Stanbic Bank, Annual Report 2016

Stanbic Bank Uganda Limited Annual Report 2016 i Stanbic Bank Uganda is part of the Group, Africa’s largest bank measured by footprint, profits and assets. The Standard Bank Group has on-the- ground representation in 20 African countries.

Stanbic Bank Uganda has a wide network of branches and has been offering a full spectrum of and products to the Retail and Corporate segments for 26 years. Our report

This is the Stanbic Bank Uganda Limited (SBUL) annual report that includes financial and non-financial information. The financial results and commentary describe the results of SBUL which is a majority owned subsidiary of the Standard Bank Group and locally incorporated in Uganda.

Contents 1 About Stanbic Bank Uganda Limited

10 Business review

38 Risk review

46 Sustainability

86 Corporate governance

100 Independent auditors report

104 Financial statements and notes

156 Supplementary information

Stanbic Bank Uganda Limited Annual Report 2016 iii About Stanbic Bank Uganda Limited

Stanbic Bank Uganda Limited Annual Report 2016 iv 2 Who we are

3 Our Bank

4 Our vision and values

6 How we create value

8 Our products and services

9 Our locations

Stanbic Bank Uganda Limited Annual Report 2016 1 ABOUT STANBIC BANK UGANDA LIMITED

Who we are

A brief history of our bank. SERVED BY The Bank was founded in Uganda as the National Bank of in 1906. After several name NUMBER OF 1,802 EMPLOYEES changes, it rebranded to Grindlays Bank. In 1991, CUSTOMERS Standard Bank Group (The Group) acquired Grindlays Bank. The new owners renamed the HEADQUATERS 665,417 Ugandan subsidiary, Stanbic Bank (Uganda) Crested Towers Limited. Plot 17 Hannington Road In February 2002, The Group acquired 90% of the shareholding in Uganda Commercial Bank Limited, a government-owned bank with sixty five branches. The Group merged their new acquisition with the existing Stanbic Bank THROUGH OUR MAIN (Uganda) Limited, to form Uganda’s largest BUSINESS UNITS commercial bank by assets and branch network. Personal and In November 2007, the Government of Uganda Business Banking divested its ownership in Stanbic Bank (Uganda) & Corporate and by listing its shares on the Uganda Securities Investment Exchange. The Group also floated 10% of its Banking shareholding at the same time,retaining an ownership stake of 80%.

WITH BRANCHES AND CUSTOMER SERVICE POINTS MARKET CAPITALISATION 82 1,280tn (LARGEST BANK BY THIS MEASURE IN UGANDA)

ATMs 173 LISTED SHAREHOLDERS On the Uganda 22,535 Securities Exchange (USE) since 25 January, 2007 Stanbic Bank Uganda Limited Annual Report 2016 2 ABOUT STANBIC BANK UGANDA LIMITED Sub heading continued Third heading continued

Our Bank (as at 31 December, 2016)

SERVED BY

NUMBER OF 1,802 CUSTOMERS EMPLOYEES

HEADQUATERS 665,417 Crested Towers Plot 17 Hannington Road Kampala

THROUGH OUR MAIN BUSINESS UNITS Personal and Business Banking & Corporate and Investment Banking

BALANCE SHEET SIZE:

WITH BRANCHES UShs 4.6tn AND CUSTOMER SERVICE POINTS MARKET CAPITALISATION 82 1,280tn (LARGEST BANK BY THIS MEASURE IN UGANDA)

ATMs 173 LISTED SHAREHOLDERS On the Uganda 22,535 Securities Exchange (USE) since 25 January, 2007 Stanbic Bank Uganda Limited Annual Report 2016 3 ABOUT STANBIC BANK UGANDA LIMITED Sub heading continued Third heading continued

Our vision “To be the leading African financial services organisation in, for and across Africa, delivering exceptional client experiences and superior value.”

Purpose statement “Transforming lives for a better Uganda.”

Stanbic Bank Uganda Limited Annual Report 2016 4 ABOUT STANBIC BANK UGANDA LIMITED

Our values

SERVING OUR CUSTOMERS We do everything in our power to ensure that we provide our customers with the products, services and solutions to suit their needs, provided that everything we do for them is based on sound business principles.

GROWING OUR PEOPLE We encourage and help our people to develop to their full potential and measure our leaders on how well they grow and challenge the people they lead.

DELIVERING TO OUR SHAREHOLDERS We understand that we earn the right to exist by providing appropriate long-term returns to our shareholders. We try extremely hard to meet our various targets and deliver on our commitments.

BEING PROACTIVE We strive to stay ahead by anticipating rather than reacting, but our actions are always carefully considered.

WORKING IN TEAMS We, and all aspects of our work, are interdependent. We appreciate that, as teams, we can achieve much greater things than as individuals. We value teams within and across business units, divisions and countries.

CONSTANTLY RAISING THE BAR We have confidence in our ability to achieve ambitious goals and we celebrate success, but we must never allow ourselves to become arrogant.

RESPECTING EACH OTHER We have the highest regard for the dignity of all people. We respect each other and what Stanbic Bank stands for. We recognise that there are corresponding obligations associated with our individual rights.

UPHOLDING THE HIGHEST LEVELS OF INTEGRITY Our entire business model is based on trust and integrity as perceived by our stakeholders, especially our customers.

Stanbic Bank Uganda Limited Annual Report 2016 5 ABOUT STANBIC BANK UGANDA LIMITED Sub heading continued Third heading continued

How we create value

We allocate capital to support Personal & Business Banking economic growth. We provide financial services. Provides banking and other financial services to individual customers and small- to medium-sized We do it with intergrity. enterprises. What we offer ••Mortgage lending ••Card products ••Transactional products ••Instalment sale and finance leases ••Lending products ••Banc assurance and wealth

Corporate and Investment Banking

Provides corporate and investment banking services to governments, parastatals, larger corporates, financial institutions and international counterparties.

What we offer ••Trade Finance ••Cash Management ••Investment Banking (IB) ••Global Markets ••Project Finance

Other

FINANCE COMPLIANCE Measuring and managing financial Ensuring the Bank’s activities and conduct performance. comply with legal and regulatory requirements. HUMAN RESOURCES Acquiring, developing and retaining talent. TREASURY & CAPITAL MANAGEMENT Managing the Bank’s capital and liquidity, TECHNOLOGY AND OPERATIONS including ensuring we meet regulatory Providing the infrastructure and support for requirements and have sufficient capacity the Bank to effectively and efficiently carry of capital. out its activities. LEGAL RISK Maintaining a comprehensive legal risk Upholding the overall integrity of management system. the Bank’s risk/return decisions; ensuring that risks are assessed and controlled in AUDIT accordance with the Bank’s standards and Independently provides reasonable risk appetite. assurance to the Board Audit Committee that the risk, control and governance processes are adequate and effective.

Stanbic Bank Uganda Limited Annual Report 2016 6 ABOUT STANBIC BANK UGANDA LIMITED Sub heading continued Third heading continued

Personal & Business Banking

UShs 46.3bn PROFIT AFTER TAX 2015: UShs 38.9bn

2016 2015

Return on equity 24.8% 24.9% Cost-to-income ratio 71.3% 69.9% Credit loss ratio 2.1% 2.3%

Corporate and Investment Banking

UShs 119.6bn PROFIT AFTER TAX 2015: UShs 97.0bn

2016 2015

Return on equity 48.4% 53.3% Cost-to-income ratio 38.9% 35.0% Credit loss ratio 1.5% 0.4%

Other

TCM UShs 25.2bn PROFIT AFTER TAX 2015: UShs14.8bn

The detailed segmentation including Treasury and Capital Management (TCM) profit after tax UShs 25.2bn (2015: 14.8bn), can be found in the notes to financial statements under segment information in note 5.

Stanbic Bank Uganda Limited Annual Report 2016 7 ABOUT STANBIC BANK UGANDA LIMITED

Our Products & Services

Corporate and Investment Personal and Business Services Banking (CIB): Transactional Banking (PBB): Products and Services Transactional Products and Services

TRADE FINANCE PERSONAL AND BUSINESS - Internet Banking - Letters of Credit - Transact Plus - Mobile Banking - Bid Guarantees (local and foreign currency) - Business Online (BOL) - Performance Guarantees - Personal and Business - Point Of Sale (POS) - Advance Payment Guarantees Current Accounts - (ATM) - Avalisation (local and foreign currency) - Debit and Credit cards - Import/Export Loans - Executive Banking (VISA enabled) - Invoice Discounting - Private Banking - PayPlus - payment services solution - Bills for Collection (water, electricity, pay TV, pension) SAVINGS AND INVESTMENTS CASH MANAGEMENT - PureSave - Cash in Transit (local and foreign currency) - Collect Plus (Courier) - Contract Save - Electronic Banking - Bonus Investment - Bill Payments - Fixed Deposit - Liquidity Management - Payments and Receivables Solutions LENDING (PERSONAL) - Salary Loan - Fixed Term Loan INVESTOR SERVICES - Revolving Term Loan - Custody - Revolving Line of Credit - Fiscal Agency - Re-finance Home Loans - Facility Agency - Building Loan - Equity Release Loan INVESTMENT BANKING (IB) - Vehicle and Asset Finance - Equity Capital Markets - Debt Capital Markets TRADE FINANCE - Advisory - Letters of Credit - Asset Finance - Bid Guarantees - Syndications - Performance Guarantees - Advance Payment Guarantees INTERNATIONAL DEVELOPMENT GROUP - Import/Export Loans - Invoice Discounting - Priority Suite

LENDING (BUSINESS) GLOBAL MARKETS - Overdraft - Spot Foreign Exchange - Tax Loan - Forward Contract in Foreign Exchange - Agriculture Loan - Foreign Currency Options - Business Term Loan - Cross Currency Swaps - Property Finance - Swaps - Vehicle and Asset Finance - Money Market Products

PROJECT FINANCE

Stanbic Bank Uganda Limited Annual Report 2016 8 World-class banking across Uganda

Central Region Freedom, , Kayunga, Kireka, , Lugai, Lugogo, Mukono, ,

Eastern Region Busia, Iganga, ina, Kabong, Kakira, Kamuli, Kapchorwa, Katakwi, Kotido, Kumi, Mayuge, , Moroto, Pallisa, Soroti, Tororo

Far West Buliisa, Bundibugyo, Bwamiramira, Bwera, Fortportal, Hoima, Kagadi, Kasese, Kinyara, Masindi, Mubende

Greater Kampala Aponye Mall, , Kiboga, Kigumba, Luweero, Mityana, Mpigi, Nakivubo, , , William Street, Wobuleni

Metro Acacia Mall , Bugolobi Village Mall, Corporate (Crested Towers), Entebbe Main, Forest Mall, Garden City, Industrial Area, , Metro, , Amuru

Nothern Adumani, Apac, , , Buliisa 0414 340 788 / 0417 154 910 / 0800 150150 / 0800 Kitgum, Koboko, Lira, Moyo, Nebbi, Pader, Pakwach 250250

Bukedea Western Busolwe Nakasongola Ibanda, Ishaka, , Kibale Kabwohe, Kalangala, Ntoroko Kihihi, Kisoro, Kyotera, Kabarole Lyantonde, , Wakiso , Ntungamo, Rukungiri

Kiruhura

K anungu

Tel: 0414 340788 / 0417 154910 Toll free: 0800 150150 / 0800 250250 / 0800 350350

Stanbic Bank Uganda Limited Annual Report 2016 9 Business review

Stanbic Bank Uganda Limited Annual Report 2016 10 12 Financial definitions

14 2016 at a glance

16 2016 highlights

18 Chairman’s statement

20 Chief Executive’s statement

26 Operating and Financial review

28 Our key perfomance indicators

30 Five-year perfomance

31 Strategic roadmap

34 Business unit review

Stanbic Bank Uganda Limited Annual Report 2016 11 BUSINESS REVIEW

Financial definitions

CAGR Compound annual growth rate. Profit for the year (UShs) Annual income statement profit attributable to ordinary share holders, minorities and preference shareholders. Earnings per share (UShs) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue. Return on average equity (%) Earnings as a percentage of average ordinary shareholders’ funds. Return on average assets (%) Earnings as a percentage of average total assets. Net interest margin (%) Net interest income as a percentage of monthly average total assets. Credit-loss ratio (%) Provision for credit losses per the income statement as a percentage of gross loans and advances. Cost•to•income ratio (%) Operating expenses as a percentage of total income before deducting the provision for credit losses. Effective tax rate (%) The income tax charge as a percentage of income before tax. Dividend per share (UShs) Total ordinary dividends declared per share in respect of the year. Dividend cover (times) Earnings divided by total dividends per share. Price earnings ratio (%) Closing share price divided by headline earnings per share. Dividend yield (%) Dividends per share as a percentage of the closing share price. Core capital Permanent shareholders equity in the form of issued and fully paid up shares plus all disclosed reserves, less goodwill or any intangible assets. Supplementary capital General provisions which are held against future and current unidentified losses that are freely available to meet losses which subsequently materialise, and revaluation reserves on banking premises, and any other form of capital as may be determined from time to time, by the . Total capital The sum of core capital and supplementary capital. Total capital adequacy (%) Total capital divided by the sum of the total risk weighted assets and total risk weighted contingent claims.

Stanbic Bank Uganda Limited Annual Report 2016 12 CAGR Compound annual growth rate. Profit for the year (UShs) Annual income statement profit attributable to ordinary share holders, minorities and preference shareholders. Earnings per share (UShs) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue. Return on average equity (%) Earnings as a percentage of average ordinary shareholders’ funds. Return on average assets (%) Earnings as a percentage of average total assets. Net interest margin (%) Net interest income as a percentage of monthly average total assets. Credit-loss ratio (%) Provision for credit losses per the income statement as a percentage of gross loans and advances. Cost•to•income ratio (%) Operating expenses as a percentage of total income before deducting the provision for credit losses. Effective tax rate (%) The income tax charge as a percentage of income before tax. Dividend per share (UShs) Total ordinary dividends declared per share in respect of the year. Dividend cover (times) Earnings divided by total dividends per share. Price earnings ratio (%) Closing share price divided by headline earnings per share. Dividend yield (%) Dividends per share as a percentage of the closing share price. Core capital Permanent shareholders equity in the form of issued and fully paid up shares plus all disclosed reserves, less goodwill or any intangible assets. Supplementary capital General provisions which are held against future and current unidentified losses that are freely available to meet losses which subsequently materialise, and revaluation reserves on banking premises, and any other form of capital as may be determined from time to time, by the Central Bank. Total capital The sum of core capital and supplementary capital. Total capital adequacy (%) Total capital divided by the sum of the total risk weighted assets and total risk weighted contingent claims.

We are committed to serve Uganda and her people, in return for the long-term profitable growth we envisage as the leading financial services group in the country.

Stanbic Bank Uganda Limited Annual Report 2016 13 BUSINESS REVIEW

2016 at a glance

25%

PROFIT BEFORE TAX(PBT) UShs 253.9 bn 2015: UShs 203.3bn ON ACCOUNT OF STRONG GROWTH ACROSS ALL REVENUE LINES, AS WELL AS MANTAINING STRONG FOCUS ON ASSET QUALITY (CREDIT LOSS RATIO AT 1.8%)

Stanbic Bank Uganda Limited Annual Report 2016 14 BUSINESS REVIEW

CORE CAPITAL TOTAL ASSETS 17.7 % 4.6tn 2015: 16.4% 2015: 3.5tn

RETURN ON EQUITY CITIZENSHIP 30.3% 1.13 2015: 29.2% 2015: 0.98bn

PROPOSED EARNINGS DIVIDEND PER PER SHARE SHARE 3.73 1.17 2015: 2.95 2015: 0.78

Digital Banking Bank to your own beat • Online Banking • Business Online • Enterprise Online Banking • Standard Bank/Stanbic Bank App • Mobile Banking

Stanbic Bank Uganda Limited Annual Report 2016 15 BUSINESS REVIEW

2016 highlights

2016 2015 Income statement (UShs’ 000) Profit before tax 253,948,621 203,297,848 Profit after tax 191,151,835 150,759,281 Financial position (UShs’ 000) Total assets 4,588,609,681 3,729,141,013 Loans and advances to customers 1,976,748,072 1,917,243,556 Property and equipment 63,318,002 49,209,285 Shareholders’ equity 714,941,993 544,757,744 Customer deposits 3,058,504,763 2,438,420,865 Financial performance (%) Return on average equity 30.3 29.2 Return on average assets 4.6 4.2 Cost to income ratio 52.1 53.6 Loans to deposit ratio 64.6 78.6 Share statistics per share (UShs) Earnings per share - basic and diluted 3.73 2.95 Proposed dividend per share 1.17 0.78 Capital adequacy Risk weighted assets (UShs’ 000) 3,069,288,352 2,848,544,816 Tier 1 capital to risk weighted assets (%) 17.7 16.4 Total capital to risk weighted assets (%) 21.1 18.1 Cash flow information (UShs’ 000) Net cash from / (used in) operating activities 789,945,824 184,534,107 Net cash used in investing activities (113,659,310) (17,723,017) Net cash used financing activities 8,866,124 (83,734,502) Cash and cash equivalents at end of the year 1,619,578,977 934,426,339

Stanbic Bank Uganda Limited Annual Report 2016 16 Enterprise Online Make all your payments in one go

We believe that you are a busy person constantly engaged in running your business with limited time to do your banking.

Enterprise Online, is a digital solution that brings the bank closer to you so that you can spend more time growing your business. This solution allows you to make fast and easy transfers from your account and make payments to accounts within Stanbic and other banks. You can also monitor your money on a daily basis.

Enterprise Online lets you manage your accounts at anytime and from anywhere. You can also make payments with one click. To register, call us on 0312 226600 or email [email protected] and to get started. BUSINESS REVIEW Chairman’s Statement

Chairman’s Statement 2017

“2016 was yet another profound year for Stanbic Bank where we continued to ensure the sustainable growth of the Bank and post impressive results despite the global and local economic headwinds. A central factor to our sustainability is our commitment to support and enable the transformation of the lives and businesses in the communities in which we operate.”

