Standard Chartered Bank Zambia Plc Annual Report 2012
Leading the way in Asia, Africa and the Middle East Here for good 2Standard CharteredStandard CharteredBank Zambia Bank Plc Zambia Annual PlcReport Annual 2012 Report 2012
Standard Chartered Bank Zambia Plc has again delivered a strong performance.
The Bank is integral to the development of the country and our performance clearly demontrates our powerful brand promise, Here for good.
Financial highlights
Revenue Profit before taxation ZMK620,417m ZMK339,618m 2011: ZMK479,317m / 2010: ZMK451,138m 2011: ZMK226,087 / 2010: ZMK229,744m
Total assets Normalised earnings per share ZMK5,163,618m ZMK132.57 2011: ZMK4,585,674m / 2010: ZMK4,572,218m 2011: ZMK79.46 / 2010: ZMK5.42
Normalised return on equity Dividend per share 37% ZMK0.00 2011: 41% / 2009: 30% 2011: ZMK0.00 / 2010: ZMK20.00
Non-financial highlights
Employees Outlets
696 24 2011: 650 2011: 20 1
What’s inside this report Overview Operating and financialreview
Overview Financial highlights 2 Chairman’s statement 2 - 6 4 Chief Executive Officer’s statement Performance highlights and an introduction to our business structures and strategy Corporate governance
Operating and financial review 7 Consumer banking 7 - 9 8 Wholesale banking A review of our businesses, their financial performance and outlook for 2013 Financial statements andFinancial statements notes
Corporate governance 10 Board of directors 13 Directors’ report 10 - 18 14 Statement on corporate governance An explanation of our approach 17 Senior Management Committee to corporate governance with key 18 Making a difference in our community developments during the year, together with profiles of our Board Directors
Financial statements and notes 20 Directors’ responsibilities in respect of the informationSupplementary 19 - 78 preparations of financial statements 21 Independent auditor’s report Detailed financial information for 23 Statement of comprehensive income the year ended 31 December 2012 25 Statement of financial position 26 Statement of changes in equity 28 Statement of cash flows 29 Notes to the financial statements
Supplementary information 79 Five year summary 79- 86 80 Principal addresses and senior management 81 Branch management Additional information for shareholders 83 Dividend 84 Notice of annual general meeting and agenda 85 Form of proxy 2 Standard Chartered Bank Zambia Plc Annual Report 2012
Chairman’s statement
It gives me great pleasure to present Standard Chartered Bank Zambia Plc’s annual report and financial statements for the year ended 31st December 2012. The Bank continued its custom of achieving a good performance and putting in place strategies focusing on its client service delivery objectives.
Our performance in 2012 once again demonstrates our ability to deliver substantial, sustained value for our shareholders. Despite our sterling performance, the 2012 financial year has been another challenging one for financial institutions in general, and for the Group in particular. The macroeconomic environment has again been dominated by uncertainty and volatility in global financial markets. The economic and regulatory pressures were unrelenting. Competition was intense. The New York State Department of Financial Services ‘event’ was particularly challenging to the Group. But we have proved our resilience. Once again we have outperformed our competitors on so many levels, notwithstanding the challenges and difficulties we encountered.
Locally in Zambia, the Government in 2012 introduced a number of new regulations that affected the Bank directly. Being the right partner to the Central Bank, the Bank ensured 100 per cent compliance to all new regulations and through them all still achieved a superb financial performance.
Financial Highlights Revenue increased by 29 per cent to ZMK620bn and Profit before taxation increased by 50 per cent to ZMK340bn. Basic and diluted earnings per share were 67 per cent higher at ZMK132.57 per share.
The Board is recommending that all profits after tax be retained. Bank of Zambia had in early 2012 revised the minimum primary capital requirement for Banks in Zambia, with a requirement to maintain a minimum Tier 1 capital of ZMK520bn for international banks and ZMK104bn for local banks. A further stipulation was that of the Tier 1 capital, at least 80% should be kept in nominal paid-up common shares and the balance may be held only in any one or more categories including share premium, revenue reserves, general reserves and other statutory reserves. All Banks were required to comply with this new directive by 31 December 2012.
The board is pleased to announce that the retention of profits for the year 2012 and the resultant capitalization of the Bank meant that the Bank was able to meet the Bank of Zambia requirements as at 31st December 2012. Standard Chartered Bank Zambia Plc is therefore fully compliant with the recapitalization requirements.
The Domestic Economy Following the achievement of its maiden USD 750mn Eurobond issuance (the USD 11.9bn order book reflected strong appetite) in 2012, Zambia has entered a new chapter. We saw rising copper output, agriculture gains, government 3
spending (especially on transport infrastructure), and power the Bank’s economic contribution to Zambia has been Overview generation capacity all contributing to the growth of GDP. the culmination of 107 years of sustained and increased investment in the country. Despite concerns about capacity for higher spending, infrastructure shortcomings was less of a constraint on Ten years ago we launched our strategic intent: to be the economic activity. Zambia’s ability to keep inflation at 6-7% world’s best international bank, leading the way in Asia, will be closely watched as the Zambian Kwacha (ZMK) was Africa and the Middle East. The time is right for us to rebased to remove three zeros on 1 January 2013. re-engage and recommit to our strategic intent. We have re-examined the strategy and resolved to remain strong and The rebasing aims to cement macroeconomic stability by committed to continuity and commitment. committing to low and stable inflation in the future, and to boost economic activity by aiding pricing transparency. Our business and strategy is long term and enduring. We This follows earlier measures to reverse dollarisation in the want to be the best. We will remain focused and continue to economy. However, with the old and new kwacha notes be the quintessential ‘international’ bank. ‘Leading the way existing side-by-side for six months, higher money supply to in Asia, Africa and the Middle East’ captures what we want facilitate the rebasing, potential pressure on the FX rate, and to achieve: Leadership across multiple dimensions in the sequencing with other reforms (including bank capitalization), markets we know best. inflation will need to be carefully monitored. Summary Following a doubling of mining-sector royalties in 2012, I am proud of what we achieved in the year 2012. I am efforts to boost mining revenue will continue, with the 2013 particularly proud of how we have turned our thinking and budget streamlining the sector’s tax concessions. Zambia ambition to be a force for good into tangible business has been criticized for its generous fiscal legislation, that opportunities. I would like to thank the Board, the allows mining companies to carry forward losses for 10 management team and the Banks’ employees for their years. However, under new legislation, capex deductions dedication and hard work. The Bank has had an extremely can be made only when equipment is put to use, and capital strong 2012, and I believe the positive momentum will allowances are reduced to 25% from 100%. Furthermore, continue in 2013. new mine operators may have to start paying taxes before recovering all their investment. However the new fiscal regime is unlikely to discourage existing operators.
Outlook Standard Chartered Bank Zambia Plc remains a core part of the Bank’s Africa strategic footprint and has consistently Michael M. Mundashi, SC been among the top five revenue contributors for the Africa Chairman region. With 24 outlets,45 ATMs and close to 700 staff, 21 February 2013 4 Standard Chartered Bank Zambia Plc Annual Report 2012
Chief Executive Officer’s statement
Standard Chartered Bank Zambia Plc’s great performance in 2012 represents a very positive start to 2013. Amidst the turbulence of the global economy and the never ending turmoil in the world of banking, we remain consistent in delivering strong performance yet again. The Bank delivered a progressive performance leveraging on its deep local knowledge and international network. Despite the challenge of increased competition, the Bank continues to deliver financial solutions to clients and customers – helping their businesses to grow and making a difference in their lives.
2012 has been a very testing year for the global Bank. Notably the New York State Department of Financial Services ‘event’ was particularly challenging. But we have proved our resilience and our Brand Promise – ‘Here for good’ couldn’t be more right. Locally in Zambia, we had an avalanche of new regulatory changes but we proved that we are the right partner of the Zambian Government and it’s people by guaranteeing total compliance to these new regulations.
Our 2012 performance once again demonstrates the robustness of our strategy and the resilience of our business model. A positive performance trajectory in the Bank’s core business and sound growth in share of market revenue pools confirm the Bank’s solid position. We believe that our focus on the basics of banking, drive for service excellence, and disciplined approach in managing risk and prudent cost management were the reasons for the excellent results delivered over the past year.
Notwithstanding the difficult market conditions, the Bank’s businesses, both Wholesale and Consumer Banking, continued to grow throughout the year 2012.
Consumer Banking In Consumer Banking our aim is to be the Bank of choice for personal customers’ and deliver superb services that are rooted in a deep knowledge and understanding of our customers increasingly sophisticated needs.
Consumer Banking had yet another outstanding record breaking year in 2012 despite the hurdles experienced during the year. Income grew by 19 percent while profit before tax grew by 12 percent. This was an outstanding performance by any measure.
Among the many products, services and solutions launched by the business in 2012, a highlight solution is the extended branch opening times with all branches closing at 17:00hrs (22:00hrs for Manda Hill Branch only) during weekdays. This is yet another first to be seen on the Zambian market as the Bank continues to cement its position as the market leader. Our focus on Small and Medium Enterprises (SMEs) has been another key differentiator for our franchise. We are committed to the growth of our SME customers and we 5
have remained the market leader in promoting business Our People Overview and trade between Africa and Asia in general, and China We are convinced that the secret to our accomplishment is and Zambia in particular. These are markets in which we our people. More than any other challenge, we are focused have operated for over 150 years. In 2013, we will continue on attracting and retaining the right people to continue to focus on providing our customers with ground-breaking our success. We have recruited and are developing the solutions for their businesses. best talent from across the globe to accomplish this. This dedication to skills extends to creating a performance culture We will continue to strengthen our ability to compete within the Bank. We have gone to great lengths to develop a effectively in the retail market by expanding our alternate performance management system for all staff to ensure that distribution channels to drive deposit growth. their goals are aligned with those of the Bank. We are also committed to making the Bank the best place to work by Wholesale Banking creating an environment where all staff are able to excel and Our WB business is made up of two units namely Origination achieve their full potential. and Client Coverage (OCC) and Global Markets (GM), which focus on delivering a broad range of solutions to Outlook for 2013 our corporate and institutional clients in support of their Much of what drives the Standard Chartered Bank story operating activities. remains constant. Our strategy remains unchanged, and our aspiration remains the same – we want to be the world’s In our Wholesale Banking business, we aim to be the leader best international Bank, leading the way in Asia, Africa and in corporate banking through our world class solutions in the Middle East. We are putting even greater focus on our treasury products, cash management and trade finance. We clients and customers, on building deep and long–standing will deepen our client relationships by adding value to their relationships, on improving the quality of our service and businesses. solutions. We continue to be obsessed with the basics of banking – balancing the pursuit of growth with disciplined Wholesale Banking year on year revenue grew by 29% management of costs and risks, keeping a firm grip on to ZMK322 billion, largely due to good performance on liquidity and capital. We are continuing to focus on culture trade products in the Global Corporates and Agriculture & and values, on the way we work together across multiple Commodity traders customer segments. Rates trading also geographies, products and segments, combining deep contributed positively. local knowledge with global capability. These fundamentals underscore everything the Bank does, and everything we as Wholesale Banking continues to focus on mainstay a Bank stand for. products of cash, trade, lending, terms loans, structured arrangements and foreign exchange, where our historical We should have no illusions about the scale of the know-how enables us to compete and have unique challenges ahead in 2013. Firstly, a turbulent global capabilities around customers, products and delivery. We economy; the markets have greeted 2013 with enthusiasm, will continue to bring to our local market the dimension but we should not get carried away. We should expect of “international” which means for us, the highest global bumps. Secondly, sustained political and public hostility standards of customer segmentation, marketing, staff towards banks; this is not going to go away any time soon. quality, risk management and, mordern and innovative Thirdly, the continuing avalanche of regulatory change. products. Fourthly, rapid technology change; the digitisation of banking has only just begun, and it will erode margins and Risk Management put intense pressure on our cost structures. Finally, intense The management of risk lies at the heart of Standard competition; we face profound challenges to our business Chartered Bank’s business model. We are aware that model. The economics of some of our businesses are successful risk management is essential to being able to changing fundamentally. produce profits consistently and sustainably and is, as a Inspite of all these challenges our markets continue to grow result, vital to the financial and operational management of strongly. Rapid evolution has been our recipe for success, the Bank. but now we may have to be even more rapid and perhaps more revolutionary than evolutionary. This is an overview of Although we are continually investing to enhance our risk the Bank’s 2013 priorities: management infrastructure and capabilities, our fundamental approach to risk has stayed consistent over many years. • Build stronger relationships with our clients and Through our risk management framework we manage customers. When every bank claims to be focused business wide risk with the objective of maximizing risk on client relationships, we need to be just that much better. adjusted returns while remaining within our risk appetite. • Prove we are Here for good. We can not shy It is with great pleasure that we announce that we had no away from Here for good. We must redouble our failed audits in the year 2012. As part of our continuous commitment to it. improvement strategy, we will continue to manage our risks to build a sustainable franchise in the interests of all • Innovate and digitise. Technology based innovation stakeholders. is the key to improving productivity, the key to customer differentiation. 6 Standard Chartered Bank Zambia Plc Annual Report 2012
• Intensify collaboration across the network. Our ability Summary to collaborate across geographies, businesses and 2012 has been a very good year as we have delivered a functions sets us apart. We need to play to these great financial performance and this is largely because strengths and make them even stronger. we have the right staff working for the Bank. I would like to thank them for their unwavering professionalism and • Get fitter and more flexible in the way we work. commitment. I would also like to thank my Chairman, Mr. More efficient. More disciplined in our deployment of Michael Mundashi SC, fellow directors, the shareholders and scarce resources. More adaptable and agile. all the other stakeholders for their support during 2012.
• Accelerate the next generation of leaders. Leadership capacity remains one of our biggest constraints. We continue to attract great talent and will continue developing people. Mizinga Melu (Mrs) • Deliver superior financial performance. A non- negotiable outcome and a prerequisite for everything Managing Director else we do. 21 February 2013 7
Consumer Banking
Sonny Zulu
Head of Consumer Banking Operating and financialreview
2012 review 2012 was a breakthrough year for the Consumer Banking business despite the headwinds experienced during the year. Income grew by 19 percent while operating profit grew by 12 percent. This was a remarkable growth by any standard.
Despite the drop in interest rates and the shrinkage of margins on foreign currency income, the business remained resilient and delivered on its commitments.
In line with our transformation strategy and our participation model, we expanded our integrated distribution network by “We have continued to demonstrate superior financial opening four new branches in Lusaka and relocating one on performance amidst increasing economic and the Copperbelt. As a leading Bank in innovation, our new regulatory changes, a clear indication of an engaged, Branches include Express Banking Centres which are the focused and resilient team.” only ones of their kind in the country.
Our Objectives Branch opening times were extended and this was another To be the best Consumer Bank in the market and the ‘first’ we recorded in the market. We currently have the most desired Bank for our high value client coverage. longest banking hours in the country and this is yielding positive results. Our balance sheet grew by 24 percent with We will continue to offer exceptional solutions and loans and advances to personal customers growing by 105 service to our customers and to recognise our staff for percent. their dedication to ensuring our Brand stands tall in the market. Outlook Building on the momentum established in 2012, we are Our Strategy entering 2013 with a lot of confidence and boldness. We will In 2012, we remained committed to our strategy remain committed to our strategy as we continue to focus and this is not about to change. We believe we are on balance sheet momentum and expanding our digital playing to our strength and we participating in the right capabilities. segments in our chosen local markets. We will therefore From our experience in 2012, we have learnt to timely continue to focus and fine tune the key drivers on the adapt to sudden change and to deliver superior financial three pillars of strategy by: performance despite the turbulence. We do not expect 2013 • Accelerating our shift to a “customer-centric” to be any different. However, despite any future changes, we organisation “ are confident that we will deliver expectation and seize every opportunity. • Reinforcing basics and standardisation”, focused on simplification and enhancing efficiencies and Our customers will always be the centre of focus and we will the Customer experience continue to deepen relationships as we offer needs based solutions.
• Implementing country “participation models” to Our staff are clear that it’s not what we sell, but it’s the gain market share in our chosen segments or experience and how we meet the customer needs that will markets make a difference. 8 Standard Chartered Bank Zambia Plc Annual Report 2012
Wholesale Banking Focused execution and consistent client-led strategy delivering growth
Our Objectives Arjuna Balasingham • To become the strategic financial partner of choice to Head of Origination & Client Coverage Co-Head, Wholesale Banking our clients, deepening and building relationships and delivering seamless solutions to our clients
• To be Zambia’s best bank, connecting Zambia to the world through our international network and cross border product capabilities
Our Strategy • Strategically leverage on our balance sheet strength and create capacity to support our clients through disciplined portfolio management
• Strengthen our support to grow trade and investment corridors between Zambia, Asia, the Middle East, and the rest of Africa
• Nurturing the Bank’s corporate culture, values and “Here for good” brand promise as the Bank continues to grow Stanley Tamale Head of Global Markets Our Priorities Co-Head, Wholesale Banking • Build stronger relationships with our clients and customers
• Prove we are here for good by supporting and benefiting the communities in which we operate
• Innovate and digitise in order to match customer needs, enhance quality and speed of delivery of e-solutions to our customers
• Intensify collaboration across the network in order to leverage on the international network and expertise of the Bank and ensure consistency of service quality
• Get more fitter and flexible in the way we work, in order to efficiently and effectively serve our customers
• Maintaining the right balance in pursuing growth “Our success criteria has been anchored on risk opportunities in tandem with appropriate governance, management across the Board. The continued focus is systems, controls, processes and information flows a key enabler of our growth and it differentiates our value proposition in the market” Our 2013 business endeavour • Meeting clients business needs – We shall endeavour Wholesale Banking will keep focusing on our core to understand and anticipate clients’ requirements products of cash, trade, lending, terms loans, structured and provide the right products to meet those specific arrangements and foreign exchange, where our historical business needs experience enables us to compete and have distinctive capabilities around customers, products and delivery. We • Cross selling/Product Partners – We shall endeavour to provide a ‘one stop shop’ offering and complete will continue to bring to our local market the dimension suite of products to meet client needs of “international” which means for us, high standards of customer segmentation, marketing, staff quality, risk • Leverage Our Client Base – We bank many blue management, modern and innovative products.” chip companies in emerging markets and we shall continue to leverage our position while increasing 9
our share of customers ‘wallets and forging lasting Increased use of instruments such as interest rate swaps, business relationships cross currency swaps, yield enhancing deposits, commodity derivatives, swaps and fx forwards characterised 2012 Operating and financialreview • Client Working Capital management – We shall Wholesale Banking year on year revenue grew 37%, mainly continue to support client operations through our on account of good performance on trade products, ability to manage cash, execute foreign exchange, in the Global Corporates and Agriculture & Commodity support network payments and finance trade traders customer segments. Rates trading also contributed positively.
