Standard Bank Group Risk and capital management report and annual financial statements 2012 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Contents

Risk and capital Our reports management report We produce a full suite of reporting publications Cross-referencing tools to cater for the needs of our diverse stakeholders. Overview 1 The following reports, which support our primary Capital management 19 annual integrated report, are tailored to readers Credit risk 25 requiring specific information. Indicates that additional Country risk 55 information is Liquidity risk 57 ¡ Financial results presentation and booklet available online. Market risk 66 Provides management’s analysis of financial The following icons refer Insurance risk 79 results for the period and the performance of the group’s divisions. readers to information Operational risk 84 www.standardbank.com/reporting relevant to a specific Business risk 91 section elsewhere in this Reputational risk 92 ¡ Sustainability report report, or in other reports Restatements 93 Presents a balanced and comprehensive that form part of the analysis of the group’s sustainability group’s suite of reporting Annual financial statements performance in relation to issues material publications: Directors’ responsibility for to the group and stakeholders. 95 financial reporting www.standardbank.com/sustainability AIR Group secretary’s certification 95 Report of the group audit committee 96 ¡ Risk and capital management report Annual Directors’ report 98 Provides a detailed discussion of the management of strategic risks related to the integrated report Independent auditors’ report 103 group’s banking and insurance operations, Statement of financial position 104 including capital and liquidity management SR Income statement 105 and regulatory developments. Statement of other comprehensive income 106 www.standardbank.com/reporting Sustainability report Statement of cash flows 107 Statement of changes in equity 108 ¡ Annual financial statements RCM Accounting policy elections 110 Sets out the full audited annual financial AFS statements for the Standard Bank Group Notes to the annual financial statements 112 (the group), including the report of the Standard Bank Group Limited – Risk and capital 206 group audit committee (GAC). company annual financial statements management report www.standardbank.com/reporting and annual financial Annexure A – restatements 212 statements Annexure B – subsidiaries 213 ¡ The Standard Bank of South Africa (this report) Annexure C – associates and Limited annual report 218 joint ventures The Standard Bank of South Africa is the Annexure D – group share group’s largest subsidiary. The group’s other 221 Audited incentive schemes subsidiaries, including Standard Bank Plc, also produce their own annual reports. Annexure E – detailed accounting policies 229 These reports are available at Denotes text in the risk and Annexure F – emoluments and www.standardbank.com/reporting capital management report share incentives of directors 252 that forms part of the and prescribed officers ¡ As a separate listed entity, Liberty Holdings group’s audited annual Annexure G – special resolutions 264 Limited (Liberty) prepares its own annual financial statements Annexure H – third-party funds 265 integrated report which is available at under management www.libertyholdings.co.za Annexure I – seven-year review 266 Annexure J – segmental statement 278 of financial position Annexure K – banking activities average statement of financial 280 position (normalised) Additional information Financial and other definitions 282 Feedback Acronyms and abbreviations 285 We welcome the views of our stakeholders. Please contact us at [email protected] with your feedback. Contact details 287 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Overview Risk and capital management report

Overview

Introduction 1 Introduction Board responsibility 1 Effective risk and capital management continues to be Statement from the chairman of the fundamental to the business activities of the group. group risk and capital management 2 committee Risks are controlled at individual exposure level as well as in aggregate within The year in brief 4 and across all three business lines, legal entities and risk types. Focus areas for 2013 5 Capital is managed using regulatory and economic capital metrics at both Regulatory developments 7 business line and legal entity level. Reporting framework 10 Risk types 12 The group’s three business lines are: Risk management framework 13 ¢ Personal & Business Banking (PBB) Risk governance committees 14 ¢ Corporate & Investment Banking (CIB) ¢ Liberty. Risk governance process 14 The group’s approach to risk appetite 17 Board responsibility The group’s approach to stress testing 18 The Standard Bank Group board of directors (board) has ultimate responsibility Basel II approaches adopted 18 for risk and capital management. Various committees within the governance structure enable the board to evaluate the risks faced by the group and the effectiveness of the group’s management of these risks.

The board relies on quarterly reports from these committees, as well as periodic attestations by senior risk managers and group internal audit (GIA), to satisfy itself that the group’s risk management processes are fit for purpose and are operating effectively.

During the year under review, the business activities of the group and its subsidiaries have been managed within the board-approved risk appetite.

The board is satisfied that the group’s risk management processes operated effectively in the period under review.

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Overview continued Statement from the chairman of the group risk and capital management committee

I have been chairman of the group risk and capital management committee (GRCMC) since July 2010. Other members of the committee during 2012 were Doug Band, Richard Dunne, Saki Macozoma, Fred Phaswana, Ted Woods (who became a member in March 2012) and Hongli Zhang (alternate: Yagan Liu). With the exception of Hongli Zhang and Saki Macozoma, all members of the GRCMC are independent non-executive directors.

Myles Ruck Chairman of the GRCMC 6 March 2013

Attendance of each member at meetings of the The GRCMC is responsible for: AIR GRCMC in 2012 can be found in the corporate ¢ determining the group’s risk appetite governance statement on page 108 ¢ monitoring the risk profile and potential future risk exposures of the group to ensure that the group is managed within risk Richard Dunne is also the chairman of GAC, and Ted Woods appetite is chairman of the remuneration committee. This common membership enables effective oversight of all finance and risk ¢ approving macroeconomic scenarios used for stress testing, issues, and that relevant finance and risk matters are considered and evaluating the results of stress tests in the determination of appropriate levels of compensation. ¢ providing oversight and advice to the group, including The Standard Bank of South Africa Limited (SBSA) and other The main purpose of the GRCMC is to provide independent and material subsidiary boards, in relation to current and potential objective oversight of risk and capital management in the group. future risk exposures of the group The committee also reviews and assesses the adequacy and ¢ reviewing and providing oversight in respect of the adequacy effectiveness of risk governance standards and the integrity of and effectiveness of the group’s risk management framework risk controls and systems. ¢ approving risk and capital management governance standards, frameworks and policies

The key terms of reference of the GRCMC can be found ¢ reviewing the impact of significant transactions entered into AIR in the corporate governance statement on page 104 by the group on capital and these are considered annually by the GRCMC and approved by the board ¢ overseeing the implementation of an IT governance framework and monitoring significant IT investments A total of six meetings of the GRCMC were held during 2012: ¢ evaluating and approving significant outsourcing four scheduled quarterly meetings, a special meeting on the arrangements group’s recovery and resolution plan and one to approve the ¢ assisting on such other matters as may be referred to it by interim risk and capital management report. the group risk oversight committee (GROC)

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¢ promoting a risk awareness culture within the group with the group’s minimum control requirements, as articulated in ¢ reporting to the board any matters within its remit in respect the group’s risk governance standards. of which it considers that action or improvement is needed and making recommendations as to the steps to be taken. The GRCMC received regular reports on the development of the group’s risk appetite, and potential future risk exposures of the The GRCMC considered the group’s risk profile relative to the group, thereby making recommendations to the board on risk group’s strategy. The committee reported to the board following appetite as part of an ongoing process. each meeting on its consideration of the risk profile of the group and any longer-term macro or perceived strategic threats to the During 2012, an internal self assessment on the effectiveness group, and made recommendations as appropriate. Through this of the GRCMC was conducted. This assessment concluded that oversight, the GRCMC was satisfied that there were no material the committee was operating effectively. In addition, the risks that presently threaten the sustainability of the group. externally facilitated board evaluation, which included board committees, concluded that the GRCMC was operating The committee also considered the group’s exposure to country, effectively. single name obligor and sector concentration risk and ensured that rigorous stress testing of the group’s business was undertaken, supplemented by forward-looking strategic risk threat analyses. The output of this testing was reviewed by the GRCMC throughout 2012, with a view to ensuring appropriate actions were taken where necessary.

In relation to capital adequacy, the committee approved the Myles Ruck internal capital adequacy assessment process (ICAAP) and Chairman, GRCMC submission to the South African Reserve Bank (SARB). Capital adequacy was also assessed in light of Basel Capital Accord (Basel) III requirements.

Reports on the South African unsecured lending portfolio and debt counselling regulatory and industry developments were considered.

At each meeting of the GRCMC, the group chief risk officer (CRO) provided the committee with an overview of the key risk issues discussed at GROC. An update was also given by the individual group risk type heads on the specific issues of group-level significance as well as other relevant items in their respective areas of responsibility.

The group risk framework provides a basis for ongoing self-assessment of appropriate risk appetite and compliance

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Overview continued

The year in brief The operational risk function within Liberty was strengthened Credit risk during 2012 with the creation of a head of operational risk In 2012, the South African retail portfolio grew steadily role. In addition, the Liberty operational risk management across all product types, particularly in the lending asset class. framework is being aligned to the group’s banking The quality of the portfolio also improved, continuing the operations framework. positive trend experienced in 2011, albeit at a slower pace. Financial crime control Corporate demand remained weak and the impact of low Independent reports published by forensic firms continued to economic growth in European markets, the moderate slowing reflect an international trend of increased levels of fraud and down in demand from China, and relatively subdued capital corruption involving staff. The group recorded an overall and investment flows were evident. The portfolios outside decrease of net fraud losses of 18% compared to 2011. South Africa were particularly impacted by the tough economic conditions, high inflation and volatile exchange The increased global staff awareness campaigns and the rates. Credit quality deteriorated and impairments increased. publication of staff dismissals produced good results. The increased utilisation of FraudStop and the whistle-blowing Unsecured exposure to customers earning less than hotline, resulted in fraud prevention and recovery R8 000 per month, referred to as the group’s inclusive improvements of 32% from 2011 to 2012. banking loan book grew to R3,7 billion (2011: R2,0 billion). The money laundering surveillance capability was enhanced in Country risk the group’s South African operations and is being rolled out to During 2012, the relative concentration of cross-border the group’s operations in the rest of Africa. exposure to the sub-Saharan region continued to increase, consistent with the group’s strategic focus. The group’s direct The introduction of new minimum technology standards in our exposure to troubled European periphery economies remained ATM safes resulted in the reduction of ATM attacks during the limited and tightly managed. latter part of 2012.

Market risk Sustainability The group’s banking book interest rate risk remained Significant changes in environmental legislation and regulation within approved limits, with the largest exposure on the combined with progressively higher enforcement and penalties SBSA balance sheet. placed increased pressure on screening of lending and operational activities across the global banking sector. Trading book market risk remained within approved limits. Average value-at-risk (VaR) was low and largely unchanged Soft regulation, linked to central banks and other from the prior year. The daily profit and loss results for the stakeholders, is increasing and builds on expectations year showed a profit for 248 of 260 trading days, which is from funding organisations and other stakeholders relating reflective of the group’s client flow business model. to their environmental and social risk management. The group contributed to the development of a Banking Operational risk Association of South Africa (BASA) code to address The operational risk management framework, previously environmental and social risk. This code has been deployed in SBSA, was embedded throughout the group’s incorporated into the group’s policies. banking operations. This framework forms the basis of SBSA’s compliance with the advanced measurement Legal risk approach (AMA) criteria under Basel II. During 2012, there was a significant increase in litigation against certain of our African businesses, all of which were As required by the SARB, SBSA ran the AMA capital model defended and none of which are expected to have a material for the calculation of regulatory capital for operational risk in adverse impact on the group. In South Africa, the curator of a parallel with the existing standardised approach capital pension fund has instituted legal proceedings, in which he calculation method for the past year. Following the submission claims return of various listed securities delivered to SBSA in of an AMA application to the SARB in 2011, SBSA engaged 2002 on the grounds that the applicable contract was void. with the SARB throughout the year in respect of the AMA In February 2013 a competent tribunal ruled that the contract approval process. The group expects this approval process was not void but only voidable. The dispute is scheduled to to conclude in 2013. proceed to arbitration in April 2013.

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Insurance risk learnings and supported the enhancement of the group’s The governance structure for insurance risk was aligned existing recovery planning, while illustrating the robust with the other risk types through the creation of a head of nature of existing plans and sufficient contingent liquidity insurance risk role. Additionally, the group insurance risk supporting the group. committee (GIRC), a subcommittee of GROC, was established and an insurance risk governance standard was introduced, Focus areas for 2013 supported by policies on reinsurance and product development. The group will focus on the following areas during 2013.

Capital management Credit risk The group has successfully maintained its strong capital The group will continue to apply appropriate and responsible position, meeting or exceeding all target ratios. The group lending criteria to ensure prudent lending practices in line spent significant time and effort in 2012 to ensure that with anticipated country-specific economic conditions and risk it will be Basel III compliant from January 2013. These appetite. Focus will be placed on standardising credit risk actions included: methodologies and processes across the group, with particular ¢ interpretation of the capital framework for South Africa focus on operations in the rest of Africa and Liberty. This will and assessing the impact on the group further enhance the integrated management of credit risk across the group. ¢ participation in the quantitative impact assessments and Basel III parallel run tests initiated by the SARB Another key focus area will include refining the credit risk ¢ contribution to the discussions held in the meetings framework and supporting tools to manage risk against conducted by BASA together with the SARB and providing credit risk appetite and tolerance. input into the finalisation of various Basel III interpretation papers submitted to the SARB Country risk ¢ setting internal capital adequacy target ratios for 2013 Focus will be placed on proactively managing country to 2019 in line with the final capital framework issued by risk appetite and mitigating country specific risks in the SARB response to a challenging global economic and political risk ¢ revised capital allocations to business in line with the environment. A revised risk appetite setting framework will revised capital adequacy target ratios be implemented, which will take account of a more ¢ incorporation of the Basel III interpretations into the geographically focused strategy. group’s capital forecasts ¢ enhancements to regulatory reporting systems. The group will be implementing a revised country risk modeling suite that takes account of structural changes in the global Liquidity management economy, especially in developed markets, and this will provide During 2012, the group maintained its liquidity positions more targeted measurement of transfer and convertibility risk. within the approved limits. Appropriate liquidity buffers were held in excess of regulatory, prudential and internal Operational risk stress-testing requirements, taking into account ongoing The group will make use of the AMA framework to further global risk appetite and market conditions. advance business decision-making and ensure capital optimisation. Levels of sophistication will be increased by The implications of the proposed Basel lll liquidity framework making use of quantitative methodologies to manage continued to be an area of focus, especially the liquidity operational risk appetite and tolerance. The group aims to coverage ratio (LCR) with the support of the SARB’s implement increasingly risk-based quantitative methodologies committed liquidity facility. into the group’s banking operations across the rest of Africa, as these entities progress towards AMA implementation. The group’s liquidity contingency recovery plan was comprehensively reviewed and updated in 2012. The updates The operational risk framework for Liberty will be were completed in conjunction with the construction of a enhanced in line with the solvency assessment management recovery plan for the group. (SAM) requirements and will leverage off the group’s banking operations. During the year, the group undertook a liquidity stress-testing exercise, where a crisis was simulated for its impact on the The group also plans to introduce a groupwide IT system group and the viability of various legal entity contingent to support the minimum standards for business continuity liquidity plans. The simulation exercise provided valuable management.

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Overview continued

Focus areas for 2013 continued Capital and liquidity management The group will be Basel III compliant with effect from Financial crime control 1 January 2013. Taking this into consideration, the specific During 2013, the group will focus on the facilitation of customer migration out of the branches by promoting the focus areas include: usage of the self-service channels. This will be done without ¢ ensuring that the group is adequately positioned to compromising customer safety and security. respond to regulatory capital rules under the Basel III phase-in requirements, and considering different Basel III Group physical security will explore sustainable and adoption timelines by regulators in the different cost-effective operational solutions to ensure the reduction of jurisdictions that the group operates in the value of losses and number of incidents. Financial crime ¢ ensuring that capital management practices in the risk assessments will be conducted across the group which will group’s rest of Africa banks are consistent with the be aligned to the group’s policies. Additionally, money group’s standards laundering surveillance system rollouts will continue to be implemented across Africa. ¢ further embedding risk-adjusted performance measurement into the group’s performance measurement Sustainability and reporting processes Group sustainability aims to further reduce our sustainability ¢ optimising capital and liquidity allocation between product risk, which includes occupational health and safety, and lines, trading desks, industry sectors and legal entities environmental and social risk. This will be achieved by improving that result in financial resources being allocated in a internal management of such risks, including those posed by manner that enhances the overall group economic profit climate change, energy and water security, and by providing and return on equity (ROE) products and services to clients who are also faced with ¢ implementing updated funds transfer pricing these challenges. methodologies to more accurately price and measure the Compliance risk internal cost of funding Legislative change continues to be driven mainly by consumer ¢ concluding discussions with the SARB regarding the protection and reforms to support increasing supervisory committed liquidity facility to be made available to expectations. With this in mind, the compliance function will South African banks place particular emphasis on initiatives relating to treating ¢ continually extending SBSA’s asset and liability customers fairly, customer confidentiality, anti-money management system to include the group’s rest laundering and combating the financing of terrorism, conflicts of Africa banking entities while materially automating management and surveillance systems to support both reporting. customers and supervisory expectations. The updates to the South African Banks Act 94 of 1990 A key strategic enabler to support our compliance risk (Banks Act) which is being implemented in 2013, in line management objectives will be the attention given to with Basel III, require a number of changes to our liquidity our regulatory surveillance, reporting systems and staff training. reporting, which include: ¢ additional tenor buckets in business-as-usual and Legal risk bank-specific stress regulatory submissions The capacity of the legal resources in South Africa will ¢ providing additional information on off-balance sheet be enhanced to better service the transactions originated exposures outside of South Africa but booked onto the South African ¢ providing group LCR and net stable funding ratio (NSFR) balance sheet. Additionally, the legal network will be calculations on a quarterly basis. improved to ensure minimum and uniform standards of legal support and more efficient access groupwide to available legal expertise. Insurance risk The group will focus on developing the insurance risk Market risk component of the SAM programme and will continue to The group will focus on monitoring and managing the banking develop policies that support the insurance risk governance book interest rate risk and associated hedges in the context standard. In an effort to reduce insurance risk, the group will of current market volatility and monetary policy expectations. continue to develop insights into the insurance risk profile of Stress-testing methodologies will be adapted to reflect the the insurance businesses through the group insurance risk low interest rate levels. oversight function.

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Regulatory developments Implementation of IFRS 9 Financial Instruments Impacting the group’s banking operations (IFRS 9) Global The International Accounting Standards Board (IASB) is Basel III currently replacing International Accounting Standards (IAS) 39 Financial Instruments: Recognition and Measurement South Africa is one of the 11 Basel Committee on Banking (IAS 39) with International Financial Reporting Standards Supervision (BCBS) member countries that adopted Basel III (IFRS) 9 Financial Instruments (IFRS 9). The replacement of on 1 January 2013. IAS 39 with IFRS 9 will be achieved through three distinct phases. The first of these phases, being the classification and Subsequent to this, the BCBS published significant changes measurement of financial assets and financial liabilities, has to the LCR requirements. These changes result in a material been completed (subject to further proposed amendments reduction of the group’s LCR requirements. It also eased that were issued by the IASB during 2012). Both phase two, global concerns about the potential negative impact of the which encompasses the proposed expected loss impairment proposed Basel III liquidity requirements on economic model that will replace IAS 39’s incurred loss model, and growth and development. phase three, which encompasses proposed simplifications to IAS 39’s hedge accounting requirements, are yet to be The key changes announced were the following: finalised by the IASB. The group continues to participate in ¢ Instead of a comprehensive adoption on January 2015, industry body discussions on the proposed changes. the LCR rule will be phased in from 2015 over four years up to January 2019. While phase one is available for early adoption, IFRS 9 as a ¢ The range of assets banks can recognise as high quality standard will only require mandatory adoption by the group for liquid assets has been widened to include corporate debt, its financial year commencing 1 January 2015. The group mortgage-backed securities and equity assets. expects to adopt all the requirements of IFRS 9 simultaneously, ¢ The LCR stress scenario for calculating the amount of liquid in line with IFRS 9’s effective date requirements and this will assets banks must hold was eased, resulting in lower be a key accounting standard in the measurement and outflows to be covered. reporting of financial risks.

Anticipated future developments on Basel III include: Over the counter (OTC) derivatives ¢ finalisation of the NSFR liquidity requirements by the BCBS Globally there has been a focus on increasing the transparency ¢ alignment of the credit valuation adjustment (CVA) and regulation of OTC derivatives and to reduce the application across jurisdictions systemic risk posed by OTC derivative transactions, markets and practices. The G20’s reform programme and subsequent ¢ changes to the standardised approaches for credit and agreements resulted in various principles being defined operational risk for use of exchanges or electronic platforms, clearing through ¢ development of a more consistent and effective framework central counterparties, reporting to trade repositories and for measuring and controlling large credit exposures higher capital and margin requirements for derivatives that ¢ other changes resulting from the BCBS monitoring are not cleared centrally. exercises. Other key regulatory topics Systemically important financial institutions (SIFIs) Other key papers that were released during the past year, It is anticipated that the guidance developed by the BCBS and which are expected to set the tone for global regulatory the Financial Stability Board (International FSB) will form the developments during 2013, include: basis for the future requirements of domestic systemically ¢ fundamental review of the trading book important banks in South Africa. ¢ principles for effective risk data aggregation and reporting These South African banks are currently in the process of ¢ oversight and regulation of shadow banking developing their recovery and resolution plans in line with ¢ revisions to the Basel securitisation framework. global standards.

The recovery plan focuses on plausible management or recovery actions that can be taken to reduce risk and conserve capital during times of severe stress. Resolution plans are typically developed by the supervisor with the objective of ensuring that SIFIs are resolvable and will not become a burden to tax payers.

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Regulatory developments continued Other Amendments to other statutes were proposed in 2012 that South Africa impact the group. Examples include the Broad-based Black Protection of Personal Information Bill Economic Empowerment Amendment Bill, the Sectional The Protection of Personal Information Bill which provides Title Amendment Bill, the Employment Equity Amendment for conditions of privacy and protection of personal Bill, and the Electronic Communications and Transactions information is near completion and needs to be approved by Amendment Bill. The group is assessing these proposals and the National Council of Provinces in order to be finalised. responding where appropriate. This bill has an extensive impact on the group, particularly in relation to the manner in which it uses information, both United Kingdom, Europe and the United States within South Africa and internationally. We take care to In the United Kingdom (UK), reforms to the way that protect the personal information of our customers and will be financial institutions will be regulated are underway and are strengthening our controls to align to the bill’s requirements. A group data privacy officer has also been appointed. expected to take effect by April 2013. Prudential supervision will be transferred to the new Prudential Regulation Authority Financial Markets Bill under the Bank of England and the remaining functions of the Financial Services Authority (FSA) will be transferred The Financial Markets Bill has been finalised and will impact a number of activities within CIB. This bill regulates the to a new Consumer Protection and Markets Authority. A new functioning of the stock exchange, as well as market abuse Serious Economic Crime Agency will police economic crime. such as insider trading and price manipulation. It introduces a A law requiring ring-fencing of entities which accept deposits regulatory framework for derivatives trading, including a from individuals and from small- and medium-sized centralised clearing house for derivative trades. The bill is enterprises continues to develop in the UK, and a draft is expected to be enacted in 2013. currently being considered by the legislature.

Financial Services General Laws Amendment Bill In Europe, new regulations on short selling came into effect The Financial Services General Laws Amendment Bill was in 2012. The Dodd-Frank Wall Street Reform and the South tabled in Parliament in 2012 and seeks to amend 10 statutes, African Consumer Protection Act 68 of 2008 (Consumer including the Financial Services Board Act 97 of 1990 Protection Act) aims to regulate the financial markets in the and the Long-term Insurance Act 52 of 1998 (Long-term United States (US). The group is impacted as a result of our Insurance Act) and Short-term Insurance Act 53 of 1998 derivatives dealings with US counterparties, particularly with (Short-term Insurance Act). These amendments will impact regards to OTC derivatives. New developments are the provision of specific products and services by the group. continuously monitored and adopted as required. National Treasury also published proposals to reform the retirement and savings industry, which will provide Rest of Africa opportunities for the group to develop new savings A number of jurisdictions promulgated new or enhanced products for customers. legislation focused on anti-money laundering and terrorist financing control to meet international standards. Other Treating Customers Fairly (TCF) regulatory focus areas include consumer protection and The Financial Services Board (FSB) published a roadmap in treating customers fairly legislation. In Nigeria, the March 2011 for the implementation of a programme for Sustainable Banking Principles for banks, discount houses regulating the market conduct of financial services firms, and development finance institutions came into effect during entitled TCF. TCF comprises six fairness outcomes and seeks to the year. The principles are intended to serve as a common ensure that the fair treatment of customers is embedded baseline and framework to deliver positive development within the culture of financial services firms. The target impacts to the society, while protecting the communities and implementation date is the first quarter of 2014. environments in which financial institutions and their clients operate. The group actively engages with regulators and In order to meet the outcomes, the group has put governance provides input during the commentary phase of the structures in place and is developing suitable measures and administrative legislative procedure. implementing control mechanisms.

While the various boards of directors of affected group entities will ensure that TCF is central to the entities’ ethics, values, culture and strategy, senior management owns TCF.

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Impacting the group’s short- and long-term Liberty is well-represented at all levels of the FSB’s SAM insurance operations industry forums through participation in the 12 task groups, South Africa the SAM steering committee and its subcommittees. Solvency assessment management The FSB is developing a risk-based regulatory requirement for Treating customers fairly South African insurance and reinsurance organisations, known The TCF focus continues to be developed by Liberty, through as SAM. This new regulatory standard aims to address the means of various initiatives within the Liberty group. adequacy of capital allocation and risk management to protect policyholders. This initiative will align the South African Social security and retirement reform insurance industry with international standards. An National Treasury has announced its intention to reform the industrywide adoption of SAM is expected by January 2015 pension and retirement savings industry, including steps to deal with the implementation of interim measures for long-term with certain preservation, portability and governance aspects insurers and short-term insurers expected during 2013. involving retirement funds. There will also be a focus on fees and commissions with respect to annuity products in particular. SAM is likely to have a significant impact on the South African Other National Treasury focus areas will be non-retirement insurance industry. The key issues are: savings and further tax incentives around retirement funding. ¢ Capital requirements: Although there is still uncertainty as to the quantitative impact of SAM, it is expected to be During 2012, draft regulations were issued by National Treasury far greater in the smaller (unlisted) niche insurance relating to the demarcation between long- and short-term business, which may result in further consolidation within insurance products and medical schemes which may have the industry. implications for the group. ¢ Product profitability: Generally, it is expected that the Pension Funds Act amendments relating to fund quality of earnings will improve due to more accurate pricing of risk and the withdrawal of higher-risk products. member investment restrictions Amendments to Regulation 28 of the Pension Funds Act were ¢ Assets and investment preferences: The relative implemented during 2012, relating to limitations on individual attractiveness of asset classes will shift, with assets fund member policyholder investment portfolios. Various reallocated towards SAM-optimised investments. projects to facilitate communications to fund members, as well ¢ Risks and risk transfer: As SAM is likely to recognise as reports being provided to the FSB have been initiated. correlation within a group and between risk types, the quantification of risk diversification could prompt the The Financial Advisory and Intermediary realisation of benefits through rationalisation or Services Act’s fit and proper requirements organisational structures or transfer of risk between for financial advisers structures. All the group’s registered financial advisers were required to ¢ Costs: SAM will result in higher costs of compliance, pass examinations during 2012. The majority of these resulting in higher costs for providing insurance services. financial advisers have passed the examinations. Where With capital constraints, insurers will be more focused on financial advisers did not pass the exams, they have been reducing costs and increasing efficiencies. This may result removed from the representative registers and their in further industry-level consolidations to improve customers have been re-intermediated to other advisers. advantages of scale. ¢ Industry structure: The supervision by regulators will be Insurance act review split between prudential supervision of re-insurers and The Long-term Insurance Act and Short-term Insurance Act banks, while market conduct will be subject to separate are being reviewed by the regulators as part of the SAM supervision by the FSB. implementation process.

The new SAM regime will drive key changes to Liberty’s Other regulatory developments business applications. These changes will predominantly lead A directive was issued by the FSB during 2012 requiring to enhanced business capability in respect of risk-adjusted compliance with certain minimum requirements for decision-making processes within Liberty. outsourcing arrangements where third parties conduct policyholder-related activities on behalf of insurers.

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Reporting framework Available-for-sale instruments The risk and capital information disclosed within these sections IFRS permits certain financial assets such as non-trading debt is in accordance with two frameworks, namely IFRS and Basel II. and equity instruments to be classified as available-for-sale. These are measured at fair value with all fair value adjustments All tables, diagrams, quantitative information and commentary in recognised in other comprehensive income (OCI). this risk and capital management report are unaudited unless stated as audited. Basel II pillar 3 (pillar 3) requires these fair value adjustments to be reversed when determining regulatory capital as they may be transient and, therefore, not permanently available. RCM Restatement of 2011 financial information is set out in AFS annexure A on page 212 Impairments Sections forming part of the audited annual In terms of IFRS, assets are specifically impaired and the financial statements resulting losses recognised only if: Specific information on risk and capital management integral to the ¢ there is objective evidence of impairment resulting from one audited annual financial statements can be found under the or more events that have occurred after the initial following sections of this risk and capital management report: recognition of the asset, and ¢ that event has an impact on the estimated future cash flows ¢ capital management, starting on page 19 of assets that can be reliably measured. ¢ credit risk, starting on page 25 ¢ liquidity risk, starting on page 57 To provide for latent losses in a portfolio of loans where the ¢ market risk, starting on page 66 loans have not yet been individually identified as impaired, ¢ insurance risk, starting on page 79. impairment for incurred but not reported losses is recognised based on historic loss patterns and estimated emergence Reporting framework differences periods. While the overarching aim of both the IFRS and Basel II reporting frameworks is transparency and accountability, there While IFRS impairment is based on an incurred loss are some fundamental differences in underlying principles, with approach, Basel II is based on the concepts of expected the Basel II principles being more conservative. and unexpected losses.

Asset class differences Expected losses are accounted for through the level of Under IFRS, the reporting of exposures is categorised by class of impairments held against the underlying exposure. financial instrument while Basel II requires classification by Basel II asset class. Classes are determined for IFRS purposes by taking Unexpected losses are accounted for through holding regulatory into account the nature of the information to be disclosed and the capital in relation to the size and nature of the exposure characteristics of the underlying financial instruments. Basel II held. Basel II requires statistical modeling of expected losses asset classes, under the internal ratings-based (IRB) approach, are whereas IFRS, although it allows for statistical models, requires based on their homogeneous risk characteristics and aligned to a trigger event to have occurred before an impairment loss the risk mitigation factors applied in the Basel II calculations. can be recognised.

Fair value instruments Default IFRS permits any financial asset or financial liability, on meeting The difference between default under Basel II and impairment specific criteria, to be designated at fair value with all changes in under IFRS relates to timing. Basel II defines default as the fair value being recognised in profit or loss. obligor being 90 days past due on the obligation (extended to 180 days for some products) whereas IFRS defines default as Refer to page 177 for the changes in fair value attributable actual breach of contract (including a missed capital or interest RCM AFS to changes in own credit risk on such liabilities which are payment) or changes in macroeconomic variables before the required to be disclosed in the financial statements reporting date that have a correlation with default on assets.

Basel II requires that fair value gains and losses attributable to own credit risk be excluded when calculating regulatory capital.

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Treatment of differences between the impairment values The difference between the two impairment values produces a shortfall if the expected loss amount under Basel II exceeds total impairments under IFRS, or an excess if total impairments exceed the expected loss amount. Basel II requires shortfall amounts, if any, to be deducted from capital in the ratio of 50% from tier I capital and 50% from tier II capital.

Basis of consolidation The differences relating to consolidation methods under Basel II and IFRS are explained in the table below.

Reporting framework differences

Basel ll pillar 3 IFRS

Basis for determining treatment The key basis is the nature of the underlying All entities, regardless of the nature of activity of the entity. There are different their underlying activities, are either treatments for entities which conduct consolidated or equity accounted based banking, securities or financial activities as on the extent of control or influence defined, and those which do not. that the group has on those entities. The principles of control and the consequential reporting requirements are governed by the accounting standard IAS 27, which will be superceded by IFRS 10 from January 2013.

Subsidiaries conducting banking, securities Consolidated2 Consolidated or financial activities as defined1

Other subsidiaries Deducted3 Consolidated

Significant influence or joint control of Proportionally consolidated4 Equity accounted entities conducting banking, securities or financial activities, as defined1

Significant influence or joint control of Deducted3 Equity accounted entities conducting other activities

1 Refer to the definitions shown in the table on the next page. 2 Includes the full risk-weighted exposure amounts of the subsidiary in the group’s consolidated risk-weighted exposures. 3 The investment in the entity is deducted from the group’s consolidated regulatory capital and reserve funds and the related assets are removed from the consolidated balance sheet. 4 Includes the pro rata portion (based on the group’s share in the entity) of the risk-weighted exposure amounts of the entity in the group’s consolidated risk-weighted exposure.

Group and individual bank disclosure Basel II disclosures apply at a group level only and not at an individual bank level. Banking regulations require the consolidation of group companies (subsidiaries, joint ventures and voluntarily consolidated minority-owned entities) that conduct banking, securities and financial activities. These include credit institutions, securities firms and financial entities, but no other companies.

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Overview continued

Reporting framework continued Treatment of legal entities under the Basel II consolidation Securities Financial Commercial Insurance Banks1 firms2 entities3 entities4 entities5 2012 Consolidated6 23 5 83 Proportionately consolidated7 4 Deducted8 1 22 106 3 Total 24 5 109 106 3 2011 Consolidated6 24 5 88 Proportionately consolidated7 4 Deducted8 1 21 105 3 Total 25 5 113 105 3

1 Banks – public companies registered as banks in terms of the Banks Act or the relevant legislation if the entity is registered outside of the Republic of South Africa. 2 Securities firms – entities that provide securities services as envisaged in the Securities Services Act 36 of 2004 or the relevant legislation if the entity is registered outside the Republic of South Africa. 3 Financial entities – entities that conduct financial activities, for example, lending, financial leasing, consumer credit, mortgage credit, money transmission, portfolio management or money broking. 4 Commercial entities – entities primarily involved in the production of goods or non-financial services. 5 Insurance entities – entities that conduct insurance business including any entity registered as an insurer in terms of the Short-term Insurance Act or Long-term Insurance Act or the relevant legislation if the entity is registered outside the Republic of South Africa. 6 Consolidated – includes the full risk-weighted exposure amounts of the subsidiary in the group’s consolidated risk-weighted exposures. 7 Proportionally consolidated – includes the pro rata portion (based on the group’s share in the entity) of the risk-weighted exposure amounts of the entity in the group’s consolidated risk-weighted exposures. 8 Deducted – the investment in the entity is deducted from the group’s consolidated regulatory capital and reserve funds and the related assets are removed from the consolidated balance sheet.

Risk types ¢ Issuer risk: The EAD arising from traded credit and equity The risk types that the group is exposed to are defined below. products, including underwriting the issue of these The definitions are consistent with those used in the risk products in the primary market. taxonomy, a key component of the risk framework. ¢ Settlement risk: The risk of loss to the group from settling a transaction where value is exchanged, but where the group Credit risk may not receive all or part of the counter value. Credit risk is the risk of loss arising out of the failure of ¢ Credit concentration risk: The risk of loss to the group counterparties to meet their financial or contractual obligations as a result of excessive build-up of exposure to a specific when due. counterparty or counterparty group, an industry, market, product, financial instrument or type of security, a country or Credit risk comprises counterparty risk, settlement risk and geography, or a maturity. This concentration typically exists concentration risk. These risk types are defined as follows: where a number of counterparties are engaged in similar ¢ Counterparty risk: The risk of credit loss to the group as a activities and have similar characteristics, which could result result of the failure by a counterparty to meet its financial in their ability to meet contractual obligations being similarly and/or contractual obligations to the group as they fall due. affected by changes in economic or other conditions. This risk type has three components:

¢ Primary credit risk: The exposure at default (EAD) Country risk arising from lending and related banking product Country risk is the risk of loss arising when political or economic activities, including their underwriting. conditions or events in a particular country inhibit the ability of

¢ Pre-settlement credit risk: The EAD arising from counterparties in that country to meet their financial obligations. unsettled forward and derivative transactions where Country risk events may include sovereign defaults, banking or the group is acting in a principal capacity or as a clearer. currency crises, social instability and governmental policy This risk arises from the default of the counterparty changes or interventions such as expropriation, nationalisation to the transaction and is measured as the cost of and asset confiscation. Transfer and convertibility risk is an replacing the transaction at current market rates. important element of cross-border country risk. Examples of

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transfer and convertibility events are exchange controls and Business risk foreign debt moratoria. Business risk is the risk of loss, due to operating revenues not covering operating costs and is usually caused by the following: Liquidity risk ¢ inflexible cost structures Liquidity risk arises when the group is unable to maintain or ¢ market-driven pressures, such as decreased demand, generate sufficient cash resources to meet its payment increased competition or cost increases obligations as they fall due, or can only do so on materially ¢ group-specific causes, such as a poor choice of strategy, disadvantageous terms. reputational damage or the decision to absorb costs or losses to preserve reputation. This inability to maintain or generate sufficient cash resources occurs when counterparties who provide the group with funding It includes strategic risk and post-retirement obligation risk. withdraw or do not roll over that funding, or as a result of a general disruption in asset markets that renders normally liquid Strategic risk assets illiquid. Strategic risk is the risk that the group’s future business plans Market risk and strategies may be inadequate to prevent financial loss or protect the group’s competitive position and shareholder Market risk is the risk of a change in the market value, earnings returns. (actual or effective) or future cash flows of a portfolio of financial instruments, including commodities, caused by Post-retirement obligation risk movements in market variables such as equity, bond and The risk arises because the estimated value of the pension or commodity prices, currency exchange rates and interest rates, medical liabilities might increase, the market value of the fund’s credit spreads, recovery rates, correlations and implied assets might decline or their investment returns might reduce. volatilities in all of these variables.

Insurance risk Reputational risk Reputational risk results from damage to the group’s image Insurance risk is the risk that future demographic and related which may impair its ability to retain and generate business. expense experience will exceed the allowance for expected Such damage may result in a breakdown of trust, confidence or demographic experience and expenses, as determined through business relationships. measuring policyholder liabilities and ultimately against the product pricing basis. Risk management framework Insurance risk arises due to uncertainty regarding the timing The group’s risk management framework comprises the and amount of future cash flows from insurance contracts. This following components: could be due to variations in mortality, morbidity, policyholder ¢ risk governance committees at a board and management behaviour or expense experience in the case of life products, level as described on the next page or claims incidence and severity assumptions in the case of ¢ management organisation structure to support the three lines short-term insurance products. of defence model as described on page 16 ¢ risk governance standards as described on page 17 Operational risk ¢ policies to support the risk governance standards. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Reputational risk and strategic risk are, in line with general market convention, excluded from the definition of operational risk. Reputational risk is defined separately alongside. Strategic risk is included in the definition of business risk alongside.

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Overview continued

Risk governance committees

Standard Bank Group board

Management committees Board committees

Group executive Group risk Group audit SBSA large Group model committee and capital committee exposure credit approval 3 Group chief executive1 management committee committee Jacko Maree2 committee

Group strategic Group risk PBB model CIB model technology and oversight approval approval operations forum committee committee committee Deputy Group chief Chief risk Chief risk chief executive risk officer officer PBB officer CIB Peter Wharton-Hood1 Paul Smith1 Keith Fuller1 Roselyne Renel1

1 Chairman of management committee. 2 Group chief executive as at 31 December 2012. 3 A subcommittee of SBSA.

Risk governance process Material issues are escalated to GROC, as are decisions requiring The group’s risk governance process relies on both individual GROC approval. GROC evaluates reports provided to it by the responsibility and collective oversight, supported by GROC subcommittees and the CROs, together with specific deep drill reports. Material issues are escalated to the GRCMC, as comprehensive and independent reporting. This approach are decisions requiring the GRCMC approval. The GRCMC balances strong corporate oversight at group level with accounts to the board in the same manner. participation by the senior executives of the group in all significant risk matters. The primary communication up the hierarchy is undertaken by the relevant committee chairman. Wherever regulations require The governance committees are a key component of the risk noting or approval by the board committee the regulations management framework. They have clearly defined mandates overrule any internal processes. and delegated authorities, which are reviewed regularly.

As a general principle, risk management issues are A similar process is adopted in relation to the GAC where the RCM AFS dealt with at the appropriate GROC subcommittee, reporting process commences at the level of the head of GIA refer to page 16 and the head of governance and assurance.

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Board committees SBSA large exposure credit committee Board subcommittees responsible for effective risk management This committee is designated by the SBSA board to discharge comprise the GAC, the GRCMC, the SBSA large exposure credit the responsibility of ensuring compliance with the Banks Act committee and the group model approval committee. Key roles regulations in respect of large exposures. It meets as required, and responsibilities of these committees, as they relate to risk with the requirements for a quorum being mandatory in terms of and capital management, are detailed in the sections that follow. guidance from the SARB, and reports quarterly to the SBSA board through its chairman on all large exposures as defined in Group audit committee the regulations. The GAC reviews the group’s financial position and makes recommendations to the board on all financial matters, risks, Group model approval committee internal financial controls, fraud and IT risks relevant to financial The group model approval committee was established, effective reporting. In relation to risk and capital management, the 1 January 2012, in line with the Banks Act regulations. This GAC plays a crucial role in ensuring that the group’s internal committee is responsible for assisting the board in reviewing financial controls are adequate to effectively and efficiently and approving all aspects of the group’s material credit rating mitigate risks. models. This committee reports to the board and the GRCMC through its chairman. This committee is supported by the PBB Minutes of the GRCMC meetings are tabled at the GAC and CIB model approval subcommittees. meetings on a quarterly basis. In addition, the CRO provides quarterly strategic risk overviews to the GAC on significant Management committees matters relating to risk and capital management discussed at the Group risk oversight committee GRCMC and GROC meetings. Furthermore, on a quarterly basis, Executive management oversight for all risk types has been the chairman of the GAC meets with the group chief compliance delegated by the group executive committee to GROC which, officer and chief audit officer, in the absence of management, in turn, assists the GRCMC to fulfil its mandate. GROC considers to discuss the adequacy and effectiveness of the management and, to the extent required, recommends for approval by the of risks to which the group is exposed. relevant board committees for the following: ¢ risk appetite statements Further details on the GAC’s roles, responsibilities and AIR membership can be found in the corporate governance ¢ approval of macroeconomic scenarios for stress testing, statement on pages 102 and 103 of the group’s 2012 stress-testing results and scenario analyses annual integrated report ¢ risk governance standards for each risk type ¢ actions on the risk profile and/or risk tendency Group risk and capital management committee ¢ risk strategy and key risk controls across the group The GRCMC provides independent and objective oversight of ¢ ICAAP. risk and capital management across the group by: ¢ reviewing and providing oversight in respect of the adequacy and effectiveness of the group’s risk management framework ¢ approving risk and capital management governance standards and policies ¢ approving the group’s risk appetite statements and monitoring the group’s risk profile ¢ monitoring and evaluating significant IT investment and expenditure.

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Overview continued

Risk governance process continued GROC subcommittees There are 14 GROC subcommittees, as detailed in the committee structure below. Subcommittee Chairman

CIB credit governance committee Roselyne Renel, chief risk officer, CIB

Group asset and liability committee Simon Ridley, group financial director Subcommittee: group capital management committee

Group compliance committee Isabel Lawrence, group chief compliance officer

Group country risk management committee Roselyne Renel, chief risk officer, CIB

Group credit portfolio management committee1 Paul Smith, group chief risk officer

Group equity risk committee1 Roselyne Renel, chief risk officer, CIB

Group insurance risk committee1 Calvin Quan, group head insurance risk

Group internal financial control governance committee Simon Ridley, group financial director

Group operational risk committee Paul Rew, group head operational risk

Group regulatory and legislative oversight committee Sim Tshabalala, deputy group chief executive

Group sanctions review committee Sim Tshabalala, deputy group chief executive

Group stress testing committee Richard Pantcheff, group chief credit officer

Intragroup exposure committee Simon Ridley, group financial director

PBB credit governance committee Keith Fuller, chief risk officer, PBB 1 Established in 2012.

Three lines of defence model The group adopts the three lines of defence model which reinforces segregation of duties between and independence of various control functions. The three lines of defence are described below. First line of defence Second line of defence Third line of defence

¢ management of business lines and ¢ finance function ¢ GIA function (administratively part legal entities. ¢ risk management function of governance and assurance). ¢ legal function ¢ governance and assurance function Consists of excluding GIA.

¢ measures, assesses and controls risks ¢ supports the governance framework ¢ supports the governance framework through the day-to-day activities of ¢ provides independent oversight of ¢ provides independent assessment of the business within the governance the first line of defence first and second lines of defence framework. ¢ reports to management and board ¢ reports to GAC.

Responsibilities governance committees.

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Second line of defence functions The second line of defence functions comprise various specialist functions which are set out below. Risk management Governance and Finance function function Legal function assurance function

¢ treasury and capital ¢ credit risk ¢ prudential, by geographic ¢ governance office management (TCM) ¢ country risk region ¢ financial crime control function: ¢ market risk ¢ transactional, by product ¢ sustainability management ¢ capital management ¢ operational risk, including type. ¢ compliance ¢ liquidity risk business continuity and ¢ occupational health and ¢ banking book interest resilience safety rate risk ¢ information risk ¢ physical security. ¢ business risk management Consists of ¢ portfolio management ¢ long- and short-term insurance risk ¢ group tax function ¢ integrated risk. ¢ group financial control function.

Each of these four functions has resources at both the centre Compliance with risk governance standards is controlled through and embedded within the business lines. The central resources annual self-assessments by the second line of defence and provide a groupwide governance framework for the specific reviews by the GIA. function. The resources dedicated to the business lines support business line management in ensuring that business line specific The group’s approach to risk appetite risks are effectively managed as close to the source as possible. The following terms have specific meanings within the group. Centre and embedded resources jointly address risk ¢ Risk appetite: An expression of the amount or type of risk management at a legal entity level. an entity is generally willing to take in pursuit of its financial and strategic objectives, reflecting its capacity to sustain Third line of defence losses and continue to meet its obligations as they fall due, The GIA function, under the stewardship of the chief audit under both normal and a range of stress conditions. Risk officer, reports to and operates under a mandate from the appetite could be exceeded either as a result of an adverse GAC. In terms of this mandate, the GIA’s role is to provide economic event more severe than that envisaged under independent and objective assurance, designed to add value the range of stress conditions (passive), or as a result of a and improve group operations. The GIA has the authority to decision to increase the risk profile to accommodate market, independently determine the scope and extent of work to be client or portfolio requirements (active). performed. All internal audit employees in the group report ¢ Risk tolerance: The maximum amount or type of risk the operationally to the chief audit officer and administratively to group is prepared to tolerate above risk appetite for short management in their country of residence. periods of time on the understanding that management action is taken to get back within risk appetite. Risk governance standards ¢ Risk capacity: The maximum amount of risk the group is able The specialist second line of defence functions maintain risk to support within its available financial resources. governance standards for each major risk type to which the ¢ Risk profile: The amount or type of risk the group holds at a group is exposed. The risk governance standards set out specified point in time. minimum control requirements and ensure alignment and consistency in the manner in which the major risk types and ¢ Risk tendency: The forward-looking view of how the group’s capital management metrics across the group are dealt with. risk profile may change as a result of portfolio effects and/or changes in economic conditions. The changes in economic All risk governance standards are applied consistently across the conditions may either be in the form of formally approved group and are approved by the GRCMC. Supporting policies and macroeconomic stress scenarios as part of the budgeting procedures are implemented by the management team and process or ad-hoc stress scenarios. monitored by the embedded risk resources.

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The group’s approach to risk appetite Stress-testing results inform decision-making at the appropriate continued management levels including strategic business decisions of the board and senior management. The board establishes parameters for risk appetite by: ¢ providing strategic leadership and guidance Stress tests are conducted at group, business line and material ¢ reviewing and approving annual budgets and forecasts, under legal entity level. normal and stressed conditions, for the group, each business line and material legal entity Groupwide macroeconomic stress testing is conducted regularly ¢ regularly reviewing and monitoring performance in relation across all major risk types for a range of common scenarios. to risk through quarterly board reports This allows the group to monitor its risk profile and risk tendency ¢ analysing risk tendency against risk appetite. against its risk appetite. This groupwide stress testing is augmented by portfolio-specific stress testing and sensitivity The board delegates the determination of risk appetite to analyses to identify the drivers of risk tendency and necessary the GRCMC, which in turn ensures that risk appetite is in line actions to constrain risk. with group strategy and the desired balance between risk and return. GROC recommends the level of risk appetite to both The appropriateness of the macroeconomic stress scenarios and the GRCMC and the board. the severity of the relevant scenarios used for capital planning are approved by the GRCMC. Risk appetite at a group level is described by the following metrics which are supplemented by qualitative criteria: Basel II approaches adopted ¢ earnings at risk Credit risk The group has approval from the SARB to adopt the advanced ¢ liquidity internal ratings-based (AIRB) approach for its credit portfolios ¢ regulatory capital in SBSA and the foundation internal ratings-based (FIRB) ¢ economic capital. approach for Standard Bank Plc. For internal management purposes, the group utilises internal measures and principles These metrics are converted into: wherever possible. ¢ portfolio limits, for example, concentrations, credit loss ratios and VaR Equity risk ¢ operational limits, for example, facilities by name The group has approval from the SARB to adopt the ¢ desk-specific limits across the relevant risk types. market-based approach for certain equity portfolios in SBSA while the risk-weighted IRB approach is used for Standard Bank The group’s approach to stress testing Plc equity portfolios. Stress testing is a key management tool within the group and facilitates a forward-looking perspective of the organisation’s Operational risk risk profile or risk tendency. The group currently applies the standardised approach for operational risk. During 2012, the group calculated capital Stress testing supports a number of business processes based on the AMA model for SBSA. This has been used for including: SBSA economic capital purposes, and for the parallel run for ¢ strategic planning and budgeting regulatory capital purposes. Provided that the necessary ¢ the ICAAP process, including capital planning and approval is obtained from the SARB, the group will adopt a management, and the setting of capital buffers partial approach, that is, SBSA will make use of the AMA for regulatory capital purposes, while the other entities will remain ¢ liquidity planning and management on the standardised approach for regulatory capital until they ¢ informing the setting of risk tolerance are ready to migrate to the AMA under home and host ¢ providing a forward looking assessment of the impact of regulatory requirements. stress conditions on the risk profile ¢ identifying and proactively mitigating risks through Market risk actions such as reviewing and changing risk limits, limiting The group has approval from the SARB to adopt the internal exposures and hedging models approach for most trading product groups and across ¢ facilitating the development of risk mitigation or most market risk types for SBSA and Standard Bank Plc. contingency plans across a range of stressed conditions ¢ communicating with internal and external stakeholders.

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Capital management

Objectives 19 Objectives Capital transferability 19 The group’s capital management framework is designed Regulatory capital 20 to ensure that regulatory requirements are met at all times and Banking operations 20 that the group and its principal subsidiaries are capitalised in line Insurance operations 24 with the risk profile, economic capital standards and target ratios Economic capital 24 approved by the board. Banking operations 24 The capital management functional pillar of TCM is structured into the Insurance operations 24 following key functions: Risk-adjusted performance measurement 24 ¢ Strategic capital management function: Key responsibilities are capital Cost of equity 24 raising, advising on the dividend policy, facilitating capital allocation, risk-adjusted performance measurement (RAPM), ICAAP and capital planning. ¢ Portfolio analysis and reporting function: Key responsibilities are to own and manage the regulatory and economic capital results (and the systems used to produce the results), capital budgeting, reporting and analysis, and standardising data management processes across functions within TCM. ¢ CIB and PBB capital management functions: Key responsibilities are to provide support on capital management matters such as deal pricing, key return measures and management of capital consumption against budgets.

Audited ¢ Regional capital management function: Key responsibilities are to own and manage the regulatory and economic capital results, capital budgeting and reporting, and the analysis of the group’s operations in the rest of Africa and outside Africa.

These functions work collectively to achieve the objectives of capital management, which are to: ¢ Maintain sufficient capital resources to support:

¢ the group’s risk appetite and economic capital requirements

¢ the group’s internal target capital adequacy ratios

¢ the SARB’s minimum ratios set in accordance with Basel II and future Basel III requirements as well as minimum requirements set by foreign regulators for the group’s foreign-regulated subsidiaries.

¢ Allocate capital to businesses using risk-based capital allocation to support the group’s strategic objectives, including optimising returns on economic and regulatory capital. ¢ Maintain the group’s dividend policy and dividend declarations while taking into consideration shareholder and regulatory expectations. ¢ Develop, review and approve ICAAP including short- to medium-term capital planning and stress testing. Capital transferability Subject to appropriate motivation and approval by exchange control authorities, no significant restrictions exist on the transfer of funds and regulatory capital within the banking group.

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Capital management continued

Regulatory capital ¢ Capital requirements for market risk and operational risk The group manages its capital base to achieve a prudent are converted into risk-weighted assets for the purpose balance between maintaining capital levels to support business of determining total risk-weighted assets. growth, maintaining depositor and creditor confidence, and ¢ Other assets are risk weighted in accordance with prescribed providing competitive returns to shareholders, while ensuring regulatory requirements. regulatory capital targets are maintained. During the year ended 31 December 2012 and the comparative Banking operations year ended 31 December 2011, the group complied with all Regulatory capital adequacy is measured through three Audited externally imposed capital requirements on its banking operations. risk-based ratios, namely: The main requirements for the group are those specified in the ¢ core tier I Banks Act of South Africa and related regulations which are ¢ tier I broadly consistent with the Basel II and Basel 2.5 guidelines ¢ total capital adequacy. issued by the Bank for International Settlements. Core tier I capital represents ordinary share capital, share The group’s core tier I capital, including unappropriated profit, premium and appropriated retained earnings. Tier I capital was R86,8 billion at 31 December 2012 (2011: R80,1 billion). comprises core tier I and perpetual, non-cumulative preference The group’s tier I capital, including unappropriated profit, was shares. Total capital includes other items such as subordinated R92,3 billion at 31 December 2012 (2011: R85,5 billion) and debt and the general allowance for credit impairments. total capital, including unappropriated profit was R115,2 billion at 31 December 2012 (2011: R102,0 billion). The change in These ratios represent a measure of the capital supply relative the group’s qualifying capital was primarily due to an increase in to the total risk-weighted assets and are measured against retained earnings and the issuance of Basel II compliant tier II internal targets and regulatory minimum requirements. capital instruments.

Capital adequacy (%) The group maintained a well-capitalised position based on RCM AFS core tier I, tier I and total capital adequacy ratios as set out 20 on page 23

SBG tier II instrument maturity profile (Rm) 15 8 000

10 7 000 6 000

5 5 000 4 000

3 000 2006 2007 2008 2009 2010 2011 2012 2 000 ¢ Tier I ¢ Tier II ¢ Tier III — Total required capital 1 000

The majority of risk-weighted assets are determined on 2013 2014 2015 2016 2017 2018 2019 2020 a granular basis by using the internal ratings-based approach ¢ Callable date and applying risk weights calculated from internally derived risk parameters. A portion of the group’s risk-weighted assets are calculated using the standardised regulatory approach. The group has a balanced tier II subordinated debt maturity Risk-weighted assets take the following into consideration: profile. Ongoing focus on capital raising opportunities resulted ¢ Both on- and off-balance sheet exposures are included in the successful issue of R9,2 billion of Basel II compliant tier II in the group’s overall credit risk-weighted assets. instruments in 2012, further bolstering the group’s capital position and extending its debt maturity profile. ¢ Risk-weighted assets for equity risk are modelled on the standardised, market-based and probability of default (PD)/loss given default (LGD) approaches.

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Basel II regulatory capital 2012 2011 Rm Rm Tier I Issued primary capital and unimpaired reserve funds 124 670 112 030 Ordinary share capital and premium 18 093 17 735 Ordinary shareholders’ reserves 92 277 81 307 Non-controlling interest 14 300 12 988 Less: Regulatory deductions (21 239) (20 698) Goodwill and other intangible assets (13 924) (11 449) Investment in banks (1 543) (3 099) Less: Regulatory deductions – 50% deducted from tier I and tier II respectively (5 772) (6 150) Future expected loss exceeding eligible provisions on an incurred loss basis1 (1 054) (1 452) Investment in insurance and financial entities not consolidated (4 716) (4 660) Loans to special purpose entities (SPEs) (first loss credit enhancement) (2) (38)

Less: Regulatory exclusions (22 118) (16 687) Non-qualifying entities’ ordinary shareholders’ reserves2 (6 663) (4 440) Unappropriated profit (5 491) (5 407) Non-qualifying, non-controlling interest (7 848) (5 928)

Audited Other reserves3 (2 116) (912) Preference share capital and premium 5 495 5 495 86 808 80 140 Tier II Issued secondary capital and reserves 28 947 22 543 Preference share capital and premium 8 8 Subordinated debt 27 204 20 983 General allowance for credit impairments 1 735 1 552 Less: Regulatory deductions – 50% deducted from tier I and tier II respectively (5 772) (6 150) Future expected loss exceeding eligible provisions on an incurred loss basis1 (1 054) (1 452) Investment in insurance and financial entities not consolidated (4 716) (4 660) Loans to SPEs (first loss credit enhancement) (2) (38) Investment in banks’ tier II subordinated debt instruments (288) (262) 22 887 16 131 Tier III Subordinated debt 300 Total regulatory capital (excluding unappropriated profits) 109 695 96 571 Total capital requirement 75 013 67 519 Total risk-weighted assets 789 613 710 725

1 Unaudited. 2 Mainly insurance and commercial entities. 3 Mainly the share-based payment reserve, cash flow hedging reserve, available-for-sale revaluation reserve and foreign currency translation reserve, (where applicable). Also included in other reserves is the statutory credit risk reserve which is included in tier II qualifying capital.

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Capital management continued

Regulatory capital continued Basel II risk-weighted assets and associated capital requirements 2012 2011 Risk-weighted Capital Risk-weighted Capital assets requirement1 assets requirement1 Rm Rm Rm Rm Credit risk 583 949 55 475 521 838 49 575 Portfolios subject to the standardised approach2 166 242 15 793 146 475 13 916 Corporate 109 814 10 432 84 469 8 025 Sovereign 25 801 2 451 25 111 2 385 Banks 5 274 501 7 134 678 Retail mortgages 6 961 661 6 282 597 Retail other3 17 968 1 707 22 978 2 183 Securitisation exposure 424 41 501 48 Portfolios subject to the FIRB approach 32 271 3 066 49 938 4 744 Corporate 20 536 1 951 35 117 3 336 Sovereign 2 602 247 1 286 122 Banks 9 133 868 13 535 1 286 Portfolios subject to the AIRB approach 358 816 34 087 292 625 27 799 Corporate 155 695 14 791 121 767 11 568 Sovereign 9 426 895 9 857 935 Banks 20 886 1 984 15 927 1 513 Retail mortgages 77 234 7 337 70 670 6 714 Qualifying retail revolving exposure (QRRE) 52 179 4 957 37 632 3 575 Retail other3 40 490 3 847 32 407 3 079 Securitisation exposure 2 906 276 4 365 415 Other assets 26 620 2 529 32 800 3 116 Equity risk in the banking book 20 682 1 964 20 904 1 986 Portfolios subject to the standardised approach2 7 316 695 3 986 379 Listed 4 339 412 3 385 322 Unlisted 2 977 283 601 57 Portfolios subject to the market-based approach 4 047 384 6 508 618 Listed 127 12 310 29 Unlisted 3 920 372 6 198 589 Portfolios subject to the PD/LGD approach 9 319 885 10 410 989 Market risk 69 244 6 579 59 244 5 628 Portfolios subject to the standardised approach2,4 32 293 3 068 33 540 3 186 Interest rate risk 22 979 2 183 25 685 2 440 Equity position risk 312 30 1 161 110 Foreign exchange risk 4 863 462 2 951 280 Commodities risk 4 139 393 3 743 356 Portfolios subject to the internal models approach5 36 951 3 511 25 704 2 442 VaR-based 27 564 2 619 14 824 1 408 Commodities 9 233 877 5 640 536 Forex 7 566 719 1 909 181 Interest rates 25 222 2 396 14 853 1 411 Equities 16 704 1 587 5 333 507 Diversification (31 161) (2 960) (12 911) (1 227) Non-VaR-based 9 387 892 10 880 1 034 Operational Risk Portfolios subject to the standardised approach1 115 738 10 995 108 739 10 330 Total risk-weighted assets/capital requirement 789 613 75 013 710 725 67 519 1 Capital requirement at 9.5% excludes bank specific add-ons and capital floor. 2 Portfolios on the standardised approach relate to the rest of Africa operations and, in addition, portfolios for which the application to adopt the internal models approach has not yet been submitted, or for which an application has been submitted but approval has not yet been granted. 3 Retail other includes retail small and medium enterprises, vehicle and asset finance, and term lending exposures. 22 4 Instruments on the standardised approach for general market risk relate to low-volume structured products and new products recently traded for which the SARB approval to adopt the internal model approach has not been granted. The standardised approach for interest rate risk incorporates all specific risk. 5 Portfolios subject to the internal models approach are all VaR-based portfolios. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Capital management

Capital adequacy ratios Including unappropriated Excluding unappropriated Basel II profits profits minimum Basel II regulatory target requirement ratio 2012 2011 2012 2011 % % % % % % Total capital adequacy ratio 9.5 11 – 12 14.6 14.3 13.9 13.6 Tier I capital adequacy ratio 7.0 9.0 11.7 12.0 11.0 11.3 Core tier I capital adequacy ratio 5.25 11.0 11.3 10.3 10.5

Capital adequacy ratios of banking subsidiaries 2012 2011 Host tier I Host total regulatory regulatory Tier I Total Tier I Total requirements requirements capital capital capital capital % % % % % % Standard Bank Group 7.0 9.5 11.7 14.6 12.0 14.3 The Standard Bank of South Africa 7.0 9.5 11.3 14.8 10.7 13.5 Rest of Africa CfC Stanbic Bank (Kenya) 8.0 12.0 21.0 30.0 11.2 16.9 Stanbic Bank Botswana 7.5 15.0 8.9 17.3 10.6 18.3 Stanbic Bank Ghana 6.7 10.0 17.1 18.6 19.1 21.4 Stanbic Bank Tanzania 10.0 12.0 13.4 15.4 12.7 14.7 Stanbic Bank Uganda 8.0 12.0 15.7 20.0 12.8 14.6 Stanbic Bank Zambia 5.0 10.0 18.1 20.7 9.8 12.9 Stanbic Bank Zimbabwe 8.0 12.0 15.5 16.9 15.2 16.4 Stanbic IBTC Bank (Nigeria) 5.0 10.0 15.7 16.7 18.6 18.7 Standard Bank de Angola 5.0 10.0 15.6 15.6 47.4 47.6 Standard Bank Malawi 6.0 10.0 17.2 21.9 17.5 23.2 Standard Bank Mauritius 5.0 10.0 6.9 10.8 11.7 15.9 Standard Bank Mozambique 4.0 8.0 16.6 17.7 17.5 19.0 Standard Bank Namibia 7.0 10.0 10.2 11.8 10.8 12.8 Standard Bank RDC (DR Congo) 5.0 10.0 25.4 30.7 27.8 34.8 Standard Bank Swaziland 4.0 8.0 10.6 15.0 9.3 13.4 Standard Lesotho Bank 4.0 8.0 9.0 10.3 10.7 11.4 Standard International Holdings, consolidated1 12.3 15.1 21.7 10.9 15.9 Standard Bank Isle of Man 10.0 9.6 11.8 9.3 12.0 Standard Bank Jersey 10.0 11.2 15.8 10.1 14.7

1 Incorporating: – Banco Standard de Investimentos (Brazil). – Standard Bank Argentina (for 2011 comparative only). – Standard Bank Plc (UK). – Standard Merchant Bank (Asia) (Singapore).

Pro forma Basel III regulatory capital (including unappropriated profit) Basel III Basel III 2013 minimum 2013 – 2015 regulatory target Pro forma requirement ratio Basel III % % % Total capital adequacy ratio 9.5 11.5 – 15.0 14.1 Tier I capital adequacy ratio 6.1875 9.5 – 12.0 11.0 23 Common equity tier I capital adequacy ratio 4.625 8.0 – 10.5 10.4 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Capital management continued

Regulatory capital continued Banking operations Insurance operations Economic capital by risk type at end of the year The quarterly and annual returns submitted to the FSB in terms 2012 20111 of the Long-term Insurance Act and the Short-term Insurance Rm Rm Act indicated that the minimum capital requirements were met Credit risk 47 311 44 975 throughout 2012. Equity risk 6 738 6 992 Liberty capital adequacy requirement (CAR) Market risk 1 973 1 489 Operational risk 7 455 6 770 2012 2011 Business risk 5 157 4 946 Interest rate risk in the banking book 2 422 1 836 Statutory CAR Rm 2 7911 2 4952 Available statutory capital Rm 7 558 7 200 Total economic capital 71 056 67 008 Target CAR coverage ratio (times) 1.7 1.7 Available financial resources 106 426 95 844 Actual CAR coverage ratio (times) 2.7 2.9 Capital coverage ratio (times) 1.50 1.43 1 Based on termination (CAR). 2 Based on ordinary CAR (OCAR). 1 Restated. Refer to page 93.

Standard Insurance Limited (SIL) CAR The available financial resources of R106,4 billion (2011: R95,8 billion) cover the minimum economic capital 20121 2011 requirement of R71,1 billion (2011: R67,0 billion) by a factor of 1.50 times (2011: 1.43 times), indicating that sufficient Regulatory solvency resources are available to cover all quantifiable risks. requirement % 29.0 25.0 Actual solvency margin % 40.4 54.9 Insurance operations CAR cover (times) 1.4 Insurance operations are in the process of developing economic 1 The 2012 numbers are based on the SAM (Solvency II) interim capital models to meet the future SAM requirements. These measures effective 1 January 2012. models will continue to change as the requirements of SAM are clarified. Liberty participated in the second South African Economic capital quantitative impact study as part of the SAM implementation Economic capital is the basis for measuring and reporting process in 2012. This confirmed that the work carried out on all quantifiable risks faced by the group on a consistent the capital models adequately positions the group, in terms of risk-adjusted basis. The group assesses its economic capital both preparedness and capitalisation levels. requirements by measuring its risk profile using both internally and externally developed models which are independently Risk-adjusted performance measurement validated by the central validation function. Economic capital One of the objectives of the RAPM policy is to maximise is used for risk management, capital management, capital shareholder value through optimal financial resource planning, capital allocation, and evaluation of new business and management within the agreed risk appetite. performance measurement. Capital is centrally monitored and allocated based on usage and ICAAP considers the qualitative capital management processes performance in a manner that enhances overall group economic within the organisation and includes the organisation’s profit and ROE. Business units are held accountable to achieve governance, risk management, capital management and financial their RAPM targets, ensuring that the interests of shareholders planning standards and frameworks. Furthermore, the and management are aligned. quantitative internal assessments of the organisation’s business models are used to assess capital requirements to be held RAPM is calculated on both regulatory and economic capital against all risks the group is or may become exposed to, in order measures. RAPM is based on allocated capital on a tier I to meet current and future needs as well as to assess the equivalent basis including buffers. group’s resilience under stressed conditions. Cost of equity Economic capital of R71,1 billion (2011: R67,0 billion) is the The group’s rand-based cost of equity (CoE) is estimated using amount of permanent capital that is required to support the the industry standard capital asset pricing model. CoE is group’s economic risk profile. For potential losses arising from recalibrated twice a year using the latest parameter estimates. risk types that are statistically quantifiable, economic capital The group’s CoE is 13.7% (2011: 13.6%), derived as follows: reflects the worst-case loss commensurate with the group’s target rating of A- translating to a confidence level of 99.92%. CoE = Risk-free rate + (Beta x equity risk premium) 13.7% = 7.5% + (0.88 x 7%). Stress testing confirmed the availability of financial resources to meet the increased economic capital requirements in a The group strives to add positive economic value by generating stress scenario. returns in excess of CoE on a consistent basis. 24 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

Credit risk

Introduction 25 Introduction Banking operations 26 The group’s credit risk comprises mainly wholesale and Basel II: Use of internal estimates 26 retail loans and advances together with the counterparty Basel II: Standardised approach 26 credit risk arising from derivative contracts entered into with our Basel II: Internal ratings-based approach 27 clients and market counterparties. Other sources of credit risk Basel II: Credit portfolio analysis 30 arise from trading activities, including debt securities, settlement Basel II: Loss analysis 35 balances with market counterparties, available for sale assets and Basel II: Credit risk mitigation 36 reverse repurchase lending arrangements. Basel II: Concentration risk 38 Credit risk management objectives are to: Basel II: Counterparty credit risk 38 ¢ maintain a strong culture of responsible lending and a robust risk policy Basel II: Securitisation 40 and control framework IFRS: Analysis of loans and advances 43 ¢ identify, assess and measure credit risk clearly and accurately across the IFRS: Maximum exposure to credit risk 43 group, from the level of individual facilities up to the total portfolio IFRS: Renegotiated loans and advances 49 ¢ define, implement and continually re-evaluate our risk appetite under IFRS: Collateral 49 actual and scenario conditions ¢ monitor credit risk and adherence to agreed controls Insurance operations 52 ¢ ensure that there is independent, expert scrutiny of credit risks, and Consolidated mutual funds 52 their mitigation. Credit exposure 53 Impairments 54 Primary responsibility for credit risk management for banking operations resides within the group’s business lines, supported by an independent group credit risk function operationally embedded in business units. The GRCMC is the principal board committee responsible for the oversight of credit risk, with the GAC having oversight responsibility for reviewing credit impairment adequacy.

The principal management committee responsible for the oversight of credit risk is GROC. The primary credit governance committees for both PBB and CIB report directly to GROC. These committees are responsible for credit risk and credit concentration risk decision-making, and delegation thereof to credit officers and forums within defined parameters. Key aspects of rating systems and credit risk models are approved by the PBB, CIB and group model approval committees, all of which are mandated by the board as designated committees. Regular model validation and reporting to these committees is undertaken by the independent central validation function.

Liberty’s credit risk exposure is relatively small when measured in terms of economic capital consumption. Under Liberty’s credit risk management framework, credit exposures are either directly managed through business units or indirectly managed through outsourced asset managers. Each asset manager is required to manage credit risk portfolios in line with investment guidelines specified in the asset manager’s mandate. These investment guidelines specify Liberty’s required asset characteristics for the particular credit portfolio. Liberty mandates responsibility for credit assessment and decision-making, as well as ongoing management and reporting of the credit assets, to the asset manager.

The group dedicates considerable resources to gaining a clear and accurate understanding of credit risk across the business and ensuring that its balance sheet correctly reflects the value of the assets in accordance with IFRS.

25 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations measured as primary credit risk. Settlement risk is measured on Basel II: Use of internal estimates a notional basis, assuming that the counter value will not be received. The daily settlement profile for the counterparty The group’s credit risk rating systems and processes concerned should be the aggregate of all settlements due by differentiate exposures in order to highlight those with greater the counterparty on that date, either on a gross or net basis, risk factors according to potential severity of loss. The group depending on whether the underlying agreements include uses its own estimates of risk parameters for the calculation of netting or not. risk-weighted assets for the SBSA and Standard Bank Plc portfolios, under the AIRB and FIRB approaches respectively. Basel II: Standardised approach Internal risk parameters are also used extensively in other risk The group has adopted the Basel II standardised approach for management and business processes, including: some of its less material subsidiaries and portfolios. ¢ setting risk appetite ¢ setting limits for concentration risk and counterparty limits The calculation of regulatory capital is based on net ¢ credit approval and monitoring counterparty exposures after recognising a limited set of ¢ pricing transactions qualifying collateral, and applying rules specified according to ¢ determining portfolio impairment provisions the exposures’ characteristics and external agency credit ratings. ¢ calculating regulatory capital External credit assessment institutions ¢ calculating economic capital. Moody’s Standard All exposures are measured in such a way as to ensure that both Investor & actual current exposure and potential future exposure are Services Poor’s Fitch captured. Primary credit risk arising from debt exposure is measured in accordance with the accounting value for drawn Asset class down exposures, including accrued interest and gross of specific Corporate ü ü credit impairments and a measure of the expectation of Sovereign ü ü ü additional exposure which may arise at default. Pre-settlement Banks ü ü risk is measured on a potential future exposure basis, taking into Small and medium enterprises ü ü account implicitly the liquidity and explicitly the volatility of the reference asset or price of the instrument or product and the tenor of the exposure. To the extent that credit instruments The standardised approach differentiates between unlisted and giving rise to issuer risk are held on the banking book, they are listed equity.

Basel II exposure subject to the standardised approach per risk weighting 2012 2011 Exposure Exposure after after Exposure Mitigation mitigation mitigation Rm Rm Rm Rm Based on risk weights 0% – 35% 2 217 96 2 121 4 728 50% 38 416 2 439 35 977 37 330 Rated 353 353 4 566 Unrated 38 063 2 439 35 624 32 764 75% 22 614 4 103 18 511 50 631 100% and above 154 692 3 357 151 335 119 473 Rated 941 941 7 891 Unrated 153 751 3 357 150 394 111 582

Total 217 939 9 995 207 944 212 162

26 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

Basel II: Internal ratings-based approach Probability of default All IRB models are managed under model development and The group uses a 25-point master rating scale to quantify the validation policies that set out the requirements for model credit risk for each borrower. The mapping of the master rating governance structures and processes, and the technical scale to the SARB risk buckets and external credit assessment framework within which model performance and appropriateness institutions’ alphanumerical rating scales and grading categories is maintained. The models are developed using internal historical is shown in the table on the following page. Ratings are mapped default and recovery data. In low default portfolios, internal data to PDs by means of calibration formulae that use historical is supplemented with external benchmarks and studies. Models default rates and other data from the applicable portfolio. are assessed frequently to ensure ongoing appropriateness as The group distinguishes between through-the-cycle PDs business environments and strategic objectives change, and are and point-in-time PDs, and utilises both measures in recalibrated annually using the most recent internal data. decision-making and in managing credit risk exposures.

Relationship between the group master rating scale and external ratings

Group Moody’s master SARB risk Investor Standard & Credit rating scale bucket Services Poor’s Fitch Grading quality 1 – 4 AAA to AA- Aaa, Aa1, Aa2, AAA, AA+, AA, AAA, AA+, AA, Investment Normal Aa3 AA- AA- grade monitoring

5 – 7 A+ to A- A1, A2, A3 A+, A, A- A+, A, A-

8 – 12 BBB+ to BBB- Baa1, Baa2, BBB+, BBB, BBB+, BBB, Baa3 BBB- BBB-

13 – 21 BB+ to B- Ba1, Ba2, Ba3, BB+, BB, BB-, BB+, BB, BB-, Sub-investment B1, B2, B3 B+, B, B- B+, B, B- grade

22 – 25 Below B- Caa1, Caa2, CCC+, CCC, CCC+, CCC, Close Caa3, Ca CCC- CCC- monitoring

Default Default C D D Default Default

Loss given default In order for a model to be approved for implementation or LGD measures are related to customer type, product type, ongoing use, model validation results are regularly presented seniority of loan, country of risk and level of collateralisation. to the model approval committees. LGDs are estimated based on historic recovery data per category of LGD. A downturn LGD is used in the estimation of the capital Corporates, sovereigns and banks portfolios charge and reflects the anticipated recovery rates and Corporate, sovereign and bank borrowers include South African macroeconomic factors in a downturn period. and international companies, sovereigns, local and provincial government entities, pure bank financial institutions, non-bank Exposure at default financial institutions and public sector entities. Corporate EAD captures the impact of potential draw-downs against entities include large companies as well as small and medium unutilised facilities and changes in counterparty risk positions enterprises that are managed on a relationship basis or have a due to changes in market prices. By using historical data, it is combined exposure to the group of more than R7,5 million. possible to estimate the average utilisation of limits of an Creditworthiness is assessed based on a detailed individual account when default occurs, recognising that customers may assessment of the financial strength of the borrower. use more of their facilities as they approach default. Specialised lending portfolio Model validation Specialised lending includes project, object and commodity IRB models are validated at initial development and at least finance as well as income-producing real estate finance. annually thereafter by the central validation function. Validation Creditworthiness is assessed on a transactional level, rather techniques test the appropriateness and effectiveness of the than on the financial strength of the borrower, as the group models, and indicate if the model is fit for purpose. relies on repayment from the cash flows generated by the underlying asset.

27 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations continued Equity portfolio The PD/LGD approach is used to model the credit risk and The slotting approach has been adopted for certain specialised capital requirement for equities, excluding strategic investments lending asset classes, and slotting criteria provided by the in the banking portfolio. The group’s approved credit risk grade regulator are applied. As at 31 December 2012 there were models are used together with the regulatory prescribed LGD of no specialised lending exposures under the slotting approach 90% and maturity factor of five years. Where no suitable model (2011: R204 million within the 70% to 95% risk weight exists for the equity investment, the simple risk-weighted category). approach is adopted.

Project, object and commodity finance transactions are assessed Equity exposures under the simple risk-weighted using PD and LGD scorecards. The transaction LGD per facility method1 is calculated per loan tranche, net of collateral. Since a characteristic of specialised lending is that the financed asset 2012 2011 (project, commodity or object) forms an essential component of Rm Rm the recovery calculation, a realisable value is first calculated for Listed 218 242 the underlying asset. Additional forms of loss mitigation are Unlisted 2 294 2 628 taken into account. Total 2 512 2 870

1 Incorporates the equity exposures reported under the standardised approach.

Basel II: Analysis of PDs, EADs and LGDs by risk grade under the IRB approach Corporate Sovereign Banks Retail mortgages QRRE Retail other Equity Exposure Exposure Exposure Exposure Exposure Exposure weighted weighted weighted weighted weighted weighted average average average average average average Average risk risk risk risk risk risk PD EAD LGD weight EAD LGD weight EAD LGD weight EAD LGD weight1 EAD LGD weight1 EAD LGD weight1 Exposure PD % Rm % % Rm % % Rm % % Rm % % Rm % % Rm % % Rm % 2012 Non-default 285 799 98 796 138 022 286 607 73 234 89 476 3 550 1 – 4 0.02 1 142 34.18 0.72 21 433 41.84 7.41 27 345 39.47 13.10 134 11.80 1.15 1 150 64.45 1.49 2 583 35.94 3.78 5 – 7 0.07 7 490 42.98 24.53 57 827 15.90 7.66 73 777 40.79 13.93 623 10.36 1.97 2 952 64.10 2.92 3 665 37.87 6.95 8 – 12 0.33 99 600 34.80 43.79 17 372 24.85 26.04 28 821 43.66 32.40 60 013 10.89 7.22 8 058 64.26 9.99 9 226 40.45 20.68 1 344 0.35 13 – 21 2.30 175 974 33.77 76.04 2 071 26.02 64.33 8 078 46.67 97.09 200 956 13.32 26.75 55 296 65.35 59.32 68 830 33.95 47.68 2 204 1.43 22 – 25 31.25 1 593 33.54 160.58 93 35.39 192.84 1 17.59 85.28 24 881 15.24 85.02 5 778 65.61 183.57 5 172 43.91 107.76 2 14.48 Default 100 8 452 41.03 174.66 109 43.52 53 45.07 15 283 17.13 0.39 3 335 64.96 256.89 2 913 42.63 2.71 20 Total 294 251 34.56 98 905 23.36 138 075 41.47 301 890 13.18 76 569 65.18 92 389 35.64 3 570 2011 Non-default 269 185 76 600 137 575 269 789 52 835 79 494 3 641 1 – 4 0.03 422 44.63 14.13 2 749 25.96 3.00 39 570 40.12 10.30 37 10.03 1.01 281 64.03 1.46 3 417 37.70 3.74 5 – 7 0.07 9 486 41.84 22.39 53 982 15.91 7.54 51 994 40.93 14.50 222 10.23 2.14 2 076 64.36 2.47 2 682 40.31 7.26 8 – 12 0.30 89 272 35.04 38.72 14 755 29.15 28.56 37 791 42.88 28.41 55 993 11.09 6.84 5 938 65.01 9.84 10 161 40.42 19.85 552 0.41 13 – 21 2.16 167 451 35.13 73.51 4 938 23.94 52.32 8 218 40.85 91.08 190 494 13.09 24.60 40 753 66.20 56.94 59 356 36.26 44.61 3 089 1.84 22 – 25 29.61 2 554 16.71 78.76 176 41.14 199.09 2 30.79 163.73 23 043 15.01 80.16 3 787 66.32 174.25 3 878 42.47 96.11 Default 100.00 8 018 42.95 43.58 485 44.48 0.01 50 44.67 18 409 17.52 20.61 3 053 66.31 251.63 2 586 39.21 4.72 83 Total 277 203 35.40 77 085 19.56 137 625 41.23 288 198 13.13 55 888 66.01 82 080 37.35 3 724

28 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

Retail portfolio Internally developed behavioural scorecards for retail accounts Retail mortgage exposures relate to mortgage loans to and loans are used to measure the anticipated performance for individuals and are a combination of both drawn and undrawn each account. Mapping of the behaviour score to a PD is EADs. QRRE relates to cheque accounts, credit cards and performed for each portfolio using a statistical calibration of revolving personal loans. These products include both drawn and portfolio-specific historical default experience. The behavioural undrawn exposures. Retail other covers other branch lending scorecard PDs are used to determine the portfolio distribution and vehicle finance for retail, retail small and retail medium on the master rating scale. Separate LGD models are used for enterprise portfolios. Branch lending includes both drawn and each product portfolio and are based on historical recovery data. undrawn exposures, while vehicle and asset finance only EAD is measured as a percentage of the credit facility limit and has drawn exposures. is based on historical averages. EAD is estimated per portfolio and per portfolio-specific segment, using internal historical data on limit utilisation.

Basel II: Analysis of PDs, EADs and LGDs by risk grade under the IRB approach Corporate Sovereign Banks Retail mortgages QRRE Retail other Equity Exposure Exposure Exposure Exposure Exposure Exposure weighted weighted weighted weighted weighted weighted average average average average average average Average risk risk risk risk risk risk PD EAD LGD weight EAD LGD weight EAD LGD weight EAD LGD weight1 EAD LGD weight1 EAD LGD weight1 Exposure PD % Rm % % Rm % % Rm % % Rm % % Rm % % Rm % % Rm % 2012 Non-default 285 799 98 796 138 022 286 607 73 234 89 476 3 550 1 – 4 0.02 1 142 34.18 0.72 21 433 41.84 7.41 27 345 39.47 13.10 134 11.80 1.15 1 150 64.45 1.49 2 583 35.94 3.78 5 – 7 0.07 7 490 42.98 24.53 57 827 15.90 7.66 73 777 40.79 13.93 623 10.36 1.97 2 952 64.10 2.92 3 665 37.87 6.95 8 – 12 0.33 99 600 34.80 43.79 17 372 24.85 26.04 28 821 43.66 32.40 60 013 10.89 7.22 8 058 64.26 9.99 9 226 40.45 20.68 1 344 0.35 13 – 21 2.30 175 974 33.77 76.04 2 071 26.02 64.33 8 078 46.67 97.09 200 956 13.32 26.75 55 296 65.35 59.32 68 830 33.95 47.68 2 204 1.43 22 – 25 31.25 1 593 33.54 160.58 93 35.39 192.84 1 17.59 85.28 24 881 15.24 85.02 5 778 65.61 183.57 5 172 43.91 107.76 2 14.48 Default 100 8 452 41.03 174.66 109 43.52 53 45.07 15 283 17.13 0.39 3 335 64.96 256.89 2 913 42.63 2.71 20 Total 294 251 34.56 98 905 23.36 138 075 41.47 301 890 13.18 76 569 65.18 92 389 35.64 3 570 2011 Non-default 269 185 76 600 137 575 269 789 52 835 79 494 3 641 1 – 4 0.03 422 44.63 14.13 2 749 25.96 3.00 39 570 40.12 10.30 37 10.03 1.01 281 64.03 1.46 3 417 37.70 3.74 5 – 7 0.07 9 486 41.84 22.39 53 982 15.91 7.54 51 994 40.93 14.50 222 10.23 2.14 2 076 64.36 2.47 2 682 40.31 7.26 8 – 12 0.30 89 272 35.04 38.72 14 755 29.15 28.56 37 791 42.88 28.41 55 993 11.09 6.84 5 938 65.01 9.84 10 161 40.42 19.85 552 0.41 13 – 21 2.16 167 451 35.13 73.51 4 938 23.94 52.32 8 218 40.85 91.08 190 494 13.09 24.60 40 753 66.20 56.94 59 356 36.26 44.61 3 089 1.84 22 – 25 29.61 2 554 16.71 78.76 176 41.14 199.09 2 30.79 163.73 23 043 15.01 80.16 3 787 66.32 174.25 3 878 42.47 96.11 Default 100.00 8 018 42.95 43.58 485 44.48 0.01 50 44.67 18 409 17.52 20.61 3 053 66.31 251.63 2 586 39.21 4.72 83 Total 277 203 35.40 77 085 19.56 137 625 41.23 288 198 13.13 55 888 66.01 82 080 37.35 3 724

29 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations continued Basel II: Credit portfolio analysis The credit portfolio is analysed in the tables that follow in terms of the Basel II approach and asset class, industry, geography and residual contractual maturity.

