including jewellery been absorbed into jobs in various from cow waste such as horns. 19 young men received training and within the first five months of operation, they generated over sectors. P 20,000. customers to become involved in youth development and rhino Project Concern International – GROW Project conservation. The funds generated from this initiative will be used Grass Roots Growing Our Wealth (GROW) is an innovative to train more youth and protect the rhino population. development model that seeks to uplift impoverished and marginalised women and men, providing them with a dignified Youth Education and Empowerment Programme and respectful way to generate a living for themselves and their Youth economic welfare is the focus of our partnership with families. Since the start of the programme in 2012, GROW has Project Concern International and the United Nations Agency for mobilised 1,453 women and men into forming economically and AIDS. This project is being implemented in Ngamiland East. The socially active groups. The majority began with nothing but to main goal of the project is to provide employment and income date have managed to save P145,728 of which loans amounting generating opportunities for young people and reduce their to P 71,447 have been disbursed among themselves. During this vulnerability to social ills including HIV. Implementation of the reporting period, 105 individual and 51 group businesses have project began in November 2014 and it will reach a minimum been established. of 750 youth. It will provide them with job shadowing and employment opportunities in the private sector. Barclays-F.G. Mogae Scholarship Fund The Fund is in its seventh year and has so far enabled 30 young Existing Partnerships people to pursue their Master’s degrees in various fields. In 2014, Stepping Stones International and the Aflateen Programme four post-graduate students were given scholarships. Scholarship Aflateen is an exciting programme for school-going children that recipients’ fields of study have included business studies, water provides social and financial literacy skills. It focuses on providing management, law, mathematics and environmental studies children who recognise the value of enterprise and are also among others. Our graduates have found employment with concerned about those less fortunate with skills and values that entities such as BIDPA, United Nations and the University of will promote their growth and development. The programme is Botswana, to name a few. being rolled out as a pilot for 10 schools across Botswana and over 200 children have been enrolled.
Baylor’s Teen Club We continue to work with the youth at Baylor’s Teen Club, focusing our intervention on employability skills. Through our support, Baylor’s reached over 900 youth including adolescents, young adults and teen mothers in five centres: Mochudi, Mahalapye, Maun, Kasane and Gaborone.
Bakgatla Bolokang Matshelo – Eve Project Our partnership with Bakgatla Bolokang Matshelo has focused on providing employability and enterprise skills to youth in the Bakgatla district. Through this programme, 45 young people have been absorbed into jobs in various sectors. In addition, 25 have been trained in enterprise skills and of these 13 have submitted their business plans which are being assessed by the University of Botswana Business Clinic.
Barclays Bank of Botswana Annual Report 2014 21 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Grass Roots Growing Our Wealth Colleague Volunteering Our colleagues are the backbone of our community investment (GROW) is an innovative development programme, providing much needed skills and education in the model that seeks to uplift impoverished areas of business management and financial literacy. and marginalised women and men, providing them with a dignified and In 2014, 88% of colleagues volunteered their time and skills respectful way to generate a living for reaching over 12,000 children and youth. The majority of the young people participated in skills development sessions including themselves and their families. Since the financial literacy and entrepreneurial skills development. Our start of the programme in 2012, GROW ‘Unlocking Youth Potential’ campaign which seeks to link young has mobilised 1,453 women and men aspiring entrepreneurs to active business people and provide an into forming economically and socially overview of what it means to run a business remains popular and active groups. reached over 1,000 youth in 2014.
The ‘Make-A-Difference Day’ campaign which takes place is the highlight of our colleague volunteering programme. This year all business units across Barclays participated, with colleagues volunteering within their respective communities. Over P 500,000 was spent in this period alone and over 60 projects implemented.
Contributing to Growth In July 2014, Barclays Bank of Botswana launched the USAID Credit Guarantee Scheme in partnership with the United States Embassy. The collaboration will allow small and medium enterprises (SMEs) in Botswana to access up to USD $15 million in loans. This is an important programme as it will enable these enterprises to access capital to grow their businesses and create more jobs.
22 Notable Community Investments Made in 2014 Kalahari Conservation Society Youth Development and Rhino Conservation P 812,500 Maitisong Theatre Madi Majwana P 920,000 Project Concern International Youth Education and Empowerment Program P 1,241,307 Sir Ketumile Masire Foundation Youth Development P 140,000
Barclays Bank of Botswana Annual Report 2014 23 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Risk Review
The Board is responsible for approving the country risk appetite – Risk management policies, the level of risk the Bank chooses to take in pursuit of its business objectives. The Board of Directors Credit Committee (BoDCC), models and systems are a sub-committee of the Board, monitors the Bank’s risk profile against the agreed appetite. The country Executive team presents reviewed regularly to a risk report to the Board on a quarterly basis. This provides a rich governance structure in which to evaluate risk appetites and reflect changing market management’s performance against those appetites. conditions. The Chief Risk Officer (CRO) is a member of the Executive Committee and has overall day-to-day accountability for risk management under delegated authority from the Managing Director. The CRO is responsible for monitoring the Bank’s risk profile relative to the established risk appetite. Reporting to the CRO are risk-type heads for retail credit, corporate credit and operational risk. The risk-type heads are responsible for establishing a Group-wide framework for oversight of the risks and controls of their respective risk types. In addition, risk-type teams liaise with each business head as part of the management and monitoring processes.
Retail Credit There has been marked improvement in the quality of our Consumer Lending book in 2014 as careful balancing of our portfolio mix of Secured and Unsecured scheme products continued. Both our Unsecured Personal Instalment Loan and Unsecured Scheme Loan book performance improved significantly during the year, a reflection of the success of the Portfolio Risk Management activities undertaken during the year. Investments made in prior years in underwriting capability and Management Information (MI) systems continue to bear fruit and provide a solid base for ongoing modernizing of the risk management function.
As a leading bank engaged in comprehensive banking services, Our credit risk control environment remains strong. Our Collections Barclays Bank of Botswana offers a full suite of consumer and and Recoveries environment is robust and significant investment commercial banking solutions to our customers and clients. The was made in process improvement in order to provide simple, Bank’s risk function is responsible for the management of credit efficient and appropriate collections strategy execution. Our and operational risk that arises through daily banking operations credit analytics environment remains strong, providing a strong including the identification, analysis and mitigation of this risk base for continued improvement in credit approval efficiency and within the Bank’s set risk appetite. Risk management policies, decision accuracy. models and systems are reviewed regularly to reflect changing market conditions. The Bank’s risk management function is satisfied that its impairment raising practices are responsible and accurate.
24 Corporate Credit The risk profile of the corporate asset portfolio remains healthy on the back of quality credit facilities and robust monitoring and control. A number of transactions were booked during the review period in the areas of mining, wholesale and retail trade as well as financial intermediation, as corporate asset growth continues to be one of the Bank’s strategic priorities.
A specialised corporate risk management team (Barclays Business Support & Corporate Recoveries) is responsible for reviewing and identifying early indicators of any potential counterparty in distress, and taking appropriate action. This team works closely with the client, supporting them in developing and implementing a turnaround strategy to improve business performance. This early engagement model not only provides great hands-on support for our customers but has helped maintain corporate impairments at stable levels throughout the year.
Operational Risk Management In 2014, we continued to transform the operational risk management capabilities within the Bank. We achieved several important milestones in our journey to build and sustain a truly world class control environment. Investment in operational risk within the Group remains sound, a commitment that is consistently evident within Barclays Bank of Botswana. The most significant development in the review period was the introduction of the Enterprise Risk Management Framework, which seeks to promote how risks are evaluated, monitored and responded to within the bank. The Operational Risk team aims to promote efficient, speedy, accurate, and repeatable processes. The transformation process will continue into 2015 where new technology and new processes will join the recently deployed Enterprise Risk Management Framework control philosophy to further enhance our goal of being the ‘Go-To’ bank for customers and clients.
Barclays Bank of Botswana Annual Report 2014 25 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Human Resources Review
In developing talent, we target young talent to ensure the sustainability of our business. In this regard, we have been able to attract young talent through the Pan African Graduate programme, a dedicated management development programme for new graduates and early career professionals that cuts across all African countries.
Our colleagues underpin everything we do in our journey to become the ‘Go-To’ bank and to remain the employer of choice in Botswana. To enable our colleagues to be fit-for-Barclays’ purpose and to develop current staff and attract future talent and leaders, Barclays has taken a strategic decision to focus on three critical pillars: People, Leadership and Culture.
People “Our people are proud to work for Barclays” is a strategic priority that Barclays Bank of Botswana is committed to as it encourages business performance. Barclays endeavours to ensure that the employees are proud to work for the Bank by enabling them to operate in an environment that enables them to reach their potential.
Leadership Leadership has always been an important business priority. Our goal is to develop our employees and equip them with leadership skills at all levels. This is being done through aggressive talent management programmes aligned to the business strategy. These include exposing colleagues to other markets such as South Africa and Zambia through the Barclays One Africa strategy. This strategy provides colleagues with a good opportunity to accelerate their growth and strengthen their leadership capabilities.
26 In developing talent, we target young people to ensure the As part of effective engagement, the Bank continues to make sustainability of our business. In this regard, we have been great strides in our relationship with the Botswana Bank able to attract young talent through the Pan African Graduate Employees Union (BOBEU). Management has devised a programme, a dedicated management development programme communication strategy that shares important information with for new graduates and early career professionals that cuts across BOBEU, establishes regular union and management meetings all African countries. In the year under review, Botswana hosted and communicates all changes clearly and unambiguously 211 colleagues in the Pan African programme from the 11 African so as to minimise conflict between the two bodies. Barclays’ countries in which Barclays has a presence. Furthermore, Barclays culture is to ensure the equality of all colleagues and the Bank has developed a leadership and colleague curriculum for all its has demonstrated this commitment through its diversity and staff and leaders. These programmes include the development inclusion strategy. Through its talent management programme of centres of excellence across functions and their incorporation and working with the Barclays Women’s Networking Forum, into existing training and skills development programmes with a the Bank has strived towards advancing women into senior and strong focus on succession planning and the retention of high leadership roles. performers.
Culture As part of our journey to be the ‘Go To’ bank, Barclays re-launched its values and purpose in 2012. This enabled colleagues to have a distinctive culture with a common purpose through the clear set of values. Living the values and adhering to them on a daily basis enhances not only colleague experience but, most importantly, customer experience.
The goals, purpose and values have been well communicated to all colleagues to help them understand what performance means in Barclays.
Performance management focuses on what needs to be delivered and most importantly, on how it needs to be delivered. In the review period, the focus was to encourage frequent, honest, high quality performance conversations between managers and teams. This continues to be embedded as part of the culture and will create high performance conditions for our people and our Bank. To enable our colleagues to be fit-for- Another key element of the culture is the issue of continuous Barclays’ purpose and to develop current engagement with colleagues. The Bank has introduced a number staff and attract future talent and leaders, of forums where senior management engages with colleagues Barclays has taken a strategic decision from team level to functional level. to focus on three critical pillars: People, Leadership and Culture. It is best practise to gather, collect, and measure confidential feedback from across our business to better understand what we do well, where we can improve and how we should set priorities to help people achieve their ambitions in the right way and deliver world-class customer experience. The business embarked on the annual employee opinion survey in which there was 72% colleague participation, and which was geared towards measuring sustainable engagement. The results have provided direction and focus on efforts to motivate, enable and energise colleagues.
Barclays Bank of Botswana Annual Report 2014 27 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
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28 1 Rizwan Desai 3 Lipalesa Makepe 6 Kenneth Molosi Independent Non-Executive Director Finance Director Independent Non-Executive Director
Chairman of Board of Directors. Lipalesa was appointed Finance Director at Kenneth joined the Board in 2009. He is the Rizwan joined the Board in 2002. He was Barclays Bank of Botswana in February 2012, Chief Executive Officer at EOH Consulting, appointed Board Chairman in 2009. He is having joined the Bank as Financial Controller a leading management consultancy in a Partner in the law firm Collins Newman in 2005. She is a Chartered Certified Botswana. He has more than 21 year’s & Co. and Director of a number of property Accountant, an Associate member of the experience in various industries and sectors development and investment companies. Botswana Institute of Chartered Accountants including: Government, Telecommunications, Rizwan also chairs the Board’s Credit Sub- (BICA), and a Fellow Chartered Certified Information Technology, Financial Services, Committee and Nominations & Remuneration Accountant (FCCA). Prior to joining the Bank, Health Insurance and Tax Administration. Sub-Committee. He specialises in corporate she held senior positions at Capital Securities and banking law. He holds LLB (Hons) and (Pty) Ltd and KPMG. Lipalesa has served on Kenneth is an expert in ICT deployment and DIP.L.P qualifications from the University of the Board of Trustees for the Barclays Pension business strategy development, having led Edinburgh and an LLM from Harvard Law Fund, Capital Securities and as Chairman of consultancies in both public and private School. the Botswana Stock Exchange. She currently sectors in countries such as Botswana, sits on the Boards of Southview Pty Ltd and Namibia, Tanzania, USA and South Africa. Sechaba Breweries Limited. He has published several thought leadership 2 Reinette van der Merwe Managing Director articles on technology, strategy and talent management in the local media. Kenneth is a Reinette was appointed Managing Director of 4 Lawrence Maika certified Balanced Scorecard Practitioner and Barclays Bank of Botswana in 2013. She has Independent Non-Executive Director has facilitated the annual Palladium Balanced more than 20 years experience in the banking Scorecard Boot Camp in Botswana and South industry, having started her career at First Lawrence joined the Board in 2005 and is the Africa. National Bank South Africa on an Executive Chairman of the Audit Committee. He is an Trainee Programme. She later joined the accountant and a member of the Botswana He holds an MSc in Information Systems Internal Audit team where she was promoted Institute of Accountants. He is the Managing from Pace University, USA and a Bachelor to Head of Internal Audit. In 2007, she joined Director of Nsenya (Pty) Ltd and also manages of Business Administration from Brock Absa and held a number of key roles including: a firm of accountants. Lawrence has served University, Canada. Kenneth currently sits Head of Audit Retail and Commercial, Chief on a number of Boards including Botswana on the Advisory Board of the University of Internal Auditor, and Chief of Staff at Absa Meat Commission, Sefalana Holdings Co. Stellenbosch (Executive Development) and is Private Bank. Prior to joining Barclays Bank Ltd, Botswana Housing Corporation, Bank of a member of Palladium’s Execution Premium Botswana, she was Chief Internal Audit Botswana and Botswana Savings Bank. Community (XPC). Executive for Barclays Africa, responsible for internal auditors across Africa.
5 Ambassador Alfred Dube She is a Chartered Accountant CA (SA) with Independent Non-Executive Director an M.Com in Business Management. She is also a qualified CFP (Certified Financial Alfred joined Barclays Bank of Botswana in Planner). Reinette was a member of the IAEP 2009. He is the Managing Director of Lazare Board (Internal Audit – University of Pretoria, Kaplan Botswana (Pty) Ltd., a subsidiary of South Africa) and a non-executive member Lazare Kaplan International Inc. of New York. of the HSRC (Human Sciences Research He holds a Bachelor of Arts degree with Council) Audit Committee in 2014. She has Honours from the University of Essex, UK. A worked with the University of Pretoria, GIBS Foreign Policy Specialist and career diplomat, Business School (South Africa) and Erasmus Alfred began his career in 1978 and has held University (Amsterdam) on an MPhil for Chief appointments as Botswana’s Ambassador to Internal Auditors. different missions around the world, including the United Nations.
Barclays Bank of Botswana Annual Report 2014 29 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Corporate Governance
Barclays Bank of Botswana is committed to business integrity and professionalism in all its activities. As part of this commitment, the Board supports the highest standards of corporate governance and the development of best practices.
The Bank has, therefore, adopted the Bank of Botswana The Board guidelines which seek to provide guidance on the provisions of Primary role Sections 22, 23 and 29-32 of the Banking Act, CAP 46:04 as well The main focus of the Board is on the Bank’s business policies and as the implementation and enhancement of good corporate strategies. Operating within a corporate governance framework governance standards in the Botswana banking market. In ensures that the Board: addition, the Bank adheres to the Barclays Bank PLC internal corporate governance guidelines which address the composition • Remains accountable to the Bank and its shareholders of the Board, its responsibilities, how these responsibilities are • Effectively monitors the Bank’s management met and the selection procedures for new Directors. • Continues its commitment to achieving the Bank’s agreed strategies In accordance with the requirements of the Banking Act as read with the Bank of Botswana Guidelines and Internal Control, as Objectives well as the Guidance for Directors on the Combined Code issued The main objectives of the Board are to: by the Institute of Chartered Accountants in England and Wales, • Ensure Barclays Bank of Botswana complies with applicable the Board ensures that management identifies measures and laws and regulations. monitors a variety of risks through various control mechanisms. • Discuss, agree and regularly review the Bank’s business The risks and the measures related thereto are explained from strategies so that they remain in line with those of Barclays pages 95 to 119 in this document. Africa and, where necessary, recommend adjustments for the Bank to keep up with local market considerations. The Board is committed to improving its corporate governance • Monitor business performance and be responsible to practices. The Board and its various committees are making shareholders for creating and delivering sustainable continuous strides to ensure that Barclays is an exemplary shareholder value, through sound business management. organisation in the field of corporate governance, by promoting • Establish and embed the Barclays Africa corporate greater openness and transparency, rather than just following management model and behaviours, which underpin the prescriptive regulations. achievement of Barclays Africa’s objectives. • Agree to proposals which fall within the discretion of the Board. A quorum consists of four Directors and • Execute other important control functions. the Board meets at least quarterly. During • Enhance the Barclays brand and promote it externally. 2014, the Board held eight meetings. The Board comprises a Non-Executive Chairman, three Non- Executive Directors and two Executive Directors, the Managing Director and the Finance Director. Brief biographical details of these Directors are set out on page 29 of this document. The Board approves the roles and responsibilities of the Chairman and Managing Director. The roles are separate, well documented and understood.
30 Directors’ Remuneration (BWP)
Audit Credit Remuneration Pension Human Resources Executive Director Board Total Committee Committee Committee Fund Committee Remuneration
Rizwan 850,000 90,000 6,250 946,250 Desai
Lawrence 200,000 160,000 360,000 Maika
Alfred 200,000 45,000 77,500 322,500 Dube
Kenneth 200,000 80,000 65,000 45,000 390,000 Molosi
Reinette 2, 253,733 2, 253,733 van der Merwe
Lipalesa 1,741,833 1,741,833 Makepe
Audit Credit Human Resources Director Board Committee Committee Committee Attendance register At every Annual General Meeting, one third of the Rizwan 8/8 - 3/3 - Directors (rounded down) retires and offers themselves Desai for re-election. In practice, this causes every Director to stand for re-election at least every three years. Lawrence 8/8 7/7 - - Maika A quorum consists of four Directors and the Board Alfred meets at least quarterly. During 2014, the Board held 6/8 - 2/3 2/2 Dube eight meetings as scheduled.
Kenneth 8/8 7/7 - 2/2 Molosi
Reinette van der 8/8 7/7 3/3 1/2 Merwe
Lipalesa 8/8 7/7 - - Makepe
Barclays Bank of Botswana Annual Report 2014 31 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
The Country Management Committee (CMC) is responsible to at least four times a year. The function of the committee is to the Board for implementing strategies and policies approved by assist the Board in discharging its duties under the Companies the Board, formulating and implementing operational decisions, Act, Banking Act and common law. In particular, it monitors and running the Bank based on their knowledge and experience. financial controls, accounting systems and shareholder reporting. Non-Executive Directors challenge, monitor and approve the It also assesses the management of financial risks. The Banking strategies and policies recommended by the CMC. Executive Act imposes additional responsibilities on the Board of the Directors have annual performance contracts against which they Bank. This is especially true with regard to annual reporting on are measured and managed. The Board meets regularly and has a the functioning of the Bank’s system of internal controls and its formal schedule of matters reserved for it. Meetings of the Board continuing viability as a going concern. The Audit Committee are structured to allow and encourage open discussion and free assists the Board in discharging these responsibilities. debate. This ensures that Non-Executive Directors are able to challenge Executive Directors effectively. When necessary, the Credit Committee Chairman meets privately with Non-Executive Directors to brief The Board Credit Committee includes the Managing Director, them and to address any concerns they may have. two Non-Executive Board members and the Commercial Credit Director. It is chaired by the Board Chairman, Rizwan Desai. Audit Committee The Credit Committee meets quarterly. The main purposes of The Board appoints a minimum of three members, who are the Committee are to approve the Bank’s credit policy; review Directors without any executive responsibility, to the Audit and approve credit limits within Banking Act requirements; Committee. During the year there were two Non-Executive review portfolio management information; set sector caps; and Directors on the committee, one of whom is the Chairman of review information on significant non-performing accounts in the committee. In line with corporate governance best practice, the Bank’s credit portfolio. While some of the functions of the a Non-Executive Director other than the Chairman of the Board Credit Committee include statutory Board duties, the ambit of its has been appointed to chair the Committee and this position is terms of reference are wider and include a real partnership with accordingly held by Lawrence Maika. The Audit Committee meets risk executives to ensure the health of the Bank’s lending book. quarterly. Meetings of the Credit Committee are routinely held on a quarterly basis, although ad hoc meetings for approval of facilities can be The Audit Committee has written terms of reference that have convened on an urgent basis or may be held by teleconference, in been approved by the Board and are in compliance with the line with the terms of reference. Banking Act, Cap 46:04. The external and internal auditors have free access to the Chairman of the Committee. Meetings are held Human Resources Committee This Committee has emerged from the fusion of the Human Resources Committee and the Remuneration and Nominations Committee. During the year the Committee was made up of four members, two of whom were Non-Executive Directors. The other two were representatives of the Barclays Executive in the form of the Head of Human Resources and the Managing Director. This Committee meets three times a year. The Committee’s main purpose is to provide oversight over the recruitment, staffing, succession as well as performance and compensation of executive management and reviewing of bespoke incentive proposals. The Committee is also tasked with reviewing the level of expertise and skill at the executive and Board levels and making suggestions for achieving the best overall skills coverage, whether by up skilling or recruitment. In addition, it is within the Committee’s mandate to consider the overall strategy and approach to any issues or projects of significant consequence to the Bank’s Human Resources. The mandate of the Committee does not extend to day-to-day management activities.
32 Country Management Committee (CMC) Membership of Country ALCO comprises: The CMC acts as the operational management forum responsible • Managing Director (as Chairman) for delivering Barclays Bank of Botswana’s operating plan and • Finance Director results. • Retail Director • Commercial Director The objectives of the CMC are to ensure: • Treasurer • That business is conducted in compliance with the country’s • Retail Credit Director legislation and regulations. • Commercial Credit Director • The effective implementation of Barclays Africa policies and • Head of Cards governance arrangements across all lines and functions of the • Chief Operating Officer business. • The integrity of the operational, control, compliance and Risk and Control Committee governance framework of the Bank as a part of Barclays Africa. The duties and responsibilities of this management committee • The efficient implementation of business plans. are to: • That performance is maximised across all lines and functions • Provide assurance to management in respect of the Bank’s risk of the business. and control framework by reviewing and challenging reports • The enhancement of the Barclays Brand. from management, internal and external audit and regulators in respect of the Bank’s business activities; The CMC consists of: • Oversee implementation and embedding of the policies and • Managing Director (as Chairman) controls, and confirm that control standards are defined and • Finance Director adequate for achieving regulatory compliance; • Treasurer • Oversee the monitoring of legal and regulatory changes in • Corporate Director the external environment and compliance with relevant laws, • Retail Director regulations and the directives of state authorities; • Chief Operating Officer • Monitor and take action where required in relation to changes • Head of Compliance in the internal and external risk environment; • Head of Marketing & Corporate Relations • Oversee management of the Country Business risk profile, • Human Resources Director risk event management through review of key indicators, risk • Head of Legal events, specific risk issues, themes and concentrations. • Chief Risk Officer The Risk and Control Committee members include: Country Asset and Liability Management Committee (ALCO) • Managing Director (as Chairman) The main purpose of the Country ALCO is to achieve sustainable • Finance Director and stable profits within a framework of acceptable financial • Corporate Director risks and controls. The ALCO meets at least once a month. • Chief Operating Officer It undertakes to maximise the value generated from actively • Retail Director managing the Bank’s balance sheet and its financial risks within • Head of Compliance agreed risk parameters. Therefore, it is predominantly focused on • Head of Legal forecasting and scenario modelling. • Head of Governance, Operational Risk & Control Rigour • Human Resources Director The objectives of the Country ALCO are to manage: • Retail Credit Director • Funding and investment of the balance sheet; • Treasurer • Liquidity and cash flow; • Head of Operational Risk • Exposure to interest and exchange rate movements; • Chief Risk Officer • Capital position and dividend flow; • Asset and liability margins; The internal auditors attend the meetings to provide independent • Compliance with all internal and regulatory limits and ratios perspective and to challenge the members of the committee, for the above activities. where necessary.
