Information Memorandum June 2021

Family Bank Limited Incorporated in Kenya under the Companies Act, 2015 (Registration Number 34/2007)

INFORMATION MEMORANDUM JUNE 2021

In respect of

Up to Kenya Shillings Eight Billion (KES 8,000,000,000) Subordinated Multicurrency Medium Term Note Programme INFORMATION MEMORANDUM, JUNE 2021

Lead Arranger and Placing Agent Co-arranger and Co-placing Agent

Reporting Accountants Legal Advisors

Receiving Bank Registrar

Note Trustee Media & Public Relations

INFORMATION MEMORANDUM, JUNE 2021

This Information Memorandum has been approved by the Board of Directors of Family Bank Limited who hereby declare that to the best of their knowledge, the information contained in this Information Memorandum relating to the company’s financial position, operations and future prospects is true and fair and that in the event that the said information changes, based on the prevailing circumstances of the company, a supplemental disclosure document shall be submitted to the Authority for approval.

This Information Memorandum has been issued in compliance with the requirements of the Capital Markets Act (cap 485A), the Capital Markets (Securities) (Public Offers, Listing And Disclosures) Regulations, 2002, the rules of the Nairobi Securities Exchange Limited and the Companies Act, 2015.

……………………………………… ……………………………………… Dr. Wilfred Kiboro Ms. Rebecca Mbithi Chairman Managing Director & Chief Executive Officer INFORMATION MEMORANDUM, JUNE 2021

Mission

“We positively transform people’s lives by providing quality ﬁnancial services through innovative, efﬁcient and reputable practices.”

Our Corporate Values Vision

 Winning Together “To be the ﬁnancial institution  Self Belief that leads in the positive  Transparency transformation of people’s  Humility lives in Africa.” INFORMATION MEMORANDUM, JUNE 2021

TABLE OF CONTENTS

1 Preface 5 2 Disclaimer and Statements 6 3 Caution Statement 7 4 Documents Incorporated by Reference 8 5 Selling Restrictions 9 6 Corporate Information 10 6.1 List of Contacts 10 6.2 Board of Directors of the Issuer 10 6.3 Other Corporate Information 10 6.4 Transaction Advisors 10 7 Definitions and Abbreviations 13 - 15 8 Summary of the notes 16 8.1 Summary of the Issue 16 8.2 Use of Proceeds 18 8.3 Timetable 18 8.4 Frequently Asked Questions 18 9 Key Investment Considerations 20 9.1 Track Record of Growth 20 9.2 Key Partnerships 21 9.3 Liquidity 21 9.4 Diversification of Asset Classes 21 9.5 Long-standing Heritage 21 9.6 Competent Board and Senior Management 22 9.7 Low Leverage Levels 22 9.8 Wide Geographic Coverage 22 9.9 Innovative Service Delivery 22 10 Terms and Conditions of the Note 23 - 31 11 Economic Outlook and Overview of the Kenyan Banking Sector 32 11.1 Kenya Economic Performance 32 11.1.1 Kenya Economy Outlook 32 11.1.2 Macro-Economic Overview 32 11.2 Kenyan Banking Sector Overview 36 11.2.1 Industry Structure 36 11.2.2 Asset Base 37 11.2.3 Market Share 38 11.2.4 Industry Performance 38 11.2.5 Recent Developments 41 11.2.6 Future Outlook 41 12 Family Bank Limited Business Overview 42 12.1 History and Background 42 12.2 Key Milestones 43 12.3 Accolades 43 12.4 Branch Network 44 12.5 Products and Services 45 12.5.1 Personal Banking 45 12.5.2 Diaspora Banking 46

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12.5.3 Business Banking 46 12.5.4 Treasury Services 47 12.5.5 Mortgages 48 12.5.6 Bancassurance 48 12.5.7 Digital Financial Products 49 12.6 Organisation Structure 49 12.7 Employees 49 12.8 Board of Directors 50 12.9 Senior Management 53 12.10 Competence and Suitability of Directors and Management 56 12.11 Corporate Governance 56 12.11.1 Board Committees 56 12.11.2 Board of Directors Meetings Attendance 57 12.11.3 Shareholding Structure 58 12.12 Subsidiaries 58 12.12.1 Family Bank Insurance Agency Limited 58 12.12.2 Family Group Foundation 59 12.12.3 Family Bank (Kenya) Limited 59 12.12.4 Pesa Pap Digital Limited 59 12.13 Strategy and Prospects 59 13 Group Financial Performance and Statutory Ratios 61 13.1 Consolidated Statement of Profit or Loss 61 13.2 Consolidated Statement of Financial Position 62 13.3 Prudential Ratios 63 14 Risk Factors 64 14.1 Risks Relating to the Bank 64 14.1.1 Credit Risk 64 14.1.2 Liquidity Risk 65 14.1.3 Market Risk 66 14.1.4 Operational Risk 67 14.1.5 Compliance Risk 67 14.1.6 Reputational Risk 68 14.1.7 Strategic Risk 68 14.1.8 Regulatory Risk 69 14.1.9 Political Risk 70 14.2 Risks Relating to the Notes Generally 70 14.2.1 Modification, Waivers and Substitution 70 14.2.2 Legal Investment Considerations May Restrict Certain Investments 70 15 Taxation 71 15.1 Tax Considerations 71 15.1.1 Interest Payments 71 15.1.2 Stamp Duty 71 15.1.3 Tax Treaties 71 16 Subscription and Sale 72 16.1 Application Procedure 72 16.2 Payment for Notes and Delivery 72 16.3 Secondary Market Trading of the Notes 72

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17 Legal Information and Contracts 73 17.1 Principal objects (as contained in the Memorandum of Association) 73 17.2 Provisions of the Articles 73 17.3 Authorised and Issued Share capital 76 17.4 Material Agreements (material contracts to which Family Bank is a party) 76 17.5 Related Party Agreements (loan agreements with subsidiaries, etc. with details on amounts, purpose, interest rates, etc.) 77 17.6 Loan/Finance Agreements 77 17.7 Other Contracts 78 17.8 Licenses and Permits 78 17.9 Material Litigation and Disputes 78 17.10 Property and information on Vendors on materials assets acquired in the last five years 78 17.11 Expenses of the offer 79 17.12 Directors declaration 79 17.13 Directors statement as to funding for payment obligations 79 17.14 Directors statement as to liquidity requirement 79 17.15 General Information 79 17.15.1 Documents Available for Inspection 79 17.15.2 Changes in Senior Management 80 17.15.3 Voting Rights and Control 80 17.15.4 Directors’ Interest 80 17.15.5 Minimum Subscription Level 80 17.15.6 Application Procedure 80 17.15.7 Secondary Market Trading of the Notes 80 17.15.8 Material Changes in the business 80 17.15.9 Material Change in the Financial Information 80 17.15.10 Principal Investments 80 17.15.11 Dealing with Shareholders 81 17.15.12 Other Issues 81 18 Appendix Appendix A: Accountants Report 82 Appendix B: Legal Opinion 193

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LIST OF TABLES Table 1: Family Bank Historical Performance (Total Income and Profit before Tax) 20 Table 2: Family Bank Historical Performance (Total Assets, Customer Deposits, Shareholders Funds and Loans and Advances) 21 Table 3: Number of Branches per County 37 Table 4: Family Bank Branch Network 44 Table 5: Family Bank Employees 49 Table 6: Family Bank Board of Directors 50 Table 7: Family Bank Senior Management 53 Table 8: Board of Directors Meeting Attendance during FY 2020 57 Table 9: Major Shareholders 58 Table 10: Change in Major Shareholders 58

TABLE OF FIGURES Figure 1: Family Bank Leverage Levels 22 Figure 2: Eastern Africa Countries Annual GDP Growth 32 Figure 3: Kenya 12-Month Inflation 33 Figure 4: Kenya Treasury Bill Rates 33 Figure 5: Kenya Interest Rates 34 Figure 6: Yield Curve 34 Figure 7: USD/KES Exchange Rate 35 Figure 8: Kenya Government Debt, Current Account and Budget Deficit 36 Figure 9: Kenya Banking Industry 36 Figure 10: Kenya Banking Industry Market Snapshot 38 Figure 11: Loan Distribution by Sector (KES Billion) 39 Figure 12: Banking Industry Proportion of NPL to Gross Loans 39 Figure 13: Composition of Gross Income 40 Figure 14: Composition of Gross Expenses 40 Figure 15: Family Bank’s High-Level Organisation Structure 49

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1 Preface

Under this Medium Term Note programme (the “Programme”), the Issuer may, from time to time, issue debt securities (the “Notes”). The Notes will rank as subordinated obligations of the Issuer. The aggregate principal amount of Notes outstanding will not at any time exceed Kenya Shillings Eight Billion (“KES 8,000,000,000”) at the date of issue. It is proposed that the Issue will be in tranches, with the first tranche of Kenya Shillings Four Billion (“KES 4,000,000,000”) being issued in 2021 and the balance within the next five years in various tranches/series.

Interest on the Notes of a particular series shall be calculated and paid as per the Terms and Conditions of the Notes as outlined in the relevant Pricing Supplement.

The Notes, unless previously redeemed, will be redeemed in full in accordance with the provisions of the relevant Pricing Supplement.

The Notes will be issued as Dematerialized Notes in denominations of KES 100,000 and in integral multiples of KES 100,000 in excess thereof, subject to a minimum subscription amount of KES 100,000. The Notes shall rank as specified in the Summary of the Programme and as specified under the Terms and Conditions of the Notes.

The register of Noteholders will be maintained by Family Bank as Fiscal Agent and Registrar (the “Issue and Paying Agent, Calculation Agent and Registrar”).

The sale or transfer of Notes by Noteholders will be subject to the rules of the Nairobi Securities Exchange (“NSE”), and where applicable, the prevailing CDSC Rules and the Terms and Conditions of the Notes. There are currently no other restrictions on the sale or transfer of Notes under Kenyan law. In particular, there are no restrictions on the sale or transfer of Notes by or to non-residents of Kenya.

The Notes have not been and will not be registered under any other securities legislation in any other country other than Kenya.

A copy of this Information Memorandum has been filed with the Registrar of Companies in Nairobi.

The Notes to be issued under the Programme shall be placed with investors and thereafter be available for secondary trading on the Fixed Income Securities Market Segment (FISMS) of the NSE.

Applications for participation shall be processed through the Placing Agents, details of whom are provided in this Information Memorandum (under the section headed “Subscription and Sale”). The Notes may not be offered or sold, directly or indirectly, and neither this document nor any other offering material or other information relating to the Issuer or the Notes may be issued, distributed or published in any country or jurisdiction, except under circumstances that will result in compliance with all applicable laws, orders, rules and regulations of that country or jurisdiction.

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2 Disclaimer and Statements

1. The Issuer, having made all reasonable enquiries, confirms that this Information Memorandum contains all information concerning itself and the Notes to be issued by it which is material in the context of the programme. The Issuer further confirms that the information contained in this Information Memorandum is true and accurate in all material respects and is not misleading, that the intentions and opinions expressed in this Information Memorandum are held, and that there are no other facts the omission of which would make any such information or the expression of any such opinions or intentions misleading in any material respect. 2. The Issuer has given an undertaking to the Mandated Lead Arrangers that if at any time during the duration of the programme there is a significant new factor, material mistake or inaccuracy relating to information contained in this Information Memorandum which is capable of affecting the assessment of the Notes and whose inclusion in or removal from this Information Memorandum is necessary for the purpose of allowing an investor to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer, and the rights attaching to the Notes, the Issuer shall prepare an amendment or supplement to this Information Memorandum or publish a replacement Information Memorandum and shall file such amendment, supplement or replacement Information Memorandum with the Nairobi Securities Exchange (NSE) and shall supply to the Placing Agents, the Note Trustee and the NSE such number of copies of such supplement hereto as the Placing Agents, the Note Trustee and the NSE may reasonably request. 3. Neither this Information Memorandum nor any other information supplied in connection with the programme is intended to provide the complete basis of any credit or other evaluation, nor should it be considered as a recommendation by the Mandated Lead Arrangers and Placing Agents that any recipient of this Information Memorandum or any other information supplied in connection with the Programme should purchase any Notes. Each investor contemplating purchasing any Notes should make his/ her independent investigation of the financial condition and affairs, and his/ her own appraisal of the creditworthiness of the Issuer. Neither this Information Memorandum nor any other information supplied in connection with the Programme constitutes an offer or invitation to any person by or on behalf of the Mandated Lead Arrangers and Placing Agents to subscribe for or to purchase any Notes. 4. The Central Bank of Kenya has given a letter of no objection for establishing the Programme by the Issuer. As a matter of policy, the Central Bank of Kenya does not assume responsibility for the accuracy of any statements, opinions, reports or recommendations made in this Information Memorandum. Approval by the Central Bank of Kenya of the Programme should not be taken as an indication of the Issuer’s or the Notes’ merit. 5. Application has been made to the Capital Markets Authority (the CMA) for approval of this Information Memorandum and listing of the securities on the Fixed Income Securities Market Segment (FISMS) at the NSE and the CMA has granted the approval. As a matter of policy, the CMA does not assume responsibility for the accuracy of any of the statements made or opinions or reports expressed or referred to in this Information Memorandum. Approval by the CMA of the Programme and/or listing should not be taken as an indication of the Issuer’s or the Notes’ merit. 6. The NSE has no objection to the Issuer listing the Notes on the NSE. The NSE assumes no responsibility for the accuracy of the statements made or opinions or reports expressed or referred to in this Information Memorandum. Admission by the NSE of the Notes on the FISMS should therefore not be taken as an indication of the merits of the Issuer or the Notes. 7. The Placing Agents have relied on information provided by the Issuer and, accordingly, do not provide assurance for the accuracy or completeness of the information contained in this Information Memorandum and therefore do not accept any liability or responsibility in relation to information contained in the Information Memorandum. 8. The delivery of this Information Memorandum does not, at any time, imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the programme is correct as of any time subsequent to the date indicated in the document containing the same.

No person has been authorised to give any information or make any representation other than that contained in this Information Memorandum and, if given or made, such information or representation should not be relied upon as having been authorised by or on behalf of the Issuer.

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3 Caution Statement

A copy of this Information Memorandum has been delivered to the CMA for approval, and approval has been granted.

The Directors of the Issuer, whose names appear on section 6.2 and section 12.8 of this Information Memorandum, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with facts and does not omit anything likely to affect the import of such information.

Prospective investors should carefully consider the matters set forth under the Section “Risk Factors” in section 14.

This Information Memorandum has been drawn up in compliance with the requirements of the Kenyan statutes and regulations and particularly in accordance with the regulations and requirements of the CMA and the NSE.

This document is important and requires your attention. If you are in any doubt about the meaning of any information contained in this Information Memorandum or what action to take, consult with your investment, legal and tax advisors.

The distribution of this Information Memorandum and the offering or sale of the Medium Term Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Information Memorandum comes are required by the Issuer, the Placing Agents and the Mandated Lead Arrangers to inform themselves about and to observe any such restrictions. The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”). Notes may not be offered, sold or delivered within the United States or to US persons. For a description of certain restrictions on offers and sales of the Medium Term Notes and on the distribution of this Information Memorandum, see “Subscription and Sale” under Section 16.

This Information Memorandum does not constitute an offer of, or an invitation by or on behalf of the Issuer or the Placing Agents to subscribe for, or purchase any Notes under the Multicurrency Medium Term Note Programme.

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4 Documents Incorporated by Reference

This Information Memorandum should be read and construed in conjunction with:

1. All supplements to this Information Memorandum circulated by the Issuer from time to time in accordance with the undertakings given by the Issuer in the Trust Deed and as further described in the second paragraph in the section headed Disclaimers and Statement; 2. Each Pricing Supplement relating to a Series or Tranche of Notes issued under this Information Memorandum; and 3. The audited annual financial statements (and Notes thereto) and any un-audited interim financial statements published subsequent to such annual financial statements of the Issuer for the five financial years prior to each issue of Notes under this Issue.

Legal Advisor’s Opinion Mboya, Wangong’u & Waiyaki Advocates, the Legal Advisors to the Issuer, have given and not withdrawn their written consent to the inclusion in this Information Memorandum of their legal opinion and the references to their names in the form and context in which they appear and have authorized the contents of their letter set out in Appendix B of this Information Memorandum.

Reporting Accountants’ Report This Information Memorandum contains a statement from PricewaterhouseCoopers LLP, the Reporting Accountants, which constitutes a statement made by an expert in terms of Section 42(1) of the Companies Act and have not withdrawn their consent to the issue of the said statement in the form and context in which it is included in Appendix A of this Information Memorandum.

External Auditor’s Declaration PricewaterhouseCoopers LLP have been appointed by Family Bank Limited to review the Accountant’s report and has declared that nothing has come to their attention that causes them to believe that the historical financial information of the Group for the years ended 31 December 2018, 2019 and 2020 has not been properly prepared in accordance with the basis of preparation explained in section 2 of the Accountants report, and that in their opinion, the projected financial statements have been properly compiled on the basis of the assumptions set out in Section 6 of the Accountant’s report and the basis of accounting used is consistent with the accounting policies of the Group.

Note Trustee’s Declaration MTC Trust and Corporate Services has been appointed by Family Bank Limited to act as Note Trustee to the Medium Term Note Programme and has declared that they understand the responsibilities of the office of Note Trustee as contained in the Trust Deed and that they are independent from and in no way affiliated to Family Bank Limited or any other party to the Notes.

Chief Financial Officer’s Declaration The Family Bank Limited Chief Financial Officer responsible for the preparation of the financial statements has declared that the financial statements contained in this Information Memorandum are true and fair to the best of their knowledge and that what is deponed herein is true to the best of their knowledge, information and belief.

Internal Auditor’s Declaration The Family Bank Limited Internal Auditor responsible for the internal audit of the financial statements has declared that the financial statements contained in this Information Memorandum are true and fair to the best of their knowledge and that what is deponed herein is true to the best of their knowledge, information and belief.

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5 Selling Restrictions

(A) General: The Placing Agents will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes or has in its possession or distributes this Information Memorandum or any such other material, in all cases at its own expense. It will also ensure that no obligations are imposed on the Issuer or any other Placing Agent in any such jurisdiction as a result of any of the foregoing actions. The Issuer and the Placing Agents will have no responsibility for, and each Placing Agent will obtain any consent, approval or permission required by it for, the acquisition, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it makes any acquisition, offer, sale or delivery. No Placing Agent is authorised to make any representation or use any information in connection with the issue, subscription and sale of Notes other than as contained in this Information Memorandum.

(B) The approval of the Capital Markets Authority has been obtained for the Notes’ issue and offering in Kenya. The sale or transfer of listed Notes by Noteholders will be subject to the rules of the Nairobi Securities Exchange, the Central Depository and Settlement Corporation (CDSC), and the provisions of the Agency Agreement. There are no other restrictions on the sale or transfer of Notes under Kenyan law. In particular, there are no restrictions on the sale or transfer of Notes by or to non-residents.

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6 Corporate Information

6.1 List of Contacts Family Bank Limited 8th Floor, Family Bank Towers, Muindi Mbingu Street, P.O. Box 74145 – 00200 Nairobi Tel: +254 703 095 445 / 703 095 000 Email: [email protected] Website: www.familybank.co.ke

Ms. Rebecca Mbithi Mr. Eric K. Murai Mr. Stephen K. Ngugi Managing Director & Chief Executive Company Secretary & Chief Legal Chief Finance Officer officer Officer Family Bank Limited Family Bank Limited Family Bank Limited E: [email protected] E: [email protected] E: [email protected]

6.2 Board of Directors of the Issuer Name Position Nationality Address Dr. Wilfred D. Kiboro, EBS Chairman (Non-Executive, Kenyan P.O. Box 74145- 00200 Nairobi Independent) Dr. Ruth Waweru Vice-Chairperson ( Non-Executive) Kenyan P.O. Box 74145- 00200 Nairobi Mr. Titus K. Muya Director (Non-Executive) Kenyan P.O. Box 74145- 00200 Nairobi Arch. Francis Gitau Mungai Director (Non-Executive) Kenyan P.O. Box 74145- 00200 Nairobi Mr. Lerionka S. Tiampati, Director (Non-Executive) Kenyan P.O. Box 74145- 00200 Nairobi MBS Mr. Lazarus Muema Director (Non-Executive, Kenyan P.O. Box 74145- 00200 Nairobi Independent) Ms. Mary Njeri Mburu Director (Non-Executive, Kenyan P.O. Box 74145- 00200 Nairobi Independent) Ms. Rebecca Mbithi Managing Director and Chief Kenyan P.O. Box 74145- 00200 Nairobi Executive Officer Mr. Eric K. Murai Company Secretary and Chief Legal Kenyan P.O. Box 74145- 00200 Nairobi Officer

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6.3 Other Corporate Information Company Secretary Eric K. Murai Company Secretary & Chief Legal Officer 8th Floor, Family Bank Towers, Muindi Mbingu Street P.O. Box 74145 -00200 Nairobi Registered Office Family Bank Limited 8th Floor, Family Bank Towers, Muindi Mbingu Street P.O.Box 74145- 00200 Nairobi, Kenya Financial Calendar Financial Year End – 31st December Auditor PricewaterhouseCoopers LLP Certified Public Accountants (Kenya) PwC Tower, Waiyaki Way/Chiromo Road, Westlands, P.O. Box 43963 – 00100 Nairobi, Kenya Share Registrars The Share Registrar Family Bank Limited 8th Floor, Family Bank Towers, Muindi Mbingu Street P.O. Box 74145-0200 Nairobi, Kenya

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6.4 Transaction Advisors Lead Arranger and Placing Agent Co-arranger and Co-placing Agent NCBA Investment Bank Limited Genghis Capital Limited NCBA Annex 1st Floor, Purshottam Place, Westlands Road Westlands Hospital Road P.O. Box 9959-00100, P.O. Box 44599 – 00100 Nairobi, Kenya Nairobi, Kenya Tel: +254 730 145 000 / +254 709 185 000 Tel: +254 20 2884604 Contact: Geoffrey Gangla, CFA Mobile: +254 732 156604/+254 711 056604 Email: [email protected] Contact: Maurice Opiyo Email: [email protected]

Receiving Bank Legal Advisor Family Bank Limited Mboya Wangong’u & Waiyaki Advocates 8th Floor, Family Bank Towers, Lex Chambers, Maji Mazuri Road Muindi Mbingu Street, Off James Gichuru Road, Lavington P.O. Box 74145 – 00200 P.O. Box 74041-00200 Nairobi, Kenya Nairobi, Kenya Tel: +254 703 095 445 / 703 095 000 Tel: +254 20 2160312/3 Contact: Stephen K. Ngugi Fax: +254 20 2160312 Email: [email protected] Contact: Godwin Wangong’u Email: [email protected]

Reporting Accountant Registrar PricewaterhouseCoopers LLP Family Bank Limited Certified Public Accountants (Kenya) 8th Floor, Family Bank Towers PwC Tower, Waiyaki Way/Chiromo Road, Westlands, Muindi Mbingu Street P.O. Box 43963 – 00100 P.O. Box 74145 – 00200 Nairobi, Kenya Nairobi, Kenya Tel: +254 (20) 285 5000 Tel: +254 (20) 3252000 / 703 095 811 Contact: Richard Njoroge Fax: +254 (20) 2318174 Email: [email protected] Contact: Lawrence Kanyari Email: [email protected]

Note Trustee Public Relations MTC Trust and Corporate Services Limited Tim-Sky Media Services Limited Delta, Block 4, Riverside Drive Daykio Plaza 3rd Floor, Ngong Lane, Off Ngong Rd P.O. Box 1071 – 00200 P.O. Box 73253 – 00200 Nairobi, Kenya Nairobi, Kenya Tel: +254 20 256 6667 Tel: +(254) 202628361 +(254) 723859690 Contact: Robert Turmel Contact: Beverlyn Naliaka/Kamuzu Banda Email: [email protected] Email: [email protected] [email protected]

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7 Definitions and Abbreviations

Unless otherwise stated and as the context allows, the words in the first column have the meaning stated opposite them in the second column, throughout this Information Memorandum, its appendices and enclosures. Words in the singular include the plural and vice versa, words signifying one gender include the other gender and references to a person include references to juristic persons and associations of persons:

Subject Definition Agency Agreement means the agreement pursuant to which (a) the Issuer covenants and agrees to perform the functions of the Note Agents as set out in the Agency Agreement and (b) the Note Trustee appoints the Issuer to be the Note Agent upon the occurrence of an Event of Default and any other agreement for the time being in force appointing Successor Note Agents, together with any agreement for the time being in force amending or modifying any such agreements. Applicable Laws means any laws or regulations (including any foreign exchange rules or regulations) of any governmental or other regulatory authority which may govern the Issue, the Conditions of the Notes and the Notes issued thereunder in accordance with which the same are to be construed. Appointee means any delegate or agent appointed pursuant to the provisions of the Trust Deed. Authorised Officer means the Chief Executive Officer of the Issuer (or any other legal representative of the Issuer acting on its behalf as agreed in advance with the Note Trustee or as authorised by the Issuer’s board of directors and notified to the Note Trustee as being an Authorised Officer pursuant to Clause5.10 of the Trust Deed). Banking Act means the Banking Act (Chapter 488 of the Laws of Kenya). Books closed period means the period which is ten days prior to each Interest Payment Date until the redemption in full of the Notes. Business Day means a day which is (i) a business day within the meaning of the NSE Listing Rules, and (ii) (for the purposes of payment or calculation of Interest) a date on which banks are open for general business in Kenya. Calculation Agent means the person at its Specified Office appointed or acting as Calculation Agent pursuant to the Agency Agreement and the Conditions and/or, if applicable, any Successor Calculation Agent at its Specified Office. Capital Markets Authority means the Capital Markets Authority set up pursuant to the provisions of Capital Markets or CMA Act (Chapter 485A of the Laws of Kenya). CDS Account means an account opened and maintained with a Central Depository in accordance with the Central Depositories Act (Act 4 of 2000) and the rules and regulations issued thereunder. CDSC means the Central Depository and Settlement Corporation CDSC Rules means the operational and procedural rules issued or to be issued by the CDSC with respect to the operation of CDS Accounts and trading in immobilised securities. Companies Act means the Companies Act, 2015. Conditions means the terms and Conditions to be endorsed on the dematerialized Notes as set out in Schedule 1 (Terms and Conditions of the Notes) of the Trust Deed and Section 10 of this Information Memorandum. Default Rate means the default rate of interest to be charged for late payment as specified in the relevant Pricing Supplement. Dematerialised Note means Notes issued in electronic form within the meaning of dematerialised security as defined in the Central Depositories Act (Act 4 of 2000) Directors or Board means the directors of the Issuer whose names are set out under the heading Board of Directors in Section 12.8 of this Information Memorandum.

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Enforcement Notice means a notice issued by the Note Trustee to the Issuer declaring all amounts payable under the Notes to be immediately due and repayable; demanding that the Issuer immediately repay the outstanding principal amount of the Notes (together with all accrued interest thereon). Event of Default means any one of the circumstances described in Condition 11. (Events of Default) Extraordinary Resolution has the meaning set out in Schedule 2 (Regulations for Meetings of Noteholders) of the Trust Deed. Fixed-Rate Note means a Note in respect of which interest is to be calculated and paid on a fixed rate basis as provided in Condition 6.2.1 and the relevant Pricing Supplement. Floating Rate Note means a Note in respect of which interest is to be calculated and paid on a floating rate basis as provided in Condition 6.2.2 and the relevant Pricing Supplement. Group means Family Bank Limited and its subsidiaries. Interest means the amount of interest payable in respect of each Principal Amount of the Notes as determined in accordance with Section 10, Condition 6 (Interest). Interest Determination means the date on which the Floating Rate Notes Rate of Interest or the Fixed Rate Notes Date Rate of Interest is determined by the Calculation Agent in accordance with Condition 6.4. Interest Rate means either the Floating Rate Notes Rate of Interest or the Fixed Rate Notes Rate of Interest or any other rate determined in accordance with Condition 6.2. Issue means Subordinated Multicurrency Notes to be issued under the Medium Term Programme and in an aggregate amount of Kenya Shillings Eight billion (KES 8,000,000,000), or the equivalent in other currencies at the date of issue. Issue Date means the date upon which the relevant Tranche of the Notes is issued and as provided in the summary of the Notes. Issue and Paying Agent means the person at its Specified Office appointed or acting as Issue and Paying Agent pursuant to the terms and conditions of the Agency Agreement or, if applicable, any Successor Issue and Paying Agent at its Specified Office. Issue Price means the price at which the Notes are issued by the Issuer (being, at the election of the Issuer, at par or at a discount to, or premium over their nominal amount as specified in the relevant Pricing Supplement). Issuer means Family Bank Limited or the Company or Family Bank. Kenya means the Republic of Kenya and “Kenyan” shall be construed accordingly. KES means Kenya Shillings. Last Day to Register means 1700 hours Nairobi time on the last Business Day before the first day of a Books Closed Period. Liabilities or Liability means any loss, damage, cost, charge, claim, demand, expense, judgment, action, proceeding or other liability whatsoever (including, without limitation, in respect of taxes, duties, levies, imposts and other charges) and including any value-added tax or similar tax charged or chargeable in respect thereof and legal fees and expenses on a full indemnity basis. Note Agent means the Issue and Paying Agent, the Calculation Agent, the Registrar, the Transfer Agent or any of them and their respective Successors from time to time. Note Documents means the Trust Deed and the Agency Agreement. Noteholder and (in relation to a Note) “holder” means a person in whose name a Note is registered in the Register as at the relevant date or, in the case of joint holders, the first-named thereof. Notes means the notes comprising the KES 8,000,000,000 Floating Rate and Fixed Rate Notes issued pursuant to the Agency Agreement and subject to the provisions of the Trust Deed. NSE means Nairobi Securities Exchange.

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Payment Account means the account (if any) in the name of the Issuer and held with any Issue and Paying Agent appointed in accordance with the Agency Agreement for the purpose of making payments to the Noteholders in accordance with Clause 6 of the Agency Agreement (Payments to Noteholders). Placing Agent means NCBA Investment Bank Limited, Genghis Capital Limited or such other agent that may be appointed as a placing agent. Principal Amount means the nominal amount of each Note endorsed on the Notes in respect of that Note. Pricing Supplement means, in relation to a tranche, a pricing supplement supplemental to the Information Memorandum issued for the purpose of specifying the relevant issue details of such tranche. Prudential Guidelines means the Prudential Guidelines for banking institutions licensed under the Banking Act (Chapter 488 of the Laws of Kenya) issued by the Central Bank of Kenya pursuant to the provisions of the said Act Register means the register of Noteholders, which the Issuer will maintain or will procure to be maintained by the Registrar at its Specified Office in accordance with the Conditions and the Agency Agreement. Registrar means the person at its Specified Office appointed or acting as registrar pursuant to the Conditions and the Agency Agreement or, if applicable, any Successor Registrar at its Specified Office. Relevant Authorities means the Central Bank of Kenya, Capital Market Authority and Nairobi Securities Exchange Series means, in relation to those Notes of that Tranche that are issued on the same issue date, issue price and in respect of which, the first interest payment date is identical and which may otherwise have differing terms as stipulated in the relevant Pricing Supplement. Senior Creditors means all such persons who are unsubordinated creditors of the Issue. Specified Office means, in relation to any Note Agent, either the office identified with its name in the Conditions or any other office notified to any relevant parties pursuant to the Agency Agreement. Subordinated Notes means the Notes issued with the status and other conditions set out in the Terms and Conditions and “Subordinated Note” shall be construed accordingly. Successor means, in relation to the Note Agent, such other or further person, as may from time to time be appointed pursuant to the Conditions and the Agency Agreement as a Note Agent. Tranche means a series of Notes comprising one or more Series, that (except in respect of the first interest payment date and their issue price) have the identical terms of issue and are expressed to have the same Tranche number. Details applicable to each Tranche will be specified in the relevant Pricing Supplement. Transfer Agent means the person at its Specified Offices appointed or acting as Transfer Agent pursuant to the Conditions and the Agency Agreement or, if applicable, any Successor Transfer Agent at its Specified Office. USD means United States Dollar. Written Resolution means a resolution in writing signed by or on behalf of holders of Notes who for the time being are entitled to receive notice of a meeting in accordance with the provisions of this Trust Deed and who together hold not less than three-quarters in value of the principal amount of the Notes then outstanding whether contained in one document or several documents in like form, each signed by or on behalf of one.

Family Bank is regulated by the Central Bank of Kenya 15 INFORMATION MEMORANDUM, JUNE 2021

8 Summary of the notes

8.1 Summary of the Issue The following overview is qualified in its entirety by the remainder of this Information Memorandum. Capitalised expressions used below in this overview have the definitions ascribed to them in the Terms and Conditions of the Subordinated Multicurrency Medium Term Notes unless otherwise defined in this Information Memorandum.

1. Issuer or Company: Family Bank Limited 2. Description: Subordinated Multicurrency Medium Term Note (“MTN”) Programme under which Fixed Rate Notes and Floating Rate Notes may be issued. 3. Programme Size: Up to KES 8,000,000,000 or the equivalent in other currencies at the date of issue, aggregate nominal amount of Notes outstanding at any one time. The Issuer may increase the amount of the Programme in accordance with the terms of the Placing Agreement. 4. Minimum Subscription As specified in the Relevant Pricing Supplement. Amount: 5. Currency: The Notes will be denominated in Kenya Shillings (“KES”) or in other currency as otherwise stated in the relevant pricing supplement. Subject to any applicable legal or regulatory requirements, such currencies as may be agreed between the Issuer and the Arrangers, including, without limitation, US dollars, Euro or any other freely transferable and freely convertible currency (each such currency being a “Specified Currency”). 6. Mandated Lead NCBA Investment Bank Ltd and Genghis Capital Ltd. Arrangers: 7. Placement Agents: NCBA Investment Bank Ltd and Genghis Capital Ltd. 8. Issue and Paying Agent, Family Bank Limited Calculation Agent and Registrar: 9. Note Trustee: MTC Trust and Corporate Services Limited 10. Legal Counsel: Mboya Wangong’u & Waiyaki Advocates. 11. Reporting Accountants/ PricewaterhouseCoopers LLP (PwC) Auditor: 12. Method of Issue/ The methods of distribution include, on a syndicated or non-syndicated basis, Distribution: reverse inquiries, by way of public offers, privately placed and listing by introduction or on a continuous tap issues/auctions. The Notes will be issued in series (each a “Series”) having one or more issue dates and on terms otherwise identical (or identical other than in respect of the first payment of interest, issue price, currency denomination and interest rate), the Notes of each Series being intended to be interchangeable with all other Notes of that Series. Each Series may be issued in tranches (each a “Tranche”) on the same or different issue dates. The specific terms of each Tranche (which will be completed, where necessary, with the relevant terms and conditions and, save in respect of the issue date, issue price, interest rate, first payment of interest and nominal amount of the Tranche, will be identical to the terms of other Tranches of the same Series) will be completed in the pricing supplement (the “Pricing Supplement”). 13. Issue Price: Notes may be issued on a fully paid basis at their nominal amount or at a discount or premium to their nominal amount. 14. Form of the Notes: The Notes will be issued in book-entry form as Dematerialized security. 15. Initial Delivery of the The Notes will be uploaded into the CDS accounts on the Issue Date. Notes:

16 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

16. Maturities: Unless otherwise permitted by the then current laws, regulations and directives, Subordinated Multicurrency Notes will have a maturity of not less than five years. 17. Specified Denomination: The Notes will be issued as Dematerialized Notes in denominations of KES 100,000 or in Kenya Shilling equivalent and integral multiples of KES 100,000 or in Kenya Shilling equivalent in excess thereof, subject to a minimum subscription amount of KES 100,000 or in Kenya Shilling equivalent. 18. Fixed Rate Notes: Fixed interest will be payable on the date or dates in each year specified in the relevant Pricing Supplement. 19. Floating Rate Notes: Floating Rate Notes will bear interest determined separately for each Series as follows: • by reference to 91-day, 182-day or 364-day Treasury Bill (or such other Benchmark as may be specified in the relevant Pricing Supplement) as adjusted for any applicable margin; or • In any other manner as may be specified in the relevant Pricing Supplement. 20. Other Notes: Terms applicable to any other type of Notes that the Issuer and any Placing Agent(s) may agree to issue under the Programme will be set out in the relevant Pricing Supplement. 21. Interest Periods and The length of the interest periods for the Notes and the applicable interest rate or Interest Rates: its method of calculation may differ from time to time or be constant for any Series. Notes may have a maximum interest rate, a minimum interest rate, or both. The use of interest accrual periods permits the Notes to bear interest at different rates in the same interest period. All such information will be set out in the relevant Pricing Supplement.

22. Redemption: The relevant Pricing Supplement will specify the basis for calculating the redemption amounts payable. 23. Redemption by The Pricing Supplement issued in respect of each issue of Notes that are redeemable Instalments: in two or more instalments will set out the dates on which, and the amounts in which, such Notes may be redeemed. 24. Optional Redemption: The Pricing Supplement issued in respect of each issue of Notes will state whether such Notes may be redeemed prior to their stated maturity at the option of the Issuer (either in whole or in part) and, if so, the terms applicable to such redemption. 25. Status of the Notes: The Notes will constitute direct, general, unconditional and subordinate obligations of the Issuer. 26. Use of Proceeds: • Strengthening the capital base to support growth; • Investment in IT infrastructure and new product initiatives; and • Supporting onward lending activities. 27. Allotment Policy: The issuer reserves the right, whether the Issue is oversubscribed or not, to reject any application in line with the Allotment policy set in the relevant pricing supplement. Applicants, as a result, may be allotted less than the amount applied for. Allotment will be done on a pro-rata basis on the amount applied.

Successful applicants will be notified by the Placing Agents of the amount allotted to them no later than the date and time specified in the relevant Pricing Supplement 28. Events of Default: The terms and conditions of the Notes will contain events of default provisions as set out in Terms and Conditions. 29. Taxation: All payments in respect of the Notes will be made subject to withholding or deduction for or on account of any taxes imposed within the Republic of Kenya, where such taxes are applicable.

Family Bank is regulated by the Central Bank of Kenya 17 INFORMATION MEMORANDUM, JUNE 2021

30. Listing: The Notes, if denominated in Kenya Shillings, will be listed on the Fixed Income Securities Market Segment of the Nairobi Securities Exchange. As specified in the relevant Pricing Supplement, a series of the Notes may be unlisted. 31. Rating: Tranches of Notes may be rated or unrated. Where a Tranche of Notes is rated, such rating will be specified in the relevant Pricing Supplement. Whether or not a rating in relation to any Tranche of Notes will be treated as having been issued by a credit rating agency and will be disclosed in the relevant Pricing Supplement. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. 32. Governing Law: The Notes will be governed by, and construed in accordance with Kenyan law.

8.2 Use of Proceeds The proceeds of the issue will be used for the following purposes: • Strengthening the capital base to support growth; • Investment in IT infrastructure and new product initiatives; and • Supporting onward lending activities.

8.3 Timetable EVENT DATE 1. Approvals from CMA [T] 2. Application Lists Open [T + 14] 3. Application Lists Close [T + 24] 4. Date of Allocation [T + 29] 5. Announcement Date [T + 31] 6. Settlement Date [T + 34] 7. Issue Date [T + 37] 8. Crediting of CDS Accounts [T + 40] 9. Commencement of Trading [T + 46]

8.4 Frequently Asked Questions What are “Medium-Term Note Programmes”? Medium-term note (“MTN”) Programmes enable companies to offer debt securities on a regular and/or continuous basis. As compared to other forms of debt securities, MTNs tend to have their own type of settlement procedures and marketing methods, which are similar in some respects to those of other bonds offerings . Although Medium-Term Notes typically have maturities of between two to five years, they are not required to have medium terms. It is common for companies to issue both short-term and long-term securities under an MTN Programme.

Who develops MTN programmes? The MTN programmes are developed by Investment Banks or other agency licensed by the Capital Markets Authority.

Why would a company issue a Medium Term Note Programme? Like a shelf registration statement, an MTN Programme enables a company to sell a wide range of debt securities without having to complete the CMA’s registration or review process for each issuance it might want to undertake. In addition, an MTN Programme uses a master set of disclosure documents, agreements with selling agents or dealers, and issuing and paying agency agreements to help minimize the new documentation that is needed for each offering.

What types of issuers establish MTN Programmes? MTN programmes typically are used by large companies that have an ongoing need for capital. Several financial institutions and industrial companies have an MTN Programme.

18 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

What types of securities typically are sold through Medium Term Note Programmes? Historically, the most common type of security issued under an MTN Programme is a fixed-rate, non-redeemable debt security. However, MTN Programmes typically include other types of debt securities, including floating rate, zero coupon, amortizing, multi-currency, subordinated, or indexed securities. A common reference rate for floating rate securities issued under MTN Programmes is the Treasury Bill Rates.

What types of offerings are completed using MTN Programmes? In light of the convenience offered by shelf registration and MTN Programmes, issuers use MTN Programmes: to effect small and medium-sized offerings of debt securities to investors that seek specific terms (known as “reverse inquiry” trades); to effect large syndicated offerings of debt securities that might, in the absence of an MTN Programme, be offered through a shelf-takedown; to offer structured Notes, such as equity-linked, currency-linked, and commodity-linked securities among others.

What offering documents are used in an MTN Programme? The issuer’s registration statement for an MTN Programme typically consists of: a “universal” shelf registration statement for debt and other securities; or a shelf registration statement providing only for debt securities; or an Information Memorandum about the MTN Programme itself; Preliminary and Final Pricing Supplement, product supplement and press releases.

Are Medium-Term Notes sold on a firm commitment basis or a best efforts basis? It varies. The arranger’s obligation is to sell the MTN securities on a “best efforts” basis. In addition, large syndicated MTN offerings often are effected on a firm commitment basis.

What is the role of the arranger of an MTN Programme? The arranger of an MTN Programme serves a variety of roles, including: serving as principal selling agent for the MTN securities; advising the issuer as to potential financing opportunities in the MTN market; communicating to the issuer any offers from potential investors to buy MTNs; advising the issuer as to the form and content of the offering documents, including the types of securities to be included; helping the issuer draft the offering documents and related Programme agreements; coordinating settlement of the MTN securities with the issuer, the trustee, and the paying agent; and making a market in the issued and outstanding securities issued under the Programme should there exist such a need.

What types of interest payments are available? MTNs are issued with various interest payment schedules that range from traditional semi-annual payments to custom- tailored frequencies such as monthly, semi-annually or compounded at maturity.

What is disclosed in a “Pricing Supplement” for a MTN offering? For a simple debt security, the information required in the Pricing Supplement is nominal. The Pricing Supplement will include the final terms of the offering, such as: the title of the securities, the issue date, the maturity date, the interest rate, the redemption dates if any, the underwriter or selling agent and the selling agents’ compensation for the offering.

What are the tax implications of investing in MTN’s? As with all fixed income securities, investors are responsible for declaring all interest payments received from an investment in MTN’s.

Can I obtain physical certificates for my MTN investment? No. The MTN will be issued in a dematerialized form. As such there will be no physical Note Certificate.

Family Bank is regulated by the Central Bank of Kenya 19 INFORMATION MEMORANDUM, JUNE 2021

9 Key Investment Considerations

Family Bank Limited wishes to raise up to KES 8.0 billion, or the equivalent in other currencies at the date of issue, through the Programme. The company has received approval from the relevant regulatory authorities for the Issue to proceed on terms set out in this Information Memorandum. The investment considerations in the following section do not constitute a guarantee, neither are they indicative of future returns. Furthermore, they are not intended to be exhaustive and there may be other considerations, which should be taken into account in relation to an investment in the Notes. Potential investors are advised to consult with their investment, legal and tax advisors to determine the suitability of an investment in the corporate bond, and the appropriate amount, if any, of an investment of this nature.

9.1 Track Record of Growth The Bank has recorded tremendous growth in both Operating Income and Profit before Tax over the years. Interest Income continues to be the Bank’s primary revenue stream contributing on average 77% of total income, over the past five years. The onset of the interest caps in 2017, slowdown in lending, tough macro-economic conditions due to an extended electioneering period, and two presidential elections, saw the Interest Income drop by 38% in 2017. Subsequently, the Bank shrugged off a challenging operating environment in 2017 to report a compounded annual growth rate in interest income of 13.4% between 2017 and 2020.

There has also been an impressive increase in non-funded income, which has grown by a compounded annual growth rate of 4.9% over the past five financial years from KES 2.1 billion in 2017 to KES 2.6 billion in 2020. The growth is mainly 2017 to KES 2.6 billion in 2020. The growth is mainly attributed to a significant increase in foreign attributed to a significant increase in foreign exchange trading income and fees and commissions on loans and advances. exchange trading income and fees and commissions on loans and advances.

Profit beforebefore tax tax over over the the last last five five financial financial years years grew grew at compoundedat compounded annual annualgrowth rates growth of 21.3% rates fromof 2016 to 2020. Though21.3% from the Group 2016 recordedto 2020. aThough net loss theof KES Group 1.0 billion recorded in 2017, a netits resilience loss of KESwas 1.captured0 billion by in consistent 2017, its growth in the foundationalresilience was parameters captured that by give consistent assurance growth for business in the foundationalrecovery and growth parameters in 2018 that and give beyond. assurance for business recovery and growth in 2018 and beyond. Table 1: Family Bank Historical Performance (Total Income and Profit before Tax) Table 1: Family Bank Historical Performance (Total Income and Profit before Tax)

Total Income (KES Millions) Profit Before Tax (KES Millions)

10,000 2,000

8,000 2,091 2,527 1,500 2,802 6,000 2,499 2,173 1,000 4,000 7,035 6,791 1,423 1,441 5,552 711 4,380 4,773 500 2,000 665 729 1,806 435 - - 2016 2017 2018 2019 2020 Q1 2016 2017 2018 2019 2020 Q1 2021 (500) 2021 (1,358) Net Interest Income Non-interest income (1,000)

(1,500)

Source: Family Family Bank Bank Audited Audited Financial Financial Statements Statements for FY 2016 tofor FY FY 2020, 2016 Q1-2021 to FY 2020, Management Q1-2021 accounts Management and NCBA Investmentaccounts Bank Analysis and NCBA Investment Bank Analysis On the balance sheet side, the Bank has recorded impressive growth in total assets, customer deposit, shareholder funds On the balance sheet side, the Bank has recorded impressive growth in total assets, customer anddeposit, loans shareholderand advances funds over theand last loans five and financial advances years, over with theeach last financial five financial indicator years, growing wit ath eacha compounded annual growthfinancial rate indicator of 7.6%, growing 14.1%, 2.3% at a andcompounded 4.9% respectively annual during growth the periodrate of 2016 7.6%, to 1 Q1-2021.4.1%, 2.3% and 4.9% respectively during the period 2016 to Q1-2021.

Table 2: Family Bank Historical Performance (Total Assets, Customer Deposits, Shareholders Funds and Loans and Advances)

Custome Deposits (KES Millions) Total Assets (KES Millions) 80,000 100,000

94,841 72,590 80,000 90,656 60,000 69,757 20 Family Bank is regulated by the Central Bank of Kenya 78,918 58,054 60,000 69,492 69,135 67,011 40,000 47,362 48,483 41,395 40,000 20,000 20,000

- - 2016 2017 2018 2019 2020 Q1 2021 2016 2017 2018 2019 2020 Q1 2021

2017 to KES 2.6 billion in 2020. The growth is mainly attributed to a significant increase in foreign exchange trading income and fees and commissions on loans and advances.

Profit before tax over the last five financial years grew at compounded annual growth rates of 21.3% from 2016 to 2020. Though the Group recorded a net loss of KES 1.0 billion in 2017, its resilience was captured by consistent growth in the foundational parameters that give assurance for business recovery and growth in 2018 and beyond.

Table 1: Family Bank Historical Performance (Total Income and Profit before Tax)

Total Income (KES Millions) Profit Before Tax (KES Millions)

10,000 2,000

(1,500)

Source: Family Bank Audited Financial Statements for FY 2016 to FY 2020, Q1-2021 Management accounts and NCBA Investment Bank Analysis

On the balance sheet side, the Bank has recorded impressive growth in total assets, customer deposit, shareholder funds and loans and advances over the last five financial years, with each financial indicator growing at a compounded annual growthINFORMATION rate of 7.6%, MEMORANDUM,14.1%, 2.3% and JUNE 4.9% 2021 respectively during the period 2016 to Q1-2021.