Basel II: Exposure by approach and class

Reverse repurchase and Gross Impairment of On-balance sheet Off-balance sheet resale agreements Derivative instruments Total by approach EAD past due exposures but not Gross impaired defaulted Standardised FIRB AIRB Standardised FIRB AIRB Standardised FIRB AIRB Standardised FIRB AIRB Standardised FIRB AIRB Total FIRB AIRB exposures1 exposures2 Specific Portfolio Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm 2012 Corporate 74 024 20 943 189 309 31 681 3 964 113 710 335 27 593 15 075 2 026 12 282 20 901 108 066 64 782 338 995 511 843 40 515 253 736 496 11 101 4 127 Sovereign 29 690 19 128 74 880 566 10 6 052 2 549 40 1 606 1 478 30 296 20 744 84 959 135 999 21 390 77 515 6 108 77 Banks 35 244 9 848 68 149 1 076 947 10 308 114 15 090 33 593 737 27 264 65 445 37 171 53 149 177 495 267 815 25 006 113 069 53 1 Retail exposure 31 983 409 570 10 423 88 055 42 406 497 625 540 031 470 848 27 789 23 325 8 311 Retail mortgages 11 357 286 235 33 257 11 357 319 492 330 849 301 890 16 774 15 647 4 155 QRRE 3 47 009 34 155 3 81 164 81 167 76 569 2 953 3 335 1 507 Other retail 20 623 76 326 10 423 20 643 31 046 96 969 128 015 92 389 8 062 4 343 2 649

Total 170 941 49 919 741 908 43 746 4 921 218 125 449 42 683 51 217 2 803 41 152 87 824 217 939 138 675 1 099 074 1 455 688 86 911 915 168 28 291 34 587 12 516 5 188 2011 Corporate 65 812 28 742 167 061 33 676 5 095 82 110 897 33 457 18 343 1 223 19 856 25 225 101 608 87 150 292 739 481 497 52 499 224 908 1 409 9 778 2 332 Sovereign 24 444 929 68 546 1 076 43 7 233 1 661 3 998 1 570 2 376 27 181 2 542 82 153 111 876 3 175 73 910 3 486 242 Banks 32 398 17 175 64 139 422 1 519 4 944 233 40 479 18 721 316 42 655 77 319 33 369 101 828 165 123 300 320 41 591 96 034 50 1 Retail exposure 37 649 374 889 16 381 84 198 1 54 031 459 087 513 118 426 166 22 550 25 261 7 396 Retail mortgages 11 613 274 022 33 304 11 613 307 326 318 939 288 198 13 096 18 634 3 768 QRRE 2 893 35 656 6 417 30 323 9 310 65 979 75 289 55 888 2 443 3 143 1 572 Other retail 23 143 65 211 9 964 20 571 1 33 108 85 782 118 890 82 080 7 011 3 484 2 056

Total 160 303 46 846 674 635 51 555 6 657 178 485 2 791 73 936 41 062 1 540 64 081 104 920 216 189 191 520 999 102 1 406 811 97 265 821 018 23 962 35 575 9 971 5 684 1 Restated. Refer to page 93. 2 Amount before the application of any offset, mitigation or netting.

Exposures to corporate, retail and sovereign customers grew most and revolving credit facilities. Loans to inclusive banking significantly over the period, by R30 billion, R27 billion and customers grew off a low base but slowed towards the end of the R24 billion respectively. Exposure to bank customers decreased year as we reduced our risk appetite for this lending. Term loans by 10% (R32 billion), largely due to the reduced placement of to our business banking customers grew 9% with more customers liquidity in banks. Exposure to derivative instruments reduced by using structured working capital facilities. The number of credit R39 billion, following global trends of muted market activity in card accounts in South Africa and the overall credit card debtors’ light of widespread economic uncertainty. Exposure to other book increased during the year, partly attributable to new account African countries increased by 29% over the period, reflecting the growth and improved limit utilisation on existing accounts. group’s strategy for expansion into the African continent. Gross defaulted exposures in the retail portfolio reduced by R1,9 billion The impairment charge in personal unsecured lending (excluding over the period, driven by a 16% reduction in defaulted mortgage card) increased during the year. This was a result of the increased exposures. This was offset by increased defaults among corporate incidence of default in the R3,7 billion domestic personal term customers, emanating from geographies outside South Africa. loans book (loans to lower-income customers known as the inclusive banking book) and strong growth in the middle market Retail exposure grew by 5% during the period. This growth segment in South Africa and workplace banking in the rest of was predominantly due to retail mortgages growth of 4% to Africa. Consequently the personal unsecured lending credit loss R331 billion as we took the opportunity to favourably price new ratio rose from 5.31% to 6.47%. Scorecard thresholds for this business and optimise our mortgage loan portfolio. QRRE and type of lending have been raised and there has consequently other retail both increased 8% to R81 billion and R128 billion, been very little growth in the book since June 2012. respectively. This was due to strong balance growth in overdrafts

30 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

Banking operations continued

Basel II: Credit portfolio analysis RCM Accounting definitions of past due and impaired exposures as well as the credit impairment approaches adopted in terms The credit portfolio is analysed in the tables that follow in terms of the Basel II approach and asset class, industry, geography AFS of IFRS are set out in detail on page 43 and residual contractual maturity.

Basel II: Exposure by approach and class

Reverse repurchase and Gross Impairment of On-balance sheet Off-balance sheet resale agreements Derivative instruments Total by approach EAD past due exposures but not Gross impaired defaulted Standardised FIRB AIRB Standardised FIRB AIRB Standardised FIRB AIRB Standardised FIRB AIRB Standardised FIRB AIRB Total FIRB AIRB exposures1 exposures2 Specific Portfolio Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm 2012 Corporate 74 024 20 943 189 309 31 681 3 964 113 710 335 27 593 15 075 2 026 12 282 20 901 108 066 64 782 338 995 511 843 40 515 253 736 496 11 101 4 127 Sovereign 29 690 19 128 74 880 566 10 6 052 2 549 40 1 606 1 478 30 296 20 744 84 959 135 999 21 390 77 515 6 108 77 Banks 35 244 9 848 68 149 1 076 947 10 308 114 15 090 33 593 737 27 264 65 445 37 171 53 149 177 495 267 815 25 006 113 069 53 1 Retail exposure 31 983 409 570 10 423 88 055 42 406 497 625 540 031 470 848 27 789 23 325 8 311 Retail mortgages 11 357 286 235 33 257 11 357 319 492 330 849 301 890 16 774 15 647 4 155 QRRE 3 47 009 34 155 3 81 164 81 167 76 569 2 953 3 335 1 507 Other retail 20 623 76 326 10 423 20 643 31 046 96 969 128 015 92 389 8 062 4 343 2 649

Total 170 941 49 919 741 908 43 746 4 921 218 125 449 42 683 51 217 2 803 41 152 87 824 217 939 138 675 1 099 074 1 455 688 86 911 915 168 28 291 34 587 12 516 5 188 2011 Corporate 65 812 28 742 167 061 33 676 5 095 82 110 897 33 457 18 343 1 223 19 856 25 225 101 608 87 150 292 739 481 497 52 499 224 908 1 409 9 778 2 332 Sovereign 24 444 929 68 546 1 076 43 7 233 1 661 3 998 1 570 2 376 27 181 2 542 82 153 111 876 3 175 73 910 3 486 242 Banks 32 398 17 175 64 139 422 1 519 4 944 233 40 479 18 721 316 42 655 77 319 33 369 101 828 165 123 300 320 41 591 96 034 50 1 Retail exposure 37 649 374 889 16 381 84 198 1 54 031 459 087 513 118 426 166 22 550 25 261 7 396 Retail mortgages 11 613 274 022 33 304 11 613 307 326 318 939 288 198 13 096 18 634 3 768 QRRE 2 893 35 656 6 417 30 323 9 310 65 979 75 289 55 888 2 443 3 143 1 572 Other retail 23 143 65 211 9 964 20 571 1 33 108 85 782 118 890 82 080 7 011 3 484 2 056

Total 160 303 46 846 674 635 51 555 6 657 178 485 2 791 73 936 41 062 1 540 64 081 104 920 216 189 191 520 999 102 1 406 811 97 265 821 018 23 962 35 575 9 971 5 684 1 Restated. Refer to page 93. 2 Amount before the application of any offset, mitigation or netting.

Basel II: Exposure by approach and asset class (Rbn)

350

300

250

200

150

100

50

Corporate Sovereign Banks Retail mortgages QRRE Other retail

¢ Standardised 2012 ¢ FIRB 2012 ¢ AIRB 2012 ¢ Standardised 2011 ¢ FIRB 2011 ¢ AIRB 2011

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Credit risk continued

Banking operations continued Analysis by industry Basel II: Exposures by type of asset and industry Reverse Impairment of On- Off- repurchase Total Gross exposures balance balance and resale Derivative gross defaulted sheet sheet agreements instruments exposure exposures1 Specific Portfolio Rm Rm Rm Rm Rm Rm Rm Rm 2012 Agriculture 13 475 8 252 22 49 21 798 590 264 Mining 37 995 37 048 983 76 026 396 137 Manufacturing 55 000 23 899 1 074 2 475 82 448 4 430 723 Electricity 7 447 11 676 5 1 191 20 319 54 34 Construction 5 995 7 746 285 14 026 901 223 Wholesale 50 629 29 145 12 789 2 706 95 269 1 081 527 Transport 16 780 12 464 386 824 30 454 309 228 Finance, real estate and other business services 277 032 49 283 80 073 121 346 527 734 5 087 3 257 Private households 385 034 71 656 456 690 20 576 6 615 Other 113 381 15 623 1 920 130 924 1 163 508 Total 962 768 266 792 94 349 131 779 1 455 688 34 587 12 516 5 188 2011 Agriculture 14 216 7 845 887 57 23 005 597 327 Mining 38 383 28 412 244 2 329 69 368 1 674 73 Manufacturing 40 483 28 141 802 5 706 75 132 1 013 411 Electricity 10 629 2 334 196 560 13 719 248 32 Construction 8 757 6 979 971 16 707 173 84 Wholesale 40 347 23 960 13 727 4 440 82 474 500 246 Transport 20 860 11 656 1 875 34 391 205 89 Finance, real estate and other business services 268 325 37 114 100 124 153 513 559 076 7 467 2 325 Private households 352 785 68 708 10 421 503 22 647 5 784 Other 86 999 21 548 1 809 1 080 111 436 1 051 600 Total 881 784 236 697 117 789 170 541 1 406 811 35 575 9 971 5 684

1 Amount before the application of any offset, mitigation or netting.

Basel II: Total gross exposure by type of industry (%)

¢ Finance, real estate and other business services 17 (2011: 40) ¢ Private households 6 36 (2011: 30) ¢ Other (2011: 8) 9 ¢ Wholesale (2011: 6) ¢ Agriculture, mining, manufacturing, electricity, 32 construction and transport (2011: 16)

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Analysis by geographic region Basel II: Exposures by type of asset and geographic region Reverse Impairment of On- Off- repurchase Total Gross exposures balance balance and resale Derivative gross defaulted sheet sheet agreements instruments exposure exposures1 Specific Portfolio Rm Rm Rm Rm Rm Rm Rm Rm 2012 South Africa 672 533 200 064 18 755 28 578 919 930 23 944 8 072 Other African countries 157 070 38 904 673 2 804 199 451 4 119 1 758 Europe 66 063 11 990 47 408 60 299 185 760 493 115 Asia 41 900 7 413 20 068 3 246 72 627 2 666 2 235 North America 8 700 3 985 1 643 34 912 49 240 3 183 248 South America 11 529 3 724 4 907 1 770 21 930 182 88 Other 4 973 712 895 170 6 750 Total 962 768 266 792 94 349 131 779 1 455 688 34 587 12 516 5 188 2011 South Africa 613 798 175 328 21 519 38 812 849 457 26 236 7 462 Other African countries 123 069 27 173 1 309 3 088 154 639 3 481 1 045 Europe 53 335 5 806 57 754 82 711 199 606 2 647 232 Asia 42 774 3 906 25 567 5 063 77 310 2 711 893 North America 11 286 2 070 2 076 38 210 53 642 58 40 South America 35 532 22 328 9 558 2 445 69 863 442 299 Other 1 990 86 6 212 2 294 Total 881 784 236 697 117 789 170 541 1 406 811 35 575 9 971 5 684

1 Amount before the application of any offset, mitigation or netting.

Basel II: Total gross exposure by geographic region (%)

23

¢ South Africa (2011: 60) ¢ Rest of Africa (2011: 11) 14 63 ¢ Outside Africa (2011: 29)

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Credit risk continued

Banking operations continued Analysis by residual contractual maturity Basel II: Exposures by residual contractual maturity Less than 1 to 5 Greater than Total gross 1 year years 5 years exposure Rm Rm Rm Rm 2012 Corporate 235 998 225 723 50 122 511 843 Sovereign 87 050 29 549 19 400 135 999 Banks 154 545 87 647 25 623 267 815 Retail exposure 147 888 59 229 332 914 540 031 Retail mortgages 8 393 6 075 316 381 330 849 QRRE 81 167 81 167 Other retail 58 328 53 154 16 533 128 015

Total 625 481 402 148 428 059 1 455 688 2011 Corporate 209 751 221 240 50 506 481 497 Sovereign 62 097 31 101 18 678 111 876 Banks 192 719 80 583 27 018 300 320 Retail exposure 132 378 64 755 315 985 513 118 Retail mortgages 5 407 6 682 306 850 318 939 QRRE 66 125 9 164 75 289 Other retail 60 846 48 909 9 135 118 890

Total 596 945 397 679 412 187 1 406 811

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Basel II: Loss analysis ¢ Actual LGDs have been determined based on write-offs in Regulatory expected loss versus actual losses 2012, and are thus reflective of write-offs as opposed to The table below shows the actual losses experienced in the losses from exposures defaulting in the period. Accurate group‘s IRB exposure classes during 2012, compared to 2011. actual LGDs can only be determined when exposures that Actual losses comprise impairments as determined by IFRS. have defaulted in 2012 have reached a write-off stage Actual losses for 2012 have increased from the same period in which can be several years in the case of corporate, 2011 due to growth in the higher risk, higher margin unsecured sovereign, bank or mortgage exposures. Accurate actual personal term loan book and sizeable losses for a small number LGD comparisons are thus only feasible several years after of large corporate counterparty exposures. Actual losses for the default has taken place. 2012 have increased from the same period in 2011 due to growth in the higher risk, higher margin unsecured personal The EAD ratio reflects estimated through-the-cycle EADs, term loan book and sizeable losses for a small number of used to derive the regulatory expected loss, as a percentage corporate counterparty exposures. In addition, the specific of EADs derived from the actual losses for 2012. The analysis impairment charge on the retail mortgage portfolio has is conducted on all accounts that defaulted during the increased due to the introduction of a revised impairment period under review. A ratio above 100% indicates an estimation model during 2012. This has resulted in a overestimation of EAD. reallocation of additional impairment held on the performing loans portfolio to the impairment loans portfolio. Estimated values are based on regulatory capital models applied as at 31 December 2011. For PDs, these are applied to the Analysis of actual losses1 total performing book as at 31 December 2011. For the corporate, sovereign and bank asset classes, the actual default 2012 2011 rates for 2012 and 2011 were lower than the estimated default Rm Rm rates. This illustrates the general level of conservatism the group IRB exposure class2 applies to its low-default portfolio models. Actual PDs for Corporate 1 549 689 the retail exposures for the 12-month period ended Sovereign (100) 212 31 December 2012 are below the estimated through-the-cycle Banks 157 (34) PDs indicating lower average defaults than through-the-cycle Retail exposure 6 734 5 047 default expectations.

Retail mortgages 3 388 2 599 Estimated LGDs and EADs are determined by applying regulatory QRRE 1 540 1 537 capital models to all facilities. Other retail 1 806 911 Actual values are based on realised outcomes over the Total 8 340 5 914 same period. 1 Excludes recoveries after write-off. 2 Excludes all the standardised approach portfolios. The LGD analysis is based only on the South African portfolio, as entities outside South Africa are under the FIRB or standardised The table on the following page provides the comparison of the approach. The actual LGD experienced for the corporate asset 12-month period ended December 2012 actual PDs, LGDs and class during 2012 and 2011 was significantly lower than the EADs to the estimated through-the-cycle PDs, LGDs and EADs estimated LGD. This difference can be attributed to the at the beginning of the 12-month period determined for application of downturn parameters when estimating LGD, even regulatory capital calculations. Note that this comparison is an when market conditions are improving or positive, and to the approximation as the PD, LGD and EAD actual and estimated general conservatism of the LGD models the group applies to parameters are not identical. The parameters are: low-default portfolios. ¢ PDs and LGDs estimated at the end of December 2011, to determine the regulatory expected loss for the following No bank or sovereign defaults were experienced in the AIRB 12-month period. PDs are calibrated to long-run default portfolio during the current and previous periods under review, experience to ensure stable regulatory models over an entire hence actual LGDs and EADs are not applicable in 2012 and credit cycle. These models would tend to underestimate at 2011. Actual LGDs for mortgage exposures were higher than the top of the credit cycle and overestimate actual defaults estimates as write-offs, mostly from exposures defaulting during at the bottom of the credit cycle. the downturn.

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Credit risk continued

Banking operations continued Basel II: IRB exposure class1 PD LGD2 EAD Estimate to Estimated Actual Estimated Actual actual ratio % % % % % 2012 Corporate 2.24 1.66 33.82 21.24 146.09 Sovereign 1.23 16.54 Banks 0.78 0.14 39.69 Retail exposure 4.21 4.11 24.96 22.64 103.44 Retail mortgages 4.42 4.28 12.90 16.27 102.53 QRRE 4.64 4.40 66.24 54.86 100.76 Other retail 3.23 3.32 37.33 35.54 110.60

Total 3.01 2.71 26.84 21.53 104.93 2011 Corporate 2.40 1.72 31.82 13.02 92.87 Sovereign 1.43 20.91 Banks 0.66 0.15 33.76 Retail exposure 4.43 4.09 23.91 25.61 109.86 Retail mortgages 4.56 4.27 13.80 16.61 104.26 QRRE 5.13 4.55 64.19 65.19 118.22 Other retail 3.51 3.23 31.31 40.27 124.45

Total 3.08 2.42 26.20 15.94 107.38

1 Excludes all the standardised approach portfolios. 2 Excludes FIRB portfolios.

Basel II: Credit risk mitigation Guarantees and related legal contracts are often required, Collateral, guarantees, derivatives and on- and off-balance particularly in support of credit extension to groups of sheet netting are widely used to mitigate credit risk. Credit companies and weaker counterparties. Guarantor counterparties risk mitigation policies and procedures ensure that credit risk include banks, parent companies, shareholders and associated mitigation techniques are acceptable, used consistently, valued counterparties. Creditworthiness is established for the guarantor appropriately and regularly, and meet the risk requirements of as for other counterparty credit approvals. operational management for legal, practical and timely enforcement. Detailed processes and procedures are in place For derivative transactions, the group typically uses to guide each type of mitigation used. internationally recognised and enforceable International Swaps and Derivatives Association (ISDA) agreements, with a credit The main types of collateral taken are: support annexure, where collateral support is considered necessary. Other credit protection terms may be stipulated, such ¢ mortgage bonds over residential, commercial and Audited Audited industrial properties as limitations on the amount of unsecured credit exposure acceptable, collateralisation if mark-to-market credit exposure ¢ cession of book debts exceeds acceptable limits, and/or termination of the contract if ¢ bonds over plant and equipment certain credit events occur, for example downgrade of the ¢ the underlying movable assets financed under leases counterparty’s public credit rating. and instalment sales. Wrong-way risk arises where there is a positive correlation Reverse repurchase agreements are underpinned by the assets between counterparty default and transaction exposure, and a being financed, which are mostly liquid and tradable financial negative correlation between transaction exposure and the value instruments. of collateral at the point of counterparty default.

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This risk is addressed by taking into consideration the high Basel II: Exposure and mitigation by asset class (Rbn) correlation between the default event and exposure to the counterparty when calculating the potential exposure and 600 security margin requirements on these transactions. 500 To manage actual or potential portfolio risk concentrations in areas of higher credit risk and credit portfolio growth, the group 400 Audited implements hedging and other strategies from time to time. This is done at individual counterparty, sub-portfolio and portfolio 300 levels through the use of syndication, distribution and sale of 200 assets, asset and portfolio limit management, credit derivatives

and credit protection. 100

Corporate Banks Sovereign Retail

¢ Gross exposure 2012 ¢ Credit risk mitigation 2012 ¢ Gross exposure 2011 ¢ Credit risk mitigation 2011

Basel II: Credit risk mitigation for portfolios under the IRB approach Eligible Other Guarantees Effects of Total financial eligible IRB and credit netting credit risk Total collateral collateral derivatives agreements mitigation exposure Rm Rm Rm Rm Rm Rm 2012 Corporate 61 275 47 148 17 939 22 618 148 980 403 777 Sovereign 4 349 491 287 985 6 112 105 703 Banks 43 635 2 212 73 477 119 324 230 644 Retail exposures 357 356 357 356 497 625 Retail mortgages 313 213 313 213 319 492 QRRE 333 333 81 164 Other retail 43 810 43 810 96 969

Total 109 259 404 995 20 438 97 080 631 772 1 237 749 2011 Corporate 73 364 44 025 58 214 28 215 203 818 379 889 Sovereign 4 108 654 897 1 041 6 700 84 695 Banks 59 924 5 601 105 374 170 899 266 951 Retail exposures 2 342 864 342 866 459 087 Retail mortgages 303 577 303 577 307 326 QRRE 335 335 65 979 Other retail 2 38 952 38 954 85 782

Total 137 398 387 543 64 712 134 630 724 283 1 190 622

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Credit risk continued

Banking operations continued Basel II: Credit risk mitigation for portfolios under the standardised approach Effects of Eligible Guarantees Total netting financial and credit credit risk Total agreements collateral derivatives mitigation exposure Rm Rm Rm Rm Rm 2012 Corporate 234 3 331 4 206 7 771 108 066 Sovereign 32 32 30 296 Banks 114 236 350 37 171 Retail exposure 6 550 903 7 453 42 406 Total 234 9 995 5 377 15 606 217 939 2011 Corporate 170 3 266 2 006 5 442 101 608 Sovereign 27 181 Banks 9 22 12 43 33 369 Retail exposure 739 295 1 034 54 031 Total 179 4 027 2 313 6 519 216 189

Basel II: Concentration risk Basel II: Counterparty credit risk Credit concentration risk is the risk of loss to the group Counterparty credit risk is managed according to the group arising from an excessive concentration of exposure to a single credit risk governance standard, which also covers any other counterparty, industry, market, product, financial instrument type of credit risk. All such credit risk limits are subject to annual or type of security, country or region, or maturity. This review. Counterparty exposures are monitored against limits by concentration typically exists when a number of counterparties the risk functions on a daily basis, and included in the calculation are engaged in similar activities and have similar characteristics of economic capital demand. that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The group is exposed to credit risk on derivative contracts,

Audited which arises as a result of counterparty credit risk and The group maintains a portfolio of credit risk that is adequately movements in the fair value of securities financing and diversified and avoids unnecessarily excessive concentration OTC derivative contracts. The risk amounts reflect the risks. Diversification is achieved through setting maximum aggregate replacement costs that would be incurred by exposure guidelines to individual counterparties. The group the group in the event of counterparties defaulting on constantly reviews its concentration levels and sets maximum their obligations. exposure guidelines to these. Excesses are reported to GROC and the GRCMC.

38 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

The group’s exposure to counterparty risk is affected by the Basel II: OTC derivatives exposure nature of the trades, the creditworthiness of the counterparty, and netting and collateral arrangements. Counterparty credit risk 2012 2011 is measured in potential future exposure terms and recognised Rm Rm in risk systems on a net basis where netting agreements are in Notional principal amount place and are legally recognised, or on a gross basis otherwise. Interest rate products 4 823 102 5 469 420 Exposures are generally marked to market daily. Cash or near Forex and gold 1 661 683 2 090 012 cash collateral is posted where contractually provided for. Equities 25 609 49 311 Precious metals 67 340 78 637 Counterparty credit risk is subjected to explicit credit limits Other commodities 181 407 237 375 which are formulated and approved for each counterparty and Credit derivatives 196 876 264 811 economic group, with specific reference to its credit rating and other credit exposures. Protection bought 109 434 131 735 Protection sold 87 442 133 076 The tables that follow detail the group’s exposure to securities financing transactions and OTC derivatives. Securities financing Total 6 956 017 8 189 566 transactions include reverse repurchase agreements, resale Netted current credit agreements, securities lending and securities borrowing exposure (net fair value) agreements for all relevant Basel II asset classes and Gross positive fair value 131 779 170 541 collateral held. Interest rate products 83 534 90 264 Basel II: Securities financing transactions Forex and gold 34 585 53 479 Equities 2 199 4 482 2012 2011 Precious metals 2 926 4 488 Rm Rm Other commodities 5 589 10 613 Exposure Credit derivatives 2 946 7 215 With master netting agreement 36 523 66 272 Protection bought 1 726 6 531 Without master netting agreement 57 827 51 519 Protection sold 1 220 684 Total 94 350 117 791 Netting benefits (97 315) (134 811) Collateral Total 34 464 35 730 Cash 30 764 27 783 Commodities 13 852 14 241 EAD 68 889 77 461 Debt securities 35 560 66 156 Collateral Equities 5 135 2 577 Cash 10 928 14 698 Total 85 311 110 757 Gold 15 Debt securities 1 118 174 EAD 19 021 19 095 Total 12 061 14 872

Derivative transactions traded on a recognised exchange or with a central counterparty, for example a clearing house, have been excluded as such exposures are currently not subject to capital requirements in respect of counterparty credit risk, though this treatment is the subject of regulatory review internationally.

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Credit risk continued

Banking operations continued The group uses SPEs to securitise customer loans and advances Basel II: Securitisation that it has originated in order to diversify its sources of funding Securitisation is a transaction whereby the credit for asset origination and for capital efficiency purposes. In risk associated with an exposure, or pool of exposures, is addition, the group plays a secondary role as an investor in tranched and where payments to investors in the transaction certain securitisation notes. are dependent upon the performance of the exposure or pool of exposures. A traditional securitisation involves the transfer of the exposures being securitised to a special purpose entity (SPE) which issues securities. In a synthetic securitisation, the tranching is achieved by the use of credit derivatives and the exposures are not removed from the balance sheet of the originator.

Roles fulfilled in securitising assets Credit Liquidity enhancement Swap Securitisation transactions Originator Investor Servicer provider provider counterparty

Traditional securitisations Blue Granite 1 ü ü ü ü ü Blue Granite 2 ü ü ü ü ü Blue Granite 3 ü ü ü ü ü Blue Granite 4 ü ü ü ü ü Siyakha Fund ü ü ü ü Asset-backed commercial paper programme Blue Titanium Conduit ü ü ü ü Third party transactions ü ü ü ü

For originated and sponsored or administered securitisations underlying assets and the presence of a rating from an eligible consolidated under IFRS (that is, Siyakha Fund, Blue Granite external credit assessment institution. To date, the group has and Blue Titanium Conduit) intragroup exposures to and applied the standardised approach, ratings-based approach and between these securitisations have been eliminated and the standard formula approach, where relevant, in the calculation of underlying assets consolidated in the relevant sections (that risk-weighted assets. For local securitisations in South Africa, is, primarily retail mortgages) of the risk disclosure. Only Moody’s Investor Services and/or Fitch were appointed as rating exposures to securitisations of assets originated by third agencies. For securitisation issues outside Africa, Standard & parties are disclosed on the following page. The approach Poor’s was previously appointed. There were no securitisation applied in the calculation of risk-weighted assets is activities during 2012 (2011: R1 363 million). dependent on the group’s model approval for the

40 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

Securitisation transactions Assets Notes Retained outstanding outstanding1 exposure1,2 Assets Year Expected Rating securitised 2012 2011 2012 2011 2012 2011 Asset type initiated close agency Rbn Rbn Rbn Rbn Rbn Rbn Rbn Traditional securitisations 17,9 11,1 12,2 12,2 13,0 5,5 5,2 Blue Retail Moody’s Granite 1 mortgages 2005 2032 and Fitch 4,6 1,6 1,9 1,7 2,1 1,4 1,6 Blue Retail Granite 2 mortgages 2006 2041 Moody’s 2,8 2,1 2,1 2,3 2,3 1,2 1,2 Blue Retail Granite 3 mortgages 2006 2032 Moody’s 3,0 2,0 2,3 2,3 2,5 1,3 1,3 Blue Retail Granite 4 mortgages 2007 2037 Moody’s 5,1 3,4 3,8 3,8 3,9 1,5 1,1 Siyakha Retail Fund mortgages 2007 2043 Fitch 2,4 2,0 2,1 2,1 2,2 0,1 Asset-backed commercial paper programme Blue Titanium Conduit Various 2002 N/A Fitch N/A 4,4 4,9 4,5 4,9 0,3 0,3 Total 17,9 15,5 17,1 16,7 17,9 5,8 5,5

1 Capital plus accrued interest. 2 Includes notes, 1st and 2nd loss sub-loans and notes held by BTC.

The transfer of assets to an SPE may give rise to the full or partial derecognition of the financial assets concerned. Only in the event that derecognition is achieved are sales and any resultant gains on sales recognised in the financial statements.

RCM For further information on assets transferred but not derecognised, refer to note 6.4 in the annual financial statements AFS on page 134

Basel II: Securitised on-balance sheet exposures 2012 2011 Retail Retail mortgages loans Total Total Rm Rm Rm Rm Standardised – unrated1 250 250 204 IRB 2 240 739 2 979 4 738 Unrated1 121 Investment grade 2 179 739 2 918 4 415 Sub-investment grade 61 61 202

Total 2 240 989 3 229 4 942

1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.

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Credit risk continued

Banking operations continued Basel II: Securitised off-balance sheet exposures 2012 2011 Retail Retail mortgages loans Total Total Rm Rm Rm Rm Standardised – unrated1 250 250 296 IRB 3 621 306 3 927 3 413 Unrated1 3 196 3 196 3 129 Investment grade 425 306 731 284

Total 3 621 556 4 177 3 709

1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.

Basel II: Securitisation by approach – risk-weighted assets 2012 2011 Rm Rm IRB 1 000 1 770 Standardised 297 349 Total 1 297 2 119

42 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

IFRS: Analysis of loans and advances Non-performing loans The tables on the pages that follow analyse the credit quality of Non-performing loans are those loans for which: loans and advances measured in terms of IFRS. ¢ the group has identified objective evidence of default, such as a breach of a material loan covenant or condition, or Refer to page 10 for an understanding of the differences RCM ¢ instalments are due and unpaid for 90 days or more. AFS between IFRS and Basel II Non-performing but not specifically impaired loans are not IFRS: Maximum exposure to credit risk specifically impaired due to the expected recoverability of the Loans and advances are analysed and categorised based on full carrying value when considering the recoverability of credit quality using the following definitions. discontinued future cash flows, including collateral.

Performing loans Non-performing specifically impaired loans are those loans that Neither past due nor specifically impaired loans are loans that are regarded as non-performing and for which there has been a are current and fully compliant with all contractual terms and measurable decrease in estimated future cash flows. Specifically conditions. Normal monitoring loans within this category are impaired loans are further analysed into the following categories: generally rated 1 to 21, and close monitoring loans are generally ¢ Sub-standard items that show underlying well-defined rated 22 to 25 using the group’s master rating scale. weaknesses and are considered to be specifically impaired. Early arrears but not specifically impaired loans include those ¢ Doubtful items that are not yet considered final losses due loans where the counterparty has failed to make contractual to some pending factors that may strengthen the quality payments and payments are less than 90 days past due, but it is of the items. expected that the full carrying value will be recovered when ¢ Loss items that are considered to be uncollectible in whole considering future cash flows, including collateral. Ultimate loss or in part. The group provides fully for its anticipated loss, is not expected but could occur if the adverse conditions persist. after taking collateral into account.

Loans

Performing loans Non-performing loans

Neither past due Early arrears Non-performing Specifically nor specifically but not specifically but not specifically impaired loans (Rm) impaired loans (Rm) impaired loans (Rm) impaired loans (Rm) 2012: 771 514 2012: 28 291 2012: 1 332 2012: 30 459 20111: 763 339 20111: 22 249 20111: 1 183 20111: 32 225

Normal Close Sub-standard Doubtful Loss monitoring (Rm) monitoring (Rm) (Rm) (Rm) (Rm) 2012: 749 857 2012: 21 657 2012: 9 514 2012: 17 028 2012: 3 917 2011: 744 128 2011: 19 211 2011: 10 163 2011: 18 949 2011: 3 113

1 Excluding discontinued operation. Portfolio credit impairments Specific credit impairments

43 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations continued IFRS: Maximum exposure to credit risk by credit quality Performing loans Non-performing loans Neither past due nor Not specifically specifically impaired impaired Specifically impaired loans Net after Balance Securities securities sheet and and impair- expected expected ments recoveries recoveries for non- on on performing Gross Total Gross specifically specifically specifically specific non- Non- advances Normal Close Early Non- Sub- impaired impaired impaired impairment performing performing total monitoring monitoring arrears performing1 standard Doubtful Loss Total loans loans loans coverage loans loans Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % Rm % 2012 Personal & Business Banking 502 154 430 364 21 053 28 261 6 276 13 245 2 955 22 476 13 862 8 614 8 614 38 22 476 4.5 Mortgage loans 299 675 255 240 11 824 16 864 4 966 10 088 693 15 747 11 581 4 166 4 166 26 15 747 5.3 Instalment sale and finance leases 62 860 54 950 3 089 3 220 221 692 688 1 601 814 787 787 49 1 601 2.5 Card debtors 24 052 19 881 2 721 558 159 233 500 892 312 580 580 65 892 3.7 Other loans and advances 115 567 100 293 3 419 7 619 930 2 232 1 074 4 236 1 155 3 081 3 081 73 4 236 3.7 Personal unsecured lending 42 633 33 741 1 438 4 908 475 1 292 779 2 546 638 1 908 1 908 75 2 546 6.0 Business lending and other 72 934 66 552 1 981 2 711 455 940 295 1 690 517 1 173 1 173 69 1 690 2.3

Corporate & Investment Banking 358 168 348 219 604 30 1 332 3 238 3 783 962 7 983 4 082 3 901 3 901 49 9 315 2.6

Audited Corporate loans 320 204 311 212 604 25 1 135 2 914 3 537 777 7 228 3 507 3 721 3 721 51 8 363 2.6 Commercial property finance 37 964 37 007 5 197 324 246 185 755 575 180 180 24 952 2.5 Other services (28 726) (28 726) (1) 1 1 Gross loans and advances 831 596 749 857 21 657 28 291 1 332 9 514 17 028 3 917 30 459 17 943 12 516 12 516 41 31 791 3.8 Less: Impairments for loans and advances (17 704) Tutuwa2 loans and advances IFRS adjustment (2 721) Net loans and advances 811 171 Add the following other banking activities’ exposures: Cash and balances with central banks 61 985 Derivative assets 118 353 Financial investments 94 715 Trading assets 114 435 Pledged assets 11 640 Other financial assets 21 100 Total on-balance sheet exposure 1 233 399 Off-balance sheet exposures Letters of credit and bankers’ acceptances 14 218 Guarantees 45 247 Irrevocable unutilised facilities 97 162 Commodities and securities lending transactions 12 523 Total exposure to credit risk 1 402 549

1 Includes loans of R256 million that are past due but not specifically impaired. 2 Tutuwa is the group’s black economic empowerment ownership initiative.

44 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

IFRS: Maximum exposure to credit risk by credit quality Performing loans Non-performing loans Neither past due nor Not specifically specifically impaired impaired Specifically impaired loans Net after Balance Securities securities sheet and and impair- expected expected ments recoveries recoveries for non- on on performing Gross Total Gross specifically specifically specifically specific non- Non- advances Normal Close Early Non- Sub- impaired impaired impaired impairment performing performing total monitoring monitoring arrears performing1 standard Doubtful Loss Total loans loans loans coverage loans loans Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % Rm % 2012 Personal & Business Banking 502 154 430 364 21 053 28 261 6 276 13 245 2 955 22 476 13 862 8 614 8 614 38 22 476 4.5 Mortgage loans 299 675 255 240 11 824 16 864 4 966 10 088 693 15 747 11 581 4 166 4 166 26 15 747 5.3 Instalment sale and finance leases 62 860 54 950 3 089 3 220 221 692 688 1 601 814 787 787 49 1 601 2.5 Card debtors 24 052 19 881 2 721 558 159 233 500 892 312 580 580 65 892 3.7 Other loans and advances 115 567 100 293 3 419 7 619 930 2 232 1 074 4 236 1 155 3 081 3 081 73 4 236 3.7 Personal unsecured lending 42 633 33 741 1 438 4 908 475 1 292 779 2 546 638 1 908 1 908 75 2 546 6.0 Business lending and other 72 934 66 552 1 981 2 711 455 940 295 1 690 517 1 173 1 173 69 1 690 2.3

Corporate & Investment Banking 358 168 348 219 604 30 1 332 3 238 3 783 962 7 983 4 082 3 901 3 901 49 9 315 2.6

Audited Corporate loans 320 204 311 212 604 25 1 135 2 914 3 537 777 7 228 3 507 3 721 3 721 51 8 363 2.6 Commercial property finance 37 964 37 007 5 197 324 246 185 755 575 180 180 24 952 2.5 Other services (28 726) (28 726) (1) 1 1 Gross loans and advances 831 596 749 857 21 657 28 291 1 332 9 514 17 028 3 917 30 459 17 943 12 516 12 516 41 31 791 3.8 Less: Impairments for loans and advances (17 704) Tutuwa2 loans and advances IFRS adjustment (2 721) Net loans and advances 811 171 Add the following other banking activities’ exposures: Cash and balances with central banks 61 985 Derivative assets 118 353 Financial investments 94 715 Trading assets 114 435 Pledged assets 11 640 Other financial assets 21 100 Total on-balance sheet exposure 1 233 399 Off-balance sheet exposures Letters of credit and bankers’ acceptances 14 218 Guarantees 45 247 Irrevocable unutilised facilities 97 162 Commodities and securities lending transactions 12 523 Total exposure to credit risk 1 402 549

1 Includes loans of R256 million that are past due but not specifically impaired. 2 Tutuwa is the group’s black economic empowerment ownership initiative.

45 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations continued IFRS: Maximum exposure to credit risk by credit quality continued Performing loans Non-performing loans Neither past due nor Not specifically specifically impaired impaired Specifically impaired loans Net after Balance Securities securities sheet and expected and expected impairments recoveries recoveries for non- on on performing Gross Total Gross specifically specifically specifically specific non- Non- advances Normal Close Early Non- Sub- impaired impaired impaired impairment performing performing total monitoring monitoring arrears performing1 standard Doubtful Loss Total loans loans loans coverage loans loans Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % Rm % 2011 Personal & Business Banking 457 831 393 406 17 488 21 890 7 232 14 933 2 882 25 047 17 470 7 577 7 577 30 25 047 5.5 Mortgage loans 286 100 241 342 12 451 13 142 6 332 12 232 601 19 165 15 393 3 772 3 772 20 19 165 6.7 Instalment sale and finance leases 53 741 48 168 1 117 2 706 136 633 981 1 750 745 1 005 1 005 57 1 750 3.3 Card debtors 20 726 17 450 1 935 205 137 229 770 1 136 312 824 824 73 1 136 5.5 Other loans and advances 97 264 86 446 1 985 5 837 627 1 839 530 2 996 1 020 1 976 1 976 66 2 996 3.1 Personal unsecured lending 28 824 23 654 694 2 953 249 945 329 1 523 410 1 113 1 113 73 1 523 5.3 Business lending and other 68 440 62 792 1 291 2 884 378 894 201 1 473 610 863 863 59 1 473 2.2

Corporate & Investment Banking 383 531 373 088 1 723 359 1 183 2 931 4 016 231 7 178 4 980 2 198 2 198 31 8 361 2.2 Corporate loans 345 756 336 347 1 688 178 919 2 765 3 638 221 6 624 4 548 2 076 2 076 31 7 543 2.2 Commercial property finance2 37 775 36 741 35 181 264 166 378 10 554 432 122 122 22 818 2.2 Other services (22 366) (22 366) Audited Gross loans and advances 818 996 744 128 19 211 22 249 1 183 10 163 18 949 3 113 32 225 22 450 9 775 9 775 30 33 408 4.1 Discontinued operation’s loans and advances 21 173 18 916 269 1 713 85 94 96 275 79 196 196 71 275 1.3 Gross loans and advances including discontinued operation 840 169 Less: Impairments for loans and advances – continuing operations (15 185) Tutuwa loans and advances IFRS adjustment (2 503) Discontinued operations loans and advances (21 173) Net loans and advances 801 308 Add the following other banking activities’ exposures: Cash and balances with central banks 31 907 Derivative assets 149 130 Financial investments 97 360 Trading assets 90 392 Pledged assets 6 113 Other financial assets 9 048 Total on-balance sheet exposure of continuing operations 1 185 258 Discontinued operation – financial assets 29 230 Total on-balance sheet exposure 1 214 488 Off-balance sheet exposures Letters of credit and bankers’ acceptances 15 345 Guarantees 36 307 Irrevocable unutilised facilities 75 929 Commodities and securities lending transactions 13 922 Total exposure to credit risk 1 355 991 1 Includes loans of R781 million that are past due but not specifically impaired. 2 Restated. Refer to page 93. 46 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

IFRS: Maximum exposure to credit risk by credit quality continued Performing loans Non-performing loans Neither past due nor Not specifically specifically impaired impaired Specifically impaired loans Net after Balance Securities securities sheet and expected and expected impairments recoveries recoveries for non- on on performing Gross Total Gross specifically specifically specifically specific non- Non- advances Normal Close Early Non- Sub- impaired impaired impaired impairment performing performing total monitoring monitoring arrears performing1 standard Doubtful Loss Total loans loans loans coverage loans loans Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm % Rm % 2011 Personal & Business Banking 457 831 393 406 17 488 21 890 7 232 14 933 2 882 25 047 17 470 7 577 7 577 30 25 047 5.5 Mortgage loans 286 100 241 342 12 451 13 142 6 332 12 232 601 19 165 15 393 3 772 3 772 20 19 165 6.7 Instalment sale and finance leases 53 741 48 168 1 117 2 706 136 633 981 1 750 745 1 005 1 005 57 1 750 3.3 Card debtors 20 726 17 450 1 935 205 137 229 770 1 136 312 824 824 73 1 136 5.5 Other loans and advances 97 264 86 446 1 985 5 837 627 1 839 530 2 996 1 020 1 976 1 976 66 2 996 3.1 Personal unsecured lending 28 824 23 654 694 2 953 249 945 329 1 523 410 1 113 1 113 73 1 523 5.3 Business lending and other 68 440 62 792 1 291 2 884 378 894 201 1 473 610 863 863 59 1 473 2.2

Corporate & Investment Banking 383 531 373 088 1 723 359 1 183 2 931 4 016 231 7 178 4 980 2 198 2 198 31 8 361 2.2 Corporate loans 345 756 336 347 1 688 178 919 2 765 3 638 221 6 624 4 548 2 076 2 076 31 7 543 2.2 Commercial property finance2 37 775 36 741 35 181 264 166 378 10 554 432 122 122 22 818 2.2 Other services (22 366) (22 366) Gross loans and advances 818 996 744 128 19 211 22 249 1 183 10 163 18 949 3 113 32 225 22 450 9 775 9 775 30 33 408 4.1 Discontinued operation’s loans and advances 21 173 18 916 269 1 713 85 94 96 275 79 196 196 71 275 1.3 Gross loans and advances including discontinued operation 840 169 Less: Impairments for loans and advances – continuing operations (15 185) Tutuwa loans and advances IFRS adjustment (2 503) Discontinued operations loans and advances (21 173) Net loans and advances 801 308 Add the following other banking activities’ exposures: Cash and balances with central banks 31 907 Derivative assets 149 130 Financial investments 97 360 Trading assets 90 392 Pledged assets 6 113 Other financial assets 9 048 Total on-balance sheet exposure of continuing operations 1 185 258 Discontinued operation – financial assets 29 230 Total on-balance sheet exposure 1 214 488 Off-balance sheet exposures Letters of credit and bankers’ acceptances 15 345 Guarantees 36 307 Irrevocable unutilised facilities 75 929 Commodities and securities lending transactions 13 922 Total exposure to credit risk 1 355 991 1 Includes loans of R781 million that are past due but not specifically impaired. 2 Restated. Refer to page 93. 47 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations continued IFRS: Ageing of loans and advances past due but not specifically impaired Less than 31 to 60 61 to 90 91 to 180 More than 31 days days days days 180 days Total Rm Rm Rm Rm Rm Rm 2012 Personal & Business Banking 18 152 6 570 3 539 28 261 Mortgage loans 10 118 4 431 2 315 16 864 Instalment sale and finance leases 2 317 695 208 3 220 Card debtors 18 330 210 558 Other loans and advances 5 699 1 114 806 7 619 Personal unsecured lending 3 608 729 571 4 908 Business lending and other 2 091 385 235 2 711

Corporate & Investment Banking 30 12 244 286 Corporate loans 25 12 244 281 Commercial property finance 5 5

Total 18 182 6 570 3 539 12 244 28 547 Audited 2011 Personal & Business Banking 15 250 4 255 2 385 21 890 Mortgage loans 8 527 2 906 1 709 13 142 Instalment sale and finance leases 1 953 542 211 2 706 Card debtors 17 128 60 205 Other loans and advances 4 753 679 405 5 837 Personal unsecured lending 2 284 409 260 2 953 Business lending and other 2 469 270 145 2 884

Corporate & Investment Banking 136 106 117 101 680 1 140 Corporate loans 49 15 114 101 680 959 Commercial property finance 87 91 3 181 Discontinued operation’s loans and advances 1 560 110 43 1 713 Total 16 946 4 471 2 545 101 680 24 743

48 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

IFRS: Renegotiated loans and advances Collateral includes: Renegotiated loans and advances are exposures which have ¢ financial securities that have a tradable market, such as been refinanced, rescheduled, rolled over or otherwise modified shares and other securities following weaknesses in the counterparty’s financial position, ¢ physical items, such as property, plant and equipment and where it has been judged that normal repayment will likely ¢ financial guarantees, suretyships and intangible assets. continue after the restructure. Loans renegotiated in 2012 that would otherwise be past due or impaired comprised R4,7 billion Netting agreements, which do not qualify for offset under IFRS (2011: R4,7 billion). Renegotiated loans that have arisen from but which are nevertheless enforceable, are included as part of secured lending predominantly comprise mortgage loans the group’s collateral. All exposures are presented before the amounting to 71% (2011: 80%) of this amount. Prior year effect of any impairment provisions. amounts have been restated. Refer to page 93.

Audited In the retail portfolio, 58% (2011: 60%) is fully collateralised. IFRS: Collateral The R6 410 million (2011: R2 961 million) of retail accounts The table on the following page shows the financial effect that lie within the 0% to 50% range of collateral coverage that collateral has on the group’s maximum exposure to mainly comprise accounts which are either in default or legal. credit risk. The table is presented according to Basel II asset The total average collateral coverage for all retail mortgage categories and includes collateral that may not be eligible for exposures in the 50% to 100% collateral coverage category

Audited recognition under Basel II but that management takes into is 90%. consideration in the management of the group’s exposures to credit risk. All on- and off-balance sheet exposures which Of the group’s total exposure, 40% (2011: 43%) is unsecured are exposed to credit risk, including non-performing assets, and mainly reflects exposures to well-rated corporate have been included. counterparties, bank counterparties and sovereign entities.

49 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Banking operations continued IFRS: Collateral Collateral coverage Secured Netting exposure Greater Greater Greater Total Un- Secured agree- after than 0% than 50% than exposure secured exposure ments netting to 50% to 100% 100% Rm Rm Rm Rm Rm Rm Rm Rm 2012 Corporate 509 487 217 679 291 808 21 576 270 232 70 928 154 957 44 347 Sovereign 134 854 129 351 5 503 988 4 515 605 2 122 1 788 Bank 241 386 109 334 132 052 68 209 63 843 24 834 26 519 12 490 Retail 454 654 83 388 371 266 46 371 220 6 410 102 847 261 963 Retail mortgage 301 539 315 301 224 301 224 882 39 769 260 573 Other retail 153 115 83 073 70 042 46 69 996 5 528 63 078 1 390

Total 1 340 381 539 752 800 629 90 819 709 810 102 777 286 445 320 588 Add: Financial assets not exposed to credit risk 82 473

Audited Less: Impairments for loans and advances (17 704) Less: Unrecognised off-balance sheet items (169 150) Less: Tutuwa and treasury shares IFRS adjustment (2 601) Total exposure 1 233 399 Reconciliation to balance sheet Cash and balances with central banks 61 985 Derivative assets 118 353 Financial investments 94 715 Trading assets 114 435 Pledged assets 11 640 Other financial assets 21 100 Net loans and advances 811 171 Total exposure 1 233 399

50 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

IFRS: Collateral continued Collateral coverage Secured Netting exposure Greater Greater Greater Total Un- Secured agree- after than 0% than 50% than exposure secured exposure ments netting to 50% to 100% 100% Rm Rm Rm Rm Rm Rm Rm Rm 2011 Corporate 429 470 201 930 227 540 12 382 215 158 39 708 96 525 78 925 Sovereign 132 827 130 363 2 464 290 2 174 1 070 1 095 9 Bank 321 871 151 099 170 772 90 483 80 289 28 628 34 081 17 580 Retail1 416 551 67 972 348 579 1 236 347 343 2 961 93 735 250 647 Retail Mortgage1 288 139 288 139 288 139 897 38 932 248 310 Other retail 128 412 67 972 60 440 1 236 59 204 2 064 54 803 2 337

Total1 1 300 719 551 364 749 355 104 391 644 964 72 367 225 436 347 161 Discontinued operation’s loans and advances 25 638 20 617 5 021 5 021 1 5 020 Total including discontinued operation1 1 326 357 571 981 754 376 104 391 649 985 72 367 225 437 352 181 Add: Financial assets not exposed to credit risk 47 698 Less: Impairments for Audited loans and advances (15 185) Less: Discontinued operation’s loans and advances impairments (471) Less: Unrecognised off-balance sheet items (141 503) Less: Tutuwa and treasury shares IFRS adjustment (2 408) Total exposure 1 214 488 Reconciliation to balance sheet Cash and balances with central banks 31 907 Derivative assets 149 130 Financial investments 97 360 Trading assets 90 392 Pledged assets 6 113 Other financial assets 9 048 Discontinued operation – financial assets 29 230 Net loans and advances 801 308 Total exposure 1 214 488

1 Restated. Refer to page 93.

51 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Insurance operations Each fund has its own legal constitution and operates within a Reinsurance is used to manage insurance risk and consequently, distinct mandate that is delegated to the appointed fund in the liability valuation process, reinsurance assets are raised for manager. Market and credit risks assumed within the assets held expected recoveries on projected claims. This does not, however, are controlled by various protection mechanisms within the discharge Liberty’s liability as primary insurer. In addition, mandate and in law. For example, the South African Collective reinsurance debtors are raised for specific recoveries on claims Investment Schemes Control Act 45 of 2002 prescribes recognised. maximum limits to concentration risk exposures.

Creditworthiness is assessed prior to the appointment of Each fund’s trustees or board appoints administrators who are reinsurers. Financial position strength, performance, track responsible for ensuring that the fund’s mandate, and any record, relative size or ranking within the industry and credit internal and legislated control procedures, are adhered to. In the ratings of reinsurers are taken into account when determining event of breach, they are obligated to immediately notify the the allocation of business to reinsurers. Credit exposure to fund trustees or board and management of the administrators reinsurers is also limited through the use of several reinsurers. for remedial action. These reinsurers are reviewed at least annually. Liberty’s credit exposure generated through its investment in To further mitigate credit exposures to reinsurers, assurance mutual funds is classified at fund level under pooled funds and management performs the following annual checks on not at the underlying asset level. Although mutual funds reinsurers: themselves are not rated, fund managers are, however, required to invest in credit assets within the defined parameters ¢ analyses reports on reinsurers’ claim paying abilities as stipulated in the fund’s mandate. These rules limit the extent to assessed by reputable ratings agencies which fund managers can invest in unlisted and/or unrated ¢ analyses valuators’ certificates credit assets and generally restrict funds to the acquisition of ¢ audits administration processes of reinsurers to whom Liberty investment grade assets. has larger exposures ¢ reviews and renegotiates reinsurance agreements. The mutual funds, into which Liberty has invested and which are defined as subsidiaries, are managed by Stanlib Limited, a wholly Consolidated mutual funds owned Liberty subsidiary, or Ermitage Funds Limited, an Liberty invests in various registered mutual funds to provide for internationally-based asset manager. obligations under policyholders’ contracts. Several of the investments in mutual funds exceed 50% of the total value of the underlying net assets of that fund. These funds are consequently defined as subsidiaries in terms of Liberty’s accounting policies and are consolidated into its results, and that of the group.

52 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Credit risk

Credit exposure The table below provides information regarding the aggregated credit risk exposure of Liberty to debt instruments categorised by credit ratings, if available, as at 31 December 2012.

Exposure to credit risk Total A and BBB and Not Pooled carrying above BBB+ BBB BBB- below rated funds value Rm Rm Rm Rm BB+ BB Rm Rm Rm Rm 2012 Debt instruments 21 067 17 817 366 3 490 470 2 073 18 857 64 140 Investment policies 23 304 23 304 Local prepayments, insurance and other receivables 22 17 41 2 750 2 830 Foreign prepayments, insurance and other receivables 590 590 Reinsurance assets 41 (2) 2 236 277 Derivatives and collateral deposits 1 906 1 575 147 138 3 766 Loan receivables to joint ventures 4 4

Audited Cash and cash equivalents 1 016 660 13 812 2 501 Total assets bearing credit risk 24 052 20 069 405 3 650 472 6 603 42 161 97 412 Aggregated credit risk exposure by shareholder and policyholder Assets bearing credit risk exposure attributable to shareholders 48 197 Assets bearing credit risk exposure attributable to policyholders 47 365 Assets bearing credit risk exposure attributable to non-controlling interest 1 850 Total assets bearing credit risk 97 412

53 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Credit risk continued

Insurance operations continued Exposure to credit risk continued Total A and BBB and Not Pooled carrying above BBB+ BBB BBB- below rated funds value Rm Rm Rm Rm BB+ BB Rm Rm Rm Rm 20111 Debt instruments 20 692 22 406 10 625 1 043 2 199 2 392 49 1 771 12 827 74 004 Investment policies 17 183 17 183 Local prepayments, insurance and other receivables 44 18 55 90 23 1 987 2 217 Foreign prepayments, insurance and other receivables 15 388 403 Reinsurance assets 56 ( 3) 828 2 221 1 104 Derivatives and collateral deposits 874 2 330 494 13 69 10 3 790 Loan receivables to joint ventures 168 168

Audited Cash and cash equivalents 972 3 406 1 979 25 114 55 114 6 665 Total assets bearing credit risk 22 638 28 142 13 131 1 133 3 117 2 575 129 4 659 30 010 105 534 Aggregated credit risk exposure by shareholder and policyholder Assets bearing credit risk exposure attributable to shareholders 52 216 Assets bearing credit risk exposure attributable to policyholders 51 314 Assets bearing credit risk exposure attributable to non-controlling interest 2 004 Total assets bearing credit risk 105 534

1 Restated. Refer to page 93.

Impairments The table below indicates the impairments raised against financial assets.

Financial assets impaired 2012 2011 Rm Rm Mortgages and loans1 Audited Gross carrying value 1 098 1 043 Less: accumulated impairment (42) (36) Net carrying value 1 056 1 007

1 Mortgages and loans, consisting of policy loans, included in unlisted term deposits are impaired when the amount of the loan exceeds the policyholder’s investment balance. The fair value of mortgages and loans after such impairment was R936 million (2011: R921 million). 54 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Country risk

Country risk

Country risk is the risk of loss arising when political or economic conditions or events in a particular country inhibit the ability of counterparties in that country to meet their financial obligations to the group. Country risk events may include sovereign defaults, banking or currency crises, social instability and governmental policy changes or interventions such as expropriation, nationalisation and asset confiscation. Transfer and convertibility risk is an important element of cross-border country risk. Examples of transfer and convertibility events are exchange controls and foreign debt moratoria.

The management of country risk is delegated by the GRCMC ratings, extensive use is made of the group’s network of to GROC and then to the group country risk management operations, country visits and external information sources. committee. This committee is a subcommittee of GROC and The country risk function also rates sovereigns. Credit loan recommends the country risk appetite for individual countries conditions and covenants are linked to country risk events. and ensures, through compliance with the country risk governance standard, that country risk exposures are Countries rated eight (CR08) and higher, referred to as effectively managed in the group. medium- and high-risk countries, are subject to increased analysis and monitoring. For countries with an internal risk grade An internal rating model is used to determine the rating of each of seven (CR07) and lower, referred to as low-risk countries, country in which the group has an exposure. These ratings are a lesser degree of analysis is generally performed. Total also a key input into the group’s credit rating models. The model medium- and high-risk country risk exposures and total low-risk inputs are continuously updated to reflect economic and political country risk exposures for the year ended 31 December 2012 changes in countries. The country risk model output provides an amounted to USD19 billion and USD21 billion, respectively internal risk grade which is calibrated to a country risk grade (CR) (2011: USD19 billion and USD20 billion, respectively). rating scale, from CR1 to CR25. All countries to which the group is exposed are reviewed at least annually. In determining the

Medium- and high-risk country exposure by region (%)

14

12

10

8

6

4

2

CR08 – CR11 CR12 – CR14 CR15 – CR17 CR18 – CR21 CR22+

¢ Europe ¢ Asia ¢ Sub-Saharan Africa ¢ Latin America ¢ Middle East and North Africa

55 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Country risk continued

Country risk exposure by region and risk grade Sub- Middle East North Saharan Latin and North Europe Asia America Africa America Africa Australasia % % % % % % % 2012 Risk grade CR01-CR07 24.1 7.4 7.1 1.1 0.5 2.9 CR08-CR11 2.6 10.3 2.7 4.3 2.6 CR12-CR14 5.8 0.6 8.5 0.3 CR15-CR17 0.2 2.1 13.2 0.5 0.3 CR18-CR21 0.1 1.9 0.1 CR22+ 0.8 2011 Risk grade CR01-CR07 30.7 6.3 14.4 1.1 0.8 CR08-CR11 3.1 10.0 3.7 4.2 1.7 CR12-CR14 3.4 0.9 3.8 0.7 CR15-CR17 0.3 1.7 8.3 1.1 CR18-CR21 0.2 2.9 0.1 CR22+ 0.6

Where appropriate, country risk is mitigated through a number Top five medium- and high-risk country risk EAD (USDm) of methods including: ¢ political and commercial risk insurance 3 500 ¢ co-financing with multilateral institutions 3 000 ¢ structures to mitigate transferability and convertibility risk such as collection, collateral and margining deposits outside 2 500 the jurisdiction in question. 2 000

The risk distribution of country risk cross-border exposures is 1 500 weighted towards European and North American low-risk countries. Exposure to troubled Eurozone peripheral countries is 1 000 limited and closely managed by the country risk function. 500 Exposure to the top five medium- and high-risk countries is shown in the graph alongside. These exposures are in line with the China Nigeria Brazil India Ghana group’s growth strategy focused on select emerging markets. ¢ 2012 ¢ 2011

Medium- and high-risk country EAD concentration by country rating (%)

20 18 16 14 12 10 8 6 4 2

CR08 CR09 CR10 CR11 CR12 CR13 CR14 CR15 CR16 CR17 CR18 CR19 CR20 CR21 CR22+

56 ¢ 2012 ¢ 2011 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Liquidity risk

Liquidity risk

Introduction 57 Introduction Basel III liquidity impact 57 The nature of banking and trading gives rise to Banking operations 58 continuous exposure to liquidity risk. The group’s liquidity Organisational structure and governance 58 risk management framework is designed to measure and manage Liquidity and funding management 58 liquidity across both the corporate and retail sectors to ensure that Credit ratings 62 payment obligations can be met by the group’s legal entities, Conduits 63 under both normal and stressed conditions. Insurance operations 63 Banking liquidity risk can be distinguished by two risk categories which are Liquidity profile of assets 63 strictly managed by the group: Maturity profiles of financial instrument 64 ¢ Market liquidity risk: The risk that the group cannot easily offset or liabilities eliminate a position without significantly affecting market prices because Liquidity risks arising from obligations 65 of inadequate market depth or market disruption. to policyholders ¢ Funding liquidity risk: The risk that the group will not be able to Liquidity requirements associated with 65 effectively meet both expected and unexpected current and future cash issuance of subordinated debt flow and collateral requirements without negatively affecting the group’s daily operations or financial condition.

The principal liquidity risk relating to insurance activities is the group’s exposure to policyholder behaviour in respect of redemption rates. Policyholder behaviour is reviewed on a continuous basis as part of Liberty’s normal operating activities.

Top five medium- and high-risk country risk EAD (USDm) Basel III liquidity impact From 2015, the group will be required to comply with the LCR, a metric 3 500 designed by the BCBS to measure a bank’s ability to manage a sustained

3 000 outflow of customer funds over the course of 30 days. The ratio is ‘high quality liquid assets divided by net cash outflows’ and a bank is expected 2 500 to achieve a result of greater than 100% once LCR is fully implemented. The BCBS has outlined a staged approach towards implementation of LCR 2 000 from 2015 to 2019. 1 500 From 2018, the group will also be required to comply with the NSFR, a 1 000 metric designed to ensure that the majority of term assets are funded by 500 stable sources, such as capital, term borrowings or funds from stable sources such as operational and retail customers.

China Nigeria Brazil India Ghana The group continues to take several steps to ensure compliance with the ¢ 2012 ¢ 2011 two liquidity metrics (namely the LCR and NSFR) within the Basel III specified timelines. Liquid asset buffers have been increased and liability products developed to reduce net cash outflows, where possible, to address the LCR requirement.

In May 2012, the SARB approved the provision of a committed liquidity facility available to banks to meet the LCR in terms of the Basel III liquidity framework. Recent updates to the LCR framework issued by Basel mean that the requirement for this facility will likely be later than originally envisaged.

The group continues to promote product development and initiatives that will extend the group’s funding base and ensure compliance with the NSFR and awaits finalisation of that requirement.

Banks are required to submit semi-annual Quantitative Impact Study reports to the Basel Secretariat under the Basel liquidity framework which will continue through 2013. 57 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Liquidity risk continued

Banking operations Liquidity and funding management Organisational structure and governance The group manages liquidity in accordance with applicable GROC and the board review and set the liquidity risk governance regulations within the group’s risk appetite for liquidity risk. standard annually in accordance with regulatory requirements, international best practice and the group’s stated risk appetite. As part of a comprehensive liquidity management process, the This ensures that a comprehensive and consistent governance group distinguishes between tactical, structural and contingent framework for liquidity risk management is followed across the liquidity risk. These three risk management categories are group. Each banking entity in the group has an asset and liability governed by a comprehensive internal governance framework committee (ALCO) responsible for ensuring compliance with to identify, measure and manage exposure to liquidity risk. liquidity risk policies. Combining each of these risk management categories allows for effective liquidity risk monitoring.

Liquidity management categories Tactical (shorter-term) liquidity Structural (long-term) liquidity Contingency liquidity risk risk management: risk management: management:

¢ manage intra-day liquidity positions ¢ ensure a structurally sound ¢ monitor and manage early warning ¢ monitor interbank and repo balance sheet liquidity indicators shortage levels ¢ identify and manage structural ¢ establish and maintain contingency ¢ monitor daily cash flow requirements liquidity mismatches funding plans ¢ manage short-term cash flows ¢ determine and apply behavioural ¢ undertake regular liquidity stress ¢ manage daily foreign currency liquidity profiling testing and scenario analysis ¢ set deposit rates in accordance with ¢ manage long-term cash flows ¢ convene liquidity crisis management structural and contingent liquidity ¢ preserve a diversified funding base committees, if needed requirements as informed by ALCO. ¢ inform term funding requirements ¢ set liquidity buffer levels in accordance ¢ assess foreign currency liquidity with anticipated stress events exposures ¢ advise diversification of liquidity ¢ establish liquidity risk appetite buffer portfolios. ¢ ensure appropriate transfer pricing of liquidity costs. Tools used to manage liquidity across all risk management categories:

¢ liquidity ratios ¢ market ratios.

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The liquidity management process is independently reviewed Limits are set internally to restrict the cumulative liquidity on a regular basis. In periods of stable market conditions, the mismatch between expected inflows and outflows of funds in group’s consolidated liquidity risk position is monitored on at different time buckets. These mismatches are monitored on a least a quarterly basis by group ALCO while the liquidity risk regular basis with active management intervention if potential position within the individual legal entities of the group is limit breaches are evidenced. The behaviourally adjusted monitored on a monthly basis by the relevant ALCO body. In cumulative liquidity mismatch remains within the group’s periods of increased volatility, the frequency of meetings is liquidity risk appetite. In order to ensure ongoing compliance increased as required to facilitate appropriate and timely with statutory and internal risk management guidelines, certain management action. short-term assets are profiled as long dated.

Tactical liquidity risk management Behaviourally adjusted cumulative liquidity mismatch (%) Active liquidity and funding management is an integrated effort across a number of functional areas. Short-term cash 20 flow projections are used to plan for and meet the day-to-day 15 requirements of the business, including adherence to 10 prudential and internal requirements. 5

The group’s wholesale funding strategy is assessed for each 0 legal entity and derived from projected net asset growth (5) which includes consideration of PBB and CIB asset growth, (10) capital requirements, the maturity profile of existing wholesale (15) funding and anticipated changes in the retail deposit base. Funding requirements and initiatives are assessed in (20) accordance with ALCO requirements for diversification, tenor (25) 0 – 7 days 0 – 1 month 0 – 3 months 0 – 6 months 0 – 12 months and currency exposure, as well as the availability and pricing of alternative liquidity sources. ¢ 2012 ¢ 2011 Internal limit

An active presence is maintained in professional markets, Maturity analysis of financial liabilities supported by relationship management efforts among by contractual maturity corporate and institutional clients. The table that follows analyses cash flows on a contractual, undiscounted basis based on the earliest date on which the Structural liquidity risk management group can be required to pay (except for trading liabilities Structural requirements and trading derivatives) and will, therefore, not agree directly With actual cash flows typically varying significantly from the to the balances disclosed in the consolidated statement of contractual position, behavioural profiling is applied to assets, financial position. liabilities and off-balance sheet commitments with an indeterminable maturity or drawdown period, as well as to Derivative liabilities are included in the maturity analysis on a certain liquid assets. Behavioural profiling assigns probable contractual, undiscounted basis when contractual maturities are maturities based on historical customer behaviour. This is used essential for an understanding of the derivatives’ future cash to identify significant additional sources of structural liquidity flows. Management considers only contractual maturities to be Audited in the form of liquid assets and core deposits, such as current essential for understanding the future cash flows of derivative and savings accounts, which exhibit stable behaviour despite liabilities that are designated as hedging instruments in effective being repayable on demand or at short notice. hedge accounting relationships. All other derivative liabilities are treated as trading and are included at fair value in the Structural liquidity mismatch analyses are performed regularly redeemable on demand bucket since these positions are to anticipate the mismatch between payment profiles of typically held for short periods of time. balance sheet items, in order to highlight potential risks within the group’s defined liquidity risk thresholds. The table also includes contractual cash flows with respect to off-balance sheet items which have not yet been recorded The graph that follows shows the group’s cumulative on-balance sheet. Where cash flows are exchanged maturity mismatch between assets and liabilities for the 0 to simultaneously, the net amounts have been reflected. 12 months bucket, after applying behavioural profiling.

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Liquidity risk continued

Banking operations continued Maturity analysis of financial liabilities by contractual maturity Maturing Maturing Maturing between between Maturing Redeemable within 1 – 6 6 – 12 after on demand 1 month months months 12 months Total Rm Rm Rm Rm Rm Rm 2012 Financial liabilities Derivative financial instruments 120 805 1 235 21 206 121 268 Instruments settled on a net basis 98 004 15 16 69 98 104 Instruments settled on a gross basis 22 801 1 220 5 137 23 164 Trading liabilities 40 105 40 105 Deposit and current accounts 471 287 88 691 157 850 50 567 153 683 922 078 Subordinated debt 74 3 609 627 27 565 31 875 Other 24 599 24 599 Total 632 271 113 291 161 694 51 215 181 454 1 139 925 Off-balance sheet liabilities Letters of credit and bankers’ acceptances 14 218 14 218 Guarantees 45 247 45 247 Irrevocable unutilised facilities 97 162 97 162 Commodities and securities

Audited borrowing transactions 5 849 193 709 106 6 857 Total 162 476 193 709 106 163 484 2011 Financial liabilities Derivative financial instruments 152 364 31 270 74 464 153 203 Instruments settled on a net basis 111 094 12 12 25 111 143 Instruments settled on a gross basis 41 270 31 258 62 439 42 060 Trading liabilities1 31 145 31 145 Deposit and current accounts1 459 827 100 562 154 086 85 937 139 471 939 883 Subordinated debt 65 540 3 717 25 030 29 352 Other 19 860 19 860 Total 643 401 120 453 154 896 89 728 164 965 1 173 443 Off-balance sheet liabilities Letters of credit and bankers’ acceptances 15 345 15 345 Guarantees 36 307 36 307 Irrevocable unutilised facilities 75 929 75 929 Commodities and securities borrowing transactions 5 274 215 568 100 6 157 Total 132 855 215 568 100 133 738 1 Restated. Refer to page 93. Refer to the annual financial statements for the contractual discounted maturities of financial assets and liabilities.

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Foreign currency liquidity management Funding-related liabilities composition (% of total) A number of indicators are observed to monitor changes in either market liquidity or exchange rates. Foreign currency loans 30 and advances are restricted to the availability of foreign currency deposits. 25

Funding strategy 20 Funding markets are evaluated on an ongoing basis to ensure 15 appropriate group funding strategies are executed depending on the market, competitive and regulatory environment. The group 10 employs a diversified funding strategy, sourcing liquidity in both domestic and offshore markets, and incorporates a coordinated 5 approach to accessing capital and loan markets across the group.

Concentration risk limits are used within the group to ensure that funding diversification is maintained across products, debt issued Government to the public to

sectors, geographic regions and counterparties. Retail deposits and parastatals Other liabilities Interbank funding Corporate funding Corporate Financial institutions

Primary funding sources are in the form of deposits across a Senior and subordinated spectrum of retail and wholesale clients, as well as long-term ¢ 2012 ¢ 2011 capital and loan markets. The group remains committed to increasing its core deposits and accessing domestic and foreign capital markets when appropriate to meet its anticipated funding A component of the funding strategy is to ensure sufficient requirements. contractual term funding is raised in support of term lending and to ensure adherence to the structural mismatch limits and Depositor concentrations guidelines. The long-term funding ratio is defined as those funding-related liabilities with a remaining maturity of greater 2012 2011 than six months as a percentage of total funding-related % % liabilities. This definition is derived from the SARB filings in the Single depositor 1.9 2.1 South African market, not to be confused with NSFR which is Top 10 depositors 7.1 9.6 greater than one year. The graph below illustrates the group’s long-term funding ratio for the period 31 December 2007 to 31 December 2012. The group’s long-term funding ratio was Funding-related liabilities composition 24.3% (2011: 25.3%). 2012 2011 Rbn Rbn Long-term funding ratio (%)

Corporate funding 253 234 30 Financial institutions 192 198 Government and parastatals 99 100 Interbank funding 107 102 25 Retail deposits 204 198 Senior and subordinated debt issued 66 48 20 Other liabilities to the public 125 118

Total funding-related 15 liabilities 1 046 998

10 December 2007 December 2012

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Liquidity risk continued

Banking operations continued The table below provides a breakdown of the group’s liquid marketable securities and foreign currency placements as at Contingency liquidity risk management 31 December 2012 compared to the 31 December 2011 Contingency funding plans closing position. These portfolios are highly liquid and can be Contingency funding plans are designed to protect readily sold to meet liquidity requirements. stakeholder interests and maintain market confidence to ensure a positive outcome in the event of a liquidity Total liquidity crisis. The plans incorporate an early warning indicator methodology supported by clear crisis response strategies. 2012 2011 Early warning indicators cover bank-specific and systemic Rbn Rbn crises and are monitored according to assigned frequencies Audited Total marketable assets 140,1 143,9 and tolerance levels. Other readily accessible liquidity 3,4 4,2 Crisis response strategies are formulated for the relevant crisis management structures and address internal and Total liquidity (in excess of external communications, liquidity generation management prudential requirements) 143,5 148,1 actions and operations, heightened and supplementary Prudential requirements 42,5 39,4 information requirements as well as various management Total liquidity 186,0 187,5 actions available to address the crisis event. Detailed work around the contingency funding plans was completed and will continue in 2013 under the recovery plan required to In addition to minimum requirements, total contingent liquidity be submitted by the board to the SARB. holdings are informed by the results from liquidity stress testing as per Basel principles and, in certain instances, in-country Liquidity stress testing and scenario analysis regulations. Total liquidity (in excess of prudential requirements) Stress testing and scenario analysis are based on hypothetical decreased marginally to R143,5 billion as at 31 December 2012 as well as historical events. These are conducted on the (2011: R148,1 billion). group’s funding profiles and liquidity positions. The crisis impact is typically measured over a two-month period, as this The total amount of liquidity held remains adequate to meet all is considered the most crucial time horizon for a liquidity internal stress tests as well as various legal entity and group event. This may, however, vary depending on the severity regulatory and prudential requirements. of the stress scenario and local in-country regulations (for example, the FSA in the UK regulations require monitoring Credit ratings over a two-week to three-month period rather than a The group’s ability to access funding at cost-effective levels is two-month period). From January 2013 the SARB returns dependent on maintaining or improving the borrowing entity’s will include measurement over a three-month period. credit rating.

Anticipated on- and off-balance sheet cash flows are subjected The detailed table representing the major credit to a variety of bank-specific and systemic stresses and scenarios ratings for the group’s significant banking subsidiaries to evaluate the impact of unlikely but plausible events on can be found on the group’s website, liquidity positions. Under each scenario, loan portfolios are www.standardbank.com/reporting assumed to roll over. However, the rollover of liabilities will be partially impaired resulting in a funding shortfall. The following table provides a summary of the major credit ratings. The results are assessed against the liquidity buffer and contingency funding plans to provide assurance as to the group’s Credit ratings ability to maintain sufficient liquidity under adverse conditions. SBSA1 The results also inform target liquidity buffer positions. The group’s internal stress tests continue to be updated to align with Long term Fitch pending Basel III requirements and also reflect new reporting Foreign currency issuer default rating BBB requirements and annual review amendments. RSA Sovereign ratings: foreign currency BBB

Liquidity buffer Moody’s Portfolios of highly marketable securities over and above prudential, regulatory and internal stress-testing requirements Foreign currency deposit rating Baa1 are maintained as protection against unforeseen disruptions in RSA Sovereign ratings: foreign currency Baa1 Audited cash flows. These portfolios are managed within ALCO-defined 1 SBSA is the largest operating entity within the group. limits on the basis of diversification and liquidity.

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Credit ratings for the bank are dependent on multiple factors Conduits including the sovereign rating, capital adequacy levels, quality of The group provides standby liquidity facilities to two conduits, earnings, credit exposure, the risk management framework and namely Blue Titanium Conduit and Thekwini Warehouse funding diversification. These parameters and their possible Conduit. These facilities, which totalled R7,6 billion as at impact on the borrowing entity’s credit rating are monitored 31 December 2012 (2011: R8,3 billion), have not been drawn closely and incorporated in the group’s liquidity risk on. The liquidity risk associated with these facilities is managed management and contingency planning considerations. in accordance with the group’s overall liquidity position and represents less than 2% of SBSA’s total funding. The liquidity Rating downgrades as a result of collateralisation or termination facilities are included in both the group’s static structural events are generally conceded only to highly rated liquidity mismatch, which is managed against ALCO-imposed counterparties and, almost always, on a bilateral reciprocal basis. limits and guidelines, as well as in dynamic liquidity risk In exceptional cases, the group might concede such rating stress testing. downgrade events to unrated counterparties when their size, credit strength and business potential are deemed acceptable. Insurance operations The principal risk relating to liquidity comprises the group’s A reduction in these ratings could have an adverse effect on the exposure to policyholder behaviour. Liquidity requirements are group’s access to liquidity sources and funding costs, may trigger reviewed on a monthly basis. These requirements are also collateral calls through the reduction of the threshold above monitored on an ongoing basis as part of Liberty’s normal which the group’s negative mark-to-market must be operating activities. collateralised, or lead to activation of downgrade clauses and early termination associated with certain structured deposits. Liquidity profile of assets Liberty’s assets are highly liquid. However, given the quantum of The impact on the group’s liquidity of a collateral call linked investments held relative to the volumes of trading within the to downgrading is taken into account in model stress testing. relevant exchanges and counterparty transactions, a substantial A one notch rating downgrade will reduce thresholds above short-term liquidation may result in current values not being which collateral must be posted with counterparties to cover the realised. It is considered highly unlikely, however, that a group’s negative mark-to-market on derivative contracts by short-term realisation of that magnitude would occur. R554 million (2011: R489 million). A two and three notch rating downgrade will reduce such thresholds by a further As is the case with all insurance companies, no maturity profile R377 million and R40 million respectively. can be reliably given for Liberty’s investments in mutual funds, equities and non-term financial debt instruments given the volatility of equity markets and uncertain policyholder behaviour.

Financial asset liquidity 2012 2011 % Rm % Rm Liquid1 74 201 881 73 172 767 Audited Medium2 16 42 364 15 35 797 Illiquid3 10 27 445 12 27 164 100 271 690 100 235 728

1 Liquid assets are those that are considered to be realisable within one month (for example, cash, listed equities and term deposits). 2 Medium assets are those that are considered to be realisable within six months (for example, unlisted equities and certain unlisted term deposits). 3 Illiquid assets are those that are considered to be realisable in excess of six months (for example, investment properties).

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Liquidity risk continued

Insurance operations continued Maturity profiles of financial instrument liabilities The table below summarises the maturity profile of the financial instrument liabilities of Liberty based on the remaining undiscounted contractual obligations and will therefore not agree directly to the balances disclosed in the consolidated statement of financial position. Policyholders’ liabilities under investment contracts, investment contracts with discretionary participation features (DPFs) and insurance contracts are managed according to expected and not contractual cash flows.

Maturity profile of liabilities – contractual cash flows 0 – 3 3 – 12 1 – 5 months1 months years Total Rm Rm Rm Rm 2012 Held for trading Collateral deposits 679 679 At amortised cost Callable capital bond 77 76 2 613 2 766 Non-controlling interests’ loan 93 93 Third party financial liabilities arising on consolidation of mutual funds 14 465 14 465 Other loans 39 17 56 Insurance and other payables 8 089 75 36 8 200 Audited Total 23 310 190 2 759 26 259 2011 Held for trading Collateral deposits 381 381 At amortised cost Callable capital bond 54 2 124 2 178 Non-controlling interests’ loan 103 103 Third party financial liabilities arising on consolidation of mutual funds 11 164 11 164 Other loans 59 59 Insurance and other payables 6 304 6 304 Total 17 903 2 183 103 20 189

1 0 – 3 months are either due within the timeframe or are payable on demand.

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Liquidity risks arising from obligations to policyholders The following table indicates liquidity needs with respect to cash flows required to meet obligations arising under investment contracts, investment contracts with DPFs and insurance contracts. All the cash flows are shown gross of reinsurance on an undiscounted basis.

Expected cashflows – investment and insurance contracts Effect of Within 1 – 5 5 – 10 10 – 20 Over discounting 1 year years years years 20 years cash flows Total Rm Rm Rm Rm Rm Rm Rm 2012 Investment contracts 6 921 10 460 8 608 14 799 27 700 (325) 68 163 Investment contracts with DPF 230 219 536 1 331 1 537 2 3 855 Insurance contracts 17 833 55 871 20 208 49 267 70 507 (49 020) 164 666 Audited Total 24 984 66 550 29 352 65 397 99 744 (49 343) 236 684 2011 Investment contracts 5 689 8 273 6 349 12 736 26 925 (412) 59 560 Investment contracts with DPF 326 374 399 529 1 817 2 3 447 Insurance contracts 14 664 47 501 18 420 44 824 66 489 (46 340) 145 558 Total 20 679 56 148 25 168 58 089 95 231 (46 750) 208 565

The table below shows the cash surrender value for policyholders’ liabilities. The contractual worst-case cash flows for investment contracts would be an immediate cash flow amounting to the surrender value of investment contracts at the financial position date.

Cash surrender value for policyholders’ liabilities 2012 2011 Carrying Surrender Carrying Surrender value value value value Rm Rm Rm Rm

Audited Investment contracts 68 163 67 552 59 560 59 028 Investment contracts with DPF 3 855 3 432 3 447 3 238 Insurance contracts 164 666 137 739 145 558 120 171 Total policyholders’ liabilities 236 684 208 723 208 565 182 437

Liquidity requirements associated with issuance of subordinated debt The FSB’s approval of Liberty’s issuance of subordinated debt, namely R2 billion callable capital bonds, includes a requirement to hold qualifying liquid assets equal to at least the amount of the outstanding debt issued. As at 31 December 2012 and 2011 this requirement has been met and attested to by the statutory actuary of Liberty.

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Market risk

Introduction 66 Introduction Banking operations 66 The group’s key market risks are categorised as follows: Organisational structure and governance 66 ¢ Market risk in the trading book: These risks result from two principal Trading book market risk management 67 sources, namely the trading activities of the group’s banking operations Interest rate risk in the banking book 70 where the primary focus is client facilitation in chosen markets and Equity investments 72 Liberty’s investment activities in various capital market instruments. Foreign currency risk 72 All trading activities are carried out within the group’s CIB division. Insurance operations 73 Trading activities comprise market making, arbitrage and proprietary trading, with the latter constituting a small proportion of trading revenues. Shareholder investment portfolio 74 ¢ Interest rate risk in the banking book: These risks result from the Asset liability management portfolio 74 different repricing characteristics of banking book assets and liabilities. Interest rate risk 76 They include endowment risk associated with a downturn in the economic Foreign currency risk 76 cycle, repricing risk, basis risk, optionality risk and yield curve risk. Property market risk 77 ¢ Equity investments in the banking book: These risks result from price changes in listed and unlisted equity investments. Derivative financial instruments 77 and risk mitigation ¢ Foreign currency risk: The group’s primary exposures to foreign currency risk arise as a result of the translation effect on the group’s net assets Sensitivity analysis 77 in foreign operations, intra-group foreign-denominated debt and foreign-denominated cash exposures and accruals. ¢ Policyholder asset-liability mismatch in the insurance operations: The risk arises where Liberty’s property and financial assets do not move in the same direction and magnitude as the obligations arising under its insurance and investment contracts. This includes annuity mismatches, embedded derivative mismatches and the market risk arising from negative rand reserves (present value of future charges less the present value of future expenses and risk claims). ¢ Insurer shareholder investment portfolio: These risks result from price changes to financial assets and liabilities utilised to support Liberty’s capital base, also referred to as shareholder funds. Price changes are typically driven by a change in market variables for example interest rates and foreign exchange rates. Banking operations Organisational structure and governance GROC and the board review and set the market risk governance standard annually in accordance with the group’s stated risk appetite. This standard ensures that the measurement, reporting, monitoring and management of market risk across the group’s banking entities follows a common governance framework. Each banking entity in the group has an ALCO responsible for ensuring compliance with market risk standards pertaining to the trading book and interest rate risk in the banking book. The SBSA ALCO, rest of Africa ALCO and international capital committee report into group ALCO.

The market risk functions embedded in the business lines are independent of trading operations and accountable to sub-ALCOs. They are responsible for identifying, measuring, managing, controlling and reporting market risk as outlined in the market risk governance standard, with support from the central market risk function. All VaR limits require prior approval from the respective ALCOs. The market risk functions also have the ability to set individual trader mandates. The central market risk function is accountable to group ALCO.

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Exposures and excesses are monitored and reported daily to Limitations of historical VaR are acknowledged globally and business line and group management, monthly to sub-ALCOs include: and quarterly to group ALCO, GROC and the GRCMC. Where breaches in limits and triggers occur, actions are taken by ¢ The use of historical data as a proxy for estimating future market risk functions to move exposures back in line with events may not encompass all potential events, particularly approved market risk appetite, with such breaches being those which are extreme in nature. reported to management and sub-ALCOs. ¢ The use of a one-day holding period assumes that all positions can be liquidated or the risk offset in one day. This Trading book market risk management may not fully reflect the market risk arising at times of severe Measurement illiquidity, when a one-day holding period may be insufficient

Audited to liquidate or hedge all positions fully. The techniques used to measure and control trading book ¢ The use of a 95% confidence level, by definition, does not market risk and trading volatility include: take into account losses that might occur beyond this level of ¢ VaR confidence. ¢ stop-loss triggers ¢ VaR is calculated on the basis of exposures outstanding at ¢ stress tests the close of business and, therefore, does not necessarily ¢ backtesting reflect intra-day exposures.

¢ specific business unit and product controls. ¢ VaR is unlikely to reflect loss potential on exposures that only arise under significant market moves. VaR The group uses the historical VaR simulation approach to The Basel consultative paper on fundamental trading book derive quantitative measures, specifically for market risk under review proposes further changes to counteract these limitations normal conditions. The following detailed disclosure is required in addition to regulatory stress VaR which was implemented at the beginning of 2012. in terms of amended Basel II. Stop loss triggers VaR is based on 251 days of unweighted historical data, a Stop-loss triggers are used to protect the profitability of the holding period of one day and a confidence level of 95%. global markets trading desks, and refer to cumulative or daily The historical VaR results are calculated in four steps: trading losses that prompt a review or close-out of positions in ¢ Calculate 250 daily market price movements based on the trading book. These are monitored by market risk on a 251 days’ historical data. daily basis. ¢ Calculate hypothetical daily profit or loss for each day using these daily market price movements. Stress tests ¢ Aggregate all hypothetical profits or losses for day one In recognition of the limitations of VaR, stress testing provides across all positions, giving daily hypothetical profit or loss. an indication of the potential losses that could occur under Repeat for all other days. extreme market conditions and where longer holding periods th may be required to exit positions. The stress tests carried out ¢ VaR is the 95 percentile selected from the 250 days of daily hypothetical total profit or loss. by the group include individual market risk factor testing, combinations of market factors per trading desk and Audited combinations of trading desks. Stress tests include a combination Daily losses exceeding the VaR are likely to occur, on average, of historical, hypothetical and Monte Carlo-type simulations 13 times in every 250 days. and provide senior management with an assessment of the financial impact that such events would have on the group’s VaR models have been approved by the regulators for all South profit. The daily losses experienced during the year ended African trading units except for the structured product desk 31 December 2012 were within the stress-loss scenarios. and specific risk on interest rates. Standard Bank Plc has general market risk regulatory model approval for certain products in its commodity trading, local markets (rates and foreign exchange), equity and credit trading businesses. Specific risk regulatory approval has also been granted for an incremental default risk charge model for certain significant credit risk products of Standard Bank Plc. Where the group has received internal model approval, a VaR using a confidence level of 99% and a 10-day holding period for both recent market conditions and a stress period is used to determine market risk regulatory capital. 67 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Market risk continued

Banking operations continued In this manner, characteristics of the VaR model are captured to ensure the accuracy of the VaR measurement Backtesting and the effectiveness of hedges and risk-mitigation The group backtests its VaR models to verify the predictive instruments, again within the limitations previously referred ability of the VaR calculations and ensure the appropriateness to. Regulators categorise a VaR model as green, amber of the models within the inherent limitations previously referred or red and assign regulatory capital multipliers based on to. Backtesting compares the daily hypothetical profit and losses this categorisation. under the one-day buy and hold assumption to the prior day’s VaR. In addition, VaR is tested by changing various parameters, A green model is consistent with a satisfactory VaR model such as confidence intervals and observation periods used in and is achieved for models that have four or less backtesting the model. exceptions in a 12-month period. All the group’s approved models were assigned green status for the year ended 31 December 2012.