Barclays Bank of Botswana Annual Report 2014 33 Business Financial Director’s Review Corporate, Investment & Business Banking Retail Banking Treasury Reviews Citizenship Report Risk Review Human Resources Review Board of Directors Corporate Governance
Remunerations and Promotions Committee (RPC) The committee comprises: The duties and responsibilities of this management committee • Chief Operating Officer (as Chairman) are to: • Finance Director • Approve salary increases, bonuses, long term incentives and • Retail Director out of cycle awards, all subject to Group approval; • Head of Cards • Approve bonus pot funding requests in line with Board • Commercial Director Remuneration Committee decisions; • Human Resources Director • Approve customised reward schemes subject to Group • Head of Technology governance; • Head of Consumer Operations • Monitor compliance with legal and regulatory requirements • Head of Wholesale as they apply to appointments and rewards; • Head of Branch Operations • Provide oversight of appointments and compensation, and • Head of Internal Control review all appointments to the CMC and direct reports to the • Head of Sourcing Managing Director; • Review and recommend proposed placements onto the Brand and Reputation Committee (B&RC) CMC. The duties and responsibilities of the Committee are to: • Protect and enhance the brand and reputation of Barclays; Membership of the Remunerations and Promotions Committee • Support Barclays in its efforts to be a leading company in the includes: field of Corporate Social Responsibility; • Managing Director (as Chairman) • Ensure that the Bank treats customers in accordance with • Finance Director its ‘Treating Customers Fairly’ principles; • Human Resources Director • Identify the reputational hotspots in the business, together • Head of Compliance with the adequacy of mitigating actions and escalate as appropriate to the Barclays Africa Brand and Reputation Operations Committee (OPCO) Committee; The duties and responsibilities of this management committee • Agree and monitor the implementation of the customer are to: agenda in the business for treating customers Fairly, • Provide oversight of all key operational issues facing the Customer Service and Customer Complaints; Bank (including IT and other operational projects) and • Confirm and monitor the implementation of the to ensure timely, robust delivery of operational and IT External Corporate Affairs plan, and the Community and investments within budget; Environmental strategy; • Ensure the effectiveness of operational and IT capability and • Approve community projects for implementation. resource management across the Bank; • Provide management oversight and review of all operational Composition and quorum and IT projects and ensure that projects are managed • Managing Director (as Chairman) according to Prince2 principles and within timescales and • Finance Director budget; • Chief Operating Officer • Review Group, Global Retail Banking (GRB) and Barclays • Head of Legal Africa operations and IT projects intended for, or impacting • Corporate Director upon the country; • Head of Marketing and Corporate Relations • Provide oversight of sourcing and ensure that Alliances • Retail Director Review Business Continuity Management issues • Head of Compliance are escalated and reported to the Managing Director, • Human Resources Director Country Management Committee and Barclays Africa • Treasurer Chief Operating Officer where resolution at OpCo is not • Chief Risk Officer possible.
34 Control Environment Forum (CEF) The overall purpose of the forum is to ensure the comprehensive and effective review, challenge and raising of potential control issues across Barclays Bank of Botswana Ltd as an important input towards the Risk and Control Committee (R&CC) meeting.
The duties and responsibilities of the forum are to: • Review current control issues across the business for thematic issues and remediation; • Raise and escalate any new issues; • Recommend deep dive topics; • Review and rate the current escalation level of BA control issues, and recommend the escalation or transfer of issues where appropriate.
Attendees of the committee are at the discretion of the Barclays Africa Head of Operational Risk and Control Rigour (ORCR) but will, as a minimum include: • Managing Director (as Chairman) • Chief Operations Officer • Finance Director • Head of Technology • Head of Compliance • Chief Risk Officer • Permanent attendees • Head of Internal Audit (independent challenger) • Subject Matter Experts (by invitation)
Barclays Bank of Botswana Annual Report 2014 35 Barclays Bank of Botswana Limited ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014
36 Barclays Bank of Botswana Annual Financial Statements 2014
Directors’ Report For the year ended 31 December 2014
The Directors have pleasure in submitting their report to shareholders together with the audited financial statements for the year ended 31 December 2014.
1 Share capital 4 Independent auditors Details of the Bank’s share capital are given in note 31 to the PricewaterhouseCoopers financial statements. Plot 50371 Fairgrounds Office Park 2 Financial results Gaborone The annexed financial statements adequately disclose the results of the Bank’s operations for the year. 5 Company secretary Kealeboga Bojosi 3 Directorate 5th Floor, Building 4 The following were directors of the Bank during the period Prime Plaza to the date of this report: Plot 74358 Central Business District Rizwan Desai (Independent non-executive) Gaborone Chairman PO Box 478 Reinette van Der Merwe (Executive) Gaborone Managing Director Botswana
Lipalesa Makepe (Executive) 6 Transfer secretaries Finance Director Transaction Management Services (Proprietary) Limited Lawrence Maika (Independent non-executive) Unit 206, Second Floor, Plot 64516 P.O.Box 1583, AAD Kenneth Molosi (Independent non-executive) Showgrounds Close, Fairgrounds Gaborone Alfred Dube (Independent non-executive) 7 Registered office 5th Floor, Building 4 Prime Plaza Plot 74358 Central Business District Gaborone
PO Box 478 Gaborone Botswana
8 Company registration Registration Number 1732
37 Financial Statements Statement of Directors’ Responsibility For the year ended 31 December 2014
The directors of Barclays Bank of Botswana Limited (“the Bank”) The going concern basis has been adopted in preparing the annual are responsible for the annual financial statements and all other financial statements. The directors have no reason to believe that information presented therewith. Their responsibility includes the the Bank will not be a going concern in the foreseeable future maintenance of true and fair financial records and the preparation based on forecasts and available cash resources. of annual financial statements in accordance with International Financial Reporting Standards and in the manner required by Our external auditors conduct an examination of the financial the Companies Act of Botswana (Companies Act, 2003) and the statements in conformity with International Standards on Botswana Banking Act (CAP 46:04). Auditing, which include tests of transactions and selective tests of internal accounting controls. Regular meetings are held between The Bank maintains systems of internal control which are designed management and our external auditors to review matters relating to provide reasonable assurance that the records accurately reflect to internal controls and financial reporting. The external auditors its transactions and to provide protection against serious misuse have unrestricted access to the Board of Directors and the Board or loss of the Banks assets. The directors are also responsible Audit Committee. for the design, implementation, maintenance and monitoring of these systems of internal financial control. Nothing has come The Board of Directors have reviewed and approved the to the attention of the directors to indicate that any significant accompanying financial statements, set out on pages 41 to 119, breakdown in the functioning of these systems has occurred for issue on 19th March 2015. during the year under review.
Rizwan Desai Chairman
Reinette van der Merwe Managing Director
Lawrence Maika Chairman of the Board Audit Committee
38 Barclays Bank of Botswana Annual Financial Statements 2014
Corporate Governance Statement For the year ended 31 December 2014
The Bank is committed to robust corporate governance practices own internal corporate governance guidelines. These guidelines and applying the highest standards of business integrity in all its address the composition of the Board, its responsibilities, how activities. these responsibilities are met and details the selection procedures for new directors. Corporate governance has been a major focal point in recent years and several training initiatives were undertaken to improve In accordance with the requirements of Internal Control: Guidance the process. for Directors on the Combined Code, issued by the Institute of Chartered Accountants in England and Wales, the Board ensures Corporate governance is the system according to which that management identifies, measures and monitors a variety of companies are managed and controlled. As a listed company, the risks through various control mechanisms. These risks and the Bank follows the United Kingdom Listing Authority’s Combined measures related thereto are explained in the annual report. Code, Principles of Good Governance and Code of Best Practice, published in June 1998 to implement the proposals of the Hampel The Board is most committed to improve its corporate Committee. governance practices. The Board and the various committees are making continuous strides to display the Bank as an exemplary The Bank is committed to business integrity and professionalism organisation in the field of corporate governance by promoting in all its activities. As part of this commitment, the Board greater openness and transparency. supports the highest standards of corporate governance and the development of best practice. The Barclays Group has adopted its
Rizwan Desai Chairman
Reinette van der Merwe Managing Director
Lawrence Maika Chairman of the Board Audit Committee
39 Independent Auditor’s Report to the members of Barclays Bank Botswana Limited
Report on the Financial Statements We have audited the group annual financial statements and An audit involves performing procedures to obtain audit evidence annual financial statements of Barclays Bank of Botswana Limited about the amounts and disclosures in the financial statements. (the “Bank”), which comprise the consolidated and separate The procedures selected depend on the auditor’s judgement, statements of financial position as at 31 December 2014, the including the assessment of the risks of material misstatement of consolidated and separate statements of comprehensive income, the financial statements, whether due to fraud or error. In making changes in equity and cash flows for the year then ended, and a those risk assessments, the auditor considers internal control summary of significant accounting policies and other explanatory relevant to the entity’s preparation of financial statements that notes as set out on pages 41 to 119. give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of Directors’ Responsibility for the Financial Statements expressing an opinion on the effectiveness of the entity’s internal The Bank’s directors are responsible for the preparation of the control. An audit also includes evaluating the appropriateness of group and Bank annual financial statements that give a true and accounting policies used and the reasonableness of accounting fair view in accordance with International Financial Reporting estimates made by management, as well as evaluating the overall Standards and for such internal control as the directors determine presentation of the financial statements. is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud We believe that the audit evidence we have obtained is sufficient or error. and appropriate to provide a basis for our audit opinion.
Auditor’s Responsibility Opinion Our responsibility is to express an opinion on these financial In our opinion, the financial statements give a true and fair view statements based on our audit. We conducted our audit in of the consolidated and separate financial position of Barclays accordance with International Standards on Auditing. Those Bank of Botswana Limited as at 31 December 2014, and of standards require that we comply with ethical requirements its consolidated and separate financial performance and its and plan and perform the audit to obtain reasonable assurance consolidated and separate cash flows for the year then ended in whether the financial statements are free from material accordance with International Financial Reporting Standards. misstatement.
PricewaterhouseCoopers I n d i v i d u a l P r a c t i c i n g m e m b e r : S h e y a n Edirisinghe 19 March 2015 Membership number: 20030048 Gaborone
40 Barclays Bank of Botswana Annual Financial Statements 2014
Statements of Comprehensive Income For the year ended 31 December 2014
Consolidated Company 2014 2013 2014 2013 in thousands of pula Notes Restated
Interest income 3 1,088,815 1,152,199 1,088,815 1,152,199 Interest expense 3 (197,913 ) (245,200 ) (197,913 ) (245,200 ) Net interest income 890,902 906,999 890,902 906,999
Fee and commission income 4 318,581 280,791 263,242 231,548 Fee and commission expense 4 (13,414 ) (10,231 ) (13,414 ) (10,231 ) Net fee and commission income 305,167 270,560 249,828 221,317
Net trading and investment income 5 79,110 90,902 79,110 90,902 Other operating income 6 1,987 2,721 1,987 87,721 Net other income 81,097 93,623 81,097 178,623
Total income 1,277,166 1,271,182 1,221,827 1,306,939 Impairment charges and other credit provisions 7 (150,436 ) (198,420 ) (150,436 ) (198,420 ) Net income 1,126,730 1,072,762 1,071,391 1,108,519
Staff costs 8 (374,886 ) (325,646 ) (373,605 ) (304,655 ) Administration and general expenses 9 (284,823 ) (303,139 ) (243,799 ) (281,836 ) Depreciation of property and equipment 24 (27,440 ) (23,372 ) (27,440 ) (23,372 ) Amortisation of intangible assets 23 (14,745 ) (18,228 ) (14,745 ) (18,228 ) Operating expenses (701,894 ) (670,385 ) (659,589 ) (628,091 )
Profit before income tax 424,836 402,377 411,802 480,428 Income tax expense 10 (88,963 ) (112,375 ) (92,164 ) (109,564 ) Total profit for the year 335,873 290,002 319,638 370,864
Other comprehensive income Items that will not be reclassified to profit and loss Movement in retirement benefit obligations 25 17,649 (22,059 ) 17,649 (22,059 ) Total comprehensive income for the year 353,522 267,943 337,287 348,805
Earnings per share Basic and diluted earnings per share from continuing operations (thebe) 2 39.41 34.03 37.51 43.52
The accompanying notes form an integral part of the financial statements
41 Statements of Financial Position At 31 December 2014
Consolidated Company 2014 2013 2014 2013 in thousands of pula Notes Restated
Assets Cash 11 297,388 227,941 297,388 227,941 Balances with the Bank of Botswana 12 788,834 797,339 788,834 797,339 Financial instruments 13 1,406,704 1,805,160 1,406,704 1,805,160 Trading portfolio assets 14 20,201 254 20,201 254 Balances with related companies 15 562,482 823,828 562,482 839,256 Loans and advances to banks 16 578,056 381,923 578,056 381,923 Derivative financial instruments 17 6,264 18,423 6,264 18,423 Financial assets designated at fair value 18 - 69,235 - 69,235 Loans and advances to customers 19 8,132,722 7,336,721 8,132,722 7,336,721 Other assets 20 238,231 82,347 238,231 82,347 Current tax assets 21 19,529 40,802 - 15,208 Deferred tax assets 22 11,941 - 6,326 - Intangible assets 23 22,673 34,895 22,673 34,895 Property and equipment 24 159,955 99,749 159,955 99,749 Retirement benefit fund 25 3,580 - 3,580 - Total assets 12,248,560 11,718,617 12,223,416 11,708,451
Liabilities Deposits from banks 26 687,256 7,636 687,256 7,636 Balances with related companies 15 248,997 188,667 250,220 188,667 Derivative financial instruments 17 13,921 28,446 13,921 28,446 Deposits due to customers 27 8,964,400 9,281,683 8,964,400 9,281,683 Other liabilities 28 187,797 268,267 160,247 240,683 Provisions 29 46,119 34,572 46,119 34,572 Current tax liabilities 21 51,551 - 51,551 - Deferred tax liabilities 22 - 16,463 - 16,463 Debt securities in issue 30 522,863 503,121 522,863 503,121 Retirement benefit fund 25 - 17,646 - 17,646 Total liabilities 10,722,904 10,346,501 10,696,577 10,318,917
Shareholders’ equity Stated capital 31 17,108 17,108 17,108 17,108 Retained earnings 1,420,635 1,287,429 1,421,818 1,304,847 Other reserves 31 87,913 67,579 87,913 67,579 Total equity attributable to equity holders 1,525,656 1,372,116 1,526,839 1,389,534 Total liabilities and equity 12,248,560 11,718,617 12,223,416 11,708,451
The accompanying notes form an integral part of the financial statements
42 Barclays Bank of Botswana Annual Financial Statements 2014
Statements of Cash Flows For the year ended 31 December 2014
Consolidated Company 2014 2013 2014 2013 in thousands of pula Notes Restated
Reconciliation of profit before tax to net cash flows from operating activities
Profit before tax 424,836 402,377 411,802 480,428 Net interest income (890,902 ) (906,999 ) (890,902 ) (906,999 )
Adjustment for non-cash items:- Allowance for impairment 19 150,436 198,420 150,436 198,420 Depreciation of property and equipment 24 27,440 23,372 27,440 23,372 Amortisation of intangibles 23 14,745 18,228 14,745 18,228 Net increase in financial assets designated at fair value (230 ) (27,909 ) (230 ) (27,909 ) Net increase/(decrease) in other provisions including pensions 24,195 (11,122 ) 24,195 (11,122 ) Profit on disposal of property and equipment (934 ) (1,835 ) (934 ) (1,835 )
Changes in operating assets and liabilities (Decrease)/increase in deposits (317,283 ) 115,267 (317,283 ) 115,267 (Decrease)/increase in other liabilities (80,470 ) 55,826 (80,436 ) 49,996 Increase in advances to customers (946,437 ) (1,238,168 ) (946,437 ) (1,238,168 ) Increase in derivative financial instruments (2,366 ) (6,112 ) (2,366 ) (6,112 ) (Increase)/decrease in statutory reserve with Bank of Botswana (31,445 ) 67,693 (31,445 ) 67,693 Decrease in balances with related companies 321,676 618,502 338,327 533,935 (Increase)/decrease in trading portfolio assets (19,947 ) 4,604 (19,947 ) 4,604 (Increase)/decrease in other assets (155,884 ) 92,725 (155,884 ) 92,725 Interest received 1,088,815 1,152,199 1,088,815 1,152,199 Interest paid (197,913 ) (245,200 ) (197,913 ) (245,200 ) Tax paid net of refunds (49,521 ) (96,352 ) (53,172 ) (84,006 ) Net cash flows (utilised in)/generated from operating activities (641,189 ) 215,516 (641,189 ) 215,516 Purchase of property and equipment (87,707 ) (26,057 ) (87,707 ) (26,057 ) Purchase of intangibles 520 (3,905 ) 520 (3,905 ) Proceeds on disposal of visa shares 69,465 - 69,465 - Proceeds on sale of property and equipment 995 2,449 995 2,449 Net cash utilised in investing activities (16,727 ) (27,513 ) (16,727 ) (27,513 ) Dividends paid (200,002 ) (215,501 ) (200,002 ) (215,501 ) Issuance of debt securities 312,472 - 312,472 - Redemption of debt securities (307,000 ) - (307,000 ) - Net cash utilised in financing activities (194,530 ) (215,501 ) (194,530 ) (215,501 ) Net decrease in cash and cash equivalents (852,446 ) (27,498 ) (852,446 ) (27,498 ) Cash and cash equivalents at beginning of the year 2,431,278 2,458,776 2,431,278 2,458,776 Cash and cash equivalents at end of the year 1,578,832 2,431,278 1,578,832 2,431,278
Cash and cash equivalents comprise: Cash 297,388 227,941 297,388 227,941 Current account with Bank of Botswana (10,985 ) 28,965 (10,985 ) 28,965 Balances with other banks 578,056 381,923 578,056 381,923 Bank of Botswana Certificates 1,401,629 1,800,085 1,401,629 1,800,085 Deposits from other banks (687,256 ) (7,636 ) (687,256 ) (7,636 ) 1,578,832 2,431,278 1,578,832 2,431,278 The accompanying notes form an integral part of the financial statements
43 Statements of Changes in Equity For the year ended 31 December 2014
Consolidated Stated Share General Other Retained Total capital capital risk reserves earnings equity in thousands of pula reserve reserve
Balance at 1 January 2013 as previously stated 17,108 2,060 60,923 4,602 1,256,741 1,341,434 Prior year restatement - - - - (21,754 ) (21,754 ) Balance at 1 January 2013 restated 17,108 2,060 60,923 4,602 1,234,987 1,319,680 Profit for the period - - - - 290,002 290,002 Other comprehensive income - - - - (22,059 ) (22,059 ) Total comprehensive income for the year - - - - 267,943 267,943 Prior year dividends paid - - - - (115,501 ) (115,501 ) Interim dividend paid - - - - (100,000 ) (100,000 ) Contribution made by parent - - - (6 ) - (6 ) Total transactions with owners - - - (6 ) (215,501 ) (215,507 ) Balance at 31 December 2013 17,108 2,060 60,923 4,596 1,287,429 1,372,116
Balance at 1 January 2014 17,108 2,060 60,923 4,596 1,287,429 1,372,116 Profit for the period - - - - 335,873 335,873 Other comprehensive income - - - - 17,649 17,649 Total comprehensive income for the year - - - - 353,522 353,522 Prior year dividends paid - - - - (100,001 ) (100,001 ) Interim dividend paid - - - - (100,001 ) (100,001 ) Transfers - - 20,314 - (20,314 ) - Contribution made by parent - - - 20 - 20 Total transactions with owners - - 20,314 20 (220,316 ) (199,982 ) Balance at 31 December 2014 17,108 2,060 81,237 4,616 1,420,635 1,525,656
The accompanying notes form an integral part of the financial statements
44 Barclays Bank of Botswana Annual Financial Statements 2014
Statements of Changes in Equity (continued) For the year ended 31 December 2014
Company Stated Share General Other Retained Total capital capital risk reserves earnings equity in thousands of pula reserve reserve
Balance at 1 January 2013 17,108 2,060 60,923 4,602 1,171,543 1,256,236 Profit for the period - - - - 370,864 370,864 Other comprehensive income - - - - (22,059 ) (22,059 ) Total comprehensive income for the year - - - - 348,805 348,805 Prior year dividends paid - - - - (115,501 ) (115,501 ) Interim dividend paid - - - - (100,000 ) (100,000 ) Contribution made by parent - - - (6 ) - (6 ) Total transactions with owners - - - (6 ) (215,501 ) (215,507 ) Balance at 31 December 2013 17,108 2,060 60,923 4,596 1,304,847 1,389,534
Balance at 1 January 2014 17,108 2,060 60,923 4,596 1,304,847 1,389,534 Profit for the period - - - - 319,638 319,638 Other comprehensive income - - - - 17,649 17,649 Total comprehensive income for the year - - - - 337,287 337,287 Prior year dividends paid - - - - (100,001 ) (100,001 ) Interim dividend paid - - - - (100,001 ) (100,001 ) Transfers - - 20,314 - (20,314 ) - Contribution made by parent - - - 20 - 20 Total transactions with owners - - 20,314 20 (220,316 ) (199,982 ) Balance at 31 December 2014 17,108 2,060 81,237 4,616 1,421,818 1,526,839
The accompanying notes form an integral part of the financial statements
45 Accounting Policies For the year ended 31 December 2014
General Information and nature of activities Use of estimates and judgements The preparation of financial statements requires management Barclays Bank of Botswana Limited (“the Bank”) is a public to make judgements, estimates and assumptions that affect limited company listed on the Botswana Stock Exchange and the application of accounting policies and the reported domiciled in Botswana. The address of the Bank’s registered amounts of assets, liabilities, income and expenses. Actual office is 5th Floor, Building 4, Prime Plaza, Plot 74358, Central results may differ from these estimates. Business District, Gaborone, Botswana. The consolidated financial statements of the Bank as at and for the year ended 31 December Estimates and underlying assumptions are reviewed on 2014 comprise the Bank and its subsidiaries (together referred an on-going basis. Revisions to accounting estimates are to as “the Bank”/’’the Group’’). The Bank primarily is involved in recognised in the period in which the estimate is revised and corporate banking, retail banking, and in treasury products and in any future periods affected. services. In particular, information about significant areas of The Bank’s holding company is Barclays Africa Group Limited, estimation, uncertainty and critical judgements in applying which has a primary listing on the Johannesburg Stock Exchange accounting policies that have the most significant effect and is incorporated and domiciled in South Africa and provides on the amounts recognised in the financial statements are retail, business, corporate, investment banking, financial services described in page 60. and wealth management products and services. The address of the registered office of the holding company is 7th Floor, Barclays Towers West, 15 Troye Street, Johannesburg, 2001. (b) Summary of significant accounting policies
The Bank’s ultimate holding company is Barclays Bank PLC, a The principal accounting policies applied in the presentation company registered and domiciled in the United Kingdom. The of these financial statements are presented below. Except address of its registered office is 1 Churchill Place, Canary Wharf, as described below, the accounting policies applied are London, United Kingdom. consistent with those applied in the prior year.
(a) Basis of preparation A number of new standards and amendments to existing standards have been issued but are not yet effective for The consolidated and separate financial statements the reporting period and have not been applied in preparing have been prepared in accordance with International these annual financial statements. Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee, as published by the International Accounting Standards New standards effective for the current reporting period Board (“IASB”), the requirements of the Companies Act Amendments to IAS 32 – Financial Instruments: and BSE Listings Requirements. The principal accounting Presentation policies applied in the preparation of the consolidated The IASB has issued amendments to the application and separate financial statements are set out below. These guidance in IAS 32, ‘Financial instruments: Presentation’, policies have been consistently applied. The consolidated that clarify some of the requirements for offsetting financial and separate financial statements have been prepared assets and financial liabilities on the statement of financial under the historical cost convention modified to include position. However, the clarified offsetting requirements for the fair valuation of particular financial instruments to the amounts presented in the statement of financial position extent required or permitted under IFRS as set out in the continue to be different from US GAAP. relevant accounting policies. Amendments to IFRS 10, consolidated financial statements’, Functional and presentation currency IFRS 12 and IAS 27 for investment entities The consolidated and separate financial statements The amendments mean that many funds and similar entities are presented in Pula, which is the Bank’s functional will be exempt from consolidating most of their subsidiaries. and presentation currency. Except as indicated, financial Instead they will measure them at fair value through profit information presented in Pula has been rounded to the or loss. The amendments give an exception to entities that nearest thousand. meet an ‘investment entity’ definition and which display
46 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
particular characteristics. Changes have also been made in of financial assets and liabilities are carried forward from IFRS 12 to introduce disclosures that an investment entity IAS 39. IFRS 9 is applicable to reporting periods beginning needs to make. on or after 1 January 2018. The standard is required to be retrospectively applied, but comparative information is not IASB issues narrow-scope amendments to IAS 36, compulsory. The Bank is currently in the process of assessing ‘Impairment of assets’ IFRS 9’s full impact, and the related disclosures, which will These amendments address the disclosure of information need to be provided on first-time adoption of IFRS 9.” about the recoverable amount of impaired assets if that amount is based on fair value less cost of disposal. IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) Amendment to IAS 39 on novation of derivatives IFRS 15 provides a single, principles based five-step model to The IASB has amended IAS 39 to provide relief from be applied to all contracts with customers. The five steps in discontinuing hedge accounting when novation of a hedging the model are as follows: instrument to a CCP meets specified criteria. Similar relief will • Identify the contract with the customer be included in IFRS 9, ‘Financial Instruments’. • Identify the performance obligations in the contract • Determine the transaction price New standards and interpretations issued but not effective • Allocate the transaction price to the performance for the current period. obligations in the contracts A number of new standards and amendments to existing • Recognise revenue when (or as) the entity satisfies a standards have been issued but are not yet effective for performance obligation. the reporting period and have not been applied in preparing these annual financial statements: Guidance is provided on topics such as the point at which revenue is recognised, accounting for variable consideration, IFRS 9 Financial Instruments (“IFRS 9”) costs of fulfilling and obtaining a contract and various related The new accounting standard that represents a package matters. New disclosures about revenue are also introduced. of reform to financial instrument accounting was issued in IFRS 15 is applicable to reporting periods beginning on or July 2014. IFRS 9 replaces the previous standard on financial after 1 January 2017. A choice of modified or full retrospective instruments, IAS 39 and encompasses requirements in the application is allowed. The Bank is in the process of assessing following areas: the impact.