Financial Markets Below is a summary of assets and customer deposits – The year saw many changes in financial market regulation which resulted in the further development of the derivatives market with clients increasingly hedging their interest and exchange rate exposures. Continued discipline and balance sheet management over the years has helped us maintain our strong liquidity and capital positions.
Wholesale Banking Graphs
LOANS AND ADVANCES (ZMK billion) CUSTOMER DEPOSITS (ZMK billion)
1,500
1,000
500
- 10 Standard Chartered Bank Zambia Plc Annual Report 2012
Board of directors
1 2 3
4 5 6
7
1. MICHAEL M. MUNDASHI, SC 2. EDSON HAMAKOWA 3. ROBIN MILLER Independent Non Executive Director Independent Non Executive Director Independent Non Executive Director / Chairman Appointed to the board on 27 July Appointed to the board on 7 Appointed to the board on 1 March 2009. Mr. Hamakowa is an eminent August 2012. He was appointed 2005 and Chairman in March Accountant with an illustrious career the Managing Director of Farmers 2009.He is an eminent lawyer, in the BP Plc Group both within and House Plc in 1996, renamed to Real enjoying the rank and dignity of outside Zambia. Estate Investments Zambia PLC in State Counsel and Principal Partner 2012. of Messrs Mulenga Mundashi & Mr. Hamakowa has served on Company. the Boards of Zambia National Robin has been a member of the Commercial Bank, Zambia Centre Board of the Zambian Wildlife Mr. Mundashi was the first non for Accountancy Studies, Saturnia Authority, a past Chairman of Executive Chairman of the Revenue Regna Pension Fund, Zesco Ltd, Zambia’s leading independent Appeals Tribunal and has worked on Zambia Airways and Dunrobin Gold newspaper “The Post”, a member a number of Zambia Government Mine, among others. He is also of the Government of the Republic teams on negotiation of double currently a member of CEC Board. of Zambia/European Union Trade taxation agreements with other He chairs the Board Risk Committee Enterprise Support Facility and countries. He also sits on a few and Board Audit Committee. was the founding Chairman of other boards and pension funds, The Tourism Council of Zambia. notably African Life Assurance Robin is a member of several Limited of which he is the Chairman. boards including Madison General He is also a member of the Konkola Insurance Company Ltd and City Copper Mines Plc Advisory Council. Investments Ltd. He chairs the Board Credit Committee. 11
4. EBENEZER ESSOKA 5. MIZINGA MELU (MRS.) 6. KELVIN MUSANA Non Executive Director Managing Director Executive Director Finance & Appointed to the Board on 27 Appointed to the Board as Administration March 2012 . He joined SCB Managing Director on 1 January, Appointed to the Board on 30 in 1986 and is currently Chief 2008. Mrs. Melu joined Standard January, 2007. He joined Standard Executive Officer, South Africa and Chartered Bank Zambia in 1993 Chartered Bank Zambia Plc in1998, Area General Manager Southern and has worked in many markets of as Financial Controller and was Africa. Prior to this appointment, the Group. Prior to her appointment appointed Chief Financial Officer in he was Chief Executive Officer of as Managing Director, she was February, 2005. He has undertaken Standard Chartered Bank, Central Group Head for Development assignments within the Group in and West Africa. Organizations based in London. Uganda, UK and Nigeria.He is a She has held various senior Fellow of the ACCA and ZICA, a He has served on twelve SCB positions including Treasurer and holder of a Bachelors Degree in subsidiary Boards, currently as Head of Financial Institutions, and Accountancy from the Copperbelt chairman of SCB Cameroon, has worked in over five countries. University and an MBA in Finance Chairman of SCB Securities, South from Manchester Business School. Africa and previously Chairman Mrs. Melu, a Zambian national, is a He is a member of the Institute of of SCB Côte d’Ivoire and Non qualified Banker and an MBA holder Directors. Executive Director of ten others from Henley Management in the including Nigeria and Pakistan. UK. In South Africa (SA), he currently serves as Director on the Main Board of the Banking Association,
is Vice Chairman of the International Corporate governance Bankers’ Association and Council Member of Business Leadership SA. In addition he serves on the Global Advisory Council of the London Business School and a founding member and trustee of the Global Reach Network Foundation – an organisation focused on bridging opportunity gaps for individuals and communities worldwide.
7. CELINE MEENA NAIR Company Secretary Appointed to the Board as Company Secretary on 17 July, Banking and Commercial Law 2006. She joined Standard (UNISA). She is a member of the Chartered Bank Zambia Plc on 17 Institute of Directors and Director July 2006. Previously she worked Training Committee. She is also for the Lusaka Stock Exchange a trained trainer in Corporate as Legal Counsel and Company Governance under the International Secretary. Ms. Nair is a vastly Finance Corporation (IFC/World experienced practitioner with over Bank). 14 years at the Zambian Bar and holds a Bachelors Degree in Law (UNZA) and a Masters Degree in 12 Standard Chartered Bank Zambia Plc Annual Report 2012 13 Directors’ Report
Activities Property, Plant and Equipment The company engages principally in the business of The Bank purchased property and equipment amounting commercial banking in its widest aspects and in the to ZMK7,272m (2011: ZMK8,404m) during the year. In the provision of related services. The company also runs a opinion of the Directors, the carrying value of property, plant successful securities services business. and equipment is not less than their recoverable value.
Share Capital Research and Development During the year 2012, the paid up primary capital of the During the year, the Bank did not incur any research and company was increased from ZMK12,285,500,000 to development cost (2011: Nil). ZMK 416,745,000.000. The authorized share capital of the company increased from ZMK 30,000,000,000 to ZMK Related Party Transactions 900,000,000,000 Related party transactions are disclosed in Note 36 to the financial statements. This increase was as a result of two successful bonus issues in June 2012 and October 2012 awarded to all eligible Directors’ Emoluments and Interests shareholders. In November 2012, there was a consolidation Directors’ Emoluments and Interests are disclosed in Note of the authorised and issued share capital of the Company 36 to the financial statements. on the basis of 1 new SCBZ Consolidated Share of par value ZMK250 for every 500 SCBZ ordinary shares of ZMK 0.50 Prohibited Borrowing or Lending Corporate governance par value each held as at the record date. This resulted in There was no prohibited borrowings or lending as defined 1,800,000,000 authorised shares and 1,666,980,000 issued and fully paid shares valued at ZMK 250 per share. under Sections 72 and 73 of the Banking and Financial Services Act, 1994 (as amended). Results The results for the year are set out in the statement of Heath and Safety comprehensive income on Page 23. The Bank has policies and procedures to safeguard the occupational health, safety and welfare of its employees. Dividends In addition the Bank has a dedicated Health, Safety and At the Board Meeting held on 21 February 2013 the Environment Manager. Directors recommended that there would be no payment of a dividend for the year ended 31 December 2012 (2011: Nil). Auditors The Bank’s Auditors, Messers KPMG, have indicated their Directors willingness to continue in office. A resolution proposing Details of the Board of Directors are on page 10. their reappointment and authorising the directors to fix their remuneration will be put to the Annual General Meeting. Secretariat There was no change to the Secretariat during 2012. By Order of the Board Directors’ Interests in ordinary shares The only director’s interest recorded are those in a company called Namulundu Investments, in which the Board Chairman and his wife, Mildred Mundashi have 50,933 shares in Standard Chartered Bank Zambia Plc.
Gifts and Donations Celine M. Nair During the year, the bank made donations of ZMK430m Company Secretary (2011: ZMK483m) to charitable organisations and events.
Number of Employees and remuneration The total remuneration of employees during the year amounted to ZMK125,500m (2011: ZMK107,930m ) and the average number of employees was as follows:
Month Number Month Number
January 639 July 660 February 655 August 656 March 651 September 658 April 656 October 661 May 654 November 671 June 654 December 696 14 Standard Chartered Bank Zambia Plc Annual Report 2012
Statement on corporate governance
Further, the Group’s approach to governance is underpinned by the legal and regulatory framework in each of the countries in which we operate
Standard Chartered Bank Zambia Plc recognizes that strong corporate governance is essential for delivering sustainable shareholder value and as a leading international bank, we are at the forefront of corporate governance. We believe that simply complying with written corporate governance standards is not enough. It is vital for companies to have an underlying culture with behaviours and values that support effective corporate governance. At Standard Chartered Bank Zambia Plc, each and every one of us is expected to live our brand promise and to build on a culture which is open, challenging yet cohesive and collaborative.
Regulatory Compliance: The bank has continued to perform very well in all aspects while ensuring regulatory compliance and exemplary governance at all times. To this end we have yet again achieved great success in demonstrating compliance to the banking laws and regulations. The Managing Director and the senior management team have set the right tone and messaging that non compliance is not an option, but an integral part of doing business in a sustainable way.
2012 has been a busy year in as far as new regulations are Standard Chartered Bank Zambia Plc acknowledges concerned. A number of regulatory pronouncements were that as we continue our journey to becoming the world’s made, among which were the regulation on recapitalization best international bank, it is important that we continue to of banks, Cheque truncation , Basel II, Statutory Instrument conduct our business to the highest standards to deliver on no. 33 (Currency regulations), Rebasing of the Kwacha. our promise to build a sustainable business over the long As a bank we have a robust process of interpreting and term, to be trusted worldwide for upholding the highest communicating these new regulations throughout the bank standards of corporate governance and to demonstrate that to ensure a seamless implementation and adoption with no we are Here for good. disruptions to the business operations.
“Governance” is the framework of systems, processes Our relationship with the regulators has continued to be and controls used to ensure the effective management very cordial; however we have continued to focus on further of the Group. The Group has an integrated approach to enhancing the regulatory engagement especially in light of governance. This ensures that the Group is effectively the new regulatory changes. managed and controlled, in line with our strategy; in keeping with our values and culture, and with regard to Standard Chartered Bank remains committed to the the requirements of our key stakeholders. In addition to Zambian market. It is our brand promise to be here for customers and clients, these key stakeholders include good and we are confident that with our focus on regulatory governments, regulators, shareholders, employees and the compliance and strong corporate governance standards, we communities in which we operate. Our robust approach will continue to be seen as a leading bank that operates with combines formal structures applied consistently across the great integrity and trust. Group’s multiple businesses, functions and legal entities (subject only to variations in local laws and regulations), Risk Management delivered within a culture of transparency, accountability and The Bank adds value to customers and generates returns collaboration. for shareholders by taking and managing risk in line with strategy and within risk appetite. Risk management is the As a locally listed bank we believe that exemplary standards set of end-to-end activities through which we make risk- of governance are crucial to our success and ultimately taking decisions and we control and optimize the risk-return depend as much on behaviour as on structure and process. profile of the bank. The management of risk lies at the heart It is the responsibility of all employees to be responsive of business, as a central role of a Bank is to ‘warehouse’ and vigilant to ensure compliance with our governance risk by extending credit to selected clients and to provide framework. We take care to ensure that all employees have products which enable clients to off-lay their price and and demonstrate the necessary skills, values and experience liquidity risks to the Bank. Effective risk management is a commensurate with their responsibilities. We place as much central part of the financial and operational management of emphasis on the way employees behave as on what they the bank and fundamental to our ability to generate profits deliver. consistently and maximize the interests of our shareholders 15
and other stakeholders. Our risk agenda addresses the to the cheque will be given a day after the cheque is following issues: deposited and thus facilitate early access to funds by customers. • Embedding a risk management framework, whose core components are risk classification, risk principles - It will eliminate the cumbersome physical presentation of and standards, definitions of roles and responsibilities, cheques by banks to the Clearing house saving time and governance structure. costs associated with physical handling of cheques.
• Improving knowledge and data management and - It will reduce risks associated with manual handling and discipline through our lessons learned, business risk physical movement of cheques. review and portfolio review processes. - It will reduce frauds and encourage wider usage and • Streamlining facilitation of day to day activities by locating acceptance of cheques as a payment instrument. experienced risk practitioners within the businesses, capable of drawing on the centres of excellence The Bankers Association of Zambia (BAZ) has introduced established within Risk. new cheques with enhanced security features which are consistent with the operational requirements of the CTS. • Ensuring the bank has appropriate systems, controls The new cheque will have the following distinct features; Corporate governance and standards in place to accommodate the bank’s Watermark, a translucent image in the cheque that is seen expanding product capabilities. when the cheque is held against a light source. Check digital value (CDV),representing the last two digits on the MICR • Investing in our people, building bench strength and code line after the space. This is a security feature generated identifying succession plans. by special algorithm and appended to the MICR code line.
• Risk limit setting aims to support the strategic growth of Effective February 1, 2013 customers are not allowed to the business, but within risk appetite. issue non CTS cheques as they will not be accepted for deposit. However, non-CTS cheque issued prior to cut over • Enhanced vigilance of the risks and identify potential date of 1 February, 2013 will be accepted for clearing up to adverse changes in the operating environment for early 31 July 2013 after which non CTS cheque will be completely mitigation. phased out of the system. Prior to cross-over which was achieved on the 1 February 2013, SCB set aside ZMK 3.8bn We are committed to grow a sustainable business and for the smooth implementation of this regulatory project. focus very strongly on exemplary risk management and the concept of zero tolerance towards regulatory breaches. We eTax this project is aimed at automating Tax payments are continuously improving the way we work, balancing the to The Zambia Revenue Authority (ZRA) by use of online pursuit of growth with control of cost and risk. The bank banking platforms. Currently a handful of banks which has a very robust risk governance structure. It is through include Citi & Zanaco have already linked their systems to this process that we strive to always achieve exemplary ZRA. This project is spearheaded by Transaction Banking governance and ethical behavior where ever we are and supported by GTO. We are currently engaged in talks and to meet the regulatory standards. In this regard risk with ZRA and reviewing proposals from vendors. Roll-out management at all levels continues to be a primary goal of date will be advised as soon as talks are exhausted. National the bank.” switch This project involves the creation of a local settlement switch for all ATM and POS systems. This is a Government Technology and Operations Projects initiated project aimed at eliminating the dependency on Currency Rebasing: The Government of the Republic VISA. The project was first conceptualized in 2007 but was of Zambia, on January 23, 2012, approved the pushed back. We now expect to implement this in quarter recommendation of the Bank of Zambia to rebase the three (Q3) of 2013. Zambian Currency. The rebased currency became legal tender on January 1, 2013. SCB Zambia set aside about Board Evaluation ZMK 5bn for the smooth preparation and implementation. Annually, the bank conducts an independent annual Months of strategizing and planning culminated in a online Board evaluation the results of which are shared successful cut-over on 1 January 2013. with the Institute of Directors Zambia and the Lusaka Stock Exchange. Areas of strength and improvement are The Cheque Truncation System (CTS) is an efficient discussed in the Board meeting and an action plan is put in method of clearing cheques using images between banks place to ensure the issues are tracked until closure. as opposed to sending physical cheques presented for payment in a bank by individuals or corporate bodies. Environment Implementation of the cheque truncation will benefit banks The bank has continued with its Environmental sustainability and the public in a number of ways including; agenda and in the year under review undertook a number of projects such as the tree planting exercise at the Levy - It will shorten and standardize the clearing period across Mwanawasa General Hospital, participated in the 2012 the country to one clearing day (T+1),meaning value Earth-hour, in which power was switched off for a full hour 16 Standard Chartered Bank Zambia Plc Annual Report 2012
at Standard Chartered House and North-end buildings, granted and that grant date fair value is not subject to thereby joining several other Countries in this massive change the fair value of equity instruments. energy saving initiative and statement. In the same year, Standard Chartered Bank Zambia Plc under took a HIV/AIDS Programmes clearing of mosquito-infested areas in Garden compound The Bank’s response to HIV/AIDS stems from a desire and distributed 2000 treated mosquito nets to the local to protect basic human rights, preserve the integrity of community.This last effort led to Zambia being awarded its labour force, reduce costs associated with HIV/AIDS, the Outstanding Employee Volunteering Achievement, a and respond to what the company recognises as a global global recognition for a noteworthy intervention in a local challenge. community. What made this even more outstanding was the fact that it was arranged in such a way that it coincided with In a continued effort to work with partners, awareness the World Malaria Day activities and thus enabled the bank sessions were held to educate our community on the to join the rest of the Country in supporting the fight against pandemic and a total of 600 people were reached through Malaria. the sessions.