Backtesting: Hypothetical profit/loss and VaR (Rm) Days 150

100

50

0

(50)

(100)

(150)

(200) Rm January 2012 December 2012

¢ Hypothetical income — 99% VaR (including diversification benefits) — 95% VaR (including diversification benefits)

Specific business unit and product controls VaR for the period under review Other market risk controls specific to individual business units Trading book market risk exposures arise mainly from residual include permissible instruments, concentration of exposures, exposures from client transactions with limited trading for the gap limits, maximum tenor, stop loss triggers, price validation group’s own account. The table on the following page shows the and balance sheet substantiation. In addition, only approved aggregated historical VaR for the group’s trading positions by products that can be independently priced and properly market variable. The maximum and minimum VaR amounts show the bands in which the values at risk fluctuated during the processed are permitted to be traded. Audited periods specified. The independent central validation function validates all new pricing models and performs an annual review of In general, the group’s trading desks have run low levels of existing models to ensure they are still relevant and behaving market risk throughout the year ended 31 December 2012, within expectations. with average VaR being largely unchanged.

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Trading book VaR analysis by market variable Normal VaR Maximum1 Minimum1 Average Closing Rm Rm Rm Rm 2012 Commodities 46,8 26,5 36,4 26,8 Forex 25,9 6,4 12,4 10,6 Equities 29,2 10,1 17,8 12,8 Debt securities 27,4 13,1 19,1 16,7 Diversification benefit2 (36,6) (30,3) Audited Aggregate 63,6 36,4 49,1 36,6 2011 Commodities 45,0 19,3 26,6 19,8 Forex 17,8 3,6 10,2 10,9 Equities 26,0 10,2 17,3 20,6 Debt securities 55,8 19,1 30,3 36,4 Diversification benefit2 (33,4) (35,5) Aggregate 67,7 41,0 51,0 52,2

1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different dates. 2 Diversification benefit is the benefit of measuring the VaR of the trading portfolio as a whole, that is, the difference between the sum of the individual VaRs and the VaR of the whole trading portfolio. Analysis of trading profit The graph below shows the distribution of daily profit and losses for 2012 and 2011. It captures trading volatility and shows the number of days in which the group’s trading- related revenues fell within particular ranges. The distribution is skewed favourably to the profit side with no material negative outliers. For the year ended 31 December 2012, trading profit was positive for 248 out of 260 days (2011: 238 out of 259 days).

Distribution of daily trading profit or loss of trading units (frequency days) Days 120

100

80

60

40

20

Rm <(30) (30) – 0 0 – 30 30 – 60 60 – 90 >90

¢ 2012 ¢ 2011

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Market risk continued

Banking operations continued Desired changes to a particular interest rate risk profile are achieved through the restructuring of on-balance sheet repricing Interest rate risk in the banking book and/or maturity profiles and, where appropriate, the use of Banking book-related market risk exposure principally involves derivative instruments. managing the potential adverse effect of interest rate movements on banking book earnings (net interest income and Interest rate risk limits banking book mark-to-market profit or loss) and the economic Interest rate risk limits are set with respect to changes in value of equity. forecast banking book earnings (net interest income and banking book mark-to-market profit or loss) and the economic The group’s approach to managing interest rate risk is governed value of equity. Economic value of equity sensitivity is calculated by applicable laws and regulations, and is guided by the as the net present value of aggregate asset cash flows less the competitive environment in which the group operates. Banking net present value of aggregate liability cash flows. book interest rate risk is monitored centrally by the group’s TCM team with oversight by group ALCO. Each banking entity in the The repricing gaps for the group’s non-trading portfolios before group manages this risk on a stand-alone basis and also tax are shown in the table below. calculates and maintains economic capital in support thereof. All assets, liabilities and derivative instruments are allocated to Interest rate risk measurement gap intervals based on either their repricing or maturity The analytical techniques used to quantify banking book interest characteristics. Assets and liabilities for which no identifiable rate risk include both earnings- and valuation-based measures. contractual repricing or maturity dates exist are allocated to gap Results are monitored on at least a monthly basis by the relevant intervals based on behavioural profiling (obtained through ALCOs. The analysis takes cognisance of embedded optionality statistical analysis and, if required, expert judgement). such as loan prepayments and accounts where the account behaviour differs from the contractual position. The interest rate sensitivity gap is lower in 2012 when compared to 2011. This implies 2012 is less asset sensitive, however the The results obtained from forward-looking dynamic scenario 2012 balance sheet is more asset sensitive than the prior year, analyses, as well as Monte Carlo simulations, assist in developing partially due to low rand interest rate environment causing an optimal hedging strategies on a risk-adjusted return basis. increase in the endowment base.

Interest rate sensitivity gap 0 – 3 3 – 6 6 – 12 > 12 months months months months 2012 Interest rate sensitivity gap Rm 50 342 6 024 2 510 (58 876) Cumulative interest rate sensitivity gap Rm 50 342 56 366 58 876 Cumulative interest rate sensitivity gap as a percentage of total assets % 3.9 4.4 4.6 2011 Interest rate sensitivity gap Rm 64 134 16 177 3 535 (83 846) Cumulative interest rate sensitivity gap Rm 64 134 80 311 83 846 Cumulative interest rate sensitivity gap as a percentage of total assets % 5.1 6.4 6.7

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Hedging of endowment risk Analysis of banking book interest rate sensitivity Interest rate risk in the banking book is predominantly the The table below indicates the rand equivalent sensitivity of the consequence of endowment exposures, being the net effect of group’s banking book earnings (net interest income and banking non-rate sensitive assets less non-rate sensitive liabilities and book mark-to-market profit or loss) and OCI in response to a equity. The endowment risk emanating from the anticipated parallel yield curve shock, before tax. Hedging transactions are downturn in the economic cycle is hedged as and when it is taken into account while other variables are kept constant. considered opportune, using liquid instruments in each legal

entity’s market. Depending on each market, eligible Audited Assuming no management intervention, a downward 100 basis instruments include fixed rate bonds, fixed rate loans and point parallel interest rate shock across all foreign currency yield derivative instruments such as swaps and interest rate curves and a 200 basis point parallel interest rate shock across swaptions. Per legal entity, the interest rate view is formulated rand yield curves, would decrease the forecast 12-month through each ALCO process, following meetings of the net interest income on 31 December 2012 by R2,7 billion monetary policy committees, or notable market developments. (2011: R1,9 billion). A significant component of the group’s endowment risk resides within SBSA.

Outside the endowment exposure, all other banking book interest rate risk (basis, repricing, optionality and yield curve) is managed within the treasury and the global markets portfolios.

Interest rate sensitivity analysis ZAR USD GBP Euro Other Total 2012 Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 2 148 152 2 (14) 99 2 387 Sensitivity of OCI Rm 40 10 (2) (134) (86) Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 376) (174) (2) 14 (164) (2 702)

Audited Sensitivity of OCI Rm (41) (10) 2 134 85 2011 Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 1 482 10 10 7 129 1 638 Sensitivity of OCI Rm 115 (12) (129) (26) Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (1 688) (33) (10) (7) (140) (1 878) Sensitivity of OCI Rm (115) 12 129 26

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Market risk continued

Banking operations continued Cumulative realised gains from the sale or liquidation of equity positions in the banking book were R778 million Equity investments (2011: R32 million loss). This increase can be attributed The equity risk committee approves investments in listed and to the sale of a listed equity investment which has been unlisted entities in accordance with delegated authority limits. held as an equity investment for five years prior to the sale. Periodic reviews and reassessments are undertaken on the performance of these investments. No unrealised gains or losses were recognised in OCI (2011: R32 million loss). Equity price risk sensitivity analysis The table below illustrates the market risk sensitivity for all Foreign currency risk non-trading equity investments assuming a 10% shift in the Framework and governance fair value. The analysis is shown before tax. The group’s primary exposures to foreign currency risk arise as a result of the translation effect on the Market risk sensitivity of non-trading group’s net assets in foreign operations, intra-group equity investments foreign-denominated debt, foreign-denominated cash 10% Fair 10% exposures and foreign-denominated accruals.

Audited reduction value increase Rm Rm Rm The group capital management committee delegates the management of this risk to the net asset value currency risk 2012 management committee. This committee manages the risk Equity securities listed according to existing legislation, South African exchange control and unlisted 3 369 3 743 4 117 regulations and accounting parameters. It takes into account Impact on profit or loss (354) 354 naturally offsetting risk positions and manages the group’s Impact on OCI (20) 20 residual risk by means of forward exchange contracts, currency 2011 swaps and option contracts. Equity securities listed and unlisted 3 807 4 230 4 653 Hedging is undertaken in such a way that it does not interfere Impact on profit or loss (401) 401 with or constrain normal operational activities. In particular, Impact on OCI (22) 22 cognisance is taken of the need for capital held in banking entities outside of the South African common monetary area to fluctuate in accordance with risk-weighted assets, thereby Banking book equity exposures preserving the capital adequacy in-country. The net asset value Market risk on equity investments is managed in accordance currency risk management committee meets regularly to with the purpose and strategic benefits of such investments, reassess the hedging or diversification strategy in the event of rather than purely on mark-to-market considerations. Reviews changes in currency views. and reassessments on the performance of the investments are undertaken periodically. Hedging of rand or foreign currency exposure is permitted only for planned, specific future investment-related cash flows and Basel II equity positions in the banking book hedging of translation risk arising from consolidation of the 2012 2011 group’s foreign subsidiaries and operations. Rm Rm The repositioning of the currency profile, which is coordinated Fair value at group level, is a controlled process based on underlying Listed 488 1 042 economic views of the relative strength of currencies. In terms Unlisted 3 004 3 077 of the foreign currency risk governance process outlined previously, the group does not ordinarily hold open exposures Total1 3 492 4 119 of any significance with respect to the banking book. 1 Banking book equity exposures are equity investments which comprise listed and unlisted private equity and strategic investments, and do not form part of the trading book.

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Gains or losses on derivatives that have been designated as The sensitivity analysis reflects the sensitivity to OCI and profit or either net investment or cash flow hedging relationships are loss on the group’s foreign-denominated exposures other than reported directly in OCI, with all other gains and losses on those trading positions for which sensitivity has been included in derivatives being reported in profit or loss. the trading book VaR analysis.

Foreign currency risk sensitivity analysis As indicated below, the impact of a 5% depreciation in foreign Audited The foreign currency risk sensitivity analysis below reflects the currency rates on the OCI and/or profit or loss of the group expected financial impact, in rand equivalent, resulting from a before tax is a R274 million loss (2011: R223 million loss). 5% shock to foreign currency risk exposures, with respect to Offsets to this sensitivity include changes in foreign currency

Audited designated net investment hedges, other derivative financial rates as applied to the group’s net assets in foreign operations. instruments, foreign-denominated cash balances and accruals and intragroup foreign-denominated debt.

Foreign currency risk sensitivity in ZAR equivalents USD Euro GBP Naira Other Total 2012 Sensitivity % 5 5 5 5 5 5 Total net long/(short) position Rm 83 (3 827) 884 (835) (1 919) (5 614) Impact on OCI Rm (198) 46 (40) (73) (265)

Audited Impact on profit or loss Rm 4 7 (1) (19) (9) 20111 Sensitivity % 5 5 5 5 5 5 Total net (short)/long position Rm (56) (3 576) 1 010 (540) (1 341) (4 503) Impact on OCI Rm (180) 51 (26) (48) (203) Impact on profit or loss Rm (3) (17) (20)

1 The sensitivities represented in the table above have changed to represent a 5% depreciation in foreign currency rates rather than an absolute change as reported in the 2011 risk report.

Insurance operations arising from Liberty’s interest rate exposure to annuity The Liberty GRCMC-approved market risk framework ensures business, and the mismatch risk arising from embedded that the measurement, reporting, monitoring and management derivatives including policyholders’ investment guarantees. of market risk across the insurance entities follows a common It also includes market risk arising from negative rand governance framework. reserves, which represents the present value of future charges less the present value of future expenses and Market risk management and reporting processes continue to risk claims. In aggregate, this is referred to as the risk mature. For management purposes, Liberty’s market risk management portfolio and is managed by LibFin Markets. remains split into two main categories: LibFin is responsible for managing Liberty’s aggregate market ¢ Market risks to which Liberty wishes to maintain risks, including exposures arising from shareholder funds and exposure on a long-term strategic basis: These include asset-liability mismatches, in terms of its delegated authority market risks arising from assets backing shareholder funds as and within set limits. Stanlib, Liberty Properties and other well as from a 90/10 fee exposure. In aggregate, this is external asset managers remain responsible for managing the referred to as the shareholder investment portfolio and is investment risks within their investment mandates. An managed by Liberty Financial Solutions (LibFin) Investments. independent market risk team provides oversight of the ¢ Market risks to which Liberty does not wish to maintain effectiveness of market risk management processes and reports exposure on a long-term strategic basis as these are not on the status of market risk management to the relevant expected to provide adequate return on economic capital governance committees. over time: This includes the asset-liability mismatch risk

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Market risk continued

Insurance operations continued The decision to hedge these risks is based on the following factors: Shareholder investment portfolio ¢ The assumption that these market risks would result in Liberty recognises the importance of investing its capital base Liberty operating outside its risk appetite. in a diversified portfolio of financial assets. In addition to this, ¢ The capital-intensive nature of these market risks, Liberty has a strategic long-only exposure to a defined portion particularly in an economic capital framework, which over of the assets backing unit-linked policyholders’ liabilities through time could potentially reduce shareholders’ returns on capital the 90/10 fee exposure. For this defined portion of assets, unless actively managed. Liberty participates in 10% of the portfolio performance in lieu of management fees. The total market risk arising from these ¢ Some of the market risks, for example those that arise from consolidated exposures is modeled and managed together selling investment guarantees, are asymmetric in nature as a single portfolio. and could compromise Liberty’s solvency under severe market conditions. This is due to current regulatory capital LibFin Investments determines the long-term asset mix of this rules requiring available capital to be impaired for IFRS investment portfolio by applying a strategic asset allocation mark-to-market changes of such instruments. methodology with a long-term investment horizon. The typical asset classes included in this portfolio are equity, fixed income, The exposures which are included in this hedging programme property and cash, in both local and foreign currency. Stanlib is include the following: mandated by LibFin Investments to manage the underlying ¢ Embedded derivatives provided in contracted policies, assets in this portfolio. for example minimum investment return guarantees and guaranteed annuity options. Tactical asset allocation is performed by Stanlib within ¢ The interest rate exposure from writing annuities and their mandate. This is similar to the way in which an asset guaranteed capital bonds. However, credit risk on the manager would invest on behalf of a client with a long-term backing assets is not hedged and serves as a diversified investment horizon. source of revenue for Liberty.

On a through-the-cycle basis, this conservative, diversified Negative rand reserves comprising future expected management portfolio was constructed to maximise after-tax returns for a fees and insurance profits are a negative liability on the IFRS level of risk consistent with Liberty’s risk appetite. statement of financial position. Negative rand reserves are calculated as the present value of future charges less the In the short term, market movements will contribute to some present value of future expenses and risk claims. earnings volatility. The diversified nature of the portfolio should, however, shield against significant earnings volatility. The table on the next page summarises Liberty’s exposure to financial and property assets. This exposure has been split into Market risk exposure from management fee revenues, other the relevant market risk categories and then attributed to the than exposure to the 90/10 fee exposure, is not currently effective holders of the risk. managed as part of the shareholder investment portfolio.

Asset liability management portfolio Liberty has a number of market risk exposures arising from asset-liability mismatches to which it does not wish to be exposed on a long-term strategic basis. As a result, it has chosen to mitigate these risks through a dedicated ongoing hedging programme.

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Exposure to financial and property assets by risk category Attributable to Total financial, Third party property Policyholder financial and market- Other Ordinary Minority liabilities insurance related policyholder shareholders shareholders on mutual assets liabilities liabilities1 of Liberty2 of Liberty funds Rm Rm Rm Rm Rm Rm 2012 Equity price 111 242 107 035 (6 219) 1 316 9 110 Interest rate 101 990 41 726 28 838 28 685 149 2 592 Property price 30 878 25 798 (1 016) 1 198 2 952 1 946 Mixed portfolios3 44 415 42 176 (2 632) 4 054 817

Audited Reinsurance assets 1 170 978 192 Total 289 695 216 735 19 949 35 445 3 101 14 465 Percentage (%) 100 75 7 12 1 5 2011 Equity price 96 635 94 691 (7 413) 1 968 7 389 Interest rate 87 243 34 038 29 484 22 172 84 1 465 Property price 28 003 25 311 (2 491) 581 2 988 1 614 Mixed portfolios3 37 077 36 102 (2 058) 2 337 696 Reinsurance assets 1 104 901 203 Total 250 062 190 142 18 423 27 261 3 072 11 164 Percentage (%) 100 76 7 11 1 5

1 Negative exposure to the various risk categories can occur in ‘other policyholder liabilities’ since the present value of future charges can exceed the present value of future benefits and expenses resulting in a negative liability. The group offsets these negative liabilities against policyholders’ market related liabilities. The policyholders’ market risk exposure however remains unchanged. Hence, shareholders bear all the risks of shorting assets backing the policyholder market-related liabilities by the amount of these negative liabilities. 2 Standard Bank Group has a 54% interest in Liberty and, therefore, shares in 54% of this exposure. 3 Mixed portfolios are subject to a combination of equity price, interest rate and property price risks depending on each portfolio’s construction. A substantial portion of the mixed portfolios will be subject to equity price and interest rate risk. The exact proportion is practically difficult to accurately calculate given the number of mutual funds and hedge funds contained in the group portfolios.

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Market risk continued

Insurance operations continued Foreign currency risk Offshore assets are held in policyholders’ portfolios to match the Interest rate risk corresponding liabilities. Liberty is exposed to currency risk The tables below give additional detail on financial instrument through minimum investment return guarantees issued on assets and liabilities and their specific interest rate exposure. contracts invested in offshore portfolios and related mismatches, Data from non-subsidiary mutual funds is not available and is, as well as through the 90/10 fee exposure and management therefore, excluded from these tables. Accounts receivable and fees. In addition, some of the shareholder capital base is accounts payable, where settlement is expected within 90 days, invested in offshore assets. are not included in the analysis. The effect of interest rate risk on these balances is not considered significant given the The total exposure to financial instruments expressed in rand short-term duration of the underlying cash flows. (converted at closing rates) at 31 December 2012 is R41 billion Interest rate exposure (2011: R32 billion). It is not practical to isolate accurately any detailed currency risk contained in investments in mutual funds 2012 2011 and investment policies which are priced in rand and are not Rm Rm subsidiaries. This exposure to mutual funds and investment policies, however, is not material to Liberty. Financial liabilities Carrying value 2 856 2 336 Exposed to cash flow interest rate risk 819 282 Exposed to fair value interest

Audited rate risk 2 037 2 054 Financial assets Carrying value 59 387 55 958 Exposed to cash flow interest rate risk 16 798 14 099 Exposed to fair value interest rate risk 42 589 41 859

The table below segregates the currency exposure by major currency at 31 December 2012.

Currency exposure by major currency GBP USD Euro Japanese Yen AUD Other 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Audited Foreign currency risk 2 695 2 211 27 042 21 138 2 944 2 414 1 663 1 724 617 484 5 510 3 785 Foreign currency amounts1 205 182 3 142 2 669 258 204 18 498 18 225 46 38

1 Certain currency exposures are reduced by means of forward exchange contracts.

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Property market risk Derivative financial instruments Liberty is exposed to tenant default. Unlet space within its and risk mitigation investment property portfolio will affect property values and Certain Liberty entities are parties to contracts for derivative rental income. This risk is mainly attributable to the matching of financial instruments, mainly entered into as part of the policyholders’ liabilities. The shareholder exposure is mainly dedicated hedging strategy. These instruments are used to limited to management fees and profit margins. The managed mitigate equity, interest rate and currency risk and include diversity of the property portfolio and the existence of vanilla futures, options, swaps, swaptions and forward multi-tenanted buildings significantly reduce the exposure to exchange contracts. this risk. At 31 December 2012 the proportion of unlet space in the property portfolio was 7.1% (2011: 7.2%). Derivative financial instruments are either traded on a regulated exchange or negotiated over the counter as a direct Property market risk also arises with respect to shareholder arrangement between two counterparties. Exchange instruments exposures to investment guarantees and negative rand reserves, are margined in accordance with the exchange or clearing and this risk is managed as part of the dedicated hedging member’s requirements and the clearing house is the programme. counterparty to each trade. OTC instruments are only entered into with appropriately approved counterparties. Signed ISDA Liberty’s exposure to property market risk at 31 December agreements are held with all counterparties. 2012 is shown below. Sensitivity analysis Exposure to property market risk The table below provides a description of risk sensitivities to various market variables. The interest rate yield curve and 2012 2011 Rm Rm implied option volatility sensitivities reflect the financial impact of an instantaneous event at the financial position date. In Investment properties 25 380 24 462 determining the financial impact of such an event, new asset Owner-occupied properties 1 378 1 598 levels are applied to both the measurement of policyholders’ Properties under development 13 liabilities and to long-term assumptions dependent on interest Mutual funds with >80% rate yield curves and implied option volatilities. property exposure 4 107 1 943 The equity price and rand currency sensitivities also reflect 30 878 28 003 the impact of an instantaneous event at the financial position Attributable to minority interests (2 952) (2 988) date. However, in the calculation of the financial impact of such an event, new asset levels are only applied to the

Audited Net exposure 27 926 25 015 measurement of policyholders’ liabilities. No changes are made Concentration use risk to long-term assumptions used in the measurement of policyholders’ liabilities. Shopping malls 20 750 20 022 Office buildings 2 696 2 803 Hotels 2 536 2 536 Market variable Description of sensitivity South African listed property Interest rate yield A parallel shift in the interest rate securities held through curve yield curve mutual fund investments 4 107 1 943 Convention centre and Implied option A change in the implied short-term residential property 789 699 volatilities equity, property and interest rate option volatility assumptions 30 878 28 003 Equity prices A change in the local and foreign equity prices

Rand exchange rates A change in the ZAR exchange rate to all applicable currencies

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Market risk continued

Insurance operations continued The table below summarises the impact of the change in the aforementioned risk variables on policyholders’ liabilities, shareholders’ equity and attributable profit after taxation.

Sensitivity analysis of risk variables 2012 2011 Impact on Impact on equity and equity and Impact on attributable Impact on attributable Change in policyholders’ profit after Change in policyholders’ profit after variable liabilities taxation variable liabilities taxation % Rm Rm % Rm Rm Market assumptions Audited Interest rate yield curve 12 (2 892) (194) 12 (2 933) (266) (12) 3 430 106 (12) 3 518 160 Option price volatilities 20 241 (149) 20 289 (177) (20) (198) 119 (20) (259) 156 Equity prices 15 15 545 1 144 15 13 814 927 (15) (15 451) (1 170) (15) (13 680) (952) Rand exchange rates 121 (3 061) (621) 121 (2 581) (502) (12)2 3 079 629 (12)2 2 605 505

1 Strengthening of the rand. 2 Weakening of the rand.

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Insurance risk

Introduction 79 Introduction Long-term insurance risk 79 Insurance risk is the risk that future demographic and Overview 79 related expense experience will exceed the allowance Risk identification, assessment for expected demographic experience and expenses, 79 and measurement as determined through measuring policyholder liabilities and Risk management 79 ultimately against the product pricing basis. Insurance risk arises Reporting 80 due to uncertainty regarding the timing and amount of future cash Long-term insurance risk sub-types 80 flows from insurance contracts. This could be due to variations in Sensitivity analysis 82 mortality, morbidity, policyholder behaviour or expense experience Short-term insurance risk 83 in the case of life products, or claims incidence and severity assumptions in the case of short-term insurance products.

Insurance risk applies to long-term insurance operations housed in the Liberty business line, the short-term insurance operations housed in Liberty Africa and SIL housed in the PBB business line. Long-term insurance risk Overview The statutory actuaries, the GIRC and the Liberty CRO provide independent oversight of compliance with Liberty’s risk management policies and procedures and the effectiveness of the company’s insurance risk management processes.

Risk identification, assessment and measurement Insurance risks arise due to the uncertainty of the timing and amount of future cash flows under insurance contracts.

The timing is specifically influenced by assumptions on future mortality, longevity, morbidity, withdrawal and expenses made in the measurement of policyholders’ liabilities and in product pricing. Deviations from assumptions will result in actual cash flows being different from those expected. As such, each assumption represents a source of uncertainty.

Experience investigations are conducted on all insurance risks over a number of years to identify trends and the reasons for deviations in experience. The results of these analyses are used as an input into the assumption setting process for expected future experience used in measuring policyholders’ liabilities.

Insurance risks are assessed and reviewed against thresholds. To reduce the level of risk, mitigating actions are developed for any insurance risks that fall outside management’s assessment of risk appetite.

Risk management The management of insurance risk is essentially the management of deviations of actual experience from the assumed best estimate of future experience, on which product pricing is based. On the published reporting basis, in addition to the technical provisions for future claims, compulsory and discretionary margins are added to the best estimate assumption. Future earnings are thus expected to arise from the release of these margins. The risk is that these earnings are less than expected due to adverse actual experience.

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Insurance risk continued

Long-term insurance risk continued Reporting Major insurance risks are incorporated into a report on Liberty’s The statutory actuaries provide oversight of Liberty’s insurance overall risk by the Liberty CRO, which is submitted to the Liberty risk in that they are required to: group risk committee. ¢ report at least annually on the financial soundness of the life companies within Liberty Long-term insurance risk sub-types ¢ set the policy for assumptions used to provide best estimates Policyholder behaviour risk plus compulsory and discretionary margins, as described in Policyholder behaviour risk is the risk of adverse financial impact the accounting policies caused by actual policyholders’ behaviour deviating from ¢ oversee the setting of these assumptions expected policyholders’ behaviour, mainly due to: ¢ report on the actuarial soundness of premium rates in use for ¢ regulatory and law changes new business and the profitability of the business, taking into ¢ changes in economic conditions consideration the reasonable benefit expectations of ¢ sales practices policyholders and the associated insurance and market risks. ¢ competitor behaviour In addition, all new products and premium rates are approved ¢ policy conditions and practices through the product approval process and signed-off by the ¢ policyholders’ perceptions. relevant statutory actuary. The primary policyholder behaviour risk is lapse risk, which arises The GIRC was established early in 2012. The GIRC is a due to policyholders discontinuing or reducing contributions or subcommittee of GROC and thus a second line of defence withdrawing benefits prior to maturity of the contract. This function. The following are the main duties and responsibilities behaviour results in a loss of future charges that are designed to of the GIRC: recoup expenses and commission incurred early in the life of the contract, and to provide a return on capital. ¢ recommend for approval insurance risk related policies to GROC and ensure compliance therewith A specialised customer management unit, which is now ¢ ensure that insurance risk is appropriately controlled by embedded in the business, addresses lapses. monitoring insurance risk triggers against agreed limits and/ or procedures Mortality and morbidity risk ¢ gain assurance that material insurance risks are being Mortality risk is the risk of loss arising due to actual death rates monitored and that the level of risk taken is satisfactorily in on life assurance business being higher than expected. Morbidity line with the risk appetite statement at all times risk is the risk of loss arising due to policyholders’ health-related ¢ consider any new insurance risks introduced through new claims being higher than expected. product development or strategic development and how they should be managed Liberty has a range of standard processes and procedures in ¢ monitor, ratify and/or escalate to GROC all material insurance place to manage mortality and morbidity risk, including risk related breaches/excesses highlighting the corrective differentiating by the individual characteristics, right of review of action undertaken to resolve the issue premiums, underwriting at inception, medical tests, and use of ¢ monitor insurance risk regulatory requirements as they apply experienced reinsurers and claims assessors. to the management of the group and its subsidiaries’ balance sheets. The table that follows summarises the profiles of the sums assured at risk per life in terms of mortality benefits before and Reinsurance arrangements are put in place to reduce the after reinsurance for individual and group risk business. mortality and morbidity exposure per individual and provide cover in catastrophic events. The group performs an annual review of the reinsurance cover in line with the stated risk appetite and reinsurance strategy.

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Profile for amounts at risk for individual and group business – retail and corporate Before reinsurance After reinsurance Sum assured at risk Rm % Rm % 2012 R0 – R1 499 999 515 109 47 497 987 52 R1 500 000 – R2 999 999 221 552 20 201 146 21 R3 000 000 – R7 499 999 236 770 22 200 945 21 R7 500 000 and above 120 177 11 56 316 6 Audited Total 1 093 608 100 956 394 100 2011 R0 – R1 499 999 500 568 50 483 474 54 R1 500 000 – R2 999 999 199 963 20 183 286 20 R3 000 000 – R7 499 999 208 255 20 181 255 21 R7 500 000 and above 99 134 10 46 142 5 Total 1 007 920 100 894 157 100

The table above shows that the sums assured are spread over many lives and that the exposure to individual lives has been reduced by means of surplus reinsurance arrangements. Given the large number of assured lives, the random fluctuation in mortality claims is expected to be small. As the larger the portfolio of uncorrelated insurance risks, the smaller the relative variability around the expected outcome becomes.

Catastrophe reinsurance Annual corporate business by industry class Catastrophe reinsurance is consolidated across Liberty’s life licences and is in place to reduce the risk of many 2012 2011 % % claims arising from the same event. Liberty’s consolidated catastrophe reinsurance cover is up to a limit of R650 million Administrative/professional 34 31 (2011: R600 million) for claims in excess of R50 million Retail 23 23

(2011: R50 million) for single event disasters and Audited Light manufacturing 28 31 R1 300 million (2011: R1 200 million) in aggregate over Heavy manufacturing 13 13 the treaty year subject to the payment of the reinstatement Heavy industrial and other high risk 2 2 premium. Total 100 100 Furthermore, Liberty has additional reinsurance cover up to a In measuring policyholders’ liabilities, margins, as limit of R47 million (2011: R47 million) for claims in excess of RCM R3 million (2011: R3 million) for single event disasters arising AFS described on page 243 in the accounting policies, are from its subsidiary companies in Uganda, Botswana, Swaziland added to the best estimate mortality and morbidity rates and Namibia. Various events are excluded from the catastrophe In addition, an allowance is made for the mortality and morbidity reinsurance (for example, epidemics and radioactive fluctuation risk in the OCAR calculation. No additional allowance contamination). is made for mortality or morbidity catastrophes in the capital adequacy ratio calculation. For corporate risk business, the exposure per industry class is monitored to maintain a diversified portfolio of risks and manage The business views mortality and morbidity risks as risks that concentration exposure to a particular industry class. The are core to the business. These risks will be retained if they following table splits the annual corporate risk business by cannot be mitigated or transferred on risk-adjusted value industry class. enhancing terms. Since it is difficult to obtain reinsurance for certain catastrophic events (such as epidemics, radioactive contamination and war) on reasonable terms, these risks are retained.

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Insurance risk continued

Long-term insurance risk continued Sensitivity analysis The table below provides a description of the sensitivities that Longevity risk are provided on insurance risk assumptions. Longevity risk is the risk of loss arising due to annuitants living longer than expected. For life annuities, the loss arises as a Insurance risk result of Liberty’s undertaking to make regular payments to variables Description of sensitivity policyholders for their remaining lives, and possibly to the policyholders’ spouses for their remaining lives. The most Assurance mortality A level percentage change in the significant risk on these liabilities is continued medical advances expected future mortality rates on assurance contracts and improvement in social conditions that lead to longevity improvements being better than expected. Annuitant mortality A level percentage change in the expected future mortality rates on Liberty manages longevity risk by monitoring the actual annuity contracts longevity experience and identifying trends over time, and allowing for future mortality improvements in the pricing of new Morbidity A level percentage change in the business and the measurement of policyholders’ liabilities. expected future morbidity rates Withdrawals A level percentage change in the Expense risk policyholder withdrawal rates Expense risk is the risk of loss arising due to expenses incurred, in the administration of policies, being higher than expected. Expense per policy A level percentage change in the Allowance is made for expected future expenses in the expected maintenance expenses measurement of policyholders’ liabilities. These expected Sensitivities on expected taxation have not been provided expenses are dependent on estimates of the number of in-force and new business policies. As a result, the risk of expense loss Insurance risk sensitivities are applied as a proportional arises due to expenses increasing by more than expected and percentage change to the assumptions made in measuring the number of in-force and new business policies being less policyholders’ liabilities. Over a reporting period, assets are than expected. expected to earn a return consistent with the long-term assumptions used in measuring policyholders’ liabilities. The Liberty manages expense risk by regularly monitoring actual market sensitivities are applied to all assets held by Liberty, not expenses against the budgeted expenses, managing persistency just assets backing the policyholders’ liabilities. Each sensitivity and implementing cost control measures. is applied in isolation with all other assumptions left unchanged. The expenses that Liberty is expected to incur on policies are accounted for in product pricing. If the expenses expected to be incurred are considerably higher than those of insurers offering competing products, the ability of Liberty to sell business on a profitable basis will be restricted. This does not only have capital implications, but can also affect Liberty’s ability to function as a going concern in the long term.

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The table below summarises the impact of the change in the aforementioned risk variables on policyholders’ liabilities and on shareholders’ equity and attributable profit after taxation.

Sensitivity analysis of risk variables 2012 2011 Impact on Impact on equity and equity and Impact on attributable Impact on attributable Change in policyholders’ profit after Change in policyholders’ profit after variable liabilities taxation variable liabilities taxation % Rm Rm % Rm Rm Insurance assumptions Mortality

Audited Assured lives 2 320 (230) 2 221 (159) (2) (321) 231 (2) (220) 158 Annuitant longevity 41 233 (162) 41 216 (150) (4)2 (223) 154 (4)2 (206) 143 Morbidity 5 419 (294) 5 324 (227) (5) (419) 295 (5) (323) 226 Withdrawals 83 229 (166) 8 325 (235) (8) (238) 172 (8) (358) 258 Expense per policy 5 273 (196) 5 234 (167) (5) 234 196 (5) (233) 167

1 Annuitant life expectancy increases that is, annuitant mortality reduces. 2 Annuitant life expectancy reduces that is, annuitant mortality increases. 3 Withdrawal rates on all classes of business increase. In some cases an increase in withdrawal reduces the overall impact.

Short-term insurance risk SIL writes mainly property, motor, accident and health insurance The greatest likelihood of significant losses to the group on a countrywide basis within South Africa. 70% of the total arises from catastrophe events such as flood, storm or gross written premium is property insurance which indemnifies, earthquake damage. subject to any limits or excesses, the policyholder against loss or damage to their own property and business interruption arising Insurance risk is managed primarily through sensible pricing, from this damage. product design, appropriate investment strategy, rating and reinsurance. The key risks associated with this product are underwriting risk, competitive risk and claims experience risk (including the The underwriting strategy seeks diversity to ensure a balanced variable incidence of natural disasters). Property is subject to a portfolio and is based on a large portfolio of similar risks over a number of risks, including theft, fire, business interruptions and large geographical area. This strategy is cascaded down to weather. For property classes of business there is a significant individual underwriters through detailed underwriting authorities geographical concentration of risk so that external factors such that set out the limits that any one underwriter can write by line as adverse weather conditions may adversely impact upon a size, class of business, territory and industry in order to enforce large proportion of a particular geographical portion of the appropriate risk selection within the portfolio. company’s property risks. Claim inducing perils such as storms, floods, subsidence, fires, explosions and rising crime levels will The business reinsures a portion of the risks it underwrites occur on a regional basis, meaning that SIL has to manage its in order to control its exposure to losses and protect geographical risk dispersion very carefully. capital resources.

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Operational risk

Introduction 84 Operational risk is the risk of loss resulting from Framework 84 inadequate or failed internal processes, people and Managing operational risk 85 systems or from external events. Reputational risk Measuring operational risk 85 and strategic risk are, in line with general market convention, Specialist operational risk types 86 excluded from the definition of operational risk. Model risk 86 Introduction Taxation risk 86 Operational risk exists in the natural course of business activity. It is not an Legal risk 86 objective to eliminate all exposure to operational risk as this would be neither Compliance risk 87 commercially viable nor indeed possible. The group’s approach to managing Environmental and social risk 88 operational risk is to adopt fit-for-purpose operational risk practices that assist Business continuity management business line management in understanding their inherent risk and reducing 89 and resilience their risk profile in line with the group’s risk tolerance, while maximising their operational performance and efficiency. Information risk management 89 Financial crime control 90 Framework Occupational health and safety 90 The group has set minimum requirements for managing operational risk through the group operational risk governance standard. These requirements have been fully implemented and embedded across the group’s banking operations. In addition to meeting the group minimum standards, the operational risk framework for the insurance businesses is also subject to development as part of the implementation of SAM.

The framework sets out a structured and consistent approach for managing operational risk across the group. The risk management approach involves identifying, assessing, measuring, managing, mitigating, and monitoring the risks associated with operations, enabling comprehensive analysis and reporting of the group’s operational risk profile.

The framework is based on the following core components: ¢ Risk identification and control methodology: Facilitates the identification of risks and the management thereof across each business and operational function. It comprises two key elements:

¢ Risk and control self-assessments: Each business unit and group enabling function is required to analyse its business activities and critical processes to identify the key operational risks to which it is exposed, and assess the adequacy and effectiveness of its controls. For any area where management concludes that the level of residual risk is beyond an acceptable level, it is required to define action plans to reduce the level of risk. The assessments are facilitated, monitored and challenged by the relevant operational risk function aligned to each business unit and group enabling function.

¢ Indicators: Based on the key risks and controls identified above, relevant indicators are used to monitor key business environment and internal control factors that may influence the group’s operational risk profile. Each indicator has trigger thresholds to provide an early-warning indicator of potential risk exposures and/or a potential breakdown of controls.

¢ Operational risk incidents: All areas are required to report operational risk incidents to their relevant operational risk function. The definition of operational risk incidents includes not only events resulting in actual loss, but those resulting in non-financial impacts and near misses. This process is intended to enable the root cause of individual incidents, or trends of

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incidents, to be analysed and actions taken to reduce the board. GORC is chaired by the group head of operational exposure or to enhance controls. risk and includes representation from group specialist functions and business units. GORC is also responsible for approving All incidents relating to the group’s banking operations are groupwide operational risk policies and methodologies. consolidated within a central group database, which is also integrated with risk and control self-assessments and indicators. In addition to the operational risk management function, there The group’s insurance operations are implementing an are individual focus areas on particular aspects of operational equivalent incident database using the same IT application as risk, including: the group’s banking operations. ¢ Specialist functions that are responsible for oversight of ¢ External data: The group analyses external industry incidents specific components of operational risk including compliance, and loss data through a combination of publicly available data legal, financial crime, information security and business and the confidential loss data available from membership continuity management. (since 2011) of the Operational Riskdata eXchange Association. This enhances the identification and assessment ¢ A physical commodities specialist function that is based in of risk exposures and provides additional data for scenario Johannesburg, London and Singapore, has been established analysis purposes. to manage physical commodities transactions executed within the group. The key role of the team is to focus on the risks ¢ Scenarios: Internal subject matter experts develop estimates of potential impact and likelihood, which support the embedded in each trade, on a pre- and post-trade basis, to identification and assessment of key risks and controls, and ensure they are understood, tracked, controlled and provide data for quantitative modeling purposes. Scenarios escalated if appropriate. The team works with approved third are used for capital estimation purposes by SBSA (AMA) and parties who play a key role in the process and the provision by Standard Bank Plc (ICAAP). of related control functions such as ship brokers, insurers, ¢ Reporting: Operational risk reports are produced on both a warehouse providers and security companies. regular and an event-driven basis. The reports include a profile ¢ An internal financial controls framework has been established of the key risks to business units’ achievement of their to ensure the robust control over balance sheet business objectives, relevant control issues and operational risk substantiation and other key financial controls. incidents. Specific reports are prepared on a regular basis for ¢ Within the group’s IT and operations functions, there are the relevant business unit committees and for the group dedicated areas focused on the day to day management of operational risk committee (GORC), GROC and the GRCMC. operations control and IT risk.

Managing operational risk Measuring operational risk The primary responsibility for managing operational risk forms The group continues to calculate capital for its banking part of the day-to-day responsibilities of management and operations based on the standardised approach in accordance employees at all levels. Business line management is ultimately with the SARB approval granted in 2008. responsible for owning and managing risks resulting from their activities. The risks are managed where they arise. During 2011, the group developed an internal model The operational risk management function is independent from quantification capability. This is used to calculate capital business line management and is part of the second line of requirements for SBSA under the AMA in parallel with the defence. It is organised as follows: standardised approach calculations throughout 2012. The capital ¢ Individual teams are dedicated to each business unit and requirement derived from the model is principally driven by data group enabling functions. These teams are based alongside generated from scenarios although, where available, internal loss their business areas and facilitate the business’s adoption of data is also used. This quantitative methodology is being the operational risk framework. As part of the second line of extended to other group banking entities. defence, they also monitor and challenge the business units’ and group enabling functions’ management of their Operational risk in the group’s insurance operations is measured operational risk profile. in the OCAR calculation. The methodology used has been ¢ A central function, based at a group level, provides adopted from approaches used in the Quantitative Impact groupwide oversight and reporting. It is also responsible Studies under the European Union’s Solvency II framework. for developing and maintaining the operational risk The quantification methodology for operational risk capital is management framework. likely to change with the implementation of the new risk-based ¢ The primary oversight body for operational risk is GORC, regulatory regime introduced by the South African FSB’s which reports to GROC, the GRCMC and ultimately the SAM project in 2014.

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Operational risk continued

Measuring operational risk continued ¢ Model performance, including requirements for an annual review process, is monitored on an ongoing basis. Further to the regulatory requirements for measuring operational ¢ Data that is used as model inputs, which includes risk, Liberty also includes an allowance for operational risk in the independent price testing of mark to market positions is calculation of its economic capital requirements. reviewed and governed. Where this is not available, industry consensus services are used. Specialist operational risk types ¢ Governance is achieved through committees with appropriate The definition of operational risk is very broad. Operational risk board and executive management members for material contains specific sub-risks that are subject to management and models, and through policies which deal with minimum oversight by dedicated specialist functions. These include: standards, materiality, validation criteria, approval criteria, ¢ model risk roles and responsibilities. ¢ taxation risk ¢ Auditable, skilled and experienced pool of technically ¢ legal risk competent staff is maintained.

¢ compliance risk Taxation risk ¢ environmental and social risk In terms of the group tax policy, the group fulfils its ¢ business continuity management and resilience responsibilities under tax law in each jurisdiction in which it ¢ information risk management operates, both in terms of domestic and international taxes ¢ financial crime control with specific reference to transfer pricing principles across ¢ occupational health and safety. jurisdictions, whether in relation to compliance, planning or client service matters. Tax law includes all responsibilities which Model risk the group may have in relation to company taxes, personal The term model refers to a quantitative method, system or taxes, capital gains taxes, indirect taxes and tax administration. approach that applies statistical, economic, financial, or mathematical principles and processes to translate input data Compliance with this policy is aimed at ensuring that the group into quantitative estimates. The group uses models to measure pays neither more nor less tax than tax law requires. The group risk across the various risk types. Examples include credit continually reviews its existing and planned operations in this grading, pricing, valuation and risk appetite metrics. regard and ensures that, where clients participate in group products, these clients are either aware of the probable tax Model risk is the potential for adverse consequences from implications or are advised to consult with independent measurement, pricing and management decisions based professionals to assess these implications, or both. on incorrect or inappropriate use of models. Incorrect or The framework to achieve compliance with the group tax policy inappropriate use of models may arise from incorrect assumptions, comprises four elements: incomplete information, inaccurate implementation and limited model understanding leading to incorrect conclusions ¢ identification and management of tax risk by the user. ¢ human resources policies, including an optimal mix of staffing and outsourcing The group’s approach to managing model risk is based on the ¢ skills development, including methods to maintain and following principles: improve managerial and technical competency

¢ All new models, both internal and external, are subject to ¢ communication of information affecting tax within the group. validation and independent review in which the various components of a model and its overall functioning are Good corporate governance in the tax context requires that each evaluated to determine whether the model is performing as of these elements is in place, as the absence of any one would intended. seriously undermine the others. ¢ The three lines of defence governance model is adopted, Legal risk being model development, independent model validation and Legal risk is defined as exposure to the adverse consequences internal audit oversight functions. of non-compliance with legal or statutory responsibilities and/or ¢ Appropriateness and fit for purpose use of models in inaccurately drafted contracts and their execution, as well as the technical forums is challenged. absence of written agreements or inadequate agreements. This ¢ Model validation summaries that highlight model limitations includes exposure to new laws as well as changes in and recommend improvements. interpretations of existing law by appropriate authorities. This ¢ Implementation of approved models into production systems applies to the full scope of group activities and may also include is controlled. others acting on behalf of the group. 86 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Risk and capital management report 2012 > Operational risk

Legal risk arises where: The compliance structure for banking operations has both ¢ the group’s businesses or functions may not be conducted in decentralised and centralised components. The decentralised accordance with, or benefit from, applicable laws in the business unit compliance functions are managed by heads of countries in which it operates compliance who report to the GCCO. The central function ¢ regulatory requirements are incorrectly applied includes sanctions management, monitoring, conflicts control ¢ the group may be liable for damages to third parties exchange control compliance, as well as central and business ¢ contractual obligations may be enforced against the group in unit anti-money laundering and terrorist financing control an adverse way, resulting from legal proceedings being functions. The regulatory services unit provides regulatory instituted against it. support to business. Our business compliance model includes dedicated compliance support and advisory services to business The following sub-categories of legal risk are recognised: which is supplemented by training. ¢ contract non-conclusion risk ¢ contract unenforceability risk A robust risk management reporting and escalation procedure ¢ security interest failure risk requires both business unit and functional area compliance ¢ netting and set-off disallowance risk heads to report monthly and quarterly on the status of ¢ adverse tax and regulatory treatment risk compliance risk management in the group. ¢ contract breach, damages and fines risk. ¢ copyright loss or contravention risk Money laundering and terrorist financing control ¢ litigation risk Legislation across the group pertaining to money laundering and ¢ anti-competitive behaviour risk. terrorist financing control imposes significant requirements in terms of:

The group has processes and controls in place to manage its ¢ customer identification legal risk. Failure to manage these risks effectively could result ¢ record keeping in legal proceedings impacting the group adversely, both financially and reputationally. ¢ staff training ¢ obligations to detect, prevent and report money laundering Compliance risk and terrorist financing. Compliance risk is the risk of legal or regulatory sanctions, financial loss or damage to reputation that the group may suffer Group minimum standards are implemented throughout as a result of its failure to comply with laws, regulations, codes the group, taking cognisance of jurisdictional requirements of conduct and standards of good practice that are applicable to where these may be more stringent. The group also subscribes its financial services’ activities. to the principles of the Financial Action Task Force, an inter-governmental body developing and promoting policies Approach to compliance risk management to combat money laundering and terrorist financing, of which The group’s approach to managing compliance risk is proactive South Africa is a member country. and premised on internationally accepted principles of risk management including those recommended by Basel. It is Sanctions management aligned with other group risk type methodologies. Group The group actively manages the legal, regulatory, reputational compliance supports business in complying with current and and operational risks associated with doing business in emerging regulatory developments, including money laundering jurisdictions or with clients that are subject to embargoes and/or and terrorist financing control, sanctions management, sanctions imposed by relevant authorities. The group sanctions identifying and managing conflicts of interest and market abuse, review committee, supported by a sanctions desk, is responsible TCF and mitigating reputational risk. for providing advice on all sanctions-related matters in a fluid Framework and governance sanctions regime. Compliance risk management is a core risk management activity overseen by the group chief compliance officer Compliance training (GCCO). The GCCO has unrestricted access to the group Employees are made aware of their responsibilities in chief executive and to the chairman of the GAC, thereby terms of current and emerging legislative and regulatory ensuring the function’s independence. requirements through ongoing training and awareness initiatives. Employees, including senior management, are made aware of The group’s compliance framework for banking operations their legislative responsibilities either through e-learning, is based on the principles of effective compliance face-to-face interventions or through targeted awareness risk management, as outlined in the Banks Act, and campaigns. Training is key to embedding a culture of recommendations from international policy-making bodies. compliance in the group. 87 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Operational risk continued

Specialist operational risk types continued Liberty partners with the group’s banking operations on regulatory issues of common interest. Engagement with Regulatory change legislators takes place primarily through participation in The group aims to embed regulatory best practice in our the various committees of the Association for Savings and operations in a way that balances the interests of various Investment in South Africa, the trade association for the stakeholders, while supporting the long-term stability and South African long-term insurance sector and the South African growth in the markets where we have a presence. Insurance Association, which represents the short-term insurance sector. The group operates in a highly regulated industry across multiple jurisdictions including the need to comply with legislation with Environmental and social risk extra-territorial reach. Supervision is undertaken by both host Environmental and social risk assessment and management deals country regulators and various regulatory bodies in South Africa. with two aspects being those over which we: The group’s primary banking regulator is the Bank Supervision ¢ do not have control but which have potential to impact on Department (BSD) of the SARB, which supervises the group on a our operations and those of our clients consolidated basis. Senior management engages with both the ¢ have direct control such as waste management and the use BSD and regulators in other jurisdictions on a regular basis. of energy and water. Our regulatory advocacy unit assesses the impact that emerging The group sustainability management unit develops the strategy, policy and regulation will have on the business. Our approach to policy and management frameworks which enable the regulatory advocacy is to engage with government policymakers, identification, management, monitoring and reporting of both of legislators and regulators in a constructive manner. these aspects. The group regulatory and legislative oversight committee The uncontrolled aspects include threats to the global enhances regulatory risk management by proactively considering environment result from changing global climate and its impact the impacts of regulatory developments on the organisation and on weather patterns, fresh water, infrastructure, economic a new operating model for managing regulatory change has growth and social resilience. The group uses two approaches to been developed. screen and process projects, namely the Equator Principles for project finance loans and an internally developed appraisal South African financial services supervisory bodies include the system for other financial product types. These tools are South African FSB, which currently regulates the non-banking designed to identify the risks associated with a transaction activities of the financial services industry in South Africa, the and the customer’s ability to manage environmental and social Financial Intelligence Centre, which oversees money laundering issues, as well as the risks associated with the transaction and terrorist financing control, and various regulatory bodies itself such as the nature and value of the loan, and the industry relating to financial markets. The National Credit Regulator is sector involved. responsible for regulating the South African credit industry. Regarding TCF, there are various ombuds serving the interests of All project finance deals will in future be screened for climate the public, including the Consumer Commission established change risk and human rights impacts. This is in addition to the under the Consumer Protection Act. more traditional environmental and social risks which include those associated with occupational health and safety, relocation Regulators of our larger non-South African operations include of communities and the impact on livelihoods of individuals. the UK FSA, the Hong Kong Monetary Authority, the Monetary Authority of Singapore, the China Banking Regulatory In relation to the controllable aspects, energy use, water use, Commission, the Central Banks of Kenya and Nigeria, and waste production and carbon emissions resulting from our the Bank of Uganda. operations are recorded within an environmental management system. This is used both for improving efficiency and reporting Regulatory developments inform the group’s business planning to key stakeholders. Environmental efficiency targets have been processes. TCF, client confidentiality, and money laundering set for SBSA, which is the group’s largest subsidiary. In Nigeria, and terrorist financing control continue to be dominant the central bank has mandated a sustainability framework, which focus areas. is applicable to all Nigerian banks.

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From a governance perspective, the group’s material issues are The group is developing an integrated recovery plan in response grouped into six broad categories which form the basis of to the SARB’s guidance notes issued during 2012. The engagement on sustainability issues with the group executive integrated recovery plan comprises: committee and the board. These are: ¢ a capital recovery plan ¢ sustainable long-term financial performance ¢ a liquidity recovery plan ¢ governance, regulation and stakeholder engagement ¢ a business recovery plan to ensure that core functions, ¢ sustainable and responsible financial services products and services continue to operate in times of ¢ socioeconomic development financial and operational distress. ¢ a positive and consistent employee experience In the case of the business recovery plan, the core functions ¢ the environment. include those which are crucial to the survival of the group’s For further information, refer to the discussion banking and insurance entities and those necessary to avoid AIR on material issues on page 13 of the integrated report disruption of the financial system.

Business continuity management and resilience Information risk management Information risk is defined as the risk of accidental or intentional Business continuity management is defined as a holistic unauthorised use, modification, disclosure or destruction of the management process that identifies potential impacts that group’s information resources, which compromises threaten the group and provides a basis for planning in confidentiality, integrity or availability. Information risk mitigation to these operational impacts. It further provides a management deals with all aspects of information in its physical framework for building resilience and the capability for an and electronic forms. It focuses on the creation, use, effective response that safeguards the interests of key transmission, storage, disposal and destruction of information. stakeholders, reputation, brand and value-creating activities.

Information risk management is responsible for establishing an The group has business resiliency and continuity plans in place information security management system inclusive of an to ensure its ability to operate on an ongoing basis and limit information risk management framework, and promotes losses in the event of severe business disruptions. information risk management policies and practices across the Crisis management is based on a command and control process group. for managing the business through a crisis to full recovery. The execution of these policies and standards is driven through These processes may also be deployed to manage a network of information security officers embedded within the non-operational crises, including business crises, at the business lines. This network is functionally overseen by the discretion of senior management. group chief information security officer. Contingency and recovery plans for core services, key systems and priority business activities have been developed and are revisited as part of existing management processes to ensure that continuity strategies and plans remain relevant.

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Operational risk continued

Specialist operational risk types continued Financial crime control is defined as the prevention and detection of, and response to, all financial crime in order to Access to information mitigate economic loss, reputational risk and regulatory sanction. The Promotion of Access to Information Act 2 of 2000 was passed to give effect to the constitutional right of access to The group financial crime control unit is mandated by the GAC information that is held by a private or public body and to provide capabilities which minimise the overall impact of that is required for the exercise or protection of any rights. financial crime on the group. This ensures the safety of our people and assets, and builds trust with our stakeholders. The following information is discussed in terms of applicable regulations: The group financial crime control function reports to the group ¢ From January 2012 to December 2012, the group has head of governance and assurance. This function enables a processed 24 (2011: 21) requests for access to information, holistic view of the status and landscape of financial crime of which 17 were granted, five denied, one withdrawn and prevention, detection and response across all geographies, one abandoned. including emerging threats. The group head of financial crime ¢ The reasons for the denial of access were that the owners of control has unrestricted access to executives and the the personal information declined to give consent for access chairperson of the GAC, thereby supporting the function’s to be given to the requestor and some requests fell outside independence. the jurisdiction of the abovementioned act. Occupational health and safety Financial crime control The health and safety of all employees remains a priority. Financial crime includes fraud, money laundering, violent crime Training of health and safety officers and employee awareness is and misconduct by staff, customers, suppliers, business partners, an ongoing endeavour. Group policies are being rolled out to all stakeholders and third parties. The group will not condone any operations and the number of incidents being reported is instance of financial crime and where these instances arise, the reducing. group takes timely and appropriate remedial action.

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Business risk

Business risk is the risk of loss due to ¢ There is a strong focus in the budgeting process on achieving operating revenues not covering operating costs headline earnings growth while containing cost growth. In addition, contingency plans are built into the budget that and is usually caused by the following: allow for costs to be significantly reduced in the event that ¢ inflexible cost structures expected revenue generation does not materialise. ¢ market-driven pressures, such as decreased demand, ¢ The group continually aims to increase the ratio of variable increased competition or cost increases costs to fixed costs, allowing for more flexibility to proactively ¢ group-specific causes, such as a poor choice of strategy, reduce costs during economic downturn conditions. reputational damage or the decision to absorb costs or losses to preserve reputation. Strategic risk It includes strategic risk and post-retirement obligation risk. Strategic risk is the risk that the group’s future business plans and strategies may be inadequate to prevent financial loss or Business risk is governed by the group executive committee, protect the group’s competitive position and shareholder which is ultimately responsible for managing the costs and returns. revenues of the group. The group’s business plans and strategies are discussed and The group mitigates business risk in a number of ways, debated by members of management and the board. including: ¢ Extensive due diligence during the investment appraisal Post-retirement obligation risk process is performed, in particular for new acquisitions. Post-retirement obligation risk is the risk to the group’s earnings ¢ New product processes per business line through which the that arises from the requirement to contribute as an employer to risks and mitigating controls for new and amended products an under-funded defined benefit plan. The risk arises due to and services are tabled and discussed. either an increase in the estimated value of pension or medical ¢ Stakeholder management ensures favourable outcomes from liabilities, or a decline in the market value of the fund’s assets or external factors beyond the group’s control. reduction in their investment returns. ¢ The profitability of product lines and customer segments is consistently monitored. The group operates both defined contribution plans and defined ¢ Tight control is maintained over the group’s cost base, benefit plans, with the majority of its employees participating in including the management of its cost-to-income ratio. defined contribution plans. The group maintains a number of This allows for early intervention and management action defined benefit pension and medical aid provider schemes for to reduce costs where necessary. past and certain current employees, collectively termed ¢ Being alert and responsive to changes in market forces. post-retirement obligations.

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Reputational risk

Reputational risk results from damage to the group’s image which may impair its ability to retain and generate business. Such damage may result in a breakdown of trust, confidence or business relationships.

Safeguarding the group’s reputation is of paramount importance. Each business line, legal entity or support function executive is responsible for identifying, assessing and determining all reputational risks that may arise within their respective areas of business. The impact of such risks is considered alongside financial or other impacts.

Matters identified as a reputational risk to the group will be reported to the group head of governance and assurance who, if required, will escalate these matters to GROC and/or the group executive committee.

Should a risk event occur, the group’s crisis management processes are designed to minimise the reputational impact of the event. Crisis management teams are in place both at executive and business line level to ensure the effective management of any such events. This includes ensuring that the group’s perspective is fairly represented in the media.

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Restatements

Economic capital Collateral The methodology for the calculation of business risk was The source of CIB collateral data was changed during the year to amended in 2012 to more accurately reflect the underlying risk better align with the group’s other pillar 3 disclosures. CIB and the comparative was subsequently restated. collateral data is now extracted directly from the group’s Basel II and collateral systems, rather than from underlying trading RCM Refer to page 24 for the restatement of economic capital systems. AFS

RCM Refer to page 51 for the restatement of the Asset class exposure by Basel II approach AFS collateral disclosure and class The gross past due but not impaired exposures of the Credit exposure – Liberty discontinued operations were omitted from the exposures The 2011 debt instruments ratings table summary presented on disclosed per 2011 under this Basel II disclosure. The page 54 has been restated to a new scale to allow for better comparative results have accordingly been restated. comparison. The rating scale applied is based on internal definitions, influenced by published external rating agencies RCM Refer to page 30 for the restatement of the including Fitch, Moody’s and Standard & Poor’s and reflects AFS Basel II: Exposure by approach and class table long-term local currency ratings referencing international probabilities of default rating scales. Credit risk – IFRS During the current year, the owner-occupied portion of This is a modification from the rating scale used in previous commercial property finance was moved from CIB to PBB. years where the local currency national rating scales of the Credit risk disclosures have, been restated to reflect this rating agencies were used as a benchmark. The primary reclassification between business units. difference is that the national rating scales are only rank ordering scales and do not imply an actual probability of default. This change has been made to bring Liberty’s credit rating scale RCM Refer to page 46 for the restatement of the IFRS AFS credit risk tables into line with international best practice and the expected requirements of the SAM regime. Renegotiated loans Refer to page 54 for the restatement of the Liberty Renegotiated loans and advances have been restated to reflect RCM AFS credit exposure table the consistent application of the group’s policy across all portfolios. Financial information During the year, the group revised certain financial information. RCM Refer to page 49 for the restatement of the renegotiated AFS loans disclosure Refer to page 60 for the restatement of financial RCM AFS information affecting liquidity risk disclosure. Refer to annexure A on page 212 of the annual financial statements for details concerning these restatements

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Contents

Annual financial statements The consolidated and separate annual financial statements Directors’ responsibility for were audited in terms of the Companies Act 71 of 2008 95 financial reporting (Companies Act). Group secretary’s certification 95 Report of the group audit committee 96 The preparation of the group’s consolidated and separate Directors’ report 98 annual financial statements was supervised by the group financial Independent auditors’ report 103 director, Simon Ridley, BCom (Natal), CA (SA), AMP (Oxford). Statement of financial position 104 These results were made publicly available on 7 March 2013. Income statement 105 Statement of other comprehensive income 106 Statement of cash flows 107 Statement of changes in equity 108 Accounting policy elections 110 Notes to the annual financial statements 112 Standard Bank Group Limited – 206 company annual financial statements Annexure A – restatements 212 Annexure B – subsidiaries 213 Annexure C – associates and 218 joint ventures Annexure D – group share 221 incentive schemes Annexure E – detailed accounting policies 229 Annexure F – emoluments and shar e incentives of directors 252 and prescribed officers Annexure G – special resolutions 264 Annexure H – third-party funds 265 under management Annexure I – seven-year review 266 Annexure J – segmental statement 278 of financial position Annexure K – banking activities average statement of financial 280 position (normalised) WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Directors’ responsibility for financial reporting / Group secretary’s certification

Directors’ responsibility for financial reporting

In accordance with the Companies Act the directors are integrated report and the risk and capital management section responsible for the preparation of the annual financial of this report. statements. The annual financial statements conform with IFRS and fairly present the affairs of Standard Bank Based on the information and explanations given by Group Limited (the company) and Standard Bank Group management and the internal auditors, the directors are of the (the group) as at 31 December 2012, and the net income opinion that the internal financial controls are adequate and that and cash flows for the year then ended. the financial records may be relied upon for preparing the financial statements in accordance with IFRS and to maintain It is the responsibility of the independent auditors to report accountability for the company’s and the group’s assets and on the fair presentation of the financial statements. liabilities. Nothing has come to the attention of the directors to indicate that a breakdown in the functioning of these controls, The directors are ultimately responsible for the internal controls resulting in material loss to the company and the group, has of the company and the group. Management enables the occurred during the year and up to the date of this report. directors to meet these responsibilities. Standards and systems of internal controls are designed and implemented by The directors have a reasonable expectation that the company management to provide reasonable assurance of the integrity and the group will have adequate resources to continue in and reliability of the financial statements and to adequately operational existence and as a going concern in the financial safeguard, verify and maintain accountability for shareholder year ahead. investments and company and group assets. The 2012 annual financial statements which appear on pages Accounting policies, supported by judgements, estimates and 104 to 264 and specified sections of the risk and capital assumptions in compliance with IFRS, are applied on the basis management report contained within pages 1 to 93, were that the company and the group shall continue as a going approved by the board of directors on 6 March 2013 and signed concern. Systems and controls include the proper delegation of on its behalf by: responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties.

Systems and controls are monitored throughout the company and the group. Greater detail of these systems and controls, including the operation of the group’s internal audit function, Fred Phaswana Jacko Maree is provided in the corporate governance statement in the Chairman Chief executive

Group secretary’s certification

Compliance with the Companies Act 71 of 2008 In terms of the Companies Act and for the year ended 31 December 2012, I certify that Standard Bank Group Limited has filed all returns and notices required by the Companies Act with the Companies and Intellectual Property Commission and that all such returns and notices are true, correct and up to date.

Zola Stephen Group secretary 6 March 2013

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Report of the group audit committee

This report is provided by the audit committee, in respect ¢ reviewed reports on the adequacy of the provisions for of the 2012 financial year of Standard Bank Group Limited, performing and non-performing loans and impairment of in compliance with section 94 of the Companies Act, as other assets, and the formulae applied by the group in amended from time to time and in terms of the JSE Limited determining charges for and levels of impairment of (JSE) Listings Requirements. The committee’s operation is performing and non-performing loans guided by a detailed mandate that is informed by the Companies ¢ ensured that the annual financial statements fairly present Act, the Banks Act 94 of 1990 (Banks Act) and the Code the financial position of the group as at the end of the of Corporate Practices and Conduct set out in the King Report financial year and the results of operations and cash flows on Corporate Governance for South Africa 2009 (King Code) for the financial year and considered the basis on which and is approved by the board. the group was determined to be a going concern ¢ considered accounting treatments, significant unusual The committee is appointed by the board annually. Information transactions and accounting judgements

on the membership and composition of the audit committee, its ¢ considered the appropriateness of the accounting policies terms of reference and its activities is provided in greater detail adopted and changes thereto

in the corporate governance statement. ¢ reviewed and discussed the external auditors’ audit report

¢ considered and made recommendations to the board on Execution of functions the interim and final dividend payments to shareholders

The audit committee has executed its duties and responsibilities ¢ over the course of the year, met with the chief audit during the financial year in accordance with its mandate as it officer, group chief compliance officer, the group chief risk relates to the group’s accounting, internal auditing, internal officer, the group chief credit officer, the head of financial control and financial reporting practices. crime control, management and the external auditors

¢ reviewed any significant legal and tax matters that could During the year under review the committee, amongst have a material impact on the financial statements other matters, considered the following: ¢ noted that there were no material reports or complaints ¢ In respect of the external auditors and the external audit: received concerning accounting practices, internal audit, ¢ approved the reappointment of KPMG Inc. and internal financial controls, content of the annual financial PricewaterhouseCoopers Inc. as joint external auditors for statements, internal controls and related matters. the financial year ended 31 December 2012, in ¢ In respect of internal control, internal audit and financial accordance with all applicable legal requirements crime control:

¢ approved the external auditors’ terms of engagement, the ¢ reviewed and approved the annual internal audit mandate audit plan and budgeted audit fees payable and audit plan and evaluated the independence, ¢ reviewed the audit process and evaluated the effectiveness and performance of the internal audit effectiveness of the audit department and compliance with its mandate

¢ obtained assurance from the external auditors that their ¢ considered reports of the internal and external auditors on independence was not impaired the group’s systems of internal control, including internal

¢ considered the nature and extent of all non-audit services financial controls and maintenance of effective internal provided by the external auditors control systems ¢ ¢ through the chairman, approved proposed contracts with reviewed significant issues raised by the internal audit the external auditors for the provision of non-audit processes and the adequacy of corrective action in services and pre-approved proposed contracts with the response to such findings external auditors for the provision of non-audit services ¢ noted that there were no significant differences of above an agreed threshold amount opinion between the internal audit function and management ¢ confirmed that no reportable irregularities were identified and reported by the external auditors in terms of the ¢ assessed the adequacy of the performance of the internal Auditing Profession Act 26 of 2005 audit function and adequacy of the available internal audit resources and found them to be satisfactory ¢ considered reports from subsidiary audit committees and from management through the group’s governance ¢ received assurance that proper and adequate accounting structures on the activities of subsidiary entities. records were maintained and that the systems safeguarded the assets against unauthorised use or ¢ In respect of the financial statements: disposal thereof

¢ confirmed the going concern principle as the basis of ¢ based on the above, the committee formed the opinion preparation of the interim and annual financial statements that at the date of this report there were no material ¢ examined and reviewed the interim and annual financial breakdowns in internal control, including internal financial statements prior to submission and approval by the board controls, resulting in any material loss to the group 96 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Report of the group audit committee

¢ reviewed and approved the mandate of financial crime Independence of the external auditors control as an independent risk function The audit committee is satisfied that KPMG Inc. and ¢ discussed significant financial crime matters and control PricewaterhouseCoopers Inc. are independent of the group. weaknesses identified. This conclusion was arrived at, inter alia, after taking into ¢ In respect of legal, regulatory and compliance requirements: account the following factors:

¢ reviewed, with management, matters that could have a ¢ the representations made by KPMG Inc. and material impact on the group PricewaterhouseCoopers Inc. to the audit committee

¢ monitored compliance with the Companies Act, the Banks ¢ the auditors do not, except as external auditors or in Act, all other applicable legislation and governance codes rendering permitted non-audit services, receive any and reviewed reports from internal audit, external auditors remuneration or other benefits from the group and compliance detailing the extent of this ¢ the auditors’ independence was not impaired by any ¢ noted that no complaints were received through the consultancy, advisory or other work undertaken by group’s ethics and fraud hotline concerning accounting the auditors matters, internal audit, internal financial controls, contents ¢ the auditors’ independence was not prejudiced as a result of financial statements, potential violations of the law and of any previous appointment as auditor questionable accounting or auditing matters ¢ the criteria specified for independence by the Independent ¢ reviewed and approved the annual compliance mandate Regulatory Board for Auditors and international regulatory and compliance plan. bodies were met. ¢ In respect of risk management and information technology:

¢ considered and reviewed reports from management The audit committee has reviewed the annual integrated on risk management, including fraud and information report and recommended it to the board for approval. technology risks as they pertain to financial reporting and the going concern assessment In conclusion, the audit committee has complied with its

¢ the chairman is a member of and attended the risk and legal, regulatory and governance responsibilities as set out capital management committee meetings held during in its mandate. the year under review. On behalf of the group audit committee ¢ In respect of the coordination of assurance activities, the committee:

¢ reviewed the plans and work outputs of the external and internal auditors as well as compliance and financial crime control, and concluded that these were adequate to address all significant financial risks facing the business

¢ considered the expertise, resources and experience of the finance function and the senior members of management Richard Dunne responsible for this function and concluded that these Chairman, group audit committee were appropriate 6 March 2013 ¢ considered the appropriateness of the experience and expertise of the group financial director and concluded that these were appropriate.

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Directors’ report for the year ended 31 December 2012 Nature of business Equity compensation plans Standard Bank Group Limited is the holding company for the Information on options or rights granted to executive directors interests of the group, a global banking group with African roots. under the group’s equity compensation plans is provided It is South Africa’s largest bank and currently operates in in the remuneration report in the annual integrated report on 18 countries on the African continent, including South Africa, pages 120 to 151. Details of options granted to all employees as well as in other selected emerging markets. under equity compensation plans are given in annexure D starting on page 221. Headquartered in Johannesburg, South Africa, the group’s primary listing is on the security exchange operated by the Directors’ and prescribed officers’ JSE and its secondary listing is on the Namibian Stock Exchange emoluments (NSX). Subsidiary banks are listed on exchanges in Kenya, Directors’ and prescribed officers’ emoluments are disclosed on Malawi, Nigeria and Uganda. page 252. Information relating to the determination of directors’ and prescribed officers’ emoluments, share incentive A simplified group organogram is shown on page 213. allocations, details of prescribed officer’s interest in group shares and related matters is contained in the remuneration Group results report in the annual integrated report starting on page 120. A general review of the business and operations of major subsidiaries is provided in the chief executive’s review and Shareholder analysis operational reviews in the annual integrated report on The analysis of ordinary shareholders is provided in the annual pages 22 and 44, respectively. integrated report on page 157.

A financial review of the results of the group for the year is Shareholders at the close of the financial year, holding beneficial provided in the annual integrated report on pages 56 to 71. interests in excess of 5% of the issued share capital, determined from the share register and investigations conducted on our Property and equipment behalf, were as follows: There was no change in the nature of the fixed assets of the group or in the policy regarding their use during the year. % held Share capital 2012 2011 Ordinary shares Ordinary shares During the year 5 347 398 ordinary shares (2011: 3 709 809 Industrial and Commercial ordinary shares) were issued in terms of equity compensation Bank of China Limited (ICBC) 20.1 20.1 plans and 12 041 298 ordinary shares (2011: nil) were issued Public Investment Corporation 14.6 13.4 as scrip distributions. There were no other changes to the 6.5% preference shares ordinary share capital of the company. Old Sillery Proprietary Limited 9.1 9.1 Saks, DJ 7.5 7.2 Non-redeemable, non-cumulative, Van Tonder, JW 6.4 5.7 non-participating preference shares Foster, DF 6.0 (second preference shares) Lombard, L 5.6 5.5 No second preference shares were issued during the year. Second preference shares Directors’ interest in shares No shareholder holds 5% or more of this class of share capital. The directors’ interest in shares are listed on pages 155 to 156 of this report.

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Distributions to ordinary shareholders Dividends to preference shareholders Interim 6.5% first cumulative preference shares On 16 August 2012, an interim dividend of 212,0 cents per Interim share (2011: 141,0 cents) was declared to shareholders On 16 August 2012, a dividend of 3,25 cents per share recorded at the close of business on 14 September 2012, and (2011: 3,25 cents) was declared to shareholders recorded at paid on 17 September 2012. the close of business on 7 September 2012, and paid on 10 September 2012. As an alternative, the company offered shareholders recorded at the close of business on 7 September 2012 shares in the form Final of capitalisation shares. The number of ordinary shares which On 6 March 2013, a dividend of 3,25 cents per share shareholders participating in the distribution would be entitled (2011: 3,25 cents) was declared to shareholders recorded to, were determined on the ratio that the cash dividend bore to at the close of business on 12 April 2013, to be paid on the volume weighted average price of the company’s ordinary 15 April 2013. shares on the JSE during the five day trading period ending Thursday, 30 August 2012. Second preference shares Interim Final On 16 August 2012, a dividend of 345,55 cents per share On 6 March 2013, the board declared a dividend of (2011: 312,41 cents) was declared to shareholders recorded 243,0 cents per share (2011: 284,0 cents) to ordinary at the close of business on 7 September 2012, and paid on shareholders recorded at the close of business on 10 September 2012. 19 April 2013, to be paid on 22 April 2013. Final As an alternative, the company offered shareholders recorded at On 6 March 2012, a dividend of 331,96 cents per share the close of business on 12 April 2013 shares in the form of (2011: 317,59 cents) was declared to shareholders recorded capitalisation shares. The number of ordinary shares which at the close of business on 12 April 2013 and to be paid shareholders participating in the distribution would be entitled on 15 April 2013. to, will be determined on the ratio that the cash dividend bears to the volume weighted average price of the company’s ordinary shares on the JSE during the five day trading period ending Thursday, 4 April 2013.

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Directors’ report continued as at 31 December 2012

Directorate The directorate is listed in the annual integrated report on pages 114 to 117.

The following changes in directorate have taken place during the financial year ended 31 December 2012:

Standard Bank Group Limited Retire from office by rotation SE Jonah KBE as director 31 May 2012 Sir Paul Judge as director 31 May 2012 Liberty Holdings Limited Appointments MW Hlahla as director 1 August 2012 Resignations L Patel as director 17 May 2012 Liberty Group Limited Appointments MW Hlahla as director 1 August 2012 Resignations L Patel as director 17 May 2012 Stanbic IBTC PLC Appointments OU Abajue as director 1 August 2012 OA Adeniyi as director 1 August 2012

100 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Directors’ report

Group secretary and registered office Increase in the authorised share capital The group secretary is Zola Stephen. Zola Stephen was ¢ Standard Bank Fund Administration Jersey Limited appointed on 1 November 2012 following the resignation ¢ CfC Stanbic Bank Limited. of Loren Wulfsohn. The address of the group secretary is that of the registered office, 9th floor, Standard Bank Centre, Authorise the acquisition of shares by 5 Simmonds Street, Johannesburg 2001. the company ¢ Standard Bank Group Limited Management by third parties ¢ Liberty Holdings Limited None of the businesses of the company or its subsidiaries had, ¢ Standard Bank London Holdings Limited during the financial year, been managed by a third party or a ¢ Stanbic Bank Uganda Limited company in which a director had an interest. A company in which Doug Band, a director of the group, has a beneficial interest Other provided consulting and certain management services to the ¢ Standard Bank Group Limited approved the fees payable private equity division of The Standard Bank of South Africa for to the non-executive directors for the 12-month period a five year period until 31 December 2004. In terms of the commencing with effect from 1 January 2012 and granted agreement, in future years, he will receive a percentage the directors authority to provide financial assistance to any of the proceeds from the sale of equity-related investments company or corporation which is related or inter-related to undertaken during the term of the above management services the company. agreement. Further details can be found in the directors’ ¢ The Standard Bank of South Africa Limited approved the fees emoluments disclosure on page 252. payable to the non-executive directors for the 12-month period commencing with effect from 1 January 2012 Subsidiaries, associates and joint ventures and granted the directors authority to provide financial The interests in subsidiary, associated and joint venture companies, assistance to any company or corporation which is related where considered material in the light of the group’s financial or inter-related to the company. position and results, are set out in annexure B on pages 213 to ¢ Capital Alliance Australia Holdings Proprietary Limited 217 and annexure C on pages 218 to 220 respectively. changed its name to Own your life Rewards Proprietary Limited, the main object was changed to conducting a Special resolutions passed during 2012 rewards programme. Group companies passed the following special resolutions during ¢ Liberty Holdings Limited granted the directors general the year for the purposes indicated. authority to issue ordinary shares for cash. ¢ Liberty Holdings Limited approved the group restricted Amendment to the articles of association/ share plan, details of which were set out in the notice memorandum of incorporation of the annual general meeting (AGM). ¢ Standard Bank Group Limited’s existing memorandum and ¢ Liberty Holdings Limited granted the directors authority to articles of association was substituted with a new issue ordinary shares for Share Incentives Schemes. memorandum of incorporation (MOI). ¢ Liberty Holdings Limited approved the fees payable to the ¢ The Standard Bank of South Africa Limited’s existing non-executive directors for the 12-month period memorandum and articles of association was substituted commencing with effect from 1 January 2012 and granted with a new MOI. authority to provide financial assistance to any company or ¢ Liberty Holdings Limited’s existing memorandum and articles corporation which is related or inter-related to the company. of association was substituted with a new MOI. ¢ Banco Standard de Investimentos S.A. approved the increase ¢ Banco Standard de Investimentos S.A. approved the of the company’s corporate capital by issuing new ordinary consolidation of the By-Laws. and nominative shares. ¢ Standard Resources (China) Limited amended its articles ¢ Gale Force SDN BHD approved the reduction of the share of association to expand the company’s business scope. capital in the company. ¢ ¢ Capasia South East Asian Strategic Asset Fund (General Standard Bank Argentina S.A. changed its name to Industrial Partner) Limited adopted new articles of association. and Commercial Bank of China (Argentina) S.A. ¢ Stanbic Bank Zambia Limited approved the changes to its ¢ Scenic Streams SDN BHD amended its existing articles of association and reclassified the authorised share capital share capital and allotment of bonus shares. of the company.

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Directors’ report continued as at 31 December 2012

¢ Integrated Processing Solutions Proprietary Limited granted Discontinued operation authority to provide financial assistance to any company or The group completed the disposal of its controlling interests corporation which is related or inter-related to the company. in Standard Bank Argentina S.A., Standard Investments S.A., ¢ K2011103588 Proprietary Limited changed its name to IPS Sociedad Gerente de Fondos Comunes de Inversión (SI) and Electronic Payments Proprietary Limited. Inversora Diagonal S.A. (ID) (collectively referred to as SBA) to ¢ Stanbic IBTC Bank PLC approved the scheme of arrangements, ICBC at the end of November 2012. ICBC acquired a 55% the cancellation, reduction and acquisition of shares described stake in Standard Bank Argentina S.A. and a 50% stake in each in the scheme and for the ordinary shares of the bank to of SI and ID from the group, with the group retaining a 20% delist from the Nigerian Stock Exchange. shareholding and rights to board representation in each of the ¢ Standard Investments S.A. Sociedad Gerente de Fondos companies comprising SBA. The profit realised on the disposal Comunes de Inversión changed its name to ICBC Investments of the group’s controlling interest, after accounting for the S.A. Sociedad Gerente de Fondos Comunes de Inversión. reclassification of the foreign currency translation reserve and net investment hedge reserve from OCI to the income Contracts statement, the effects of the fair valuation of the group’s Saki Macozoma, a director and deputy chairman of the company, remaining 20% associate interest in SBA and the put option has an effective shareholding of 26.62% (2011: 26.62%) in in respect of this shareholding, is R1 525 million. Safika which is a member of three different consortia that were party to the Andisa Capital and the Tutuwa transactions. Safika Events subsequent to balance sheet date holds effective interests of 2.39% (2011: 2.50%) in Liberty On 7 March 2013, Jacko Maree retired as the chief executive Holdings Limited and 1.34% (2011: 1.40%) in the company. of Standard Bank Group Limited and resigned from Standard The group has an effective interest of 25.00% Bank Group Limited, The Standard Bank of South Africa Limited, (2011: 20.33%) in Safika. Liberty Holdings, Stanbic Africa Holdings and Stanbic IBTC Bank boards of directors. On the same date Ben Kruger Cyril Ramaphosa, a director of the company, has an effective and Sim Tshabalala were appointed as joint group chief shareholding of 29.63% (2011: 29.63%) in Shanduka, which is executives and directors of Standard Bank Group Limited. a member of the Tutuwa consortium. Shanduka holds effective Peter David Sullivan and Peter Wharton-Hood were appointed interests of 1.40% (2011: 1.44%) in Liberty Holdings Limited as directors of the Standard Bank Group and The Standard Bank and 0.90% (2011: 1.20%) in the company. The group holds an of South Africa Limited boards on 15 January 2013 and effective interest of 12.90% (2011: 13.00%) in Shanduka. 7 March 2013, respectively. Insurance The group protects itself against loss by maintaining banker’s comprehensive crime and professional indemnity cover. The insurance terms and conditions are reviewed by the group insurance committee annually to ensure they are ‘fit for purpose’ against the group’s risk exposures.

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Independent auditors’ report

To the shareholders of used and the reasonableness of accounting estimates made Standard Bank Group Limited by management, as well as evaluating the overall presentation Report on the financial statements of the financial statements. We have audited the consolidated and separate annual financial We believe that the audit evidence we have obtained is sufficient statements of Standard Bank Group Limited, which comprise and appropriate to provide a basis for our audit opinion. the consolidated and separate statements of financial position as at 31 December 2012, and the consolidated income statement Opinion and consolidated and separate statements of comprehensive income, statements of changes in equity and statements of In our opinion, the consolidated and separate annual financial cash flows for the year then ended and a summary of significant statements present fairly, in all material respects, the accounting policies and notes to the financial statements, consolidated and separate financial position of Standard Bank as set out on pages 104 to 264 and specified sections of the Group Limited as at 31 December 2012, and its consolidated risk and capital management report contained within and separate financial performance and its consolidated and pages 1 to 93. separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and the Directors’ responsibility for the requirements of the Companies Act of South Africa. financial statements The company’s directors are responsible for the preparation and Other reports required by the Companies Act fair presentation of these consolidated and separate financial As part of our audit of the consolidated and separate financial statements in accordance with International Financial Reporting statements for the year ended 31 December 2012, we have Standards, and the requirements of the Companies Act of South read the directors’ report, the report of the group audit Africa, and for such internal control as the directors determine is committee and the group secretary’s certificate for the purpose necessary to enable the preparation of consolidated and of identifying whether there are material inconsistencies separate financial statements that are free from material between these reports and the audited consolidated and misstatements, whether due to fraud or error. separate financial statements. These reports are the responsibility of the respective preparers. Based on our reading Auditors’ responsibility of these reports we have not identified material inconsistencies Our responsibility is to express an opinion on these consolidated between these reports and the audited consolidated and and separate financial statements based on our audit. We separate financial statements. However, we have not audited conducted our audit in accordance with International Standards these reports and accordingly do not express an opinion on on Auditing. Those standards require that we comply with ethical these reports. requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit KPMG Inc. PricewaterhouseCoopers Inc. evidence about the amounts and disclosures in the financial Registered Auditor Registered Auditor statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material Per Peter MacDonald Per Fulvio Tonelli misstatement of the financial statements, whether due to fraud Chartered Accountant (SA) Chartered Accountant (SA) or error. In making those risk assessments, the auditors consider Registered Auditor Registered Auditor internal control relevant to the entity’s preparation and fair Director Director presentation of the financial statements in order to design 6 March 2013 6 March 2013 audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the 85 Empire Road 2 Eglin Road effectiveness of the entity’s internal control. An audit also Parktown Sunninghill includes evaluating the appropriateness of accounting policies 2193 2157

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Statement of financial position as at 31 December 2012

Group 2012 20111 20101 Note Rm Rm Rm Assets Cash and balances with central banks 3 61 985 31 907 28 675 Derivative assets 4.7 120 190 150 046 149 682 Trading assets 5.1 114 419 90 449 80 679 Pledged assets 6.1 11 640 6 113 2 491 Non-current assets held for sale 7 960 34 085 Financial investments 8 318 158 289 319 283 295 Loans and advances 9.1 811 171 801 308 710 722 Current tax assets 10 331 443 473 Deferred tax assets 10 1 183 1 440 1 166 Other assets 11 32 384 22 640 17 882 Interest in associates and joint ventures 12 17 246 13 935 10 533 Investment property 13 24 133 23 470 21 521 Goodwill and other intangible assets 14 14 687 12 754 10 383 Property and equipment 15 15 733 14 920 14 907 Total assets 1 544 220 1 492 829 1 332 409 Equity and liabilities Equity 130 173 117 533 103 198 Equity attributable to ordinary shareholders 110 370 99 042 87 073 Ordinary share capital 16.2 161 159 159 Ordinary share premium 16.2 17 931 17 576 17 363 Reserves 92 278 81 307 69 551 Preference share capital and premium 16.2 5 503 5 503 5 503 Non-controlling interests 14 300 12 988 10 622 Liabilities 1 414 047 1 375 296 1 229 211 Derivative liabilities 4.7 121 998 153 142 145 004 Trading liabilities 18 39 206 30 264 29 482 Non-current liabilities held for sale 7 27 939 Deposit and current accounts 19 918 533 878 922 786 494 Current tax liabilities 20 4 230 2 353 3 423 Deferred tax liabilities 20 3 374 3 683 2 892 Provisions and other liabilities 21 58 474 45 674 40 900 Policyholders’ liabilities 22 236 684 208 565 197 878 Subordinated debt 23 31 548 24 754 23 138

Total equity and liabilities 1 544 220 1 492 829 1 332 409

1 2011 and 2010 figures restated, refer to annexure A – restatements on page 212.