• Classification and measurement: Financial assets are IAS 19 (amendments) classified by reference to the business model within which IAS 19 clarifies the requirements for how contributions from they are held and their contractual cash flow employees or third parties that are linked to service should characteristics. Financial liabilities are classified in a be attributed to periods of service. In addition, it permits similar manner to under IAS 39, however there are a practical expedient if the amount of the contribution is differences in the requirements applying to the independent of the number of years of an employee’s service. recognition of an entity’s own credit risk. The amendments are required to be applied retrospectively and will first be applicable to reporting periods beginning on • Impairment: IFRS 9 introduces an ‘expected credit loss’ or after 1 July 2014. The Bank is in the process of assessing model for the measurement of the impairment of financial the impact. assets, therefore it is no longer necessary for a credit event to have occurred before a credit loss is recognised. IFRS 11 (amendments) IFRS 11 requires an acquirer of an interest in a joint operation • Hedge accounting: IFRS 9 introduces a new hedge in which the activity constitutes a business, to apply the accounting model that is designed to be more closely accounting principles and disclosures provided by IFRS 3 aligned with how an entity undertakes risk management when accounting for the acquisition. The amendments are activities when hedging financial and non-financial risk required to be applied prospectively and will first be applicable exposures. to reporting periods beginning on or after 1 January 2016. The Bank is in the process of assessing the impact. • Derecognition: The requirements for the derecognition
47 Accounting Policies (continued) For the year ended 31 December 2014
(b) Summary of significant accounting policies(continued) the purchase of subsidiaries. The consideration transferred for the acquisition of a subsidiary is measured at the fair New standards effective for the current reporting value of the assets given, equity instruments issued and period (continued) liabilities incurred or assumed. The consideration transferred IAS 27 and IAS 28 (amendments) includes the fair value of any asset or liability resulting IAS 27 and IAS 28 allow an entity to use the equity method from a contingent consideration arrangement. Acquisition to account for investments in subsidiaries, joint ventures related costs are expensed as incurred. The excess of the and associates in its separate financial statements. These consideration paid in an acquisition over the Bank’s share amendments are required to be applied retrospectively and of the fair value of the identifiable net assets acquired is will first be applicable to reporting periods beginning on or recorded as goodwill. A gain on acquisition is recognised after 1 January 2016. The Bank is in the process of assessing in profit or loss if there is an excess of the Bank’s share of the impact. the fair value of the identifiable net assets acquired over the cost of the consideration paid. Intra-group transactions and IFRS 10 and IAS 28 (amendments) balances are eliminated on consolidation and consistent IFRS 10 and IAS 28 clarify that in a transaction involving an accounting policies are used throughout the Group for associate or joint venture, the extent of gain or loss recognised the purposes of the consolidation. Changes in ownership depends on whether the assets sold or contributed interests in subsidiaries are accounted for as equity constitute a business. The amendments are required to be transactions if they occur after control has already been applied prospectively and will first be applicable to reporting obtained and they do not result in loss of control. periods beginning on or after 1 January 2016. The Bank is in the process of assessing the impact. Transactions eliminated on consolidation Annual improvements Intra-group balances and any unrealised income and expenses Annual improvements for the 2012 – 2014 cycle were issued arising from intra-group transactions, are eliminated in in September 2014. These improvements affect various preparing the consolidated financial statements. Unrealised standards and are effective for periods beginning on or after losses are eliminated in the same way as unrealised gains, but 1 January 2016. The Bank is in the process of assessing the only to the extent that there is no evidence of impairment. impact. The accounting policies for subsidiaries are consistent with the policies adopted by the Bank. Significant accounting policies The accounting policies set out below have been applied A listing of the Bank’s subsidiaries is set out in note 34 to the consistently to all periods presented in these financial statements, financial statements. and have been applied consistently by the Bank entities, unless otherwise stated. In the individual financial statements, investments in subsidiaries are stated at cost less impairment, if any. (a) Basis of consolidation (b) Foreign currency (i) Subsidiaries Subsidiaries are entities controlled by the Bank over which (i) Foreign currency transactions the group has control. The Bank controls an entity when the Functional currency and presentation currency Bank is exposed to, or has rights to variable returns from Items included in the financial statements of each of the its involvement with the entity and has the ability to affect Group’s entities are measured using the currency of the those returns through its power over the entity. The financial primary economic environment in which the entity operates statements of subsidiaries are included in the consolidated (“the functional currency“). The consolidated and separate financial statements from the date that control is transferred financial statements are presented in Pula, which is the to the group. They are deconsolidated from the date that Bank’s functional and presentation currency. control ceases. (ii) Transactions and balances Acquisition of subsidiaries Foreign currency transactions are translated into the The acquisition method of accounting is used to account for functional currency using the exchange rates prevailing at
48 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
the dates of the transactions. Foreign exchange gains and included in profit or loss under “net trading and investment losses resulting from the settlement of such transactions and income” together with interest and dividends arising from from the translation at year-end exchange rates of monetary long and short positions and funding costs relating to assets and liabilities denominated in foreign currencies are trading activities. Gains and losses on derivatives linked to recognised in the profit or loss. investment contracts are recognised in “net trading and investment income”. (c) Interest income and expense (e) Fees and commission Interest income and expense on all instruments measured at amortised cost are recognised in the profit or loss using the Fees and commission income effective interest method. The Bank applies IAS 18. Fees and commissions charged for services provided or received by the Group are recognised as The effective interest rate method is a method of calculating the services are provided, for example on completion of an the amortised cost of a financial asset or a financial liability underlying transaction. and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that (f) Tax exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when The Group applies IAS 12 Income Taxes (“IAS 12”) in appropriate, a shorter period to the net carrying amount of accounting for taxes on income. the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows Current tax considering all contractual terms of the financial instrument, Income tax payable on taxable profits (“current tax”) is but does not consider future credit losses. The calculation recognised as an expense in the reporting period in which includes all fees paid or received between parties to the the profits arise. Withholding taxes are also treated as contract that are an integral part of the effective interest rate, income taxes. Income tax recoverable on tax allowable losses transaction costs and all other premiums or discounts. is recognised as a current tax asset only to the extent that it is regarded as recoverable by offset against taxable profits When a financial asset or a group of similar financial assets arising in the current or prior reporting period. Current tax has been written down as a result of an impairment loss, is measured using tax rates and tax laws that have been interest income is recognised using the rate of interest enacted or substantively enacted at the reporting date. used to discount the future cash flows for the purpose of measuring the impairment loss. Deferred tax Deferred tax is provided in full, using the liability method, on Interest income and expense is recognised as part of temporary differences arising from the differences between operating cash flows in the statement of cash flows. the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred (d) Trading income tax is determined using tax rates and legislation enacted or substantively enacted by the reporting date which are In accordance with IAS 39, trading positions are held at fair expected to apply when the deferred tax asset is realised or value and the resulting gains and losses are included in profit the deferred tax liability is settled. Deferred tax assets and or loss, together with interest and dividends arising from liabilities are only offset when there is both a legal right to long and short positions and funding costs relating to trading set-off and an intention to settle on a net basis. activities. Income arises from both the sale and purchase of trading positions, margins which are achieved through market-making and customer business and from changes in fair value caused by movements in interest and exchange rates, equity prices and other market variables. Own credit gains/losses arise from the fair valuation of financial liabilities designated at fair value through profit or loss. Gains or losses on assets or liabilities reported in the trading portfolio are
49 Accounting Policies (continued) For the year ended 31 December 2014
Significant accounting policies(continued) “gains and losses from investment activities” depending on the nature of the instrument. The Group has the ability (f) Tax (continued) to make the fair value designation when holding the Value added tax (“VAT”) instruments at fair value reduces an accounting mismatch Revenues, expenses and assets are recognised net of the (caused by an offsetting liability or asset being held at fair amount of VAT, except: value), is managed by the Group on the basis of its fair value, or includes terms that have substantive derivative • where the VAT incurred on a purchase of assets or characteristics. services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the asset; Derivatives and Derivative instruments are contracts whose value is derived • receivables and payables that are stated with the from one or more underlying financial instruments or indices amount of VAT included. defined in the contract. They include swaps, forward rate agreements, futures, options and combinations of these Non-recoverable VAT on operating expenditure is disclosed instruments and primarily affect the Group’s net interest separately in operating expenditure in the statement of income, net trading income, net fee and commission income comprehensive income. and derivative assets and liabilities.
The net amount of VAT recoverable from, or payable to, Notional amounts of the contracts are not recorded on the the taxation authority is included as part of receivables or statement of financial position. Changes in the fair value of payables in the statement of financial position. derivatives used to economically hedge the Group’s interest rate are recognised in “net interest income” in the profit or Withholding tax loss component of the statement of comprehensive income. Dividends are taxed at 7.5% in the hands of the reciepients of the dividends. Available-for-sale financial assets Available-for-sale financial assets include both debt and (g) Financial instruments equity instruments normally held for an indefinite period, but that may be sold in response to liquidity needs or changes in The Group applies IAS 39 for the recognition, classification interest rates, exchange rates or other economic conditions. and measurement and derecognition of financial assets and The category also includes longer-dated government stock financial liabilities, for the impairment of financial assets and held for regulatory liquid asset purposes, as well as certain for hedge accounting. The Group recognises financial assets investments in corporate bonds. and liabilities when it becomes a party to the terms of the contract, which is the trade date or the settlement date. Subsequent to initial recognition, the fair value adjustments which represent gains and losses, net of applicable taxes, Financial instrument at fair value through profit and loss are reported in other comprehensive income until such investments are sold or otherwise disposed of, or until such Financial instruments classified as held for trading investments are determined to be impaired, at which time In accordance with IAS 39, all assets and liabilities held the cumulative gain or loss previously recognised in other for trading purposes are held at fair value with gains and comprehensive income is recognised in the profit or loss losses from changes in fair value taken to the profit or loss component of the statement of comprehensive income. component of the statement of comprehensive income in However, interest on available-for-sale financial instruments “gains and losses from banking and trading activities”. calculated using the effective interest rate method is recognised in the profit or loss component of the statement Financial instruments designated at fair value through of comprehensive income. profit or loss In accordance with IAS 39, financial assets and financial If impairment is assessed to have occurred, the cumulative liabilities may be designated at fair value, with gains and gain or loss that has previously been recognised directly in OCI losses taken to the statement of comprehensive income in is reclassified from OCI and is recognised in the profit or loss “gains and losses from banking and trading activities” and component of other comprehensive income. In the case of
50 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
debt instruments classified as available-for-sale, impairment • the Group, for economic or legal reasons relating to the is assessed based on the same criteria as all other financial borrower’s financial difficulty, grants a concession that it assets. If, in a subsequent period, the fair value of a debt would not otherwise consider; instrument increases and the increase can be objectively • it becomes probable that the borrower will enter related to an event occurring after the impairment loss was bankruptcy or other financial reorganisation; recognised in the profit or loss component of the statement • the disappearance of an active market for that financial of comprehensive income, the impairment loss shall be asset because of financial difficulties; and reversed, with the amount of the reversal recognised in the • observable data at a portfolio level indicating that there profit or loss component of the statement of comprehensive is a measurable decrease in the estimated future cash income. Reversals of impairment of equity instruments flows, although the decrease cannot yet be ascribed to are not recognised in the profit or loss component of the individual financial assets in the portfolio – such as adverse statement of comprehensive income. Increases in the fair changes in the payment status of borrowers in the value of equity instruments after impairment are recognised portfolio or national or local economic conditions that directly in other comprehensive income. correlate with defaults on the assets in the portfolio.
Loans and advances to customers Impairment assessments are conducted individually for Loans and advances to customers and banks, customer significant assets, which comprise all wholesale customer accounts and certain debt securities are held at amortised loans and larger retail business loans, and collectively for cost. That is, the initial fair value (which is normally the smaller loans and for portfolio level risks, such as country amount advanced) is adjusted for premiums, discounts, or sectoral risks. For the purposes of the assessment, loans repayments and the amortisation of coupon, fees and with similar credit risk characteristics are grouped together, expenses to represent the effective interest rate of the generally on the basis of their product type, industry, asset. geographical location, collateral type, past due status and other factors relevant to the evaluation of expected future Financial liabilities cash flows. Most financial liabilities are held at amortised cost. That is, the initial fair value (which is normally the amount borrowed) The impairment assessment includes estimating the is adjusted for repayments and the amortisation of coupon, expected future cash flows from the asset, or the group of fees and expenses to represent the effective interest rate of assets, which are then discounted using the original effective the liability. interest rate calculated for the asset. If this is lower than the carrying value of the asset or the portfolio, an impairment Impairment of financial assets allowance is raised.
Financial assets held at amortised cost If, in a subsequent reporting period, the amount of the In accordance with IAS 39, the Group assesses at each impairment loss decreases and the decrease can be related reporting date whether there is objective evidence that objectively to an event occurring after the impairment was financial assets at amortised cost will not be recovered in recognised, the previously recognised impairment loss is full and, wherever necessary, recognises an impairment reversed by adjusting the allowance account. The amount of loss in the profit or loss component of the statement of the reversal is recognised in the profit or loss component of comprehensive income. the statement of comprehensive income.
An impairment loss is recognised if there is objective evidence Following impairment, interest income continues to be of impairment as a result of events that have occurred and recognised at the original effective interest rate on the restated these have adversely impacted the estimated future cash carrying amount, representing the unwind of the discount of flows from the assets. These events include: the expected cash flows, including the principal due on non- accrual loans. Uncollectable loans are written off against the • becoming aware of significant financial difficulty of the related allowance for loan impairment on completion of the issuer or obligor; Group’s internal processes and all recoverable amounts have • a breach of contract, such as a default or delinquency in been collected. Subsequent recoveries of amounts previously interest or principal payments;
51 Accounting Policies (continued) For the year ended 31 December 2014
Significant accounting policies(continued) The emergence period concept is applied to ensure that only impairments that exist at the reporting date are captured. Impairment of financial assets(continued) The emergence period is defined as the time lapse between written off are credited to the profit or loss component of the the occurrence of a trigger event and the impairment being statement of comprehensive income. identified at an individual account level. The probability of default for each exposure class is based (g) Financial instruments on historical default experience, scaled for the emergence Identified impairment period relevant to the exposure class. This probability of Impairment allowances are calculated on an individual default is then applied to the total population for which basis and all relevant considerations that have a bearing on specific impairments have not been recognised. the expected future cash flows of that instrument being assessed are taken into account, for example, the business The resulting figure represents an estimation of the prospects for the customer, the fair value of collateral, the impairment that occurred during the emergence period and Group’s position relative to other claimants, the reliability of therefore has not specifically been identified by the Group at customer information and the likely cost and duration of the the reporting date. workout process. Subjective judgements are made in this process by management. The impairment allowance also takes into account the expected severity of loss at default, or the loss-given default Furthermore, judgements change with time as new (“LGD”), which is the amount outstanding when default information becomes available or as workout strategies occurs that is not subsequently recovered. Recovery varies evolve, resulting in revisions to the impairment allowance as by product and depends, for example, on the level of security individual decisions are taken case by case. held in relation to each loan, and the Group’s position relative to other claimants. The LGD estimates are based on historical Once a financial asset or a group of similar financial assets default experience. have been written down as a result of an impairment loss, interest income is thereafter recognised using the rate Historical loss experience is adjusted on the basis of current of interest used to discount the future cash flows for the observable data to reflect the effects of current conditions purpose of measuring the impairment loss. that do not affect the period on which historical loss experience is based and to remove the effects of conditions Assets that are individually assessed for impairment and for in the historical period that do not currently exist. which an impairment loss is or continues to be recognised, are not included in a collective assessment of impairment. Subordinated debt Subordinated debt is measured at amortised cost using the Unidentified impairment effective interest rate method under IAS 39. An impairment allowance is recognised when observable data indicates there is a measurable decrease in the Offsetting of financial assets and financial liabilities estimated future cash flows from a group of financial assets In accordance with IAS 32, the Group reports financial assets since the original recognition of those assets, even though and financial liabilities on a net basis on the statement of the decrease cannot yet be identified for the individual financial position only if there is a legally enforceable right assets in the group. The purpose of collective assessment of to set off the recognised amounts and there is intention to impairment is to test for latent losses on a portfolio of loans settle on a net basis, or to realise the asset and settle the that have not been individually evidenced. liability simultaneously.
In cases where the collective impairment of a portfolio Derecognition of financial assets cannot be individually evidenced, the Group sets out to Full derecognition only occurs when the rights to receive prove that a risk condition has taken place that will result in cash flows from the asset have been discharged, cancelled an impairment of assets (based on historic experience), but or have expired, or the Group transfers both its contractual the losses will only be identifiable at an individual borrower right to receive cash flows from the financial assets (or level at a future date. retains the contractual rights to receive the cash flows, but assumes a contractual obligation to pay the cash flows to
52 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
another party without material delay or reinvestment) and price is the fair value unless there is observable information substantially all the risks and rewards of ownership, including available in an active market to the contrary. The best credit risk, prepayment risk and interest rate risk. When an evidence of an instrument’s fair value on initial recognition asset is transferred, in some circumstances, the Group may is typically the transaction price. However, if fair value can retain an interest in it (continuing involvement) requiring the be evidenced by comparison with other observable current Group to repurchase it in certain circumstances for other market transactions in the same instrument, or is based than its fair value on that date. on a valuation technique whose inputs include only data from observable markets then the instrument should be Derecognition of financial liabilities recognised at the fair value derived from such observable A financial liability is derecognised when the obligation under market data. the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the Various factors influence the availability of observable inputs same party on substantially different terms, or the terms and these may vary from product to product and change of an existing liability are substantially modified (taking into over time. Factors include the depth of activity in the account both quantitative and qualitative factors), such an relevant market, the type of product, whether the product is exchange or modification is treated as a derecognition of new and not widely traded in the marketplace, the maturity the original liability and the recognition of a new liability, of market modelling and the nature of the transaction and the difference in the respective carrying amounts is (bespoke or generic). To the extent that valuation is based on recognised in the profit or loss component of the statement models or inputs that are not observable in the market, the of comprehensive income. determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall Where the terms of an existing liability are not substantially valuation. Unobservable inputs are determined based on the modified, the liability is not derecognised. Costs incurred best information available, for example by reference to similar on such transactions are treated as an adjustment to the assets, similar maturities or other analytical techniques. carrying amount of the liability and are amortised over the remaining term of the modified liability. Hedge accounting The Group applies hedge accounting to represent, to the Fair value maximum possible extent permitted under accounting All financial instruments are initially recognised at fair value standards, the economic effects of its interest and currency on the date of initial recognition and, depending on the risk management strategies. Derivatives are used to hedge classification of the asset, may continue to be held at fair interest rate, exchange rate, commodity, and equity exposures value either through profit or loss or OCI. The fair value of a and exposures to certain indices such as house price indices financial instrument is the price that would be received to sell and retail price indices related to non-trading positions. an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where derivatives are held for risk management purposes, and when transactions meet the required criteria for Wherever possible, fair value is determined by reference to documentation and hedge effectiveness, the Group applies a quoted market price for that instrument. For many of the fair value hedge accounting, cash flow hedge accounting, Group’s financial assets and liabilities, especially derivatives, or hedging of a net investment in a foreign operation, as quoted prices are not available, and valuation models are appropriate to the risks being hedged. used to estimate fair value. Fair value hedge accounting The models calculate the expected cash flows under the Changes in fair value of derivatives that qualify and are terms of each specific contract and then discount these designated as fair value hedges are recorded in the profit or values back to a present value. These models use as their loss component of the statement of comprehensive income, basis independently sourced market parameters including, together with changes in the fair value of the hedged asset for example, interest rate yield curves, equities and or liability that are attributable to the hedged risk. The fair commodities prices, option volatilities and currency rates. value changes adjust the carrying value of the hedged asset or liability held at amortised cost. On initial recognition, it is presumed that the transaction
53 Accounting Policies (continued) For the year ended 31 December 2014
Significant accounting policies(continued) (i) Property and equipment
(g) Financial instruments (continued) Property and equipment are stated in the statement Fair value hedge accounting (continued) of financial position at historical cost less accumulated If hedge relationships no longer meet the criteria for hedge depreciation and provisions for impairment, if any. accounting, hedge accounting is discontinued. For fair value hedges of interest rate risk, the fair value adjustment to the Depreciation is provided on the depreciable amount of items hedged item is amortised to profit or loss over the reporting of property and equipment on a straight-line basis over their period to maturity of the previously designated estimated useful lives. The depreciable amount is the gross carrying amount, less the estimated residual value at the end hedge relationship using the effective interest method. If of its economic life. the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the profit and loss Subsequent costs are included in the asset’s carrying amount component of the statement of comprehensive income. or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated Cash flow hedge accounting with the item will flow to the Bank and the cost of the item For qualifying cash flow hedges, the fair value gain or loss on can be measured reliably. All other repairs and maintenance the hedging instrument associated with the effective portion costs are charged to the profit or loss during the financial of the cash flow hedge is recognised initially in OCI, and then period in which they are incurred. recycled to the profit or loss component of the statement of comprehensive income in the reporting periods when the Freehold land is not depreciated. Depreciation on other assets hedged item will affect profit or loss. is calculated using the straight-line method to allocate their cost to their estimated residual values over their estimated Any ineffective portion of the gain or loss on the hedging useful lives, as follows: instrument is recognised in the profit or loss component of the statement of comprehensive income immediately. The estimated useful lives for the current and comparative periods are as follows: When a hedging instrument expires or is sold, or when a • Leasehold property - The shorter of unexpired period of hedge no longer meets the criteria for hedge accounting, the leases or its useful life any cumulative gain or loss existing in equity at that time • Freehold property - 50 years remains in equity and is recognised when the hedged item is • Rented property improvements - Shorter of the ultimately recognised in the profit or loss component of the unexpiredperiod of the lease or its useful life statement of comprehensive income. • Office equipment, computers, ATMs and point of sale devices- 3 - 7 years When a forecast transaction is no longer expected to occur, • Motor vehicles - 5 years the cumulative gain or loss that was recognised in equity is • Furniture and fittings - 5 years immediately transferred to the profit or loss component of the statement of comprehensive income. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and (h) Cash and cash equivalents losses on disposal of property and equipment are determined by comparing proceeds with the carrying amount. These are For the purposes of the statement of cash flows, cash and included in the statement of comprehensive income. cash equivalents comprise of cash in hand, balances with Bank of Botswana, balances with other banks net of deposits At each financial reporting date, property and equipment from other banks and Bank of Botswana Certificates. Cash is assessed for indications of impairment. If indications are and cash equivalents excludes the Statutory Reserve held present, these assets are subject to an impairment review. with the Bank of Botswana because it is illiquid. The impairment review comprises a comparison of the carrying amount of the asset with its recoverable amount, the higher of the asset’s fair value less cost of disposal and its value in use. Fair value less cost of disposal is calculated
54 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
by reference to the amount at which the asset could be rate of return. disposed of in a binding sale agreement in an arms-length transaction evidenced by an active market or recent Operating leases transactions for similar assets. Value in use is calculated by Assets leased to customers under agreements, which do not discounting the expected future cash flows obtainable as a transfer substantially all the risks and rewards of ownership, result of the asset’s continued use, including those resulting are classified as operating leases. The leased assets are from its ultimate disposal, at a market-based discount rate included within property and equipment on the Bank’s on a pre-tax basis. statement of financial position and depreciation is provided on the depreciable amount of these assets on a systematic The carrying values of property and equipment are basis over their estimated useful lives. written down by the amount of any impairment and this Lease income is recognised on a straight line basis over the loss is recognised in the statement of comprehensive income period of the lease unless another systematic basis is more in the period in which it occurs. A previously recognised appropriate. impairment loss relating to a fixed asset may be reversed in part or in full when a change in circumstances leads to a (ii) Where the Bank is the lessee change in the estimates used to determine the fixed asset’s Finance leases recoverable amount. The carrying amount of the fixed asset The Bank classifies leases as property and equipment will only be increased up to the amount that it would have where it assumes substantially all the benefits and risks of been had the original impairment not been recognised. ownership as finance leases.