Human Resources: Standard Chartered Bank Zambia limited donated dell Staff Composition desktop computers to the Network of Zambian People The Bank ended the year with 696 staff broken down as Living with HIV and Aids (NZP+) in Lusaka on 4th December follows: 2012. Consumer Banking : 488 Wholesale Banking : 50 The desktop computers will be used in the NZP+ Resource Support Functions : 158 Centres and information hubs in Lusaka, Livingstone, Mongu and Mufulira. Some of the computers will be allocated In 2012, we remained committed and focused to support to NZP+ district Chapters, where they will be used for the developmental needs of our staff and have strived to be information processing and generation of programme and the employer of choice in the Zambian Market. Owing to the financial reports. The donation will have a multiplier effect Banks reputation and stability, Standard Chartered has had because the computers will be used to reach other infected and still has the ability to retain our close to 700 staff. members of the public in those districts.
Share based payments In terms of social responsibility various departments in the The Banks’ employees participate in a number of share bank have participated in several initiatives to sensitize local based payment schemes operated by Standard Chartered communities on HIV/AIDS through employee volunteering Plc, the ultimate holding company of Standard Chartered activities. The Bank provides its staff members 3 days of Bank Zambia Plc. Participating employees are awarded volunteering leave in addition to their annual leave, in which ordinary shares in Standard Chartered Plc in accordance they can work on such initiatives in the communities we with the terms and conditions of the relevant scheme. In operate in. addition, employees have the choice of opening a three-year savings contract. Within a period of six months after the By Order of the Board third anniversary, as appropriate, employees may purchase ordinary shares of Standard Chartered Bank Plc. The price at which they may purchase shares is at a discount of up to twenty per cent on the share price at the date of invitation. There are no performance conditions attached to options Celine M. Nair granted under all employee share save schemes. Equity Company Secretary settled options or share awards are calculated at the time 21 February 2013 of grant based on the fair value of the equity instruments 17
Senior Management Committee Corporate governance
Back Row (L-R): Sonny Zulu – Head of Consumer Banking, Peter Zulu – Head of Compliance, Ruth Simuyemba – Head of Human Resources, Mizinga Melu – Managing Director, Celine Nair – Head of Legal & Company Secretary, Anthony Katepa – Country Chief Risk Officer & Senior Credit Officer – Wholesale Banking,Stanley Tamele – Head of Global Markets.
Front Row (L-R): Kelvin Musana – Executive Director – Finance and Administration, Musonda Musakanya – Chief Information Officer,Arjuna Balasingham – Head of Origination and Client Coverage, Chanda Chime-Katongo – Acting Head Corporate Affairs. 18 Standard Chartered Bank Zambia Plc Annual Report 2012
Making a difference in our communities
Staff planting trees
We consider the environmental challenges across the countries where we operate and proactively manage the direct impact of our operations. In 2012, we improved the energy efficiency of our offices and branches and decreased our paper consumption per full time employee (FTE). Standard Chartered Bank Zambia Plc has continued with its Environmental sustainability agenda and in the year under review undertook a number of projects such as the tree planting exercises at the Levy Mwanawasa General Hospital and the SOS children’s village in Lusaka, The Bank was awarded the Outstanding Employee Volunteering Achievement, a global recognition for a noteworthy intervention in a local community.
Seeing is believing
Eye screening at the market place Seeing is Believing is a global collaboration between Standard Chartered Bank and leading international eye care NGOs, to tackle preventable blindness. Standard Chartered Bank has raised USD20m, as at 2012, to provide 20 million people in impoverished urban areas with access to comprehensive eye-care services worldwide. In Zambia, the SiB project has changed lives of more than 1 million people. In 2012 we invested a further USD1m into this project as we partnered with ORBIS Africa, an NGO with a history of 30 years of sight saving. The Bank has also partnered with Sight Savers International since 2009 and in 2012 this particular partnership saw close to 65,000 adults and children screened, 2,000 cataracts and trichiasis operations performed, 7,000 spectacles dispensed, and, 400,000 trachoma drugs disbursed.
Volunteering at UTH
A few years ago, the Bank carried out a complete refurbishment of three paediatrics wards because we believe in making a sustainable difference in the community.
It is for this reason that in July 2012 we painted the three paediatrics wards and donated blankets for the children. Our contribution did not end in monetary form as our members of staff, volunteered by way of participating in the painting. 19
Annual financial statements for the year ended 31 December 2012 Financial statements andFinancial statements notes
20 Standard Chartered Bank Zambia Plc Annual Report 2012
Directors’ responsibilities in respect of the preparation of financial statements KPMG Chartered Accountants Telephone + 260 211 372 900 The Bank’s directors are responsible for the preparation and fair presentation of the financial statements of Standard First Floor, Elunda Two Website www.kpmg.com Chartered Bank Zambia Plc, comprising the statements of financial position as at 31 December 2012, and the statements of Addis Ababa Roundabout comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements Rhodes Park which include a summary of significant accounting policies and other explanatory notes in accordance with International P O Box 31282 Financial Reporting Standards, the Banking and Financial Services Act and in the manner required by the Companies Act of Lusaka, Zambia Zambia. In addition, the directors are responsible for preparing the director’s report.
The directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and for maintaining adequate
accounting records and an effective system of risk management as well as the preparation of the supplementary schedules
included in these financial statements.
The Directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern in the year ahead.
The auditor is responsible for reporting on whether the annual financial statements are fairly presented in accordance with International Financial Reporting Standards.
Approval of the financial statements The financial statements, of the Bank as indicated above and set out on pages 23 to 78 were approved by the Directors on 21 February 2013 and were signed on their behalf by:
M. Mundashi M. Melu Chairman Managing Director
K. Musana Executive Director - Finance and Administration
KPMG Chartered Accountants, a Zambian partnership, is a member firm of the partners: A list of the Partners is available KPMG network of independent member firms affiliated with KPMG International at the above mentioned address Cooperative ("KPMG International"), a Swiss entity. All rights reserved
17
21 KPMG KPMG Chartered Accountants Telephone + 260 211 372 900 First Floor, Elunda Two Website www.kpmg.com Addis Ababa Roundabout Rhodes Park P O Box 31282 Lusaka, Zambia
Independent Auditor’s Report to the Members of Standard Chartered Bank Zambia Plc
Report on the Financial Statements We have audited the annual financial statements of Standard Chartered Bank Zambia Plc which comprises the statement of financial position as at 31 December 2012, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting principles and other explanatory notes, as set out on pages 23 to 78.
Directors’ responsibility for the financial statements The Bank’s Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, the Banking and Financial Services Act of Zambia and in the manner required by the Companies Act of Zambia, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of the accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Standard Chartered Bank Zambia Plc as at 31 December 2012 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Banking and Financial Services Act and the, Companies Act of Zambia.
KPMG Chartered Accountants, a Zambian partnership, is a member firm of the partners: A list of the Partners is available KPMG network of independent member firms affiliated with KPMG International at the above mentioned address Cooperative ("KPMG International"), a Swiss entity. All rights reserved
17 KPMG
Other matter Supplementary information set out on page 79 does not form part of the annual financial statements and is presented as additional information. We have not audited this schedule and accordingly we do not express an opinion on it.
Report on Other Legal and Regulatory Requirements In accordance with Section 173 (3) of the Companies Act of Zambia, we report that, in our opinion the required accounting records, other records and registers have been properly kept in accordance with the Act.
In accordance with Section 64 (2) of the Banking and Financial Services Act we report that in our opinion: • the Bank made available all necessary information to enable us to comply with the requirements of this Act;
• the Bank has complied in all material respects with the provisions of this Act and the regulations, guidelines and prescriptions under this Act.
• there were no non-performing or restructured loans owing to the Bank whose principal amount exceeds 5% of the regulatory capital.
KPMG Chartered Accountants
Dumi Tshuma 04 March 2013 Partner Lusaka, Zambia 23
Statement of comprehensive income for the year ended 31 December 2012
2012 2011 Notes K’million K’million
Interest income 9 405,617 314,540 Interest expense 10 (83,921) (57,127) Net interest income 321,696 257,413 Fee and commission income 11 173,815 139,613 Fee and commission expense 11 (18,183) (14,033) Net fee and commission income 155,632 125,580
Net trading income 12 114,055 86,212
Net income from financial instruments at fair value through profit or loss 13 22,452 9,318
Other income 14 6,582 794 143,089 96,324 Revenue 620,417 479,317
Personnel expenses 15 (169,155) (143,389)
Depreciation, amortisation, premises and equipment expenses 15 (38,202) (33,709)
Other expenses 15 (70,164) (68,813) Impairment on loans and advances 25 (3,278) (7,319) Profit before income tax 339,618 226,087
Income tax expense 17 (118,625) (93,634) andFinancial statements notes
Profit for the year 220,993 132,453
Other comprehensive income, net of income tax
Net changes in fair value reserve on available for sale securities 2,071 (379)
Net amount transferred to profit and loss on available for sale securities (1,850) (2,737)
Other comprehensive income for the year, net of income tax 221 (3,116)
Total comprehensive income for the year 221,214 129,337
The notes on pages 29 to 78 are an integral part of these financial statements. 24 Standard Chartered Bank Zambia Plc Annual Report 2012
Statement of comprehensive income (continued) for the year ended 31 December 2012
2012 2011
Notes K’million K’million Profits attributable to: Equity holders of the banks 220,993 132,453 Profit for the year 220,993 132,453
Total comprehensive income attributable: Equity holders of the banks 221,214 129,337 Total comprehensive income for the year 221,214 129,337
Earnings per share Basic and diluted earnings per share (Kwacha) 18 132.57 79.46
The notes on pages 29 to 78 are an integral part of these financial statements. 25
Statement of financial position As at 31 December 2012
2012 2011 Notes K’million K’million Assets Cash on hand and balances at Bank of Zambia 20 680,535 335,956 Cash and cash equivalents 21 921,312 1,226,863 Pledged assets 22 50,000 106,000 Investment securities 23 1,104,442 954,110 Derivative financial instruments 24 8,624 11,980 Loans and advances to customers 25 2,233,265 1,797,251 Operating lease prepayments 28 545 660 Prepayments and other receivables 29 101,134 86,342 Property and equipment 26 28,449 25,872 Intangible assets 27 35,312 40,640 Total assets 5,163,618 4,585,674
Liabilities Amounts payable to group banks 21 525,033 357,943 Amounts payable to non-group banks 21 40,139 10,405 Deposits from customers 30 3,681,026 3,573,822 Dividends payable 19 1,329 1,329 Derivative financial instruments 24 5,625 1,717 Accruals and other payables 33 240,818 177,724
Provisions 32 14,061 15,457 andFinancial statements notes Current tax liabilities 17 35,263 43,050 Subordinated liabilities 31 20,710 20,480 Deferred tax liabilities 17 5,324 10,799
Total liabilities 4,569,328 4,212,726 Equity Share capital 34 416,745 12,285 Statutory reserves 12,285 12,285 Fair value reserves 6,479 6,258 Credit reserves 4,194 7,220 Capital contribution 17,312 17,312 Retained earnings 137,275 317,588
Total equity attributable to equity holders of the Bank 594,290 372,948
Total liabilities and equity 5,163,618 4,585,674
These financial statements were approved by the Board of Directors on 21 February 2013 and were signed on its behalf by;
M. Mundashi M. Melu K. Musana C. Nair Chairman Managing Director Executive Director Finance and Company Secretary Administration
The notes on pages 29 to 78 are an integral part of these financial statements. 26 Standard Chartered Bank Zambia Plc Annual Report 2012
Statement of changes in equity As at 31 December 2012
Share- Share Statutory Fair value Credit based Capital Retained Total 2011 capital reserves reserves reserves payment Contribution earnings reserves K’million K’million K’million K’million K’million K’million K’million K’million
Balance at 1 January 2011 2,048 2,048 9,374 1,634 - 17,312 293,095 325,511
Total comprehensive income for the year
Profit for the year ------132,453 132,453 Other comprehensive income net of income tax Fair value reserve on available-for-sale investment securities - Net change in fair value - - (379) - - - - (379) - Net amount transferred to profit and - - (2,737) - - - - (2,737) loss
Total comprehensive income for the year - (3,116) - - 132,453 129,337 - Transfer from retained earnings 5,586 (5,586) - Transactions with owners, recognised directly in equity Dividend to equity holders ------(81,900) (81,900)
Bonus issue 10,237 10,237 - - - - (20,474) - Share based payment transactions - - - - 1,038 - (1,038) -
Distribution - - - - (1,038) - 1,038 - Total contributions by and distributions 10,237 10,237 - - - - (102,374) (81,900) to owners Balance at 31 December 2011 12,285 12,285 6,258 7,220 - 17,312 317,588 372,948
Share- Statutory Fair value Credit based Capital Retained Share capital Total 2012 reserves reserves reserves payment Contribution earnings reserves
K’million K’million K’million K’million K’million K’million K’million K’million
Balance at 1 January 2012 12,285 12,285 6,258 7,220 - 17,312 317,588 372,948 Total comprehensive income for the year Profit for the year ------220,993 220,993 Other comprehensive income net ------of income tax Fair value reserve on available-for------sale investment securities - Net change in fair value - - 2,071 - - - - 2,071 - Net amount transferred to profit - - (1,850) - - - - (1,850) and loss Total comprehensive income for - - 221 - - - 220,993 221,214 the year Transfer from retained earnings - - - (3,026) - - 3,026 - Unclaimed dividends written back ------128 128 Transactions with owners, recognised directly in equity Bonus issue 404,460 - - - - - (404,460) -
Share based payment transactions - - - - 1,617 - (1,617) -
Distribution - - - - (1,617) - 1,617 - Total contributions by and distributions to 404,460 - - - - - (404,460) - owners Balance at 31 December 2012 416,745 12,285 6,479 4,194 - 17,312 137,275 594,290 27
Statement of changes in equity (continued) As at 31 December 2012
Fair value reserve The fair value reserve comprises the fair value movement of financial assets classified as available-for-sale. Gains and losses are deferred to this reserve until such time as the underlying asset is sold or matures.
Credit reserve The credit reserve is a loan loss reserve that relates to the excess of impairment provision as required by the Banking and Financial Services Act of Zambia over the impairment provision computed in terms of International Financial Reporting Stan- dards.
Share based payment reserves This relates to the equity settled share based payment transactions the Bank employees have with the Standard Chartered Holdings (Africa) BV.
Capital contribution The capital contribution reserve relates to the franchise value arising from the acquisition of the Security Services business. The franchise value is the amount paid on behalf of the Bank by Standard Chartered Plc (there after referred to as the group) for the acquisition of the Security Services business.
Retained earnings Retained earnings are the carried forward recognised income net of expenses of the Bank plus current period profit attributable to shareholders less distribution to shareholders.
Statutory reserves Statutory reserves comprise transfers out of net profits prior to dividends, of amounts prescribed under statutory instrument No. 21 of 1995: The Banking and Financial Services (Reserve Account) Regulations 1995. andFinancial statements notes 28 Standard Chartered Bank Zambia Plc Annual Report 2012
Statement of cash flows for the year ended 31 December 2012
2012 2011 Note K’million K’million Cash flow from operating activities Profit before tax 339,618 226,087 Adjustment for items not involving cash or shown separately Depreciation of property and equipment 26 4,331 5,194 Amortisation of intangible assets 27 5,328 5,809 Expensed work in progress 26 - 3,435 Equity-settled share-based payments transaction 15 1,617 1,038 Expensed portion of leasehold land prepayment 15 13 17 Impairment losses 25 3,278 7,319 Gain on disposal of property and equipment 14 (6,235) (201) Net interest income (322,519) (269,943) Effect of exchanges rate fluctuations on subordinated loan capital 230 1,360 25,661 (19,885) Change in operating assets and liabilities Pledged assets 56,000 (106,000) Loans and advances to banks - 83,101 Loans and advances to customers (436,014) (645,866) Derivative financial instruments 7,264 (10,175) Prepayments and other receivables (14,792) (58,485) Deposits from customers 107,204 409,235 Provisions (1,396) (287) Accruals and other payables 63,095 64,717 (218,639) (263,760) Interest received 406,440 314,540 Interest paid (83,921) (57,127) 322,519 257,413
Net cash generated from operating activities before taxation 129,541 (26,232)
Income tax paid 17 (132,006) (89,327)
Net cash used in operating activities (2,465) (115,559)
Cash flows from investing activities Aquisition of property and equipment to maintain operations 26 (7,272) (8,404) Investment in government securities (150,332) 25,074 Proceeds from disposal of property and equipment 6,316 201 Net cash used in investing activities (151,288) 16,871
Cash flows from financing activities Dividends paid 19 - (81,926)
Net cash used in financing activities - (81,826)
Net decrease in cash and cash equivalents (153,753) (180,614)
Cash and cash equivalents at beginning of year 1,194,471 1,376,908 Effect of exchange rate fluctuation on cash held (4,043) (1,823)
Cash and cash equivalents at end of year 1,036,675 1,194,471 21
The notes on pages 29 to 78 are an integral part of these financial statements. 29
Notes to the financial statements for the year ended 31 December 2012
1 Reporting entity
Standard Chartered Bank Zambia Plc (“the Bank”) is a company domiciled in Zambia. The address of the Bank’s registered office is Standard Chartered House, Cairo Road, Lusaka. The Bank is primarily involved in wholesale and consumer banking.
2 Basis of preparation
2.1 Statement of compliance The Bank’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), the requirements of the Banking and Financial Services Act and the Companies Act of Zambia.