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Income statement for the year ended 31 December 2012

Group 2012 2011 Note Rm Rm Continuing operations Income from banking activities 68 375 58 552 Net interest income 34 015 28 827 Interest income 28.1 68 862 59 909 Interest expense 28.2 34 847 31 082 Non-interest revenue 34 360 29 725 Net fee and commission revenue 28.3 21 319 19 782 Fee and commission revenue 28.3 24 732 22 957 Fee and commission expense 28.3 3 413 3 175 Trading revenue 28.4 8 893 7 896 Other revenue 28.5 4 148 2 047

Income from investment management and life insurance activities 75 716 48 835 Net insurance premiums 28.6 29 631 26 393 Investment income and gains 28.7 43 372 20 023 Management and service fee income 2 713 2 419

Total income 144 091 107 387 Credit impairment charges 28.8 8 800 6 436 Benefits due to policyholders 56 878 33 799 Net insurance benefits and claims 28.9 43 864 28 480 Fair value adjustment to policyholders’ liabilities under investment contracts 10 035 4 089 Fair value adjustment on third-party fund interests 2 979 1 230

Income after credit impairment charges and policyholders’ benefits 78 413 67 152 Operating expenses in banking activities 40 756 34 725 Staff costs 28.10 22 195 19 141 Restructuring costs 28.11 758 Other operating expenses 28.13 17 803 15 584 Operating expenses in investment management and life insurance activities 11 952 10 410 Acquisition costs 28.12 3 818 3 268 Other operating expenses 28.13 8 134 7 142

Net income before goodwill impairment and gains on disposal of subsidiaries 25 705 22 017 Goodwill impairment 28.14 777 61 Gains on disposal of subsidiaries 188 Net income before share of profits from associates and joint ventures 25 116 21 956 Share of profits from associates and joint ventures 12 701 284 Net income before indirect taxation 25 817 22 240 Indirect taxation 30.1 1 766 1 384 Profit before direct taxation 24 051 20 856 Direct taxation 30.2 7 075 5 713 Profit for the year from continuing operations 16 976 15 143 Discontinued operation 2 435 641 Profit for the year from discontinued operation 28.15 910 641 Profit from disposal of discontinued operation 28.15 1 525

Profit for the year 19 411 15 784 Attributable to non-controlling interests 2 913 2 213 Attributable to equity holders of the parent 16 498 13 571 Attributable to preference shareholders 352 345 Attributable to ordinary shareholders 16 146 13 226

Earnings per share from continuing operations and discontinued operation Basic earnings per ordinary share (cents) 32 1 060,7 875,7 Diluted earnings per ordinary share (cents) 32 1 025,9 849,2 Earnings per share from continuing operations Basic earnings per ordinary share (cents) 32 915,7 843,9 105 Diluted earnings per ordinary share (cents) 32 885,6 818,3

WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Statement of other comprehensive income for the year ended 31 December 2012

Group Non- controlling interests Ordinary and shareholders’ preference Total equity shareholders equity Note Rm Rm Rm 2012 Profit for the year 16 146 3 265 19 411 Other comprehensive income after tax for the year from continuing operations1 523 164 687 Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 523 21 5442 Net change on hedges of net investments in foreign operations 181 181 Net change in fair value of cash flow hedges 170 1 171 Realised fair value adjustments of cash flow hedges transferred to profit or loss (391) (10) (401) Net change in fair value of available-for-sale financial assets 618 134 752 Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (575) 17 (558) Items that may not be reclassified to profit or loss Other losses (3) 1 (2) Other comprehensive income after tax for the year from discontinued operation 28.16 509 106 615 Total comprehensive income for the year 17 178 3 535 20 713 Attributable to non-controlling interests 3 183 3 183 Attributable to equity holders of the parent 17 178 352 17 530 Attributable to preference shareholders 352 352 Attributable to ordinary shareholders 17 178 17 178

2011 Profit for the year 13 226 2 558 15 784 Other comprehensive income after tax for the year from continuing operations1 4 080 776 4 856 Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 4 551 980 5 5312 Net change on hedges of net investments in foreign operations (279) (279) Net change in fair value of cash flow hedges 167 47 214 Realised fair value adjustments of cash flow hedges transferred to profit or loss (112) (41) (153) Net change in fair value of available-for-sale financial assets (309) (257) (566) Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss 27 1 28 Items that may not be reclassified to profit or loss Other gains 35 46 81 Other comprehensive income after tax for the year from discontinued operation 28.16 83 79 162 Total comprehensive income for the year 17 389 3 413 20 802 Attributable to non-controlling interests 3 068 3 068 Attributable to equity holders of the parent 17 389 345 17 734 Attributable to preference shareholders 345 345 Attributable to ordinary shareholders 17 389 17 389

1 Income tax relating to each component of OCI is disclosed in note 30 on page 186. 2 Includes realised foreign currency translation losses on foreign operations of R696 million (2011: Rnil) transferred to profit or loss. 106 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Statement of other comprehensive income / Statement of cash flows

Statement of cash flows for the year ended 31 December 2012

Group 2012 2011 Note Rm Rm Net cash flows from operating activities 42 954 24 605 Cash flows used in operations 482 (6 879) Net income before goodwill impairment 25 705 22 017 Adjusted for: (32 005) (27 018) Amortisation of intangible assets 1 005 739 Credit impairment charges on loans and advances 8 800 6 436 Defined benefit pension fund and post-employment benefits (18) (284) Depreciation of property and equipment 2 595 2 288 Dividends included in trading revenue and investment income (3 473) (2 787) Equity-settled share-based payments 328 366 Indirect taxation (1 766) (1 384) Interest expense 34 361 30 256 Interest income (75 657) (66 295) Fair value adjustment on third party fund interests 2 979 1 230 Investment gains due to policyholders (30 017) (8 278) Net fund flows after service fees on policyholder investment contracts (1 432) (900) Non-cash flow movements to bonds 729 1 097 Other impairment losses 237 198 Policyholders’ liability transfers 29 567 10 299 Profit on sale of property and equipment (30) (62) Provision for defined benefit pension funds and post-employment benefits (118) 79 Other (95) (16) Increase in income-earning assets 34.1 (45 678) (72 886) Increase in deposits and other liabilities 34.2 52 460 71 008 Dividends received 5 114 4 356 Interest paid (35 020) (30 776) Interest received 73 174 64 126 Direct taxation paid 34.3 (4 134) (6 339) Net cash flows from operating activities in discontinued operation 34.4 3 338 117 Net cash flows used in investing activities (14 514) (10 138) Capital expenditure on – property (1 328) (995) – equipment, furniture and vehicles (2 356) (1 918) – intangible assets (4 108) (2 571) Proceeds from sale of property, equipment, furniture and vehicles 186 333 Net investment in investment properties 333 (900) Net increase in investments by insurance operations (6 432) (3 763) Net cash outflow resulting from the disposal of subsidiaries 34.8 (3 543) Net cash outflow resulting from the acquisition of subsidiaries 34.5 (9) (153) Decrease in investment in associates and joint ventures 2 840 76 Net cash flows used in investing activities in discontinued operation 34.4 (97) (247) Net cash flows used in financing activities (3 820) (8 388) Proceeds from issue of share capital to shareholders 125 142 Equity transactions with non-controlling interests (3 165) (374) Decrease/(increase) in investment in existing subsidiaries 376 (187) Subordinated debt issued 9 342 1 834 Subordinated debt redeemed (2 955) (2 552) Net dividends paid 34.6 (7 543) (7 251) Effect of exchange rate changes on cash and cash equivalents 609 2 002 Net increase in cash and cash equivalents 25 229 8 081 Cash and cash equivalents at the beginning of the year 36 756 28 675 Cash and cash equivalents at the end of the year 34.7 61 985 36 756

107 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Statement of changes in equity for the year ended 31 December 2012

Foreign currency Preference Ordinary Foreign hedge Available- Share- Ordinary share share Empower- currency of net Cash flow Statutory for-sale based share- capital Non- capital and ment Treasury translation investment hedging credit risk revaluation payment Other Retained holders’ and controlling Total premium reserve1 shares2 reserve3 reserve4 reserve5 reserve6 reserve7 reserve8 reserves earnings equity premium interest equity Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Balance at 1 January 2011 17 522 (2 971) (499) (5 672) 6 673 717 382 745 273 75 897 87 073 5 503 10 622 103 198 Total comprehensive income/(loss) for the year 4 627 (279) 52 (272) 39 13 222 17 389 345 3 068 20 802 Profit for the year 13 226 13 226 345 2 213 15 784 Other comprehensive income/(loss) after tax for the year 4 627 (279) 52 (272) 39 (4) 4 163 855 5 018 Increase in statutory credit risk reserve 243 (243) Transfer of other reserves (1) 1 Transactions with shareholders, recorded directly in equity 213 (108) 301 (13) (8) 295 (6 100) (5 420) (345) (702) (6 467) Equity-settled share-based payment transactions 336 336 30 366 Transfer of vested equity rights (41) 41 Issue of share capital and share premium and capitalisation of reserves 213 (71) 142 142 Deferred tax on share-based payment transactions (83) (83) (83) Transactions with non-controlling shareholders (13) (8) (68) (89) (98) (187) Net decrease in treasury shares 301 8 309 237 546 Net dividends paid (108) (5 927) (6 035) (345) (871) (7 251) Dividends paid to equity holders (132) (5 994) (6 126) (345) (950) (7 421) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 24 67 91 79 170

Balance at 31 December 2011 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533 Balance at 1 January 2012 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533 Total comprehensive income/(loss) for the year 1 056 181 (219) 17 (70) 16 213 17 178 352 3 183 20 713 Profit for the year 16 146 16 146 352 2 913 19 411 Other comprehensive income/(loss) after tax for the year 1 056 181 (219) 17 (70) 67 1 032 270 1 302 Increase in statutory credit risk reserve 50 (50) Transfer of other reserves (11) 11 Unincorporated property partnerships capital reductions and distributions (182) (182) Disposal of property partnership (234) (234) Transactions with shareholders, recorded directly in equity 357 (191) (1) 102 2 (6 119) (5 850) (352) (1 455) (7 657) Equity-settled share-based payment transactions 282 282 46 328 Transfer of vested equity rights (181) 181 Issue of share capital and share premium and capitalisation of reserves 357 (232) 125 125 Deferred tax on share-based payment transactions 69 69 69 Transactions with non-controlling shareholders (8) (4) 1 2 (65) (74) (970) (1 044) Net decrease in treasury shares 3 209 212 196 408 Net dividends paid (183) (6 281) (6 464) (352) (727) (7 543) Dividends paid to equity holders (217) (6 339) (6 556) (352) (809) (7 717) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 34 58 92 82 174

Balance at 31 December 2012 18 092 (3 270) (199) (2) (92) 506 1 002 127 1 142 232 92 832 110 370 5 503 14 300 130 173 1 The empowerment reserve is explained in note 17 on page 159. 5 Refer to the cash flow hedges section in annexure E, accounting policy 4 – Financial instruments on page 235. 2 The treasury shares reserve relates to the group shares held by entities within the group. 6 The statutory credit risk reserve relates to reserving requirements within African countries. Refer to pages 69 to 71 of the annual integrated report for an explanation on treasury shares held by entities within the group. 7 Refer to the available-for-sale financial assets section in annexure E, accounting policy 4 – Financial instruments on page 232. 3 Refer to annexure E, accounting policy 2 – Foreign currency translations on page 230. 8 Refer to annexure E, accounting policy 19 – Equity-linked transactions on page 245. 4 Refer to the net investment hedges section in annexure E, accounting policy 4 – Financial instruments on page 235. All balances are stated net of applicable tax. 108 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Statement of changes in equity

Foreign currency Preference Ordinary Foreign hedge Available- Share- Ordinary share share Empower- currency of net Cash flow Statutory for-sale based share- capital Non- capital and ment Treasury translation investment hedging credit risk revaluation payment Other Retained holders’ and controlling Total premium reserve1 shares2 reserve3 reserve4 reserve5 reserve6 reserve7 reserve8 reserves earnings equity premium interest equity Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Balance at 1 January 2011 17 522 (2 971) (499) (5 672) 6 673 717 382 745 273 75 897 87 073 5 503 10 622 103 198 Total comprehensive income/(loss) for the year 4 627 (279) 52 (272) 39 13 222 17 389 345 3 068 20 802 Profit for the year 13 226 13 226 345 2 213 15 784 Other comprehensive income/(loss) after tax for the year 4 627 (279) 52 (272) 39 (4) 4 163 855 5 018 Increase in statutory credit risk reserve 243 (243) Transfer of other reserves (1) 1 Transactions with shareholders, recorded directly in equity 213 (108) 301 (13) (8) 295 (6 100) (5 420) (345) (702) (6 467) Equity-settled share-based payment transactions 336 336 30 366 Transfer of vested equity rights (41) 41 Issue of share capital and share premium and capitalisation of reserves 213 (71) 142 142 Deferred tax on share-based payment transactions (83) (83) (83) Transactions with non-controlling shareholders (13) (8) (68) (89) (98) (187) Net decrease in treasury shares 301 8 309 237 546 Net dividends paid (108) (5 927) (6 035) (345) (871) (7 251) Dividends paid to equity holders (132) (5 994) (6 126) (345) (950) (7 421) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 24 67 91 79 170

Balance at 31 December 2011 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533 Balance at 1 January 2012 17 735 (3 079) (198) (1 058) (273) 725 952 110 1 040 311 82 777 99 042 5 503 12 988 117 533 Total comprehensive income/(loss) for the year 1 056 181 (219) 17 (70) 16 213 17 178 352 3 183 20 713 Profit for the year 16 146 16 146 352 2 913 19 411 Other comprehensive income/(loss) after tax for the year 1 056 181 (219) 17 (70) 67 1 032 270 1 302 Increase in statutory credit risk reserve 50 (50) Transfer of other reserves (11) 11 Unincorporated property partnerships capital reductions and distributions (182) (182) Disposal of property partnership (234) (234) Transactions with shareholders, recorded directly in equity 357 (191) (1) 102 2 (6 119) (5 850) (352) (1 455) (7 657) Equity-settled share-based payment transactions 282 282 46 328 Transfer of vested equity rights (181) 181 Issue of share capital and share premium and capitalisation of reserves 357 (232) 125 125 Deferred tax on share-based payment transactions 69 69 69 Transactions with non-controlling shareholders (8) (4) 1 2 (65) (74) (970) (1 044) Net decrease in treasury shares 3 209 212 196 408 Net dividends paid (183) (6 281) (6 464) (352) (727) (7 543) Dividends paid to equity holders (217) (6 339) (6 556) (352) (809) (7 717) Dividends received from Tutuwa initiative and policyholders’ deemed treasury shares 34 58 92 82 174

Balance at 31 December 2012 18 092 (3 270) (199) (2) (92) 506 1 002 127 1 142 232 92 832 110 370 5 503 14 300 130 173 1 The empowerment reserve is explained in note 17 on page 159. 5 Refer to the cash flow hedges section in annexure E, accounting policy 4 – Financial instruments on page 235. 2 The treasury shares reserve relates to the group shares held by entities within the group. 6 The statutory credit risk reserve relates to reserving requirements within African countries. Refer to pages 69 to 71 of the annual integrated report for an explanation on treasury shares held by entities within the group. 7 Refer to the available-for-sale financial assets section in annexure E, accounting policy 4 – Financial instruments on page 232. 3 Refer to annexure E, accounting policy 2 – Foreign currency translations on page 230. 8 Refer to annexure E, accounting policy 19 – Equity-linked transactions on page 245. 4 Refer to the net investment hedges section in annexure E, accounting policy 4 – Financial instruments on page 235. All balances are stated net of applicable tax. 109 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Accounting policy elections

The principal accounting policies applied in the presentation ¢ cumulative gains and losses recognised in OCI in terms of a of the group’s and company’s annual financial statements are cash flow hedge relationship are transferred from OCI and set out as follows. included in the initial measurement of the non-financial asset or liability (accounting policy 4) Basis of preparation ¢ commodities acquired principally for the purpose of selling The consolidated and separate annual financial statements in the near future or generating a profit from fluctuations (annual financial statements) are prepared in accordance with in price or broker-traders’ margin are measured at fair value IFRS as issued by the International Accounting Standards Board less cost to sell (accounting policy 4) (IASB), its interpretations adopted by the IASB, the SAICA ¢ investment property is accounted for using the fair value Financial Reporting Guides as issued by the Accounting Practices model (accounting policy 5) Committee, Listings Requirements of the JSE, and the South ¢ jointly controlled entities are accounted for using the equity African Companies Act. The annual financial statements have method (accounting policy 6) been prepared on the historical cost basis except for the ¢ mutual fund investments held by investment-linked insurance following material items in the statement of financial position: funds, that do not meet the definition of a subsidiary, are ¢ available-for-sale financial assets, financial assets and designated on initial recognition as at fair value through liabilities at fair value through profit or loss, investment profit or loss (accounting policy 6) property, liabilities for cash-settled share-based payment ¢ intangible assets and property and equipment are arrangements, interests in mutual funds, policyholder accounted for using the cost model (accounting policy 7 investment contract liabilities and third-party financial and 8) liabilities arising on the consolidation of mutual funds ¢ unrecognised actuarial gains or losses on post-employment that are measured at fair value benefits are recognised in profit or loss over a period not ¢ policyholder insurance contract liabilities and related exceeding the expected average remaining working life of reinsurance assets that are measured in terms of the active employees (accounting policy 14). Financial Soundness Valuation (FSV) basis as set out in accounting policy 17 – Policyholder insurance and RCM Refer to page 229 for the detailed accounting policies investment contracts AFS ¢ post-employment benefit obligations that are measured in terms of the projected unit credit method. Functional and presentation currency The annual financial statements are presented in South African The following principle accounting policy elections in terms of rand, which is the functional and presentation currency of the IFRS have been made, with reference to the detailed accounting company. All amounts are stated in millions of rand (Rm), unless policies shown in brackets: indicated otherwise. ¢ regular way purchases and sales of financial assets are recognised and derecognised using trade date accounting (accounting policy 4)

110 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Accounting policy elections

Changes in accounting policies The accounting policies are consistent with those adopted in the previous year, except for the following:

Adoption of revised standards effective for the current financial year The following revised IFRSs were adopted prospectively as of 1 January 2012: ¢ IFRS 1 First-time Adoption of International Financial Reporting Standards (revised 2010) ¢ IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets (revised 2010).

Early adoption of revised standards The following revised IFRSs have been early adopted as of 1 January 2012: ¢ IAS 1 Presentation of Financial Statements (2011 Improvements to IFRS) ¢ IAS 16 Property, Plant and Equipment (2011 Improvements to IFRS) ¢ IAS 32 Financial Instruments: Presentation (2011 Improvements to IFRS) ¢ IAS 34 Interim Financial Reporting (2011 Improvements to IFRS) ¢ IFRS 1 First-time Adoption of International Financial Reporting Standards (2011 Improvements to IFRS).

The revised IFRSs did not have any effect on the group’s and company’s reported earnings or financial statement position but have affected the group’s and company’s disclosures with no material impact on the accounting policies.

111 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements for the year ended 31 December 2012 1. Segment reporting Operating segments Personal & Corporate & Central and Normalised Adjustments IFRS Business Banking Investment Banking other1 Banking activities Liberty Standard Bank Group to IFRS2 Standard Bank Group 2012 20113 2012 20113 2012 20113 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Income from banking activities 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 (139) 68 568 58 751 (193) (199) 68 375 58 552 Net interest income 23 834 19 936 9 938 8 742 461 349 34 233 29 027 34 233 29 027 (218) (200) 34 015 28 827 Interest income 44 132 38 382 30 528 24 529 (5 580) (2 802) 69 080 60 109 69 080 60 109 (218) (200) 68 862 59 909 Interest expense 20 298 18 446 20 590 15 787 (6 041) (3 151) 34 847 31 082 34 847 31 082 34 847 31 082 Non-interest revenue 18 446 17 081 17 000 13 737 (972) (1 094) 34 474 29 724 (139) 34 335 29 724 25 1 34 360 29 725 Net fee and commission revenue 16 677 15 629 5 920 5 176 (1 278) (1 023) 21 319 19 782 21 319 19 782 21 319 19 782 Fee and commission revenue 18 990 17 638 6 200 5 468 (458) (149) 24 732 22 957 24 732 22 957 24 732 22 957 Fee and commission expense 2 313 2 009 280 292 820 874 3 413 3 175 3 413 3 175 3 413 3 175 Trading revenue (5) 34 9 121 7 840 (248) 21 8 868 7 895 8 868 7 895 25 1 8 893 7 896 Other revenue 1 774 1 418 1 959 721 554 (92) 4 287 2 047 (139) 4 148 2 047 4 148 2 047 Income from investment management and life insurance activities 76 000 48 806 76 000 48 806 (284) 29 75 716 48 835 Total income 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 75 861 48 806 144 568 107 557 (477) (170) 144 091 107 387 Credit impairment charges 6 658 5 426 2 340 1 021 (198) (11) 8 800 6 436 8 800 6 436 8 800 6 436 Benefits due to policyholders 56 878 33 799 56 878 33 799 56 878 33 799 Income after credit impairment charges and policyholders’ benefits 35 622 31 591 24 598 21 458 (313) (734) 59 907 52 315 18 983 15 007 78 890 67 322 (477) (170) 78 413 67 152 Operating expenses in banking activities 25 620 23 224 17 152 14 000 (2 016) (2 499) 40 756 34 725 40 756 34 725 40 756 34 725 Staff costs 6 900 6 106 5 234 4 522 10 061 8 513 22 195 19 141 22 195 19 141 22 195 19 141 Restructuring costs 758 758 758 758 Other operating expenses 18 720 17 118 11 160 9 478 (12 077) (11 012) 17 803 15 584 17 803 15 584 17 803 15 584 Operating expenses in investment management and life insurance activities 11 952 10 410 11 952 10 410 11 952 10 410 Net income before goodwill impairment, disposal of subsidiaries and equity accounted earnings 10 002 8 367 7 446 7 458 1 703 1 765 19 151 17 590 7 031 4 597 26 182 22 187 (477) (170) 25 705 22 017 Goodwill impairment 39 47 38 14 700 777 61 777 61 777 61 (Losses)/gains on disposal of subsidiaries (86) (86) 274 188 188 Share of profit from associates and joint ventures 562 189 109 60 4 8 675 257 26 27 701 284 701 284 Net income before indirect taxation 10 525 8 509 7 431 7 504 1 007 1 773 18 963 17 786 7 331 4 624 26 294 22 410 (477) (170) 25 817 22 240 Indirect taxation 384 312 356 282 672 491 1 412 1 085 354 299 1 766 1 384 1 766 1 384 Profit before direct taxation 10 141 8 197 7 075 7 222 335 1 282 17 551 16 701 6 977 4 325 24 528 21 026 (477) (170) 24 051 20 856 Direct taxation 2 567 2 433 1 416 1 349 371 530 4 354 4 312 2 717 1 383 7 071 5 695 4 18 7 075 5 713 Profit for the year from continuing operations 7 574 5 764 5 659 5 873 (36) 752 13 197 12 389 4 260 2 942 17 457 15 331 (481) (188) 16 976 15 143 Profit for the year from discontinued operation 2 435 641 2 435 641 2 435 641 2 435 641 Profit for the year 7 574 5 764 5 659 5 873 2 399 1 393 15 632 13 030 4 260 2 942 19 892 15 972 (481) (188) 19 411 15 784 Attributable to non-controlling interests (74) (75) 700 536 229 233 855 694 2 188 1 514 3 043 2 208 (130) 5 2 913 2 213 Attributable to preference shareholders 357 339 357 339 357 339 (5) 6 352 345 Attributable to ordinary shareholders 7 648 5 839 4 959 5 337 1 813 821 14 420 11 997 2 072 1 428 16 492 13 425 (346) (199) 16 146 13 226 Headline earnings 7 476 5 872 4 784 5 521 717 778 12 977 12 171 2 033 1 428 15 010 13 599 (346) (199) 14 664 13 400 Return on equity (ROE) (%) 20.0 19.2 10.4 13.0 13.3 13.8 25.2 20.2 14.2 14.3 14.4 14.6 Net interest margin (%) 4.88 4.50 1.56 1.55 3.09 2.92 3.09 2.92 3.07 2.91 Credit loss ratio (%) 1.39 1.24 0.63 0.31 1.08 0.87 1.08 0.87 1.08 0.87 Cost-to-income ratio (%) 59.8 62.4 63.4 62.1 58.7 58.8 58.7 58.8 59.0 59.0 Total assets 519 143 468 045 763 006 764 861 (9 066) 24 455 1 273 083 1 257 361 275 590 240 069 1 548 673 1 497 430 (4 453) (4 601) 1 544 220 1 492 829 Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041 Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829 Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518 Total liabilities 475 299 434 053 715 683 717 394 (32 975) 1 214 1 158 007 1 152 661 256 114 222 746 1 414 121 1 375 407 (74) (111) 1 414 047 1 375 296 Interest in associates and joint ventures 795 1 191 615 631 1 400 59 2 810 1 881 14 436 12 054 17 246 13 935 17 246 13 935 Depreciation and amortisation 1 190 817 128 101 1 803 1 648 3 121 2 566 479 461 3 600 3 027 3 600 3 027 Impairment loss on non-financial assets 39 258 276 700 20 997 296 44 1 041 296 1 041 296 Number of employees 20 713 20 781 3 141 3 203 18 882 21 920 42 736 45 904 6 281 5 752 49 017 51 656 49 017 51 656

1 Certain functions within the group have been transferred into Central and other pursuant to the new business architecture of the group which mandates the centralisation 3 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures are reclassified accordingly. of group functions. These functions include: legal, human resources, finance, governance and assurance, group IT, group operations, procurement, marketing, real estate and risk management. 2 The group’s IFRS results are normalised to reflect the group’s view of the economics of its Tutuwa and the group’s share exposures entered into to facilitate client trading 112 activities and for the benefit of Liberty policyholders that are deemed to be treasury shares. The normalised results reflect the basis on which management manages the group and is consistent with that reported in the group’s segment report. These adjustments are described in detail on pages 69 to 71 of the annual integrated report. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

1. Segment reporting Operating segments Personal & Corporate & Central and Normalised Adjustments IFRS Business Banking Investment Banking other1 Banking activities Liberty Standard Bank Group to IFRS2 Standard Bank Group 2012 20113 2012 20113 2012 20113 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Income from banking activities 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 (139) 68 568 58 751 (193) (199) 68 375 58 552 Net interest income 23 834 19 936 9 938 8 742 461 349 34 233 29 027 34 233 29 027 (218) (200) 34 015 28 827 Interest income 44 132 38 382 30 528 24 529 (5 580) (2 802) 69 080 60 109 69 080 60 109 (218) (200) 68 862 59 909 Interest expense 20 298 18 446 20 590 15 787 (6 041) (3 151) 34 847 31 082 34 847 31 082 34 847 31 082 Non-interest revenue 18 446 17 081 17 000 13 737 (972) (1 094) 34 474 29 724 (139) 34 335 29 724 25 1 34 360 29 725 Net fee and commission revenue 16 677 15 629 5 920 5 176 (1 278) (1 023) 21 319 19 782 21 319 19 782 21 319 19 782 Fee and commission revenue 18 990 17 638 6 200 5 468 (458) (149) 24 732 22 957 24 732 22 957 24 732 22 957 Fee and commission expense 2 313 2 009 280 292 820 874 3 413 3 175 3 413 3 175 3 413 3 175 Trading revenue (5) 34 9 121 7 840 (248) 21 8 868 7 895 8 868 7 895 25 1 8 893 7 896 Other revenue 1 774 1 418 1 959 721 554 (92) 4 287 2 047 (139) 4 148 2 047 4 148 2 047 Income from investment management and life insurance activities 76 000 48 806 76 000 48 806 (284) 29 75 716 48 835 Total income 42 280 37 017 26 938 22 479 (511) (745) 68 707 58 751 75 861 48 806 144 568 107 557 (477) (170) 144 091 107 387 Credit impairment charges 6 658 5 426 2 340 1 021 (198) (11) 8 800 6 436 8 800 6 436 8 800 6 436 Benefits due to policyholders 56 878 33 799 56 878 33 799 56 878 33 799 Income after credit impairment charges and policyholders’ benefits 35 622 31 591 24 598 21 458 (313) (734) 59 907 52 315 18 983 15 007 78 890 67 322 (477) (170) 78 413 67 152 Operating expenses in banking activities 25 620 23 224 17 152 14 000 (2 016) (2 499) 40 756 34 725 40 756 34 725 40 756 34 725 Staff costs 6 900 6 106 5 234 4 522 10 061 8 513 22 195 19 141 22 195 19 141 22 195 19 141 Restructuring costs 758 758 758 758 Other operating expenses 18 720 17 118 11 160 9 478 (12 077) (11 012) 17 803 15 584 17 803 15 584 17 803 15 584 Operating expenses in investment management and life insurance activities 11 952 10 410 11 952 10 410 11 952 10 410 Net income before goodwill impairment, disposal of subsidiaries and equity accounted earnings 10 002 8 367 7 446 7 458 1 703 1 765 19 151 17 590 7 031 4 597 26 182 22 187 (477) (170) 25 705 22 017 Goodwill impairment 39 47 38 14 700 777 61 777 61 777 61 (Losses)/gains on disposal of subsidiaries (86) (86) 274 188 188 Share of profit from associates and joint ventures 562 189 109 60 4 8 675 257 26 27 701 284 701 284 Net income before indirect taxation 10 525 8 509 7 431 7 504 1 007 1 773 18 963 17 786 7 331 4 624 26 294 22 410 (477) (170) 25 817 22 240 Indirect taxation 384 312 356 282 672 491 1 412 1 085 354 299 1 766 1 384 1 766 1 384 Profit before direct taxation 10 141 8 197 7 075 7 222 335 1 282 17 551 16 701 6 977 4 325 24 528 21 026 (477) (170) 24 051 20 856 Direct taxation 2 567 2 433 1 416 1 349 371 530 4 354 4 312 2 717 1 383 7 071 5 695 4 18 7 075 5 713 Profit for the year from continuing operations 7 574 5 764 5 659 5 873 (36) 752 13 197 12 389 4 260 2 942 17 457 15 331 (481) (188) 16 976 15 143 Profit for the year from discontinued operation 2 435 641 2 435 641 2 435 641 2 435 641 Profit for the year 7 574 5 764 5 659 5 873 2 399 1 393 15 632 13 030 4 260 2 942 19 892 15 972 (481) (188) 19 411 15 784 Attributable to non-controlling interests (74) (75) 700 536 229 233 855 694 2 188 1 514 3 043 2 208 (130) 5 2 913 2 213 Attributable to preference shareholders 357 339 357 339 357 339 (5) 6 352 345 Attributable to ordinary shareholders 7 648 5 839 4 959 5 337 1 813 821 14 420 11 997 2 072 1 428 16 492 13 425 (346) (199) 16 146 13 226 Headline earnings 7 476 5 872 4 784 5 521 717 778 12 977 12 171 2 033 1 428 15 010 13 599 (346) (199) 14 664 13 400 Return on equity (ROE) (%) 20.0 19.2 10.4 13.0 13.3 13.8 25.2 20.2 14.2 14.3 14.4 14.6 Net interest margin (%) 4.88 4.50 1.56 1.55 3.09 2.92 3.09 2.92 3.07 2.91 Credit loss ratio (%) 1.39 1.24 0.63 0.31 1.08 0.87 1.08 0.87 1.08 0.87 Cost-to-income ratio (%) 59.8 62.4 63.4 62.1 58.7 58.8 58.7 58.8 59.0 59.0 Total assets 519 143 468 045 763 006 764 861 (9 066) 24 455 1 273 083 1 257 361 275 590 240 069 1 548 673 1 497 430 (4 453) (4 601) 1 544 220 1 492 829 Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041 Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829 Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518 Total liabilities 475 299 434 053 715 683 717 394 (32 975) 1 214 1 158 007 1 152 661 256 114 222 746 1 414 121 1 375 407 (74) (111) 1 414 047 1 375 296 Interest in associates and joint ventures 795 1 191 615 631 1 400 59 2 810 1 881 14 436 12 054 17 246 13 935 17 246 13 935 Depreciation and amortisation 1 190 817 128 101 1 803 1 648 3 121 2 566 479 461 3 600 3 027 3 600 3 027 Impairment loss on non-financial assets 39 258 276 700 20 997 296 44 1 041 296 1 041 296 Number of employees 20 713 20 781 3 141 3 203 18 882 21 920 42 736 45 904 6 281 5 752 49 017 51 656 49 017 51 656

1 Certain functions within the group have been transferred into Central and other pursuant to the new business architecture of the group which mandates the centralisation 3 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures are reclassified accordingly. of group functions. These functions include: legal, human resources, finance, governance and assurance, group IT, group operations, procurement, marketing, real estate and risk management. 2 The group’s IFRS results are normalised to reflect the group’s view of the economics of its Tutuwa and the group’s share exposures entered into to facilitate client trading activities and for the benefit of Liberty policyholders that are deemed to be treasury shares. The normalised results reflect the basis on which management manages the 113 group and is consistent with that reported in the group’s segment report. These adjustments are described in detail on pages 69 to 71 of the annual integrated report. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

1. Segment reporting continued The group is organised on the basis of products and services and the segments have been identified on this basis. The principal business units in the group are as follows: Business unit

Personal & Business Banking Banking and other financial services to individual customers and small- to medium-sized enterprises in South Africa, rest of Africa and Channel Islands. Mortgage lending – provides residential accommodation loans to mainly personal market customers. Instalment sale and finance leases – provides finance of vehicles for personal market customers and finance of vehicles and equipment in the business market. Credit cards – provides credit card facilities to individuals and businesses (credit card issuing) and merchant transaction acquiring services (card acquiring). Transactional and lending products – transactions in products associated with the various point of contact channels such as ATMs, internet, telephone banking, access points and branches. This includes deposit taking activities, electronic banking, cheque accounts and other lending products, coupled with debit card facilities to both personal and business market customers. Bancassurance and wealth – provides short-term and long-term insurance products, financial planning and wealth services. Short-term and long-term insurance products comprise simple embedded products and complex insurance products. Simple embedded products include homeowners’ insurance, funeral cover, household contents and vehicle insurance and loan protection plans sold in conjunction with related banking products. Complex insurance products include life, disability and investment policies sold by qualified intermediaries.

Corporate & Investment Banking Corporate and investment banking services to governments, parastatals, larger corporates, financial institutions and international counterparties. Global markets – includes fixed income and currency (FIC), commodity and equity trading. Transactional products and services – includes transactional banking, trade finance and investor services. Investment banking – includes advisory, debt products, structured finance, structured trade and commodity finance, debt capital markets and equity capital markets. Real estate – includes real estate finance and investment in real estate.

Central and other Includes the impact of the Tutuwa initiative, group hedging activities, group capital instruments and group surplus capital, strategic acquisition costs and Argentinean discontinued operation. Includes the result of centralised support functions (back office), for the South African region, including those functions that were previously embedded in the business segments. The direct costs of support functions are recharged to the business segments.

Liberty Investment management and life insurance activities of companies in the Liberty Holdings group. Liberty includes long-term investments, long-term risk (life and disability), pension fund management, asset management, endowment and retirement annuities, corporate benefits, healthcare and health insurance. Stanlib includes investment-related advice and solutions.

114 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

1. Segment reporting continued Geographic information IFRS Central Standard Adjust- Standard South Rest of Outside and Bank ments Bank Africa Africa Africa other Group to IFRS Group Rm Rm Rm Rm Rm Rm Rm 2012 Total income1 124 097 15 539 6 958 (2 026) 144 568 (477) 144 091 Banking activities 48 236 15 539 6 958 (2 026) 68 707 (193) 68 514 Liberty 75 861 75 861 (284) 75 577 Total headline earnings 15 116 1 802 (2 555) 647 15 010 (346) 14 664 Banking activities 13 083 1 802 (2 555) 647 12 977 (196) 12 781 Liberty 2 033 2 033 (150) 1 883 Total assets 1 252 162 173 126 228 826 (105 441) 1 548 673 (4 453) 1 544 220 Banking activities 976 572 173 126 228 826 (105 441) 1 273 083 (2 601) 1 270 482 Liberty 275 590 275 590 (1 852) 273 738 Non-current assets2 45 742 8 129 764 (82) 54 553 54 553 Banking activities 18 520 8 129 764 (82) 27 331 27 331 Liberty 27 222 27 222 27 222

2011 Total income1 90 197 11 256 5 524 580 107 557 (170) 107 387 Banking activities 41 391 11 256 5 524 580 58 751 (199) 58 552 Liberty 48 806 48 806 29 48 835 Total headline earnings 12 486 1 075 (147) 185 13 599 (199) 13 400 Banking activities 11 058 1 075 (147) 185 12 171 (206) 11 965 Liberty 1 428 1 428 7 1 435 Total assets 1 162 061 139 287 273 770 (77 688) 1 497 430 (4 601) 1 492 829 Banking activities 921 992 139 287 273 770 (77 688) 1 257 361 (2 408) 1 254 953 Liberty 240 069 240 069 (2 193) 237 876 Non-current assets2 42 932 7 001 1 293 (82) 51 144 51 144 Banking activities 15 662 7 001 1 293 (82) 23 874 23 874 Liberty 27 270 27 270 27 270

1 Total income from continuing operations. Total income is attributed based on where the operations are located. 2 Non-current assets are assets that are expected to be recovered more than twelve months after the reporting period.

115 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2. Key management assumptions In preparing the financial statements, estimates and assumptions are made that could materially affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on factors such as historical experience and current best estimates of uncertain future events that are believed to be reasonable under the circumstances. No material changes to assumptions have occurred during the year.

2.1 Credit impairment losses on loans and advances Portfolio loan impairments The group assesses its loan portfolios for impairment at each reporting date. In determining whether an impairment loss should be recorded in profit or loss, the group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be allocated to an individual loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the identification of a loss on an individual basis. The impairment for performing and non-performing but not specifically impaired loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These include early arrears and other indicators of potential default, such as changes in macroeconomic conditions and legislation affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. At yearend, the group applied the following loss emergence periods:

Average loss emergence period Sensitivity1 2012 2011 2012 2011 Months Months Rm Rm Personal & Business Banking 3 3 264 460 Mortgage loans 3 3 58 213 Instalment sale and finance leases 3 3 61 51 Card debtors 3 3 32 65 Other lending 3 3 113 131 Corporate & Investment Banking 7 – 12 6 – 12 106 108 South Africa 12 6 – 12 61 53 Rest of Africa 12 12 32 23 Outside Africa 7 6 13 32

370 568

1 Sensitivity is based on the effect of a one month increase in the emergence period on the value of the impairment.

116 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2. Key management assumptions continued 2.1 Credit impairment losses on loans and advances continued Specific loan impairments Non-performing loans include those loans for which the group has identified objective evidence of default, such as a breach of a material loan covenant or condition as well as those loans for which instalments are due and unpaid for 90 days or more. Management’s estimates of future cash flows on individually impaired loans are based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Recoveries of individual loans as a percentage of the outstanding balances are estimated as follows:

Expected recoveries Expected time as a percentage of Impairment loss to recovery1 impaired loans sensitivity2 2012 2011 2012 2011 2012 2011 Months Months % % Rm Rm Personal & Business Banking 6 – 15 6 – 15 62 70 139 175 Mortgage lending 15 10 74 80 116 155 Instalment sale and finance leases 6 6 51 43 8 7 Card debtors 15 15 35 27 3 3 Other lending 14 14 27 34 12 10 Corporate & Investment Banking 6 – 24 6 – 34 51 69 41 50 South Africa 6 6 73 74 33 9 Rest of Africa 24 24 40 59 5 3 Outside Africa 8 34 12 69 3 38

59 70 180 225

1 The expected time to recovery has been adjusted in 2012 due to changes in market conditions. 2 Sensitivity is based on the effect of a one percentage point increase in the value of the estimated recovery on the value of the specific impairment.

2.2 Fair value of financial instruments The fair value of financial instruments, such as unlisted equity investments and equity derivatives, that are not quoted in active markets is determined using valuation techniques. Wherever possible, models use only observable market data. Where required, these models incorporate assumptions that are not supported by prices from observable current market transactions in the same instrument and are not based on available observable market data. Such assumptions include risk premiums, liquidity discount rates, credit risk, volatilities and correlations. Changes in these assumptions could affect the reported fair values of financial instruments.

The total amount of the change in fair value estimated using a valuation technique not based on observable market data that was recognised in profit or loss for the year ended 31 December 2012 was a net loss of R356 million (2011: R611 million net gain).

Additional disclosures on fair value measurements of financial instruments are set out in note 25.

2.3 Impairment of available-for-sale equity investments The group determines that available-for-sale equity investments are impaired and recognised as such in profit or loss when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgement. In making this judgement, the group evaluates, among other factors, the normal volatility in the fair value. In addition, impairment may be appropriate when there is evidence of a deterioration in the financial health of the investee, industry or sector, or operational and financing cash flows or significant changes in technology.

Had the declines of financial instruments with fair values below cost been considered significant or prolonged, the group would have suffered an additional loss attributable to ordinary shareholders of R70 million (2011: R277 million) in its financial statements, being the transfer of the negative revaluations within the available-for-sale reserve to profit or loss. 117 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2. Key management assumptions continued 2.4 Securitisations and special purpose entities (SPEs) The group sponsors the formation of SPEs primarily for the purpose of allowing clients to hold investments, for asset securitisation transactions, asset financing and for buying or selling credit protection. As it can sometimes be difficult to determine whether the group should consolidate an SPE, it makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question. In arriving at judgements, these factors are considered both jointly and separately. The basis of determining which SPEs are consolidated will change in future financial reporting periods in terms of the requirements of IFRS 10 – Consolidated financial statements. Refer to annexure E – accounting policies.

The group has consolidated SPEs with assets of R16 289 million (2011: R18 528 million). The consolidated SPEs made net profits of R47 million (2011: R14 million).

RCM Further details regarding these SPEs can be found in annexure B on pages 214 to 217 AFS

2.5 Held-to-maturity investments The group follows the guidance of IAS 39 Financial instruments: Recognition and Measurement (IAS 39) on classifying certain non-derivative financial assets with fixed or determinable payments and fixed maturity, as held-to-maturity. This classification requires judgement of the group’s ability to hold such investments to maturity. If the group fails to keep these investments to maturity, other than in specific defined circumstances, it will be required to classify the entire category as available-for-sale. The investments would be measured at fair value and not amortised cost. If the entire class of held-to-maturity investments were tainted in this way and reclassified as available-for-sale, the carrying amount would increase by R1 523 million (2011: R2 812 million) to fair value, with a corresponding entry in OCI.

2.6 Computer software intangible assets Direct computer software development costs that are clearly associated with an identifiable and unique system, which will be controlled by the group and have a probable future economic benefit beyond one year, are capitalised and disclosed as computer software intangible assets.

Computer software intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. The assets are reviewed for impairment at each reporting date and tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The determination of the recoverable amount of each asset requires judgement. The recoverable amount is based on the value in use and calculated by estimating future cash benefits that will result from each asset and discounting these cash benefits at an appropriate pre-tax discount rate. The carrying value of computer software intangible assets capitalised at 31 December 2012 amounted to R10 777 million (2011: R7 940 million).

2.7 Income taxes The group is subject to direct taxation in a number of jurisdictions. There may be transactions and calculations for which the ultimate tax determination has an element of uncertainty during the ordinary course of business. The group recognises liabilities based on objective estimates of the quantum of taxes that may be due. Where the final tax determination is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions, disclosed in note 30 and note 20 respectively, in the period in which such determination is made.

2.8 Financial risk management RCM The group’s risk management policies and procedures are disclosed in the risk and capital management report AFS starting on page 1

RCM All IFRS 7 information included in the financial risk management section as set out on page 10 forms part of the AFS audited annual financial statements as indicated in the risk report

118 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2. Key management assumptions continued 2.9 Valuation of investment property The valuation of investment properties within the insurance operations located in South Africa has been carried out by Ian Mitchell Investment Property Consultants CC (Chartered Valuation Surveyor – Professional Valuer) and Asset Valuation Services CC (Professional Associate Valuer) as at 31 December 2012. The Kenyan located properties were independently valued as at 31 December 2012 by various registered professional valuers in Kenya.

The valuation of the South African properties is prepared in accordance with the guidelines of the South African Institute of Valuers for valuation reports and in accordance with the appraisal and valuation manual of the Royal Institution of Chartered Surveyors, adapted for South African law and conditions. The valuation assumes that there will be no change in the social, economic or political circumstances between the date of the valuation and the financial year end of the company.

The basis of value is market value which is defined as an opinion of the best price at which the sale of an interest in property, taking into account existing tenant lease terms, would have been completed unconditionally for a cash consideration on the date of valuation assuming:

¢ a willing seller ¢ that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as at the date of valuation ¢ that no account is taken of any additional bid by a prospective purchaser with a special interest ¢ that both parties to the transaction had acted knowledgeably, prudently and without compulsion.

The properties have been valued on a discounted cash flow basis. In the majority of cases, discounted cash flows have been used and summed together with the capitalised and discounted value of the projected income to give a present value as at 31 December 2012. In order to determine the reversionary rental income on lease expiry, renewal or review, a market gross rental income (basic rental plus operating cost rental) has been applied to give a market-related rental value for each property as at 31 December 2012. Market rental growth has been determined based on the individual property, property market trends and economic forecasts. Vacancies have been considered based on historic and current vacancy factors as well as the nature, location, size and popularity of each building.

Appropriate discount rates have been applied to cash flows for each property to reflect the relative investment risk associated with the particular building, tenant, covenant and the projected income flow. Extensive market research has been conducted to ascertain the most appropriate market-related discount rate to apply, with regard to the current South African long-term bond yield (R204 risk-free rate) and the relative attractiveness that an investor may place on property as an asset class.

Primary discount rates used to value the South African properties range from 7.0% to 12.0% (2011: 7.25% to 11.75%) on a property by property basis. Exit capitalisation rates generally range from 7.0% to 12.0% (2011: 7.25% to 11.75%).

On the basis that turnover or profit rental income has a greater degree of uncertainty and risk than the contractual base rental, a risk premium of between 1% and 6% has been added to the discount rate and to the exit capitalisation rate, to reflect the greater investment risk associated with the variable rental element on a property by property basis.

A 1% absolute change to the capitalisation rate assumption would increase the total fair value by R3,7 billion (2011: R3,6 billion) if the assumption decreased, and decrease the total fair value by R2,8 billion (2011: R2,7 billion) if the assumption increased.

2.10 Long-term insurance contracts Policyholder liabilities under insurance contracts and reinsurance assets are derived from actual claims submitted which are not settled at the reporting date, and estimates of the net present value of future claims and benefits under existing contracts, offset by probable future premiums to be received or paid (net of expected service costs). The key assumptions applied and analysis of their sensitivity have been detailed in the insurance risk and sensitivity analysis components of the risk and capital management report.

119 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2. Key management assumptions continued 2.10 Long-term insurance contracts continued Process used to decide on assumptions and changes in assumptions.

Mortality An appropriate base table of standard mortality is chosen depending on the type of contract and class of business. Industry standard tables are used for smaller classes of business. Company specific tables, based on graduated industry standard tables modified to reflect the company specific experience, are used for larger classes.

Investigations into mortality experience are performed every half year for the large classes of business and annually for all other classes of business. The period of investigation extends over at least the latest three full years.

The results of the investigation are used to set the valuation assumptions, which are applied as an adjustment to the respective base table.

In setting the assumptions, provision is made for the expected increase in AIDS-related claims. Allowance for AIDS-related deaths is made in the base mortality rates at rates consistent with the requirements of APN 105 issued by the Actuarial Society of South Africa (ASSA). The rates are defined using the appropriate ASSA models calibrated to reflect Liberty’s assurance lives.

For contracts insuring survivorship, an allowance is made for future mortality improvements based on trends identified in the data and in the continuous mortality investigations performed by independent actuarial bodies.

Morbidity The incidence of disability claims is derived from the risk premium rates determined from annual investigations. The incidence rates are reviewed on an annual basis, based on medical claims experience. The adjusted rates are intended to reflect future expected experience.

Withdrawal The withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well as expected future trends. The withdrawal investigations are performed every half year for the large lines of business and annually for the smaller classes and incorporate two years’ experience. The withdrawal rates are analysed by product type and policy duration. These withdrawal rates vary considerably by duration, policy term and product type. Typically the assumptions are higher for risk type products than for investment type products, and are higher at early durations.

Investment return Future investment returns are set for the main asset classes as follows:

¢ Gilt rate – Effective 10-year yield curve rate at the balance sheet date, 6.89% (2011: 8.15%). ¢ Equity rate – Gilt rate plus 3.5 percentage points as an adjustment for risk, 10.39% (2011: 11.65%). ¢ Property rate – Gilt rate plus 1 percentage point as an adjustment for risk, 7.89% (2011: 9.15%). ¢ Cash – Gilt rate less 1.5 percentage points, 5.39% (2011: 6.65%).

The overall investment return for a block of business is based on the investment return assumptions allowing for the current mix of assets supporting the liabilities.

The pre-taxation discount rate is set at the same rate. The rate averaged across the blocks of business (excluding annuity and guaranteed capital bond business) is 9.2% per annum in 2012 (2011: 10.4% per annum). Where appropriate the investment return assumption will be adjusted to make allowance for investment expenses, taxation and the relevant prescribed margins in accordance with SAP 104 issued by the Actuarial Society of South Africa.

For life annuity and guaranteed endowments, discount rates are set at risk-free rates consistent with the duration and type of the liabilities allowing for an average illiquidity premium on the backing assets and reduced by an allowance for investment expenses and the relevant prescribed margin.

120 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2. Key management assumptions continued 2.10 Long-term insurance contracts continued Expenses An expense analysis is performed on the actual expenses incurred in the calendar year preceding the statement of financial position date. This analysis is used to calculate the acquisition costs incurred and to set the maintenance expense assumption which is based on the budget approved by the board.

Expense inflation The inflation rate is set at 60% of the risk-free rate (gilt rate) when the risk-free rate is below 6.5%. The inflation rate is set at the risk-free rate less 3% when the risk-free rate is above 8.5%. At risk-free rates between 6.5% and 8.5% the inflation rate is interpolated to ensure a smooth transition between the two methodologies. This results in a best estimate inflation assumption of 4.15% at 31 December 2012 (2011 assumption: 5.15%). The expense inflation assumption is set taking into consideration the expected future development of the number of in-force policies, as well as the expected future profile of maintenance expenses.

Taxation Future taxation and taxation relief are allowed for at the rates and on the bases applicable to section 29A of the South African Income Tax Act 68 of 1962 (Income Tax Act) at the statement of financial position date. Each company’s current tax position is taken into account. Taxation rates consistent with that position, and the likely future changes in that position, are allowed for. In respect of capital gains taxation (CGT), taxation is allowed for at the full CGT rate. Deferred taxation liabilities include a provision for CGT on unrealised gains/(losses) at the valuation date, at the full undiscounted value. Allowance is also made for dividend withholding tax at the applicable rate.

Correlations No correlations between assumptions are allowed for.

Contribution increases In the valuation of the liabilities, voluntary premium increases that give rise to expected profits are not allowed for. However, compulsory increases, and increases that give rise to expected losses are allowed for. This is consistent with the requirements of SAP 104.

Embedded investment derivative assumptions The assumptions used to value embedded derivatives in respect of policyholder contracts are set in accordance with APN 110. Account is taken of the yield curve at the valuation date. Both implied market volatility and historical volatility are taken into account when setting volatility assumptions. The 30-year annualised implied-at-the-money volatility assumption, estimated using the economic scenario generator output for the FTSE/JSE Top 40 index, is 30.22% (2011: 28.11%). Correlations between asset classes are set based on historical data. Twenty thousand simulations are performed in calculating the liability.

121 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2. Key management assumptions continued 2.10 Long-term insurance contracts continued Using the simulated investment returns, but based on 2 000 simulations, the prices and implied volatilities of the following instruments are:

2012 2011 Price Volatility Price Volatility Instrument % % % % A 1-year at-the-money (spot) put on the FTSE/JSE Top 40 index 9.41 27.08 8.44 25.31 A 1-year put on the FTSE/JSE Top 40 index, with a strike price equal to 80% of spot 2.23 26.65 1.82 25.19 A 1-year at-the-money (forward) put on the FTSE/JSE Top 40 index 10.47 27.10 9.77 25.26 A 5-year at-the-money (spot) put on the FTSE/JSE Top 40 index 12.25 24.68 10.63 24.91 A 5-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,045# of spot 21.99 25.19 19.11 25.07 A 5-year (forward) put on the FTSE/JSE Top 40 index 19.10 25.03 19.09 25.07 A 5-year put with a strike price equal to 1,045# of spot on an underlying index constructed as 60% FTSE/JSE Top 40 and 40% Asian Local Bond Index (ALBI), with rebalancing of the underlying index back to these weights taking place annually 11.94 N/A 9.37 N/A A 20-year at-the-money (spot) put on the FTSE/JSE Top 40 index 4.76 25.84 3.65 24.63 A 20-year put on the FTSE/JSE Top 40 index, with a strike price equal to 1,0420# of spot 21.46 26.96 17.51 25.11 A 20-year at-the-money (forward) put on the FTSE/JSE Top 40 index 26.31 27.20 23.84 25.19 A 20-year put option based on an interest rate with a strike price equal to the present 5-year forward rate as at maturity of the put option, which pays out if the 5-year interest rate at the time of maturity (in 20 years) is lower than the strike price 0.54 N/A 0.46 N/A

# Exponent.

The Top 40 index above is a capital index whereas the All Bond Index (ALBI) is a total return index.

Spot refers to the value of the index at market close at the relevant date.

At-the-money (spot) means that the strike price of the option is equal to the current market value of the underlying.

At-the-money (forward) means that the strike price of the option is equal to the market’s expectation of the capital index at the maturity date of the option.

122 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2. Key management assumptions continued 2.10 Long-term insurance contracts continued The zero coupon yield curve used in the projection is as follows (rates calculated on the nominal annualised compounded continuously method).

Model output yield curve 2012 2011 Maturity % % 1 year 4.94 5.54 2 years 5.01 5.79 3 years 5.26 6.16 4 years 5.53 6.51 5 years 5.79 6.82 10 years 6.87 7.72 15 years 7.31 7.76 20 years 7.29 7.73 25 years 7.28 7.74 30 years 7.12 7.63 35 years 7.18 7.61 40 years 7.25 7.58 45 years 7.28 7.58 50 years 7.27 7.55

Process used to decide on assumptions and changes in assumptions for non-South African life companies Assumptions used in the valuation of policyholder liabilities are set by references to local guidance and where applicable to the Actuarial Society of South Africa guidance. Economic assumptions are set by reference to local economic conditions at the valuation date. Margins are allowed for as prescribed by local guidance and regulations.

Long-term policyholder liabilities held within non-South African life companies total R1 828 million or 0.8% of total group long-term policyholder liabilities (R1 365 million or 0.7% for 2011). Given the relatively low proportion, as well as low risk insurance exposures for the group, detailed descriptions of the various bases used are not considered necessary.

Changes in assumptions Modeling and other assumption changes were made to realign valuation assumptions with expected future experience. These changes resulted in a net decrease in long-term policyholder liabilities of R529 million in 2012 compared to a decrease of R502 million in 2011.

The primary items were: ¢ a change in the assumptions to allow for expected future withdrawals, resulting in an increase in the liability of R183 million (2011: decrease of R624 million) ¢ a change in future mortality and morbidity assumptions to reflect expected future experience, amounting to a decrease in the liability of R223 million (2011: increase of R104 million) ¢ a change in the economic valuation assumptions to realign these with expected future experience, resulting in a decrease in the liability of R330 million (2011: decrease of R32 million) ¢ weakening of the annuitant longevity assumptions resulted in a decrease in the liability of R90 million (2011: increase of R435 million) ¢ a change in the expense valuation assumptions resulted in a decrease in the liability of R5 million (2011: increase of R154 million) ¢ a change in the tax relief on expenses assumptions resulted in a decrease in the liability of R156 million (2011: Rnil). ¢ a change in the modeling and assumptions for policies being made resulted in an increase in liabilities of R164 million (2011: decrease of R108 million) ¢ the balance of other changes resulted in a decrease in liabilities of R72 million (2011: decrease of R241 million) ¢ in 2011, there was a change in the modeling for policies being made paid-up resulting in a decrease in the liabilities of R108 million. No further changes were required for 2012 ¢ in 2011, there was a change in the life annuities and guaranteed endowments illiquidity premium methodology resulting in a decrease in the liability of R190 million. No further changes were required for 2012. 123 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2. Key management assumptions continued 2.11 Other The nature of the assumptions or other estimation uncertainty for pensions and other post-employment benefits and for group share incentive schemes are disclosed in note 37 and annexure D, respectively.

2012 2011 Rm Rm 3. Cash and balances with central banks Coins and bank notes 14 592 11 470 Balances with central banks 47 393 20 437 61 985 31 907

Cash and balances with central banks include R22 233 million (2011: R17 365 million) that is not available for use by the group. These balances primarily comprise of reserving requirements held with central banks. 4. Derivative instruments All derivatives are classified as either derivatives held-for-trading or derivatives held-for-hedging.

4.1 Use and measurement of derivative instruments In the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange, interest rate, credit, commodity and equity exposures. Derivative instruments used by the group in both trading and hedging activities include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, interest rates, credit risk and the prices of commodities and equities.

The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks are also measured across the product range in order to take into account possible correlations.

The fair value of all derivatives is recognised on the statement of financial position and is only netted to the extent that there is both a legal right of set-off and an intention to settle on a net basis.

Swaps are transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period.

The major types of swap transactions undertaken by the group are as follows:

¢ interest rate swap contracts which generally entail the contractual exchange of fixed and floating rate interest payments in a single currency, based on a notional amount and an interest reference rate ¢ credit default swaps which are the most common form of credit derivative, under which the party buying protection makes one or more payments to the party selling protection during the life of the swap in exchange for an undertaking by the seller to make a payment to the buyer following a credit event, as defined in the contract, with respect to a third-party reference asset ¢ total return swaps which are contracts in which one party (the total return payer) transfers the economic risks and rewards associated with an underlying asset to another counterparty (the total return receiver). The transfer of risk and reward is affected by way of an exchange of cash flows that mirror changes in the value of the underlying asset and any income derived therefrom.

Options are contractual agreements under which the seller grants the purchaser the right, but not the obligation, either to buy (call option) or to sell (put option) by or at a set date, a specified amount of a financial instrument or commodity at a predetermined price. The seller receives a premium from the purchaser for this right. Options may be traded OTC or on a regulated exchange.

Forwards and futures are contractual obligations to buy or sell financial instruments or commodities on a future date at a specified price. Forward contracts are tailor-made agreements that are transacted between counterparties in the OTC market, whereas futures are standardised contracts transacted on regulated exchanges. 124 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

4. Derivative instruments continued 4.2 Derivatives held-for-trading The group transacts derivative contracts to address client demand both as a market maker in the wholesale markets and in structuring tailored derivatives for clients. The group also takes proprietary positions for its own account. Trading derivative products include the following derivative instruments:

4.2.1 Foreign exchange derivatives Foreign exchange derivatives are primarily used to hedge foreign currency risks on behalf of clients and for the group’s own positions. Foreign exchange derivatives primarily consist of foreign exchange forwards, foreign exchange futures, foreign exchange swaps and foreign exchange options.

4.2.2 Interest rate derivatives Interest rate derivatives are primarily used to modify the volatility and interest rate characteristics of interest-earning assets and interest-bearing liabilities on behalf of clients and for the group’s own positions. Interest rate derivatives primarily consist of bond options, caps and floors, forwards, options, swaps and swaptions.

4.2.3 Commodity derivatives Commodity derivatives are used to address client commodity demands and to take proprietary positions for the group’s own position. Commodity derivatives primarily consist of commodity forwards, commodity futures and commodity options.

4.2.4 Credit derivatives Credit derivatives are used to hedge the credit risk from one counterparty to another and manage the credit exposure to selected counterparties on behalf of clients and for the group’s own positions. Credit derivatives primarily consist of credit default swaps, credit linked notes and total return swaps.

4.2.5 Equity derivatives Equity derivatives are used to address client equity demands and to take proprietary positions for the group’s own position. Equity derivatives primarily consist of forwards, futures, index options, options, swaps and other equity-related derivative instruments.

4.3 Derivatives held-for-hedging The group enters into derivative transactions, which are designated and qualify as either fair value, cash flow, or net investment hedges for recognised assets or liabilities or highly probable forecast transactions. Derivatives designated as hedging instruments consist of:

4.3.1 Derivatives designated as fair value hedges The group’s fair value hedges principally consist of currency swaps and interest rate swaps that are used to mitigate the risk of changes in market interest rates and currencies. The group also uses interest rate swaps for the portfolio hedge of interest rate risk.

4.3.2 Derivatives designated as cash flow hedges The group uses currency swaps, exchange traded currency options, forwards and interest rate swaps to mitigate against changes in cash flows of certain variable rate debt. The group applies hedge accounting for its non-trading interest rate risk in major currencies by analysing expected cash flows on a group basis. The objective is to mitigate against changes in future interest cash flows resulting from the impact of changes in market interest rates and reinvestment or reborrowing of current balances.

The group uses currency forwards to mitigate against the changes in cash flows arising from changes in foreign currency rates on the forecasted placement of funds between group entities. The group applies hedge accounting where the forecasted intragroup placement of funds is both denominated in a currency other than the functional currency of the entity providing the funds and where the placement of funds will affect consolidated profit or loss in the future.

4.3.3 Derivatives designated as hedges of net investments in foreign operations The objective of the hedges of net investments is to limit the risk of a decline in the net asset value of the group’s investments in foreign operations brought about by changes in exchange rates. To limit this risk, the group enters into currency option contracts and forward exchange contracts where considered appropriate. 125 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

4. Derivative instruments continued 4.4 Day one profit or loss Where the fair value of an instrument differs from the transaction price, and the fair value of the instrument is evidenced by comparison with other observable current market transactions in the same instrument, or based on a valuation model whose variables include only data from observable markets, the difference, commonly referred to as day one profit or loss, is recognised in profit or loss immediately. If the fair value of the financial instrument is not able to be evidenced by comparison with other observable current market transactions in the same instrument or non-observable market data is used as part of the input to the valuation models, any resulting difference between the transaction price and the valuation model is deferred and subsequently recognised in accordance with the group’s accounting policies (refer to accounting policy 4 – Financial Instruments).

4.5 Fair values The fair value of a derivative financial instrument represents, for a quoted instrument, the quoted market price and, for an unquoted instrument the present value of the positive and/or negative cash flows which would have occurred if the rights and obligations arising from that instrument were closed out in an orderly marketplace transaction at yearend.

4.6 Notional amount The gross notional amount is the sum of the absolute value of all bought and sold contracts. The notional amounts have been translated at the closing exchange rate at the reporting date where cash flows are receivable in foreign currency. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group’s participation in derivative contracts.

126 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

4. Derivative instruments continued 4.7 Derivative assets and liabilities Maturity analysis of net fair value After 1 year Fair Fair Within but within After Net fair value of value of Notional 1 year 5 years 5 years value assets liabilities amount Rm Rm Rm Rm Rm Rm Rm 2012 Derivatives held-for-trading Foreign exchange derivatives (1 301) (387) 240 (1 448) 18 859 (20 307) 5 414 170 Forwards (493) (333) 206 (620) 14 038 (14 658) 5 317 141 Futures 2 22 24 45 (21) 46 465 Swaps (8) (121) 32 (97) (97) 2 281 Options (802) 45 2 (755) 4 776 (5 531) 48 283 Interest rate derivatives (334) 230 931 827 81 869 (81 042) 7 506 413 Bond options (348) (82) (430) 2 150 (2 580) 115 174 Caps and floors (22) 4 17 (1) 44 (45) 20 099 Forwards (19) 53 34 1 051 (1 017) 1 101 424 Options 11 283 3 297 581 (284) 3 154 345 Swaps 149 (51) 721 819 77 744 (76 925) 3 098 275 Swaptions (105) 23 190 108 299 (191) 17 096 Commodity derivatives 294 (581) 29 (258) 13 490 (13 748) 3 133 677 Forwards 806 (318) 14 502 3 130 (2 628) 101 967 Futures (215) (73) (288) 9 426 (9 714) 2 943 453 Options (297) (190) 15 (472) 934 (1 406) 88 257 Credit derivatives (1 194) 326 (310) (1 178) 2 371 (3 549) 213 248 Credit default swaps (526) 548 (310) (288) 2 362 (2 650) 210 982 Credit linked notes 7 7 9 (2) 127 Total return swaps (675) (222) (897) (897) 2 139 Equity derivatives (962) 204 2 (756) 2 281 (3 037) 148 712 Forwards (367) (19) (386) 110 (496) 3 269 Futures 131 (1) 130 172 (42) 10 795 Index options (83) (166) (249) 1 016 (1 265) 121 427 Options (152) 155 2 5 573 (568) 8 498 Swaps (412) 235 (177) 399 (576) 2 234 Other (79) (79) 11 (90) 2 489

Total derivative (liabilities)/assets held-for-trading (3 497) (208) 892 (2 813) 118 870 (121 683) 16 416 220

127 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

4. Derivative instruments continued 4.7 Derivative assets and liabilities continued Maturity analysis of net fair value After 1 year Fair Fair Within but within After Net fair value of value of Notional 1 year 5 years 5 years value assets liabilities amount Rm Rm Rm Rm Rm Rm Rm 2012 Derivatives held-for-hedging Derivatives designated as fair value hedges 189 107 638 934 1 013 (79) 87 403 Interest rate swaps 189 (55) 638 772 851 (79) 86 565 Cross currency interest rate swaps 162 162 162 838 Derivatives designated as cash flow hedges 204 (103) 12 113 282 (169) 11 496 Currency swaps 184 (72) 12 124 219 (95) 9 075 Currency options 13 22 35 52 (17) 520 Equity forwards (4) (6) (10) (10) 433 Interest rate swaps 11 (47) (36) 11 (47) 1 468 Derivatives designated as hedges of net investments in foreign operations Forward exchange contracts (42) (42) 25 (67) 25 274 Total derivative assets/(liabilities) held-for-hedging 351 4 650 1 005 1 320 (315) 124 173 Total derivative (liabilities)/assets (3 146) (204) 1 542 (1 808) 120 190 (121 998) 16 540 393

128 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

4. Derivative instruments continued 4.7 Derivative assets and liabilities continued Maturity analysis of net fair value After 1 year Fair Fair Within but within After Net fair value of value of Notional 1 year 5 years 5 years value assets liabilities amount Rm Rm Rm Rm Rm Rm Rm 2011 Derivatives held-for-trading Foreign exchange derivatives (1 478) (1 708) 313 (2 873) 33 931 (36 804) 1 465 249 Forwards (1 743) (909) 339 (2 313) 29 108 (31 421) 1 378 635 Futures (1) 5 4 343 (339) 48 995 Swaps (10) (28) (38) (38) 296 Options 266 (794) 2 (526) 4 480 (5 006) 37 323 Interest rate derivatives (955) 2 018 593 1 656 90 653 (88 997) 8 738 123 Bond options 34 (245) (211) 2 272 (2 483) 158 798 Caps and floors (34) 17 26 9 98 (89) 84 012 Forwards (339) (265) 800 196 2 664 (2 468) 1 715 659 Options 107 356 (7) 456 760 (304) 3 286 927 Swaps (757) 2 155 (383) 1 015 84 548 (83 533) 3 469 521 Swaptions 34 157 191 311 (120) 23 206 Commodity derivatives (110) (294) 46 (358) 19 707 (20 065) 3 344 927 Forwards (171) 43 61 (67) 4 561 (4 628) 136 125 Futures 622 125 747 13 324 (12 577) 3 086 073 Options (561) (462) (15) (1 038) 1 822 (2 860) 122 729 Credit derivatives (1 743) 16 (102) (1 829) 2 990 (4 819) 282 531 Credit default swaps (1 254) 790 (102) (566) 2 936 (3 502) 279 634 Credit linked notes (755) (755) 23 (778) 881 Total return swaps (489) (19) (508) 31 (539) 2 016 Equity derivatives (479) (278) 29 (728) 1 478 (2 206) 140 889 Forwards (91) (131) (222) 85 (307) 2 427 Futures (2) 4 2 53 (51) 11 695 Index options (326) (199) (525) 530 (1 055) 115 625 Options (35) (74) 29 (80) 528 (608) 9 075 Swaps (24) 113 89 128 (39) 2 048 Other (1) 9 8 154 (146) 19

Total derivative (liabilities)/assets held-for-trading (4 765) (246) 879 (4 132) 148 759 (152 891) 13 971 719

129 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

4. Derivative instruments continued 4.7 Derivative assets and liabilities continued Maturity analysis of net fair value After 1 year Fair Fair Within but within After Net fair value of value of Notional 1 year 5 years 5 years value assets liabilities amount Rm Rm Rm Rm Rm Rm Rm 2011 Derivatives held-for-hedging Derivatives designated as fair value hedges 1 (1) 499 499 500 (1) 30 398 Interest rate swaps (1) (1) 499 497 498 (1) 30 381 Currency futures 2 2 2 17 Derivatives designated as cash flow hedges 649 (64) 12 597 766 (169) 19 975 Currency swaps 484 (10) 12 486 522 (36) 7 490 Currency options 110 (61) 49 135 (86) 878 Equity forwards 11 11 11 85 Interest rate swaps 44 7 51 98 (47) 11 522 Derivatives designated as hedges of net investments in foreign operations Forward exchange contracts (60) (60) 21 (81) 1 726 Total derivative assets/(liabilities) held-for-hedging 590 (65) 511 1 036 1 287 (251) 52 099 Total derivative (liabilities)/assets (4 175) (311) 1 390 (3 096) 150 046 (153 142) 14 023 818

130 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

4. Derivative instruments continued 4.8 Derivatives held-for-hedging 4.8.1 Derivatives designated as fair value hedges Gains or losses arising from fair value hedges 2012 2011 Rm Rm Gains/(losses) On hedging instruments 480 739 On the hedged items attributable to the hedged risk (405) (707)

4.8.2 Derivatives designated as cash flow hedges The forecasted timing of the release of net cash flows from the cash flow hedging reserve into profit or loss at 31 December is as follows:

More than More than 3 months 1 year but 3 months but less less than More than or less than 1 year 5 years 5 years Rm Rm Rm Rm 2012 Net cash (outflow)/inflow (10) (24) (5) 742 2011 Net cash inflow/(outflow) 297 (48) 9 749

Reconciliation of movements in the cash flow hedging reserve 2012 2011 Rm Rm Balance at the beginning of the year 725 673 Amounts recognised directly in OCI before tax 204 189 Less: amounts released to profit or loss before tax Net interest income (34) (80) Trading revenue (17) 5 Other operating expenses (392) (81) Plus: deferred tax 20 19 Balance at the end of the year 506 725

Ineffectiveness that arises from cash flow hedges is recognised immediately in profit or loss. A gain of R17 million (2011: R10 million loss) due to ineffectiveness was recognised in profit or loss.

There were no transactions for which cash flow hedge accounting had to be discontinued in 2012 or 2011 as a result of highly probable cash flows that were no longer expected to occur.

4.8.3 Derivatives designated as hedges of net investments in foreign operations No ineffectiveness was recognised in profit or loss for the year ended 31 December 2012 that arose from hedges of net investments in foreign operations (2011: Rnil).

131 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

4. Derivative instruments continued 4.9 Day one profit or loss The table below sets out the aggregate net day one profits yet to be recognised in profit or loss at the beginning and end of the year with a reconciliation of changes in the balance during the year:

2012 2011 Rm Rm Unrecognised net profit at the beginning of the year 438 53 Additional net profit on new transactions 90 450 Recognised in profit or loss during the year (144) (65) Unrecognised net profit at the end of the year 384 438 5. Trading assets 5.1 Classification Listed 77 446 52 409 Unlisted 36 973 38 040 114 419 90 449 Comprising: Government, municipality, utility bonds and treasury bills 41 675 32 012 Corporate bonds and floating rate notes 17 002 14 858 Listed equities 10 697 2 761 Unlisted equities 80 Collateral 3 305 2 819 Reverse repurchase and other collateralised agreements 24 815 23 274 Commodities 10 382 8 197 Other instruments 6 543 6 448 114 419 90 449 Maturity analysis The maturities represent periods to contractual redemption of the trading assets recorded. Redeemable on demand 2 263 1 278 Maturing within 1 month 15 849 10 613 Maturing after 1 month but within 6 months 24 394 15 778 Maturing after 6 months but within 12 months 8 322 7 330 Maturing after 12 months 41 983 44 349 Undated assets 21 608 11 101 114 419 90 449 5.2 Day one profit or loss The table below sets out the aggregate net day one profits yet to be recognised in profit or loss at the beginning and end of the year with a reconciliation of changes in the balance during the year. Unrecognised net profit at the beginning of the year 2 Additional net profit on new transactions 7 3 Recognised in profit or loss during the year 1 (1) Exchange differences 3 Unrecognised net profit at the end of the year 13 2

132 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 6 Pledged assets 6.1 Pledged assets Financial assets that may be repledged or resold by counterparties Government, municipality and utility bonds 5 025 1 349 Corporate bonds 872 25 Commodities 5 743 4 739 11 640 6 113 Maturity analysis The maturities represent periods to contractual redemption of the pledged assets recorded. Maturing within 1 month 353 26 Maturing after 1 month but within 6 months 2 904 653 Maturing after 6 months but within 12 months 137 192 Maturing after 12 months 2 503 503 Undated assets 5 743 4 739 11 640 6 113

6.2 Total assets pledged The total amount of financial assets that have been pledged as collateral for liabilities at 31 December 2012 was R7 336 million (2011: R21 848 million)1.

The assets pledged by the group are strictly for the purpose of providing collateral to the counterparty. To the extent that the counterparty is permitted to sell and/or repledge the assets in the absence of default, they are classified in the statement of financial position as pledged assets.

These transactions are conducted under terms that are usual and customary to repurchase securities and lending activities.

6.3 Collateral accepted as security for assets As part of the reverse repurchase and securities borrowing agreements, the group has received securities which are not recorded on the statement of financial position that it is allowed to sell or repledge. The fair value of the financial assets accepted as collateral that the group is permitted to sell or repledge in the absence of default is R56 186 million (2011: R95 737 million).

The fair value of financial assets accepted as collateral that have been sold or repledged is R12 421 million (2011: R7 202 million2). The group is obliged to return equivalent securities.

These transactions are conducted under terms that are usual and customary to reverse repurchase and securities borrowing activities.

1 Following a review of the group’s bond repurchase transactions in terms of IFRS and the group accounting policies, R3 900 million relating to bond repurchase transactions with the SARB had not previously been taken into account in determining the total financial assets that have been pledged as collateral for liabilities. As a result, the number disclosed in 2011 was understated. The group believes that this restatement better reflects the nature of the underlying transactions. The restatement had no impact on the statement of financial position. 2 As a result of the review of the group’s bond repurchase transactions, it was determined that R10 624 million had been incorrectly included in the prior year disclosure. To ensure consistency across the group’s financial statements, this amount has been restated.

133 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

6. Pledged assets continued 6.4 Assets transferred not derecognised Securitisations The group enters into transactions in the normal course of business by which it transfers recognised financial assets directly to third parties or SPEs. These transfers may give rise to full derecognition of the financial assets concerned.

Full derecognition occurs when the group transfers substantially all the risks and rewards of ownership and its contractual right to receive cash flows from the financial assets or retains the contractual rights to receive the cash flows of the financial assets but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets the conditions in IAS 39. The risks include interest rate, currency, prepayment and other price risks.

However, where the group has retained substantially all of the credit risk associated with the transferred assets, it continues to recognise these assets.

The following table analyses the carrying amount of securitised financial assets that did not qualify for derecognition, and their associated liabilities.

Carrying Carrying Fair Fair amount of amount of value of value of transferred associated transferred associated Net assets liabilities assets liabilities fair value Rm Rm Rm Rm Rm 2012 Mortgage loans 11 113 7 193 10 985 7 193 3 792 2011 Mortgage loans 12 175 8 184 12 215 8 184 4 031

The interests and rights to the mortgage loans have been ceded as security for the associated liabilities, which have recourse only to the transferred assets.

The cash flows from the transferred assets are required to service the associated liabilities.

Other assets transferred not derecognised The majority of other financial assets that do not qualify for derecognition are debt securities held by counterparties as collateral under repurchase agreements, and financial assets leased out to third parties. Risks to which the group remains exposed include credit, and interest rate.

134 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

6. Pledged assets continued 6.4 Assets transferred not derecognised continued The following table presents details of other financial assets which have been sold or otherwise transferred, but which have not been derecognised in their entirety, and their associated liabilities.

Financial assets not derecognised Carrying Carrying Fair Fair amount of amount of value of value of transferred associated transferred associated Net fair assets liabilities assets1 liabilities1 value1 Rm Rm Rm Rm Rm 2012 Pledged assets 9 976 4 132 4 233 4 132 101 Bonds 4 233 4 132 4 233 4 132 101 Commodities 5 743

9 976 4 132 4 233 4 132 101 2011 Pledged assets 4 773 1 206 1 036 1 206 (170) Bonds 34 33 34 33 1 Commodities 4 739 1 173 1 002 1 173 (171)

4 773 1 206 1 036 1 206 (170)

1 Where the counterparty has recourse only to the transferred asset.

There were no instances during the year of assets sold or otherwise transferred, but which were partially derecognised.

6.5 Assets transferred and derecognised There were no instances during the year of assets transferred and derecognised for which the group had continuing involvement.

135 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

7. Non-current assets and liabilities held for sale Disposal groups held for sale and discontinued operation relating to the disposal of the controlling interests in Standard Bank Argentina S.A. Standard Bank Argentina S.A. The group completed the disposal of its controlling interests in SBA to ICBC at the end of November 2012.

ICBC acquired a 55% stake in Standard Bank Argentina S.A. and a 50% stake in each of SI and ID from the group, with the group retaining a 20% shareholding and rights to board representation in each of the companies comprising SBA.

The profit realised on the disposal of the group’s controlling interest, after accounting for the reclassification of the foreign translation reserve and net investment hedge losses from OCI to the income statement and the effects of the fair valuation of the group’s remaining 20% associate interest in SBA, is R1 525 million. The group recognised a gain of R645 million in respect of the revaluation of this remaining associate interest from its previous carrying value to fair value.

The group continued to classify its investment in SBA as a discontinued operation in line with the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (IFRS 5) up to the disposal date. The group retains significant influence over the financial and operating policies of SBA and hence, following the disposal date, SBA was accounted for as an associate in terms of IAS 28 Investments in Associates.

The group’s shareholder relationship with ICBC in respect of SBA is regulated by a shareholders’ agreement that provides, inter alia, the right for the group to require ICBC to acquire its remaining shares in SBA at the final transaction value, adjusted for the USD20 million capital injection made post balance sheet date in February 2013, between 30 November 2014 and 30 November 2019.

Troika Dialog Group Limited (Troika) In March 2011, the disposal of Troika was agreed upon and announced by TDM Limited Partnership (TDMP), the 63.6% controlling shareholder of Troika, Sberbank of Russia (Sberbank) and SBG. After the receipt of all necessary approvals this transaction was successfully closed on 26 January 2012. Under the agreed terms, Sberbank acquired the entire shareholding of Troika (comprising TDMP’s 63.6% and Standard Bank Group’s 36.4% shareholding) for an upfront cash consideration of USD1 billion plus an earn-out payment at the end of 2013. The group sold all of its shareholding in Troika for an initial cash amount equal to its carrying value at 31 December 2010 of USD372 million, and will receive an earn-out payment of approximately 8% of any increase in the value of Troika above USD1 billion determined over a three-year earn-out period to 2013. This enables the group to participate in the growth of the value of the business over time and provides a platform for enhanced cooperation with the leading banking group in Russia.

RCS Investment Holdings Proprietary Limited The group has been a significant shareholder in RCS Investment Holdings Proprietary Limited (RCS) alongside The Foschini Group (TFG) since 2005. The group’s current shareholding in RCS is 45% with TFG holding 55%. The group has initiated a process to dispose of its investment in RCS during the course of the 2013 financial year. The group has accordingly classified its investment in RCS as a non-current asset held for sale in the statement of financial position in terms of IFRS 5. The investment’s carrying value is measured in accordance with the group’s accounting policies, which is the lower of carrying value and the fair value less costs to sell.

136 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

7. Non-current assets and liabilities held for sale continued Details of non-current assets and liabilities held for sale 2012 2011 RCS Investment Standard Troika Holdings Bank Dialog Proprietary Argentina Group Limited Total S.A. Limited Total Rm Rm Rm Rm Rm Assets held for sale Cash and balances with central banks 4 849 4 849 Derivative assets 50 50 Trading assets 413 413 Pledged assets 34 34 Financial investments 3 182 3 182 Loans and advances 20 702 20 702 Current tax assets 3 3 Deferred tax assets 164 164 Other assets 543 543 Interest in associates and joint ventures 960 960 8 3 010 3 018 Goodwill and other intangible assets 75 75 Property and equipment 1 052 1 052 Total assets held for sale 960 960 31 075 3 010 34 085 Liabilities held for sale Derivative liabilities 37 37 Deposit and current accounts 24 342 24 342 Current tax liabilities 268 268 Other liabilities 3 292 3 292 Total liabilities held for sale 27 939 27 939

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Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 8. Financial investments Financial investments held in banking activities (note 8.1) 94 715 97 360 Financial investments held by investment management and life insurance activities (note 8.2) 223 443 191 959 318 158 289 319 8.1 Financial investments held in banking activities Short-term negotiable securities 58 922 60 781 Listed 4 211 5 100 Unlisted1 54 711 55 681 Other financial investments 35 793 36 579 Listed 29 200 29 241 Unlisted 6 593 7 338

94 715 97 360

1 Included in unlisted short term negotiable securities are SARB debentures and negotiable certificates of deposit. Comprising: Government, municipality, utility bonds and treasury bills 72 741 70 995 Corporate bonds 13 462 17 736 Listed equities 632 1 133 Unlisted equities 3 101 3 086 Mutual funds and unit-linked investments 1 991 2 495 Other instruments 2 788 1 915 94 715 97 360 Maturity analysis The maturities represent periods to contractual redemption of the financial investments recorded. Redeemable on demand 1 290 1 088 Maturing within 1 month 9 968 11 626 Maturing after 1 month but within 6 months 33 500 24 944 Maturing after 6 months but within 12 months 14 619 21 103 Maturing after 12 months 29 103 30 894 Undated 6 235 7 705 94 715 97 360

138 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 8. Financial investments continued 8.2 Financial investments held by investment management and life insurance activities Quoted in an active market – listed 128 309 116 616 Equities 84 960 77 424 Preference shares 2 115 1 728 Commercial term deposits 11 567 9 107 Mutual funds 410 816 Government, municipality and utility bonds 29 257 27 541 Quoted in an active market – unlisted 65 555 50 308 Commercial term deposits 11 583 11 453 Mutual funds 53 929 38 824 Government, municipality and utility bonds 43 31 Unquoted and unlisted 25 299 19 676 Equities 1 325 1 210 Preference shares 670 1 283 Investment policies 23 304 17 183 Loans and receivables 4 280 5 359 Mortgages and loans 1 056 1 007 Cash held with banks 3 224 4 352

223 443 191 959 Maturity analysis The maturities represent periods to contractual redemption of the financial investments recorded. Maturing within 1 year 8 842 6 279 Maturing after 1 year but within 5 years 14 118 14 561 Maturing after 5 years but within 10 years 13 283 14 606 Maturing after 10 years but within 20 years 11 974 9 544 Maturing after 20 years 4 376 3 287 Open ended1 913 862 Undated2 169 937 142 820 223 443 191 959

1 Open ended represent certain financial investments which are secured against policyholder contracts. The maturity profile is not determinable as the holder has the option to settle at any time prior to the contract maturity date. 2 There is no maturity profile for listed and unlisted equities and other non-term instruments.

139 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 20111 Rm Rm 9. Loans and advances 9.1 Loans and advances net of impairments Loans and advances to banks 108 196 130 257 Call loans 22 328 17 488 Loans granted under resale agreements 13 776 41 358 Balances with banks 72 092 71 411 Loans and advances to customers 702 975 671 051 Gross loans and advances to customers 720 679 686 236 Mortgage loans 299 791 287 597 Instalment sale and finance leases (note 9.2) 66 053 57 373 Card debtors 24 052 20 726 Overdrafts and other demand loans 65 008 56 522 Other term loans 159 725 159 296 Loans granted under resale agreements 11 562 20 222 Commercial property finance 41 393 40 710 Foreign currency loans 51 315 37 663 Other loans and advances 1 780 6 127 Credit impairments for loans and advances (note 9.3) (17 704) (15 185) Specific credit impairments (12 516) (9 775) Portfolio credit impairments (5 188) (5 410)

Net loans and advances 811 171 801 308 Comprising: Gross loans and advances 828 875 816 493 Less: Credit impairments (17 704) (15 185) Net loans and advances 811 171 801 308 The carrying value of loans and advances increased by R407 million (2011: decreased by R467 million) for fair value adjustments arising from risks subject to fair value hedging relationships. Maturity analysis The maturity analysis is based on the remaining periods to contractual maturity from yearend. Redeemable on demand 116 435 116 387 Maturing within 1 month 90 175 111 061 Maturing after 1 month but within 6 months 62 596 79 998 Maturing after 6 months but within 12 months 52 081 62 989 Maturing after 12 months 507 588 446 058 Gross loans and advances 828 875 816 493 Segmental analysis – industry Agriculture 19 657 17 741 Construction 19 806 21 356 Electricity 3 989 3 034 Finance, real estate and other business services 206 760 244 706 Individuals 378 620 346 304 Manufacturing 40 566 35 540 Mining 37 601 35 580 Other services 51 145 56 504 Transport 14 023 15 144 Wholesale 56 708 40 584 Gross loans and advances 828 875 816 493 1 2011 balance of R898 million was reclassified from loans and advances to banks to loans and advances to customers in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the current financial year. 140 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

9. Loans and advances continued 9.1 Loans and advances net of impairments continued The following table sets out the distribution of the group’s loans and advances by geographic area where the loans are recorded.