Table 2: Family Bank Historical Performance (Total Assets, Customer Deposits, Shareholders Funds and Loans andTable Advances) 2: Family Bank Historical Performance (Total Assets, Customer Deposits, Shareholders Funds and Loans and Advances)

Customer Deposits (KES Millions) Total Assets (KES Millions) 80,000 100,000

94,841 72,590 80,000 90,656 60,000 69,757 78,918 58,054 60,000 69,492 69,135 67,011 40,000 47,362 48,483 41,395 40,000 20,000 20,000

- - 2016 2017 2018 2019 2020 Q1 2021 2016 2017 2018 2019 2020 Q1 2021

Shareholders Funds (KES Millions) Loans and Advances (KES Millions)

16,000 70,000 14,000 60,000 14,073 12,000 13,451 61,437 12,755 12,616 50,000 11,753 56,580 10,000 11,581 50,594 40,000 50,164 8,000 43,472 44,113 6,000 30,000 4,000 20,000 2,000 10,000 - - 2016 2017 2018 2019 2020 Q1 2016 2017 2018 2019 2020 Q1 2021 2021

Source: Family Bank Audited Financial Statements for FY 2016 to FY 2020, Q1-2021 Management accounts and NCBA Investment Bank Analysis Source: Family Bank Audited Financial Statements for FY 2016 to FY 2020, Q1-2021 Management accounts and NCBA Investment Bank Analysis 9.2 Key Partnerships Family Bank works with a strong group of partners and supporters, who share the same values in financial inclusion schemes. Key Partnerships Family Bank works with a strong group of partners and supporters, who share the same values in Furthermore, through its Family Bank Foundation, the Bank has partnered with communities to develop sustainable financialcommunity inclusion programs schemes for under-resourced. individuals and families in order to improve their economic prosperity. The community investment programs are concentrated on four key areas: education; nurturing sports talent; water and Furthersanitation;more and, afforestationthrough its toFamily combat Bank climate Foundation, change. the Bank has partnered with communities to develop sustainable community programs for under-resourced individuals and families in order to improve9.3 Liquidity their economic prosperity. The community investment programs are concentrated on fourEach keyKenya areas: Shillings education; denominated nurturing tranche of sports the Notes talent; will bewater listed andand quotedsanitation; on the and Nairobi afforestation Securities Exchange. to combatSubsequently, climate there change.will be an established secondary market for the sale of each tranche of the Notes.

Liq9.4uidity Diversification of Asset Classes Each Kenya Shillings denominated tranche of the Notes will be listed and quoted on the Nairobi The Notes will give investors an opportunity to diversify their portfolio composition as well as overall risk reduction. Securities Exchange. Subsequently, there will be an established secondary market for the sale of each tranche of the Notes. 9.5 Long-standing Heritage Family Bank was started in 1984 initially as Family Finance Building Society with a vision to be the institution of choice for Diversification of Asset Classes the unbanked population. Family Finance Building Society thereafter converted into a fully-fledged bank in May 2007. The Themain Notes driver willfor thegive conversion investors was an the opportunity need to offer to a diversifybroader range their of portfolio products compositionand services to itsas customers.well as overall risk reduction.

Long-standing Heritage Family Bank was started in 1984 initially as Family Finance Building Society with a vision to be the Family Bank is regulated by the Central Bank of Kenya 21 institution of choice for the unbanked population. Family Finance Building Society thereafter converted into a fully-fledged bank in May 2007. The main driver for the conversion was the need to offer a broader range of products and services to its customers.

Family Bank’s aim has always been to serve the mass market’s needs which the mainstream banks had ignored. This market segment comprises of millions of small and medium scale enterprises, artisans, tea, coffee, dairy, grain, fish and sugar farmers, teachers, junior government employees (local authorities and central government), parastatals NGOs and even private organizations. Today the Bank focuses on all the key market segments spanning treasury, corporate banking, SME banking, consumer banking and institutional banking thus creating tremendous growth momentum. INFORMATION MEMORANDUM, JUNE 2021

9.6 Competent Board and Senior Management CompetentFamily Bank isBoard led by and a management Senior Management team that represents very experienced professionals in the banking industry, having Familyworked Bank for different is led byentities a management both locally and team internationally. that represents The Bank veryis therefore experienced well equipped professionals to handle allin commercialthe bankingbanking solutions. industry ,The having Board worked of Family for Bank differen also comprisest entities members both locally who have and extensive internationally. experience Thein various Bank industries is thereforecutting across well Financial, equipped Education, to handle Investments all commercial and Banking banking sectors. Hence solutions. they are The very Board vital inof formulating Family Bank the Bank’s alsostrategies comprises for superior members growth. who have extensive experience in various industries cutting across Financial, Education, Investments and Banking sectors. Hence they are very vital in formulating the9.7 Bank’s Low Leverage strategies Levels for superior growth. Over the last five years, the Bank has maintained leverage levels well below the CMA prescribed level of 400% or 4.0x total Lindebtednessow Leverage to Levelsshareholders’ equity. Over the last five years, the Bank has maintained leverage levels well below the CMA prescribed level of 400% or 4.0x total indebtedness to shareholders’ equity. Figure 1: Family Bank Leverage Levels Figure 1: Family Bank Leverage Levels

16,000 0.71X 14,073 0.80X 13,451 14,000 12,755 12,616 0.70X 11,753 11,581 12,000 0.60X 10,000 0.42X 0.50X 0.38X 8,363 8,000 0.31X 0.40X 4,903 0.22X 6,000 4,903 0.19X 0.30X 3,955 4,000 3,017 2,722 0.20X 2,000 0.10X - 0.00X 2016 2017 2018 2019 2020 Q1 2021

Total Debt Shareholders Funds Debt/Equity

Source:Source: Family Family Bank Bank Audited Audited Financial FinancialStatements for Statemen FY 2016 tots FY for 2020, FY Q1-20212016 to Management FY 2020, Q1accounts-2021 and Management NCBA Investment accountsBank Analysis and NCBA Investment Bank Analysis 9.8 Wide Geographic Coverage WideAs of Geographic31st December Coverage2020, Family Bank has the 4th largest branch network in Kenya cutting across major urban and rural st th Ascentres of 31 in Decemberthe country. The 2020, Bank Family has grown Bank from has one the branch 4 largest in 1985 branch to the current network network in Kenya of 92 cuttingbranches, across 3,666 agents major urban and rural centres in the country. The Bank has grown from one branch in 1985 to the and 144 Automated Teller Machines (ATM’s) spread across 31 out of 47 counties in Kenya. current network of 92 branches, 3,666 agents and 144 Automated Teller Machines (ATM’s) spread across 31 out of 47 counties in Kenya. 9.9 Innovative Service Delivery Family Bank has, over the years, heavily invested and endeavored to premier innovations within the Fintech space. The Innovative Service Delivery revamped mobile application (PesaPap), internet banking and the VISA cards acquiring and issuance platform together Family Bank has, over the years, heavily invested and endeavored to premier innovations within with the Unstructured Supplementary Service Data (USSD) banking, has integrated vanilla banking services and issuance the Fintech space. The revamped mobile application (PesaPap), internet banking and the VISA cardsof instant acquiring mobile loans and to issuance both customers platform and non-customers.together with Furthermore, the Unstructured the Bank Supplementaryhas a salary advance Service feature in the Datamobile (USSD) application, banking, USSD has banking integrated and also vanillathrough banking the ATM’s, services which enables and issuance salaried customers of instant to mobile access salary loans advance tofacilities both customershassle-free.Kindly and nonreplace-customers. the tables in Furthermore, section 13 with the the Bank below has a salary advance feature in the mobile application, USSD banking and also through the ATM’s, which enables salaried customers to access salary advance facilities hassle-free.Kindly replace the tables in section 13 with the below.

5 Replace the tables and their respective sources in section 13 with the below. We have included Q1 2021 financials

KES '000 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 March-21 22 Interest Income 10,810,919 7,560,922 7,056,590 7,515,819 9,386,726Fa mily Bank is2,409,708 regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

10 Terms and Conditions of the Note

The following are the terms and conditions of the Notes (“the Conditions”) which will be deemed to be endorsed upon each Note in the Multicurrency Medium Term Note Programme.

The Notes are issued subject to, a Trust Deed dated 27th May 2021 (the “Trust Deed”) between the Issuer and the Note Trustee and an Agency Agreement dated 27th May 2021 (“the Agency Agreement”) between the Issue and Paying Agent, the Transfer Agent, the Calculation Agent, the Replacement Agent, the Registrar, the Issuer and the Note Trustee. The holders of the Notes (the “Noteholders”) are deemed to have notice of and are entitled to the benefit of all the provisions of the Trust Deed and the Agency Agreement (together, “the Note Documents”), which are binding on them or on the Note Trustee on their behalf. Copies of the Note Documents are available for inspection at the Specified Offices of the Issuer.

Words and expressions defined in the Trust Deed and the rules of interpretation specified therein shall have the same meanings or apply where used in the Conditions and the relevant Pricing Supplement unless the context otherwise requires or unless otherwise stated.

1. FORM AND DENOMINATION The Notes are issued in registered book form and are in denominations of KES. 100,000 (or an approximate equivalent in an alternate Specified Currency) as specified in each relevant Pricing Supplement. The obligations of the Issuer in respect of each Note constitute separate and independent obligations which each Noteholder is entitled to enforce subject to these conditions and the Note Documents.

In accordance with the prevailing CDSC Rules, the Noteholder’s registered CDS account will be credited with the amount of the Note.

The Notes will be issued as Fixed Rate Notes and Floating Rate Notes which shall attract interest as specified in these conditions and the relevant Pricing Supplement.

2. TITLE Entries in the Register in relation to a Note constitute conclusive evidence that the person so entered is the registered owner of the Note, subject to rectification for fraud or error. No Note will be registered in the name of more than two persons. A note registered in the name of more than one person is held by those persons as joint owners. Notes will be registered by name only without reference to any trusteeship. The person whose name is entered on the Register as the Noteholder is deemed, except as ordered by a court of competent jurisdiction or as required by statute, to be and may be treated as the absolute owner of the Note in all circumstances, whether or not payment under the Note is overdue and notwithstanding any notice of ownership or writing thereon or notice of any previous loss or theft thereof).

3. TRANSFER OF NOTES All Notes will be issued as dematerialized securities within the meaning of the Central Depositories Act (Act 4 of 2000) and will therefore be transferable only in accordance with the prevailing CDSC Rules.

No Noteholder may require the transfer of interest on any Note to be registered during a Books Closed Period.

4. STATUS OF THE NOTES Unless otherwise specified in the relevant Pricing Supplement, the Notes will constitute direct, unconditional and subordinated obligations of the Issuer which (a) rank pari passu among themselves and (b) are subordinated to the claims of the Senior Creditors;

4.1 The holder of a Note may not exercise a claim or plead any right of set-off, counter claim or retention (whether before or after the winding up of the Issuer), in respect of any amount owed by it to the Issuer against any amount owing by the Issuer to it, arising under or in connection with the Subordinated Multicurrency Notes, and each such holder shall be deemed to have waived all such rights of set-off, counter claim or retention. If any of the rights and claims

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of such Noteholder are discharged by set-off, such Noteholder will immediately pay an amount equal to the amount of such discharge to the Issuer, or as applicable, the liquidator in winding up of the Issuer as the case may be, and until such time as payment is made, such Noteholder will hold a sum equal to such amount in trust for the Issuer, or if applicable, the liquidator in winding up of the Issuer. Accordingly, such discharge will deem not to have taken place.

5. FINANCIAL COVENANTS OF THE ISSUER 5.1. Security The notes are unsecured.

5.2. Negative Pledge The terms of the Subordinated Multicurrency Notes will contain no negative pledge.

5.3. Other Financial Covenants The Issuer covenants to the Note Trustee as follows: 5.3.1. Maintain compliance with the minimum capital adequacy prudential ratios as prescribed by the Central Bank of Kenya from time to time; 5.3.2. Maintain a debt to equity ratio of not more than two times (2x); 5.3.3. Provide financial and other information that may affect the Notes in a timely manner; 5.3.4. Provide investors with access to its senior management on a quarterly basis through investor briefings; 5.3.5. Its assets shall be maintained in good condition and where applicable, comprehensively insured for the full market value at all times. 5.3.6. It shall, as soon as the same become available, deliver to the Note Trustee a copy of the audited accounts together with a copy of the management letter (if any) addressed by the Auditors to the directors of the Issuer.

6. INTEREST 6.1. Payment of interest The Notes bear interest on their outstanding Principal Amount from the relevant Issue Date at the Interest Rates and Interest Periods determined below. Interest on each Note will be payable in arrears on the dates indicated in the relevant Pricing Supplement commencing on the Issue Date specified in such Pricing Supplement (each an “Interest Payment Date”) until the Principal Amount of each Note is repaid in full.

If any Interest Payment Date falls on a day which is not a Business Day, the next following Business Day shall be substituted for such day.

In these Conditions, “Business Day” means any day, other than a Saturday, Sunday or public holiday in Kenya as defined in the Public Holidays Act (Chapter 110 of the Laws of Kenya), and on which commercial banks are open for business and foreign exchange markets settle payments in Nairobi.

The period beginning on and including the “Issue Date” to but excluding, the first Interest Payment Date, and each successive interest period from and including an Interest Payment Date to but excluding the next Interest Payment Date is an “Interest Period”.

6.2. Interest Rate 6.2.1. Fixed Rate Notes: Each Fixed Rate Note will bear interest on its Principal Amount from (and including) the relevant Issue Date at the rate of interest (expressed as a percentage per annum) (the “Fixed Rate Notes Rate of Interest”) equal to the Rate of Interest specified in the relevant Pricing Supplement, payable in arrears on the Interest Payment Dates specified in the relevant Pricing Supplement.

Each Fixed Rate Note shall cease to bear interest from the date of its redemption unless, upon due presentation thereof, payment of any Principal Amount due thereunder is improperly withheld or refused. In such event, interest will continue to accrue at the Default Rate as specified in the relevant Pricing Supplement.

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6.2.2. Floating Rate Notes: Each Floating Rate Note will bear interest on its Principal Amount from (and including) the relevant Issue Date at the rate of interest (expressed as a percentage per annum) (the “Floating Rate Notes Rate of Interest”) equal to the sum of the applicable Floating Rates Note Reference Rate (hereinafter defined) plus the Floating Rate Notes Margin (hereinafter defined) specified in the relevant Pricing Supplement, payable in arrears on the Interest Payment Date(s) specified in the relevant Pricing Supplement.

The Calculation Agent will on the first day of the Interest Period for which Floating Rate Notes Rate of Interest will apply (the “Interest Rate Fixing Date”) determine the value of the relevant benchmark (the “Floating Rate Notes Reference Rate”) plus the relevant margin (the “Floating Rate Notes Margin”) and aggregate them to form the applicable Interest Rate. The Floating Rate Notes Reference Rate and the Floating Rate Notes Margin will be specified in the relevant Pricing Supplement. The Floating Rate Notes Rate of Interest payable from time to time for each Interest Period in respect of the Floating Rate Notes will be determined by the Calculation Agent (unless otherwise specified in the relevant Pricing Supplement) two Business Days before each Interest Payment Date and in the case of the first Interest Period, two days prior to the relevant Issue Date.

Each Floating Rate Note shall cease to bear interest from the date of its redemption unless, upon due presentation thereof, payment of any Principal Amount due thereunder is improperly withheld or refused. In such event, interest will continue to accrue at the Default Rate (if any) as specified in the relevant Pricing Supplement.

6.3. Calculation of Interest The Interest payable in respect of any Note for any Interest Period shall be calculated by multiplying the product of the Interest Rate and the outstanding Principal Amount of such Note by the Day Count Fraction, unless Interest (or a different formula for its calculation) is specified in the relevant Pricing Supplement in respect of such Interest Period, in which case the Interest payable in respect of such Note for such Interest Period shall be the amount specified in the relevant Pricing Supplement (or be calculated in accordance with such formula).

“Day Count Fraction” means, in respect of the calculation of an amount of interest in accordance with this Condition: i. if “Actual/365” or “Actual/Actual” is specified in the relevant Pricing Supplement, the actual number of days in the Interest Period divided by 365 (or, if any portion of that Interest Period falls in a leap year, the sum of (A) the actual number of days in a portion of the Interest Period falling in a non – leap year divided by 365); ii. if “Actual/364 (Fixed)” is specified in the relevant Pricing Supplement, the actual number of days in the Interest Period divided by 364; iii. if “Actual/360” is specified in the relevant Pricing Supplement, the actual number of days in the Interest Period divided by 360; iv. if “30/360”, “360/360” or “Bond Basis” is specified in the relevant Pricing Supplement, the number of days in the interest period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with twelve 30 day months (unless (A)the last day of the interest period is the 31st of a month but the first day of the interest period is the day other than the 30th or the 31st of a month, in which case the month that includes that last day shall not be considered to be the shortened to a 30 – day month, or (B) the last day of the interest period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)

For the purpose of any calculation of Interest pursuant to these Conditions (unless otherwise specified in the Conditions or the relevant Pricing Supplement), (x) all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with halves being rounded up), (y) all figures shall be rounded to seven significant figures (with halves being rounded up) and (z) all currency amounts that fall due and payable shall be rounded to the nearest unit of such currency (with halves being rounded up). For these purposes, “unit” means the lowest amount of the currency.

6.4. Notification of Rate of Interest and Interest As soon as practicable after an Interest Determination Date, the Calculating Agent will cause the Interest Rate, the Interest Payment in respect of each Interest Period and relevant Interest Payment Dates and, if required to be calculated, the Final Redemption Amount or Early Redemption Amount to be notified to the Note Trustee, the Issuer,

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the Noteholders, any other Note Agent appointed in respect of the Notes that is to make a further calculation upon receipt of such information and, if the Notes are listed on a securities exchange, and the rules of such exchange so require, such exchange as soon as possible after their determination but in no event later than the fourth Business Day after all such determinations are complete.

Where any Interest Payment Date or Interest Period is subject to adjustment pursuant to these Conditions, the Interest and the Interest Payment Date so published may subsequently be amended (or appropriate alternative arrangements made by way of adjustment), and such amendment will be promptly notified to the Note Trustee and to the Noteholders in accordance with Condition 16 (Notices).

If the Notes become due and payable under an Event of Default, the accrued Interest and the Interest Rate payable in respect of the Notes shall nevertheless continue to be calculated in accordance with this Condition, but no publication of the Interest Rate or the Interest so calculated need be made. The Calculation and determination of the Interest Rate or the Interest by the Calculation Agent shall (in the absence of manifest error) be final and binding upon all parties.

6.5. Certificates to be Final All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 6 (Interest), by the Calculation Agent shall (in the absence of wilful default, bad faith or manifest error) be binding on all parties and (in the absence of the aforesaid) neither the Note Trustee nor the Calculation Agent shall be liable to the Issuer or the Noteholders in connection with the exercise or failure to exercise by the Note Trustee or the Calculation Agent any of their respective powers, duties and discretions pursuant to such provisions.

6.6. Accrual of Interest Each Note will cease to accrue interest from the date of its redemption unless, upon due presentation thereof, payment of the Principal Amount is improperly withheld or refused. In such event, interest will continue to accrue until whichever is the earlier of: (i) the date on which all amounts due in respect of such Note have been paid by the Issuer to the Noteholder (if no Issue and Paying Agent has been appointed under the Agency Agreement); and (ii) the date on which all amounts due in respect of such Note have been received by the Issue and Paying Agent and notice to that effect has been given in accordance with Condition 16 (Notices) or individually.

7. PAYMENTS 7.1. Method of Payment to Noteholders 7.1.1 Payment of amounts due on the final redemption of the Notes (the “Final Redemption Amount(s)”) will be made in accordance with the prevailing CDSC Rules. 7.1.2. Payments of amounts due on any prepayment of the Notes (the “Early Redemption Amounts”) will be made in accordance with the prevailing CDSC Rules. 7.1.3 Interest and Principal Amounts due on redemption shall only be payable to Noteholders registered as such on the Last Date to Register immediately preceding the relevant Interest Payment Date or relevant Redemption Date (as the case may be). 7.1.4 Subject to Condition 7.1.1, payment of Interest and Principal Amounts shall be made by the Issue and Paying Agent via electronic funds transfer to the account designated for the purpose by the Noteholder. In the event that for any reason, payment by means of electronic funds transfer is not possible, payment will be made by cheque in the manner set out in the remainder of this Condition 7 (Payments). 7.1.5 Cheques in payment of Interest and Principal Amounts shall be drawn on the Issuer or the Issue and Paying Agent and issued by the Issuer or the Issue and Paying Agent as the case may be. Payment of cheques shall be a valid discharge by the Issuer of the obligation upon it to pay Interest or the Redemption Amount on redemption, as the case may be. Cheques shall be dated with the relevant Interest Payment Date or Redemption Date, as the case may be, and shall therefore be payable on that date. 7.1.6 Payments made by cheque will be made by cheque in the Specified Currency cheque and posted by registered post to the address (as recorded in the Register or to such other address as may have been duly notified in writing to the Issue and Paying Agent by the Noteholder in accordance with these Conditions not later than the relevant Last Day to Register) of the relevant Noteholder on the Business Day not later than the relevant due

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date for payment unless prior to the relevant Last Day to Register the relevant Noteholder has applied to the Registrar, and the Registrar has acknowledged such application for payment to be made to a designated Kenya Shillings account maintained by such Noteholder with a bank in Nairobi in which case payment shall be made on the relevant due date for payment by transfer to such account. 7.1.7 Neither the Issuer nor any of the Note Agents (if any Note Agent is different to the Issuer) or the Note Trustee will be responsible for any loss in transmission of any cheque posted by way of registered post, and the postal authorities shall be deemed to be the agent of the Noteholders for the purposes of all the cheques so posted. 7.1.8 All payments of principal Amounts and Interest in respect of the Notes are subject in all cases to any applicable laws, fiscal or otherwise in the place of payment, but without prejudice to the provisions of Condition 9 (Taxation). No commissions or expenses shall be charged to the Noteholders in respect of such payments. 7.1.9 If at any time a partial payment of any Principal Amount and/or Interest is made in respect of any Note, the Registrar shall endorse the Register with a statement indicating the amount and date of such payment.

7.2. Payments on Business Days and Late Payments 7.2.1 Where payment is to be made by electronic funds transfer to a Noteholder’s account, payment instructions (for value the due date or, if that is not a Business Day, for value the first following Business Day) will be initiated on the due date for payment. 7.2.2 Where payment is to be made by cheque, the cheque will be posted by registered post on the Business Day immediately preceding the due date for payment. 7.2.3 If (otherwise than by reason of the application of Conditions 7.2.1 and 7.2.2) (a) payment of a Principal Amount is withheld or refused when due in respect of any Note, or (b) any Interest is not paid when due (the defaulted amounts mentioned in (a) and (b) above being referred to in this Condition as “Defaulted Amounts”) then interest shall accrue on each such Defaulted Amount at the Default Rate and shall be paid to the person who is shown as the Noteholder on the relevant Record Date. “Default Rate” means the aggregate of the interest rate specified in the relevant Pricing Supplement for the specified Note plus a Default Rate Margin.

7.3. Interpretation of Principal Amount Any reference in these Conditions to a Principal Amount in respect of the Notes shall be deemed to include as applicable: 7.3.1 The Final Redemption Amount(s) of the Notes; 7.3.2 The Optional Redemption Amount(s) of Notes; and 7.3.3 Any premium and any other amount which may be payable by the Issuer under or in respect of the Notes.

7.4. Currency of Accounts and Payments The currency of account and for any sum due from the Issuer hereunder is the Kenya Shilling, or any successor currency or such other currency in which the notes to which the sums relate were issued.

8. REDEMPTION AND PURCHASE OF NOTES BY THE ISSUER 8.1. Final Redemption Unless previously redeemed or purchased and cancelled, each Note shall be redeemed by the Issuer at its Final Redemption Amount specified in, or determined in the manner specified in, the relevant Pricing Supplement (and which, unless otherwise provided in the relevant Pricing Supplement, is its nominal amount) on the Maturity Date specified in the relevant Pricing Supplement.

8.2. Redemption at the option of the Issuer 8.2.1 If the Issuer has specified in the relevant Pricing Supplement that it has an option to redeem any Notes, the Issuer may after the expiry of five (5) years from the relevant Issue Date and, in addition, after giving: (a) not less than thirty nor more than ninety days’ irrevocable notice to the Noteholders in accordance with Condition 16 (Notices); and (b) not less than seven Business Days before giving such notice, having given irrevocable notice to the Registrar and Note Trustee; redeem the Principal Amount specified in such notice under the Notes then outstanding on the date specified by the Issuer in such notice (the “Option Redemption Date”) at the Optional Redemption Amount specified

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in, or determined in the manner specified in, the relevant Pricing Supplement together with Interest accrued to (but excluding) the Option Redemption Date. 8.2.2 In the case of a partial redemption of Notes, the Notes to be redeemed (the “Redeemed Notes”) will be selected individually not more than thirty five days prior to the date fixed for redemption (such date of selection being referred to below as the “Selection Date”) by lot drawn in such place and in such manner as the Registrar deems appropriate, subject to compliance with any applicable laws and the requirements of any stock exchange on which the Notes are listed, or any other regulatory requirements. In the case of a partial redemption, the notice referred to in Condition 8.2.1(a) shall contain a list of the serial numbers of Notes relative to the Redeemed Notes. 8.2.3 All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition. 8.2.4 Where only a portion of a Note is being redeemed, redemption shall be in accordance with prevailing CDSC rules on partial redemption and the Noteholder’s account shall reflect the unredeemed balance upon redemption. 8.2.5 So long as the Notes are listed on the NSE and the rules of the NSE and/or CMA so require, the Issuer shall, once in every year in which there has been a partial redemption of the Notes, cause to be published in a leading English language newspaper of general circulation in Kenya and/or as specified by the CMA and/or NSE, a notice specifying the aggregate nominal amount of the outstanding Notes. 8.2.6 For the purpose of Condition 8.2 (and unless otherwise stated in these Conditions), the Notes will be redeemed at the Early Redemption Amount calculated as follows: (a) in the case of Notes with a Final Redemption Amount equal to the Issue Price, at the Final Redemption Amount thereof; or (b) in the case of Notes with either a Final Redemption Amount which is or may be less or greater than the Issue Price, to be determined in the manner specified in the relevant Pricing Supplement or, if no such amount or manner is so specified in the relevant Pricing Supplement, at their nominal amount. 8.2.7 Purchases. The Issuer may at any time purchase Notes at any price in the open market or otherwise. In the event of the Issuer purchasing Notes, such Notes may (subject to any approvals required from the relevant stock exchange and/or the CMA or to any restrictions under any applicable laws) be held, resold or, at the option of the Issuer, cancelled in terms of and in accordance with these Conditions.

The Notes so purchased, while held by or on behalf of the Issuer, shall not entitle the holder to vote at any meeting of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorum at meetings of the Noteholders or for the purposes of Condition 17 (Meetings of Noteholders Modification and Waiver).

8.3. General: Cancellation All Notes purchased by or on behalf of the Issuer may be cancelled by the Issuer after five (5) years from the date of purchase by informing the Registrar of the intention to have such Notes cancelled. Notes cancelled as aforesaid may not be reissued or resold and the obligations of the Issuer in respect of such Notes shall be wholly discharged.

9. TAXATION 9.1. All payments in respect of the Notes will be made with deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (“Taxes”) imposed or levied by, or on behalf of, Kenya, or any political sub-division of, or any authority in, or of, Kenya having power to tax, where such withholding or deduction of Taxes is required by law. 9.2. The Issuer (or the Issue and Paying Agent, as the case may be) will deduct withholding tax at the prescribed rate on all interest payments to Noteholders other than any Noteholder who (a) is exempt from such deduction under the provisions of the Income Tax Act (Chapter 470 of the Laws of Kenya) and (b) has provided evidence of such exemption to the reasonable satisfaction of the Issuer.

10. PRESCRIPTION The Notes will become void unless presented for payment of Principal Amount within a period of six years and for payment of Interest within a period of six years after the Relevant Date (hereinafter defined) thereof. Relevant“ Date” means the date on which such payment first becomes due, except that if the full amount of the moneys

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payable has not been duly paid by or on account of the Issuer on or prior to such date, it means the date on which notice to that effect is duly given to Noteholders in accordance with Condition 16 (Notices). The amounts due under such void Notes will be dealt with in accordance with the provisions of the Unclaimed Financial Assets Act, No. 40 of 2011.

11. EVENTS OF DEFAULT An Event of Default shall have occurred in the case of Notes, if: 11.1. Non Payment: the issuer fails to pay Principal Amount which is due in respect of the Notes or the Issuer is in default with respect to the payment of interest on any such Notes and such defaults continues for a period of seven (7) business days (provided that the Issuer shall not be in default if, during such a period, it satisfies the Note Trustee that the amounts not paid were not paid (i) in order to comply with any applicable laws or order of any court or competent jurisdiction or (ii) in case of doubt as to the validity or applicability of any such law, regulation or order, in accordance with advice as to such validity or acceptability given at any time during such period by independent advisors acceptable to the Note Trustee); or 11.2. Breach of Other Obligations: the Issuer is in default in the performance, or is otherwise in breach, of any warranty, covenant, obligation, undertaking or other agreement under the Notes (other than non-payment under the Notes) and such default or breach (if capable of remedy) is not remedied within (30) Business Days (or such longer period as the Note Trustee may in its sole discretion determine) after notice thereof has been given to the Issuer and, if applicable, by the Note Trustee; or 11.3. Bankruptcy: the Issuer shall institute proceedings under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect to be placed into liquidation or winding up or shall consent to the filing of a bankruptcy, insolvency or similar proceeding against it or shall file a petition or answer or consent seeking reorganization under any such law or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver, manager, liquidator or trustee or assignee in bankruptcy or liquidation of the Issuer or in respect of its property, or shall make an assignment for the benefit of its creditors or shall otherwise be unable or admit its inability to pay its debts generally as they become due or the Issuer commences proceedings with a view to the general adjustment of its indebtedness, which event in any such case is (in sole opinion of the Note Trustee), materially prejudicial to the interest of the Noteholders; or 11.4. Substantial Change in Business: the Issuer makes or threatens to make substantial change in the principal nature of its business as presently conducted which (in the sole opinion of the Note Trustee) materially prejudicial to the interests of the Noteholders; or 11.5. Maintenance of Business: the Issuer fails to take any action as is required of it under the applicable laws or otherwise to maintain in effect its corporate existence or fails to take any action to maintain any material rights, privileges, titles to property, franchises and the like necessary or desirable in the normal conduct of its business, activities or operations which is (in the sole opinion of the Note Trustee) materially prejudicial to the interests of the Noteholders and such failure (if capable of remedy) is not remedied within thirty (30) Business Days (or such longer period as the Note Trustee may in its sole discretion determine) after notice thereof has been given to the Issuer; or 11.6. Material compliance with applicable laws: the Issuer fails to comply in any material respect with any applicable laws to enable it lawfully to exercise its rights or perform or comply with its obligations under the Note Documents; or 11.7. Invalidity or Unenforceability: (i) the validity of the Notes or Note Documents is contested by the Issuer or the Issuer shall deny any of its obligations under the Notes or the Note Documents (whether by a general suspension of payments or a moratorium on the payment of debt or otherwise) or (ii) it is or becomes unlawful for the Issuer to perform or comply with all or any of its obligations set out in the Notes or the Note Documents and the Note Trustee is of the opinion (determined on its sole discretion) that such occurrence is materially prejudicial to the interest of the Noteholders; or 11.8. Government Intervention: (i) all or any substantial part of the undertaking, assets and revenues of the Issuer is condemned, seized or otherwise appropriated by any person acting under the authority of any national, regional or local government, or (ii) the Issuer is prevented by any such person from exercising normal control over all or any substantial part of its undertaking, assets or revenues; and, following the occurrence of any of the events specified in condition 11.9 (i), the Note Trustee is of the opinion (determined on its sole discretion)that such occurrence is materially prejudicial to the interests of the Noteholders; in which event the holders of the Notes may, by Extraordinary Resolution of such holders, direct the Note Trustee to give written notice to the Issuer at the Specified Office of the Issue and Paying Agent, effective upon the date of receipt, declaring the Notes to be forthwith due and payable

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whereupon the same shall become forthwith due and payable at the Early Redemption Amount, together with accrued Interest (if any) to the date of repayment, without presentment, demand, protest or other notice of any kind.

12. REGULATORY CONSENT The Note Trustee and the Noteholders will not without the prior written consent of the Relevant Authorities: 12.1. purport to retain or set off at any time any amount payable in respect of the Notes against any amount otherwise payable by any of them to the Issuer except to the extent that payment of such amount in respect of the Notes would be permitted at such time under the Conditions; 12.2. amend or waive or concur in amending or waiving the terms of the Note Documents whereby the subordination of the Notes or any part thereof might be terminated, impaired or adversely affected; or 12.3. attempt to obtain repayment of the whole or any part of the amounts payable in respect of the Notes otherwise than in accordance with the terms of the Note Documents.

13. TRUST 13.1. Any amounts paid by or for the account of the Issuer or received or recovered by the Note Trustee or any Noteholder and any distributions of any kind or character in respect of the Notes received or recovered by the Note Trustee or any Noteholder otherwise than in accordance with the provisions of the Note Documents shall be held in trust by the Note Trustee, or any Noteholder to return the same to the Issuer, or where applicable, the liquidator or other similar such officer.

14. LOCATION OF REGISTER 14.1. The Register shall be kept at the offices of the Registrar. The Register shall contain the name, address and bank account details of the registered Noteholder, the Principal Amount of the Note issued to such Noteholder, the date of such issue and the serial number of Note issued. The Registrar shall not be bound to enter any trust into the Register or to take notice of any or to accede to any trust executed, whether expressly or implied, to which any Note may be subject. 14.2. The Register shall be open for inspection during the normal business hours of the Registrar to any Noteholder or any person authorized in writing by any Noteholder, the CMA and the NSE on which the Notes will be listed.

15. AGENTS AND SPECIFIED OFFICES 15.1. The names of the Issuer and the initial Issue Agent, Paying Agent, Transfer Agent, Replacement Agent, Registrar and Note Trustee and their initial Specified Offices are set out below:

Issuer: Family Bank Limited Family Bank Towers, Muindi Mbingu Street, P. O. Box 74145-00200 Nairobi, Kenya Paying Agent, Calculating Family Bank Limited Agent and Registrar: 8th Floor, Family Bank Towers, Muindi Mbingu Street, P. O. Box 74145-00200 Nairobi, Kenya Note Trustee: MTC Trust and Corporate Services Limited Delta Riverside, Block 4, Riverside Drive P.O. Box 1071 – 00200 Nairobi, Kenya

15.2. The Issuer is entitled to appoint additional or other Note Agents or note trustees and/or approve any change in the Specified Office through which any Note Agent or the Note Trustee acts in accordance with the provisions of the Note Documents. 15.3. Any variations to the Note Agents or the Note Trustee shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than thirty and not more than forty-five days’ prior notice thereof shall have been given to the Noteholders in accordance with Condition 16 (Notices). A copy of the notice shall be sent to the CMA and the NSE on which the Notes are listed.

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16. NOTICES 16.1. Notices to the Noteholders will be deemed to be validly given if made by fax, short messaging service, electronic mail, delivered to them, or sent by registered post to them, and: 16.2. In the case of notices that are posted to holders of Notes, the notices will be valid if mailed to their registered addresses appearing on the Register. Any such notice shall be deemed to have been given on the seventh Business Day after the day on which it was posted; 16.3. In the case of any communication made by fax, the notice will be deemed to have been validly given when on the date following transmission (provided that the sender produces, if requested to do so, a fax transmission report showing that the entire communication was received by the intended recipient); or 16.4. In the case of delivery, the notice will be deemed to have been validly given when such communication or document is left with or delivered to the intended Noteholder at its address as recorded on the Register. 16.5. In case of short messaging service (SMS), the notice will be deemed to have been validly given when such SMS is sent to the intended Noteholder provided that an SMS which is received after 5:00 p.m. on a Business Day, or on a day which is not a full Business Day, in the place of receipt shall be deemed to be delivered on the next full Business Day in that place. 16.6. In case of electronic email, the notice will be deemed to have been validly given when such electronic communication is sent to the intended Noteholder provided that a communication or document which is received after 5:00 p.m. on a Business Day, or on a day which is not a full Business Day, in the place of receipt shall be deemed to be delivered on the next full Business Day in that place. 16.7. All notices regarding the Notes shall be published in a leading English newspaper expected to be of national circulation in the Republic of Kenya. Any such notice will be deemed to have been given on the date of the first publication in the newspaper. Notices to be given by any holder of the Notes shall be in writing and given by lodging the same, together with the relative Note or Notes, with the Note Agents.

17. MEETING OF NOTE HOLDERS, MODIFICATION AND WAIVER The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of modification of the Notes or certain provision of the Trust Deed.

18. GOVERNING LAW AND JURISDICTION 18.1. The Trust Deed and the Notes are governed by, and shall be construed in accordance with, the laws of the Republic of Kenya. 18.2. The Issuer agrees for the benefit of the Note Trustee and the Noteholders that the courts of Kenya shall have exclusive jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise out of or in connection with this Trust Deed or the Notes (respectively, “Proceedings” and “Disputes”).

Service of any summons or any other notice of legal process shall be received by the Issuer at its Specified Office.

Family Bank is regulated by the Central Bank of Kenya 31 11INFORMATION Economic MEMORANDUM,Outlook and Overview JUNE 2021 of the Kenyan Banking Sector

11.1 Kenya Economic Performance According to World Bank estimates, real Gross Domestic Product (GDP) growth was estimated to decelerate11 Economic from Outlookan annual and average Overview of 5.7% of the(2015 Kenyan-2019) to Banking -1% in 2020. Sector Kenya’s economy was adversely affected by supply and demand shocks on external and domestic fronts, interrupting its11.1 recent Kenya broad Economic-based Performance growth path. Apart from the COVID-19 pandemic, the locust attack, which startedAccording in toearly World 2020, Bank has estimates, affected real Gross many Domestic parts of Product Kenya (GDP) especially growth was the estimated North East. to decelerate from an annual average of 5.7% (2015-2019) to -1% in 2020. Kenya’s economy was adversely affected by supply and demand shocks on Theexternal performance and domestic in fronts, 2020, interrupting albeit constrained, its recent broad-based was supported growth path. by Aparta significant from the COVID-19improvement pandemic, in the agriculturallocust attack, productionwhich started, indespite early 2020, the has continued affected many threat parts from of Kenya locusts, especially and the accelerated North East. growths in mining and quarrying, construction, and public administration. Strong growth in information and communication,The performance in financial 2020, albeit and constrained, insurance, was and supported real estate by a significant sectors also improvement supporte ind agriculturalthe economy production, againstdespite the a deeper continued contraction. threat from locusts, and accelerated growths in mining and quarrying, construction, and public administration. Strong growth in information and communication, financial and insurance, and real estate sectors also supported the economy against a deeper contraction. 11.1.1 Kenya Economy Outlook The World Bank Group expects Kenya to be among the countries leading the Sub-Saharan region out11.1.1 of the Kenya economic Economy shackles Outlook of 2020 in 2021-2022. In its early predictions for 2021, the multi-lateral lenderThe World sees Bank the Group Kenyan expects economy Kenya to growingbe among at the 6.9%, countries the leadingregion’s the highest Sub-Saharan rate, region from outa projectedof the economic 2020shackles contraction of 2020 in 2021-2022. by 1%. Despite In its early the predictions private consumption for 2021, the multi-lateral and investment lender sees forecasts the Kenyan still economy being growinglow, at accelerated6.9%, the region’s export highest growth rate, from is expected a projected in 2020 line contraction with the econo by 1%. micDespite rebound. the private The consumption sluggish recovery and investment forecasts still being low, accelerated export growth is expected in line with the economic rebound. The sluggish recovery reflects persistent outbreaks in several economies that have inhibited economic activity reflects persistent outbreaks in several economies that have inhibited economic activity resumption, particularly in-service resumption, particularly in-service sectors such as tourism. sectors such as tourism. Regionally, growth for the year is expected to only rebound moderately to 2.7% before firming up Regionally, growth for the year is expected to only rebound moderately to 2.7% before firming up to 3.3% in 2022. GDP to 3.3% in 2022. GDP growth within East Africa is expected to continue outperforming SSA in 2019- growth within East Africa is expected to continue outperforming SSA in 2019-2021. Kenya is estimated to have contracted 2021. Kenya is estimated to have contracted at a rate of -1% in 2020 relative to approximately - at a rate of -1% in 2020 relative to approximately -2.8% for the whole of SSA. 2.8% for the whole of SSA.

FigureFigure 22:: EasternEastern Africa CountriesCountries Annual Annual GDP GDP Growth Growth

16%

12%

0% 2010(A) 2012(A) 2014(A) 2016(A) 2018(A) 2020(F) 2022(F) -4%

-8%

Ethiopia Kenya Rwanda Tanzania Uganda SSA

Source:Source: World World Bank Bank Global Global Economic Economic Prospects Reports Prospects ReportsMacro-Economic Overview

11.1.1.111.1.2 Macro-Economic Inflation Overview According11.1.2.1 Inflation to Genghis Capital Research, the inflation rate remained relatively low in 2020, with the averageAccording monthlyto Genghis inflation Capital Research, rate coming the inflation in at rate 5.29%. remained The lowrelatively inflation low in can2020, be with attributed the average to monthlythe low inflation fuelrate comingprices inexperienced at 5.29%. The duringlow inflation the first can halfbe attributed of the toyear, the lowcoupled fuel prices with experienced the favourable during the weather first half of the conditionsyear, coupled experienced with the favourable at the weather tail end conditions of the year, experienced which at has the ensuredtail end of that the year,food which commodity has ensured prices that food remainedcommodity lowprices through remained most low through of the year.most of the year.

The year-on-year inflation for April 2021 inflation numbers were 5.76%, up from 4.67% in February 2021. This is due to 43 increased prices for food and non-alcoholic drinks, kerosene, diesel and petrol.

Going forward, the inflation rate is expected to remain within the government’s set range of 2.5% - 7.5%, with the key risks being drought in the first quarter of the year, high fuel costs due to increased crude prices globally as economies recover.

32 Family Bank is regulated by the Central Bank of Kenya The year-on-year inflation for April 2021 inflation numbers were 5.76%, up from 4.67% in February 2021. This is due to increased prices for food and non-alcoholic drinks, kerosene, diesel and petrol.

Going forward, the inflation rate is expected to remain within theINFORMATION government’s MEMORANDUM, set range of 2.5% JUNE 2021 - 7.5%, with the key risks being drought in the first quarter of the year, high fuel costs due to increased crude prices globally as economies recover.

FigureFigure 33:: Kenya Kenya 1212-Month-Month Inflation

16% 12% 12% 8% 8% 8% 7% 8% 7% 5% 5.76% 4% 4% 4%

Source: Central Bank of Kenya

Source: Central Bank of Kenya 11.1.2.2 Short-Term Interest Rates 11.1.1.2In 2020, Shortthe Monetary-Term Interest Policy CommitteeRates (MPC) met eight times. The MPC lowered the Central Bank Rate (CBR) twice Induring 2020, the the year. Monetary In the meetings Policy held Committee on 27th January (MPC) 2020 met and eight 23rd times. March The 2020, MPC the MPClowered dropped the theCentral CBR rate from Bank8.25% Rate at the (CBR) beginning twice of during the year the to year.7.00%. In In the their meetings last meeting held held on on 27 29thth January March 2021,2020 andMPC 23decidedrd March to retain the 2020,CBR at the 7.0% MPC for droppedthe fifth consecutive the CBR rate time, from indicating 8.25% that at the previousbeginning cuts ofhad the the year intended to 7.00%. effect Inon thei the r economy.last The meetingcommittee held concluded on 29 ththat March the current 2021 ,accommodative MPC decided monetary to retain policies the CBR and at the 7.0% fiscal for measures the fifth are consecutive still being transmitted time,and continue indicating to support that the the previouseconomy. cuts had the intended effect on the economy. The committee concluded that the current accommodative monetary policies and the fiscal measures are still beingThe Cash transmitted Reserve Ratio and was continue reduced to 4.25%,support from the 5.25% economy. in the March 2020 meeting, to free up reserves to banks for onward lending to businesses and households that had been adversely affected by the Coronavirus pandemic. The Central TheBank Cash Rate Reserveis expected Ratio to remain was reducedstable in 2021 to 4.25%, as the fromgovernments 5.25% inseeks the toMarch continue 2020 supporting meeting, the to economy free up from the reservespandemic’s to adverse banks effects. for onward lending to businesses and households that had been adversely affected by the Coronavirus pandemic. The Central Bank Rate is expected to remain stable in 2021The lending as the rate governments as measured by seeks the commercial to continue banks weightedsupporting average the rateeconomy was 12.05% from in Marchthe pandemic’s 2021. It has remained adversequite stable effects. in the past few years.

The lending rate as measured by the commercial banks weighted average rate was 12.05% in MarchFigure 44: 2021.: KenyaKenya It Treasuryhas remained Bill RatesRates quite stable in the past few years.

12.0% 11.0% 10.5% 10.0% 9.4%

8.0% 8.0% 8.0% 7.5% 7.2% 6.5% 6.0% 6.1% 44

4.0%

91-day 182-day 364-day

Source: Central Bank of Kenya

Figure 5: Kenya Interest Rates Family Bank is regulated by the Central Bank of Kenya 33 30

15 12.05 10 11.81 7 5 4.97 Percentage Rates (%) Rates Percentage

CBR 5 Year Bond InterBank Rate Lending Rate

Source: Central Bank of Kenya and Nairobi Securities Exchange

11.1.1.3 Medium and Long-Term Interest rate Kenya’s yield curve has steepened in the recent period as the short-term bills reduced in yields while the medium to longer maturity bonds increased in yield. According to Genghis Capital, there seems to be a preference for medium-term bonds since most investors have a perception that the risks in the long-term bonds (10 and above years) are not well priced.

Figure 4: Kenya Treasury Bill Rates

12.0% 11.0% 10.5% 10.0% 9.4%

8.0% 8.0% 8.0% 7.5% 7.2% 6.5% 6.0% 6.1%

4.0%

91-day 182-day 364-day INFORMATION MEMORANDUM, JUNE 2021

Source: Central Bank of Kenya Figure 5: Kenya Interest Rates Figure 5: Kenya Interest Rates 30

15 12.05 10 11.81 7 5 4.97 Percentage Rates (%) Rates Percentage

CBR 5 Year Bond InterBank Rate Lending Rate

Source: Central Bank of Kenya and Nairobi Securities Exchange Source: Central Bank of Kenya and Nairobi Securities Exchange

11.1.2.311.1.1.3 Medium Medium and and Long-Term Long-Term Interest Interest rate rate Kenya’sKenya’s yield yield curve curve has steepened has steepened in the recent in the period recent as the period short-term as the bills short reduced-term in billsyields reduced while the inmedium yields to longer maturitywhile the bonds medium increased to inlonger yield. Accordingmaturity boto Genghisnds increased Capital, therein yield. seems According to be a preference to Genghis for medium-term Capital, bonds sincethere most seems investors to be have a preference a perception forthat medium the risks -interm the long-termbonds since bonds most (10 andinvestors above haveyears) aare perception not well priced. that the risks in the long-term bonds (10 and above years) are not well priced.