2.2 Basis of measurement The financial statements have been prepared on the historical cost basis except for the following:
• derivative financial instruments are measured at fair value; • available-for-sale financial assets are measured at fair value; and • financial instruments at fair value through profit or loss are measured at fair value.
2.3 Functional and presentation currency These financial statements are presented in Zambian Kwacha (“Kwacha”), which is the Bank’s functional currency. All financial information presented in Kwacha has been rounded to the nearest million, except when otherwise indicated.
2.4 Use of estimates and judgments The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates. andFinancial statements notes
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 6.
3 Significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
3.1 Interest income and expense Interest income and expense are recognised in statement of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate ,a shorter period to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument (for example, repayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently. 30 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.1 Interest income and expense (continued) Interest income and expense presented in the statement of comprehensive income includes: • interest on financial assets and financial liabilities at amortised cost on an effective interest basis; • interest on available-for-sale investment securities on an effective interest basis; and • Interest on financial assets at fair value through profit or loss on an effective interest basis.
Interest income and expense on all trading assets and liabilities are considered to be incidental to the Bank’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest continues to be recognised on the impaired asset using the original effective interest rate.
3.2 Fees and commissions Fees and commissions income is recognised on an accrual basis when the service has been provided. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank retained no part of the loan package for itself or retained a part at the same effective interest rate as the other participants. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided, which is usually on a time basis.
Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the effective interest rate.
Other fees and commission income, including account servicing fees, investment management fees, sales commission, and placement fees, are recognised as the related services are performed. When a loan commitment is not expected to result in a draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period.
Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
3.3 Net trading income Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest and foreign exchange differences.
3.4 Net income from financial instruments at fair value through profit or loss Net income from other financial instruments at fair value through profit or loss relates to gains and loss arising from changes in the fair value of the financial assets at fair value through profit or loss, financial assets mandatorily measured at fair value through profit or loss other than those held for trading, and financial assets and liabilities designated at fair value through profit or loss.
3.5 Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
3.6 Income tax Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.
The current tax charge is determined in accordance with the provisions of the Income Tax Act 1966 (as amended) (Chapter 323 of the laws of Zambia), and is based on the adjusted profit for the year using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The current tax charge is recognised as an expense in the period in which profits arise. 31
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.6 Income tax (continued)
Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Financial statements andFinancial statements notes Tax that arises on distribution of dividends by the Bank is recognized at the same time the liability to pay the related dividend is recognized.
3.7 Financial assets and financial liabilities
Recognition The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date at which they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Bank commits to purchase or sell the asset. All other financial assets and financial liabilities (including assets and liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value including (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.
De-recognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.
The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. 32 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.7 Financial assets and financial liabilities (continued)
De-recognition (continued) The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, repurchase transactions.
Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) remain on the statement of financial position. The counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recognised as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.
Securities lent to counterparties are also retained in the financial statements. Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recognised with the gain or loss included in trading income.
Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.
Amortised cost measurement The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment (for financial assets only).
Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The Bank uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options, interest rate and currency swaps.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, that is, the fair value of the consideration given or received. However, in some cases, the fair value of a financial instrument on initial recognition may be different from its transaction price. If such fair value is evidenced by comparison with other observable current market transactions in the same instrument (that is, without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in profit or loss on initial recognition of the instrument. In other cases the difference is not recognised in the profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or fair value becomes observable. 33
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.7 Financial assets and financial liabilities (continued)
Fair value measurement (continued) Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. Where the Bank has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Bank believes a third-party market participant would take them into account in pricing a transaction.
Identification and measurement of impairment The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the loss events.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the financial asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring andFinancial statements notes of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or debt issuers in the Bank, or economic conditions that correlate with defaults in the Bank.
In assessing collective impairment the Bank uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments measured at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in statement of comprehensive income. Interest on the impaired asset continues to be recognised through the unwinding of the discount.
The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. 34 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.7 Financial assets and financial liabilities (continued)
Identification and measurement of impairment (continued) When a loan is uncollectible, it is impaired. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss.
Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Interest calculated using the effective interest method is recognised in profit or loss. Reversals of impairment loss on available-for-sale debt instruments are recognised in profit or loss, however any subsequent recovery of the fair value of an impaired available-for-sale equity instrument is recognised in other comprehensive income.
3.8 Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, balances held with the central bank and group banks and highly liquid financial assets with original maturities of less than three months. Cash and cash equivalents are subject to insignificant risk of changes in fair value, and are used by the Bank in the management of its short term commitments.
Cash and cash equivalents are measured at amortised cost in the statement of financial position.
3.9 Loans and advances Loans and advances are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market and the Bank does not intend to sell immediately or in the near future. Loans and advances include Mortgage, Term loans, Personal loans and Overdrafts.
Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method less impairment losses.
Loans are recognised when cash is advanced to the borrowers.
3.10 Collateral The Bank obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally takes the form of a lien over the customer’s assets and gives the Bank a claim on these assets for both existing and future liabilities.
The Bank receives collateral in the form of cash or debt securities in respect of other financial instruments in order to reduce credit risk. Collateral received in the form of debt securities is not recognised on the statement of financial position. Collateral received in the form of cash is recognised on the statement of financial position with a corresponding liability. These items are assigned to deposits received from banks or other counterparties. Any interest payable or receivable arising is recognised as interest expense or interest income respectively.
3.11 Investment securities Investment securities are initially measured at fair value and subsequently measured depending on their classification as either held-to-maturity, fair value through profit and loss, or available-for-sale. Management determines the classification of its investments at initial recognition. 35
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.11 Investment securities (continued) (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss are initially and subsequently measured at fair value.
Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit or loss in the period in which they arise.
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of the derivatives are recognised in profit or loss. Transaction costs are recognised in profit or loss as incurred. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
(b) Available-for-sale Available-for-sale investments are non-derivative investments that are designated as available-for-sale or are not classified as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are initially and subsequently measured at fair value.
Interest income is recognised in profit or loss using the effective interest method. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in the profit or loss. The fair value movement for Available-for-sale investments is recorded in other comprehensive income until the financial asset is derecoginsed
or impaired at which time the cumulative gain or loss previously recognized in other comprehensive income is andFinancial statements notes reclassified to profit or loss.
3.12 Borrowings Borrowings are recognised initially at fair value, being the issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently measured at amortised cost, any difference net of transaction costs and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.
3.13 Deposits, debt securities and subordinated liabilities Deposits, debt securities and subordinated liabilities are the Bank’s sources of debt financing. When the Bank sells a financial asset and simultaneously enters a “repo” agreement to repurchase the asset (or similar asset) at a fixed or on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements.
Deposits, debt securities and subordinated liabilities are initially measured at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest method.
3.14 Non Derivatives Financial Liabilities The Bank classifies non derivative financial liabilities into other financial liabilities category. Such financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amoritsed cost using the effective interest method. Other financial liabilities include accruals, dividends payable and other payables.
3.15 Property and equipment
Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Property comprises offices and residential buildings. 36 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.15 Property and equipment (continued) The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment, and is recognised in other income/other expenses in the profit or loss.
Subsequent costs The cost of replacing a part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.
Depreciation Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each part of an item of property and equipment. The useful lives are as follows:
Properties up to 50 years Improvements to properties life of lease, up to 50 years Equipment and motor vehicles 3 to 10 years
The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. There has been no significant change in the useful lives from prior period.
Capital work-in-progress Capital work-in-progress represents assets in the course of development which at reporting date would not have been brought to use.
3.16 Intangible assets The assets that are classified as intangible assets include customer relationships and goodwill relating to the Security Services business. The customer relationships are amortised over the expected customer lives, initially estimated at 8 -10 years. They are initially measured at cost and subsequent to initial measurement; they are carried at cost less accumulated amortisation and impairment.
Goodwill is initially measured at cost and subsequently reviewed annually for impairment.
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
3.17 Leased assets
Leases of land Leases of land are classified as operating leases on the basis that significant risks and rewards of ownership are not transferred to the Bank. The leases are for 99 years which is significantly less than the useful economic life of the land. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease term as an operating lease expense.
Ownership of land ultimately vests in the Government of the Republic of Zambia and title does not transfer to the lessee.
3.18 Impairment of non-financial assets The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets and prepayments, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the greater of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 37
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.18 Impairment of non-financial assets (continued) For the purposes of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash-generating unit” or “CGU”). Impairment losses are recognised in profit or loss. Impairment on goodwill never reverses.
Non-financial assets that have been impaired are reviewed for possible reversal of the impairment at each reporting date. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.
3.19 Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
3.20 Foreign currency Transactions in foreign currencies are translated to Kwacha at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss. Financial statements andFinancial statements notes Non-monetary assets and liabilities that are measured at fair value in foreign currency are translated to the functional currency at the spot exchange rate at the date the fair value was determined. Non-monetary items that are measured based on historical costs in a foreign currency are translated using the spot rate at the date of the transaction.
3.21 Segment reporting An operating segment is a component of the Bank that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Bank’s other components. All operating segments’ operating results are reviewed regularly by the Bank’s CEO (who is the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 8).
3.22 Financial guarantees and loan commitments Financial guarantees are contracts that require the Bank to make specific payments to reimburse the holder for a loss it incurs because a specified debtors fails to make payment when due in accordance with the terms of the debt instrument. Loan commitments are firm commitments to provide credit under pre specified terms and conditions.
3.23 Employee benefits
(a) Defined contribution plan A defined contribution plan is a post - employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as expense in profit or loss when they are due in respect of service rendered before the end of the reporting period. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Retirement benefits for members of staff are provided through a defined contribution fund. The Bank contributes 6% of employees’ basic pay to the defined contribution pension fund. Obligations for contributions to the defined contribution pension plans are due in respect of services rendered before the end of the reporting period. 38 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
3 Significant accounting policies (continued)
3.23 Employee benefits (continued)
(b) Termination benefits Termination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Bank has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
(c) Short – term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
3.24 Earnings per share The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.
3.25 Share capital and reserves - share issue costs Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
3.26 Dividends payable Dividends are recognised as a liability in the period in which the dividends are approved by the shareholders.
3.27 Fiduciary activities The Bank acts in a fiduciary capacity which results in the holding or placing of assets on behalf of individuals, trusts and other institutions. These assets are excluded from these financial statements, as they are not assets of the Bank.
3.28 Share based payments The Bank’s employees participate in a number of share based payment schemes operated by Standard Chartered Plc, the ultimate holding company of Standard Chartered Bank Zambia Plc. Participating employees are awarded ordinary shares in Standard Chartered Plc in accordance with the terms and conditions of the relevant scheme.
In addition, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares of Standard Chartered Bank Plc. The price at which they may purchase shares is at a discount of up to twenty per cent on the share price at the date of invitation. There are no performance conditions attached to options granted under all employee share save schemes.
Equity settled options or share awards are calculated at the time of grant based on the fair value of the equity instruments granted and that grant date fair value is not subject to change the fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instrument is estimated using an appropriate valuation technique, such as a binomial option pricing model. 39
Notes to the financial statements (continued) for the year ended 31 December 2012
4 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2012, and have not been applied in preparing theses financial statements. The following standards and interpretations will have an impact on the financial statements of the Bank:
Effective date Standard, Amendment or Interpretation Summary of Requirements
1 January 2015 IFRS 9 (2009): Financial Instruments IFRS 9 addresses the initial measurement and classification of financial assets and will replace the relevant sections of IAS 39.
Under IFRS 9 there are two options in respect of classification of financial assets, namely, financial assets measured at amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to col- lect contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. Embedded derivatives are no longer separated from hybrid con- tracts that have a financial asset host.
The impact of the adoption of the standard on the financial statements for the Bank has not yet been quantified. IFRS 9 (2011): Financial Instruments 1 January 2015 IFRS 9 (2011) addresses the measurement and classification of financial liabilities and will replace the relevant sections of IAS 39.
Under IFRS 9 (2011), the classification and measurement andFinancial statements notes requirements of financial liabilities are the same as per IAS 39, except for the following two aspects:
fair value changes for financial liabilities (other than financial guarantees and loan commitments) designated at fair value through profit or loss, that are attributable to the changes in the credit risk of the liability will be presented in other comprehensive income (OCI). The remaining amount of the fair value change is recognised in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. The determination as to whether such presentation would create or enlarge an accounting mismatch is made on initial recognition and is not subsequently reassessed.
Under IFRS 9 (2011) derivative liabilities that are linked to and must be settled by delivery of an unquoted equity in- strument whose fair value cannot be reliably measured, are measured at fair value.
IFRS 9 (2011) incorporates the guidance in IAS 39 dealing with fair value measurement and accounting for derivatives embedded in a host contract that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Em- bedded Derivatives.
The impact on the financial statements for the Bank has not yet been quantified. 40 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
4 New standards and interpretations not yet adopted (continued)
Effective date Standard, Amendment or Interpretation Summary of Requirements
1 January 2013 IFRS 13: Fair Value Measurement IFRS 13 introduces a single source of guidance on fair value measurement for both financial and non-financial assets and liabilities by defining fair value, establishing a framework for measuring fair value and setting out disclo- sures requirements for fair value measurements. The key principles in I are as follows:
• Fair value is an exit price • Measurement considers characteristics of the asset or liability and not entity-specific characteristics • Measurement assumes a transaction in the entity’s principle (or most advantageous) market between market participants • Price is not adjusted for transaction costs • Measurement maximises the use of relevant observ- able inputs and minimises the use of unobservable inputs • The three-level fair value hierarchy is extended to all fair value measurements The impact on the financial statements for the Bank has not yet been quantified.
1 January 2013 IFRS 7 Financial Instruments: Disclosures: The amendments contain new disclosure requirements for Offsetting Financial Assets and Financial financial assets and financial liabilities that are offset in the Liabilities statement of financial position; or are subject to enforceable master netting arrangements or similar agreements. The Bank applies offsetting in the financial statements and will be required to provide additional disclosures in this regard.
The impact on the financial statements for the Bank has not yet been quantified
5 Risk Management
Through its risk management structure, the Bank seeks to manage efficiently the core risks: credit, market and liquidity risks. These arise directly through the Bank’s commercial activities whilst business, regulatory, operational and reputational risks are normal consequences of any business undertaking. The key element of risk management philosophy is for the risk functions to operate as an independent control working in partnership with the business units to provide a competitive advantage to the Bank.
The basic principles of risk management followed by the Bank include:
• ensuring that business activities are controlled on the basis of risk adjusted return; • managing risk within agreed parameters with risk quantified wherever possible; • assessing risk at the outset and throughout the time that the Bank continues to be exposed to it; • abiding by all applicable laws, regulations, and governance standards; • applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and • undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation. 41
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Group Risk Management Structure The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework.
The Group has established the Asset and Liability Committee (ALCO) which ensures that the country’s statement of financial position is managed in accordance with group policy as well as other applicable regulatory requirements.
The Group Operational Risk Committee (GORC) has established the Country Operational Risk Committee (CORC), which is responsible for providing a forum for the identification, assessment, mitigation and subsequent monitoring of country level Operational Risk trends and issues. CORC ensures that there is full compliance with internal policies and relevant regulations, as well as the Bank’s Operational Risk Management and Assurance Framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group through its training and management standards and procedures aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.
The Board Audit Committee is supported in these functions by the Internal Audit Department, who undertake both regular and ad-hoc reviews of risk management controls and procedures, the results of which are then reported to the Board Audit Committee.
The Board Risk Committee is responsible for considering the Bank’s appetite for risk, review of the appropriateness and andFinancial statements notes effectiveness of the Bank’s risk management system and controls and to consider the implications of changes proposed to regulations and legislation that are material to the Bank’s risk appetite, risk exposure and management of risk.
Credit Risk
Management of credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the loans and advances to customers and other banks and investments in debt securities. The amount of credit exposure in this regard is represented by the carrying amounts of the financial assets on the statement of financial position and financial assets that are not recognised in the statement of financial position. For risk management reporting purposes, the Bank considers all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral against loans and advances in the form of mortgage interests over property, other registered securities over assets and guarantees.
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments.
Within the Wholesale Banking business, a numerical grading system (Grades 1 to 14) is used for quantifying the risk associated with counterparty. The grading is based on a probability of default measure with customers analysed against a range of quantitative and qualitative measures.
For Consumer Banking, approval processes are in places that are appropriate for the customer type or the market. 42 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Management of credit risk (continued)
Consumer Banking An account is considered to be in default when payment is not received on the due date. Accounts that are overdue by more than 30 days are considered delinquent. These accounts are closely monitored and subject to a collection process.
The process used for raising impairment allowances is dependent on the product. For mortgages, personal and other SME loans, individual impairment allowances (“IIP”) are generally raised at 150 days past due based on the difference between the outstanding amount of the loan and the present value of the estimated future cash flows. For unsecured products, individual allowances are recognised for the entire outstanding amount at 150 days past due. For all products there are certain accounts, such as cases involving bankruptcy, fraud and death, where the loss recognition process is accelerated.
A collective impairment allowance is held to cover the inherent risk of losses, which although not identified, are known through experience to be present in any loan portfolio. In Consumer Banking, the collective impairment allowance is set with reference to past experience using loss rates and judgmental factors such as the economic environment and the trends in key portfolio indicators.
Wholesale Banking In Wholesale Banking, accounts or portfolios are placed on Early Alert when they display signs of weakness. Such accounts and portfolios are subject to a dedicated process with oversight involving Group Special Asset Management (“GSAM”). Account plans are re-evaluated and remedial actions are agreed and monitored until complete. Remedial actions include, but are not limited to, exposure reduction, security enhancement, and exit of the account or immediate movement of the account into the control of GSAM, the specialist recovery unit.