2012 2012 2011 2011 % Rm % Rm Segmental analysis – geographic area South Africa 79 651 390 74 603 950 Rest of Africa 11 88 911 9 71 553 Outside Africa 10 88 574 17 140 990 Gross loans and advances 100 828 875 100 816 493

2012 2011 Rm Rm 9.2 Instalment sale and finance leases Gross investment in instalment sale and finance leases 77 284 66 502 Receivable within 1 year 22 662 21 766 Receivable after 1 year but within 5 years 53 577 44 573 Receivable after 5 years 1 045 163 Unearned finance charges deducted (11 231) (9 129) Net investment in instalment sale and finance leases 66 053 57 373 Receivable within 1 year 18 629 18 475 Receivable after 1 year but within 5 years 46 547 38 767 Receivable after 5 years 877 131

9.3 Credit impairments for loans and advances A reconciliation of the allowance for impairment losses for loans and advances, by class: Total impairments Mortgage loans 4 882 5 186 Instalment sale and finance leases 1 307 1 494 Card debtors 1 074 1 262 Other loans and advances 5 225 3 745 Corporate lending 4 933 3 212 Commercial property finance 283 286 17 704 15 185

141 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

9. Loans and advances continued 9.3 Credit impairments for loans and advances continued A reconciliation of the allowance for impairment losses for loans and advances, by class:

Instalment sale and Other Commercial Mortgage finance Card loans and Corporate property loans leases debtors advances lending finance Total Rm Rm Rm Rm Rm Rm Rm 2012 Specific impairments Balance at the beginning of the year 3 772 1 005 824 1 976 2 076 122 9 775 Net impairments raised1 3 462 750 672 2 965 2 256 97 10 202 Impaired accounts written off (2 589) (895) (864) (1 724) (1 572) (39) (7 683) Discount element recognised in interest income (540) (39) (57) (90) (7) (733) Exchange and other movements 61 (34) 5 (45) 968 955 Balance at the end of the year 4 166 787 580 3 082 3 721 180 12 516 Portfolio impairments Balance at the beginning of the year 1 414 489 438 1 769 1 136 164 5 410 Net impairments (released)/raised1 (697) 39 60 338 62 (42) (240) Exchange and other movements (1) (8) (4) 36 14 (19) 18 Balance at the end of the year 716 520 494 2 143 1 212 103 5 188 Total 4 882 1 307 1 074 5 225 4 933 283 17 704

1 Net impairments raised/(released) less recoveries of amounts written off in previous years as well as credit recovery on off-balance sheet exposure, equals income statement impairment charges (note 28.8 on page 181).

142 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

9. Loans and advances continued 9.3 Credit impairments for loans and advances continued Instalment sale and Commercial Mortgage finance Card Other loans Corporate property loans leases debtors and advances lending finance Total Rm Rm Rm Rm Rm Rm Rm 2011 Specific impairments Balance at the beginning of the year 4 399 1 534 1 170 2 562 2 394 163 12 222 Reclassified as held for sale (2) (11) (57) (100) (35) (205) Net impairments raised1 2 672 728 761 1 670 1 339 92 7 262 Impaired accounts written off (2 633) (1 197) (961) (2 096) (1 901) (133) (8 921) Discount element recognised in interest income (686) (65) (89) (102) (2) (944) Exchange and other movements 22 16 42 281 361 Balance at the end of the year 3 772 1 005 824 1 976 2 076 122 9 775 Portfolio impairments Balance at the beginning of the year 994 626 581 1 449 1 224 10 4 884 Reclassified as held for sale (5) (66) (60) (60) (191) Net impairments raised/(released)1 420 (132) (77) 330 68 (22) 587 Exchange and other movements 50 (96) 176 130 Balance at the end of the year 1 414 489 438 1 769 1 136 164 5 410 Total 5 186 1 494 1 262 3 745 3 212 286 15 185

1 Net impairments raised/(released) less recoveries of amounts written off in previous years as well as credit recovery on off-balance sheet exposure, equals income statement impairment charges (note 28.8 on page 181).

143 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2 011 Rm Rm 9. Loans and advances continued 9.3 Credit impairments for loans and advances continued Segmental analysis of specific impairments – industry Agriculture 1 059 317 Construction 600 119 Electricity 34 36 Finance, real estate and other business services 1 607 1 851 Individuals 6 521 6 010 Manufacturing 633 278 Mining 90 94 Other services 1 062 762 Transport 167 86 Wholesale 743 222 12 516 9 775

Segmental analysis of specific impairments – geographic area The following table sets out the distribution of the group’s specific impairments by geographic area where the loans are recorded.

2012 2012 2011 2011 % Rm % Rm South Africa 64 7 969 75 7 312 Rest of Africa 14 1 753 8 776 Outside Africa 22 2 794 17 1 687 100 12 516 100 9 775

2012 2011 Rm Rm 10. Current and deferred tax assets Current tax assets 331 443 Deferred tax assets (note 20.1) 1 183 1 440 1 514 1 883 11. Other assets Trading settlement assets1 16 503 9 741 Items in the course of collection 1 083 691 Operating leases – accrued income (note 13) 1 277 1 085 Deferred acquisition costs (DAC) 449 403 Retirement funds and post-employment healthcare benefits (note 37) 970 952 Insurance prepayments and reinsurance assets2 3 004 2 490 Accounts receivable 2 761 1 233 Prepayments 2 436 2 164 Properties in possession 521 571 Property developments3 1 009 628 Other debtors1,3 2 371 2 682 32 384 22 640

1 Trading settlement assets and other debtors were reclassified by R3 447 million, to conform with the basis of disclosure used in the current financial year. 2 Refer to note 22.1 on page 166 for further detail on reinsurance assets. 3 Property developments previously disclosed in other debtors have now been separately disclosed.

144 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 12. Interest in associates and joint ventures Associates and joint ventures accounted for under the equity method 3 409 2 238 Associates held at fair value 13 837 11 697 17 246 13 935 Equity accounted associates and joint ventures Carrying value at the beginning of the year 2 238 4 719 Share of profits – continuing operations 500 343 Total reversal of impairments/(impairments) of associates 201 (37) Reversal of impairments of associates1 201 Impairment of associate reclassified to held for sale2 (37) Reversal of impairments/(impairments) of private equity associates included in non-interest revenue 27 (60) Deemed disposal of associate – carrying value (130) Loss on deemed disposal of associate (22) Deemed disposal of associate – fair value (108) Acquisitions 1 604 13 Disposals (77) (124) Share of direct reserve movements (99) 557 Distribution of profit (25) (25) Reclassified as held for sale (note 7) (960) (3 018) Carrying value at the end of the year 3 409 2 238 Comprising: Cost of investments 2 521 1 799 Share of reserves 1 578 1 233 Cumulative impairment (690) (794) 3 409 2 238 Share of profits from associates and joint ventures Share of profits 500 343 Reversal of impairments/(impairments) of associates 201 (37) Loss on deemed disposal of associate (22) Share of profits – continuing operations 701 284

1 The recoverable amount utilised to calculate the reversal of the impairment was based on a price-earnings valuation. The average price-earnings ratio of comparable entities was utilised with an adjustment made for the liquidity of the entity’s shares. 2 The recoverable amount was based on the agreed minimum disposal proceeds.

There are no significant restrictions on the ability of associates and joint ventures to transfer funds to the group in the form of cash dividends or in the repayment of loans or advances.

145 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 12. Interest in associates and joint ventures continued Key financial information of associates and joint ventures accounted for under the equity method Statement of financial position Non-current assets 17 722 5 943 Current assets 31 788 7 002 Non-current liabilities (3 334) (4 726) Current liabilities (36 588) (2 073) Income statement Total income 9 863 6 088 Total expense (8 675) (5 604) Total profit or loss 1 164 475 Equity accounted associates and joint ventures and the group’s interests therein are listed in annexure C on pages 218 to 220. Key financial information of associates held at fair value Total financial investments 37 656 31 362 Current assets 4 842 7 078 Current liabilities (101) (37) Total revenue 2 092 1 848 Associates held at fair value include units or shares held in mutual funds held by Liberty. The units or shares are by their nature demand deposits and are held at fair value. The net income or loss is capitalised to unit values within each fund and is equivalent to the fair value adjustments. Associates held at fair value also includes associates held by the group’s private equity division. 13. Investment property Fair value at the beginning of the year 23 470 21 521 Revaluations net of lease straight-lining 1 188 904 Revaluations 1 443 933 Net movement on straight-lining operating leases (255) (29) Additions – capitalised subsequent expenditure 46 900 Disposals (651) Transfers from property and equipment 37 93 Other transfers 43 43 Foreign currency translation 9 Fair value at the end of the year 24 133 23 470 Investment property and related operating lease balances comprise the following: Investment properties at fair value 24 133 23 470 Operating leases – accrued income (note 11) 1 277 1 085 Operating leases – accrued expense (note 21.1) (30) (93) Total investment property 25 380 24 462 Located in: South Africa 25 298 24 403 Kenya 70 59 Nigeria 12 Total investment property 25 380 24 462

146 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 13. Investment property continued At the end of the year investment property comprised the following property types: Office buildings 1 305 1 205 Shopping malls 20 750 20 022 Hotels 2 536 2 536 Other 789 699 Total investment property 25 380 24 462

The investment properties located in South Africa were independently valued as at 31 December 2012 by registered professional valuers with the South African Council for the Property Valuers Profession as well as members of the Institute of Valuers of South Africa. The method of valuation is more fully described in note 2.9.

The Kenyan and Nigerian located properties were independently valued as at 31 December 2012 by various registered professional valuers in each territory.

At 31 December 2012, unlet space amounted to 7.1% (2011: 7.2%) of available lease area in the investment properties held by the group. The average net rental growth is 2.5% (2011: 6.9%).

The property rental income earned by the group from its investment property, all of which is leased out under operating leases, amounted to R2 290 million (2011: R1 902 million), including straight-lining operating leases of R1 987 million (2011: R1 823 million) excluding straight-lining operating leases. Direct operating expenses arising on the investment property amounted to R558 million (2011: R516 million).

2012 2011 Rm Rm 14. Goodwill and other intangible assets Goodwill (note 14.1) 3 124 3 733 Other intangible assets (note 14.2) 11 563 9 021 14 687 12 754 14.1 Goodwill Goodwill on subsidiaries Cost at the beginning of the year 4 468 3 920 Reclassified as held for sale (10) Acquisitions 4 46 Disposals (163) Exchange movements 235 512 Cost at the end of the year 4 544 4 468 Accumulated impairment at the beginning of the year (735) (664) Reclassified as held for sale 10 Goodwill impairment charge (note 28.14) (777) (61) Disposals 31 Exchange movements 61 (20) Accumulated impairment at the end of the year (1 420) (735) Carrying amount 3 124 3 733

147 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

14. Goodwill and other intangible assets continued 14.1 Goodwill continued 2012 2011 Accumu- Accumu- lated lated Gross impair- Net Gross impair- Net goodwill ment goodwill goodwill ment goodwill Rm Rm Rm Rm Rm Rm Goodwill comprises: Standard Bank s.a.r.l. (Mozambique) 104 104 110 110 Capital Alliance Holdings Limited 397 397 397 397 Neil Harvey and Associates 114 114 114 114 Melville Douglas Investment Management Proprietary Limited 44 22 22 44 22 22 Stanbic Bank Botswana Limited 18 18 18 15 3 Standard Bank Limited (Malawi) 17 17 32 32 Stanbic Bank Uganda Limited 9 3 6 9 9 Standard Bank Asia Limited (Hong Kong) 57 57 54 54 Triskelion Trust Company Limited 56 56 56 56 Stanbic IBTC Holdings PLC (Nigeria) 2 888 690 2 198 2 659 2 659 Standard Ünlü Menkul Degerler A.S. (Turkey) 163 31 132 CfC Stanbic Holdings Limited (Kenya) 754 754 730 730 eCentric Switch Proprietary Limited 36 36 36 36 Halberg Guss South Africa Proprietary Limited 7 7 7 7 MTN Mobile Money 39 39 39 39 LC Golf SA Pty Ltd 4 4 4 544 1 420 3 124 4 468 735 3 733

Impairment testing IAS 36 Impairment of assets (IAS 36) clarifies that goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units that are expected to benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Where applicable and material, this has been taken into account for the purposes of allocating goodwill to affected units.

Impairment testing in respect of goodwill is performed annually by comparing the recoverable amounts of cash-generating units to the carrying amounts. The recoverable amount is defined as the higher of the entity’s fair value less costs to sell and its value in use and is determined on an entity by entity basis.

Goodwill relating to Stanbic IBTC Holdings PLC (Nigeria) and CfC Stanbic Holdings Limited (Kenya) makes up the majority of the group’s goodwill amount. The respective goodwill balances were allocated between their cash-generating units, assumed to be operating segment level, based on the nature of the business as at acquisition, and then tested for impairment.

148 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

14. Goodwill and other intangible assets continued 14.1 Goodwill continued The recoverable amount was determined to be the value in use in both cases for 2012. Key assumptions relating to these valuations include the discount rates and cash flows used to determine the value in use. The forecast periods adopted reflect a set of cash flows that, based on management judgement and expected market conditions, could be sustainably generated over such a period. A forecast period of greater than 5 years has been used in order to take into account the level of development in these markets. The cash flows from the final discrete cash flow period were extrapolated in perpetuity to reflect the long-term plans for the entity. It is common valuation methodology to avoid placing too high a proportion of the total value in the perpetuity value. The cost of equity (CoE) percentages were derived from an equity pricing model deemed appropriate based on the entities under review. The risk-free rate used to determine the CoE has been derived from the respective local 10-year government bonds. The CoE assigned to the appropriate cash-generating units and used to discount their future cash flows can have a significant effect on their valuations.

The following table summarises the impairment test methodology applied, including key inputs used, to the group’s material goodwill.

Stanbic IBTC CfC Stanbic Holdings PLC Holdings Limited 2012 2011 2012 2011 Fair value Value less cost Value Value Methodology in use to sell in use in use Discount rate (nominal) % 19.0 N/A 18.2 20.3 Terminal growth rate (nominal) % 10.0 N/A 11.5 16.0 Forecast period years 10 N/A 8 8

Stanbic IBTC Holdings PLC Based on the testing performed, an impairment of R700 million (2011: nil) was identified. The cash-generating unit recoverable amount estimates take into account the market, regulatory and fiscal developments in the Nigerian banking industry in general and the particular circumstances of the cash-generating units themselves. As at 31 December 2012, a reduced share price for Stanbic IBTC (an entity listed on the Nigerian Stock Exchange) indicated that the value in use methodology should be applied in determining whether an impairment was required for Stanbic IBTC’s cash generating units. The cash-generating unit carrying values were assessed to be in excess of the recoverable amounts, and thus, an impairment has been recognised.

2011 2012 Allocated Exchange Net goodwill Impairment movements1 goodwill Rm Rm Rm Rm Corporate & Investment Banking 2 393 520 215 2 088 Personal & Business Banking 266 180 24 110 2 659 700 239 2 198

1 Includes an amount of R10 million relating to foreign currency translation reserve movements on the accumulated impairment.

CfC Stanbic Holdings Limited Based on the testing performed, no impairment was identified.

Goodwill relating to other entities The remaining aggregated carrying amount of the goodwill of R172 million (2011: R344 million) has been allocated to cash-generating units that are not considered to be individually significant. These entities were tested for impairment during the year, and an impairment of R77 million (2011: R61 million) was recognised.

149 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

14. Goodwill and other intangible assets continued 14.2 Other intangible assets 14.2.1 Summary 2012 2011 Accumulated Accumulated amortisation amortisation and Net book and Net book Cost impairment value Cost impairment value Rm Rm Rm Rm Rm Rm Computer software 14 274 3 235 11 039 10 169 2 229 7 940 Other intangible assets1 708 527 181 984 398 586 Present value of in-force life insurance2 1 724 1 381 343 1 722 1 227 495 16 706 5 143 11 563 12 875 3 854 9 021

1 Included in 2011 under other intangible assets is a property trust that has a right to an indefinite stream of management revenues created by the trust deed of the property trust with a carrying amount of R372 million. The stream of revenue is dependent on the life and activity of the trust and therefore no useful life can be determined. The intangible asset is tested annually for impairment and whenever there is an indication of impairment. At 31 December 2011 there was no indication of impairment. 2 Represents the present value (at acquisition date) of future profits before taxation, on policyholder contracts acquired from business acquisitions, less amortisation. No internally generated value of in-force has been recognised, since it does not meet the recognition criteria in IAS 38 Intangible Assets (IAS 38). 14.2.2 Movement Reclassi- 2011 fied Exchange 2012 Net book as held Addi- Dis- Impair- Amorti- move- Net book value for sale tions1 posals2 ments sation ments value3 Rm Rm Rm Rm Rm Rm Rm Rm Computer software 7 940 4 287 (182) (263) (770) 27 11 039 Other intangible assets 586 86 (415) (1) (82) 7 181 Present value of in-force life insurance 495 (153) 1 343 9 021 4 373 (597) (264) (1 005) 35 11 563 Reclassi- 2010 fied Exchange 2011 Net book as held Addi- Impair- Amorti- move- Net book value for sale tions1 Disposals ments sation ments value3 Rm Rm Rm Rm Rm Rm Rm Rm Computer software 5 763 (2) 2 604 (27) (109) (476) 187 7 940 Other intangible assets 722 (25) (34) (84) 7 586 Present value of in-force life insurance 642 28 (179) 4 495 7 127 (27) 2 632 (61) (109) (739) 198 9 021

1 During 2012, R186 million (2011: R126 million) of interest was capitalised. 2 Included in the 2012 disposal balance is an amount of R21 million relating to transfers to property and equipment. 3 Includes work in progress of R5 216 million (2011: R4 116 million) for which amortisation has not yet commenced. There are no significant intangible assets for which title is restricted or which is pledged as security for liabilities.

150 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Accumulated Accumulated depreciation depreciation and Net book and Net book Cost impairment value Cost impairment value Rm Rm Rm Rm Rm Rm 15. Property and equipment 15.1 Summary Property Freehold 6 250 564 5 686 5 673 520 5 153 Leasehold 3 206 1 106 2 100 2 711 757 1 954 Property under development 13 13 9 469 1 670 7 799 8 384 1 277 7 107 Equipment Computer equipment 9 983 6 325 3 658 8 999 5 575 3 424 Motor vehicles 608 322 286 604 316 288 Office equipment 1 261 655 606 1 171 598 573 Furniture and fittings 6 241 2 857 3 384 5 961 2 433 3 528 18 093 10 159 7 934 16 735 8 922 7 813 Total 27 562 11 829 15 733 25 119 10 199 14 920

2011 2012 Net book Exchange Net book value Additions1,2 Disposals Depreciation Transfers3 movements value4 Rm Rm Rm Rm Rm Rm Rm 15.2 Movement Property Freehold 5 153 664 (9) (61) (37) (24) 5 686 Leasehold 1 954 459 (19) (364) 70 2 100 Property under development 13 13 7 107 1 136 (28) (425) (37) 46 7 799 Equipment Computer equipment 3 424 1 614 (52) (1 356) 28 3 658 Motor vehicles 288 117 (33) (93) 7 286 Office equipment 573 157 (4) (122) 2 606 Furniture and fittings 3 528 481 (43) (599) 17 3 384 7 813 2 369 (132) (2 170) 54 7 934 Total 14 920 3 505 (160) (2 595) (37) 100 15 733

1 During 2012, R79 million (2011: R42 million) of interest was capitalised. Includes additions arising from business acquisitions of R6 million (2011: R101 million). 2 Included in additions is an amount of R21 million that has been transferred from intangible assets. 3 Refer to note 13 – Investment property on page 146. 4 Includes work in progress of R1 875 million (2011: R1 282 million) for which depreciation has not yet commenced.

151 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

15. Property and equipment continued 15.2 Movement continued Re- Ex- 2011 2010 classified change Net Net book as held Addi- Dis- Impair- Depre- Trans- move- book value for sale tions1 posals ments ciation fers2 ments value3 Rm Rm Rm Rm Rm Rm Rm Rm Rm Property Freehold 5 199 (497) 570 (36) (54) (93) 64 5 153 Leasehold 1 697 (87) 564 (4) (29) (301) 114 1 954 6 896 (584) 1 134 (40) (29) (355) (93) 178 7 107 Equipment Computer equipment 3 371 1 182 (35) (1 179) 85 3 424 Motor vehicles 397 (2) 155 (175) (97) 10 288 Office equipment 665 (101) 98 (5) (111) 27 573 Furniture and fittings 3 578 (80) 517 (16) (546) 75 3 528 8 011 (183) 1 952 (231) (1 933) 197 7 813 Total 14 907 (767) 3 086 (271) (29) (2 288) (93) 375 14 920

1 During 2012, R79 million (2011: R42 million) of interest was capitalised. Includes additions arising from business acquisitions of R6 million (2011: R101 million). 2 Refer to note 13 – Investment property on page 146. 3 Includes work in progress of R1 875 million (2011: R1 282 million) for which depreciation has not yet commenced.

There is no significant property or equipment for which title is restricted or which is pledged as security for liabilities. 15.3 Valuation The fair value of completed freehold property, based on valuations undertaken during 2012 and 2011, was estimated at R5 579 million (2011: R5 866 million). Registers of property are available for inspection by members, or their authorised agents, at the registered office of the company and its subsidiaries. Valuations were generally in terms of the investment method whereby net income is capitalised having regard to tenancy, location and the physical nature of the property.

152 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 16. Share capital 16.1 Authorised 2 000 000 000 (2011: 2 000 000 000) ordinary shares of 10 cents each 200 200 8 000 000 (2011: 8 000 000) 6.5% first cumulative preference shares of R1 each 8 8 1 000 000 000 (2011: 1 000 000 000) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each 10 10 218 218 16.2 Issued Ordinary share capital 1 606 135 826 (2011: 1 588 747 130) ordinary shares of 10 cents each 161 159 Ordinary share premium 17 931 17 576 A premium of R357 million (2011: R213 million) was raised on the allotment and issue during the year of 5 347 398 ordinary shares (2011: 3 709 809).

During 2012 the group declared a scrip distribution with a cash alternative. The scrip distribution was financed from share premium and 12 041 298 ordinary shares were issued. R1,2 million was transferred to ordinary share capital. Preference share capital and premium 5 503 5 503 8 000 000 (2011: 8 000 000) 6.5% first cumulative preference shares of R1 each – first preference shares 8 8 52 982 248 (2011: 52 982 248) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each – second preference shares 1 1 Preference share premium – non-redeemable, non-cumulative, non-participating preference shares – second preference shares 5 494 5 494 The non-redeemable, non-cumulative, non-participating preference shares are entitled to an annual dividend, if declared, payable in two semi-annual instalments of not less than 70% of the prime interest rate multiplied by the subscription price of R100 per share.

All classes of preference shares in issue are non-redeemable. 23 595 23 238

The number of shares in terms of options and appreciation rights available to be granted under the terms of the group’s equity compensation plans as at the end of the year was 108 780 918 (2011: 109 073 781).

The group share incentive scheme (GSIS) and equity growth scheme (EGS) reconciliations are disclosed in annexure D on pages 221 to 228.

153 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

Number Number Number of first of second of ordinary preference preference shares shares shares 16. Share capital continued 16.2 Issued continued Reconciliation of shares issued Shares in issue at 1 January 2011 1 585 037 321 8 000 000 52 982 248 Shares issued during 2011 in terms of the group’s equity compensation plans 3 709 809 Shares in issue at 31 December 2011 1 588 747 130 8 000 000 52 982 248 Net shares held in terms of the group’s Tutuwa initiative 63 478 810 Total number of shares held initially by Tutuwa SPEs (note 17) 99 190 197 Less: Portion of shares financed directly by third parties (note 17) (24 691 358) Less: Number of shares sold in terms of the ICBC transaction (note 17) (11 020 029) Shares held by entities within the group 11 170 972 Shares held by other shareholders 1 514 097 348 8 000 000 52 982 248

Shares issued during 2012 in terms of the group’s equity compensation plans 5 347 398 Shares issued in terms of the final scrip distribution declared in respect of 2012 and distributed on 17 September 2012 12 041 298 Shares in issue at 31 December 2012 1 606 135 826 8 000 000 52 982 248 Net shares held in terms of the group’s Tutuwa initiative 63 478 810 Total number of shares held initially by Tutuwa SPEs (note 17) 99 190 197 Less: Portion of shares financed directly by third parties (note 17) (24 691 358) Less: Number of shares sold in terms of the ICBC transaction (note 17) (11 020 029) Shares held by entities within the group 6 739 938 Shares held by other shareholders 1 535 917 078 8 000 000 52 982 248

All issued shares are fully paid up.

154 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 16. Share capital continued 16.3 Unissued shares 238 038 458 (2011: 255 427 154) ordinary shares of 10 cents each, of which 79 437 357 (2011: 79 251 866) are under the general authority of the directors which authority expires at the AGM to be held on 30 May 2013 24 26 155 825 716 (2011: 155 825 716) ordinary shares of 10 cents each are reserved to meet the requirements of the group’s share incentive schemes in terms of the authority vested in the directors by members’ resolution dated 31 May 2012 16 16 947 017 752 (2011: 947 017 752) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each are under the general authority of the directors which authority expires at the AGM to be held on 30 May 2013 9 9 49 51 16.4 Interest of directors in the capital of the company The directors held, directly and indirectly, interests in the company’s ordinary issued share capital and preference share capital, as reflected in the following tables. Direct beneficial1 Indirect beneficial1 2012 2011 2012 2011 Ordinary shares Number Number Number Number DDB Band 12 742 12 742 RMW Dunne 28 000 42 000 TS Gcabashe2 111 112 111 112 KP Kalyan2 125 000 125 000 SJ Macozoma3 5 711 527 5 711 527 JH Maree 50 000 50 000 650 000 650 000 KD Moroka2 515 505 111 112 111 112 AC Nissen2 111 112 111 112 MC Ramaphosa4 2 327 2 327 4 237 848 4 237 848 SP Ridley 85 85 MJD Ruck 175 000 175 000 EM Woods 52 450 52 450 293 119 293 109 11 085 711 11 099 711

1 As per Listings Requirements of the JSE. 2 Qualifying black non-executive directors received an allocation of 125 000 shares in terms of the Tutuwa Management Trust – special conditions apply for qualifying black non-executive directors. Certain of these directors, that were shareholders at the time, sold shares to ICBC through the scheme of arrangement with all shareholders. 3 SJ Macozoma holds an effective 26.62% (2011: 26.62%) interest in Safika which acquired 24 132 911 shares in terms of the black ownership initiative of which 2 681 166 were sold to ICBC. 4 MC Ramaphosa holds an effective 29.63% (2011: 29.63%) interest in Shanduka which acquired 16 088 608 shares in terms of the black ownership initiative of which 1 787 444 were sold to ICBC.

155 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

16. Share capital continued 16.4 Interest of directors in the capital of the company continued Direct beneficial1 2012 2011 Second preference shares Number Number DDB Band 27 167 27 167 KP Kalyan 3 214 SJ Macozoma 1 140 1 140 JH Maree 10 331 10 331 41 852 38 638

1 As per Listings Requirements of the JSE.

No directors, other than those disclosed, have direct or indirect beneficial preference shareholdings.

No director owns more than 1% of the company’s total issued share capital. The company has not been informed of any changes in these holdings at the date of this report.

2012 2011 Number Number Shares as at 31 December Share incentives 2 410 648 2 650 000

2012 2011 Number Number of shares of shares (million) % holding (million) % holding 16.5 Shareholder analysis 16.5.1 10 major shareholders1 ICBC 322,0 20.1 318,5 20.1 Public Investment Corporation 233,7 14.6 213,5 13.4 Tutuwa participants 88,2 5.5 88,4 5.6 Staff 34,5 2.2 34,7 2.2 Strategic partners 35,8 2.2 35,8 2.3 Communities and regional businesses 17,9 1.1 17,9 1.1 Old Mutual Group 29,8 1.9 33,2 2.0 Dodge & Cox 25,9 1.6 48,1 3.0 Investment Solutions 25,2 1.6 26,4 1.7 Vanguard Emerging Markets Fund 23,9 1.5 19,7 1.2 Sanlam Group 23,2 1.4 25,0 1.6 Dimensional Emerging Markets Value Fund 16,8 1.0 14,9 0.9 Allan Gray Equity Fund 14,1 0.9 13,1 0.8 802,8 50.1 800,8 50.3

1 Beneficial holdings are determined from the share register and investigations conducted on our behalf in terms of section 56 of the Companies Act.

156 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Number Number of shares of shares (million) % holding (million) % holding 16. Share capital continued 16.5 Shareholder analysis continued 16.5.2 Geographic spread of shareholders South Africa 864,6 53.8 860,2 54.1 Foreign shareholders 741,5 46.2 728,5 45.9 China 323,5 20.1 318,7 20.1 United States of America (US) 217,5 13.6 224,8 14.2 United Kingdom (UK) 62,8 3.9 60,7 3.8 Singapore 17,6 1.1 20,5 1.3 Namibia 16,7 1.0 15,6 1.0 United Arab Emirates 12,8 0.8 11,7 0.7 Australia 11,1 0.7 9,7 0.6 Luxembourg 11,1 0.7 7,8 0.5 Netherlands 10,4 0.7 7,8 0.5 Saudi Arabia 10,0 0.6 10,2 0.6 Canada 9,6 0.6 8,1 0.5 Other 38,4 2.4 32,9 2.1

1 606,1 100.0 1 588,7 100.0 16.5.3 Spread of ordinary shareholders Public1 957,8 59.6 962,4 60.6 Non-public1 648,3 40.4 626,3 39.4 Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 2,3 0.2 3,4 0.2 ICBC 322,0 20.1 318,5 20.1 Public Investment Corporation 233,7 14.6 213,5 13.4 Standard Bank Group retirement funds 1,4 0.1 1,9 0.1 Tutuwa participants3 88,2 5.4 88,3 5.6 Associates of directors 0,7 0,7

1 606,1 100.0 1 588,7 100.0

2012 2011 Number Number of shares % holding of shares % holding 16.5.4 Spread of 6.5% cumulative preference shareholders Public1 8 000 000 100.00 7 996 000 99.95 Non-public1 4 000 0.05 Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 4 000 0.05

8 000 000 100.00 8 000 000 100.00

1 As per JSE Listings requirements. 2 Excludes indirect holdings of strategic partners which are included in Tutuwa participants. 3 Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1, 2 and 3, Tutuwa Community and General Staff Share Trust.

157 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Number Number of shares % holding of shares % holding 16. Share capital continued 16.5 Shareholder analysis continued 16.5.5 Spread of non-redeemable, non-cumulative, non-participating preference shareholders Public1 52 743 071 99.60 52 653 386 99.40 Non-public1 239 177 0.40 328 862 0.60 Directors and prescribed officers of Standard Bank Group, and its subsidiaries2 234 643 0.40 324 828 0.60 Associates of directors 4 534 4 034

52 982 248 100.00 52 982 248 100.00

1 As per JSE Listings Requirements. 2 Excludes indirect holdings of strategic partners which are included in Tutuwa participants. 16.6 Purchased equity securities Subsidiaries of the group purchased equity securities in Standard Bank Group Limited during the financial year to be held for the benefit of the group’s policyholders and to facilitate client trading activities. The total number of equity securities purchased during the financial year was 18 756 489 (2011: 11 265 060) for which the average price paid was R110,33 (2011: R99,75). The total number of equity securities held as treasury shares at the end of the year was 6 739 938 (2011: 11 170 972). Refer to page 69 of the annual integrated report for a detailed explanation of the differences between normalised and IFRS results. 17. Empowerment reserve SBG and Liberty entered into a series of transactions in 2004 whereby investments were made in cumulative redeemable preference shares issued by black economic empowerment (BEE) entities (SPEs). The initial investments made by SBG and Liberty totalled R4 017 million and R1 251 million respectively.

The proceeds received from the issue of the cumulative redeemable preference shares were used by the BEE entities to purchase SBG and Liberty shares. The BEE entities initially purchased and owned 99 190 197 ordinary shares of SBG.

The preference shares owned by the group do not meet the definition of a financial asset in terms of IFRS and therefore the preference shares are treated as a reduction of equity and are stated in the statement of changes in equity as a negative empowerment reserve. The empowerment reserve represents SBG shares held by the SPEs that are deemed to be treasury shares in terms of accounting conventions. Refer to page 69 of the annual integrated report for a detailed explanation of the accounting treatment of the group’s Tutuwa initiative.

On 20 December 2007, the group obtained financing external to the group for a portion of the financing provided to the SPEs. As a result, the negative empowerment reserve has been reduced by the value of the external financing obtained of R1 billion and a proportion of the SBG shares held by the SPEs (24 691 358 shares) were no longer deemed to be treasury shares for accounting purposes.

On 3 March 2008, the BEE entities sold 11.1% or 11 020 029 of their ordinary shares in SBG to ICBC, partly using the proceeds towards the repayment of their preference share liability, amounting to R986 million.

158 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

17. Empowerment reserve continued On 3 March 2010, the contractual terms of the preference share agreements with the BEE entities of SBG were amended. These amendments permit dividends paid on SBG ordinary shares and received by the BEE entities to flow through to the participants in those entities and not to be paid as a preference dividend to settle the preference share obligation, subject to specific conditions. To the extent that preference dividends are received from the BEE entities, these are credited directly to reserves and disclosed as a reduction in the ordinary dividends paid on SBG shares. Preference dividends accrued but not received due to cash distributions being made to participants, has the effect of increasing the negative empowerment reserve. The legal accrual of the preference dividend does not result in an accounting entry but rather lengthens the repayment period.

At yearend the accumulated unrecognised asset, including accrued dividends, was R2 721 million (2011: R2 503 million) for SBG and R1 031 million (2011: R1 095 million) for Liberty.

The investments in the cumulative redeemable preference shares of the BEE entities are set out below.

2012 2011 Number of Number of Issue price preference preference per share 2012 2011 shares shares (R) Rm Rm Standard Bank Group 3 031 3 031 Shanduka – Tutuwa Strategic Holdings 1 Proprietary Limited1 491 682 491 682 1 000 492 492 Safika – Tutuwa Strategic Holdings 2 Proprietary Limited1 737 523 737 523 1 000 737 737 Black Managers’ Trust – Tutuwa Staff Holdings 1 – 3 Proprietary Limited1 1 187 532 1 187 532 1 000 1 187 1 187 The Community Trust – Tutuwa Community Holdings Proprietary Limited1 614 603 614 603 1 000 615 615

Liberty 1 012 1 075 Shanduka 161 000 171 000 1 000 161 171 Safika 245 000 261 000 1 000 245 261 Black Managers’ Trust 404 000 429 000 1 000 404 429 The Community Trust 202 000 214 000 1 000 202 214

Total investment 4 043 4 106 Financing by parties external to the group2 (1 000) (1 000) Preference dividends accrued but not received due to dividends distributed 690 472 Attributable to non-controlling interests of Liberty (463) (499) Standard Bank Group empowerment reserve 3 270 3 079

1 The SPEs above owned 88 170 168 (2011: 88 170 168) ordinary shares of SBG at 31 December 2012, of which 24 691 358 (2011: 24 691 358) ordinary shares are funded by third-party financing. 2 On 20 December 2007 the group obtained financing external to the group for a portion of the financing provided to the SPEs.

159 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

Standard Bank Group Liberty Total Rm Rm Rm 17. Empowerment reserve continued Reconciliation of investment in preference shares Original amount invested in 2004 4 017 1 251 5 268 Redemption – 20061 (92) (92) Financing by external parties – 20072 (1 000) (1 000) Redemption – 20083 (986) (986) Redemption – 20101 (40) (40) Redemption – 20111 (44) (44) Redemption – 20121 (63) (63) Attributable to non-controlling interests of Liberty (463) (463) Preference dividends accrued but not received due to dividends distributed 690 690 Remaining amounts invested at 31 December 2012 2 721 549 3 270

1 Redemption of cumulative preference shares. 2 On 20 December 2007 the group obtained financing external to the group for a portion of the financing provided to the SPEs. 3 On 3 March 2008, Tutuwa participants sold 11.1% or 11 020 029 of their ordinary shares in the group to ICBC, partly using the proceeds for the repayment of their preference share liability, amounting to R986 million. The cumulative redeemable preference shares owned by the group attract dividends at 8.5% per annum, whilst those of Liberty accrue dividends at 67% of the Standard Bank prime lending rate (2011: 67%). The dividend obligation of the preference shares compounds on each date when the issuing company receives a dividend from the group or Liberty respectively. For the purposes of the earnings per share calculation, the weighted average number of company shares in issue is reduced by the number of shares held by the BEE entities bought with the proceeds received from the preference shares (note 32).

160 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 20111 20101 Rm Rm Rm 18. Trading liabilities Classification Listed 20 533 16 259 18 001 Unlisted 18 673 14 005 11 481 39 206 30 264 29 482 Comprising: Government, municipality and utility bonds 4 417 5 010 5 590 Corporate bonds 1 154 520 359 Listed equities 9 995 5 845 6 958 Unlisted equities 520 334 421 Collateral 2 267 2 511 1 148 Repurchase agreements and other collateralised agreements 13 174 7 413 3 891 Credit linked notes 7 585 8 271 7 957 Other instruments 94 360 3 158 39 206 30 264 29 482 Maturity analysis The maturities represent periods to contractual redemption of trading liabilities recorded. Repayable on demand 1 854 185 191 Maturing within 1 month 14 043 7 728 2 167 Maturing after 1 month but within 6 months 1 096 1 088 3 601 Maturing after 6 months but within 12 months 2 243 3 151 2 069 Maturing after 12 months 9 507 11 924 14 030 Undated 10 463 6 188 7 424 39 206 30 264 29 482

1 2011 and 2010 figures restated, refer to annexure A – restatements on page 212.

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Notes to the annual financial statements continued for the year ended 31 December 2012

2012 20111,2 20102 Rm Rm Rm 19. Deposit and current accounts Deposits from banks 124 275 129 741 87 830 Deposits from banks and central banks 117 577 126 954 83 511 Deposits from banks under repurchase agreements and other collateralised agreements 6 698 2 787 4 319 Deposits from customers 794 258 749 181 698 664 Current accounts 124 515 106 259 93 165 Cash management deposits 106 968 98 480 83 455 Call deposits 182 221 173 011 151 001 Savings accounts 24 382 23 893 26 203 Term deposits 245 652 255 883 241 351 Negotiable certificates of deposit 79 966 66 415 71 211 Repurchase agreements and other collateralised agreements 1 596 2 709 2 073 Securitisation issuances 6 002 7 278 10 152 Other funding 22 956 15 253 20 053

Total deposit and current accounts 918 533 878 922 786 494 The carrying value of deposits and current accounts was increased by R621 million (2011: increased by R354 million) for fair value adjustments arising from risks subject to fair value hedging relationships. Maturity analysis The maturities represent periods to contractual redemption of deposit and current accounts recorded. Repayable on demand 473 017 438 174 392 738 Maturing within 1 month 102 989 102 360 89 543 Maturing after 1 month but within 6 months 151 066 148 379 120 155 Maturing after 6 months but within 12 months 54 191 80 038 77 177 Maturing after 12 months 137 270 109 971 106 881 918 533 878 922 786 494

1 2011 balances of R14 045 million were reclassified from deposit and current accounts from customers to deposits and current accounts from banks in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the current financial year. 2 2011 and 2010 figures restated, refer to annexure A – restatements on page 212.

Segmental analysis – geographic area The following table sets out the distribution of the group’s deposit and current accounts by geographic area where recorded.

2012 2012 2011 2011 2010 2010 % Rm % Rm % Rm South Africa 76 701 070 76 671 884 76 595 600 Rest of Africa 14 122 876 12 101 286 10 81 342 Outside Africa 10 94 587 12 105 752 14 109 552 100 918 533 100 878 922 100 786 494

162 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 20. Current and deferred tax liabilities Current tax liabilities 4 230 2 353 Deferred tax liabilities 3 374 3 683 7 604 6 036 20.1 Deferred tax analysis Accrued interest receivable (4) (4) Assessed losses (696) (426) Assets on lease 384 557 CGT 831 1 252 Credit impairment charges (858) (713) DAC 123 113 Deferred revenue liability (DRL) (47) (46) Property and equipment 363 97 Derivatives 2 451 1 662 Fair value adjustments on financial instruments 300 220 Intangible asset – present value of in-force (PVIF) life insurance 111 142 Policyholder change in valuation basis 1 715 1 514 Post-employment benefits (30) (56) Secondary tax on companies (STC) (122) Share-based payments (635) (430) Special transfer to life fund (311) (373) Provisions and other items (1 506) (1 144) Deferred tax closing balance 2 191 2 243 Deferred tax liabilities 3 374 3 683 Deferred tax assets (note 10) (1 183) (1 440)

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Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 20. Current and deferred tax liabilities continued 20.2 Deferred tax reconciliation Deferred tax at the beginning of the year 2 243 1 726 Acquisitions (27) Reclassified to assets and liabilities held for sale 143 (Reversing)/originating temporary differences for the year: (52) 401 Accrued interest receivable (64) Assessed losses (270) (226) Assets on lease (173) 9 CGT (421) 87 Credit impairment charges (145) 200 DAC 10 11 DRL (1) (7) Property and equipment 266 (19) Derivatives 789 415 Fair value adjustments on financial instruments 80 (81) Intangible asset – PVIF life insurance (31) (46) Policyholder change in valuation basis 201 276 Post-employment benefits 26 67 STC 122 207 Share-based payments (205) 77 Special transfer to life fund 62 (88) Provisions and other items (362) (417)

Deferred tax at the end of the year 2 191 2 243 Temporary differences for the year comprise: Recognised in OCI from continuing operations Recognised in OCI – fair value adjustments on financial instruments (167) (53) Recognised in equity – deferred tax on share-based payments (69) 83 Recognised in profit or loss 165 192 Translation movement 19 179 Recognised in OCI 2 (12) Other items 17 191

(52) 401

There are unutilised tax losses amounting to R4 253 million (2011: R413 million) for which no deferred tax asset was recognised. There are no other deductible temporary differences or unused tax credits for which no deferred tax asset was recognised.

It is probable that there will be future taxable profits against which the tax losses, in respect of which a deferred tax asset has been recognised, can be utilised.

STC, which is a South African Tax on defined distributions to shareholders, was abolished with effect from 1 April 2012 and replaced by a dividend withholding tax. Dividend withholding tax is a tax on the shareholder.

164 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 21. Provisions and other liabilities 21.1 Summary Trading settlement liabilities 13 454 8 645 Items in the course of transmission 1 684 1 887 Provision for post-employment benefits (note 21.2) 1 149 1 267 Third-party liabilities arising on consolidation of mutual funds (note 21.3) 14 465 11 164 Operating leases – accrued expense (note 13) 30 93 Cash-settled share-based payment liability (annexure D) 1 446 1 296 Insurance payables 5 259 3 820 Staff-related accruals 4 186 3 586 DRL 174 159 Accounts payable 1 336 2 323 Deemed disposal taxation liability 918 Other liabilities 14 373 11 434 58 474 45 674 21.2 Provision for post-employment benefits Balance at the beginning of the year 1 267 1 188 Net provision (released)/raised (118) 79 Balance at the end of the year 1 149 1 267 Details on post-employment benefits are provided in note 37. 21.3 Third-party liabilities arising on consolidation of mutual funds Balance at the beginning of the year 11 164 11 000 Additional mutual funds classified as subsidiaries 692 918 Repayments through withdrawal or change in effective ownership (261) (420) Mutual funds no longer classified as subsidiaries (109) (1 564) Fair value adjustment 2 979 1 230 Balance at the end of the year 14 465 11 164

Liberty has classified certain mutual funds as investments in subsidiaries. Consequently fund interests not held by the group are classified as third party liabilities as they represent demand deposit liabilities measured at fair value. A maturity analysis is not possible as it is dependent on external unit holders’ behaviour outside of Liberty’s control.

2012 2011 Rm Rm 22. Policyholders’ liabilities Policyholders’ liabilities under insurance contracts 168 521 149 005 Insurance contracts (note 22.1) 164 666 145 558 Investment contracts with discretionary participation features (DPF) (note 22.1) 3 855 3 447 Policyholders’ liabilities under investment contracts (note 22.2) 68 163 59 560 236 684 208 565

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Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Investment Investment Insurance contracts Reinsurance Insurance contracts Reinsurance contracts with DPF1 assets2 contracts with DPF1 assets2 Rm Rm Rm Rm Rm Rm 22. Policyholders’ liabilities continued 22.1 Policyholders’ liabilities under insurance contracts and reinsurance assets Balance at the beginning of the year 145 558 3 447 (902) 138 873 2 634 (847) Additions through business acquisitions 301 769 (2) Inflows 55 993 1 194 (919) 38 678 494 (837) Insurance premiums 29 061 659 (845) 26 362 455 (767) Investment returns 26 932 535 (74) 12 309 39 (70) Unwinding of discount rate 1 144 1 (73) 1 017 (70) Investments 25 788 534 (1) 11 292 39 Equity accounted earnings from joint ventures 7 Outflows (34 391) (857) 679 (30 422) (521) 617 Claims and policyholders’ benefits (23 680) (824) 599 (22 106) (472) 543 Claims and policyholders’ benefits under insurance contracts (23 680) (529) 599 (22 106) (234) 543 Switches between investment contracts with DPF to investment contracts without DPF (295) (238) Acquisition costs associated with insurance contracts (3 173) (6) 1 (2 685) (11) 3 General marketing and administration expenses (4 173) (47) 5 (3 694) (31) 2 Preference dividend (794) (621) Finance costs (46) (32) Taxation (2 525) 20 74 (1 284) (7) 69 Net income from insurance operations (2 505) 43 164 (1 920) (46) 167 Changes in estimates (501) (28) (498) (4) Planned margins and other variances (3 711) 51 260 (2 524) (51) 238 New business 275 2 144 Shareholder taxation on transfer of net income 1 432 (8) (70) 958 5 (67) Foreign currency translation 11 28 48 117 Balance at the end of the year 164 666 3 855 (978) 145 558 3 447 (902) Liquidity profile Current 17 833 230 (163) 14 664 326 (168) Non-current 146 833 3 625 (815) 130 894 3 121 (734) 164 666 3 855 (978) 145 558 3 447 (902)

1 The group cannot reliably measure the fair value of the investment contracts with DPF. The DPF is a contractual right that gives investors in these contracts the right to receive supplemental discretionary returns through participation in the surplus arising from the assets held in the investment DPF fund. These supplementary returns are subject to the discretion of the group. 2 Reinsurance assets are included in insurance prepayments and reinsurance assets under other assets in note 11 on page 144. 166 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 22. Policyholders’ liabilities continued 22.2 Policyholders’ liabilities under investment contracts Balance at the beginning of the year 59 560 56 371 Fund inflows from investment contracts (excluding switches) 11 724 9 661 Net fair value adjustment including the change in deferred taxation on investment property 10 035 4 089 Fund outflows from investment contracts (excluding switches) (12 556) (9 924) Switches between investments with DPF to investments without DPF 295 238 Service fee income (895) (875) Balance at the end of the year 68 163 59 560 Liquidity profile Current 7 033 5 689 Non-current 61 130 53 871 68 163 59 560 Net income from investment contracts1 11 65 Service fee income 895 875 Expenses (884) (810) Property expenses applied to investment returns 464 407 Shareholder taxation on transfer of net income (17) (28) Acquisition costs (269) (222) General marketing and administration expenses (1 028) (954) Finance costs (34) (13)

1 Prior to DAC and DRL adjustments.

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Notes to the annual financial statements continued for the year ended 31 December 2012

Notional Carrying Notional Carrying Notional value value value value value Redeemable/ 2012 20121 2012 20111 2011 repayable date Date issued Rate % Callable date Rate after call date % LCm Rm Rm Rm Rm 23. Subordinated debt Subordinated bonds2 The Standard Bank of South Africa 22 400 21 550 16 095 15 178 USA private placement 31 July 20173 31 July 20074 LIBOR5 + 0.88 and 6.446 31 July 2012 LIBOR5 + 1.88 USD355 2 925 2 548 SBK 7 24 May 2020 24 May 2005 9.636 24 May 20157 JIBAR8 + 1.97 ZAR3 000 3 033 3 000 3 033 3 000 SBK 8 10 April 2018 10 April 2006 8.206 10 April 20137 JIBAR8 + 1.50 ZAR1 500 1 528 1 500 1 528 1 500 SBK 9 10 April 2023 10 April 2006 8.406 10 April 20187 JIBAR8 + 1.68 ZAR1 500 1 529 1 500 1 529 1 500 SBK 10 (Tier III) 19 November 20123 19 November 2007 JIBAR8 + 0.675 ZAR300 302 300 SBKI 11 9 April 2019 9 April 2009 CPI indexed9 10 April 20147 RY10 of 7.25 ZAR1 800 2 414 1 800 2 206 1 800 SBK 12 24 November 2021 24 November 2009 10.826 24 November 2016 JIBAR8 + 3.90 ZAR1 600 1 618 1 600 1 618 1 600 SBK 13 24 November 2021 24 November 2009 JIBAR8 + 2.20 24 November 2016 JIBAR8 + 4.20 ZAR1 150 1 159 1 150 1 159 1 150 SBK 14 1 December 2022 1 December 2011 9.666 1 December 20177 CPI indexed9 + 2.69 ZAR1 780 1 795 1 780 1 795 1 780 SBK 15 23 January 2022 23 January 2012 JIBAR8 + 2.00 23 January 2017 CPI indexed9 + 2.36 ZAR1 220 1 236 1 220 SBK 16 15 March 2023 15 March 2012 JIBAR8 + 2.10 15 March 2018 CPI indexed9 + 2.42 ZAR2 000 2 005 2 000 SBK 17 30 July 2024 30 July 2012 JIBAR8 + 2.20 30 July 2019 JIBAR8 + 2.20 ZAR2 000 2 024 2 000 SBK 18 24 October 2025 24 October 2012 JIBAR8 + 2.35 24 October 2020 JIBAR8 + 2.35 ZAR3 500 3 552 3 500 SBK 19 24 October 2024 24 October 2012 JIBAR8 + 2.20 24 October 2019 JIBAR8 + 2.20 ZAR500 507 500 Standard Bank Swaziland December 2019 December 2009 8.10 – 8.70 December 2014 JIBAR8 + 1.00 E80 80 80 80 80 – October 2020 – October 2010 – October 2015 Stanbic Bank Botswana June 2018 – May 2022 June 2008 – May 2012 BWC11 + (0.05 to 1.50) June 2013 – May 2017 BWC11 + (0.80 to 2.25) BWP280 306 306 216 216 Standard Bank Mozambique 29 June 2017 29 June 2007 WA12 + 0.5013 29 June 2012 WA12 + 0.5013 MT260 74 74 78 78 CfC Stanbic Bank Kenya April 2012 – July 2016 October 2005 7Y T-Bond14 and T-Bill15 KES5 400 492 492 514 514 – December 2010 + 1.75 Stanbic Bank Uganda 10 August 2016 10 August 2009 14.50 and T-Bill16 + 1.5017 10 August 2014 UGX30 000 95 95 98 98 Stanbic Bank Ghana 23 January 2022 23 January 2012 11.256 23 January 2017 15.756 GHS7 34 34 Standard Bank Plc 6 307 5 652 5 913 5 395 27 July 2016 27 July 2006 8.012 27 July 20167 LIBOR5 + 3.25 USD142 1 246 1 201 1 189 1 147 2 December 2019 2 December 2009 8.125 USD500 4 849 4 239 4 522 4 046 3 December 201918 3 December 200919 8.0020 USD25 212 212 202 202 Subordinated bonds issued to group companies (603) (592) (666) (648) Total bonds qualifying as regulatory banking capital 29 185 27 691 22 328 20 911 Liberty Qualifying as regulatory insurance capital 2 037 2 000 2 054 2 000 Redeemable – 12 September 2017 12 September 20173 12 September 2005 8.936 12 September 2012 JIBAR8 + 1.86 ZAR2 000 2 054 2 000 Redeemable – 13 August 2017 13 August 2017 13 August 2012 7.676 7.676 ZAR1 000 1 024 1 000 Redeemable – 3 October 2018 3 October 2018 3 October 2012 7.646 7.646 ZAR1 000 1 013 1 000

Total subordinated bonds 31 222 29 691 24 382 22 911 Subordinated loans issued September 2016 December 2006 LIBOR5 + (0.75 to 4.00) September 2011 LIBOR5 + (1.75 to 5.00) USD3 to 20 within the rest of Africa – January 2022 – January 2012 and 11.25 – January 2017 and 15.75 and GHS7 326 326 372 372 Total subordinated debt 31 548 30 017 24 754 23 283 1 The difference between the carrying and notional value represents transaction costs included in the initial carrying amounts, foreign 11 BWC is the rate for three-month Botswana certificates. exchange movements, accrued interest and the unamortised fair value adjustments relating to bonds hedged for interest rate risk. 12 WA is the rate on bonds which carry a floating rate equal to the weighted average of the last six treasury bills maturing at 60 or more days. 2 Tier II, unless otherwise stated. 13 The interest is payable quarterly. 3 Redeemed during 2012. 14 7Y T-Bond refers to the yield on the seven-year Kenya Treasury Bond. 4 These bonds were issued in US dollars (USD355 million) redeemable on 31 July 2017. The bonds are divided into two categories: 15 T-Bill refers to the yield on the latest 91-day or 180-day Kenyan Treasury Bill. – Category A – USD230 million bearing interest at 6.44% compounding semi-annually, switching to LIBOR + 1.88% on 31 July 2012 16 T-Bill refers to the yield on the latest 182-day Uganda Treasury Bill. – Category B – USD125 million at LIBOR + 0.88%, switching to LIBOR + 1.88% on 31 July 2012. 17 Up to 50% of the notes may be issued at a floating rate. The fixed rate is 14.50% and the floating rate is the weighted average of the most 5 LIBOR is the London interbank offer rate for three-month US dollar deposits. recent published 182-day Uganda Government Treasury Bill plus a margin of 150 basis points. 6 Fixed semi-annual coupon. 18 The bonds may be redeemed at the option of the issuer on each interest payment date from 3 December 2014 to 2 December 2019 and at any 7 The issuer may redeem on this date, or any subsequent interest payment date. time following a capital disqualification event. 8 JIBAR is the three-month floating Johannesburg interbank agreed rate. 19 Regulatory approval was received in 2010 on which date these balances qualified as subordinated bonds. 9 The interest rate is calculated in terms of the pricing supplement using the base rate as defined adjusted for changes in the consumer 20 A rate of 8.00% is applicable during the initial interest period up to 3 December 2014, thereafter a rate of 8.50% applies. Interest is payable price index (CPI) as published by Statistics South Africa. semi-annually in arrears. 168 10 RY is the real yield, which is the return from an investment adjusted for the effects of inflation, compounded semi-annually. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

Notional Carrying Notional Carrying Notional value value value value value Redeemable/ 2012 20121 2012 20111 2011 repayable date Date issued Rate % Callable date Rate after call date % LCm Rm Rm Rm Rm 23. Subordinated debt Subordinated bonds2 The Standard Bank of South Africa 22 400 21 550 16 095 15 178 USA private placement 31 July 20173 31 July 20074 LIBOR5 + 0.88 and 6.446 31 July 2012 LIBOR5 + 1.88 USD355 2 925 2 548 SBK 7 24 May 2020 24 May 2005 9.636 24 May 20157 JIBAR8 + 1.97 ZAR3 000 3 033 3 000 3 033 3 000 SBK 8 10 April 2018 10 April 2006 8.206 10 April 20137 JIBAR8 + 1.50 ZAR1 500 1 528 1 500 1 528 1 500 SBK 9 10 April 2023 10 April 2006 8.406 10 April 20187 JIBAR8 + 1.68 ZAR1 500 1 529 1 500 1 529 1 500 SBK 10 (Tier III) 19 November 20123 19 November 2007 JIBAR8 + 0.675 ZAR300 302 300 SBKI 11 9 April 2019 9 April 2009 CPI indexed9 10 April 20147 RY10 of 7.25 ZAR1 800 2 414 1 800 2 206 1 800 SBK 12 24 November 2021 24 November 2009 10.826 24 November 2016 JIBAR8 + 3.90 ZAR1 600 1 618 1 600 1 618 1 600 SBK 13 24 November 2021 24 November 2009 JIBAR8 + 2.20 24 November 2016 JIBAR8 + 4.20 ZAR1 150 1 159 1 150 1 159 1 150 SBK 14 1 December 2022 1 December 2011 9.666 1 December 20177 CPI indexed9 + 2.69 ZAR1 780 1 795 1 780 1 795 1 780 SBK 15 23 January 2022 23 January 2012 JIBAR8 + 2.00 23 January 2017 CPI indexed9 + 2.36 ZAR1 220 1 236 1 220 SBK 16 15 March 2023 15 March 2012 JIBAR8 + 2.10 15 March 2018 CPI indexed9 + 2.42 ZAR2 000 2 005 2 000 SBK 17 30 July 2024 30 July 2012 JIBAR8 + 2.20 30 July 2019 JIBAR8 + 2.20 ZAR2 000 2 024 2 000 SBK 18 24 October 2025 24 October 2012 JIBAR8 + 2.35 24 October 2020 JIBAR8 + 2.35 ZAR3 500 3 552 3 500 SBK 19 24 October 2024 24 October 2012 JIBAR8 + 2.20 24 October 2019 JIBAR8 + 2.20 ZAR500 507 500 Standard Bank Swaziland December 2019 December 2009 8.10 – 8.70 December 2014 JIBAR8 + 1.00 E80 80 80 80 80 – October 2020 – October 2010 – October 2015 Stanbic Bank Botswana June 2018 – May 2022 June 2008 – May 2012 BWC11 + (0.05 to 1.50) June 2013 – May 2017 BWC11 + (0.80 to 2.25) BWP280 306 306 216 216 Standard Bank Mozambique 29 June 2017 29 June 2007 WA12 + 0.5013 29 June 2012 WA12 + 0.5013 MT260 74 74 78 78 CfC Stanbic Bank Kenya April 2012 – July 2016 October 2005 7Y T-Bond14 and T-Bill15 KES5 400 492 492 514 514 – December 2010 + 1.75 Stanbic Bank Uganda 10 August 2016 10 August 2009 14.50 and T-Bill16 + 1.5017 10 August 2014 UGX30 000 95 95 98 98 Stanbic Bank Ghana 23 January 2022 23 January 2012 11.256 23 January 2017 15.756 GHS7 34 34 Standard Bank Plc 6 307 5 652 5 913 5 395 27 July 2016 27 July 2006 8.012 27 July 20167 LIBOR5 + 3.25 USD142 1 246 1 201 1 189 1 147 2 December 2019 2 December 2009 8.125 USD500 4 849 4 239 4 522 4 046 3 December 201918 3 December 200919 8.0020 USD25 212 212 202 202 Subordinated bonds issued to group companies (603) (592) (666) (648) Total bonds qualifying as regulatory banking capital 29 185 27 691 22 328 20 911 Liberty Qualifying as regulatory insurance capital 2 037 2 000 2 054 2 000 Redeemable – 12 September 2017 12 September 20173 12 September 2005 8.936 12 September 2012 JIBAR8 + 1.86 ZAR2 000 2 054 2 000 Redeemable – 13 August 2017 13 August 2017 13 August 2012 7.676 7.676 ZAR1 000 1 024 1 000 Redeemable – 3 October 2018 3 October 2018 3 October 2012 7.646 7.646 ZAR1 000 1 013 1 000

Total subordinated bonds 31 222 29 691 24 382 22 911 Subordinated loans issued September 2016 December 2006 LIBOR5 + (0.75 to 4.00) September 2011 LIBOR5 + (1.75 to 5.00) USD3 to 20 within the rest of Africa – January 2022 – January 2012 and 11.25 – January 2017 and 15.75 and GHS7 326 326 372 372 Total subordinated debt 31 548 30 017 24 754 23 283 1 The difference between the carrying and notional value represents transaction costs included in the initial carrying amounts, foreign 11 BWC is the rate for three-month Botswana certificates. exchange movements, accrued interest and the unamortised fair value adjustments relating to bonds hedged for interest rate risk. 12 WA is the rate on bonds which carry a floating rate equal to the weighted average of the last six treasury bills maturing at 60 or more days. 2 Tier II, unless otherwise stated. 13 The interest is payable quarterly. 3 Redeemed during 2012. 14 7Y T-Bond refers to the yield on the seven-year Kenya Treasury Bond. 4 These bonds were issued in US dollars (USD355 million) redeemable on 31 July 2017. The bonds are divided into two categories: 15 T-Bill refers to the yield on the latest 91-day or 180-day Kenyan Treasury Bill. – Category A – USD230 million bearing interest at 6.44% compounding semi-annually, switching to LIBOR + 1.88% on 31 July 2012 16 T-Bill refers to the yield on the latest 182-day Uganda Treasury Bill. – Category B – USD125 million at LIBOR + 0.88%, switching to LIBOR + 1.88% on 31 July 2012. 17 Up to 50% of the notes may be issued at a floating rate. The fixed rate is 14.50% and the floating rate is the weighted average of the most 5 LIBOR is the London interbank offer rate for three-month US dollar deposits. recent published 182-day Uganda Government Treasury Bill plus a margin of 150 basis points. 6 Fixed semi-annual coupon. 18 The bonds may be redeemed at the option of the issuer on each interest payment date from 3 December 2014 to 2 December 2019 and at any 7 The issuer may redeem on this date, or any subsequent interest payment date. time following a capital disqualification event. 8 JIBAR is the three-month floating Johannesburg interbank agreed rate. 19 Regulatory approval was received in 2010 on which date these balances qualified as subordinated bonds. 9 The interest rate is calculated in terms of the pricing supplement using the base rate as defined adjusted for changes in the consumer 20 A rate of 8.00% is applicable during the initial interest period up to 3 December 2014, thereafter a rate of 8.50% applies. Interest is payable price index (CPI) as published by Statistics South Africa. semi-annually in arrears. 10 RY is the real yield, which is the return from an investment adjusted for the effects of inflation, compounded semi-annually. 169 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

24. Classification of assets and liabilities Accounting classifications and fair values The table below sets out the group’s classification of assets and liabilities, and their fair values.

Other Other non- Total Held-for- Designated Held-to- Loans and Available- amortised financial carrying trading1 at fair value maturity receivables2 for-sale cost2 assets/liabilities amount Fair value3 Note Rm Rm Rm Rm Rm Rm Rm Rm Rm 2012 Assets Cash and balances with central banks 3 61 985 61 985 61 985 Derivative assets 4.7 120 190 120 190 120 190 Trading assets 5.1 114 419 114 419 114 419 Pledged assets 6.1 9 977 1 663 11 640 11 640 Non-current assets held for sale 7 960 960 Financial investments 8 46 284 574 13 744 4 070 15 724 318 158 319 352 Loans and advances to banks 9.1 3 166 245 104 785 108 196 107 776 Loans and advances to customers 9.1 10 862 4 882 697 221 702 975 702 025 Interest in associates and joint ventures 12 17 246 17 246 Other financial assets 24 581 24 581 24 581 Other non-financial assets 63 870 63 870 244 642 288 602 18 871 892 642 17 387 82 076 1 544 220 Liabilities Derivative liabilities 4.7 121 998 121 998 121 998 Trading liabilities 18 39 206 39 206 39 206 Deposits from banks 19 1 737 122 538 124 275 124 251 Deposits from customers 19 44 42 727 751 487 794 258 805 422 Policyholders’ liabilities 22 68 163 168 521 236 684 68 163 Subordinated debt 23 31 548 31 548 37 890 Other financial liabilities 48 231 48 231 48 231 Other non-financial liabilities 17 847 17 847 161 248 112 627 953 804 186 368 1 414 047 2011 Assets Cash and balances with central banks 3 31 907 31 907 31 907 Derivative assets 4.7 150 046 150 046 150 046 Trading assets 5.1 90 449 90 449 90 449 Pledged assets 6.1 4 764 1 349 6 113 6 113 Non-current assets held for sale 7 539 25 551 3 140 4 855 34 085 29 230 Financial investments4 8 550 255 924 12 815 5 359 14 671 289 319 292 045 Loans and advances to banks5 9.1 63 3 481 126 713 130 257 130 061 Loans and advances to customers5 9.1 3 618 667 433 671 051 670 846 Interest in associates and joint ventures 12 11 697 2 238 13 935 11 648 Other financial assets 11 660 11 660 11 660 Other non-financial assets 64 007 64 007 246 411 274 720 12 815 868 623 19 160 71 100 1 492 829 Liabilities Derivative liabilities 4.7 153 142 153 142 153 142 Trading liabilities6 18 30 264 30 264 30 264 Non-current liabilities held for sale 7 37 24 342 3 560 27 939 24 379 Deposits from banks5 19 3 271 126 470 129 741 129 431 Deposits from customers4,5,6,7 19 53 881 695 300 749 181 746 177 Policyholders’ liabilities 22 59 560 149 005 208 565 59 560 Subordinated debt 23 24 754 24 754 25 082 Other financial liabilities 11 164 26 928 38 092 38 092 Other non-financial liabilities 13 618 13 618 183 443 127 876 897 794 166 183 1 375 296 1 Includes derivative assets or liabilities held-for-hedging. Refer to note 4.7 on page 127. 6 The comparative information was restated to reflect the presentation consequences of the restatements in annexure A – restatements on page 212. 2 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks. 7 During the previous financial year, comparative amounts for deposits from customers were reclassified from other amortised cost to the designated at fair value 3 Carrying value has been used where it approximates fair value, excluding non-financial assets and liabilities. category to be consistent with the classification of such amounts that were reported in the prior financial year (2011). During the current financial year (2012) Refer to the fair value section in accounting policy 4 – Financial instruments on page 232 for a description on how fair values are determined. it was determined that such reclassification was incorrect. These amounts were deposits from customers for which fair value hedge adjustments had been 4 Included in the restated comparative information is the restatement of financial assets of R2 763 million from the designated at fair value category to recognised and hence such amounts should have rather remained classified as amortised cost together with its fair value hedge adjustment. The fair value the held-to-maturity category and financial liabilities of R2 357 million from the designated at fair value category to the amortised cost category. These adjustments, which were historically classified in the designated at fair value category, should rather have been classified within the amortised cost category. restatements reflect the original intention of management and the underlying nature of the financial instruments. The restatement had no impact on the Accordingly, in order to adjust for the previous incorrect reclassification an amount of R28 822 million has been reclassified from designated at fair value to 170 group’s income statement or reserves. other amortised cost. The reclassification reflects the original intention of management and is in accordance with IFRS. No adjustments to the carrying value of 5 2011 balances reclassified in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the the deposits from customers arose as a result of the reclassification. current financial year. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

24. Classification of assets and liabilities Accounting classifications and fair values The table below sets out the group’s classification of assets and liabilities, and their fair values.

Other Other non- Total Held-for- Designated Held-to- Loans and Available- amortised financial carrying trading1 at fair value maturity receivables2 for-sale cost2 assets/liabilities amount Fair value3 Note Rm Rm Rm Rm Rm Rm Rm Rm Rm 2012 Assets Cash and balances with central banks 3 61 985 61 985 61 985 Derivative assets 4.7 120 190 120 190 120 190 Trading assets 5.1 114 419 114 419 114 419 Pledged assets 6.1 9 977 1 663 11 640 11 640 Non-current assets held for sale 7 960 960 Financial investments 8 46 284 574 13 744 4 070 15 724 318 158 319 352 Loans and advances to banks 9.1 3 166 245 104 785 108 196 107 776 Loans and advances to customers 9.1 10 862 4 882 697 221 702 975 702 025 Interest in associates and joint ventures 12 17 246 17 246 Other financial assets 24 581 24 581 24 581 Other non-financial assets 63 870 63 870 244 642 288 602 18 871 892 642 17 387 82 076 1 544 220 Liabilities Derivative liabilities 4.7 121 998 121 998 121 998 Trading liabilities 18 39 206 39 206 39 206 Deposits from banks 19 1 737 122 538 124 275 124 251 Deposits from customers 19 44 42 727 751 487 794 258 805 422 Policyholders’ liabilities 22 68 163 168 521 236 684 68 163 Subordinated debt 23 31 548 31 548 37 890 Other financial liabilities 48 231 48 231 48 231 Other non-financial liabilities 17 847 17 847 161 248 112 627 953 804 186 368 1 414 047 2011 Assets Cash and balances with central banks 3 31 907 31 907 31 907 Derivative assets 4.7 150 046 150 046 150 046 Trading assets 5.1 90 449 90 449 90 449 Pledged assets 6.1 4 764 1 349 6 113 6 113 Non-current assets held for sale 7 539 25 551 3 140 4 855 34 085 29 230 Financial investments4 8 550 255 924 12 815 5 359 14 671 289 319 292 045 Loans and advances to banks5 9.1 63 3 481 126 713 130 257 130 061 Loans and advances to customers5 9.1 3 618 667 433 671 051 670 846 Interest in associates and joint ventures 12 11 697 2 238 13 935 11 648 Other financial assets 11 660 11 660 11 660 Other non-financial assets 64 007 64 007 246 411 274 720 12 815 868 623 19 160 71 100 1 492 829 Liabilities Derivative liabilities 4.7 153 142 153 142 153 142 Trading liabilities6 18 30 264 30 264 30 264 Non-current liabilities held for sale 7 37 24 342 3 560 27 939 24 379 Deposits from banks5 19 3 271 126 470 129 741 129 431 Deposits from customers4,5,6,7 19 53 881 695 300 749 181 746 177 Policyholders’ liabilities 22 59 560 149 005 208 565 59 560 Subordinated debt 23 24 754 24 754 25 082 Other financial liabilities 11 164 26 928 38 092 38 092 Other non-financial liabilities 13 618 13 618 183 443 127 876 897 794 166 183 1 375 296 1 Includes derivative assets or liabilities held-for-hedging. Refer to note 4.7 on page 127. 6 The comparative information was restated to reflect the presentation consequences of the restatements in annexure A – restatements on page 212. 2 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks. 7 During the previous financial year, comparative amounts for deposits from customers were reclassified from other amortised cost to the designated at fair value 3 Carrying value has been used where it approximates fair value, excluding non-financial assets and liabilities. category to be consistent with the classification of such amounts that were reported in the prior financial year (2011). During the current financial year (2012) Refer to the fair value section in accounting policy 4 – Financial instruments on page 232 for a description on how fair values are determined. it was determined that such reclassification was incorrect. These amounts were deposits from customers for which fair value hedge adjustments had been 4 Included in the restated comparative information is the restatement of financial assets of R2 763 million from the designated at fair value category to recognised and hence such amounts should have rather remained classified as amortised cost together with its fair value hedge adjustment. The fair value the held-to-maturity category and financial liabilities of R2 357 million from the designated at fair value category to the amortised cost category. These adjustments, which were historically classified in the designated at fair value category, should rather have been classified within the amortised cost category. restatements reflect the original intention of management and the underlying nature of the financial instruments. The restatement had no impact on the Accordingly, in order to adjust for the previous incorrect reclassification an amount of R28 822 million has been reclassified from designated at fair value to group’s income statement or reserves. other amortised cost. The reclassification reflects the original intention of management and is in accordance with IFRS. No adjustments to the carrying value of 171 5 2011 balances reclassified in order to align the counterparty to the underlying lending arrangements and to conform with the basis of disclosure in the the deposits from customers arose as a result of the reclassification. current financial year. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

25. Financial instruments measured at fair value The tables that follow analyse financial instruments carried at fair value at the end of the reporting period, by level of fair value hierarchy as required by IFRS 7. The different levels are based on the extent that quoted prices are used in the calculation of the fair value of the financial instruments and the levels have been defined as follows:

Level 1 – fair values are based on quoted market prices (unadjusted) in active markets for an identical instrument.

Level 2 – fair values are calculated using valuation techniques based on observable inputs, either directly (that is as quoted prices) or indirectly (that is derived from quoted prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 – fair values are based on valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Level 1 Level 2 Level 3 Total Rm Rm Rm Rm 2012 Assets Derivative assets 8 286 108 507 3 397 120 190 Trading assets 45 172 62 903 6 344 114 419 Pledged assets 9 105 2 535 11 640 Financial investments 143 184 151 857 5 303 300 344 Loans and advances to banks 655 2 511 3 166 Loans and advances to customers 3 654 215 872 206 405 328 967 15 259 550 631 Comprising: Held-for-trading 244 642 Designated at fair value 288 602 Available-for-sale 17 387 550 631 Liabilities Derivative liabilities 8 365 111 298 2 335 121 998 Trading liabilities 13 256 20 929 5 021 39 206 Deposits from banks 9 1 728 1 737 Deposits from customers 4 335 38 436 42 771 Policyholders’ liabilities 68 153 10 68 163 25 965 240 544 7 366 273 875 Comprising: Held-for-trading 161 248 Designated at fair value 112 627 273 875

172 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

25. Financial instruments measured at fair value continued Level 1 Level 2 Level 3 Total Rm Rm Rm Rm 2011 Assets Derivative assets 12 411 133 785 3 850 150 046 Trading assets 23 169 61 414 5 866 90 449 Pledged assets 4 739 1 374 6 113 Non-current asset held for sale 3 609 50 20 3 679 Financial investments1 136 137 128 669 6 339 271 145 Loans and advances to banks 816 2 728 3 544 Loans and advances to customers 2 702 916 3 618 Associates held at fair value 11 697 11 697 180 881 342 419 16 991 540 291 Comprising: Held-for-trading 246 411 Designated at fair value 274 720 Available-for-sale 19 160 540 291 Liabilities Derivative liabilities 9 883 140 549 2 710 153 142 Trading liabilities2 9 473 14 698 6 093 30 264 Non-current liabilities held for sale 37 37 Deposits from banks 3 271 3 271 Deposits from customers1,2 3 347 50 428 106 53 881 Policyholders’ liabilities 59 532 28 59 560 Other financial liabilities 11 164 11 164 22 740 279 642 8 937 311 319 Comprising: Held-for-trading 183 443 Designated at fair value 127 876 311 319

1 2011 deposits from customers and financial investments restated to reflect the presentation consequences of reclassifications as explained in note 24 on page 170. 2 The comparative information was restated to reflect the presentation consequences of the restatement in annexure A – restatements on page 212.

173 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

25. Financial instruments measured at fair value continued Reconciliation of level 3 financial assets The tables below set out the reconciliation of financial assets that are measured at fair value based on inputs that are not based on observable market data (level 3):

Non-current Loans and Derivative Trading assets held Financial advances to assets assets for sale investments customers Total Rm Rm Rm Rm Rm Rm Balance at 1 January 2011 2 514 4 213 6 682 1 608 15 017 Reclassified as held for sale 19 (19) Total gains/(losses) included in profit or loss 1 815 (219) 15 675 (115) 2 171 Interest income (42) (42) Trading revenue 1 815 (219) 15 63 1 674 Other revenue 303 (73) 230 Investment gains 309 309 Originations and purchases 188 2 981 1 537 280 3 987 Sales (819) (3 506) (1 749) (6 074) Settlements1 (244) (17) (87) (980) (1 328) Transfers into level 32 130 1 442 1 572 Transfers out of level 33 (104) (1) (598) (43) (746) Exchange movements 370 956 2 898 166 2 392 Balance at 1 January 2012 3 850 5 866 20 6 339 916 16 991 Disposed4 (20) (20) Total (losses)/gains included in profit or loss (872) 83 525 126 (138) Trading revenue (872) 83 17 (772) Other revenue 285 126 411 Investment gains 223 223 Total gains included in OCI 8 8 Originations and purchases 33 1 813 1 799 37 3 682 Sales (338) (4 150) (3 057) (473) (8 018) Settlements1 597 (63) (271) 263 Transfers into level 32 39 2 459 2 498 Transfers out of level 33 (107) (180) (287) Exchange movements 88 273 (141) 60 280 Balance at 31 December 2012 3 397 6 344 5 303 215 15 259

1 Derivative fair values represent the net present value of positive and/or negative future cash flows. Settlements may increase or decrease the carrying value of derivative assets. 2 During 2012 and 2011, the valuation inputs of certain financial assets became unobservable. The fair values were transferred into level 3. 3 During 2012 and 2011, the valuation inputs of certain level 3 financial assets became observable. The fair values were transferred into level 2. 4 SBA was disposed of during the year. Refer to note 7 on page 136.

174 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

25. Financial instruments measured at fair value continued (Losses)/gains for the period included in profit or loss for level 3 financial assets held at the end of the reporting period Loans and Derivative Trading Financial advances to assets assets investments customers Total Rm Rm Rm Rm Rm 2012 Trading revenue (506) (115) 17 (604) Other revenue 6 213 219 Investment gains 223 223 (506) (115) 246 213 (162) 2011 Interest income (42) (42) Trading revenue 1 801 (344) 63 1 520 Other revenue 165 (85) 80 Investment gains 309 309 1 801 (344) 537 (127) 1 867

Reconciliation of level 3 financial liabilities The table below sets out the reconciliation of financial liabilities that are measured at fair value based on inputs that are not based on observable market data (level 3):

Deposits Policy- Derivative Trading from holders’ liabilities liabilities customers liabilities Total Rm Rm Rm Rm Rm Balance at 1 January 2011 583 3 035 449 35 4 102 Total losses/(gains) included in profit or loss 1 848 (296) 8 1 560 Interest expense 8 8 Trading revenue 1 848 (296) 1 552 Issuances 30 2 753 104 2 887 Sales (104) (3) (107) Settlements1 (494) (3 238) (67) (3 799) Transfers into level 32 540 2 917 3 457 Transfers out of level 33 (219) (369) (588) Net change in policyholders’ liabilities (7) (7) Exchange movements 526 922 (16) 1 432 Balance at 1 January 2012 2 710 6 093 106 28 8 937 Total losses included in profit or loss 137 145 282 Trading revenue 137 145 282 Issuances 126 126 Sales (114) (47) (161) Issues 489 489 Settlements1 (608) (1 990) 143 (2 455) Transfers into level 32 40 39 79 Net change in policyholders’ liabilities (18) (18) Exchange movements 44 245 (202) 87 Balance at 31 December 2012 2 335 5 021 10 7 366 1 Derivative fair values represent the net present value of positive and/or negative future cash flows. Settlements may increase or decrease the carrying value of derivative liabilities. 2 During 2012 and 2011, the valuation inputs of certain financial liabilities became unobservable. The fair values were transferred into level 3. 3 During 2011, the valuation inputs of certain level 3 financial liabilities became observable. The fair values were transferred into level 2. 175 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

25. Financial instruments measured at fair value continued Losses/(gains) for the period included in profit or loss for level 3 financial liabilities held at the end of the reporting period Derivative Trading liabilities liabilities Total Rm Rm Rm 2012 Trading revenue 396 77 473 Total 396 77 473 2011 Trading revenue 1 864 (311) 1 553 Total 1 864 (311) 1 553

The fair value of level 3 financial instruments is determined using valuation techniques which incorporate assumptions that are not supported by prices from observable current market transactions in the same instruments and are not based on available observable market data. Such assumptions include risk premiums, liquidity discount rates, credit risk, volatilities and correlations. Changes in these assumptions could affect the reported fair values of these financial instruments.

The fair value of level 3 financial instruments is determined using valuation techniques which incorporate assumptions based on unobservable inputs and are subject to management judgement. Although the group believes that its estimates of fair values are appropriate, changing one or more of these assumptions to reasonably possible alternative values could impact the fair value of the financial instruments. The table below indicates the valuation techniques and main assumptions used in the determination of the fair value of the level 3 financial instruments. The table further indicates the effect that a change in one or more of the inputs to a reasonably possible alternative assumption would have on profit or loss at the reporting date (where the change in the input would change the fair value of the financial instrument significantly). The changes in the inputs that have been used in the analysis below have been determined taking into account several considerations, such as the nature of the instrument and the market within which the instrument is transacted.

Effect on profit or loss (Un- Valuation basis/ Favourable favourable) technique Main assumptions Rm Rm 20121 Derivative Discounted cash flow model, Discount, liquidity discount, instruments Black-Scholes model risk-free, and volatility rates 192 Trading assets Discounted cash flow model Discount and liquidity discount rates 182 (182) Financial Discounted cash flow model, Discount and liquidity discount investments earnings multiple, sustainable rates, earnings multiple earnings 245 (261) Loans and advances Discounted cash flow model Discount rate to customers 1 (1) Trading liabilities Discounted cash flow model Discount rate 140 (140) 760 (584)

1 The effect on profit or loss for reasonably possible assumptions on deposits from customers and policyholders’ liabilities is negligible.

176 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

25. Financial instruments measured at fair value continued Effect on profit or loss (Un- Valuation basis/ Favourable favourable) technique Main assumptions Rm Rm 20111,2 Derivative Discounted cash flow model, Discount, liquidity discount, instruments Black-Scholes model risk-free, and volatility rates 353 (353) Trading assets Discounted cash flow model Discount and liquidity discount rates 147 (141) Financial Discounted cash flow model, Discount and liquidity discount investments earnings multiple, sustainable rates, earnings multiple earnings 217 (208) Loans and advances Discounted cash flow model Discount rate to customers 6 (6) Trading liabilities Discounted cash flow model Discount rate 264 (264) 987 (972)

1 The effect on profit or loss for reasonably possible alternative assumptions on deposits from customers and policyholders’ liabilities is negligible. 2 The effect on profit or loss for reasonably possible alternative assumptions on non-current assets held for sale is negligible.

26. Financial assets and financial liabilities designated at fair value through profit or loss 26.1 Loans and advances The group’s maximum exposure to credit risk for loans and advances designated at fair value through profit or loss is R4 028 million (2011: R7 099 million).

The maximum exposure to credit risk is reduced by R73 million (2011: R680 million) by using credit derivatives and similar instruments. Fair value changes attributable to changes in credit risk on loans and advances designated at fair value through profit or loss amounted to a gain of R147 million (2011: R79 million loss).

The change for the year in fair value of the designated loans and advances, that is attributable to changes in credit risk, is determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market risk.

26.2 Financial liabilities Fair value changes attributable to changes in credit risk on financial liabilities designated at fair value through profit or loss amounted to a gain of R112 million (2011: R18 million gain).

The changes in the fair value of the designated financial liabilities attributable to changes in credit risk are calculated by reference to the change in the credit risk implicit in the market value of the bank’s senior notes.

The amount the group would contractually be required to pay at maturity of the financial liabilities designated at fair value through profit or loss amounts to R44 441 million (2011: R52 296 million)1 R23 million lower (2011: R4 856 million lower) than the carrying amount. This does not include policyholders’ liabilities with a carrying value of R68 163 million (2011: R59 560 million) and third-party liabilities arising on consolidation of mutual funds with a carrying value of R14 465 million (2011: R11 164 million).

1 An amount of R28 822 million and R2 357 million was reclassified from designated at fair value to other amortised cost for deposits from customers. Refer to note 24 on page 170.

177 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 27. Contingent liabilities and commitments 27.1 Contingent liabilities Letters of credit and bankers’ acceptances 14 218 15 345 Guarantees 45 247 36 307 59 465 51 652 Loan commitments of R97 162 million (2011: R75 929 million) that are irrevocable over the life of the facility or revocable only in response to material adverse changes are included in the risk management section on page 44. 27.2 Capital commitments Contracted capital expenditure1 2 153 2 846 Capital expenditure authorised but not yet contracted2 8 832 7 901 10 985 10 747

1 Includes an amount of R770 million (2011: R627 million) relating to investment property. 2 Includes an amount of R1 150 million (2011: R824 million) relating to investment property. The expenditure will be funded from the group’s internal resources. 27.3 Operating lease commitments The future minimum payments under non-cancellable operating leases are as follows: Properties Within 1 year 1 267 1 338 After 1 year but within 5 years 2 218 3 094 After 5 years 900 1 096 4 385 5 528 Equipment Within 1 year 29 266 After 1 year but within 5 years 31 76 60 342

The operating lease commitments comprise a number of separate operating leases in relation to properties and equipment, none of which is individually significant to the group.

27.4 Legal proceedings In the conduct of its ordinary course of business, the group is exposed to various actual and potential claims, lawsuits and other proceedings relating to alleged errors and omissions, or non-compliance with laws and regulations. The directors are satisfied, based on present information and the assessed probability of claims eventuating, that the group has adequate insurance programmes and provisions in place to meet such claims.

178 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 28. Supplementary income statement information 28.1 Interest income Interest on loans and advances 63 132 56 331 Interest on investments 3 247 1 409 Unwinding of discount element of credit impairments for loans and advances (note 9.3) 733 944 Fair value adjustments on dated financial instruments 153 (312) Dividends on dated securities 1 597 1 537 68 862 59 909 All interest income reported above with the exception of R3 197 million (2011: R3 839 million)1 relates to financial assets not carried at fair value through profit or loss.

1 2011 restated to reflect the effect of the transfer of financial investments from designated at fair value through profit or loss to held to maturity. Refer to note 24 on page 170. 28.2 Interest expense Current accounts 274 355 Savings and deposit accounts 11 903 10 975 Foreign finance creditors 851 631 Subordinated debt 2 477 2 136 Other interest-bearing liabilities 19 342 16 985 34 847 31 082 All interest expense reported above with the exception of R706 million (2011: R2 165 million)1 relates to financial liabilities not carried at fair value through profit or loss.

1 2011 restated to reflect the effect of the transfer of customer deposits from designated at fair value through profit or loss to amortised cost. Refer to note 24 on page 170. 28.3 Net fee and commission revenue Fee and commission revenue 24 732 22 957 Account transaction fees 9 286 9 101 Card-based commission 4 132 3 644 Knowledge based fees and commission 2 465 2 680 Electronic banking 2 082 1 858 Insurance – fees and commission 1 381 1 203 Foreign currency service fees 1 381 1 274 Documentation and administration fees 1 222 890 Other 2 783 2 307 Fee and commission expense (3 413) (3 175) 21 319 19 782 All net fee and commission revenue reported above relates to financial assets or liabilities not carried at fair value through profit or loss. 28.4 Trading revenue Foreign exchange 3 723 3 605 Debt securities 3 808 2 615 Commodities 1 553 1 376 Equities (251) 247 Other 60 53 8 893 7 896 Interest and dividend income included in trading revenue: Net interest income 747 769 Dividend income 81 153 828 922 179 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 28. Supplementary income statement information continued 28.5 Other revenue Banking and other 1 927 344 Property-related revenue 524 386 Insurance – bancassurance profit 1 371 1 365 Loss on realisation of undated available-for-sale financial assets (35) Net gains/(losses) on undated financial instruments designated at fair value through profit or loss 326 (13) 4 148 2 047 28.6 Net insurance premiums Insurance premiums 30 720 27 302 Reinsurance premiums (1 089) (909) 29 631 26 393 28.7 Investment income and gains Investment income 13 332 11 723 Investment gains 30 040 8 300 43 372 20 023 Comprising: Investment income 13 332 11 723 Interest income1 6 795 6 444 Dividends received 3 392 2 634 Listed shares 2 788 2 107 Unlisted instruments 604 527 Rental income from investment property 2 290 1 902 Hotel operations’ sales 720 679 Adjustment to surplus recognised on defined benefit pension fund 47 15 Sundry income 88 49 Investment gains 30 040 8 300 Investment property 1 188 904 Financial instruments held at fair value through profit or loss 27 316 6 956 Financial instruments held for trading through profit or loss (831) (502) Cash and cash equivalents 32 Foreign exchange differences on subsidiaries’ monetary items (13) (9) Foreign currency translation reserve recycled through profit or loss (2) Adjustment to joint venture purchase price 1 4 Consolidated mutual funds 2 381 915

43 372 20 023

1 Interest of R6 710 million (2011: R6 354 million) relates to financial assets held at fair value through profit or loss. Included in interest income are proceeds on the sale of rights to dividends of Rnil million (2011: R58 million).