Japheth Kato Chairman

Stanbic Bank Uganda Limited Annual Report 2016 18 BUSINESS REVIEW Chairman’s Statement continued

The Bank continued to demonstrate resilience and In order to ensure compliance with all key Clive Tasker: Chairman, Umfolozi Sugar Mill was able to withstand key economic headwinds external legislation we have scaled up the . He is also a lead Independent and challenges across multiple fronts to post capacity and capability in our Compliance Trustee of Columba Leadership Institute impressive results in 2016. The year notably had the function that provides oversight and guidance and Non-Executive Director, Standard Bank sort of sluggish economic start that we do tend to on all compliance matters. However, more Mauritius and Stanbic Bank . Before experience around the national election cycles. This importantly, we have focused on building a retiring in 2015, Clive worked for the Standard was further compounded by the high interest rate culture of compliance across the Bank. At Bank group for 15 years, and held key positions environment off the back of the inflation targeting the core of this culture is that all staff must in the group for Africa and China. that was in place at the start of the commit to living the eight core values of the year and only abated from the 2nd quarter onwards. Bank and having this message of individual Eva Kavuma: works as an independent accountability well understood across the consultant; developing new business This slow economic environment impacted the Bank.We continue to ensure that our standing strategies for companies expanding operations ability of Ugandan households and businesses to with the regulators remains strong. on the African continent. Eva has a profound grow and many of them held back on expansion understanding of Africa’s diverse investment activities. In such challenging times it is important We also look forward to the guidelines from environments having played a key role as to have the right client focus to support our clients on Agency Banking, General Manager International Business in successfully navigating this landscape in a Banc assurance and others, which we believe Development in MTN Group’s aggressive manner that ensures their sustainable long term will bring positive transformation to the expansion strategy from 2001 to 2006. She led growth prospects. industry. multi-disciplinary teams through complex due

diligence processes, and developed business Ensuring that the strategy of the Bank stays Our Corporate Social cases resulting in successful acquisition of four relevant not only to the landscape today but that operations in Côte d’Ivoire, , Cameroon it also prepares us for the opportunities and risks Responsibility and Republic of Congo. ahead continues to be a key area of focus for both We continue to strongly believe in the the board and management. At the heart of this importance of being part of the solution to strategy is to be an effective partner for growth the socio-economic challenges faced by our I do believe that the wealth and diversity of for our clients, regulators, shareholders and other nation. The unique state of the youthfulness knowledge and experience that the team key stakeholders and in so doing, serve to create of our nation has been well documented above will bring in to the board, will serve tangible value to these stakeholders into the long with approximately 55% of our population to further enhance the guidance required term. We continually look to be at the leading edge below the age of 18 years. This demographic to deliver of the Bank’s long term growth of progressive changes in the sector and also in dividend can be harnessed if we enable objectives. enabling the deepening of the Ugandan financial the transition of this large section of our sector. population into a skilled workforce. We are I would also like to take this opportunity to also cognisant of the strong entrepreneurial thank Josephine Okot who did not offer herself 2016 Financial Performance spirit that Ugandans possess that seeks for re-election during the year to focus on her to continually create and establish Against this backdrop of the challenging economic business expansion in the region. She has new businesses. According to a 2015 headwinds, the Bank delivered an impressive served as a non-executive director for 6 years Enteprenueral analysis report done by Global financial performance for 2016. This strong and was a member of various committees. Enterprenuership Monitor (GEM), many of performance demostrates the resilience of the Her valuable contribution to the board will be these business ventures continue to fail due Bank, a strong leadership team and the benefit greatly missed. We do wish Josephine the best to lack of a solid foundation. To this end as a of the revenue diversity embedded in the Bank’s in her future endeavors. bank we have chosen to continue to invest in business. On an overall basis, the Bank grew profit education and financial literacy interventions by 27% to close at a strong UShs 191.2 Billion. The Appreciation to enable the development of these two Return on Equity was a commendable 30.3% and proudly Ugandan aspects. In 2016, we spent It is indeed a unique privilege to support the speaks to effective use of the capital availed by the UShs 1.1bn, 15% higher than UShs 0.98bn in journey of growth of this great institution Shareholders. Our capital position also continues 2015 on supporting corporate social initiative as Board Chairman. I would like to thank to go from strength to strength, with a total traction with a focus on education. the board for their tremendous dedication capital adequacy ratio of 21.1%, compared to the and support in overseeing the direction of regulatory requirement of 12%. In addition, we do continue to partner with the Bank. The Bank is in a solid state with various other stakeholders like the board, sustainable revenue growth prospects and a The board has recommended a dividend of UShs some of our service providers, different non- robust and forward looking risk and control 60billion, which is a 50% increase from the UShs profit organisations etc, looking to make a management view. We are committed to being 40billion paid for 2015. This is equivalent to UShs meaningful impact in transforming the lives of part of the story of transformation of Uganda, 1.17 dividend per share from UShs 0.78 the previous Ugandans. Further details of this is reflected in and are well positioned to play our leading role year. The dividend pay-out proposed considers our sustainability report on page 48. in driving her growth. I take this opportunity on business growth and investment prospects and behalf of the board, to extend my appreciation regulatory capital adequacy requirements. This is Board Changes to the executive committee and to all staff having considered the current and projected future members under the leadership of the Chief financial position of the Bank and impact of stress As we have mentioned in the past, we continue Executive, Patrick Mweheire, for another testing of the capital adequacy position of the Bank to augment the skills and experience within remarkable year. to ensure there are no adverse effects on capital the board and to address succession to key requirements over the foreseeable future. roles. To this end, last year we made 3 key additions to the board. These are, This team has managed to steer the Bank Regulatory Environment through challenging economic times and in Greg Brackenridge: Chief Executive with heightened competition from a broad range of The regulatory framework governing banks and oversight of the East African region for traditional and non-traditional competitors and other financial institutions both globally and locally the Standard Bank Group responsible for delivered a stellar performance. continues to evolve. The deliberate move by operations in Ethiopia, , Malawi, regulators across the African continent to enhance Tanzania, Uganda and Zambia. He has To our customers, shareholders, regulators their interaction is expected to see modification extensive banking experience having first and all other stakeholders, we are grateful and/or enhancements to our domestic regulation. joined the Standard Bank Group in 1992 for your continued support. We look forward The specific harmonisation around the EAC and has since held various senior executive to continuing to moving forward with you in partner states on various areas of regulation is also positions in West Africa, South Africa and 2017 as we continue to support Uganda’s expected to increase. Zimbabwe. development.

Stanbic Bank Uganda Limited Annual Report 2016 19 BUSINESSBUSINESS REVIEW REVIEW Chief Executive Statement

CEs Statement Chief Executive’s Statement 2017

In 2016, we generated record earnings for a third year in a row, remaining the best capitalised and most profitable bank in Uganda. We successfully continued to deliver on the key initiatives that we had set for ourselves at the beginning of 2016. The key priorities were placing the customer at the center of everything we do, executing flawlessly, and building employee capability across all levels.

Patrick Mweheire Chief Executive

Stanbic Bank Uganda Limited Annual Report 2016 20 BUSINESS REVIEW Chief Executive Statement continued

Our 2016 profit after tax was UShs 191 billion, approximately 30.7% market share of industry serve our customers. They have also improved achieving a strong 27% year-on-year growth profits excluding . Return on the control environment and lowered risk levels in a very challenging market environment with equity was approximately 30.3 % reflecting the across the Bank. rapidly deteriorating asset quality across the improvement in profitability of the business in sector. Our 2016 revenue of UShs 643 billion 2016 even though we carried significantly Building Employee Capability Across was a balanced mix of net-interest income and more capital. all Levels non-interest revenue, reflecting the strength of Our greatest competitive advantage is our our diversified business model. Our focus on Progress on our Key Priorities customers paid off as more of them entrusted people. We believe that all 1,802 of our us with their deposits and opportunities to From the Bank’s perspective, we continued employees are assets to be invested in and serve more of their financial needs. Our total to deliver on the key initiatives that we had not expenses to be managed. In 2016, we customer deposits reached a record UShs set for ourselves at the beginning of 2016. continued to invest in our people by training and 3.1 trillion for 2016, up a record 25% from the The key priorities were placing the customer developing talent. UShs 2.7bn was invested in prior year in an industry that grew an average at the center of everything we do, executing training and development of our employees, of 9.5%. Total customer loans and advances flawlessly, and building employee capability with more than 500 training courses completed completed the year at UShs 2.0 trillion just up across all levels. last year. 3% from 2015 which was a deliberate part of our strategy in a high-interest rate environment. Placing the Customer at the Center We carry out internal surveys with our team members to understand what engages them We made even more progress in strengthening of everything we do the quality of our loan book. Credit losses at work. We believe the more engaged our Our passion for serving customers motivates were UShs 37 billion with our credit loss ratio employees are, the more connected they are to all our employees and I am proud of the of 1.8% remaining well with our risk appetite, our vision and values. In the last survey, overall massive strides we made in 2016 in improving despite a massive year-on-year growth in Non- team member engagement measured 4.5 out of the customer service experience across our Performing Loans (“NPLs”) in the industry 5, a massive improvement from the year before. banking network. We relentlessly focused which crossed the UShs 1 trillion threshold mark We hope this demonstrates our desire to be the on our customer needs both at the retail and as of December 31, 2016. leading financial services employer of choice institutional segments and it paid off. It has in the country, offering all our employees an been gratifying to see our markedly improved unmatched Employee Value Proposition. Our accomplishments in 2016 customer score numbers and hear how our were a direct result of: banking and financial services have improved and continue to transform lives. 2016 Performance Review Pursuing the right strategy; • Our 2016 results registered considerable • Operating a diversified business model; We also held several customer engagement growth across all the key financial metrics and businesses diversified by size, client mix, forums across the branch network to hear the also gained market share in key areas. Some transactional versus lending that can perform well across a variety of economic issues from the customers directly. These and highlights include: and interest rate environments; many other initiatives are designed to make the Bank more client-centric and position us • Reported 2016 Revenue of UShs 643bn; • having the right people that worked a growth of 21% from 2015 together to fulfil our diverse customer to be the leading client-oriented bank in the needs; country. We are happy to note that a number • Total Deposits above UShs 3tn up 25%; of gains have already been made and this client • Intense client focus in the right segments; Loans and Advances up 3% both from an institutional and retail centricity will continue to be a key differentiator segment; and for us in the market in 2017. • Off-Balance Sheet guarantees, Letters of credit and bonds of UShs 1tn largely in • Effectively managing risk. Executing Flawlessly support of GoU infrastructure spend From a macro-economic perspective, we In order for us to retain our leadership position • Profit After Tax of UShs 191bn; a growth of witnessed weaker GDP growth which dropped in the banking industry, we must constantly 27% to slightly lower than 5.0% in 2016. Given innovate and improve our productivity. In subdued inflation expectations post the 2016, we focused on operating efficiently by • Processed over UShs 50tn worth of February election, we saw Bank of Uganda thoughtfully managing our resources and transactions in 2016 (“Bank of Uganda”) aggressively drop the exercising discipline to invest in the areas Central Bank Rate (“CBR)” 5 times in 2016 from • Arranged UShs 1tn worth of credit and that matter the most to our customers and capital during the year a high of 17% in April 2016 to close the year stakeholders. In fact in 2016, our cost to at 12%. This had a direct impact on lowering income ratio (how much expense we incur for • Lead arranged the $645mn Karuma prime rates and net interest margins across the every Shilling of revenue we earn) was 52%, interest rate swap, helping to protect industry. way below the Uganda banking sector average Government from future interest rate risk of 63%. Throughout the year, we launched • Collected over UShs 2.8tn worth of taxes From a sector perspective, we saw muted several digital initiatives and expect to see a on behalf of the URA growth in both deposits, net loans and advances more accelerated move of lower value and high growing at 9.5% and 1.2% respectively on volume transactions away from the branch • Directly paid over UShs 73bn in taxes to a nominal basis. We also witnessed a rapid to more convenient digital platforms in 2017. the government Treasury deterioration in asset quality with the non- We will continue to leverage technology to performing loan ratio across the industry rising simplify our processes and reduce expenses. • Gainfully employed 1,802 people; second to a staggering 10.5% in 2016 but only 6% We continued to invest and upgrade our core largest employer in the sector excluding the impact of Crane Bank. Sector banking platform to address interface gaps • Social investments of UShs 1.1bn profitability also deteriorated contracting 44% with other peripheral systems and broaden focused on education that reached over year-on year to UShs 304 billion but grew by functionality. We are convinced that these 10,000 beneficiaries across our 13% to UShs 612 billion excluding Crane Bank. interventions will ultimately improve our communities We retained our number one position with an efficiency and ability to more cost effectively

Stanbic Bank Uganda Limited Annual Report 2016 21 BUSINESS REVIEW Chief Executive Statement continued

These results were achieved in a highly about our risk profile and approach to risk aspire to be the first provider the public think of competitive market place within a sluggish management in our risk review on page 40. when they need a financial product or service. macro-economic backdrop. You can find further details on the 2016 operating Corporate Social Responsibility In order for us to retain our leadership position environment and the financial performance in (“CSR”) in the Ugandan banking industry we must the operating and financial review section of flawlessly and ruthlessly execute on our In 2016, we continued to demonstrate this report on page 26. plans. Getting this right will require that we our commitment to transform lives in our operate as teams rather than individuals. Our communities. In doing this, we reached culture is about plural pronouns – we, us, and Capital and Liquidity Base over 10,000 people across the country and ours – instead of I, me or mine. We would During 2016, our core capital ratio remained committed UShs 1.1 billion, of which 48% like to create an environment where every resilient at 17.7 % against a regulatory was directed to the education sector. As employee is empowered to speak up and minimum ratio of 8% while the total capital our national demographics demonstrate, contribute. A lot of work and thought has gone ratio was 21.1% against a regulatory minimum Uganda has the youngest population in the into identifying the market opportunity and of 12%. Our liquid asset holding ratio was an world (70% below 30 years of which 55% are where we would like to invest our efforts and average of 50% against a regulatory minimum below 18 years). We therefore believe that resources. It’s time to execute. of 20%. This resilient capital base positions to foster true sustainable economic growth, us with adequate risk mitigation buffers to we must invest in the quality of education Lastly, we will spend 2017 looking at ways to withstand significant credit or liquidity stress for our youth. This is why we deliberately further digitise the processing of deposits, events. And more importantly, it provides reinforced our transformational efforts in the withdrawals, payments and other teller us the platform to be a major catalyst for education sector. We have put an emphasis transactions. growth in the economy by providing access on providing support to the under-privileged to financing to support consumers and and supported the development of critical businesses. thinking and practical skills in our secondary 2017 Outlook schools. In addition, as part of our broader 2016 was an outstanding year for Stanbic Risk Management and Controls agenda of empowering our communities with Uganda and we are very pleased with our the right knowledge to transform their lives, performance. 2017 has started out strong and We have clear risk management objectives and we conducted financial literacy seminars we are confident in our abilities to serve the an established strategy to deliver them through to vulnerable households and providing a changing customer needs and contribute to core risk management processes. This enables platform that sponsors business mentorship the growth of our beloved country. We have us to fully understand and minimise the impact to SMEs. We intend to further broaden a fortress balance sheet, a remarkable brand, of uncertainty in the business. Responsibility our contribution to the development in loyal clients and fantastic people to deliver our for risk management is cascaded through this sector to include entrepreneurial skills objectives. all levels of the Bank, from the Board and development. For further insights on our the Executive Committee down through the CSR activities, these can be found in the organisation to each business manager and Appreciation sustainability report on page 48. risk specialist. This ensures that risk/return I would like to thank all our stakeholders - decisions are taken at the most appropriate board members, staff members, customers, level and as close as possible to the business. 2017 Priorities regulators, communities and shareholders for Independent risk teams are in place to support Our priorities in 2017 will focus on three making 2016 a remarkable year. I am honored close working relationships with the business relatively simple but critical objectives; to work at this bank with its outstanding teams taking on the risk. These risk teams people. What we have accomplished ultimately report to the Chief Risk Officer. • Placing the Customer at the Center of during these very difficult circumstances is Everything we do; extraordinary. I am confident that if any of our During the year, we made significant • Executing Flawlessly; and stakeholders could witness our people up close progress in rolling out our robust compliance • Digitising the Bank across all levels; in action, you would be immensely proud and framework and a range of policies addressing At the end of the day, our business is built join me in expressing deep gratitude to them. I various compliance risks such as Anti-Money around a relentless focus on customers. We am proud to be their leader. Laundering, Know Your Customer (KYC), provide products and services to meet our Bribery and Corruption, as well as Consumer customers’ needs through multiple channels Let’s continue working together towards our Protection. We also maintained a strong bolstered by high quality, caring relationships shared vision. To transform lives by satisfying relationship with our regulators, both local and service. 2017 will refocus on the customer all our customers’ financial needs. and international and remain committed to and ensuring all that we do internally and conducting our business in a fair, transparent externally is centered on the customer. We Moving forward™. and compliant manner. You can read more

Stanbic Bank Uganda Limited Annual Report 2016 22 Carry on with your day Online Banking has your back.

In our promise to simplify banking, we bring you Online Banking, a platform that fits seamlessly into your day-to-day lifestyle, allowing you to do your banking at your convenience, anytime of the day and most importantly, lets you go about your business. With Online Banking you are able to; • Transfer money between accounts • View your bank account balance and statements • Pay your , water and TV bills • Pay multiple beneficiaries Visit stanbicbank.co.ug/digitalbanking to log onto our online platform.