Loans are designated as impaired and considered non-performing where recognised weakness indicate that full payment of either interest or principal becomes questionable or as soon as payment of interest or principal is 90 days or more overdue. Impaired accounts are managed by GSAM, which is independent of the main businesses of the Bank. Where any amount is considered uncollectable, an individual impairment allowance is recognised, being the difference between the loan carrying amount and the present value of estimated future cash flows. In any decision relating to the raising of allowances, the Bank attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering an element of an account against which an impairment allowance has been raised, then that amount will be written off.
A collective impairment allowance is held to cover the inherent risk of losses, which, although not identified, are known through experience to be present in any loan portfolio. In Wholesale Banking, the collective impairment allowance is set with reference to past experience using loss rates, and judgmental factors such as the economic environment and the trends in key portfolio indicators. Management of credit risk (continued) 43
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Management of credit risk (continued)
The Bank’s maximum exposure to credit risk is as follows: 2012 2011 K’million K’million Cash on hand and balances at Bank of Zambia 680,535 335,956 Cash and cash equivalents 921,312 1,226,863 Investment securities 1,104,442 954,110 Derivative financial instruments 8,624 11,980 Loans and advances to customers 2,233,265 1,797,251
Total assets 4,948,178 4,326,160
Loans and advances Loans and advances to customers Investment securities 2012 2011 2012 2011 K’million K’million K’million K’million Carrying amount 2,233,265 1,797,251 1,104,442 954,110 Assets at amortised costs Individually Impaired: Wholesale loans Grade 13 4,033 8,769 - -
Grade 14 23,231 24,128 - - andFinancial statements notes Consumer loans More than 150 days 1,584 1,255 - - Gross amounts 28,848 34,152 - - Allowance for impairment (9,349) (10,435) - - Net carrying amount 19,499 23,717 - -
Past due but not impaired Wholesale Grade 12 31,139 51,428 - - Consumer over 150 days 14,817 58,013 - -
Carrying amount 45,956 109,441 - - Past due comprises 01 – 30 days 31,139 47,095 - - 30 – 60 days 6,720 3,432 - - 60 – 90 days 1,708 2,789 - - 90 - 180 days 5,900 1,607 - - Over 180 days 489 54,518 - - Carrying amount 45,956 109,441 - -
Neither past due nor impaired Wholesale loans 1 – 11 1,200,977 1,067,782 1,104,442 954,110 Consumer loans 988,711 609,450 - - Gross amount 2,235,644 1,786,673 1,104,442 954,110 Collective impairment (21,878) (13,139) - - Carrying amount 2,233,265 1,797,251 - - Carrying amount – amortised cost 2,233,265 1,797,251 1,104,442 954,110 44 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Management of credit risk (continued)
The credit quality of the financial assets is a follows:
Cash and cash equivalents 2012 2011 K’million K’million
Cash on hand and balances at Bank of Zambia 680,535 335,956 Cash and cash equivalents 921,312 1,226,863 Investment securities 1,104,442 954,110 2,706,289 2,516,929
The investments are held with Bank of Zambia which is not rated externally. 2012 2011 K’million K’million
Derivative financial instruments 8,624 11,980
The derivatives are entered into with counterparties that are vetted internally and are not rated externally. 2012 2011 K’million K’million
Loans and advances to customers 2,233,265 1,797,251
Loans and advances are given customers that have undergone credit vetting internally and have a good credit rating with the credit reference bureau.
Impaired loans Impaired loans are loans for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). These loans are graded 13 to 14 in the Bank’s internal credit risk grading system.
Past due but not impaired loans Past due but not impaired loans are loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security/collateral available and / or the stage of collection of amounts owed to the Bank. These loans are graded 12 in the Bank’s internal credit risk grading system.
Allowances for impairment The Bank establishes an allowance for impairment losses that represents its estimate to incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.
Write off policy The Bank writes off a loan balance (and any related allowances for impairment losses) when the Bank Credit determines that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances and standardised loans, charge write off decisions generally are based on a product specific past due status. 45
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Management of credit risk (continued) The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except where securities are held as part of reverse repurchase and securities borrowing activity. Collateral is not usually held against investment securities, and no such collateral was held at 31 December 2012.
Details of financial and non-financial assets obtained by the Bank during the year by taking possession of collateral held as security against loans and advances as well as calls made on credit enhancements and held at the year end are shown below: 2012 2011 K’million K’million Property 2,510 700
The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The Bank does not use the non- cash collateral for its own operations.
Concentration of credit risk The Bank monitors concentrations of credit risk by sector and an analysis of concentrations of credit risk from loans and advances and investment securities at the reporting date is shown below:
Loans and advances to customers Investment securities 2012 2011 2012 2011 K’million K’million K’million K’million Financial statements andFinancial statements notes Carrying amount 2,233,265 1,797,251 1,104,442 954,110 Agriculture 374,387 347,036 - - Mining and quarrying 181,213 134,282 - - Manufacturing 581,488 403,301 - - Energy 6,633 1,022 - - Commerce 48,103 130,484 - - Financial services 35,761 39,715 - - Government 5 5 1,104,442 954,110 Other 7,131 83,045 - - Consumer: Mortgages 57,482 66,295 - - Unsecured lending 941,062 592,066 - - Total 2,233,265 1,797,251 1,104,442 954,110
Settlement risk The Bank’s activities may give rise at the time of settlement of transactions and trades to settlement risk, which is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.
To mitigate against this risk, settlement limits form part of the credit approval and monitoring processes. In situations where the Bank is not confident with the accounts, then deals may be done on Delivery Versus Payment basis (DVP).
Liquidity risk Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It includes both the risk of being unable to fund liabilities at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame. Liquidity management is directed towards ensuring that all the Bank’s operations can meet their funding needs, whether this is to replace existing funding as it matures, or is withdrawn, or to satisfy the demands of customers for additional borrowings. 46 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Management of liquidity risk The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.
Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, largely made up of short term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.
The Bank further has to comply with the liquidity requirements set by the Central Bank which monitors compliance with local regulatory limits on a regular basis.
The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by the Standard Chartered Bank Group Assets and Liabilities Committee (GALCO). A summary report, including any exceptions and remedial action taken, is submitted regularly to Assets and Liabilities Committee (ALCO).
Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month. A similar, but not identical calculation is used to measure the Bank’s compliance with the liquidity limit established by the Bank of Zambia. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:
2012 2011
K’million K’million At 31 December 60.00% 42.60% Average for the period 49.52% 59.64% Maximum for the period 64.91% 78.99% Minimum for the period 39.52% 39.80%
The minimum required by Bank of Zambia for core liquid assets is 6% (2011: 6%)
The concentration of funding requirements at any one date or from any one source is managed continuously. A substantial proportion of the Bank’s deposit base is made up of current and savings accounts and other short term customer deposits. 47
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
The following table provides an analysis of the financial liabilities of the Bank into relevant contractual maturity groupings: One More Gross Three One to Carrying Less than month to than Nominal months to five three five amount outflow one month months one year years years
2012 K’million K’million K’million K’million K’million K’million
Non derivative liabilities Amounts payable to 525,033 (540,330) (227,548) (248,623) (27,212) (36,947) - group banks Amounts payable to 40,139 (40,374) (40,374) - - - - non-group banks Deposits from 3,681,026 (3,742,011) (3,338,271) (243,720) (153,141) (6,879) - customers Accruals and other 240,818 (240,818) (240,818) - - - - payables Subordinated liabilities 20,710 (24,832) - - - - (24,832) Total non derivative 4,507,726 (4,588,365) (3,847,011) (492,343) (180,353) (43,826) (24,832) liabilities
Derivative liabilities
Derivative financial 5,625 (7,606) (7,606) - - - - instruments Total derivative 5,625 (7,606) (7,606) - - liabilities
Unrecognised financial liabilities
Loan Commitments 310,361 310,361 - - 310,361 - - andFinancial statements notes Guarantees 328,435 328,435 - 77,530 162,318 88,587 - Letters of credit 100,792 100,792 - 13,811 13,323 73,658 - Unrecognised financial 739,588 739,588 - 91,341 486,002 162,245 - liabilities
One to More than Gross One Three five five Carrying Nominal Less than month to months to years years amount outflow one month three one year 2011 K’million K’million K’million months K’million K’millio K’million
Non derivative liabilities Amounts payable to 357,943 (360,779) (360,779) - - - - group banks Amounts payable to non- 10,405 (11,405) (11,405) - - - - group banks Deposits from customers 3,573,822 (3,630,802) (3,265,687) (112,475) (116,944) (135,696) - Accruals and other 177,724 (177,724) (177,724) - - - - payables Subordinated liabilities 20,480 (25,138) - - - - (25,138) Total non derivative 4,140,374 (4,205,848) (3,815,595) (112,475) (116,944) (135,696) (25,138) liabilities Derivative liabilities Derivative financial 1,717 (2,917) (2,917) - - - - instruments Total derivative liabilities 1,717 (2,917) (2,917) - - - -
Unrecognised financial liabilities Loan Commitments 129,507 129,507 - - 129,507 - - Guarantees 420,447 420,447 - - 311,773 108,674 - Letters of credit 48,056 48,056 - - 48,056 - - Unrecognised financial liabilities 598,010 598,010 - - 489,336 108,674 - 48 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Market risk Market risk is the risk that changes in the market prices, such as interest rates and foreign exchange rates will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk. The Bank faces two main risks in this category; interest and foreign exchange rate risk.
Interest rate risk All businesses in the Standard Chartered Group operate within market risk management policies that are set by the Group Risk Committee. Limits have been set to control the Bank’s exposure to movements in prices and volatilities arising from trading, lending, deposit taking and investment decisions.
Exposure to interest rate risk - non-trading portfolios The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprice at different times and/or in differing amounts. In the case of floating rate assets and liabilities the Bank is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices. Asset-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes.
The table below indicates the effective interest rates at the reporting date and the periods in which financial assets and liabilities reprice respectively.
The effective interest rates for principal financial assets and financial liabilities averaged as follows:
2012 2011 Financial assets ZMK (%) USD (%) ZMK (%) USD (%)
Government bonds 12.09 - 13.71 - Treasury bills 10.66 - 6.98 - Loans and advances 16.17 5.7% 17.36 6.72 Staff mortgages and other loans 9.00 - 9.00 -
Financial liabilities
Placements with other banks 11.73 0.66 8.96 0.47 Customer deposits 2.24 0.00 1.59 0.04
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and financial liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 5% and 10% parallel rise in all yield curves and a 2.5% and 7.5% parallel fall in all yield curves. An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial statement position, is as shown on page 49:
Interest rate movements affect reported equity in the following ways: • Retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss.
• Fair value reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in other comprehensive income.
Overall non-trading interest rate risk positions are managed by Global markets, which use investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank’s non-trading activities. 49
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Interest rate risk (continued)
Exposure to interest rate risk - non-trading portfolios (continued) Fixed rate instruments
Less than Three Between Zero rate Floating rate Total three months to one and instrument instruments months one year five years
2012 K’million K’million K’million K’million K’million K’million
Assets Cash on hand and balances at Bank of 680,535 680,535 - - - - Zambia Cash and cash 921,312 162,146 - 759,907 - - equivalents Investment securities 1,104,442 - - 162,807 609,680 331,955 Derivative financial instruments 8,624 - - 8,624 - - Loans and advances to customers 2,233,265 - 2,233,265 - - -
Total assets 4,948,178 842,681 2,233,265 931,338 609,680 331,955
Liabilities Amounts payable to 525,033 230,707 - - - group banks 294,326 Amounts payable to non- 40,139 5,101 - 35,038 - - group banks Financial statements andFinancial statements notes Deposits from customers 3,681,026 2,808,061 469,225 243,720 153,141 6,879
Derivative financial instruments 5,625 - - 5,625 - -
Subordinated liabilities 20,710 - 20,710 - - -
Total liabilities 4,272,533 3,043,869 489,935 578,709 153,141 6,879
Gap 675,645 (2,201,188) 1,743,330 352,629 456,539 325,076 Impact of increase in 5% 33,782 - 87,167 - - - interest rate 10% 67,565 - 174,333 - - - Impact of decrease in interest rate 2.5% (16,891) - (43,583) - - - 7.5% (50,673) - (130,750) - - -
On impact positive means increase in the profit and negative means reduction in the profit. Fair value changes arising from increase or decrease in fair value of available for sale instruments are recorded in equity. 50 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Interest rate risk (continued)
Exposure to interest rate risk - non-trading portfolios (continued)
Fixed rate instruments Less than Three Between Zero rate Floating rate three months to one and Total instrument instruments months one year five years 2011 K’million K’million K’million K’million K’million K’million
Assets
Cash on hand and balances 335,956 335,956 - - - - at Bank of Zambia Cash and cash equivalents 1,226,863 5,695 - 738,788 67,380 415,000
Investment securities 954,110 - - 138,975 437,968 377,167
Derivative financial instruments 11,980 11,980 - - - - Loans and advances to 1,797,251 - 1,730,956 - - 66,295 customers
Total assets 4,326,160 353,631 1,730,956 877,763 505,348 858,462
Liabilities Amounts payable to group 357,943 - - 71,503 276,200 10,240 banks Amounts payable to non-group 10,405 10,405 - - - - banks Deposits from customers 3,573,822 2,789,031 419,676 112,475 116,944 135,696
Derivative financial instruments 1,717 1,717 - - - -
Subordinated liabilities 20,480 - 20,480 - -
Total liabilities 3,964,367 2,801,153 440,156 183,978 393,144 145,936
Gap 361,793 (2,447,522) 1,290,800 693,785 112,204 712,526
Impact of increase in interest rate 5% 64,540 - 64,540 - - - 10% 129,080 - 129,080 - - - Impact of decrease in interest rate 2.5% (32,270) - (32,270) - - - 7.5% (96,810) - (96,810) - - -
On impact positive means increase in the profit and negative means reduction in the profit. Fair value changes arising from increase or decrease in fair value of available for sale instruments are recorded in equity. 51
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Currency risk
The Bank is exposed to currency risk through transactions in foreign currencies. The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognised in the profit or loss. These exposures comprise the monetary assets and monetary liabilities of the Bank, as follows (in Zambian Kwacha terms):
2012 ZMK USD GBP ZAR Euro Others Total K’million K’million K’million K’million K’million K’million K’million
Monetary assets 3,266,127 1,664,363 59,433 28,175 125,108 386 5,143,592
Monetary liabilities (3,196,614) (1,581,665) (59,848) (26,975) (57,880) (386) (4,923,368) Net position 69,513 82,698 (415) 1,200 67,228 - 220,224
2011 ZMK USD GBP ZAR Euro Others Total K’million K’million K’million K’million K’million K’million K’million
Monetary assets 2,655,802 1,681,000 71,786 9,404 148,510 2,868 4,569,370
Monetary liabilities (2,535,452) (1,662,470) (71,276) (29,939) (148,032) (119) (4,447,288) Net position 120,350 18,530 510 (20,535) 478 2,749 122,082
In respect of monetary assets and liabilities in foreign currencies that are not economically hedged, the Bank ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate. Financial statements andFinancial statements notes
Capital management
Regulatory capital The Bank’s main objectives when managing capital are:
• to comply with the capital requirements set by the Banking and Financial Services Act; • to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • to maintain a strong capital base to support the development of its business.
Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed and maintained by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.
In implementing current capital requirements, Bank of Zambia requires banks:
• Maintain primary or Tier 1 capital of not less than 5% of total risk weighted assets plus risk-weighted items not recognised in the statement of financial position; and • To maintain a minimum 10% ratio of total capital to total risk-weighted assets plus risk-weighted items not recognised in the statement of financial position or hold a minimum of K520,000 million whichever is higher;
There was no change in the capital regulation during the year under review.
The Bank’s regulatory capital is analysed into two tiers: • Primary (Tier 1) capital, which includes paid-up common shares, retained earnings, statutory reserves less adjustment of assets of little or no realisable value. • Secondary (Tier 2) capital, which includes qualifying subordinated term debt and revaluation reserves limited to a maximum of 40%. The maximum amount of total secondary capital is limited to 100% of primary capital. 52 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
5 Risk Management (continued)
Computation of capital position 2012 2011 I Primary (Tier 1) Capital K’million K’million
(a) Paid-up common shares 416,745 12,285
(b) Eligible preferred shares - -
(c) Capital contributed 17,312 17,312
(d) Retained earnings 137,275 317,588
(e) General reserves - -
(f) Statutory reserves 12,285 12,285
(g) Minority interests (common shareholders’ equity) - -
(h) Sub-total A (items a to g) 583,617 359,470
Less:
(i) Goodwill and other intangible assets (35,312) (40,640)
(j) Investments in unconsolidated subsidiaries and associates - (10,018)
(k) Lending of a capital nature to subsidiaries and associates - -
(l) Holding of other banks’ or financial institutions’ capital instruments - -
(m) Assets pledged to secure liabilities - - (n) Sub-total B (items i to m) (35,312) (50,658)
Other adjustments - - Provisions - - Assets of little or no realised value - - Statutory stocks sundry debtors, cash advances, profit project accounts - - Other adjustments (prepayment) (2,480) (2,136) (o) Sub-total C (other adjustments) (2,480) (2,136)
(p) Total primary capital [ h – ( n to o)] 545,825 306,676 II Secondary (tier 2) capital (a) Eligible preferred shares - - (b) Eligible subordinated term debt 20,710 20,480 (c) Eligible loan stock / capital - - (d) Revaluation reserves. (Maximum is 40% of revaluation reserves) - - (e Other - -
(f) Total secondary capital 20,710 20,480
III Eligible secondary capital 20,710 20,480
(The maximum amount of secondary capital is limited to 100% of primary capital)
IV Eligible total capital (I(p) + III) (Regulatory capital) 566,535 327,156 V Minimum total capital requirement (10% of total on and off balance sheet 274,511 201,263 risk weighted assets) VI Excess (IV minus V) 292,024 125,893 53
Notes to the financial statements (continued) for the year ended 31 December 2012
6 Use of estimates and judgments
The preparation of financial statements in accordance with IFRS requires that the Bank make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Key sources of estimation uncertainty and or judgments
Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recognised in profit or loss, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan portfolio. This evidence may include observable data that there has been an adverse change in the payment status of borrowers in a group, or local economic conditions that correlates with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
Fair value of financial instruments The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
• Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
• Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived andFinancial statements notes from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. 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.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Bank determines fair values using valuation techniques.
Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected prices volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length. 54 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
6 Use of estimates and judgments (continued)
Valuation of financial instruments The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categories:
Level 1 Level 2 Level 3 Total 31 December 2012 Note K’million K’million K’million K’million Assets
Pledged assets 22 - 50,000 - 50,000
Derivative financial assets 24 - 8,624 - 8,624
Investment securities 23 - 1,104,442 - 1,104,442
- 1,163,066 - 1,163,066
Liabilities
Derivative financial instruments 24 - 5,625 - 5,625
Level 1 Level 2 Level 3 Total
31 December 2011 Note K’million K’million K’million K’million Assets
Pledged assets 22 - 106,000 - 106,000
Derivative financial assets 24 - 11,980 - 11,980
Investment securities 23 - 954,110 - 954,110
- 1,072,090 - 1,072,090
Liabilities
Derivative financial instruments 24 - 1,717 - 1,717
Level 2: the fair value is determined using valuation models with directly or indirectly market observable inputs. Major groups of assets and liabilities classified as level 2: corporate and other government bonds and debt instruments, over the counter derivates and Asset Backed Securities which are included in the Liquid Assets List of the Bank of Zambia.
Investment securities: The investment securities designated as Available for sale are carried at Fair Value. The Fair Value is determined based on a Mark-to-Market (MTM) approach, which involves revaluation of cash flows based on the market yield curve maintained by Group Market Risk.
Derivative financial instruments: Derivative financial instruments are carried at fair value which is determined based on a discounted cash flow approach. The cash flows are discounted at a discount factor that is based on observable market data maintained by Market Risk
Impairment of non financial assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and 55
Notes to the financial statements (continued) for the year ended 31 December 2012
6 Use of estimates and judgments (continued)
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. An assessment as to whether an asset is impaired may be complex and in making such assessments the Bank considers the following factors:
• the obsolescence or physical damage of an asset;
• significant change in the manner or extent an assets will be used that will have an adverse effect on the entity;
• plan to dispose of an asset before the previously expected date of disposal;
• indications that performance of an assets will be worse than expected;
• perform being below than budget; and
• net cash outflows or operating losses.
Taxes Determining income tax provisions includes judgement on the tax treatments of certain transactions. Deferred tax is recognised on temporary differences where it is probable that there will be taxable profits against which these can be offset.
Provisions for legal claims and charges The Bank receives legal claims against the normal course of business. Management has made judgements as to the
likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the andFinancial statements notes amount of possible outflow of economic benefits. Timing and cost ultimately depend on the due legal process.
Share based payments Equity settled share awards are recognised as an expense based on their fair value at the grant date. The fair value of equity settled share options is estimated through the use of option valuation models - which require inputs such as risk-free interest rate, expected dividends, expected volatility and the expected option life and is expensed over the vesting period. Some of the inputs used are based on estimates derived from available data, such as employee exercise behaviour.
7 Financial assets and financial liabilities
Accounting classification and fair values The Bank’s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances:
In classifying financial assets or liabilities as trading, the Bank has determined that it meets the description of trading assets and liabilities set out in accounting policy 3.11(a).
In designating financial assets or liabilities at fair value through profit or loss, the Bank has determined that it has met one of the criteria for this designation set out in accounting policy 3.11 (a).
In classifying financial assets as held-to-maturity, the Bank has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy.
Details of the Bank’s classification of financial assets and liabilities are given on page 56. 56 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
7 Financial assets and financial liabilities (continued)
The table below sets out the carrying amounts and fair values of the Bank’s financial assets and financial liabilities:
Other Total Loans and Available amortised carrying Fair value Trading receivables for-sale cost amount 2012 Note K’million K’million K’million K’million K’million K’million
Financial Assets
Cash and cash equivalents 21 - 921,312 - - 921,312 921,312 Pledged assets 22 - - 50,000 - 50,000 50,000 Investment securities 23 30,095 - 1,074,347 - 1,104,442 1,104,442 Derivative financial instruments 24 8,624 - - - 8,624 8,624 Loans and advances to customers 25 - 2,233,265 - - 2,233,265 2,233,265
Total 38,719 3,154,577 1,124,347 4,317,643 4,317,643
Financial Liabilities
Amounts payable to group banks 21 - 525,033 - - 525,033 525,033 Amounts payable to non group 21 - 40,139 - - 40,139 40,139 banks Deposits from customers 30 - - - 3,681,026 3,681,026 3,681,026
Derivative financial instruments 24 5,625 - - - 5,625 5,625
Subordinated liabilities 31 - - - 20,710 20,710 20,710
Total 5,625 565,172 3,701,736 4,272,533 4,272,533
For some instruments their carrying amounts approximate their fair values due to the short term nature of the investments
Other Total Loans and Available amortised carrying Fair value Trading receivables for-sale cost amount 2011 Note K’million K’million K’million K’million K’million K’million
Financial Assets
Cash and cash equivalents 21 - 1,226,863 - - 1,226,863 1,226,863
Pledged assets 22 - - 106,000 - 106,000 106,000
Investment securities 23 289,069 - 665,041 - 954,110 954,110
Derivative financial instruments 24 11,980 - - - 11,980 11,980
Loans and advances to customers 25 - 1,797,251 - - 1,797,251 1,797,251
Total 301,049 3,024,114 771,041 - 4,096,204 4,096,204
Financial Liabilities
Amounts payable to group banks - - 357,943 21 - 357,943 357,943 Amounts payable to non group - - 10,405 banks 21 - 10,405 10,405
Deposits from customers 30 - - - 3,573,822 3,573,822 3,573,822 Derivative financial instruments 1,717 24 1,717 - - - 1,717 Subordinated liabilities 31 - - - 20,480 20,480 20,480
Total 1,717 368,348 - 3,594,302 3,964,367 3,964,367
For some instruments their carrying amounts approximate their fair values due to the short term nature of the investments 57
Notes to the financial statements (continued) for the year ended 31 December 2012
8 Operating segments
The Bank manages and reports its business through three main strategic business units. These operating units offer different products and services and are managed as separate segments of the business for purposes of internal reporting. The results of the units segments are reviewed on a monthly basis by the Chief Executive Officer. The following summary describes the operations of each of the Bank’s reportable segments:
Origination client coverage Includes the Bank’s trading, corporate finance activities, loans, trade finance, cash management, deposits and other transactions with corporate customers.
Global markets The Treasury unit undertakes the Bank’s management and centralised risk management activities through borrowings, issue of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placements and corporate and government securities.
Consumer banking Includes loans, deposits and other transactions with retail customers.
Wholesale Banking comprises of Origination client coverage and Global markets.
Operating segments pay and receive interest from Treasury on an arm’s length basis to reflect the allocation of capital and funding costs.
Segment capital expenditure is the total cost incurred during the period to acquire property and equipment.
The Bank operates in one geographical segment. Financial statements andFinancial statements notes 58 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
8 Operating segments (continued)
Origination Client Global Consumer Coverage market Banking Unallocated Total 2012 Note K’millions K’millions K’millions K’millions K’millions
External revenue Net interest income 85,503 90,375 145,818 - 321,696 Net fee and commission income 11 53,838 (6,687) 108,481 - 155,632 Net trading income 12 39,625 37,302 37,128 - 114,055
Net income from financial assets at fair 13 878 21,574 - - 22,452 value through profit or loss
Other operating income 14 - - - 6,582 6,582
Total segment income 179,844 142,564 291,427 6,582 620,417
Other material non-cash items: Recovery/(impairment) losses on loans 25 4,747 - (8,025) - (3,278) and advances Reportable segment operating
profit before tax 57,576 174,105 101,355 6,582 339,618
Reportable segment assets 1,230,299 2,619,517 1,219,373 94,428 5,163,618
Reportable segment liabilities and
equity (1,686,954) (903,520) (1,920,919) (652,225) (5,163,618)
Origination Client Global Consumer Coverage market Banking Unallocated Total 2011 Note K’millions K’millions K’millions K’millions K’millions
External revenue
Net interest income 84,180 69,016 104,196 21 257,413
Net fee and commission income 11 45,680 (4,416) 84,316 - 125,580
Net trading income 12 45,827 855 39,530 - 86,212
Net income from financial assets at fair value through profit or loss 13 436 8,882 - - 9,318
Other operating income 14 - - - 794 794
Total segment income 176,123 74,337 228,042 815 479,317
Other material non-cash items:
Impairment losses on loans and advances 25 (3,796) - (3,523) - (7,319)
Reportable segment operating
profit/ (loss) before tax 114,088 23,239 90,554 (1,794) 226,087
Reportable segment assets 1,544,501 2,173,210 782,113 85,850 4,585,674
Reportable segment liabilities and equity (2,002,208) (233,712) (1,813,486) (536,268) (4,585,674) 59
Notes to the financial statements (continued) for the year ended 31 December 2012
8 Operating segments (continued)
Reconciliation of reportable segment revenues, profit or loss and assets and liabilities
2012 2011
K’million K’million
Revenues
Total revenues for reportable segments 613,835 478,502 Unallocated amounts 6,582 815 Consolidated revenue 620,417 479,317
Profit or loss
Total profit or loss for reportable segments 332,756 227,881 Unallocated amounts 6,862 (1,794) Profit before income tax 339,618 226,087
Assets
Total assets for reportable segments 5,069,190 4,499,824 Unallocated amounts 94,428 85,850 Total assets 5,163,618 4,585,674
Liabilities Financial statements andFinancial statements notes Total liabilities for reportable segments 4,511,393 4,049,406 Unallocated amounts 652,225 536,268 Total liabilities 5,163,618 4,585,674
9 Interest income
2012 2011 K’million K’million Cash and short term funds 79,068 43,069 Debt securities 122,799 117,351 Loans and advances 203,750 154,120 Total interest income 405,617 314,540
Interest income includes interest on impaired loans and advances of ZMK 102 million (2011: ZMK 616 million).
10 Interest expense
2012 2011 K’million K’million Deposits from customers 52,692 36,599 Placements 30,652 19,995 Subordinated loan capital 577 533 Total interest expense 83,921 57,127 60 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
11 Net fee and commission income
2012 2011 K’million K’million Consumer banking customer fees 117,573 89,142 Wholesale banking credit related fees 36,891 38,683 Trade finance fees 19,351 11,788 Total fee and commission income 173,815 139,613
Consumer banking fees and commission expenses (10,684) (6,855)
Wholesale banking fees and commission expenses (7,499) (7,178)
Total fee and commission expenses (18,183) (14,033)
Net fee and commission income 155,632 125,580
12 Net trading income
2012 2011 K’million K’million Foreign currency transaction gains less losses 96,849 101,392 Losses arising from dealing securities (6,404) (19,729) Dealing profits 1,773 26 Profit on sale of corporate bond 4 - Gain on disposal of investment securities 21,833 4,523 Net trading income 114,055 86,212
13 Net income from financial instruments at fair value through profit or loss
2012 2011 K’million K’million Treasury bills 20,104 4,878 Government bonds 2,348 4,440 Net trading income 22,452 9,318
14 Other income 2012 2011 K’million K’million Gain on disposal of property, plant and equipment 6,235 201 Rent received 347 593 Net trading income 6,582 794 61
Notes to the financial statements (continued) for the year ended 31 December 2012
15 Operating expenses 2012 2011 K’million K’million Personnel expenses:
Wages and salaries 125,500 107,930
Compulsory social security obligations (NAPSA) 3,431 3,289
Contribution to defined contribution pension plan 6,383 5,992
Other staff costs 31,248 23,748
Equity settled share-based payment transactions 1,617 1,038
Redundancy and severance 976 1,392 Total 169,155 143,389
Depreciation, amortisation, premises and equipment expenses:
Depreciation of property and equipment 4,333 5,194
Amortisation of intangible assets 5,328 5,809
Other premises and equipment expenses 28,541 22,706 Total 38,202 33,709 Financial statements andFinancial statements notes
Other expenses:
Release of lease prepayment for leasehold land 13 17
Communication expenses 14,380 14,531
(Recoveries)/ recharges from group companies (7,738) 6,444
Other operating expenses 63,509 47,821 Total 70,164 68,813
Other operating expenses include ZMK965m (2011: ZMK1,053m) in respect of auditor’s remuneration for the Bank. The auditors of the Bank, KPMG, did not receive any payments in respect of non-audit services.
In addition to the above services, the Bank’s auditors acted as auditor to the Bank’s staff pension plan. The appointment of auditors to the Bank’s pension scheme and the fees paid in respect of these audits are agreed by the Trustees of the Scheme, who act independently from the management of the Bank. The aggregate fees paid to the Bank’s auditors for audit services to the pension scheme during the year were ZMK66m (2011: ZMK65m).
16 Directors’ emoluments
Details of Directors’ pay and benefits, and transactions with directors and other senior officers are disclosed under related parties in note 36. 62 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
17 Income tax expense 2012 2011 K’million K’million Current tax expense 124,219 98,538 Current year Over provision in prior year - (940)
124,219 97,598
Deferred tax Origination and reversal of temporary difference (5,594) (3,964) Total income tax expense 118,625 93,634
The income tax expense for the current year is subject to agreement with the Zambia Revenue Authority.
Reconciliation of effective tax rate:
2012 2011 2012 K’million 2011 K’million
Profit before tax % 339,618 % 226,087 Tax calculated at the tax rate of 35% (2011: 40%): 35.00 118,866 40.00 90,435
Non - deductible expenses (0.07) (241) 3.44 7,769
Tax exempt income - - (1.60) (3,618)
Effect of the first ZMK250 million at 35% - - (0.01) (12)
Under provision of income tax in prior year - - (0.42) (940)
Total income tax expense in profit or loss 34.93 118,625 41.41 93,634
Income tax recognised in other comprehensive income
2012 2011 K’million K’million
Tax Net Tax Net Before tax (expense) of tax Before tax (expense) of tax
Available-for-sale investment securities 340 (119) 221 5,996 (2,880) 3,116
Current income tax movement in the statement of financial position
2012 2011 K’million K’million Current tax liabilities at the beginning of the year 43,050 34,779 Current income tax charge 124,219 98,538 Payments made during the year (132,006) (89,327) Over provision of prior period - (940) Current tax liabilities 35,263 43,050 63
Notes to the financial statements (continued) for the year ended 31 December 2012
17 Income tax expense (continued)
Deferred taxation Deferred taxation is calculated on all temporary differences using an effective tax rate of 35% (2011: 35%). Deferred tax assets and liabilities are attributable to the following:
2012 2011
Assets Liabilities Net Assets Liabilities Net
K’million K’million K’million K’million K’million K’million
Property, Plant and equipment - (1,694) (1,694) - (2,044) (2,044)
Available-for-sale securities - (3,488) (3,488) - (3,369) (3,369)
Allowance for loan losses 7,656 - 7,656 4,598 - 4,598
Intangible Asset - (7,798) (7,798) - (9,984) (9,984)
7,656 (12,980) (5,324) 4,598 (15,397) (10,799)
2012 Opening Recognised Recognised in Closing Balance in profit or loss equity Balance K’million K’million K’million K’million
Property, Plant and equipment (2,044) 350 - (1,694) andFinancial statements notes
Available-for-sale securities (3,369) - (119) (3,488)
Allowance for loan losses 4,598 3,058 - 7,656
Intangible Asset (9,984) 2,186 - (7,798)
(10,799) 5,594 (119) (5,324)
2011 Opening Recognised Recognised in Closing Balance in profit or loss equity Balance K’million K’million K’million K’million
Property, Plant and equipment (2,631) 587 - (2,044)
Available-for-sale securities (6,249) - 2,880 (3,369)
Allowance for loan losses 4,573 25 - 4,598
Intangible Asset (13,336) 3,352 - (9,984)
(17,643) 3,964 2,880 (10,799)
In the opinion of the Directors, the deferred tax assets are recoverable. 64 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
18 Earnings per share
2011 2012 Weighted Weighted average average Per Number of Per Number of share shares share Profit shares amount Profit restated amount K’million (millions) Kwacha K’million (millions) Kwacha
Basic and diluted earnings per share 220,993 1,666.98 132.57 132,453 1,666.98 79.46
The calculation of the basic earnings per share is based on the net profit attributable to ordinary shareholders (profit after taxation) divided by the weighted average number of ordinary shares in issue during the year. There were no dilutive potential ordinary shares at 31 December 2012 (2011: nil) and basic earnings per share equals diluted earnings per share.
During the year, the Bank issued 808,920,000,000 new bonus shares with a par value of ZMK0.50. This was followed by a consolidation of both the authorized and issued share capital of the company on the basis of 1 share of par value ZMK250.00 for every 500 shares of par value ZMK0.50. As a result the earnings per share for 2011 has been restated in accordance with IAS 33.
