Absa Bank Limited Absa Bank Limited Annual Report Annual 31 December 2011 Report 31 December 2011 www.absa.co.za Forward looking statements Introduction Certain statements in this document are forward looking. JSE-listed South African companies are required to produce an annual These relate to, among other things, the plans, objectives, goals, strategies, future operations and performance of report, including annual financial statements for shareholders. Absa Bank Limited and its subsidiaries (“Absa”). Words such as “anticipates”, “estimates”, “expects”, “projects”, This is the first year that we are printing the Bank’s annual report “believes”, “intends”, “plans”, “may”, “will” and “should” and with summarised financials while publishing the full set of financials similar expressions are typically indicative of a forward looking statement. These statements are not guarantees on the Absa Group website. of Absa’s future operating, financial or other results and involve certain risks, uncertainties and assumptions. Accordingly, actual results and outcomes may differ Absa’s reporting ethos materially from these expressed or implied by such statements. Absa makes no representation or warranty, Absa aims to achieve the highest standards in all the disclosures express or implied, that the operating, financial or other included in this report in order to provide accurate and complete results anticipated by such forward looking statements will be achieved and such forward-looking statements information to shareholders. The board and board committees were represent, in each case, only one of many possible actively involved in finalising the disclosures made. scenarios and should not be viewed as the most likely or standard scenario. Absa undertakes no obligation to update the historical information or forward looking statements in this document. Report navigation aid Garth Griffin Maria Ramos Further reading within this report. Chairman Chief Executive Web link provides reference to online disclosures of the Absa Group 2011 Integrated Annual Report. Sustainable growth in targeted markets. Balance sheet optimisation and proactive risk management. Simple, streamlined Group for customer delivery. Customer- and people-centred organisation. Audited as part of the Bank’s annual financial statements. Absa Bank Limited | Annual Report | 31 December 2011 Information on our shareholders and Absa at a glance Governance, risk and remuneration financials 1 Contents Overview of our Annual Report and Summarised explanation of our Our shareholder information, Absa Bank. approach to governance, risk and summarised financial statements and remuneration. other useful resources. Information on our shareholders Absa at a glance Governance, risk and remuneration and financials 2 – 7 10 – 45 48 – 81 2 The story of Absa at a glance 10 A review of how we govern our 48 Shareholder information 4 Our Bank profile business 50 Summarised financial statements 5 The people who lead and 19 How we manage our risks 75 Glossary govern Absa 28 A balanced approach to 78 Acronyms remuneration 81 Administration and contact details Scope and boundary Absa Bank is a wholly owned subsidiary of Absa Group Limited and, as such, the majority of the disclosures in the Absa Group Integrated Annual Report 2011 are applicable to Absa Bank. The focus of this report is on the annual financial statements and corporate governance disclosures specific to Absa Bank. Readers are referred to the Absa Group Integrated Annual Report 2011, published on the Absa Group website for additional information including the Group strategy, our Chairman’s statement and Chief Executive’s review, our response to material issues, segmental reviews as well as our compliance report. This report primarily covers Absa’s South African operations in the majority of the disclosures. As Absa’s South African operations constitute the majority of the Bank’s earnings, the report has a bias towards these. The report covers the period from 1 January to 31 December 2011. Where applicable and appropriate, it includes information post 31 December 2011. Since the release of Absa Bank’s annual report for the year ended 31 December 2010, there has been no material change to Absa’s legal structure, ownership or products and services. Therefore, the scope of the 2011 report is largely unchanged. The directors’ report notes changes to the Bank’s structure during the year. The report covers the Bank’s activities, comprising retail, business banking, corporate and investment banking, and the centre. Absa Bank Limited | Annual Report | 31 December 2011 2 The story of Absa at a glance Introducing Absa... ...and the values Our One Absa that govern our strategy... Absa Bank Preference shares listed on the JSE behaviour. A