(j) Intangible assets - software Finance leases are capitalised as assets at the fair value of the leased asset at the inception of the lease, or, if lower, at the Computer software estimated present value of the underlying lease payments. Computer software is stated at cost, less amortisation and The Bank allocates each lease payment between the liability provisions for impairment, if any. and finance charges to achieve a constant rate of interest on the balance outstanding. The identifiable and directly associated external and internal costs of acquiring software are capitalised where the The interest component of the finance charge is charged software is controlled by the Bank, and where it is probable to the profit or loss over the lease period. The property and that future economic benefits that exceed its cost will flow equipment acquired are depreciated over the shorter of from its use over more than one year. Costs associated with useful life or lease period. maintaining software are recognised in the profit or loss as an expense when incurred. Capitalised computer software is Operating leases amortised over three to five years on a straight line basis. Assets leased to customers under agreements, which do not transfer substantially all the risks and rewards of ownership, (k) Lease agreements are classified as operating leases. The total payments made under operating leases are charged to the profit or loss on a (i) Where the Bank is the lessor straight-line basis over the period of the lease. Finance leases Assets leased to customers under agreements, which When an operating lease is terminated before the lease transfer substantially all the risks, and rewards of ownership, period has expired, any payment required to be made to the with or without ultimate legal title, are classified as finance lessor by way of penalty is recognised as an expense in the leases. When assets are held subject to a finance lease, the period in which termination takes place. present value of the minimum lease payments, discounted at the rate of interest implicit in the lease, is recognised as (l) Provisions a receivable. The difference between the total payments receivable under the lease and the present value of the Provisions are recognised when the Bank has a present receivable is recognised as unearned finance income, which legal or constructive obligation as a result of past events, it is is allocated to the respective accounting periods under the probable that an outflow of resources embodying economic pre-tax net investment method to reflect a constant periodic benefits will be required to settle the obligation and a reliable
55 Accounting Policies (continued) For the year ended 31 December 2014
Significant accounting policies(continued) Any increase in the liability relating to guarantees is recognised in the profit or loss component of the statement (l) Provisions (continued) of comprehensive income. Any liability remaining is estimate of the amount of the obligation can be made. recognised in the profit or loss component of the statement of comprehensive income when the guarantee is discharged, A provision for onerous contracts is recognised when the cancelled or expires. expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting its obligations (n) Issued debt and equity securities under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the The Croup applies IAS 32 to determine whether funding is contract and the expected net cost of continuing with the either a financial liability (debt) or equity. Issued financial contract. Before a provision is established, the Bank instruments or their components are classified as liabilities recognises any impairment loss on the assets associated if the contractual arrangement results in the Group having a with that contract. present obligation to either deliver cash or another financial asset, or a variable number of equity shares, to the holder Provision is made for the anticipated cost of restructuring, of the instrument, if this is not the case, the instrument is including redundancy costs when an obligation exists. An generally an equity instrument. obligation exists when the Bank has a detailed formal plan for restructuring a business and has raised valid expectations in Where issued financial instruments contain both liability and those affected by the restructuring by starting to implement equity components, these are accounted for separately. The the plan or announcing its main features. fair value of the debt is estimated first and the balance of the proceeds is included within equity. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events (o) Employee benefits or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. (i) Pension obligations
Contingent liabilities are not recognised but are disclosed A defined benefit obligation arises when a pension plan unless they are remote. defines an amount of pension benefit that an employee will receive on retirement with reference to one or more factors (m) Financial guarantees unrelated to plan contributions such as age, years of service and compensation. A defined contribution plan is a pension Financial guarantee contracts are contracts that require the plan under which the Bank has no legal or constructive issuer to make specified payments to reimburse the holder obligations to pay further contributions if the fund does for a loss it incurs because a specified debtor fails to make not hold sufficient assets to pay all employees the benefits payments when due in accordance with the terms of the relating to employee service in the current and prior periods. debt instrument. The liability recognised in the statement of financial position Financial guarantees are initially recognised in the financial in respect of defined benefit pension plan obligations is statements at fair value on the date that the guarantee the present value of the defined benefit obligation at the was given. Other than where the fair value option is applied reporting date less the fair value of plan assets, together with subsequent to initial recognition, the Group’s liabilities adjustments for unrecognised actuarial gains or losses and under such guarantees are measured at the higher of past service costs. the initial measurement, less amortisation calculated to recognise in the profit or loss component of the statement All actuarial gains and losses are recognised immediately of comprehensive income, any fee income earned over the through Other comprehensive income in order for the net period, and the best estimate of the expenditure required defined benefit scheme asset or liability recognised in the to settle any financial obligation arising as a result of the statement of financial position to reflect the full value of guarantees at the reporting date. the plan surplus or deficit, taking into account the asset ceiling. Remeasurements comprise experience adjustments
56 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
(differences between previous actuarial assumptions and (iii) Short-term benefits what has actually occurred) and the effects of changes in actuarial assumptions. Interest is calculated by applying the Short-term employee benefit obligations are measured on an discount rate to the net defined benefit liability or asset. undiscounted basis and are expensed as the related service is provided. Gains and losses on curtailments are recognised when the curtailment occurs, which may be when a demonstrable A provision is recognised for the amount expected to be paid commitment to a reduction in benefits, or reduction in under short-term cash bonus or profit-sharing plans if the eligible employees, occurs. The gain or loss comprises any Bank has a present legal or constructive obligation to pay this change in the present value of the obligation and the fair amount as a result of past service provided by the employee value of the assets. and the obligation can be estimated reliably.
Where a scheme’s assets and its unrecognised actuarial Employees on contract receive terminal gratuities in losses exceed its obligation, an asset is recognised to the accordance with their contracts of employment. An accrual extent that it does not exceed the present value of future is made for the estimated liability towards such employees contribution holidays or refunds of contributions. up to the reporting date. All other employees are members of the Bank’s pension scheme and do not qualify for such The defined benefit plan obligation is calculated annually terminal gratuities. by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation Short-term employee benefits, such as paid absences are is determined by discounting the estimated future cash accounted for on an accrual basis over the period which outflows using interest rates of government bonds that employees have provided services in the year. are denominated in Botswana Pula, and that have terms to maturity approximating the terms of the related pension (iv) Share-based payment transactions liability. The Group operates equity-settled and cash-settled share- based payment plans. The Group operates equity-settled A defined contribution plan is a plan where the Bank’s and cash-settled share-based payment plans. obligation are limited to the contributions payable. For defined contribution plan obligations, the contributions are Employee services settled in equity instruments recognised as employee benefit expenses when they are The cost of the employee services received in respect of the due. Prepaid contributions are recognised as an asset to shares or share options granted is recognised in the profit or the extent that a cash refund or a reduction in the future loss component of the statement of comprehensive income payments is available. over the period that employees provide services, generally the period in which the award is granted or notified and the Certain of the Bank’s employees are members of the vesting date of the shares or options. The overall cost of the holding company’s defined contribution pension plan. These award is calculated using the number of shares and options contributions are recognised as employee benefit expense expected to vest and the fair value of the shares or options when they are due. at the date of grant.
(ii) Termination benefits The number of shares and options expected to vest takes into account the likelihood that performance and service Termination benefits are recognised as an expense when the conditions included in the terms of the awards will be met. Bank is demonstrably committed, without realistic possibility Failure to meet the non-vesting condition is treated as a of withdrawal, to a formal detailed plan to terminate cancellation, resulting in an acceleration of recognition of the employment before the normal retirement date. Termination cost of the employee services. benefits for voluntary redundancies are recognised if the Bank has made an offer encouraging voluntary redundancy, The fair value of shares is the market price ruling on the it is probable that the offer will be accepted, and the number grant date, in some cases adjusted to reflect restrictions on of acceptances can be estimated reliably. transferability. The fair value of options granted is determined using option pricing models to estimate the numbers of
57 Accounting Policies (continued) For the year ended 31 December 2014
Significant accounting policies(continued) stand-alone business with intra-segment revenue and costs being eliminated in Head office. (o) Employee benefits (continued) (iv) Share-based payment transactions (continued) (s) Acceptances Employee services settled in equity instruments (continued) shares likely to vest. These take into account the exercise Acceptances comprise undertakings by the Bank to pay price of the option, the current share price, the risk-free bills of exchange drawn on customers. The Bank expects interest rate, the expected volatility of the share price over most acceptances to be settled simultaneously with the life of the option and other relevant factors. the reimbursement from the customer. Acceptances are accounted for as off-statement of financial position Market conditions that must be met in order for the award transactions and are disclosed as contingent liabilities and to vest are also reflected in the fair value of the award, as commitments. are any other non-vesting conditions, such as continuing to make payments into a share-based savings scheme. (t) Collateral and netting
Employee services settled in cash Collateral The fair value of the amount payable to employees in terms The Bank obtains collateral in respect of loans receivable of a cash-settled share-based payment is recognised as where this is considered appropriate. The collateral normally an expense, with a corresponding increase in liabilities, takes the form of a lien over the customer’s assets and over the vesting period. The liability is remeasured at each gives the Bank a claim on these assets for both existing reporting date and at settlement date. Any changes in the and future assets. fair value of the liability are recognised as staff cost in the profit or loss component of the statement of comprehensive Collateral received in the form of securities is not recorded on income. No amount is recognised for services received if the the statement of financial position. Collateral received in the awards granted do not vest because of a failure to satisfy a form of cash is recorded on the statement of financial position vesting condition. with a corresponding liability. These items are assigned to deposits received from Bank or other counterparties. Any (q) Earnings per share interest payable or receivable arising is recorded as interest expense or interest income respectively except for funding The calculation of basic earnings per share is based on the costs relating to trading activities which are recorded in net profit attributable to ordinary equity holders of the Bank and trading income. the number of basic weighted average number of ordinary shares excluding treasury shares held in employee benefit Netting trusts or held for trading. When calculating the diluted Financial assets and liabilities are off-set and the net amount earnings per share, the weighted average number of shares reported in the statement of financial position if, and only if, in issue is adjusted for the effects of all dilutive potential there is a legally enforceable right to set-off the recognised ordinary shares held. amounts and there is an intention to settle on a net basis, or to realise an asset and settle the liability simultaneously. (r) Segment reporting (u) Repossessed properties Business segments are distinguishable components of the Bank that provide products or services that are subject In certain circumstances, property is repossessed following to risks and rewards that are different to those of other the foreclosure on loans that are in default. Repossessed business segments. Business segments are reported in a properties are measured at the lower of carrying amount manner consistent with internal reporting provided to the and fair value less costs to sell and reported within ‘Other chief operating decision-maker, which has been identified assets’. as the Country Management Committee. Bank costs are allocated to segments on a reasonable and consistent basis. Transactions between segments are generally accounted for in accordance with Bank policies as if the segment were a
58 Barclays Bank of Botswana Annual Financial Statements 2014
Accounting Policies (continued) For the year ended 31 December 2014
(v) Non-current assets held for sale
Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use, are classified as held-for-sale. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies. Thereafter the assets (or disposal group) are measured at the lower of their carrying amount or fair value, less cost to sell. Any impairment loss on a disposal group is allocated to assets and liabilities on a pro rata basis, except that no loss is allocated to financial assets, deferred tax assets, investment properties, insurance assets and employee benefit assets, which continue to be measured in accordance with the Group’s accounting policies.
Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss until finally sold. Property, equipment and intangible assets, once classified as held for sale, are not depreciated or amortised.
59 Use of Estimates and Judgements For the year ended 31 December 2014
The Bank makes estimates and assumptions that affect the economic conditions that correlate with defaults on assets in reported amounts of assets and liabilities within the next financial the group. Management uses estimates based on historical loss year. Estimates and judgements are continually evaluated and experience for assets with similar credit risk characteristics and are based on historical experience and other factors, including objective evidence of impairment similar to those in the portfolio expectations of future events that are believed to be reasonable when scheduling its future cash flows. The methodology and under the circumstances. assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences Key sources of estimation uncertainty between loss estimates and actual loss experience (probability of default). Impairment losses on loans and advances The Bank reviews its loan portfolios to assess for impairment The probability of default is based on a 12 month outcome period on a monthly basis. In determining whether an impairment loss for mortgages and 3 month outcome period for all other retail should be recorded, the Bank makes judgements as to whether loans. there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of The projected future cash flows of the loans which reflect objective loans before the decrease can be identified with an individual evidence of default are calculated on a monthly basis according to loan in that portfolio. This evidence may include observable the recovery curve. Recovery curves are calculated by observing data indicating that there has been an adverse change in the movements in actual balances over a period of time. payment status of borrowers in a group, or national or local
The table below summarises the sensitivity analysis on impairment losses:
Existing Impact on changes in Impact on changes in impairment Loss Given Default Probability of default in thousands of pula allowance
(+) 5% (-) 5% (+) 10% (-) 10%
Identified 355,138 16,547 (18,784 ) 34,213 (36,450 ) Unidentified 18,280 881 (881 ) 1,761 (1,761 ) Total 373,418 17,428 (19,665 ) 35,974 (38,211 )
The above sensitivity assumes a change in the variable under value of the security held as collateral. consideration only with all other variables being constant. Basis for determining fair values of investments Roll Rates are defined as the probability that an account has The fair values of quoted investments in active markets are based missed 1, 2 or 3 months loan repayments going down into default on current bid prices. If the market for a financial asset is not active, or a default event occurring. the Bank establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, Recovery rate experience is the average percentage of the balance discounted cash flow analysis, option pricing models and other outstanding that a classified account is expected to be recovered valuation techniques commonly used by market participants. over a specified amount of time. The recovery rate experience is dependent on the nature of security and duration of the original Provision for commission refund loan granted. Commission earned from the principal in respect of credit insurance policies secured are refundable in the case of early The value of security is calculated using the valuations as at the settlements or cancelation of policies by the Bank’s customers. reporting date. Where recent valuation is not held, either external Management therefore have to employ judgements in coming up data may be used to validate the difference, i.e. movements in the with estimates of the proportion of the fees that may fall in this Price Indices or justification should be provided to demonstrate category. that the value used is still an accurate reflection of the current
60 Barclays Bank of Botswana Annual Financial Statements 2014
Segment Reporting For the year ended 31 December 2014
Operating segments are reported in a manner consistent with the internal reporting provided to the Country Management Committee (‘’CMC’’). The CMC, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief operating decision maker. All transactions between business segments which include intra-segment revenue and costs are eliminated at Head Office. Income and expenses directly associated with each segment are included in determining business segment performance.
The Bank’s operations are situated in Botswana with a large number of Retail and Corporate customers. The Bank does not rely on any one customer.
Business segments The Bank comprises the following main business segments:
Corporate Banking Includes loans, deposits and other transactions and balances with corporate customers.
Retail Banking Includes loans, deposits and other transactions and balances with retail customers.
Treasury Undertakes the Bank’s funding and centralised treasury risk management activities through borrowings, issues of debt securities, investing in liquid assets such as short-term placements and corporate and government debt securities.
Barclaycard Includes all credit card business activities.
Shared Services The Bank also has a head office and back office that manages certain operational and administrative functions. Where costs are not directly attributable to business segments, these costs are allocated to the ‘shared services’ segment.
61 Segment Reporting (continued) For the year ended 31 December 2014
Business Segments Consolidated in thousands of pula Retail Corporate Treasury Barclaycard Shared Consolidated 2014 - Group banking banking services
Interest income Gross interest income 773,225 97,906 94,618 123,066 - 1,088,815 Inter-segment revenue (91,071 ) 147,089 (36,510 ) (19,508 ) - - Total segment revenue 682,154 244,995 58,108 103,558 - 1,088,815 Interest expense External interest expense (36,620 ) (105,523 ) (55,770 ) - - (197,913 ) Total interest expense (36,620 ) (105,523 ) (55,770 ) - - (197,913 ) Other income Non interest income 169,545 74,359 76,261 66,099 - 386,264 Total segment income 815,079 213,831 78,599 169,657 - 1,277,166
Impairment charges and other credit provisions (132,292 ) 302 - (18,446 ) - (150,436 )
Total net income 682,787 214,133 78,599 151,211 - 1,126,730
Operating expenses Staff costs (149,611 ) (25,135 ) (8,207 ) (5,859 ) (186,074 ) (374,886 ) Property costs (19,426 ) (39 ) (7 ) (25 ) (22,050 ) (41,547 ) Equipment costs (9,423 ) (221 ) (1,257 ) (4,375 ) (19,696 ) (34,972 ) Other costs (60,478 ) (30,262 ) (6,269 ) (6,949 ) (53,963 ) (157,921 ) Recharges (13,866 ) (7,553 ) (4,689 ) - (24,275 ) (50,383 ) Depreciation and amortisation - - - - (42,185 ) (42,185 ) Total operating expenses (252,804 ) (63,210 ) (20,429 ) (17,208 ) (348,243 ) (701,894 )
Profit before income tax 429,983 150,923 58,170 134,003 (348,243 ) 424,836
Income tax expense (94,596 ) (33,203 ) (12,797 ) (29,481 ) 81,114 (88,963 )
Profit for the year 335,387 117,720 45,373 104,522 (267,129 ) 335,873
Statement of financial position Loans and advances to customers 6,046,535 1,741,652 - 344,535 - 8,132,722 Financial Instruments - - 1,406,704 - - 1,406,704 Balances with the Bank of Botswana - - 788,834 - - 788,834 Loans and advances to banks - - 578,056 - - 578,056 Balances with related companies - - 562,482 - - 562,482 Others - - - - 779,762 779,762 Total assets 6,046,535 1,741,652 3,336,076 344,535 779,762 12,248,560
Deposits due to customers 3,657,218 5,307,182 - - - 8,964,400 Debt securities in issue - - 522,863 - - 522,863 Deposits from banks - - 687,256 - - 687,256 Others - - - - 548,385 548,385 Total liabilities 3,657,218 5,307,182 1,210,119 - 548,385 10,722,904
62 Barclays Bank of Botswana Annual Financial Statements 2014
Segment Reporting (continued) For the year ended 31 December 2014
Business Segments Consolidated in thousands of pula Retail Corporate Treasury Barclaycard Shared Consolidated 2013 - Restated banking banking services
Interest income Gross interest income 823,180 76,040 131,066 121,913 - 1,152,199 Inter-segment revenue (131,904 ) 154,142 (4,295 ) (17,943 ) - - Total segment revenue 691,276 230,182 126,771 103,970 - 1,152,199 Interest expense External interest expense (83,064 ) (137,638 ) (24,498 ) - - (245,200 ) Total interest expense (83,064 ) (137,638 ) (24,498 ) - - (245,200 ) Other income Non interest income 174,815 61,275 62,971 65,122 - 364,183 Total segment income 783,027 153,819 165,244 169,092 - 1,271,182
Impairment charges and other credit provisions (193,275 ) 1,168 - (6,313 ) - (198,420 )
Total net income 589,752 154,987 165,244 162,779 - 1,072,762
Operating expenses Staff costs (126,855 ) (17,807 ) (7,422 ) (4,885 ) (168,677 ) (325,646 ) Property costs (17,887 ) (26 ) (8 ) (33 ) (15,966 ) (33,920 ) Equipment costs (9,107 ) (241 ) (2,268 ) (6,006 ) (17,914 ) (35,536 ) Other costs (61,503 ) (6,969 ) (4,993 ) (5,469 ) (104,934 ) (183,868 ) Recharges (393 ) - - (612 ) (48,810 ) (49,815 ) Depreciation and amortisation - - - - (41,600 ) (41,600 ) Total operating expenses (215,745 ) (25,043 ) (14,691 ) (17,005 ) (397,901 ) (670,385 )
Profit before income tax 374,007 129,944 150,553 145,774 (397,901 ) 402,377
Income tax expense (82,282 ) (28,588 ) (33,122 ) (32,070 ) 63,687 (112,375 )
Profit for the year 291,725 101,356 117,431 113,704 (334,214 ) 290,002
Statement of financial position Loans and advances to customers 5,517,072 1,482,196 - 337,453 - 7,336,721 Financial Instruments - - 1,805,160 - - 1,805,160 Balances with the Bank of Botswana - - 797,339 - - 797,339 Loans and advances to banks - - 381,923 - - 381,923 Balances with related companies - - 823,828 - - 823,828 Others - - 69,235 - 504,411 573,646 Total assets 5,517,072 1,482,196 3,877,485 337,453 504,411 11,718,617
Deposits due to customers 4,025,836 5,255,847 - - - 9,281,683 Debt securities in issue - - 503,121 - - 503,121 Deposits from banks - - 7,636 - - 7,636 Others - - - - 554,061 554,061 Total liabilities 4,025,836 5,255,847 510,757 - 554,061 10,346,501
63 Notes to the Financial Statements For the year ended 31 December 2014
1 Financial assets and liabilities
Accounting classifications and fair values The table below sets out the Bank’s classification of each class of financial assets and liabilities. This classification is consistent for both consolidated and company.
Group Fair value Financial Total Fair value through profit instruments at carrying in thousands of pula Notes or loss amortised cost amount
31 December 2014 Cash (a) - 297,388 297,388 297,388 Balances with the Bank of Botswana (c) - 788,834 788,834 788,834 Financial instruments (b) 1,406,704 - 1,406,704 1,406,704 Trading portfolio assets 20,201 - 20,201 20,201 Balances with related companies (c) - 562,482 562,482 562,482 Loans and advances to banks (c) - 578,056 578,056 578,056 Derivative financial instruments (b) 6,264 - 6,264 6,264 Financial assets designated at fair value (b) - - - - Loans and advances to customers (c) - 8,132,722 8,132,722 8,132,722 Other assets - 238,231 238,231 238,231 1,433,169 10,597,713 12,030,882 12,030,882
Deposits from banks (c) - 687,256 687,256 687,256 Balances with related companies (c) - 248,997 248,997 248,997 Derivative financial instruments (b) 13,921 - 13,921 13,921 Deposits due to customers (d) - 8,964,400 8,964,400 8,964,400 Debt securities in issue (e) - 522,863 522,863 522,863 Other liabilities - 187,797 187,797 187,797 13,921 10,611,313 10,625,234 10,625,234
64 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements For the year ended 31 December 2014
1 Financial assets and liabilities (continued)
Accounting classifications and fair values (continued) The table below sets out the Bank’s classification of each class of financial assets and liabilities. This classification is consistent for both consolidated and company.
Group Fair value Financial Total Fair value through profit instruments at carrying in thousands of pula Notes or loss amortised cost amount
31 December 2013 Cash (a) - 227,941 227,941 227,941 Balances with the Bank of Botswana (c) - 797,339 797,339 797,339 Financial instruments (b) 1,805,160 - 1,805,160 1,805,160 Trading portfolio assets 254 - 254 254 Balances with related companies (c) - 823,828 823,828 823,828 Loans and advances to banks (c) - 381,923 381,923 381,923 Derivative financial instruments (b) 18,423 - 18,423 18,423 Financial assets designated at fair value (b) 69,235 - 69,235 69,235 Loans and advances to customers (c) - 7,336,721 7,336,721 7,336,721 Other assets - 82,347 82,347 82,347 1,893,072 9,650,099 11,543,171 11,543,171
Deposits from banks (c) - 7,636 7,636 7,636 Balances with related companies (c) - 188,667 188,667 188,667 Derivative financial instruments (b) 28,446 - 28,446 28,446 Deposits due to customers (d) - 9,281,683 9,281,683 9,281,683 Debt securities in issue (e) - 503,121 503,121 503,121 Other liabilities - 268,267 268,267 268,267 28,446 10,249,374 10,277,820 10,277,820
65 Notes to the Financial Statements (continued) For the year ended 31 December 2014
1 Financial assets and liabilities (continued)
Notes (a) Fair value approximates carrying value due to the minimal credit losses and short-term nature of the financial assets and liabilities.
(b) Financial instruments at fair value are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using a valuation model, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to present value. The expected cash flows for each contract are determined either directly by reference to actual cash flows implicit in observable market prices or through modelling cash flows using appropriate financial-markets pricing models. Wherever possible these models use as their basis observable market prices and rates including, for example, interest rate yield curves, equities and commodities prices, option volatilities and currency rates.
(c) The fair value for loans and advances, and other lending is estimated using discounted cash flows, applying either market rates where practicable or, where the counterparty is a bank, rates currently offered by other financial institutions for placings with similar characteristics. In certain cases the fair value approximates carrying value because the instruments are short-term in nature or repriced frequently.
(d) Fair values of deposit liabilities payable on demand (interest free, interest bearing and savings deposits) approximate their carrying value. The fair value of all other deposits and other borrowings (including repurchase agreements and cash collateral on securities lent) is estimated using discounted cash flows, applying either market rates, where practicable, or rates currently offered by the Bank for deposits of similar remaining maturities.
(e) Fair values of short-term debt securities in issue are approximately equal to their carrying amount. Fair values of other debt securities in issue are based on quoted prices where available, or where these are unavailable, are estimated using other valuation techniques.
Gains and losses on the financial assets The table below summarises the gains and losses on financial assets and liabillities
Consolidated Company in thousands of pula 2014 2013 2014 2013
Other financial assets at fair value through profit and loss 52,463 106,392 52,463 106,392 Financial income from loans and receivables 1,036,352 1,044,648 1,036,352 1,044,648 Net foreign exchange gains 78,880 62,993 78,880 62,993 Total 1,167,695 1,214,033 1,167,695 1,214,033
Financial expenses from financial liabilities at amortised cost 195,045 244,041 195,045 244,041 Ineffectiveness on fair value hedges (463 ) (192 ) (463 ) (192 ) Total 194,582 243,849 194,582 243,849
66 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
1 Financial assets and liabilities (continued) Valuation methodology
The table below shows the financial assets and liabilities that are recognised and measured at fair value.
31 December 2014 Valuations Valuations Valuations Total quoted in an based on based on active market observable unobservable in thousands of pula inputs inputs Level 1 Level 2 Level 3
Trading portfolio assets 20,201 - - 20,201 Treasury bills and other eligible bills 1,401,629 - - 1,401,629 Debt securities - 80 - 80 Financial assets designated at fair value - - - - Derivative financial instruments - 6,264 - 6,264 Equity securities - - 4,995 4,995 Total assets 1,421,830 6,344 4,995 1,433,169
Derivative financial liabilities - 13,921 - 13,921 Total liabilities - 13,921 - 13,921
31 December 2013 Valuations Valuations Valuations Total quoted in an based on based on active market observable unobservable in thousands of pula inputs inputs Level 1 Level 2 Level 3
Trading securities 254 - - 254 Treasury bills and other eligible bills 1,800,085 - - 1,800,085 Debt securities - 80 - 80 Financial assets designated at fair value - 69,235 - 69,235 Derivative financial instruments - 18,423 - 18,423 Equity securities - - 4,995 4,995 Total assets 1,800,339 87,738 4,995 1,893,072
Derivative financial liabilities - 28,446 - 28,446 Total liabilities - 28,446 - 28,446
67 Notes to the Financial Statements (continued) For the year ended 31 December 2014
1 Financial assets and liabilities (continued) Valuation methodology (continued)
A description of the nature of the techniques used to calculate valuations based on observable inputs and valuations based on unobservable inputs is set out below.
Level 1 Financial instruments for which their valuations are determined by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available and the price represents actual and regularly occurring market transactions on an arm’s length basis.
Level 2 The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
Specific valuation techniques used to value financial instruments include; - Quoted market prices or dealer quotes for similar instruments; - The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves; - The fair value of forward foreign exchange contracts is determined using forward exchange rates at the statement of financial position date, with the resulting value discounted back to present value; - Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
Level 3 Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). Such inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or other analytical techniques.
Note; The only financial instruments categorised under level 3 relates to investment in a commercial property entity. There was no disclosure of changes in level 3 instruments for the current reporting period. Management believes the carrying value of the investment approximates the fair value.
Transfers between the levels There were no transfers between level 1, level 2 and level 3 during the year.
68 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
1 Financial assets and liabilities (continued) Assets and liabilities not held at fair value The table below summarises the carrying amounts and fair value of those assets and liabilities not held at fair value.