Stanbic Bank Uganda Limited Annual Report 2016 23 Stanbic Bank Uganda Limited Annual Report 2016 24 Awards

Global Finance Best Emerging Markets Bank

Euromoney Awards for Excellence Best Bank in Uganda

emeafinance African Banking Awards Best Investment Bank in Uganda

emeafinance African Banking Awards Best Broker in Uganda

The Banker Bank of the Year Uganda

Banker Africa Best Retail Bank in Uganda

GTR Leaders in Trade 2015 Best Trade Finance Bank in Uganda

Bank of Uganda Primary Dealer of the Year 2016

Financial Reporting Awards In Uganda, Silver Report of the year In Kenya, Best Report in Uganda

Stanbic Bank Uganda Limited Annual Report 2016 25 BUSINESS REVIEW

Operational and Financial Review

“Our 2016 financial performance was impressive, especially in light of the economic headwinds faced for the most part of the year. Profit after tax was up by 27% to UShs 191.2bn from UShs 150.8bn in 2015 and we also posted a strong RoE performance of 30.3%. This growth was supported by the maturity of our diversified business model, a client focused approach to execution and a well embedded risk management framework that enabled strong growth in our earnings and balance sheet.”

Chief Financial Officer Stanbic Bank Uganda Limited

Operating Environment slowdown the depreciation of the unit to close The industry however, is still awaiting guidelines at 3605 (December 2016) having opened the from the Central Bank on implementation. The economic environment was generally year at 3375. These changes will reinforce the resilience of muted for the most part of 2016 with marginal banks in the industry and also provide new recovery noted at the tail end of 2016. Notably, Inflation closed December 2016 at 5.7% revenue diversification opportunities for which the GDP forecasts were revised downwards from the opening January levels of 7.6%. The the Bank has prepared for. from 5.5% to 4.8% by the end of the year, off slowdown in inflation levels is attributed to the back of downside risks from a combination weak consumer demand, relatively stable The Bank continued to leverage off the benefits of domestic and exogenous factors. On the exchange rates and the gradual unwinding of of the investment undertaken in technology local front, the GDP was impacted by generally the monetary policy stance by BOU. In a bid over the past few years to build the digital low aggregate domestic demand and low to spur economic growth through recovery capability required to improve the customer private sector credit growth during the year. of private sector credit, the Monetary Policy experience for our client base. Notably, in The low private sector credit growth was in part Committee (“MPC”) meeting held in December addition to upgrading the Retail Internet due to the higher local currency interest rate 2016 delivered another 100bps (1%) reduction Banking solution, the Bank added 3 new key environment in the first half of the year but also solutions to its suite of customer-friendly and in the Central Bank Rate (“CBR”) to 12% from on account of the lower economic activity in digital-based services; these were the Smart 13% implying a 500bps (5%) drop in CBR from quater one pre and post the national elections. App, Enterprise Online and FlexiPay. Over 17% to 12% across the year. On the global scene, increasing economic and the coming years we do expect our digital political uncertainties across the globe continue Under the regulatory front the amendment based channels and solutions to play a more to pose a risk to economic growth prospects bill to the Finance Institutions Act (FIA) 2004, significant role in contributing to our revenue through reduced export-demand, lower which was approved by the president in streams. commodity prices and currency volatility. January 2016 was the key piece of legislation The Uganda shilling was relatively stable passed in the year. The key changes speak to; for most of 2016 with increased pressures • Higher proposed capital requirements with noted in quater four of 2016 closing the year introduction of conservation buffers (2.5%) 6.9% weaker. There was considerable impact and Domestic Systemic Important Bank following the Trump victory, as the US dollar buffers (1-3.5%) outperformed a number of the major and • Agency Banking emerging market currencies, including the Uganda shilling. However, improved NGO and • Islamic Banking and commodity export flows in December helped • Bancassurance

Stanbic Bank Uganda Limited Annual Report 2016 26 BUSINESS REVIEW Operational and Financial Review continued

Financial Review Non-interest Income Our financial performance 2016 was impressive, Non-interest revenue grew by 21% closing at especially in light of the benign economic UShs 267.1 bn compared to UShs 221.1bn in environment for the most part of the year. 2015. Good growth was noted under both the net fees and commissions and also the trading Profit after tax was up by 27% to 191.2bn UShs revenue. Additional comments as below. from 150.8bn UShs in 2015. This growth was supported by the maturity of our diversified business model, a client focused approach Net Fees and Commission Net fees and commission income grew by 8% to execution and a well embedded risk to close at UShs 114.6 bn from UShs 105.7 bn “Our 2016 financial management framework that enabled strong recorded in 2015. Higher performance from fees growth in our earnings and balance sheet. Customer Deposits was largely driven from strong performance performance was impressive, Highlights underpinning our results for the year Customer deposits grew phenomenally by UShs under trade finance supported by strong growth include: 620bn representing a 25% growth. This growth under trade contingent instruments off the back especially in light of the was both new clients and increased flows from • Strong growth on customer deposits. of the construction activity embedded in the economic headwinds faced for existing clients in both segments of the business government infrastructure development plan. • Re-positioning of the trading portfolios in (CIB and PBB). A clear strategy of growing the most part of the year. Profit light of the interest rate environment. the liability base, as well as deepening existing customer relations, was the driving force behind Trading Revenue after tax was up by 27% to UShs • Continual emphasis on strengthening credit these excellent results. Trading revenue grew by 33% year-on-year 191.2bn from UShs 150.8bn in 2015 management resulting in strong asset closing at UShs 151.8bn from the UShs 114.5bn quality. Brief reviews of other key factors impacting the recorded in 2015. The strong performance was supported by the re-positioned trading and we also posted a strong RoE • Strong trade finance performance. performance of the Bank are reflected below: portfolio books that were traded off at strong performance of 30.3%. This growth was • Broadening of revenue base with new profit off the back of the sharp decline in interest income streams. Margins rates. Additionally new revenue streams supported by the maturity of our This represents the profit margin between under derivative trading also supported strong interest rate earned on earning assets and performance. diversified business model, a client focused Financial Performance Review interest rate paid on deposits and other sources approach to execution and a well embedded A brief review of the major assets and liabilities of funding. The key drivers of this ratio are the Credit Impairment charges CBR and the credit quality of assets on the book. of the Bank, how they affected the performance Credit impairment represents the losses risk management framework that enabled In a bid to stimulate economic growth, Bank of of the Bank and the drivers behind the variances incurred as a result of the inability of our Uganda dropped the Central Bank Rate by 500 year on year are reviewed as follows; customers and clients to repay their debt strong growth in our earnings and balance basis points from 17% at the beginning of year to obligations to the Bank. The credit loss ratio 12% by December 2016. This resulted in lower sheet.” expresses these impairment charges as a Cash and Balances with Banks yields on the assets but also led to a decrease in percentage of closing loans and advances These are made up mainly of the cash we hold in cost of funding/deposits. our network, statutory cash reserves with Bank andindicates how much, on average, of each Shilling lent by the Bank results in credit Chief Financial Officer of Uganda, balances with other commercial Credit Loss impairments. Stanbic Bank Uganda Limited Banks and repos held with the Bank of Uganda The credit loss ratio is the impairment charge for short periods awaiting suitable investment expressed as a percentage of the closing loans The impairment charge grew by 27% in 2016 opportunities. and advances book. It represents the loss the compared to 2015 with the credit loss ratio Bank incurs as a result of delinquencies from closing the year at 1.8% in 2016 compared to The growth in the cash and balances with other customers and also general credit provisioning 1.5% in 2015. This increase was driven from Banks was mainly supported by the growth in for un-identified credit losses. some local corporates under the manufacturing customer deposits year on year. Compared to and services sectors. customer deposits that were up by 25%, cash The Bank continued maintain good credit quality was only up by 20% off the back of deliberate discipline supported by a strong underwriting Operating Expenses process and the efficient management of the cash optimization activities run during the year Operating expenses represent the costs that recoveries process. This resulted in the Bank to maintain more cash efficient levels in the the Bank incurs to support current and future credit loss ratio closing at 1.8% despite network. revenues. Inflation and foreign exchange rates escalating concerns on non-performing loans in are key external indicators that contribute to the the industry. increase in such expenses. Many internal factors Government Securities also affect the growth in operating expenses, Below is an analysis of the major revenue lines Government securities holdings increased year such as our staff and investments in branch and generated by The Bank and the costs incurred in on year, both on the Investment and Trading IT infrastructure. books by 30%. The high-interest environment the process: for the most part of 2016 resulted in a more Total operating costs grew by 17.4% closing cautious risk appetite stance towards customer the year at UShs 352.8bn compared to UShs lending especially in the personal and SME 300.5bn in 2015. segments with the excess liquidity invested Staff costs grew from UShs 120.1bn in 2015 to under the securities portfolios. UShs 136.8bn. The continued focus on building staff capability remains a key in driving the Loans and Advances to Banks strategy to enable the execution of a more cost-efficient success planning process across Customers all defined critical roles. Loans and advances reported a marginal growth of 3% (59 bn UShs) in 2016. The slow growth The other operating costs, however, closed was largely on account of the tightened risk 18% above prior year largely due to continued investment under digital financial inclusion appetite maintained in the first half of the year Net Interest Income off the back of the high interest rate environment products and also key exceptional costs under The net interest income for the year increased legal cases, operational loss provisions and cash and slow economic activity during the period. by 21% to 376.4 bn UShs from 311.5bn UShs processing costs. However, with the interest rates coming off and recorded in 2015. The good interest income sentiment on the economy improving later in performance was largely supported by We continue to drive a clear cost-management the year, we did note an upward trend from late investment of excess liquidity into higher yielding agenda to ensure right investment of spend in Q3 with good gains under both the PBB and CIB Investment securities, placements and customer the right areas that will position the Bank for business segments.space. lending. continued growth.

Stanbic Bank Uganda Limited Annual Report 2016 27 Delivering our KPIs page 28 1. Profitability a) ROE

a) Return on Equity (RoE)

2016 30.3%

2015 29.2

2014 30.3 Delivering our KPIs page 28 2013 25.2 1. Profitability 2012 37.6 a) ROE 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% a) Return on Equity (RoE) b) ROA 2016 30.3%

c) Return on Assets (RoA) 2015 29.2 BUSINESS REVIEW 2016 4.6% 2014 30.3

2015 4.2 2013 25.2 2014 4.0 2012 37.6

2013 3.1 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

2012 4.5 b) ROA 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% c) Return on Assets (RoA) c) EPS Key perfomance indicators (KPIs) 2016 4.6%

b) Earnings Per Share (EPS) 2015 4.2

2016 3.73 2014 4.0

2015 2.95 2013 3.1 2014 2012 4.5 Delivering our KPIs page 28 2.64 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 20131 . Pr1.ofit abProfitabilityility 1.99 a) ROE c) EPS 2012 2.55 0.00 0a).50 Return1.00 on Equity1.50 (R2.00oE) 2.50 3.00 3.50 4.00 b) Earnings Per Share (EPS)

2016 30.3% 2016 3.73 Cost to Income Ratio (CTI) 2015 29.2 2015 2.95 2016 2014 52.1% 30.3 2014 2.64 2015 2013 2553.6.2 2013 1.99 2014 53.2 2012 37.6 2012 2.55 2013 0.0% 5.0% 10.0% 15.0% 20.0% 25.57.40% 30.0% 35.0% 40.0% 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 2012 b) ROA 39.8 Objective: To deliver consistent returns (RoE) with a target minimum 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% threshold set at 25%. Objective:Cost to To In delivercome consistentRatio (CTI) earnings per share growth with a c) Return on Assets (RoA) minimum threshold set at GDP growth plus inflation (10.2% in

2016 4.6% 2016).2016 52.1% DeliverinResults:g our KPCrIsedit p Strongage L28os sRoE Ratio at 30.3% (CLR) well above target levels and with a higher 2015 1. Profitabcapital2i015lity base. The strong RoE performance was supported4.2 by effective 53.6 deployment2016 of capital1.8% to enable investment in well yielding assets, enable Result: EPS was up by 27% against prior year aligned to the a) R2O0E1 4 4.0 growth2014 in profits. The strong earnings were supported53.2 by strong re-positioning2015 1.5 of the trading portfolios, support growth under trade finance 2013 2013 3.1 operating leverage with revenue growth outstripping57.4 cost growth facilities2a)01 4Return (primarily on Equity guarantees2.3 (RoE) issued off the back of the government and2012 also strong credit quality of the customer loan portfolio. infrastructure2012 spend) and other revenue generating investment4.5 categories. 39.8 2013 3.1 2016 30.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 2012 7.7 2015 29.2 c)0.E00%PS 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2014 30.3 Credit Loss Ratio (CLR) 4. CAPITAL Adequacy 2013 2. Capitalb) Earnin Adequacygs Per Share2 5(EPS).2 a) Tier 1 2016 1.8% 2012 2016 37.6 3.73 a) TIER I / Core Capital Adequacy 2015 1.5 0.0% 25015.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2.95 2014 2.3 b) RO20A16 2014 17.7% 2.64 2013 3.1 2015 16.4% c) Return2013 on Assets (RoA) 1.99 2012 7.7 2014 2012 2.5517.5% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2016 4.6% 2013 0.00 0.50 1.00 1.5016.7% 2.00 2.50 3.00 3.50 4.00 4. CAPITAL Adequacy 2015 4.2 2012 15.7% a) Tier 1 2014 4.0 14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% Cost to Income Ratio (CTI) a) TIER I / Core Capital Adequacy 2013 3.1 b) Total(Tier I and II) 2012 2016 2016 17.7% Objective: 52.1%4.5 0.0% 2015 1.0% 2.0% 3.0% 4.0%53.6 5.0% 2015 16.4% To maintain adequate levels of capital required to cover for regulatory capital adequacy a)20 Return14 on Equity (RoE) 53.2 c) EPrequirements,S business growth and investment prospects and for assessed stress events.2014 17.5% 2013 57.4 2013 2016 b) Earnings Per Share (EPS) 30.3% 16.7% Results:2015 2012 Tier I Capital closed at 17.7%39.8 compared to29.2 8% regulatory requirement (expected2012 to 15.7% move202104 16 to0.00% 10%). 1 Strong0.00% capital20.00% position30.00% was40. enabled00% 50. 30.3by00% strong 3.7360.00% profitability 70.00% of the Bank. 14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5%

2015 2013 25.22.95 b) Total(Tier I and II) 201220 14 Credit Loss Ratio (CLR)2.64 37.6 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2013 1.99 2016 1.8% a) Return on Equity (RoE) 2012 2.55 b) Total2 Capital015 Adequacy1.5 Ratio (CAR) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 2016 30.3% 203.16 Efficiency2014 2.3 21.1% 2015 29.2 2015 2013 18.1% 3.1 2014 30.3 Cost to2012 In come Ratio (CTI) 2014 19.3% 7.7 2013 25.2 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 202130 16 20.0% 52.1% 2012 37.6 4. CAPITAL Adequacy 20122015 20.3%53.6 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% a) Tier 1 1260.0%14 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 53.2 b) Total Capital Adequacy Ratio (CAR) 201b)3 Earningsa) Per TIER Sha I /re Core (EPS) Capital Adequacy57.4 2016 21.1% 2012 2016 39.8 17.7% 2016 3.73 2015 18.1% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 2015 2015 16.4% 2.95 2014 19.3% 2014 2014 2.64 17.5% Credit Loss Ratio (CLR) 2013 20.0% 20Objective:13 2 0To13 attain a target cost1.99 to income 16.7%ratio of 50% target by 2019. 2012 20.3% 2012 20162 012 1.8% 2.55 Result: Our cost to income ratio15.7% continued to improve year on year towards our target mark16.0% of 50%17.0% by 18.0% 19.0% 20.0% 21.0% 22.0% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 2019. Good2015 1operating4.5% 11.55.0% leverage 15.5% with 1 6enhanced.0% 16.5% revenues 17.0% being17.5% driven 18.0% largely 18.5% from existing cost b) Earnings Per Share (EPS) structuresb2)0 To14 was tal(T iear primaryI and II) driver.2.3 The new product and channel offerings the Bank has invested in over Credit Loss Ratio past few2 0years13 are expected to start3.1 to contribute more significantly to our revenue base,201 6and this 3.73 20coupled16 with1.8% continued firm discipline on managing our running costs, will ensure the target CtI is met. 2012 7.7 2015 2.95 2015 1.5 0.00% a) 1Return.00% on2.00% Equity 3.00% (Ro E) 4.00% 5.00% 6.00% 7.00% 8.00% 20149 .00% 2.64 2014 2.3 2013 1.99 2Stanbic013 4. C APBankITA20L 1UgandaA6d equacy Limited3.1 Annual Report 2016 28 30.3% 2012 2012 a) Tier 1 2015 29.27.7 2.55 0.00% 1.00%201 4 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%30.3 8.00% 9.00% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% a) TIER I / Core Capital Adequacy 2013 25.2 Credit Loss Ratio 20162 012 17.7% 37.6 Return on Assets 2015 0.0% 5.0% 10.0% 16.4%15.0% 20.0% 25.0% 30.0% 35.0% 40.0%2 016 1.8% 2015 1.5 2016 2014 b) Total Capital Adequacy Ratio (C17.5%AR) 4.6% 2014 2.3 2015 4.2 2013 16.7% 2013 3.1 2014 2016 4.0 21.1% 2012 15.7% 2012 7.7 2013 2015 18.1% 3.1 14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%

2012 2014 19.3% 4.5 b) Total(Tier I and II) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2013 20.0% 2012 20.3% Return on Assets