subsidiary of Absa Group Limited Our values Sustainable growth in targeted which owns 100% of the Bank ➧ ➧➜ ➧ markets Strive to exceed the needs of our customers Three major businesses ➜ Business banking transactional revenue ➜ Retail Markets ➜ Demonstrate integrity in all our up actions ➜ Business Markets ➜ Strong retail earnings growth ➜ Display leadership in all that ➜ One Bank in Africa strategy ➜ Corporate, Investment Banking we do ➜ Established a Corporate Bank and Wealth ➜ Value our people and treat them ➜ Opened 100 entry-level outlets (‘1234’) ➜ million with fairness Lower market share in some areas customers 12,1 ➜ Take responsibility for the quality of our work Balance sheet optimisation and proactive risk management staffed outlets 990 Good governance ➜ Improved strong Core Tier 1 capital ratio ➜ Increased our surplus liquid assets ➜ Implemented King III ➜ Improved proportion of long-term funding self-service ➜ Established sustainability ➜ Continued to optimise RWAs terminals framework 9 541 ➜ Reduced equity exposures ➜ Board evaluation facilitated by ➜ Improved our credit loss ratio the Institute of Directors Southern ➜ Reduced non-performing loans Africa ➜ Low trading DVaR ➜ Reviewed non-executive ➜ Improved our loans-to-deposits ratio directors’ fees ➜ New board appointments Simple, streamlined Group for customer delivery ➜ IT oversight substantially improved ➜ Integrated our Retail and Business ➜ Working to improve stakeholder Banking operating models engagement ➜ Re-engineered key transaction processes including account opening ➜ Concern with regulatory change and home loans overload ➜ Launched Learning@Absa Customer- and people-centred organisation ➜ Implemented needs analysis tool to better advise customers ➜ Continued product innovation in card and electronic banking ➜ Developed an integrated talent management framework Absa Bank profile Governance summary Risk summary Operating structure Remuneration summary Board Absa Group Integrated Absa Group Integrated Annual Report 2011 Annual Report 2011 Absa Bank Limited | Annual Report | 31 December 2011 Information on our shareholders and Absa at a glance Governance, risk and remuneration financials 3 ...drives our ... raised by performance on stakeholders material issues... ➧ Sustainable financial viability ➧ Customers ➜ Service levels need to improve % Headline earnings per share 23 ➜ Cost of banking services cents Dividend per ordinary share 1 034,4 cents Dividend per preference share 5 685,5 Employees % Return on average equity 15,8 ➜ Reward and recognition cents ➜ Job security Net asset value per share 14 058 ➜ % Compliance-driven culture Core Tier 1 capital adequacy ratio 12,1 Process and systems effectiveness Shareholders ➜ Lower loan market shares % Cost-to-income ratio 55,6 ➜ Call to return surplus capital Severity 1 incidents (Group) 6 ➜ Cautious optimism for Africa expansion ➜ Uncertainty about economic recovery Customer experience (Group) Customer satisfaction index 44 Government and regulators ➜ Twin peaks model to be introduced Percentage of complaints resolved in SA at first point of contact % 83 ➜ Basel III proposes higher liquidity requirements Our people (Group) Employee turnover 11,9% Community ➜ Internal promotion and transfers 55% Support socio-economic priorities Economic equity (Group) million Entry-level customers 7,4 DTI BBBEE status Level 3 Affordable housing loan book R7,4 billion Enterprise development R900 million CSI and financial education R96,4 million Summarised financial statements Absa Group Integrated Annual Report 2011 Absa Group Integrated Annual Report 2011 Full financial statements Absa Bank Limited | Annual Report | 31 December 2011 4 Absa Bank profile Introducing Absa Absa Bank Limited (Absa, Absa Bank or the Bank), its preference shares listed on the JSE Limited, is one of South Africa’s largest banking groups offering a complete ➜ Total assets of range of banking and wealth management products and services. Absa’s business is R742 436 million conducted primarily in South Africa. ➜ 12,1 million Absa Bank is a wholly owned subsidiary of Absa Group Limited (Absa Group or the customers Group) which in turn is a subsidiary of Barclays Bank PLC, which owns 55,5% of Absa ➜ outlets Group. Barclays is a major global financial services provider engaged in retail banking, 990 credit cards, corporate and investment banking, and wealth management with an ➜ 9 541 self-service extensive international presence. terminals Our operating structure Absa aims to be a simple, streamlined Bank focussed on customer delivery through three main business segments. Contribution to Bank Business segment Scope of business Headline earnings Offers individuals a comprehensive suite of retail R4 032 million No 1 banking products and