FigureFigure 6: 6:Yield Yield Curve Curve

13.92 14 13.09 45 12.14

12 12.52 13.03 11.70 9.82 10 9.37

8 7.16 Percentage Rates (%) Rates Percentage 6

31st Dec 14th May

Source: Central Bank of Kenya and Nairobi Securities Exchange (NSE)

11.1.2.4 Foreign Exchange Rates 11.1.1.4 Source: Central Bank of Kenya and Nairobi Securities Exchange (NSE)Exchange Rates TheThe Kenya Kenya ShillingShilling hashas been been fairly fairly resilient resilient against against the dollar the over dollar the overpast few the years, past hoveringfew years, just abovehovering a KES/USD just rate of above100 from a KES/USD mid-2015 rate to 2019. of 100 The from Kenyan mid Shilling-2015 depreciated to 2019. by The 7.7% Kenyan against Shillingthe USD depreciatedin 2020 to close by at KES7.7% 109.2. This againstwas mainly the dueUSD to in increased 2020 to dollar close demand at KES as 109.2. investors This preferred was mainly holding due onto to hardincreased currency dollar during demandthe recessionary as period investorsoccasioned preferred by the global holding COVID-19 onto hardpandemic. currency There wasduring also the an observedrecessionary decrease period in dollar occasioned inflows from by both the exports of globalgoods COVID and services-19 pand such asemic. tourism There leading was to alsoa further an dollarobserved shortage. decrease in dollar inflows from both exports of goods and services such as tourism leading to a further dollar shortage. In April 2021, the Kenya Shilling appreciated marginally by 1.6% against the US Dollar to close the month at KES 107.95 In fromApril KES2021, 109.73 the Kenyathe average Shilling recorded appreciated during March marginally 2021, primarily by 1.6% attributable against the to theUS Dollarlacklustre to closedollar demandthe from month at KES 107.95 from KES 109.73 the average recorded during March 2021, primarily attributable to the lacklustre dollar demand from general importers and the effects of the 2nd containment affecting key counties to combat the 2nd COVID-19 wave. The shilling is expected to remain range-bound supported by high diaspora inflows, improving investment sentiment, 34 expected stable fuel prices and narrowing current account deficit. However, the shilling mayFamily Bank face is regulated by the Central Bank of Kenya challenges of dwindling forex reserves and lower exports.

The shilling weakening could help Kenya’s economy recover from the pandemic as a depreciation is supportive towards international competitiveness of domestic production.

8 Additional Comments

Comments General The graphs appear blurry and values in some graphs are obscured There are some paragraphs without spaces between different paragraphs. To ensure uniform spacing across the entire document CHAPTER 10 Condition Purchases should be italicized 8.2.7 Condition 9.3 Capital gains section to be removed or wording amended. Lawyers to confirm Condition (Notices) should be italicized 15.3 CHAPTER 11 Figure 2 The source caption should not be numbered and should be as follows: Source: World Bank Global Economic Prospects Reports Then INFORMATION MEMORANDUM, JUNE 2021 Chapter 11 subheadings

general importers and the effects of the 2nd containment affecting key counties to combat the 2nd COVID-19 wave. The shilling is expected to remain range-bound supported by high diaspora inflows, improving investment sentiment, expected Figure 6 stableYield fuel curve prices should and narrowing have all current the numbers account deficit. in the xHowever,-axis. the shilling may face challenges of dwindling forex reservesThe source and lower caption exports. should not be numbered and should be as follows: Source: Central Bank of Kenya and Nairobi Securities Exchange (NSE) TheThen shilling weakening could help Kenya’s economy recover from the pandemic as a depreciation is supportive towards international competitiveness of domestic production.

Figure 7 FigureThe values 7: USD/KES in the Exchange x-axis Rate should be as follows: 115

110.59

105.28 107.17 105 101.27

100.79

91.73

85 81.43

82.9

Chapter 11 subheadings Source: Central Bank of Kenya (CBK)

Figure 10 11.1.2.5 Kenya Debt & Government Accounts Analysis Kenya’s current account deficit in 2020 of 4.8% has reduced relative to the figures seen in the past, with a high of 12.2% in 2011. Government budgetary operations in the Financial Year 2019/20 resulted in a deficit on cash basis including grants of KSh 791.2 billion (7.8 percent of GDP) compared to KSh 721.1 billion (7.8 percent of GDP) in the previous year. However, it was below the target of 9.0 percent of GDP in the supplementary III budget despite the shortfall in revenue collection amidst increased expenditures to mitigate the effects of COVID-19.

Government debt as a percentage of GDP reached 65.6% in 2020, a substantial increase from 38% in 2012. The government debt stood at KES 7,352 Bn as of January 2021with External Debt denominated as a percentage of Total Government debt was 51.99%. The increasing debt levels have caused IMF and other institutions to raise concerns over the rising amount of government revenue used for debt servicing and the growing vulnerability to potential future shocks to the economy. In May of 2020, the IMF raised Kenya’s risk of debt distress to high from moderate due to the impact of the COVID-19. The IMF expects to see a reduction in the fiscal deficit going forward as some of the extraordinary measures put in place to reduce the impact of COVID-19 ended at the start of 2021. S&P Global Ratings lowered Kenya’s sovereign credit rating outlook to ‘B’ from ‘B+’ and assigned a stable outlook on March 5th 2021.

Paris Club of international creditors handed Kenya a Sh32.9 billion loan repayment break to help ease the financial distresses linked to the COVID-19 pandemic. Kenya is still eyeing debt service waivers by more lenders and has applied for relief under the G-20 Debt Service Suspension Initiative (DSSI) framework estimated at Sh40.6 billion due from January 1 to June 30 from non-Paris Club creditors. Last year, China announced it would pause payments for 77 developing countries. Consequently Kenya stands to gain relief from the Sh109.4 billion owed to China this year. Details of how Kenya will benefit from China’s relief are yet to be firmed up.

Family Bank is regulated by the Central Bank of Kenya 35 INFORMATION MEMORANDUM, JUNE 2021

Figure 8: Kenya Government Debt, Current Account and Budget Deficit

Figure80% 8: Kenya Government Debt, Current Account and Budget Deficit 16% 65.6% Figure 8: Kenya Government Debt, Current Account and Budget Deficit 62.4% 57.5% 59.1% 60%80% 53.8% 16% 12% 48.1% 48.8% 47.1% 39.8% 44.2% 65.6% 38.2% 62.4% 57.5% 59.1% 40%60% 53.8% 7.80%12% 8% 48.1% 48.8% 47.1% 39.8% 44.2% 38.2% 4.80% 7.80% 20%40% 8% 4% 4.80% 20%0% 4% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Gov. Debt (left axis) Current Acc. Deficit (right axis) Budget Deficit (right axis)

Gov. Debt (left axis) Current Acc. Deficit (right axis) Budget Deficit (right axis) Source: Bloomberg Source: Bloomberg Source: Bloomberg 11.2 Kenyan Banking Sector Overview 11.2 Kenyan Banking Sector Overview 11.2.111.2 KIndustryenyan Banking Structure Sector Overview 11.2.1As of DecemberIndustry Structure 31, 2020, the Kenyan banking sector comprised of, the Central Bank of Kenya As11.2.1 of December Industry 31, Structure 2020, the Kenyan banking sector comprised of, the Central Bank of Kenya (CBK) as the regulatory (CBK)As of Decemberas the regulatory 31, 2020, authority, the Kenyan 42 bankingbanking sectorinstitutions comprised (comprising of, the 41 Central commercial Bank of banks Kenya and 1 authority, 42 banking institutions (comprising 41 commercial banks and 1 mortgage finance company), 9 representative mortgage(CBK) as the finance regulatory company), authority, 9 42 representative banking institutions offices (comprising of foreign 41 banks, commercial 14 Microfinance banks and 1 Banks offices of foreign banks, 14 Microfinance Banks (MFBs), 3 Credit Reference Bureaus (CRBs), 17 Money Remittance Providers (MFBs),mortgage 3 Creditfinance Referencecompany), Bureaus9 representative (CRBs), offices17 Money of foreign Remittance banks, 14 Providers Microfinance (MRPs), Banks 8 non- (MRPs), 8 non-operating bank holding companies and 69 foreign exchange (forex) bureaus. Out of the 42 banking operating(MFBs), 3 Creditbank holdingReference companies Bureaus (CRBs), and 69 17 foreign Money exchangeRemittance (forex) Providers bureaus. (MRPs), Out 8 nonof the- 42 institutions,bankingoperating institutions, 40bank were holding privately 40 companiesownedwere whileprivately andthe Kenya 69owned foreign Government whileexchange hadthe majority Kenya(forex) ownership bureaus.Government in Out 2 institutions. ofhad the majority42 Of the 40 privatelyownershipbanking owned institutions, in banks,2 institutions. 2340 were were locallyOf privately the owned 40 privately(i.e.owned the controlling whileowned the shareholdersbanks, Kenya 23Government arewere domiciled locally inhad Kenya)owned majority while (i.e. 17 the were foreign-owned.controllingownership inshareholders The2 institutions. 23 locally-owned are Of domiciledthe institutions 40 privately incomprised Kenya) owned 22 while commercialbanks, 17 were23 banks were foreign and locally 1 -mortgageowned. owned financeThe (i.e. 23 the company.locally - Of theownedcontrolling 17 foreign-owned institutions shareholders institutions,comprised are domiciledall 22 were commercial commercial in Kenya) banks banks while with and 1714 1beingwere mortgage localforeign subsidiaries finance-owned. of company. Theforeign 23 bankslocally Of and -the 3 being17 branchesforeignowned -ofinstitutionsowned foreign institutions,banks. comprised all 22 were commercial commercial banks banksand 1 mortgagewith 14 being finance local company. subsidiaries Of the of 17 foreign banksforeign and-owned 3 being institutions, branches all were of foreign commercial banks. banks with 14 being local subsidiaries of foreign Figurebanks 9: and Kenya 3 beingBanking branches Industry of foreign banks. Figure 9: Kenya Banking Industry Figure 9: Kenya Banking Industry

Source: Central Bank of Kenya (CBK) Source:Source: Central Central Bank of Bank Kenya of(CBK) Kenya (CBK)

48 48

36 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

11.2.2 Asset Base The sector’s balance sheet grew by 12.5% to KES 5.4 trillion in December 2020 from 4.8 trillion in December 2019. The total banking sector lending grew by 8.27% to KES 2.999 trillion in September 2020 from KES 2.77 trillion in December 2019.

Asset quality decreased with the non-performing loans (NPLs) ratio decreasing to 13.6% in December 2020 from 12.0% in December 2019. This was attributed to a slowdown in business activities due to the adverse effects of the COVID-19 pandemic.

10 branches were opened by banks during the year 2019 while 25 were closed by banks during the same year. This had the net effect of decreasing the total number of branches from 1,505 in 2018 to 1,490 in 2019. Eight out of 47 counties saw an increase in the number of bank branches due to increased demand for financial services. Tharaka-Nithi and Turkana counties had the highest numbers of new branches with two each.

Table 3: Number of Branches per County

County Dec-18 Dec-19 Increase/ (Decrease) 1 Tharaka-Nithi 5 7 2 2 Turkana 5 7 2 3 Kilifi 33 34 1 4 Kwale 11 12 1 5 Narok 14 15 1 6 Samburu 2 3 1 7 Taita/Taveta 9 10 1 8 West Pokot 3 4 1 9 Baringo 10 10 0 10 Bomet 8 8 0 11 Busia 10 10 0 12 Elgeyo/Marakwet 6 6 0 13 Garissa 9 9 0 14 Isiolo 7 7 0 15 Kericho 17 17 0 16 Kitui 15 15 0 17 Lamu 9 9 0 18 Makueni 14 14 0 19 Mandera 3 3 0 20 Marsabit 7 7 0 21 Migori 13 13 0 22 Murang’a 20 20 0 23 Nakuru 62 62 0 24 Nandi 12 12 0 25 Nyamira 5 5 0 26 Nyandarua 10 10 0 27 Nyeri 29 29 0 28 Siaya 7 7 0 29 Tana River 3 3 0 30 Trans Nzoia 14 14 0 31 Uasin Gishu 46 46 0

Family Bank is regulated by the Central Bank of Kenya 37 INFORMATION MEMORANDUM, JUNE 2021

32 Vihiga 7 7 0 33 Wajir 4 4 0 34 Bungoma 16 15 -1 35 Embu 11 10 -1 36 Homa Bay 10 9 -1 37 Kakamega 18 17 -1 Increase/ 38 CountyKirinyaga Dec17-18 16Dec-19 -1 (Decrease) 39 Kisii 23 22 -1 38 Kirinyaga 17 16 -1 4039 KisiiLaikipia 2319 1822 --11 4140 LaikipiaMachakos 1931 3018 --11 4241 MachakosMeru 3140 3930 --11 4342 MeruKajiado 4048 4639 --21 43 Kajiado 48 46 -2 4444 KisumuKisumu 4141 3939 --22 4545 MombasaMombasa 125125 123123 --22 4646 KiambuKiambu 7777 7474 --33 4747 NairobiNairobi City City 600600 593593 --77 Total 1,505 1,490 -15 Total 1,505 1,490 -15 Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK) 11.2.3 Market Share 11.2.3Kenyan Market commercial Share banks are classified into three peer groups using a weighted composite Kenyanindex. commercialThe index banks comprises are classified net assets, into three customer peer groups deposits, using a capitalweighted and composite reserves, index. number The index of comprisesdeposit net assets,accounts customer and deposits, loan accounts. capital and reserves,A bank number with a of weighteddeposit accounts composite and loan index accounts. of 5%A bank and with above a weighted is compositeclassified index as a of large 5% and bank. above A is medium classified bankas a large has bank. a weighted A medium compositebank has a weighted index ofcomposite between index 1% of andbetween 1%5% andwhile 5% a while small a smallbank bank has has a weighteda weighted composite index index of less of thanless than1%. 1%.

ForFor the the year year ended ended December December 31, 2019, 31, there 2019, were there nine werelarge banksnine largewith a bankscombined with market a combined share of 74.68%, market nine mediumshare of banks 74.68%, with anine combined medium market banks share with of 17.10% a combined and 21 small market banks share with a of combined 17.10% marketand 21 share small of 8.22%.banks with a combined market share of 8.22%. Figure 10: Kenya Banking Industry Market Snapshot Figure 10: Kenya Banking Industry Market Snapshot

Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK) 11.2.4 Industry Performance 11.2.4The banking Industry sector Performance registered a decline in performance in 2020, with profit before tax decreasing Theby banking29.1% to sector KES112.79 registered billion a decline in December in performance 2020 in 2020,from KES159.1with profit billion before intax December decreasing by 2019. 29.1% to KES112.79 billion in December 2020 from KES159.1 billion in December 2019. The profitability decrease in the banking sector can be attributed to; Scrapping off of bank mobile Thecharges, profitability COVID decrease-19 overlay in the provisionsbanking sector on thecan loanbe attributed book and to; Scrappingincreased off operating of bank mobile costs charges, associated COVID-19 overlaywith COVID provisions-19 on safety the loan measures. book and increased operating costs associated with COVID-19 safety measures.

11.2.4.1 Lending per Sector Loan distributions by Sector has been consistent in 2019 and 2020. Three sectors, Personal and Households, Manufacturing and Real Estate accounted for more than 63% of the loans disbursed.

38 Family Bank is regulated by the Central Bank of Kenya

INFORMATION MEMORANDUM, JUNE 2021

Figure 11: Loan Distribution by Sector (KES Billion) Figure 11: Loan Distribution by Sector (KES Billion) 80 74 Figure 11: Loan Distribution by63 Sector (KES Billion) 58 80 5774 54 60 63 49 57 58 60 54 40 49 24 28 28 20 20 40 16 20 28 28 14 13 24 8 8 7 6 20 16 20 2 2 20 14 13 0 8 8 7 6 2 2 0

Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK)

Source: Central Bank of Kenya (CBK) 11.2.4.211.2.4.2 Deposits Deposits CustomerCustomer deposits, deposits, which which are theare mainthe mainsource source of funding of funding for the forbanks the grew banks by grew13.89% by from 13.89% KES from3,531.4 KES billion in 11.2.4.2 Deposits December3,531.4 billion 2019 into December KES 4,021.9 2019 billion to inKES December 4,021.9 billion2020. inThe December growth was 2020. supported The growth by the wasmobilization supported of deposits Customer deposits, which are the main source of funding for the banks grew by 13.89% from KES throughby the agencymobilization banking of and deposits mobile phonethrough platforms. agency banking and mobile phone platforms. 3,531.4 billion in December 2019 to KES 4,021.9 billion in December 2020. The growth was supported by the mobilization of deposits through agency banking and mobile phone platforms. 11.2.4.311.2.4.3 Asset Asset Quality Quality AssetAsset quality, quality, which which is measured is measured by the by ratio the of ratio gross of NPLs gross to NPLs gross to loans gross decreased loans decreased from 12.0% from in December 12.0% in 2019 to 11.2.4.3 Asset Quality December 2019 to 14.14% in December 2020. Asset14.14% quality, in December which 2020. is measured by the ratio of gross NPLs to gross loans decreased from 12.0% in December 2019 to 14.14% in December 2020. Figure 12: Banking Industry Proportion of NPL to Gross Loans Figure 12: Banking Industry Proportion of NPL to Gross Loans Figure100% 12: Banking Industry Proportion of NPL to Gross Loans 88.00% 85.86% 100% 80% 88.00% 85.86% 80% 60% 60% 40% 40% 20% 12.00% 14.14% 20% 12.00% 14.14% 0% Dec, 2019 Dec, 2020 0% Dec, 2019Performing Loans Non-Performing LoansDec, 2020 Performing Loans Non-Performing Loans Source: Central Bank of Kenya (CBK)

Source:Source: Central Central Bank Bank of Kenya of (CBK)Kenya (CBK) 11.2.4.4 Profitability The banking sector registered a decline in performance in 2020 with profit before tax decreasing 11.2.4.4 Profitability by 29.1% to KES112.79 billion in December 2020 from KES159.1 billion in December 2019. The banking sector registered a decline in performance in 2020 with profit before tax decreasing by 29.1% to KES112.79 billion in December 2020 from KES159.1 billion in December 2019.

51 39 Family Bank is regulated by the Central Bank of Kenya 51

INFORMATION MEMORANDUM, JUNE 2021

11.2.4.4 Profitability The banking sector registered a decline in performance in 2020 with profit before tax decreasing by 29.1% to KES112.79 billion in December 2020 from KES159.1 billion in December 2019.

TheThe Theprofitability profitability profitability decrease decrease decrease in the in theinbanking the banking banking sector sector can sector be can attributedcan be beattributed attributed to; scrapping to; to;scrapping offscrapping of bank off ofoffmobile bank of bankcharges, mobile mobile COVID-19 overlaycharges,charges, provisions COVID COVID on- 19the-19 overlay loan overlay book provisions andprovisions increased on on the operating the loan loan book costs book and associated and increased increased with operatingCOVID-19 operating safety costs costs measures. associ associatedated withwith COVID COVID-19-19 safety safety measures. measures. The historical composition of the gross income and gross expenses is as follows: TheThe historical historical composition composition of ofthe the gross gross income income and and gross gross expenses expenses is as is follows:as follows: Figure 13: Composition of Gross Income FigureFigure 13 :13 Composition: Composition of Grossof Gross Income Income

20182018 20192019

20.0%20.0% 21.7%21.7% 4.9%4.9% 49.3%49.3% 6.3%6.3% 23.2% 51.9%51.9% 23.2% 22.7%22.7%

Interest on Loans and Advances Interest on Loans and Advances Interest on Loans and Advances Interest on Loans and Advances Interest on Government Securities Interest on Government Securities Interest on Government Securities Interest on Government Securities Fees and Commissions Fees and Commissions Fees and Commissions Fees and Commissions Miscellaneous Miscellaneous Miscellaneous Miscellaneous

Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK) Figure 14: Composition of Gross Expenses Figure 14: Composition of Gross Expenses Figure 14: Composition of Gross Expenses 2018 2019 2018 2019 8.5% 10.5% 8.5% 10.5%

38.3% 36.3% 27.9% 38.3% 27.8% 36.3% 27.9% 27.8%

25.2% 25.4% 25.2% 25.4%

Interest on Deposits Salaries and Wages Interest on Deposits Salaries and Wages Interest on Deposits Salaries and Wages Interest on Deposits Salaries and Wages Other Expenses Miscellaneous Other Expenses Miscellaneous Other Expenses Miscellaneous Other Expenses Miscellaneous

Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK) Source: Central Bank of Kenya (CBK) 11.2.4.5 Liquidity 11.2.4.5Liquidity11.2.4.5 Liquidity in Liquidity the banking sector increased from 49.74% in December 2019 to 54.55% in December Liquidity2020.Liquidity This in the was in banking the well banking above sector theincreasedsector minimum increased from statutory49.74% from in ratio 49.74%December of 20%.in 2019December to 54.55% 2019 in toDecember 54.55% 2020.in December This was well above2020. the minimumThis was statutorywell above ratio the of 20%. minimum statutory ratio of 20%.

52 52

40 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

11.2.5 Recent Developments 11.2.5.1 Mergers and Acquisitions There has been an increase in Mergers and Acquisitions within the past few years primarily due to the need to improve capital adequacy ratios, in line with the Central Bank’s capital adequacy requirements. Another reason for the mergers is to increase the economies of scale to effectively compete with the larger tier 1 banks.

11.2.5.2 Asset Quality NPLs have increased over the past few years with the NPL ratio standing at 14.14% as of December 2020. The increase in the NPL ratio is primarily due to a decline in economic activities, poor weather conditions that have affected the agricultural sector, slowdown in the housing sector and the effects of the COVID-19 pandemic.

11.2.5.3 Technology There is increased deployment of technology as banks seek to minimise costs. All the banks now have either online or mobile platforms that have helped their clients carry out their transactions without the need of visiting the banks. Services provided include online account opening, balance checking and electronic money transfer. Several branches have also been replaced with Automated Teller Machines.

11.2.5.4 Strategic Partnerships Banks are seeking to increase their non-funded income through strategic partnerships. Key examples of these products include Fuliza, a loan product by Safaricom & NCBA Bank and KCB KCB-Mpesa, a loan product by Safaricom & KCB Bank.

11.2.6 Future Outlook The Kenyan banking sector is expected to remain stable and resilient in 2021. The banking sector’s capital buffer requirements in Kenya are above capital adequacy requirements as set by the Central Bank of Kenya.

Family Bank is regulated by the Central Bank of Kenya 41 INFORMATION MEMORANDUM, JUNE 2021

12 Family Bank Limited Business Overview

12.1 History and Background Family Bank Limited (“the Bank” or “Family Bank” is a fully-fledged commercial bank, licensed and operating under the provisions of the Banking Act (Cap 488 Laws of Kenya) and the Central Bank of Kenya (CBK) Prudential Guidelines. The Bank is also a member of the Kenya Deposit Insurance Corporation (KDIC) and the Kenya Bankers Association (KBA).

Family Finance Building Society - the predecessor to Family Bank, was registered as a Building Society in October 1984 in Kenya, under the Building Societies Act and commenced operations in early 1985. Since its inception, Family Finance Building Society’s mission has been to liberate the unbanked from financial bondage and the poverty cycle.

Family Bank was incorporated as a private limited liability company limited by shares with the name “Family Bank Limited” on 11th April 2006 under the Companies Act (cap 486 Laws of Kenya, now repealed) with registration number C. 124197. Family Bank became a bank on the conversion of Family Finance Building Society to a commercial bank by the transfer of its assets and liabilities to the Bank with the Central Bank of Kenya granting its approval for the transfer of the assets and liabilities on 4th April 2007 and the Registrar of Building Societies granting its approval on 11th May 2007. The main driver for the conversion was the need to offer a broader range of products and services to its customers.

Family Bank converted to a public company on 10th May 2006 by a resolution amending its Articles of Association and was issued with a certificate to commence business as a public company on 21st June 2007 with registration number 34/2007.

From only one branch in 1985, the Bank has grown over time and currently enjoys a network of 92 branches countrywide, the 4th largest branch network in the country as of 31st December 2020. It was the first Bank in Kenya to introduce paperless banking through smart card technology that enables customers to transact without having to fill in deposit or withdrawal slips.

The Bank now has over 600,000 customers with Total Assets exceeding KES 90 billion and a deposit base in excess of KES 70 billion. Furthermore, the Bank is leveraging the successful adoption of the universal banking model, which aims at gradually positioning the Bank as a one stop-shop providing retail and consumer products, SME, agribusiness, corporate banking, trade finance and insurance products.

Vision: To be the financial institution that leads in the positive transformation of people’s lives in Africa.

Mission: We positively transform people’s lives by providing quality financial services through innovative, efficient and reputable practices

Purpose: To enable people create and sustain wealth through access to flexible, affordable financial services.

Core Values: • Winning Together – Within ourselves and with our customers, we work together and we win together • Self-Belief – in ourselves and our customers’ ability to change the world • Transparency – our customers will trust and reward us for it • Humility – it’s not about us, it’s about our customers

Tagline: “With you, for life”

42 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

12.2 Key Milestones

12.3 Accolades Family Bank, in its transformation process leading it to becoming one of the fastest growing banks in Kenya, has had the following achievements:

• Best Tier 2 Bank in Digital Experience and Customer Responsiveness 2021 - Kenya Banker’s Customer Satisfaction Survey. • Member of the UN-Global Compact Network (pictured right).

2019 • Best SME Bank Kenya – Banker Africa Awards. • Nominated for the 2019 Banker Africa Innovation Award.

• Best SME Bank Kenya award – 2017 Banker Africa East Africa Awards. 2017

• Voted the Fastest growing Bank in Kenya - Think Business Awards. 2015 • Bank’s CEO featured in Business Daily survey as among the most influential and visionary CEOs in the country-Nation Media Group.

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• 1st Runners-up as Best Bank in Micro-Finance - Think Business Awards. 2014 • Bank’s CEO featured in Business Daily survey as among the most influential and visionary CEOs in the country-Nation Media Group. • Best Farmers Bank in Kiambu and Laikipia counties – ASK. • 2nd best financial services provider in Kitui County – ASK. • The 3rd Best Commercial Bank stand at The Nairobi International Trade Fair - ASK.

12.4 Branch Network Family Bank has the 4th largest branch network in Kenya cutting across major urban and rural centres in the country. The Bank has grown from one branch in 1985, to the current network of 92 branches, 3,666 agents and 144 Automated Teller Machines (ATM’s) spread across 31 out of 47 counties in Kenya. These are represented below:

Table 4: Family Bank Branch Network

County Name of The Branch County Name of The Branch Nairobi Cargen Branch Kiambu Banana Branch (27) Dagoretti Branch (13) Gatundu Branch Donholm Branch Githunguri Branch Eastleigh Branch Githurai Branch Family Bank Towers Corp Kagwe Branch Family Bank Towers Retail Kiambu Branch Gikomba Area 42 Branch Kikuyu Branch Gikomba Branch Limuru Branch Industrial Area Branch Ruaka Branch Jkia Branch Ruiru Branch Kahawa West Branch Thika Branch Kangemi Branch Thika Makongeni Branch Kariobangi Branch Wangige Branch Kasarani Branch Mombasa Mombabsa DIGO Branch Kayole Branch (4) Mombasa Kenyatta Avenue Kenyatta Avenue Branch Mombasa Nkrumah Kilimani Branch Mtwapa Branch KTDA Corporate Branch Murang’a Kangari Branch KTDA Retail Branch (4) Kangema Branch Laptrust Nbi Branch Kiria-Ini Branch NBI City Hall Branch Muranga Branch Ngara Branch Nakuru Molo Branch River Road Branch (4) Naivasha Branch Sonalux Branch Nakuru Finance Branch Tom Mboya Branch Nakuru Market Branch Utawala Branch Uasin Gishu Eldoret Branch Westlands Branch (2) Eldoret West Branch Nyeri Karatina Branch Kajiado Kajiado Branch (3) Nyeri Branch (3) Kitengela Branch Othaya Branch Ongata Rongai Branch

44 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

Machakos Gateway Mall Branch Meru Maua Branch (3) Machakos Branch (3) Meru Branch Mlolongo Branch Nkubu Branch Laikipia Nanyuki Branch Kakamega Kakamega Branch (2) Nyahururu Branch (2) Mumias Branch Kericho Kericho Branch Kisii Kisii Branch (2) Litein Branch Kisumu Kisumu Reliance Branch Kirinyaga Kerugoya Branch Kitui Kitui Branch (3) Kutus Branch Kwale Ukunda Branch Mwea Branch Bomet Bomet Branch Bungoma Bungoma Branch Narok Narok Branch Busia Busia Branch Nyamira Nyamira Branch Embu Embu Branch Nyandarua Ol Kalou Branch Kilifi Malindi Branch Tharaka Nithi Chuka Branch Makueni Wote Branch Trans Nzoia Kitale Branch Migori Migori Branch Nandi Kapsabet Branch

Source: Family Bank Records

12.5 Products and Services Family Bank Ltd offers a wide range of commercial banking products and services to its customers in Kenya. The Bank’s products & services are offered to a cross-section of customers in the Retail, corporate, SME and Micro sectors.

The major services and products currently on offer are summarised in the following sections.

12.5.1 Personal Banking 12.5.1.1 Current Accounts • Personal Current Account: The Personal Current account enables customers to undertake banking transactions using a cheque book and the Family Bank VISA Card. The product provides customers with access to digital banking services as well as various bank loans and facilities. • Salary Account: Family Bank salary account is the ideal personal bank account for employed customers who need to access their funds after payment by the employer. It has no monthly charges, no minimum opening or operating balance and provides access to salary-based loans and advances. • Mwananchi Account: The Mwananchi account is open to individuals of all walks of life and occupations, designed to make their banking life convenient. It’s a hassle-free banking service and convenient banking. It also provides access to various loan facilities. • Scholar Account: This is a bank account designed for students in Universities, Colleges, Polytechnics and other institutions of higher learning. Loans for students from Higher Education Loans Board (HELB) can be disbursed to this account. The account has features such as a low opening balance, no account maintenance fee and a personal accident cover. • Maestro Visionary Account: This account is tailored for young professionals aged between 18 and 26. It’s an account for people with big plans who need a serious account that offers excellent benefits to match their lifestyle. It is an affordable account with low opening and minimum balances, and no maintenance fees. • Extra Cool Visionary Account: This account is specifically tailored for young people between the ages of 12 and 18 and offers the benefit of a VISA card. It has features such as low opening and minimum balance, and has no account maintenance fees. It is an account for creative, intelligent and responsible people matched to their personality and looking for their own financial space to a great future. The account provides youth financial literacy seminars to account holders. The account can be opened by a parent or guardian at any Family Bank branch countrywide. • Foreign Currency Accounts in USD GBP and EUR: these are available for individuals and corporates with cash flows denominated in those currencies.

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12.5.1.2 Savings Accounts • The Tujenge Account: This is an account designed to aid regular income earners accumulate funds to achieve their financial management goals. This account facilitates a savings plan through a cash, cheque, standing order or check-off from the employer and can be opened with any amount of cash and carries no charges. • Mdosi Junior Account: This account is ideal account for children below 12 years of age and is operated by a parent or guardian. The account has additional features, including a free banker’s cheques for payment of a child’s school fees and incurs no ledger fee charges. • Chama Account: This is a savings account designed for formal and informal groups such as “chamas”, self-help groups, welfare groups, partnerships and investment groups, which helps to facilitate wealth creation and welfare activities of its members. This account can also be used to appraise customers for “chama” loans.

12.5.1.3 Investment • Call: The facility provides an investment opportunity where a client can place funds with the bank to earn interest with the option to withdraw at any given time. • Fixed Deposit account: The facility offers customers a saving option for a fixed duration of time at a pre-agreed interest rate.

12.5.1.4 Personal Loans Mobile Loans: Family Bank mobile loan allows both Family Bank customers and non-customers to access affordable instant mobile loans through PesaPap wallet or the USSD feature (*325#) to meet their personal and emergency needs.

Salary Loan: Salary loans are available to all Family Bank account holders who process a regular income from their employers. It is ideal for individuals who earn a regular salary income through their employment contracts.

Salary Advance: Salary advance is a short-term loan open to all salaried employees who have an account with Family Bank. An individual can receive up to 50% of their previous month’s net salary. Salary advance is also available to customers via PesaPap mobile application, USSD feature and at all Family Bank ATMs.

12.5.2 Diaspora Banking Diaspora banking offers quality, convenient and reliable financial services to the Kenyans in the Diaspora. Family Bank has both current and savings account under the “Mkenya Daima” brand name, i.e. Mkenya Daima Savings Account and Mkenya Daima Current Account. Diaspora customers have access to loans and various investment solutions that are offered by dedicated relationship managers and can also transact through the internet banking platform.

12.5.3 Business Banking Family Bank guarantees proactive partnership through dedicated Corporate Relationship Managers who are the point of contact for all its corporate customers banking needs. Family Bank offers the following accounts in Business Banking: • Business Current Account: This account enables the account holder to transact using a cheque book and with the ability to access Pesa Pap Mobile Banking. It also provides access to various business loans and facilities from the bank. This account is ideal for registered businesses, organizations or groups. • Jenga Bizna: This account is specifically tailored for micro-businesses, start-ups and for Jua Kali artisans and other low scale businesses. Its features include no opening balances, no ledger fees, no limitation on withdrawals and no minimum operating balances. It also provides access to micro credit loans. • Church Account: The account is tailored for churches or faith based institutions with numerous projects and in need of financing from a reputable bank. Family Bank offers specialized banking services to religious organizations of all types, regardless of creed or theology. • Collection Account: The Bank offers money collection accounts designed to enhance cash flow and money management processes for universities, utility companies, hospitals, religious bodies and government parastatals. • NGO Miradi Account: The Family Bank NGO Miradi Account offers Non-Profit Organisations tailor-made financial solutions, hassle-free banking in the most convenient manner. It is ideal for NGOs, diplomatic missions, trusts, charities and foundations. • Check-off Loan: Check-off loans are available to all employees whose employers have signed a memorandum of agreement (MOU) with Family Bank to process loan facilities. Monthly instalments are paid directly to the bank.

46 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

12.5.3.1 Business Facilities • Asset Finance: Asset finance is available to business account holders and is intended to assist in the acquiring movable assets, such as, motor vehicles, pick-ups, buses and lorries. Other assets include: tractors, heavy earth moving equipment, machinery and motor cycles. • MajiPlus: Family Bank partnered with Water.org, to provide a tailor-made financial solution that seeks to provide flexible financial solutions to individuals, micro-business, SMEs and Water Service Providers (WSPs) such as water companies and Water, Sanitation and Hygiene (WASH) service providers. • Cheque Discounting: The Bank discounts cheques deposited by existing customers drawn on reputable organisations and confirmed with the drawers and/or the drawer’s bank. Cheque discounting enables customers to access cash for their business requirements while they await their cheque(s) to clear. • Overdraft Loans: Overdraft loans are available to existing Family Bank customers for financing working capital. A maximum period of 12 months is allowed for repayment.

12.5.3.2 Agribusiness Loans • Agribusiness Asset Finance Loan: Finance purchase of farm machinery, agri-equipment & vehicles used in agricultural production and transportation. • Agricultural inputs& working Capital Finance: Finance purchase of farm inputs and production activities. • Dairy Loan: To finance actors in dairy value chains e.g. dairy herd improvement, dairy equipment etc. • Livestock Loan: To finance actors in Livestock value chain e.g. steers fattening, ranching fish, poultry, pigs etc. • Agribusiness project secured loans: Finance businesses projects, private/public partnership projects with partners, donors and government. • Contract growers’ finance: The product is designed for farmers/agribusiness who have formal contracts from reputable institution/organisations /buyers. • Biogas & other clean energy: Construction of biogas digesters and accessories such as biogas cookers, biogas.

12.5.3.3 Micro Loans • Biashara Boost Loan: Biashara Boost Loan is specially designed for micro-businesses that require funds to expand their existing business line(s) profitably. • Chama Investment Loan: The Bank finances up to 10 times on group savings and provides financing options such as: land purchase, construction (real estate development), property acquisition, asset finance (M/Vehicles/Machinery/ Equipment) and listed shares & bonds.

12.5.3.4 Trade Finance Family Bank facilitates sourcing and financing of trade inputs for its clients. Through the Trade finance departments, the bank can offer the following: • Bid Bonds; • Letters of credit; • LPO financing; • Bank Guarantees including Performance Bonds, Payment Bank Guarantees, Custom Bonds etc; • Stock Financing; • Collections; and • Avalised Bills and trade loans.

12.5.4 Treasury Services Family Bank has a robust treasury division designed to provide a one-stop-shop for all its customers’ foreign exchange and money market needs. They have a team of highly trained and experienced dealers who are well placed to support customers’ businesses.

12.5.4.1 Treasury products • Spot Deals: The Bank offers spot dealing for all major currencies. • Forward Contracts: This is a hedging instrument that clients use to purchase or sell foreign currencies for delivery/ receipt at a future date, generally between one to six months. • Currency Swap: This product can assist enhance liquidity in a particular currency using surplus funds in a different currency.

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• Foreign Currency Banker’s Cheques (Local): These are banker’s cheques issued and denominated in major foreign currencies US Dollar, Sterling Pound and Euro for local Banks. • Structured Deals: Treasury, in conjunction with other departments such as Trade Finance and Corporate Banking offers clients customized structured finance solutions depending on their needs. • Foreign Current Accounts: The Bank offers foreign currency accounts to their customers. This can either be a current account or a savings account. These accounts are mainly in the major currencies, i.e. USD, GBP and Euro. • Treasury Bills and Bonds Investment: Family Bank invests in T-Bills and Bonds on behalf of their clients at a small commission. • Foreign Currency Lending: The Bank offers foreign currency loans to both individual and corporates.

12.5.5 Mortgages Family Bank, is determined to help its clients in their construction projects and also the staff to realize their treasured dreams of owning a home. Family Bank offers 100% mortgage financing.

Family Bank’s Growing Home Mortgage has a wide range of mortgage services that include: • Brick by Brick: Enables customers to build homes and pay in affordable stages and move in the homes once the first phase is done. • Estate Development: This is a product available to Developers who intend to put up houses for sale can get financing. • Company Schemes: This enables Employers to access subsidized mortgage plans for their employees. • Construction Loans: The Bank provides construction loans based on the value of the land on which the construction is to take place and type of development. Construction loans are available to both residential housing development as well as estate development. • Owner Occupier: Customer identifies the house they want to occupy and Family Bank finances it. Owner-occupier is secured by the dwelling house. Repayment for an owner-occupier mortgage is capped at a maximum of 25 years. • Plot Loans: Family Bank assists its customer to buy land for future developments.

12.5.6 Bancassurance Through partnerships with reputable insurance companies in the industry, Family Bank Insurance Agency Limited (FBIA) offers a full bouquet of innovative insurance products and services.

The primary services and products currently on offer are: • Motor Insurance: FBIA offers comprehensive and third party covers for motor insurance policies. The various motor classes include Public Service Vehicles (PSV), Motorcycles-Private, Motor Private-Insurance, Motor Commercial insurance and institutional vehicles. • Education Plan: Education Plan provides insurance for the life of a child for a specific period of time. It may also include an early payment feature allowing the recipients a specific percentage of the insured amount each year, with the remainder of the sum assured plus interest paid at the end of the policy term. • Property Insurance: Property insurance includes: marine insurance, livestock insurance and Homeowners Comprehensive Insurance (HOCI). • Personal Accident Insurance: Personal Accident insurance provides compensation for death, permanent disability and temporary loss of income due to disability from an accident. • Group credit Life Assurance: Group Credit Life Assurance provides life cover to borrowers of credit institutions, such as banks. In the unfortunate event of the member’s death during the term of the policy, the outstanding loan amount would be repaid by the insurance company thus relieving the member’s family. • Endowment Plan: This policy gives a combination of death protection and investment for a stated period. The full sum assured is payable plus applicable interest on the survival of the assured to the term or permanent total disability and/ or death. • Family Afya: Family Afya enables customers to manage their finances and access quality healthcare across many healthcare providers in Kenya. The product offers: Inpatient, Outpatient, Maternity, Dental, and Optical. The product is available to Individuals, families, groups and organisations. • Funeral Cover: FBIA funeral expense package is designed to protect customers’ financial security, as well as your loved ones, in case of their demise.

48 Family Bank is regulated by the Central Bank of Kenya • Group credit Life Assurance: Group Credit Life Assurance provides life cover to borrowers of credit institutions, such as banks. In the unfortunate event of the member’s death during the term of the policy, the outstanding loan amount would be repaid by the insurance company thus relieving the member’s family. • Endowment Plan: This policy gives a combination of death protection and investment for a stated period. The full sum assured is payable plus applicable interest on the survival of the assured to the term or permanent total disability and/or death. • Family Afya: Family Afya enables customers to manage their finances and access quality healthcare across many healthcare providers in Kenya. The product offers: Inpatient, Outpatient, Maternity, Dental, and Optical. The product is available to Individuals, families, groups and organisations. • Funeral Cover: FBIA funeral expense package is designed to protect customers’ financial security, as well as your loved ones, in case of their demise. 12.5.7 Digital Financial Products Family Bank offers clients various digital financial products INFORMATIONto enable them MEMORANDUM, to enjoy convenient JUNE 2021 banking

• Cards: this includes Visa Debit, Credit and Pre-paid cards available to customers operating an 12.5.7 Digital Financial Products account with the bank Family Bank offers clients various digital financial products to enable them to enjoy convenient banking •• Cards:Mobile this Banking: includes Visa Pesapap Debit, Credit application and Pre-paid is cards available available for to customersmobile banking operating needsan account and with is theeasy bank to • Mobiledownload Banking: and Pesapap use. application is available for mobile banking needs and is easy to download and use. •• InternetInternet Banking: Banking: Both Both for individualfor individual clients clientsand Family and Pay Family for Corporates. Pay for Corporates. •• AgencyAgency Banking: Banking: bringing bringing banking banking to the customer to the customerdoorsteps countrywide. doorsteps countrywide.

12.612.6 OrganisationOrganisation Structure Structure FigureFigure 15: 15 :Family Family Bank’s Bank’s High-Level High-Level Organisation Organisation Structure Structure

Source:Source: Family Family Bank BankRecords Records

12.712.7 EmployeesEmployees AsThe of 31stGroup December has employed 2020, the Group a total had employedof 1,116 aemployees, total of 1,116 employees,52% male 52% and male 48% and female. 48% female. 997 997employees employees areare permanent, permanent and, 119and employees 119 employees are under arecontract. under The contract breakdown. Theis shown breakdown below: is shown below:

TableTable 5: 5 :Family Family Bank Bank Employees Employees Contract Type Female Male Total ContractPermanent Type Female 482 Male 515 Total997 PermanentContract 482 54 515 65 119 997 ContractGrand Total 54 536 65 580 1,116 119 Grand Total 536 580 1,116 Source: Family Bank Records 62

Family Bank is regulated by the Central Bank of Kenya 49 INFORMATION MEMORANDUM, JUNE 2021

12.8 Board of Directors The Board of Directors is responsible for the governance of the Company. It comprises of seven non-executive directors, the Chief Executive Officer and the Company Secretary. The summary profiles of the directors of Family Bank’s Board is as follows:

Table 6: Family Bank Board of Directors

Director Summary Profile Dr. Wilfred D. Kiboro, EBS Dr. Kiboro holds a Bachelor of Science, Civil Engineering from the University of Nairobi Age: 77 and he began his engineering career with Shell and Esso. He was later appointed as Chairman Managing Director of Rank Xerox, and he is the former Chief Executive Officer of the Non-Executive Director Nation Media Group, where he still serves as Chairman. He is the Chancellor of Riara University, a Trustee of the Rhino Ark, and the Chairman of Wilfay Investment Limited and Africa Digital Network Limited and Chairman of Green Blue Africa Foundation. Dr. Kiboro has received various accolades including being a Member of the International Who’s Who of Professionals, and he is a past Chairman of several organisations, including the Media Owners Association, the East African Business Council, the International Press Institute Board, the Federation of Kenyan Employers, and the Standard Chartered Bank, Kenya. He has also served on the Boards of the Kenya Association of Manufacturers, the National Environmental Management Authority (NEMA) and East African Breweries Limited among others. Dr. Ruth Waweru Dr. Ruth Waweru holds a Bachelor of Education from Kenyatta University, an MBA Age: 56 from the University of Nairobi and a Doctorate Degree in Business Administration Vice-Chairperson from Nelson Mandela University in South Africa. Non-Executive Director She is an entrepreneur, management consultant and a corporate leader. Dr. Ruth, through Liaison Consulting Limited, has provided consultancy services to governments, companies and development agencies in Africa for over 20 years.

Dr. Ruth has extensive experience in Corporate Governance. At the international level, she is on the Supervisory board of Oikocredit International based in the Netherlands that has presence in several countries. She is currently the Supervisory Board Investment committee’s chairperson and previously held various positions for 11 years. She is on the board of Partners Worldwide based in US Michigan State with a presence in 27 countries. In Kenya, Dr. Ruth is on the board of Kenya Orient Life Assurance LTD, Partners Worldwide (Kenya) and Family Bank Insurance Agency. She is the founder Director of Brookhurst International School.

Dr. Ruth has been involved in business-related academic programs with Nelson Mandela University, Riara University and the University of Nairobi and is a visiting Professor and resource Faculty member in the University of Kigali-Rwanda. Mr. Titus K. Muya TK, as he is popularly known, founded Family Bank in 1984, and he served as the Age: 78 institution’s Chief Executive Officer from 1984 to June 2006, after which he chaired Non-Executive Director the Banks Board of Directors until December 2012. He is one of Kenya’s leading visionary entrepreneurs associated with various companies, including Kenya Orient Insurance Limited, Daykio Plantations Limited and Alpha Africa Asset Managers Limited, on whose Boards he sits or is represented in different capacities.

In recognition of his entrepreneurship and, more specifically, his contribution to the banking industry, TK was awarded the national accolade, Elder of the Order of the Burning Spear, in December 2011.

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Director Summary Profile Arch. Francis Gitau Mungai Mr Gitau holds a Masters Degree in Architecture and Urban Design from the University Age: 64 of California, Los Angeles (UCLA) and a Bachelor of Architecture degree, First Class Non-Executive Director Honours from the University of Nairobi. He is also a Fellow of the Architectural Association of Kenya (FAAK) and is registered by the Board of Registration of Architects & Quantity Surveyors (BORAQS) in Kenya. He is the founding Partner of Aaki Consultants, Architects and Urban Designer and has worked as an Architect with prominent firms like Triad Architects in Nairobi, and Urban Innovation Group (UIG) in Los Angeles.

He was the Chairman of the Board of National Housing Corporation, where he had previously served as a Director. He has been a Chairman of various bodies such as the Architectural Association of Kenya (AAK), Kenya Private Sector Alliance (KEPSA) where he was Director and Chairman of Building and Infrastructure Board. He is a former lecturer at the University of Nairobi, Architecture and Building Sciences Department, where he focused on both Architectural and Urban Design Studios, as well as Professional Practice and Management. Mr. Lerionka S. Tiampati, MBS Mr. Tiampati holds a postgraduate degree (MSc.) in Marketing and Product Age: 57 Management from the Cranfield Institute of Technology (Cranfield University) in the Non-Executive Director United Kingdom, a diploma of the Chartered Institute of Marketing (DIPM) from the United Kingdom and an undergraduate degree in Business Administration (B.Com) from the University of Nairobi. Mr. Tiampati is currently the Chief Executive Officer of Kenya Tea Development Agency Holdings Ltd. He serves on the Boards of KTDA (H) subsidiary companies. Before his current role, he was the Managing Director of Kenya Tea Packers Ltd and Head of Marketing at the Standard Chartered Bank Ltd. Mr. Lazarus Muema Mr. Muema holds a Bachelor of Commerce Degree from the University of Nairobi and Age: 65 is a Certified Public Accountant (CPAK). Lazarus was appointed to the Family Bank Non-Executive Director Board in 2017. He is a highly respected professional in the Finance/Pensions sector with experience spanning over 30 years, having held senior positions in multinational corporations both in Kenya and Europe. He has been a Finance Manager at Shell Exploration in Kenya and Shell Uganda, a financial controller at Kenya Shell and a finance advisor at Shell International London, rising through the ranks to the position of the Pensions Investment and Policy Advisor for Africa by the time he left in 2011. Currently, he is a pension consultant with Penplan Services Limited, a Pensions Consultancy Firm that he founded in 2011.

He is a board member in various companies including Kenya Orient Insurance Company and East African Gasoil Company. He is also a board member of The Mt. Kenya Academy Foundation. He is currently the Board Chair of Riscura Solutions (Kenya) Ltd, an investment consulting firm with its hold company based in South Africa. He is also a former Chairman of the Association of Retirement Benefits Schemes of Kenya, Bright Technologies Ltd and Nanga Investments Ltd.