Credit Lo16s.0%s R atio 17.0% 18.0% 19.0% 20.0% 21.0% 22.0% 2016 4.6% a) Return on Equity (RoE) 2016 1.8% 2015 4.2 2016 b) Earnings Per Share (EPS) 30.3% 2015 1.5% 2014 4.0 2014 2015 2.3% 29.2 2016 3.73 2013 3.1 2013 2014 3.1% 30.3 2015 2.95 2012 7.7% 2012 4.5 2013 25.2 0.00% 1.00%20 14 2.00% 3.00% 4.00% 5.00% 6.00%2.64 7.00% 8.00% 9.00% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2012 37.6 2013 1.99 Return0. 0%on Ass5ets.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2012 2.55 Credit Loss Ratio 2016 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 4.6%3.00% 3.50% 4.00% b) Total Capital Adequacy Ratio (CAR) 2016 1.8% 2015 4.2% 2016 21.1% 2015 1.5% 2014 Credit Loss Ratio 4.0% 2014 2.3% 2015 18.1% 2013 2016 1.8% 3.1% 2013 3.1% 2014 19.3% 2012 7.7% 2012 2015 1.5 4.5% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 0.0% 2013 20141 .0% 22.3.0% 3.0%20.0% 4.0% 5.0%

2012 2013 3.1 20.3% Return on Assets 2012 16.0% 17.0% 18.0% 19.0% 20.0% 21.0% 22.0%7.7 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8 .00% 20196. 00% 4.6% b) Earnings Per Share (EPS) 2015 4.2% 2014 4.0% 2016 3.73 Return on Assets 2013 3.1% 2015 2.95 2012 4.5% 20142 016 2.64 4.6% 2015 4.2 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2013 1.99 2014 4.0 2012 2.55 0.00%201 3 0.50% 1.00% 1.50% 2.00% 2.50%3.1 3.00% 3.50% 4.00%

2012 4.5 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Credit Loss Ratio 2016 1.8% 2015 Credit1.5 L oss Ratio

20142 016 1.8%2.3 20132 015 1.5% 3.1 20122 014 2.3% 7.7 0.00%201 3 1.00% 2.00% 3.00%3.1% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2012 7.7% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% ReturnReturn on onAs sAetsssets 2016 4.6% 2016 4.6% 2015 4.2 2015 4.2% 2014 4.0 2014 4.0% 2013 3.1 2013 3.1% 2012 4.5 2012 4.5% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Credit Loss Ratio

2016 1.8% 2015 1.5% 2014 2.3% 2013 3.1% 2012 7.7% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% Return on Assets

2016 4.6% 2015 4.2% 2014 4.0% 2013 3.1% 2012 4.5% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Delivering our KPIs page 28 1. Profitability a) ROE

a) Return on Equity (RoE)

2016 30.3%

2015 29.2

2014 30.3

2013 25.2

2012 37.6 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

b) ROA

c) Return on Assets (RoA)

2016 4.6%

2015 4.2 2014 4.0

2013 3.1

2012 4.5 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

c) EPS

b) Earnings Per Share (EPS)

2016 3.73

2015 2.95

2014 2.64

2013 1.99

2012 2.55 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00

CosBUSINESSt to Income REVIEW Ratio (CTI)Key Perfomance Indicators (KPIs) continued

2016 52.1%

2015 53.6 D2e0li1v4e ring our KPIs page 28 53.2 1. Profitability 2013 57.4 a) ROE 2012 39.8 0.00% a)1 0Return.00% 2 on0.00% Equity 30.00% (Ro E)4 0.00% 50.00% 60.00% 70.00%

2016 30.3%

2015 Credit Loss Ratio (CLR) 29.2

2014 2016 1.8% 30.3

2013 2015 1.5 25.2 2012 2014 2.3 37.6

0.0%20 13 5.0% 10.0% 15.0% 3.120.0% 25.0% 30.0% 35.0% 40.0% b) RO2A012 7.7 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% c) Return on Assets (RoA) 4. CAPITAL Adequacy 2a0)1 T6i er 1 4.6%

Delivering our KP2015Is p age 28 4.2 1. Profitability a) TIER I / Core Capital Adequacy 2014 4.0 a) ROE 2016 17.7% 2013 3.1 2015 16.4% a) Return2012 on Equity (RoE) 4.5 0.0%20 14 1.0% 2.0% 3.0% 17.5%4.0% 5.0% 2016 30.3% c) EP2S013 16.7% 2015 Objective: To effectively deploy2 9the.2 Bank’s liquidity into the optimal balance of assets that generates 2012 15.7% 2014 consistent returns above the internal30.3 benchmark of 4% 14.5%b) E15arnin.0% g1s5 .5%Per Sha16.0%re (EPS)16.5% 17.0% 17.5% 18.0% 18.5% 2013 25.2 b) ToResults:ta2l0(T16ie r I and RoA II) closed 2016 at 4.6% compared to 4.2% in the3.73 prior year and was well above the benchmark 2012 37.6 set.2015 This strong RoA position was enabled by maintaining2.95 high contribution of earning assets to the total 0.0% 5.0%asset 1 0base.0% (keeping15.0% 2the0.0% contribution 25.0% 30. of0% non- 35 earning.0% 40. assets0% below 20% of total assets) while also 2014 2.64 b) ROA leveraginga) Return the Bank’s on Equity infrastructure (RoE) to drive non-asset based revenues such as fees, foreign exchange and trading2013 derivative revenues. 1.99 2016 30.3% c) Return2012 on Assets (RoA) 2.55 2015 29.2 2016 0.00 0.50 1.00 1.50 2.00 2.504.6% 3.00 3.50 4.00 2014 30.3 2015 4.2 2013 25.2 2014 2012 Cost to Income Ratio (CTI) 4.0 37.6 2013 0.0% 5.0% 10.0% 3.115.0% 20.0% 25.0% 30.0% 35.0% 40.0% 2016 52.1% 2012 4.5 2015b) Total Capital Adequacy Ratio (CAR)53.6 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 2014 53.2 2016 21.1% c) EPS 2013 2015 18.1% 57.4 2012 39.8 b) 2E0arnin14 gs Per Share (EPS) 19.3% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 2016 2013 20.0% 3.73

2015 2012 2.95 20.3% 16.0% 1C7.0%redit Lo18s.0%s R atio 1(CLR)9.0% 20.0% 21.0% 22.0% 2014 2.64 2016 1.8% 2013 b) Earnings Per Sha1.99 re (EPS) 2015 1.5 2012 Results: Total Capital closed at 21.1%2.55 compared to 12% 2016 3.73 0.00regulatory 0.50 2 0requirement.141 .00 1.50 Strong22.3.00 capital 2.50 position3.00 was3 enabled.50 4. 00by 2015 2.95 strong profitability2013 of the Bank and also3.1 an increase in subordinated2014 debt sourced from Standard Bank2.64 SA of $20million. 2012 7.7 Co2s0t1 3to Income Ratio (CTI) 1.99 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2012 2.55 2016 0.00%4. CAP0IT.50%AL A dequa1.00%cy 1.50% 252.1%.00% 2.50% 3.00% 3.50% 4.00%

2015 a) Tier 1 53.6 2014 Credit La)os TIERs Ratio I / Core Capital53.2 Adequacy 2013 2016 1.8% 57.4 2016 17.7% 2012 2015 1.5 39.8 2015 16.4% 0.00% 4.20 114Asset0 .00% 2 0quality.00% 2.330. 00% 40.00% 50.00% 60.00% 70.00% 2013 2014 3.1 17.5% 2012 2013 16.7% 7.7 0.00%C redit1.00% Lo ss R2.00%atio (CLR)3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2012 15.7% 2016 1.8% 14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5%

2015 1.5 Rbeturn) Total( Tonier I Aandss IIets) 2014 2.3 2016 4.6% 2013 3.1 2015 4.2 2012 a) Return on Equity (RoE) 7.7 2014 4.0 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 2013 2016 3.1 30.3% 4. CAPITAL Adequacy 2012 2015 29.24.5 a) Tier 1 Objective:0.0% 20 1 To4 maintain1.0% a strong2.0% quality customer3.0% lending portfolio,4.0%30.3 with credit5.0% loss ratio below 2.5% a) TIER2013 I / Core Capital Adequacy 25.2 Credit2012 L oss Ratio 37.6 Result:2016 The CLR of 1.8% was a deterioration from the17.7% 1.5% recorded in the prior year but0.0% was still5.0% maintained 10.0% below15.0% the target20.0% risk2 5appetite.0% 3 0.level0% of 2.5%.35.0% 40.0% 22001516 1.8% 16.4% The2015 higher impairment1.5%b) Total Capital was driven Adequacy largely by Ratio some (C localAR) corporates under the manufacturing220114 and2.3% services sectors. 17.5% 2201133 2016 3.1% 16.7% 21.1% 2012 7.7% 2012 2015 15.7% 18.1% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 14.5% 201514.0% 15.5% 16.0% 16.5% 19.3%17.0% 17.5% 18.0% 18.5% Stanbic Bank Uganda Limited Annual Report 2016 29 Return on Assets b) Total(Tier I a2nd01 3II ) 20.0% 2016 2012 20.3% 4.6% 2015 16.0% 17.0% 18.0% 19.0% 20.0% 4.2%21 .0% 22.0%

2014 a) Return on Equity (RoE) 4.0% b) Earnings Per Share (EPS) 22001136 3.1% 30.3% 22012015 2016 29.2 4.5% 3.73 0.0% 2015 1.0% 2.0% 3.0% 42.95.0% 5.0% 2014 30.3 2014 2.64 2013 25.2 2013 1.99 2012 37.6 0.0% 20125. 0% 10.0% 15.0% 20.0% 25.0% 2.5530.0% 35.0% 40.0% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% b) Total Capital Adequacy Ratio (CAR)

2016 Credit Loss Ratio 21.1%

2015 2016 18.1%1.8% 2015 1.5 2014 19.3% 2014 2.3 2013 2013 3.1 20.0% 2012 2012 20.3% 7.7 16.0% 0.00%17.0% 1.00%1 8.0%2 .00% 19.0%3.00% 240..00%0% 5.00%21.0% 6.00%22.0% 7.00% 8.00% 9.00%

b) Earnings Per Share (EPS)

2016 Return on Assets 3.73

2015 2016 2.95 4.6% 2014 2015 2.64 4.2 2013 2014 1.99 4.0

2012 2013 2.55 3.1 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 2012 4.5 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Credit Loss Ratio

2016 Cr1.8%edit Loss Ratio 2015 1.5 2016 1.8% 2014 2.3 2015 1.5% 2013 2014 3.12.3% 2012 2013 3.1% 7.7 0.00% 20121.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%7.7% 9.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%

Return Roneturn Ass etson Assets 2016 4.6% 2016 4.6% 2015 4.2% 2015 4.2 2014 2014 4.0 4.0% 2013 3.1% 2013 3.1 2012 2012 4.5 4.5% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Credit Loss Ratio

2016 1.8% 2015 1.5% 2014 2.3% 2013 3.1% 2012 7.7% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% Return on Assets

2016 4.6% 2015 4.2% 2014 4.0% 2013 3.1% 2012 4.5% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

BUSINESS REVIEW

Five-year perfomance

2016 2015 2014 2013 2012 Income statement (UShs’m) Profit before income tax 253,949 203,298 181,288 134,811 177,701 Profit after tax 191,152 150,759 135,079 101,852 130,734 Financial position (UShs’m) Shareholders’ equity 714,942 544,758 486,970 405,308 401,039 Total assets 4,588,610 3,729,141 3,507,762 3,241,598 3,098,593 Loans and advances to customers 1,976,748 1,917,244 1,618,380 1,415,041 1,460,278 Property and equipment 63,318 49,209 47,705 39,790 40,946 Customer deposits 3,058,505 2,438,421 2,132,356 1,787,578 2,099,180 Returns and ratios Return on average equity 30.3% 29.2% 30.3% 25.2% 37.6% Return on average assets 4.6% 4.2% 4.0% 3.1% 4.5% Loan to deposit ratio 64.6% 78.6% 75.9% 79.2% 69.6% Cost to income 52.1% 53.6% 53.2% 57.4% 39.8% Capital adequacy Tier 1 capital ratio 17.7 % 16.4% 17.5% 16.7% 15.7% Tier 1 + Tier 2 capital ratio 21.1% 18.1% 19.3% 20.7% 20.3% Risk weighted assets (UShs’m) 3,069,288 2,848,545 2,199,037 1,960,768 1,914,951 Share statistics (UShs) Closing number of shares in issue (in millions) 51,189 51,189 51,189 51,189 51,189 Earnings per share - basic and diluted 3.73 2.95 2.64 1.99 3.83 Dividends per share - proposed and/or paid 1.17 0.78 1.66 1.56 1.37 Other information Number of employees 1,802 1,899 1,879 1,903 1,859

Stanbic Bank Uganda Limited Annual Report 2016 30 BUSINESS REVIEW

Strategic Road Map Our areas of focus in 2017

Placing the customer at the center of everything we do

We are continuously improving our service culture • Single view of the customer • Deployment of self-service digital platforms • Investment in technology to improve customer turn around times • Upgrade of our internet banking and Smart App platforms

Our goal is to provide our clients with what they need, when they need it at the most convenient and competitive pricing in the market place.

Executing flawlessly

We are improving the customer banking experience through providing faster, simpler and more accurate solutions.

• Agency banking and Bancassurance • Continued investment in the mobile money functionality with our telecom partners • Banking the value chain; CIB/PBB collabouration

Our aim is to remain the leading financial services provider in Uganda delivering exceptional client experiences and superior value.

Digitisation

We will continue to invest and leverage technology to improve our customer experience at a lower cost to serve.

Stanbic Bank Uganda Limited Annual Report 2016 31 BUSINESS REVIEW Strategic road map continued

Strategic road map

2014-2015 (0-18 months) Getting the foundations right

Generate target returns 2015-2017 Invest in people (18 months - 3 years) Invest in customer service Reduce cost to serve

Sustaining momentum Sustain business growth momentum to consistently 2017-2018 deliver RoE above Cost of (3 - 4 years) Equity

Continue to strengthen IT 2018 and beyond capability, improve service, (4 years and beyond) building employee capability , execute flawlessly and DIGITISE

How we implement our Our values come first We have consistent operating principles strategy fundamental to the way we do business.

Driving profitability Our strategic priorities are designed to ensure we have a sustainable business for the long term. Long-term business sustainability and growing our profit is an integral part of our strategy.

Stanbic Bank Uganda Limited Annual Report 2016 32 BUSINESS REVIEW Strategic road map continued

2014-2015 (0-18 months) Getting the foundations right

Generate target returns 2015-2017 Invest in people (18 months - 3 years) Invest in customer service Reduce cost to serve

Sustaining momentum Sustain business growth momentum to consistently 2017-2018 deliver RoE above Cost of (3 - 4 years) Equity

Continue to strengthen IT 2018 and beyond capability, improve service, (4 years and beyond) building employee capability , execute flawlessly and DIGITISE

Our business and operating model The conditions for our sucess and ability to create value and generate profits are a reflection in our business and operating model.

Governance reinforces our values Implementing global standards affects how we govern the Bank. The performance, recognition and behaviours of all our people starts with embedding our bank’s values in everything we do.

Stanbic Bank Uganda Limited Annual Report 2016 33 BUSINESS UNIT REVIEW

Business Unit Review

Corporate & Investment Banking (CIB)

UShs 119.6bn PROFIT AFTER TAX 2015: UShs 97bn +23%

“Our strategy of partnering with our clients for growth by offering a competitive transactional banking customer proposition has borne fruits in 2016 and resulted in significant market share gains especially with respect to customer deposits and trade finance.“

Edwin Mucai Head CIB

Stanbic Bank Uganda Limited Annual Report 2016 34 BUSINESS UNIT REVIEW CIB review continued

Overview customer proposition has borne fruits in trade finance deals and won key Investment 2016 and resulted in significant market share Banking mandates from our public and Uganda’s macro-economic environment was gains especially with respect to customer private sector clients. challenging throughout 2016, with economic deposits and trade finance. We are now the activity remaining subdued for much of the leading trade finance bank in Uganda with During the year, we also reset our cost base year following the national elections in market share of over 35.6% from less than to reflect the current realities of running the February. Whilst it had been expected that 25% in 2015 whilst we grew customer business, as well as the making the necessary challenges would arise in the first half of the deposits faster than overall market (18.7% investments to position the business for year, the delay in recovery post elections growth vs market growth of 9.5%). growth in the years ahead. Going forward we was somewhat of a concern even as the expect operating expenses to grow largely in interest rate environment experienced As a result of the success in winning a bigger line with inflation. improvement through lower borrowing rates share of our customer transactional faster than expected. accounts, we have gained better insight into our client’s day-to-day banking needs which Looking Ahead There was good news for importers as the allows us to be more precise in how we As mentioned earlier, we do expect some Uganda shilling remained relatively stable in support their business. Coupled with headwinds in 2017 occasioned by inflationary the first half of the year before coming under improvements in our core banking and pressures caused by rising food prices and a sustained demand-led depreciation electronic channels capabilities, we have weaker shilling, brought on in part by pressures in the last quarter of the year. It improved the overall customer experience anticipated global dollar strength. The was also noteworthy that inflation remained which is paramount in delivering a customer situation may be further exacerbated by fiscal benign after peaking in early 2016, enabling centric culture in the way we serve our the Central Bank to cut the policy rate by customers. pressures arising from lower than expected 500basis points during the year to a bid to tax collections which would impact credit spur economic activity. supply. We further note that there should be Financial Performance a lag in transmission into the real economy, Despite the somewhat favourable conditions The CIB Business has delivered excellent of the 500bps cut in CBR in 2016. Overall, in the first half of the year and into the third financial results in 2016, registering these factors will impact our customer’s quarter, local demand remained weak and year-on-year growth of 38% and 23% in priority patterns and cause an unpredictable revenue and profit after tax respectively. We muted which had a knock-on effect on a environment for our customers. number of corporates operating in Uganda. also recorded strong year-on-year balance sheet growth; customer assets, customer A lot of these factors are expected to We will continue the focus on cost discipline continue to pose downside risks to these deposits and off balance sheet products and work towards delivery of our digital corporates in 2017. grew by 6%, 32% and greater than 100% respectively. agenda. Above all, we will ensure we keep our customers at the center of what we do and Strategy Further, we closed a number of landmark support their businesses as appropriate in I am pleased to report that our strategy of deals in 2016 amongst them the first ever what we expect to be testing macro- partnering with our clients for growth by Government of Uganda Interest Rate Swap. economic conditions.We are still optimistic offering a competitive transactional banking We have also financed one of the largest that our business is well positioned to deliver solid results in 2017.