Consolidated 31 December 2014 Carrying Fair value Valuations Valuations Valuations Total value quoted in an based on based on active market observable unobservable in thousands of pula inputs inputs Level 1 Level 2 Level 3
Cash 297,388 297,388 297,388 - - 297,388 Balances with the Bank of Botswana 788,834 788,834 (10,985 ) 799,819 - 788,834 Balances with related companies 562,482 562,482 - 562,482 - 562,482 Loans and advances to banks 578,056 578,056 578,056 - - 578,056 Loans and advances to customers 8,132,722 8,132,722 - - 8,132,722 8,132,722 Other assets 238,231 238,231 - - 238,231 238,231 Total assets 10,597,713 10,597,713 864,459 1,362,301 8,370,953 10,597,713
Deposits from banks 687,256 687,256 - - 687,256 687,256 Balances with related companies 248,997 248,997 - - 248,997 248,997 Deposits due to customers 8,964,400 8,964,400 - - 8,964,400 8,964,400 Other liabilities 187,797 187,797 - - 187,797 187,797 Debt securities in issue 522,863 522,863 - - 522,863 522,863 Total liabilities 10,611,313 10,611,313 - - 10,611,313 10,611,313
Consolidated 31 December 2013 Carrying Fair value Valuations Valuations Valuations Total value quoted in an based on based on active market observable unobservable in thousands of pula inputs inputs Level 1 Level 2 Level 3
Cash 227,941 227,941 227,941 - - 227,941 Balances with the Bank of Botswana 797,339 797,339 28,965 768,374 - 797,339 Balances with related companies 823,828 823,828 - 823,828 - 823,828 Loans and advances to banks 381,923 381,923 381,923 - - 381,923 Loans and advances to customers 7,336,721 7,336,721 - - 7,336,721 7,336,721 Other assets 82,347 82,347 - - 82,347 82,347 Total assets 9,650,099 9,650,099 638,829 1,592,202 7,419,068 9,650,099
Deposits from banks 7,636 7,636 - - 7,636 7,636 Balances with related companies 188,667 188,667 - - 188,667 188,667 Deposits due to customers 9,281,683 9,281,683 - - 9,281,683 9,281,683 Other liabilities 268,267 268,267 - - 268,267 268,267 Debt securities in issue 503,121 503,121 - - 503,121 503,121 Total liabilities 10,249,374 10,249,374 - - 10,249,374 10,249,374
69 Notes to the Financial Statements (continued) For the year ended 31 December 2014
2 Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year.
Consolidated Company 2014 2013 2014 2013 Restated
Total profit for the year attributable to equity holders of the bank (P’000) 335,873 290,002 319,638 370,864
Weighted average number of ordinary shares in issue (thousands) 852,161 852,161 852,161 852,161
Earnings per share from continuing operations (thebe) 39.41 34.03 37.51 43.52
There were no potentially dilutive shares at 31 December 2014.
3 Net interest income
Consolidated Company in thousands of pula 2014 2013 2014 2013
Loans and advances to banks 4,594 8,885 4,594 8,885 Bank of Botswana certificates 50,509 107,039 50,509 107,039 Related companies 2,794 13,786 2,794 13,786 Loans and advances to customers 1,012,308 1,005,855 1,012,308 1,005,855 Leases 13,788 16,122 13,788 16,122 Short-term funds and other market placements 65 512 65 512 Derivative financial instruments 4,757 - 4,757 - Interest income 1,088,815 1,152,199 1,088,815 1,152,199
Deposits from banks 3,610 5,838 3,610 5,838 Deposits from customers 183,969 228,120 183,969 228,120 Debt securities in issue 7,466 6,668 7,466 6,668 Related companies - 3,415 - 3,415 Derivative financial instruments 2,868 1,159 2,868 1,159 Interest expense 197,913 245,200 197,913 245,200 Net interest income 890,902 906,999 890,902 906,999
70 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
4 Net fee and commission income
Consolidated Company 2014 2013 2014 2013 in thousands of pula Restated
Fee and commission income Risk related services 80,974 56,100 25,635 6,857 Non risk related services 237,607 224,691 237,607 224,691 Total fee and commission income 318,581 280,791 263,242 231,548
Inter-bank transaction fees 13,414 10,231 13,414 10,231 Fee and commission expense 13,414 10,231 13,414 10,231 Net fee and commission income 305,167 270,560 249,828 221,317
5 Net trading and investment income
Consolidated Company in thousands of pula 2014 2013 2014 2013 Restated
Exchange gain 2,620 1,358 2,620 1,358 Net movement from financial instruments designated at fair value 230 27,909 230 27,909 Treasury sales activities 60,664 46,435 60,664 46,435 Market making activities 15,596 15,200 15,596 15,200 Net trading income 79,110 90,902 79,110 90,902
6 Other operating income
Consolidated Company in thousands of pula 2014 2013 2014 2013
Rental income 1,053 886 1,053 886 Dividend income - - - 85,000 Profit on sale of property and equipment 934 1,835 934 1,835 Other operating income 1,987 2,721 1,987 87,721
7 Impairment charges and other credit provisions
Consolidated Company in thousands of pula 2014 2013 2014 2013
Impairment charges on loans and advances - Net increase in impairments 150,681 206,028 150,681 206,028 - Recoveries (68 ) (7,449 ) (68 ) (7,449 ) Impairment charges on loans and advances 150,613 198,579 150,613 198,579 Provision for undrawn committed facilities and guarantees provided (177 ) (159 ) (177 ) (159 ) Impairment charges and other credit provisions 150,436 198,420 150,436 198,420
71 Notes to the Financial Statements (continued) For the year ended 31 December 2014
8 Staff costs
Consolidated Company in thousands of pula 2014 2013 2014 2013
Salaries and accrued incentive payments 292,496 249,462 291,215 228,471 Pension cost -defined benefit plan 1,401 258 1,401 258 Pension cost -defined contribution plan 30,354 28,372 30,354 28,372 Leave pay provision 5,450 3,142 5,450 3,142 Allowances 28,552 30,100 28,552 30,100 Staff welfare 1,858 1,847 1,858 1,847 Health insurance 14,775 12,465 14,775 12,465 Staff costs 374,886 325,646 373,605 304,655
The average number of persons employed by the Bank during the year was 1238 (2013: 1299).
9 Administration and general expenses
Consolidated Company in thousands of pula 2014 2013 2014 2013
Advertising 25,837 22,256 24,108 20,574 Auditors remuneration 5,582 4,986 5,580 4,609 Cash in transit expenses 18,783 26,724 13,544 24,704 Directors fees - non executive 2,147 890 2,147 823 Donations 3,954 6,977 3,936 6,450 Equipment costs - operating lease rentals 16,020 18,925 15,650 17,495 Equipment costs - other 18,952 16,611 15,214 15,356 Legal and professional fees 35,662 27,101 33,634 25,053 Property costs - operating lease rentals 31,961 25,403 26,093 23,483 Property costs - other 9,586 8,517 6,948 7,873 Other costs - recharged by related companies 50,383 49,815 44,312 46,049 Other costs - general 4,279 13,570 2,239 12,544 Other costs - fee refunds - 21,286 - 21,286 Software licensing and other information technology 2,264 3,335 2,246 3,083 Stationary and postage 31,452 28,593 25,743 26,431 Telephone 19,644 18,434 15,055 17,041 Travel and accommodation 8,317 9,716 7,350 8,982 Administrative and general expenses 284,823 303,139 243,799 281,836
72 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
10 Income tax expense
Consolidated Company in thousands of pula 2014 2013 2014 2013
Tax charge Company tax 122,345 88,446 119,931 85,635 Origination and reversal of temporary differences (33,382 ) 17,458 (27,767 ) 17,458 Withholding tax - 6,375 - 6,375 Prior year over provision - 96 - 96 Tax charge 88,963 112,375 92,164 109,564
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the profits of the consolidated entities as follows:
Consolidated Company 2014 2013 2014 2013 in thousands of pula Restated
Profit before income tax 424,836 402,377 411,802 480,428
Income tax using the domestic corporate tax rate of 22% (2013: 22%) 93,463 88,523 90,596 105,694 Net deductible/(non-deductible) expenses 1,568 17,381 1,568 (2,601 ) Deferred tax asset not recognised in prior year (6,068 ) - - - Withholding tax - 6,375 - 6,375 Prior year over provision - 96 - 96 Tax for the year per the statement of comprehensive income 88,963 112,375 92,164 109,564 Effective tax rate 21% 28% 22% 23%
Tax on Capital Gains There are no capital losses available for tax purposes for set-off in the next year (2013: Nil) against any taxable capital gains arising.
11 Cash
Consolidated Company in thousands of pula 2014 2013 2014 2013
- Pula 278,300 213,417 278,300 213,417 - Foreign currency 19,088 14,524 19,088 14,524 Total 297,388 227,941 297,388 227,941
The carrying value of the cash approximates the fair value.
73 Notes to the Financial Statements (continued) For the year ended 31 December 2014
12 Balances with the Bank of Botswana
Consolidated Company in thousands of pula 2014 2013 2014 2013
Balances with the Bank of Botswana - Statutory reserve 799,819 768,374 799,819 768,374 - Current account (10,985 ) 28,965 (10,985 ) 28,965 Total 788,834 797,339 788,834 797,339
The statutory reserve with the Bank of Botswana is calculated at 10% of the average local currency customer deposits. The statutory reserve is not available for use in the day-to-day operations of the Bank and is non-interest bearing. The carrying value of these balances approximates the fair value.
13 Financial instruments
Consolidated Company in thousands of pula 2014 2013 2014 2013
Debt securities 80 80 80 80 Treasury bills and other eligible bills 1,401,629 1,800,085 1,401,629 1,800,085 Equity securities 4,995 4,995 4,995 4,995 Financial instruments 1,406,704 1,805,160 1,406,704 1,805,160
Consolidated Company in thousands of pula 2014 2013 2014 2013
Debentures - private schools 75 75 75 75 Debentures - sports clubs 5 5 5 5 Debt securities 80 80 80 80
Bank of Botswana certificates 1,088,300 1,740,296 1,088,300 1,740,296 Treasury bills and bonds 313,329 59,789 313,329 59,789 Treasury bills and other eligible bills 1,401,629 1,800,085 1,401,629 1,800,085
Investment in Barclays House (Pty) Ltd 4,995 4,995 4,995 4,995 Equity securities 4,995 4,995 4,995 4,995
Financial instruments 1,406,704 1,805,160 1,406,704 1,805,160
74 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
13 Financial instruments (continued)
Consolidated Company in thousands of pula 2014 2013 2014 2013
Movement in financial instruments At the beginning of the year 1,805,160 2,369,268 1,805,160 2,369,268 Net movement for the year (398,456 ) (564,108 ) (398,456 ) (564,108 ) At end of the year 1,406,704 1,805,160 1,406,704 1,805,160
The Bank has an equity stake in an unquoted property company Barclays House (Pty) Ltd. This investment is stated at cost. The Directors believe that the difference between the fair value and the carrying value is not material for the users of these financial statements.
Bank of Botswana Certificates and Treasury bills are designated at fair value through profit or loss on initial recognition. Due to their short maturity periods, their carrying value approximate to their relative fair values. Bank of Botswana certificates amounting to P800 million have been pledged as collateral for the use of the secured intra day trading facilities with Bank of Botswana.
14 Trading portfolio assets
Consolidated Company in thousands of pula 2014 2013 2014 2013
Treasury and other eligible bills Balance at beginning of the year 254 4,858 254 4,858 Net movement during the year 19,947 (4,604 ) 19,947 (4,604 ) Balance at end of the year 20,201 254 20,201 254
15 Balances with related companies
Consolidated Company in thousands of pula 2014 2013 2014 2013
Amounts due from : Barclays PLC 239,143 747,132 239,143 747,132 Other Barclays PLC group companies 247 698 247 698 Barclays Insurance Services (Pty) Ltd - - - 15,428 ABSA (a subsidiary of Barclays PLC) 323,092 75,998 323,092 75,998 Total 562,482 823,828 562,482 839,256
Amounts due to : Barclays PLC 88,238 64,762 88,238 64,762 Other Barclays PLC group companies 16,720 1,827 16,720 1,827 Barclays Insurance Services (Pty) Ltd - - 1,223 - ABSA (a subsidiary of Barclays PLC) 144,039 122,078 144,039 122,078 Total 248,997 188,667 250,220 188,667
75 Notes to the Financial Statements (continued) For the year ended 31 December 2014
15 Balances with related companies (continued)
The Bank provides and utilises services of its holding company and associates, providing and receiving loans, overdrafts, interest and non-interest bearing deposits and current accounts to these entities as well as other services. The carrying value of these balances approximate the fair value.
The table below summarises the transactions conducted with the related parties above and the applicable interest rates chargeable.
Details Terms Vostros normal commercial terms Nostros normal commercial terms Recharges repayable on presentation of invoice Other costs repayable on presentation of invoice
The recharges and other costs are unsecured, interest free and are repayable on demand.
16 Loans and advances to banks
Consolidated Company in thousands of pula 2014 2013 2014 2013
Repayable: on demand 578,056 381,923 578,056 381,923 Loans and advances to banks 578,056 381,923 578,056 381,923
The carrying amount of the balance approximates its fair value.
17 Derivative financial instruments
Consolidated Company in thousands of pula 2014 2013 2014 2013
Assets Forward foreign exchange contracts 6,264 18,423 6,264 18,423 Net derivative assets held for risk management 6,264 18,423 6,264 18,423
Liabilities Interest rate swap 13,921 28,446 13,921 28,446 Forward foreign exchange contracts - - - - Derivative liabilities held for risk management 13,921 28,446 13,921 28,446
Fair value hedges of interest rate risk (13,921 ) (28,446 ) (13,921 ) (28,446 ) Other derivatives held for risk management 6,264 18,423 6,264 18,423 Net derivatives held for risk management (7,657 ) (10,023 ) (7,657 ) (10,023 )
Notional contract amount 324,683 158,611 324,683 158,611
The Bank has an interest rate swap to hedge against its exposure to changes in the fair value of the USD loan granted to one of its corporate customers. This interest rate swap has been designated for hedge accounting.
76 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
18 Financial assets designated at fair value
Consolidated Company in thousands of pula 2014 2013 2014 2013
Equity securities - 35,766 class ‘C’ Visa Inc. shares Balance at beginning of the year 69,235 41,326 69,235 41,326 Fair value gain/(loss) for the year 230 27,909 230 27,909 Disposal during the year (69,465 ) - (69,465 ) - Balance at end of the year - 69,235 - 69,235
Equity securities are designated at fair value through profit or loss at inception as they are managed and their performance is evaluated on a fair value basis.
19 Loans and advances to customers
Consolidated & Company Consolidated & Company 2014 2013 Gross Impairment Carrying Gross Impairment Carrying in thousands of pula allowance amount allowance amount
Overdrafts 172,401 (9,772 ) 162,629 107,259 (7,548 ) 99,711 Mortgages 1,822,349 (32,669 ) 1,789,680 1,238,552 (26,196 ) 1,212,356 Term loans 4,527,264 (213,789 ) 4,313,475 4,312,828 (259,264 ) 4,053,564 Credit card receivables 410,032 (47,037 ) 362,995 365,411 (27,958 ) 337,453 Scheme loans 1,422,170 (62,047 ) 1,360,123 1,536,874 (46,564 ) 1,490,310 Finance lease instalments 151,925 (8,105 ) 143,820 156,757 (13,430 ) 143,327 Total 8,506,141 (373,419 ) 8,132,722 7,717,681 (380,960 ) 7,336,721
Gross loans with variable rates are P3,637,854(2013: P3,046,729) and fixed rates are P4,868,287 (2013: P4,670,952)
Consolidated Company in thousands of pula 2014 2013 2014 2013
Maturity analysis Maturing within one year 591,482 1,163,741 591,482 1,163,741 Maturing after one year within five years 4,075,973 3,154,900 4,075,973 3,154,900 Maturing after five years 3,838,686 3,399,040 3,838,686 3,399,040 Total gross loans 8,506,141 7,717,681 8,506,141 7,717,681
77 Notes to the Financial Statements (continued) For the year ended 31 December 2014
19 Loans and advances to customers (continued)
Consolidated Company in thousands of pula 2014 2013 2014 2013
Sector analysis of loans and advances Private individuals 6,651,053 6,235,485 6,651,053 6,235,485 Mining companies 166,220 222,434 166,220 222,434 Parastatals 6,493 234,617 6,493 234,617 Business 1,682,375 1,025,145 1,682,375 1,025,145 Gross loans and advances to customers 8,506,141 7,717,681 8,506,141 7,717,681 Impairment allowance (373,419 ) (380,960 ) (373,419 ) (380,960 ) Total 8,132,722 7,336,721 8,132,722 7,336,721
Loans advances to customers include finance lease receivables.
Consolidated Company in thousands of pula 2014 2013 2014 2013
Finance lease instalments Less than one year 21,193 23,482 21,193 23,482 Between one and five years 141,271 144,929 149,681 144,929 More than five years 15,033 16,270 6,623 16,270 Gross investments in finance leases receivable 177,497 184,681 177,497 184,681 Unearned future income on finance leases (25,572 ) (27,924 ) (25,572 ) (27,924 ) Net investment in finance leases 151,925 156,757 151,925 156,757
Maturity analysis of net investment in finance leases Less than one year 20,859 23,136 20,859 23,136 Between one and five years 125,628 120,616 125,628 120,616 More than five years 5,438 13,005 5,438 13,005 Net investment in finance leases 151,925 156,757 151,925 156,757
The Bank entered into leasing arrangements in respect of motor vehicles, machinery and equipment. All of the leases are denominated in Pula. The average term of the finance leases entered into is five years. Under the terms of the lease arrangements, no contingent rentals are payable. The accumulated allowance for uncollectable lease payments receivable included in the allowance for impairment at the reporting date is P8.1m (2013 : P13.4m).
78 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
19 Loans and advances to customers (continued)
Consolidated and Company Identified Unidentified in thousands of pula Note Impairment Impairment Total
Movement in Impairment Allowance Balance at 1 January 2014 358,300 22,660 380,960 Increased impairment 163,263 17,269 180,532 Impairment no longer required (8,202 ) (21,649 ) (29,851 ) Net increase in impairments 155,061 (4,380 ) 150,681 Amounts written-off (158,223 ) - (158,223 ) Balance at 31 December 2014 355,138 18,280 373,418
2014 Charge to the statement of comprehensive income Net increase in impairments 155,061 (4,380 ) 150,681 Provisions (177 ) - (177 ) Amounts recovered previously written-off (68 ) - (68 ) Net charge to the statement of comprehensive income 7 154,816 (4,380 ) 150,436
Consolidated and Company Identified Unidentified in thousands of pula Note Impairment Impairment Total
Movement in Impairment Allowance Balance at 1 January 2013 354,852 12,023 366,875 Increased impairment 206,789 12,323 219,112 Impairment no longer required (11,398 ) (1,686 ) (13,084 ) Net increase in impairments 195,391 10,637 206,028 Amounts written-off (191,943 ) - (191,943 ) Balance at 31 December 2013 358,300 22,660 380,960
2013 Charge to the statement of comprehensive income Net increase in impairments 195,391 10,637 206,028 Provisions (159 ) - (159 ) Amounts recovered previously written-off (7,449 ) - (7,449 ) Net charge to the statement of comprehensive income 7 187,783 10,637 198,420
79 Notes to the Financial Statements (continued) For the year ended 31 December 2014
20 Other assets
Consolidated Company in thousands of pula 2014 2013 2014 2013
Accounts receivable and prepayments 1,584 5,723 1,584 5,723 Clearing and other assets 236,647 76,624 236,647 76,624 Other assets 238,231 82,347 238,231 82,347
The carrying amount of the balance approximates its fair value.
21 Current tax assets/(liabilities)
Consolidated Company in thousands of pula 2014 2013 2014 2013
Opening net balance 40,802 39,367 15,208 23,308 Charge for the year (122,345 ) (94,917 ) (119,931 ) (92,106 ) Tax paid net of refunds 49,521 96,352 53,172 84,006 Closing net current tax (32,022 ) 40,802 (51,551 ) 15,208
Current tax assets 19,529 40,802 - 15,208 Current tax liabilities (51,551 ) - (51,551 ) -
22 Deferred tax assets and liabilities
Consolidated Company in thousands of pula 2014 2013 2014 2013
Recognised deferred tax assets/(liabilities) Opening balance (16,463 ) (5,227 ) (16,463 ) (5,227 ) Accelerated tax depreciation - fixed assets 12,590 (8,157 ) 12,590 (8,157 ) Accelerated tax depreciation - leased assets 2,576 (3,400 ) 2,576 (3,400 ) Loan impairment - (10,408 ) - (10,408 ) Retirement benefit asset /(liability) (4,978 ) 6,222 (4,978 ) 6,222 Other 18,216 4,507 12,601 4,507 Deferred tax liabilities 11,941 (16,463 ) 6,326 (16,463 )
80 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
22 Deferred tax assets and liabilities (continued)
Movements in temporary differences during the year
Consolidated Recognised Recognised in statement of in other in thousands of pula Opening comprehensive comprehesive Closing 2014 balance income income balance
Accelerated tax depreciation - fixed assets 3,616 12,590 - 16,206 Accelerated tax depreciation - leased assets (17,312 ) 2,576 - (14,736 ) Other (2,767 ) 18,216 (4,978 ) 10,471 Net tax assets/(liabilities) (16,463 ) 33,382 (4,978 ) 11,941
Company Recognised Recognised in statement of in other in thousands of pula Opening comprehensive comprehesive Closing 2014 balance income income balance
Accelerated tax depreciation - fixed assets 3,616 12,590 - 16,206 Accelerated tax depreciation - leased assets (17,312 ) 2,576 - (14,736 ) Other (2,767 ) 12,601 (4,978 ) 4,856 Net tax assets/(liabilities) (16,463 ) 27,767 (4,978 ) 6,326
Consolidated & Company Recognised Recognised in statement of in other in thousands of pula Opening comprehensive comprehesive Closing 2014 balance income income balance
Accelerated tax depreciation - fixed assets 11,773 (8,157 ) - 3,616 Accelerated tax depreciation - leased assets (13,912 ) (3,400 ) - (17,312 ) Loan impairment 10,408 (10,408 ) - - Other (13,496 ) 4,507 6,222 (2,767 ) Net tax assets/(liabilities) (5,227 ) (17,458 ) 6,222 (16,463 )
81 Notes to the Financial Statements (continued) For the year ended 31 December 2014
23 Intangible assets
Consolidated and Company Internally generated Other software Total in thousands of pula software
Cost At 1 January 2014 59,555 21,368 80,923 Additions - 520 520 Transfers from property and equipment 2,003 - 2,003 At 31 December 2014 61,558 21,888 83,446
Accumulated amortisation At 1 January 2014 25,171 20,857 46,028 Amortisation charge 14,553 192 14,745 At 31 December 2014 39,724 21,049 60,773 Net book value 21,834 839 22,673
Consolidated and Company Internally generated Other software Total in thousands of pula software
Cost At 1 January 2013 55,650 21,368 77,018 Additions 3,905 - 3,905 At 31 December 2013 59,555 21,368 80,923
Accumulated amortisation At 1 January 2013 7,167 20,633 27,800 Amortisation charge 18,004 224 18,228 At 31 December 2013 25,171 20,857 46,028 Net book value 34,384 511 34,895
82 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
24 Property and equipment
Consolidated and Company 2014 Property at Motor Computers Furniture Work in Total cost vehicles at and and fittings progress cost equipment at cost in thousands of pula at cost
Cost Balance at 1 January 145,518 13,519 131,244 48,792 2,992 342,065 Acquisitions 27,185 - 20,498 3,177 38,850 89,710 Transfers to intangibles - - - - (2,003 ) (2,003 ) Disposals - (1,034 ) (10,413 ) (7,825 ) - (19,272 ) Balance at 31 December 172,703 12,485 141,329 44,144 39,839 410,500
Accumulated depreciation Balance at 1 January 100,559 8,903 102,939 29,915 - 242,316 Depreciation for the period 11,396 2,039 10,933 3,072 - 27,440 Disposal - (1,034 ) (10,413 ) (7,764 ) - (19,211 ) Balance at 31 December 111,955 9,908 103,459 25,223 - 250,545
Net book value 60,748 2,577 37,870 18,921 39,839 159,955
Consolidated and Company 2013 Property at Motor Computers Furniture Work in Total cost vehicles at and and fittings progress cost equipment at cost in thousands of pula at cost
Cost Balance at 1 January 146,635 12,921 115,242 42,204 156 317,158 Acquisitions 33 598 16,002 6,588 2,836 26,057 Disposals (1,150 ) - - - - (1,150 ) Balance at 31 December 145,518 13,519 131,244 48,792 2,992 342,065
Accumulated depreciation Balance at 1 January 94,019 6,717 93,817 24,927 - 219,480 Depreciation for the period 7,076 2,186 9,122 4,988 - 23,372 Disposal (536 ) - - - - (536 ) Balance at 31 December 100,559 8,903 102,939 29,915 - 242,316
Net book value 44,959 4,616 28,305 18,877 2,992 99,749
83 Notes to the Financial Statements (continued) For the year ended 31 December 2014
25 Retirement benefit fund
In the past, the Bank operated a defined benefit pension plan for its employees (the “Fund”). The Bank has since discontinued this Fund and currently there are no active employees within this Fund. The Fund’s assets are managed externally by reputable asset managers. The responsibility for governance of the Fund, including investment decisions lies with the board of trustees. The board of trustees comprise representatives of the Bank and the Fund’s participants in accordance with the Fund rules.
The board of trustees of the Fund have sought relevant regulatory approvals, and are in the process of winding up this Fund by getting the deferred members within this Fund to transfer relevant member credits to their new employers’ pension plans or purchase annuities from other service providers in the market. This process is expected to be concluded in 2015.