180 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 28. Supplementary income statement information continued 28.8 Credit impairment charges Net credit impairments raised for loans and advances 9 962 7 849 Recoveries on loans and advances previously written off (1 162) (1 413) 8 800 6 436 Comprising: Net specific credit impairment charges 9 040 5 849 Specific credit impairment charges (note 9.3) 10 202 7 262 Recoveries on loans and advances previously written off (1 162) (1 413) Portfolio credit impairment (reversal)/charges (note 9.3) (240) 587 8 800 6 436 28.9 Net insurance benefits and claims Claims and policyholders’ benefits under insurance contracts 25 004 22 897 Insurance claims recovered from reinsurers (672) (627) 24 332 22 270 Change in policyholder liabilities under insurance contracts 19 532 6 210 Insurance contracts 19 219 6 336 Investment contracts with DPF 380 (73) Reinsurance assets (67) (53)

43 864 28 480 28.10 Staff costs – banking activities Salaries and allowances 21 113 18 295 Equity-linked transactions – group equity compensation plans (annexure D) 1 082 846 22 195 19 141 28.11 Restructuring costs – banking activities Onerous lease provision 56 Redundancy costs 487 Impairment – intangible assets 215 758 28.12 Acquisition costs – investment management and life insurance activities Insurance contracts 3 178 2 693 Investment contracts 219 197 Short-term insurance 90 42 Asset management 331 336 3 818 3 268 Comprising: Incurred during the year 3 864 3 293 Deferred acquisition costs (259) (244) Amortisation and impairment of DAC 213 219 3 818 3 268

181 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 28. Supplementary income statement information continued 28.13 Other operating expenses Banking activities 17 803 15 584 Information technology 3 636 3 183 Communication 1 403 1 227 Premises 3 133 2 876 Other 9 631 8 298 Investment management and life insurance activities 8 134 7 142 Staff costs 3 032 2 595 Office costs 2 168 1 811 Training and development costs 401 412 Other 2 533 2 324

25 937 22 726 The following disclosable items are included in other operating expenses: Amortisation – intangible assets (note 14.2) 1 005 739 Auditors’ remuneration 364 245 Audit fees 188 195 Current year 196 194 Prior year (8) 1 Fees for other services1 176 50 Depreciation (note 15.2) 2 595 2 288 Property, comprises: – freehold 61 54 – leasehold 364 301 Equipment, comprises: – computer equipment 1 356 1 179 – motor vehicles 93 97 – office equipment 122 111 – furniture and fittings 599 546 Impairments 264 138 Property (note 15.2) 29 Intangible assets – computer software (note 14.2) 264 109 Operating lease charges 2 071 1 848 Properties 2 058 1 832 Equipment 13 16 Premises – other expenses 2 366 2 228 Professional fees 2 484 1 950 Managerial 40 56 Technical and other 2 444 1 894 Profit on sale of property and equipment (30) (62)

1 All ‘fees for other services’ paid to the group’s auditors were considered and approved by the group’s audit committee. The fees paid for 2012 include a number of non-recurring items.

182 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 28. Supplementary income statement information continued 28.14 Goodwill impairment Goodwill impairment charge on subsidiaries (note 14.1) 777 61 28.15 Profit for the year from discontinued operation The agreed disposal of the group’s investment in SBA resulted in the group classifying its investment in SBA as a discontinued operation. The profit for the year from the discontinued operation includes the group’s share of the profits and losses from SBA until the date of disposal, as well as the profit on disposal of the business. Refer to note 7 on page 136. Net interest income 3 005 2 295 Interest income 4 157 3 151 Interest expense 1 152 856 Non-interest revenue 1 963 1 477 Net fee and commission revenue 1 266 1 035 Fee and commission revenue 1 851 1 482 Fee and commission expense 585 447 Trading revenue 652 377 Other revenue 45 65

Total income 4 968 3 772 Credit impairment charges 376 152 Income after credit impairment charges 4 592 3 620 Operating expenses in banking activities 2 715 2 311 Staff costs 1 735 1 373 Other operating expenses 980 938

Net income before associates and joint ventures 1 877 1 309 Share of profits from associates and joint ventures 21 15 Net income before indirect taxation 1 898 1 324 Indirect taxation 507 359 Profit before direct taxation 1 391 965 Direct taxation 481 324 Profit for the year from discontinued operation 910 641 Attributable to non-controlling interests 227 160 Attributable to ordinary shareholders 683 481 Profit from disposal of discontinued operation 1 525 Discontinued operation 2 435 641

183 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

28. Supplementary income statement information continued 28.16 Other comprehensive income after tax for the year from discontinued operation Ordinary Non- shareholder’s controlling Total equity interests equity Rm Rm Rm 2012 Profit for the year from discontinued operation 683 227 910 Other comprehensive income after tax for the year from discontinued operation 509 106 615 Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations 533 114 647 Net change in fair value of cash flow hedges 12 4 16 Realised fair value adjustments of cash flow hedges transferred to profit or loss (10) (3) (13) Net change in fair value of available-for-sale financial assets (11) (4) (15) Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (15) (5) (20)

Total comprehensive income for the year from discontinued operation 1 192 333 1 525 2011 Profit for the year from discontinued operation 481 160 641 Other comprehensive income after tax for the year from discontinued operation 83 79 162 Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations 76 77 153 Net change in fair value of cash flow hedges transferred to profit or loss (2) (1) (3) Realised fair value adjustments of cash flow hedges transferred to profit or loss (1) (1) Net change in fair value of available-for-sale financial assets 33 11 44 Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (23) (8) (31)

Total comprehensive income for the year from discontinued operation 564 239 803 29. Emoluments of Standard Bank Group Limited directors and prescribed officers Refer to annexure F on page 252.

184 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 30. Taxation Indirect taxation (note 30.1) 1 766 1 384 Direct taxation (note 30.2) 7 075 5 713 8 841 7 097 30.1 Indirect taxation Value added tax (VAT) 1 570 1 163 Duties 7 7 Financial services levy 27 24 Skills development levy 115 98 Other indirect taxes 47 92 1 766 1 384 30.2 Direct taxation Current year 8 191 5 924 South African normal tax 5 756 4 059 South African withholding tax 72 South African deferred tax 22 720 STC 104 STC – deferred tax 122 207 Foreign normal and withholding tax 1 741 1 311 Foreign deferred tax (568) (751) Capital gains tax current 1 402 144 Capital gains tax deferred (446) 130 Deferred tax adjustment attributable to decrease in tax rate 90 Prior years (1 208) (193) South African normal tax (1 666) (63) South African deferred tax (3) 10 Capital gains tax deferred (43) Foreign normal and withholding tax (75) (34) Foreign deferred tax 536 (63)

6 983 5 731 Income tax recognised in OCI 23 65 Deferred tax 165 65 Current tax (142) Deferred tax recognised directly in equity 69 (83) Direct taxation per the income statement 7 075 5 713

185 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

30. Taxation continued 30.2 Direct taxation continued Income tax recognised in other comprehensive income from continuing operations The table below sets out the amount of income tax relating to each component within OCI:

Tax (expense)/ Before tax benefit Net of tax Rm Rm Rm 2012 Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 544 544 Net change on hedges of net investments in foreign operations 181 181 Net change in fair value of cash flow hedges 204 (33) 171 Realised fair value adjustments of cash flow hedges transferred to profit or loss (454) 53 (401) Net change in fair value of available-for-sale financial assets 806 (54) 752 Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss (568) 10 (558) Items that may not be reclassified to profit or loss Other losses (49) 47 (2) 664 23 687 2011 Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 5 531 5 531 Net change on hedges of net investments in foreign operations (279) (279) Net change in fair value of cash flow hedges 258 (44) 214 Realised fair value adjustments of cash flow hedges transferred to profit or loss (211) 58 (153) Net change in fair value of available-for-sale financial assets (624) 58 (566) Realised fair value adjustments on available-for-sale financial assets transferred to profit or loss 35 (7) 28 Items that may not be reclassified to profit or loss Other gains 81 81 4 791 65 4 856

186 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

30. Taxation continued 30.2 Direct taxation continued Future tax relief The group has estimated tax losses of R1 532 million (2011: R1 391 million) which are available for set-off against future taxable income for which a deferred tax asset was recognised. These deferred tax asset balances were offset against deferred tax liabilities, refer to annexure E, accounting policy 15 – Tax on page 241.

2012 2011 % % Rate reconciliation including indirect and direct tax The total tax charge for the year as a percentage of net income before indirect tax 34 32 VAT (6) (5) Duties, skills development levy and other indirect taxes (1) (1) STC (1) Policyholder funds – normal tax (1) (1) CGT (4) (1) The corporate tax charge for the year as a percentage of profit before indirect tax 22 23 Tax relating to prior years 4 1 Net tax charge 26 24 The charge for the year has been reduced/(increased) as a consequence of: Dividends received 4 4 Other non-taxable income 4 4 Other permanent differences (6) (4) Standard rate of South African tax 28 28 Direct taxation rate reconciliation The direct taxation charge for the year as a percentage of profit before direct taxation 29 27 STC (2) Policyholder funds – normal tax (1) (1) CGT (4) (1) Tax relating to prior years 4 1 Net tax charge 28 24 The charge for the year has been reduced/(increased) as a consequence of: Dividends received 4 4 Other non-taxable income 4 4 Other permanent differences (8) (4) Standard rate of South African tax 28 28

187 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Non- Non- controlling Profit controlling Profit interests attribu- interests attribu- and table to and table to preference ordinary preference ordinary Direct share- share- Direct share- share- Gross tax holders holders Gross tax holders holders Rm Rm Rm Rm Rm Rm Rm Rm 31. Headline earnings Profit for the year from continuing operations 24 051 (7 075) (3 038) 13 938 20 856 (5 713) (2 398) 12 745 Headline adjustable items added/(reversed) 21 13 19 53 231 (33) 198 Goodwill impairment – IAS 36 777 777 61 61 Profit on sale of property and equipment – IAS 16 (31) (3) (34) (62) 9 1 (52) Impairment of property and equipment – IAS 36 29 (7) 22 Impairment of non-current asset held for sale – IFRS 5 37 37 Realised foreign currency translation profit on foreign operations – IAS 21 (119) (119) Gains on the disposal of businesses and divisions – IAS 27 (188) 38 54 (96) Transactions with associates – IAS 28/IFRS 3 (217) (217) 22 22 Impairment of intangible assets – IAS 36 264 (20) 244 109 (28) 81 Realised (gains)/losses on available-for-sale assets – IAS 39 (595) 11 (15) (599) 35 (7) (1) 27 Loss on net investment hedge reclassification on disposal of associate – IAS 39 130 (33) 97

Standard Bank Group headline earnings from continuing operations 24 072 (7 062) (3 019) 13 991 21 087 (5 746) (2 398) 12 943 Profit for the year from discontinued operation 2 435 (227) 2 208 965 (324) (160) 481 Headline adjustable items (reversed)/added (1 547) 10 2 (1 535) (49) 17 8 (24) Profit on sale of property and equipment – IAS 16 1 (1) (1) (1) Realised gains on available- for-sale assets – IAS 39 (23) 10 3 (10) (48) 17 8 (23) Gain on the disposal of discontinued operation – IAS 27 (1 525) (1 525)

Standard Bank Group headline earnings from discontinued operation 888 10 (225) 673 916 (307) (152) 457 Standard Bank Group headline earnings 24 960 (7 052) (3 244) 14 664 22 003 (6 053) (2 550) 13 400 Headline earnings is calculated in accordance with Circular 3/2012 Headline Earnings issued by the South African Institute of Chartered Accountants at the request of the JSE. The circular allows the inclusion in headline earnings of any gains or losses recognised by life insurers on the remeasurement of investment properties. The circular also allows the inclusion in headline earnings of the sale of ring-fenced private equity joint ventures or associates that are held by a banking institution. Refer to annexure C on page 220 for the required disclosure in terms of the circular. 188 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 32. Earnings per ordinary share The calculations of basic earnings and headline earnings per ordinary share and diluted earnings and diluted headline earnings per ordinary share are as follows: Earnings based on weighted average shares in issue (Rm) Headline earnings 14 664 13 400 Continuing operations 13 991 12 943 Discontinued operation 673 457 Earnings attributable to ordinary shareholders 16 146 13 226 Continuing operations 13 938 12 745 Discontinued operation 2 208 481

Weighted average number of ordinary shares in issue (number of shares) Weighted average number of ordinary shares in issue before adjustments 1 595 600 440 1 587 053 915 Adjusted for shares held pursuant to Tutuwa initiative1 (63 478 810) (63 478 810) Adjusted for deemed treasury shares held by entities within the group2 (9 944 383) (13 223 280) 1 522 177 247 1 510 351 825 Headline earnings per ordinary share (cents) 963,4 887,2 Continuing operations 919,1 857,0 Discontinued operation 44,3 30,2 Basic earnings per ordinary share (cents) 1 060,7 875,7 Continuing operations 915,7 843,9 Discontinued operation 145,0 31,8

Diluted earnings per ordinary share Weighted average number of ordinary shares in issue (number of shares) 1 522 177 247 1 510 351 825 Adjusted for the following potential dilution: Standard Bank Group Share Incentive Scheme 1 874 419 3 154 095 Standard Bank Equity Growth Scheme 9 258 203 5 798 170 Deferred bonus scheme (2012) 1 773 450 Tutuwa initiative3 38 752 182 38 110 854 Tutuwa consortium and Community Trust 27 088 996 26 618 355 Black Managers’ Trust 11 663 186 11 492 499

Diluted weighted average number of ordinary shares in issue (number of shares) 1 573 835 501 1 557 414 944 Diluted headline earnings per ordinary share (cents) 931,7 860,4 Continuing operations 888,9 831,1 Discontinued operation 42,8 29,3 Diluted earnings per ordinary share (cents) 1 025,9 849,2 Continuing operations 885,6 818,3 Discontinued operation 140,3 30,9

1 The number of shares held by the Tutuwa participants are deducted as they are deemed not to be issued in terms of IFRS. 2 The number of shares held by entities within the group are deemed to be treasury shares for IFRS purposes. 3 Dilutive effect of shares held pursuant to Tutuwa initiative. Refer to page 69 of the annual integrated report for further details on the Tutuwa initiative and the group shares held by entities within the group. 189 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

32. Earnings per ordinary share continued 1 890 700 (2011: 4 745 950) share options outstanding at the end of the year in terms of the Standard Bank Group Share Incentive Scheme were not included in the calculation of diluted earnings per ordinary shares because they were non-dilutive. 8 513 226 (2011: 20 162 766) rights outstanding at the end of the year in terms of the Standard Bank Equity Growth Scheme, convertible into 492 477 (2011: nil) ordinary shares that is equivalent to the full value of the rights at yearend, were not included in the calculation of diluted earnings per ordinary share because they were non-dilutive. Dilutive impact of shares issued during the year Nil (2011: 2 377 250) share options were issued during the year in terms of the Standard Bank Group Share Incentive Scheme, of which nil (2011: 50 000) were included in the calculation of diluted earnings per ordinary share because they were dilutive. 976 476 (2011: 11 005 225) rights were issued during the year in terms of the Standard Bank Equity Growth Scheme, of which 907 649 (2011: 303 000) rights were convertible into 83 696 (2011: 9 761) ordinary shares which were included in the calculation of diluted earnings per ordinary share because they were dilutive. 5 269 318 units were issued to SBSA participants during the year in terms of the Deferred Bonus Scheme 2012, of which 4 077 427 were included in the calculation of diluted earnings per ordinary share because they were dilutive. 1 482 222 of these issued units were hedged by entering into a forward contract, of which 984 098 were included in the calculation of diluted earnings per ordinary share because they were dilutive. Refer to annexure D on pages 221 to 228 for further details on the group’s share incentive schemes.

2012 2011 Rm Rm 33. Distributions Ordinary shares Distribution No. 85 of 284,0 cents per share (2011: 245,0 cents per share), paid on 2 April 2012 to shareholders registered on 30 March 2012 4 520 3 888 Cash distribution elected by shareholders 2 036 2 238 Dividend No. 86 of 212,0 cents per share (2011: 141,0 cents per share), paid on 17 September 2012 to shareholders registered on 14 September 2012 2 037 2 238 Less: Scrip taken up by shareholders in respect of the cash dividend/capitalisation issue (1)

6 556 6 126 A final dividend No. 87 of 243,0 cents per share was declared on 6 March 2013, payable on 22 April 2013, to all shareholders registered on 19 April 2013, bringing the total dividends declared in respect of 2012 to 455,0 cents per share (2011: 425,0). Preference shares – 6.5% first cumulative preference shares Dividend No. 85 of 3,25 cents per share (2011: 3,25 cents) paid on 26 March 2012 to shareholders registered on 23 March 2012 – – Dividend No. 86 of 3,25 cents per share (2011: 3,25 cents) paid on 10 September 2012 to shareholders registered on 7 September 2012 – – Non-redeemable, non-cumulative, non-participating preference shares Dividend No. 15 of 317,59 cents per share (2011: 337,90 cents) paid on 26 March 2012 to shareholders registered on 23 March 2012 168 179 Dividend No. 16 of 345,55 cents per share (2011: 312,41 cents) paid on 10 September 2012 to shareholders registered on 7 September 2012 184 166 352 345

6.5% first cumulative preference shares dividend No. 87 of 3,25 cents per share (2011: 3,25 cents) was declared on 6 March 2013, and is payable on 15 April 2013, to all shareholders registered on 12 April 2013. Non-redeemable, non-cumulative, non-participating preference shares dividend No. 17 of 331,96 cents per share (2011: 317,59 cents) was declared on 6 March 2013, and is payable on 15 April 2013 to shareholders registered on 12 April 2013. 190 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 34. Statement of cash flows notes 34.1 Increase in income-earning assets Net derivative assets (1 408) 6 672 Trading assets (21 010) 2 695 Pledged assets (5 364) (2 899) Financial investments 3 181 (3 825) Loans and advances (12 864) (71 042) Other assets (8 213) (4 487) (45 678) (72 886) 34.2 Increase in deposits and other liabilities Deposit and current accounts 33 888 67 841 Trading liabilities 8 023 (2 469) Other liabilities and provisions 10 549 5 636 52 460 71 008 34.3 Direct taxation paid Taxation payable and deferred taxation at the beginning of the year (4 153) (4 676) Reclassified as held for sale (120) Net addition through business acquisition (6) 35 Direct taxation (6 983) (5 731) Recognised directly in equity and OCI 92 (18) Recognised in profit or loss (7 075) (5 713) Taxation payable and deferred taxation at the end of the year 7 008 4 153 Current and deferred taxation at the end of the year 6 090 4 153 Deemed disposal taxation liability 918

(4 134) (6 339) 34.4 Net cash flows from/(used in) discontinued operation Cash and cash equivalents at the beginning of the year 4 849 4 231 Net cash flows from operating activities 3 338 117 Net cash flows used in investing activities (97) (247) Disposal of subsidiary (7 961) Effect of exchange rate changes on cash and cash equivalents (129) 748 Cash and cash equivalents at the end of the year 4 849

191 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 34. Statement of cash flows notes continued 34.5 Net cash outflow resulting from the acquisition of subsidiaries Net cash outflow resulting from the acquisition of subsidiaries 9 153 Comprising: Trading assets 270 Loans and advances (205) 259 Current and deferred taxation 35 Other assets 256 46 Goodwill and other intangible assets 40 46 Property and equipment 13 101 Investment property 11 Trading liabilities (246) Current and deferred taxation (6) Other liabilities (41) (250) Net asset acquired 68 261 Non-controlling interests (33) Goodwill 4 Less: Fair value of joint venture previously held (30) Fair value of net assets acquired 9 261 Deemed disposal of associate (note 12) (108) Net cash outflow resulting from acquisition of subsidiaries 9 153 34.6 Net dividends paid Dividends to ordinary shareholders (6 556) (6 126) Dividends to preference shareholders (352) (345) Dividends received in terms of the Tutuwa initiative and on deemed treasury shares 174 170 Dividends to non-controlling shareholders in subsidiaries (809) (950) (7 543) (7 251) 34.7 Cash and cash equivalents Cash and balances with central banks (note 3) 61 985 31 907 Cash and balances with central banks held for sale (note 7) 4 849 61 985 36 756

192 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 34. Statement of cash flows notes continued 34.8 Net cash outflow resulting from the disposal of subsidiaries Net cash outflow resulting from the disposal of subsidiaries 3 543 Derivative assets (1) Trading assets (9) Financial investments (18) Loans and advances (605) Current and deferred tax assets (17) Other assets (70) Non-current assets held for sale (37 556) Goodwill and other intangible assets (132) Property and equipment (4) Deposit and current accounts 280 Current and deferred tax liabilities 17 Other liabilities 77 Non-current liabilities held for sale 33 296 Net asset value disposed of (4 742) Non-controlling interests 1 076 Share of subsidiary disposed of (3 666) Profit on disposal of subsidiaries (1 713) Release of reserve movements to profit or loss (765) Sale consideration (6 144) Deferred non-cash consideration 231 Investment in associates 1 495 Cash consideration received (4 418) Less cash held within subsidiary disposed 7 961 Net cash outflow resulting from disposal of subsidiaries 3 543 35. Reclassification of financial assets previously reclassified Amounts reclassified from held-for-trading to loans and receivables at amortised cost Following the amendments to IAS 39, the group reclassified assets from held-for-trading to loans and receivables for which there was a clear change of intent to hold the assets for the foreseeable future rather than to exit or trade in the short term. The group did not reclassify any such assets during the current and previous year. Carrying value of reclassified financial assets at the end of the year1 935 2 451 Fair value of reclassified financial assets at the end of the year1 922 2 364 A fair value gain of R10 million (2011: R23 million loss) after tax together with other post tax losses of Rnil million (2011: R1 million) and foreign currency translation losses of R2 million (2011: R8 million loss) would have been recognised in 2012 had all reclassifications not been effected. The following amounts were recognised in profit or loss past reclassification of the financial assets: Period after reclassification Net interest income 88 132 Credit impairments reversal/(charges) 41 (219) 1 The carrying value and fair value of reclassified financial assets decreased as a result of financial assets in Blue Titanium, a subsidiary of the group, maturing during 2012. 193 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

36. Related party transactions 36.1 Parent Standard Bank Group Limited is the ultimate holding company of the Standard Bank Group of companies.

36.2 Subsidiaries Details of effective interests, investments in and loans to subsidiaries are disclosed in annexure B on pages 213 to 217.

36.3 Associates and joint ventures Details of effective interests, investments in and loans to associates and joint ventures are disclosed in annexure C on pages 218 to 220.

36.4 Key management personnel Key management personnel include: the members of the Standard Bank Group Limited board of directors and prescribed officers effective for 2012 and 2011. Non-executive directors are included in the definition of key management personnel as required by IAS 24 Related Party Disclosures. The definition of key management includes the close family members of key management personnel and any entity over which key management exercise control or joint control. Close members of family are those family members who may be expected to influence, or be influenced by that person in their dealings with SBG. They include the person’s domestic partner and children, the children of the person’s domestic partner, and dependents of the person or the person’s domestic partner.

2012 2011 Rm Rm Key management compensation Salaries and other short-term benefits paid 93 96 Post-employment benefits 4 4 IFRS 2 value of share options and rights expensed 37 41 134 141 The transactions below are entered into in the normal course of business. Loans and advances Loans outstanding at the beginning of the year 27 50 Change in key management structures (3) (21) Loans granted during the year 22 20 Loans repaid during the year (26) (22) Loans outstanding at the end of the year 20 27 Net interest earned 2 2

Loans include mortgage loans, instalment sale and finance leases and credit cards. No specific credit impairments have been recognised in respect of loans granted to key management (2011: Rnil). The mortgage loans and instalment sale and finance leases are secured by the underlying assets. All other loans are unsecured.

194 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 36. Related party transactions continued 36.4 Key management personnel continued Deposit and current accounts Deposits outstanding at the beginning of the year 129 527 Change in key management structures 9 (429) Net deposits received during the year (25) 31 Deposits outstanding at the end of the year 113 129 Net interest expense 3 2 Deposits includes cheque, current and savings accounts. Investment products Balance at the beginning of the year 219 1 062 Change in key management structures (4) (846) Investments placed during the year 114 59 Investments repaid during the year (71) (56) Balance at the end of the year 258 219 Net investment return 44 8 Third party funds under management Fund value at the beginning of the year 386 480 Change in key management structures 3 (119) Net deposits including commission and other transaction fees 111 25 Fund value at the end of the year 500 386 Other fees Financial consulting fees and commission 6 9 Shares and share options held Aggregate details of Standard Bank Group Limited shares and share options held by key management personnel. Shares beneficially owned (number) 12 890 450 12 946 766 Share options held (number) 6 578 371 6 451 500

195 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 36. Related party transactions continued 36.5 Transactions with a shareholder1 The following transactions took place between the group and ICBC, a 20% shareholder of Standard Bank Group: Revenue Trading revenue 42 29 Net interest income 30 41 Total revenue earned 72 70 Deposits Deposits outstanding at the beginning of the year 1 276 953 Net deposits (repaid)/received during the year (821) 323 Deposits outstanding at the end of the year 455 1 276

1 Refer to note 7 on page 136 for further details regarding the disposal of SBA by the group to ICBC. 36.6 Other contracts Saki Macozoma, a director and deputy chairman of the company, has an effective shareholding of 26.62% (2011: 26.62%) in Safika which is a member of three different consortia that were party to the Andisa Capital and the Tutuwa transactions. Safika holds effective interests of 2.39% (2011: 2.50%) in Liberty Holdings Limited and 1.34% (2011: 1.40%) in the company. The group has an effective interest of 25.00% (2011: 20.33%) in Safika.

Cyril Ramaphosa, a director of the company, has an effective shareholding of 29.63% (2011: 29.63%) in Shanduka, which is a member of the Tutuwa consortium. Shanduka holds effective interests of 1.40% (2011: 1.44%) in Liberty Holdings Limited and 0.90% (2011: 1.20%) in the company. The group holds an effective interest of 12.90% (2011: 13.00%) in Shanduka.

A company in which Doug Band, a director of the group, has a beneficial interest, provided consulting and certain management services to the private equity division of SBSA for a five-year period until 31 December 2004. In terms of the agreement, in future years, he will receive a percentage of the proceeds from the sale of equity-related investments undertaken during the term of the above management services agreement.

2012 2011 Rm Rm 36.7 Post-employment benefit plans Details of balances with SBG and transactions between SBG and the group’s post-employment benefit plans are listed below: Fee income 22 40 Deposits held with the bank 248 566 Interest paid 32 234 Value of assets under management 8 690 10 363 Investments held in bonds and money market instruments 1 020 1 214 Number of ordinary SBG shares held (‘000) 4 744 1 453

196 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 37. Pensions and other post-employment benefits Amount recognised as assets in the statement of financial position (note 11) Standard Bank banking activities Retirement funds (note 37.1) 784 445 Post-employment healthcare benefits – provider funds (note 37.2) 308 Liberty Retirement funds (note 37.1) 186 199 970 952 Amounts recognised as liabilities in the statement of financial position (note 21.2) Standard Bank banking activities Retirement funds (note 37.1) 31 65 Post-employment healthcare benefits – other funds (note 37.2) 747 743 Liberty Post-employment healthcare benefits (note 37.3) 371 459 1 149 1 267

The total amount recognised as an expense for the defined contribution plans operated by the group amounted to R930 million (2011: R975 million).

37.1 Retirement funds 37.1.1 Standard Bank retirement funds Membership of the group’s principal fund, the Standard Bank Group Retirement Fund (SBGRF), exceeds 95% of SBSA’s permanent staff. The fund, one of the 10 largest in South Africa, is a defined contribution fund governed by the Pension Funds Act 24 of 1956. Member-elected trustees represent 50% of the trustee board. The assets of the fund are held independently.

The fund is subject to a statutory financial review by actuaries at an interval of not more than three years. The latest full actuarial valuation was performed on 31 December 2012 and, in the opinion of the actuary, the fund was considered to be financially sound. The next actuarial valuation is to be performed on 31 December 2015.

From 1 January 1995 new employees became entitled to defined contribution benefits only. Employees who were members of the fund on 31 December 1994 were entitled to guaranteed benefits under the old rules of the defined benefit fund. Given the defined benefit nature of the guaranteed benefits, the entire plan is classified as a defined benefit plan and accounted for as such. A specific liability was recognised within the fund to provide for the guaranteed defined benefits.

On 1 November 2009 the fund introduced individual member investment choice for defined contribution members and the pre-1995 members could choose to give up their guaranteed defined benefits and instead accept an offer of a 10% enhancement to their actuarial reserve values. Over 90% of the pre-1995 defined benefit members accepted the offer and converted to defined contribution plans. The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended into the SBGRF.

The majority of employees in South Africa who are not members of the SBGRF are members of two other funds designed for their occupational groups. Employees in territories beyond South African jurisdiction are members of either defined contribution or defined benefit plans governed by legislation in their respective countries.

37.1.2 Liberty retirement funds1 The Liberty defined benefit pension scheme closed to new employees from 1 March 2001 and with effect from this date, the majority of employees accepted an offer to convert their retirement plans from defined benefit to defined contribution plans. Employees joining after 1 March 2001 automatically become members of the defined contribution schemes. The ACA and Rentmeester defined benefit pension funds are all fully funded. All funds are governed by the Pension Fund Act 24 of 1956.

1 This includes the Liberty Group defined benefit pension fund, ACA defined benefit fund and Rentmeester defined benefit fund. 197 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

2012 2011 Rm Rm 37. Pensions and other post-employment benefits continued 37.1 Retirement funds The amounts recognised in the statement of financial position in respect of the retirement funds are determined as follows: Present value of funded obligations 25 839 22 701 Fair value of plan assets (27 733) (23 769) Surplus (1 894) (1 068) Defined benefit pension fund employer surplus1 (186) (199) Unrecognised actuarial gains 1 141 688 Included in the statement of financial position (939) (579) Comprising: SBGRF (784) (445) Liberty retirement funds (186) (199) Other retirement funds 31 65 (939) (579) Unrecognised actuarial gains or losses are deferred and recognised in profit or loss over a period not exceeding the estimated service lives of employees, except in the case of retired employees in which case it is recognised immediately. Movement in the present value of funded obligations Balance at the beginning of the year 22 701 22 028 Current service cost and interest cost 2 643 2 355 Employee contributions 511 502 Actuarial losses/(gains) 1 241 (187) Exchange differences 31 138 Benefits paid (2 098) (2 135) Settlement costs (51) Transfer in of Provider Fund liability2 861 Balance at the end of the year 25 839 22 701 Movement in the fair value of plan assets Balance at the beginning of the year 23 769 23 774 Expected return on plan assets 2 136 1 961 Contributions received 1 090 1 065 Actuarial gains/(losses) 1 623 (986) Reduction in employer surplus account (15) (14) Exchange differences (36) 107 Benefits paid (2 098) (2 138) Transfer in of Provider Fund assets2 1 264 Balance at the end of the year 27 733 23 769 Plan assets consist of the following: Cash 1 703 1 892 Equities 13 008 11 213 Bonds 8 363 6 564 Property and other 4 659 4 100 27 733 23 769 Plan assets include R15 million (2011: R19 million) of property occupied by the group. The group expects to pay R551 million in contributions to the Standard Bank retirement funds in 2013 (2012: R553 million). 1 The apportionment of the surplus within the Liberty Group Defined Benefit Pension Fund between the employer and the members was approved on 31 August 2007 by the Registrar of Pension Funds in terms of the Pension Fund Second Amendment Act 39 of 2001. The employer surplus has been measured as the approved amount allocated at 1 January 2003 (date of apportionment) adjusted for additional trustee-approved allocations and subsequent related investment net gains or losses. The amount will be recovered through future reductions in employer contributions to the plan. 2 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended, into the SBGRF. 198 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 37. Pensions and other post-employment benefits continued 37.1 Retirement funds continued The amounts recognised in profit or loss are determined as follows: Current service cost 632 539 Interest cost 2 011 1 816 Expected return on plan assets (2 136) (1 961) Net actuarial gains recognised during the year (22) (78) Curtailment gain (28) Included in staff costs 485 288 Actual return on plan assets 3 461 796

The expected long-term rate of return is based on the expected long-term returns on equities, cash and bonds. The split between the individual asset categories is considered in setting these assumptions. Adjustments were made to reflect the effect of expenses. Historical information 2012 2011 2010 2009 2008 Rm Rm Rm Rm Rm Present value of funded obligation 25 839 22 701 22 028 20 951 20 763 Fair value of plan assets (27 733) (23 769) (23 774) (22 686) (20 855) Surplus (1 894) (1 068) (1 746) (1 735) (92) Excess not recognised 107 112 111 96 91 Surplus obligation (1 787) (956) (1 635) (1 639) (1) Defined benefit pension fund employer surplus included in other assets in the statement of financial position 186 199 202 170 144 Experience adjustments arising on plan liabilities 1 047 (234) (227) 1 605 4 966 Experience adjustments arising on plan assets 1 487 (980) (586) (7) (4 985)

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Notes to the annual financial statements continued for the year ended 31 December 2012

37. Pensions and other post-employment benefits continued 37.2 Standard Bank post-employment healthcare benefits The group provides the following post-employment healthcare benefits to its employees:

Provider fund A post-employment healthcare benefit fund provides eligible employees, who were in service on 29 February 2000, with a lump sum benefit on retirement or withdrawal enabling them to purchase an annuity to be applied towards their post-employment healthcare costs. This benefit is prefunded in a provident fund and replaced the subsidy arrangement that was in place prior to this. Any shortfall in the payment to be made by these employees towards their healthcare costs subsequent to retirement is the responsibility of the employee. The last statutory valuation was performed on 1 April 2010 and reflected an excess in the fund. The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended, into the SBGRF and are no longer disclosed separately.

Other The largest portion of this liability represents a South African post-employment healthcare benefit scheme that covers all employees who went on retirement before 1 March 2000. The liability is unfunded and is valued every year using the projected unit credit method. The latest full actuarial valuation was performed at 31 December 2012. The next actuarial valuation is to be performed on 31 December 2015.

2012 2011 Rm Rm The amounts recognised in the statement of financial position in respect of post-employment healthcare benefits are determined as follows: Present value of unfunded defined benefit obligations 747 743 Present value of funded defined benefit obligations 861 Total present value of defined benefit obligations 747 1 604 Fair value of plan assets (1 264) Unfunded obligation 747 340 Unrecognised actuarial gains 95 Included in the statement of financial position 747 435 Comprising: Provider fund (308) Other funds 747 743 747 435 Movement in the present value of defined benefit obligations Balance at the beginning of the year 1 604 1 414 Current service cost and interest cost 68 156 Exchange differences (9) (23) Actuarial gains 182 Settlement costs (3) Benefits paid (52) (125) Transfer out of Provider Fund liability1 (861) Balance at the end of the year 747 1 604

1 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended, into the SBGRF.

200 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 37. Pensions and other post-employment benefits continued 37.2 Standard Bank post-employment healthcare benefits continued Movement in the fair value of plan assets Balance at the beginning of the year 1 264 1 340 Expected return on plan assets 117 Actuarial losses (122) Benefits paid (71) Transfer out of Provider Fund assets1 (1 264) Balance at the end of the year 1 264 Plan assets consist of the following: Cash 249 Equities 499 Government bonds 397 Property and other 119 1 264 The group expects to pay Rnil million in contributions to post-employment healthcare benefit plans in 2013 (2012: R52 million).

1 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended, into the SBGRF. The amounts recognised in profit or loss are determined as follows: Current service cost 7 38 Interest cost 61 118 Expected return on plan assets (117) Net actuarial gains recognised in the year (50) (13) Included in staff costs 18 26 Actual return on plan assets (5)

201 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

37. Pensions and other post-employment benefits continued 37.2 Standard Bank post-employment healthcare benefits continued Assumed medical inflation rates have a significant effect on the amounts recognised in profit or loss. A one percentage point change in the medical inflation rate would have the following effects on amounts recognised:

2012 2011 1% increase 1% decrease 1% increase 1% decrease Rm Rm Rm Rm Effect on the aggregate of the current service cost and interest cost 10 (7) 11 (8) Effect on the defined benefit obligation 89 (69) 92 (77)

Historical information 2012 2011 2010 2009 2008 Rm Rm Rm Rm Rm Present value of obligations 747 1 604 1 414 1 456 1 433 Fair value of plan assets (1 264) (1 340) (1 247) (1 157) Unfunded obligation 747 340 74 209 276 Experience adjustments arising on plan liabilities (5) (185) (166) (111) 84 Experience adjustments arising on plan assets (122) 91 91 (276)

37.3 Liberty post-employment healthcare benefits Liberty operates an unfunded post-employment medical aid benefit for employees who joined before 1 July 1998. For past service of employees, Liberty recognises and provides for the actuarially determined present value of post-employment medical aid employer contributions on an accrual basis using the projected unit credit method.

2012 2011 2010 2009 2008 Rm Rm Rm Rm Rm Movement in the liability recognised in the statement of financial position Present value of unfunded defined benefit obligations at the beginning of the year 459 400 354 344 293 Benefits paid (10) (9) (8) (7) (6) Recognised in profit or loss (78) 68 54 17 57 Present value of unfunded defined benefit obligations at the end of the year 371 459 400 354 344

202 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

2012 2011 Rm Rm 37. Pensions and other post-employment benefits continued 37.3 Liberty post-employment healthcare benefits continued The amounts recognised in profit or loss are determined as follows: Current service cost 9 8 Interest cost 40 34 Actuarial (gains)/losses (127) 26 Included in staff costs (78) 68

A one percentage point change in medical inflation rates would have the following effect on the post-employment medical aid liability recognised:

2012 2011 1% 1% 1% 1% increase decrease increase decrease Rm Rm Rm Rm Increase/(decrease) in the liability 57 (46) 79 (64)

203 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Notes to the annual financial statements continued for the year ended 31 December 2012

37. Pensions and other post-employment benefits continued 37.4 The principal actuarial assumptions used for accounting purposes were: Standard Bank Liberty Post- Defined employ- benefit ment Provider Other pension medical Retirement fund1 fund2 funds fund aid % % % % % 2012 Discount rate Nominal Government Bond Yield curve 8.76 7.99 8.40 Return on investments 8.20% – Yield Government Bonds at a term equivalent to the discounted mean term of the liabilities 8.76 7.99 N/A Salary/benefit inflation Inflation rates plus 1% 6.36 CPI inflation Difference between nominal and index linked bond yield curves 6.37 5.36 Medical inflation 7.42 7.06 Provider benefit escalation Inflation rates plus 2% Pension increase Inflation rates in allowance Remaining service life of employees (years) 12,21 16,48 12,41 2011 Discount rate 8.76 8.76 8.76 8.76 8.78 Return on investments 8.76 8.76 8.76 8.76 8.78 Salary/benefit inflation 7.37 8.37 6.11 CPI inflation 6.37 6.37 6.37 5.12 Medical inflation 7.42 7.38 Remaining service life of employees (years) 12,94 16,48 12,41

1 The assumptions used in determining the defined benefit obligation and the fair value of plan assets in SBGRF have changed from 2011 to 2012. 2 The assets and liabilities of the Provider Fund were transferred by way of a Section 14 transfer in terms of the Pension Fund Act, 1956 as amended, into the SBGRF.

204 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Notes to the annual financial statements

38. Business acquisitions 38.1 Business acquisitions LC Golf SA Total Health Trust (Pty) Ltd (THT) Limited 2012 Date of acquisition 19 December 2012 1 January 2012 Percentage of voting equity instruments acquired (%) 100 51.2 Contribution to revenue since acquisition (Rm) nil 14 Contribution to net profit before tax since acquisition (Rm) nil 6 Contribution to revenue if acquisition occurred on 1 January 2012 (Rm) 50 14 Contribution to net profit before tax if acquisition occurred on 1 January 2012 (Rm) (246) 6

Fair value LC Golf SA (Pty) Ltd THT Limited Rm Rm 2012 Other assets 5 46 Property developments 205 Property and equipment 6 7 Intangible assets 40 Investment property 11 Deposit and current accounts (205) Provisions and other liabilities (10) (31) Current and deferred tax (6) Net asset value 1 67 Non-controlling interests (33) Goodwill1 (note 14.1) 4 Total purchase consideration paid 5 34 Cost of acquisition 5 34 Less: Fair value of joint venture previously held (30) Cash consideration paid 5 4 Less: Cash and cash equivalents in subsidiary acquired Cash outflow on acquisition 5 4

1 Goodwill represents the premium paid for control.

LC Golf SA (Pty) Ltd With effect from 19 December 2012, SBSA acquired 100% of LC Golf SA (Pty) Ltd and its subsidiaries, Pearl Valley Golf Estates (Pty) Limited and Novelway Investments (Pty) Limited. Pearl Valley Golf Estates (Pty) Limited is a golf estate which also offers rental accommodation and residential sales. Novelway Investments (Pty) Limited is a non-operating company that holds undeveloped property assets that form part of SBSA’s total security package in respect of a term loan previously granted to Pearl Valley Golf Estates (Pty) Limited. The primary reason for the business combination was to recoup financing previously extended to the group of companies acquired.

THT Limited With effect from 1 January 2012, Liberty acquired a 51.2% controlling stake in THT Limited. THT is a Nigerian health expenses insurance group servicing both government employees and corporate customers. THT was previously accounted for as a joint venture of the group and the transaction to acquire control was in terms of a staggered purchase agreement, with the final tranche of 5% to increase the shareholding to 51.2% being completed on 1 January 2012 at a cost of R4 million.

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Standard Bank Group Limited – company annual financial statements

Statement of financial position as at 31 December 2012

Company 2012 2011 Note Rm Rm Assets Current tax 8 37 Other assets 867 607 Interest in subsidiaries 40 62 288 56 425 Interest in associates 41 142 142 Total assets 63 305 57 211 Equity and liabilities Equity 63 284 57 114 Share capital and premium 16 23 595 23 238 Reserves 39 689 33 876 Liabilities 21 97 Deferred tax 39 6 Other liabilities 21 91

Total equity and liabilities 63 305 57 211

Statement of comprehensive income for the year ended 31 December 2012

Company 2012 2011 Note Rm Rm Dividends from subsidiaries 12 677 7 612 Interest income 75 135 Other income 42 (90) (6) Total income 12 662 7 741 Operating expenses 8 6 Profit before direct taxation 12 654 7 735 Direct taxation 43 45 182 Profit for the year 12 609 7 553 Other comprehensive income Release/(deferred) fair value adjustments on cash flow hedges 85 (85) Total comprehensive income 12 694 7 468

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Statement of cash flows for the year ended 31 December 2012

Company 2012 2011 Note Rm Rm Operating activities Income before direct taxation 12 654 7 735 Adjusted for: Dividends received (12 677) (7 612) Interest income (75) (135) Fair value adjustments on derivatives 46 Net cash flows used in operating activities (52) (12) Interest received 75 135 Dividends received 12 677 7 612 Taxation received/(paid) 44.1 17 (129) Net cash flows used in operating funds 44.2 (330) (334) Net cash flows used in investing activities (5 836) (1 014) Decrease in interest in associates 2 Increase in investment in subsidiaries 44.3 (5 836) (1 016) Net cash flows used in financing activities (6 551) (6 258) Proceeds from issue of share capital 357 213 Net dividends paid 44.4 (6 908) (6 471)

Net increase in cash and cash equivalents – – Cash and cash equivalents at the beginning of the year – – Cash and cash equivalents at the end of the year – –

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Standard Bank Group Limited – company annual financial statements continued

Statement of changes in equity for the year ended 31 December 2012

Share Share- capital based Revalu- Cash flow Empower- and payment ation hedging ment Retained premium reserve reserve reserve reserve earnings Total Company Note Rm Rm Rm Rm Rm Rm Rm Balance at 1 January 2011 23 025 81 3 100 969 (2 371) 31 053 55 857 Issue of share capital and share premium 16.2 213 213 Equity-settled share-based payment transactions 47 47 Transfer of vested equity options (11) 11 Total comprehensive income (85) 7 553 7 468 Dividends paid 33 (132) (6 339) (6 471) Balance at 31 December 2011 23 238 117 3 100 884 (2 503) 32 278 57 114 Balance at 1 January 2012 23 238 117 3 100 884 (2 503) 32 278 57 114 Issue of share capital and share premium 16.2 357 357 Equity-settled share-based payment transactions 27 27 Total comprehensive income 85 12 609 12 694 Dividends paid 33 (6 908) (6 908) Balance at 31 December 2012 23 595 144 3 100 969 (2 503) 37 979 63 284

208 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Standard Bank Group Limited

Notes to the company annual financial statements for the year ended 31 December 2012

Company 2012 2011 Rm Rm 39. Deferred tax Deferred tax liability (6) STC (39) Deferred tax on cash flow hedge reserve recognised in OCI 33

Deferred tax liability (6) 39.1 Deferred tax reconciliation Deferred tax (liability)/asset at the beginning of the year (6) 52 Originating/(reversing) temporary difference for the year 6 (58) STC 39 (91) Deferred tax on cash flow hedge reserve recognised in OCI (33) 33

Deferred tax liability at the end of the year (6) 40. Interest in subsidiaries Shares at cost 61 981 53 867 Net indebtedness (by)/to the company (501) 1 777 Indebtedness to the company 766 2 611 Indebtedness by the company (1 267) (834) Investment through equity-settled share incentives 808 781 62 288 56 425 Subsidiaries and investments and loans therein are listed in annexure B on pages 214 to 217. 41. Interest in associates Carrying value at the beginning of the year 142 144 Disposal of associate (2) Carrying value at the end of the year 142 142 Interest in associates comprises an investment in South African Home Loans Proprietary Limited, refer to annexure C on pages 218 to 220. 42. Other income Losses on derivatives (90) (6)

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Notes to the company annual financial statements continued for the year ended 31 December 2012

Company 2012 2011 Rm Rm 43. Direct taxation Current year South African normal tax 10 59 Foreign and withholding taxes 39 32 STC – deferred tax (4) 91 Direct taxation 45 182 Deferred tax on cash flow hedge reserve recognised in OCI (33) 33 Total direct taxation recognised in statement of comprehensive income 12 215 South African tax rate reconciliation (%) Effective tax rate 2 STC (1) Net tax charge 1 The charge for the year has been reduced as a consequence of: Dividends received 28 27 Standard rate of South African tax 28 28 44. Cash flow statement notes 44.1 Taxation paid Net current and deferred taxation receivable at the beginning of the year 31 52 Direct taxation (12) (215) Recognised in profit or loss (45) (182) Deferred tax on cash flow hedge reserve recognised in OCI 33 (33) Withholding taxes realised 39 32 Tax on cash flow hedge (33) 33 Current taxation receivable at the end of the year (8) (37) Deferred taxation payable at the end of the year 6 17 (129) 44.2 Net cash flows used in operating funds Increase in other assets (260) (424) (Decrease)/increase in other liabilities (70) 90 (330) (334)

210 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Standard Bank Group Limited

Company 2012 2011 Rm Rm 44. Cash flow statement notes continued 44.3 Increase in investment in subsidiaries Cost of investment in subsidiaries net of disposal (8 114) (3 587) Movement in net indebtedness 2 278 2 571 (5 836) (1 016) 44.4 Net dividends paid Amounts unpaid at the beginning of the year Dividends paid to ordinary shareholders (6 556) (6 126) Dividends paid to preference shareholders (352) (345) Amounts unpaid at the end of the year (6 908) (6 471) 45. Liquidity, credit and market risk information Other assets and liabilities consist mainly of non-financial assets and liabilities which are not subject to liquidity, credit and market risk for IFRS 7 purposes. 46. Related party transactions During the current and prior year, the company has entered into transactions with its subsidiaries and received dividend and interest income. A list of subsidiaries is detailed within annexure B on pages 214 to 217.

211 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure A – restatements

Group statement of financial position restatements December 2011 December 2010 As Customer As Customer previously deposit previously deposit reported restatement Restated reported restatement Restated Rm Rm Rm Rm Rm Rm Assets Cash and balances with central banks 31 907 31 907 28 675 28 675 Derivative assets 150 046 150 046 149 682 149 682 Trading assets 90 449 90 449 80 679 80 679 Pledged assets 6 113 6 113 2 491 2 491 Non-current assets held for sale 34 085 34 085 Financial investments 289 319 289 319 283 295 283 295 Loans and advances 801 308 801 308 710 722 710 722 Current tax assets 443 443 473 473 Deferred tax assets 1 440 1 440 1 166 1 166 Other assets 22 640 22 640 17 882 17 882 Interest in associates and joint ventures 13 935 13 935 10 533 10 533 Investment property 23 470 23 470 21 521 21 521 Goodwill and other intangible assets 12 754 12 754 10 383 10 383 Property and equipment 14 920 14 920 14 907 14 907 Total assets 1 492 829 1 492 829 1 332 409 1 332 409 Equity and liabilities Equity 117 533 117 533 103 198 103 198 Equity attributable to ordinary shareholders 99 042 99 042 87 073 87 073 Ordinary share capital 159 159 159 159 Ordinary share premium 17 576 17 576 17 363 17 363 Reserves 81 307 81 307 69 551 69 551 Preference share capital and premium 5 503 5 503 5 503 5 503 Non-controlling interests 12 988 12 988 10 622 10 622 Liabilities 1 375 296 1 375 296 1 229 211 1 229 211 Derivative liabilities 153 142 153 142 145 004 145 004 Trading liabilities 32 409 (2 145) 30 264 30 375 (893) 29 482 Non-current liabilities held for sale 27 939 27 939 Deposit and current accounts 876 777 2 145 878 922 785 601 893 786 494 Current tax liabilities 2 353 2 353 3 423 3 423 Deferred tax liabilities 3 683 3 683 2 892 2 892 Provisions and other liabilities 45 674 45 674 40 900 40 900 Policyholders’ liabilities 208 565 208 565 197 878 197 878 Subordinated debt 24 754 24 754 23 138 23 138

Total equity and liabilities 1 492 829 1 492 829 1 332 409 1 332 409

Management previously classified certain customer deposits (deposits) as trading liabilities on the basis that such deposits were used to fund trading positions. In accordance with IFRS and group accounting policies, such deposits should rather have been classified as part of deposit and current accounts. The deposits have accordingly been reclassified in previously reported financial periods from trading liabilities to customer deposit and current accounts to conform to the classification of such deposits in the current financial reporting period. The reclassification amounts to R2 145 million and R893 million for the 2011 and 2010 financial years respectively. The reclassification had no impact on the group’s reserves or the income statement.

212 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure A – restatements / Annexure B – subsidiaries

Annexure B – subsidiaries

Standard Bank Group1

Liberty Holdings1 (53.6%)

The Standard Bank Stanbic Africa Standard International Liberty Group1 of South Africa1 Holdings, UK Holdings, Luxembourg

Diners Club (SA)1 CfC Stanbic Holdings, Standard Bank, UK Liberty Active1 Blue Bond Investments1 Kenya (60%) SBIC Investments, Standard Bank Insurance Stanbic Bank Botswana Luxembourg Brokers1 Stanbic Bank Ghana (99.4%) Standard Bank London Holdings 1 Stanbic Bank Tanzania Standard Advisory (China) Stanlib Stanbic Bank Uganda (80%) Standard Resources (China) Stanbic Bank Zambia Standard Merchant Bank (Asia), Singapore Melville Douglas Stanbic IBTC Holdings, Stanlib Collective Investments1 1 Nigeria (53.2%) Standard Americas, USA Investment Management Stanlib Multi-Manager1 1 Stanbic IBTC Bank, Standard New York, USA Standard Insurance Stanlib Wealth Management1 Nigeria (53.1%) Standard New York Standard Executors and Stanlib Asset Management1 Trustees1 Standard Bank Limited, Securities, USA Malawi (60.2%) Stanlib Fund Managers Jersey Stanvest1 Banco Standard de Standard Bank Mauritius Investimentos, Brazil SBG Securities1 Standard Bank, Mozambique Standard Securities Asia Standard Bank Properties (98%) (Hong Kong) Standard Bank RDC, Capital Alliance Holdings1 Democratic Republic of Congo Standard Lesotho Bank (80%) Liberty Kenya Holdings Stanbic Bank Zimbabwe Standard Bank Namibia (56.8%) 1 Standard Bank Swaziland (65%) Neil Harvey & Associates (74.9%) Standard Bank de Angola (51%) Liberty Group Properties1

Standard Bank Standard Bank Group International, Offshore Group, Jersey Isle of Man

Stanbic International Standard Bank Jersey Insurance, Isle of Man Standard Bank Fund Standard Finance, Isle of Man Administration Jersey SBIC Finance, Isle of Man Standard Bank Offshore SML, Isle of Man Trust Company Jersey Standard Bank Isle of Man Standard Bank Trust Company, Mauritius Standard Bank International Investments, British Virgin Islands Standard Bank Trust Company, Isle of Man 1 Incorporated in South Africa. This diagram depicts principal subsidiaries only. The holding in subsidiaries is 100% unless otherwise indicated. 213 The country of incorporation is stated where not obvious from the entity’s name. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure B – subsidiaries continued

Nominal Effective Book value Net share holding of shares indebtedness capital Nature of issued 2012 2011 2012 2011 2012 2011 operation Rm % % Rm Rm Rm Rm Standard Bank Group will ensure that, except in the case of political risk, its subsidiaries denoted by # are able to meet their contractual liabilities. Banking subsidiaries Banco Standard de Investimentos S.A. (Brazil)1# Investment bank 1 461 100 100 CfC Stanbic Bank Limited (Kenya)1# Commercial bank 232 60 60 Stanbic Bank Botswana Limited (Botswana)1# Commercial bank 174 100 100 Stanbic Bank Ghana Limited (Ghana)1# Commercial bank 630 99 99 Standard Bank RDC s.a.r.l. (Democratic Republic of Congo)1# Commercial bank 85 100 100 Stanbic Bank Tanzania Limited (Tanzania)1# Commercial bank 29 100 100 Stanbic Bank Uganda Limited (Uganda)1# Commercial bank 227 80 80 Stanbic Bank Zambia Limited (Zambia)1# Commercial bank 660 100 100 Stanbic Bank Zimbabwe Limited (Zimbabwe)1 Commercial bank ** 100 100 135 135 Stanbic IBTC Bank PLC (Nigeria)1# Commercial bank 103 53 53 Industrial and Commercial Bank of China (Argentina) S.A.1,2,3 Commercial bank 20 75 Standard Bank de Angola S.A. (Angola)4# Commercial bank 768 51 100 359 350 Standard Bank Isle of Man Limited (Isle of Man)1# Merchant bank 25 100 100 Standard Bank Jersey Limited (Jersey)1# Merchant bank 222 100 100 Standard Bank Limited (Malawi)1# Commercial bank 22 60 60 Standard Bank (Mauritius) Limited (Mauritius)1# Commercial bank 342 100 100 Standard Bank Namibia Limited (Namibia)#1 Commercial bank 2 100 100 444 444 Standard Bank Plc (UK)5# Investment bank 3 926 100 100 2 024 2 024 Standard Bank s.a.r.l. (Mozambique)1# Commercial bank 309 98 98 Standard Bank Swaziland Limited (Swaziland)# Commercial bank 15 65 65 33 33 Standard Lesotho Bank Limited (Lesotho)# Commercial bank 21 80 80 13 13 Standard Merchant Bank (Asia) Limited (Singapore)1# Investment bank 214 100 100 The Standard Bank of South Africa Limited# Commercial bank 60 100 100 35 063 27 097 (73)6 1 7766

Refer to footnotes on page 217. 214 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure B – subsidiaries

Nominal Effective Book value Net share holding of shares indebtedness capital Nature of issued 2012 2011 2012 2011 2012 2011 operation Rm % % Rm Rm Rm Rm Non-banking subsidiaries Accelerator Fund 1 (Pty) Limited7 Securitisation vehicle Accelerator Fund 2 (Pty) Limited7 Securitisation vehicle Alisier Investments (Pty) Limited5 Investment holding company ** 100 100 Blue Banner Securitisation Vehicle RC1 (Pty) Limited7 Mortgage financing Blue Bond Investments Limited1 Participation mortgage bond finance ** 100 100 Blue Granite Investments No. 1 (Pty) Limited7 Securitisation vehicle Blue Granite Investments No. 2 (Pty) Limited7 Securitisation vehicle Blue Granite Investments No. 3 (Pty) Limited7 Securitisation vehicle Blue Granite Investments No. 4 (Pty) Limited7 Securitisation vehicle Blue Titanium Conduit Limited7 Securitisation vehicle Diners Club (SA) (Pty) Limited1# Travel and entertainment card ** 100 100 eCentric Switch (Pty) Limited Development and marketing transactions – switching software and services ** 80 80 Erf 224 Edenburg (Pty) Limited Property holding and development ** 100 100 Gleneagles Retail Centre (Pty) Limited8 Property owning and investing company ** 100 100 Liberty Group Limited1 Insurance company 28 54 54 Liberty Holdings Limited9 Insurance holding company 26 54 54 7 668 7 668 Standard Bank International Investments Portfolio Limited (British Virgin Islands)1,10# management ** 100 100 Melville Douglas Investment Management Asset and portfolio (Pty) Limited# management ** 100 100 53 53 SBG Securities (Pty) Limited# Stockbrokers ** 100 100 320 181 SBIC Finance Limited (Isle of Man)1 Project finance ** 100 100 SBIC Investments S.A. (Luxembourg)5# Investment holding company 542 100 100 Stanbic IBTC Holdings PLC (Nigeria)1 Bank holding company 275 53 53 SBN Holdings Limited (Namibia) Bank holding company ** 100 100 Siyakha Fund (Pty) Limited7 Securitisation vehicle SML Limited (Isle of Man)1 Investment holding company ** 100 100

Refer to footnotes on page 217.

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Annexure B – subsidiaries continued

Nominal Effective Book value Net share holding of shares indebtedness capital Nature of issued 2012 2011 2012 2011 2012 2011 operation Rm % % Rm Rm Rm Rm Non-banking subsidiaries continued SMT Limited (Isle of Man)1 Investment holding company ** 100 100 Stanbic Africa Holdings Limited Investment holding (UK)5 company 385 100 100 2 161 2 161 Stanbic International Insurance Limited (Isle of Man)1 Insurance company 1 100 100 Standard Americas, Inc (US)1# Trading company ** 100 100 Standard Bank Fleet Management (Pty) Limited Fleet management ** 100 100 Standard Bank Fund Administration Portfolio Jersey Limited (Jersey)1 management 34 100 100 Standard Bank Group International Limited Investment holding (Isle of Man) company ** 100 100 13 435 13 435 Standard Bank Insurance Brokers (Pty) Limited1 Insurance broking ** 100 100 Standard Bank London Holdings Plc Investment holding (UK)1 company 1 869 100 100 (434) Standard Bank Manx Holdings Limited Investment holding (Isle of Man)1 company 1 100 100 Standard Bank Offshore Group Limited Investment holding (Jersey)5 company 17 100 100 49 49 Standard Bank Offshore Trust Company Jersey Limited (Jersey)1# Trust company 4 100 100 Standard Bank Properties (Pty) Limited Properties and financial services ** 100 100 Standard Bank Trust Company (Isle of Man) Limited (Isle of Man)1# Trust company 1 100 100 Standard Bank Trust Company (Mauritius) Limited (Mauritius)1# Trust company ** 100 100 Standard Executors and Trustees Limited# Trust company ** 100 100 Standard Finance (Isle of Man) Limited (Isle of Man)1# Finance company ** 100 100 Standard Insurance Limited Short-term insurance 15 100 100 30 30 Standard International Holdings Investment holding S.A. (Luxembourg)5# company 157 100 100 99 99 Standard London (Asia) Sendirian Berhad (Malaysia)1 Introducing broker 1 70 70 Standard New York, Inc Investment holding (US)1# company 37 100 100 Standard New York Securities, Inc Securities broker/ (US)1# dealer 82 100 100

Refer to footnotes on page 217.

216 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure B – subsidiaries

Nominal Effective Book value Net share holding of shares indebtedness capital Nature of issued 2012 2011 2012 2011 2012 2011 operation Rm % % Rm Rm Rm Rm Non-banking subsidiaries continued Standard Resources (China) Limited (China)1 Trading company 116 100 100 Standard Advisory (China) Limited (China)1 Trading company 8 009 100 100 Ünlü Menkul Degerler A.S. Securities broker/ (Turkey)1,11 dealer 14 67 Standard Securities (Asia) Limited (Hong Kong)1 Securities company 117 100 100 Stanlib Limited1 Wealth and asset management ** 54 54 Stanvest (Pty) Limited Investment holding company ** 100 100 Triskelion Trust Company Limited (Isle of Man)1 Trust company ** 100 100 Miscellaneous Finance companies 95 95 6 1 61 981 53 867 (501) 1 777 The nominal share capital issued of foreign subsidiaries has been stated in the above table at their rand equivalents at the rates of exchange ruling on the dates of provision of capital. Detailed information is not given in respect of subsidiaries which are not material to the financial position of the group. The country of incorporation is South Africa unless otherwise indicated.

1 Held indirectly, no book value in Standard Bank Group Limited. 2 This company changed its name from Standard Bank Argentina S.A. with effect from 5 April 2013. 3 The group completed the disposal of its controlling interests in SBA to ICBC at the end of November 2012. The group retained a 20% shareholding and rights to board representation in each of the companies that SBA held an interest in. 4 The group’s shareholding in Standard Bank de Angola reduced from 100% to 51% during the year. 5 Effective holding comprises direct and indirect holdings. 6 Represents mainly cash held in current and call accounts. 7 Consolidated special purpose entity, no shareholding. 8 This company was dissolved during the year. 9 Listed on the exchange operated by the JSE. 10 This company changed its name from Melville Douglas International Limited during the year. 11 The controlling interest in Ünlü Menkul Degerler A.S. (Turkey) (Ünlü) was disposed of during the year. The group retained 13.86% of Ünlü and classified the shareholding as an investment in associate as the group retains significant influence. This company’s name had also changed from Standard Ünlü Menkul Degerler A.S. during the year. ** Issued share capital less than R1 million.

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Annexure C – associates and joint ventures

South African Safika Holdings The Cullinan Hotel Home Loans Proprietary Limited Proprietary Limited Proprietary Limited Ownership structure Associate Joint venture Associate Nature of business Investment holding Leisure Finance company Yearend February March February Date to which equity accounted 31 December 2012 31 December 2012 31 December 2012 2012 2011 2012 2011 2012 2011 Effective holding (%) 25 20 50 50 44 44

Rm Rm Rm Rm Rm Rm Carrying value 538 457 374 394 569 423 Balance sheet1 Non-current assets 3 341 2 924 712 730 766 199 Current assets 533 521 99 92 888 1 292 Non-current liabilities (701) (714) (320) (142) Current liabilities (486) (409) (62) (44) (52) (241) Loans to group entities2 64 279 Attributable income before impairments 118 85 7 81 71

Integrated Processing Standard Bank Edu-Loan Proprietary Solutions Proprietary Argentina S.A.3 Limited Limited Ownership structure Associate Associate Joint venture Nature of business Banking Student loans Financial Services Yearend December December December Date to which equity accounted 31 December 2012 31 December 2012 31 December 2012 2012 2011 2012 2011 2012 2011 Effective holding (%) 20 29 29 50 50

Rm Rm Rm Rm Rm Rm Carrying value 1 340 41 37 50 44 Balance sheet1 Non-current assets 10 843 13 13 26 27 Current assets 28 574 337 331 80 106 Non-current liabilities (401) (144) (89) (4) (4) Current liabilities (35 128) (84) (147) (25) (53) Attributable income before impairments 1 6 5 6 3

1 Represents the summarised financial information of the associates and joint ventures. 2 These loans are provided on an arm’s length basis. 3 The group retained 20% of SBA and classified the shareholding as an investment in associate.

218 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure C – associates and joint ventures

RCS Investment Ünlü Finansal Dairy Belle Holdings Holdings Proprietary Yatirimlar A.S.1 Proprietary Limited Limited Ownership structure Associate Associate Associate Nature of business Finance Finance Dairy products Yearend March December September Date to which equity accounted 31 December 2011 31 December 2012 31 December 2012 2012 2011 2012 2011 2012 2011 Effective holding (%) 45 20 50

Rm Rm Rm Rm Rm Rm Carrying value * 724 73 ** ** Balance sheet2 Non-current assets 99 5 405 Current assets 3 335 615 531 Non-current liabilities (2 039) (301) (242) Current liabilities (225) (96) (317) Loans to group entities3 392 231 Attributable income before impairments 100 (3)

Total Other Other associates associates joint ventures and joint ventures Ownership structure Associates Joint ventures Nature of business Various Various Yearend Various Various Date to which equity accounted 31 December 2012 31 December 2012 2012 2011 2012 2011 2012 2011 Effective holding (%) Various Various Various Various Various Various

Rm Rm Rm Rm Rm Rm Carrying value 419 123 5 36 3 409 2 238 Balance sheet2 Non-current assets 2 016 1 522 24 17 722 5 943 Current assets 661 729 65 31 788 7 002 Non-current liabilities (1 463) (1 490) (6) (3 334) (4 726) Current liabilities (655) (580) (57) (36 588) (2 073) Loans to group entities3 2 417 5 44 7 1 427 Attributable income before impairments 338 73 2 2 552 343

1 The controlling interest in Ünlü was disposed of during the year. The group retained 13.86% of Ünlü and classified the shareholding as an investment in associate, as the group retained significant influence. 2 Represents the summarised financial information of the associates and joint ventures. 3 These loans are provided on an arm’s length basis. * RCS Investment Holdings (Pty) Ltd was classified as a non-current asset held for sale as at 31 December 2012. Refer to note 7 for further information. ** Investment fully impaired in 2011. During 2012, the group obtained control of Dairy Belle Holdings Proprietary Limited (Dairy Belle) for an immaterial amount of consideration. The fair value of Dairy Belle’s assets and liabilities on acquisition date was negligible. Dairy Belle is currently in the process of being liquidated.

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Annexure C – associates and joint ventures continued

Private equity/venture capital associates and joint ventures1 2012 2011 Rm Rm Cost 159 287 Carrying value 540 613 Statement of financial position2 Non-current assets 4 424 4 239 Current assets 620 1 934 Non-current liabilities (1 386) (1 767) Current liabilities (776) (1 176) Loans to group entities3 6 195 Income statement Attributable income before impairment 94 83 Impairments included in non-interest revenue (60) Fair value 454 591 All investments in associates and joint ventures, other than those recognised at fair value through profit and loss in accordance with IAS 39, made by a private equity organisation are ring-fenced for headline earnings purposes. On the disposal of these associates and joint ventures held by the group’s private equity division, the gain or loss on the disposal will be included in headline earnings in terms of Circular 3/2012 Headline Earnings, issued by the South African Institute of Chartered Accountants at the request of the JSE.

1 Included in associates and joint ventures on pages 218 to 219. 2 Represents the summarised financial information of the associates and joint ventures. 3 These loans are provided on an arm’s length basis.

220 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure D – group share incentive schemes

Annexure D – group share incentive schemes

Share-based payments The group’s share incentive schemes enable key management personnel and senior employees to benefit from the performance of Standard Bank Group Limited and Liberty Holdings Limited shares.

2012 2011 Rm Rm Expenses recognised in staff costs: Banking activities 1 082 846 Share options and appreciation rights 236 311 Standard International Holdings S.A. (SIH) long-term incentive scheme (21) Quanto stock scheme 606 467 Deferred bonus scheme (DBS) 74 68 Deferred bonus scheme 2012 (DBS 2012) 187 Liberty 76 52 Share options 76 52

Total expenses recognised in staff costs 1 158 898 Expenses recognised in restructuring costs – banking activities Quanto stock scheme 29 29 Liabilities recognised in other liabilities SIH long-term incentive scheme 6 43 Quanto stock scheme 1 233 1 116 DBS 188 137 DBS 2012 19 Total liability recognised in other liabilities 1 446 1 296

Further details on the group’s share incentive schemes are provided below. Share options and appreciations rights SBG has two equity-settled schemes, namely the GSIS and the EGS. The GSIS confers rights to employees to acquire ordinary shares at the value of the SBG share price at the date the option is granted. The EGS was implemented in 2005 and represents appreciation rights allocated to employees. The eventual value of the right is effectively settled by the issue of shares equivalent in value to the value of the rights.

The two schemes have four different sub-types of vesting categories as illustrated by the table below:

Vesting categories Year % vesting Expiry (years) Type A 3, 4, 5 50, 75, 100 10 Type B 5, 6, 7 50, 75, 100 10 Type C 2, 3, 4 50, 75, 100 10 Type D1 2, 3, 4 33, 67, 100 10

1 New vesting category. Awards under category D are similar in vesting to category C, but with a longer average duration over the cumulative vesting period. Refer to the annexure F on pages 256 to 263 for a detailed schedule of movements in share options issued to the executive directors during the year. A reconciliation of the movement of all share options and appreciation rights is detailed hereafter.

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Annexure D – group share incentive schemes continued

Equity-settled share-based payments A reconciliation of the movement of share options is detailed below:

Option price Number range (rand) of options GSIS 2012 2012 2011 Reconciliation Options outstanding at the beginning of the year 14 230 100 15 104 350 Granted 2 377 250 Exercised 27,70 – 111,94 (3 496 166) (2 962 100) Lapsed 62,39 – 111,94 (694 459) (289 400) Options outstanding at the end of the year 10 039 475 14 230 100

Share options were exercised regularly throughout the year. The weighted average share price for the year was R110,03 (2011: R98,66).

The following options granted to employees, including executive directors, had not been exercised at 31 December 2012:

Number of Option price range Weighted average ordinary shares (rand) price (rand) Option expiry period 153 900 27,81 – 32,19 28,17 Year to 31 December 2013 1 174 600 39,90 – 48,00 40,78 Year to 31 December 2014 83 300 64,27 – 65,60 65,36 Year to 31 December 2015 482 800 76,40 – 85,80 79,56 Year to 31 December 2016 626 075 97,95 – 107,91 98,61 Year to 31 December 2017 1 596 700 89,00 – 92,00 91,92 Year to 31 December 2018 1 671 400 62,39 – 98,20 63,11 Year to 31 December 2019 2 185 700 102,00 – 114,60 110,86 Year to 31 December 2020 2 065 000 93,74 – 107,55 98,92 Year to 31 December 2021 10 039 475

The following options granted to employees, including executive directors, had not been exercised at 31 December 2011:

Number of Option price range Weighted average ordinary shares (rand) price (rand) Option expiry period 428 600 27,80 – 35,70 28,01 Year to 31 December 2012 1 187 000 27,70 – 32,19 27,93 Year to 31 December 2013 2 036 800 39,90 – 48,00 40,73 Year to 31 December 2014 193 400 64,27 – 65,60 65,50 Year to 31 December 2015 738 600 76,40 – 85,80 79,54 Year to 31 December 2016 877 800 97,95 – 107,91 98,49 Year to 31 December 2017 1 955 650 89,00 – 92,00 91,94 Year to 31 December 2018 2 076 000 62,39 – 98,20 63,02 Year to 31 December 2019 2 395 000 102,00 – 114,60 110,96 Year to 31 December 2020 2 341 250 93,74 – 107,55 98,90 Year to 31 December 2021 14 230 100

222 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure D – group share incentive schemes

Equity-settled share-based payments continued The share options were valued using a Black-Scholes option pricing model. Each grant was valued separately. The weighted fair value of the options granted per vesting type and the assumptions utilised are illustrated below:

Type A Type B 2012 2011 2012 2011 Number of options granted 1 265 000 1 112 250 Weighted average fair value at grant date (R) 33,47 35,28 The principal inputs are as follows: Weighted average share price (R) 98,89 98,91 Weighted average exercise price (R) 98,89 98,91 Expected life (years) 5,9 6,9 Expected volatility (%) 33.9 – 35.4 33.9 – 35.4 Risk-free interest rate (%) 7.0 – 8.2 7.3 – 8.4 Dividend yield (%) 3.7 3.7

No options were granted during 2012. The options granted during 2011 which were expected to vest had an estimated fair value of R60 million.

A reconciliation of the movement of appreciation rights is detailed below:

Average price Number range (rand) of rights EGS 2012 2012 2011 Reconciliation Rights outstanding at the beginning of the year 51 382 167 47 163 913 Granted 98,75 – 113,50 976 476 11 005 225 Exercised1 60,35 – 104,65 (5 310 654) (2 318 085) Lapsed 62,39 – 114,69 (2 613 648) (4 468 886) Rights outstanding at the end of the year2 44 434 341 51 382 167

1 During the year 1 104 534 (2011: 322 648) SBG shares were issued to settle the appreciated rights value. 2 At the end of the year the group would need to issue 10 379 054 (2011: 6 082 325) SBG shares to settle the outstanding appreciated rights value. The EGS rights are only awarded to individuals in the employment of a group entity domiciled in South Africa.

The group is required to ensure that employees’ tax arising from benefits due in terms of the scheme is paid in accordance with the Fourth Schedule of the Income Tax Act of South Africa. Where employees have elected not to fund the tax from their own resources the tax due is treated as a diminution of the gross benefits due under the scheme. A total of 714 331 (2011: 393 825) SBG shares were issued and sold to settle the employees’ tax due during the year. This amount settled reduces the liability due in respect of the outstanding appreciated rights value.

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Annexure D – group share incentive schemes continued

Equity-settled share-based payments continued The following rights granted to employees, including executive directors, had not been exercised at 31 December 2012:

Number of Option price range Weighted average rights (rand) price (rand) Option expiry period 1 875 871 60,35 – 65,60 65,35 Year to 31 December 2015 3 946 641 76,40 – 87,00 79,64 Year to 31 December 2016 3 590 587 94,50 – 117,30 98,53 Year to 31 December 2017 7 615 679 69,99 – 92,00 91,83 Year to 31 December 2018 7 921 502 62,39 – 98,20 64,36 Year to 31 December 2019 9 087 866 102,00 – 116,80 111,44 Year to 31 December 2020 9 448 546 90,50 – 107,55 98,79 Year to 31 December 2021 947 649 98,75 – 113,50 108,06 Year to 31 December 2022 44 434 341

The following rights granted to employees, including executive directors, had not been exercised at 31 December 2011:

Number of Option price range Weighted average rights (rand) price (rand) Option expiry period 2 957 214 60,35 – 69,50 65,41 Year to 31 December 2015 5 000 707 76,40 – 87,00 79,63 Year to 31 December 2016 4 411 389 94,50 – 117,30 98,46 Year to 31 December 2017 9 060 200 69,99 – 100,08 91,82 Year to 31 December 2018 9 823 991 62,39 – 99,00 64,19 Year to 31 December 2019 9 913 191 102,00 – 116,80 111,41 Year to 31 December 2020 10 215 475 90,50 – 107,55 98,83 Year to 31 December 2021 51 382 167

The share appreciation rights granted during the year were valued using a Black-Scholes option pricing model. Each grant was valued separately. The weighted fair value of the options granted per vesting type and the assumptions utilised are illustrated below:

Type A Type B Type D 2012 2011 2012 2011 2012 Number of appreciation rights granted 503 048 5 903 947 72 750 5 101 278 400 678 Weighted average fair value at grant date (R) 32,82 33,47 33,37 35,26 28,14 The principle inputs are as follows: Weighted average share price (R) 108,11 98,87 103,43 98,81 108,9 Weighted average exercise price (R) 108,11 98,87 103,43 98,81 108,9 Expected life (years) 5,9 5,9 6,9 6,9 7 Expected volatility (%) 32.83 – 33.33 33.9 – 35.4 32.83 – 33.33 33.9 – 35.4 32.87 Risk-free interest rate (%) 7.08 – 7.29 6.5 – 8.3 7.30 – 7.53 6.8 – 8.4 6.63 Dividend yield (%) 3.8 3.7 3.8 3.7 3.8 The appreciation rights granted during the year which are estimated to vest have a fair value of R30,2 million (2011: R280 million) at grant date.

Liberty has similar share-based payment transactions and has recognised a total expense of R76 million (2011: R52 million) relating to the share-based payments, comprising of R74 million (2011: R52 million) for share options and R2 million (2011: nil) relating to the Standard Bank Group Employee Scheme.

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SIH long-term incentive scheme SIH has a long-term incentive scheme that was set up in 1998, whereby certain employees, including certain executive directors of Standard Bank Plc group, were granted notional ‘shadow’ share options. The scheme provided for eligible employees to be rewarded in cash, the value of which is derived from current and future performance of SIH. In 2012 all shadow share options had vested and in November 2012 the Standard Bank Plc remuneration committee agreed to close the scheme with all remaining options being exercised at a price of USD2,31. As of 31 December 2012 the scheme is closed with all options having been exercised or lapsed.

Restrictions in terms of settlement of certain vested options remain, and a provision is still recognised. The provision in respect of liabilities under the scheme at 31 December 2012 was USD0,68 million (2011: USD5,3 million), and USD2,6 million (2011: nil) was released to the income statement.

Option price range (USD) Number SIH Shadow share scheme 2012 2012 2011 Reconciliation Options outstanding at the beginning of the year 9 158 057 14 848 677 Lapsed 1,59 – 2,48 (2 059 001) (3 652 941) Transfers 33 000 Exercised1 2,24 – 2,31 (7 099 056) (2 070 679) Options outstanding at the end of the year 9 158 057

1 During the year 32 400 (2011: 31 200) SBG shares were issued to settle the underpinning SIH shadow share scheme liability.

The following options granted to employees had not been exercised at 31 December 2011:

Weighted average Number of Option price range exercise price ordinary shares (USD) (USD) Option expiry period

536 430 1,59 1,59 Year to 31 December 2012 1 578 001 2,83 2,83 Year to 31 December 2013 1 700 000 0 – 2,20 1,94 Year to 31 December 2014 1 257 500 0 – 1,89 1,79 Year to 31 December 2015 3 962 626 0 – 1,99 1,99 Year to 31 December 2016 123 500 2,48 2,48 Year to 31 December 2017 9 158 057

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Quanto stock scheme Since 2007 Standard Bank Plc has operated a deferred incentive arrangement in the form of the Quanto stock unit plan. Qualifying employees, with an incentive award above a set threshold are awarded Quanto stock units denominated in USD for nil consideration, the value of which moves in parallel to the change in price of the SBG shares listed on the JSE. The cost of the award is accrued over the vesting period (generally three years), normally commencing the year in which these are awarded and communicated to employees. Awards prior to 2011 can be exercised within 10 years, 2011 awards can be exercised within the longest vesting period and current and future awards will be exercised on vesting. Units granted since 1 January 2012 do not allow for incremental payments to employees in service for four years.

The provision in respect of liabilities under the scheme amount to USD145,5 million as at 31 December 2012 (2011: USD138,0 million), and the charge for the year is USD73,8 million (2011: USD64,4 million). The change in liability due to the change in the SBG share price, is hedged through the use of equity options and are designated as cash flow hedges.

Units (‘000) Quanto stock scheme 2012 2011 Reconciliation Units outstanding at the beginning of the year 1 308 1 235 Transfers 6 Granted 578 621 Lapsed (30) (377) Exercised (534) (171) Units outstanding at the end of the year 1 328 1 308

Quanto stock units granted not yet exercised at 31 December 2012:

Number of units (‘000) Unit expiry period 393 Year to 31 December 2015 504 Year to 31 December 2016 31 Year to 31 December 2018 164 Year to 31 December 2019 236 Year to 31 December 2020 1 328

Quanto stock units granted not yet exercised at 31 December 2011:

Number of units (‘000) Unit expiry period 170 Year to 31 December 2018 344 Year to 31 December 2019 302 Year to 31 December 2020 492 Year to 31 December 2021 1 308

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Annexure D – group share incentive schemes continued

Equity participation plans Deferred bonus scheme The group implemented a share scheme to defer a portion of incentive bonuses over a minimum threshold for key management and executives. This improves the alignment of shareholder and management interests by creating a closer linkage between risk and reward, and also facilitates the retention of key employees.

All employees who were awarded short-term incentives over a certain threshold, were subject to a mandatory deferral of a percentage of their cash incentive into the DBS. Vesting of the deferred bonus occurs after three years, conditional on continued employment at that time. The final payment of the deferred bonus is calculated with reference to the SBG share price at payment date. To enhance the retention component of the scheme, additional increments on the deferred bonus become payable at vesting and one year thereafter. The DBS was replaced in 2012 by the DBS 2012.

The provision in respect of liabilities under the scheme amounts to R188 million at 31 December 2012 (2011: R137 million) and the amount charged to the income statement for the year was R74 million (2011: R68 million). The change in the liability due to change in the group share price, is hedged through the use of equity options and are designated as cash flow hedges.

Units 2012 2011 Reconciliation Units outstanding at the beginning of the year 2 666 847 1 784 466 Granted1 1 137 668 Exercised (511 585) (113 562) Lapsed (132 733) (141 725) Units outstanding at the end of the year 2 022 529 2 666 847 Weighted average fair value at grant date (R) 87,93 87,93 Expected life (years) 3,00 3,00 Risk-free interest rate (%) 4.96 6.13 Dividend yield (%) 3.96 3.63

1 Restated from 1 081 285 in prior year to 1 137 668. The restatement had no impact on the income statement.

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Deferred bonus scheme 2012 In 2012 changes were made to the existing DBS to provide for a single global incentive deferral scheme across the regions. The purpose of the DBS 2012 is to encourage a longer-term outlook in business decision-making and closer alignment of performance with long-term value creation.

All employees granted an annual performance award over a threshold have part of their award deferred. The award is indexed to the group’s share price and accrues notional dividends during the vesting period, which are payable on vesting. The awards vest in three equal amounts at 18 months, 30 months and 42 months from the date of award. The final payout is determined with reference to the group’s share price on vesting date.

Awards issued to individuals in employment of a group entity domiciled in South Africa are equity-settled. The expense recognised during 2012 with regards to these awards was R168 million. These awards have been hedged through the use of equity forwards.

Awards issued to individuals in employment of a group entity domiciled outside South Africa are cash-settled. The provision in respect of these awards are recognised in liabilities at 31 December 2012 and the amount charged to the income statement for the year under the scheme amounts to R19 million.

Units 2012 Reconciliation Units granted during the year 5 751 687 Lapsed (203 794) Units outstanding at the end of the year 5 547 893 Weighted average fair value at grant date (R) 109,01 Expected life (years) 2,51 Risk-free interest rate (%) 5.02

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Annexure E – detailed accounting policies

Basis of consolidation 229 1. Basis of consolidation Foreign currency translations 230 Subsidiaries Cash and cash equivalents 231 The annual financial statements of subsidiaries are consolidated from the date on which the group1 acquires control, up to the date that control ceases. For Financial instruments 231 this purpose, subsidiaries are entities over which the group, directly or Investment property 237 indirectly, has the power to govern the financial and operating policies to Interest in associates and joint ventures 237 obtain benefits from its activities. The existence and effect of potential voting Intangible assets 237 rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Property and equipment 238

Property developments 239 Intragroup transactions, balances and unrealised gains and losses are Capitalisation of borrowing costs 239 eliminated on consolidation. Unrealised losses are eliminated in the same Impairment of non-financial assets 239 manner as unrealised gains, but only to the extent that there is no evidence Leases 239 of impairment. Provisions, contingent assets 240 The proportion of comprehensive income and changes in equity allocated to and contingent liabilities the group and non-controlling interests are determined on the basis of the Employee benefits 240 group’s present ownership interest in the subsidiary. Tax 241 Non-current assets held for sale, The accounting policies of subsidiaries that are consolidated by the group disposal groups and discontinued 242 conform to these policies. operations Investments in subsidiaries are accounted for at cost less impairment losses in Policyholder insurance and 242 investment contracts the separate financial statements. The carrying amounts of these investments are reviewed annually and impaired when necessary. Equity 245 Equity-linked transactions 245 Special purpose entities Revenue and expenditure 246 Special purpose entities are entities that are created to accomplish a narrow Segment reporting 248 and well-defined objective such as the securitisation of financial assets. These Fiduciary activities 248 entities may take different legal forms. A special purpose entity, including a securitisation vehicle, is consolidated when the substance of the relationship Comparative figures 248 between the group and the special purpose entity indicates that the group New standards not yet adopted 249 controls the entity.

Mutual funds Mutual funds that are controlled by the group, including those in which the group has more than a 50% economic interest (resulting in control), are consolidated.

Business combinations The acquisition method of accounting is used to account for the acquisition of subsidiaries by the group. The consideration transferred is measured as the sum of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. Transaction costs for business combinations prior to 1 January 2010 were capitalised as part of the consideration transferred. Transaction costs for business combinations on or after 1 January 2010 are recognised within profit or loss as and when they are incurred.

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The group elects on each acquisition to initially measure 2. Foreign currency translations non-controlling interests on the acquisition date at either fair Functional and presentation currency value or at the non-controlling interest’s proportionate share Items included in the annual financial statements of each of of the subsidiary’s identifiable net assets. the group’s entities are measured using the currency of the primary economic environment in which the entity operates Identifiable assets acquired, liabilities and contingent liabilities (functional currency). assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the These annual financial statements are presented in South extent of any non-controlling interest. The excess of the sum African rand, which is the functional and presentation currency of the consideration transferred (including contingent of the company. consideration), the value of non-controlling interest recognised and the acquisition date fair value of any previously held equity Group companies interest in the subsidiary over the fair value of identifiable net The results and financial position of all foreign operations that assets acquired is recorded as goodwill and accounted for in terms have a functional currency different from the group’s of accounting policy 7 – Intangible assets on page 237. presentation currency are translated into the group’s presentation currency as follows: If the sum of the consideration transferred including contingent consideration, the value of non-controlling interest recognised and ¢ assets and liabilities (including goodwill, intangible assets and fair value adjustments arising on acquisition) are translated at the acquisition date fair value of any previously held equity interest the closing rate on the reporting date in the subsidiary is less than the fair value of the identifiable net assets acquired, the difference, referred to as a gain from a ¢ income and expenses are translated at average exchange bargain purchase, is recognised directly in profit or loss. rates for the month, to the extent that such average rates approximate actual rates, and When a business combination occurs in stages, the previously ¢ all resulting foreign exchange differences are accounted for held equity interest is remeasured to fair value at the acquisition directly in a separate component of OCI, being the foreign date and any resulting gain or loss is recognised in profit or loss. currency translation reserve.