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Director Summary Profile Ms. Mary Njeri Mburu Ms. Mburu was appointed to the Board of Family Bank in October 2020. She holds Age: 57 a Masters degree in Business Administration (MBA) from United States International Non-Executive Director, University 1994, a Bachelor of Science degree in Agriculture BSc. From the University Independent of Nairobi 1990. She is currently pursuing a Doctorate in Business Administration (DBA) in Global Supply Management. Professionally, Ms Mburu is also a Certified Contracting Officer Representative (COR) in Project Management.

Ms. Mburu has worked as a Senior Acquisition and Assistance Specialist (Senior A&A Specialist) at USAID overseas Missions designated as a Third Country National (TCN) for six years. Before her overseas assignment, she worked at USAID Regional Mission in Nairobi for 7 Years as an Acquisition and Assistance specialist (A&A Specialist). Ms.Mburu has vast experience in Project Management in Economic Growth, Education, Governance and Infrastructure. Previously, Mary worked for the Kenya Pipeline Company as a Senior Officer in Procurement. Ms. Rebecca Mbithi Rebecca holds an MBA with a concentration in Strategic Management from USIU Age: 46 and an LL. B degree from the University of Nairobi. She is a CPA and a member of the Managing Director and Chief Institute of Certified Public Accountants of Kenya, a Certified Secretary and a Member Executive Officer of the Institute of Certified Secretaries, an advocate of the High Court of Kenya and a member of the Law Society of Kenya. In addition, she is a Certified Executive Coach. She joined Family Bank in January 2015, taking on the role of Company Secretary & Director, Legal Services.

Rebecca was appointed CEO of Family Bank in February 2019. She is a seasoned professional and a respected lawyer with an extensive leadership background in various organisations, having previously worked at Kenya Tea Development Agencies, where she served as Head of Legal and Regulatory Affairs and Rift Valley Railways, where she served as the Company Secretary & Legal Counsel. She has vast domain expertise and knowledge in law, project finance, corporate restructuring, equity/debt raising and governance, and has served in the Corporate Governance and Committee of the Institute of Certified Secretaries Kenya. Mr. Eric K. Murai Eric holds a Master of Laws (LL.M) and a Bachelor of Laws (LL.B) from the University Age: 39 of Nairobi and a BSc. In Applied Accounting from Oxford Brookes University. He is Company Secretary and Chief an advocate of the High Court of Kenya, a member of the Law Society of Kenya and Legal Officer a member of the Institute of Certified Secretaries. He is also a certified professional mediator.

Eric is the Company Secretary and Chief Legal Officer. He was appointed Company Secretary and Head of Legal Services in October 2019.

Eric is an experienced in-house counsel and corporate governance professional, having previously worked as the Assistant Company Secretary at Britam Holdings Plc and as Legal Counsel at Standard Chartered Bank Kenya. He has vast experience in banking and finance law, corporate finance projects and corporate governance and regulatory compliance.

Source: Family Bank Records

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12.9 Senior Management The summary profiles of Family Bank’s senior management is as follows:

Table 7: Family Bank Senior Management

Senior Manager Summary Profile Ms. Rebecca Mbithi Rebecca holds an MBA with a concentration in Strategic Management from USIU Age: 46 and an LL. B degree from the University of Nairobi. She is a CPA and a member of the Managing Director and Chief Institute of Certified Public Accountants of Kenya, a Certified Secretary and a Member Executive Officer of the Institute of Certified Secretaries, an advocate of the High Court of Kenya and a member of the Law Society of Kenya. In addition, she is a Certified Executive Coach. She joined Family Bank in January 2015, taking on the role of Company Secretary & Director, Legal Services.

Rebecca was appointed CEO of Family Bank in February 2019. She is a seasoned professional and a respected lawyer with an extensive leadership background in various organisations, having previously worked at Kenya Tea Development Agencies, where she served as Head of Legal and Regulatory Affairs and Rift Valley Railways, where she served as the Company Secretary & Legal Counsel. She has vast domain expertise and knowledge in law, project finance, corporate restructuring, equity/debt raising and governance, and has served in the Corporate Governance and Standards Committee of the Institute of Certified Public Secretaries. Kenya. Mr. Stephen K. Ngugi Stephen holds a Master of Arts in Economics from the University of Nairobi and a Age: 38 Bachelor of Arts with a major in Economic and a minor in Business Studies from Chief Finance Officer Kenyatta University. He is a Certified Public Accountant of Kenya and a member of the Institute of Certified Public Accountants of Kenya.

Stephen was appointed the Chief Finance Officer in October 2020. Stephen is an experienced finance professional, having previously worked at Tugende Limited as the Chief Finance Officer and as Head of Finance and Strategy at Chase Bank. Prior to this he had worked at Equity Bank and EY. He has extensive experience in corporate finance, finance, strategy, investor relations and tax consulting. Mr. John Ndugi John Ndugi is Family Bank’s Chief Operations. He is a seasoned banker with over 18 Age: 41 years’ experience. Chief Operations Officer John started his career at Family Bank as an operations officer, growing through the ranks in; Customer service, Credit, Branch Operations Manager, Branch Manager, Regional Manager Mount Kenya and Nairobi North. Prior to this appointment, John was the Head of Corporate and Institutional Banking department for a period of 2 years.

John is a holder of a Master of Banking and Finance (Micro-finance Option) from Moi University, Bachelor of Commerce (Accounting and Business Administration) from Daystar University. He is also certified by the International Coaching Federation (IFC) as an Engagement and Productivity Coach (CEPC).

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Senior Manager Summary Profile Mr. Elijah Kariuki Elijah Kariuki is an HR specialist and a seasoned banker with over 13 years’ banking Age: 36 experience. He started his career at Family Bank Ltd as an Intern in the ICT department Chief Human Resource Officer in October 2007, and rose through the ranks in different functions to his current role of Chief Human Resource Officer.

Elijah holds a Bachelor’s Degree in Human Resource Management from Kenyatta University. He also holds a Higher Diploma in Human Resource Management and a certificate in counselling both from the college of Human Resource Management. He is also a certified Trustee (TDPK) and a Certified Executive Leadership Coach (ICF accredited). He is currently pursuing a Master of Business Administration in Strategic Management and Human Resource Management from the United States International University-Africa. He is a full member of Human Resource Management Kenya (IHRM).

He has also attended numerous trainings covering Leadership, People Management, Labour Law, Performance Management and many more.

He was appointed Chief Human Resources Officer in 2018. Ms. Nancy Njau Nancy holds a Master in Business Administration in Strategic Management from Age: 42 Jomo Kenyatta University of Agriculture and Technology, a Bachelor of Commerce Chief Officer – Public Sector Degree (Accounting) from Kenyatta University and a Higher Diploma in Human Resource Management. In addition, she is a Certified Public Accountant of Kenya (CPA-K) and a Certified Executive Leadership Coach. She has attended numerous courses on Performance Management, Credit Management, Transformational Leadership, Customer Service among others. Nancy was appointed the Chief Officer - Public Sector in January 2020. Nancy has previously served as the Head of Strategic Partnerships and also the Head of Retail Banking.

She joined Family Bank in 2002 as a graduate clerk and has risen through the ranks in various capacities across the Bank network to her current position. Mr. Robert Ng’ang’a Robert holds a Bachelor’s Degree in Economics and Business Studies from Kenyatta Age: 43 University and is currently pursuing MSC in Entrepreneurship from Jomo Kenyatta Chief Credit Officer University of Agriculture and Technology. He Holds CPA Section 4(Part 2).

He holds various Credit certifications and has attended numerous specialized credit training courses.

His current role is Chief Credit Officer. He was appointed the Head of Credit in October 2019, having joined Family Bank from IDB Capital Limited where he served as a Chief of Credit. Previously, Robert served as an Assistant General Manager, Credit, Head of Asset Quality and Head of Debt Management at Chase Bank Limited. He was also the Head of Credit Approvals in Fina Bank (Currently GT Bank), Credit Manager and Senior Manager, Credit at Credit Bank Limited.

Mr. Robert Ng’ang’a career spans over 16 years in the banking and financial industry, having spent the last 10 years in senior management roles. Robert has key competencies in Credit Analysis, Credit Risk, Portfolio Management and reporting, retail Banking and Risk Management.

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Senior Manager Summary Profile Mr. John Wachiuri John Wachiuri is a holder of a Masters in Business Administration (MBA) majoring in Age: 43 Finance from the United States International University and a Bachelors of Education Chief Risk Officer Degree (Business Studies and Economics) from Kenyatta University. He is a Certified Public Accountant of Kenya, a Certified Internal Auditor (CIA), a Certified Information Systems Auditor (CISA)

Wachiuri is an accredited Integrity Assurance Officer by the Ethics and Anti-Corruption Commission (EACC) and is also a designated trainer of trainers in Corporate Governance by the Centre of Corporate Governance.

John Wachiuri was appointed the Chief Risk Officer in January 2021. Prior to this, he was the Head of Audit in the Bank.

He joined Family Bank from Bank of Africa where he was the Head of Internal Audit. He has over 17 years of experience from Equity Bank, Credit Bank, Strathmore University, East African Development Bank and Competition Authority of Kenya. Wachiuri has been involved in setting up risk and compliance departments, designing internal audit departments using risk-based methodology whilst offering valuable recommendations and strategic insights to Management and Boards of the organizations he has worked in especially in the improvement of internal controls, enhancing enterprise risk management and operational efficiency. Mr. Kevin Ayugi Mr. Ayugi holds a Bachelor’s Degree, Computer Science from Africa Nazarene Age: 38 University and is currently pursuing his MBA, Strategic Management from the same Chief Digital Officer Institution. He has also in the course of his career attended numerous courses on Strategy and Leadership, Analytics-driven innovation, Mentorship, Performance Management and Design Thinking.

Kevin Joined the Bank in October 2019 as the Head of Digital Channel. He was appointed Chief Digital Officer in January 2020. Prior to his current role, he was the Head, Direct and Digital Channels for the Britam Group. There he was instrumental in formulating strategies to increase insurance uptake through digitization of the physical channels, as well as revision of branch models and standards.

Kevin is a seasoned financial services professional with over 12 years’ experience; having held various senior leadership roles across the industry, as Assistant Vice President, Senior Manager Customer Network Strategy, Senior Manager, Digital Business and Head, Direct and Digital Channels while working at Barclays, Stanbic and Britam.

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Senior Manager Summary Profile Mr. Eric K. Murai Eric holds a Master of Laws (LL.M) and a Bachelor of Laws (LL.B) from the University Age: 39 of Nairobi and a BSc. In Applied Accounting from Oxford Brookes University. He is Company Secretary and Chief an advocate of the High Court of Kenya, a member of the Law Society of Kenya and Legal Officer a member of the Institute of Certified Secretaries. He is also a certified professional mediator.

Eric is the Company Secretary and Chief Legal Officer. He was appointed Company Secretary and Head of Legal Services in October 2019.

Source: Family Bank Records

12.10 Competence and Suitability of Directors and Management As at the date of the application and for a period of at least two years prior to the date of the application, no director or senior manager of the Issuer has: • Had any petition under bankruptcy laws pending or threatened against the directors (for individuals) or senior managers, or any winding-up petition pending or threatened against it (for corporate bodies); • Had any criminal proceedings in which the director or senior manager was convicted of fraud or any criminal offence or action either within or outside Kenya; and • Been the subject of any ruling of a court of competent jurisdiction or any governmental body that permanently or temporarily prohibits such director or senior manager from acting as an investment adviser or as a director or employee of a stockbroker, dealer or any financial institution or engaging in any type or business practice or activity

12.11 Corporate Governance 12.11.1 Board Committees The Board operates under a comprehensive structure made up of committees established to assist it in discharging its responsibilities and obligations. Each committee has a set of specific terms of reference outlining the scope of its responsibility and relevant administrative and procedural arrangements. The Board appoints the members of the Board Committee and reviews each Committee’s composition regularly upon recommendation of the Nominations Committee. Family Bank has six board committees as follows: • Credit Committee; • Audit Committee; • Risk Management and Compliance Committee; • Human Resource Committee; • Strategy Committee; and • Nomination Committee.

12.11.1.1 Credit Committee The Credit Committee plays a critical role in the formulation and review of lending policies and ensures that such policies comply with regulatory requirements. It assesses the credit quality and risk profile of the Bank’s lending book by sector and by product and makes recommendations to the Board on remedial actions or on matters that may enhance the quality of the lending book.

12.11.1.2 Audit Committee The Committee reviews the integrity of the Company’s financial statements and its subsidiaries and recommends the statements for approval to the Board, the effectiveness of the Company’s system of internal control and receives reports on the findings of the internal and external audits and tracks the actions on audit findings. The Committee also reviews the proposed work plans for the Country Internal Audit and Compliance functions at the beginning of each year.

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12.11.1.3 Risk Management and Compliance Committee The Committee oversees the group’s preparedness and mitigation for the major risks faced by the Group across the business including operational risk, country risk, credit risk, liquidity risk, market risk, regulatory risk, legal risk, reputational risk and compliance risk. The Committee is responsible for ensuring that there are written policies, procedures and processes to identify and manage the risks.

12.11.1.4 Human Resource Committee The Committee acts as the link between the board and management. It is responsible for reviewing human resources policies and practices, particularly concerning the various business units’ operations. The Committee also assists the Managing Director in guiding and controlling the overall direction of the institution’s business and acting as a medium of key management staff and new Board members’ recruitment, communication, and coordination between the business units and the board.

12.11.1.5 Strategy Committee The Committee analyses the Group’s strategy and provides oversight over the implementation of the strategy approved by the Board by reviewing progress regularly. They examine the budget and strategic plan of the Group before submission to the Board.

12.11.1.6 Nomination Committee The Committee regularly reviews the structure, size, and composition of the board and makes recommendations on any necessary adjustments. It identifies, nominates and recommends for the board’s approval, candidates to fill board vacancies as and when they arise.

12.11.2 Board of Directors Meetings Attendance The Board meeting attendance has always met the threshold of the Central Bank of Kenya. In FY 2020, attendance was above the 75% average attendance as outlined below.

Table 8: Board of Directors Meeting Attendance during FY 2020

Name Total attendance Wilfred D Kiboro (Chairman) 100% Ruth Waweru 100% Titus Kiondo Muya 100% Francis Gitau Mungai 100% Lerionka Tiampati 90% Lazarus Muema 100% Mary Njeri Mburu 10%* Rebecca Mbithi 100% Eric K. Murai 100%

Source: Family Bank Records (N/B: *Appointed in October 2020)

12.11.3 Shareholding Structure Family Bank has an authorised share capital of one billion five hundred million (1,500,000,000) ordinary shares of one Kenya shillings (KES 1) each. The issued and fully paid shares amount to one billion, two hundred and eighty seven million, one hundred and seven thousand, five hundred and forty two shares (1,287,107,542) of one Kenya shillings (KES 1) each.

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12.11.3.1 Major Shareholders The top ten shareholders own 64.9% of the company. The table below shows the top ten shareholders.

Table 9: Major Shareholders Shareholder Number of shares Percentage Ownership 1. Kenya Tea Development Agency Holding Ltd (KTDA) 212,184,905 16.5% 2. Estate of the Late Rachael Njeri 167,143,948 13.0% 3. Daykio Plantations Limited 158,460,364 12.3% 4. Titus Kiondo Muya 72,998,502 5.7% 5. Equity Nominees Limited A/C 00084 46,417,000 3.6% 6. Sanlam Securities 44,444,445 3.5% 7. Julius Muya Kiondo 33,448,788 2.6% 8. Ann Muya 33,428,788 2.6% 9. Mark Keriri 33,428,788 2.6% 10. Sheila Kahaki Muya 33,428,788 2.6% Total Top 10 Shareholders 835,384,316 64.9% Other Shareholders (5,930) 451,723,226 35.1% Total 1,287,107,542 100.0%

Source: Family Bank Records

12.11.3.2 Change in Major Shareholding The table below presents the major shareholding in Family Bank for the past four years.

Table 10: Change in Major Shareholders

No Full Names 31/12/2017 31/12/2018 31/12/2019 31/12/2020 1 KTDA Holdings Ltd 16.5% 16.5% 16.5% 16.5% 2 Estate of the Late Rachael Njeri 13.0% 13.0% 13.0% 13.0% 3 Daykio Plantations Limited 12.3% 12.3% 12.3% 12.3% 4 Titus Kiondo Muya 5.2% 5.4% 5.5% 5.7% 5 Equity Nominees Limited A/C 00084* - - - 3.6% Standard Chartered Kenya Nominees A/C 3.6% 3.6% 3.6% - 9660B* 6 Sanlam Securities (formerly P.A Securities) 3.5% 3.5% 3.5% 3.5% Source: Family Bank Records N/B: *The Beneficiary shareholder changed the custodian from Standard Chartered Kenya Nominees A/C 9660B to Equity Nominees Limited A/C 00084 in 2020.

12.12 Subsidiaries 12.12.1 Family Bank Insurance Agency Limited Family Bank Insurance Agency Limited (FBIA) is a wholly-owned subsidiary of Family Bank Limited with a nominal share capital of KES 10,000,000 and domiciled in Kenya. FBIA was established in 2008. The Agency, then named Dhamana Insurance Agency, was licensed by the Insurance Regulatory Authority (IRA) in May 2010. On 29th September 2015, the Agency was renamed from Dhamana Insurance Agency to its current name.

The Agency’s main objective is to offer various insurance products and services using the Bancassurance model. The Agency facilitates access to professional insurance advisory services and provides convenient and accessible insurance policies and claims service to customers through the broad branch outreach and alternative banking channels.

FBIA offers a wide range of insurance solutions ranging from education plans to marine and motor commercial insurance and homeowners’ comprehensive insurance. Family Bank Insurance Agency has recently ventured into medical insurance

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and launched its flagship product dubbed Family Afya that covers inpatient, outpatient, maternity, dental and optical with flexible payment terms.

12.12.2 Family Group Foundation Family Bank Foundation Limited was incorporated on 1st October 2012 as Family Bank Foundation Limited and later changed its name to Family Group Foundation on 11th October 2013. The key objects for which Family Group Foundation was incorporated are as follows: a) To promote and advance education by establishing and maintaining educational facilities including but not limited to schools, colleges, universities, libraries and co-curricular institutions such as museums, art galleries, clubs and associations; b) To sponsor and fund educational programmes of whatever kind in Kenya; and c) To undertake the promotion and furtherance of study and research in all useful branches of human knowledge, be they arts or sciences, for public benefit and ensure public dissemination of the results of such study and research.

The Bank has control over The Family Group Foundation as per the provision of IFRS 10 Consolidated Financial Statements. Control in this case is achieved through The Bank’s contribution to the foundation which indicate power over the Foundation and its ability to influence the Foundation’s activities, as well as the reputation divided from the Foundation’s name.

12.12.3 Family Bank (Kenya) Limited Family Bank (Kenya) Limited was incorporated on 7th August 2017 with company number PVT/2017/032278 as a private company limited by shares and wholly owned by the Issuer. It was incorporated for purposes of an intended corporate reorganization.

12.12.4 Pesa Pap Digital Limited Pesa Pap Digital Limited (CPR/2015/206229) was incorporated on 7th September 2015. It was set up to carry out the business of designing and developing software and related products and services.

12.13 Strategy and Prospects In February 2019, CBK issued the Kenya Banking Sector Charter (KBSC) to broaden and hasten the banking sector’s transformation process into a responsible and disciplined industry responsive to market needs. The Charter is premised on the banking sector’s vision hinged on four pillars: risk-based credit pricing, transparency, customer centricity, and entrenching an ethical culture in banks.

Family Bank’s strategy is in line with the Charter while at the same time aspiring to grow to a Tier I bank within the next Five years. The Bank’s unique selling point will be the accessibility of banking and financial services given the existing wide branch network and the move to digitization, personalized services, responsiveness to customer needs, and promptly offering simple and relevant products. The journey to Tier I will mainly be focused on the following areas: a. Offering a differentiated customer experience driven by a deep understanding of its customers. The Bank will target all customer segments in different demographics and psychographics with special emphasis on agribusiness and aggregators b. Simplicity: ease of accessing services and using products and services c. Automation and digitization of processes. The Bank will repurpose its branches and enhance its service centre/ agency banking offerings. Furthermore, the Bank is creating a digital platform for holistic financial services that is accessible anywhere, anytime and anyhow while serving the behavioural interests of the Bank’s different stakeholders d. Continuous innovation and improvement driven by customer requirements. Family Bank will continue offering its conventional banking and other financial services (financial/investment advisory, insurance), beyond banking including technical advisory and platform services. e. Creating centres of excellence with specific sub-sector focus supporting its partners and clients achieve more and deliver better value through offering end to end value chain financial services creating access to knowledge, networks and affordable financing. The primary sectors of focus will be agriculture, transport, education, trade and financial services and f. Differentiated employee experience with high performance and customer-oriented culture.

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The Bank will take a renewed approach to conventional banking by emphasizing the aggregation concept. The renewed approach will offer customized solutions to aggregators and deepen the relationship to tap into the ecosystem and the value chain within which the aggregators operate in. The primary proposition being supporting the aggregator to achieve more and deliver better value whilst creating value for the Bank. The aggregator proposition will be anchored on strong partnerships with industry and non-industry players, including government and partner organisations, as outlined below:

a. Agricultural aggregators: the objective is to improve production management of post-harvest losses, improved access to finance, technology and networks. In addition, this proposition will address holistic individual basic, educational and family needs. b. Financial aggregators: the objectives include increased convenience of access to Sacco services country wide through repurposed branches and agents, white labelling products and provision of credit risk management support c. Transport aggregators: provision of customized solutions for vehicle owners and operators, service providers along the value chain and solutions related to users e.g. booking services d. Other aggregators: by offering supply chain management, cash management and loyalty programme solutions.

Family Bank has identified both organic and inorganic paths to achieve its objectives. Under the organic phase, the Bank intends to achieve the following strategic objectives by 2024: 1. Grow the balance sheet’s size to a total asset value of over KES 200bn by the end of FY 2024. This will be achieved through growth in the Bank’s digital banking offering and rollout of agribusiness banking. The agribusiness banking proposition considers a value chain approach by improving access to finance players within the wider ecosystem and improving market efficiency through collaboration with various partners. 2. Achieve a Cost to Income Ratio of at least 47% by the end of 2024 with a Non-Funded Income ratio of 23%: 77%. This objective will be achieved through growth in transaction size and frequency of existing customers held within the Banks ecosystem, acquiring new customers through centres of excellence and offering a differentiated customer experience and managing the quality of assets to achieve a non-performing loan ratio of 3.5% by 2024. 3. Grow the direct active customer base to 5 million by 2024: The Bank will achieve this objective by creating a differentiated customer experience through a deep holistic understanding of its customers through artificial intelligence and repositioning the brand with its strategic aspirations.

In addition to the above, the Bank has identified inorganic growth opportunities that will further support its Tier I ambitions. The inorganic phase will provide the necessary scale to support the Bank’s growth ambitions by attracting larger institutional deposits, better preparedness in the event of market shocks, creation of efficiencies, improved returns and improved market perception on the growth and stability of the Bank. Some of the key initiatives identified under the inorganic growth phase include: 1. The potential acquisition of a financial technology institution; 2. Identifying potential acquisition candidates; and 3. Potential acquisition of a stake in a regional bank or micro finance institution 4. Introduction on new business lines within the Group (Leasing, Asset Management, Custodial business).

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13 Group Financial Performance and Statutory Ratios

As of 31st December 2020, Family Bank reported a profit after tax of KES 1.2 billion which translated to a 5 year CAGR of 34.8% from KES 352.3 million recorded in 2016. Family Bank also reported an increase in Foreign Exchange Income and Other Operating Income at a CAGR of 9.7% and 36.4% to stand at KES 341.4 million and KES 519.6 million respectively in 2020 from KES 235.7 million and KES 149.9 million respectively in 2016.

Family Bank recorded growth in Total Assets, Customer Deposits, Shareholder Funds and Net Loans and Advances at a CAGR of 6.9%, 13.9%, 3.1% and 1.3% respectively to stand at KES 90.7 billion, KES 69.8 billion, KES 13.5 billion and KES 56.6 billion respectively in 2020 from KES 69.5 billion, KES 41.4 billion, KES 12.8 billion and KES 50.2 billion respectively in 2016.

Family Bank operated above the CBK minimum statutory ratios over the past five years with the exception of the Liquidity ratio in FY 2016.

13.1 Consolidated Statement of Profit or Loss

KES ‘000 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 March-21 Interest Income 10,810,919 7,560,922 7,056,590 7,515,819 9,386,726 2,409,708 Interest Expense (4,098,037) (2,667,882) (2,283,914) (2,253,464) (2,595,897) (604,181) Net Interest Income/(Loss) 6,712,882 4,893,040 4,772,676 5,262,355 6,790,829 1,805,527 Net Fees & commissions income 2,027,451 1,779,944 2,038,214 1,806,548 1,666,113 512,821 Foreign exchange income 235,681 288,761 337,455 390,760 341,362 48,129 Other operating Income 149,948 104,497 123,303 507,728 519,560 150,296 Total Operating Income 9,125,962 7,066,242 7,271,648 7,967,391 9,317,864 2,516,773 Loan loss provision (847,370) (1,444,462) (1,204,273) (1,282,909) (2,228,983) (360,088) Other Operating Expenses (7,613,950) (6,979,418) (5,632,433) (5,261,653) (5,648,228) (1,427,863) Total Operating Expenses (8,461,320) (8,423,880) (6,836,706) (6,544,562) (7,877,211) 1,787,951 Profit before tax 664,642 (1,357,638) 434,942 1,422,829 1,440,653 728,822 Income tax Expense (312,363) 356,850 (190,716) (472,993) (278,133) (218,647) Profit after tax 352,279 (1,000,788) 244,226 949,836 1,162,520 510,175 Earnings per Share 0.28 (0.80) 0.20 0.74 0.90 0.47

Source: Family Bank Audited Financial Statements for FY 2016 to FY 2020 and Unaudited Financial Statements to March 2021

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13.2 Consolidated Statement of Financial Position

KES ‘000 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 March-21 Assets Cash and Balances due from 5,492,415 5,641,710 6,281,701 6,961,324 8,879,521 8,290,908 Central Bank of Kenya Balances due from banking 186,792 2,495,298 1,222,738 2,779,374 819,406 674,429 institutions Kenya Government Securities 5,005,144 7,692,403 6,946,277 9,849,893 17,001,198 16,920,340 Corporate bonds at amortized 842,389 842,679 392,772 399,847 - - cost Loans and advances to 50,163,555 43,471,853 44,113,093 50,594,439 56,579,798 61,437,146 customers(net) Other assets 2,234,038 3,616,759 3,338,536 2,748,000 1,548,349 1,801,312 Investment in Properties 18,200 18,200 18,200 23,400 23,400 23,400 Property and Equipment 4,167,845 3,622,587 2,841,773 4,030,367 3,694,604 3,614,234 Intangible assets 451,121 470,887 597,692 486,843 399,355 380,999 Prepaid operating lease 153,359 148,736 143,885 139,220 134,583 136,031 Current income tax 776,826 788,944 587,095 19,423 27,904 9,756 Deferred tax asset - 324,879 527,303 885,543 1,552,679 1,552,679 Total Assets 69,491,684 69,134,935 67,011,065 78,917,673 90,660,797 94,841,234 Liabilities & Share holders’ Funds Liabilities Balances due to Central Bank 4,393,608 - - - - - of Kenya Customer Deposits 41,395,232 47,362,130 48,483,189 58,054,485 69,756,770 72,590,142 Deposits due to banking 922,654 201,708 247,051 56,906 451,741 1,524,788 Institutions Borrowings 8,933,191 8,362,529 4,903,207 3,954,679 3,017,148 2,721,519 Other liabilities 1,062,376 1,452,496 1,793,577 3,942,581 3,844,872 3,597,364 Dividends Payable 4,720 2,808 2,716 1,079 5,904 5,392 Deferred tax liability 24,844 - 535 1,421 1,126 1,126 Current Income Tax - - - 290,095 126,975 327,666 Total Liabilities 56,736,625 57,381,671 55,430,275 66,301,247 77,204,536 80,767,997 Shareholders’ Funds Share Capital 1,287,108 1,287,108 1,287,108 1,287,108 1,287,108 1,287,108 Share Premium 5,874,662 5,874,662 5,874,662 5,874,662 5,874,662 5,874,662 Revaluation Reserve 196,895 192,624 192,624 278,424 278,424 371,444 Retained Earnings 4,954,665 4,102,941 4,226,396 5,176,232 6,029,844 6,540,023 Statutory Reserve 441,729 295,929 - - - - Total Shareholders’ Funds 12,755,059 11,753,264 11,580,790 12,616,426 13,456,261 14,073,237 Total Liabilities & Share 69,491,684 69,134,935 67,011,065 78,917,673 90,660,797 94,841,234 holders’ Funds

Source: Family Bank Audited Financial Statements for FY 2016 to FY 2020 and Unaudited Financial Statements to March 2021

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13.3 Prudential Ratios

31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 31-Dec-20 March-21 Capital Adequacy Core capital/total deposit 28.9% 22.8% 22.1% 19.3% 16.5% 17.4% liabilities Minimum Statutory Ratio 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Excess/(Deficiency)(g-h) 20.9% 14.8% 14.1% 11.3% 8.5% 9.4% Core capital/total weighted 17.2% 16.4% 16.4% 15.8% 15.5% 15.8% assets Minimum Statutory Ratio 10.5% 10.5% 10.5% 10.5% 10.5% 10.5% Excess/(Deficiency) (j-k) 6.7% 5.9% 5.9% 5.3% 5.0% 5.3% Total capital/total risk weighted 20.8% 19.9% 19.5% 18.7% 17.9% 16.1% assets Minimum Statutory Ratio 14.5% 14.5% 14.5% 14.5% 14.5% 14.5% Excess (Deficiency)(m-n) 6.3% 5.4% 5.0% 4.2% 3.4% 1.6% Liquidity Ratios Liquidity Ratio 14.4% 34.6% 30.7% 33.1% 37.1% 32.4% Minimum Statutory Ratio 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Excess (Deficiency)(a-b) (5.6%) 14.6% 10.7% 13.1% 17.1% 12.4% Asset Quality NPL/ loans and advances 13.1% 20.0% 17.0% 15.0% 14.9% 14.7%

Source: Family Bank Audited Financial Statements for FY 2016 to FY 2020 and Unaudited Financial Statements to March 2021 and Genghis Capital analysis.

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14 Risk Factors

The group defines risk as the possibility of losses or profits foregone, which may be caused by internal or external factors. The group aims to achieve an appropriate balance between risk and return and minimize the potential adverse effects of the group’s financial performance.

As a financial services provider, effective risk management is critical to the overall profitability, competitive market positioning and long-term financial viability of the Company. Our Risk Management Framework sets out lines of responsibility and authority for risk-taking, governance and control. The Board of Directors is ultimately responsible for ensuring the oversight of all risks across the enterprise and has primary responsibility for taking action to ensure risk management policies, programs and practices are in place. The Board delegates certain responsibilities to standing Board Committees, which oversee and monitor these risks: i. Risk Management and Compliance Committee ii. Audit Committee

Our approach We have a robust Enterprise Risk Management (ERM) Framework, approved by the Board of Directors that prescribes a comprehensive set of protocols and programs for conducting our business activities. This framework seeks to ensure that risks to a business undertaking are appropriately managed to achieve the Company’s business objectives over time. The Risk Management Framework, corporate strategy and business objectives are all aligned and risk management protocols and programmes are embedded in every business segment. The Risk Appetite Policy, also approved by the Board of Directors, sets out specific constraints that define the aggregate level of risk that the Company is willing to accept. The Company’s risk appetite seeks to balance the various needs, expectations, risk and reward perspectives and investment horizons of key stakeholders. In particular, our risk appetite supports the pursuit of shareholder value while ensuring that all the stakeholders’ interests are looked after. Our risk management program is embedded in the Company’s culture, which encourages ownership and responsibility for risk management at all levels. A key premise is that all employees have an important role to play in managing the Company’s risks. Assurance is guaranteed via the risk department, internal audit, compliance and enforcement teams, external audits and supervision by the Central Bank of Kenya.

14.1 Risks Relating to the Bank 14.1.1 Credit Risk Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Company’s loans and advances to customers and other banks and investment securities but can also arise from credit enhancement provided such as financial guarantees, letters of credit and acceptances.

Credit risk is the single largest risk for the company’s business, and management carefully manages its exposure to credit risk. For risk management reporting purposes, the company considers and consolidates all elements of credit risk exposure. For risk management purposes, credit risk arising on trading securities is managed independently but reported as a market risk exposure component. The board of directors has delegated responsibility for the oversight of credit risk to its Board Credit Committee comprising three non-executive directors and two executive directors. The implementation of the credit risk policies and monitoring of the credit portfolio to ensure that risks are managed within acceptable standards is the responsibility of the credit committee comprising of executive management.

The committee assisted by the credit department is responsible for the management of the company’s credit risk, including: • Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. • Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are delegated to the head of credit and the credit committee, while larger facilities require approval by the board of directors. • Limiting concentrations of exposure to counterparties, geographies and industries for loans and advances. • Developing and maintaining the group’s risk grading in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. • Varying degrees of risk of default and the availability of collateral or other credit risk mitigation. Risk grades are subject

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to regular reviews by the credit department. • Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports are provided to the group credit committee on local portfolios’ credit quality, and appropriate corrective action is taken. • Providing advice, guidance and specialist skills to branches to promote best practice throughout the group to manage credit risk.

14.1.1.1 Credit risk measurement In measuring credit risk of loans and advances to customers, the Group takes into account the following factors: • The probability of default: this is the possibility of the customer failure to pay over the stipulated period in the contract. • Current exposure on the borrower and the likely future development from which the Group derives the exposure at default. • Estimated recovery ratio should default occur; this is the amount that can be recovered through sale of collateral.

The Group assesses the probability of default of individual borrowers using internal rating methods tailored to the various categories of the borrower. In assessing the credit quality of the customer, the Group takes into account the customers financial position, past experience and other industry specific factors. The credit risk measurements are embedded in the Group’s daily operational management and closely aligned to the Central Bank of Kenya loan classifications.

14.1.2 Liquidity Risk Liquidity risk is the risk that the group will encounter difficulty in meeting its obligations from its financial liabilities when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments or other cash outflows.

The group’s liquidity risk management is carried out within the group and monitored by the Asset Liability Committee (ALCO).

The group’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 group’s reputation.

Liquidity risk is addressed through the following measures: • The Treasury department monitors liquidity ratios on a daily basis against internal and regulatory requirements. • Day to day funding is managed by monitoring future cash flows to ensure that requirements can be met; this includes replenishment of funds as they mature or are borrowed by customers. The group invests in short term liquid instruments which can easily be sold in the market when the need arises. • The group enters into lending contracts subject to availability of funds. • The group has an aggressive strategy aimed at increasing the customer deposit base. • The group borrows from the market through interbank transactions with other banks and The Central Bank of Kenya for short term liquidity requirements. • Investments in property and equipment are properly budgeted for and done when the group has sufficient cash flows.

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 board. Daily reports covering the liquidity position of the group are regularly submitted to the Asset and Liability Committee.

14.1.2.1 Exposure to liquidity risk The key measure used by the Group 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 grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month.

The group has always maintained the liquidity ratio above the regulatory rate set by the Central which is 20%.

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To address any liquidity risk negative gaps, the group’s Assets & Liabilities Committee directs mobilization of deposits and where needed supports big tickets through aggressive pricing, halts or significantly curtails asset growth. The Group uses the interbank borrowing or disposes government securities to address short-term negative gaps.

14.1.3 Market Risk Market risk is the risk that a financial instrument’s fair value or future cash flows will fluctuate because of changes in market prices. Market risk arises from open positions in interest rates, currency and equity products, all of which are exposed to general and specific market movements and changes in the volatility of market rates or prices, such as interest rates, equity prices, foreign exchange rates, and credit spreads. Market risk management’s objective is to manage and control market risk exposures within acceptable parameters while optimising the return on risk.

The Group separates exposures to market risk into either trading or non-trading portfolios. Trading portfolios include those positions arising from market-making transactions where the Group acts as principal with clients or with the market. Non- trading portfolios mainly arise from the interest rate management of the entity’s retail and commercial banking assets and liabilities.

14.1.3.1 Management of market risks The overall responsibility of managing market risk rests with the ALCO. The Treasury department is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken which is monitored daily.

(i) Interest rate risk The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. The ALCO is the monitoring body for compliance with these limits and is assisted by Treasury Department in its day-to-day monitoring activities.

A principal part of the Group’s management of market risk is to monitor the sensitivity of projected net interest income under varying interest rate scenarios (simulation modelling) and the sensitivity of future earnings and capital to varying foreign exchange rates. Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The Group does not bear an interest rate risk on off balance sheet items.

• Sensitivity analysis The group carries out Interest Rate Risks sensitivity analysis based on the following assumptions: a) Changes in the market interest rates affect the interest income or expenses of variable interest financial instruments. b) Changes in Market interest rates only affect interest income or expenses in relation to financial instruments with fixed interest rates if these are recognized at their fair value. c) The interest rate changes will have a significant effect on interest sensitive assets and liabilities and hence simulation modelling is applied to Net interest margins. d) The interest rates of all maturities move by the same amount and, therefore, do not reflect the potential impact on net interest income of some variable and constant rates. e) The projections make other assumptions including that all positions run to maturity

The Group aims, through its management of market risk, to mitigate the impact of prospective interest rate movements and foreign exchange fluctuations which could reduce future earnings and capital.

For simulation modelling, the Group uses a combination of scenarios relevant to local businesses and local markets. These scenarios are used to illustrate the effect on the Group’s earnings and capital.

(ii) Currency Risk The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The board sets limits on the level of exposure by currency and in total for both overnight and intra- day positions which are monitored daily.

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The group manages the currency risk through deposit mobilization and also long term borrowings and onward lending to customers to mitigate any gaps. The Group also uses the interbank borrowings or lending to manage the currency gap position.

14.1.4 Operational Risk Operational risk is the potential for loss arising from inadequate or failed processes, systems, people or external events. Operational risk is embedded in all business activities, including the practices for managing other risks, e.g. credit, market and liquidity risks, and arises in the normal course of business. These risks can result in significant financial loss, reputational harm or regulatory censure and penalties. The major operational risks faced by the Group include: • People and related issues such as staff retention, frauds, amongst others. • Systems and processes changes related to the drive to meet our clients’ needs.

The Group’s operational risk management framework is designed to ensure key risk exposures are proactively managed within acceptable levels. It incorporates best practice and meets regulatory guidelines through: • Governance and Policy: Management and Committee reporting and organisational structures emphasise accountability, ownership and effective oversight of each business unit’s operational risk exposures. Furthermore, the Board Risk Management Committee and Senior Management’s expectations are set out via enterprise-wide policies. • Risk and Control Self-Assessment: Through quarterly comprehensive assessments of our key operational risk exposures and internal control environments, senior management can evaluate its effectiveness and implement appropriate additional corrective actions where needed to offset or reduce unacceptable risks. • Operational Risk Event Monitoring: Our policies require that internal and industry-wide operational risk events are identified, tracked, and reported to the right levels to ensure they are analysed appropriately and corrective action taken promptly. • Risk Reporting: Significant operational risk issues together with measures to address them are tracked, assessed and reported to Senior Management and the Board of Directors to ensure accountability is maintained over current and emerging risks. • Insurance: A comprehensive portfolio of insurance and other risk-mitigating arrangements are maintained with the type and level of insurance coverage continually assessed to ensure both risk tolerance and statutory requirements are met. This includes identifying opportunities for transferring our risks to third parties where appropriate. • Technology and Information: The key risks here revolve around our reliance on technology and information and their impact on operational availability, integrity and security of our information data and systems/infrastructure. Our risk framework and programs use best practice and include robust threat and vulnerability assessments and security and change management practices.

Business Continuity Management: Business Continuity Management supports senior management’s ability to continue to operate their businesses and provide customer access to products and services in times of disruptions. This program includes formal crisis management protocols and continuity strategies. All key functions of the Group are regularly tested to confirm their contingency plan designs can respond to a broad range of potentially disruptive scenarios.

14.1.5 Compliance Risk Compliance risk refers to the potential of loss arising from non-compliance with laws, rules, regulations, obligatory practices/ standards, contractual agreements, or other legal requirements, including the effectiveness of preventing and handling litigation. It is not actively or deliberately pursued in the expectation of a return but occurs in the normal course of our business operations.

The Group meets high compliance standards with policy, legal and regulatory requirements in all business dealings and transactions. As a result of high financial business regulation, the Company is exposed to regulatory and legal risks in virtually all its activities. Failure to comply with regulation not only poses a risk of censure and litigation but may lead to serious reputational risks. Financial penalties and costs related to litigation may also substantially erode the Bank’s earnings.

Business unit heads manage day-to-day regulatory and legal risk primarily by implementing appropriate policies, procedures and controls already in place. The Legal as well as the Risk & Compliance departments assist them by: • Communicating and advising on regulatory and legal requirements and emerging compliance obligations to each business unit as required.

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• Implementing or assisting with reviews of policies, procedures and training. They do this by independently monitoring and testing adherence to certain regulatory and legal requirements and the effectiveness of associated critical internal controls. • Tracking, escalating and reporting significant issues and findings to Senior Management and the Board of Directors. • Liaising with regulators, as appropriate, regarding new or revised legislation, regulatory guidelines or regulatory examinations.

The Bank has developed robust policies and procedures designed to manage Know Your Customer (KYC) and Anti- Money Laundering (AML) risks as envisaged in the Proceeds of Crime & Anti-Money Laundering Act. The account opening requirements and customer transaction screening procedures meet the stringent requirements stipulated therein. Reporting of suspicious and other transactions is done as required by the law and policy standards. Family Bank carries out appropriate periodic due diligence on correspondent banking counterparties, and meet KYC / AML obligations to them continuously. All staff are trained on this when they join the Bank.

The Bank has also appointed an Anti –Money Laundering Reporting Officer (AMLRO) in line with the Proceeds of Crime and Anti Money Laundering Act (POCAMLA). The AMLRO ensures compliance with POCAMLA as we as enforcing AML guidelines from Central Bank as the Financial Reporting Centre which includes reporting of large cash as well as suspicious transactions.

14.1.6 Reputational Risk Reputational risk is the potential that negative stakeholder impressions or perceptions, whether true or not, regarding the Bank’s business practices, actions or inactions, will or may cause a decline in its value, brand, liquidity or customer base. It is a resultant effect of all other risks highlighted in this report and cannot be managed in isolation. Therefore, when all the other risks are managed well, this risk is substantially minimised.

Family Bank’s reputation is an invaluable business asset essential for optimising shareholder value; hence it is constantly under threat. Our services and activities, including new ones, ensure the Bank’s good reputation is always maintained or enhanced.

The ultimate responsibility for this risk rests with the Board of Directors and Senior Management, who examine the Bank’s reputational risk as part of their regular mandate. They are assisted in this aspect by the Marketing and Corporate Communications Department.

Their purpose is to ensure that all products, services, and activities meet the Bank’s reputational risk objectives in line with the Board of Director’s approved appetite. Nonetheless, every employee and representative of the Bank has a responsibility to contribute positively to our reputation.

Senior Management and the Board Risk Management and Compliance Committee receive periodic reports from the Risk & Compliance Department on the assessment of the Bank’s reputational risk exposures that arise from its business activities.

Every employee and representative of the Bank has a responsibility to contribute positively towards our reputation. This is through ensuring ethical practices are always adhered to, interactions with all stakeholders are positive, and we comply with applicable policies, legislation, and regulations.

Reputational risk is most effectively managed when every individual works continuously to protect and enhance our reputation. In addition, our customer service department maintains a log of all incidences emanating from negative media publicity and customer complaints touching on the bank’s reputation.

14.1.7 Strategic Risk Strategic risk is the potential for loss arising from ineffective business strategies, improper implementation of strategy, sudden unexpected changes in the Group’s environment, or lack of adequate responsiveness to changes in the business environment.

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The Group faces several strategic risks from its environment, which include: • Macro-economic changes. • Competition from the financial industry and organisations providing similar services. • Technological changes. • Key legislative and regulatory changes. • Major political events. • Human capital or social/demographic trends and changes.

The Managing Director, supported by the Chief Finance Officer and other Senior Management, executes the approved strategic objectives on a day to day basis and actively monitors business performance against these objectives through periodic reviews.

The business carries out business performance reviews monthly against pre-determined milestones and key performance indicators. The reviews, which cover branch and head office departments, are supported by the Board of Directors through the board chairman.

The Managing Director coordinates an annual strategic planning process for the Senior Management Team intended to align individual business strategies to overall enterprise-level strategies as approved by the Board of Directors. They include a comprehensive review and evaluation of the business strategies, competitive positioning, financial performance, initiatives of strategic executions, and key business risks.

Each business head unit is responsible for directing strategies in their respective units and ensure such strategies are aligned to the overall strategy of the Bank. They are also responsible for monitoring, managing, and reporting on the effectiveness and risks of their business’s strategic objectives and their progress towards achieving these. They oversee the direction and trends of significant current and emerging risks related to their business units and ensure that mitigating actions are taken where appropriate.

14.1.8 Regulatory Risk Regulatory risk is the risk of non-compliance with regulatory guidelines. Regulatory risk is the current and prospective risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practice, or ethical standards issued by the regulator from time to time. Regulatory risk also arises when the laws or rules governing certain activities of the bank’s clients may be ambiguous or untested. Currently, the Group operates in an environment that is regulated by the Central Bank of Kenya and the Insurance Regulatory Authority.

The group closely monitors and ensures that it complies with the regulatory capital requirements. The objectives of which include: • To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for the shareholders and benefits for the other stakeholders. • To maintain a strong capital base to support the current and future developments. • To comply with the capital requirements set by the Central Bank of Kenya.

Capital adequacy and use of regulatory capital are monitored by management employing techniques based on the Central Bank of Kenya guidelines for supervisory purposes. The required information is filed with the Central Bank of Kenya monthly. The Central Bank of Kenya requires each bank to: • Hold the minimum level of regulatory capital of KES 1 billion; • Maintain a ratio of total regulatory capital; to risk weighted assets plus risk weighted off balance assets at above the required minimum of 10.5%; • Maintain a core capital of not less than 8 % of total deposit liabilities; and • Maintain total capital of not less than 14.5% of risk weighted assets plus risk weighted off balance sheet items.

The Bank’s regulatory capital is analysed into two tiers: • Tier 1 capital, which includes ordinary share capital, non-cumulative irredeemable non-convertible preference shares, disclosed reserves such as share premiums, retained earnings, and 50% un-audited after tax profit less investment

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in subsidiaries conducting banking business, investments in equity of other institutions, intangible assets (excluding computer software) and goodwill. • Tier 2 capital, which includes 25% revaluation surplus which have received prior CBK approval, subordinated debt, hybrid capital instruments or any other capital instruments approved by CBK.

The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the year.

The Insurance Regulatory Authority requires Family Insurance Agency to maintain a minimum level of regulatory capital of KES 1,000,000. The Group’s policy is to maintain a strong capital base to maintain investor, creditor and market confidence and sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The agency has complied with the capital requirement.

14.1.9 Political Risk Political risk is the risk of loss when investing in a given country caused by changes in the country’s political structure or policies. Political risk may affect the nature of business which could impact the banking sector. The group’s exposure is spread over diverse geographical and industrial sectors which may cushion the effects resulting from political shocks experienced in some areas in times of political turmoil.

14.2 Risks Relating to the Notes Generally The Notes have features that entail particular risks for potential investors. Set out below is a brief description of certain risks relating to the Notes generally:

14.2.1 Modification, Waivers and Substitution The Terms and Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.

The Terms and Conditions of the Notes also provide that the Note Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default or Potential Event of Default shall not be treated as such or (iii) the substitution of another company as principal debtor under any Notes in place of the Issuer, in the circumstances described in Condition 17 of the Terms and Conditions of the Notes.