The amounts recognised in the statement of financial position are as follows: Consolidated Company in thousands of pula 2014 2013 2014 2013
Present value of funded obligations Defined benefit accounts (159,717 ) (163,881 ) (159,717 ) (163,881 ) Fair value of plan assets 163,297 146,235 163,297 146,235 Present value of unfunded obligations 3,580 (17,646 ) 3,580 (17,646 ) Recognised asset/(liability) of defined benefit obligations 3,580 (17,646 ) 3,580 (17,646 )
Plan assets consist of the following Consolidated Company in thousands of pula 2014 2013 2014 2013
Equity securities 82,274 38,021 82,274 38,021 Property occupied by the Bank - 21,935 - 21,935 Cash 2,064 83,354 2,064 83,354 Corporate and other bonds 64,752 2,925 64,752 2,925 Real estate 14,207 - 14,207 - Total plan assets at market value 163,297 146,235 163,297 146,235
The plan assets includes P4.5m (2013 : P4.1m) of investment in the company’s own equities and bonds.
Movement in the liability for defined benefit obligations Consolidated Company in thousands of pula 2014 2013 2014 2013
Liability for defined benefit obligations at 1 January 163,881 481,924 163,881 481,924 Settlement - (351,832 ) - (351,832 ) Benefits paid (9,077 ) (8,877 ) (9,077 ) (8,877 ) Current service costs 261 252 261 252 Expenses paid (498 ) (234 ) (498 ) (234 ) Net interest cost on defined benefit obligations 10,346 10,062 10,346 10,062 Actuarial (gains)/losses recognised through other comprehensive income (5,196 ) 32,586 (5,196 ) 32,586 Liability for defined benefit obligations at 31 December 159,717 163,881 159,717 163,881
84 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
25 Retirement benefit fund (continued)
Movement in plan assets Consolidated Company in thousands of pula 2014 2013 2014 2013
Fair value of plan assets at 1 January 146,235 492,817 146,235 492,817 Settlement - (351,832 ) - (351,832 ) Expenses paid (498 ) (234 ) (498 ) (234 ) Net interest cost on plan assets 9,206 10,056 9,206 10,056 Benefits paid by the plan (9,077 ) (8,877 ) (9,077 ) (8,877 ) Actuarial losses recognised through other comprehensive income 17,431 4,305 17,431 4,305 Fair value of plan assets at 31 December 163,297 146,235 163,297 146,235
Expenses recognised in statement of comprehensive income Consolidated Company in thousands of pula 2014 2013 2014 2013
Current service costs 261 252 261 252 Net interest on defined benefit obligations 10,346 10,062 10,346 10,062 Net interest cost on assets (9,206 ) (10,056 ) (9,206 ) (10,056 ) 1,401 258 1,401 258
Actual return on plan assets 17,431 4,305 17,431 4,305
Remeasurement gain / loss recognised through other comprehensive income Consolidated Company in thousands of pula 2014 2013 2014 2013
Actuarial gain on assets 17,431 4,305 17,431 4,305 Actuarial gain/(loss) on liabilities due to experience 5,196 (7,077 ) 5,196 (7,077 ) Actuarial loss on liabilities due to assumptions - (25,509 ) - (25,509 ) Deferred income tax recognised (4,978 ) 6,222 (4,978 ) 6,222 Total recognised through other comprehensive income 17,649 (22,059 ) 17,649 (22,059 )
Actuarial assumptions Principal assumptions at the reporting date (expressed in weighted averages) Consolidated Company in thousands of pula 2014 2013 2014 2013
Discount rate at 31 December 6.5% 6.5% 6.5% 6.5% Expected return on plan assets at 1 January 6.5% 6.5% 6.5% 6.5% Future pension increases 5.0% 5.0% 5.0% 5.0%
85 Notes to the Financial Statements (continued) For the year ended 31 December 2014
25 Retirement benefit fund (continued)
Sensitivity analysis The effects of certain changes to the financial and demographic data is analysed below
in thousands of pula 2014 Basis Discount rate Discount rate Inflation -1.0% +0.5% +0.5% Defined Benefit Obligations - DB deferred pensioners 8,106 9,847 7,384 8,951 Defined Benefit Obligations - Pensions in payment 151,611 170,477 143,451 161,056 Defined Benefit Obligations - Total 159,717 180,324 150,835 170,007
Historical information
in thousands of pula 2014 2013 2012 2011 2010 Present value of defined benefit obligation (159,717 ) (163,881 ) (481,924 ) (464,987 ) (414,642 ) Fair value of plan assets 163,297 146,235 492,817 493,964 468,771 Surplus in the plan 3,580 (17,646 ) 10,893 28,977 54,129
26 Deposits from banks
Consolidated Company in thousands of pula 2014 2013 2014 2013
Unsecured and payable on demand 687,256 7,636 687,256 7,636 Total 687,256 7,636 687,256 7,636
27 Deposits due to customers
Consolidated Company in thousands of pula 2014 2013 2014 2013
Interest bearing deposits 6,892,557 7,521,708 6,892,557 7,521,708 Non-interest bearing deposits 2,071,843 1,759,975 2,071,843 1,759,975 Total 8,964,400 9,281,683 8,964,400 9,281,683
Maturity analysis On demand 6,665,438 7,311,094 6,665,438 7,311,094 Maturing within one year 2,232,186 1,475,127 2,232,186 1,475,127 Maturing after one year but within five years 66,776 495,462 66,776 495,462 Total 8,964,400 9,281,683 8,964,400 9,281,683
86 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
27 Deposits due to customers (continued)
Consolidated Company in thousands of pula 2014 2013 2014 2013
Category analysis of deposits - Pula 1,612,194 2,134,358 1,612,194 2,134,358 - Foreign currency 467,472 379,061 467,472 379,061 Current accounts 2,079,666 2,513,419 2,079,666 2,513,419 - Pula 4,077,186 4,275,181 4,077,186 4,275,181 - Foreign currency 522,537 522,517 522,537 522,517 Savings accounts 4,599,723 4,797,698 4,599,723 4,797,698 - Pula 2,134,743 1,949,469 2,134,743 1,949,469 - Foreign currency 150,268 21,097 150,268 21,097 Term deposits 2,285,011 1,970,566 2,285,011 1,970,566 Total 8,964,400 9,281,683 8,964,400 9,281,683
Consolidated Company in thousands of pula 2014 2013 2014 2013
Sector analysis of deposits Private individuals 3,277,094 4,025,836 3,277,094 4,025,836 Other financial institutions 994,333 1,553,445 994,333 1,553,445 Parastatals 525,533 276,146 525,533 276,146 Business 3,198,582 2,329,458 3,198,582 2,329,458 Local Government 921,685 1,013,922 921,685 1,013,922 Central Government 47,173 82,876 47,173 82,876 Total 8,964,400 9,281,683 8,964,400 9,281,683
Deposits with variable rates are P6,647,419 (2013: P7,311,117) and fixed rates are P2,316,981 (2013: P1,970,566).
28 Other liabilities
Consolidated Company in thousands of pula 2014 2013 2014 2013
Creditors and accruals 96,117 85,446 94,891 85,446 Clearing and other liabilities 91,680 182,821 65,356 155,237 Total 187,797 268,267 160,247 240,683
87 Notes to the Financial Statements (continued) For the year ended 31 December 2014
29 Provisions
Consolidated and Company Sundry Fees Total in thousands of pula provisions Refundable
At 1st January 2014 13,286 21,286 34,572 Additions 26,324 - 26,324 Amounts utilised (4,165 ) (10,612 ) (14,777 ) At 31 December 2014 35,445 10,674 46,119
Consolidated and Company Sundry Fees Total in thousands of pula provisions Refundable
At 1st January 2013 10,693 - 10,693 Additions 2,593 21,286 23,879 Amounts utilised - - - At 31 December 2013 13,286 21,286 34,572
Sundry provisions comprise of provision for leave pay and provision for Barclays Insurance Services (Pty) Limited commissions refundable.
Fees refundable relates to a provision raised as a result of Optional Issuer fees charged to customers in prior years. A provision was recognised in the prior year and the repayments were made during the year to affected customers.
30 Debt securities in issue
Consolidated Company in thousands of pula 2014 2013 2014 2013
Debt securities issued at amortised cost Floating rate debt securities 112,472 102,270 112,472 102,270 Medium-term notes 410,391 400,851 410,391 400,851 Total 522,863 503,121 522,863 503,121
Floating rate notes During the year, the Bank privately placed floating rate notes amounting to P101 million (redeemable on 26 November 2015) and P11 million (redeemable on 16 September 2015). The floating rate notes amounting to P100 million were redeemed on 30th October 2014.
Medium term notes In 2004, the Bank established and listed a domestic Medium Term Note Programme on the Botswana Stock Exchange. Under the programme, Bank issued notes for such periods and on such terms as agreed with the investors.
During the year, the Bank listed another domestic Medium Term Note Programme on the Botswana Stock Exchange for up to P2 billion which comprises of P90 million subordinated debt. In the current reporting period, the Bank has issued P200 million of senior unsubordinated debt note of various maturities and interest rates to match the tenor of its long term asset book.
88 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
30 Debt securities in issue (continued)
In Issue
Issuance date Amount Interest Interest Redemption Stock (P ‘000) Rate % basis date code Friday, June 09, 2006 15,000 10.25% Fixed 22/02/2016 BB010 Friday, June 09, 2006 85,000 10.75% Fixed 05/04/2016 BB011 Friday, May 09, 2008 90,000 11.00% Fixed 09/05/2015 BB013 Friday, October 31, 2014 43,600 5.65% Floating 31/10/2019 BBB015 Friday, October 31, 2014 156,400 8.00% Fixed 31/10/2019 BBB016 Total debt securities in issue 390,000
31 Capital and reserves
Consolidated Company in thousands of pula 2014 2013 2014 2013
Stated capital Ordinary shares issued and fully paid 852,161,250 shares at no par value 17,108 17,108 17,108 17,108
All issued shares are fully paid.
Consolidated Company in thousands of pula 2014 2013 2014 2013
Reserves Share capital reserve 2,060 2,060 2,060 2,060 General risk reserve 81,237 60,923 81,237 60,923 Other reserves 4,616 4,596 4,616 4,596 Other reserves 87,913 67,579 87,913 67,579
Retained earnings 1,420,635 1,287,429 1,421,818 1,304,847
Total reserves 1,508,548 1,355,008 1,509,731 1,372,426
All reserves are shown net of deferred tax where applicable.
Share capital reserve The share capital reserve is a contingency reserve set aside by the Bank.
General risk reserve A general risk reserve has been created in accordance with the requirements of the Bank’s regulator, the Bank of Botswana. This reserve represents 1% of the Bank’s loans and advances net of impairment provision.
89 Notes to the Financial Statements (continued) For the year ended 31 December 2014
31 Capital and reserves (continued)
Undistributed profits Undistributed profits are retained in the revenue reserve.
Other reserves Other reserves comprise of the Incentive Share Plan scheme (Incentive Shares). Incentive Shares are granted to participants in the form of a provisional allocation of Barclays PLC shares which vest upon achieving continued service after three years. Participants do not pay to receive an award or to receive a release of shares.
32 Prior year restatement
Barclays Insurance Services (Pty) Limited (“BIS”), a wholly owned subsidiary of Barclays Bank Botswana Limited, earns commission on all insurance policies sold on behalf of its principal. In terms of the agency agreement, BIS is obliged to contribute towards commission refunds as a result of policy surrenders. Accordingly, in terms of International Accounting Standards 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), the company is required to recognise a provision in respect of commissions refundable. In the past, management has not recognised a liability for commissions refundable in accordance with IAS 37. Based on the information that has been available, an assessment made during the year indicated the liability to be material to the group financial statements, requiring a restatement of the previously reported results, as the omission to recognise the liability in the past constitutes an error as defined by International Accounting Standards 8, Accounting policies, Changes in Accounting Estimates and Errors. The impact of the error on the group financial statements is as follows:
Restated - audited year ended 31 December in thousands of pula 2013 2012 2011 Statement of comprehensive income Fee and commission income - as previously stated 286,621 284,903 285,243 Fee and commission income - restated 280,791 272,260 276,132 Effect on profit from continuing operations (5,830 ) (12,643 ) (9,111 )
Statement of financial position Other liabilities - original 240,683 214,566 168,158 Other liabilities - restated 268,267 236,320 177,269 Effect of restatement on retained earnings 27,584 21,754 9,111
Retained earnings - original 1,315,013 1,256,741 1,356,416 Retained earnings - restated 1,287,429 1,234,987 1,347,305 Effect of restatement on retained earnings (27,584 ) (21,754 ) (9,111 )
As reflected above, the effect of the error on the statement of financial position as of 31 December 2012 is P21.754 million understated liabilities and an equal overstatement out of retained earnings. The error is not considered to be material for the 2012 financial period and therefore the statement of financial position as of 31 December 2012 has not been presented in these financial statements as required by International Accounting Standards 1, Presentation of financial statements. All information relevant to the error and the effect of the error on the 2012 financial period has been presented in this note.
90 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
33 Share based payments
Equity settled share based payments The net charge/(release) for the year arising from equity settled share based payment schemes
Consolidated Company in thousands of pula 2014 2013 2014 2013
Incentive Share Plan - - - Share Value Plan 20 (6 ) 20 (6 ) Total share based payments 20 (6 ) 20 (6 )
The terms of the current plans are as follows:
Incentive Share Plan (ISP) Incentive shares are granted to participants in the form of provisional allocation of Barclays PLC shares which vest upon achieving continued service after three years. Participants do not pay to receive an award or to receive a release of shares.
Share Value Plan (SVP) SVP awards are granted to participants in the form of a conditional right to receive Barclays PLC shares which vest over a period of three years in equal annual tranches. Participants do not pay to receive an award or to receive a release of shares. The grantor may also make a dividend equivalent payment to participants on vesting of a SVP award. SVP awards are also made to eligible employees for recruitment purposes under schedule 1 to the SVP. All awards are subject to potential forfeiture in certain leaver scenarios.
Cash settled share based payments During the year, certain employees were awarded payments under the cash settled share based payment schemes. The number of shares awarded is as follows;
Opening Granted Forfeited Closing in thousands of pula balance balance SVP - 2,470 - 2,470 SVP Cliff - 20,259 (7,779 ) 12,480
The terms and conditions of the above share-based payment arrangements dictate that awards be settled immediately on vesting and therefore there are no awards which have vested but have not yet been settled at any given time. Furthermore the awards outstanding in the afore-mentioned schemes have no exercise price.
Weighted average contractual life of awards outstanding 2014 SVP 1.7 SVP Cliff 2.2
91 Notes to the Financial Statements (continued) For the year ended 31 December 2014
33 Share based payments (continued)
The terms of these cash settled schemes are as follows;
Barclays Africa Group Limited Share Value Plan The Share Value Plan (“SVP”) is a cash-settled share-based payment arrangement. The SVP awards (and any associated notional dividends) are awarded at no cost to the participants. The awards vest in equal tranches after one, two and three years, with each tranche subject to its own independent non-market-related performance condition. The amount that is paid to the participants is equal to the market value of a number of Barclays Africa Group Limited ordinary shares, as determined on the vesting date, to the extent that the non-market-related conditions attached to the awards are met. If the Group fails to meet the minimum performance criteria, the awards made in that tranche are forfeited in total. Dividends accumulate and are reinvested over the period.
Barclays Africa Limited Retention Plan The Share Value Retention Plan (“SVP Cliff”) is a cash-settled share-based payment arrangement. The SVP Cliff awards (and any associated notional dividends) are awarded at no cost to the participants. The awards vest after three years, subject to its own independent non-market related performance condition. The amount that is paid to the participants is equal to the market value of a number of Barclays Africa Group Limited’s ordinary shares, as determined on the vesting date, to the extent that the non-market related conditions attached to the awards are met. If the Group fails to meet the minimum performance criteria, the awards made in that tranche are forfeited in total. Dividends accumulate and are reinvested over the vesting period.
34 Related Parties
Barclays Africa Group Limited (‘’BAGL’’) owns 67.82% of the ordinary shares of the Bank. The rest are widely held on the Botswana Stock Exchange. The Group’s ultimate holding company is Barclays Bank PLC.
Significant subsidiaries The Bank has a 100% owned subsidiary, Barclays Insurance Services (Pty) Limited, which is an insurance agent.
Transactions with key management personnel IAS 24 Related Party Disclosures (“IAS 24”), requires the identification of key management personnel, who are individuals responsible for planning, directing and controlling the activities of the entity, including directors. Key management personnel are defined as executive and non-executive directors and members of the Executive Committee (“Exco”). A number of banking and insurance transactions are entered into with key management personnel in the normal course of business, under terms that are no more favourable than those arranged with other employees. These include loans, deposits and foreign currency transactions. The outstanding balances at the reporting date with related parties and related party transactions conducted during the reporting period are as follows:
Consolidated & Company in thousands of pula 2014 2013
Key management personnel compensation Post-employment benefit contributions 1,599 1,300 Salaries and other short-term benefits 16,453 13,918 Total 18,052 15,218
92 Barclays Bank of Botswana Annual Financial Statements 2014
Notes to the Financial Statements (continued) For the year ended 31 December 2014
34 Related Parties (continued)
Transactions with key management personnel
Consolidated & Company in thousands of pula 2014 2013
Loans Balance at the beginning of the reporting period 12,961 12,262 Loans issued and interest earned 3,583 699 Loans repaid (4,723 ) - Balance at the end of the reporting period 11,821 12,961 Interest income 575 699 Deposits Balance at the beginning of the reporting period 3,293 2,132 Net deposits received 1,885 1,161 Balance at the end of the reporting period 5,178 3,293 Interest expense 69 62 Guarantees - -
Loans include mortgages, asset finance transactions, overdrafts and other credit facilities. Loans to key management personnel are provided on the same terms and conditions as loans to employees of the Group, including interest rates and collateral requirements. No loans to key management personnel or entities controlled by key management personnel were written off as irrecoverable.
Transactions with the holding company, Barclays Africa Group Limited and the ultimate holding company Barclays Bank PLC.
2014 2013 in thousands of pula BAGL group Barclays PLC BAGL group Barclays PLC
Interest and similar income 1,912 882 13,503 283 Interest expense and similar charges - - 6 3,409 Operating expenditure 27,105 23,278 23,059 26,756 Dividends paid 135,648 - - 146,160
There were no bad debt expenses and provisions for bad debts that related to balances and transactions with the parent company, fellow subsidiaries, associates and joint ventures of the parent company.
93 Notes to the Financial Statements (continued) For the year ended 31 December 2014
35 Contingent liabilities and commitments
The following tables summarise the nominal principal amount of contingent liabilities and commitments with off-statement of financial position risk.
Consolidated Company in thousands of pula 2014 2013 2014 2013
Undrawn commitments to customers 848,695 805,278 848,695 805,278 Performance and bid bonds 178,447 166,937 178,447 166,937 Total 1,027,142 972,215 1,027,142 972,215
Undrawn commitments to customers Commitments to lend are agreements to lend funds to customers, subject to certain conditions. Such commitments are generally made for a fixed period. The Bank may withdraw from its contractual obligation for the undrawn portion of the agreed facility. Short term commitments are those which have an original maturity of less than a year and may be unconditionally cancelled at any time.
Performance and bid bonds These are transaction-related contingencies where the Bank guarantees a transaction or performance. They generally attract a 50% risk weighting unless the nature of the counterparty allows otherwise.
Letters of credit Letters of credit commit the Bank to make payments to third parties to facilitate trade. These are short term, self-liquidating contingent liabilities arising from the movement of goods.
Commitments At 31 December 2014 the commitments for capital expenditure under contract amounted to P10.8m (2013: P6.3m).
Operating lease payments due
Consolidated Company in thousands of pula 2014 2013 2014 2013
Less than one year 24,935 16,535 24,935 16,535 Between one and five years 81,498 29,325 81,498 29,325 Total future cash flows 106,433 45,860 106,433 45,860 Amount already accrued in the statement of financial position (5,967 ) (1,975 ) (5,967 ) (1,975 ) Total future operating lease expenses 100,466 43,885 100,466 43,885
The operating lease commitments comprise a number of separate operating leases in relation to property and equipment, none of which is individually significant to the Group. Leases are negotiated for an average term of three to five years.
94 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management For the year ended 31 December 2014
Credit risk
Introduction Credit risk is the risk that the Bank’s customers, clients or counterparties will not be able or willing to pay interest, repay capital or otherwise to fulfil their contractual obligations under loan agreements or other credit facilities. Credit risk also arises through the downgrading of counterparties whose credit instruments the Bank may be holding, causing the value of those assets to fall. Furthermore, credit risk is manifested as sector risk where difficulties experienced by the sector in which the exposure is domiciled may impede payment or reduce the value of the asset. Settlement risk is another special form of credit risk which is the possibility that the Bank may pay a counterparty – for example, a bank in a foreign exchange transaction – and fail to receive the corresponding settlement in return.
Loans and advances to customers provide the principle source of credit risk to the bank although it can be exposed to other forms of credit risk through, for example, loans to banks, loan commitments and debt securities. The Banks risk management policies and processes identify and analyse risk ,set appropriate risk appetite limits and controls and monitor the risks and adherence to limits by means of reliable and timely data. One particular area of review is concentration risk.
Barclays risk management strategy The Bank’s Credit Risk objectives are:
– Supporting the achievement of sustainable asset and revenue growth in line with our risk appetite; – Simplify risk management processes; – Investing in skills and experience; – Operating sound credit granting processes; – Monitoring credit diligently; – Using appropriate models to assist decision making; – Continually improving collection and recovery; and – optimising the control environment
Performance
Retail Credit Risk:
Growth: Overall loans and advances grew by 9.6% year-on-year. This growth is primarily driven by mortgages and term loans.
Portfolio Performance: New business quality continues to improve across the portfolio due to improvements in credit policy and cutting off of risky segments. Loan loss rate (“LLR”) has improved from 313 bps to 218bps. Non performing Loans (NPL) impairment coverage has reduced by 5.1%. Overall stabilisation of portfolios due to closer monitoring by Risk and improvements in Collections and Recoveries.
Impairment: Full year 2014 impairment charge closed at P150m, a noted improvement from P198m in 2013.
Wholesale credit risk:
Growth: Portfolio experienced an impressive growth during the reporting period, and remained within agreed appetite levels. Growth in the wholesale portfolio was largely attributable to transactions on the corporate and investment banking book.
Portfolio Performance: Performance was well in line with expectations. Loan loss rates (“LLR”) measures improved across the wholesale client base. While there was an increase in exposure of accounts in the early warning list (“EWL”), the loan repayments continue to be honoured and there is no risk of impairment on the names.
Impairment: impairment numbers are steadily on decline due to low loan loss rates, adequate security and on the basis of reducing loans. The impairment releases noted during the reporting period were as a result of heightened management attention and active client engagement of accounts on the wholesale portfolio.
95 Risk Management (continued) For the year ended 31 December 2014
Risk management processes The Bank’s approach is to provide direction on: understanding the principal risks to achieving Bank strategy; establishing risk appetite; and establishing and communicating the risk management framework. The process is then broken down into five steps: identify, assess, control, report and manage/challenge. Each of these steps is broken down further, to establish end-to-end activities within the risk management process and the infrastructure needed to support it.
Steps Activity
Identify – Establish the process for identifying and understanding business-level risks.
Assess – Agree and implement measurement and reporting standards and methodologies.
Control – Establish key control processes and practices, including limit structures, impairment allowance criteria and reporting requirements. – Monitor the operation of the controls and adherence to risk direction and limits. – Provide early warning of control or appetite breaches. – Ensure that risk management practices and conditions are appropriate for the business environment
Report – Interpret and report on risk exposures, concentrations and risk-taking outcomes. – Interpret and report on sensitivities and Key Risk Indicators. – Communicate with external parties.
Manage and challenges – Review and challenge all aspects of the Bank’s risk profile. – Assess new risk-return opportunities. – Advise on optimising the Bank’s risk profile. – Review and challenge risk management practices.”
Assigning responsibilities Responsibility for risk management resides at all levels within the Bank, from the Board and the Executive Committee down through the organisation to each business manager and risk specialist. Barclays distributes these responsibilities so that risk/return decisions are taken at the most appropriate level; as close as possible to the business, and subject to robust and effective review and challenge. The responsibilities for effective review and challenges reside with senior managers, risk oversight committees, Barclays Internal Audit, the independent Bank Risk function, the Board Risk Committee and, ultimately, the Board.
The Board of Directors’ main focus is on the business policies and strategies of the Bank as well as responsibility for the establishment and oversight of the Bank’s risk management framework. The Board has established the Audit Committee to monitor financial controls, accounting systems and shareholder reporting. The Country Asset and Liability Management Committee’s (“ALCO”) main purpose is to achieve sustainable and stable profits within a framework of acceptable financial risks and controls. The Governance and Control Committee is responsible for establishing and/or operation of the governance and control framework. The Country Management Committee (“CMC”) acts as the operational management forum responsible for delivering the Bank’s operating plan and results. Certain Board committees have both executive and non-executive members and report regularly to the Board of Directors on their activities. All other committees have executive Directors and senior management members and report via the CMC to the Board of Directors.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.
The Bank’s Audit Committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank Audit Committee is
96 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
Risk management responsibilities are laid out in the Principal Risks Policy, which covers the categories of risk in which Barclays has its most significant actual or potential risk exposures.
The Principal Risks Framework: – creates clear ownership and accountability; – ensures the Bank’s most significant risk exposures are understood and managed in accordance with agreed risk appetite (for financial risks) and risk tolerances (for non-financial risks); and – ensures regular reporting of both risk exposures and the operating effectiveness of controls.