Unincorporated property partnerships On the partial disposal of a subsidiary that includes a foreign operation, a proportionate share of the balance of the foreign The group consolidates its interests in those property currency translation reserve is transferred to the non-controlling partnerships where the group holds a majority stake in the interests. For all other partial disposals of a foreign operation, property and controls the management of the property, the proportionate share of the balance of the foreign currency including the power over all significant decisions around the use translation reserve is reclassified to profit or loss. and maintenance of the property. Non-controlling interests in the unincorporated property partnerships are measured at their On disposal (where a change in ownership occurs and control is proportionate share of the fair value in the various properties lost) of a subsidiary that includes a foreign operation, the and any non-distributed net accumulated profit or loss. relevant amount in the foreign currency translation reserve is reclassified to profit or loss at the time at which the profit or Transactions with non-controlling interests loss on disposal of the foreign operation is recognised. Transactions with non-controlling interests that do not result in the gain or loss of control, are accounted for as transactions with Transactions and balances equity holders of the group. For purchases of additional interests Foreign currency transactions are translated into the respective from non-controlling interests, the difference between the functional currencies of group entities at exchange rates prevailing purchase consideration and the group’s proportionate share of at the date of the transactions. Foreign exchange gains and losses the subsidiary’s additional net asset value acquired is accounted resulting from the settlement of such transactions and from the for directly in equity. Gains or losses on the partial disposal translation of monetary assets and liabilities denominated in (where a change in ownership occurs and control is not lost) foreign currencies at yearend exchange rates, are recognised in of the group’s interest in a subsidiary to non-controlling profit or loss (except when recognised in OCI as part of qualifying interests are also accounted for directly in equity. cash flow hedges and net investment hedges).

Common control transactions Non-monetary assets and liabilities denominated in foreign Common control transactions, in which the company is the currencies that are measured at historical cost are translated ultimate parent entity both before and after the transaction, using the exchange rate at the transaction date, and those are accounted for at book value. measured at fair value are translated at the exchange rate at the

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date that the fair value was determined. Exchange rate management has both the positive intent and ability to hold to differences on non-monetary items are accounted for based on maturity. Were the group to sell more than an insignificant the classification of the underlying items. Foreign exchange amount of held-to-maturity investments, the entire category gains and losses on equities (debt) classified as available-for-sale would be tainted and reclassified as available-for-sale assets financial assets are recognised in the available-for-sale reserve with the difference between amortised cost and fair value being in OCI (profit or loss) whereas the exchange differences on accounted for in OCI. equities and debt that are classified as held at fair value through profit or loss are reported as part of the fair value gain or loss in Held-to-maturity investments are carried at amortised cost, profit or loss. using the effective interest method, less any impairment losses.

Foreign currency gains and losses on intragroup loans are Held-for-trading assets and liabilities recognised in profit or loss except where the settlement of the Held-for-trading assets and liabilities include those financial loan is neither planned nor likely to occur in the foreseeable assets and liabilities acquired or incurred principally for the future. In these cases the foreign currency gains and losses are purpose of selling or repurchasing in the near term, those recognised in the group’s foreign currency translation reserve. forming part of a portfolio of identified financial instruments These gains and losses are recognised in profit or loss either on that are managed together and for which there is evidence of a disposal (loss of control of a subsidiary, loss of significant recent actual pattern of short-term profit-taking, and influence over an associate or the loss of joint control over a commodities that are acquired principally by the group for the jointly controlled entity that includes a foreign operation) or purpose of selling in the near future and generating a profit partial disposal (a reduction in ownership interest in a foreign from fluctuations in price or broker-traders’ margin. Derivatives operation other than a disposal) of an associate or jointly are always categorised as held-for-trading. controlled entity that includes a foreign operation. In the case of a partial disposal of a subsidiary that includes a foreign Subsequent to initial recognition, the financial instruments’ operation, the proportionate share of the cumulative amount of fair values are remeasured at each reporting date. All gains the exchange differences recognised in OCI is reclassified to the and losses, including interest and dividends arising from non-controlling interests in that foreign operation. changes in fair value are recognised in profit or loss as trading revenue within non-interest revenue with the exception of 3. Cash and cash equivalents derivatives that are designated and effective as hedging Cash and balances with central banks comprise coins and bank instruments (refer to Derivative financial instruments and notes, and balances with central banks. Cash and cash hedge accounting). equivalents presented in the statement of cash flows consist of cash and balances with central banks. Financial assets and liabilities designated at fair value through profit or loss 4. Financial instruments The group designates certain financial assets and liabilities, Initial recognition and measurement other than those classified as held-for-trading, as at fair value Financial instruments include all financial assets and liabilities. through profit or loss when: These instruments are typically held for liquidity, investment, ¢ this designation eliminates or significantly reduces an trading or hedging purposes. All financial instruments are initially accounting mismatch that would otherwise arise. Under this recognised at fair value plus directly attributable transaction criterion, the main classes of financial instruments designated costs, except those carried at fair value through profit or loss by the group are loans and advances to banks and customers where transaction costs are recognised immediately in profit or and financial investments. The designation significantly loss. Financial instruments are recognised (derecognised) on the reduces measurement inconsistencies that would have date the group commits to purchase (sell) the instruments (trade otherwise arisen. For example where the related derivatives date accounting). were treated as held-for-trading and the underlying financial instruments were carried at amortised cost. This category also Subsequent measurement includes financial assets used to match investment contracts Subsequent to initial measurement, financial instruments are or insurance contract liabilities measured either at fair value or amortised cost, depending on ¢ groups of financial assets, financial liabilities or both are their classifications as follows: managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or Held-to-maturity investment strategy, and reported to the group’s key Held-to-maturity investments are non-derivative financial assets management personnel on a fair-value basis. Under this with fixed or determinable payments and fixed maturities that criterion, certain private equity, short-term insurance and

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other investment portfolios have been designated Loans and receivables at fair value through profit or loss, or Loans and receivables are non-derivative financial assets with ¢ financial instruments contain one or more embedded fixed or determinable payments that are not quoted in an active derivatives that significantly modify the instruments’ market, other than those classified by the group as at fair value cash flows. through profit or loss or available-for-sale.

The fair value designation is made on initial recognition and Loans and receivables are measured at amortised cost using the is irrevocable. Subsequent to initial recognition, the fair values effective interest method, less any impairment losses. are remeasured at each reporting date. Gains and losses Origination transaction costs and origination fees received that arising from changes in fair value are recognised in interest are integral to the effective rate are capitalised to the value of income (interest expense) for all debt financial assets (financial the loan and amortised through interest income as part of the liabilities) and in other revenue within non-interest revenue effective interest rate. The majority of the group’s loans and for all equity instruments. advances are included in the loans and receivables category.

Private equity and property equity investments designated at Financial liabilities at amortised cost fair value through profit or loss in terms of the scope exemption Financial liabilities that are neither held for trading nor in IAS 28 Investments in Associates (IAS 28), are accounted for designated at fair value are measured at amortised cost. in the designated at fair value through profit or loss category. Mutual funds held by investment-linked insurance funds in Reclassification of financial assets which the group holds between 20% and 50% economic The group may choose to reclassify non-derivative trading assets interest (resulting in significant influence) are deemed to be out of the held-for-trading category if the financial asset is no interests in associates and are also designated at fair value longer held for the purpose of selling it in the near term. through profit or loss, based on the scope exemption in IAS 28 Financial assets that would not otherwise have met the relating to investment-linked insurance funds. definition of loans and receivables are permitted to be reclassified out of the held-for-trading category only in rare Available-for-sale circumstances. In addition, the group may choose to reclassify Financial assets classified by the group as available-for-sale are financial assets that would meet the definition of loans and generally strategic capital investments held for an indefinite receivables out of the held-for-trading or available-for-sale period of time, which may be sold in response to needs for categories if the group, at the date of reclassification, has the liquidity or changes in interest rates, exchange rates or equity intention and ability to hold these financial assets for the prices, or non-derivative financial assets that are not classified foreseeable future or until maturity. within another category of financial assets. Derivatives or any financial instrument designated at fair value Available-for-sale financial assets are subsequently measured through profit or loss shall not be reclassified out of their at fair value. Unrealised gains or losses are recognised directly respective categories. in the available-for-sale reserve until the financial asset is derecognised or impaired. When debt (equity) available-for-sale Reclassifications are made at fair value as of the reclassification financial assets are disposed of, the cumulative fair value date. Effective interest rates for financial assets reclassified to adjustments in OCI are reclassified to interest income loans and receivables, held-to-maturity and available-for-sale (other revenue). categories are determined at the reclassification date. Subsequent increases in estimates of cash flows adjust the Available-for-sale financial assets are impaired when there financial asset’s effective interest rates prospectively. has been a significant or prolonged decline in the fair value of the financial asset below its cost. The cumulative fair value On reclassification of a trading asset, all embedded derivatives adjustments previously recognised in OCI on the impaired are reassessed and, if necessary, accounted for separately. financial assets are reclassified to profit or loss. Reversal of impairments on equity available-for-sale financial assets are Fair value recognised in OCI. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in Interest income, calculated using the effective interest an arm’s length transaction. method, is recognised in profit or loss. Dividends received on available-for-sale instruments are recognised in profit or loss The best evidence of the fair value of a financial instrument on when the group’s right to receive payment has been established. initial recognition is the transaction price, that is, the fair value

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of the consideration paid or received, unless the fair value is a negative effect on the estimated future cash flows of the loan evidenced either by comparison with other observable current or group of loans that can be estimated reliably. market transactions in the same instrument, without modification or repackaging, or based on valuation techniques Criteria that are used by the group in determining whether there such as discounted cash flow models and option pricing models is objective evidence of impairment include: whose variables include only data from observable markets. ¢ known cash flow difficulties experienced by the borrower ¢ a breach of contract, such as default or delinquency in When such valuation models, with only observable market data interest and/or principal payments as inputs, or the comparison with other observable current ¢ breaches of loan covenants or conditions market transactions in the same instrument indicate that the fair ¢ it becoming probable that the borrower will enter bankruptcy value differs from the transaction price, this initial difference, or other financial reorganisation, and commonly referred to as day one profit or loss, is recognised in ¢ where the group, for economic or legal reasons relating to profit or loss immediately. If non-observable market data is used the borrower’s financial difficulty, grants the borrower a as part of the input to the valuation models or where the fair concession that the group would not otherwise consider. value of the financial instrument is not able to be evidenced by comparison with other observable current market transactions in The group first assesses whether there is objective evidence of the same instrument the resulting difference between the impairment individually for loans that are individually significant, transaction price and the model value is deferred. The timing of and individually or collectively for loans that are not individually the recognition of deferred day one profit or loss is determined significant. Non-performing loans include those loans for which individually depending on the nature of the instrument and the group has identified objective evidence of default, such as a availability of market observable inputs. It is either amortised breach of a material loan covenant or condition as well as those over the life of the transaction, deferred until the instrument’s loans for which instalments are due and unpaid for 90 days or fair value can be determined using market observable inputs, more. The impairment of non-performing loans takes into or realised through settlement. account past loss experience adjusted for changes in economic conditions and the nature and level of risk exposure since the Subsequent to initial recognition, the fair values of financial recording of the historic losses. assets and liabilities are based on quoted market prices or dealer price quotations for financial instruments traded in active When a loan carried at amortised cost has been identified as markets. If the market for a financial asset is not active or the specifically impaired, the carrying amount of the loan is reduced instrument is unlisted, the fair value is determined using other to an amount equal to the present value of its estimated future applicable valuation techniques. These include the use of recent cash flows, including the recoverable amount of any collateral, arm’s length transactions, discounted cash flow analyses, pricing discounted at the financial asset’s original effective interest rate. models and other valuation techniques commonly used by The carrying amount of the loan is reduced through the use of a market participants. specific credit impairment account and the loss is recognised as a credit impairment charge in profit or loss. Where discounted cash flow analyses are used, estimated future cash flows are based on management’s best estimates and a The calculation of the present value of the estimated future market related discount rate at the reporting date for a financial cash flows of collateralised financial assets recognised on an asset or liability with similar terms and conditions. amortised cost basis includes cash flows that may result from foreclosure less costs of obtaining and selling the collateral, Where the fair value of investments in unquoted equity whether or not foreclosure is probable. instruments and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are If the group determines that no objective evidence of unable to be reliably determined, those instruments are impairment exists for an individually assessed loan, whether measured at cost less impairment losses. Impairment losses on significant or not, it includes the loan in a group of financial these financial assets are not reversed. loans with similar credit risk characteristics and collectively assesses for impairment. Loans that are individually assessed for Impairment of financial assets impairment and for which an impairment loss is recognised are Assets carried at amortised cost not included in a collective assessment for impairment. The group assesses at each reporting date whether there is objective evidence that a loan or group of loans is impaired. A Impairment of groups of loans that are assessed collectively is loan or group of loans is impaired if objective evidence indicates recognised where there is objective evidence that a loss event that a loss event has occurred after initial recognition which has has occurred after the initial recognition of the group of loans

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but before the reporting date. In order to provide for latent If, in a subsequent period, the amount relating to an impairment losses in a group of loans that have not yet been identified as loss decreases and the decrease can be linked objectively to an specifically impaired, a credit impairment for incurred but not event occurring after the impairment loss was recognised in reported losses is recognised based on historic loss patterns and profit or loss, the impairment loss is reversed through profit or estimated emergence periods (time period between the loss loss for available-for-sale debt instruments. Any reversal of an trigger events and the date on which the group identifies the impairment loss in respect of an available-for-sale equity losses). Groups of loans are also impaired when adverse instrument is recognised directly in OCI. economic conditions develop after initial recognition, which may impact future cash flows. The carrying amount of groups of loans Offsetting financial instruments is reduced through the use of a portfolio credit impairment Financial assets and liabilities are offset and the net amount account and the loss is recognised as a credit impairment charge reported in the statement of financial position when there in profit or loss. is a legally enforceable right to set-off the recognised amounts and there is an intention to settle the asset and the liability Increases in loan impairments and any subsequent reversals on a net basis, or to realise the asset and settle the thereof, or recoveries of amounts previously impaired (including liability simultaneously. loans that have been written off), are reflected within credit impairment charges in profit or loss. Previously impaired loans Income and expenses are presented on a net basis only when are written off once all reasonable attempts at collection have permitted by the accounting standards, or for gains and losses been made and there is no realistic prospect of recovering arising from a group of similar transactions. outstanding amounts. Any subsequent reductions in amounts previously impaired are reversed by adjusting the allowance Derivative financial instruments and account with the amount of the reversal recognised as a hedge accounting reduction in impairment for credit losses in profit or loss. A derivative is a financial instrument whose value changes in Subsequent to impairment, the effects of discounting unwind response to an underlying variable, requires no initial net over time as interest income. investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected Renegotiated loans to have a similar response to changes in market factors and is Loans that would otherwise be past due or impaired and whose settled at a future date. Derivatives are initially recognised at terms have been renegotiated and exhibit the characteristics of fair value on the date on which the derivatives are entered into a performing loan are reset to performing loan status. Loans and subsequently remeasured at fair value as described under whose terms have been renegotiated are subject to ongoing the fair value policy on page 232. review to determine whether they are considered to be impaired or past due. All derivative instruments are carried as assets when the fair value is positive and as liabilities when the fair value is negative, The effective interest rate of renegotiated loans that have not subject to offsetting principles as described under the heading been derecognised (described under the heading Derecognition Offsetting financial instruments. of financial instruments), is redetermined based on the loan’s renegotiated terms. Embedded derivatives included in hybrid instruments are treated and disclosed as separate derivatives when their Available-for-sale financial assets economic characteristics and risks are not closely related to Available-for-sale financial assets are impaired if there is those of the host contract, the terms of the embedded objective evidence of impairment, resulting from one or more derivative are the same as those of a stand-alone derivative loss events that occurred after initial recognition but before the and the combined contract is not measured at fair value reporting date, that have a negative impact on the future cash through profit or loss. The financial host contracts are flows of the asset. In addition, an available-for-sale equity accounted for and measured applying the rules of the relevant instrument is considered to be impaired if a significant or financial instrument category. prolonged decline in the fair value of the instrument below its cost has occurred. In that instance, the cumulative loss, measured The method of recognising fair value gains and losses depends as the difference between the acquisition price and the current on whether the derivatives are designated as hedging fair value, less any previously recognised impairment losses on instruments, and if so, the nature of the hedge relationship, that financial asset, is reclassified from OCI to profit or loss. or if they are classified as held-for-trading.

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Derivatives that qualify for hedge accounting previously in OCI are transferred and included in the initial When derivatives are designated in a hedge relationship, the measurement of the cost of the asset or liability. group designates them as either: ¢ hedges of the fair value of recognised financial assets or If the derivative expires, is sold, terminated, exercised, no longer liabilities or firm commitments (fair value hedges) meets the criteria for cash flow hedge accounting, or the designation is revoked, then hedge accounting is discontinued. ¢ hedges of highly probable future cash flows attributable to a recognised asset or liability, a forecast transaction, or a highly The cumulative gains or losses recognised in OCI remain in OCI probable forecast intragroup transaction in the consolidated until the forecast transaction is recognised in the case of a annual financial statements (cash flow hedges), or non-financial asset or a non-financial liability, or until the forecast transaction affects profit or loss in the case of a ¢ hedges of net investments in a foreign operation (net financial asset or a financial liability. If the forecast transaction is investment hedges). no longer expected to occur, the cumulative gains and losses recognised in OCI are immediately reclassified to profit or loss Hedge accounting is applied to derivatives designated in this way provided certain criteria are met. The group documents, at and classified as trading revenue. the inception of the hedge relationship, the relationship between hedged items and hedging instruments, as well as its Net investment hedges risk management objective and strategy for undertaking various Where considered appropriate, the group hedges net hedging relationships. The group also documents its assessment, investments in foreign operations using derivative instruments. both at the inception of the hedge and on an ongoing basis, of These hedges are accounted for in the consolidated annual whether the hedging instruments are highly effective in financial statements. For such hedges, the designated offsetting changes in fair values or cash flows of hedged items. component of hedging instrument that relates to the effective portion of the hedge, is recognised directly in the foreign Fair value hedges currency hedge of net investment reserve. On the partial Where a hedging relationship is designated as a fair value disposal of an associate or a jointly controlled entity that hedge, the hedged item is adjusted for the change in fair value includes a foreign operation, the hedged component of the in respect of the risk being hedged. Gains or losses on the gains and losses recognised in OCI is reclassified to profit or loss. remeasurement of both the derivative and the hedged item On the partial disposal of a foreign operation that includes a are recognised in profit or loss. Fair value adjustments relating subsidiary, the group reattributes a proportionate share of the to the hedging instrument are allocated to the same line cumulative amounts recognised previously in the foreign item in profit or loss as the related hedged item. Any hedge currency hedge of net investment reserve to non-controlling ineffectiveness is recognised in profit or loss as trading revenue. interests. For all other partial disposals, a proportionate share of the foreign currency hedge of net investment reserve is If the derivative expires, is sold, terminated, exercised, no longer reattributed to profit or loss. meets the criteria for fair value hedge accounting, or the designation is revoked, then hedge accounting is discontinued. Derivatives that do not qualify for hedge accounting The adjustment to the carrying amount of a hedged item All gains and losses from changes in the fair values of derivatives measured at amortised cost, for which the effective interest that do not qualify for hedge accounting are recognised method is used, is amortised to profit or loss as part of the immediately in profit or loss as trading revenue. hedged item’s recalculated effective interest rate over the period to maturity. Borrowings Borrowings are recognised initially at fair value, generally being Cash flow hedges their issue proceeds, net of directly attributable transaction The effective portion of changes in the fair value of derivatives costs incurred. Borrowings are subsequently measured at that are designated and qualify as cash flow hedges is amortised cost and interest is recognised using the effective recognised in the cash flow hedging reserve. The ineffective interest method. part of any changes in fair value is recognised immediately in profit or loss as trading revenue. Preference shares, which carry a mandatory coupon and redemption, or are redeemable on a specific date, at the Amounts recognised in OCI are transferred to profit or loss in occurrence of a contingent future event, or at the option of the the periods in which the hedged forecast cash flows affect profit shareholder are classified as financial liabilities or compound or loss. However, when the forecast transaction that is hedged financial instruments (instruments with debt and equity results in the recognition of a non-financial asset or a non- components). All other preference shares are classified as equity financial liability, the cumulative gains or losses recognised instruments. Dividends on preference shares classified as financial

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liabilities are accounted for as interest on an amortised cost basis Financial liabilities are derecognised when they are extinguished, using the effective interest method. Dividends on preference that is, when the obligation is discharged, cancelled or expires. shares classified as equity instruments are recognised within equity as a dividend payment when dividends are declared. Where an existing financial asset or liability is replaced by another with the same counterparty on substantially different Financial guarantee contracts terms, or the terms of an existing financial asset or liability A financial guarantee contract is a contract that requires the are substantially modified, such an exchange or modification group (issuer) to make specified payments to reimburse the is treated as a derecognition of the original asset or liability holder for a loss it incurs because a specified debtor fails to and the recognition of a new asset or liability, with the difference make payment when due in accordance with the original or in the respective carrying amounts being recognised in profit modified terms of a debt instrument. or loss.

Financial guarantee contracts are initially recognised at fair In all other instances, the renegotiated asset or liability’s value, which is generally equal to the premium received, and effective interest rate is redetermined taking into account the then amortised over the life of the financial guarantee. renegotiated terms. Subsequent to initial recognition, the financial guarantee liability is measured at the higher of the present value of any expected Sale and repurchase agreements and lending payment, when a payment under the guarantee has become of securities (including commodities) probable, and the unamortised premium. Securities sold subject to linked repurchase agreements are reclassified in the statement of financial position as pledged Derecognition of financial instruments assets when the transferee has the right by contract or custom Financial assets are derecognised when the contractual rights to to sell or repledge the collateral. The liability to the counterparty receive cash flows from the financial assets have expired, or is included under deposit and current accounts or trading where the group has transferred its contractual rights to receive liabilities, as appropriate. cash flows on the financial asset such that it has transferred substantially all the risks and rewards of ownership of the Securities purchased under agreements to resell, at either a financial asset. Any interest in transferred financial assets that is fixed price or the purchase price plus a lender’s rate of return, created or retained by the group is recognised as a separate are recorded as loans and included under trading assets or loans asset or liability. and advances, as appropriate. The difference between the purchase and sales price is treated as interest and amortised The group enters into transactions whereby it transfers assets over the life of the reverse repurchase agreement using the recognised in its statement of financial position, but retains effective interest method. either all or a portion of the risks or rewards of the transferred assets. If all or substantially all risks and rewards are retained, Securities lent to counterparties are retained in the annual then the transferred assets are not derecognised. Transfers of financial statements and are classified and measured in assets with the retention of all or substantially all risks and accordance with the measurement policy on page 231. rewards include securities lending and repurchase agreements. Securities borrowed are not recognised in the annual financial statements unless sold to third parties. In these cases, the When assets are sold to a third party with a concurrent total rate obligation to return the securities borrowed is recorded at fair of return swap on the transferred assets, the transaction is value as a trading liability. accounted for as a secured financing transaction, similar to repurchase transactions. In transactions where the group neither Income and expenses arising from the securities borrowing retains nor transfers substantially all the risks and rewards of and lending business are recognised over the period of the ownership of a financial asset, the asset is derecognised if transactions. control over the asset is lost. The rights and obligations retained in the transfer are recognised separately as assets and liabilities Commodities as appropriate. Commodities that are acquired principally by the group for the purpose of selling in the near future or generating a profit from In transfers where control over the asset is retained, the group fluctuations in price or broker-traders’ margin are measured at continues to recognise the asset to the extent of its continuing fair value less cost to sell and are reported as trading assets. All involvement, determined by the extent to which it is exposed to changes in fair value less cost to sell are recognised in trading changes in the value of the transferred asset. revenue in the period of the change.

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Forward contracts to purchase or sell commodities, where net reflects the group’s share of the net assets of the associate or settlement occurs or where physical delivery occurs and the jointly controlled entity (including goodwill). commodities are held to settle another derivative contract, are recognised as derivative financial instruments and measured at Equity accounting involves recognising the investment initially at fair value. All changes in fair value are recognised in trading fair value, including goodwill, and subsequently adjusting the revenue in the period of the change. carrying value for the group’s share of the associates’ and jointly controlled entities’ income and expenses and OCI. Equity 5. Investment property accounting of losses in associates and jointly controlled entities Property held to earn rental income and/or for capital appreciation is restricted to the interests in these entities, including that is not owner-occupied is classified as investment property. unsecured receivables or other commitments, unless the group Investment property includes property under construction or has an obligation or has made payments on behalf of the development for future use as investment property. associate or jointly controlled entity. Unrealised intragroup profits are eliminated in determining the group’s share of equity Investment property is measured initially at cost, including accounted profits. Unrealised losses are eliminated in the same transaction costs. Subsequent to initial recognition, investment way as unrealised gains, but only to the extent that there is no property is measured at fair value with fair value changes evidence of impairment. recognised in profit or loss as investment gains or losses. Equity accounting is applied from the date on which the entity The fair value of investment property is based on valuation becomes an associate or jointly controlled entity up to the date information at the reporting date. If the valuation information on which it ceases to be an associate or jointly controlled entity. cannot be reliably determined, the group uses alternative The accounting policies of associates and jointly controlled valuation methods such as discounted cash flow projections or entities have been changed where necessary to ensure recent prices in active markets. consistency with the policies of the group.

Fair value adjustments on investment property recognised in Where a mutual fund investment is acquired and held for the profit or loss are adjusted for any double-counting arising from purposes of investment-linked insurance activities within the recognition of lease income on the straight-line basis investment management and life insurance activities, it is not compared to the accrual basis normally assumed in the fair accounted for under the equity method but is designated on value determination. initial recognition at fair value through profit or loss and is accounted for on the basis set out in accounting policy 4 – When the use of a property changes such that it is reclassified Financial instruments. Private equity and property equity as property and equipment, its fair value at the date of investments, which are associates, are either designated on reclassification becomes its cost for subsequent accounting. initial recognition at fair value through profit or loss, or equity accounted. 6. Interest in associates and joint ventures Associates and jointly controlled entities Investments in associates and jointly controlled entities are accounted for at cost less impairment losses in the company’s Associates are those entities in which the group has significant annual financial statements. influence, but not control, over the financial and operating policies. Significant influence generally accompanies, but is Jointly controlled operations not limited to, a shareholding of between 20% and 50% of the voting rights. Investments in mutual funds over whose Jointly controlled operations exist where two or more venturers financial and operating policies the group is able to exercise combine their operations, resources or expertise to market or significant influence (including those in which the group has distribute jointly a particular product. Each venturer recognises between a 20% and 50% economic interest) are also classified the assets it controls, the liabilities and expenses that it incurs, as associates. and its share of the gains and losses in respect of its interest in the joint venture. A jointly controlled entity is one where a contractual arrangement establishes joint control over the economic 7. Intangible assets activity of the entity. Goodwill Goodwill represents the excess of the consideration transferred Interests in associates and jointly controlled entities are and the acquisition date fair value of any previously held equity accounted for using the equity method and are measured in the interest (including transaction costs for acquisitions prior to consolidated statement of financial position at an amount that 1 January 2010) over the group’s interest in the net fair value

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of the identifiable assets, liabilities and contingent liabilities of There have been no changes in the estimated useful lives from the acquired subsidiary, associate or jointly controlled entity at those applied in the previous financial year. the date of the acquisition. The group’s interest in acquired subsidiaries takes into account any non-controlling interest Other intangible assets (refer to accounting policy 1 – Basis of consolidation) on The group recognises the costs incurred on internally page 229. generated intangible assets such as brands, customer lists, customer contracts and similar rights and assets, in profit or Goodwill arising on the acquisition of subsidiaries is reported in loss as incurred. the statement of financial position as part of ‘Goodwill and other intangible assets’. Goodwill arising on the acquisition of The group capitalises brands, customer lists, customer associates or jointly controlled entities is included in ‘Interest in contracts, distribution forces and similar rights acquired in associates and joint ventures’ in the statement of financial business combinations. position (refer to accounting policy 6 – Interest in associates and joint ventures on page 237). Goodwill is allocated to Capitalised intangible assets are measured at cost less cash-generating units (not larger than operating segments of accumulated amortisation and accumulated impairment losses. the group as defined) and is tested annually for impairment. Amortisation is recognised in profit or loss on a straight-line A gain from a bargain purchase is recognised as income in basis over the estimated useful lives of intangible assets, profit or loss in the period in which it arises. Gains or losses not exceeding 20 years, from the date that they are available on the disposal of an entity are determined after taking into for use. account the carrying amount of goodwill (if any) relating to the entity sold. Amortisation methods, useful lives and residual values are reviewed at each financial yearend and adjusted, if necessary. Computer software There have been no changes in the estimated useful lives from Costs associated with developing or maintaining computer those applied in the previous financial year. software programmes and the acquisition of software licences are generally recognised as an expense as incurred. However, Present value of acquired in-force policyholder direct computer software development costs that are clearly contracts and investment contracts with DPF associated with an identifiable and unique system, which will be Where a portfolio of policyholder contracts is acquired either controlled by the group and have a probable future economic directly from another insurer or through the acquisition of a benefit beyond one year, are recognised as intangible assets. subsidiary, the PVIF business on the portfolio, being the net Capitalisation is further limited to development costs where the present value of estimated future cash flows of the existing group is able to demonstrate its intention and ability to contracts, is recognised as an intangible asset and amortised complete and use the software, the technical feasibility of the on a basis consistent with the settlement of the relevant development, the availability of resources to complete the liability in respect of the purchased contracts (four to 12 years). development, how the development will generate probable The estimated life is re-evaluated annually. The PVIF intangible future economic benefits and the ability to reliably measure asset is carried in the statement of financial position at cost less costs relating to the development. Direct costs include software accumulated amortisation and accumulated impairment losses. development employee costs and an appropriate portion of relevant overheads. 8. Property and equipment Equipment and owner-occupied properties Expenditure subsequently incurred on computer software is Equipment, furniture, vehicles and other tangible assets are capitalised only when it increases the future economic benefits measured at cost less accumulated depreciation and embodied in the specific asset to which it relates. accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Where Direct computer software development costs recognised significant parts of an item of property or equipment have as intangible assets are amortised on the straight-line basis at different useful lives, they are accounted for as separate items rates appropriate to the expected useful lives of the assets (major components) of property and equipment. (two to 10 years) from the date that the assets are available for use, and are carried at cost less accumulated amortisation Costs that are subsequently incurred are included in the asset’s and accumulated impairment losses. The carrying amount of related carrying amount or are recognised as a separate asset, as capitalised computer software is reviewed annually and is appropriate, only when it is probable that future economic benefits will flow to the group and the cost of the item can be written down when impaired. measured reliably. 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criteria, is recognised in profit or loss as incurred. Depreciation, to amortisation and other non-financial assets are reviewed for impairment losses and gains and losses on disposal of assets are impairment at each reporting date and tested for impairment included in profit or loss. whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Owner-occupied properties are held for use in the supply of services or for administrative purposes. An impairment loss is recognised in profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable Property and equipment are depreciated on the straight-line amount. The recoverable amount is the higher of an asset’s fair basis over the estimated useful lives of the assets to their value less costs to sell and value in use. Fair value less costs to residual values. Land is not depreciated. Leasehold buildings are sell is determined by ascertaining the current market value of an depreciated over the period of the lease or over a lesser period, asset and deducting any costs related to the realisation of the as is considered appropriate. asset. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount The assets’ residual values, useful lives and the depreciation rate that reflects current market assessments of the time value method applied are reviewed, and adjusted if appropriate, at of money and the risks specific to the asset. For the purposes of each financial yearend. assessing impairment, assets that cannot be tested individually are grouped at the lowest levels for which there are separately The estimated useful lives of tangible assets are typically identifiable cash inflows from continuing use (cash-generating as follows: units). Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any Buildings 40 years goodwill allocated to the units, and then to reduce the carrying Computer equipment 3 to 5 years amounts of the other assets in the unit on a pro rata basis. Motor vehicles 4 to 5 years Office equipment 5 to 10 years An impairment loss in respect of goodwill is not reversed. In Furniture and fittings 5 to 13 years respect of other non-financial assets, impairment losses recognised in prior periods are assessed at each reporting date Capitalised leased assets over the shorter of the lease term for any indications that the loss has decreased or no longer or its useful life exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An There has been no change to the estimated useful lives and impairment loss is reversed through profit or loss only to the depreciation methods from those applied in the previous extent that the asset’s carrying amount does not exceed the financial year. carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been 9. Property developments recognised. Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification 12. Leases and includes the cost of acquisition and where applicable, Group as lessee development and borrowing costs during development. When Leases, where the group assumes substantially all the risks and development is completed borrowing costs and other charges rewards of ownership, are classified as finance leases. Finance are expensed as incurred. leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the 10. Capitalisation of borrowing costs minimum lease payments. Lease payments are separated using Borrowing costs that relate to qualifying assets, that is, assets the interest rate implicit in the lease to identify the finance cost, that necessarily take a substantial period of time to get ready which is recognised in profit or loss over the lease period, and for their intended use or sale and which are not measured at fair the capital repayment, which reduces the liability to the lessor. value, are capitalised. All other borrowing costs are recognised in profit or loss. Leases of assets are classified as operating leases if the lessor retains a significant portion of the risks and rewards of 11. Impairment of non-financial assets ownership. Payments made under operating leases, net of any Intangible assets that have an indefinite useful life and goodwill incentives received from the lessor, are recognised in profit or are tested annually for impairment and additionally when an loss on a straight-line basis over the term of the lease. indicator of impairment exists. Intangible assets that are subject Contingent rentals are expensed as they are incurred. When an

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operating lease is terminated before the lease period has recognises any impairment loss on the assets associated expired, any payment required to be made to the lessor by way with that contract. of penalty is recognised as an expense in the period in which termination takes place. Contingent assets are not recognised in the annual financial statements but are disclosed when, as a result of past events, it Group as lessor is probable that economic benefits will flow to the group, but Lease and instalment sale contracts are primarily financing this will only be confirmed by the occurrence or non-occurrence transactions in banking activities, with rentals and instalments of one or more uncertain future events which are not wholly receivable, less unearned finance charges, being included in within the group’s control. loans and advances in the statement of financial position. Contingent liabilities include certain guarantees, other than Finance charges earned are computed using the effective financial guarantees, and letters of credit. Contingent liabilities interest method, which reflects a constant periodic rate of are not recognised in the annual financial statements but are return on the investment in the finance lease. Initial direct costs disclosed in the notes to the annual financial statements unless and fees are capitalised to the value of the lease receivable and they are remote. accounted for over the lease term as an adjustment to the effective rate of return. The tax benefits arising from investment 14. Employee benefits allowances on assets leased to clients are accounted for in the Post-employment benefits direct taxation line. Defined contribution plans Leases of assets under which the group retains a significant The group operates a number of defined contribution plans, portion of the risks and rewards of ownership are classified as based on a percentage of pensionable earnings funded by both operating leases. Operating lease income from properties held as employer companies and employees, the assets of which are investment properties, net of any incentives given to lessees, is generally held in separate trustee-administered funds. recognised on the straight-line basis or a more representative basis where applicable over the lease term. When an operating Contributions to these plans are recognised as an expense in lease is terminated before the lease period has expired, any profit or loss in the periods during which services are rendered payment required by the group by way of a penalty is recognised by employees. as income in the period in which termination takes place. Defined benefit plans 13. Provisions, contingent assets and The group also operates a number of defined benefit plans, with contingent liabilities membership generally limited to employees who were in the Provisions are recognised when the group has a present legal or employment of the various companies at specified dates. constructive obligation as a result of past events, it is probable Employer companies contribute to the cost of benefits taking that an outflow of resources embodying economic benefits will account of the recommendations of the actuaries. Statutory be required to settle the obligation and a reliable estimate of actuarial valuations are required every three years using the the amount of the obligation can be made. Provisions are projected unit credit method. Interim valuations are also determined by discounting the expected future cash flows using performed annually at the financial yearend. a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The liabilities recognised in the statement of financial position in respect of defined benefit pension plans are measured at the A provision for restructuring is recognised when the group has present value of the estimated future cash outflows, using approved a detailed formal plan, and the restructuring either has interest rates of government bonds with maturity dates that commenced or has been announced publicly. Future operating approximate the expected maturity of the obligations, less the costs or losses are not provided for. fair value of plan assets, together with adjustments for unrecognised actuarial gains and losses and past service costs. A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract The group’s current service costs are recognised as expenses in are lower than the unavoidable cost of meeting its obligations the current year. Past service costs, experience adjustments and under the contract. The provision is measured at the present the effect of changes in actuarial assumptions are recognised in value of the lower of the expected cost of terminating the profit or loss in the current year to the extent that they relate to contract and the expected net cost of continuing with the vested benefits of retired employees or past service. For active contract. Before a provision is established, the group employees, these items are recognised in profit or loss

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systematically over a period not exceeding the expected Current tax represents the expected tax payable on taxable remaining service period of employees. income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax The group operates a number of funded and unfunded payable in respect of previous years. post-employment medical aid schemes, with membership limited to employees who were retired or in the employment of the Deferred tax is recognised in respect of temporary differences various companies at specified dates and complying with specific arising between the tax bases of assets and liabilities and their criteria. For past service, the group recognises and provides for carrying values for financial reporting purposes. Deferred tax is the actuarially determined present value of post-employment measured at the tax rates that are expected to be applied to the medical aid employer contributions using the projected unit temporary differences when they reverse, based on the laws credit method. Independent qualified actuaries carry out annual that have been enacted or substantively enacted at the valuations of these obligations. Unrecognised actuarial gains or reporting date. Deferred tax is not recognised for the following losses are accounted for over a period not exceeding the temporary differences: remaining working life of active employees. Actuarial gains or ¢ the initial recognition of goodwill losses in respect of vested benefits of retired employees are ¢ the initial recognition of assets and liabilities in a transaction recognised immediately in profit or loss. that is not a business combination, which affects neither Termination benefits accounting nor taxable profits or losses Termination benefits are recognised as an expense when the ¢ investments in subsidiaries and jointly controlled entities group is committed, without realistic possibility of withdrawal, to a (excluding mutual funds) where the group controls the formal detailed plan to terminate employment before the normal timing of the reversal of temporary differences and it is retirement date, or to provide termination benefits as a result of probable that these differences will not reverse in the an offer made to encourage voluntary redundancy. Termination foreseeable future. benefits for voluntary redundancies are recognised as an expense if the group has made an offer encouraging voluntary redundancy, The amount of deferred tax provided is based on the expected it is probable that the offer will be accepted, and the number of manner of realisation or settlement of the carrying amount of acceptances can be estimated reliably. the asset or liability and is not discounted.

Short-term benefits Deferred tax assets are recognised to the extent that it is Short-term benefits consist of salaries, accumulated leave probable that future taxable income will be available against payments, profit share, bonuses and any non-monetary benefits which the unused tax losses can be utilised. Deferred tax assets such as medical aid contributions. are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit Short-term employee benefit obligations are measured on will be realised. an undiscounted basis and are expensed as the related service is provided. Current and deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and A liability is recognised for the amount expected to be paid assets, and they relate to income taxes levied by the same tax under short-term cash bonus plans or accumulated leave if the authority on the same taxable entity, or on different tax entities, group has a present legal or constructive obligation to pay this but they intend to settle current tax liabilities and assets on a amount as a result of past service provided by the employee net basis or their tax assets and liabilities will be realised and the obligation can be estimated reliably. simultaneously.

15. Tax Dividends tax Normal tax Taxes on dividends declared by the group are recognised as part Direct taxation includes current and deferred tax. Current tax of the dividends paid within equity. and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination (relating to a Dividends tax withheld by the group on dividends paid to its measurement period adjustment where the carrying amount of shareholders and payable at the reporting date to the South the goodwill is greater than zero), or items recognised directly African Revenue Service (where applicable) is included in trade in equity or in OCI. and other payables in the statement of financial position.

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Indirect tax 17. Policyholder insurance and Indirect taxes, including non-recoverable VAT, skills investment contracts development levies and other duties for banking activities, Policyholder contracts are classified into four categories, are recognised in profit or loss and disclosed separately depending on the duration of or type of investment benefit in the income statement. or insurance risks, namely, short-term insurance, long-term insurance, investment contracts with DPF and investment 16. Non-current assets held for sale, contracts without DPF. disposal groups and discontinued operations Insurance and investment contract classification Non-current assets, or disposal groups comprising assets The group issues contracts that transfer insurance risk or and liabilities that are expected to be recovered primarily financial risk or, in some cases, both. through sale rather than continuing use, are classified as held for sale. An insurance contract is a contract under which the group (insurer) accepts significant insurance risk from the policyholder Non-current assets held as investments for the benefit of by agreeing to compensate the policyholder if a specified policyholders as part of the group’s investment management uncertain future event (the insured event) adversely affects the and life insurance activities are not classified as held for sale as policyholder or, in the case of life annuities, the lifespan of the ongoing investment management implies regular purchases and policyholder is greater than that assumed. Such contracts may sales in the ordinary course of business. also transfer financial risk. The group defines significant insurance risk as the possibility of having to pay benefits on the Immediately before classification as held for sale, the assets occurrence of an insured event that are significantly more than (or components of a disposal group) are remeasured in the benefits payable if the insured event did not occur. accordance with the group’s accounting policies and tested Investment contracts are those contracts that transfer financial for impairment (refer accounting policy 11 – Impairment of risk with no significant insurance risk. Financial risk is the risk of non-financial assets on page 239). Thereafter, the assets a possible future change in one or more of a specified interest are measured at the lower of their carrying amount and fair rate, financial instrument price, commodity price, foreign value less costs to sell. Impairment losses on initial classification exchange rate, index of prices or rates, credit rating or credit as held for sale and subsequent gains and losses on index or other variable. remeasurement are recognised in profit or loss. Discretionary participation features Assets (or components of a disposal group) are presented A number of insurance and investment contracts contain a DPF separately in the statement of financial position. feature. This feature entitles the policyholder to receive, as a supplement to guaranteed benefits, additional benefits or Property and equipment and intangible assets once classified as bonuses at the discretion of the group. held for sale, are not depreciated or amortised. The terms and conditions or practice relating to these contracts Once an interest in an associate or joint venture is classified as are in accordance with the group’s published Principles and held for sale, equity accounting is suspended. Practices of Financial Management, as approved by the Financial Services Board. The terms ‘reversionary bonus’ and ‘smoothed The group classifies a component of the business as a bonus’ refer to the specific forms of DPF contracts underwritten discontinued operation when that component has been by the group. disposed of, or is classified as held for sale, and: ¢ represents a separate major line of business or geographical All components in respect of DPFs are included in policyholder area of operations liabilities. ¢ is part of a single coordinated plan to dispose of a separate major line of business or geographical area of Short-term insurance operations, or Short-term insurance provides benefits under short-term ¢ is a subsidiary acquired exclusively with a view to resale. policies, which include engineering, fire, personal liability, marine and aviation, motor, personal accident, medical expenses, theft Discontinued operations are presented separately within the and the Workmen’s Compensation Act, or a contract comprising income statement and the cash flow statement. a combination of any of those policies.

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Recognition and measurement from short-term insurance contracts. The DRL is released to Gross written premiums income systematically over the coverage period of the Gross premiums exclude VAT. Premiums are accounted for as respective reinsurance contract. income when the risk related to the insurance policy commences and are amortised over the contractual period of risk cover by Receivables and payables related to using an unearned premium provision. All premiums are shown insurance contracts before deduction of commission payable to intermediaries. Receivables and payables are recognised when due. These include amounts due to and from agents, intermediaries and insurance Provision for unearned premiums contract holders and are included under prepayments, insurance The provision for unearned premiums represents the portion of and other receivables and insurance and other payables. the current year’s premiums that relate to risk periods extending into the following year. The unearned premiums are calculated Professional Guidance issued by the Actuarial using a straight-line basis, except for those insurance contracts Society of South Africa where allowance is made for uneven exposure. In terms of IFRS 4 Insurance Contracts (IFRS 4), insurance liabilities are measured under existing local practice at the date Liability adequacy of adoption of IFRS 4. The group had, prior to the adoption of Provision is made for underwriting losses that may arise IFRS 4, adopted the Professional Guidance Notes (PGNs) issued from unexpired risks when it is anticipated that unearned by the Actuarial Society of South Africa to determine the liability premiums will be insufficient to cover future claims, as well as in respect of insurance contracts issued in South Africa. The claims-handling fees and related administrative costs. group has continued to value long-term insurance liabilities in accordance with these. Provision for reported claims and claims incurred but not reported In 2012 the naming convention was changed and the term Provision is made on a prudent basis for the estimated final cost PGN was replaced with either Advisory Practice Note (APN) of all claims that had not been settled on the accounting date, or Standard of Actuarial Practice (SAP) depending on whether less amounts already paid. Claims and loss adjustment expenses the former PGN was best-practice or mandatory respectively. are charged to income as incurred based on the estimated liability for compensation owed to contract holders or third These are available on the Actuarial Society of parties damaged by the contract holders. The group’s own South Africa website www.actuarialsociety.org.za assessors or contracted external assessors individually assess claims. The claims provision includes an estimated portion of the Where applicable, the APNs and SAPs are referred to in the direct expenses of the claims and assessment charges. accounting policies and notes to the annual financial statements.

Provision is also made for claims arising from insured events that Long-term insurance contracts and investment occurred before the close of the accounting period, but which contracts with DPF had not been reported to the group at that date incurred but Measurement not reported (IBNR) claims. This provision is calculated using These contracts are valued in terms of the FSV basis as run-off triangle techniques. The provision for claims is not described in SAP 104 Life offices – valuation of long-term discounted for the time value of money due to the expected insurers (SAP 104), using a discounted cash flow methodology. short duration to settlement. The liability is reflected as policyholders’ liabilities in the statement of financial position. Deferred acquisition costs in respect of short-term contracts The discounted cash flow methodology allows for premiums and Commissions that vary and are related to securing new benefits payable in terms of the contract, future administration contracts and renewing existing contracts are deferred over expenses and commission, investment return and tax and any the period in which the related premiums are earned, and expected losses in respect of options. The liability is based on recognised as a current asset. All other costs are recognised assumptions of the best estimate of future experience, plus as expenses when incurred. compulsory margins as required in terms of SAP 104, plus additional discretionary margins. Deferred revenue liability in respect of short-term contracts Derivatives embedded in the group’s insurance contracts are A DRL is raised for any income receivable on the placement of not separated and measured at fair value if the embedded reinsurance for risks arising derivative itself meets the definition of an insurance contract.

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Annexure E – detailed accounting policies continued

The liabilities in respect of the investment guarantees’ the bonus stabilisation provision is negative, this provision is underlying maturity and death benefits, and guaranteed restricted to an amount that can reasonably be expected to be annuity options are measured in accordance with APN 110 recovered through under-distribution of bonuses during the Reserving for minimum investment return guarantees on a ensuing three years. All bonus stabilisation provisions are market-consistent basis. included in policyholders’ liabilities.

Discretionary margins are held to ensure that the profit and risk The liability estimates are reviewed biannually. The effect margins in the premiums are not capitalised before it is probable of any change in estimates is recognised in profit or loss. that future economic benefits will flow to the entity. These profits emerge over the lifetime of the contract in line with the Incurred but not reported claims risk borne by the group. Provision is made in policyholders’ liabilities for the estimated cost at the end of the year of claims incurred but not reported Liabilities for individual market-related policies, where benefits at that date. are in part dependent on the performance of underlying investment portfolios, are taken as the aggregate value of the Liability adequacy test policies’ investment in the investment portfolio at the valuation At each reporting date the adequacy of the insurance liabilities date (the unit reserve element), reduced by the excess of the is assessed. If that assessment shows that the carrying amount present value of the expected future risk and expense charges of insurance liabilities net of any related intangible PVIF over the present value of the expected future risk benefits business assets is inadequate in the light of the estimated and expenses on a policy-by-policy cash flow basis (the rand future cash flows, then the deficiency is recognised in profit reserve element). or loss.

Reversionary bonus classes of policies, and policies with fixed Long-term investment contracts without DPF and guaranteed benefits are valued by discounting the expected The group issues investment contracts without fixed benefits future cash flows at market-related rates of interest reduced by (unit linked and structured products) and investment contracts an allowance for investment expenses and the relevant with fixed and guaranteed benefits (term certain annuity). These compulsory margins (the guaranteed element). Future bonuses investment contracts are accounted for as financial liabilities and have been allowed for at the latest declared rates where are designated at fair value through profit or loss. Refer to appropriate. accounting policy 4 – Financial instruments on page 231.

The rand reserve element of market-related policies and the Investment contracts with a DPF guaranteed element in respect of other policies are collectively switching option known as the rand reserve. On certain investment contracts, policyholders have an option to switch some or all of their investment from a DPF fund to a In respect of corporate life and lump sum disability business, non-DPF fund (and vice versa). The value of the liability held no discounting of future cash flows is performed. However, a with respect to these contracts is taken at the aggregate value provision will be held if the expected guaranteed premiums of the policyholders’ investment in the investment portfolio at under the current basis and investment returns in the short term are not sufficient to meet expected future claims and expenses. the valuation date. For corporate investment contracts with DPF, in addition to the value of the policies’ investment in the investment portfolios Receivables and payables related to insurance held, an additional provision will be held if the expected contracts and investment contracts fee recoveries in the short term are not sufficient to meet Receivables and payables are recognised when due. These expected expenses. include amounts due to and from agents, brokers and policyholders. Outstanding claims and benefit payments are Within the group all investment contracts invested in stated gross of reinsurance. smoothed bonus portfolios are classified as investment contracts with DPF. In respect of insurance and investment Reinsurance contracts held contracts with DPF where bonuses are smoothed, bonus The group cedes some insurance risk in the normal course of stabilisation provisions are held arising from the difference business. Reinsurance contracts are contracts entered into by between the after taxation investment performance of the the group with reinsurers under which the group is compensated assets net of the relevant management fees and the value for the entire, or a portion of, losses arising on one or more of of the bonuses declared. In accordance with SAP 104, where the insurance contracts issued by the group.

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The expected benefits to which the group is entitled under ¢ preference dividends accrued but not received, due to its reinsurance contracts held are recognised as reinsurance cash distributions paid to participants, increase the assets and included in ‘Other assets’ in the statement of empowerment reserve financial position. Reinsurance assets are assessed for ¢ for purposes of the calculation of earnings per share, the impairment at each reporting date. Any impairment loss is weighted average number of shares in issue is reduced by recognised in profit or loss. the number of shares held by those SPEs that have been sold to the black participants. The shares will be restored on full 18. Equity redemption of the preference shares, or to the extent that Reacquired equity instruments the preference share capital is financed by a third party Where subsidiaries purchase/(short) the holding entity’s equity ¢ perpetual preference shares issued by the group for the instruments, the consideration paid/(received) is deducted/ purposes of financing the repurchased group shares are (added) from/(to) equity attributable to ordinary shareholders classified as equity. Dividends paid are accounted for as treasury shares on consolidation. Fair value changes on declaration. recognised by subsidiaries on these instruments are reversed on consolidation and dividends received are eliminated against Share issue costs dividends paid. Where such shares are subsequently sold or Incremental external costs directly attributable to a transaction reissued/(reacquired) outside the group, any consideration that increases or decreases equity are deducted from equity, net received/(paid) is included in equity attributable to of related tax. All other share issue costs are expensed. ordinary shareholders. Distributions on ordinary shares Black economic empowerment ownership Distributions are recognised in equity in the period in which they initiative (Tutuwa) are declared. Distributions declared after the reporting date are The group concluded its Tutuwa initiative in October 2004 when disclosed in the distributions note. it sold an effective 10% interest in its South African banking operations to a broad-based grouping of black entities. The 19. Equity-linked transactions group subscribed for 8.5% redeemable, cumulative preference Equity compensation plans shares issued by SPEs controlled by the group. The initial The group operates both equity-settled and cash-settled repurchase of group shares by the SPEs was treated as a share-based compensation plans. All share options issued after reduction in the group’s equity. Subsequent to the repurchase 7 November 2002 that had not vested by 31 December 2004 of the group shares, the SPEs containing these shares were sold are accounted for as share-based payment transactions. to the black participants. The capital and dividends on the preference shares are repayable from future ordinary dividends The fair value of equity-settled share options is determined on received on group shares or from the disposal of the group’s the grant date and accounted for as staff costs over the vesting shares. As a result of the group’s right to receive its own period of the share options, with a corresponding increase in the dividends back in the form of preference dividends and capital share-based payment reserve. Non-market vesting conditions, on the preference shares, the subsequent sale of the SPEs such as the resignation of employees and retrenchment of staff, and consequent delivery of the group shares to the black are not considered in the valuation but are included in the participants (although legally effected) is not accounted for estimate of the number of options expected to vest. At each as a sale. The preference share investment in the SPEs is also reporting date, the estimate of the number of options expected not accounted for as an asset. The preference share asset is to vest is reassessed and adjusted against profit or loss and effectively eliminated against equity as a negative equity over the remaining vesting period. empowerment reserve. On vesting of share options, amounts previously credited to the As a consequence of the above, the IFRS accounting share-based payment reserve are transferred to retained treatment followed until full redemption, or third party earnings through an equity transfer. On exercise of equity- financing, is as follows: settled share options, proceeds received are credited to share ¢ the 8.5% redeemable, cumulative preference shares issued capital and premium. by the SPEs and subscribed for by the group are not recognised as financial assets, but eliminated against equity Share-based payments settled in cash are accounted for as as a negative empowerment reserve liabilities at fair value until settled. The liability is recognised ¢ the preference dividends received from the SPEs are over the vesting period and is revalued at every reporting date eliminated against the ordinary dividends paid on the group and on settlement. Any changes in the liability are recognised in shares held by the SPEs profit or loss.

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Annexure E – detailed accounting policies continued

20. Revenue and expenditure Non-interest revenue Banking activities Net fee and commission revenue Revenue is derived substantially from the business of banking Fee and commission revenue, including transactional fees, account servicing fees, investment management fees, sales and related activities and comprises interest income, fee commissions and placement fees are recognised as the related and commission revenue, trading revenue and other services are performed. Loan commitment fees for loans that are non-interest revenue. not expected to be drawn down are recognised on a straight-line Net interest income basis over the commitment period. Loan syndication fees, where the group does not participate in the syndication or participates Interest income and expense (with the exception of those at the same effective interest rate for comparable risk as other borrowing costs that are capitalised – refer to accounting participants, are recognised as revenue when the syndication policy 10 – Capitalisation of borrowing costs on page 239) has been completed. Syndication fees that do not meet these are recognised in profit or loss on an accrual basis using the criteria are capitalised as origination fees and amortised as effective interest method for all interest-bearing financial interest income. instruments, except for those classified at fair value through profit or loss. In terms of the effective interest method, interest The fair value of issued financial guarantee contracts on is recognised at a rate that exactly discounts estimated future initial recognition is amortised as income over the term cash payments or receipts through the expected life of the of the contract. financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial Fee and commission expense included in net fee and liability. Direct incremental transaction costs incurred and commission revenue are mainly transaction and service fees origination fees received, including loan commitment fees, as a relating to financial instruments, which are expensed as the result of bringing margin-yielding assets or liabilities into the services are received. Expenditure is recognised as fee and statement of financial position, are capitalised to the carrying commission expenses where the expenditure is linked to the amount of financial instruments that are not at fair value production of fee and commission revenue. through profit or loss and amortised as interest income or expense over the life of the asset or liability as part of the Trading revenue effective interest rate. Trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with Where the estimates of payments or receipts on financial assets related interest income, expense and dividends. (except those that have been reclassified – refer to accounting policy 4 – Financial instruments on page 232) or financial Other revenue liabilities are subsequently revised, the carrying amount of the Other revenue includes gains and losses on equity instruments financial asset or financial liability is adjusted to reflect actual designated at fair value through profit or loss, dividends relating and revised estimated cash flows. The carrying amount is to those financial instruments and underwriting profit from the calculated by computing the present value of the estimated cash group’s short-term insurance operations and related insurance flows at the financial asset or financial liability’s original effective activities. interest rate. Any adjustment to the carrying value is recognised in net interest income. Gains and losses on equity available-for-sale financial assets are reclassified from OCI to profit or loss on derecognition or Where financial assets have been impaired, interest income impairment of the investments. Dividends on these instruments continues to be recognised on the impaired value based on the are recognised in profit or loss. original effective interest rate. Dividend income Fair value gains and losses on realised debt financial Dividends are recognised in profit or loss when the right to instruments, including amounts reclassified from OCI in respect receipt is established. Scrip dividends are recognised as of available-for-sale debt financial assets, and excluding dividends received where the dividend declaration allows for a those classified as held-for-trading, are included in net cash alternative. interest income. Short-term insurance income Dividends received on preference share investments classified as Short-term insurance income includes premium income, debt form part of the group’s lending activities and are included commission and policy fees earned as well as net incurred claim in interest income. losses and broker commission paid. Annual business income is

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accounted for on the accrual basis and comprises the cash value Changes in the provision for IBNR claims are also recognised in of commission and fees earned when premiums or fees are profit or loss. payable directly to the group. Direct commission income is accounted for as and when cash is received and comprises the Reinsurance recoveries are accounted for in the same period as cash value of commission earned when premiums are payable the related claims. directly to the underwriters. Acquisition costs Customer loyalty programmes Acquisition costs for insurance contracts represent commission The group’s banking operations operate a customer loyalty and other costs that relate to the securing of new contracts programme in terms of which it undertakes to provide goods and and the renewing of existing contracts. These costs are services to certain customers. The reward credits are accounted expensed as incurred. for as a separately identifiable component of the fee and commission income transactions of which they form a part. The Investment contracts without DPF consideration allocated to the reward credits is measured at the Amounts received and claims incurred on fair value of the reward credit and recognised over the period in investment contracts which the customer utilises the reward credits. Amounts received under investment contracts, such as premiums, are recorded as deposits to investment contract Expenses relating to the provision of the reward credits are liabilities, whereas claims incurred are recorded as deductions recognised as an expense as and when they are incurred. from investment contract liabilities.

Investment management and life insurance Service fees on investment management activities contracts and DRL on investment management Revenue comprises premium income, investment income, contracts and management and service fee income. Service fee income on investment management contracts is recognised on an accrual basis as and when the services Insurance contracts and investment contracts are rendered. with DPF Premium income A DRL is recognised in respect of upfront fees, which are Premiums and annuity considerations on insurance contracts, directly attributable to a contract, that are charged for other than in respect of universally costed policies (policies investment management services. The DRL is then released where insurance risk charges are dependent on the excess of to revenue when the services are provided, over the expected the sum assured over the value of units underlying the contract) duration of the contract on a straight-line basis. and recurring premium pure risk policies (collectively the Lifestyle series) and corporate schemes, are recognised when Regular charges billed in advance are recognised on a due in terms of the contract. Premiums receivable in respect of straight-line basis over the billing period, which is the corporate schemes are recognised when there is a reasonable period over which the service is rendered. Outstanding fees assurance of collection in terms of the policy contract. Premiums are accrued as a receivable in terms of the investment in respect of the Lifestyle series of policies are recognised when management contract. premiums are received, as failure to pay a premium will result in a reduction of attributable fund value, if available, or else in the DAC in respect of investment contracts lapse of the policy. Premium income on insurance contracts is Commissions paid and other incremental acquisition costs are recognised gross of reinsurance. Premiums are shown before incurred when new investment contracts are obtained or existing deduction of commission. investment contracts are renewed. These costs are expensed as incurred, unless specifically attributable to an investment Reinsurance premiums contract with an investment management service element. Reinsurance premiums are recognised when due for payment, in Such costs are deferred and amortised on a straight-line basis accordance with the terms of each reinsurance contract. over the expected life of the contract (10 to 16 years for linked annuities and five years for other investment contracts), Claims taking into account all decrements, as they represent the right Claims on insurance contracts, which include death, disability, to receive future management fees. maturity, surrender and annuity payments, are recognised in profit or loss when the group is notified of a claim, based on the A DAC asset is recognised for all applicable policies with the estimated liability for compensation owed to policyholders. amortisation being calculated on a portfolio basis.

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Annexure E – detailed accounting policies continued

Investment income and for the benefit of Liberty policyholders that are deemed to Investment income for investment management and life be treasury shares. To arrive at the normalised results the IFRS insurance activities comprises mainly rental income from results have been adjusted for the following items: properties, interest, hotel operations sales and dividends. ¢ Preference share funding for the group’s Tutuwa transaction Dividends are recognised when the right to receive payment that is deducted from equity and reduces the shares in issue is established and interest income is recognised using the in terms of IFRS. effective interest method. ¢ Group shares held for the benefit of Liberty policyholders that result in a reduction of the number of shares in issue Hotel operation’s sales comprise the fair value of the sale of and the exclusion of fair value adjustments and dividends on accommodation, food and beverage, other guest facilities and these shares. The IFRS requirement causes an accounting rentals received. Revenue is shown net of VAT, returns, rebates mismatch between income from investments and changes in and discounts. policyholders’ liabilities. ¢ The group’s transactions in its own shares to facilitate client Management fees on assets under management trading activities. As part of the normal trading operations, Fee income includes management fees on assets under a group subsidiary offers to its clients trading positions of management and administration fees. Management fees on listed shares, including its own shares. In order to hedge assets under management are recognised over the period for the risk on these shares the subsidiary buys or sells short which the services are rendered, in accordance with the group shares in the market. Although the share exposure substance of the relevant agreements. on the group’s own shares is deducted from or added to equity and the related fair value movements are reversed in Administration fees received for the administration of medical the income statement on consolidation, the client trading schemes are recognised when the services are rendered. position and fair value movements are not eliminated, 21. Segment reporting resulting in an accounting mismatch. An operating segment is a component of the group engaged in 22. Fiduciary activities business activities, whose operating results are reviewed The group commonly engages in trust or other fiduciary regularly by management in order to make decisions about resources to be allocated to segments and assessing segment activities that result in the holding or placing of assets on behalf performance. The group’s identification of segments and the of individuals, trusts, post-employment benefit plans and other measurement of segment results is based on the group’s institutions. These assets and the income arising directly thereon internal reporting to the chief operating decision maker. are excluded from these annual financial statements as they are not assets of the group. However, fee income earned and Transactions between segments are priced at fee expenses incurred by the group relating to the group’s market-related rates. responsibilities from fiduciary activities are recognised in profit or loss. The group’s segmental results are presented by normalising the group’s IFRS results. The normalised adjustments reflect 23. Comparative figures the group’s view of the economics of its black economic Where necessary, comparative figures within notes have empowerment ownership initiative and the group’s share been restated to conform to changes in presentation in exposures entered into to facilitate client trading activities the current year.

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24. New standards not yet adopted The following new or revised standards and amendments which have a potential impact on the group, are not yet effective for the year ended 31 December 2012 and have not been applied in preparing these annual financial statements.

Pronouncement Title Effective date

IFRS 7 (amendments) Financial Instruments: Disclosures – Offsetting Financial Assets Annual periods and Financial Liabilities beginning on or after 1 January 2013 The amendment to IFRS 7 requires additional disclosure for those financial instruments that are offset in the statement of financial position and for those financial instruments that are not offset in the statement of financial position but that are subject to either an enforceable master netting arrangement or similar agreement.

IFRS 9 (amended) Financial Instruments Annual periods beginning on or after IFRS 9 will replace the existing standard on the recognition and measurement of 1 January 2015 financial instruments and requires all financial assets to be classified and measured on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The accounting for financial assets differs in various other areas to existing requirements such as embedded derivatives and the recognition of fair value adjustments in OCI. All changes in the fair value of financial liabilities that are designated at fair value through profit or loss due to changes in own credit risk will be required to be recognised within OCI. IFRS 9 will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined.

IFRS 10 (amended)1 Consolidated Financial Statements Annual periods beginning on or after IFRS 10 establishes principles for the presentation and preparation of 1 January 2013 consolidated financial statements when an entity controls one or more other entities. It introduces a single control model to be applied in determining control. An investor controls an investee when it has: ¢ power over the investee ¢ exposure, or rights, to variable returns from its involvement with the investee, and ¢ the ability to use its power over the investee to affect the amount of its returns. When assessing whether an investor controls an investee, an investor with decision-making rights determines whether it acts as principal or as an agent. IFRS 10 will be applied retrospectively. The application of IFRS 10 will result in more entities, particularly mutual funds, being consolidated than under the existing consolidation standards. The consolidation of these additional entities will result in the additional assets and liabilities being consolidated, however, it is unlikely to have a material impact on the group’s OCI and profit or loss. The consolidation of these entities will also result in an increase in the number of treasury shares within the group’s statement of changes in equity. The application of IFRS 10 may also result in certain structured entities no longer being required to be consolidated by the group. The impact on the group’s financial statements is currently being finalised.

1 Amendments were made to the transitional guidance within IFRS 10, 11 and 12 to limit the requirement to provide comparative information to only the preceding comparative period.

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Annexure E – detailed accounting policies continued

Pronouncement Title Effective date

IFRS 11 (amended)1 Joint Arrangements Annual periods beginning on or after IFRS 11 focuses on the rights and obligations of joint arrangements, rather than 1 January 2013 the legal form. The standard: ¢ distinguishes between joint operations and joint ventures depending on the rights and obligations of the parties to the arrangements ¢ requires joint operations to be accounted for by recognising own assets, separately incurred liabilities, own revenue and expenses as well as the share of assets, liabilities, revenue and expenses arising from the joint operation ¢ requires joint ventures to be accounted for using the equity method. IFRS 11 will be applied retrospectively and is not expected to have a material impact on the group’s financial statements.

IFRS 12 (amended)1 Disclosure of Interests in Other Entities Annual periods beginning on or after IFRS 12 contains disclosure requirements for interests in subsidiaries, joint 1 January 2013 arrangements, associates and unconsolidated structured entities. The disclosures seek to provide information to enable users to evaluate: ¢ the nature of, and risks associated with, an entity’s interests in other entities ¢ the effects of those interests on the entity’s financial position, financial performance and cash flows. IFRS 12 will be applied retrospectively and will result in additional disclosures regarding the nature of the relationship, risks and significant judgements an entity may make in determining the nature of its interest in another entity.

IFRS 13 Fair Value Measurement Annual periods beginning on or after IFRS 13 provides a single source of fair value measurement guidance. It defines 1 January 2013 fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce any new requirements to measure additional assets or liabilities at fair value. IFRS 13 will be applied prospectively. The application of IFRS 13 may result in changes to the measurement of certain of the group’s assets and liabilities although initial high level assessments indicate these are unlikely to be significant. IFRS 13 will also result in additional disclosure requirements.

IAS 19 (amendments) Employee Benefits Annual periods beginning on or after The amendments to IAS 19 include the following requirements: 1 January 2013 ¢ actuarial gains and losses are to be recognised immediately in OCI. This change will remove the corridor method and eliminate the ability to recognise all changes in the defined benefit obligation and plan assets in profit or loss ¢ the expected return on plan assets that is recognised in profit or loss is calculated based on the rate used to discount the defined benefit obligation. The amendment will be applied retrospectively. The group will recognise all unrecognised actuarial losses or gains in OCI. As at 31 December 2012, there were unrecognised actuarial gains of R1,1 billion. The group will recognise an interest charge on the net pension fund liability or asset, rather than the expected return on the schemes’ assets and interest cost on the schemes’ benefit obligation.

1 Amendments were made to the transitional guidance within IFRS 10, 11 and 12 to limit the requirement to provide comparative information to only the preceding comparative period.

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Pronouncement Title Effective date

IAS 27 (amendments) Separate Financial Statements Annual periods beginning on or after The amendments to IAS 27 include both existing and amended accounting and 1 January 2013 disclosure requirements for separate financial statements. The amendments will be applied retrospectively and are not expected to have a material impact on the company’s financial statements.

IAS 28 (amendments) Investments in Associates and Joint Ventures Annual periods beginning on or after The amendments to IAS 28 carry forward existing accounting requirements for 1 January 2013 separate financial statements, as well as the existing equity accounting requirements for associates and joint ventures for group financial statements, with minor clarifications. The amendments will be applied retrospectively and are not expected to have a material impact on the group’s financial statements.

IAS 32 (amendments) Offsetting Financial Assets and Financial Liabilities Annual periods beginning on or after The amendment to IAS 32 clarifies the requirements for offsetting of financial 1 January 2014 assets and liabilities. The amendments will be applied retrospectively. The impact on the annual financial statements has not yet been fully determined.

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Annexure F – emoluments and share incentives of directors and prescribed officers

Directors’ and prescribed officers’ emoluments 2012 Fixed remuneration Variable remuneration Otherwise in connection with the affairs of Services as Standard Bank Services as Standard Value of directors of Group directors of Cash Bank Group options/ Total Standard Bank committee group portion of Other Pension and its Total fixed Deferred rights remuneration Group fees subsidiaries package benefits contributions subsidiaries remuneration Cash award award granted EGS for the year R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Non-executive directors DDB Band 189 410 315 4731 1 387 1 387 RMW Dunne 189 746 189 1 124 1 124 TS Gcabashe 189 280 225 694 694 KP Kalyan 189 84 189 462 462 Yagan Liu 533 180 713 713 SJ Macozoma 189 580 2 287 3 056 3 056 KD Moroka 189 189 378 378 AC Nissen 189 84 189 462 462 TMF Phaswana 4 400 4162 4 816 4 816 MC Ramaphosa 189 82 189 460 460 MJD Ruck 189 533 1 352 2 074 2 074 Lord Smith of Kelvin, Kt 533 213 533 1 279 1 279 EM Woods 189 679 207 1 075 1 075 Hongli Zhang 533 295 828 828 Subtotal 7 889 4 166 5 864 416 473 18 808 18 808 Former non-executive directors SE Jonah KBE3 78 78 156 156 Sir Paul Judge3 222 221 443 443 Subtotal 300 299 599 599 Executive directors JH Maree 6 345 470 997 7 812 4 5004 3 7005 2 0006,8 18 012 SP Ridley 4 617 246 572 5 435 5 5004 4 7005 1 5006,8 17 135 Subtotal 10 962 716 1 569 13 247 10 000 8 400 3 500 35 147 Subtotal board 8 189 4 166 6 163 10 962 1 132 1 569 473 32 654 10 000 8 400 3 500 54 554 Prescribed officers BJ Kruger 6 014 132 963 7 109 5 9004 5 1005 2 0006,8 20 109 PG Wharton-Hood 6 008 191 966 7 165 7 5004 6 7005 2 5006,8 23 865 SK Tshabalala 5 098 270 482 5 850 8 2504 7 4505 2 5006,8 24 050 JB Hemphill 4 424 387 132 4 943 7 9004 3 8507 7 0007,8 23 693 Subtotal 21 544 980 2 543 25 067 29 550 23 100 14 000 91 717 Total 8 189 4 166 6 163 32 506 2 112 4 112 473 57 721 39 550 31 500 17 500 146 271 1 This amount was payable to DDB Band by Gymnogene Investments, a company in which he is a 33% shareholder and which had a contractual relationship with SBSA. 7 Awards are made in terms of the Liberty Holdings Group Restricted Share Plan. Details are available in the Liberty annual integrated report. The payment arises from a share of the profit on disposal of private equity investments in a portfolio sourced and arranged by Gymnogene Investments on behalf of SBSA. 8 Black-Scholes value of conditional awards forfeited. Detail of award listed on pages 257 to 261. Although the contractual relationship expired on 31 December 2004, payments of this nature are likely to recur if and when the remaining investments in this portfolio are realised on a profitable basis to SBSA. Name Value R’000 2 Use of motor vehicle and club subscriptions. JH Maree (5 748) 3 Retired on 31 May 2012. SP Ridley (2 128) 4 In order to align incentive payments with the performance period to which they relate, the above variable remuneration relates to the year under review irrespective BJ Kruger (3 697) of when payment is made. PG Wharton-Hood (3 697) 5 In terms of the DBS 2012, described on page 262, the amount finally payable is dependent on the performance of the group’s share price. The awards deferred for the SK Tshabalala (2 547) 2012 performance year are only issued in the 2013 financial year. JB Hemphill (699) 6 Awards granted to key senior executives in March 2013 for the EGS are valued using the Black-Scholes methodology and are subject to a performance condition Total (18 516) as set out on page 131 of the annual integrated report, over and above the duration of service. 252 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers

Directors’ and prescribed officers’ emoluments 2012 Fixed remuneration Variable remuneration Otherwise in connection with the affairs of Services as Standard Bank Services as Standard Value of directors of Group directors of Cash Bank Group options/ Total Standard Bank committee group portion of Other Pension and its Total fixed Deferred rights remuneration Group fees subsidiaries package benefits contributions subsidiaries remuneration Cash award award granted EGS for the year R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Non-executive directors DDB Band 189 410 315 4731 1 387 1 387 RMW Dunne 189 746 189 1 124 1 124 TS Gcabashe 189 280 225 694 694 KP Kalyan 189 84 189 462 462 Yagan Liu 533 180 713 713 SJ Macozoma 189 580 2 287 3 056 3 056 KD Moroka 189 189 378 378 AC Nissen 189 84 189 462 462 TMF Phaswana 4 400 4162 4 816 4 816 MC Ramaphosa 189 82 189 460 460 MJD Ruck 189 533 1 352 2 074 2 074 Lord Smith of Kelvin, Kt 533 213 533 1 279 1 279 EM Woods 189 679 207 1 075 1 075 Hongli Zhang 533 295 828 828 Subtotal 7 889 4 166 5 864 416 473 18 808 18 808 Former non-executive directors SE Jonah KBE3 78 78 156 156 Sir Paul Judge3 222 221 443 443 Subtotal 300 299 599 599 Executive directors JH Maree 6 345 470 997 7 812 4 5004 3 7005 2 0006,8 18 012 SP Ridley 4 617 246 572 5 435 5 5004 4 7005 1 5006,8 17 135 Subtotal 10 962 716 1 569 13 247 10 000 8 400 3 500 35 147 Subtotal board 8 189 4 166 6 163 10 962 1 132 1 569 473 32 654 10 000 8 400 3 500 54 554 Prescribed officers BJ Kruger 6 014 132 963 7 109 5 9004 5 1005 2 0006,8 20 109 PG Wharton-Hood 6 008 191 966 7 165 7 5004 6 7005 2 5006,8 23 865 SK Tshabalala 5 098 270 482 5 850 8 2504 7 4505 2 5006,8 24 050 JB Hemphill 4 424 387 132 4 943 7 9004 3 8507 7 0007,8 23 693 Subtotal 21 544 980 2 543 25 067 29 550 23 100 14 000 91 717 Total 8 189 4 166 6 163 32 506 2 112 4 112 473 57 721 39 550 31 500 17 500 146 271 1 This amount was payable to DDB Band by Gymnogene Investments, a company in which he is a 33% shareholder and which had a contractual relationship with SBSA. 7 Awards are made in terms of the Liberty Holdings Group Restricted Share Plan. Details are available in the Liberty annual integrated report. The payment arises from a share of the profit on disposal of private equity investments in a portfolio sourced and arranged by Gymnogene Investments on behalf of SBSA. 8 Black-Scholes value of conditional awards forfeited. Detail of award listed on pages 257 to 261. Although the contractual relationship expired on 31 December 2004, payments of this nature are likely to recur if and when the remaining investments in this portfolio are realised on a profitable basis to SBSA. Name Value R’000 2 Use of motor vehicle and club subscriptions. JH Maree (5 748) 3 Retired on 31 May 2012. SP Ridley (2 128) 4 In order to align incentive payments with the performance period to which they relate, the above variable remuneration relates to the year under review irrespective BJ Kruger (3 697) of when payment is made. PG Wharton-Hood (3 697) 5 In terms of the DBS 2012, described on page 262, the amount finally payable is dependent on the performance of the group’s share price. The awards deferred for the SK Tshabalala (2 547) 2012 performance year are only issued in the 2013 financial year. JB Hemphill (699) 6 Awards granted to key senior executives in March 2013 for the EGS are valued using the Black-Scholes methodology and are subject to a performance condition Total (18 516) as set out on page 131 of the annual integrated report, over and above the duration of service. 253 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure F – emoluments and share incentives of directors and prescribed officers continued

Directors’ and prescribed officers’ emoluments 2011 Fixed remuneration Variable remuneration Services as Services directors of Standard Bank as directors Value of Total Standard Bank Group of group Cash portion Other Pension Total fixed options/rights remuneration Group committee fees subsidiaries of package benefits contributions remuneration Cash award Deferred award granted EGS for the year R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Non-executive directors DDB Band 171 389 302 862 862 RMW Dunne 171 711 172 1 054 1 054 TS Gcabashe 171 194 172 537 537 SE Jonah KBE 171 172 343 343 Sir Paul Judge 430 430 860 860 KP Kalyan 171 77 172 420 420 Yagan Liu 430 163 593 593 SJ Macozoma 171 544 2 066 2 781 2 781 KD Moroka 171 172 343 343 AC Nissen 171 77 172 420 420 TMF Phaswana 4 000 2841 4 284 4 284 MC Ramaphosa 171 74 172 417 417 MJD Ruck 171 822 1 071 2 064 2 064 Lord Smith of Kelvin, Kt 430 194 430 1 054 1 054 EM Woods 171 486 172 829 829 Hongli Zhang 430 284 714 714 Subtotal 7 601 4 015 5 675 284 17 575 17 575 Former non-executive director RP Menell2 16 28 15 59 59 Subtotal 16 28 15 59 59 Executive directors JH Maree 5 595 423 895 6 913 8 7863 9 0434 2 5005 27 242 SP Ridley 4 087 212 514 4 813 5 8813 5 6004 1 5005 17 794 Subtotal 9 682 635 1 409 11 726 14 667 14 643 4 000 45 036 Subtotal board 7 617 4 043 5 690 9 682 919 1 409 29 360 14 667 14 643 4 000 62 670 Prescribed officers BJ Kruger 5 268 143 858 6 269 9 5063 9 7634 2 5005 28 038 SK Tshabalala 4 713 227 454 5 394 8 2003 7 9006 2 5005 23 994 PG Wharton-Hood 5 337 152 840 6 329 8 6313 8 8884 2 5005 26 348 JB Hemphill 4 208 110 394 4 712 7 3323 2 7137 6 0007 20 757 Subtotal 19 526 632 2 546 22 704 33 669 29 264 13 500 99 137 Total 7 617 4 043 5 690 29 208 1 551 3 955 52 064 48 336 43 907 17 500 161 807

1 Use of motor vehicle. 2 Resigned on 4 February 2011. 3 In order to align incentive payments with the performance period to which they relate, the above variable remuneration relates to the year under review irrespective of when payment is made. 4 In terms of the DBS 2012, described on page 262, the amount finally payable is dependent on the performance of the group’s share price. The awards deferred for the 2011 performance year are only issued in the 2012 financial year. 5 Awards granted to key senior executives in March 2012 for the EGS are valued using the Black-Scholes methodology and are subject to a performance condition as set out on page 131 of the annual integrated report, over and above the duration of service. 6 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012. Details are on page 258. 7 Awards are made in terms of the Liberty Group DBS and EGS. Details are available in the Liberty Holdings Limited annual integrated report.

254 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers

Directors’ and prescribed officers’ emoluments 2011 Fixed remuneration Variable remuneration Services as Services directors of Standard Bank as directors Value of Total Standard Bank Group of group Cash portion Other Pension Total fixed options/rights remuneration Group committee fees subsidiaries of package benefits contributions remuneration Cash award Deferred award granted EGS for the year R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Non-executive directors DDB Band 171 389 302 862 862 RMW Dunne 171 711 172 1 054 1 054 TS Gcabashe 171 194 172 537 537 SE Jonah KBE 171 172 343 343 Sir Paul Judge 430 430 860 860 KP Kalyan 171 77 172 420 420 Yagan Liu 430 163 593 593 SJ Macozoma 171 544 2 066 2 781 2 781 KD Moroka 171 172 343 343 AC Nissen 171 77 172 420 420 TMF Phaswana 4 000 2841 4 284 4 284 MC Ramaphosa 171 74 172 417 417 MJD Ruck 171 822 1 071 2 064 2 064 Lord Smith of Kelvin, Kt 430 194 430 1 054 1 054 EM Woods 171 486 172 829 829 Hongli Zhang 430 284 714 714 Subtotal 7 601 4 015 5 675 284 17 575 17 575 Former non-executive director RP Menell2 16 28 15 59 59 Subtotal 16 28 15 59 59 Executive directors JH Maree 5 595 423 895 6 913 8 7863 9 0434 2 5005 27 242 SP Ridley 4 087 212 514 4 813 5 8813 5 6004 1 5005 17 794 Subtotal 9 682 635 1 409 11 726 14 667 14 643 4 000 45 036 Subtotal board 7 617 4 043 5 690 9 682 919 1 409 29 360 14 667 14 643 4 000 62 670 Prescribed officers BJ Kruger 5 268 143 858 6 269 9 5063 9 7634 2 5005 28 038 SK Tshabalala 4 713 227 454 5 394 8 2003 7 9006 2 5005 23 994 PG Wharton-Hood 5 337 152 840 6 329 8 6313 8 8884 2 5005 26 348 JB Hemphill 4 208 110 394 4 712 7 3323 2 7137 6 0007 20 757 Subtotal 19 526 632 2 546 22 704 33 669 29 264 13 500 99 137 Total 7 617 4 043 5 690 29 208 1 551 3 955 52 064 48 336 43 907 17 500 161 807

1 Use of motor vehicle. 2 Resigned on 4 February 2011. 3 In order to align incentive payments with the performance period to which they relate, the above variable remuneration relates to the year under review irrespective of when payment is made. 4 In terms of the DBS 2012, described on page 262, the amount finally payable is dependent on the performance of the group’s share price. The awards deferred for the 2011 performance year are only issued in the 2012 financial year. 5 Awards granted to key senior executives in March 2012 for the EGS are valued using the Black-Scholes methodology and are subject to a performance condition as set out on page 131 of the annual integrated report, over and above the duration of service. 6 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012. Details are on page 258. 7 Awards are made in terms of the Liberty Group DBS and EGS. Details are available in the Liberty Holdings Limited annual integrated report.

255 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure F – emoluments and share incentives of directors and prescribed officers continued

Share incentives Number of partici- Difference pation Number of between rights Black-Scholes share issue price Number forfeited value of incentives and closing of share Number for the participation exercised Issue price on Balance of incentives Opening of share current rights or accepted price (R)/ date of share as at Issue or Director’s or prescribed balance incentives Issue or performance forfeited during the resultant delivery incentives 31 December offer price Vesting officer’s name 1 January allocated offer date year (R) year shares (R) 31 December 2012 Issue date (R) category Expiry date JH Maree GSIS 2012 300 000 300 000 40,65 20 661 000 2011 325 000 25 000 33,50 1 621 250 300 000 EGS 2012 1 625 000 61 471 2012/03/08 (125 000) (5 747 500) 108,90 1 561 471 375 000 2006/03/10 79,50 A 2016/03/10 2011 1 625 000 1 625 000 125 000 2006/03/10 79,50 B 2016/03/10 62 5001 2008/03/06 92,00 A 2018/03/06 250 0001 2008/03/06 92,00 B 2018/03/06 62 5001 2009/03/06 62,39 A 2019/03/06 125 0001 2009/03/06 62,39 B 2019/03/06 500 0001 2010/03/05 111,94 A 2020/03/05 61 4711 2012/03/08 108,90 A 2022/03/08 SP Ridley GSIS 2012 2011 77 500 17 500 27,90 1 232 350 60 000 40,65 3 460 200 EGS 2012 725 000 36 883 2012/03/08 (42 500) (2 127 925) 50 000 12 175 2 170 000 669 383 150 000 2006/03/10 79,50 B 2016/03/10 2011 525 000 200 000 2011/03/04 725 000 15 000 2007/03/07 98,00 A 2017/03/07 15 000 2007/03/07 98,00 B 2017/03/07 12 5001 2008/03/06 92,00 A 2018/03/06 50 0001 2008/03/06 92,00 B 2018/03/06 30 0001 2009/03/06 62,39 A 2019/03/06 60 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 36 8831 2012/03/08 108,90 A 2022/03/08

1 Conditional awards.

256 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers

Share incentives Number of partici- Difference pation Number of between rights Black-Scholes share issue price Number forfeited value of incentives and closing of share Number for the participation exercised Issue price on Balance of incentives Opening of share current rights or accepted price (R)/ date of share as at Issue or Director’s or prescribed balance incentives Issue or performance forfeited during the resultant delivery incentives 31 December offer price Vesting officer’s name 1 January allocated offer date year (R) year shares (R) 31 December 2012 Issue date (R) category Expiry date JH Maree GSIS 2012 300 000 300 000 40,65 20 661 000 2011 325 000 25 000 33,50 1 621 250 300 000 EGS 2012 1 625 000 61 471 2012/03/08 (125 000) (5 747 500) 108,90 1 561 471 375 000 2006/03/10 79,50 A 2016/03/10 2011 1 625 000 1 625 000 125 000 2006/03/10 79,50 B 2016/03/10 62 5001 2008/03/06 92,00 A 2018/03/06 250 0001 2008/03/06 92,00 B 2018/03/06 62 5001 2009/03/06 62,39 A 2019/03/06 125 0001 2009/03/06 62,39 B 2019/03/06 500 0001 2010/03/05 111,94 A 2020/03/05 61 4711 2012/03/08 108,90 A 2022/03/08 SP Ridley GSIS 2012 2011 77 500 17 500 27,90 1 232 350 60 000 40,65 3 460 200 EGS 2012 725 000 36 883 2012/03/08 (42 500) (2 127 925) 50 000 12 175 2 170 000 669 383 150 000 2006/03/10 79,50 B 2016/03/10 2011 525 000 200 000 2011/03/04 725 000 15 000 2007/03/07 98,00 A 2017/03/07 15 000 2007/03/07 98,00 B 2017/03/07 12 5001 2008/03/06 92,00 A 2018/03/06 50 0001 2008/03/06 92,00 B 2018/03/06 30 0001 2009/03/06 62,39 A 2019/03/06 60 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 36 8831 2012/03/08 108,90 A 2022/03/08

1 Conditional awards.

257 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure F – emoluments and share incentives of directors and prescribed officers continued

Share incentives continued Number of partici- Difference pation Number of between rights Black-Scholes share issue price Number forfeited value of incentives and closing of share Number for the participation exercised Issue price on Balance of incentives Opening of share current rights or accepted price (R)/ date of share as at Issue or Director’s or prescribed balance incentives Issue or performance forfeited during the resultant delivery incentives 31 December offer price Vesting officer’s name 1 January allocated offer date year (R) year shares (R) 31 December 2012 Issue date (R) category Expiry date PG Wharton-Hood GSIS 2012 250 000 125 000 27,90 10 641 250 125 000 125 000 2004/03/11 40,65 A 2014/03/11 2011 300 000 50 000 27,80 3 408 200 250 000 EGS 2012 1 250 000 61 471 2012/03/08 (75 000) (3 696 750) 108,90 1 236 471 125 000 2005/03/10 65,60 B 2015/03/10 2011 1 100 000 150 000 2011/03/04 1 250 000 300 000 2006/03/10 79,50 B 2016/03/10 125 000 2007/03/07 98,00 B 2017/03/07 25 0001 2008/03/06 92,00 A 2018/03/06 100 0001 2008/03/06 92,00 B 2018/03/06 50 0001 2009/03/06 62,39 A 2019/03/06 100 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2010/03/05 111,94 B 2020/03/05 75 0001 2011/03/04 98,80 A 2021/03/04 75 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 SK Tshabalala2 GSIS 2012 25 000 25 000 25 000 2004/03/11 40,65 A 2014/03/11 2011 25 000 25 000 EGS 2012 795 000 274 305 2012/03/08 (50 000) (2 547 250) 108,90 1 019 305 50 000 2005/03/10 65,60 B 2015/03/10 2011 595 000 200 000 2011/03/04 795 000 22 500 2006/03/10 79,50 A 2016/03/10 22 500 2006/03/10 79,50 B 2016/03/10 25 000 2007/03/07 98,00 A 2017/03/07 25 000 2007/03/07 98,00 B 2017/03/07 12 5001 2008/03/06 92,00 A 2018/03/06 100 0001 2008/03/06 92,00 B 2018/03/06 50 0001 2008/03/06 92,00 B 2018/03/06 37 5001 2009/03/06 62,39 A 2019/03/06 75 0001 2009/03/06 62,39 B 2019/03/06 62 5001 2010/03/05 111,94 A 2020/03/05 62 5001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 212 834 2012/03/08 108,90 D 2022/03/08

1 Conditional awards. 2 SK Tshabalala, has a right to 698 339 shares as a beneficiary of the Tutuwa Manager’s Trusts. There is a current liability of R44,36 per share. Special conditions apply to the shares.