Mitigating factors: the Issuer has recruited an experienced Trustee for the Noteholders. As a result, the Trustee is likely to give good guidance to the investors, thereby minimizing the risk of sub-optimal decision making by a body of investors.

14.2.2 Legal Investment Considerations May Restrict Certain Investments Certain investors’ investment activities are subject to legal investment laws and regulations or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Notes are legal investments for it, (2) Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.

Mitigating factors: The Issuer’s information memorandum has recommended that investors should seek professional advice where clarity is required.

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15 Taxation

15.1 Tax Considerations The comments below are of a general nature based on taxation law and practice in Kenya as at the date of this Information Memorandum and are subject to any changes thereafter. They relate only to the position of persons who are the absolute beneficial owners of the Notes. The comments do not purport to be a complete analysis of all tax considerations relating to the Notes and so should be treated with appropriate caution.

15.1.1 Interest Payments Payment of interest on the Bonds will be made by the Issuer and Paying Agent and Registrar in Kenya. Withholding tax at the rate of 15% will be deducted from interest payments made to both resident and non-resident Noteholders in terms of prevailing legislation as set out in the Income Tax Act (Chapter 470 of the Laws of Kenya) which is subject to revision through changes in Government policy. The Issuer will not deduct withholding tax at the prescribed rate on interest payments to any Noteholder who (a) is exempt from such deduction under the provisions of the Income Tax Act and (b) has provided evidence of such exemption to the reasonable satisfaction of the Issuer and the Issue and Paying Agent. Non-residents may be entitled to a tax credit in their country of residence, either under domestic law or under the tax treaties referred to below.

15.1.2 Stamp Duty No stamp duty is payable in Kenya on the issue, transfer or redemption of the Notes so long as the Notes are listed and transacted on the Nairobi Securities Exchange.

15.1.3 Tax Treaties As of the date of this Information Memorandum, Kenya has entered into double taxation treaties with France, Germany, India, Iran, Norway, South Africa, Sweden, United Kingdom, Zambia, United Arab Emirates, Qatar, South Korea, Denmark, Mauritius and Canada.

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16 Subscription and Sale

16.1 Application Procedure Application forms for issues of Notes may be obtained from the Lead Arrangers and Co-Arrangers. Applications must be submitted directly to the Placing Agent and Co-Placing Agent by the date and time specified in this Information Memorandum. Successful applicants will be notified either by the Placing Agent and Co-Placing Agent on behalf of the Issuer, the Lead Arrangers and Co-Arrangers, or by the Lead Arrangers and Co-Arrangers on behalf of the Issuer of the amount of Notes allotted to them immediately after the date of allotment.

16.2 Payment for Notes and Delivery Payment for Notes is to be made in full to Family Bank Limited, the designated Receiving Bank, in immediately available funds by the date and time specified in this Information Memorandum. The payments will be made via the Real Time Gross Settlement (“RTGS”) system to the account and in the manner detailed in the relevant Pricing Supplement.

The Notes will be delivered to investors not later than by the date specified in the relevant Pricing Supplement.

16.3 Secondary Market Trading of the Notes Placing Agents, acting as principal or agent of the Issuer, may facilitate secondary market trading of the Notes through purchases and/ or sales of such Notes on a best effort basis. The transfer of a Note from a seller to a purchaser will be carried out in accordance with the transfer regulations set out in the Agency Agreement and subject to the rules of the NSE.

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17 Legal Information and Contracts

17.1 Principal objects (as contained in the Memorandum of Association) The main object of the Issuer is set out in clause 3 (a) of its Memorandum of Association as follows: • To carry on in Kenya and in any part of the world the businesses of banking in all their branches and departments, including the accepting of deposits of ‘money on current account or otherwise subject to withdrawal by cheque, draft or order, the borrowing, raising or taking up of money, lending or advancing of money, securities and property, discounting, buying, holding, selling and dealing in investments of all kinds; bills of exchange, promissory notes, deposit receipts, coupons, drafts, bills of lading, warrants, debentures, certificates, script and other instruments and securities, whether transferable, negotiable, or otherwise, the granting and issuing of letters of credit and circular notes, buying, selling and dealing in bullion, currencies and specie, acquiring, holding, issuing on commission, underwriting and dealing in stocks, funds, shares, debentures, debenture and loan stocks, bonds, obligations, securities and investments of all kinds, negotiating loans and advances, guarantees and indemnity of all descriptions, performance and surety bonds, credit guarantees or credit insurance, the receiving of securities, property and valuables of any description whatsoever on deposit or for safe custody or otherwise, collecting and transmitting moneys and securities, and managing property, and generally the transaction of every kind of mercantile business or agency business which may lawfully be transacted by banks. • To carry on in any part of the world the businesses of obtaining, receiving and holding money in any deposit or current account (whether expressed in Kenya Shillings or other currencies) or in any manner ‘whatsoever and whether at interest or otherwise, and of utilizing the same to account in any manner thought fit, and the issuing of cheques or any other means of any description whatsoever to provide facilities for the withdrawal or transfer thereof. • To carry on business as bankers, financiers, capitalists, concessionaires, commercial agents, mortgage brokers, financial agents and advisers, exporters and importers of goods and merchandise of all kinds and merchants generally. • To advance and borrow money, negotiate loans and lend money for any purpose or object, with or without security including the lending of money to finance hire purchase agreements in respect of any property or assets.

The Issuer is also empowered to borrow and issue debt securities in clause 3 (34) of its Memorandum of Association as follows:

3 (34) To borrow or raise or secure the payment of money in such manner and upon such terms as the Company shall think fit and to secure the same or the repayment or performance of any debt liability contract guarantee or other engagement incurred or to be entered into by the Company in any way and in particular by any legal or equitable mortgage or charge upon any of the Company’s property or by the issue of debentures charged upon any of the Company’s property both present and future (including its uncalled capital) or by the issue of any other security whether registrable or not; and to purchase, redeem and payoff any such securities.

17.2 Provisions of the Articles The Board is empowered to exercise all the borrowing powers of the Issuer in Article 104 of its Articles of Association as follows:

104. The Directors may exercise all the powers of the Company to borrow or raise money and to mortgage or charge its undertaking, property and uncalled capital and to issue debentures, debenture stock, legal and equitable mortgages and charges and other securities whether outright or as security (principal or collateral) for any debt, liability or obligation of the Company or any third party.

Below are other key provisions of its Articles of Association: 3. The share capital of the Company is Kenya Shillings One Billion Five Hundred Million (KES 1,500,000,000/-) divided into One Billion Five Hundred Million (1,500,000,000) shares of Kenya Shillings One Shillings (KES 1/-) each.

57. The Company shall each year hold a general meeting as its annual general meeting in addition to any other meetings in that year and shall specify the matter as such in the notices calling it. Not more than Fifteen months shall elapse between the date of one annual general meeting of the Company and that of the next: Provided that if the first annual general meeting is held within Eighteen months of the date of incorporation of the Company, it need not be held in the year of incorporation nor in the next following year. Annual and extraordinary general meetings shall be held at such times, and

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places within Kenya as the Directors shall from time to time appoint.

58. All general meetings other than annual general meetings shall be called extraordinary general meetings.

59. The Directors may, whenever they think fit, convene an extraordinary general meeting, and extraordinary general meetings shall also be convened on such requisition, or, in default, may be convened by such requisitionists, as provided by the Act.

An annual general meeting and a meeting called for the passing of a special resolution shall be called by Twenty-one days’ notice in writing at the least, and a meeting of the Company other than an annual general meeting or a meeting for the passing of a special resolution shall also be called by Twenty-one days’ notice in writing at the least. The notice shall be exclusive of the day of which it is served or deemed to be served and of the day for which it is given and shall specify the place, the day and the hour of meeting and, in case of special business, the general nature of that business, and shall be given, in a manner hereinafter mentioned or in such other manner, if any, as may be prescribed by the Company in general meeting, to such persons as are, under the regulations of the Company, entitled to receive such notices from the Company, Provided that a meeting of the Company shall notwithstanding that it is called by shorter notice than that specified in this Article be deemed to have been duly called if it is so agreed: (a) in the case of a meeting called as the annual general meeting, by all Members entitled to attend and vote thereat; and (b) in the case of any other meeting, by a majority in number of the Members having a right to attend and vote at the meeting, being a majority together holding not less than Ninety-five per cent (95%) in nominal value of the shares giving that right.

62. Notices of General Meetings of the Company may be given by post, by advertisement in the print media, by display on the Company’s website or otherwise on the internet, by electronic mail or by such other means as in the opinion of the Directors it would be reasonable to expect the notice will come to the attention of the members entitled to attend the meeting.

63. All business shall be deemed special that is transacted at an extraordinary general meeting, and also all business that is transacted at an annual general meeting, with the exception of declaring a dividend, the consideration of the accounts, balance sheets and the reports of the Directors and Auditors, the election of Directors in the place of those retiring (if any), and the appointment and the fixing of the remuneration of the Auditors and the remuneration of Directors.

64. No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business; save as herein otherwise provided, Ten Members representing in aggregate not less than 60 per cent of the shares in issue at that time shall be a quorum.

76. Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands, every Member present in person shall have one vote, and on a poll every Member present in person or by proxy shall have one vote for each share of which he is the holder.

87. Any Corporation which is a Member of the Company may, by resolution of its Directors or other governing body, appoint such persons as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company. The production at a meeting of a copy resolution certified by a Director (other than the appointee if he himself shall be a Director) and the Secretary, if any, of such Corporation to be a true copy of the resolution, shall be accepted by the Company as sufficient evidence of the validity of his appointment. The person so appointed shall be entitled to exercise the same powers on behalf of such Corporation as it could exercise if it were an individual Member of the Company.

88. Unless and until otherwise from time to time determined by an ordinary resolution of the Company, the Board shall consist of not less than seven Directors of whom one shall be an independent director (the “Independent Director”). The Independent Director shall be a person experienced in the banking and financial services industry. The Board shall cause to be kept a register of the Directors’ holdings of shares and debentures of the Company and of its subsidiaries or holding Company (if any) as required by the Act, and shall cause the same to be available for inspection during the period and by the persons prescribed, and shall produce the same at every annual general meeting as required by the Act.

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89. The Directors (other than those Directors whose remuneration is determined by agreement between the Company and such Directors) shall be paid out of the funds of the Company by way of remuneration for their services such sums as the Board may from time to time determine and such remuneration shall be divided among them in such proportion and manner as the Directors may determine. Subject as aforesaid, a Director holding office for part only of a year shall be entitled to a proportionate part of a full year’s remuneration. The Directors shall also be entitled to be repaid by the Company all such reasonable travelling (including hotel and incidental) expenses as they may incur in attending meetings of the Board, or of committees of the Board, or general meetings, or which they may otherwise properly incur in or about the business of the Company.

99. A quorum for a meeting of the Board shall be four Directors who shall be present at all times in person or by their respective alternates provided that a fifteen Business Days’ notice of the meeting of the Board shall have been given by registered mail to every Director and the Company shall receive confirmation of receipt of notice from each Director no less than five Business Days prior to the Board meeting.

103. The Business of the Company shall be managed by the Directors who may pay all expenses incurred in promoting and registering the Company, and may exercise all such powers of the Company as are not, by the Act or by these Articles, required to be exercised by the Company in general meetings and the exercise of the said powers shall be subject also to the control and regulation of any general meeting of the Company, but no resolution of the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if such resolution had not been passed.

108 (1) The Directors may appoint a Managing Director who shall be the Chief Executive of the Company for such period and on such terms and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way, and partly in another), as they may think fit and, subject to the terms of any agreement entered into in any particular case, may revoke any such appointment. (2) Any person appointed to be the Managing Director as aforesaid shall not, while he holds such office, be subject to retirement by rotation nor shall he be taken into account in determining the rotation in which the Directors retire. The Managing Director shall not be taken into account in reckoning the total number of directors for purposes of Article 88. His appointment as Director shall immediately determine if he ceases for any reason to be the Managing Director. (3) The Directors shall entrust to and confer upon any such Managing Director as aforesaid, any of the powers exercisable by them as Directors (other than the powers of making calls and issuing shares) including in particular all executive powers and the day-to-day management and operation of the Company. (4) The Managing Director shall be entitled to attend and speak at all meetings of the Board and of Committees of the Board but shall not be entitled to a vote at any such meeting and shall not be taken into account in reckoning the number of directors for quorum purposes.

109 (1) The Directors may from time to time appoint a person (or persons) of such qualification as the directors may from time to time determine to the office of the Executive Director, and reporting to the Board of Directors, for such period and on such terms and with such powers as they may think fit and subject to the terms of any agreement entered into any particular case, may revoke any such appointment.

120. The Company may by ordinary resolution, of which special notice has been given in accordance with the Act remove any Director before the expiration of his period of office, and, without prejudice to the powers of the Directors under Article 115 hereof, may by an ordinary resolution appoint another person in his stead; the person so appointed shall be subject to retirement at the same time as if he had become a Director on the day on which the Director in whose place he is appointed was last elected a Director. Such power of removal may be exercised notwithstanding anything in these Articles or in any agreement between the Company and such Director but without prejudice to any claim such Director may have for damages for breach of contract of service between him and the Company.

121. The Directors may meet together for the despatch of business, adjourn, and otherwise regulate their meetings, as

Family Bank is regulated by the Central Bank of Kenya 75 INFORMATION MEMORANDUM, JUNE 2021

they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes, the Chairman shall have a second or casting vote. The Managing Director may, and if directed by the Chairman or on the requisition in writing of a majority of the directors shall, at any time summon a meeting of the Directors. All meetings would however only be valid if the minimum notice period mentioned in 99 is provided to all Directors

17.3 Authorised and Issued Share capital The authorised share capital of the Company is Kenya Shillings One Billion Five Hundred Million (KES 1,500,000,000) divided into One Billion Five Hundred Million (1,500,000,000) ordinary shares of Kenya Shillings One (KES 1.00) each.

The issued share capital of the Company is Kenya Shillings One Billion Two Hundred and Eighty- Seven Million One Hundred and Seven Thousand Five Hundred and Forty-Two (KES 1,287,107,542.00) made up of One Billion Two Hundred and Eighty- Seven Million, One Hundred and Seven Thousand, Five Hundred and Forty-Two (1,287,107,542) ordinary shares of Kenya Shillings One (KES 1.00) each.

17.4 Material Agreements (material contracts to which Family Bank is a party) Note Trust Deed The Notes are issued subject to a Trust Deed made between the Issuer and MTC Trust and Corporate Services Limited as Note Trustee. The Issuer covenants with the Note Trustee to pay to the Note Trustee or to the order of the Note Trustee in accordance with the Conditions of the Notes all sums falling due for payment as and when they fall due.

The Issuer also covenants with the Trustee to comply with the provisions of the Trust Deed and other Note Documents to which it is a party.

On the occurrence of an Event of Default the Note Trustee and only the Note Trustee may upon request or being directed by an extraordinary resolution of the Noteholders, issue an Enforcement Notice declaring all amounts payable under the Note immediately due and payable, and demanding that the Issuer immediately repay the outstanding principal amount of the Notes together with all accrued interest thereon.

The Issuer may replace the Note Trustee or appoint an additional Note Trustee subject to such person being approved by an extraordinary resolution of the Noteholders. The Issuer is required to notify the Noteholders and other Note Agents of such appointment as soon as practicable.

The Noteholders may, by extraordinary resolution, remove any Note Trustee. However such removal shall not become effective unless there is a Note Trustee in office at the time of such removal. A Note Trustee may retire upon giving not less than three calendar months’ notice in writing to the Issuer without assigning any reason, therefore and without being responsible for any loss occasioned by such retirement.

The Note Trustee may be replaced under the following conditions: • By the Noteholders exercising such power by Extraordinary Resolution; • By the Issuer with the consent of the Noteholders if the Trustee is in breach of any of its obligations under the Trust Deed; • By the Issuer, if the Trustee institutes proceedings under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect to be placed into liquidation or winding up or consents to the filing of a bankruptcy, insolvency or similar proceeding against it or files a petition or answer or consent seeking reorganisation under any such law or consents to the filing of any such petition, or consents to the appointment of a receiver, manager, liquidator or trustee or assignee in bankruptcy or liquidation of the Issuer or in respect of its property, or makes an assignment for the benefit of its creditors or is otherwise unable or admit its inability to pay its debts generally as they become due or the Trustee commences proceedings with a view to the general adjustment of its indebtedness; or • By the Issuer if the Trustee gives notice of its intention to retire as provided under the Trust Deed.

Reorganisation Agreement The Issuer is in the process of reorganizing its corporate structure which will reconstitute the Issuer as non-operating holding company under the Banking Act which will own the banking subsidiary in Kenya as well as any banking subsidiaries

76 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

to be established in the region. Under the Agreement, its banking business will be transferred to a banking subsidiary which is wholly owned by the Issuer.

This reorganization was proposed to and approved by its shareholders on 22nd April 2016. The Issuer intends to finalize the reorganization in 2021 on the basis of the audited accounts of 2020. The reorganization is subject to the approval of the Central Bank of Kenya.

Other Material Contracts Save for the documents in relation to the creation of the Notes, the Issuer has not entered into any other material contracts not disclosed in this Information Memorandum other than contracts entered into in the ordinary course of business.

Financing Agreements The Bank has issued guarantees and letters of credit in the ordinary course of business as more particularly disclosed in the Reporting Accountants Report:

1.1. Onerous Covenants and Default The Issuer has no material contracts with third parties which have any onerous covenants. As at the date of this Information Memorandum, the Issuer is not in breach of any of the terms of its loan agreements and is in compliance with regulatory requirements.

17.5 Related Party Agreements (loan agreements with subsidiaries, etc. with details on amounts, purpose, interest rates, etc.) The Issuer has entered into arrangements under which funds are due to it from some of its significant shareholders and directors. These arrangements are at arm’s length on terms which would be available to third parties and have been disclosed in the financial statements of the Issuer.

The Issuer has also made advances to its employees and are these made subject to the applicable prohibitions on insider lending in the Banking Act.

17.6 Loan/Finance Agreements Loan Agreement between OikoCredit Ecumenical Development Co-operative Society U.A (OikoCredit) and Family Bank Limited dated 25th June 2015

Loan Amount KES. One Billion Purpose Expansion of the Issuer’s portfolio to SMEs Interest rate Based on the 91 day Treasury Bill reviewed quarterly but not lower than 10% Duration 6 years Draw down KES. One Billion Repayment Six annual instalments Security Negative Pledge Promissory Notes

Finance Contract between the European Investment Bank (EIB) and Family Bank (Borrower) Limited (East & Central Africa PEFF) dated 29th December 2015

Loan Amount Euro Thirty Million Purpose Financing of up to 50% of the total costs of projects Interest rate 9.995% Duration 7 years Draw down Euro Thirty Million Repayment Biannual instalments Security Negative Pledge

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17.7 Other Contracts Software Licence and Support Agreements

The Issuer has entered into the following software license and support agreements: • Kaspersky Support Service Level Agreement with Ariel Technology Limited dated 16th February 2017; • Databases Support Contract Agreement with Data Infinity Limited dated 3rd April 2020; and • Addendum for Support and Maintenance of Network Integration, Security and Unified Communications with Dimension Data Solutions Limited dated 1st February 2017.

17.8 Licenses and Permits The Issuer has been issued with License No. CBK/BSD/03/11 to conduct banking business in Kenya. The license was issued on 31st May 2016. There are no conditions attached to the license except that the Central Bank of Kenya may at any time revoke, amend, suspend or restrict the license or any term or condition imposed thereon. There are no ongoing litigation disputes with any regulatory authorities. The Issuer has also procured business permits from the relevant county governments for the operation of its various offices, branches and ATM locations.

17.9 Material Litigation and Disputes The Issuer is party to various disputes which are debt recovery, security enforcement and related matters in the ordinary course of business. None of these disputes are material in the context of the Issue or the Issuer’s business.

We set out below some of the suits with the highest pecuniary claim:

Parties YEAR CASE NUMBER NATURE STATUS CLAIM AMOUNT Maggie Calf vs. Family Bank 2016 Nairobi Milimani Lease Termination The Issuer is Claim is for Limited HCCC No. 74 of appealing against 68,679,971.52 2016 the decision by the High Court in the Court of Appeal. Kbenways Company Limited 2017 Kericho HCCC Debt recovery The matter is KES vs. Family Bank Kenya NO. 9 OF 2017 fixed for hearing 45,624,712 Limited of the main suit on 14th June, 2021. Hon Njehu Gatabaki vs 2016 Nairobi HCCC No Fraud Awaiting hearing KES Ashford,miller & Family 258 2016 Nairobi date. 31,662,715.49 Bank Limited Peter Munyiri vs. Family 2017 ELRC No. 1396 Of Employment The Claimant is KES Bank Limited 2017 (Now Civil appealing against 27,057,300.00 Appeal No. 374 the decision by Of 2019) the High Court in the Court of Appeal for awarding of a higher amount as compensation.

17.10 Property and information on Vendors on materials assets acquired in the last five years The Issuer has not acquired any immovable properties in the past five years.

78 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

17.11 Expenses of the offer The expenses of the offer and the listing which will be for the account of the Issuer are estimated at Kenya Shillings One hundred and eleven million, six hundred and eighty thousand (KES 111,680,000).

Professional fees and related costs KES Arrangers and Placement Fees 83,500,000 Registrar and Fiscal Agent Fees 240,000 Legal Fees 8,000,000 Reporting Accountant & Auditor’s Fees 5,400,000 Note Trustee Fees 540,000 Marketing Expenses 5,000,000 CMA Approval Fees* 8,000,000 NSE Listing and admission fee** 1,000,000 Total 111,680,000 Total Issue Costs as a % of Total Issue 1.40%

*The CMA approval fees indicated above assumes the issue and Listing of the entire Programme. The fee payable would be paid in tranches at the rate of 0.1% of the total amount listed for each Tranche of the Notes listed on the NSE. ** The NSE fee indicated above assumes the issue and Listing of the entire Programme. The fee payable would be paid in tranches at the rate of 0.0125% of the total amount listed for each Tranche of the Notes listed on the NSE.

17.12 Directors declaration The Directors of Family Bank Limited, whose names appear on section 6.2 of this Information Memorandum, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with facts and does not omit anything likely to affect the import of such information.

17.13 Directors statement as to funding for payment obligations The funding obligations will be met by cash flows and profitability from the operations of the Issuer’s business.

17.14 Directors statement as to liquidity requirement The Directors of the Issuer confirm that as at the date of this Information Memorandum, the Issuer is in compliance with the liquidity ratios required under the Prudential Guidelines.

17.15 General Information 17.15.1 Documents Available for Inspection As long as any Note remains outstanding, copies of the following documents will, when published, be available for inspection at the Specified Offices of the Issuer: i. the Memorandum and Articles of Association of the Issuer; ii. the audited financial statements of the Bank in respect of the past five financial years; iii. extract from the minutes of the Board meeting held on January 20, 2021 approving the Issue; iv. the Reporting Accountants’ report as reproduced in this Information Memorandum and their written consent to the issue of this Information Memorandum with their report included herein in the form and context in which it is so included; v. the legal opinion of Legal Counsel to the Note Trustee as reproduced in this Information Memorandum and their written consent to the issue of this Information Memorandum with their opinion included herein in the form and context in which it is so included; vi. a copy of the Trust Deed between the Note Trustee and the Issuer; vii. a copy of the Agency Agreement between the Issue and Paying Agent, the Calculation Agent, the Transfer Agent, the Replacement Agent, the Registrar and the Issuer; viii. a copy of the Issue Agreement between the Placing Agents and the Issuer; ix. a copy of this Information Memorandum; x. a copy of the approval of the Capital Markets Authority in respect of this issue;

Family Bank is regulated by the Central Bank of Kenya 79 INFORMATION MEMORANDUM, JUNE 2021

xi. a copy of a letter of “no objection” from the Nairobi Securities Exchange; and xii. A copy of a letter of “no objection” from the Central Bank of Kenya in respect of this Issue.

Copies of this Information Memorandum and copies of the Trust Deed, Agency Agreement and the Issue Agreement have been submitted to the Capital Markets Authority and the Nairobi Securities Exchange.

17.15.2 Changes in Senior Management The Bank is in the process of recruiting a Chief Internal Auditor and Chief Commercial Banking Officer. There are no other planned or expected changes in the Bank’s senior management during the twenty four months following this Issue.

17.15.3 Voting Rights and Control All shareholders have equal voting rights and no preferential voting rights attach to any shares. The Issuer has a diverse shareholder base and is not directly or indirectly owned or controlled by any shareholder. As at the date of this Information Memorandum, there are no arrangements known to the Issuer the operation of which may result in change of control of the Issuer.

17.15.4 Directors’ Interest The following director holds in excess of 3% (directly or indirectly) of the share capital of the Issuer as at the date of this Information Memorandum: i. Titus Kiondo Muya

17.15.5 Minimum Subscription Level The Issuer seeks to raise a maximum of KES 8.0 billion under this Programme. The minimum subscription level shall be set out in the relevant Pricing Supplement.

17.15.6 Application Procedure Application forms for issues of Notes may be obtained from the Issuer and the Arranger. Applications must be submitted directly to the Fiscal Agent. Successful applicants will be notified either by the Fiscal Agent on behalf of the Issuer and the Arranger, or by the Arranger on behalf of the Issuer, of the amount of Notes allotted to them immediately after the date of allotment.

17.15.7 Secondary Market Trading of the Notes Fiscal Agents, acting as principal or agent of the Issuer, may facilitate market trading of the Notes through purchases and/ or sales of such Notes on a best effort basis.

The transfer of a Note from a seller to a purchaser will be carried out in accordance with the transfer regulations set out in the Agency Agreement and subject to the Terms and Conditions.

17.15.8 Material Changes in the business There have been no interruptions in the Issuer’s business or its subsidiary, which may have or have had during the recent past (covering at least the previous four months prior to the issuance of this Information Memorandum) a significant effect on the Group’s financial position.

17.15.9 Material Change in the Financial Information There has been no significant change in the financial or trading position of the Issuer which has occurred since the date of the last interim financial statements period.

17.15.10 Principal Investments As at the date of this information memorandum, the group does not intend to carry out principal investments in its infrastructure in the current financial period.

80 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

17.15.11 Dealing with Shareholders As at the date of this Information Memorandum and during the past five years, the Issuer has entered into arrangements under which funds are due to it from some of its significant shareholders. These arrangements are at arm’s length on terms which would be available to third parties and have been disclosed in the financial statements of the Issuer.

17.15.12 Other Issues The Issuer confirms that it has not made an issue in the preceding three months from the date of this Information Memorandum and does not propose to make another issue of similar debt securities simultaneously with the current issue.

Family Bank is regulated by the Central Bank of Kenya 81 JUNE 2021

18 Appendix

Appendix A: Accountantís Report

FAMILY BANK LIMITED ACCOUNTANT’S REPORT IN RELATION TO THE BOND ISSUE JUNE 2021

TABLE OF CONTENTS

Section 1 Independent auditor’s report on the historical financial information 84 - 85 Independent auditor’s report on the prospective financial information 86 - 88 Section 2: Basis of preparation of the historical financial information 89 Section 3: Consolidated historical financial information for each of the three years ended 31 December 2020, 2019 and 2018 Consolidated statement of profit or loss and other comprehensive income 90 Consolidated statement of financial position 91 Consolidated statement of changes in equity 92 Consolidated statement of cash flows 93 Notes 94 - 186 Section 4: Summary of the applicable accounting standards 187 - 188 Section 5: Prospective financial information Consolidated statement of profit or loss and other comprehensive income 189 Consolidated statement of financial position 190 Consolidated statement of changes in equity 191 Section 6: Key assumptions in arriving at the financial projections for the years ending 31 December 2021 and 2022 192

Family Bank is regulated by the Central Bank of Kenya 83 Section 1 (a)

The Directors Family Bank Limited Family Bank Towers Muindi Mbingu Street P.O. Box 74145- 00200 Nairobi

Independent auditor’s report on the historical financial information of Family Bank Limited

Introduction

We have reviewed the accompanying consolidated statement of financial position of Family Bank Limited and its subsidiary, Family Bank Insurance Agency (together, the ‘Group’) as at 31 December 2018, 31 December 2019 and 31 December 2020, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the periods then ended, and notes, comprising a summary of significant accounting policies and other explanatory notes contained in Section 3.

Management is responsible for the preparation and fair presentation of these consolidated historical financial information in accordance with International Financial Reporting Standards. Our responsibility is to express a conclusion on the consolidated historical financial information based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, ‘Review of interim financial information performed by the independent auditor of the entity’. A review of financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We reviewed the historical financial information of the Group for each of the three years ended 31 December 2018, 2019 and 2020 for compliance with International Financial Reporting Standards (IFRS) applicable to financial period commencing on or after 1 January 2020. The historical financial information for each of the three financial years is based on the audited financial statements of the Group for the respective financial years, as adjusted for changes in International Financial Reporting Standards (IFRSs) to achieve consistent application of accounting policies and presentation as explained in Note 36 of the historical financial information contained in Section 3.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying historical financial information of the Group for the years ended 31 December 2018, 2019 and 2020 has not been properly prepared in accordance with the basis of preparation explained in section 2 of the Accountants report.

84 Section 1 (a)

Independent auditor’s report on the historical financial information of Family Bank Limited (continued)

Consent

We consent to the inclusion of this report in the Information Memorandum in support of the bond issue by Family Bank Limited to be issued on or about 2 June 2021 in the form and context in which it appears.

FCPA Richard Njoroge, Practicing Certificate Number 1244 Engagement partner responsible for the review

For and on behalf of PricewaterhouseCoopers LLP Certified Public Accountants Nairobi

2 June 2021

85 INFORMATION MEMORANDUM, JUNE 2021

Section 1 (b)

The Directors Family Bank Limited Family Bank Towers Muindi Mbingu Street P.O. Box 74145- 00200 Nairobi

Independent auditor’s report on the prospective financial information of Family Bank Limited

We have undertaken a reasonable assurance review of the accompanying prospective financial information (the “Forecast”) of Family Bank Limited (the “Bank”) and its subsidiary, Family Bank Insurance Agency (together, the ‘Group’) set out in Section 5 comprising the consolidated statement of financial position as at 31 December 2021 and 31 December 2022 and the consolidated statements of profit or loss and other comprehensive income and changes in equity for the years ending then in accordance with the International Standard on Assurance Engagements.

The forecast has been prepared on the basis of assumptions set out in Section 6 and the accounting policies set out in Section 3 of the Accountant’s report.

Family Bank Limited’s responsibility for the projected financial statements

Family Bank Limited is responsible for the preparation and presentation of the projected financial statements, including the assumptions set out in Section 6 and accounting policies set out in Section 3 on which they are based. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of the projected financial statements that are based on the accompanying assumptions.

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standard Board for Accountants (IESBA Code), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

The firm applies International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Our Responsibility

Our responsibility is to provide the opinion required by the Capital Markets Authority (“CMA”). We conducted our reasonable assurance engagement in accordance with International Standard on Assurance Engagements 3000, Assurance engagements other than audits or reviews of historical financial information (‘ISAE 3000’), issued by the International Auditing and Assurance Standards Board. That standard requires that we comply with ethical requirements and plan and perform our procedures to obtain reasonable assurance about whether management has properly compiled, in all material respects, the projected financial statements on the basis of the assumptions set out in Section 6 and the accounting policies set out in Section 3 of the Accountant’s report.

86 Section 1 (b)

Independent auditor’s report on the prospective financial information of Family Bank Limited (continued)

This reasonable assurance engagement, performed in accordance with ISAE 3000, involved performing procedures to obtain evidence that the projected financial statements were properly compiled by management on the basis of the assumptions set out in Section 6 and that the basis of accounting used is consistent with the accounting policies of the Group. The nature, timing and extent of procedures selected in an ISAE 3000 engagement depend on the auditor’s judgment, including the assessment of the risks of improper compilation, whether due to fraud or error, of the projected financial statements. In making those risk assessments, we considered internal control relevant to Family Bank Limited’s preparation of the projected financial statements. Our procedures included evaluating whether the accounting policies applied in the preparation of the projected financial statements were consistent with the accounting policies used by management in the preparation of the entity’s previous financial statements and whether the projected financial statements had been properly compiled on the basis of those accounting policies and management’s assumptions. We also considered the overall presentation of the projected financial statements, including the disclosure of the assumptions on which it is based.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Inherent limitations

The projected financial statements have been prepared for the purpose of inclusion in the information memorandum in support of the Groups’ bond issue and may not be used for any other purpose. Because of its forward looking nature, the projection has been prepared using a set of assumptions that include hypothetical assumptions about future events and management’s actions that cannot be confirmed and verified in the same way as past results and that are not necessarily expected to occur. Consequently, we express no opinion on the validity of the assumptions on which the projection is based or on how closely the results actually achieved will compare with the projection.

Even if the events anticipated under the hypothetical assumptions described above occur, actual results are still likely to be different from the projection since other anticipated events frequently do not occur as expected and the variation may be material. Further, we emphasise that the projected financial statements are not intended to, and do not, provide all the information and disclosures necessary to give a fair presentation in accordance with international financial reporting standards (“IFRS”).

Opinion

In our opinion the projected financial statements have been properly compiled on the basis of the assumptions set out in Section 6 and the basis of accounting used is consistent with the accounting policies of the Group.

Intended users and purpose

These projected financial statements have been prepared for the purpose described above, and may, therefore, not be appropriate for another purpose. Our report is intended solely for the directors of Family Bank Limited for inclusion in the information memorandum in support of the Groups’ bond issue and may not be used for any other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

87 INFORMATION MEMORANDUM, JUNE 2021

Section 1 (b)

Independent auditor’s report on the prospective financial information of Family Bank Limited (continued)

Consent

FCPA Richard Njoroge, Practicing Certificate Number 1244 Engagement partner responsible for the review

For and on behalf of PricewaterhouseCoopers LLP Certified Public Accountants Nairobi

2 June 2021

88 Section 2: Basis of preparation of the historical financial information

The historical financial information for each of the three financial years ended 31 December 2020, 2019 and 2018 is based on the audited financial statements of the Group for the respective financial years, which have been adjusted for changes in International Financial Reporting Standards (IFRSs) to achieve consistent application of accounting policies and presentation. The adjustments made for changes in International Financial Reporting Standards have been explained in Note 36 of the historical financial information contained in Section 3.

The financial statements were prepared in line with the accounting policies set out in Section 3 of the Accountant’s report. The International Financial Reporting Standards which have been amended or introduced in the period under review have been summarised in Section 4.

PricewaterhouseCoopers LLP was the auditor of Family Bank Limited for each of the years ended 31 December 2020, 2019 and 2018 and issued unqualified audit opinions on the financial statements of the Group for the respective years.

89 JUNE 2021

SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018

Consolidated statement of profit or loss and other comprehensive income

2020 2019 2018 (Restated) Notes Kshs 000 Kshs 000 Kshs 000

Interest income 6(a) 9,386,726 7,515,819 7,056,590 Interest expense 7 (2,595,897) (2,253,464) (2,404,632) Net interest income 6,790,829 5,262,355 4,651,958

Fee and commission income 8(a) 1,939,756 2,067,517 2,038,214 Fee and commission expense 8(b) (273,643) (260,969) (252,038) Net fees and commission income 1,666,113 1,806,548 1,786,176

Investment income 6(b) 119,375 164,423 - Net trading income 341,362 390,760 337,456 Other income 8(c) 400,185 343,305 123,303

Operating income 9,317,864 7,967,391 6,898,893

Operating expenses 9 (5,648,228) (5,261,653) (5,259,687) Credit impairment losses 16 (2,228,983) (1,282,909) (1,204,273)

Profit before taxation 1,440,653 1,422,829 434,932 Income tax expense 11 (278,133) (472,993) (190,716)

Profit for the year 1,162,520 949,836 244,216

Other comprehensive income Gain on revaluation of properties (net of tax) - 85,800 - Fair value loss on debt financial assets at fair value through other comprehensive income (net (13,777) - - of tax)

Total other comprehensive income (13,777) 85,800 -

Total comprehensive income for the year 1,148,743 1,035,636 244,216

Earnings per share (basic and diluted) (Shs) 12 0.90 0.74 0.19

90 Family Bank is regulated by the Central Bank of Kenya JUNE 2021

SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018

Consolidated statement of financial position

2020 2019 2018 (Restated) Notes Kshs 000 Kshs 000 Kshs 000 ASSETS Cash and balances with CBK 13 8,879,521 6,961,324 6,281,701 Balances due from banking institutions 14(a) 819,406 2,779,374 1,222,738 Government securities: - At amortised cost 15 8,901,395 8,187,378 6,946,277 - At fair value through profit or loss 15 1,066,797 1,662,515 - - At fair value through other comprehensive income 15 7,033,006 - - Corporate bonds at amortised cost 17 - 399,847 392,772 Other investments 19 126,804 1,385,077 1,730,698 Current income tax 27,904 19,423 587,095 Other assets 18 1,421,545 1,362,923 1,535,248 Loans and advances to customers 16 56,579,798 50,594,439 44,113,093 Investment properties 21 23,400 23,400 18,200 Property and equipment 22 2,211,001 2,509,996 2,841,773 Intangible assets 23 399,355 486,843 597,692 Right of use of assets 33 1,483,603 1,520,371 2,039,151 Prepaid operating leases 24 134,583 139,220 143,885 Deferred income tax 28 1,552,679 885,543 527,303

TOTAL ASSETS 90,660,797 78,917,673 68,977,625

LIABILITIES AND SHAREHOLDERS’ FUNDS LIABILITIES Customer deposits 25 69,756,770 58,054,485 48,483,189 Balances due to banking institutions 14(b) 451,741 56,906 247,051 Current income tax 126,975 290,095 - Provisions 27(a) 587,877 424,606 349,615 Other liabilities 27(b) 1,655,823 1,949,516 1,443,734 Borrowings 26 3,017,148 3,954,679 4,903,207 Lease liability 33 1,607,076 1,569,539 1,969,504 Deferred income tax 28 1,126 1,421 535

TOTAL LIABILITIES 77,204,536 66,301,247 57,396,835

SHAREHOLDERS’ FUNDS Share capital 29 1,287,108 1,287,108 1,287,108 Share premium 5,874,662 5,874,662 5,874,662 Revaluation surplus 278,424 278,424 192,624 Fair value reserve (13,777) - - Retained earnings 6,029,844 5,176,232 4,226,396

TOTAL SHAREHOLDERS’ FUNDS 13,456,261 12,616,426 11,580,790

TOTAL LIABILITIES AND SHAREHOLDERS’ FUNDS 90,660,797 78,917,673 68,977,625

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018

Consolidated statement of changes in equity

Fair Share Share Revaluation value Retained Statutory capital premium surplus reserves earnings reserve Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Year ended 31 December 2018 At start of year 1,287,108 5,874,662 192,624 - 3,982,180 - 11,336,574 Comprehensive income Profit for the year - - - - 244,216 - 244,216

At end of year 1,287,108 5,874,662 192,624 - 4,226,396 - 11,580,790

Year ended 31 December 2019 At start of year 1,287,108 5,874,662 192,624 - 4,226,396 - 11,580,790 Comprehensive income - - - - 949,836 - 949,836 Profit for the year ------

Other comprehensive income Gain on revaluation of - - 85,800 - - - 85,800 properties (net of tax) Total comprehensive - - 85,800 - 949,836 - 1,035,636 income At end of year 1,287,108 5,874,662 278,424 - 5,176,232 - 12,616,426

Year ended 31 December 2020 At start of year 1,287,108 5,874,662 278,424 - 5,176,232 - 12,616,426 Comprehensive income ------Profit for the year - - - - 1,162,520 - 1,162,520

Other comprehensive income Fair value loss on debt financial assets at fair value through other - - - (13,777) - - (13,777) comprehensive income (net of tax) Total comprehensive - - - (13,777) 1,162,520 - 1,148,743 income

Dividend paid - - - - (308,908) - (308,908) At end of year 1,287,108 5,874,662 278,424 (13,777) 6,029,844 - 13,456,261

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018

Consolidated statement of cash flows

2020 2019 2018 Note Kshs 000 Kshs 000 Kshs 000 Cash flows from operating activities Cash used in operations 31(a) (5,342,770) (1,992,679) (2,336,483) Interest received 9,386,726 7,515,819 7,056,590 Interest paid (2,595,897) (2,253,464) (2,404,632) Tax paid (1,113,031) (11,977) (12,707)

Net cashflows from operating activities 335,028 3,257,699 2,302,768

Cash flows from investing activities Purchase of intangible assets 23 (36,283) (39,291) (19,679) Purchase of property and equipment 22 (209,793) (98,892) (28,412)

Net cash flows used in investing activities (246,076) (138,183) (48,091)

Cash flows from financing activities Proceeds from borrowings 26 7,284 - 2,211 Repayment of borrowings 26 (944,815) (948,528) (3,461,532) Principal lease payments 33 (553,604) (399,784) (588,427) Dividends paid (308,908) - -

Net cash flows used in financing activities (1,800,043) (1,472,363) (3,033,121)

(Decrease)/ increase in cash and cash equivalents (1,711,091) 1,647,153 (1,305,975) Cash and cash equivalents at start of the year 6,117,201 4,470,048 5,776,023

Cash and cash equivalents at end of year 31(b) 4,406,110 6,117,201 4,470,048

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018

Notes

1. General information

Family Bank Limited and its subsidiary, Family Insurance Agency Limited are both incorporated in Kenya under the Companies Act and is domiciled in Kenya.

For Kenyan Companies Act reporting purposes, the balance sheet is represented by the statement of financial position and the profit and loss account by the statement of profit or loss and other comprehensive income, in this financial information.

2. Significant accounting policies

The principal accounting policies applied in the preparation of the historical financial information are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) Basis of preparation The consolidated historical financial information have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS. The historical financial information comply with IFRS as issued by the International Accounting Standards Board (IASB).

(i) Basis of measurement The measurement basis used is the historical cost basis except where otherwise stated in the accounting policies below.

For those assets and liabilities measured at fair value, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. If the fair value of an asset or a liability is not directly observable, it is estimated by the Group using valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs (e.g. by use of the market comparable approach that reflects recent transaction prices for similar items or discounted cash flow analysis). Inputs used are consistent with the characteristics of the asset / liability that market participants would take into account.

Fair values are categorised into three levels of fair value hierarchy based on the degree to which the inputs to the measurements are observable and the significance of the inputs to the fair value measurement in its entirety:

• Level 1 fair value measurements are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Transfers between levels of the fair value hierarchy are recognised by the Group at the end of the reporting period during which the change occurred.

(ii) Use of estimates The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions. It also requires the directors to exercise judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or where assumptions and estimates are significant to the historical financial information, are disclosed in note 3.

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(iii) Changes in accounting policies and disclosures The accounting policies set out below have been applied consistently to all years presented on the historical financial information and have been applied consistently by the Group.

(i) New standards, amendments and interpretations adopted by the Group The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2020: • Definition of Material – amendments to IAS 1 and IAS 8 • Definition of a Business – amendments to IFRS 3 • Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7 • Revised Conceptual Framework for Financial Reporting

Other new standards that became effective during the period under review are summarized in Section 4.

The Group also elected to adopt the following amendments early:

• Annual Improvements to IFRS Standards 2018-2020 Cycle.

IFRS 9 Financial Instruments – clarifies which fees should be included in the 10% test for derecognition of financial liabilities. This change did not have an impact on the Group’s historical financial information.

IFRS 16 Leases – amendment of illustrative example 13 to remove the illustration of payments from the lessor relating to leasehold improvements, to remove any confusion about the treatment of lease incentives. This change did not have an impact on the Group’s historical financial information.

• Covid-19-Related Rent Concessions – amendments to IFRS 16

There were no rent concessions obtained by the Group in the year.

• Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7.

This did not have an impact on the Group’s historical financial information as it does not have hedging contracts.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) a) Basis of preparation (continued) (iii) Changes in accounting policies and disclosures (continued) ii) New standards, amendments and interpretations issued but not yet effective The below new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group.

Title Key requirements Effective Date IFRS 17 Insurance IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Originally 1 Contracts Contracts. It requires a current measurement model where estimates January 2021, but are re-measured in each reporting period. The new rules will affect the extended to 1 January financial statements and key performance indicators of all entities that 2023 by the IASB in issue insurance contracts or investment contracts with discretionary March 2020 participation features. Classification of The narrow-scope amendments to IAS 1 Presentation of Financial 1 January 2022 Liabilities as Current Statements clarify that liabilities are classified as either current or non- [deferred to 1 or Non-current – current, depending on the rights that exist at the end of the reporting January 2023] Amendments to IAS 1 period. Classification is unaffected by the expectations of the entity or events after the reporting date (e.g. the receipt of a waver or a breach of covenant). The amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability.

The amendments could affect the classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification and for some liabilities that can be converted into equity.

They must be applied retrospectively in accordance with the normal requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Property, Plant and The amendment to IAS 16 Property, Plant and Equipment (PP&E) 1 January 2022 Equipment: Proceeds prohibits an entity from deducting from the cost of an item of PP&E before intended use – any proceeds received from selling items produced while the entity is Amendments to IAS 16 preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment.

Entities must disclose separately the amounts of proceeds and costs relating to items produced that are not an output of the entity’s ordinary activities. Reference to the Minor amendments were made to IFRS 3 Business Combinations to 1 January 2022 Conceptual Framework update the references to the Conceptual Framework for Financial – Amendments to IFRS Reporting and add an exception for the recognition of liabilities and 3 contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The amendments also confirm that contingent assets should not be recognised at the acquisition date.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) a) Basis of preparation (continued) (iii) Changes in accounting policies and disclosures (continued) ii) New standards, amendments and interpretations issued but not yet effective (continued)

Title Key requirements Effective Date Onerous Contracts The amendment to IAS 37 clarifies that the direct costs of fulfilling a 1 January 2022 – Cost of Fulfilling a contract include both the incremental costs of fulfilling the contract Contract Amendments and an allocation of other costs directly related to fulfilling contracts. to IAS 37 Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulfilling the contract. Sale or contribution The IASB has made limited scope amendments to IFRS 10 Consolidated n/a ** of assets between financial statements and IAS 28 Investments in associates and joint an investor and its ventures. associate or joint venture – Amendments The amendments clarify the accounting treatment for sales or to IFRS 10 and IAS 28 contribution of assets between an investor and its associates or joint ventures. They confirm that the accounting treatment depends on whether the non- monetary assets sold or contributed to an associate or joint venture constitute a ‘business’ (as defined in IFRS 3 Business Combinations).

Where the non-monetary assets constitute a business, the investor will recognise the full gain or loss on the sale or contribution of assets. If the assets do not meet the definition of a business, the gain or loss is recognised by the investor only to the extent of the other investor’s interests in the associate or joint venture. The amendments apply prospectively.

** In December 2015 the IASB decided to defer the application date of this amendment until such time as the IASB has finalised its research project on the equity method.

None of these standards are expected to have a significant impact on the Group.

(b) Consolidation The consolidated historical financial information incorporate the historical financial information of the Bank and an entity controlled by the Bank. Control is achieved when the Bank: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns

The Bank reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Bank has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.

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The Bank considers all relevant facts and circumstances in assessing whether or not the company’s voting rights in an investee are sufficient to give it power over the investee, including: • the size of the Bank’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Bank, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Bank has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholder’s meetings.

Consolidation of a subsidiary begins when the company obtains control over the subsidiary and ceases when the company loses control of the subsidiary.

Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the company gains control until the date when the company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the company and to the non-controlling interest even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the historical financial information for subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to the transactions between the members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interests in existing subsidiaries Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interest and the non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the company.

When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest. All amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9: Financial Instruments: Recognition and Measurement, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

(c) Investment in subsidiary Investment in subsidiary companies are stated at cost less impairment loss where applicable in the separate accounts of the Bank.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued)

(d) Interest income and expense recognition Interest income and interest expense on interest bearing financial instruments is calculated by applying the effective interest rate to the gross carrying amount, except for: i. Purchased or originated credit impaired (POCI) financial assets, for which the original credit-adjusted effective interest rate is applied to the amortised cost of the financial asset; and ii. Financial assets that are not “POCI” but have subsequently become credit-impaired, for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e.net of the expected credit loss provision) in subsequent reporting periods.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the amortised cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees paid or received that are integral to the effective interest rate, such as origination fees.