Each Principal Risk comprises individual Key Risk Types. The four Principal Risks are: Credit, Market, Liquidity and Operational, each owned by a senior individual within the Bank Risk function known as the Principal Risk Owner. The first three Principal Risks are risks that Barclays actively seeks to manage and have direct income implications. The fourth Principal Risk relates to operational risks, exposure which arises directly from undertaking business processes in support of Barclays activities, which the Bank seeks to minimise.
The five steps required by the Principal Risks Policy are: Identify, Assess, Control, Report, and Manage and Challenge.
Each Key Risk is owned by a senior individual known as the Key Risk Owner who is responsible for proposing a risk appetite statement and managing the risk in line with the Principal Risks Policy. This includes the documentation, communication and maintenance of a risk control framework which makes clear, for every business across the bank, the mandated control requirements in managing exposures to that Key Risk.
These control requirements are given further specification, according to the business unit or risk type, to provide a complete and appropriate system of internal control. Business Unit function heads are responsible for obtaining on-going assurance that the key controls they have put in place to manage the risks to their business objectives are operating effectively.
Management of credit risk The Credit risk department is responsible for portfolio management and risk concentration issues, sector exposure, product risk and credit grading. The credit risk department is responsible for sanctioning large credit exposures to all customers and counterparties arising from lending, trading activities, derivative instruments and settlement risks.
The Bank also uses a corporate grading structure which shows the borrower’s probability of default. This, together with similar risk calibration of categories of personal sector lending, is used to estimate annual levels of future credit losses from the overall lending portfolio, averaged across the economic cycle (termed risk tendency). Such risk tendency estimates assist in portfolio management decisions, such as exposure limits to any single counterparty or borrower, desired aggregate exposure levels to individual sectors and pricing policy. Over time, it also provides a guide to changes in the underlying credit quality of the lending portfolio.
All loans and advances are categorised as either - neither past due nor individually impaired - past due but not individually impaired; or - individually impaired; or
Credit risk loans comprise loans and advances to banks and customers 90 days overdue or more and 180 days or more on cards and those subject to individual impairment. The coverage ratio is calculated by reference to the total impairment allowance and the carrying value (before impairment) of credit risk loans.
97 Risk Management (continued) For the year ended 31 December 2014
Credit risk (continued)
The following table below demonstrates impairment allowances against financial assets that have been individually impaired and those subject to collective impairment;
(i) Maximum exposure to credit risk
As at 31 December 2014
Neither past Past due due nor but not Total individually individually Individually Impairment carrying Impaired Coverage in thousands of pula impaired impaired impaired Total allowance value loans ratio
Balances with Bank of Botswana 788,834 - - 788,834 - 788,834 - - Financial Instruments 1,406,704 - - 1,406,704 - 1,406,704 - - Trading portfolio assets 20,201 - - 20,201 - 20,201 - - Balances with related companies 562,482 - - 562,482 - 562,482 - - Loans and advances to banks 578,056 - - 578,056 - 578,056 - - Derivative financial instruments 6,264 - - 6,264 - 6,264 - - Loans and advances to customers 7,926,763 578,741 634 8,506,138 (373,419 ) 8,132,719 400,002 93% Other assets 238,231 - - 238,231 - 238,231 - - Current tax assets 19,529 - - 19,529 - - - - Deferred tax assets 11,941 - - 11,941 - - - - Retirement benefit fund 3,580 - - 3,580 - - - - Total 11,562,585 578,741 634 12,141,960 (373,419 ) 11,733,491 400,002 93%
As at 31 December 2013
Neither past Past due due nor but not Total individually individually Individually Impairment carrying Impaired Coverage in thousands of pula impaired impaired impaired Total allowance value loans ratio
Balances with Bank of Botswana 797,339 - - 797,339 - 797,339 - - Financial Instruments 1,805,160 - - 1,805,160 - 1,805,160 - - Trading portfolio assets 254 - - 254 - 254 - - Balances with related companies 823,828 - - 823,828 823,828 - - Loans and advances to banks 381,923 - - 381,923 - 381,923 - - Derivative financial instruments 18,423 - - 18,423 18,423 Loans and advances to customers 6,968,876 748,571 234 7,717,681 (380,960 ) 7,336,721 371,028 103% Other assets 82,347 - - 82,347 - 82,347 - - Current tax assets 40,802 - - 40,802 - 40,802 - - Total 10,918,952 748,571 234 11,667,757 (380,960 ) 11,286,797 371,028 103%
98 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
Credit risk (continued) ii) Maximum exposure to credit risk before collateral held or other credit enhancements
The following table presents the maximum exposure at 31 December 2013 and 2012 to credit risk of balance sheet and off balance sheet financial instruments, before taking account of any collateral held or other credit enhancements after allowance for impairment and netting where appropriate.
For financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For financial guarantees granted, the exposure is the maximum committed facilities before any collateral.
in thousands of pula 2014 2013
Financial Assets recognised on the statement of financial position: Balances with Bank of Botswana 788,834 797,339
Loans and advances to banks 578,056 381,923
Loans and advances to customers: Overdrafts 162,629 99,711 Mortgages 1,789,680 1,212,356 Term loans 4,313,475 4,053,564 Credit card 362,995 337,453 Scheme loans 1,360,123 1,490,310 Lease instalments 143,820 143,327 Total loans and advances to customers 8,132,722 7,336,721
Available for sale financial instruments – Treasury and other eligible bills 1,401,629 1,800,085 – Equity securities 4,995 4,995 – Debt securities 80 80 Total available for sale financial instruments 1,406,704 1,805,160
Derivative financial assets 6,264 18,423
Balances with related companies 562,482 823,828 Trading portfolio assets 20,201 254 Other assets 238,231 82,347 Current tax assets 19,529 40,802 Deferred tax assets 11,941 - Retirement benefit assets 3,580 - Total financial assets recognised on the statement of financial position 11,768,544 11,286,797
99 Risk Management (continued) For the year ended 31 December 2014
Credit risk (continued)
(iii) Credit exposures relating to off-statement of financial position items
For financial guarantees, the maximum exposure to credit risk is the maximum amount the Bank would have to pay if the guarantee was called upon. For loan commitments and other credit-related commitments that are irrevocable over the life of the respective facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
in thousands of pula 2014 2013
Items not recognised on the Statement of Financial Position:
Guarantees and letters of credit pledged as collateral security (Refer to note 35) 178,447 166,937 Undrawn commitments (Refer to note 35) 848,695 805,278 Total Items not recognised on the statement of financial position 1,027,142 972,215
Total maximum exposure as at 31 December 2014 12,795,686 12,259,012
(iv) Credit mitigation
The financial effect and forms of collateral and credit enhancements for each class of financial instrument giving rise to credit risk are disclosed in the table to follow. The accounting policy on how the collateral impacts the impairment provisions to be carried against the financial asset balance is described further in the Bank’s financial statements accounting policies. (Refer Note 19)
The Bank off-sets asset and liability amounts in the statement of financial position where the ability and intention to net settle exists and the Bank has a legally enforceable right to do so. Amounts disclosed in the maximum exposure category are stated net of these.
The percentage collateral reported is calculated by determining the values of available underlying collateral, limited to the carrying value of the related credit exposure where a loan is possibly over-collateralised, and dividing this value by the maximum exposure, as reported. The percentage reported is calculated independently of other forms of collateral and the assessment of impairment losses on loans and advances.
The Bank may also obtain collateral in the form of floating charges over receivables and inventory of corporate and other business customers. The value of this collateral varies from period to period depending on the level of receivables and inventory. It is impractical to provide an estimate of the amount (fair value or nominal value) of this collateral and the value of this collateral is not reported.
100 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
Collateral includes:
- Guarantees and/or letters of credit from third parties; - Physical collateral including highly liquid securities held under reverse repo agreements and fixed charges over property; - Cash collateral.
2014 in thousands of pula Analysis of credit risk exposure mitigation and collateral Gross Guarantees Physical Cash Other Unsecured maximum Credit collateral collateral exposure Insurance and credit derivatives
On-statement of financial position exposure Balances with Bank of Botswana 788,834 - - - - 788,834 Financial Instruments 1,406,704 - - - 535,000 871,704 Trading portfolio assets 20,201 - - - - 20,201 Balances with related companies 562,482 - - - - 562,482 Loans and advances to banks 578,056 - - - - 578,056 Derivative financial instruments 6,264 - - - - 6,264 Loans and advances to customers 8,132,722 69,586 1,363,875 2,237 - 6,697,024 Other assets 238,231 - - - - 317,231 Current tax assets 19,529 - - - - 19,529 Retirement benefit assets 64,752 - - - - 64,752 Total exposures subject to credit risk 11,817,775 69,586 1,363,875 2,237 535,000 9,926,077
2013 in thousands of pula Analysis of credit risk exposure mitigation and collateral Gross Guarantees Physical Cash Other Unsecured maximum Credit collateral collateral exposure Insurance and credit derivatives
On-statement of financial position exposure Balances with Bank of Botswana 797,339 - - - - 797,339 Financial Instruments 1,805,160 - - - 713,000 1,092,160 Trading portfolio assets 254 - - - - 254 Balances with related companies 823,828 - - - - 823,828 Loans and advances to banks 381,923 - - - - 381,923 Derivative financial instruments 18,423 - - - - 18,423 Loans and advances to customers 7,336,721 68,321 1,849,612 2,137 - 5,416,651 Other assets 82,347 - - - - 82,347 Current tax assets 40,802 - - - - 40,802 Retirement benefit assets 2,925 - - - - 2,925 Total exposures subject to credit risk 11,289,722 68,321 1,849,612 2,137 713,000 8,656,652
101 Risk Management (continued) For the year ended 31 December 2014
Credit risk (continued)
(v) Concentrations of credit risk
Concentration of credit risk exists when a number of counterparties are located in a geographical region, and/or are engaged in similar activities and/or have similar economic characteristics such that their ability to meet contractual obligations is similarly affected by changes in economic or other conditions.
in thousands of pula 2014 Geographical concentration of risk Botswana South Africa SADC UK Europe Total
Balances with Bank of Botswana 788,834 - - - - 788,834 Financial Instruments 1,406,704 - - - - 1,406,704 Trading portfolio assets 20,201 20,201 Balances with related companies - 331,974 130 228,404 1,974 562,482 Loans and advances to banks 578,056 - - - - 578,056 Derivative financial instruments 6,264 - - - - 6,264 Loans and advances to customers 8,132,722 - - - - 8,132,722 Other assets 238,231 - - - - 238,231 Current tax assets 19,529 - - - - 19,529 Retirement benefit assets 64,752 - - - - 64,752 Total exposures subject to credit risk 11,255,293 331,974 130 228,404 1,974 11,817,775
Off-statement of financial position exposure Guarantees and Bonds 178,447 - - - - 178,447 Commitments 848,695 - - - - 848,695 Total exposures subject to credit risk 1,027,142 - - - - 1,027,142
in thousands of pula 2013 Geographical concentration of risk Botswana South Africa SADC UK Europe Total
Balances with Bank of Botswana 797,339 - - - - 797,339 Financial Instruments 1,805,160 - - - - 1,805,160 Trading portfolio assets 254 - - - - 254 Balances with related companies - 80,678 6 743,144 - 823,828 Loans and advances to banks 381,923 - - - - 381,923 Derivative financial instruments 18,423 - - - - 18,423 Loans and advances to customers 7,336,721 - - - - 7,336,721 Other assets 82,347 - - - - 82,347 Current tax assets 40,802 - - - - 40,802 Retirement benefit assets 2,925 - - - - 2,925 Total exposures subject to credit risk 10,465,894 80,678 6 743,144 - 11,289,722
Off-statement of financial position exposure Guarantees and Bonds 166,937 - - - - 166,937 Commitments 805,278 - - - - 805,278 Total exposures subject to credit risk 972,215 - - - - 972,215
102 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
Credit risk (continued) vi) Collateral and other credit enhancements held
Financial assets that are past due or individually assessed as impaired are at least partially collateralised or subject to other forms of credit enhancement as described above. The effects of such arrangements are taken into account in the calculation of the impairment allowance held against them.
The description and fair value of collateral and other credit enhancements held in respect of financial assets that are past due or individually assessed as impaired was as follows: in thousands of pula 2014 Fair Value 2013 Fair Value
Nature of assets – Residential property 48,158 83,081 – Other credit enhancements - - Total 48,158 83,081
Assets subject to collateralisation and credit enhancement include corporate lending and residential mortgage loans. For most forms of security, the collateral given is valued only on origination or in the course of enforcement actions. In the case of corporate lending security may be in the form of floating charges where the value of the collateral varies with the level of assets, such as inventory and receivables, held by the customer.
Enforcement of collateral
The carrying value of assets held by the Bank as at 31st December 2014 as a result of the enforcement of collateral was as follows: in thousands of pula 2014 Fair Value 2013 Fair Value
Nature of assets – Mortgages 3,582 1,319 – VAF 296 1,045 Total 3,878 2,364
The Bank does not use assets obtained in its operations. Assets obtained are normally sold, generally at auction, or realised in an orderly manner for the maximum benefit of the Bank, the borrower and the borrower’s other creditors in accordance with the relevant insolvency regulations.
103 Risk Management (continued) For the year ended 31 December 2014
(b) Credit risk (continued)
(vii) Credit quality of financial assets neither past due nor impaired
The quality of financial assets subject to credit risk, that were neither past due nor impaired, based on the Bank’s internal credit ratings, was as follows;
For the purposes of the analysis of credit quality, the following internal measures of credit quality have been used:
Retail Lending Wholesale Default probabilty of lending Grade Financial statements description default probabilty of default Strong 0.0-0.60% 0.0-0.05% 1-3 0.05-0.15% 4-5 0.15-0.30% 6-8 0.30-0.60% 9-11 Satisfactory 0.60-10.00% 0.60-2.15% 12-14 2.15-11.35% 15-19 Higher risk 10.00% + 11.35% + 20-21
Financial statement descriptions can be summarised as follows:
Strong – there is a very high likelihood of the asset being recovered in full.
Satisfactory – whilst there is a high likelihood that the asset will be recovered and therefore, of no cause for concern to the Bank, the asset may not be collateralised, or may relate to retail facilities, such as credit card balances and unsecured loans, which have been classified as satisfactory, regardless of the fact that the output of internal grading models may have indicated a higher classification. At the lower end of this grade there are customers that are being more carefully monitored, for example, corporate customers which are indicating some evidence of some deterioration, mortgages with a high loan to value ratio, and unsecured retail loans operating outside normal product guidelines.
Higher risk – there is concern over the obligor’s ability to make payments when due. However, these have not yet converted to actual delinquency. There may also be doubts over value of collateral or security provided. However, the borrower or counterparty is continuing to make payments when due and is expected to settle all outstanding amounts of principal and interest.
104 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
(b) Credit risk (continued)
(vii) Credit quality of financial assets neither past due nor impaired(continued)
2014 in thousands of pula Strong Satisfactory Higher Risk Total
Balances with Bank of Botswana 788,834 - - 788,834
Loans and advances to banks 578,056 - - 578,056
Loans and advances to customers: Overdrafts 51,457 2,683 14,446 68,586 Mortgages - 1,602,956 79,248 1,682,204 Term loans 2,389,147 962,239 684,869 4,036,255 Credit card receivables 366,290 8,866 55,950 431,106 Scheme loans 1,482,951 - 84,341 1,567,292 Lease instalments 129,882 3,767 7,671 141,320 Total loans and advances to customers 4,419,727 2,580,511 926,525 7,926,763
Available for sale financial instruments: Treasury bills and other eligible bills 1,401,629 - - 1,401,629 Equity securities 4,995 - - 4,995 Debt securities 80 - - 80 Total available for sale financial instruments 1,406,704 - - 1,406,704
Derivative financial instruments 6,264 - - 6,264
Balances with related companies 562,482 - - 562,482 Other assets 238,231 - - 238,231
Total financial assets subject to credit risk neither past due nor impaired 8,000,298 2,580,511 926,525 11,507,334
105 Risk Management (continued) For the year ended 31 December 2014
(b) Credit risk (continued)
(viii) Credit quality of financial assets neither past due nor impaired
The quality of financial assets subject to credit risk, that were neither past due nor impaired, based on the Bank’s internal credit ratings, was as follows; 2013 in thousands of pula Strong Satisfactory Higher Risk Total
Cash and Balances with Bank of Botswana 797,339 - - 797,339
Loans and advances to banks 381,923 - - 381,923
Loans and advances to customers: Overdrafts 12,331 10,509 12,988 35,828 Mortgages 336,107 811,120 74,980 1,222,207 Term loans 2,045,486 1,318,699 574,975 3,939,160 Credit card receivables 267,962 7,196 47,895 323,053 Scheme loans 1,245,777 554 77,661 1,323,992 Lease instalments 102,069 6,716 15,851 124,636 Total loans and advances to customers 4,009,732 2,154,794 804,350 6,968,876
Available for sale financial instruments: Treasury bills and other eligible bills 1,800,085 - - 1,800,085 Equity securities 4,995 - - 4,995 Debt securities 80 - - 80 Total available for sale financial instruments 1,805,160 - - 1,805,160
Derivative financial instruments 18,423 - - 18,423
Balances with related companies 823,828 - - 823,828 Other assets 151,836 - - 151,836
Total financial assets subject to credit risk neither past due nor impaired 7,988,241 2,154,794 804,350 10,947,385
(ix) Financial assets renegotiated
Certain of the Bank’s financial assets would have been past due if their terms had not been renegotiated.
Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts.
Restructuring policies and practices are based on indicators or criteria which, in the judgment of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans, in particular customer finance loans. At 31st December 2014, there were no such assets.
106 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
(x) Financial assets that are past due but not individually impaired 2014 in thousands of pula Past due 1 Past due 1-2 Past due 2-3 Past due >3 Total month months months months
Loans and advances to customers: Overdrafts 3,261 732 104 11,123 15,220 Mortgages 16,668 7,323 7,071 39,730 70,792 Term loans 47,513 23,935 15,408 246,299 333,155 Credit card receivables 9,664 5,944 3,589 45,543 64,740 Scheme loans 15,545 8,049 3,977 55,568 83,139 Lease instalments 3,549 1,579 737 5,830 11,695 Total loans and advances to customers 96,200 47,562 30,886 404,093 578,741
As at 31st December 96,200 47,562 30,886 404,093 578,741
2013 in thousands of pula Past due 1 Past due 1-2 Past due 2-3 Past due >3 Total month months months months
Loans and advances to customers: Overdrafts 2,877 396 416 7,935 11,624 Mortgages 51,262 9,249 7,257 29,974 97,742 Term loans 185,052 36,247 29,210 241,975 492,484 Credit card receivables 8,349 3,281 2,687 35,346 49,663 Scheme loans 13,888 8,493 6,407 48,868 77,656 Lease instalments 3,729 1,333 658 13,682 19,402 Total loans and advances to customers 265,157 58,999 46,635 377,780 748,571
As at 31st December 265,157 58,999 46,635 377,780 748,571
(xi) Impaired financial assets This category comprises loans where an individual impairment allowance has been raised. This category also comprises retail loans which are in the Recovery/Legal Book, i.e. charged-off and so normally more than 90 days past due on loans and 180 days on cards. Financial assets assessed as impaired are as follows: in thousands of pula 2014 2013 Original Impairment Revised Original Impairment Revised carrying allowance carrying allowance amount amount amount amount
Loans and advances to customers: Term loans 634 (634 ) - 234 (234 ) - Total loans and advances to customers 634 (634 ) - 234 (234 ) -
Total financial assets individually assessed as impaired 634 (634 ) - 234 (234 ) - Financial assets collectively assessed as impaired 399,368 (319,106 ) 80,262 370,794 (299,833 ) 70,961
Total impaired financial assets 400,002 (319,741 ) 80,262 371,028 (300,067 ) 70,961
107 Risk Management (continued) For the year ended 31 December 2014
(b) Credit risk (continued)
(xi) Impaired financial assets(continued)
Financial assets including assessed as impaired is as follows:
2014 in thousands of pula At beginning of Amounts Recoveries Amounts Balance at year written of charged to 31st December profit
Loans and advances to customers: Overdrafts - - - - - Term loans 234 (234 ) - 634 634 Lease instalments - - - - - Total loans and advances to customers 234 (234 ) - 634 634
Total impairment allowance 234 (234 ) - 634 634
2013 in thousands of pula At beginning of Amounts Recoveries Amounts Balance at year written of charged to 31st December profit
Loans and advances to customers: Overdrafts - - - - - Term loans 234 - - - 234 Lease instalments - - - - - Total loans and advances to customers 234 - - - 234
Total impairment allowance 234 - - - 234
(c) Liquidity risk
Exposure to liquidity risk
Introduction Liquidity risk is the risk that the Bank is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn. The consequences of this may be the failure to meet obligations to repay depositors and to fulfil commitments to lend. Liquidity risk, more generally, is the risk that the Bank will be unable to continue operating as a going concern due to a lack of funding. Liquidity risk is inherent in all banking operations. Confidence in the organisation, and hence liquidity, can be affected by a range of institution specific and market-wide events including, but not limited to, market rumours, credit events, payment system disruptions, systemic shocks, terrorist attacks and even natural disasters. The appropriate and efficient management of liquidity risk by banks is of utmost importance in maintaining confidence in the financial markets and in ensuring that banks pursue sustainable business models.
Strategy The Bank’s liquidity risk management objectives are: - growing and diversifying the funding base to support asset growth and other strategic initiatives;
108 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
(c) Liquidity risk (continued)
Exposure to liquidity risk (continued)
Strategy (continued) - lengthening the Bank’s funding profile in order to improve key liquidity metrics, thereby reducing the Bank’s liquidity risk exposure; - managing the weighted average cost of funding.
Approach The Bank’s liquidity risk position is managed in line with the board-approved liquidity risk appetite. Treasury is responsible for implementing the liquidity risk framework and policy and for ensuring that liquidity risk is adequately managed across the Bank. Treasury also monitors and manages the Bank’s liquidity position to ensure full regulatory compliance in respect of liquidity risk management and reporting. As part of this process, Treasury takes the contractual and business-as-usual liquidity positions, as well as the stress tested liquidity position into consideration.
Business-as-usual liquidity management Business-as-usual liquidity risk management refers to the management of the cash inflows and outflows of the bank in the ordinary course of business. The business-as-usual environment tends to display fairly high probability, low severity liquidity events and involves balancing the Bank’s day-to-day cash needs. Treasury’s approach to managing business-as-usual liquidity focuses on the following key areas:
- managing net anticipated cash flows (between assets and liabilities) - active daily management of the funding and liquidity profile, taking the board-approved liquidity risk metrics into consideration. These metrics were designed to ensure compliance with the Bank’s business-as-usual liquidity risk tolerance and to position the Bank to deal with stressed liquidity events; - maintaining a portfolio of highly liquid assets as a buffer against any unforeseen interruption to cash flow; - participating in local money and capital markets to support the day-to-day funding requirements such as refinancing maturities, meeting customer withdrawals and supporting growth in advances. - monitoring and managing liquidity costs; and - conducting an on-going assessment of the various funding sources in order to grow and diversify the Bank’s funding base and achieve an optimal funding profile.
Key risk metrics used in business -as -usual liquidity management
Risk metric Purpose of metric
Short -, medium - and long-term Provides a measure of the contractual term of the funding used. For example, funding ratios the long-term funding ratio shows the proportion of total funding that has a remaining contractual term in excess of six months.
Interbank funding ratio Provides an indication of the extent to which reliance is placed on funding from other banks.
Short-term maturity cash flow Provides a measure of the extent to which cash flow mismatches occur in the mismatches (at a contractual and short term (i.e. less than one month). behavioural level)
Cash outflow limits Measures expected cash outflows against predetermined limits.
Concentration of deposits Provides a measure of the extent to which reliance is placed on funding from certain customers or market sectors.
109 Risk Management (continued) For the year ended 31 December 2014
(c) Liquidity risk (continued)
Exposure to liquidity risk (continued)
Stress liquidity risk management Stress liquidity risk management refers to the management of liquidity risk during times of unexpected outflows arising from Bank specific or systemic stress events. Treasury regularly performs liquidity scenario analyses and stress tests to assess the adequacy of the Bank’s stress funding sources, liquidity buffers and contingency funding strategies in the event of such a stressed scenario. Scenario analysis and stress testing encompasses a range of realistic adverse events which, while remote, could have a material impact on the liquidity of the Bank’s operations.
Through scenario analysis and stress testing, the Bank aims to manage and mitigate liquidity risk by: - determining, evaluating and testing the impact of adverse liquidity scenarios; - identifying appropriate rapid and effective responses to a crisis; and - setting liquidity limits, sources of stress funding and liquidity buffers as well as formulating a funding strategy designed to minimise liquidity risk.
The Bank’s overall objective is to ensure that during a liquidity stress event, the Bank’s stress funding sources and liquidity buffers exceed the estimated stress funding requirements for a period of at least 30 days. Stress testing and scenario analysis are used to evaluate the efficiency of identified sources of stress funding along a continuum of risk scenarios and to formulate and test contingency plans. A detailed contingent funding and liquidity plan has been designed to protect depositors, creditors and shareholders during adverse liquidity conditions. The plan includes early warning indicators and sets out the crisis response strategy addressing sources of stress funding, strategies for crisis avoidance/minimisation and the internal and external communication strategy. Liquidity simulation exercises are conducted regularly to test the robustness of the plan and to ensure that key stakeholders remain up to date on liquidity matters.