Stanbic Bank Uganda Limited Annual Report 2016 35 BUSINESS UNIT REVIEW

Business Unit Review

Personal & Business Banking (PBB)

UShs 46.3bn PROFIT AFTER TAX 2015: UShs 38.9bn +19%

“2016 was the first complete year of implementing our new business strategy of being Business Banking led, aligning our current structure to the economy as our purpose is to improve lives and fulfil aspirations across Uganda. The year’s results indicate that we are building consistent and sustainable business growth.”

Kevin Wingfield Head PBB

Stanbic Bank Uganda LimitedLimited Annual Report 2016 36 BUSINESS UNIT REVIEW PBB review continued

Our Business reliability of our systems and channels; At the same time, we focussed on delivery of alternative payments and introducing our customers and staff The Personal and Business Banking collections solutions; improving turnaround to many of our self-service banking business provides banking and other times in key customer processes and solutions to ensure that we can improve financial services to individuals namely, employee engagement, the outcome of adoption and customer convinience. salaried, non-salaried; enterprises, which was significant improvement in the public sector and non-government feedback we received from our customers. organisations across the country. 4. People We are on a journey to ensure we create We continued to invest in the development a customer centric culture commited and wellbeing of our people to have Review of 2016 to delivering solutions for customers. more engaged and committed teams. 2016 was the first complete year of Leadership development remains a key implementing our new business strategy 3. Digital transformation focus area, to build a culture of ownership of being business banking led, aligning In a bid to provide more convenience and accountability in the Organisation, our current structure to the economy as for our customers, we added thus empowering our people to respond our purpose is to improve lives and fulfil the following solutions; quickly to the ever changing customer aspirations across Uganda. The year’s and market demands. We are commited results indicate that we are building SMART APP - enables our personal to developing a progressive and consistent and sustainable business growth. account holders to access all their innovative culture that puts the customer accounts within Stanbic and/or at the centre of everything we do. 1. Financials Standard Bank group irrespective of Our improved customer engagement and their geographical jurisdictions. Outlook for 2017 and Beyond service model resulted in yet another double We will continue to focus on tapping into the digit growth in our customer deposits Enterprise Online - an internet growth opportunities the market presents. during the year (2016: 20%; 2015:18%) banking solution specifically designed while the growth of our customer loans to meet the unique banking needs of We also remain commited to engaging and advances was subdued due to low our enterprise banking customers. We with and listening to customers to ensure demand for credit, driven by high interest recognise that they have unique banking we deliver solutions that are relevant. rates during the year. (2016:1%; 2015:2%). needs, and therefore have developed However, as the central bank rate (CBR) a solution tailored to their needs. We will optimise our investments in reduced during the year, we as the Bank providing convenience and solutions stayed true to our commitment and FlexiPay - a school fees solution to enable that meet our customer needs.Service reduced our prime rate in line with the both Stanbic and non-Stanbic customers transformation with key focus on improving reduction in CBR. This saw an increase in pay schools fees at their convenience the experience of our customers at each of private sector appetite to borrow and the using digital channels like the mobile our service touch points. In 2017, emphasis demand for credit start to pick up which phone. We will continue to invest in making will be given to continued improvement we expect to see continue into this year. this a hassle free experience for both Stanbic and non-Stanbic customers. of our risk and control environment to mitigate the ever increasing complexity 2. Customer experience We upgraded our Retail Internet Banking and risks emerging in our industry as we Our focus for the year on the service solution with more functionality to improve strive to meet our customers’ needs. transformation journey, was stability and the service experience of our customers.

FlexiPay(2901) A simple and convenient way to pay school fees without having to queue

Stanbic Bank Uganda Limited Annual Report 2016 37 Risk review

Stanbic Bank Uganda Limited Annual Report 2016 38 40 Risk overview

40 Risk management framework

40 Governance committees

40 Governance documents

41 Risk management in banking activities

43 Capital adequacy

43 Stress testing framework

44 Looking ahead

44 Key developments and perfomance

Stanbic Bank Uganda Limited Annual Report 2016 39 RISK MANAGEMENT

Risk management and control

Risk exists when the outcome of taking a particular decision or course of action is uncertain and could potentially impact whether, or how well the Bank delivers on its objectives.

Risk Overview Governance Committees effective due diligence on material transactions. The BRMC receives regular reports on risk Stanbic Bank Uganda Limited has a defined Governance committees that operate within management, including our portfolio trends, risk appetite, approved by the Board, which the Bank’s risk framework are in place at establishes a direct link between its strategy, both a board and management level. These policies and standards, stress testing, liquidity financial perfomance, risk management and committees have mandates and delegated and capital adequacy, and is authorised to available financial resources. The Bank’s risk authorities that are reviewed regularly. investigate or seek any information relating to appetite framework operationalises the concept The key roles and responsibilities of these an activity within its terms of reference. of risk appetite and sets out the structures for committees as they relate to the risk the cascading, monitoring and management of management framework are summarised in the The Asset and Liability Committee (ALCO) is risk appetite througout the organisation sections that follow. responsible for the management of capital and the establishment of, and compliance with, Risk management framework Board Risk Management Committee (BRMC) policies relating to balance sheet management, has responsibility for oversight and review of including management of our liquidity, capital The Bank’s approach to managing risk is adequacy and structural foreign exchange and set out in the Bank’s risk and compliance prudential risks including but not limited to interest rate risk. framework which is approved by the Board Risk credit, market, capital, liquidity and operational. Management Committee. The framework has two components: It reviews the Bank’s overall risk appetite and The Board Credit Committee is responsible makes recommendations thereon to the for ensuring that effective credit governance • Risk Governance committees that provide Board. Its responsibilities also include reviewing is in place in order to provide for the adequate oversight the appropriateness and effectiveness of management, measurement, monitoring and control of credit risk including country risk. • Risk and Business Management the Bank’s risk management systems and documents including policy standards, controls, considering the implications of frameworks Procedures and policies. material regulatory change proposals, ensuring Governance documents Governance documents within the risk management framework comprise standards, frameworks and policies which set out the requirements for the identification, assessment, BUSINESS/ STRATEGIC RISK measurement, monitoring, managing and Return on Equity (ROE), Profits/Market Share, Net Interest Margin (NIM) Cost to reporting of risks and effective management of Income Ratio (CTI) capital. Governance standards and frameworks Profit After Tax (PAT) are approved by the relevant board committee.

The Bank’s policies are aligned to related policies commissioned at a group level but are CREDIT RISK customised to our local environment and are Credit Loss Ratio (CLR) applied within our governance structures. Non Perfoming Loans (NPL) Building a risk and compliance culture COMPLIANCE RISK OPERATIONAL RISK MARKET RISK Anti-Money Laundering Continued resilience requires that we entrench Fraud, Tax, Process Foreign Exchange, Fixed (AML), Transaction a culture in which our people are aware of risk in Technology Infrastructure Income & Equities Monitoring & Know your & Information Security executing our business activities, and in which Customer (KYC) compliance with laws and regulations, and acting ethically and fairly in everything we do, is second nature.

LIQUIDITY RISK REPUTATIONAL RISK Asset and Liability Public and Media Building a risk-aware and compliance-focused Management Perception culture mitigates conduct risk, which is the risk that the Bank itself poses to our clients, and to the effective functioning of financial markets INTERNAL CONTROL ENVIRONMENT through behaviour that is dishonest, unethical End to End Control environment Assessment or unfair.

Business Units/ Conduct covers a range of activities, from how Operational Management we design products and how we market these Responsible for identifying Business and managing risk Units/ Stanbic Bank UgandaFirst Limited Line of Annual Defence Report 2016 40Operational Chief Risk Management Office Group Internal Chief Risk Office Audit Responsible for enterprise-wide risk Responsible for Responsible for Responsible for identifying and enterprise-wide independent frameworks managing risk risk frameworks assurance Second Line of Defence First Line of Second Line of Third Line of Defence Defence Defence Group Internal Audit Responsible for independent assurance Third Line of Defence BUSINESS/ STRATEGIC RISK Return on Equity (ROE), Profits/Market RISK Share,MANAGEMENT Net InterestRisk Margin management (NIM) Cost and to control continued Income Ratio (CTI) Profit After Tax (PAT)

CREDIT RISK products, to how we communicate withCredit our Loss Ratiotools (CLR) used in these credit assessments remain frameworks and policies for each material risk clients and meet their expectations.Non Perfoming relevantLoans (NPL)and adequate. type to which the Bank is exposed. This ensures Thus, risks to ethical and fair conduct arise consistency in approach across the Bank’s from many aspects of our day-to-day activities. business lines and legal entities. Effectively managing conduct risk supports Personal and Business Banking (PBB): the Bank in delivering on its strategy, meeting The nature of the products and strength of The third line of defence is Internal Audit who regulatory requirements, and working to ensure historical data is a fundamental dependence COMPLIANCE RISK provides independent and objective assurance OPERATIONAL weRISK keep the promises we make to our clients. under credit risk management for the personal MARKET RISK and Business BankingAnti-Money customers. Laundering A diverse to the Board and senior management on the Fraud, Tax, Process The three lines of defenceForeign model Exchange, is crucial to Fixed range of performance(AML), Transactionanalysis techniques effectiveness of the first and second lines of Technology Infrastructure building this culture. ItIncome promotes & transparency,Equities are applied acrossMonitoring product & sets Know and your potential defence. & Information Security credits in recognition of the differing asset, accountability and consistency. Which are key Customer (KYC) to building trust and maintaining our legitimacy maturity and individual or business profiles. All three levels report to the Board, either among our stakeholders, and enables sufficient directly or through the Board Committees. coverage of the risk landscape. Rehabilitation and recovery forms a key component of the credit cycle. All credit Liquidity risk A description of our approach to risk portfolios are closely monitored on a regular management, covering a summary of the basis to evaluate the level of risk assumed Liquidity risk is the risk that we either do not LIQUIDITY RISK REPUTATIONALagainst RISK expected risk levels. This role is have sufficient financial resources available to Asset andoverall Liability methodology and the management of individual types of risks is as expoundedPublic below. and Mediacompetently executed by a fully-fledged meet our obligations as they fall due, or can only Management Perception business support access these financial resources at excessive Risk management in banking cost. It is our policy to maintain adequate Three lines of defence mode activities liquidity at all times and for all currencies, and Roles and responsibilities for risk management hence to be in a position to meet obligations as The Bank’s business activities give rise to are defined under a model of three lines of they fall due. We manage liquidity risk both on INTERNALvarious risk types,CONTROL which include: ENVIRONMENT End to End Control environment Assessment defence. Each line of defence describes a a short-term and structural basis. In the short specific set of responsibilities for risk Credit risk term, our focus is on ensuring that the cash flow management and control: demands can be met where required. In the The Bank has set in place comprehensive medium term, the focus is on ensuring that the Business Units/ resources, expertise and controls to ensure The first line of defence is made up of the balance sheet remains structurally sound and is Operationalefficient and effective Management management of aligned to our strategy. credit risk, specifically in the Banking Responsibleactivities described for identifying below. and managing risk Business The nature of banking and trading activities Units/ results in a continuous exposure to liquidity Operational FirstIn lending Line transactions; of Defence credit risk Chief Risk risk. The Bank’s liquidity risk management arises through non-performance by a Management Office Group Internal framework, however, is designed to measure counterChief party forRisk credit Office facilities utilised. Audit Such facilities are typically loans and and manage the liquidity position at various advances,Responsible including the foradvancement levels to ensure that all payment obligations of securitiesenterprise-wide and contracts risk to support Responsible for Responsible for Responsible for can be met under both normal and stressed customer obligations (such as letters of identifying and enterprise-wide independent conditions without incurring unbearable costs. frameworks risk frameworks assurance credit and performance guarantees). managing risk Second Line of Defence First Line of Second Line of Third Line of Approach to managing liquidity risk The diagram of the risk management Defence Defence Defence The board is the responsible governing body framework speaks to the Risk GroupManagement Internal sub Audit types that enable that approves our liquidity management management of business lines and operational theResponsible Bank and its staff for to continually drive and policies. The Asset and Liability Committee environments. It is the responsibility of first line (ALCO) that receives delegated authority independentmaintain assurance sustainable growth in a manner that ensures we do not make the wrong decisions management to identify and manage risks. from the Board, is responsible for managing Third Linethat ofmay Defence put the Bank at risk. We look to ensure This involves, at an operational level, the day-to- Liquidity within pre-defined liquidity limits and in that our risk reward profile remains within the day effective management of risk in accordance compliance with liquidity policies and practices, designed risk appetite we have applied that with agreed risk policies, appetite and controls. as well as regulatory requirements. drives the right return on investment and equity. Effective first line management includes: • The proactive self-identification of issues The principal uncertainties for liquidity risk Approach to managing credit risk and risks, including emerging risks are that customers withdraw their deposits Credit risk is managed by means of a • the design, implementation and ownership at a substantially faster rate than expected, governance structure with clearly defined of appropriate controls or that asset repayments are not received on mandates and delegated authorities and also • the associated operational control the expected maturity date. To mitigate these the use of relevant credit assessment tools in remediation uncertainties, we have structured our funding evaluation of new and outstanding facilities for • a strong control culture of effective and base to be diverse and largely customer- driven. the customers under the respective business transparent risk partnership. While customer deposits are of short tenor units discussed below. (mainly current accounts), the behaviour is that The second line of defence functions provides they tend to be very stable. Corporate & Investment Banking (CIB): independent oversight and assurance. They The use of risk rating models combined with an have resources at the centre and embedded In addition, we have contingency funding plans in-depth knowledge and understanding of each within the business lines. Central resources including a portfolio of liquid assets that can be customer is essential in assessing the credit risk provide bank wide oversight of risks, while realised if a liquidity stress occurs, as well as resources embedded within the business of each CIB counter party. A consistent credit ready access to wholesale funds under normal lines support management in ensuring that rating framework is in place to assist the Bank in market conditions. making credit decisions on new commitments their specific risks are effectively managed as and in managing the portfolio of existing close to the source as possible. Central and exposures. The probabilities of default under embedded resources jointly oversee risks at a Liquidity contingency plans are supplemented these models are an important component legal entity level. by an extensive early warning indicators of the formal credit assessment process of methodology supported by a clear and new and existing business. The validation The second line of defence functions develop decisive crisis response strategy. These plans and ongoing enhancement of these models and implement governance standards, are reviewed periodically for relevance and is a continuous focus area to ensure that the reliability.

Stanbic Bank Uganda Limited Annual Report 2016 41 RISK MANAGEMENT Risk management and control continued

The following elements are incorporated Non-trading interest rate risk In the course of the year, the Bank’s risk as part of a cohesive liquidity management Interest rate risk from non-trading book management committee approved a structural process. portfolios is managed by the Treasury desk change in the controls assurance space. This • Liquidity management at currency level under the supervision of the Asset and Liability saw the establishment of an Internal Control Unit – tasked with fulfilling a controls assurance role • Rolling forecast for demand and supply of Committees. The Treasury desk deals in the within the 1st line of defence. The establishment overnight and term liquidity market, in approved financial instruments, in order to manage the net interest rate risk, of this function has yielded positive results in • Undertaking regular liquidity scenario/ subject to approved risk limits. the embedding of a robust risk culture across stress testing. the Bank, and further positive developments are anticipated. The cumulative impact of the above elements Operational risk is monitored on a monthly basis by the Any instance where there is a potential or The Bank enhanced its IT disaster recovery Bank’s Asset and Liability Committee and actual impact to the Bank resulting from architecture to enable real time replication of the the process is underpinned by a system of inadequate or failed internal processes, people, production environment at the Bank’s recovery extensive internal and external controls. The systems, or from an external event. site. The 1st of this project was completed in latter includes the application of purpose- the 3rd quarter, enabling the Bank to perform a built techniques, documented processes and The impacts to the Bank can be financial, successful disaster recovery simulation. The last procedures, independent oversight by risk including losses or an unexpected financial phase of this project will be completed in Q1 management and regular independent reviews gain, as well as non-financial such as customer of 2017. and evaluations of the effectiveness of the detriment, reputational or regulatory system. consequences. Focus areas for 2017 We will focus on building awareness, thought Active liquidity and funding management The Bank recognises the significance of leadership and controls aligned to emerging is an integrated effort across a number operational risk, and the fact that it is inherent risks. This includes: of functional areas. Short-term cash flow in all business units and activities objections are used to plan for and meet the • Increased focus on emerging and current day-to-day requirements of the business, Year in brief: cybercrime and cybersecurity threats including adherence to prudential and ALCO The Bank continued to make significant • enhanced focus controls relating to on third requirements. Long-term funding needs are strides towards a matured and resilient control party risk and outsourcing derived from the projected balance sheet environment. structures and positions are regularly updated • continued deployment of fraud preventative to ensure the Bank’s adherence to all funding This maturity can be no better demonstrated measures through enhanced monitoring regulations. than with marked drop in operational losses for technology, awareness and enhanced the 5th year running. The year closed with 40% detection capabilities Market risk losses lower than the previous year (current • Increased focus on business resilience and year losses year on year excl. prior year losses crisis management readiness as the market We recognise market risk as the potential booked in 2016). continues to evolve for loss of earnings or economic value due to adverse changes in financial market rates • Information Security increased development The Bank continued to see benefit in the fraud or prices. Our exposure to market risk arises of controls monitoring relating to both and information risk awareness initiatives physical and logical access. This will also principally from customer-driven transactions. undertaken. look at the implementation of the newly developed data protection and data leakage The objective of our market risk policies and Fraud risk driven by impersonation fraud prevention policy. processes is to obtain the best balance of and card fraud where the card is not present risk and return while meeting customers’ (internet banking fraud) remains the key Compliance risk requirements. driver. Improvements in our digital control Compliance is an independent core risk environment, electronic KYC initiatives will management function, with unrestricted access Throughout the year, the Bank maintained its greatly reduce this type of crime limiting our to the Board Risk Management Committee, the trading and banking book positions within the fraud losses to a minimum are in progress. Chief Executive and the Chairman of the Board. approved risk appetite and tolerance limits. The Bank is subject to extensive supervisory and regulatory regimes. Executive management Focussed efforts in this regard have resulted The Bank also continued to advance its interest implements the Bank’s compliance risk in frequent incident identification reports framework, by ensuring that the Bank conducts rate risk management and make changes to its from across our operations, which have in global markets and market risk technology. its business within the set legal and regulatory turn enabled us to be nimble and timeously requirements and guidelines. The Bank operates responsive to unplanned risk events.