(e) Fee and commission income Fee and commission revenue, including transactional fees, account servicing fees, investment management fees and sales commissions are recognised as the performance obligations under the related services’ contracts are met. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan appraisal fees are recognised as revenue when the appraisal has been completed and the Bank has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants.

Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-apportionate basis. Performance-linked fees or fee components are recognised when the performance criteria are fulfilled.

(f) 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.

(g) Foreign currency translation Functional and presentation currency The Group’s consolidated historical financial information is presented in Kenya Shillings, which is also the Functional and Presentation currency of the Bank and it’s subsidiary . For each entity in the Group, the Group determines the functional currency and items included in the historical financial information of each entity are measured using that Functional currency.

Transactions and balances Foreign currency transactions that are transactions denominated, or that require settlement, in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Family Bank is regulated by the Central Bank of Kenya 99 JUNE 2021

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised through profit or loss. The Group does not have a foreign operation.

(h) Financial assets and liabilities The Group adopted IFRS 9 on 1 January 2018. The objective of IFRS 9 was to establish principles that would present relevant and useful information to users of financial statements in relation to: i) Classification of financial instruments; ii) Initial and subsequent measurement of financial instruments; iii) Modification and derecognition of financial instruments; and iv) Impairment of financial assets.

The Group determines the appropriate classification of its financial assets at initial recognition. It recognises a financial asset in its statement of financial position when it becomes party to the contractual provisions of the instrument.

The Group classifies its financial assets into the following categories: • financial assets at fair value through profit or loss FVTPL(“ ”); • financial assets measured at amortised cost; and • financial assets at fair value through other comprehensive income (“FVTOCI”).

Financial assets (except those carried at fair value through profit or loss) are initially recognised in the financial statements at fair value plus transaction costs. Loans and receivables and investments held at amortised cost are carried at amortised cost using the effective interest rate (“EIR”) method.

Financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss are carried at fair value. Gains and losses arising from changes in the fair value of ‘financial assets at fair value through profit or loss’ are included in profit and loss in the period in which they arise. Gains and losses arising from changes in the fair value of assets at fair value through other comprehensive income are recognised in other comprehensive income and cumulated in a separate reserve in equity until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in profit and loss for debt instruments or recycled through retained earnings for equity instruments. i. Financial assets

Recognition and Subsequent measurement a) Debt instruments At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

Except for the Group’s financial assets that are designated at initial recognition as at fair value through profit or loss, the Group’s financial asset is classified on the basis of both; • the Group’s business model for managing the financial assets; and • the contractual cash flow characteristics of the financial asset.

Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories: • Amortised cost: assets that are held for collection of contractual cash flows where those cash flows represent solely

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) (h) Financial assets and liabilities (continued) i. Financial assets (continued) Recognition and Subsequent measurement (continued) a) Debt instruments (continued)

payments of principal and interest (SPPI), and that are not designated at FVPL, are measured at amortised cost. The carrying amounts of these assets are adjusted by any expected credit loss allowances. Interest income from financial assets is included in “interest income” using the effective interest rate method. • Fair value through other comprehensive income (FVOCI): Financial assets that are held for collection of contractual cash flows and for selling, where the assets’ cash flows represent SPPI and that are not designated at FVPL, are measured through other comprehensive income (FVOCI). Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses and interest revenue and foreign exchange gains and losses on the instrument’s amortised cost which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in “Net gains on disposal of financial instruments”. Interest income from the instruments is included in “interest income” using the effective interest rate. • Fair value through the profit or loss: Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognised in profit or loss in the period in which it arises. Interest income and credit related income from these financial assets is included in “interest income” using the effective interest rate method.

(b) Recognition and subsequent measurement Group’s business model: The business model reflects how the Group manages the assets in order to generate cash flows. That is, whether the Group’s objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from sale of assets. If neither of these is applicable (e.g. financial assets are held for trading purposes), then the financial assets are classified as part of “other” business model and measured at FVPL. Factors considered by the Group in determining the business model for a group of assets include past experience on how cash flows for these assets were collected, how the asset’s performance is evaluated and reported by key management personnel, how risks are assessed and managed and how managers are compensated. For example, the liquidity portfolio of assets is held by the Group as part of liquidity management and is generally classified with the hold to collect and sell business model. Securities held for trading are held principally for the purpose of selling in the near term or are part of a portfolio of financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. These securities are classified in the “other” business model and measured at FVPL.

Contractual characteristics of a financial asset / SPPI:Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Group assesses whether the financial instruments’ cash flows represents solely payments of principal and interest (the “SPPI test”). In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

The Group reclassifies debt investments when and only when its business model for managing those assets changes. The reclassification takes place from the start of the first reporting period following the change. The changes are expected to be very infrequent and none occurred during the year.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) (h) Financial assets and liabilities (continued) i. Financial assets (continued) Recognition and Subsequent measurement (continued) (b) Recognition and subsequent measurement (continued)

Impairment: The Group assesses on a forward-looking basis the expected credit loss (“ECL”) associated with its debt instrument assets carried at amortised cost and FVOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Bank recognises a loss allowance for such losses at each reporting date. The measurement of ECL reflects: - An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; - The time value of money; and - Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

(c) Modification of loans The Group may sometimes renegotiate or otherwise modify the contractual cash flows of loans to customers. When this happens, the Group assesses whether or not the new terms are substantially different to the original terms. The Group does this by considering, among others, the following factors: • If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash flows to amounts the borrower is expected to be able to pay. • Whether any substantial new terms are introduced, such as a profit share/equity-based return that substantially affects the risk profile of the loan. • Significant extension of the loan term when the borrower is not in financial difficulty. • Significant change is interest rate • Change in the currency of the loan - Insertion of collateral, other security or credit enhancement that significantly affect the credit risk associated with the loan.

If the terms are substantially different, the Group derecognises the original financial asset and recognises a “new” asset at fair value and recalculates a new effective interest rate for the asset. The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purposes, including for the purpose of determining whether a significant increase in credit risk has occurred. Accordingly, the date of the modification is treated as the date of initial recognition of that financial asset when applying the impairment requirements to the modified financial asset. This typically means measuring the loss allowance at an amount equal to 12-month expected credit losses until the criteria for the recognition of lifetime expected credit losses is met.

However, in some unusual circumstances following a modification that results in derecognition of the original financial asset, there may be evidence that the modified financial asset is credit-impaired at initial recognition, and thus, the financial asset is recognised as an originated credit-impaired financial asset. This might occur, for example, in a situation in which there was a substantial modification of a distressed asset that resulted in the derecognition of the original financial asset. In such a case, it may be possible for the modification to result in a new financial asset which is credit- impaired at initial recognition. Differences in the carrying amount are recognised in profit or loss as a gain or loss on derecognition.

If the terms are not substantially different, the renegotiation or modification does not result in derecognition, the Group recalculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in profit or loss. The new gross carrying amount is recalculated by discounting the modified cash flows at the original effective interest rate of credit-adjusted effective interest rate for POCI financial assets.

(d) Derecognition other than on a modification Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash flows from the assets have expired, or when they have been transferred and either (i) the Group transfers substantially all the risks and rewards of

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) (h) Financial assets and liabilities (continued) i. Financial assets (continued) Recognition and Subsequent measurement (continued) (d) Derecognition other than on a modification (continued) ownership, or (ii) the Group neither transfers nor retains substantially all the risks and rewards of ownership and the Group has not retained control.

The Group enters into transactions where it retains the contractual rights to receive cash flows from assets but assumes a contractual obligation to pay those cash flows to other entities and transfers substantially all of the risks and rewards.

These transactions are accounted for as “pass through” transfers that result in derecognition if the Group: i) Has no obligation to make payments unless it collects equivalent amounts from the assets; ii) Is prohibited from selling or pledging the assets; and iii) Has an obligation to remit any cash it collects from assets without material delays.

Collateral (shares and bonds) furnished by the Group under standard repurchase agreements and securities lending and borrowings transactions are not derecognised because the Group retains substantially all the risks and rewards on the basis of predetermined repurchase price, and the criteria for derecognition are therefore not met. This also applies to certain securitisation transactions in which the Group retains a subordinated residual interest. e) Repossessed collateral The Group makes arrangement to dispose repossessed collateral to the market quickly and at the best price. Disposal processes commences immediately when the asset becomes ready for sale. While assets are not being disposed of, the Group endeavors to keep costs relative to the upkeep and maintenance of the assets to a minimum. Possessed moveable assets are stored at reputable storage yards approved by the Group or within Group premises.

The Group is not in asset and property trading/management, and thus does not take positions on the market trends.

(ii) Financial Liabilities

The Group’s holding in financial liabilities represents mainly deposits from banks and customers and other liabilities. Such financial liabilities are initially recognised at fair value and subsequently measured at amortised cost. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

(a) Classification and subsequent measurement Financial liabilities are classified as subsequently measured at amortised cost, except for: - Financial liabilities at fair value through profit or loss such as derivatives, financial liabilities held for trading (e.g. short positions in the trading booking) and other financial liabilities designated as such at initial recognition. Gains or losses on financial liabilities designated at fair value through profit or loss are presented partially in other comprehensive income (the amount of change in the fair values of the financial liability that is attributable to changes in the credit risk of that liability) and partially profit or loss (the remaining amount of change in the fair value of the liability); - Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the consideration received for the transfer. In subsequent periods, the Group recognises any expense incurred on the financial liability; and - Financial guarantee contracts and loan commitments

(b) Derecognition of financial liabilities Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

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(c) Financial guarantee contracts and loan commitments Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of the debt instrument. Such financial guarantees are given to banks, financial institutions and others on behalf of customers to secure loans, overdrafts and other banking facilities.

Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of: - The amount of the loss allowance; and - The premium received on initial recognition less income recognised in accordance with the principles of IFRS 15

Loan commitments provided by the Group are measured as the amount of the loss allowance. The Group has not provided any commitment to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument, other than for staff facilities. For loan commitments and financial guarantee contracts, the loss allowance is recognised as a provision. However, for contracts that include both a loan and an undrawn commitment and the Group cannot separately identify the expected credit losses on the undrawn commitment component from those on the loan component, the expected credit losses on the undrawn commitment are recognised together with the loss allowance for the loan to the extent that the combined expected credit losses exceed the gross carrying amount of the loan, the expected credit losses are recognised as provision.

(i) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set-off the recognised amounts and there is an intention to settle the asset and the liability on a net basis, or to realise the asset and settle the liability simultaneously.

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.

(j) Borrowings Borrowings are recognised initially at fair value, generally being their issue proceeds, net of directly attributable transaction costs incurred. Borrowings are subsequently measured at amortised cost and interest is recognised using the effective interest method.

Borrowing costs that relate to qualifying assets, that is, assets that necessarily take a substantial period of time to get ready for their intended use or sale and which are not measured at fair value, are capitalised. All other borrowing costs are recognised in profit or loss. Borrowing costs consist of interest and other costs that an entity incurred in connection with the borrowing of funds.

(k) Property and equipment Property and equipment are stated at cost (or as professionally revalued from time to time as in the case of buildings) less accumulated depreciation and any accumulated impairment losses. Any surplus arising on revaluation is recognised in other comprehensive income and accumulated in the revaluation reserve account. Decreases that offset previous increases of the same asset are recognised in other comprehensive income and charged against the revaluation surplus; all other decreases are charged to profit or loss. The Group’s policy is to professionally revalue freehold land and buildings at least once every five years. The last valuation was done on 31 December 2019. The valuation considered the highest and best use of the property. The basis of valuation for freehold land and buildings is open market value.

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Depreciation is calculated on a straight-line basis at annual rates estimated to write off the cost of each asset or the revalued amounts, to its residual values over its estimated useful life as follows:

Buildings 2.50% Fixtures, fittings and equipment 12.50% ATM Machines 16.70% Motor vehicles 20% Computers 20%

Freehold land is not depreciated.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for on a prospective basis.

The depreciation charge to profit and loss is based on the carrying amounts of the property and equipment. The excess of this charge over that based on the historical cost of the property and equipment is released each year from the revaluation surplus to retained earnings.

(l) Intangible assets Intangible assets comprise acquired computer software license costs which are recognised on the basis of expenditure incurred to acquire and bring the specific software to use. These costs are amortised over estimated useful lives of three to ten years.

Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. During development of these software products, direct costs such as the software development employee costs and an appropriate portion of relevant overheads are recorded as work in progress and amortised from the point at which the asset is ready for use.

Computer software development costs recognised as assets are amortised over an estimated useful life of three to eight years. Costs associated with the maintenance of computer software are expensed as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Impairment of tangible and intangible assets At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of 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 pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) (l) Intangible assets (continued) Impairment of tangible and intangible assets (continued) its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

(m) Investment properties Investment properties comprise land and buildings and parts of buildings held to earn rentals and/or for capital appreciation. Investment properties are measured initially at cost including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. The fair value determined annually by external independent valuers. Fair value is based on active market prices as adjusted, if necessary, for any difference in the nature, condition or location of the specific asset.

Investment properties are not subject to depreciation. Gains and losses arising from changes in the fair value of investment property are included in profit or loss in the year in which they arise.

Investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

(n) Non-current assets held for sale The Group classifies a non-current asset as held for sale if, and only if, its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets held for sale are measured at the lower of their carrying amounts and fair values less estimated selling costs at end of reporting period date.

Impairment loss arising from any subsequent write-down of the carrying amount of an asset identified for sale to fair value less costs to make the sale is charged to profit or loss in the year in which the loss is identified.

(o) Income tax Income tax expense represents the sum of the tax currently payable and deferred tax.

Current income tax The income tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax Deferred income tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences.

Deferred income tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences are utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from good will. the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued) (o) Income tax (continued) Deferred income tax (continued) to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred income tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates that have been enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred income tax for the year Current and deferred income tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income.

(p) Provisions A provision is recognised if, as a result of a past event, the Group 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. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

(q) Contingent liabilities Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Contingent liabilities are possible obligations arising from past events, whose existence will be confirmed only by uncertain future events, or present obligations arising from past events that are not recognised because either an outflow of economic benefits is not probable, or the amount of the obligation cannot be reliably measured. Contingent liabilities are not recognised but information about them is disclosed unless the possibility of any outflow of economic benefits in settlement is remote.

(r) Statutory reserve Further to the credit loss allowances computed in line with international financial reporting standards, the Central Banks have, in their prudential guidelines, specified certain minimum loan loss provisions to be held against various categories of loans and advances. Where credit loss allowances computed in line with the Central Bank regulations exceed those computed on the same loan balances under International financial reporting standards, the excess is recognised as a regulatory loss reserve and is accounted for as an appropriation of retained earnings. The statutory loan loss reserve is non- distributable.

(s) Leases At inception of a contract, the Group assesses whether a contract is, or contains, a lease.

At commencement or on modification of a contract that contains a lease component, the Group allocates consideration in the contract to each lease component on the basis of its relative stand-alone price. However, for leases of branches and office premises the Group has elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component.

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The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove any improvements made to branches or office premises.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by analysing its borrowings from various external sources and makes certain adjustments to reflect the terms of the lease and type of asset leased.

Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Bank is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

(t) Cash and cash equivalents Cash and cash equivalents include cash in hand, unrestricted balances held with the Central Bank of Kenya and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position.

(u) Employee benefit costs The Group operates a defined contribution scheme for all its employees. The scheme is administered by an independent investment management company and is funded by contributions from both the group and employees.

The Group and its employees also contribute to the statutory National Social Security Fund (NSSF). This is a defined contribution scheme registered under the National Social Security Fund Act. The obligations under the scheme are limited to specific contributions legislated from time to time.

The Group’s contributions in respect of retirement benefit costs are charged to the profit and loss in the period to which they relate. Employee entitlement to leave not taken is charged to profit or loss as it accrues.

(v) Sale and repurchase agreements Securities sold to the Central Bank of Kenya subject to repurchase agreements (‘repos’) are retained in the financial statements under government securities and the counterparty liability is included in advances from Central Bank of Kenya. The difference between the sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 2. Significant accounting policies (continued)

(w) Operating segments Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (Managing Director and CEO). Management then allocates resources to and assesses the performance of the operating segments of the Group. • Segment result is segment revenue less segment expenses. • Segment revenue is the revenue that is directly attributable to a segment plus the relevant portion of the Group’s revenue that can be allocated to the segment on a reasonable basis. • Segment expenses are expenses resulting from the operating activities of a segment plus the relevant portion of an expense that can be allocated to the segment on a reasonable basis. Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

Capital expenditure represents the total cost incurred during the year to acquire segment assets (property, plant and equipment) that are expected to be used during more than one year.

(x) Comparatives Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.

3. Critical accounting estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. The directors also need to exercise judgment in applying the Group’s accounting policies.

All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, including expectations with regard to future events.

This note provides an overview of the areas that involve a higher degree of judgment or complexity, and major sources of estimation uncertainty that have a significant risk of resulting in a material adjustment within the next financial year.

Detailed information about each of these estimates and judgements is included in the related notes together with information about the basis of calculation for each affected line item in the historical financial information.

Critical accounting estimates and assumptions

(a) Measurement of expected credit loss allowance The measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVOCI is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses).

A number of significant judgements are also required in applying the accounting requirement for measuring ECL, such as: • Determining criteria for significant increase in credit risk; • Choosing the appropriate models and assumptions for the measurement of ECL; Establishing the number and relative weightings of forward-looking scenarios for each type • of product/market and the associated ECL; • Establishing groups of similar financial assets for the purposes of measuring ECL; • Determining the relevant period of exposure to credit risk when measuring ECL for credit cards and revolving credit facilities; and

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• Determining the appropriate business models and assessing the “solely payments of principal and interest (SPPI)” requirements for financial assets.

Covid 19 impact on impairment losses on loans and advances – Year ended 31 December 2020

The Covid-19 pandemic has resulted in a significant impact on the risks that the Group is exposed to and the output of financial models, most specifically those used to determine credit risk exposures. This high degree of uncertainty has forced the Bank to reassess assumptions, and existing methods of estimation and judgements, used in the preparation of these financial results. There remains a risk that future performance and actual results may differ from the judgements and assumptions used.

The most substantial impact on the Bank relates to credit risk due to increased allowances for credit losses in the year. The increased credit risk is majorly because of: • Declining performance in certain sectors of the economy e.g., hospitality and education sectors hence increased possibility of default. • Downward changes in credit ratings (both internal and external) • Increased time to realization of collateral for some portfolios and sectors as well as reassessment of the quality of collateral • Increased days past due for loans issued • Macroeconomic factors that have impacted the forward-looking estimates • Increased modification losses because of the restructurings. • Increased write offs of the loans that we are unlikely to recover.

The estimation of impairment losses on loans and advances include an unbiased and probability-weighted estimate of future losses determined by evaluating a range of possible macroeconomic outcomes. IFRS 9 models have used the following three parameters in ECL allowance calculations: probability of default (PD), loss given defaults (LGD) and exposure at default (EAD). Given the deteriorating macroeconomic environment, specific increases in PDs and LGDs were made to appropriately capture the Covid-19 environment.

As the outbreak continues to progress, it is challenging to predict the full extent and duration of its business and economic impact. Management adjustments were therefore required, in addition to the model outputs, to provide a more appropriate assessment of risk.

The quantitative impact of Covid-19 on impairment allowances in the year ended 31 December 2020 was an increase of Kshs 1,616,304,000 highlighted as below:

Kshs 000 Effect of economic scenario overlay 434,981 Effect of extension of realisation of collateral 342,070 Effect on high risk portfolios / customers 839,253 1,616,304

(b) Income taxes The Group is subject to income taxes in Kenya. Significant judgment is required in determining the Group’s provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 3. Critical accounting estimates and judgements (continued) Critical accounting estimates and assumptions (continued) (b) Income taxes (continued) additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and provisions in the period in which such determination is made.

Critical judgements in applying the entity’s accounting policies

In the process of applying the Group’s accounting policies, management has made judgments in determining: • Whether, and how much, to provide for the potential exposure of each litigation and/or claim, disclose or not disclose certain exposures; • Whether the Bank is reasonably certain to exercise extension of its leases; • Whether rent concessions result to new leases or a discount on the existing leases; • The classification of joint arrangements; • Assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are SPPI on the principal amount outstanding; and • The classification of financial assets.

4. Financial Risk Management disclosures

The Group defines risk as the possibility of losses being incurred or profits foregone, which may be caused by internal or external factors. The Group aims to achieve an appropriate balance between risk and return and minimise the potential adverse effects of the Group’s financial performance.

The most important type of risks to which the Group are exposed to are financial risks which include: a) Credit risk b) Liquidity risk c) Market risk

Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established a risk management committee comprising of two non-executive directors to assist in the discharge of this responsibility. The Board has also established the Group Asset and Liability Committee (ALCO), Credit Committee and Risk and Compliance Committee, which are responsible for developing and monitoring risk management policies in their specified areas. With the exception of the ALCO which is a Management Committee, these committees comprise of both non-executive and executive members and report regularly to the Board of Directors on their activities.

The Board provides written principles for overall risk management as well as written policies covering specific risk areas. 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 best market practices. 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 Risk and Compliance Committee is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. This committee is assisted in these functions by the Assurance Function. The Assurance Function undertakes reviews of risk management controls and procedures, the results of which are reported to the committee.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 4. Financial Risk Management disclosures (continued)

4.1 Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Group’s loans and advances to customers and other banks and investment securities but can also arise from credit enhancement provided such as financial guarantees, letters of credit and acceptances.

Credit risk is the single largest risk for the Group’s business and management carefully manages its exposure to credit risk. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure.

For risk management purposes, credit risk arising on trading securities is managed independently, but reported as a component of market risk exposure.

Management of credit risk The Board of Directors has delegated responsibility for the oversight of credit risk to its credit committee comprising of three non-executive directors and two executive directors. The implementation of the credit risk policies and monitoring of the credit portfolio to ensure that risks are managed within acceptable standards is the responsibility of the credit committee comprising of executive management.

The committee assisted by the credit department is responsible for the management of the Group’s credit risk including: • Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. • Establishing the authorisation structure for the approval and renewal of credit facilities. • Authorisation limits are delegated to the head of credit and the credit committee while larger facilities require approval by the board of directors. • Limiting concentrations of exposure to counterparties, geographies and industries for loans and advances. • Developing and maintaining the group’s risk gradings in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. • Varying degrees of risk of default and the availability of collateral or other credit risk mitigation. Risk grades are subject to regular reviews by credit department. • Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports are provided to the group credit committee on the credit quality of local portfolios and appropriate corrective action is taken. • Providing advice, guidance and specialist skills to branches to promote best practice throughout the group in the management of credit risk.

Credit risk measurement In measuring credit risk of loans and advances to customers, the Group takes into account the following factors: • The probability of default: this is the possibility of the customer failure to pay over the stipulated period in the contract. • Current exposure on the borrower and the likely future development from which the Group derives the exposure at default. • Estimated recovery ratio should default occur; this is the amount that can be recovered through sale of collateral.

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The impairment allowances on loans and advances computed through the Group’s internal measures and the Central Bank of Kenya prudential guidelines are contrasted with the measurement of impairment under the IFRS 9.

4.1.1 Loans and advances The Group align the classification criteria for assets that are past due or impaired in line with regulatory guidelines. In the determination of the classification of accounts, performance is the primary consideration. The classification of an account reflects a judgment about risks of default and loss associated with the credit facility. The classification process establishes a consistent approach to problem recognition, problem labeling, remedial action and the initiation of credit write-offs.

The key judgments and assumptions adopted by the Group in addressing the requirements of the standard are discussed below:

(i) Significant Increase in credit risk (SICR) The Group’s decision on whether to recognize 12-month or lifetime expected credit losses depends on whether there has been a significant increase in credit risk since initial recognition. An assessment of whether credit risk has increased significantly is performed at each reporting date. When making the assessment, the Group uses the change in the risk of a default occurring over the expected life of the financial instrument instead of the change in the amount of expected credit losses. This forms the basis of stage 1, 2 and 3 classification and subsequent migration.

The Group applies qualitative and quantitative criteria for stage classification and for its forward and backward credit risk migration.

Quantitative Criteria The quantitative criteria is based on relative and not absolute changes in credit quality driven by counterparty ratings and days past due.

The Group considers that financial instruments for which default patterns are not concentrated at a specific point during the expected life of the financial instrument, changes in the risk of a default occurring over the next 12 months may be a reasonable approximation of the changes in the lifetime risk of a default occurring and could be used to determine whether credit risk has increased significantly since initial recognition.

The appropriateness of using changes in the risk of a default occurring over the next 12 months to determine whether lifetime expected credit losses should be recognised depends on the specific facts and circumstances. Risk of default occurring over the next 12 months is not a suitable basis for determining whether credit risk has increased on a financial instrument with a maturity of more than 12 months when: 1. the financial instruments only have significant payment obligations beyond the next 12 months; 2. changes in relevant macroeconomic or other credit-related factors occur that are not adequately reflected in the risk of a default occurring in the next 12 months; or 3. changes in credit-related factors only have an impact on the credit risk of the financial instrument (or have a more pronounced effect) beyond 12 months.

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The Group’s quantitative credit grading is similar to CBK’s prudential guidelines credit grading and is as per the table below:

IFRS 9 credit CBK PG/04 Guidelines Days past due staging / grading 1 Normal Up to date and in line with contractual agreements or within 30 days’ arrears 2 Watch 31 to 90 days overdue 3 Substandard 91 to 180 days overdue Doubtful 181 – 365 days overdue Loss Over 365 overdue

Qualitative Criteria In addition to the above, the Group considers other qualitative factors in determining the classification above and may accelerate the classification of credit facilities where deemed appropriate. They include but not limited to: 1. Significant changes in the terms of the same instrument if it were issued at the reporting date that indicate a change in credit risk since initial recognition, e.g.: increase in credit spread; more stringent covenants; increased amounts of collateral or guarantees; or higher income coverage. 2. Significant changes in external market indicators of credit risk for the same financial instrument (or similar instrument of the borrower), e.g.: credit spread; credit default swap prices; length of time or the extent to which the fair value of a financial asset has been less than its amortized cost; other market information related to the borrower, such as changes in the price of a borrower’s debt and equity instruments; or external credit rating (actual or expected). 3. Changes in the Group’s credit management approach in relation to the financial instrument (e.g. based on emerging indicators of changes in the credit risk of the financial instrument, the Group’s credit risk management practice is expected to become more active or focused on managing the instrument, including the instrument becoming more closely monitored or controlled, or the bank specifically intervening with the borrower). 4. Actual or expected adverse changes in business, financial or economic conditions significantly affecting borrower’s ability to meet its debt obligations (e.g. increase in interest rates or unemployment rates); operating results of the borrower e.g. declining revenues or margins, increasing operating risks, working capital deficiencies, decreasing asset quality, increased balance sheet leverage, liquidity, management problems or changes in the scope of business or organisational structure (such as the discontinuance of a segment of the business) that results in a significant change in the borrower’s ability to meet its debt obligations; or regulatory, economic, or technological environment of the borrower that results in a significant change in the borrower’s ability to meet its debt obligations (e.g. a decline in the demand for the borrower’s sales product because of a shift in technology). 5. Significant changes in the value of collateral or in the quality of third-party guarantees or credit enhancements, which are expected to reduce the borrower’s economic incentive to pay or otherwise affect the probability of default; or quality of a guarantee provided by a shareholder (or an individual’s parents) if the shareholder (or parents) have an incentive and financial ability to prevent default by capital or cash infusion. 6. Expected changes in the loan documentation (e.g. breach of contract leading to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees). 7. Significant changes in the expected performance and behavior of the borrower, including changes in the payment status of borrowers in the Group (e.g. increase in delayed contractual payments or number of credit card borrowers expected to approach or exceed their credit limit or who are expected to be paying the minimum monthly amount).

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(ii) Definition of default and credit-impaired assets The Group defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria:

Qualitative criteria The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant financial difficulty. These are instances where: • The borrower is in long-term forbearance • The borrower is deceased • The borrower is insolvent or becoming probable that the borrower will enter bankruptcy • The borrower is in breach of financial covenants • An active market for that financial asset has disappeared because of financial difficulties • Concessions have been made by the lender relating to the borrower’s financial difficulty • Financial assets are purchased or originated at a deep discount that reflects the incurred credit losses

The above criteria have been applied to all financial instruments held by the Group and are consistent with the definition of default used for internal credit risk management purposes. The default definition has been applied consistently to model the Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD) throughout the Group’s expected loss calculations.

An instrument is considered to no longer be in default (i.e. to have cured) when it no longer meets any of the default criteria for a consecutive period of six months. This period of six months has been determined based on an analysis which considers the likelihood of a financial instrument returning to default status after cure using different possible cure definitions.

90-day rebuttable presumption The Group assumes a rebuttable presumption that a default does not occur later than when a financial asset is 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

(iii) Measuring expected credit loss – inputs, assumptions and estimation techniques “ECL” is defined as the amount on a probability-weighted basis as the difference between the cash flows that are due to the Group in accordance with the contractual terms of a financial instrument and the cash flows that the bank expects to receive.

ECL is formula driven, i.e. ECL= PD x LGD x EAD (discounted using the EIR) ECLs are the discounted product of the Probability of Default (PD), Exposure at Default (EAD), and Loss Given

Default (LGD), defined as follows: • The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months (12-month PD) or over the remaining lifetime (Lifetime PD) of the obligation. • EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months (12M EAD) or over the remaining lifetime (Lifetime EAD). • LGD represents the Group’s expectations of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type of seniority of claim and availability of collateral or other credit support. • LGD is calculated on a 12-month or lifetime basis, where 12 month LGD is the percentage of loss expected to be made if the default occurs over the next 12 months and lifetime LGD is the percentage of loss expected to be made if the default occurs over the remaining expected lifetime of the loan. The ECL is determined by projecting the PD, LGD and EAD

Family Bank is regulated by the Central Bank of Kenya 115 JUNE 2021

for each future month and for each individual exposure or collective segment. These three components are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). The discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof.

The lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity profile looks at how defaults develop on a portfolio from the point of initial recognition throughout the lifetime of the loans.

The maturity profile is based on historical observed data and is assumed to be the same across all assets within a portfolio and a credit grade. This is supported by a historical analysis.

The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by product type: • For amortizing products or bullet repayment loans, this is based on the contractual repayments owed by the borrower over a 12-month or lifetime basis. This will also be adjusted for any expected overpayments made by the borrower. Early repayments/refinance assumptions are also incorporated. • For revolving products, the exposure at default is predicted by taking the current drawn-down balance and adding a “credit conversion factor” which allows for the expected drawdown of the remaining limit by the time of default. These assumptions vary by product type and current limit utilisation band, based on analysis of the Group’s recent default data.

The 12-month and lifetime LGDs are determined based on the factors which impact the recoverable amount post default. These vary by product type: • For secured products, this is primarily based on collateral type and projected collateral values, historical discounts to market/book values due to forced sales, time to repossession and recovery costs observed. • For unsecured products, LGDs are typically set at product level due to the limited differentiation in recoveries achieved across different borrowers. These LGDs are influenced by collection strategies, including contracted debt sales and prices.

Forward-looking economic information is also included in determining the 12-month and lifetime PD, EAD and LGD. These assumptions vary by the industry segmentation.

The assumptions underlying the ECL calculation – such as how the maturity profile of the PDs and how collateral values change etc. – are monitored and reviewed on an annual basis.

Forward-looking information incorporated in the ECL models The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The Group has performed historical analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio. These economic variables and their associated impact on PD, EAD and LGD vary by industry/portfolio segmentation.

Forecasts of the base economic scenario and the possible bearing and bullish scenarios along with scenario weightings are prepared by an expert economic team. The impact of these economic variables on the PD, EAD and LGD is determined by performing statistical regression analysis to understand the impact changes in these variables have had historically on default rates and on the components of LGD and EAD.

As with any economic forecasts, the projections and likelihoods of occurrence are subject to an inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Group considers these forecasts to

116 Family Bank is regulated by the Central Bank of Kenya JUNE 2021

SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 4. Financial Risk Management disclosures (continued) 4.1 Credit risk (continued) 4.1.1 Loans and advances (continued) Forward-looking information incorporated in the ECL models (continued) represent its best estimate of the possible outcomes and has analysed the non-linearities and asymmetries within the Group’s different portfolios to establish that the chosen scenarios are appropriately representative of the range of possible outcomes.

The key macro-economic factors that were evaluated by the Group and deemed to be most correlated to the historical and forecasted default statistics include interest and foreign exchange rates, Inflation, GDP growth and population statistics.

Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the impact of any regulatory, legislative or political changes, have been considered, but are not deemed to have a material impact on therefore no adjustment has been made to the ECL for such factors. This is reviewed and monitored for appropriateness annually.

Grouping of instruments for losses measured on a collective basis For expected credit loss provisions modelled on a collective basis, a grouping of exposures is performed on the basis of shared risk characteristics, such that risk exposures within a group are homogenous. In performing this grouping, there must be sufficient information for the group to be statistically credible. In concluding on how to group its exposures, the Group considered its approach to credit risk management and how aspects such as regulatory compliance and internal concentration limits are managed. As such, the Group grouped its loans and advances at amortised cost based on industries such as Manufacturing, Individuals, Finance and Insurance, Building and construction among others.

There were no exposures deemed to be individually significant to merit individual assessment, other than those in Stage 3. The appropriateness of groupings is monitored and reviewed on a periodic basis.

Write-off policy When a loan is uncollectible it is written off against the related provisions for loan impairment. Such loans are written off after all the necessary recovery procedures have been completed and the amount of loan has been determined. Subsequent recoveries of amounts previously written off are recognised as gains in the profit or loss.

The Group holds collateral against loans and advances to customers in the form of mortgage interests 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 when securities are held as part of reverse repurchase and securities borrowing activity.

Loans and advances at amortised cost less than 30 days past due date are not considered to have experienced SICR, unless other information is available to indicate the contrary.

The Group structures the level of credit risk it undertakes by placing limits on amounts of risk accepted in relation to one borrower or a group of borrowers. Such risks are monitored on a revolving basis and are subject to annual or more frequent review.

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 limits where appropriate.

The Group takes security for funds advances and implements guidelines on the acceptability of specific classes of collateral. To minimise credit loss the Group will seek additional collateral from the counterparty as soon as impairment indicators

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 4. Financial Risk Management disclosures (continued) 4.1 Credit risk (continued) 4.1.1 Loans and advances (continued) Write-off policy (continued) are identified for the relevant individual loans and advances. Collateral held for other financial assets other than loans and advances depends on the nature of the instrument.

The primary purpose of acceptances, letters of credit and guarantees is to ensure funds are available to a customer as required. Guarantees and standby letters of credit carry the same risk as loans. Documentary and commercial letters of credit which are written undertakings by the group on behalf of a customer authorising a third party to draw drafts on the group up to a stipulated amount under specific terms and conditions are collateralised by the underlying goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisation to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments as most commitments to extend credit are contingent upon customers maintaining specific credit standards.

The Group has no significant concentration of credit risk, with exposure spread over a diversity of personal and commercial customers.

Risk limit control and mitigation policies Portfolio management is an integral part of the credit risk management process that enables the Group and Company to limit concentrations, reduce volatility, increase liquidity and achieve optimum earnings. The responsibility for portfolio management lies primarily with business units, with oversight and review by credit risk management while the Board Credit Committee is responsible for credit approvals. The Group’s portfolio management plan entails: • The setting up of portfolio targets and concentrations. • Establishing target market risk acceptance criteria and key success factors. These are subject to regular review to ensure their continued appropriateness. • Monitoring the portfolio risk profile, risk-adjusted returns, risk concentrations, economic market and competitive data. • Identifying and analysing trends and concentrations that could affect the risk and performance of the portfolio. • Stress testing of the portfolio for the purpose of measuring potential losses.

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Exposure Exposure Exposure 2020 2019 2018 Kshs’000 Kshs’000 Kshs’000 On – balance sheet items Balances with Central Bank of Kenya 4,841,075 3,566,591 2,787,340 Balances due from other banking institutions 819,406 2,779,374 1,222,738 Government securities at amortised cost 8,901,395 8,187,378 6,946,277 Government securities at fair value through profit or loss 1,066,797 1,662,515 - Government securities FVOCI 7,033,006 - - Loans and advances to customers 56,579,798 50,594,439 44,113,093 Corporate bonds - 399,847 392,772 Other investments 126,804 1,385,077 1,730,698 Other assets 1,278,799 1,213,299 1,535,247

80,647,081 69,788,520 58,728,165

Off-balance sheet items Guarantees and letters of credit 8,168,692 5,615,640 4,114,358

88,815,773 75,404,160 62,842,523

The table above represents the worst-case scenarios of credit exposure for 31 December 2020, 31 December 2019 and 31 December 2018, without taking into account any collateral held or other credit enhancements attached.

For on-balance sheet assets, the exposures, set out above are based on net carrying amount as reported on the statement of financial position.

Loans and advances to customers comprise of 2020- 66% ,2019 - 72 %, 2018 – 71% of the total maximum exposure.

While collateral is an important mitigant to credit risk, the Group’s policy is to establish that loans are within the capacity of the customer to repay, as the primary way out. The Group holds collateral against loans and advances to customers in the form of mortgage interests 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 when securities are held as part of reverse repurchase and securities borrowing activity.

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The table below shows the total gross loans and allowances including interest accrued on fully impaired loans and advances: 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Loans and advances to customers Gross loans and advances to customers 62,594,080 54,379,738 46,615,482 Of which stage 1 and 2 51,909,848 46,588,320 39,480,160 Of which stage 3 10,684,232 7,791,418 7,135,322

Expected credit loss provisions 6,014,282 3,785,299 2,502,390 Of which stage 1 and 2 958,160 922,457 599,681 Of which stage 3 5,056,122 2,862,842 1,902,708

Net loans and advances to customers 56,579,798 50,594,439 44,113,093 Of which stage 1 and 2 50,951,688 45,630,160 38,880,479 Of which stage 3 5,628,110 4,964,279 5,232,614

The subsequent tables within this note include the movement in gross loans and allowances excluding interest accrued on fully impaired loans and advances of Kshs 1.29 billion in 2020 (2019: Kshs 664 million, 2018:Kshs 432 million).

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The table below shows the total gross loans and allowances including interest accrued on fully impaired loans and advances per segment of loans.

2020 Overdraft and credit Off Balance Term loans Mortgage cards Total Sheet Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Loans and advances to customers Gross loans and advances to customers 51,721,047 6,829,901 2,749,778 61,300,726 1,566,784 Of which stage 1 and 2 44,944,220 4,833,738 2,131,890 51,909,848 1,566,784 Of which stage 3 6,776,827 1,996,163 617,888 9,390,878 -

Expected credit loss provisions 3,909,946 446,673 364,310 4,720,929 108,842 Of which stage 1 and 2 819,466 37,484 101,210 958,160 108,842 Of which stage 3 3,090,480 409,189 263,100 3,762,769 -

Net loans and advances to customers 47,811,102 6,383,228 2,385,468 56,579,798 1,457,942 Of which stage 1 and 2 41,658,482 4,786,910 2,026,843 48,472,235 1,457,942 Of which stage 3 6,152,620 1,596,318 358,625 8,107,563 -

2019 Overdraft and credit Off Balance Term loans Mortgage cards Total Sheet Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Loans and advances to customers Gross loans and advances to customers 42,881,686 8,717,908 2,115,933 53,715,527 1,201,206 Of which stage 1 and 2 37,248,718 7,713,970 1,625,632 46,588,320 1,201,206 Of which stage 3 5,632,980 1,003,938 490,301 7,127,219 -

Expected credit loss provisions 2,478,379 390,346 252,364 3,121,089 77,436 Of which stage 1 and 2 539,376 242,408 63,238 922,457 77,436 Of which stage 3 1,861,211 147,938 189,127 2,198,632 -

Net loans and advances to customers 40,403,308 8,327,562 1,863,569 50,594,439 1,123,770 Of which stage 1 and 2 37,111,026 7,471,562 1,562,395 46,144,983 1,123,770 Of which stage 3 3,292,282 856,000 301,174 4,449,456 -

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

4. Financial Risk Management disclosures (continued) 4.1 Credit risk (continued) 4.1.1 Loans and advances (continued)

The table below shows the total gross loans and allowances including interest accrued on fully impaired loans and advances per segment of loans.

2018 Overdraft and credit Off Balance Term loans Mortgage cards Total Sheet Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Loans and advances to customers Gross loans and advances to customers 39,352,872 5,177,930 2,084,680 46,615,482 1,566,784 Of which stage 1 and 2 33,300,792 4,405,625 1,773,743 39,480,160 1,566,784 Of which stage 3 6,052,080 772,305 310,937 7,135,322 -

Expected credit loss provisions 2,130,152 265,390 106,848 2,502,390 56,292 Of which stage 1 and 2 498,978 71,797 28,906 599,682 56,292 Of which stage 3 1,631,174 193,593 77,942 1,902,708 -

Net loans and advances to customers 37,222,720 4,912,540 1,977,831 44,113,093 1,510,492 Of which stage 1 and 2 32,801,814 4,333,828 1,744,837 38,880,479 1,510,492 Of which stage 3 4,420,907 578,712 232,995 5,232,614 -

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The following table shows a reconciliation from the opening to the closing balance of the loss allowance.

Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Year ended 31 December 2020 Loss allowance as at 1 January 2020 520,145 402,672 2,198,272 3,121,089 Changes in the loss allowance Transfer to stage 1 76,772 (26,557) (50,216) - Transfer to stage 2 (16,482) 32,734 (16,251) - Transfer to stage 3 (17,272) (89,292) 106,563 - New financial assets originated or purchased 475,991 159,070 1,188,835 1,823,896 Financial assets that have been derecognised (224,012) (285,766) (147,185) (656,963) Changes in models/risk parameters (86,932) (3,008) 524,921 434,981 Foreign exchange and other movements (43,018) 83,115 (40,096) - Write-offs - - (2,074) (2,074)

At 31 December 2020 685,192 272,968 3,762,768 4,720,929

Year ended 31 December 2019 Loss allowance as at 1 January 2019 418,311 181,371 1,902,708 2,502,390 Changes in the loss allowance Transfer to stage 1 125,047 (55,635) (69,412) - Transfer to stage 2 (6,311) 156,756 (150,445) - Transfer to stage 3 (13,388) (57,236) 70,624 - New financial assets originated or purchased 319,606 182,222 212,194 714,022 Financial assets that have been derecognised (127,307) (38,252) (146,923) (312,483) Changes in models/risk parameters (90,821) 77,331 314,236 300,747 Foreign exchange and other movements (104,992) (43,885) 149,233 356 Total charge 520,145 402,672 2,282,215 3,205,032 Write-offs - - (83,943) (83,943)

Loss allowance as at 31 December 2019 520,145 402,672 2,198,272 3,121,089

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The following table shows a reconciliation from the opening to the closing balance of the loss allowance

Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Year ended 31 December 2018 Loss allowance as at 1 January 2018 44,402 54,306 2,358,817 2,457,525 Changes on initial application of IFRS 9 489,740 87,722 - 577,462 534,142 142,028 2,358,817 3,034,987 Changes in the loss allowance Transfer to stage 1 139,452 (54,095) (85,357) - Transfer to stage 2 (10,805) 52,999 (42,194) - Transfer to stage 3 (19,189) (52,300) 71,489 - New financial assets originated or purchased 75 1,045 3,058 4,178 Financial assets that have been derecognised Changes in models/risk parameters (115,851) 39,499 339,319 262,967 Foreign exchange and other movements (109,458) 53,396 56,062 - Write offs (55) (1,201) (798,486) (799,742)

Loss allowance as at 31 December 2018 418,311 181,371 1,902,708 2,502,390

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The following table shows a reconciliation from the opening to the closing balance of the total gross loans balance by class of financial instruments.