258 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers

Share incentives continued Number of partici- Difference pation Number of between rights Black-Scholes share issue price Number forfeited value of incentives and closing of share Number for the participation exercised Issue price on Balance of incentives Opening of share current rights or accepted price (R)/ date of share as at Issue or Director’s or prescribed balance incentives Issue or performance forfeited during the resultant delivery incentives 31 December offer price Vesting officer’s name 1 January allocated offer date year (R) year shares (R) 31 December 2012 Issue date (R) category Expiry date PG Wharton-Hood GSIS 2012 250 000 125 000 27,90 10 641 250 125 000 125 000 2004/03/11 40,65 A 2014/03/11 2011 300 000 50 000 27,80 3 408 200 250 000 EGS 2012 1 250 000 61 471 2012/03/08 (75 000) (3 696 750) 108,90 1 236 471 125 000 2005/03/10 65,60 B 2015/03/10 2011 1 100 000 150 000 2011/03/04 1 250 000 300 000 2006/03/10 79,50 B 2016/03/10 125 000 2007/03/07 98,00 B 2017/03/07 25 0001 2008/03/06 92,00 A 2018/03/06 100 0001 2008/03/06 92,00 B 2018/03/06 50 0001 2009/03/06 62,39 A 2019/03/06 100 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2010/03/05 111,94 B 2020/03/05 75 0001 2011/03/04 98,80 A 2021/03/04 75 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 SK Tshabalala2 GSIS 2012 25 000 25 000 25 000 2004/03/11 40,65 A 2014/03/11 2011 25 000 25 000 EGS 2012 795 000 274 305 2012/03/08 (50 000) (2 547 250) 108,90 1 019 305 50 000 2005/03/10 65,60 B 2015/03/10 2011 595 000 200 000 2011/03/04 795 000 22 500 2006/03/10 79,50 A 2016/03/10 22 500 2006/03/10 79,50 B 2016/03/10 25 000 2007/03/07 98,00 A 2017/03/07 25 000 2007/03/07 98,00 B 2017/03/07 12 5001 2008/03/06 92,00 A 2018/03/06 100 0001 2008/03/06 92,00 B 2018/03/06 50 0001 2008/03/06 92,00 B 2018/03/06 37 5001 2009/03/06 62,39 A 2019/03/06 75 0001 2009/03/06 62,39 B 2019/03/06 62 5001 2010/03/05 111,94 A 2020/03/05 62 5001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 212 834 2012/03/08 108,90 D 2022/03/08

1 Conditional awards. 2 SK Tshabalala, has a right to 698 339 shares as a beneficiary of the Tutuwa Manager’s Trusts. There is a current liability of R44,36 per share. Special conditions apply to the shares.

259 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure F – emoluments and share incentives of directors and prescribed officers continued

Share incentives continued Number of partici- Difference pation Number of between rights Black-Scholes share issue price Number forfeited value of incentives and closing of share Number for the participation exercised Issue price on Balance of incentives Opening of share current rights or accepted price (R)/ date of share as at Issue or Director’s or prescribed balance incentives Issue or performance forfeited during the resultant delivery incentives 31 December offer price Vesting officer’s name 1 January allocated offer date year (R) year shares (R) 31 December 2012 Issue date (R) category Expiry date BJ Kruger GSIS 2012 2011 15 700 15 700 40,65 960 309 EGS 2012 1 231 500 61 471 2012/03/08 (75 000) (3 696 750) 31 500 7 990 1 441 440 1 186 471 300 000 2006/03/10 79,50 B 2016/03/10 2011 1 062 500 200 000 2011/03/04 31 000 7 243 262 341 1 231 500 150 000 2007/03/07 98,00 B 2017/03/07 50 0001 2008/03/06 92,00 A 2018/03/06 100 0001 2008/03/06 92,00 B 2018/03/06 25 0001 2009/03/06 62,39 A 2019/03/06 100 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 JB Hemphill GSIS 2012 2011 EGS 2012 250 000 (12 500) (698 875) 237 500 5 000 2005/04/21 60,35 A 2015/04/21 2011 225 000 25 000 2011/03/04 250 000 20 000 2005/04/21 60,35 B 2015/04/21 12 5001 2009/03/06 62,39 A 2019/03/06 25 0001 2009/03/06 62,39 B 2019/03/06 75 0001 2010/03/05 111,94 A 2020/03/05 75 0001 2010/03/05 111,94 B 2020/03/05 12 5001 2011/03/04 98,80 A 2021/03/04 12 5001 2011/03/04 98,80 B 2021/03/04

1 Conditional awards.

260 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers

Share incentives continued Number of partici- Difference pation Number of between rights Black-Scholes share issue price Number forfeited value of incentives and closing of share Number for the participation exercised Issue price on Balance of incentives Opening of share current rights or accepted price (R)/ date of share as at Issue or Director’s or prescribed balance incentives Issue or performance forfeited during the resultant delivery incentives 31 December offer price Vesting officer’s name 1 January allocated offer date year (R) year shares (R) 31 December 2012 Issue date (R) category Expiry date BJ Kruger GSIS 2012 2011 15 700 15 700 40,65 960 309 EGS 2012 1 231 500 61 471 2012/03/08 (75 000) (3 696 750) 31 500 7 990 1 441 440 1 186 471 300 000 2006/03/10 79,50 B 2016/03/10 2011 1 062 500 200 000 2011/03/04 31 000 7 243 262 341 1 231 500 150 000 2007/03/07 98,00 B 2017/03/07 50 0001 2008/03/06 92,00 A 2018/03/06 100 0001 2008/03/06 92,00 B 2018/03/06 25 0001 2009/03/06 62,39 A 2019/03/06 100 0001 2009/03/06 62,39 B 2019/03/06 100 0001 2010/03/05 111,94 A 2020/03/05 100 0001 2010/03/05 111,94 B 2020/03/05 100 0001 2011/03/04 98,80 A 2021/03/04 100 0001 2011/03/04 98,80 B 2021/03/04 61 4711 2012/03/08 108,90 A 2022/03/08 JB Hemphill GSIS 2012 2011 EGS 2012 250 000 (12 500) (698 875) 237 500 5 000 2005/04/21 60,35 A 2015/04/21 2011 225 000 25 000 2011/03/04 250 000 20 000 2005/04/21 60,35 B 2015/04/21 12 5001 2009/03/06 62,39 A 2019/03/06 25 0001 2009/03/06 62,39 B 2019/03/06 75 0001 2010/03/05 111,94 A 2020/03/05 75 0001 2010/03/05 111,94 B 2020/03/05 12 5001 2011/03/04 98,80 A 2021/03/04 12 5001 2011/03/04 98,80 B 2021/03/04

1 Conditional awards.

261 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure F – emoluments and share incentives of directors and prescribed officers continued

Deferred bonus scheme The table below reflects bonus awards issued in the 2012 and prior financial years and relate to past years’ performance. The awards will only vest in future in terms of the rules of the DBS and DBS 2012. The bonus awards payable and bonus awards deferred for the 2012 performance year are only issued in the 2013 financial year and are reflected on page 253. Expiry Number of Value of Balance Amount Award date/final units exercised Share units of units Performance year Issue date deferred (R) price (R) Units vesting date during the year price (R) exercised (R) 31 December JH Maree 2008 2009/03/061 2 593 000 62,39 41 561 2013/11/30 41 561 2011 2012/03/082 9 043 512 108,90 83 035 2015/09/08 83 035 SP Ridley 2008 2009/03/061 887 500 62,39 14 226 2013/11/30 5 691 111,36 633 750 8 535# 2009 2010/03/051 817 500 111,94 7 303 2014/11/30 7 303 2010 2011/03/041 552 875 98,80 5 596 2015/11/30 5 596 2011 2012/03/082 5 600 074 108,90 51 424 2015/09/08 51 424 PG Wharton-Hood 2008 2009/03/061 967 500 62,39 15 508 2013/11/30 6 204 111,36 690 877 9 304# 2009 2010/03/051 887 500 111,94 7 928 2014/11/30 7 928 2010 2011/03/041 5 184 600 98,80 52 476 2015/11/30 52 476 2011 2012/03/082 8 887 547 108,90 81 612 2015/09/08 81 612 SK Tshabalala3 2008 2009/03/061 1 750 000 62,39 28 050 2013/11/30 11 220 111,36 1 249 459 16 830# 2009 2010/03/051 1 930 000 111,94 17 241 2014/11/30 17 241 BJ Kruger 2008 2009/03/061 1 870 000 62,39 29 973 2013/11/30 29 973 111,36 3 337 793 2009 2010/03/051 1 075 000 111,94 9 603 2014/11/30 9 603 2010 2011/03/041 2 310 000 98,80 23 381 2015/11/30 23 381 2011 2012/03/082 9 762 558 108,90 89 647 2015/09/08 89 647 JB Hemphill4 1 Units are granted in DBS and vest after three years from date of award. 2 Units are granted in DBS 2012 and vest in three equal tranches at 18, 30 and 42 months from date of award. 3 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012. Details are on page 258. 4 JB Hemphill was awarded a deferred bonus, issued in Liberty. Full details are available in the Liberty annual integrated report. # The units were exercised to settle taxes due on vesting date.

262 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure F – emoluments and share incentives of directors and prescribed officers

Deferred bonus scheme The table below reflects bonus awards issued in the 2012 and prior financial years and relate to past years’ performance. The awards will only vest in future in terms of the rules of the DBS and DBS 2012. The bonus awards payable and bonus awards deferred for the 2012 performance year are only issued in the 2013 financial year and are reflected on page 253. Expiry Number of Value of Balance Amount Award date/final units exercised Share units of units Performance year Issue date deferred (R) price (R) Units vesting date during the year price (R) exercised (R) 31 December JH Maree 2008 2009/03/061 2 593 000 62,39 41 561 2013/11/30 41 561 2011 2012/03/082 9 043 512 108,90 83 035 2015/09/08 83 035 SP Ridley 2008 2009/03/061 887 500 62,39 14 226 2013/11/30 5 691 111,36 633 750 8 535# 2009 2010/03/051 817 500 111,94 7 303 2014/11/30 7 303 2010 2011/03/041 552 875 98,80 5 596 2015/11/30 5 596 2011 2012/03/082 5 600 074 108,90 51 424 2015/09/08 51 424 PG Wharton-Hood 2008 2009/03/061 967 500 62,39 15 508 2013/11/30 6 204 111,36 690 877 9 304# 2009 2010/03/051 887 500 111,94 7 928 2014/11/30 7 928 2010 2011/03/041 5 184 600 98,80 52 476 2015/11/30 52 476 2011 2012/03/082 8 887 547 108,90 81 612 2015/09/08 81 612 SK Tshabalala3 2008 2009/03/061 1 750 000 62,39 28 050 2013/11/30 11 220 111,36 1 249 459 16 830# 2009 2010/03/051 1 930 000 111,94 17 241 2014/11/30 17 241 BJ Kruger 2008 2009/03/061 1 870 000 62,39 29 973 2013/11/30 29 973 111,36 3 337 793 2009 2010/03/051 1 075 000 111,94 9 603 2014/11/30 9 603 2010 2011/03/041 2 310 000 98,80 23 381 2015/11/30 23 381 2011 2012/03/082 9 762 558 108,90 89 647 2015/09/08 89 647 JB Hemphill4 1 Units are granted in DBS and vest after three years from date of award. 2 Units are granted in DBS 2012 and vest in three equal tranches at 18, 30 and 42 months from date of award. 3 SK Tshabalala elected to have the value of his deferred award for the performance year 2011 invested in the EGS rather than DBS 2012. Details are on page 258. 4 JB Hemphill was awarded a deferred bonus, issued in Liberty. Full details are available in the Liberty annual integrated report. # The units were exercised to settle taxes due on vesting date.

263 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure G – special resolutions

Group companies passed the following special resolutions during period commencing with effect from 1 January 2012 the year for the purposes indicated. and granted the directors authority to provide financial assistance to any company or corporation which is related Amendment to the articles of association/ or inter-related to the company. memorandum of incorporation ¢ Capital Alliance Australia Holdings Proprietary Limited ¢ Standard Bank Group Limited’s existing memorandum and changed its name to Own your life Rewards Proprietary articles of association was substituted with a new MOI. Limited, the main object was changed to conducting a ¢ The Standard Bank of South Africa Limited’s existing rewards programme. memorandum and articles of association was substituted ¢ Liberty Holdings Limited granted the directors general with a new MOI. authority to issue ordinary shares for cash. ¢ Liberty Holdings Limited’s existing memorandum and ¢ Liberty Holdings Limited approved the group restricted share articles of association was substituted with a new MOI. plan, details of which were set out in the notice of the AGM. ¢ Banco Standard de Investimentos S.A. approved the ¢ Liberty Holdings Limited granted the directors authority to consolidation of the By-Laws. issue ordinary shares for share incentives schemes. ¢ Standard Resources (China) Limited amended its articles ¢ Liberty Holdings Limited approved the fees payable to the of association to expand the company’s business scope. non-executive directors for the 12-month period ¢ Capasia South East Asian Strategic Asset Fund (General commencing with effect from 1 January 2012 and granted Partner) Limited adopted new articles of association. authority to provide financial assistance to any company or corporation which is related or inter-related to the company. ¢ Scenic Streams SDN BHD amended its existing articles of association and reclassified the authorised share capital ¢ Banco Standard de Investimentos S.A. approved the increase of the company. of the company’s corporate capital by issuing new ordinary and nominative shares. Increase in the authorised share capital ¢ Gale Force SDN BHD approved the reduction of the share ¢ Standard Bank Fund Administration Jersey Limited capital in the company. ¢ CfC Stanbic Bank Limited. ¢ Standard Bank Argentina S.A. changed its name to Industrial and Commercial Bank of China (Argentina) S.A. Authorise the acquisition of shares ¢ Stanbic Bank Zambia Limited approved the changes to its by the company share capital and allotment of bonus shares. ¢ Standard Bank Group Limited ¢ Integrated Processing Solutions Proprietary Limited granted authority to provide financial assistance to any company or ¢ Liberty Holdings Limited corporation which is related or inter-related to the company. ¢ Standard Bank London Holdings Limited ¢ K2011103588 Proprietary Limited changed its name to ¢ Stanbic Bank Uganda Limited. IPS Electronic Payments Proprietary Limited. Other ¢ Stanbic IBTC Bank PLC approved the scheme of arrangement, the cancellation, reduction and acquisition of shares ¢ Standard Bank Group Limited approved the fees payable described in the scheme and for the ordinary shares of the to the non-executive directors for the 12-month period bank to delist from the Nigerian Stock Exchange. commencing with effect from 1 January 2012 and granted the directors authority to provide financial assistance to any ¢ Standard Investments S.A. Sociedad Gerente de Fondos company or corporation which is related or inter-related to Comunes de Inversión changed its name to ICBC Investments the company. S.A. Sociedad Gerente de Fondos Comunes de Inversión. ¢ The Standard Bank of South Africa Limited approved the fees payable to the non-executive directors for the 12-month

264 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure G – special resolutions / Annexure H – third-party funds under management

Annexure H – third-party funds under management

2012 20111 Rbn Rbn Third-party assets under management and funds under administration Members of the group provide discretionary and non-discretionary investment management services to institutional and private investors. Commissions and fees earned in respect of trust and management activities performed are included in profit or loss. Assets managed and funds administered on behalf of third parties include: Banking activities Asset management Trusts and estates 57 52 Unit trusts/collective investments 4 9 Portfolio management 85 78 Other 2 148 139 Fund administration Trusts and estates Unit trusts/collective investments 25 72 Segregated funds 49 Portfolio management 44 43 Other 77 3 146 167 Geographical area Africa 223 191 International 71 115 294 306 Liberty Asset management 42 40 Segregated funds 38 36 Properties 4 4 Wealth management – funds under administration 236 215 Single manager unit trust 100 88 Institutional marketing 48 37 Linked and structured life products 43 33 Multi-manager 9 15 Rest of Africa 36 42

Total Liberty 278 255 Total assets under management and funds under administration 572 561

1 2011 comparative information has been restated.

Included in the balances above are funds for which the fund value is determined using directors’ valuations.

265 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure I – seven-year review

Consolidated normalised statement of financial position1 2012 2012 2012 CAGR 2012 2011 2010 2009 2008 2007 2006 USDm GBPm EURm % Rm Rm Rm Rm Rm Rm Rm Assets Banking activities 150 128 92 858 113 872 9 1 273 083 1 257 361 1 107 986 1 077 637 1 245 704 950 203 758 841 Cash and balances with central banks 7 310 4 521 5 544 28 61 985 31 907 28 675 24 983 25 697 20 618 14 343 Financial investments, trading and pledged assets 26 022 16 096 19 738 6 220 670 193 770 178 567 171 972 174 230 165 873 152 305 Loans and advances 95 978 59 364 72 799 8 813 892 803 811 713 025 723 507 790 087 637 868 501 506 Current and deferred taxation assets 149 92 113 4 1 261 1 700 1 492 1 329 1 197 1 058 969 Derivative and other assets 17 002 10 516 12 896 9 144 174 166 333 160 437 134 025 236 554 112 046 83 767 Non-current assets held for sale 113 70 86 (83) 960 34 085 Interest in associates and joint ventures 331 205 251 16 2 810 1 881 4 388 4 265 2 057 1 660 1 130 Goodwill and other intangible assets 1 642 1 016 1 246 54 13 928 11 449 8 965 7 827 8 364 5 659 1 043 Property and equipment 1 581 978 1 199 23 13 403 12 425 12 437 9 729 7 518 5 421 3 778 Liberty 32 499 20 101 24 650 5 275 590 240 069 229 535 220 151 212 640 222 083 202 838 Total assets 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679 Equity and liabilities Equity 15 867 9 814 12 035 13 134 552 122 023 108 210 104 498 105 143 77 489 64 187 Equity attributable to ordinary shareholders 13 432 8 308 10 188 15 113 905 102 523 90 755 87 454 85 902 58 406 48 352 Preference share capital and premium 649 401 492 5 503 5 503 5 503 5 503 5 503 5 503 5 503 Non-controlling interests 1 786 1 105 1 355 7 15 144 13 997 11 952 11 541 13 738 13 580 10 332 Liabilities 166 760 103 145 126 487 8 1 414 121 1 375 407 1 229 311 1 193 290 1 353 201 1 094 797 897 492 Banking activities 136 558 84 464 103 579 9 1 158 007 1 152 661 1 015 119 987 151 1 155 479 887 042 708 276 Deposit and current accounts 109 688 67 845 83 198 10 930 153 888 968 793 629 766 058 840 578 677 778 529 726 Derivative and other liabilities 18 097 11 193 13 727 7 153 460 178 590 166 480 138 509 238 819 122 325 104 516 Trading liabilities 4 730 2 925 3 587 (5) 40 105 31 145 30 108 53 608 51 392 62 864 54 352 Current and deferred taxation liabilities 492 305 373 4 175 2 653 3 137 4 374 5 213 5 161 4 166 Non-current liabilities held for sale (100) 27 939 Subordinated debt 3 551 2 196 2 694 12 30 114 23 366 21 765 24 602 19 477 18 914 15 516 Liberty 30 202 18 681 22 908 5 256 114 222 746 214 192 206 139 197 722 207 755 189 216

Total equity and liabilities 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. Exchange rates utilised to convert the 31 December 2012 statement of financial position: USD – 8,48 (2011: 8,09) GBP – 13,71 (2011: 12,48) EUR – 11,18 (2011: 10,46)

266 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Consolidated normalised statement of financial position1 2012 2012 2012 CAGR 2012 2011 2010 2009 2008 2007 2006 USDm GBPm EURm % Rm Rm Rm Rm Rm Rm Rm Assets Banking activities 150 128 92 858 113 872 9 1 273 083 1 257 361 1 107 986 1 077 637 1 245 704 950 203 758 841 Cash and balances with central banks 7 310 4 521 5 544 28 61 985 31 907 28 675 24 983 25 697 20 618 14 343 Financial investments, trading and pledged assets 26 022 16 096 19 738 6 220 670 193 770 178 567 171 972 174 230 165 873 152 305 Loans and advances 95 978 59 364 72 799 8 813 892 803 811 713 025 723 507 790 087 637 868 501 506 Current and deferred taxation assets 149 92 113 4 1 261 1 700 1 492 1 329 1 197 1 058 969 Derivative and other assets 17 002 10 516 12 896 9 144 174 166 333 160 437 134 025 236 554 112 046 83 767 Non-current assets held for sale 113 70 86 (83) 960 34 085 Interest in associates and joint ventures 331 205 251 16 2 810 1 881 4 388 4 265 2 057 1 660 1 130 Goodwill and other intangible assets 1 642 1 016 1 246 54 13 928 11 449 8 965 7 827 8 364 5 659 1 043 Property and equipment 1 581 978 1 199 23 13 403 12 425 12 437 9 729 7 518 5 421 3 778 Liberty 32 499 20 101 24 650 5 275 590 240 069 229 535 220 151 212 640 222 083 202 838 Total assets 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679 Equity and liabilities Equity 15 867 9 814 12 035 13 134 552 122 023 108 210 104 498 105 143 77 489 64 187 Equity attributable to ordinary shareholders 13 432 8 308 10 188 15 113 905 102 523 90 755 87 454 85 902 58 406 48 352 Preference share capital and premium 649 401 492 5 503 5 503 5 503 5 503 5 503 5 503 5 503 Non-controlling interests 1 786 1 105 1 355 7 15 144 13 997 11 952 11 541 13 738 13 580 10 332 Liabilities 166 760 103 145 126 487 8 1 414 121 1 375 407 1 229 311 1 193 290 1 353 201 1 094 797 897 492 Banking activities 136 558 84 464 103 579 9 1 158 007 1 152 661 1 015 119 987 151 1 155 479 887 042 708 276 Deposit and current accounts 109 688 67 845 83 198 10 930 153 888 968 793 629 766 058 840 578 677 778 529 726 Derivative and other liabilities 18 097 11 193 13 727 7 153 460 178 590 166 480 138 509 238 819 122 325 104 516 Trading liabilities 4 730 2 925 3 587 (5) 40 105 31 145 30 108 53 608 51 392 62 864 54 352 Current and deferred taxation liabilities 492 305 373 4 175 2 653 3 137 4 374 5 213 5 161 4 166 Non-current liabilities held for sale (100) 27 939 Subordinated debt 3 551 2 196 2 694 12 30 114 23 366 21 765 24 602 19 477 18 914 15 516 Liberty 30 202 18 681 22 908 5 256 114 222 746 214 192 206 139 197 722 207 755 189 216

Total equity and liabilities 182 627 112 959 138 522 8 1 548 673 1 497 430 1 337 521 1 297 788 1 458 344 1 172 286 961 679

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. Exchange rates utilised to convert the 31 December 2012 statement of financial position: USD – 8,48 (2011: 8,09) GBP – 13,71 (2011: 12,48) EUR – 11,18 (2011: 10,46)

267 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure I – seven-year review continued

Consolidated normalised income statement1 2012 2012 2012 CAGR 2012 2011 2010 2009 2008 2007 2006 USDm GBPm EURm % Rm Rm Rm Rm Rm Rm Rm Banking activities Net interest income 4 170 2 631 3 245 12 34 233 29 027 27 028 29 438 30 329 22 068 16 999 Non-interest revenue 4 199 2 651 3 268 10 34 474 29 724 28 720 29 906 28 324 24 201 19 144 Net fee and commission revenue 2 597 1 639 2 021 10 21 319 19 782 17 883 17 395 16 896 14 083 11 827 Trading revenue 1 080 682 841 11 8 868 7 895 8 032 10 032 9 046 7 098 4 829 Other revenue 522 330 406 9 4 287 2 047 2 805 2 479 2 382 3 020 2 488

Total income 8 369 5 282 6 513 11 68 707 58 751 55 748 59 344 58 653 46 269 36 143 Credit impairment charges 1 072 677 834 22 8 800 6 436 7 394 11 719 11 081 4 538 2 733 Net specific credit impairment charges 1 101 695 857 28 9 040 5 849 8 032 11 433 9 207 3 726 2 022 Portfolio credit impairment (reversal)/charges (29) (18) (23) (17) (240) 587 (638) 286 1 874 812 711

Income after credit impairment charges 7 297 4 605 5 679 10 59 907 52 315 48 354 47 625 47 572 41 731 33 410 Operating expenses 4 963 3 132 3 863 14 40 756 34 725 34 579 30 757 28 441 23 755 19 056 Staff costs 2 703 1 706 2 104 12 22 195 19 141 18 440 16 636 15 762 13 939 10 971 Restructuring costs 92 58 72 100 758 781 Other operating expenses 2 168 1 368 1 687 14 17 803 15 584 15 358 14 121 12 679 9 816 8 085

Net income before goodwill and gains and losses on disposal of subsidiaries 2 334 1 473 1 816 5 19 151 17 590 13 775 16 868 19 131 17 976 14 354 Goodwill impairment/(gain) 95 60 74 93 777 61 30 42 5 (376) 15 Loss on disposal of subsidiaries 10 7 8 100 86 Net income before associates and joint ventures 2 229 1 406 1 734 4 18 288 17 529 13 745 16 826 19 126 18 352 14 339 Share of profit/(loss) from associates and joint ventures 82 52 64 21 675 257 572 (53) 136 283 218 Net income before indirect taxation 2 311 1 458 1 798 5 18 963 17 786 14 317 16 773 19 262 18 635 14 557 Indirect taxation 172 109 134 15 1 412 1 085 947 1 191 922 819 602 Profit before direct taxation 2 139 1 349 1 664 4 17 551 16 701 13 370 15 582 18 340 17 816 13 955 Direct taxation 530 335 413 4 4 354 4 312 3 040 3 534 3 917 4 121 3 386 Profit for the year from continuing operations 1 609 1 014 1 251 4 13 197 12 389 10 330 12 048 14 423 13 695 10 569 Profit for the year from discontinued operation2 297 187 231 2 435 641 428 430 410 230 (18) Profit for the year 1 906 1 201 1 482 7 15 632 13 030 10 758 12 478 14 833 13 925 10 551 Attributable to non-controlling interests and preference shareholders 148 93 115 22 1 212 1 033 993 1 031 1 409 817 363 Continuing operations 120 76 93 18 985 873 913 925 1 313 763 363 Discontinued operation 28 17 22 100 227 160 80 106 96 54

Banking activities profit attributable to ordinary shareholders 1 758 1 108 1 367 6 14 420 11 997 9 765 11 447 13 424 13 108 10 188 Liberty Profit for the year 519 327 404 4 4 260 2 942 2 704 320 1 892 3 480 3 372 Attributable to non-controlling interests 267 168 207 (2) 2 188 1 514 1 381 248 1 251 2 505 2 412 Liberty profit attributable to ordinary shareholders 252 159 197 14 2 072 1 428 1 323 72 641 975 960 Attributable to group ordinary shareholders 2 010 1 267 1 564 7 16 492 13 425 11 088 11 519 14 065 14 083 11 148 Headline earnings 1 828 1 154 1 423 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818 1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. Exchange rates utilised to convert the 31 December 2012 income statement: 2 The income and expense relating to Standard Bank Argentina S.A., which qualified as a discontinued operation, is presented as a single amount USD – 8,21 (2011: 7,25) 268 relating to its after taxation profit. GBP – 13,01 (2011: 11,62) EUR – 10,55 (2011: 10,08) WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Consolidated normalised income statement1 2012 2012 2012 CAGR 2012 2011 2010 2009 2008 2007 2006 USDm GBPm EURm % Rm Rm Rm Rm Rm Rm Rm Banking activities Net interest income 4 170 2 631 3 245 12 34 233 29 027 27 028 29 438 30 329 22 068 16 999 Non-interest revenue 4 199 2 651 3 268 10 34 474 29 724 28 720 29 906 28 324 24 201 19 144 Net fee and commission revenue 2 597 1 639 2 021 10 21 319 19 782 17 883 17 395 16 896 14 083 11 827 Trading revenue 1 080 682 841 11 8 868 7 895 8 032 10 032 9 046 7 098 4 829 Other revenue 522 330 406 9 4 287 2 047 2 805 2 479 2 382 3 020 2 488

Total income 8 369 5 282 6 513 11 68 707 58 751 55 748 59 344 58 653 46 269 36 143 Credit impairment charges 1 072 677 834 22 8 800 6 436 7 394 11 719 11 081 4 538 2 733 Net specific credit impairment charges 1 101 695 857 28 9 040 5 849 8 032 11 433 9 207 3 726 2 022 Portfolio credit impairment (reversal)/charges (29) (18) (23) (17) (240) 587 (638) 286 1 874 812 711

Income after credit impairment charges 7 297 4 605 5 679 10 59 907 52 315 48 354 47 625 47 572 41 731 33 410 Operating expenses 4 963 3 132 3 863 14 40 756 34 725 34 579 30 757 28 441 23 755 19 056 Staff costs 2 703 1 706 2 104 12 22 195 19 141 18 440 16 636 15 762 13 939 10 971 Restructuring costs 92 58 72 100 758 781 Other operating expenses 2 168 1 368 1 687 14 17 803 15 584 15 358 14 121 12 679 9 816 8 085

Net income before goodwill and gains and losses on disposal of subsidiaries 2 334 1 473 1 816 5 19 151 17 590 13 775 16 868 19 131 17 976 14 354 Goodwill impairment/(gain) 95 60 74 93 777 61 30 42 5 (376) 15 Loss on disposal of subsidiaries 10 7 8 100 86 Net income before associates and joint ventures 2 229 1 406 1 734 4 18 288 17 529 13 745 16 826 19 126 18 352 14 339 Share of profit/(loss) from associates and joint ventures 82 52 64 21 675 257 572 (53) 136 283 218 Net income before indirect taxation 2 311 1 458 1 798 5 18 963 17 786 14 317 16 773 19 262 18 635 14 557 Indirect taxation 172 109 134 15 1 412 1 085 947 1 191 922 819 602 Profit before direct taxation 2 139 1 349 1 664 4 17 551 16 701 13 370 15 582 18 340 17 816 13 955 Direct taxation 530 335 413 4 4 354 4 312 3 040 3 534 3 917 4 121 3 386 Profit for the year from continuing operations 1 609 1 014 1 251 4 13 197 12 389 10 330 12 048 14 423 13 695 10 569 Profit for the year from discontinued operation2 297 187 231 2 435 641 428 430 410 230 (18) Profit for the year 1 906 1 201 1 482 7 15 632 13 030 10 758 12 478 14 833 13 925 10 551 Attributable to non-controlling interests and preference shareholders 148 93 115 22 1 212 1 033 993 1 031 1 409 817 363 Continuing operations 120 76 93 18 985 873 913 925 1 313 763 363 Discontinued operation 28 17 22 100 227 160 80 106 96 54

Banking activities profit attributable to ordinary shareholders 1 758 1 108 1 367 6 14 420 11 997 9 765 11 447 13 424 13 108 10 188 Liberty Profit for the year 519 327 404 4 4 260 2 942 2 704 320 1 892 3 480 3 372 Attributable to non-controlling interests 267 168 207 (2) 2 188 1 514 1 381 248 1 251 2 505 2 412 Liberty profit attributable to ordinary shareholders 252 159 197 14 2 072 1 428 1 323 72 641 975 960 Attributable to group ordinary shareholders 2 010 1 267 1 564 7 16 492 13 425 11 088 11 519 14 065 14 083 11 148 Headline earnings 1 828 1 154 1 423 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818 1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. Exchange rates utilised to convert the 31 December 2012 income statement: 2 The income and expense relating to Standard Bank Argentina S.A., which qualified as a discontinued operation, is presented as a single amount USD – 8,21 (2011: 7,25) relating to its after taxation profit. 269 GBP – 13,01 (2011: 11,62) EUR – 10,55 (2011: 10,08) WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure I – seven-year review continued

Share statistics and market indicators – normalised1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Share statistics Dividend cover times (3) 2.1 2.0 1.9 2.0 2.4 2.5 2.5 Dividend yield % 3.8 4.3 3.6 3.8 4.7 3.9 3.4 Earnings yield % 7.9 8.7 6.7 7.4 11.4 9.6 8.4 Price earnings ratio times 1 12.6 11.5 15.0 13.5 8.8 10.4 11.9 Price-to-book times (7) 1.7 1.5 1.9 1.8 1.5 2.4 2.7 Number of shares traded millions (1) 938,2 959,4 1 169,9 1 490,0 1 383,5 1 056,8 1 014,9 Turnover in shares traded % 58.8 60.5 74.2 96.2 92.2 77.2 74.7 Market capitalisation Rm 7 190 937 156 889 170 471 158 942 126 576 137 370 128 769 Market indicators at 31 December Standard Bank Group share price High for the year cents 4 12 030 11 000 11 800 10 500 10 250 11 950 9 650 Low for the year cents 6 9 876 8 775 10 075 5 915 6 602 9 000 6 850 Closing cents 4 11 888 9 875 10 755 10 200 8 300 10 008 9 450 Prime overdraft rate (closing) % 8.5 9.0 9.0 10.5 15.0 14.5 12.5 JSE All Share Index – (closing) 8 39 250 31 986 32 119 27 666 21 509 28 958 24 915 JSE Banks Index – (closing) 7 53 362 41 178 40 985 36 675 30 566 35 876 36 121 ZAR exchange rates – (closing) USD 3 8,48 8,09 6,64 7,37 9,31 6,81 7,05 GBP 13,71 12,48 10,29 11,88 13,64 13,64 13,80 EUR 3 11,18 10,46 8,87 10,61 13,02 10,00 9,29 ZAR exchange rates – (average) USD 3 8,21 7,25 7,32 8,42 8,24 7,05 6,77 GBP 1 13,01 11,62 11,30 13,09 15,00 14,10 12,49 EUR 4 10,55 10,08 9,71 11,67 12,00 9,65 8,51

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

270 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Share statistics and market indicators – normalised1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Share statistics Dividend cover times (3) 2.1 2.0 1.9 2.0 2.4 2.5 2.5 Dividend yield % 3.8 4.3 3.6 3.8 4.7 3.9 3.4 Earnings yield % 7.9 8.7 6.7 7.4 11.4 9.6 8.4 Price earnings ratio times 1 12.6 11.5 15.0 13.5 8.8 10.4 11.9 Price-to-book times (7) 1.7 1.5 1.9 1.8 1.5 2.4 2.7 Number of shares traded millions (1) 938,2 959,4 1 169,9 1 490,0 1 383,5 1 056,8 1 014,9 Turnover in shares traded % 58.8 60.5 74.2 96.2 92.2 77.2 74.7 Market capitalisation Rm 7 190 937 156 889 170 471 158 942 126 576 137 370 128 769 Market indicators at 31 December Standard Bank Group share price High for the year cents 4 12 030 11 000 11 800 10 500 10 250 11 950 9 650 Low for the year cents 6 9 876 8 775 10 075 5 915 6 602 9 000 6 850 Closing cents 4 11 888 9 875 10 755 10 200 8 300 10 008 9 450 Prime overdraft rate (closing) % 8.5 9.0 9.0 10.5 15.0 14.5 12.5 JSE All Share Index – (closing) 8 39 250 31 986 32 119 27 666 21 509 28 958 24 915 JSE Banks Index – (closing) 7 53 362 41 178 40 985 36 675 30 566 35 876 36 121 ZAR exchange rates – (closing) USD 3 8,48 8,09 6,64 7,37 9,31 6,81 7,05 GBP 13,71 12,48 10,29 11,88 13,64 13,64 13,80 EUR 3 11,18 10,46 8,87 10,61 13,02 10,00 9,29 ZAR exchange rates – (average) USD 3 8,21 7,25 7,32 8,42 8,24 7,05 6,77 GBP 1 13,01 11,62 11,30 13,09 15,00 14,10 12,49 EUR 4 10,55 10,08 9,71 11,67 12,00 9,65 8,51

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

271 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure I – seven-year review continued

Capital adequacy, employee and other relevant statistics1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Capital adequacy2 Risk-weighted assets Rm 11 789 613 710 725 620 064 599 822 614 960 554 473 421 187 Tier I capital3 Rm 13 92 299 85 547 79 996 71 354 67 726 48 336 45 415 Total capital3 Rm 11 115 186 101 978 94 805 90 712 81 597 64 301 62 468 Tier I capital to risk-weighted assets3 % 11.7 12.0 12.9 11.9 11.0 8.7 10.8 Total capital to risk-weighted assets3 % 14.6 14.3 15.3 15.1 13.3 11.6 14.8 Employee statistics Number of employees Banking activities4 2 42 736 45 904 48 1255 45 937 45 315 44 301 37 703 Group 3 49 017 51 656 53 3515 51 411 50 321 48 905 42 265 Employee turnover rate % 10.2 11.6 10.1 10.0 12.1 13.0 15.0 Normalised headline earnings per employee6 R 5 348 629 265 140 205 506 253 521 298 113 274 937 264 568 Points of representation6 ATMs7 8 7 152 6 770 6 473 5 580 4 864 4 699 4 538 Banking branches and service centres7 5 1 249 1 217 1 159 1 012 1 013 1 015 951 Customer Service Customer evaluation of branch service rating8 (out of 10) 2 9.5 9.4 8.9 8.7 8.6 8.5 8.6 Social investment and environment Corporate social investment spend9 Rm 12 125,2 119,5 139,7 104,4 92,4 64,9 61,9 8,10 11 Carbon footprint (metric tons CO2) 27 412 089 180 403 177 289 154 538 168 824 122 884 N/A 1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. 2 In accordance with Basel II principles relating to the treatment of insurance entities, insurance operations are excluded from the capital base of the banking group and its related risk-weighted assets. Capital in insurance operations in excess of statutory minimum requirements is not recognised in group capital. 3 Capital includes unappropriated profit. 4 Includes discontinued operation relating to Argentina. 5 953 permanent employees received notice of retrenchment prior to 31 December 2010, most of whom had not left the group at this date as their consultative period ended in 2011. 6 Banking activities. 7 Excludes discontinued operation relating to Argentina. 8 South African banking activities only. 9 Excludes the rest of Africa. 10 Significant increase in 2012 due to the measurement scope of CO2 emissions adapted to include all Standard Bank occupied premises in South Africa. 11 Information not available.

272 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Capital adequacy, employee and other relevant statistics1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Capital adequacy2 Risk-weighted assets Rm 11 789 613 710 725 620 064 599 822 614 960 554 473 421 187 Tier I capital3 Rm 13 92 299 85 547 79 996 71 354 67 726 48 336 45 415 Total capital3 Rm 11 115 186 101 978 94 805 90 712 81 597 64 301 62 468 Tier I capital to risk-weighted assets3 % 11.7 12.0 12.9 11.9 11.0 8.7 10.8 Total capital to risk-weighted assets3 % 14.6 14.3 15.3 15.1 13.3 11.6 14.8 Employee statistics Number of employees Banking activities4 2 42 736 45 904 48 1255 45 937 45 315 44 301 37 703 Group 3 49 017 51 656 53 3515 51 411 50 321 48 905 42 265 Employee turnover rate % 10.2 11.6 10.1 10.0 12.1 13.0 15.0 Normalised headline earnings per employee6 R 5 348 629 265 140 205 506 253 521 298 113 274 937 264 568 Points of representation6 ATMs7 8 7 152 6 770 6 473 5 580 4 864 4 699 4 538 Banking branches and service centres7 5 1 249 1 217 1 159 1 012 1 013 1 015 951 Customer Service Customer evaluation of branch service rating8 (out of 10) 2 9.5 9.4 8.9 8.7 8.6 8.5 8.6 Social investment and environment Corporate social investment spend9 Rm 12 125,2 119,5 139,7 104,4 92,4 64,9 61,9 8,10 11 Carbon footprint (metric tons CO2) 27 412 089 180 403 177 289 154 538 168 824 122 884 N/A 1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years. 2 In accordance with Basel II principles relating to the treatment of insurance entities, insurance operations are excluded from the capital base of the banking group and its related risk-weighted assets. Capital in insurance operations in excess of statutory minimum requirements is not recognised in group capital. 3 Capital includes unappropriated profit. 4 Includes discontinued operation relating to Argentina. 5 953 permanent employees received notice of retrenchment prior to 31 December 2010, most of whom had not left the group at this date as their consultative period ended in 2011. 6 Banking activities. 7 Excludes discontinued operation relating to Argentina. 8 South African banking activities only. 9 Excludes the rest of Africa. 10 Significant increase in 2012 due to the measurement scope of CO2 emissions adapted to include all Standard Bank occupied premises in South Africa. 11 Information not available.

273 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure I – seven-year review continued

Results and ratios – normalised1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Standard Bank Group Share statistics Listed on JSE (millions) number of ordinary shares Weighted average 3 1 595,6 1 587,1 1 576,1 1 548,2 1 501,1 1 369,2 1 358,4 End of period 3 1 606,1 1 588,7 1 585,0 1 558,3 1 525,0 1 372,6 1 362,6 Share statistics per ordinary share Basic earnings cents 4 1 033,6 845,9 703,5 744,0 937,0 1 028,5 820,7 Continuing operations cents 1 895,2 815,6 681,4 723,1 916,0 1 015,7 822,0 Discontinued operation cents 138,4 30,3 22,1 20,9 21,0 12,8 (1,3) Headline earnings cents 3 940,7 856,9 715,9 756,9 942,6 960,6 796,4 Continuing operations cents 2 898,5 828,1 695,0 736,3 921,8 951,2 797,8 Discontinued operation cents 42,2 28,8 20,9 20,6 20,8 9,4 (1,4) Dividends cents 6 455,0 425,0 386,0 386,0 386,0 386,0 320,0 Net asset value cents 12 7 091,9 6 453,1 5 725,7 5 612,3 5 632,9 4 255,1 3 548,4 ROE % 14.2 14.3 12.5 13.6 18.2 24.8 25.4 Normalised headline earnings per business unit Personal & Business Banking Rm 8 7 476 6 092 4 364 3 866 4 777 5 665 4 816 Corporate & Investment Banking Rm (1) 4 784 5 816 5 252 7 156 7 597 6 536 5 033 Central and other Rm 34 717 263 274 624 1 135 (21) 126 Liberty Rm 16 2 033 1 428 1 393 72 641 973 843 Total normalised headline earnings Rm 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818 Banking activities normalised Selected returns and ratios Headline earnings contribution Rm 4 12 977 12 171 9 890 11 646 13 509 12 180 9 975 Continuing operations Rm 4 12 304 11 714 9 561 11 327 13 196 12 051 9 994 Discontinued operation Rm 673 457 329 319 313 129 (19) ROE % 13.3 13.8 11.8 14.5 18.6 24.7 25.3 Continuing operations Net interest margin % 3.08 2.92 2.87 3.06 3.23 2.91 2.78 Non-interest income to total income % 50.2 50.6 51.5 50.4 48.3 52.3 53.0 Cost-to-income ratio % 58.9 58.8 61.4 51.9 48.4 51.0 52.4 Credit loss ratio % 1.08 0.87 1.04 1.57 1.53 0.80 0.60 Effective taxation rate % 30.4 30.3 27.8 28.2 25.1 26.5 27.4

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

274 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Results and ratios – normalised1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Standard Bank Group Share statistics Listed on JSE (millions) number of ordinary shares Weighted average 3 1 595,6 1 587,1 1 576,1 1 548,2 1 501,1 1 369,2 1 358,4 End of period 3 1 606,1 1 588,7 1 585,0 1 558,3 1 525,0 1 372,6 1 362,6 Share statistics per ordinary share Basic earnings cents 4 1 033,6 845,9 703,5 744,0 937,0 1 028,5 820,7 Continuing operations cents 1 895,2 815,6 681,4 723,1 916,0 1 015,7 822,0 Discontinued operation cents 138,4 30,3 22,1 20,9 21,0 12,8 (1,3) Headline earnings cents 3 940,7 856,9 715,9 756,9 942,6 960,6 796,4 Continuing operations cents 2 898,5 828,1 695,0 736,3 921,8 951,2 797,8 Discontinued operation cents 42,2 28,8 20,9 20,6 20,8 9,4 (1,4) Dividends cents 6 455,0 425,0 386,0 386,0 386,0 386,0 320,0 Net asset value cents 12 7 091,9 6 453,1 5 725,7 5 612,3 5 632,9 4 255,1 3 548,4 ROE % 14.2 14.3 12.5 13.6 18.2 24.8 25.4 Normalised headline earnings per business unit Personal & Business Banking Rm 8 7 476 6 092 4 364 3 866 4 777 5 665 4 816 Corporate & Investment Banking Rm (1) 4 784 5 816 5 252 7 156 7 597 6 536 5 033 Central and other Rm 34 717 263 274 624 1 135 (21) 126 Liberty Rm 16 2 033 1 428 1 393 72 641 973 843 Total normalised headline earnings Rm 6 15 010 13 599 11 283 11 718 14 150 13 153 10 818 Banking activities normalised Selected returns and ratios Headline earnings contribution Rm 4 12 977 12 171 9 890 11 646 13 509 12 180 9 975 Continuing operations Rm 4 12 304 11 714 9 561 11 327 13 196 12 051 9 994 Discontinued operation Rm 673 457 329 319 313 129 (19) ROE % 13.3 13.8 11.8 14.5 18.6 24.7 25.3 Continuing operations Net interest margin % 3.08 2.92 2.87 3.06 3.23 2.91 2.78 Non-interest income to total income % 50.2 50.6 51.5 50.4 48.3 52.3 53.0 Cost-to-income ratio % 58.9 58.8 61.4 51.9 48.4 51.0 52.4 Credit loss ratio % 1.08 0.87 1.04 1.57 1.53 0.80 0.60 Effective taxation rate % 30.4 30.3 27.8 28.2 25.1 26.5 27.4

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

275 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure I – seven-year review continued

Results and ratios – IFRS1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Standard Bank Group Share statistics Number of ordinary shares in issue in terms of IFRS (millions) Weighted average 4 1 522,2 1 510,4 1 492,0 1 459,3 1 398,9 1 231,0 1 216,7 End of period 4 1 535,9 1 514,1 1 505,1 1 474,3 1 430,6 1 256,9 1 224,9 Share statistics per ordinary share Basic earnings cents 3 1 060,7 875,7 722,1 757,5 995,9 1 109,0 864,5 Continuing operations cents 1 915,7 843,9 698,8 735,3 973,5 1 094,7 866,0 Discontinued operation cents 145,0 31,8 23,3 22,2 22,4 14,3 (1,5) Headline earnings cents 2 963,4 887,2 735,2 771,1 1 002,0 1 033,4 837,4 Continuing operations cents 2 919,1 857,0 713,2 749,2 979,7 1 022,9 838,9 Discontinued operation cents 44,3 30,2 22,0 21,9 22,3 10,5 (1,5) Dividends cents 6 455,0 425,0 386,0 386,0 386,0 386,0 320,0 Net asset value cents 13 7 185,9 6 541,3 5 785,2 5 698,9 5 728,5 4 270,1 3 503,8 ROE % 14.4 14.6 12.7 13.7 19.1 26.7 27.4 IFRS headline earnings per business unit Personal & Business Banking Rm 8 7 476 5 872 4 364 3 866 4 777 5 665 4 816 Corporate & Investment Banking Rm (1) 4 784 5 521 5 252 7 156 7 597 6 536 5 033 Central & Other Rm 17 521 572 135 607 955 (347) (208) Liberty Rm 23 1 883 1 435 1 218 (376) 688 867 547 Total IFRS headline earnings Rm 6 14 664 13 400 10 969 11 253 14 017 12 721 10 188 Banking activities IFRS Selected returns and ratios Headline earnings contribution Rm 5 12 781 11 965 9 751 11 629 13 329 11 854 9 641 Continuing operations Rm 4 12 108 11 508 9 422 11 310 13 016 11 725 9 660 Discontinued operation Rm 673 457 329 319 313 129 (19) ROE % 13.4 13.9 11.9 14.9 19.0 26.1 27.3 Continuing operations Net interest margin % 3.07 2.91 2.86 3.05 3.21 2.88 2.74 Non-interest income to total income % 50.4 50.8 51.8 50.8 48.5 52.7 53.5 Cost-to-income ratio % 59.0 59.0 61.5 51.8 48.5 51.4 52.9 Credit loss ratio % 1.08 0.87 1.04 1.58 1.54 0.80 0.61 Effective taxation rate % 30.8 30.7 28.2 28.5 25.4 27.0 28.1

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

276 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure I – seven-year review

Results and ratios – IFRS1 CAGR % 2012 2011 2010 2009 2008 2007 2006 Standard Bank Group Share statistics Number of ordinary shares in issue in terms of IFRS (millions) Weighted average 4 1 522,2 1 510,4 1 492,0 1 459,3 1 398,9 1 231,0 1 216,7 End of period 4 1 535,9 1 514,1 1 505,1 1 474,3 1 430,6 1 256,9 1 224,9 Share statistics per ordinary share Basic earnings cents 3 1 060,7 875,7 722,1 757,5 995,9 1 109,0 864,5 Continuing operations cents 1 915,7 843,9 698,8 735,3 973,5 1 094,7 866,0 Discontinued operation cents 145,0 31,8 23,3 22,2 22,4 14,3 (1,5) Headline earnings cents 2 963,4 887,2 735,2 771,1 1 002,0 1 033,4 837,4 Continuing operations cents 2 919,1 857,0 713,2 749,2 979,7 1 022,9 838,9 Discontinued operation cents 44,3 30,2 22,0 21,9 22,3 10,5 (1,5) Dividends cents 6 455,0 425,0 386,0 386,0 386,0 386,0 320,0 Net asset value cents 13 7 185,9 6 541,3 5 785,2 5 698,9 5 728,5 4 270,1 3 503,8 ROE % 14.4 14.6 12.7 13.7 19.1 26.7 27.4 IFRS headline earnings per business unit Personal & Business Banking Rm 8 7 476 5 872 4 364 3 866 4 777 5 665 4 816 Corporate & Investment Banking Rm (1) 4 784 5 521 5 252 7 156 7 597 6 536 5 033 Central & Other Rm 17 521 572 135 607 955 (347) (208) Liberty Rm 23 1 883 1 435 1 218 (376) 688 867 547 Total IFRS headline earnings Rm 6 14 664 13 400 10 969 11 253 14 017 12 721 10 188 Banking activities IFRS Selected returns and ratios Headline earnings contribution Rm 5 12 781 11 965 9 751 11 629 13 329 11 854 9 641 Continuing operations Rm 4 12 108 11 508 9 422 11 310 13 016 11 725 9 660 Discontinued operation Rm 673 457 329 319 313 129 (19) ROE % 13.4 13.9 11.9 14.9 19.0 26.1 27.3 Continuing operations Net interest margin % 3.07 2.91 2.86 3.05 3.21 2.88 2.74 Non-interest income to total income % 50.4 50.8 51.8 50.8 48.5 52.7 53.5 Cost-to-income ratio % 59.0 59.0 61.5 51.8 48.5 51.4 52.9 Credit loss ratio % 1.08 0.87 1.04 1.58 1.54 0.80 0.61 Effective taxation rate % 30.8 30.7 28.2 28.5 25.4 27.0 28.1

1 Figures included in the seven-year review have been restated where necessary to provide a meaningful comparison of performance over the years.

277 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure J – segmental statement of financial position

Personal & Corporate & Central and Normalised IFRS IFRS Business Banking Investment Banking other Banking activities Liberty1 Standard Bank Group adjustments Standard Bank Group Change 2012 20112 Change 2012 20112 Change 2012 20112 Change 2012 2011 Change 2012 2011 Change 2012 2011 2012 2011 Change 2012 2011 % Rm Rm % Rm Rm % Rm Rm % Rm Rm % Rm Rm % Rm Rm Rm Rm % Rm Rm Assets Cash and balances with central banks 7 4 027 3 754 >100 47 868 20 417 30 10 090 7 736 94 61 985 31 907 94 61 985 31 907 94 61 985 31 907 Financial investments, trading and pledged assets 37 4 312 3 137 14 217 971 190 860 (>100) (1 613) (227) 14 220 670 193 770 16 225 279 194 209 15 445 949 387 979 (1 732) (2 098) 15 444 217 385 881 Loans and advances 10 489 895 446 571 (7) 352 952 380 033 (27) (28 955) (22 793) 1 813 892 803 811 1 813 892 803 811 (2 721) (2 503) 1 811 171 801 308 Loans and advances to banks (5) 27 049 28 541 (17) 106 363 128 743 7 (25 216) (27 027) (17) 108 196 130 257 (17) 108 196 130 257 (17) 108 196 130 257 Loans and advances to customers 11 462 846 418 030 (2) 246 589 251 290 (>100) (3 739) 4 234 5 705 696 673 554 5 705 696 673 554 (2 721) (2 503) 5 702 975 671 051 Investment property 3 24 133 23 470 3 24 133 23 470 3 24 133 23 470 Derivative and other assets 68 6 043 3 607 (15) 139 663 165 198 65 (271) (772) (13) 145 435 168 033 32 8 653 6 536 (12) 154 088 174 569 (12) 154 088 174 569 Non-current assets held for sale 100 960 (100) 3 010 (100) 31 075 (97) 960 34 085 (97) 960 34 085 (97) 960 34 085 Interest in associates and joint ventures (33) 795 1 191 (3) 615 631 >100 1 400 59 49 2 810 1 881 20 14 436 12 054 24 17 246 13 935 24 17 246 13 935 Goodwill and other intangible assets 54 8 287 5 396 (24) 2 582 3 377 14 3 059 2 676 22 13 928 11 449 (42) 759 1 305 15 14 687 12 754 15 14 687 12 754 Property and equipment 10 4 824 4 389 1 1 355 1 335 8 7 224 6 701 8 13 403 12 425 (7) 2 330 2 495 5 15 733 14 920 5 15 733 14 920 Total assets 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829 Equity and liabilities Equity 29 43 844 33 992 47 323 47 467 3 23 909 23 241 10 115 076 104 700 12 19 476 17 323 10 134 552 122 023 (4 379) (4 490) 11 130 173 117 533 Equity attributable to ordinary shareholders 29 42 298 32 835 (1) 44 856 45 457 8 17 864 16 590 11 105 018 94 882 16 8 887 7 641 11 113 905 102 523 (3 535) (3 481) 11 110 370 99 042 Preference share capital and premium 5 503 5 503 5 503 5 503 5 503 5 503 5 503 5 503 Non-controlling interests 34 1 546 1 157 23 2 467 2 010 (53) 542 1 148 6 4 555 4 315 9 10 589 9 682 8 15 144 13 997 (844) (1 009) 10 14 300 12 988 Liabilities 10 475 299 434 053 715 683 717 394 (>100) (32 975) 1 214 1 158 007 1 152 661 15 256 114 222 746 3 1 414 121 1 375 407 (74) (111) 3 1 414 047 1 375 296 Deposit and current accounts 9 461 343 422 231 1 471 831 467 381 (>100) (3 021) (644) 5 930 153 888 968 (16) (11 620) (10 046) 5 918 533 878 922 5 918 533 878 922 Deposits from banks 32 1 705 1 287 (4) 123 052 128 567 (>100) (482) (113) (4) 124 275 129 741 (4) 124 275 129 741 (4) 124 275 129 741 Deposit and current accounts from customers 9 459 638 420 944 3 348 779 338 814 (>100) (2 539) (531) 6 805 878 759 227 (16) (11 620) (10 046) 6 794 258 749 181 6 794 258 749 181 Derivative, trading and other liabilities >100 6 118 2 371 (3) 226 346 233 272 (49) (34 724) (23 255) (7) 197 740 212 388 30 29 616 22 839 (3) 227 356 235 227 (74) (111) (3) 227 282 235 116 Non-current liabilities held for sale (100) 27 939 (100) 27 939 (100) 27 939 (100) 27 939 Policyholders’ liabilities 13 236 684 208 565 13 236 684 208 565 13 236 684 208 565 Subordinated debt (17) 7 838 9 451 5 17 506 16 741 >100 4 770 (2 826) 29 30 114 23 366 3 1 434 1 388 27 31 548 24 754 27 31 548 24 754

Total equity and liabilities 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829 Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041 Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829 Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518

1 Includes elimination of balances between Liberty and banking activities. 2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures are reclassified accordingly.

278 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure J – segmental statement of financial position

Personal & Corporate & Central and Normalised IFRS IFRS Business Banking Investment Banking other Banking activities Liberty1 Standard Bank Group adjustments Standard Bank Group Change 2012 20112 Change 2012 20112 Change 2012 20112 Change 2012 2011 Change 2012 2011 Change 2012 2011 2012 2011 Change 2012 2011 % Rm Rm % Rm Rm % Rm Rm % Rm Rm % Rm Rm % Rm Rm Rm Rm % Rm Rm Assets Cash and balances with central banks 7 4 027 3 754 >100 47 868 20 417 30 10 090 7 736 94 61 985 31 907 94 61 985 31 907 94 61 985 31 907 Financial investments, trading and pledged assets 37 4 312 3 137 14 217 971 190 860 (>100) (1 613) (227) 14 220 670 193 770 16 225 279 194 209 15 445 949 387 979 (1 732) (2 098) 15 444 217 385 881 Loans and advances 10 489 895 446 571 (7) 352 952 380 033 (27) (28 955) (22 793) 1 813 892 803 811 1 813 892 803 811 (2 721) (2 503) 1 811 171 801 308 Loans and advances to banks (5) 27 049 28 541 (17) 106 363 128 743 7 (25 216) (27 027) (17) 108 196 130 257 (17) 108 196 130 257 (17) 108 196 130 257 Loans and advances to customers 11 462 846 418 030 (2) 246 589 251 290 (>100) (3 739) 4 234 5 705 696 673 554 5 705 696 673 554 (2 721) (2 503) 5 702 975 671 051 Investment property 3 24 133 23 470 3 24 133 23 470 3 24 133 23 470 Derivative and other assets 68 6 043 3 607 (15) 139 663 165 198 65 (271) (772) (13) 145 435 168 033 32 8 653 6 536 (12) 154 088 174 569 (12) 154 088 174 569 Non-current assets held for sale 100 960 (100) 3 010 (100) 31 075 (97) 960 34 085 (97) 960 34 085 (97) 960 34 085 Interest in associates and joint ventures (33) 795 1 191 (3) 615 631 >100 1 400 59 49 2 810 1 881 20 14 436 12 054 24 17 246 13 935 24 17 246 13 935 Goodwill and other intangible assets 54 8 287 5 396 (24) 2 582 3 377 14 3 059 2 676 22 13 928 11 449 (42) 759 1 305 15 14 687 12 754 15 14 687 12 754 Property and equipment 10 4 824 4 389 1 1 355 1 335 8 7 224 6 701 8 13 403 12 425 (7) 2 330 2 495 5 15 733 14 920 5 15 733 14 920 Total assets 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829 Equity and liabilities Equity 29 43 844 33 992 47 323 47 467 3 23 909 23 241 10 115 076 104 700 12 19 476 17 323 10 134 552 122 023 (4 379) (4 490) 11 130 173 117 533 Equity attributable to ordinary shareholders 29 42 298 32 835 (1) 44 856 45 457 8 17 864 16 590 11 105 018 94 882 16 8 887 7 641 11 113 905 102 523 (3 535) (3 481) 11 110 370 99 042 Preference share capital and premium 5 503 5 503 5 503 5 503 5 503 5 503 5 503 5 503 Non-controlling interests 34 1 546 1 157 23 2 467 2 010 (53) 542 1 148 6 4 555 4 315 9 10 589 9 682 8 15 144 13 997 (844) (1 009) 10 14 300 12 988 Liabilities 10 475 299 434 053 715 683 717 394 (>100) (32 975) 1 214 1 158 007 1 152 661 15 256 114 222 746 3 1 414 121 1 375 407 (74) (111) 3 1 414 047 1 375 296 Deposit and current accounts 9 461 343 422 231 1 471 831 467 381 (>100) (3 021) (644) 5 930 153 888 968 (16) (11 620) (10 046) 5 918 533 878 922 5 918 533 878 922 Deposits from banks 32 1 705 1 287 (4) 123 052 128 567 (>100) (482) (113) (4) 124 275 129 741 (4) 124 275 129 741 (4) 124 275 129 741 Deposit and current accounts from customers 9 459 638 420 944 3 348 779 338 814 (>100) (2 539) (531) 6 805 878 759 227 (16) (11 620) (10 046) 6 794 258 749 181 6 794 258 749 181 Derivative, trading and other liabilities >100 6 118 2 371 (3) 226 346 233 272 (49) (34 724) (23 255) (7) 197 740 212 388 30 29 616 22 839 (3) 227 356 235 227 (74) (111) (3) 227 282 235 116 Non-current liabilities held for sale (100) 27 939 (100) 27 939 (100) 27 939 (100) 27 939 Policyholders’ liabilities 13 236 684 208 565 13 236 684 208 565 13 236 684 208 565 Subordinated debt (17) 7 838 9 451 5 17 506 16 741 >100 4 770 (2 826) 29 30 114 23 366 3 1 434 1 388 27 31 548 24 754 27 31 548 24 754

Total equity and liabilities 11 519 143 468 045 763 006 764 861 (>100) (9 066) 24 455 1 1 273 083 1 257 361 15 275 590 240 069 3 1 548 673 1 497 430 (4 453) (4 601) 3 1 544 220 1 492 829 Average assets – banking activities excluding trading derivatives 489 809 442 995 637 490 563 372 (16 515) (13 228) 1 110 784 993 139 1 110 784 993 139 (2 262) (2 098) 1 108 522 991 041 Average loans and advances (gross) 477 697 436 266 371 820 332 848 (31 990) (29 032) 817 527 740 082 817 527 740 082 (2 421) (2 253) 815 106 737 829 Average ordinary shareholders’ equity 37 392 30 542 45 981 42 389 14 290 15 162 97 663 88 093 8 059 7 063 105 722 95 156 (3 687) (3 638) 102 035 91 518

1 Includes elimination of balances between Liberty and banking activities. 2 Where reporting responsibility for individual cost centres and divisions within business units changes, the segmental analysis comparative figures are reclassified accordingly.

279 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Annexure K – banking activities average statement of financial position (normalised)

2012 2011 Total Total Trading Non-interest Interest average Average Trading Non-interest Interest average Average book earning earning balance Interest1 rate book earning earning balance Interest1 rate Rm Rm Rm Rm Rm % Rm Rm Rm Rm Rm % Assets Cash and balances with central banks2 5 112 8 980 22 899 36 991 813 7 279 17 995 26 087 Trading assets 99 502 12 777 112 279 93 773 14 882 108 655 Financial investments 1 644 92 643 94 287 7 071 7.52 28 78 425 78 453 6 167 7.86 Net loans and advances 28 478 774 046 802 524 60 883 7.61 12 406 712 294 724 700 54 424 7.51 Loans and advances to banks 27 666 85 768 113 434 985 0.87 11 369 80 881 92 250 1 704 1.85 Loans and advances to customers 812 703 281 704 093 59 898 8.53 1 037 646 795 647 832 52 720 8.14 Mortgage loans 294 765 294 765 23 807 8.10 281 048 281 048 22 749 8.09 Instalment sale and finance leases 61 535 61 535 6 338 10.33 53 185 53 185 5 477 10.30 Card debtors 22 221 22 221 3 057 13.79 19 754 19 754 2 713 13.73 Overdrafts and other demand loans 812 78 447 79 259 6 191 7.83 1 037 79 764 80 801 5 813 7.19 Term loans 207 456 207 456 17 463 8.44 176 290 176 290 12 980 7.36 Commercial property finance 38 857 38 857 3 042 7.85 36 754 36 754 2 988 8.13

Gross loans and advances 28 478 789 049 817 527 60 883 7.47 12 406 727 676 740 082 54 424 7.35 Credit impairments for loans and advances (15 003) (15 003) (15 382) (15 382) Investment property 4 286 4 286 4 408 4 408 Other assets 18 528 7 865 26 393 10 860 11 756 22 616 Interest in associates and joint ventures 9 870 9 870 6 519 6 519 Goodwill and other intangible assets 10 207 10 207 9 118 9 118 Property and equipment 13 947 13 947 12 583 12 583 Total average assets and interest excluding derivative assets 153 264 67 932 889 588 1 110 784 67 954 6.13 117 880 66 545 808 714 993 139 60 591 6.10 Derivative assets 184 453 184 453 185 207 185 207 Total average assets and interest 337 717 67 932 889 588 1 295 237 67 954 5.26 303 087 66 545 808 714 1 178 346 60 591 5.14 Equity and liabilities Equity 5 254 92 409 97 663 4 069 84 024 88 093 Liabilities 137 957 27 715 840 785 1 006 457 33 721 3.36 108 682 36 264 758 799 903 745 31 564 3.49 Trading liabilities 36 189 36 189 35 752 35 752 Deposit and current accounts 89 881 815 243 905 124 31 432 3.48 66 885 737 347 804 232 29 536 3.67 Deposits from banks 37 589 92 394 129 983 2 722 2.10 30 779 68 459 99 238 2 113 2.13 Deposit and current accounts from customers 52 292 722 849 775 141 28 710 3.71 36 106 668 888 704 994 27 423 3.89 Current accounts 118 525 118 525 330 0.28 102 716 102 716 379 0.37 Cash management deposits 84 299 84 299 3 409 4.06 70 756 70 756 2 955 4.18 Call deposits 157 175 157 175 6 942 4.43 136 403 136 403 6 136 4.50 Savings accounts 22 349 22 349 251 1.13 21 368 21 368 240 1.12 Term deposits 52 292 260 181 312 473 13 381 4.29 36 106 267 346 303 452 13 284 4.38 Negotiable certificates of deposit 80 320 80 320 4 397 5.49 70 299 70 299 4 429 6.30

Other liabilities 10 355 27 715 38 070 4 605 36 264 40 869 Subordinated bonds 1 532 25 542 27 074 2 289 8.48 1 440 21 452 22 892 2 028 8.86 Total average equity, liabilities and interest excluding derivative liabilities 143 211 120 124 840 785 1 104 120 33 721 3.06 112 751 120 288 758 799 991 838 31 564 3.18 Derivative liabilities 191 117 191 117 186 508 186 508 Total average equity, liabilities and interest 334 328 120 124 840 785 1 295 237 33 721 2.61 299 259 120 288 758 799 1 178 346 31 564 2.68 Margin on total average assets excluding derivatives 153 264 67 932 889 588 1 110 784 34 233 3.09 117 880 66 545 808 714 993 139 29 027 2.92 Margin on total average loans and advances 28 478 774 046 802 524 34 233 4.28 12 406 712 294 724 700 29 027 4.01 Margin on average interest earning assets 889 588 889 588 37 906 4.27 808 714 808 714 31 995 3.96 1 Interest received and paid on derivative instruments used for hedging purposes have been netted against interest received and paid on the instrument being 2 Included within interest-earning cash and balances with central banks is the SARB interest-free deposit. This is utilised to meet liquidity requirements and 280 hedged. Accordingly, the interest will not equate to interest income and interest expense as per the income statement. is reflected in the margin as part of interest earning assets to reflect the cost of liquidity. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Annexure K – banking activities average statement of financial position (normalised)

2012 2011 Total Total Trading Non-interest Interest average Average Trading Non-interest Interest average Average book earning earning balance Interest1 rate book earning earning balance Interest1 rate Rm Rm Rm Rm Rm % Rm Rm Rm Rm Rm % Assets Cash and balances with central banks2 5 112 8 980 22 899 36 991 813 7 279 17 995 26 087 Trading assets 99 502 12 777 112 279 93 773 14 882 108 655 Financial investments 1 644 92 643 94 287 7 071 7.52 28 78 425 78 453 6 167 7.86 Net loans and advances 28 478 774 046 802 524 60 883 7.61 12 406 712 294 724 700 54 424 7.51 Loans and advances to banks 27 666 85 768 113 434 985 0.87 11 369 80 881 92 250 1 704 1.85 Loans and advances to customers 812 703 281 704 093 59 898 8.53 1 037 646 795 647 832 52 720 8.14 Mortgage loans 294 765 294 765 23 807 8.10 281 048 281 048 22 749 8.09 Instalment sale and finance leases 61 535 61 535 6 338 10.33 53 185 53 185 5 477 10.30 Card debtors 22 221 22 221 3 057 13.79 19 754 19 754 2 713 13.73 Overdrafts and other demand loans 812 78 447 79 259 6 191 7.83 1 037 79 764 80 801 5 813 7.19 Term loans 207 456 207 456 17 463 8.44 176 290 176 290 12 980 7.36 Commercial property finance 38 857 38 857 3 042 7.85 36 754 36 754 2 988 8.13

Gross loans and advances 28 478 789 049 817 527 60 883 7.47 12 406 727 676 740 082 54 424 7.35 Credit impairments for loans and advances (15 003) (15 003) (15 382) (15 382) Investment property 4 286 4 286 4 408 4 408 Other assets 18 528 7 865 26 393 10 860 11 756 22 616 Interest in associates and joint ventures 9 870 9 870 6 519 6 519 Goodwill and other intangible assets 10 207 10 207 9 118 9 118 Property and equipment 13 947 13 947 12 583 12 583 Total average assets and interest excluding derivative assets 153 264 67 932 889 588 1 110 784 67 954 6.13 117 880 66 545 808 714 993 139 60 591 6.10 Derivative assets 184 453 184 453 185 207 185 207 Total average assets and interest 337 717 67 932 889 588 1 295 237 67 954 5.26 303 087 66 545 808 714 1 178 346 60 591 5.14 Equity and liabilities Equity 5 254 92 409 97 663 4 069 84 024 88 093 Liabilities 137 957 27 715 840 785 1 006 457 33 721 3.36 108 682 36 264 758 799 903 745 31 564 3.49 Trading liabilities 36 189 36 189 35 752 35 752 Deposit and current accounts 89 881 815 243 905 124 31 432 3.48 66 885 737 347 804 232 29 536 3.67 Deposits from banks 37 589 92 394 129 983 2 722 2.10 30 779 68 459 99 238 2 113 2.13 Deposit and current accounts from customers 52 292 722 849 775 141 28 710 3.71 36 106 668 888 704 994 27 423 3.89 Current accounts 118 525 118 525 330 0.28 102 716 102 716 379 0.37 Cash management deposits 84 299 84 299 3 409 4.06 70 756 70 756 2 955 4.18 Call deposits 157 175 157 175 6 942 4.43 136 403 136 403 6 136 4.50 Savings accounts 22 349 22 349 251 1.13 21 368 21 368 240 1.12 Term deposits 52 292 260 181 312 473 13 381 4.29 36 106 267 346 303 452 13 284 4.38 Negotiable certificates of deposit 80 320 80 320 4 397 5.49 70 299 70 299 4 429 6.30

Other liabilities 10 355 27 715 38 070 4 605 36 264 40 869 Subordinated bonds 1 532 25 542 27 074 2 289 8.48 1 440 21 452 22 892 2 028 8.86 Total average equity, liabilities and interest excluding derivative liabilities 143 211 120 124 840 785 1 104 120 33 721 3.06 112 751 120 288 758 799 991 838 31 564 3.18 Derivative liabilities 191 117 191 117 186 508 186 508 Total average equity, liabilities and interest 334 328 120 124 840 785 1 295 237 33 721 2.61 299 259 120 288 758 799 1 178 346 31 564 2.68 Margin on total average assets excluding derivatives 153 264 67 932 889 588 1 110 784 34 233 3.09 117 880 66 545 808 714 993 139 29 027 2.92 Margin on total average loans and advances 28 478 774 046 802 524 34 233 4.28 12 406 712 294 724 700 29 027 4.01 Margin on average interest earning assets 889 588 889 588 37 906 4.27 808 714 808 714 31 995 3.96 1 Interest received and paid on derivative instruments used for hedging purposes have been netted against interest received and paid on the instrument being 2 Included within interest-earning cash and balances with central banks is the SARB interest-free deposit. This is utilised to meet liquidity requirements and hedged. Accordingly, the interest will not equate to interest income and interest expense as per the income statement. is reflected in the margin as part of interest earning assets to reflect the cost of liquidity. 281 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report Financial and other definitions

Standard Bank Group

Basic earnings per ordinary share (EPS) Earnings attributable to ordinary shareholders divided by the weighted average (cents) number of ordinary shares in issue.

Board Standard Bank Group board of directors.

CAGR (%) Compound annual growth rate.

Capital adequacy ratio (%) Capital as a percentage of risk-weighted assets.

Diluted earnings per ordinary share Earnings attributable to ordinary shareholders divided by the weighted average (DEPS) (cents) number of shares, adjusted for potential dilutive ordinary shares resulting from share-based payments and related hedges.

Dividend cover (times) Headline earnings per share divided by dividend per share.

Dividend per share (cents) Total dividends to ordinary shareholders in respect of the year. Dividend is calculated using the cash component of any distribution where an election to receive scrip was available.

Dividend yield (%) Dividend per share as a percentage of the closing share price.

Earnings yield (%) Headline earnings as a percentage of the closing share price.

Headline earnings (Rm) Determined, in terms of the circular issued by the South Africa Institute of Chartered Accountants at the request of the JSE, by excluding from reported earnings specific separately identifiable remeasurements net of related tax and non-controlling interests.

Headline earnings per ordinary share Headline earnings divided by the weighted average number of ordinary shares (HEPS) (cents) in issue.

Net asset value (Rm) Equity attributable to ordinary shareholders.

Price earnings ratio (times) Closing share price divided by headline earnings per share.

Price-to-book (times) Market capitalisation divided by net asset value.

Profit attributable to ordinary shareholders Profit for the year attributable to ordinary shareholders, calculated as profit for the (Rm) year less dividends on non-redeemable, non-cumulative, non-participating preference shares declared before yearend, less non-controlling interests.

Profit for the year (Rm) Income statement profit attributable to ordinary shareholders, non-controlling interests and preference shareholders for the year.

Return on equity (ROE) (%) Headline earnings as a percentage of monthly average ordinary shareholders’ funds.

Shares in issue (number) Number of ordinary shares in issue as listed on the exchange operated by the JSE.

SBG or the group Standard Bank Group.

Turnover in shares traded (%) Number of shares traded during the year as a percentage of the weighted average number of shares.

Weighted average number of shares The weighted average number of ordinary shares in issue during the year as listed on (number) the JSE.

282 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Financial and other definitions

Banking activities

Cost-to-income ratio (%) Operating expenses as a percentage of total income including share of profit from associates and joint ventures and gains of the disposal of subsidiaries.

Credit loss ratio (%) Total impairment charges on loans and advances per the income statement as a percentage of average daily and monthly gross loans and advances.

Effective tax rate (%) Direct and indirect taxation as a percentage of income before taxation.

Gross specific impairment coverage Balance sheet impairments for non-performing specifically impaired loans as a ratio (%) percentage of specifically impaired loans.

Net interest margin (%) Net interest income as a percentage of daily and monthly average total assets, excluding derivative assets.

Portfolio credit impairments (Rm) Impairment for latent losses inherent in groups of loans and advances that have not yet been specifically impaired.

Return on equity (ROE) (%) Headline earning as a percentage of monthly average ordinary shareholders’ funds. Liberty’s headline earnings and capital are excluded.

Risk-weighted assets (Rm) Determined by applying prescribed risk weightings to on- and off-balance sheet exposures according to the relative credit risk of the counterparty.

Specific credit impairments (Rm) Impairment for loans and advance that have been classified as non-performing and specifically impaired, net of the present value of estimated recoveries. Other definitions

Additional increment To enhance the retention component of the DBS, additional increments of the deferred award become payable at vesting and one year thereafter. This feature was replaced by notional dividends for awards in respect of the 2011 and future financial years.

Black African, Coloured, Indian and South African Chinese people (who fall within the ambit of the definition of black people in the relevant legislation as determined by court ruling).

Broad-based black economic Socioeconomic term concerning formalised initiatives and programmes to enable empowerment (BBBEE) historically disadvantaged black individuals and groups to participate gainfully and equitably in the mainstream economy.

CPI (%) A South African index of prices used to measure the change in the cost of basic goods and services.

Deferred acquisition costs The direct and indirect costs incurred during the financial period arising from the writing or renewing of investment contracts without discretionary participation features (DPF), which are deferred to the extent that these costs are recoverable out of future premiums.

Deferred revenue liability (DRL) Initial and other front-end fees received for the rendering of future investment management services relating to investment contracts without DPF, which are deferred and recognised as revenue when the related services are rendered.

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Financial and other definitions continued

Other definitions continued

Discretionary participation features (DPF) A contractual right given to a policyholder to receive, as a supplement to guaranteed benefits, additional benefits that are: ¢ likely to be a significant portion of the total contractual benefits ¢ whose amount or timing is contractually at the discretion of the issuer, and ¢ that are contractually based on the:

¢ performance of a specified pool of contracts or a specified type of contract

¢ realised and/or unrealised investment returns on a specified pool of assets held by the issuer, or

¢ profit or loss of the company, fund or other entity that issues the contract.

Exposure at default (EAD) Counterparty’s expected exposure to the group at the time a default occurs.

Financial soundness valuation (FSV) The valuation methodology used to value insurance contracts and investment contracts with DPF as described in Professional Guidance Note (PGN) 104 issued by the Actuarial Society of South Africa.

International Financial Reporting International Financial Reporting Standards issued by the International Accounting Standards (IFRS) Standards Board (IASB).

Loss given default (LGD) Amount of a counterparty’s obligation to the group that is not expected to be recovered after default and is expressed as a percentage of the EAD.

Normalised results The financial results and ratios restated on an economic substance basis to reflect the group’s view of the economic and legal substance of certain defined arrangements – refer to page 69 of the annual integrated report.

Probability of default (PD) Probability of a counterparty not making full and timely repayment of credit obligations over a specific time horizon.

Reinsurance Insurance or investment risk that is ceded to another insurer in return for premiums. The ultimate obligation to the policyholder remains with the entity who issued the original insurance contract.

Risk appetite An expression of the maximum level of residual risk that the group is prepared to accept in order to deliver its business objectives.

Special purpose entity (SPE) An entity created to accomplish a narrow and well-defined objective.

Tutuwa Tutuwa is the group’s black economic empowerment ownership initiative entered into in terms of the Financial Sector Charter.

Value of in-force business The present value of the projected stream of after tax profits for all business in force at the reporting date.

284 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Acronyms and abbreviations Acronyms and abbreviations

A G AGM Annual general meeting GAC Group audit committee AIRB Advanced internal ratings based GBP British pound sterling ALBI All Bond Index GIA Group internal audit ALCO Asset and liability committee Gilt rate 60% of the risk-free rate AMA Advanced management approach GIRC Group insurance risk committee ATM Automated teller machine GORC Group operational risk committee AUD Australian dollar GRCMC Group risk and capital management committee GROC Group risk oversight committee B GSIS Group share incentive scheme Banks Act South African Banks Act 94 of 1990 I BASA Banking Association of South Africa Basel Basel Capital Accord IAS International Accounting Standards BCBS Basel Committee on Banking Supervision IASB International Accounting Standards Board BEE Black economic empowerment ICAAP Internal capital adequacy assessment process Board Standard Bank Group Board of Directors ICBC Industrial and Commercial Bank of China Limited BSD Bank Supervision Department IFRS International Financial Reporting Standards BWC The rate for three-month Botswana certificates Income Tax Act South African Income Tax Act 68 of 1962 BWP Botswana pula IRB Internal ratings-based ISDA International Swaps and Derivatives Association C J CAGR Compound annual growth rate CAR Capital adequacy requirement JIBAR Johannesburg Interbank Agreed Rate CGT Capital gains tax JSE JSE Limited, the licensed securities exchange CIB Corporate & Investment Banking in Johannesburg CoE Cost of equity Companies Act/ South African Companies Act 71 of 2008 K the Act KES Kenyan shilling Consumer South African Consumer Protection Act 68 King Code The Code of Corporate Practices and Protection Act of 2008 Conduct set out in the King Report on CR Country risk grade Corporate Governance for South Africa 2009 CRO Chief risk officer CVA Credit valuation adjustment L D LCm Millions of local currency LCR Liquidity coverage ratio DAC Deferred acquisition costs LGD Loss given default DBS Deferred bonus scheme LibFin Liberty Financial Solutions DPF Discretionary participation feature Liberty Liberty Holdings Limited and its subsidiaries DRL Deferred revenue liability LIBOR London Interbank Offered Rate Long-Term South African Long-Term Insurance E Insurance Act Act 52 of 1998 E Swazi emalangeni M EAD Exposure at default EGS Equity growth scheme MOI Memorandum of Incorporation MT Mozambican metical F N FIRB Foundation internal ratings-based NAD Namibian dollar FSA Financial Services Authority NSFR Net stable funding ratio FSB Financial Services Board NSX Namibian Stock Exchange FSV Financial Soundness Valuation FTSE/JSE Capitalisation weighted index including 40 Top 40 Index largest companies by market capitalisation

285 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

Acronyms and abbreviations continued

O T OCAR Ordinary capital adequacy requirement TCF Treating Customers Fairly OCI Other comprehensive income TCM Treasury and capital management OTC Over-the-counter TDMP TDM Limited Partnership P The company Standard Bank Group Limited The group Standard Bank Group PBB Personal & Business Banking Tier I Primary capital PD Probability of default Tier II Secondary capital PGN Professional Guidance Note Tier III Tertiary capital Pillar 3 Basel II pillar 3 Troika Troika Dialog Group Limited PVIF Present value in-force Tutuwa Black economic empowerment ownership Q initiative QRRE Qualifying revolving retail exposures U R UK United Kingdom US United States of America R South African rand USD United States dollar RAPM Risk-adjusted performance measurement Rbn Billions of rand UGX Ugandan shilling Rm Millions of rand V ROE Return on equity RY Real yield VaR Value-at-risk VAT Value added tax S W SAICA South African Institute of Chartered Accountants WA The rate on Mozambican bonds which carry SAM Solvency assessment management a floating rate equal to the weighted average SARB South African Reserve Bank of the last six treasury bills maturing at 60 or SBA Collectively refers to the group’s shareholding more days in Standard Bank Argentina S.A. and Standard Bank Argentina’s affiliates namely, Standard Z Investments S.A. Sociedad Gerente de ZAR South African rand Fondos Comunes de Inversión (SI) and Inversora Diagonal S.A. (ID) SBG Standard Bank Group SBGRF Standard Bank Group Retirement Fund SBSA The Standard Bank of South Africa Limited Short-Term South African Short-Term Insurance Act 53 Insurance Act of 1998 SIH Standard International Holdings SIFI Systemically important financial institution SIL Standard Insurance Limited SME Small and medium enterprises SPE Special purpose entity STC Secondary tax on companies

286 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Standard Bank Group Annual financial statements 2012 > Contact details Contact details

Standard Bank Group Limited Head office switch board Registration No. 1969/017128/06 Tel: +27 11 636 9111 Incorporated in the Republic of South Africa Website: www.standardbank.com Transfer secretaries in South Africa Computershare Investor Services (Pty) Limited Head: Investor relations Ground floor, 70 Marshall Street David Kinsey Johannesburg 2001 Tel: +27 11 631 3931 PO Box 61051 Marshalltown, 2107 Group financial director Simon Ridley Transfer secretaries in Namibia Tel: +27 11 636 3756 Transfer Secretaries (Pty) Limited 4 Robert Mugabe Avenue, Group secretary (Entrance in Burg Street), Windhoek Zola Stephen PO Box 2401 Tel: +27 11 631 9106 Windhoek Head: Group sustainability management Karin Ireton Tel: +27 11 631 4586

Registered address 9th Floor Standard Bank Centre 5 Simmonds Street Johannesburg 2001 PO Box 7725 Johannesburg 2000

Website: www.standardbank.com

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

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

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

287 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 Risk and capital Annual financial Additional management statements information report

288 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96 www.standardbank.com

Standard Bank Rosebank branch Johannesburg, South Africa Rising income levels and rapid urbanisation are driving the uptake of banking products and services in Africa. To realise the opportunity this presents, we will strengthen our competitive advantage through continuing to build on-the-ground universal banks and invest in branch and IT infrastructure, whilst offering greater value to our transactional banking customers. WorldReginfo - 903cd911-9aa3-4282-8d0b-680d8a517a96