The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. To monitor the percentage of long-term assets maturing after 1 year as a percentage of total liabilities, a medium term mismatch ratio for both foreign currency and local currency is performed individually. Net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Bank’s compliance with the liquidity limit established by the Bank’s lead regulator, the Bank of Botswana. Primary reserve held is 5% of net local currency deposits and liquid asset ratio is 10% of net local currency deposits. Details of the reported Bank ratio of net liquid assets to deposits and customers at the reporting date and during the reporting period were as follows:
110 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
Ratio of medium term mismatch: Consolidated Company 2014 2013 2014 2013
At 31 December Foreign currency 22.35% 21.89% 22.35% 21.89% Local currency 45.56% 44.11% 45.56% 44.11% Average for the period Foreign currency 25.97% 22.35% 25.97% 22.35% Local currency 44.24% 36.88% 44.24% 36.88% Maximum for the period Foreign currency 29.42% 26.96% 29.42% 26.96% Local currency 46.14% 44.11% 46.14% 44.11% Minimum for the period Foreign currency 43.30% 18.82% 43.30% 18.82% Local currency 19.58% 31.70% 19.58% 31.70%
The table below shows the residual contractual maturities of financial liabilities. The financial liabilities are reflected at an undiscounted future cash flows based on contractual obligations.
Less than 1 - 3 3 - 12 1 - 5 Over 5 in thousands of pula 1 month months months years years Total
At 31 December 2014 Liabilities Deposits from banks 687,256 - - - - 687,256 Balances with related companies 172,952 76,045 - - - 248,997 Derivative financial instruments 324,683 - - - - 324,683 Deposits due to customers 7,431,753 779,616 733,261 77,486 - 9,022,116 Other liabilities 187,797 - - - - 187,797 Provisions 46,119 - - - - 46,119 Current tax liabilities 51,551 - - - - 51,551 Debt securities in issue 7,548 769 244,765 362,891 - 615,973 Undrawn loan commitments 848,695 - - - - 848,695
Total liabilities 9,758,354 856,430 978,026 440,377 - 12,033,187
At 31 December 2013 Liabilities Deposits from banks 7,636 - - - - 7,636 Deposits due to customers 7,330,570 338,441 1,350,923 521,820 - 9,541,754 Derivative financial instruments - 28,446 - - - 28,446 Balances with related companies 118,548 70,119 - - - 188,667 Other liabilities 268,267 - - - - 268,267 Provisions 34,572 - - - - 34,572 Deferred tax liabilities 16,463 - - - - 16,463 Debt securities in issue - 5,338 339,001 210,963 - 555,301 Undrawn loan commitments 805,278 - - - - 805,278
Total liabilities 8,581,334 442,344 1,689,924 732,783 - 11,446,384
111 Risk Management (continued) For the year ended 31 December 2014
(d) Market risk
The Bank takes on exposure to market risk. Market risk arises from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The Bank applies the value at risk methodology to estimate the market risk of positions held and the maximum losses expected, based upon a number of assumptions for various changes in market conditions. The Board of Directors sets limits on the value of risk that may be accepted, which is monitored daily.
Management of market risks Overall authority for market risk is vested with the Bank’s Assets and Liabilities Committee (‘’ALCO’’). ALCO is responsible for the development of detailed risk management policies (subject to review and approval by Bank Market Risk) and for the day-to-day review of their implementation.
Market risk measurement The techniques used to measure and control market risk include: • Daily value at risk • Stress tests • Stop loss
Daily value at risk (Dvar) Dvar is an estimate of the potential loss which might arise from unfavourable market movements, if the current positions were to be held unchanged for one business day. Dvar is calculated using the historical simulation method with a historical sample of two years.
In 2010, the confidence level was changed from 98% to 95% as an increasing incidence of significant market movements made the existing measure more volatile and less effective for risk management purposes. Switching to 95% made Dvar more stable and consequently improved management, transparency and control of the market risk profile.
Stress tests Stress tests provide an indication of the potential size of the losses that could arise in extreme conditions. If the potential losses exceed the trigger limit, the positions captured by the stress test are reviewed by ALCO.
Stop loss A stop loss policy has been instituted incorporating a ‘management trigger level’ at USD100,000. If this trigger level is reached then all open positions must be closed immediately so as to protect the bank against any further exchange rate losses.
112 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
Analysis of trading market risk exposures The table below shows the Dvar statistics for 2013
12 months to 31 December 2014 in thousands of pula Average High Low
Interest rate risk 32,232 39,980 18,678 Foreign currency risk 480 959 79 32,712 40,939 18,756
12 months to 31 December 2013 in thousands of pula Average High Low
Interest rate risk 20,946 32,247 2,472 Foreign currency risk 231 1,081 29 21,177 33,328 2,501
The high (and low) Dvar figures reported for each category did not necessarily occur on the same day as the high (and low) Dvar reported as a whole.
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bps) parallel fall or rise in all yield curves worldwide and a 50 bps rise or fall in the greater than 12-month portion of all yield curves. An analysis of the Bank’s sensitivity showing an increase or decrease in profits to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant statement of financial position) is as follows:
Consolidated and Company 100 bp parallel 100 bp parallel 50 bp increase 50 bp decrease in thousands of pula increase decrease after 1 year after 1 year
2014 At 31 December (6,031 ) 6,031 (3,016 ) 3,016 Average for the period (11,010 ) 11,010 (5,505 ) 5,505 (16,083 ) 16,083 (8,041 ) 8,041 2013 At 31 December (11,703 ) 11,703 (5,851 ) 5,851 Average for the period (9,322 ) 9,322 (4,661 ) 4,661 Maximum for the period (12,288 ) 12,288 (6,144 ) 6,144 Minimum for the period (5,473 ) 5,473 (2,737 ) 2,737
Overall non-trading interest rate risk positions are managed by Treasury, which uses investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank’s non-trading activities.
113 Risk Management (continued) For the year ended 31 December 2014
(e) Interest rate risk
Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored by the Treasury division at least monthly through ALCO.
Interest rates Interest rates Interest rates Average Low* High*
Assets: Loans and advances to banks: BWP 3.12% 4.20% 3.05% USD 0.12% 0.02% 0.08% ZAR 4.50% 4.50% 4.50% Bank of Botswana certificates 14 day 3.04% 3.08% 2.97% 91 day 3.24% 3.45% 3.17% Loans and advances: Corporate 9.58% 36.00% 6.00% Retail 19.75% 49.00% 0.00% Staff 6.55% 40.00% 0.00% Balances with related companies: USD 0.16% 0.18% 0.16% ZAR 5.45% 5.62% 5.40%
Liabilities: Deposits due to customers: Corporate 4.40% 10.35% 0.38% Retail 4.40% 10.00% 0.50% Staff 4.28% 5.20% 4.00% Deposits from banks: BWP 3.24% 8.00% 3.05% USD 0.09% 0.12% 0.05% Balances with related companies USD 0.26% 0.26% 0.26%
Medium term notes 6.83% 8.00% 5.65% Floating rate notes 6.38% 6.75% 6.00%
* Range of interest rates for each class of asset / liability
114 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
(e) Interest rate risk
Exposure to interest rate risk – non-trading portfolios
The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities. A summary of the Bank’s interest rate gap position on non-trading portfolios is as follows:
Non- Less than 1 - 3 3 - 12 1 - 5 Over 5 interest in thousands of pula 1 month months months years years bearing Total
At 31 December 2013
Assets Cash - - - - - 297,388 297,388 Balances with the Bank of Botswana - - - - - 788,834 788,834 Financial instruments 944,990 461,714 - - - - 1,406,704 Trading portfolio assets 20,201 - - - - - 20,201 Balances with related companies 562,482 - - - - - 562,482 Loans and advances to banks 578,056 - - - - - 578,056 Derivative financial instruments - - - - - 6,264 6,264 Financial assets designated at fair value ------Loans and advances to customers 453,436 127,572 93,564 4,075,048 3,383,103 - 8,132,722 Other assets - - - - - 238,231 238,231 Current tax assets - - - - - 19,529 19,529 Deferred tax assets - - - - - 11,941 11,941 Intangible assets - - - - - 22,673 22,673 Property and equipment - - - - - 159,955 159,955 Retirement benefit fund - - - - - 3,580 3,580 Total assets 2,559,165 589,286 93,564 4,075,048 3,383,103 1,548,395 12,248,560
Liabilities Deposits from banks 687,256 - - - - - 687,256 Balances with related companies 125,423 - 47,528 76,046 - - 248,997 Derivative financial instruments - - - - - 13,921 13,921 Deposits due to customers 5,358,215 779,616 733,261 77,486 - 2,071,843 9,020,421 Other liabilities - - - - - 187,797 187,797 Provisions - - - - - 46,119 46,119 Current tax liabilities - - - - - 51,551 51,551 Deferred tax liabilities - - - - - 11,941 11,941 Debt securities in issue - - 222,863 300,000 - - 522,863 Retirement benefit liabilities ------Total liabilities 6,170,894 779,616 1,003,652 453,532 - 2,383,172 10,790,866
Total interest sensitivity gap (3,611,729 ) (190,330 ) (910,088 ) 3,621,516 3,383,103 (834,777) 1,457,694
115 Risk Management (continued) For the year ended 31 December 2014
(e) Interest rate risk (continued)
Exposure to interest rate risk – non-trading portfolios (continued)
Non- Less than 1 - 3 3 - 12 1 - 5 Over 5 interest in thousands of pula 1 month months months years years bearing Total
At 31 December 2013
Assets Cash - - - - - 227,941 227,941 Balances with the Bank of Botswana 28,965 - - - - 768,374 797,339 Financial instruments - - - - - 18,423 18,423 Trading portfolio assets - - - - - 69,235 69,235 Balances with related companies - - - - - 82,347 82,347 Loans and advances to banks 822,698 1,130 - - - - 823,828 Derivative financial instruments 254 - - - - - 254 Financial assets designated at fair value 1,240,122 560,043 - - - 4,995 1,805,160 Loans and advances to customers 256,567 272,267 634,907 3,154,900 3,399,040 - 7,717,681 Other assets 381,923 - - - - - 381,923 Current tax assets - - - - - 99,749 99,749 Intangible assets - - - - - 34,895 34,895 Property and equipment - - - - - 40,802 40,802 Total assets 2,730,529 833,440 634,907 3,154,900 3,399,040 1,346,761 12,099,577
Liabilities Deposits from banks 7,636 - - - - - 7,636 Balances with related companies 188,667 - - - - - 188,667 Derivative financial instruments - - - - - 28,446 28,446 Deposits due to customers 7,311,094 299,489 1,175,638 495,462 - - 9,281,683 Other liabilities - - - - - 240,683 240,683 Provisions - - - - - 34,572 34,572 Debt securities in issue - - 313,121 190,000 - - 503,121 Deferred tax liabilities - - - - - 16,463 16,463 Retirement benefit liabilities - - - - 17,646 - 17,646 Total liabilities 7,507,397 299,489 1,488,759 685,462 17,646 320,164 10,318,917
Total interest sensitivity gap (4,776,868 ) 533,951 (853,852) 2,469,438 3,381,394 1,026,597 1,780,660
116 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
(f) Hedge accounting
The Bank uses interest rate swaps and foreign exchange contracts to hedge its exposure to changes in exchange rates and interest rates. The Bank has entered into a hedging relationship with Barclays PLC.
The objective of this hedging relationship is to hedge the risk of movements in the USD Libor index. The Bank has issued a fixed rate foreign currency loan to one of its Corporate clients and this exposes it to the movements in the USD Libor index. There are other inherent risks that the Bank is exposed to as a result of this loan, like foreign exchange rate movements, that are not hedged in this relationship. The hedging instrument is a pay fixed rate receive variable interest rate swap with Barclays PLC.
During the year, P463,784 (2013: P192,111) was recognised in the statement of comprehensive income as hedge ineffectiveness.
The fair value of the hedge as at 31 December 2014 is as follows; in thousands of pula 2014 2013
Fair value of interest rate swap assets 11,689 11,218 Fair value of interest rate swap liabilities (11,648 ) (11,184 ) Net fair value of interest rate risk 42 34
Notional amount 71,811 70,470
The bank assesses the hedging instruments effectiveness in off-setting the exposure to changes in the hedged items’ fair value by undertaking both prospective and retrospective testing every three months. The test is considered to be passed if the ratios are within 80% to 125%.
(g) Foreign currency risk
The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. As a result of the Bank’s net exposure to statement of financial position assets and liabilities denominated in foreign currency at the year end, foreign exchange translation gains / (losses) for the period would have been P12 million net exposure in Pula based on specific volatilities per foreign currencies to which the statement of financial position was exposed at 31 December 2014.
Treasury manages foreign exchange exposures in line with ALCO and Barclays Bank market risk guidelines. Typically, all currencies other than US Dollar are fully matched with open trading positions being taken on the US Dollar up to a maximum open position at US$19 million at any time.
The Bank conducts its foreign currency operations in accordance with guidelines periodically received from its regulator Bank of Botswana. The current intra day limit is set at US$19million and the overnight limit is US$17 million. These limits were adhered to throughout the year.
The maximum limit allowed by the Bank of Botswana for the overall foreign exchange risk position is 30% of the bank’s unimpaired capital. For USD, ZAR, GBP and EUR, the prescribed limit is 15% of unimpaired capital, per currency. For all other currencies, the prescribed limit is restricted to no more than 5% of unimpaired capital per currency. No bank may exceed its intra-day overall foreign exchange position by more than 5% of the overall limit, without prior approval of the Bank of Botswana. The overall foreign exchange exposure shall be the greater of the sum of the domestic currency equivalent of all net short or long positions in currencies in which the bank has a position.
117 Risk Management (continued) For the year ended 31 December 2014
(h) Operational risks
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Bank’s operations and are faced by all business entities.
The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: requirements for appropriate segregation of duties, including the independent authorisation of transactions • requirements for the reconciliation and monitoring of transactions • compliance with regulatory and other legal requirements • documentation of controls and procedures • requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified • requirements for the reporting of operational losses and proposed remedial action • development of contingency plans • training and professional development • ethical and business standards • risk mitigation, including insurance where this is effective.”
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Bank.
The Bank’s operational risk is monitored by the Risk and Control Committee and the Audit Committee.
(i) Capital management
Capital ratios
Capital adequacy and the use of regulatory capital are monitored by the Bank, applying techniques based on the guidelines developed by the Basel Committee on Banking Regulations and Supervisory Practices (Basel Committee) and European Community Directives, as implemented by the Bank of Botswana for supervisory purposes.
These techniques include the risk asset ratio, which the Bank of Botswana regards as a key supervisory tool. The Bank of Botswana has set the individual minimum ratio requirements for banks in Botswana at 15% which is above the Basel Committee minimum guideline of 8%. The ratio calculation involves the application of designated risk weightings to reflect an estimate of credit, market and other risk associated with broad categories of transactions and counterparties.
The concept of risk weighting, as applied to banking activities, assumes that such activities generally include some risk of loss. For risk weighting purposes, commercial lending are taken as a benchmark to which a risk weighting of 100% is ascribed. Other transactions considered to generate lower levels of risk than commercial lending may qualify for reduced weightings. Off-statement of financial position items are converted to credit risk equivalents by applying credit conversion factors laid down by the Basel Committee, as implemented by
118 Barclays Bank of Botswana Annual Financial Statements 2014
Risk Management (continued) For the year ended 31 December 2014
the Bank of Botswana. The resultant amounts are then risk weighted according to the nature of the counterparty.
Regulatory guidelines define two tiers of capital resources: Tier 1 (core) capital, comprising mainly shareholders’ funds, is the highest tier. Tier 2 capital includes perpetual, medium and long term subordinated debt, general provisions for bad and doubtful debts as well as property and equipment revaluation reserves. Both tiers can be used to meet trading and banking activity requirements although Tier 2 capital, included in the risk asset ratio calculation, may not exceed Tier 1 capital.
The Bank and its individually regulated operations have complied with all externally imposed capital requirements throughout the period.
There have been no material changes in the Bank’s management of capital during the period.
The Bank’s regulatory capital position at 31 December was as follows:
Consolidated Company in thousands of pula 2014 2013 2014 2013
Core capital Stated capital 8,522 8,522 8,522 8,522 Share premium 8,586 8,586 8,586 8,586 Share capital reserve 2,060 2,060 2,060 2,060 General risk reserve 81,237 60,923 81,237 60,923 Retained earnings 1,320,635 1,187,429 1,321,818 1,204,847 Total core capital (Tier 1) 1,421,040 1,267,520 1,422,223 1,284,938
Secondary capital Subordinated redeemable debt 6,500 40,667 6,500 40,667 Unencumbered general provisions 18,280 22,659 18,280 22,659 Total secondary capital (Tier 2) 24,780 63,326 24,780 63,326
Total regulatory capital 1,445,820 1,330,846 1,447,003 1,348,264
Risk weighted assets Total risk weighted assets 7,865,659 7,074,437 7,865,659 7,074,437
Tier 1 (or core) capital ratio (Basel Committee guide: minimum 4%) 18.1% 17.9% 18.1% 18.2% Risk asset ratio (Basel Committee guide: minimum 8%) 18.4% 18.8% 18.4% 19.1% Bank of Botswana preferred minimum risk asset ratio 15.0% 15.0% 15.0% 15.0%
119 Shareholders Information For the year ended 31 December 2014
2014 2013
BARCLAYS AFRICA GROUP LIMITED 577,964,146 67.82% 577,964,146 67.82% FNB BW NOMS(PTY) LTD RE: IAM BPOPFP 10001031 34,789,430 4.08% 34,679,470 4.07% FNB NOMS BW(PTY)LTD RE:BIFM BPOPF ACTIVE MEMBER 34,316,418 4.03% 34,316,418 4.03% FNB NOMS BW(PTY) LTD RE:FAM BPOPF1-10001028 28,849,222 3.39% 28,930,291 3.39% STANBIC NOMINEES RE: BIFM 24,945,341 2.93% 24,884,816 2.92% MOTOR VEHICLE ACCIDENT FUND 23,736,440 2.79% 23,736,440 2.79% FNB NOMINEES (PTY)LTD RE:SIMS BPOPF 10001009 13,022,383 1.53% 13,022,383 1.53% FNB NOMS BW(PTY) LTD RE:BIFM BPOPLF WP 10001027 9,904,181 1.16% 9,904,181 1.16% SCBN{PTY} LTD RE: IAM 203/001 8,270,009 0.97% 8,270,009 0.97% SCBN (PTY) LTD RE: BIFM DPF 7,701,549 0.90% 6,831,984 0.80% FNB NOMINEES (PTY)LTD RE:AGRAY BPOPF 10001010 7,233,133 0.85% 4,276,398 0.78% FNB NOMS BW(PTY) LTD RE: FAM BPOPF3-10001030 6,641,015 0.78% 6,641,015 0.50% SCBN (PTY) LTD RE:IAM 030/30 4,102,598 0.48% 3,753,266 0.44% STANBIC NOMINEES BOTSWANA RE:IBMF 3,219,729 0.38% 3,559,470 0.42% FNB NOMINEES BOTSWANA (PTY) LTD RE: SIMS BBDCSPF 2,308,318 0.27% 2,308,318 0.35% BOTSWANA MEDICAL AID SOCIETY 1,590,000 0.19% 1,590,000 0.28% SCBN (PTY) LTD RE: IAM 030/40 1,574,918 0.18% 1,469,200 0.27% SCBN (PTY) LTD RE:JPM BW000001037-2 1,433,487 0.17% 1,573,487 0.19% SCBN(PTY) LTD RE: IAM 3292505 1,358,446 0.16% 1,358,446 0.18% STANBIC NOMINEES RE: BIFM BLAF 1,335,331 0.16% 1,335,331 0.17% SCBN (PTY) LTD RE: SSB 001/81 1,308,506 0.15% 1,308,506 0.16% SCBN (PTY) LTD RE: IAM 030/27 1,172,769 0.14% - 0.16% FNB NOMINEES (PTY)LTD RE:CFM BPOPF 10001011 - 0.00% 2,956,735 0.15% SCBN(PTY) LTD RE:SSB 001/77 - 0.00% 2,425,925 0.00% Other 55,383,881 6.50% 55,065,015 6.46% TOTAL 852,161,250 100% 852,161,250 100%
120 Barclays Bank of Botswana Annual Financial Statements 2014
Value Added Statement For the year ended 31 December 2014
Consolidated 2014 2013
Value created Income from services 1,473,092 1,519,491 Cost of services (197,913 ) (245,200 ) Value created by operations 1,275,179 1,274,291 Non-operating income 1,987 2,721 Operating expenditure excluding staff costs and depreciation (435,259 ) (501,559 ) Total value created 841,907 775,453
Value distributed Employees - salaries and benefits 374,886 325,646 Shareholders - dividends 200,002 215,501 Government - taxation 88,963 112,375 Total value distributed 663,851 653,522
Value retained Retained income 133,206 58,272 Depreciation and amortisation 42,185 41,600 Total value retained 175,391 99,872
Total value distributed and retained 839,242 753,394
121 Notes
122 Barclays Bank of Botswana Annual Financial Statements 2014
Notice to Shareholders Annual General Meeting of the Members of Barclays Bank of Botswana Limited
Notice is hereby given that the twenty-ninth Annual General Meeting of shareholders of Barclays Bank of Botswana Limited will be held at Lansmore Hotel, Gaborone on Thursday 25th June 2015 at 12:00hrs for the following purpose:
1. To receive, approve and adopt the financial statements for the year ended 31 December 2014 together with the directors’ and independent auditor’s reports thereon.
2. To elect directors in the place of Kenneth Molosi and Alfred Dube who retire by rotation in accordance with Section 20.10 of the Constitution and, who being eligible, offer themselves for re-election.
3. To fix the remuneration of the directors for the ensuing year.
4. To approve the remuneration of the auditors for the year ended 31 December 2014.
5. To appoint auditors for the ensuing year.
6. To approve, by special resolution, any substantial gifts made by the Company, details of which are available at the Company’s registered office for perusal.
In the event that you wish to nominate any person(s) as directors or auditors other than one of the directors retiring or incumbent auditors, you must deliver to the Company Secretary, not less than seven nor more than 14 clear days before the date of the meeting, a nomination signed by a member qualified to attend and vote at the meeting with notice by the nominated persons that they are willing to be elected as directors or auditors, as the case may be.
Proxies A member entitled to attend and vote at above mentioned meeting is entitled to appoint a proxy to attend, speak and to vote in his/her stead. A proxy need not also be a member. A proxy form is available at the end of the Annual Report. Further proxy forms are available at the office of the Company Secretary at Barclays Bank of Botswana Limited, Head Office, Plot 74358, Building Four, Prime Plaza, CBD, Gaborone. Completed proxy forms must be deposited there not less than 48 hours before the meeting.
BY ORDER OF THE BOARD
Mr G Howard Company Secretary
123 Proxy Form
Please complete in block letters.
I/We of being a shareholder of Barclays Bank of Botswana Limited, hereby appoint
or failing him/her
or failing him/her
as my/our proxy to vote for me/us on my/our behalf at the TWENTY-NINTH ANNUAL GENERAL MEETING of the company to be held at the Lansmore on Thursday 25th June 2015 at 12:00hrs.
As witness my hand this day of 2015
SIGNATURE
WITNESS
NOTE:
1. Each shareholder entitled to attend and vote at this meeting is entitled to appoint one or more proxies to act in the alternative to attend, vote and speak in his stead. A proxy need not be a shareholder of the company.
2. Any alteration or correction made to this form of proxy (including the deletion of alternatives) must be initialled by the signatory/signatories.
3. This form of proxy should be signed and returned so as to reach the Registered Office of the Company (5th Floor, Barclays Bank of Botswana, Plot 74358, Building Four, Prime Plaza, CBD, Gaborone) no later than 48 hours before the meeting.
124 Airport Junction Branch Kasane Branch Orapa Branch Airport Junction Mall Plot 2208, Shop 8 Plot 18/98, Plot 70665, Unit 63 Kasane Orapa Gaborone Mall Branch Personal Prestige Bobonong Plot 1103/07, Plot 1188, Debswana House, Main Mall Express Branch Gaborone Gaborone Plot 430, Bobonong Mahalapye Branch Phakalane Mowana Prestige Plot 61, Plot 63724, Mowana Mall, Phakalane Broadhurst Branch Mahalapye Gaborone Plot 4748, Kubu Road Gaborone Molepolole Branch Ramotswa Express Branch Plot 136, Mafenyatlala Mall Plot 861-3 & 2990, Score Mall Carbo Prestige and Premier Molepolole Ramotswa Plot 54518, Carbo Centre, Riverwalk Mall Gaborone Palapye Branch Botshabelo Express Plot 47, Plot 2935, Botshabelo Galabgwe Branch Palapye Selibe Phikwe Plot 16142, Galabgwe Mall Francistown Mochudi Branch Selibe Phikwe Branch Plot 76, Plot 2579/ 81, Francistown Branch Mochudi Selibe Phikwe Plot 494/5, Blue Jacket Street Francistown Kanye Branch Selibe Phikwe Prestige Plot 89, Plot 2579/ 81, Blue Jacket Prestige Kanye Selibe Phikwe Plot 494/5, Blue Jacket Street Francistown Letlhakane Branch Serowe Branch Plot 3577, Millenium Tower Building Plot 40/5, Gaborone Station Branch Letlhakane Serowe Plot 14, Gaborone Station Gaborone Lobatse Branch Shakawe Plot 4649, Jacaranda Street, Hill Side Express Branch Gaborone Industrial Branch Mall Plot 186, Drotsky’s Mall Plot 17952/3, Lithuli Road Lobatse Shakwe Gaborone Maun Branch Sowa Galo Prestige Plot D4/66, Express Branch Plot 1471/2, Galo Mall Maun Plot 1012, Francistown Sowa Masunga Game City Branch Express Branch Tlokweng Express Branch Game City Mall, Plot 1107, Masunga Mall Plot 5778, Gaborone Masunga Tlokweng
Ghanzi Branch Mogoditshane Express Branch Tutume Branch Plot 29, The Mall Plot 1462, Itachi Complex, Ghanzi Mogoditshane Tutume
Gumare Express Branch Moshupa Express Branch Nata Express Branch Plot 76, Delta Shopping Complex Plot 1016, Caltex Filing Station, Gumare Moshupa Nata
Jwaneng Branch Tsabong Branch Plot 5477, Choppies Mall Plot 545, Tsabong Mall Jwaneng Tsabong