19 Dividends payable 2012 2011 K’million K’million Balance at 1 January 1,329 1,355 Approved dividends for 2012 at nil per share (2011: approved final dividends for 2011 at - 81,900 K20.00 per share)
1,329 83,255
Less dividends paid during the year - (81,926)
Balance at 31 December 1,329 1,329
Dividends are recognised in the period in which they are declared. The directors recommended that no dividend will be paid for year ended 31 December 2012(2011: ZMK 20.00).
20 Cash on hand and balances at Bank of Zambia
2012 2011 K’million K’million
Cash on hand 180,262 119,731
Statutory Deposit 222,596 180,536
Total cash on hand and bank balances at Bank of Zambia 402,858 300,267
Clearing account with Bank of Zambia 277,677 35,689
Total 680,535 335,956
The statutory deposit held with Bank of Zambia, as a minimum reserve requirement, is not available for the Bank’s daily business. The reserve represents a requirement by the Central Bank and is a percentage of the Bank’s local currency and foreign currency liabilities to the public. At 31 December 2012 the percentage was 5% (2011: 5%). 65
Notes to the financial statements (continued) for the year ended 31 December 2012
21 Cash and cash equivalents
At 1 At 31 January Cash flow December 2012 K’million K’million K’million
Cash and short term funds at group Banks 902,126 (180,413) 721,713 Cash and short term funds at non group Banks 43,195 (24,799) 18,396 Placements with foreign non group banks 281,542 (100,339) 181,203
Cash and cash equivalents representing assets 1,226,863 (305,551) 921,312
Amounts payable to group Banks (357,943) (167,090) (525,033) Amounts payable to non group Banks (10,405) (29,734) (40,139) Cash on hand and balances at Bank of Zambia 335,956 344,579 680,535
Total Per Cash flow 1,194,471 (157,796) 1,036,675
At 1 At 31 January Cash flow December 2011 K’million K’million K’million
Cash and short term funds at group Banks 366,446 535,680 902,126
Cash and short term funds at non group Banks 56,415 (13,220) 43,195 andFinancial statements notes Placements with foreign non group banks 119,850 161,692 281,542 Cash and cash equivalents representing assets 542,711 684,152 1,226,863
Amounts payable to group Banks (497,637) 139,694 (357,943) Amounts payable to non group Banks (387) (10,018) (10,405) Cash on hand and balances at Bank of Zambia 1,332,221 (996,265) 335,956
Total Per Cash flow 1,376,908 (182,437) 1,194,471
22 Pledged assets 2012 2011 K’million K’million Treasury bills 50,000 106,000
The pledged assets presented in the table above are those financial assets that may be repledged or resold by counterparties. These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities. These treasury bills are held as collateral at the Zambia Electronic Clearing House.
23 Investment securities 2012 2011
K’million K’million
Investment securities at fair value through profit or loss 30,095 289,069
Available-for-sale investment securities 1,074,347 665,041 Total 1,104,442 954,110 66 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
23 Investment securities (continued)
Investment securities at fair value through profit or loss
2012 2011 Treasury Government Treasury Government bills bonds Total bills bonds Total K’million K’million K’million K’million K’million K’million
Of which mature
- - Within one year - 100,791 85,566 186,357 Within one to five years - 30,095 30,095 - 102,712 102,712
Total 30,095 30,095 100,791 188,278 289,069
These investment securities are held for trading.
Available - for- sale
2012 2011
Treasury Government Treasury Government
bills bonds Total bills bonds Total K’million K’million K’million K’million K’million K’million
Of which mature
690,542 81,790 772,332 366,360 24,226 390,586 Within one year Within one to five years - 302,015 302,015 - 274,455 274,455
690,542 383,805 1,074,347 - - - More than five years Total 690,542 413,900 1,104,442 366,360 298,681 665,041
24 Derivative financial instruments
The table below analyses the positive and negative fair values of the Bank’s derivative financial instruments. All fair value movements on derivative financial instruments are recognised in the profit or loss.
2012 2011
2012 Assets Liabilities Assets Liabilities K’million K’million K’million K’million
7,884 3,159 - - Interest rate swap - 928 11,503 1,717 Cross currency swap 740 - - - Commodity derivative - 1,538 477 - Forward foreign exchange contracts Total 8,624 5,625 11,980 1,717 67
Notes to the financial statements (continued) for the year ended 31 December 2012
25 Loans and advances to customers
2012 2011 Gross Impairment Carrying Gross Impairment Carrying amount allowance amount amount allowance amount K’million K’million K’million K’million K’million K’million
Consumer loans:
Mortgage lending 57,482 (1,246) 56,236 68,417 66,295 (2,122)
889,417 (1,406) 888,011 566,838 559,391 Personal loans (7,447)
Overdrafts 54,562 (265) 54,297 33,463 (788) 32,675
1,001,461 (2,917) 998,544 668,718 (10,357) 658,361
Wholesale loans:
Term loans 971,888 (19,442) 952,446 850,890 (11,608) 839,282
Overdrafts 291,144 (8,869) 282,275 301,217 (1,609) 299,608
1,263,032 (28,311) 1,234,721 1,152,107 (13,217) 1,138,890
Total 2,264,493 (31,228) 2,233,265 1,820,825 (23,574) 1,797,251
Financial statements andFinancial statements notes Maturity analysis of gross loans and advances
The maturity analysis is based on the remaining periods to contracted maturity.
2012 2011 K’million K’million
1,249,032 345,706 Redeemable on demand
58,131 751,703 Maturity within one year
513,662 Maturity after 12 months 1,167,084
Total 2,264,493 1,820,825
Included in loans and advances are loans to related parties amounting to ZMK20,300m (2011: ZMK19, 117 million) (see note 36). Loans and advances to customers are measured at amortised cost. 68 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
25 Loans and advances to customers (continued)
Allowances for impairment
2012 2011 Specific allowances for impairment K’million K’million
Balance at 1 January 10,435 35,769
Charge for the year 10,286 21,211
Impairment (reversal)/recognised on associate (8,146) 10,018
Recoveries (7,601) (25,616)
Net (credit)/charge against profit (5,461) 5,613
Effect of foreign currency movements (533) (2,211)
Discount unwind (818) (616)
Impairment reversal/(recognised) on associate 8,146 (10,018)
Provision no longer required (2,420) (18,102)
Balance at 31 December 9,349 10,435
2012 2011 Collective allowances for impairment K’million K’million
Balance at 1 January 13,139 11,433
Increase in collective impairment 8,739 1,706
Balance at 31 December 21,878 13,139
Total specific and collective impairment at 31 December 31,227 23,574
Impairment losses on loans and advances in the statement of comprehensive income
2012 2011 K’million K’million
(5,461) 5,613 (Recovery of) /specific allowances for impairment
Collective allowances for impairment 8,739 1,706
Total allowances for year 3,278 7,319 69
Notes to the financial statements (continued) for the year ended 31 December 2012
26 Property and equipment
Capital Property and Equipment and work-in- improvements motor vehicles progress Total K’million K’million K’million K’million
Cost
At 1 January 2011 15,572 31,895 4,394 51,861
Additions - 2,406 5,998 8,404
Expensed work- in- progress - - (3,435) (3,435)
Capitalised work- in- progress 3,132 3,825 (6,957) -
Disposals - (516) - (516)
At 31 December 2011 18,704 37,610 - 56,314
At 1 January 2012 18,704 37,610 - 56,314
Additions - 1,797 5,475 7,272
Disposals (448) - - (448)
Write offs - (19,265) - (19,265)
At 31 December 2012 18,256 20,142 5,475 43,873
Accumulated depreciation and impairment losses Financial statements andFinancial statements notes At 1 January 2011 2,645 23,119 - 25,764
Depreciation charge for the year 386 4,808 - 5,194
Disposals - (516) - (516)
At 31 December 2011 3,031 27,411 - 30,442
At 1 January 2012 3,031 27,411 - 30,442 Depreciation charge for the year 420 3,911 - 4,331 Disposals (84) - (84) Write offs - (19,265) - (19,265) At 31 December 2012 3,367 12,057 - 15,424
Carrying amounts At 1 January 2011 12,927 8,776 4,394 26,097
At 31 December 2011 15,673 10,199 - 25,872
At 31 December 2012 14,887 8,087 5,475 28,449
A register of properties is maintained by the Bank at its registered office and is available for inspection by the members.
Fully depreciated equipment and motor vehicles are included in the above at cost amounting to ZMK 3,732 million (2011: ZMK 1,546m). During the year, fully depreciated equipment amounting to K19,265m was written off from the asset register.
The work in progress expensed in prior year relates to items that are of a non capital nature but were recorded in work in progress. 70 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
27 Intangible assets Customer Relationship Goodwill Total Cost K’million K’million K’million
At 1 January 2011 33,691 13,476 47,167
At 31 December 2011 33,691 13,476 47,167
At 1 January 2012 33,691 13,476 47,167
At 31 December 2012 33,691 13,476 47,167
Accumulated amortisation and impairment losses At 1 January 2011 718 - 718
Charge for the year 5,809 - 5,809
At 31 December 2011 6,527 - 6,527
At 1 January 2012 6,527 - 6,527
Charge for the year 5,328 - 5,328
At 31 December 2012 11,855 - 11,855
Carrying amounts
At 1 January 2011 32,973 13,476 46,449
At 31 December 2011 27,164 13,476 40,640
At 31 December 2012 21,836 13,476 35,312
Impairment testing for cash-generating units (CGU) containing goodwill For the purposes of impairment testing, the entire goodwill is allocated to the Wholesale Banking unit. No impairment losses on goodwill were recognised during the year (2011: nil).
The recoverable amounts for the Wholesale Banking CGU has been calculated based on their value in use, determined by discounting the future cash flows to be generated from the continuing use of the CGU. Value in use was determined in a similar manner as in 2011.
Key assumptions used in the calculation of the value in use were the following: Cash flows were projected based on forecasts and budgets for short/medium term growth (one to five years) using budgets compiled in November of the current year through to the end of November for the following year. The cash flows for a further 20 years are extrapolated using a constant growth rate. The long term growth rate management used is based on a forecast for a ten year average GDP for country specific units; or global GDP for business specific units, and is applied after the latest approved budget (one to five years) up to twenty years. The forecast period is based on the Bank’s long term perspective with respect to the operations of this CGU.
Management uses post tax cash flows hence applies a post-tax discount rate to the cash flows to nullify the double effect of tax from the impairment calculation in determining the recoverable amount of CGU. The resultant net present value derived based on this methodology will be similar to that, had pre-tax discount rates been applied to pre- tax cash flows. Since the CGU is a business unit then SCB Plc’s Weighted Average Cost of Capital is used and is adjusted for systemic risk of the specific GCU.
The assumptions described above may change as the economic and market condition change. The Bank estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of the CGU to decline below the carrying amount.
The intangible customer relationships will be amortised over the expected customer life initially estimated at 8 -10 years. 71
Notes to the financial statements (continued) for the year ended 31 December 2012
28 Operating lease prepayments
2012 2011
K’million K’million
Opening balance 660 677
Disposals (102) -
Amortisation (13) (17)
Carrying amount 545 660
Land is leased from the Government of the Republic of Zambia (GRZ) for a fixed 99 year term (or the unexpired portion thereof). The land has been classified as an operating lease. IAS 17 Leases requires all amounts paid upfront at the signing of the lease to be amortised on a straight line basis over the unexpired portion of the lease term. The lease is armotised as follows:
2012 2011 K’million K’million
Less than one year 19 21 Between one and five years 75 85
More than five years 451 554
Carrying amount 545 660
There are no contingent rentals or sub-lease payments expected to be received. andFinancial statements notes
29 Prepayments and other receivables
2012 2011 K’million K’million Letter of credit - Acceptance 75,964 66,338
Prepayments and other receivables 25,170 20,004
Total 101,134 86,342 72 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
30 Deposits from customers 2012 2011
K’million K’million
Consumer customers:
Savings accounts 463,486 414,747
Term deposits 156,667 219,765
Current deposits 1,286,945 1,124,752
Wholesale customers: Savings accounts 5,738 4,930
Term deposits 341,997 453,334
Current deposits 1,426,193 1,356,294
Total 3,681,026 3,573,822
2012 2011 K’million K’million
Repayable on demand 3,277,286 3,208,707
Repayable with agreed maturity dates or periods of notice, by residual maturity: Three months or less 243,720 112,475
Between three months and one year 153,141 116,944
After one year 6,879 135,696
Total 3,681,026 3,573,822
Included in deposits from customers were deposits amounting to ZMK154,715 million (2011: ZMK193,965 million) held as collateral for irrevocable commitments under import letters of credit.
31 Subordinated liabilities 2012 2011 K’million K’million
At 1 January 2012 20,480 19,120 Exchange difference 230 1,360 Total 20,710 20,480
The terms and conditions of the subordinated loan are as follows:
The interest charge is 2.3% above 3 months LIBOR and is payable on a quarterly basis. The loan is to be fully repaid in one installment on 31 December, 2019. The outstanding amounts reflected on the statement of financial position are the Kwacha equivalent of USD4 million.
The Bank has not had any defaults of interest or other breaches with respect to its subordinated loan during the years ended 31 December 2012 and 2011. 73
Notes to the financial statements (continued) for the year ended 31 December 2012
32 Provisions 2012 2011 K’million K’million
Balance at 1 January 15,457 15,744 Provisions used during the year (1,396) (287) Total 14,061 15,457
Legal proceedings There were some legal proceedings outstanding against the Bank at 31 December 2012. Provisions have been made in the financial statements in respect of such claims, based on professional advice and management’s best estimates of the settlement amount. The timing of any outflows in the form of any settlement is uncertain.
33 Accruals and other payables 2012 2011
K’million K’million
Bank cheques 7,415 8,577 Loan suspense 21,445 12,637 Deposit clearing 31,374 5 Letter of credit - acceptance 75,762 66,338 Accruals and other payables 104,822 90,167 Total 240,818 177,724 Financial statements andFinancial statements notes
34 Share capital Number of Number Ordinary Ordinary ordinary of ordinary Shares shares shares shares capital (million) K’million (million) K’million Authorised 2012 2012 2011 2011
At 1 January - ordinary shares of K0.50 (2011: K0.50 each) 30,000 15,000 30,000 15,000
Issued during the year 870,000 435,000 - -
Share consolidation (898,200) - - - At 31 December - ordinary shares of K250 (2011: K0.50 1,800 450,000 30,000 15,000 each)
Issued and fully paid At 1 January Ordinary shares of K0.50 (2011: K0.50 each) 24,570 12,285 24,570 12,285
Issued during the year 808,920 404,460 - - Share consolidation (831,823) - - - At 31 December - ordinary shares of K250 (2011: K0.50 1,667 416,745 24,570 12,285 each)
808,920,000,000 new bonus shares with a par value of ZMK0.50 were issued during the year, this was followed by a consolidation of both the authorized and issued share capital of the company on the basis of 1 share of par value ZMK250.00 for every 500 shares of par value ZMK0.50.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank. 74 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
35 Contingent liabilities and commitments
The Bank provides loan commitments, letters of credit and financial guarantees for performance of customers to third parties. These agreements have fixed limits and are generally renewable annually. Expirations are not concentrated in any period. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the reporting date if counterparties failed completely to perform as contracted. Only fees and accruals for probable losses are recognised in the statement of financial position until the commitments are fulfilled or expire. Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash out flows.
2012 1 year 1 – 5 years Total K’million K’million K’million
Loans commitments 310,361 - 310,361 Guarantees 239,848 88,587 328,435 Letters of credit 27,134 73,658 100,792 Total 577,343 162,245 739,588
2011 1 year 1 – 5 years Total K’million K’million K’million
Loans commitments 129,507 - 129,507 Guarantees 311,773 108,674 420,447 Letters of credit 48,056 - 48,056 Total 489,336 108,674 598,010
Capital commitments
The bank had capital commitment of ZMK1,872 million as at 31 December 2012 (2011: ZMK1,500million).
36 Related party transactions
The Bank is controlled by Standard Chartered Holdings (Africa) BV (incorporated in The Netherlands) which owns 90% of the shares. The other shares are widely held. The ultimate parent of the Bank is Standard Chartered Plc (incorporated in the United Kingdom). The Bank has a related party relationship with its holding company, fellow subsidiaries, non-executive directors, executive directors and key management personnel. Key management personnel include all Management Committee Members and Unit Heads.
A number of banking and other transactions are entered into with related parties in the normal course of business. These include loans, deposits, foreign currency and other transactions for services, such as consulting services that the parent and other related companies provide from time to time and which are charged at market rate. The volumes of related party transactions, outstanding balances at the year end, and the related interest expense and income for the year are as follows:
Group transactions Note 2012 2011 K’million K’million
Amounts due from Group Companies 21 721,713 902,126 Amounts due to Group Companies 21 (525,033) (378,423) Total 196,680 523,703 75
Notes to the financial statements (continued) for the year ended 31 December 2012
36 Related party transactions (continued)
Group transactions (continued) Included in group transactions are placements made and received from group related entities. These are entered into at fixed interest rates and maturity periods.