Risk Governance Strucure Board

Board Risk Board Credit Board Audit Management Committee Committee Committee

EXCO

Credit Risk Risk Management Assets & Liabilities Management Committee Committee Committee Governs: Governs: Governs: • Operational Risk • Cib and PBB Credit Risk • Market Risk Oversight • Financial Crime • Credit Risk Appetite • Liquidity and Business Risk • Control Risk Data Monitoring Oversight • Aggregation • Risk Governance • Financial Risk Appetite • Reporting Oversight Reporting Monitoring

Stanbic Bank Uganda Limited Annual Report 2016 42 RISK MANAGEMENT Risk management and control continued

a centralised compliance risk management It is not cost effective to attempt to eliminate structure run by a fully equipped specialised all business or strategic risk and it would not, in • Current regulatory capital requirements unit that grants oversight on all compliance any event, be possible to do so. Events and our assessment of future standards of immaterial significance are expected to related matters. The Compliance Unit provides • Demand for capital due to business growth occur and are accepted as inevitable; events of leadership and guidance on compliance with forecasts, loan impairment outlook and material significance are rare and the Anti-money laundering, terrorist financing, market shocks or stresses occupational health and safety and any other emerging legislative developments. The unit Bank seeks to reduce the risk from these in a • Available supply of capital and capital also, provides training and awareness on framework consistent with its expected risk raising options. The Bank formulates a regulatory developments. profile and appetite. capital plan with the help of internal models and other quantitative techniques. Money laundering control and Anti- Independent Assurance The Bank uses a capital model to assess Terrorism Financing The Bank’s internal audit function operates the capital demand for material risks, and The issue of Anti-Money Laundering and under a mandate from the Board Audit supports this with our internal capital adequacy Anti-Terrorism Regulations in December, Committee. The Internal Audit’s primary assessment. Other internal models help to 2015 emphasises the importance of having objective is to provide assurance to the audit estimate potential future losses arising from an effective compliance culture. Legislation committee on the quality of controls in the credit, market and other risks, and, using pertaining to money laundering and terrorist Bank’s operational activities. It assists the financing control imposes significant regulatory formulae, the amount of capital executive management teams in meeting their required to support them. record keeping and customer identification business objectives by examining the Bank’s requirements on financial institutions, as well as activities, assessing the risks involved and obligations to detect, prevent and report money In addition, the models enable the Bank to evaluating the adequacy and effectiveness of gain an enhanced understanding of its risk laundering and terrorist financing incidents processes, systems and controls to manage profile, for example, by identifying potential to Financial Intelligence Authority. The Bank these risks. A risk based audit approach has continues to strengthen its anti-money been adopted. Material or significant control concentrations and assessing the impact of laundering and terrorist financing measures as weaknesses and planned management portfolio management actions. Stress testing the regulatory environment becomes more remedial actions are reported to management and scenario analysis are an integral part and Board Audit Committee. These issues are of capital planning, and are used to ensure Occupational health and safety tracked to ensure that agreed remedial actions that the Bank’s internal capital adequacy The health and safety of employees, clients and have been implemented. Overdue issues are assessment considers the impact of extreme other stakeholders continues to be a priority. also reported to the Board Audit Committee on but plausible scenarios on its risk profile and The Bank seeks to effectively identify, reduce a quarterly basis. capital position. They provide an insight into or control accidents or injuries to employees, the potential impact of significant adverse contractors and clients. The Bank continues to Capital adequacy events and how these could be mitigated focus on ensuring compliance with current legal through appropriate management actions. The and regulatory framework and ensuring that capital modelling process is a key part of our Minimum requirements occupational health and safety procedures are management discipline. A strong governance closely linked to the operational needs of the The capital adequacy ratio reflects the capital and process framework is embedded in our business. strength of an entity compared to the minimum requirement set out by the regulator. capital planning and assessment methodology. The key capital management committee is the Reputational risk Stanbic Bank Uganda Limited is required to Asset and Liability Committee. Safeguarding the Bank’s reputation is of meet the Central Bank capital requirements, paramount importance to its continued set at a minimum capital adequacy ratio of Stress testing Framework operations and is the responsibility of every 8% (based on core capital) and 12% (based Stress testing is a management tool and is member of staff. Reputational risks can arise on total capital). These regulations are based used to assess the vulnerability of the Banks from social, ethical or environmental issues, or on guidelines developed by the Bank for key resources, namely; profitability, capital, as a consequence of operational risk events. International Settlements. liquidity, and reputation, to a range of adverse The Bank’s strong reputation is dependent on events. Stress testing provides a forward the way it conducts its business, but it can also Our approach to managing capital looking assessment of risk. It assists in the be affected by the way in which its clients, to Our approach to capital management is to proactive detection of vulnerabilities, so whom it provides financial services, conduct maintain a strong capital base to support that mitigating actions can be assessed and themselves. the development of our business, to meet implemented timely. regulatory capital requirements at all times. Effective management of all operating The stress testing process supports a number Strategic, business and capital plans are drawn activities is emphasised to establish a strong of business processes that include but are internal control framework to minimise the up annually covering a three-year horizon and not limited to strategic planning and financial risk of operational and financial failure and to are approved by the Board. The capital plan ensure that a full assessment of reputational ensures that adequate levels of capital and budgeting, liquidity planning, and risk appetite implications is made before strategic decisions an optimum mix of the different components of definition. are taken. The Bank sets clear standards and capital are maintained to support our strategy. policies on all major aspects of the business The Bank’s stress testing programmeme uses and these standards and policies are integral to There is an expectation that the Bank of one or a combination of the following sensitivity the Bank’s system of internal controls and are Uganda will increase the minimum capital or scenario analysis methods to address communicated through procedures, manuals requirements as a result of adoption of various stress testing requirements. and appropriate staff training. components of Basel 3 that speak to holding of additional Capital buffers. We anticipate a Macro-economic stress testing Business/ Strategic risk 4%-5% increase to the requirement which is attuned to ensuring banks protect depositors Macro-economic stress testing is conducted Strategic risk is the risk of adverse outcomes and equity stakeholders through adverse across major risk types, on an integrated resulting from a weak competitive position or economic down turns. We as Stanbic Uganda basis, for a range of economic scenarios. from a choice of strategy, markets, products, are prepared and already hold enough capital in The analysis is based on severe but plausible activities or structures. Major potential sources respect of these anticipated changes. macro-economic shocks that may affect a of strategic risk include revenue volatility due number of different risk factors simultaneously, to factors such as macro-economic conditions, The ALCO is responsible for the ongoing and the resulting impact, after consideration of inflexible cost structures, uncompetitive assessment of the demand for capital and the mitigating actions, on the income statement, products or pricing, and structural updating of the Bank’s capital plan. The capital balance sheet and regulatory and economic inefficiencies. plan takes the following into account: capital demand and supply of the Bank.

Stanbic Bank Uganda Limited Annual Report 2016 43 RISK MANAGEMENT Risk management and control continued

Management judgement and expert requirements were agreed. An integrated plan precipitated by a sharp depreciation in the last analysis was finalised and execution thereof was quarter of the year due to the strengthening of This form of analysis focuses on entity-specific initiated in Q2 the dollar after the US Federal Reserve vulnerabilities. The sensitivities are based on of 2016. tightened its monetary policy and other locally management’s understanding of the business generated factors. model and vulnerabilities in the business. The year closed with compliance to requirements rating of 70%. Confidence The view from our central bank is that foreign Book downgrade around this compliance level was confirmed by direct investment could recover as driven by This is a form of sensitivity analysis approach a Group Internal Audit review of the same improved sentiments on Uganda’s oil built on a conservative assumption that results. production process, coupled with improved most credit counterparties are likely to be absorption of donor funds could see the Looking ahead at the year 2017, the Bank is downgraded in a stress scenario and or exchange rate stabilise. However, exports undertaking a data quality and infrastructure environment. could also remain subdued as challenges programme to enhance the management within the regional markets remain, which information and systems that will create a Risk Data Aggregation and Risk Reporting would apply more downward pressure on the robust data management framework able to In January 2013, the Basel Committee on local currency. Banking Supervision (BCBS) published support the compliance to regulatory Giving you requirements, allow for improved decision principles for effective risk data aggregation Elsewhere in the macro-economic and risk reporting (BCBS 239) with the making efficiencies that will deliver more streamlined processes, risk management environment, interest rates are expected to overarching goal of improving the quality of rise in 2017, owing to an increased government information that banks use in decision making, capabilities. Achieving this we anticipate we 24/7 banking borrowing from commercial banks. particularly as it pertains to risk management. can better leverage our existing customer Globally systemically important banks(G-SIBs) information to deliver an improved customer Tightening private sector credit has previously were required to comply by 1 January 2016 and value proposition as well as increase our customer base by gaining market share presented serious challenges to the Bank’s risk access. domestic systemically important banks management framework. A key challenge in (D-SIBs) by 1 January 2017. through eco systems. the year ahead will be managing the business Under oversight of our group risk management Looking ahead in a turning credit cycle given the tightening of So you can grow office has made good progress in the effort to The Bank’s risk management framework has monetary policy in key global markets. comply with this regulatory requirement. The proven effective in navigating an increasingly your business. foundation of the programmeme was complex risk environment. In line with our focus on improving the Bank’s successfully implemented during the course of economic profit and ROE, we will optimise 2016, wherein the governance framework, At the close of the year, the Uganda shilling had financial resource allocation to enhance policies, scope definition and minimum depreciated 6.9% on average. This was returns.

Type Key developments and performance Credit Risk • The Banking activities’ credit loss ratio for 2016 was 1.8%, slight decline from 1.5% last year . • Growth in loans and advances was subdued year-on-year, in the first half of the year due to high interest rate environment and hence increasing NPLs. As interest rates dropped in the second half, credit extension started. picking up.

Liquidity Risk • Maintained liquidity positions within approved risk appetite and tolerance limits. • Held appropriate liquidity buffers in line with regulatory, prudential and internal stress-testing requirements. Achieved liquid assets ratio of 68%, comfortably above the 20% minimum regulatory requirement. • Enhanced automation and reporting in liquidity risk management. Market Risk • Maintained trading and banking book positions within approved risk appetite and tolerance limits. • Enhanced automation of daily processes. Operational Risk • Continued to improve the integrated operational risk approach, with a focus on enhancing resourcing through. combining appropriate skills with a deep understanding of business and risk management. • Hosted crisis simulation exercises and undertook fraud and information risk awareness initiatives.

Compliance Risk • Enhanced our compliance culture and controls across the Bank, resulting into a regulatory satisfactory rating a significant improvement over the past few years. • Reviewed and documented our AML/CFT risk in line with global standards. Taxation Risk • Maintained continued compliance to all regulatory requirements. We believe in providing Mobile Banking services that enable you to access your money, safely and conveniently from the comfort of your Reputational Risk • As indicated from positive feedback in the customer experience surveys, 2016 was the year that focus on improving our customer service framework paid back. home or office, using your phone. Business/ • Enhanced and rigorous stress testing of our financial position against forward looking economic indicators has reinforced Dial *290# to subscribe to Mobile Banking. Also, use InstantMoney Strategic Risk our resilience against sudden shocks in the macroeconomic environment. to transfer money from your account to your Mobile Money account. • Weaker economic growth prospects, high lending rates and lower business confidence continued to put downward pressure on demand for credit. With Mobile Banking you are able to; • Our Capital adequacy levels remained above the regulatory requirements throughout the year closing at 21.1% and • Transfer money between accounts 17.7% on total and core capital respectively compared to regulator requirement of 12% and 8%. • View your bank account balance and statements • Cost to income ratio dropped for the second year in a row to 52.1% compared 53.6% in the prior year. • Pay your UMEME, water and TV bills • Pay multiple beneficiaries

Stanbic Bank Uganda Limited Annual Report 2016 44 Giving you 24/7 banking access. So you can grow your business.

We believe in providing Mobile Banking services that enable you to access your money, safely and conveniently from the comfort of your home or office, using your phone. Dial *290# to subscribe to Mobile Banking. Also, use InstantMoney to transfer money from your account to your Mobile Money account. With Mobile Banking you are able to; • Transfer money between accounts • View your bank account balance and statements • Pay your UMEME, water and TV bills • Pay multiple beneficiaries

Stanbic Bank Uganda Limited Annual Report 2016 45 Sustainability

Stanbic Bank Uganda Limited Annual Report 2016 46

48 Introduction

48 How we create value

49 About this report

50 Highlights

51 Capital inputs

52 Capital outputs

53 Contributing to Sustainable Economic Growth

55 Value added statements

56 Stakeholders

68 Supporting local business

72 Corporate Social Responsibility

81 Reporting practices

Stanbic Bank Uganda Limited Annual Report 2016 47 SUSTAINABILITY Introduction

“For the sustainability of our business, we recognise that the license to operate comes from the community in which the Bank operates. This is why we are determined to make corporate social investment a key cornerstone of our sustainability agenda.”

Japheth Katto Board Chairman, Stanbic Bank

How we create value The success of our clients and the trust and support of all our stakeholders, underpin our commercial sustainability. This interdependence requires that we conduct our business ethically and responsibly to create value in the long-term interest of our communities. We intermediate between providers of capital and employers of capital, providing the former with competitive returns on their investments, and the latter with access to the liquidity and capital they need to realise their objectives. These functions of our core business cannot be separated from our developing social and environmental context. We believe that a community-minded perspective is integral to our legitimacy.

Stanbic Bank Uganda Limited Annual Report 2016 48 SUSTAINABILITY Introduction

About this report stability of the communities in which we capitals model, adopted by the International do business. The material issues identified Integrated Reporting Council in the in 2015 have been reaffirmed as being the International (IR) Framework, in managing The 2016 Stanbic Bank Uganda Limited most relevant to the Bank for the period and assessing our ability to create value over (the Bank) Sustainability Report presents a ending 2016. These issues are detailed in the time and our sustainability performance. The comprehensive analysis of our sustainability reporting practices section. following six capitals are fundamental to the performance for the year ended 31 long-term viability of our business: natural, December, 2016. Any material events Sustainability approach social, human, intellectual, manufactured after this date and up to board approval (or manmade) and financial. The capitals are are included. The intended readers of this Our ongoing sustainability is linked directly considered in commentary throughout this report are SBU’s broad base of stakeholders, to our being a valuable member of our report. specifically those with whom we have direct communities and of society in general, now and into the future. Our social compact relationships and regularly communicate, Stanbic Bank’s strategy including our shareholders, clients, sets out our commitment to positively employees, government and regulatory contributing to the societies in which we At Stanbic Bank Uganda Limited (the Bank) authorities, industry bodies and service operate through our business activities. This sustainability is an integral part of our providers. means that we have an implicit agreement business strategy. We proactively embed with our society to cooperate for social sustainability thinking and sustainable More broadly, our stakeholders include benefits. When considering our social and business practices at every level of our those with whom we engage from time-to- environmental impacts, we look beyond our business. We believe that our most important time on particular issues or projects; who direct impacts to the indirect impacts of the contribution to sustainable development is have an indirect impact on and who may be services we offer and the finance we provide. to operate an effective and profitable bank. impacted by our business activities. These This is considered material to our operation By providing access to credit, savings and stakeholders include the communities and our approach is discussed in the investment products, we enable individuals we operate in, business associations we environmental and social risk management to improve their quality of life and enhance participate in, civil society groups and section. Our supply chain is not considered their financial security. By providing finance environmental and community development an area of material environmental risk, and to large and small businesses we facilitate non-governmental organisations. this aspect is not extensively covered in this economic growth and job creation, and by report. Where we identify a downstream risk financing infrastructure and the development Scope and boundary within the supply chain we work with our of key sectors, we assist in resolving national suppliers to find mitigation measures. challenges such as energy and food security, This report covers the Bank’s operations access to primarily health care, tourism, in Uganda and the terms we use describe Frameworks applied mining and information communications the geographic regions in which we operate technology. across Uganda. The report focuses on the Various benchmarks and international frameworks inform our reporting. The most material aspects of our business in Ensuring our sustainability relation to our strategy. We consider an issues raised by our internal and external issue to be material if it is likely to impact stakeholders in our day-to-day interactions The very nature of our business positions our ability to achieve our strategy, and to are also taken into account. We report in us to help our customers and stakeholders remain commercially sustainable and socially reference to the Global Reporting Initiatives manage social, economic and environmental relevant. In particular, material issues are (GRI) guidelines supported by the G4 challenges and invest for the future, which those that have a strong bearing on our Financial Services Sector Supplement. in turn contributes to the viability and stakeholders’ assessments of the extent sustainable growth of local markets. The to which we fulfil their needs over the long Our ability to create value depends on success of our customers and stakeholders term. We also take into account the factors our use and impact on certain resources guarantees future business, which underpins that affect the economic growth and social and relationships (capitals). We apply the our sustainability.

Capital Customer Innovation, Distribution investment excellence research and We ensure We invest in our Our value development a robust We work and chain Information distribution understand Technology We develop new network which changing consumer Our banking (IT) systems, products and is a critical needs and we up License infrastructure and services, and enabler to our skill our staff to The acquisition people so that we improve business and ensure we deliver a of our banking provide relevant on existing ones, growth strategy distinct customer license from products and to ensure that we and ensures experience. Our Bank of Uganda services in meet the needs our products success determines Uganda. of our customers and services our ability to and clients. are accessible. attract and retain customers.