Year ended 31 December 2020 Stage 1 Stage 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Term loans Loans and advances as at 1 January 2020 35,059,547 2,360,811 5,632,981 43,053,338 Changes in the gross loans – Transfer to stage 1 281,459 (139,081) (142,378) - – Transfer to stage 2 (1,088,925) 1,133,300 (44,375) - – Transfer to stage 3 (751,351) (504,124) 1,255,476 - Changes in models/risk parameters (5,373,516) (349,139) (596,001) (6,318,656) New financial assets originated or purchased 28,645,377 2,614,236 3,577,371 34,836,984 Financial assets that have been derecognised (15,322,678) (1,621,696) (2,906,247) (19,850,621)

Loans and advances as at 31 December 2020 41,449,913 3,494,307 6,776,827 51,721,047

Mortgage loans Loans and advances as at 1 January 2020 6,600,656 1,113,314 1,003,938 8,717,908 Changes in the gross loans – Transfer to stage 1 6,039 (4,040) (1,999) - – Transfer to stage 2 (182,931) 188,038 (5,107) - – Transfer to stage 3 (56,376) (254,937) 311,313 - Changes in models/risk parameters (619,721) (89,269) (16,960) (725,950) New financial assets originated or purchased 2,697,509 21,139 737,269 3,455,917 Financial assets that have been derecognised (3,738,358) (847,325) (32,291) (4,617,974)

Loans and Advances as at 31 December 2020 4,706,818 126,920 1,996,163 6,829,901

Overdrafts and credit cards Loans and advances as at 1 January 2020 1,488,334 137,298 490,301 2,115,933 Changes in the gross loans – Transfer to stage 1 22,999 (20,621) (2,378) - – Transfer to stage 2 (301,176) 303,631 (2,455) - – Transfer to stage 3 (83,592) (25,673) 109,265 - Changes in models/risk parameters (85,401) 36,784 (28,499) (77,116) New financial assets originated or purchased 1,037,036 37,930 81,739 1,156,705 Financial assets that have been derecognised (357,268) (58,391) (30,085) (445,744)

Loans and Advances as at 31 December 2020 1,720,931 410,958 617,888 2,749,778

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Stage 1 Stage 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Off Balance Sheet facilities Loans and advances as at 1 January 2020 1,201,206 - - 1,201,206 Changes in the gross loans – Transfer to stage 1 - - - - – Transfer to stage 2 - - - - – Transfer to stage 3 - - - - Changes in models/risk parameters 8,860 - - 8,860 New financial assets originated or purchased 1,278,043 - - 1,278,043 Financial assets that have been derecognised (921,325) - - (921,325)

Loans and Advances as at 31 December 2020 1,566,784 - - 1,566,784

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Year ended 31 December 2019 Stage 1 Stage 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Term loans Loans and advances as at 1 January 2019 31,638,041 1,662,751 6,052,080 39,352,872 Changes in the gross loans – Transfer to stage 1 603,524 (347,368) (256,155) - – Transfer to stage 2 (1,632,648) 1,958,506 (325,858) - – Transfer to stage 3 (1,003,387) (349,689) 1,353,076 - Changes in models/risk parameters (5,267,442) (1,076,643) (826,517) (7,170,602) New financial assets originated or purchased 20,430,196 1,168,077 351,134 21,949,408 Financial assets that have been derecognised (9,880,390) (654,823) (714,779) (11,249,992)

Loans and advances as at 31 December 2019 34,887,894 2,360,811 5,632,981 42,881,686

Mortgage loans Loans and advances as at 1 January 2019 4,193,442 212,183 772,305 5,177,930 Changes in the gross loans – Transfer to stage 1 79,338 (45,664) (33,674) - – Transfer to stage 2 (214,625) 257,461 (42,837) - – Transfer to stage 3 46,134 19,454 192,953 258,541 Changes in models/risk parameters (235,482) 496,873 (123,923) 137,468 New financial assets originated or purchased 2,685,715 153,553 46,159 2,885,428 Financial assets that have been derecognised 46,134 19,454 192,953 258,541

Loans and advances as at 31 December 2019 6,600,656 1,113,314 1,003,938 8,717,908

Overdrafts and credit cards Loans and advances as at 1 January 2019 1,688,316 85,427 310,937 2,084,680 Changes in the gross loans – Transfer to stage 1 31,942 (18,385) (13,557) - – Transfer to stage 2 (86,410) 103,656 (17,246) - – Transfer to stage 3 (53,105) (18,508) 71,613 - Changes in models/risk parameters (1,192,275) (84,547) 42,286 (1,234,536) New financial assets originated or purchased 1,081,292 61,822 18,584 1,161,698 Financial assets that have been derecognised 18,574 7,832 77,685 104,091

Loans and advances as at 31 December 2019 1,488,334 137,298 490,301 2,115,933

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Stage 1 Stage 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Off Balance Sheet Facilities Loans and advances as at 1 January 2019 1,566,784 - - 1,566,784 Changes in the gross loans – Transfer to stage 1 - - - - – Transfer to stage 2 - - - - – Transfer to stage 3 - - - - Changes in models/risk parameters - - - - New financial assets originated or purchased 972,901 - - 972901 Financial assets that have been derecognised (1,338,479) - - (1,338,479)

Loans and advances as at 31 December 2019 1,201,206 - - 1,201,206

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Year ended 31 December 2018 Stage 1 Stage 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Term Loans Loans and advances as at 1 January 2018 31,884,271 1,451,089 5,882,959 39,218,320 Changes in the gross loans – Transfer to stage 1 653,471 (653,471) - - – Transfer to stage 2 (896,864) 963,028 (66,164) - – Transfer to stage 3 (957) (97,522) 98,479 - Net remeasurement (21,222) (373) 136,805 115,211 New financial assets originated or purchased 19,342 - - 19,342 Financial assets that have been derecognised - - - -

Loans and advances as at 31 December 2018 31,638,041 1,662,751 6,052,080 39,352,872

Mortgage Loans Loans and advances as at 1 January 2018 4,191,446 190,757 773,363 5,155,566 Changes in the gross loans – Transfer to stage 1 85,904 (85,904) - - – Transfer to stage 2 (117,900) 126,598 (8,698) - – Transfer to stage 3 (126) (12,820) 12,946 - Net remeasurement 31,575 (6,448) (5,306) 19,821 New financial assets originated or purchased 2,543 - - 2,543 Financial assets that have been derecognised - - - -

Loans and advances as at 31 December 2018 4,193,442 212,183 772,305 5,177,930

Overdrafts and credit cards Loans and advances as at 1 January 2018 1,687,513 76,801 311,363 2,075,676 Changes in the gross loans – Transfer to stage 1 34,586 (34,586) - - – Transfer to stage 2 (47,468) 50,969 (3,502) - – Transfer to stage 3 (51) (5,161) 5,212 - Net remeasurement 12,712 (2,596) (2,136) 7,980 New financial assets originated or purchased 1,024 - - 1,024 Financial assets that have been derecognised - - - -

Loans and advances as at 31 December 2018 1,688,316 85,427 310,937 2,084,680

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Stage 1 Stage 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Off Balance Sheet Loans and advances as at 1 January 2018 1,153,375 - - 1,153,375 Changes in the gross loans – Transfer to stage 1 - - - - – Transfer to stage 2 - - - - – Transfer to stage 3 - - - - Net remeasurement - - - - New financial assets originated or purchased 23,492 - - 23,492 Financial assets that have been derecognised (233,528) - - (233,528)

Loans and advances as at 31 December 2018 943,339 - - 943,339

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The following tables provide details of the changes in the loss allowance in the year for per class of financial instrument:

Year ended 31 December 2020

Term loans Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Loss allowance – Loans and advances to customers at amortised cost Loss allowance as at 1 January 2020 394,235 145,141 1,861,211 2,400,587 Changes in the loss allowance – Transfer to stage 1 165,431 (50,039) (115,392) - – Transfer to stage 2 (10,679) 26,552 (15,873) - – Transfer to stage 3 (14,255) (61,474) 156,905 - – Write-offs - - (427) (427) New financial assets originated or purchased 324,952 149,473 966,528 1,440,953 Financial assets that have been derecognised (140,079) (35,572) (132,324) (307,974) Changes in models/risk parameters (79,363) (20,979) 395,974 295,632 Foreign exchange and other movements (45,753) 71,874 (26,121) -

Loss allowance as at 31 December 2020 594,489 224,976 3,090,481 3,909,946

Mortgage loans

Loss allowance – Loans and advances to customers at amortised cost Loss allowance as at 1 January 2020 22,090 220,318 147,938 390,346 Changes in the loss allowance – Transfer to stage 1 - - - - – Transfer to stage 2 (1,219) 1,219 - - – Transfer to stage 3 (14) (5,548) 5,499 - – Write-offs - - (1,648) (1,648) New financial assets originated or purchased 5,326 15 181,399 186,739 Financial assets that have been derecognised (8,656) (214,383) (341) (223,444) Changes in models/risk parameters (8,837) 21,611 81,904 94,678 Foreign exchange and other movements 3,113 2,449 (5,562) -

Loss allowance as at 31 December 2020 11,803 25,679 409,189 446,673

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Overdraft and credit cards Stage 1 Stage 2 Stage 3 Total 12-month ECL Lifetime ECL Lifetime ECL Kshs’000 Kshs’000 Kshs’000 Kshs’000 Loss allowance – Loans and advances to customers at amortised cost Loss allowance as at 1 January 2020 26,027 37,211 189,127 252,364 Changes in the loss allowance – Transfer to stage 1 18,660 (15,869) (2,791) - – Transfer to stage 2 (2,704) 3,082 (378) - – Transfer to stage 3 (3,003) 2,698 11,540 - – Write-offs - - - - New financial assets originated or purchased 49,986 9,584 40,908 100,478 Financial assets that have been derecognised (9,286) (19,545) (13,936) (42,766) Changes in models/risk parameters (403) (3,640) 47,042 54,234 Foreign exchange and other movements (378) 8,791 (8,413) -

Loss allowance as at 31 December 2020 78,899 22,312 263,100 364,310

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Year ended 31 December 2019

Term loans Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Loss allowance – Loans and advances to customers at amortised cost Loss allowance as at 1 January 2019 345,142 153,836 1,631,174 2,130,152 Changes in the loss allowance – Transfer to stage 1 102,959 (45,808) (57,151) - – Transfer to stage 2 (5,196) 129,066 (123,870) - – Transfer to stage 3 (11,023) (47,125) 58,149 - – Write-offs - - (69,115) (69,115) New financial assets originated or purchased 209,470 150,033 174,711 534,215 Financial assets that have been derecognised (66,293) (31,495) (120,970) (218,759) Changes in models/risk parameters (149,460) (124,119) 422,158 148,579 Foreign exchange and other movements (31,363) (39,248) (53,875) (124,486)

Loss allowance as at 31 December 2019 394,235 145,141 1,861,211 2,400,587

Mortgage loans

Loss allowance as at 1 January 2019 52,166 19,631 193,593 265,390 Changes in the loss allowance – Transfer to stage 1 13,535 (6,022) (7,513) - – Transfer to stage 2 (683) 16,967 (16,284) - – Transfer to stage 3 (1,449) (6,195) 7,644 - – Write-offs - - (9,086) (9,086) New financial assets originated or purchased 27,537 19,723 22,967 70,227 Financial assets that have been derecognised (8,715) (4,140) (15,902) (28,758) Changes in models/risk parameters (41,787) 184,927 (56,624) 86,516 Foreign exchange and other movements (18,513) (4,573) 29,143 6057

Loss allowance as at 31 December 2019 22,090 220,318 147,938 390,346

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Overdraft and credit cards Stage 1 Stage 2 Stage 3 Total 12-month ECL Lifetime ECL Lifetime ECL Kshs’000 Kshs’000 Kshs’000 Kshs’000 Loss allowance – Loans and advances to customers at amortised cost Loss allowance as at 1 January 2019 21,003 7,904 77,942 106,848 Changes in the loss allowance – Transfer to stage 1 5,449 (2,424) (3,025) - – Transfer to stage 2 (275) 6,831 (6,556) - – Transfer to stage 3 (583) (2,494) 3,078 - – Write-offs - - (3,658) (3,658) New financial assets originated or purchased 11,086 7,941 9,247 28,274 Financial assets that have been derecognised (3,509) (1,667) (6,402) (11,578) Changes in models/risk parameters 309 22,962 106,769 130,040 Foreign exchange and other movements (7,454) (1,841) 11,733 2,439

Loss allowance as at 31 December 2019 26,027 37,211 189,127 252,365

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Year ended 31 December 2018

Term loans Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL Total Kshs’000 Kshs’000 Kshs’000 Kshs’000

Loss allowance as at 1 January 2018 297,025 81,477 878,527 1,257,029 Changes in the loss allowance – Transfer to stage 1 21,209 (21,209) - - – Transfer to stage 2 (5,713) 13,503 (7,790) - – Transfer to stage 3 (19) (13,082) 13,102 - – Write-offs - - - - New financial assets originated or purchased - - - - Financial assets that have been derecognised - - - - Changes in models/risk parameters 94,903 67,896 594,652 757,450 Foreign exchange and other movements (62,261) 25,251 152,683 115,672

Loss allowance as at 31 December 2018 345,142 153,836 1,631,174 2,130,152

Mortgage loans

Loss allowance – Loans and advances to customers at amortised cost Loss allowance as at 01 January 2018 39,046 10,711 115,490 165,247 Changes in the loss allowance – Transfer to stage 1 2,788 (2,788) - - – Transfer to stage 2 (751) 1,775 (1,024) - – Transfer to stage 3 (3) (1,720) 1,722 - – Write-offs - - - - New financial assets originated or purchased 62 - - 62 Financial assets that have been derecognised - - - - Changes in models/risk parameters 13,261 8,920 78,103 100,284 Foreign exchange and other movements (2,238) 2,733 (698) (204)

Loss allowance as at 31 December 2018 52,166 19,631 193,593 265,390

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Overdraft and credit cards Stage 1 Stage 2 Stage 3 Total 12-month ECL Lifetime ECL Lifetime ECL Kshs’000 Kshs’000 Kshs’000 Kshs’000

Loss allowance as at 01 January 2018 15,720 4,312 46,497 66,530 Changes in the loss allowance – Transfer to stage 1 1,123 (1,123) - - – Transfer to stage 2 (302) 715 (412) - – Transfer to stage 3 (1) (692) 693 - – Write-offs - - - - New financial assets originated or purchased 25 - - 25 Financial assets that have been derecognised - - - - Changes in models/risk parameters 5,339 3,591 31,445 40,375 Foreign exchange and other movements (901) 1,100 (281) (82)

Loss allowance as at 31 December 2018 21,003 7,904 77,942 106,848

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The following table shows a reconciliation from the opening to the closing balance of the gross carrying amount by class of financial instruments.

Other financial assets

Financial Cash & Financial Financial assets Bank Loans to assets assets Amortized Balances Banks FVTOCI FVTPL cost Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Year ended 31 December 2020 Gross carrying amount as at 1 6,961,324 2,779,374 - 1,662,515 8,187,378 19,590,591 January 2020 Changes in the loss allowance – Transfer to stage 1 ------– Transfer to stage 2 ------– Transfer to stage 3 ------– Write-offs ------New financial assets originated or 1,918,197 - 7,033,006 - 714,017 9,665,220 purchased Financial assets that have been - (1,959,968) (595,718) - (2,555,686) derecognised

Gross carrying amount as at 31 8,879,521 819,406 7,033,006 1,066,797 8,901,395 26,700,125 December 2020

Year ended 31 December 2019 Gross carrying amount as at 1 6,281,701 1,222,738 - - 6,946,277 14,450,716 January 2019 Gross carrying amount as at 1 January 2019 Changes in the loss allowance ------– Transfer to stage 1 ------– Transfer to stage 2 ------– Transfer to stage 3 ------– Write-offs 679,623 1,556,636 - 1,662,515 1,241,101 5,139,875 New financial assets originated or ------purchased Gross carrying amount as at 31 6,961,324 2,779,374 - 1,662,515 8,187,378 19,590,591 December 2019

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The following table shows a reconciliation from the opening to the closing balance of the gross carrying amount by class of financial instruments. Financial Cash & Financial Financial assets Bank Loans to assets assets Amortized Balances Banks FVTOCI FVTPL cost Total Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Kshs’000 Year ended 31 December 2018 Gross carrying amount as at 1 5,641,710 2,495,298 - - 7,692,403 15,829,411 January 2018 Changes in the loss allowance – Transfer to stage 1 ------– Transfer to stage 2 ------– Transfer to stage 3 ------– Write-offs ------New financial assets originated or 639,991 - - - - 639,991 purchased Financial assets that have been - (1,272,560) - - (746,126) (2,018,686) derecognised Gross carrying amount as at 31 6,281,701 1,222,738 - - 6,946,277 14,450,716 December 2018

The loss allowance is recognised in the statement of financial position for debt instruments measured at FVTOCI is not material.

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Modified financial assets As a result of the Group’s forbearance activities financial assets might be modified. The following tables refer to modified financial assets where modification does not result in derecognition.

Year ended 31 Year ended 31 Year ended 31 December 2020 December 2019 December 2018 Kshs 000 Kshs 000 Kshs 000 Financial assets (with loss allowance based on lifetime ECL) modified during the period Gross carrying amount before modification 16,489,272 - - Loss allowance before modification 968,976 - - Net carrying amount before modification 15,520,296 - - Net modification gain/(loss) (15,880) - - Net amortised cost after modification 15,504,416 - -

Financial assets modified since initial recognition at a - - - time when loss allowance was based on lifetime ECL Gross carrying amount of financial assets for which loss - - - allowance has changed in the period from lifetime to 12-month ECL basis after modification

Collateral management The Bank uses a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The acceptability of collateral for credit risk mitigation is guided by the Bank’s procedures and policies. The main types of collateral taken are:

Type of lending Collateral type Mortgage lending First ranking legal charge over the property financed. Personal loans Check offs and cash backed Asset finance Secured by motor vehicles and chattel registrations Other loans and advances Debentures over the Company’s assets, cash cover in cash margin account, first ranking legal charge over both commercial and residential properties, directors’ personal guarantees and Company guarantees.

There has been no change in collateral management in the year

Valuation of collateral The Bank has a panel of valuers who undertake valuation of property and other assets to be used as Collateral. The valuers in the panel are qualified professional valuers with adequate experience in the field of property and machinery valuation. Valuation reports on properties are valid for 5 years after which the property and equipment is revalued.

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Fair value of collateral held The Bank holds collateral against loans and advances to customers in the form of cash, residential, commercial, and industrial property; fixed assets such as plant and machinery; marketable securities; bank guarantees and letters of credit.

The Bank also enters into collateralised reverse purchase agreements. Risk mitigation policies control the approval of collateral types. Collateral is valued in accordance with the Bank’s risk mitigation policy, which prescribes the frequency of valuation for different collateral types. The valuation frequency is driven by the level of price volatility of each type of collateral.

Collateral held against impaired loans is maintained at fair value. The valuation of collateral is monitored regularly and is back tested at least annually. At 31 December 2020 the net carrying amount of loans and advances was Kshs 56,579,798,000 (2019:Kshs 50,594,439,000, 2018:Ksh 44,113,093) and the value of the respective collateral was KShs 122,168,768,000 (2019: Kshs 111,918,975,000, 2018: 112,789,270,000).

Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse purchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held as at 31 December 2018,2019 and 2020.

Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements The Bank holds financial instruments, financial collateral and cash collateral against its loans and advances measured at amortised cost. The Bank is entitled to offset these through enforceable master netting arrangements or similar agreements, in case of default. As at 31 December 2020, no financial assets or financial liabilities had been offset and presented net on the statement of financial position. No collateral had been pledged for deposits held.

4.1.2 Other non-loan financial assets ECL on non-loan financial assets such as government securities, other investments at amortised cost and at FVOCI and other financial assets are measured as follows: • Use of external credit ratings as proxies to infer approximate PDs; • Assumption of 100% LGDs • Group assigns equal ‘loss’ and ‘no loss’ scenarios based on expert judgment; • EADs are estimated based on the expected maturities of the instruments, most of which are less than 12 months.

All the non-loan financial assets are in stage 1.

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4.1.3 Concentration of risk Details of significant concentrations of the Group’s assets (before impairment), liabilities and off-balance sheet items by industry groups are as detailed below:

2020 2019 2018 Kshs 000 % Kshs 000 % Kshs 000 % i) Advances to customers- Group Manufacturing 586,594 1 258,752 1 270,981 0.6 Wholesale and retail 25,502,362 42 22,692,727 42 17,386,801 37.3 Transport and communication 4,499,691 7 3,319,443 6 3,858,445 8.3 Agriculture 2,867,256 5 3,086,734 6 2,669,826 5.7 Business services 756,845 1 386,120 1 404,454 0.9 Building and construction 3,632,394 6 3,307,121 6. 3,373,979 7.2 Other 23,455,584 38 20,664,630 38 18,650,996 40.0

61,300,726 100 53,715,527 100 46,616,482 100

ii) Customer deposits Central and local Government 50,582 0 40,969 0 29,620 0.1 Co-operative societies 455,283 1 394,613 1 343,101 0.7 Insurance companies 311,358 0 266,988 0 222,436 0.5 Private enterprises & individuals 68,781,894 99 57,220,864 99 47,769,261 98.5 Non-profit institutions 157,653 0 131,051 0 118,771 0.2

69,756,770 100 58,054,485 100 48,483,189 100

iii) Off balance sheet items Letters of credit and guarantees 8,168,692 100 5,615,640 100 4,114,358 100

8,168,692 100 5,615,640 100 4,114,358 100

Incorporation of forward looking information The Group uses forward-looking information that is available without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurement of ECL. The Group employs experts who use external and internal information to generate a ‘base case’ scenario of future forecast of relevant economic variables along with a representative range of other possible forecast scenarios. The external information used includes economic data and forecasts published by governmental bodies and monetary authorities.

The Group applies probabilities to the forecast scenarios identified. The base case scenario is the single most-likely outcome and consists of information used by the Group for strategic planning and budgeting. The Group has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using a statistical analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. The Group has not made changes in the estimation techniques or significant assumptions made during the reporting period.

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The table below summarises the principal macroeconomic indicators included in the economic scenarios used at 31 December 2020 for the years 2020 to 2024.

2018 2019 2020 2021 2022 2023 2024 Inflation - Base scenario 0.5 0.5 0.5 0.5 0.5 0.5 0.5 - Range of upside scenarios 0.2 0.2 0.2 0.2 0.2 0.2 0.2 - Range of downside scenarios 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Exchange rates - Base scenario 0.5 0.5 0.5 0.5 0.5 0.5 0.5 - Range of upside scenarios 0.2 0.2 0.2 0.2 0.2 0.2 0.2 - Range of downside scenarios 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Benchmark interest rates - Base scenario 0.5 0.5 0.5 0.5 0.5 0.5 0.5 - Range of upside scenarios 0.2 0.2 0.2 0.2 0.2 0.2 0.2 - Range of downside scenarios 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Reserves - Base scenario 0.5 0.5 0.5 0.5 0.5 0.5 0.5 - Range of upside scenarios 0.2 0.2 0.2 0.2 0.2 0.2 0.2 - Range of downside scenarios 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Sensitivity analysis The most significant assumption affecting the ECL allowance is interest rates given its impact on borrowers’ ability to meet their contractual repayments. Other forward looking consideration not otherwise incorporated within the calculation of ECL, such as inflation, GDP and exchange rates, have been considered but do not have a material impact therefore no adjustment has been to ECL for such factors.

Set out below are the changes to the ECL as at 31 December 2020,2019 and 2018 that would result from reasonably possible changes in this parameter from actual assumptions used in the Group’s economic variable assumptions;

2020 2019 2018 Interest rates -5% 5% -5% 5% -5% 5% KShs000’ KShs000’ KShs000’ KShs000’ KShs000’ KShs000’ Term loans 5,746 2,554 1,188 1,628 723 1,188 Mortgages 670 298 193 202 90 193 Overdrafts and credit 530 236 125 81 36 125 cards

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 4. Financial Risk Management disclosures (continued)

4.2 Liquidity risk

4.2.1 Management of liquidity risk The Group’s liquidity risk management is carried out within the Group and monitored by the Asset Liability committee (ALCO).

The Group’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 Group’s reputation.

Liquidity risk is addressed through the following measures: • The treasury department monitors liquidity ratios on a daily basis against internal and regulatory requirements. • Day to day funding is managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers.

The Group invests in short term liquid instruments which can easily be sold in the market when the need arises • The Group enters into lending contracts subject to availability of funds. • The Group has an aggressive strategy aimed at increasing the customer deposit base. • The Group borrows from the market through interbank transactions with other banks and the Central Bank of Kenya for short term liquidity requirements. • Investments in property and equipment are properly budgeted for and done when the group has sufficient cash flows.

Exposure to liquidity risk The key measure used by the Group 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 grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month.

The Central Bank of Kenya minimum liquidity ratio is 20%. Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:

2020 2019 2018

At 31 December 37.1% 33.1% 30.7% Average for the year 35.1% 32.6% 33.0% Maximum for the year 37.1% 36.6% 36.9% Minimum for the year 33.9% 30.7% 29.9%

To address any liquidity risk negative gaps, the group has an Assets & Liabilities Committee that directs mobilization of deposits and where needed supports big tickets through aggressive pricing, halts or significantly curtails asset growth. The Group uses the interbank borrowing or disposes government securities to address short -term negative gaps.

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4.2.2 (a) Liquidity risk based on undiscounted cash flows The table below analyses the cash flows payable by the group under non-derivative financial liabilities by remaining contractual maturities and non-derivative financial assets by expected maturity dates as at the date of the statement of financial position.

At 31 December 2020 Upto 1 1 - 3 3 - 12 Over 5 month months months 1 - 5 years years Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000

Balances due to banks 451,741 - - - - 451,741 Customer deposits 42,252,708 7,556,868 20,959,943 97,077 - 70,866,596 Borrowings - - 2,796,343 483,709 - 3,280,052 Provisions 587,877 - - - - 587,877 Other liabilities 1,655,822 - - - - 1,655,822 Lease liabilities 42,177 126,531 337,416 1,270,624 570,120 2,346,869 Capital commitments - - 169,986 - - 169,986

Total financial liabilities 44,990,325 7,683,399 24,263,688 1,851,410 570,120 79,358,943

Cash-in hand 4,038,446 - - - - 4,038,446 Balances with CBK 4,841,075 - - - - 4,841,075 Balances due from banks 819,406 - - 41,634 8,944 869,985 Government securities 7,150,000 1,614,823 509,264 - 13,237,440 22,511,527 Loans and advances 4,312,814 2,426,547 5,304,225 41,300,861 26,761,322 80,105,768 Other investments - 126,804 - - - - Other assets 1,421,545 - - - - 1,421,545

Total financial assets 22,583,286 4,168,174 5,813,489 41,342,495 40,007,706 113,788,346 (Gap)/surplus (22,407,039) (3,515,225) (18,450,199) 39,491,085 39,437,586 34,429,403

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4.2.2 (b) Liquidity risk based on undiscounted cash flows (continued)

At 31 December 2019 Upto 1 1 - 3 3 - 12 Over 5 month months months 1 - 5 years years Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000

Balances due to banks 56,906 - - - - 56,906 Customer deposits 35,543,282 6,189,624 17,202,037 80,322 - 59,015,264 Borrowings - - 2,015,817 2,601,535 - 4,617,352 Provisions 424,606 - - - - 424,606 Other liabilities 1,954,516 - - - - 1,954,516 Lease liabilities 47,270 141,810 378,161 1,582,761 347,771 2,497,773 Capital commitments - - 169,986 - - 169,986

Total financial liabilities 38,026,580 6,331,434 19,766,001 4,264,618 347,771 68,736,403

Cash-in hand 3,566,591 - - - - 3,566,591 Balances with CBK 3,394,733 - - - - 3,394,733 Balances due from banks 2,779,374 - - - - 2,779,374 Government securities 1,650,000 2,171,306 1,004,345 4,871,492 2,032,629 11,729,772 Loans and advances 3,856,578 2,169,852 4,743,112 36,931,802 23,930,344 71,631,687 Corporate bond - - 417,259 - - 417,259 Other investments - - 1,274,069 133,240 - 1,407,309 Other assets 1,362,923 - - - - 1,362,923

Total financial assets 16,610,199 4,341,158 7,438,785 41,936,533 25,962,973 96,289,648 (Gap)/surplus (21,416,381) (1,990,276) (12,327,216) 37,671,915 25,615,202 27,553,245

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4.2.2 (b) Liquidity risk based on undiscounted cash flows (continued)

At 31 December 2018 Upto 1 1 - 3 3 - 12 Over 5 month months months 1 - 5 years years Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000

Balances due to banks 247,051 - - - - 247,051 Customer deposits 31,395,666 5,227,401 12,370,530 45,373 - 49,038,969 Borrowings - - 3,526,693 - 2,361,451 5,888,144 Provisions 349,615 - - - - 349,615 Other liabilities 1,446,678 - - - - 1,443,734 Lease liabilities 44,172 132,517 353,379 1,857,137 640,636 3,027,842 Capital commitments - - 243,122 - - 243,122

Total financial liabilities 33,483,182 5,359,918 16,493,724 1,902,510 3,002,087 60,238,477

Cash-in hand 3,494,361 3,494,361 Balances with CBK 2,787,339 2,787,339 Balances due from banks 1,222,738 1,222,738 Government securities 11,192 2,011,384 73,216 685,945 4,219,652 7,001,389 Loans and advances 3,176,611 4,480,231 28,988,138 10,473,212 49,124,197 2,006,005 Corporate bond - - - 460,322 - 460,322 Other investments - 1,755,232 - - - 1,755,232 Other assets 1,535,247 - - - - 1,535,247

Total financial assets 12,300,079 5,772,621 4,553,447 30,134,405 14,692,864 67,453,416 (Gap)/surplus (21,183,103) 412,703 (11,940,277) 28,231,895 11,690,777 7,214,939

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The following table shows commitments/guarantees and operating lease commitments that are expected to have cash outflows in future from the Group:

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 (a) Letters of credit, guarantees, acceptances 8,168,692 5,615,640 4,114,358 (b) Operating lease arrangements 1,607,076 1,569,539 5,011,974 (c) Committed and undrawn facilities 6,042,645 2,488,635 2,018,181

15,818,413 9,673,814 11,144,513

4.3 Market risk Market risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk arise from open positions in interest rates, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, equity prices, foreign exchange rates and credit spreads. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Management of market risks Overall responsibility of managing market risk rests with the ALCO. The Treasury department is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken which is monitored daily. i) Interest rate risk The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. The ALCO is the monitoring body for compliance with these limits and is assisted by Treasury Department in its day-to-day monitoring activities.

The table below summarises the Group’s exposures to interest rate risks. Included in the table are the Group’s assets and liabilities at carrying amounts, categorised by the earlier of the contractual repricing or maturity dates. The Group does not bear an interest rate risk on off balance sheet items.

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Non-interest 0 – 3 4 – 12 1-5 Over 5 bearing months months years years Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 31 December 2020 Financial assets Balances due to banks 451,741 - - - - 451,741 Customer deposits 42,252,708 7,458,408 19,965,605 80,049 - 69,756,770 Borrowings - - 2,635,038 382,111 - 3,017,148 Provisions 587,877 - - - - 587,877 Other liabilities 1,655,822 - - - - 1,655,822 Lease liabilities 34,573 103,718 276,581 851,576 340,630 1,607,077 Capital commitments - - 158,899 - - 158,899

Total financial liabilities 44,982,721 7,562,126 23,036,122 1,313,735 340,630 77,235,334

Cash-in hand 4,038,446 - - - - 4,038,446 Balances with CBK 4,841,075 - - - - 4,841,075 Balances due from banks 819,406 - - 35,737 6,590 861,733 Government securities 7,150,000 1,585,966 476,345 - 7,788,886 17,001,197 Loans and advances 4,312,814 2,376,722 4,911,690 30,440,738 14,537,834 56,579,798 Other investments - 126,804 - - - - Other assets 1,421,545 - - - - 1,421,545

Total financial assets 22,583,286 4,089,492 5,388,035 30,476,475 22,333,310 84,743,794 (Gap)/surplus (22,399,435) (3,472,634) (17,648,087) 29,162,740 21,992,680 7,508,460

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Non-interest 0 – 3 4 – 12 1-5 Over 5 bearing months months years years Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 At 31 December 2019 Balances due to banks 56,906 - - - - 56,906 Customer deposits 35,543,282 6,104,471 16,341,215 65,518 - 58,054,485 Borrowings - - 1,899,536 2,055,106 - 3,954,642 Provisions 424,606 - - - - 424,606 Other liabilities 1,954,516 - - - - 1,954,516 Lease liabilities 31,507 126,027 220,547 851,042 340,417 1,569,540 Capital commitments - - 158,899 - - 158,899

Total financial liabilities 38,010,817 6,230,498 18,620,197 2,971,666 340,417 66,173,594

Cash-in hand 3,566,591 - - - - 3,566,591 Balances with CBK 3,394,733 - - - - 3,394,733 Balances due from banks 2,779,374 - - - - 2,779,374 Government securities 1,650,000 2,136,772 946,410 3,848,279 1,268,432 9,849,893 Loans and advances 3,856,578 2,125,298 4,392,102 27,220,530 12,999,932 50,594,439 Corporate bond - - 399,847 - - 399,847 Other investments - - 1,258,273 126,804 - 1,385,077 Other assets 1,362,923 - - - - -

Total financial assets 16,610,199 4,262,070 6,996,632 31,195,613 14,268,364 73,332,877 (Gap)/surplus (21,400,618) (1,968,428) (11,623,566) 28,223,947 13,927,947 7,159,283

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Non-interest 0 – 3 4 – 12 1-5 Over 5 bearing months months years years Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 At 31 December 2018 Balances due to banks - 247,051 - - - 247,051 Customer deposits 35,678,013 5,227,401 7,532,402 45,373 - 48,483,189 Borrowings - - 2,862,082 - 2,041,126 4,903,207 Provisions - - - - - Other liabilities 1,443,734 - - - - 1,443,734 Lease liabilities 39,536 158,142 276,749 1,067,912 427,165 1,969,504 Capital commitments - - 243,122 - - 243,122

Total financial liabilities - 247,051 - - - 247,051

Cash-in hand 3,494,361 - - - - 3,494,361 Balances with CBK 2,787,339 - - - - 2,787,339 Balances due from banks 362,895 859,843 - - - 1,222,738 Government securities - 2,022,576 73,216 664,852 4,185,632 6,946,277 Loans and advances - 44,113,093 - - - 44,113,093 Corporate bond - - - 392,772 - 392,772 Other investments - - 1,730,698 - - 1,730,698 Other assets 1,535,247 - - - - 1,535,247

Total financial assets 8,179,842 46,995,512 1,803,914 1,057,624 4,185,632 62,222,524 (Gap)/surplus (28,981,441) 41,362,918 (9,110,441) (55,661) 1,717,341 4,932,716

150 Family Bank is regulated by the Central Bank of Kenya JUNE 2021

Sensitivity analysis The Interest Rate Risks sensitivity analysis is based on the following assumptions: • Changes in the market interest rates affect the interest income or expenses of variable interest financial instruments. • Changes in Market interest rates only affect interest income or expenses in relation to financial instruments with fixed interest rates if these are recognized at their fair value. • The interest rate changes will have a significant effect on interest sensitive assets and liabilities and hence simulation modelling is applied to Net interest margins. • The interest rates of all maturities move by the same amount and, therefore, do not reflect the potential impact on net interest income of some variable and constant rates. • The projections make other assumptions including that all positions run to maturity

Assuming no management actions, a 10% appreciation in interest rates would increase net interest income by Shs 703 million in 2020 (2019: Shs 555 million, 2018:Shs 477 million), while a 10% depreciation in interest rated would decrease net interest income by Shs 703 million in 2020 (2019:Shs 555 million, 2018: Shs 555 million). iii) Currency risk The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The board sets limits on the level of exposure by currency and in total for both overnight and intra- day positions which are monitored daily.

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The table below summarizes the foreign currency exposure as at 31 December 2020, 2019 and 2018:

USD GBP EURO Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 At 31 December 2020 Financial assets Deposits and balances due from banking 643,765 65,139 200,753 909,657 institutions Financial liabilities Borrowings - - (451,741) (451,741)

Net currency exposure 643,765 65,139 (250,988) 457,916

At 31 December 2019 Financial assets Deposits and balances due from banking 1,311,838 10,027 31,375 1,353,240 institutions Financial liabilities Borrowings - - (56,906) (56,906)

Net currency exposure 1,311,838 10,027 (25,531) 1,296,334

At 31 December 2018 Financial assets Deposits and balances due from banking 270,621 156,894 98,133 525,648 institutions Financial liabilities Borrowings - (130,371) (116,680) (247,051)

Net currency exposure 270,621 26,523 (18,547) 278,597

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Sensitivity analysis At 31 December 2020 if the shilling had weakened / strengthened by 10% against the major trading currencies, with all other variables held constant, net profit would have been KShs 34 million (2019: KShs 39 million, 2018: 34 million) lower/ higher.

4.4 Fair value of financial assets and liabilities IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types of inputs have created the following fair value hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3)

The tables below show the carrying amounts and fair values of financial assets and financial liabilities measured and carried at fair value, including their levels in the fair value hierarchy.

Level 1 Level 2 Level 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 31 December 2020 Financial assets Government securities at FVOCI 7,033,006 - - 7,033,006 Government securities at FVTPL 1,066,797 - - 1,066,797

8,099,803 - - 8,099,803

31 December 2019 Financial assets Government securities at FVTPL 1,662,515 - - 1,662,515

31 December 2018 Financial assets Government securities at FVOCI - - - - Govt securities at FVTPL - - - -

- - - -

The Group does not have any financial liabilities carried at fair value.

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The tables below show the carrying amounts and fair values of financial assets and financial liabilities not carried at fair value, including their levels in the fair value hierarchy. Carrying Level 1 Level 2 Level 3 Fair value value Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 At 31 December 2020 Cash and balances with CBK - 8,879,521 - 8,879,521 8,879,521 Balances due from banking institutions - 819,406 - 819,406 819,406 Loans and advances to customers - - 80,105,768 80,105,768 56,579,798 Government securities at amortised cost - 11,786,464 11,786,464 8,901,395 Other investment - 126,804 - 126,804 126,804 Other financial assets - 374,556 - 374,556 374,556

Deposits from customers - - 70,930,644 70,930,644 69,756,770 Borrowings - 3,280,052 - 3,280,052 3,017,148 Other financial liabilities - 997,437 - 997,437 997,437

At 31 December 2019 Cash and balances with CBK - 6,961,324 - 6,961,324 6,961,324 Balances due from banking institutions - 2,779,374 - 2,779,374 2,779,374 Loans and advances to customers - - 71,631,687 71,631,687 50,594,439 Government securities at amortised cost - 9,178,551 - 9,178,551 8,187,378 Other investment - 1,385,077 - 1,385,077 1,385,077 Other financial assets - 289,284 - 289,284 289,284

Deposits from customers - - 58,054,485 58,054,485 57,314,792 Borrowings - 4,617,352 - 4,617,352 3,954,642 Other financial liabilities - 1,038,981 - 1,038,981 1,038,981

At 31 December 2018 Cash and balances with CBK - 6,281,701 - 6,281,701 6,281,701 Balances due from banking institutions - 1,222,738 - 1,222,738 1,222,738 Loans and advances to customers - - 63,479,817 63,479,817 44,113,093 Government securities at amortised cost - 6,946,277 - 6,946,277 6,946,277 Other investment - 1,730,698 - 1,730,698 1,730,698 Other financial assets - 344,459 - 344,459 344,459

Deposits from customers - - 48,483,189 48,483,189 48,299,069 Borrowings - 3,571,251 - 3,571,251 4,903,207 Other financial liabilities - 329,144 - 329,144 329,144

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

5. Capital Management

(a) Regulatory capital The Group’s objectives when managing capital are: • To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for the shareholders and benefits for the other stakeholders. • To maintain a strong capital base to support the current and future developments. • To comply with the capital requirements set by the Central Bank of Kenya.

Capital adequacy and use of regulatory capital are monitored by management employing techniques based on the guidelines developed by the Central Bank of Kenya for supervisory purposes. The required information is filed with the Central Bank of Kenya on a monthly basis. The Central Bank of Kenya requires each bank to: a) Hold the minimum level of regulatory capital of Shs 1 billion. b) Maintain a ratio of total regulatory capital; to risk weighted assets plus risk weighted off balance assets at above the required minimum of 10.5%; c) Maintain a core capital of not less than 8 % of total deposit liabilities d) Maintain total capital of not less than 14.5% of risk weighted assets plus risk weighted off balance sheet items.

The Insurance Regulatory Authority requires Family Insurance Agency to maintain a minimum level of regulatory capital of Shs 1,000,000. The agency has complied with the capital requirement.

The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.

The impact of the level of capital on shareholders’ return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Bank’s regulatory capital is analyzed into two tiers: • Tier 1 capital, which includes ordinary share capital, non-cumulative irredeemable non-convertible preference shares, disclosed reserves such as share premiums, retained earnings, and 50% un-audited after tax profit less investment in subsidiaries conducting banking business, investments in equity of other institutions, intangible assets (excluding computer software ) and goodwill.

• Tier 2 capital, which includes 25% revaluation surplus which have received prior CBK approval, subordinated debt, hybrid capital instruments or any other capital instruments approved by CBK

The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the year.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 5. Capital Management (continued)

The Bank’s regulatory capital position at 31 December 2020 was as follows:

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Tier 1 capital Share capital 1,287,108 1,287,108 1,287,108 Share premium 5,874,662 5,874,662 5,874,661 Retained earnings 5,735,148 4,968,009 4,072,054

Total Tier 1 capital 12,896,918 12,129,779 11,233,828

Tier 2 capital Revaluation reserves (25%) 66,162 69,606 48,156 Term subordinated debt 2,018,800 2,018,800 2,018,800

Total Tier 2 capital 2,084,962 2,088,406 2,066,956

Total regulatory capital 14,981,879 14,218,185 13,300,780

Risk-weighted assets 74,824,096 70,978,185 66,909,838

Capital ratios Total regulatory capital expressed as a percentage of 17.89% 19.69% 19.88% total risk-weighted assets (CBK minimum 14.5%) Total tier 1 capital expressed as a percentage of risk- 15.19% 15.84% 16.79% weighted assets (CBK minimum 10.5%)

6 (a) Interest income

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Interest on loans and advances 7,915,918 6,630,106 6,101,256 Interest on bank placements 102,556 180,012 84,848 Interest income on - government securities at amortised cost and FVOCI 1,345,455 653,367 772,110 - corporate bonds and commercial paper 22,797 52,334 98,376

9,386,726 7,515,819 7,056,590

6 (b) Investment income

Interest on financial instruments at FVTPL 119,375 164,423 -

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

7. Interest expense

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Interest on customer deposits 1,996,304 1,640,403 1,508,297 Interest on balances due to banks 24,814 11,840 26,058 Interest on borrowings 447,131 475,619 749,559 Bond amortization expenses 127,648 125,602 120,718

2,595,897 2,253,464 2,404,632

8. Fees and commission income

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 (a) Fee and commission income Transaction related fees 1,601,691 1,740,962 1,705,062 Loan service fees 141,635 130,224 125,800 Ledger related fees and commissions 196,430 196,331 207,352

1,939,756 2,067,517 2,038,214

(b) Fees and commission expense (273,643) (260,969) (252,038)

Net Fees and Commission 1,666,113 1,806,548 1,786,176

400,185 343,305 123,303

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

9. Operating expenses

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Staff costs (Note 10) 2,388,354 2,029,861 1,860,030 Directors’ emoluments - Fees 121,467 90,490 66,490 - other 10,666 10,416 7,545 Depreciation – property and equipment (Note 22) 508,788 544,241 636,986 Amortisation of intangible assets (Note 23) 123,771 119,295 126,825 Contribution to Deposit Protection Fund 82,498 73,363 70,990 Auditors’ remuneration 8,922 7,736 14,819 Amortisation of prepaid operating lease 4,637 4,665 4,850 Marketing expenses 271,999 112,376 116,638 Premises maintenance 220,975 216,933 196,363 Security service cost 208,101 205,010 179,981 Occupancy expenses 60,405 59,326 58,200 Amortisation of right of use asset (Note 33 (a)) 453,106 518,780 518,780 Interest expense on lease liability 174,804 167,454 211,774 Other operating expenses (Note 9 b) 1,011,378 1,101,707 1,189,416

5,648,228 5,261,653 5,259,687

Other Operating expenses

Advertising costs 172,080 160,310 347,322 Business stationery expenses 76,334 112,841 120,768 Computer hardware maintenance 167,629 155,200 141,663 Consultancy services 46,521 112,411 173,005 Corporate social responsibility 36,350 39,961 42,208 Insurance expense 71,814 71,199 64,349 Licenses and permits 37,418 46,297 39,067 Other administrative expenses 148,969 151,395 86,065 Software license renewal fees 215,483 192,195 133,575 Travelling expenses 38,780 59,898 41,394

1,011,378 1,101,707 1,189,416

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

10. Staff costs

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Salaries and wages 2,039,214 1,731,402 1,571,489 Training, recruitment and staff welfare costs 90,341 54,790 57,523 Contributions to defined contribution pension scheme 115,231 104,093 101,972 Medical expenses 148,332 128,744 134,237 Leave pay provision movement (7,648) 7,747 (8,179) NSSF contributions 2,885 3,085 2,988

2,388,354 2,029,861 1,860,030

The total number of permanent employees in the Group as at the end of the year was 1,133 (2019: 1,325 and 2018: 1,211).

11. Income tax 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 a) Income tax expense Current tax based on the taxable profit at 25% (2019: 941,431 725,903 214,022 30%, 2018:30%) Deferred income tax (Note 28) (636,888) (255,408) (23,840) Under provision of current tax in prior years - 132,214 534 Overprovision of deferred income tax in prior years (26,410) (129,716) -

Income tax expense 278,133 472,993 190,716

Profit before taxation 1,440,653 1,422,829 434,932 Tax calculated at a tax rate of 25% (2019: 30%,2018: 360,163 426,849 130,480 30%) Tax effect of expenses not deductible for tax purposes 81,777 (53,356) (37,211) Tax effect of income not taxable (30,563) 97,002 96,913 Under provision of current tax in prior years - 132,214 534 Overprovision of deferred tax in prior years (26,652) (129,716) - Effect of change in tax rate (106,834) - -

278,133 472,993 190,716

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

12. Earnings per share

Earnings per share is calculated by dividing the net profit attributable to shareholders by the number of ordinary shares in issue during the year.

2020 2019 2018

Profit for the year (Kshs 000) 1,162,520 949,836 244,216

Weighted average number of shares during the year 1,287,108 1,287,108 1,287,108 (000)

Earnings per share: Basic and diluted (Shs) 0.90 0.74 0.19

There were no potential dilutive shares outstanding at 31 December 2020, 2019 and 2018.

13. Cash and balances with CBK

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Cash in hand 4,038,445 3,394,733 3,494,361 Balances with CBK - cash reserve ratio & other balances 4,841,076 3,566,591 2,787,340

8,879,521 6,961,324 6,281,701

The cash reserve ratio is based on the value of customer deposits as adjusted by the Central Bank of Kenya requirements. As at 31 December 2020, the cash ratio reserve requirement was 4.25% (2019 – 5.25%, 2018 – 5.25%) of all customer deposits held by the Bank. These funds are available for use by the company in its day-to-day operations in a limited way provided that on any given day, this balance does not fall below the 3% requirement and provided that the overall average in the month is at least 4.25%. During the year, the Central Bank of Kenya reviewed the CRR downwards by 1% to avail additional liquidity to the Banking sector to directly support borrowers that were distressed as a result of Covid-19.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

14. Balances due from banking institutions 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

a) Balances due from banking institutions maturing within 90 days: Overnight lending and placement with other banks 500,084 1,589,117 863,059 Balances due from local banking institutions 1,318 1,319 1,319 Balances due from foreign banking institutions 318,004 1,188,938 358,360

819,406 2,779,374 1,222,738

b) Balances due to banking institutions maturing within 90 days: Balances with local banking institutions 451,741 56,906 247,051

Deposits with/from local banks as at 31 December 2020 represent overnight lending. The effective interest rate on deposits due from local banking institutions at 31 December 2020 was 6.30% (2019 –8.35 %, 2018 –4.55 %). The effective interest rate on deposits due to local banking institutions at 31 December 2020 was 5.45% (2019 –4.62 %, 2018 –2.77 %).

15. Government securities

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Treasury bills and bonds – at amortised cost 8,901,395 8,187,378 6,946,277 Treasury bonds at fair value through other 7,033,006 - - comprehensive income Treasury bonds at fair value through profit and loss 1,066,797 1,662,515 -

17,001,197 9,849,893 6,946,277

The maturity profile of government securities is as follows: Maturing within one year 9,212,311 4,733,182 2,095,792 Maturing between 2 to 5 years - 3,848,279 664,853 Maturing after 5 years 7,788,886 1,268,432 4,185,632

17,001,197 9,849,893 6,946,277

The weighted average effective interest rate on treasury bonds at 31 December 2020 was 11.19 %, (2019 -9.89 %, 2018 -9.257 %). The weighted average effective interest rate on treasury bills was 9.46% (2019-9.49 %, 2018-10.43 %).

As of 31 December 2020, no treasury bonds were pledged as collateral under repurchase agreements with the Central Bank of Kenya, (2019: Nil, 2018: Nil).

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

16. Loans and advances to customers a) Loans and advances at amortised cost 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Term loans 47,811,102 48,574,668 37,222,720 Mortgage 6,383,228 1,977,441 4,912,541 Overdraft and credit cards 2,385,468 42,330 1,977,832

56,579,798 50,594,439 44,113,093

Below is a summary of the gross loans and advances and the corresponding ECL balances:

Gross loans and advances to customers 61,300,726 53,715,527 46,615,482 Credit loss provisions 4,720,929 3,121,089 2,502,390

Net loans and advances to customers 56,579,798 50,594,439 44,113,093

Significant changes in the gross carrying amounts of loans and advances to customers that contributed to movements in loans and advances were new loans advanced in the year and loan repayments.

The movement in the loans and advances are disclosed under note 4.

The weighted average effective interest rate on advances to customers at 31 December 2020 was 12.98% (2019 – 12.19 %, 2018- 12.89%).

The related party transactions and balances are covered under Note 35 and concentration of advances to customers is covered under Note 4.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 16. Loans and advances to customers (continued)

The provision for credit loss allowance on loans and advances at amortised cost is as follows:

Stage 1 and 2 Stage 3 Total Kshs 000 Kshs 000 Kshs 000

At 1 January 2020 922,457 2,862,842 3,785,299 Increase in impairment provision 35,703 2,193,280 2,228,983

At 31 December 2020 958,160 5,056,122 6,014,282

Charge to profit or loss Increase in impairment provision 35,703 2,193,280 2,228,983

At 1 January 2019 599,322 1,903,068 2,502,390 Increase in impairment provision 323,135 959,774 1,282,909

At 31 December 2019 922,457 2,862,842 3,785,299

Charge to profit or loss Increase in impairment provision 323,135 959,774 1,282,909

At 1 January 2018 49,648 1,248,469 1,298,117 Increase in impairment provision 549,674 654,599 1,204,273

At 31 December 2018 599,322 1,903,068 2,502,390

Charge to profit or loss Increase in impairment provision 549,674 654,599 1,204,273

17. Corporate bonds at amortised 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

At amortised cost: Centum Investment Company Plc - 407,364 407,364 ECL on amortised cost bonds - (7,517) (14,592)

- 399,847 392,772

The maturity profile of corporate bonds is as follows: Within 1 year - - - Maturing 1 to 5 years - 399,847 392,772 Maturing after 5 years - - -

- 399,847 392,772

The weighted average effective interest rate on corporate bonds as at 31 December 2020 was 13% (2019 -13. %, 2018 – 13.%). The Centum corporate bond was redeemed in 2020.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

18. Other assets

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Un-cleared items in the course of collection 254,131 174,016 221,613 Prepayments 142,746 149,624 152,771 Deposits for services 120,424 115,267 117,932 Discount on subordinated bond 5,584 27,920 50,255 Others 898,660 896,096 992,676

1,421,545 1,362,923 1,535,247

All other assets are current. Other receivables are current and non-interest bearing and are generally between 30 to 90 days’ terms.