Income and expenditure 2012 2011
K’million K’million
Recharges and other expenses (17,564) (27,062)
Commissions and net interest income 30,335 23,720
Total 12,771 (3,342)
Loans 2012 2011 Connected Entities to Key Key Management Management Directors Directors staff Total Directors staff Total K’million K’million K’million K’million K’million K’million K’million
Loans outstanding at 1 January 1,532 - 17,585 19,117 1,772 9,823 11,595
Loans issued during the year 183 2,250 12,630 15,063 - 11,499 11,499 andFinancial statements notes
Relocated/ Resigned / Promoted - - (3,300) (3,300) - (133) (133)
Loan repayments during the year (264) - (10,316) (10,580) (240) (3,604) (3,844)
Loans outstanding at 1,451 2,250 16,599 20,300 1,532 17,585 19,117 31 December
Of which: Executive directors 1,451 - - Non executive directors - 2,250 - - 1,532 1,532
Total outstanding at 1,451 2,250 16,599 20,300 1,532 17,585 19,117 31 December
Interest and fee income earned 135 - 2,397 2,532 148 2,145 2,293 Non executive directors - - - - 6 - 6
Loans to non-executive directors and connected entities are made under commercial terms in the ordinary course of the Bank’s business. Loans to executive directors are made on the same terms as those of other employees of the Bank.
No impairment allowances have arisen against loans to directors, entities connected to directors and key management staff during the period. 76 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
36 Related party transactions (continued)
Deposits
2012 2011
Connected Management Connected Management Entities to entities to
Directors directors staff Total Directors directors staff Total
K’million K’million K’million K’million K’million K’million K’million K’million
Deposit at 1 January 505 - 1,306 1,811 768 377 1,013 2,158
Deposit received 11,001 78,348 46,270 135,619 during the year 7,513 8,420 32,252 48,185 Retired/resigned/ - - (244) (244) (50) (391) (376) (817) promoted
Deposit withdrawn (10,355) (76,860) (44,830) (132,045) (7,726) (8,406) (31,583) (47,715)
Deposits at 31 1,151 1,488 2,502 5,141 505 - 1,306 1,811 December Interest expense on 7 - 1 8 deposits 17 18
Goods and services
Purchase of goods and services - 163 - 163 47 - - 47
Key management compensation 2012 2011
K’million K’million
Salaries and allowances and short term benefits 28,378 26,533
Pension contributions 1,345 1,195
Total 29,723 27,728
Directors’ remuneration 2012 2011 K’million K’million Executive directors Salaries and allowances 3,263 3,034 Pension contributions 145 136 Non-executive directors’ fees and benefits 438 322 Total 3,846 3,492
Disposal of assets
There were no Bank assets sold to the Directors (2011: nil). 77 Notes to the financial statements (continued) for the year ended 31 December 2012
37 Share-based payment transactions
The holding company (Standard Chartered Plc) operates a number of share based payments schemes for its directors and employees in which employees of Standard Chartered Bank Zambia Plc participate. These schemes are as outlined below. Through a recharge arrangement Standard Chartered Bank Zambia Plc reimburses the group for grant date fair value. The amount charged to the statement of comprehensive income during the year was ZMK 1,617 million (2011: ZMK1, 038 million) and the corresponding amount is in liabilities. The holding company has the obligation to deliver to the respective participants the Standard Chartered Plc’s ordinary shares under the various schemes.
Employee expenses for share based payments transactions 2012 2011
K’million K’million
Restricted share scheme 838 519
Performance share plan 279 112
Share save scheme 500 407
1,617 1,038 Total expense recognised as personnel expenses
(a) Restricted share scheme The restricted share scheme (RSS) is used as an incentive plan to motivate and retain high performing staff at any level of the organisation. It is also used as a vehicle for deferring part of bonuses of certain employees. 50% of the award vests two years after the date of grant and the balance after three years. The awards can be exercised within seven years of the grant date. The value of shares awarded in any year to any individual may not exceed two times their basic annual salary. The remaining life of the scheme is eight years. For awards, the fair value is based on the market value less an adjustment to take into account the expected dividends over the vesting period. Financial statements andFinancial statements notes The number and weighted average exercise price of share options is as follows:
Number Number of options of options 2012 2011
Outstanding at the beginning of the reporting period 29,336 33,468
Exercised during the year (10,563) ( 7,806)
Expired during the year (4,455) (1,309)
Granted during the year 5,437 4,983
Outstanding at 31 December 19,755 29,336
Exercisable at 31 December 7,270 9,358
(b) Performance share plan The performance share plan is designed to be an intrinsic part of total remuneration for executive directors and a small number of the most senior executives. It is an incentive plan that focuses executives on meeting and exceeding the long - term performance targets of the group. Awards of nil price options to acquire shares are granted to the executives and will normally be exercisable between three and ten years after the date of grant if the individual is still employed in the group. There is provision for earlier exercise in certain limited circumstances. The remaining life of the scheme is three years. 78 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes to the financial statements (continued) for the year ended 31 December 2012
37 Share-based payment transactions
The number and weighted average exercise price of share options is as follows: Number Number of options of options 2012 2011
Outstanding at the beginning of the reporting period 74,183 68,913
Exercised during the year (4,157) -
Expired during the year (64,508) (248)
Granted during the year 4,122 5,518
Outstanding at 31 December 9,640 74,183
Exercisable at 31 December - 62,856
(c) Share save scheme Under the sharesave scheme, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares in the holding company or take all their money in cash. The price at which they may purchase shares is at a discount of up to 20 percent of the share price at the date of invitation. There are no performance conditions attached to options granted under the employee sharesave scheme. Options are valued using a binomial option-pricing model.
The number and weighted average exercise price of share options is as follows:
Weighted Weighted average average Number exercise Number exercise of options price of options price 2012 2012 2011 2011
GBP GBP
Outstanding at the beginning of the reporting period 11.51 49,651 11.69 45,550
Exercised during the year 10.56 (5,411) 9.88 (7,728)
Expired during the year 11.79 (12,760) 11.68 (10,082)
Granted during the year 11.40 16,434 10.65 21,911
Outstanding at 31 December 11.51 47,914 11.51 49,651
Exercisable at 31 December 10.76 4,638 9.80 2,250
38 Ultimate holding company
The Bank, which is a registered commercial bank under the Zambian Banking and Financial Services Act 1994, is owned 90% by Standard Chartered Holdings (Africa) BV, a company incorporated in the Netherlands, which in turn is wholly owned by Standard Chartered Plc, a company incorporated in the United Kingdom. 79
Appendix I
Five year summary
2012 2011 2010 2009 2008
K’million K’million K’million K’million K’million
Operating profit before impairment provisions 342,896 233,406 221,735 140,063 83,339
Net impairment provisions against loans and advances (3,278) (7,319) 8,009 (25,039) (28,694)
Profit before taxation 339,618 226,087 229,744 115,024 54,645
Profit attributable to shareholders 220,993 132,453 133,292 66,967 25,540
Loans and advances to customers 2,233,265 1,797,251 1,151,385 948,087 1,006,137
Total assets 5,163,618 4,585,674 4,572,218 2,976,606 2,449,263
Deposits from customers 3,681,026 3,573,822 3,164,587 2,347,127 2,115,768
Shareholders’ funds 594,290 372,948 325,511 223,512 161,446
Earnings per ordinary share Basic earnings per share (Kwacha)
132.57 79.46 5.42 16.35 6.24 andFinancial statements notes
Dividends per share (Kwacha) 0.00 0.00 20.00 10.00 5.00
Ratios Post-tax return on ordinary shareholders’ funds
37% 36% 41% 30% 16% Basic cost/income ratio 45% 51% 51% 63% 74% 80 Standard Chartered Bank Zambia Plc Annual Report 2012
Principal addresses
Head Office Standard Chartered Bank Zambia Plc Standard Chartered House, Cairo Road P.O. Box 32238 Lusaka 10101, Zambia Tel: +260 (211) 229242-50 Fax: +260 (211) 222092
Senior Management Musonda Musakanya Chief Information Officer
Standard Chartered Bank Zambia Plc Mizinga Melu st Managing Director 1 Floor Standard Chartered House, Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka 4th Floor Standard Chartered House, Cairo Road Tel: + 260 (211) 225138 P.O. Box 32238, Lusaka Fax: + 260 (211) 222092 Tel: +260 (211) 222046 Fax: +260 (211) 225148 Ruth Simuyemba Head of Human Resources Arjuna Balasingham Standard Chartered Bank Zambia Plc Head of Origination and Client Coverage 1st Floor Standard Chartered House, Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka 2nd Floor Standard Chartered House, Cairo Road Tel: +260 (211) 224838 P.O. Box 32238, Lusaka Fax: + 260 (211) 225337 Tel: + 260 (211) 222983 Fax: + 260 (211) 227805 Celine Nair Head of Legal & Company Secretary Sonny Zulu Standard Chartered Bank Zambia Plc Head of Consumer Banking 5th Floor Standard Chartered House, Cairo Road Standard Chartered Bank Zambia Plc P.O. Box 32238, Lusaka st Floor Northend, Cairo Road 1 Tel: +260 (211) 221518 P.O. Box 32238, Lusaka Fax: +260 (211) 225148 Tel: +260 (211) 225257 Fax: +260 (211) 228353 Chanda Chime-Katongo Acting Head of Corporate Affairs, Zambia Stanley Tamele Standard Chartered Bank Zambia Plc Head of Global Markets th Standard Chartered Bank Zambia Plc 4 Floor Standard Chartered House, Cairo Road 2nd Floor Standard Chartered House, Cairo Road P.O. Box 32238, Lusaka P.O. Box 32238, Lusaka Tel: +260 (211) 227616 Tel: +260 (211) 221235 Fax: +260 (211) 225148 Fax: +260 (211) 222090 Peter Zulu Aniq Islam Head of Compliance Head of Transaction Banking Standard Chartered Bank Zambia Plc Standard Chartered Bank Zambia Plc 5th Floor Standard Chartered House, Cairo Road 2nd Floor Standard Chartered House, Cairo Road P.O. Box 32238, Lusaka P.O. Box 32238, Lusaka Tel: +260 (211) 224825 Tel: +260 (211) 225244 Fax: +260 (211) 235007 Fax: +260 (211) 221176 Anthony Katepa Kelvin Musana Country Chief Risk Officer & Senior Credit Officer – Executive Director – Finance and Administration Wholesale Banking Standard Chartered Bank Zambia Plc Standard Chartered Bank Zambia Plc st Floor Standard Chartered House, Cairo Road 1 2nd Floor Standard Chartered House, Cairo Road P.O. Box 32238, Lusaka P.O. Box 32238, Lusaka Tel: + 260 (211) 225252 Tel: +260 (211) 229242 - 59 Fax: +260 (211) 225337 81
Branch management
Leah Munzele Karen Mwamba Regional Branch Manager South Branch Manager Lusaka Branch Jacaranda Mall Branch P.O. Box 32238, Lusaka P.O. Box 230021, Ndola Tel: +260 (211) 229242 - 59 Tel: +260 (212) 651013 Fax: +260 (211) 220106/227679 Fax: +260 (212) 650583
Jurecca Daka Isaiah Chaikatisha Regional Branch Manager North Branch Manager North End Branch Chingola Branch P.O. Box 31353, Lusaka P.O. Box 71665, Chingola Tel: +260 (211) 2285114/5 Tel: +260 (212) 613225 Fax: +260 (211) 221857 Fax: +260 (212) 620943 Tabu Chewe / Rita Mweetwa June Chalongwa Branch Managers Buteko Branch Manda Hill Branch P.O. Box 90097, Luanshya P.O. Box 31934, Lusaka Tel: +260 (212) 512229 Tel: +260 (211) 255484 Fax: +260 (212) 510407 Fax: +260 (211) 255485 Victor Chikafya Mwaka Munthali Branch Manager Branch Manager Chililabombwe Branch Kabulonga Branch P.O. Box 210119, Chililabombwe P.O. Box 31934, Lusaka Tel: +260 (212) 382209 Tel: +260 (211) 261339 Fax: +260 (212) 382213 Fax: +260 (211) 262593 Maxwell Mudenda Theresa Mwango Branch Manager Centre Manager Livingstone Branch
Crossroads Branch informatioSupplimentary P.O. Box 60592, Livingstone P.O. Box 31934, Lusaka Tel: +260 (213) 321745 Tel: +260 (211) 264080 Fax: +260 (211) 262593 Fax: +260 (213) 321721
Katongo Mupunda Maxmillian Matongo Regional Branch Manager -Copperbelt Branch Manager Zambia Way Branch Mazabuka Branch P.O. Box 20061, Kitwe P.O. Box 670002, Mazabuka Tel: +260 (212) 224944 Tel: +260 (213) 230727 / 230688 / 230031 Fax: +260 (212) 224269 Fax: +260 (213) 230727 / 230162
Singi Mbokoshi Thomas Ngoma Branch Manager Branch Manager Luanshya Branch Choma Branch P.O. Box 71665, Ndola P.O. Box 630070, Choma Tel: +260 (212) 613225 Tel: +260 (213) 220199/20489/20784 Fax: +260 (212) 620943 Fax: +260 (213) 220784 82 Standard Chartered Bank Zambia Plc Annual Report 2012
Peter Mwanaziani Christine Willis Branch Manager Relationship Manager Mongu Branch Ody’s Preferred Centre, Arcades P.O. Box 910090, Mongu P.O. Box 32238, Lusaka Tel: +260 (217) 221456 Tel: +260 (211) 292876 - 79 Fax: +260 (217) 221281 Fax: +260 (211) 292868
Charles Nkunika Emmy Shanzi Branch Manager Relationship Manager Kasama Branch Priority Banking P.O. Box 410060, Kasama Ody’s Centre, Arcades Tel: + 260 (214) 222051 P.O. Box 32238, Lusaka Fax: + 260 (214) 221316 Tel: +260 (211) 292876 - 79 Fax: +260 (211) 292868 Sharon Chibwe Relationship Manager Normia Lumpuma Preferred Banking Centre Relationship Manager Lusaka Main Branch Priority Banking Tel: +260 (211) 227673 Northend Branch Fax: +260 (211) 227774 Tel: +260 (211) 228551 Fax: +260 (211) 228553 Annie Kabombo-Nyirenda Relationship Manager Annie Kambombo Nyirenda Preferred Banking Centre Relationship Manager Northend Branch Priority Banking Tel: +260 (211) 228551 Lusaka Branch Fax: +260 (211) 228553 P.O. Box 32238, Lusaka Tel: +260 (211) 229242 - 59 Muziya Nambao Fax: +260 (211) 220106/227679 Relationship Manager Preferred Banking Centre Malcom Lungu Zambia Way Branch, Kitwe Relationship Manager Tel: +260 (212) 224485 Priority Banking Fax: +260 (212) 224269 Zambia Way Branch P.O. Box 20061, Kitwe Webster Musonda Tel: +260 (212) 224944 Relationship Manager Fax: +260 (212) 224269 Preferred Banking Centre Chingola Branch Tel: +260 (212) 313827 Fax: +260 (212) 312636
Bumba Bwembelo Relationship Manager Intercontinental Preferred Centre, P.O. Box 32238, Lusaka Tel: +260 (211) 252357/256595 Fax: +260 (211) 256713 83
Dividend
At the Board Meeting held on 21 February 2013, the Directors recommended that no dividend be paid to shareholders for the year ended 31st December 2012.
This is to allow for the retention of profits to build up capital in order to comply with revised Central Bank primary capital requirements.
By Order of the Board
Celine M. Nair Company Secretary Supplimentary informatioSupplimentary 84 Standard Chartered Bank Zambia Plc Annual Report 2012
Notice of annual general meeting and agenda
Notice is hereby given that the Annual General Meeting of Standard Chartered Bank Zambia Plc in respect of the period ended 31 December 2012, will be held at the Taj Pamodzi Hotel, in the Amalila Room, in Lusaka, Zambia on Wednesday 27 March 2013 at 14:30 hours for the following purposes:
• To confirm and sign the Minutes of the AGM held on 28th March 2012 and the Extra Ordinary Meeting (EGM) of 16th November 2012.
• To receive and adopt the Financial Statements as at 31st December 2012 and the reports of the Chairman, Directors and Auditors.
• Standard Chartered Bank Zambia Plc Bonus Issue of Shares.
• To approve the Dividend recommendation of the Directors for the year ended 31st December 2012.
• To appoint auditors from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorize the Directors to fix their remuneration.
• To authorize the Board to fix the remuneration of the Directors.
• To ratify the appointment of new directors and to re-elect Directors retiring by rotation in accordance with the provision of the Company’s Articles of Association.
• To transact any other business that may properly be transacted at the Annual General Meeting.
A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend, speak, and, on a poll, vote in his/her stead. Proxy forms are available from the Company Secretary and must be lodged at the Registered Office of the Company not less than 48 hours before the commencement of the meeting.
By Order of the Board
Celine M. Nair Company Secretary 85
FORM OF PROXY
………...... …………. 2013
I/We, ……………………………………………...... …… (full names in block letters) of
………………………………………………………...... ……………………………………… member/members of Standard Chartered Bank Zambia Plc, hereby appoint
………………………………………………...... ……………………………………………… of ………………………………………...... ………………………………………………….. as my/our proxy to attend, and speak, on poll, vote instead of me/us at the forty-second
Annual General Meeting of the Company, to be held on 27 March 2013 and at every
Adjournment thereof:
Signature(s) ……………………………………………………………
Certificate Number(s) …………………………..…………………………
NOTE:
The Form of Proxy shall be: a) In the case of an individual, signed by the appointer or by his Attorney b) In the case of a corporation, signed either by an Attorney or Officer of the Corporation on its behalf or be given under its common seal.
An instrument of proxy must be deposited at the Registered Office of the Company not later than 48 hours before the time of the meeting. 86 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes 87
Notes Supplimentary informatioSupplimentary 88 Standard Chartered Bank Zambia Plc Annual Report 2012
Notes 89 90 Standard Chartered Bank Zambia Plc Annual Report 2012
Here for good