Stanbic Bank Uganda Limited Annual Report 2016 49 SUSTAINABILITY Introduction

Highlights

2016 2015 2014 Shareholders Net Profit after Tax UShs ‘millions 191,152 150,759 135,079 Return on Equity % 30.3% 29.2% 30.3% IT spend as a % of Operating costs % 14% 17% 14% Customers Number of customers 665,417 584,188 485,218 Number of branches 78 78 78 Number of ATMs 173 173 175 Employees Number of employees 1,802 1,899 1,879 Number of female employees 937 884 976 Training spend UShs ’millions 2,713 3,042 1,901 Number of employees trained (Classroom Training) 1,310 1,719 2,045 Number of Interns 81 60 52 Number of female managers 158 162 158 Suppliers Number of suppliers 901 754 1040 Total procurement spend UShs ’millions 218,700 162,600 144,280 % of procurement spend with local suppliers % 94% 93% 97% Communities Corporate social investment spend UShs ’millions 1,133 975 775 Environment Electricity purchased kilowatt hours 4,063,358 4,816,580 3,919,627 Fuel consumed litres 543,205 391,476 376,693 Water consumed kilolitres 18,800 18,192 17,948 Paper consumed tons 66 65 65

NUMBER OF EMPLOYEES 1802

Stanbic Bank Uganda Limited Annual Report 2016 50 SUSTAINABILITY Introduction

Our Capital inputs

Natural Capital Human Capital Social and Relationship Capital

Renewable and non-renewable Competencies and capabilities of Our relationships with stakeholders resources required to sustain our our people and their motivation to and communities which gives business. Natural capital underpins improve and develop products and us our social license to operate. all other forms of capital, as such services that meet the needs of our Stakeholder engagement: we must deploy our financial capital customers. in such a way that promotes the NUMBER OF CUSTOMERS preservation of natural capital. NUMBER EMPLOYEES (PERMANENT AND NON 665,417 ENERGY CONSUMPTION PERMANENT): NUMBER OF SUPPLIERS IN 2016 4,063,358 1,802 901 kilowatt hours TRAINING SPEND: NUMBER OF DIRECT CSI PAPER CONSUMPTION UShs 2,713 million BENEFICIARIES 66 tons 10,145

WATER CONSUMPTION 18,800 litres

Manufactured Intellectual Capital Financial Capital Capital

Our experience and brand strength Our investment in IT systems, Economic and financial resources which contributes to our reputation. distribution channels and head office available for us to use to support our This is closely related to financial, buildings, required to conduct our business activities and invest in our human and manufactured capital business activities. strategy. given the nature of our business. IT SPEND: CASH GENERATED THROUGH STRONG BRAND & BRAND OPERATIONS AND INVESTMENTS RANKING LOCAL PRESENCE AND UShs 46bn KNOWLEDGE IN UGANDA SINCE UShs 1,619bn NUMBER OF BRANCHES 1906 78 NUMBER OF SHARES: 154 years OF EXPERIENCE NUMBER OF CUSTOMER SERVICE 51,189mn WITHIN STANDARD BANK GROUP RETENTIONS TO SUPPORT POINTS FUTURE BUSINESS GROWTH: 4 UShs 577,788mn NUMBER OF POINT OF SALE TERMINALS 529

NUMBER OF ATMS 173

Stanbic Bank Uganda Limited Annual Report 2016 51 SUSTAINABILITY Introduction

Our Capital Outputs

Social and Natural Capital Human Capital Relationship Capital

Our digital strategy and the ongoing The salaries and wages we pay We facilitate relationships between digitisation of our operations enable our employees to support our the public and private sectors to drive seeks inpart to reduce the paper families and buy goods and services, investment and stimulates economic intensiveness of our business. contributing to economic activity. development in Uganda.

Our reliance on diesel to counter the Our development programmes We provide access to financial unstable national grid to power all help our employees adapt to rapidly services to enable socio-economic our installations. changing labour markets in Uganda development, personal wealth and beyond. creation and financial protection. STANBIC BANK UGANDA’S CARBON EMISSIONS SALARIES, WAGES AND OTHER We facilitate credit, investment BENEFITS capital, trade finance and 1,919 tonnes of CO2 infrastructure financing which UShs 137bn supports economic growth. Equivalent emissions from electricity and Diesel Usage. OVERALL EMPLOYEE TURNOVER We make sizeable contributions to 14% governments through taxes paid and facilitate tax payments for EMPLOYEES TRAINED government.

1,310 Our investment in education builds skills in the broader economy.

Manufactured and We contribute to employment levels Financial Capital both through the people we employ Intellectual Capital and through the businesses we provide financing to. We contribute to effective Maintaining a robust business means markets through secure and we are able to provide returns to our The goods and services we buy reliable transactional systems and providers of capital supports local businesses across all procedures. sectors of the economy. RETURN ON EQUITY We ensure that customers and clients GROSS LOANS AND ADVANCES have safe and convenient access to 30.3% their savings and funds. UShs 2.03tn COST - TO - INCOME RATIO Our IT systems enable us to provide 52.1% WEALTH CREATED IN 2016 innovative products and services UShs 409bn that are affordable and accessible to PROFIT AFTER TAX our customers, specifically those in CSI SPEND remote areas. UShs 191bn UShs 1.13bn Moving customers to digital channels CREDIT LOSS RATIO reduces the operating costs 1.8% TOTAL PROCUREMENT SPEND associated with physical banking UShs 218.7bn infrastructure. LOCAL PROCUREMENT SPEND REGISTERED MOBILE BANKING CUSTOMERS UShs 206bn 238,261

REGISTERED INTERNET BANKING CUSTOMERS 262,858

REGISTERED SMART APPS CUSTOMERS 254,214

Stanbic Bank Uganda Limited Annual Report 2016 52 SUSTAINABILITY

Contributing to Sustainable Economic Growth

Transforming lives is our second largest shareholder represents increasing their stake from 15.5% to 23%, Our existence is intertwined with the contributions from the general workforce in the making NSSF the largest shareholder of Uganda’s primary power utility company. communities we operate in and as such we largest part of the economy. As a result, our aim to provide value to the societies in which profitability stretches to impact the livelihoods we operate in a bid to transform lives. Our of majority of Ugandans who subscribe to the • The Bank continues to support Uganda’s proactive aim to transform lives manifests in fund. infrastructure development agenda. We provided Financial Guarantees of over UShs a number of ways that range from providing 900bn in 2016, 75% of which was to entities affordable financial services for members of our Lending to the primary sector constituted operating in the infrastructure sector. communities, providing directly to members in more than half (59%) of our loan book in the community through various CSI initiatives the years 2015 and 2016. Primary growth • The Bank provided part of the $45m and above all supporting our customers as well sectors include Building and Mortgage funding required by UMEME to support as suppliers. The existence of the Bank has Construction, Manufacturing, Oil and Gas, the company’s capital investment been beneficial to a number of other entities Mining and Quarrying, as well as Transport and programmeme, including expansion and and individuals that range from customers to Communication. This shows our unwavering commitment to supporting economic growth in reinforcement of the distribution network whom we provide financial services, employees and increasing customer grid connections. who directly work for the Bank to suppliers the country through supporting these sectors. and service providers who directly support • Stanbic Bank Uganda acted as global co- our value chain. We have provided a few case At Stanbic Bank we understand that majority of Ugandans do not have access to collateral ordinator on the successful closure of a studies (Pages 68-72) of major customers and $114 million syndicated credit facility to suppliers whose success can be linked with needed to access financial services and as result, we encourage unsecured lending and this MTN Uganda which will be used towards the the Bank. development of the telecommunications has enabled a number of entities and individuals infrastructure in Uganda. who do not hold collateral access financial Our General Contribution to the services needed to uplift their undertakings Economy thereby transforming their lives. • Stanbic Bank was awarded the primary Stanbic Bank plays a pivotal role in the dealer of the year award by the Bank of Uganda. This is the 5th year in a row that the economic development of Uganda. Being Various initiatives have been undertaken by the Bank has been recognised by the regulator one of the Domestic Systemically Important Bank to enable access to financial services for for its role in the primary dealer system that Banks, our footprint on the the disadvantaged people and this has been helps in deepening financial markets and is not only limited to provision of ordinary done by availing several channels through reducing the costs associated with issuing banking services but it goes as far as facilitating which financial services can be accessed. These government securities. economic growth in the country. Stanbic Bank include ATMs in some of the remote areas, lends to a wide range of growth sectors ranging several point of sale terminals as well as through from primary growth sectors such as real estate several digital channels such as Mobile Banking. Payments to Stakeholders: and oil and gas as well as others such as trade Our stakeholders are directly and indirectly and services. In 2016, Stanbic Bank facilitated a number of integrated in our business activities and key transactions in the country which included contribute greatly to our ability to serve our The size of our workforce is a clear sign of and are not limited to the following; customers. We actively transact with our our commitment to providing employment stakeholders that represent a cross-sectional opportunities to citizens, with the Bank directly • The Ministry of Finance Planning & view of our economy, from the vibrant SME employing over 1,800 employees directly as Economic Development Interest Rate sector greatly represented by our suppliers, well as several others indirectly. This enables a Swap on credit worth $646 million, part households supported by our employees key contribution to improving the standards of of a larger loan from China to finance the and in part our individual shareholders, living of several citizens as well as contributing construction of the 600 megawatt (MW) our governing bodies represented by the to the growth of a middle class within the Karuma hydropower plant. This solution will Government of Uganda and regulators as well country that is a key ingredient for sustainable enable the government to hedge against as the institutional shareholders representing economic growth. any future interest rate fluctuations as the the organisational sections of the economy. loan is repaid over a period of 15 years. We are pleased that our local supplier spend Given our wide range of shareholders, for the year 2016 was 94%. Our economic profitability of the Bank is key as it impacts a • Stanbic Bank was the transaction advisor contribution to the different stakeholder is wide range of the general citizenry. NSSF which for the sale of UMEME shares to NSSF, represented below:

Payments to Stakeholders 2016 2015 2014 UShs 000 UShs 000 UShs 000 Suppliers 218,700,000 162,600,000 144,280,000 Payments to Government (Direct & Indirect) 80,458,519 67,420,255 58,622,426 Payments to Regulators 2,389,587 270,814 718,706 Payments to Shareholders 60,000,000 40,000,000 84,973 ,192 Payments to Employees 136,769,846 120,118,291 119,523,617

OUR LOCAL SUPPLIER SPEND % FOR THE YEAR 2016 94 Stanbic Bank Uganda Limited Annual Report 2016 53 SUSTAINABILITY Contributing to Sustainable Economic Growth continued

Our Financial Intermediation to the Economy Financial intermediation is the central to our operations as a Financial Institution. Financial Intermediation through our credit facilities directly links into the engines that drive the economy and its development. Stanbic continued to contribute greatly to the institutions and households that make up the backbone of our economy in 2016. Amidst economic head winds and challenged credit performance within the financial services sector. The Bank increased its credit disbursements by 48%, up from UShs 727 bn in 2015 to UShs 1077 bn in 2016

Financial Intermediation by Segment category 2016 2015 2014 Corporate Banking 698,678,717,428 423,375,270,758 335,528,575,699 Business Banking 219,688,002,958 136,061,552,144 102,085,930,264 Retail Banking 158,907,493,129 167,262,612,772 273,817,364,444 Total 1,077,274,213,515 726 699 435 675 711 431 870 408

Financial Intermediation by Sector and Focus factions The Bank through a diverse range of products, in part tailored for particulars sectors and focus groups, serves a financial intermediation role targeted at boosting the impact of the sector and improving productivity in the focus group. Cognisant of economic and structural pitfalls in the different sectors and focus sections, the Bank has extended the below financing support into the varied sectors and focus sections.

Loan Balances per Sector 2016 2015 2014 Agriculture, Fishing and Forestry 251,000,236 234,908,943 205,721,910 Mining and Quarrying 1,296,243 2,972,498 3,497,646 Manufacturing 313,232,808 359,432,917 268,159,371 Trade 221,692,164 191,837,270 146,120,735 Transport and Communication 277,610,391 149,840,968 105,624,489 Electricity and Water 113,275,580 116,917,692 58,931,860 Building, Mortgage, Construction and Real Estate 361,014,598 413,454,807 369,073,938 Business Services 35,529,626 23,798,196 16,133,116 Community, Social and Other Services 25,093,510 20,876,170 34,810,825 Personal Loans and Household Loans 421,234,798 440,835,026 458,853,352 Others Activities 13,948,180 9,144,098 5,043,690 TOTAL 2,034,928,134 1,964,018,585 1,671,970,931

Financial Enablement for Our Employees We firmly believe in empowering the communities in which we serve. We are deeply rooted in our communities and our employee capability is built from the communities in which we operate. Financial Intermediation for our employees is at the heart of empowering our communities, but most importantly the employees that bring a diverse range of capability to contribute in delivering the Bank.

The Bank through its employee value proposition has enabled acquisition of 50 staff homes in 2016 and extended UShs 8bn financial enablement to 968 employees in 2016.

2016 2015 2014 No. of Staff Amount No. of Staff Amount No. of Staff Amount Staff Home Loans 50 4,966,079,538 37 4,061,625,220 33 3,393,184,318 Staff Personal Loans 968 8,080,524,532 743 7,282,338,556 1,669 18,089,498,491 Total 1,018 13,046,604,070 780 11,343,963,776 1,702 21,482,682,809

WE ARE DEEPLY ROOTED IN OUR COMMUNITIES AND FINANCIAL ENABLEMENT OF OUR EMPLOYEE CAPABILITY UShs 13bn IS BUILT FROM THE EXTENDED TO 1,018 EMPLOYEES IN 2016 COMMUNITIES IN WHICH WE OPERATE

Stanbic Bank Uganda Limited Annual Report 2016 54 SUSTAINABILITY Contributing to Sustainable Economic Growth continued

Value Added Statement Value added is calculated as the company’s revenue performance minus payments such as cost of materials, depreciation and amortisation. The resulting amount is distributed to the stakeholders who include employees, shareholders, community investments and government. The total wealth created by the Bank in 2016 is UShs 413bn as shown in the value added statement below.

Of the total wealth created in 2016 the following is the total flow of capital among some key stakeholders: • UShs 137bn or 33% was distributed to employees as remuneration and benefits (Up from UShs 120bn in 2015). • UShs 80bn or 19% was distributed to the Ugandan government in form of taxes: (Up from UShs 67bn in 2014). • UShs 40bn or 10% was paid in dividends to shareholders both ordinary and non-controlling interests

The value added statement below shows our economic impact on society in 2016.

% of Value added statement for year ended % of wealth % of wealth 2016 wealth 2015 2014 31st December 2016 created created created UShs ‘000 UShs ‘000 UShs ‘000 Value added Interest income 423,855,935 104% 350,330,210 103% 313,566,283 100% Commission fee income 114,632,676 28% 105,699,659 31% 108,575,426 35% Other revenues 152,458,492 37% 115,353,668 34% 105,461,012 34% Interest paid to depositors (47,500,476) (12%) (38,850,179) (11%) (33,371,594) (11%) Other operating expenses & impairments (233,932,487) (57%) (193,260,531) (57%) (180,230,326) (57%) Wealth created 409,514,140 100% 339,272,827 100% 314,000,801 100% Distribution of wealth Employees 136,769,846 33% 120,118,291, 35% 119,523,617 38% Government (Direct and Indirect) 80,458,519 20% 67,420,255, 20% 58,622,426 19% Ordinary shareholders - (Dividends) 48,000,000 12% 32,000,000 9% 67,978,554 22% Non-Controlling interests 12,000,000 3% 8,000,000 2% 16,994,638 5% Corporate Social Investment (CSI) spend 1,133,941 - ,975,000 - 775,376 - Retentions to support future business growth 131,151,834 32% 110,759,281 33% 50,106,190 16% Wealth Distributed 409,514,140 100% 339,272,827 100% 314,000,801 100%

CREDIT DISBURSEMENTS UShs 1,077bn 2015: UShs727bn

Stanbic Bank Uganda Limited Annual Report 2016 55 SUSTAINABILITY Building a responsible business continued

Our Stakeholders Shareholders Customers both local and and clients foreign

Employees Service providers and suppliers

Stakeholders

Government including local authorities at district level across Uganda

Indirect Stakeholders who may be impacted by business activities 1. Communities we operate in across Uganda Regulators, Industry bodies 2. Research organistions and think and business tanks associations 3. Civil society groups 4. Environmental and community development non-governmental organisations

Stanbic Bank Uganda Limited Annual Report 2016 56 SUSTAINABILITY Building a responsible business

How we engage with stakeholders Our relationships with all our stakeholders impact directly and indirectly on our business activities and reputation. We proactively engage with stakeholders to inform our business strategy and operations, shape our products and services, manage and respond to social expectations, minimise reputational risk and influence the environment in which we do business. The ways in which we engage with our stakeholders, and the frequency with which we do so, vary according to each stakeholder group as shown below.

Key Stakeholder How we engage Issues raised Our response Group Shareholders • Analyst briefings, results Cost Efficiency. Over the past three years we have invested presentations. heavily in Information Technology (IT) and • Annual general meeting. positioned our digital growth strategy in order to • Company website. Competitive performance, good governance, better serve our customers and improve business • Annual report. transparency and a good present and future efficiency. • Investor road shows. value for their investment.. Customers and • Satisfaction surveys. Service and fit for purpose products. Customer Relation Management (CRM) tool clients • Various customer. developed to address customer complaints and Efficient and effective complaints handling. channels including the queries. distribution network. • Marketing initiatives. In 2016, we unveiled a new offering that promises • Relationship and business our salaried customers a powerful bouquet of managers. banking solutions to keep up with the fast-paced world of modern and digital banking. More details can be found on page 64.