19. Other investments

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Principal balance at start of year 1,385,077 1,907,773 1,920,217 Repayments in the year (1,079,273) (348,485) (7,654) Provision for expected loss (179,000) (179,000) (181,865)

126,804 1,385,077 1,730,698

The Bank had made investments through an investment manager, Alpha Africa Investments Limited. The majority of the outstanding investments relate to deposits made with Chase Bank (in receivership) maturing in 2021. These are measured and carried at amortised cost.

20. Investment in subsidiary

2020 2019 2018 No of shares Holding Kshs 000 Kshs 000 Kshs 000

Family Insurance Agency 1,000 100% 1,000 1,000 1,000 Limited

The subsidiary is a wholly owned Limited Liability Company incorporated and domiciled in Kenya. The company received its licence to operate as Dhamana Insurance Agency on 30 December 2010. Later, the company was registered as a Limited Liability Company named Dhamana Insurance Agency Limited on 22 May 2012. Subsequently, the then Dhamana Insurance Agency Limited, subsidiary, acquired Family Insurance Brokers Limited on 31 July 2015 and changed its name to Family Insurance Agency Limited.

The principal activity of the company is that of an insurance agency business.

Investment in subsidiary is non-current.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

21. Investment properties

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

At start and end of year 23,400 18,200 18,200 Fair value gains - 5,200 -

At end of year 23,400 23,400 18,200

Investment property relates to Leasehold land valued at Shs 23,400,000 (acquired at a cost Shs 3,170,000).

Amounts recognised in statement of profit or loss: Fair value gains - 5,200 -

The fair valuation basis takes into account the normal lease structure for similar pieces of land.

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

Level 1 Level 2 Level 3 Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 At 31 December 2020 Investment properties - - 23,400 23,400 At 31 December 2019 Investment properties - - 23,400 23,400 At 31 December 2018 Investment properties - - 18,200 18,200

Valuation technique used to derive level 3 fair values Level 3 fair value of land has been derived using the sales comparison approach. Sales prices of comparable land in close proximity are adjusted for differences in key attributes such as property size and location.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

22. Property and Equipment

Fixtures, fittings Freehold Leasehold Motor and Land Buildings improvements Computer vehicles equipment Total Sh’000 Sh’000 Sh’000 Sh’000 Sh’000 Sh’000 Sh’000

Cost/ Valuation

Year ended 31 December 2018 At start of year 569,001 443,948 2,986,473 2,143,621 121,037 1,355,196 7,619,276 Additions - - 13,351 10,721 - 4,340 28,412 Write-offs - - (266,043) - - - (266,043)

At end of year 569,001 443,948 2,733,781 2,154,342 121,037 1,359,536 7,381,645

Accumulated Depreciation At start of year - 54,323 1,604,200 1,628,855 70,687 638,623 3,996,688 Charge for the year - 11,099 268,478 205,214 18,910 133,284 636,985 Write-offs - - (93,801) - - (93,801)

At end of year - 65,422 1,778,877 1,834,069 89,597 771,907 4,539,872

Net Book Value At end of year 569,001 378,526 954,904 320,273 31,440 587,629 2,841,773

Year ended 31 December 2019 At start of year 569,001 443,948 2,733,781 2,154,342 121,037 1,359,536 7,381,645 Additions - - 47,282 26,819 - 24,791 98,892 Gain on revaluation 20,999 16,052 - - - - 37,051

At end of year 590,000 460,000 2,781,063 2,181,161 121,037 1,384,327 7,517,588

Accumulated Depreciation At start of year - 65,422 1,778,877 1,834,069 89,597 771,907 4,539,872 Charge for the year - 11,099 234,388 155,182 16,051 127,521 544,241 Gain on revaluation - (76,521) - - - - (76,521)

At end of year - - 2,013,265 1,989,251 105,648 899,428 5,007,592

Net Book Value At end of year 590,000 460,000 767,798 191,910 15,389 484,899 2,509,996

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 22. Property and Equipment (continued)

Fixtures, fittings Freehold Leasehold Motor and Land Buildings improvements Computer vehicles equipment Total Sh’000 Sh’000 Sh’000 Sh’000 Sh’000 Sh’000 Sh’000

Cost/ Valuation

Year ended 31 December 2020 At start of year 590,000 460,000 2,781,063 2,181,161 121,037 1,384,327 7,517,588 Additions - - 64,651 96,112 - 49,030 209,793

At end of year 590,000 460,000 2,845,714 2,277,273 121,037 1,433,357 7,727,381

Accumulated Depreciation At start of year - - 2,013,265 1,989,251 105,648 899,428 5,007,592 Charge for the year - 11,099 215,622 144,028 9,291 128,748 508,788

At end of year - 11,099 2,228,887 2,133,279 114,939 1,028,176 5,516,380

Net Book Value At end of year 590,000 448,901 616,827 143,994 6,098 405,181 2,211,001

The net book value of the building had revaluation not taken place would have been Ksh 302,005,000 (2019: Ksh 378,526,000, 2018: 499,913,000)

There are no properties or equipment charged as securities as at end of year 2020 (2019 & 2018: None). Fully depreciated assets still in use as at end of year had an initial cost of Kshs 2.54 billion (2019: Kshs 1.7 billion

The land and buildings were re-valued as at 31 December 2019 by Amazon Valuers Limited, Registered Valuers who are independent of the Group. Valuations for the properties were made on the basis of the open market value.

In accordance with IFRS 13, the fair value ranking of the freehold land and buildings is at Level 3. The net book value of the building had revaluation not taken place would have been Ksh 302,005,000 (2019: Ksh 378,526,000, 2018: 499,913,000).

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

23. Intangible assets – Computer software

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Cost At start of year 1,506,108 1,281,669 1,244,032 Additions 36,284 39,291 19,678 Work in progress - 185,148 233,952

At end of year 1,542,392 1,506,108 1,497,662

Accumulated amortisation At start of year 1,019,265 899,970 773,145 Charge for the year 123,771 119,295 126,825

At end of year 1,143,036 1,019,265 899,970

Carrying amount 399,356 486,843 597,692 At end of year

The intangible assets are in respect of computer software purchase costs.

24. Prepaid operating lease rentals

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Leasehold land: Cost At start and end of year 180,335 180,335 180,335

Amortisation At start of year 41,115 36,450 31,599 Charge for the year 4,637 4,665 4,851 At end of year 45,752 41,115 36,450

Carrying amount At end of year 134,583 139,220 143,885

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

25. Customer deposits

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Current and demand accounts 42,252,707 34,635,331 31,393,508 Savings accounts 3,742,209 3,538,458 3,127,000 Fixed deposit accounts 23,761,853 19,880,696 13,962,681

69,756,770 58,054,485 48,483,189

Maturity analysis of customer deposits Repayable: On demand 42,252,882 34,635,331 31,393,508 Within one year 27,435,457 23,363,628 17,050,894 Within 1-5 years 68,431 55,526 38,787

69,756,770 58,054,485 48,483,189

The Weighted average effective interest rate on interest bearing customer deposits at 31 December 2020 was 8.02% (2019 – 8.49 %, 2018 – 8.49 %) The related party transactions and balances are covered under Note 35 and concentration of customers’ deposits is covered under Note 4.

26. Borrowings

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 a) Analysis European Investment Bank (EIB) 764,221 1,550,171 2,340,088 OIKO Credit 169,870 338,538 507,978 Waste Finish Ink 10,864 10,864 10,864 Water Credit Alternative Channels 2,901 - 3,152

947,856 1,899,573 2,862,082

Subordinated Bond 2,072,341 2,071,394 2,070,653 Unamortized origination fees (3,049) (16,288) (29,528)

3,017,148 3,954,679 4,903,207

b) Movement: At start of year 3,954,679 4,903,207 8,362,528 Proceeds from borrowings 7,284 - 2,211 Repayments in the year (944,815) (948,528) (3,461,532)

At end of year 3,017,148 3,954,679 4,903,207

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 26. Borrowings (continued)

The table below summarises the terms for the borrowings:

Lender Outstanding Currency Repayment Maturity date Interest rate amount in period denominated currency Kshs 000 EIB 764,221 Euro 7yrs January 2021 and 9.78% January 2023 OIKO 169,870 Kshs 6yrs May 2021 Based on 91-day T bill capped at 10% Subordinated 2,018,000 Kshs 5yrs April 2021 fixed bond -13.5% Bond mixed rate bond 14% Floating rate bond - referenced 182-day Treasury bill rate subject to a floor of 12.5% and a cap of 17.5%

Interest in EIB is repaid on the 10 of July and 10 of January of every year. Interest on OIKO is repaid quarterly in February, May, August and November every year Interest accrued on the subordinated bond is repaid bi-annually.

Under the terms of the loan facilities, the Bank is required to comply with certain financial covenants. While the company had not defaulted on any payments during the year, it had not met the portfolio at risk requirement for OIKO credit due to the difficult business environment due to Covid 19. In 2020, a waiver has been obtained. The borrowing is classified as current in 2020

The Bank remains compliant to the agreed conditional waivers granted by EIB and OIKO.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

27. Provisions and Other Liabilities

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 (a) Provisions and accruals Opening balance 383,118 315,527 270,142 Additional provisions 170,919 67,591 45,385 Closing balance 554,037 383,118 315,527

Leave pay accrual 33,840 41,488 34,088

587,877 424,606 349,615

(b) Other liabilities Cheques for collection 62,427 85,650 111,294 Advance loan processing fee 739,519 786,656 427,017 Accounts payable 31,642 72,362 100,076 Revenue collected on behalf of revenue authorities 118,448 284,797 95,951 Other payables 703,787 720,051 709,396

1,655,823 1,949,516 1,443,734

Other liabilities are current.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

28. Deferred income tax

Deferred income tax is calculated using the enacted income tax rate of 30% (2019 - 30%, 2018 - 30%). Deferred income tax liability arises from temporary differences in the subsidiary, Family Bank Insurance Agency Limited. The movements in the deferred income tax account were as follows:

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Family Bank Insurance Agency At start of year 1,421 8,891 1,045 Impact on adoption of IFRS 9 - - - (credit)/charge to profit or loss (325) 886 (510) Under/(over) provision in prior year 30 (8,356) -

Deferred income tax liability end of year 1,126 1,421 535

At start of year Credit to profit or loss 885,543 527,303 324,880 Impact on adoption of IFRS 9 636,564 256,296 23,840 Charge/(credit) to other comprehensive income - - 178,583 Overprovision in prior year 4,133 (27,772) - Overprovision in prior year 26,440 129,716 -

Deferred income tax asset at end of year 1,552,679 885,543 527,303

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 28. Deferred income tax (continued)

Deferred income tax asset Recognised Prior year Recognised in Other Balance at 1 over/(under) in profit or comprehensive Balance at 31 January provision loss income December Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Bank

2020 Property and equipment 47,300 26,440 70,625 - 144,365 Other deductible differences 838,243 - 565,939 4,133 1,408,314

885,543 26,440 636,564 4,133 1,552,679

2019 Property and equipment 40,586 - 34,486 (27,772) 47,300 Other deductible differences 486,717 129,716 221,810 - 838,243

527,303 129,716 256,296 (27,772) 885,543

2018 Property and equipment 11,694 - 28,892 - 40,586 Other deductible differences 313,188 - (5,052) 178,581 486,717

324,882 - 23,840 178,581 527,303

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 28. Deferred income tax (continued)

Deferred income tax liability Prior year Recognised Balance at 1 (over)/under in profit or Balance at 31 January provision loss December Kshs 000 Kshs 000 Kshs 000 Kshs 000 Family Bank Insurance Agency

2020 Property and equipment 1,525 30 (279) 1,276 Other deductible differences (104) - (46) (150)

1,421 30 (323) 1,126

2019 Property and equipment 612 - 913 1,525 Other deductible differences (77) - (27) (104)

535 - 886 1,421

2018 Property and equipment 1,045 - (433) 612 Other deductible differences - - (77) (77)

1,045 - (510) 535

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

29. Share Capital 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 Authorised: 1,500,000,000 ordinary shares of Kshs 1 each 1,500,000 1,500,000 1,500,000

1,287,107,542 ordinary shares of Kshs 1 each 1,287,108 1,287,108 1,287,108

Movement in issued and fully paid shares.

Number of Share capital Share premium Total shares Kshs 000 Kshs 000 Kshs 000

At 1 January 2018 1,287,107,542 1,287,108 5,874,662 7,161,770

At 31 December 2018 1,287,107,542 1,287,108 5,874,662 7,161,770

At 1 January 2019 1,287,107,542 1,287,108 5,874,662 7,161,770

At 31 December 2019 1,287,107,542 1,287,108 5,874,662 7,161,770

At 1 January 2020 1,287,107,542 1,287,108 5,874,662 7,161,770

At 31 December 2020 1,287,107,542 1,287,108 5,874,662 7,161,770

There was no change in the share capital for the years ended 31 December 2020, 2019 and 2018.

30. Other reserves

30.1 Revaluation surplus This represents solely the revaluation of building and freehold land net of deferred income tax and is non-distributable.

30.2 Statutory reserve The reserve represents an appropriation from retained earnings to comply with the Prudential guidelines of the Central Bank of Kenya on loan loss provisions. The balance represents excess of impairment provisions determined in accordance with the Prudential guidelines over the impairment provisions recognised in accordance with the International Financial Reporting Standards. The reserve is non- distributable.

30.3 Fair value reserve The fair value reserve comprises of the cumulative net change in the fair value of FVOCI financial assets until the investment is derecognised or impaired. The reserve is non-distributable.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

31. Notes to the statement of cash flows

(a) Reconciliation of profit before taxation to cash flow from operations.

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Profit before taxation 1,440,653 1,422,829 434,932 Adjustments for: Depreciation of property and equipment 508,788 544,241 636,986 Amortization of prepaid operating lease rentals 4,637 4,665 4,851 Interest income earned (9,386,726) (7,515,819) (7,056,590) Interest expense incurred 2,595,897 2,253,464 2,404,632 Amortization of intangible assets 123,771 119,295 126,825 Depreciation of right of use asset 453,105 518,780 518,780 Interest expense on lease liability 174,804 167,457 211,774

Changes in working capital items: Cash reserve ratio (1,274,485) (779,256) (628,063) Financial assets at FVOCI (7,050,916) - - Financial assets at amortised cost (714,017) (1,241,101) 746,127 Financial assets at FVPL 595,718 (1,662,515) - Corporate bond 399,847 (7,075) 449,907 Loans and advances (5,985,359) (6,481,346) (641,239) Other investments 1,258,273 266 - Other assets (58,622) 451,367 (378,229) Customer deposits 11,702,285 9,716,880 1,121,059 Provisions 163,271 (9,966) 340,989 Other liabilities (293,694) 505,155 (629,223)

Cash generated from operations (5,342,770) (1,992,679) (2,336,483)

Interest income earned and interest expense incurred have been included within the cash generated from operations in the prior year balances for consistency with the presentation in the current year.

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 31. Notes to the statement of cash flows (continued) b) Analysis of the balances of cash and cash equivalents as shown in the statement of financial position and notes

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Balances with Central Bank of Kenya - Cash 4,038,445 3,394,733 3,494,361 Balances with other banking institutions 819,406 2,779,374 1,222,738

Balances due to other banking institutions (451,741) (56,906) (247,051)

4,406,110 6,117,201 4,470,048

For the purpose of the statement of cash flows, cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or below, less advances from banks repayable within three months from the dates of the advances.

32. Operating segments

For management purposes, the Bank is organised into two main operating segments based on products and services as follows: i) Retail Banking: Includes loans deposits and other transactions and balances with retail customers; ii) Wholesale Banking: Includes loans deposits and other transactions and balances with corporate and institutional customers.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss. Income taxes are managed on a Group basis and are not allocated to operating segments. The Group’s segment operations are all financial with a majority of revenues deriving from interest. The management relies primarily on net interest revenue to assess the performance of the segment. Interest income is reported net as management primarily relies on net interest revenue as a performance measure, not gross income and expenses. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2019 or 2018.

The following table presents income and profit and certain asset and liability information regarding the Group’s operating segments,

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 32. Operating segments (continued)

Wholesale banking Retail banking Other Total Kshs 000 Kshs 000 Kshs 000 Kshs 000 Profit or loss for the year ended 31 December 2020 Interest income 3,754,690 5,632,036 - 9,386,726 Interest expense (1,038,359) (1,557,538) - (2,595,897)

Net interest income 2,716,332 4,074,497 - 6,790,829

Fee and commission income 708,711 1,063,066 167,979 1,939,756 Fee and commission expense (109,457) (164,186) - (273,643)

Net fees and commission income 599,254 898,880 167,979 1,666,113

Investment income 47,750 71,625 - 119,375 Net trading income 136,545 204,817 - 341,362 Other income 160,074 240,111 - 400,185

Operating income 3,659,954 5,489,931 167,979 9,317,864 Operating expenses (2,230,465) (3,345,697) (72,066) (5,648,228) Credit impairment losses (891,593) (1,337,390) - (2,228,983) Profit before taxation 537,896 806,844 95,913 1,440,653 Income tax expense (99,826) (149,739) (28,568) (278,133) Other comprehensive income - (13,777) - -

Total Comprehensive Income 438,070 643,328 67,345 1,148,743

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 32. Operating segments (continued)

Profit or loss for the year ended 31 December 2019 Wholesale banking Retail banking Other Total Kshs 000 Kshs 000 Kshs 000 Kshs 000

Interest income 3,006,328 4,509,491 - 7,515,819 Interest expense (901,386) (1,352,078) - (2,253,464)

Net interest income 2,104,942 3,157,413 - 5,262,355

Fee and commission income 780,898 1,171,346 115,273 2,067,517 Fee and commission expense (104,388) (156,581) - (260,969)

Net fees and commission income 676,510 1,014,765 115,273 1,806,548

Investment income 65,769 98,654 - 164,423 Net trading income 156,304 234,456 - 390,760 Other income 109,085 163,628 70,592 343,305

Operating income 3,112,610 4,668,916 185,865 7,967,391 Operating expenses (2,082,420) (3,123,630) (55,603) (5,261,653) Credit impairment losses (513,164) (769,745) - (1,282,909)

Profit before taxation 517,027 775,540 130,262 1,422,829

Income tax expense (182,511) (273,770) (16,713) (472,994) Other comprehensive income 34,320 51,480 - 85,800

Total Comprehensive Income 368,836 553,250 113,549 1,035,635

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 32. Operating segments (continued)

Profit or loss for the year ended 31 December 2018 Wholesale banking Retail banking Other Total Kshs 000 Kshs 000 Kshs 000 Kshs 000

Interest income 2,822,636 4,233,954 - 7,056,590 Interest expense (913,581) (1,491,051) - (2,404,632)

Net interest income 1,909,055 2,742,903 - 4,651,958

Fee and commission income 787,251 1,180,877 70,086 2,038,214 Fee and commission expense (100,815) (151,223) - (252,038)

Net fees and commission income 638,350 1,029,654 70,086 1,786,176

Investment income - - - - Net trading income 134,982 202,474 - 337,456 Other income 49,321 73,982 123,303

Operating income 2,823,861 4,004,946 70,086 6,898,893 Operating expenses (2,083,928) (3,120,087) (55,672) (5,259,687) Credit impairment losses (481,709) (722,564) - (1,204,273) Profit before taxation 258,224 162,295 14,413 434,932 Income tax expense (74,015) (111,019) (5,682) (190,716)

Total Comprehensive Income 184,209 51,277 8,730 244,216

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 32. Operating segments (continued)

Statement of financial position as at 31 December 2020 Wholesale Retail banking banking Others Total Kshs 000 Kshs 000 Kshs 000 Kshs 000

Assets 36,088,406 54,132,611 439,779 90,660,797

Liabilities and equity: 36,326,234 54,475,827 (141,264) 90,660,797 Inter-segment lending (117,879) (176,818) 294,697 -

Total liabilities and equity 36,208,355 54,299,009 153,433 90,660,797

Other disclosures - - - - Capital expenditure 88,812 133,218 - 221,031

Statement of financial position as at 31 December 2019 Wholesale Retail banking banking Others Total Kshs 000 Kshs 000 Kshs 000 Kshs 000

Assets 31,454,016 47,181,026 282,630 78,917,673

Liabilities and equity: 31,623,815 47,435,727 (141,870) 78,917,673 Inter-segment lending (83,289) (124,934) 208,222 -

Total liabilities and equity 31,540,526 47,310,794 66,353 78,917,673

Other disclosures - - - - Capital expenditure 54,783 82,174 - 136,957

Statement of financial position as at 31 December 2018 Wholesale Retail banking banking Others Total Kshs 000 Kshs 000 Kshs 000 Kshs 000

Assets 26,712,067 42,087,833 177,725 68,977,625

Liabilities and equity: 40,181,493 28,848,696 (52,564) 68,977,625 Segment liabilities Inter-segment lending (61,737) (92,605) 154,342 -

Total liabilities and equity 40,119,756 28,756,091 101,778 68,977,625

Other disclosures Capital expenditure 28,855 19,236 - 48,091

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

33. Leases

The Bank as a lessee

(a) Right of use asset The Bank leases a number of branch and office premises as well as ATM lobby spaces. The leases typically run for a period between 3 and 6 years, with an option to renew the lease after that date. For some leases, payments are renegotiated every five years to reflect market rentals. Some leases provide for additional rent payments that are based on changes in local price indices.

Movements in right of use assets in the year is shown below: 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

At start of year 1,520,371 2,039,151 2,557,931 Additions 416,337 - - Depreciation (453,105) (518,780) (518,780)

At end of year 1,483,603 1,520,371 2,039,151

Cost At start of year 2,557,931 2,557,931 2,557,931 Additions 416,337 - -

At end of year 2,974,268 2,557,931 2,557,931

Accumulated depreciation At start of year (1,037,560) (518,780) - Charge for the year (453,105) (518,780) (518,780)

At end of year (1,490,665) (1,037,560) (518,780)

Net carrying amount at end of year 1,483,603 1,520,371 2,039,151

(i) Amounts recognised in the statement of profit or loss The statement of profit or loss shows the following amounts relating to leases:

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Amortisation of right of use asset 453,105 518,780 518,780 Interest expense (included in Operating and other 174,804 167,457 211,774 administrative expenses)

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 33. Leases (continued) The Bank as a lessee (continued)

(b) Lease liabilities

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Current 414,871 378,080 231,716 Non-current 1,192,205 1,191,459 1,737,788

1,607,076 1,569,539 1,969,504

The movement in the lease liabilities for group and Bank was as follows:

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

At start of year 1,569,539 1,969,504 2,557,931 Additions during the year 416,337 - - Interest expense on leases 174,804 167,277 211,774 Repayments (553,604) (567,241) (800,201)

At end of year 1,607,076 1,569,539 1,969,504

34. Contingencies and commitments including off balance sheet items a) Contingent liabilities In common with other financial institutions, the Group conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties.

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Guarantees 7,060,571 5,141,962 3,970,214 Letters of credit 1,108,120 473,677 144,145

8,168,691 5,615,639 4,114,359

Litigations against the Group 264,694 267,877 187,121

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 34. Contingencies and commitments including off balance sheet items (continued) a) Contingent liabilities (continued)

Nature of contingent liabilities: An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Group expects most acceptances to be presented, but reimbursement by the customer is normally immediate.

Letters of credit commit the group to make payments to third parties on production of documents, which are subsequently reimbursed by customers.

Guarantees are generally written by a bank to support performance by customers to third parties. The Group will only be required to meet these obligations in the event of the customer’s default.

Concentrations of contingent liabilities are covered under note 4.

Litigations against the Group Litigations against the group relate to civil suits lodged against the group by customers and employees in the normal course of business. The likely outcome of these suits cannot be determined as at the date of signing the historical financial information. The directors, however, do not anticipate that any liability will accrue from the pending suits. b) Commitments to extend credit

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Undrawn formal stand-by facilities, credit lines and other 6,042,645 2,488,635 2,018,181 commitments to lend

Commitments to extend credit are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The group may withdraw from its contractual obligation to extend credit by giving reasonable notice to the customer. c) Capital commitments

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Authorised and contracted for 135,378 232,943 243,122

Authorised but not contracted for 23,521 121,084 -

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SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued)

35. Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

A number of transactions are entered into with related parties in the normal course of business. These include loans, deposits and foreign currency transactions. The volumes of related party transactions, outstanding balances at the end of the year and the related expenses and income for the year are as follows:

2020 2019 2018 Kshs 000 Kshs 000 Kshs 000 (a) Loans and advances

At 1 January 3,509,466 3,590,559 3,269,083 Additions 549,526 1,151,624 1,057,789 Interest charged 288,872 291,408 278,872 Repayments (1,415,183) (1,524,125) (1,015,185)

At 31 December 2,932,681 3,509,466 3,590,559

As at 31 December 2020 loans and advances to staff amounted to Sh 1,381,113,000 (2019 – Sh 1,184,169,000, 2018 – Sh 1,145,484,922). The loans and advances to related parties are performing and adequately secured.

Companies associated to Directors directors Total Sh ‘000 Sh ‘000 Sh ‘000 (b) Deposits

At 1 January 2018 417,921 806,687 1,224,608 Withdrawals (13,038) (799,281) (812,319)

At 31 December 2018 404,883 7,406 412,289

At 1 January 2019 404,883 7,406 412,289 Withdrawals (394,936) (1,896) (396,832)

At 31 December 2019 9,947 5,510 15,457

At 1 January 2020 9,947 5,510 15,457 Withdrawals - - -

At 31 December 2020 9,947 5,510 15,457

Family Bank is regulated by the Central Bank of Kenya 185 JUNE 2021

SECTION 3: CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2020, 2019 AND 2018 Notes (continued) 35. Related party transactions (continued)

Key management compensation The remuneration of directors and other members of key management during the year were as follows:

Short term benefits 2020 2019 2018 Kshs 000 Kshs 000 Kshs 000

Salaries and other benefits 119,006 110,464 99,027 Directors’ emoluments 132,133 100,906 74,035

Total 251,139 211,370 173,062

36. Prior period adjustments

IFRS 16 became effective for the first time for financial periods beginning 1 January 2019. The standard affected primarily the accounting by lessees and resulted in the recognition of almost all leases on the statement of financial position. The standard removed the previous distinction between operating and financing leases and required recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts.

The statement of profit or loss was also affected because operating expense were replaced with interest expense and depreciation.

For purposes of this Accountant’s report, the historical financial information for 2018 have been restated to comply with the new standard as shown below:

Statement of financial position Income statement Right of use Lease Retained Profit before of assets liabilities earnings tax At 31 December 2018

As previously stated - - 4,226,396 244,216 IFRS 16 day 1 adjustment net of tax 2,557,931 2,557,931 - - Interest expense - 211,774 (211,774) (211,774) Depreciation (518,780) (518,780) (518,780) Operating expenses - - 730,554 730,554 Principal lease payments - (800,201) - -

Restated 2,039,151 1,969,504 4,226,396 244,216

186 Family Bank is regulated by the Central Bank of Kenya JUNE 2021

SECTION 4: SUMMARY OF THE APPLICABLE ACCOUNTING STANDARDS

A number of International Financial Reporting Standards have been amended or introduced in the period under review as summarised in the table below. The historical financial information presented have been adjusted where necessary in respect of the following standards which were introduced in the period.

Standard Years affected Impact IFRS 16 Leases 2018 IFRS 16 will affect primarily the accounting by lessees and will result in the recognition of almost all leases on balance sheet. The standard removes (effective 1 January the current distinction between operating and financing leases and requires 2019) recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts. An optional exemption exists for short-term and low-value leases.

The statement of profit or loss will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, operating expense will be replaced with interest and depreciation.

Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flows.

The financial information for 2018 have been restated to comply with the new standard. Interpretation 23 2018 The interpretation explains how to recognise, and measure deferred and Uncertainty over current income tax assets and liabilities where there is uncertainty over a tax Income Tax treatment. In particular, it discusses: Treatments • how to determine the appropriate unit of account, and that each uncertain tax treatment should be considered separately or together as (effective 1 January a group, depending on which approach better predicts the resolution of 2019) the uncertainty that the entity should assume a tax authority will examine the uncertain tax treatments and have full knowledge of all related information, i.e. that detection risk should be ignored • that the entity should reflect the effect of the uncertainty in its income tax accounting when it is not probable that the tax authorities will accept the treatment • that the impact of the uncertainty should be measured using either the most likely amount or the expected value method, depending on which method better predicts the resolution of the uncertainty, and • that the judgements and estimates made must be reassessed whenever circumstances have changed or there is new information that affects the judgements.

While there are no new disclosure requirements, entities are reminded of the general requirement to provide information about judgements and estimates made in preparing the financial statements.

The amendment did not have a significant effect on the Group and no adjustments are necessary to the financial information for the year ended 31 December 2018.

Family Bank is regulated by the Central Bank of Kenya 187 JUNE 2021

SECTION 4: SUMMARY OF THE APPLICABLE ACCOUNTING STANDARDS

Standard Years affected Impact Prepayment Features 2018 The narrow-scope amendments made to IFRS 9 Financial Instruments in with Negative October 2017 enable entities to measure certain pre-payable financial assets Compensation – with negative compensation at amortised cost. These assets, which include Amendments to IFRS some loan and debt securities, would otherwise have to be measured at fair 9 value through profit or loss.

(effective 1 January To qualify for amortised cost measurement, the negative compensation must 2019) be ‘reasonable compensation for early termination of the contract’ and the asset must be held within a ‘held to collect’ business model.

The amendment did not have a significant effect on the Group and no adjustments are necessary to the financial information for the year ended 31 December 2018. Annual Improvements 2018 The following improvements were finalised in December 2017: to IFRS Standards • IFRS 3 Business Combinations – clarified that obtaining control of a business 2015-2017 Cycle that is a joint operation is a business combination achieved in stages. • IFRS 11 Joint Arrangements – clarified that the party obtaining joint control (effective 1 January of a business that is a joint operation should not remeasure its previously 2019) held interest in the joint operation. • IAS 12 Disclosure of Interests in Other Entities – clarified that the income tax consequences of dividends on financial instruments classified as equity should be recognised according to where the past transactions or events that generated distributable profits were recognised. • IAS 23 Borrowing Costs – clarified that, if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use or sale, it becomes part of general borrowings.

The amendment did not have a significant effect on the Bank and no adjustments are necessary to the financial information for the years ended 31 December 2016 to 31 December 2018. Plan Amendment, 2018 The amendments to IAS 19 Employee Benefits clarify the accounting for Curtailment or defined benefit plan amendments, curtailments and settlements. They confirm Settlement – that entities must: Amendments to IAS • calculate the current service cost and net interest for the remainder of the 19 reporting period after a plan amendment, curtailment or settlement by using the updated assumptions from the date of the change (effective 1 January • recognise any reduction in a surplus immediately in profit or loss, either as 2019) part of past service cost or as a gain or loss on Settlement. In other words, a reduction in a surplus must be recognised in profit or loss even if that surplus was not previously recognised because of the impact of the asset ceiling • separately recognise any changes in the asset ceiling through other comprehensive income.

The amendment did not have a significant effect on the Group and no adjustments are necessary to the financial information for the year ended 31 December 2018.

188 Family Bank is regulated by the Central Bank of Kenya JUNE 2021

SECTION 5: PROSPECTIVE FINANCIAL INFORMATION FOR FAMILY BANK LIMITED FOR THE YEARS ENDING 31 DECEMBER 2021 AND 2022

Consolidated statement of profit or loss and other comprehensive income

Year ending 31 December 2022 2021 Kshs’000 Kshs’000

Interest income 14,051,721 11,695,866 Interest expense (3,789,320) (3,077,519)

Net interest income 10,262,401 8,618,347

Fee and commission income 3,192,808 2,733,732 Fee and commission expense (301,691) (287,325)

Net fees and commission income 2,891,117 2,446,407

Investment income 187,603 139,097 Net trading income 615,744 517,101 Other income 410,496 344,734

Operating income 14,367,361 12,065,685

Operating expenses (6,614,945) (6,095,261) Credit impairment losses (3,162,152) (2,659,431)

Profit before taxation 4,590,264 3,310,993

Income tax expense (1,377,080) (993,298)

Profit for the year 3,213,184 2,317,695

Gain on revaluation of properties (net of tax) - -

Total other comprehensive income - -

Total comprehensive income for the year 3,213,184 2,317,695

Family Bank is regulated by the Central Bank of Kenya 189 JUNE 2021

SECTION 5: PROSPECTIVE FINANCIAL INFORMATION FOR FAMILY BANK LIMITED FOR THE YEARS ENDING 31 DECEMBER 2021 AND 2022

Consolidated statement of financial position Year ending 31 December 2022 2021 Kshs’000 Kshs’000 ASSETS Current assets Cash and balances with Central Bank of Kenya 17,987,254 16,888,793 Balances due from banking institutions 1,810,063 1,525,101 Government securities amortised cost 25,114,627 21,160,782 Government securities FVPL 2,036,321 1,715,739 Corporate bonds at amortised cost - - Other investments 126,804 126,804 Loans and advances to customers 79,954,008 66,295,501 Right of use of assets 870,612 1,136,505 Other assets 1,415,962 1,415,962 Investment in subsidiary - - Investment properties 24,400 24,400 Property and equipment 1,572,922 1,890,416 Intangible assets 1,032,618 827,437 Prepaid operating leases 125,309 129,946 Current income tax 27,904 27,904 Deferred income tax 1,552,679 1,552,679

TOTAL ASSETS 133,651,484 114,717,969

LIABILITIES Customer deposits 98,252,950 82,753,370 Balances due to banking institutions 605,057 501,696 Borrowings 8,271,716 8,291,712 Provisions 2,934,732 2,485,822 Other liabilities 2,254,946 2,309,913 Lease Liability 1,607,076 1,607,076 Provision for restoration costs Deferred income tax 1,126 1,126 Current income tax 1,377,080 993,298

TOTAL LIABILITIES 115,304,684 98,944,013

SHAREHOLDERS’ FUNDS Share capital 1,287,108 1,287,108 Share premium 5,874,662 5,874,662 Revaluation surplus 278,424 278,424 Fair value reserve (13,777) (13,777) Retained earnings 11,560,725 8,347,539

TOTAL SHAREHOLDERS’ FUNDS 18,346,800 15,773,956

TOTAL LIABILITIES AND SHAREHOLDERS’ FUNDS 133,651,484 114,717,969

190 Family Bank is regulated by the Central Bank of Kenya JUNE 2021

SECTION 5: PROSPECTIVE FINANCIAL INFORMATION FOR FAMILY BANK LIMITED FOR THE YEARS ENDING 31 DECEMBER 2021 AND 2022

Consolidated statement of changes in equity

Fair Share value Statutory capital Share Revaluation reserves Retained reserve Kshs premium surplus Kshs earnings Kshs Total 000 Kshs 000 Kshs 000 000 Kshs 000 000 Kshs 000 Year ending 31 December 2021 At start of year 1,287,108 5,874,662 278,424 (13,777) 6,029,844 - 13,456,261 Comprehensive income Profit for the year - - - - 2,317,695 - 2,317,695

Dividend paid At end of year 1,287,108 5,874,662 278,424 (13,777) 8,347,539 - 15,773,956

Year ending 31 December 2022 At start of year 1,287,108 5,874,662 278,424 (13,777) 8,347,539 - 15,773,956 Comprehensive income Profit for the year - - - - 3,213,184 - 3,213,184

Dividend paid At 31 December 2022 1,287,108 5,874,662 278,424 (13,777) 11,560,725 - 18,987,142

Family Bank is regulated by the Central Bank of Kenya 191 JUNE 2021

SECTION 6: KEY ASSUMPTIONS IN ARRIVING AT THE FINANCIAL PROJECTIONS FOR THE YEARS ENDING 31 DECEMBER 2021 AND 2022

The prospective financial information has been prepared by the directors on the basis of the assumptions set out below and in accordance with accounting policies of the historical financial information and set out in Section 3 to this Accountant’s report.

• Loans and advances are projected to grow by 17% in 2021 and 21% in 2022 in line with historical performance and the various initiatives management has put in place such as increasing lending via digital channels. The growth in lending will be funded from proceeds arising from mobilising growth in customer deposits, obtaining additional borrowings from various lenders and from proceeds of the bond. • Income yield on loans and advances, government securities and placements with financial institutions is expected to remain consistent with previous years at 14.5%, 10% and 5.25% respectively. • Customer deposits are projected to grow by 18.6% and 18.7% in 2021 and 2022 respectively, in line with historical performance, as well as driven by management’s deposits mobilisation strategies currently underway. • Fees and commissions income as a percentage of net interest income is projected to remain at 40% in line with historical performance. Growth in the loan book, customer deposits as well as lifting the waivers on fees charged on certain banking transactions in line with Central Bank of Kenya’s (CBK) guidelines will be key drivers for the growth in fees and commissions income, which is projected at 36% and 19% in 2021 and 2022 respectively. • Operating expenses will grow by inflation rate over the forecast period except for staff costs, which are expected to increase at 9% per annum and the staff count by 5% per annum. • Additional funding will be available in 2021 and 2022 from ongoing negotiations as evidenced by the signed term sheets with the following lenders, which will further increase funds available for lending to support the loan book growth: o Incofin Investment Management – USD 10,000,000 for a tenor of 4 years at a fixed interest rate of 4.5%; o AFRICA Agriculture & Trade Investment Fund (AATIF) – USD 10,000,000, for a tenor of 5 years and interest of 6 months LIBOR plus a margin of 4.5%; and o Oikocredit, Ecumenical Development Cooperative Society U.A., Amersfoort, the Netherlands - USD 20,000,000, for a tenor of 7 years and interest of three-year LIBOR plus a margin of 6%; • Additionally, the Bank targets to raise Tier 2 Capital through a multicurrency medium term note programme of Kshs 8 billion with an initial tranche of Kshs 4 billion in 2021; • Intangible assets will amortised over their estimated useful lives of three to ten years. Property and equipment will be depreciated on a straight line basis over the forecast period at the following annual rates in line with the historical rates used: o Buildings - 2.5% o Fixture, fittings and equipment – 12.5% o ATM machines – 16.7% o Motor vehicles – 0% o Computers – 20% • There will be no dividends with respect to the year ending 31 December 2021, with the payment of dividends expected to resume in the year ending 31 December 2022 at a rate of 30% of the after-tax profits;

The Bank intends to stay above the minimum statutory ratios for capital adequacy over the forecast period as follows:

Min Sta. REGULATORY RATIOS 2021 2022 Ratios CRWA Core Capital/RWA 10.5% 15.9% 16.2% TRWA Total Capital /RWA 14.5% 20.4% 20.0% CTD Core Capital/ Total Deposits 8.0% 17.2% 17.5% LST Liquid Assets/ Short Term Liabilities 20.0% 45.1% 43.8% SC Supplementary Capital / Total Capital 21.9% 18.9%

192 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

18 Appendix

Appendix B: Legal Opinion INFORMATION MEMORANDUM, JUNE 2021

Lex Chambers, Tel: +254 20 2160312/3 Maji Mazuri Road, +254 20 3860183 off James Gichuru Road, +254 20 3860184 Lavington, ADVOCATES +254 714 611 954 P. O. Box 74041 – 00200, COMMISSIONERS FOR OATHS +254 739 631 261 Nairobi, Kenya. NOTARIES PUBLIC Fax: +254 20 2160312 Dropping Zone No. 214, COMPANY SECRETARIES [email protected] Revlon Professional Plaza. PATENT & TRADEMARK AGENTS www.lexgroupafrica.com

Our Ref: Your Ref: T.B.A

May 27, 2021

The Directors Family Bank Limited 8th Floor, Family Bank Towers Muindi Mbingu Street, P. O. Box 74145 – 00200 Nairobi

MTC Trust and Corporate Services Limited Delta Riverside, Block 4 Riverside Drive P. O. Box 1071 – 00200 Nairobi, Kenya

Dear Sirs,

RE: LEGAL OPINION IN RESPECT OF KENYA SHILLINGS EIGHT BILLION AND SUBORDINATED MULTICURRENCY MEDIUM TERM NOTE PROGRAMME

We act as legal advisers to Family Bank Limited (“the Company”) in relation to the proposed public issue and listing of Kenya Shillings Eight Billion Subordinated Multicurrency Medium Term Note Programme (“the Issue”).

We are Advocates of the High Court of Kenya, practicing and qualified as such to practice in Kenya, and to advise upon the laws of Kenya.

This legal opinion (“this Opinion”) is given in relation to the Issue.

We have acted as the Legal Advisors in the Issue and have issued this Opinion for inclusion in the Information Memorandum.

194 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

1. PRELIMINARY MATTERS

1.1. Unless (a) otherwise stated; or (b) the context otherwise requires, words and terms defined in the Information Memorandum bear the same meanings in this Opinion.

1.2. This Opinion is limited to Kenyan Law as applied in the Courts of Kenya and as of the date of this Opinion and to matters of fact prevailing as of the date of this Opinion.

2. ASSUMPTIONS AND DOCUMENTS REVIEWED

2.1. For the purposes of this Opinion, we have made the following assumptions:

2.1.1. all information contained in the Information Memorandum and all information provided to us by the Company, and its officers and advisers is true, accurate and up to date.

2.1.2. the authenticity and completeness of all documents submitted to us as originals or copies, the genuineness of all signatures, the conformity to originals of all copies, and the accuracy of any translations.

2.1.3. that representations made to us by officers and agents of the Company are true in all material respects.

2.2. For the purposes of this Opinion, we have examined originals or copies certified to our satisfaction of the following documents:

2.2.1. Memorandum and Articles of Association in force as at the date of this Opinion. 2.2.2. The Company’s annual returns for the last three years. 2.2.3. The Company’s statutory books; 2.2.4. Documents filed by the Company with the Registrar of Companies; 2.2.5. Title documents of immoveable property in the name of the Company; 2.2.6. Details of material contracts and disputes to which the Company is a party; 2.2.7. Audited accounts of the Company for the last three years; 2.2.8. Licenses from and correspondence with relevant regulatory authorities; 2.2.9. Such other records and documents as we have considered necessary or appropriate for the purposes of this Opinion in respect of the Company and its subsidiaries.

3. OPINION

Based upon and subject to (1) the foregoing; (2) the reservations set out below; and (3) to any matters not disclosed to us, we are of the opinion that:

3.1. STATUS OF THE COMPANY

3.1.1. The Company is a public limited liability company, duly registered under the Companies Act (Cap 486 of the Laws of Kenya) (now repealed) and bearing Registration Number 34/2007.

3.1.2. The disclosure made in the Information Memorandum listing the shareholders of the Company is correct.

3.1.3. The registered office of the Company is Family Bank Towers (Formerly Fourways Tower) 8th Floor, Muindi Mbingu Street, P. O. Box 74145 – 00200, Nairobi, L.R. No. 209/4383. The address at which the register of members is kept is Family Bank Towers (Formerly Fourways Tower) 8th Floor, Muindi Mbingu Street, P. O. Box 74145 – 00200, Nairobi, L.R. No. 209/4383.

3.1.4. The Company has the power and authority to issue and list the Kenya Shillings Eight Billion Subordinated Multicurrency Medium Term Fixed and Floating Note Programme having obtained the consent of the Board of Directors, the Capital Markets Authority and the Nairobi Securities Exchange.

Family Bank is regulated by the Central Bank of Kenya 195 INFORMATION MEMORANDUM, JUNE 2021

3.1.5. The Company has, at the date hereof, a Board of Directors consisting of the following individuals:

• Wilfred David Kiboro • Titus Kiondo Muya • Ruth Wambui Waweru • Lerionka Samuel Tiampati • Francis Gitau Mungai • Lazarus Muange Muema; • Rebecca Mueni Mbithi; • Mary Njeri Mburu

3.1.6. The Company Secretary is Eric Kori Murai of P. O. Box 103 – 00623, Nairobi who is a registered Certified Public Secretary.

3.2. LICENSES AND CONSENTS

All authorizations, approvals, consents, licenses, exemptions, filings or registrations of or with any governmental or public bodies or authorities of or in Kenya required in connection with the business of the Company have been obtained in proper form, and are in full force and effect.

3.3. SHARE CAPITAL

3.3.1. The authorised share capital of the Company is Kenya Shillings One Billion Five Hundred Million (KES 1,500,000,000) divided into One Billion Five Hundred Million (1,500,000,000) ordinary shares of Kenya Shillings One (KES 1.00) each.

3.3.2. The issued share capital of the Company is Kenya Shillings One Billion Two Hundred and Eighty Seven Million One Hundred and Seven Thousand Five Hundred and Forty Two (KES 1,287,107,542.00) made up of One Billion Two Hundred and Eighty Seven Million One Hundred and Seven Thousand Five Hundred and Forty Two (1,287,107,542) ordinary shares of Kenya Shillings One (KES 1.00) each.

3.3.3. The existing capital of the Company is in conformity with applicable laws and has received all necessary authorizations.

3.4. OWNERSHIP OF ASSETS

3.4.1. The Company is the registered owner of the following immovable properties.

Name of Building/Branch Land Reference Number Family Bank Towers/Head Office L.R. No. 209/4383 Yaya Branch L.R. No. 1/1338 (Original No. 1/933/2) Limuru Branch Title No. Limuru Township/335 Kerugoya Branch Inoi/Kerugoya/250/473 Eldoret Branch (Retail Section) Title Number Eldoret Municipality Block 7/23 Githunguri Branch Title Number Githunguri/Githunguri/T.780/1 Molo Branch Title Number I.R 8396 Kangari Branch Title Number Loc.2/Kangari/1940 Murang’a Branch Murang’a/Township Block 11/96 Othaya Branch Title Number Loc.2/Kangari/1940 Kitengela Plots (52) Kajiado/Kitengela/34352- Kajiado/Kitengela/34403

196 Family Bank is regulated by the Central Bank of Kenya INFORMATION MEMORANDUM, JUNE 2021

3.4.2. The Company has also entered into leases and license agreements for the occupation and use of various other premises used as offices, branches and ATM locations.

3.5. SUBSIDIARIES

3.5.1. The following companies are subsidiaries of the Company:

Subsidiary Shareholding Family Bank Insurance Agency Limited Wholly owned by Family Bank Limited Family Bank Kenya Limited Wholly owned by Family Bank Limited Family Group Foundation Wholly owned by Family Bank Limited Pesa Pap Digital Ltd Wholly owned by Family Bank Limited

3.6. MATERIAL LITIGATION

The Company is not a party to, and has not been threatened with, any material litigation that has not been disclosed in the Information Memorandum.

3.7. MATERIAL CONTRACTS

3.7.1. Save for contracts entered into in the ordinary course of business, the Company has not entered in to any material contracts which are not disclosed in the Information Memorandum.

3.7.2. As at the date of this Information Memorandum, the Company is not in breach of any material contractual obligations except where disclosed in the Information Memorandum.

3.7.3. Excepting for contracts with advisers engaged by the Company for the Issue, there are no other contracts in respect to the Issue which have not been disclosed in the Information Memorandum.

3.8. MATERIAL BORROWINGS

3.8.1. The Company is party as a borrower to the following material borrowing contracts:

3.8.1.1. Loan Agreement between OikoCredit Ecumenical Development Co-operative Society U.A (OikoCredit) and Family Bank Limited dated 25th June 2015 3.8.1.2. Finance Contract between the European Investment Bank (EIB) and Family Bank (Borrower) Limited (East & Central Africa PEFF) dated 29th December 2015

Details of these borrowings are disclosed in the Information Memorandum.

3.8.2. The borrowing powers of the Company and its subsidiaries have not been exceeded.

4. CONSENT

We consent to the inclusion of our legal opinion in the Information Memorandum to be issued for the Issue in the form and context in which it appears. We confirm that we have given and as at the date of issue of the Information Memorandum have not withdrawn our consent to its issue and the inclusion of our legal opinion herein.

Family Bank is regulated by the Central Bank of Kenya 197 INFORMATION MEMORANDUM, JUNE 2021

5. RESERVATIONS

5.1. We express no opinion as to any document other than the material documents expressly referred to above.

5.2. We express no opinion as to any law other than Kenyan law in force, and as interpreted, at the date of this Opinion.

5.3. We express no opinion as to any matter not stated herein.

Yours Faithfully, MBOYA WANGONG’U & WAIYAKI

CG MBUGUA [email protected] PARTNER

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200 Family Bank is regulated by the Central Bank of Kenya