Government and BOU Emphasis on consumer protection: Bank of We fully support the Bank of Uganda position Regulators Uganda directive to introduce to all customers regarding customer protection. We therefore Formal meetings, policy a “key fact “document that outlines all the facts, fully implemented this directive and introduced discussions, conferences. terms and conditions of any product before the key fact document across all our points of Onsite visits and compliance customer assents to use of the product. This representation. All customers are required to read inspections. ensures that the customer understands the and sign their consent before they make use of our product they are using before they contract the products. bank to use it. Our product development strategy in the digital Financial inclusion: Bank of Uganda urged banks channel space will enable more people to access to avail financial services to people usually left financial services in a more cost efficient and client out of traditional banking services. friendly manner.

URA URA’s key expectation is to ensure effective Tax The Bank has firm processes in place for ensuring Compliance. timely tax and return submission by the Bank and Formal meetings, adhoc Agency collection. discussions, workshops and conferences. Onsite visits and audits. Strategic partnerships; act as a tax agent in The Bank further engages services of the tax ensuring tax compliance and collection. experts and consultants to further augment our tax compliance. CMA Build confidence and trust in the Uganda Capital Partner with CMA in enhancing financial literacy for Markets through providing a true and fair view of media stakeholders. Formal meetings, adhoc the bank operations and performance. discussions, analysts’ briefings. Sufficiently detailed annual reports to provide a transparent view of the bank operations and performance.

USE Building confidence and trust in the Uganda Sufficiently detailed annual reports to provid Capital Markets. a transparent view of the bank operations and Formal meetings, adhoc performance. discussions, analysts’ briefings.

Employees • Employee Engagement An inclusive, engaging and enabling work The Bank has invested in technology to enable surveys, Training environment. and simplify staff processes. Committed to programmes, conferences, developing employee capability in our ever evolving staff events, Connect environment, the Bank through learning and Sessions, Internal development interventions facilitated capability Communications, internal enhancement for 73% of the total number of meetings and discussions. the staff. The Bank is further strongly vested in employee wellness programmes as well as a robust performance and reward system.

Suppliers • Supplier Engagement Collabourative relationship and mutual The Bank holds regular supplier and vendor Forums, Supplier partnership on delivering commensurate value awareness forums that presenting an open and Awareness forums, Vendor and benefit. transparent platform for suppliers to interact with performance meetings, the Bank management and Procurement functions, Regular vendor meetings. refresh understanding of bank procurement policies, practices and commitment to building trusted supplier relations.

Stanbic Bank Uganda Limited Annual Report 2016 57 SUSTAINABILITY Building a responsible business

Procurement Practices

The Bank subscribes to principles of openness, integrity and fairness in its drive to implement international procurement best practices. The Bank endeavours to give as many suppliers as reasonably possible an opportunity to tender. The Bank is committed to excellent corporate governance and to a very high standard of ethics. In general, the Bank supports the purchase of goods and services on the local market.

The Bank applies fit for purpose methodologies and procedures in its procurement. Whereas the Bank applies standard procurement terms and conditions to all procurements, the Bank strongly encourages protection of the environment and considers suppliers’ commitment to environmental issues.

Our influence on the local economy goes beyond direct jobs and payment of wages and taxes. The Bank also proactively supports local suppliers in the economy. By supporting local business in the supply chain, we play a role in supporting attract additional investment to the local economy. The proportion of local spending is also an important factor in contributing to the local economy and maintaining community relations.

Our procurement policy gives priority to local suppliers, while at the same time ensuring alignment to the Bank’s standards for solution quality, sustainability and commercial viability. Commitment to this is reflected in the spend breakdown between local and foreign suppliers over the 2014 to 2016 period.

Procurement Spend 2016 2015 2014 Total Procurement Spend UShs ‘millions 218,700 162 600 144 280 Amount Spent on Local Suppliers UShs ‘millions 206,015 151 218 134 180 Amount Spent on Foreign Suppliers UShs ‘millions 12,684 11 382 10 100 Percantageage Spent on Local Suppliers 94% 93% 97%

300

250 Supplier Environmental Assessment 206 200 As provided for by the Procurement Policy, it is the Bank’s practice to initiate and nurture supply relationships with partners that respect basic human rights

Billions 151 150 and are committed to upholding the highest standard of ethics and integrity. 134 100 Our vendor selection and award principles (during prequalification and Request For Proposal (RFP) processes are structured to establish supplier compliance 50 to the human rights standards/expectations at the onset. Supplier commitment 10 11 13 to these standards is enforced through related contract clauses and ongoing - compliance monitoring throughout the life of the relationship. 2014 2015 2016

Local Foreign

Our Employees

Investing in our Employees (Highlights)

2016 2015 2014 Total Employees 1,802 1,899 1,879 Staff Costs (UShs millions) 136,769 120,118 119,533 Female Employees 931 884 976 Interns 52 60 81 Employee Turn Over 14% 13% 12% No. of Temporary Staff 114 157 24 Revenue Per Staff (UShs millions) 357.1 280.4 263 Cost Per Staf (UShs millions) 185.9 150.5 140 Males trained 632 866 1,008 Females trained 678 853 1,037 Total No. Of Staff Trained (Classroom) 1310 1719 2,045 Training Spend (UShs millions) 2,713 3,042 1,901

Stanbic Bank Uganda Limited Annual Report 2016 58 SUSTAINABILITY Building a responsible business

Total Employees Employee Age Breakdown

Total Employees Total Employees Employee Age BreakdEomplwno yee Age Breakdown

Below 20 0 Below 20 0 2000 1,903 20001,899 1,903 1,899 1,802 1,802 20-25 89 20-25 89 1500 1500 25-30 25-30 570 570

940 940 1000 1000 30-40 30-40 Total Employees Employee Age Breakdown 40-50 134 40-50 134 Total Employees Employee Age Breakdown 500 500 Below 20 0 2000 1,903 1,899 AbBeloovwe 5020 69 Above 50 69 2000 1,903 0 1,802 1,899 20-25 89 1,802 0 0 1500 20-25 0 89200 400 0 600 200 800 400 1000 600 800 1000 25-30 570 1500 FY2014 FY2015 FY2014FY2016 FY2015 FY2016 25-30 570 Total Employees 940 1000 30-40 Employee Age Breakdown 30-40 940 1000 Below 20 0 Staff Training Staff Training 2000 40-501,903 1341,899 40-50 Staff134 Productivity TrendsStaff Productivity Trends1,802 2,500 2,500 500 89 Above 50 69 20-25 500 2,045 2,045 Above 50 69 1500 400 400 25-30 570 2,000 2,000 0 1,719 1,719 0 200 400 600 800 1000 0 FY2014 FY2015 0 FY2016200 400 600 800 1000 940 300 1000 300 30-40 Staff1,500 TrainingFY2014 1,500FY2015 FY20161, 310 1,310 Staff Productivity Trends 40-50 134 1,008 1,037 1,008 1,037 200 200 1,000 1,866000 853 Staff Training866 853 500 678 678 Staff Productivity Trends Above 50 69 Staff Training 632 100632 100 2,500 Staff Productivity Trends 500 500 2,500 0 0 200 400 600 800 1000 2,045 0 0 400 2,045 2,000 FY2014 FY2015 FY2016 4001,7 19 2014 2015 201240 16 2015 2016 2,0000 0 1,719 300 2014 2015 2014 2016 2015 2016 1,500 300 1,310 Revenue Per Staff(UGX millionRevenues) Per Staff(UGX millions) 1,500 1,008 1,037 1,310 Staff T2r00aining 866 Staff Productivity Trends 1,Mal008es 1, t0rained37 Females t1,r000ainedMal e sT otaltrained no o fF semaltaff tersained trained 853 T2otal 00 no of staffCos trt2,500ained Per Staff( UGX millionsCos) t Per Staff(UGX millions) 1,000 866 853 632 678 100 2,045 632 678 400 500 100 2,000 500 0 1,719 Total Employees Total Employees 0 2014 2015 2016 300 0 1,500 1,310 2014 2015 2016 0 2014 2015 2016 1,008 1,037 200 2,000 1,9200134 2,0002015 1,81,9990 3 2016 1,899 Revenue Per Staff(UGX millions) 1,802 1,0001,80 2 866 853 Revenue Per Staff(UGX millions) 632 678 100 Males trained Females trained Total no of staff trained Cost Per Staff(UGX millions) 1,500 Males trained Femal1,500es t rained Total no of staff trained Cost P500er Staff( UGX millions) 0 2014 2015 2016 1,015 1,015 0 976 Total976 Employees 931 931 1,000 903 1,000 884 903 8848 71 2807114 2015 2016 Total Employees Revenue Per Staff(UGX millions) 2,000 1,903 1,899 500 500 1,8Mal0e2s trained Females trained Total no of staff trained Cost Per Staff(UGX millions) 2,000 1,903 1,899 Total Employees 1,802 1,500 0 0 1,500 FY2014 FYF2Y015201 4 FYF2Y0210156 FTotalY2016 Employees 976 1,015 903 931 1,000 1,015 884 871 976 931 1,000 903 884 871 2,000 1,903 1,899 Total Employees FemaleTotal EmplMaleoyee s Female Male 1,802 500 500 1,500

0 1,015 FY2014 FY2015 FY2091766 931 0 1,000 903 884 871 FY2014 FY2015 FY2016

Total Employees Female Male 500 Total Employees Female Male

0 FY2014 FY2015 FY2016

Total Employees Female Male

The confidence in our ability to continue to deliver great results and drive Uganda’s growth stems from our great people and teams. This is premised in the Bank’s commitment to continue to provide an inclusive, engaging and enabling work environment where people can find opportunity, make a difference and grow their careers. The employee experience at work survey results showed an overall employee promoter score of 89%. More specifically 90% of our staff would recommend Stanbic Bank Uganda as a great place to work and 95% are proud to be associated with Stanbic Bank Uganda. Additionally 83% of our staff are energised to go the extra mile which is a big shift from 71% in 2014. This has been the result of the Banks investment in in its people which has translated into high performance.

Stanbic Bank Uganda Limited Annual Report 2016 59 Blue Vibes hospitality at its best, cross functional teams committed to serve and deliver memorable experences.

Stanbic Bank Uganda Limited Annual Report 2016 60 A positive overall Employee Promoter Score of:

89%

I would recommend 90% Stanbic Bank Uganda as a good place to work

I am proud to be 95% associated with Stanbic Bank Uganda

Stanbic Bank Uganda 83% energises me to go the extra mile

Stanbic Bank Uganda Limited Annual Report 2016 61 SUSTAINABILITY Building a responsible business

Diversity channels that allow for employees to pull participate in sports activities like the Corporate Having an employee base that reflects the learning as and when they need it and for the league and the Banker’s games to enhance diversity of the societies in which we operate business and Managers to push learning as fitness. The Bank also encourages and supports enables us to better understand and serve our required strategically. The channels include staff participation in community support unique universe of diverse customers, which is classroom sessions, peer and Manager programmes by matching teams’ personal cash crucial to our continued success. It also gives coaching, digital learning solutions like virtual contributions to projects of their choice. The us access to a range of skills and talent, as well classrooms and webinars and self-paced Bank is also focused on Organisational Safety as diverse thinking which facilitates innovation learning like TED talks, Harvard Manage Mentor and Health and has received work certificates and sustainable solutions for the organisation and intuition providing both leadership and for all the banks branches from the Ministry of and for our customers. The Bank had a total technical skills. Labour. A total of 10 branches were refurbished headcount of 1802 staff in 2016, of which 52% in 2016 to ensure compliance with the OHS are female. Female employees also hold 44% In 2016 all staff accessed the e-learning on the requirements. Staff have been trained on First of the managerial roles in the Bank. The Bank Learning Management System Network next Aid, Ergonomics and Lifting Techniques in areas provides equal opportunities to all Ugandans to for learning solutions. We achieved 100% where the work involves lifting. and hire is based on merit, a total of 167 completion for all mandatory regulatory and employees were hired in 2016. risk training. We enabled coaching and peer Performance and reward learning through formal training courses for 6% Our performance management philosophy of our employees and 8% of our learning budget emphasises that Performance Management was spent on leadership development. We also is something teams do together and that it is introduced 77% of our staff attended classroom a business management process, whereby training and we achieved our goal of a minimum we entrust our competitive advantage to our of 2 learning interventions per individual. Our people. promotion rate within the organisation stands at 9% which is a total of 157 individuals who had a It should provide consistent and continuous promotion, down from 11% in 2015. clarity of vision and purpose through 44% conversations, calibration and understanding Employee wellness for our people. The role of our values in A focus on performance management at the performance management is critical and expense of employees’ health and wellness the process looks to uphold and stay true is not sustainable and creates risk for both to them. High performance contracting our employees and the group. We therefore through stretch goals and by evaluating their consider performance, engagement and contribution, we can reward our people for organisational health when shaping and superior performance and identify and address reviewing our people strategies. The number their development needs. In 2016 70% of our of employees who have said the stress staff met or exceeded their goals, which is in experienced at work reduces their effectiveness line with the organisations performance. Our 44% Women hold has dropped from 70% to 65%. The Bank reward philosophy supports high performance, has focused on providing support through a fairness, and a focus on total reward that managerial roles comprehensive wellness programmeme not is competitive. We aim to pay at the 50th only focused on health but financial wellness percentile of the market, with latitude to Technology Investment as well. The Bank provides 24-hour counselling differentiate for our talent and high performers. services through The International Counselling The Bank upgraded its HR Management system & Advisory Services (ICAS) Organisation for all SAP which provides capability for employees Occupational Health and Safety staff and their family and friends, recognising to self-serve with anywhere anytime any Occupational Health and Safety remains that staff are a representation of their device access, in line with the digital agenda. a key focus area for the Bank. In 2016 a environments. This is augmented by a series of This manager and employee self-service number of actions were taken to address OHS wellness activities which include education and capability has eased employees work life cycle requirements and ensure that employees have awareness at wellness/health weeks, financial by automating processes like performance a safe and secure workplace. These initiatives education classes and an e-care platform. management, Leave, overtime, salary and include OHS specific inspections which were benefits information. In addition, it allows for conducted at all bank premises and GAP The Bank also provides a cost share medical speed of service delivery to staff and improved analysis done. The OHS requirements are now scheme where it pays up to 80% of the medical overall service experience incorporated in the premises maintenance care cost with a best in-class insurance plans. OHS guidelines were designed and provider, with access to the best health care Learning and Development circulated to all staff. Safety committees were in Uganda and within the region and even instituted and OHS officers were trained and a Our blended learning approach emphasises management of acute cases in locations full OHS risk assessment was incorporated on providing varied learning opportunities and like India and South Africa. Bank employees the 2017 work plan.

COLLECTED OVER UShs 2.8 trillion WORTH OF TAXES ON BEHALF OF THE UGANDA REVENUE AUTHORITY

Stanbic Bank Uganda Limited Annual Report 2016 62 SUSTAINABILITY Building a responsible business

Regulators and Government Given an ever increasing mandate in a Southern Africa Anti-Money Laundering limited public resources environment, we Group (ESAAMLG) which is an organisation Sound financial management within the see an ever increasing role to bridge the gap that steers AML regulatory changes. public sector has never been more relevant across the public sector value chain. than it is today. The impact of new global The Companies General Regulations, No 7 of themes and especially the technology Our support to the public sector is also 2016 were passed to provide for the updated revolution has not only impacted the reinforced by our revenue contributions formats for the various company forms. private sector but public institutions, as to the national budget and 2016 saw us The Data Protection and Privacy Bill was well as creating a need to adjust to the new contribute 80.4 bn in form of tax (Direct and introduced before Parliament in 2016 and disruptive forces to better serve the masses. Indirect) raising 19% from 67.4bn in 2015 . is aimed at protecting the privacy of the Critical for Public Institutions today is the We further collected over UShs 2.8 trillion individual and of personal data by regulating ability to generate the necessary resources, worth of taxes on behalf of the Uganda the collection and processing of personal manage them adequately and allocate the Revenue Authority. information as well as providing for rights same efficiently as per the short-, medium-, of persons whose data is collected. In line long-term government plans . At Stanbic with the bill and International principles of Bank we understand the importance of Compliance Practices fair information practices, an internal data providing financial solutions to help our As banks become more important for the privacy policy is in place to ensure that all people meet the existing and emerging overall success of economies, the regulatory information we collect from our customers challenges which cut across strategic, landscape in the banking industry continues is used, protected, processed and managed technical, administrative, regulatory and to become more restrictive and supervision correctly. constitutional obligations to the people of by regulators is becoming more enhanced Uganda. We have a commitment embedded with the objective of encouraging banks to The Uganda Registration Services Bureau in our purpose to improve lives and fulfil optimise risk management. The compliance (URSB) in line with the URSB Act 210 aspirations of the people of Uganda and function of the Bank must therefore be reformed its business registration processes our line of thought to deliver this embraces satisfied that effective compliance risk in November 2016. The bureau begun a strong partnership with the Government management practices, policies and issuing computer generated certificates with of Uganda at the broader level and public procedures are implemented and adhered enhanced security features such as a 14-digit sector organisations at the granular level. to in order to ensure that the business is number in line with the ISO numbering, an We go a long way in promoting more efficient conducted within the required statutory, electronic signature and seal as well as a governance through the integration of regulatory and supervisory boundaries. URSB water mark and a bar code Note. financial services and technology as well as This was geared at making the registration supporting the Public Sector organisations in New Regulations processes better, easier and user-friendly strengthening capacity of local communities The Financial Institutions (Amendment) Act and to fast track the establishment of online and community based organisations. The th 2016 came into force on 4 February 2016 to registration for businesses. The Bank’s breadth of our focus under the public sector provide for Islamic Banking, Bancassurance, business requirements will align with the captures the entire value chain of client agent banking and for special access to the changes instituted to ensure that all account relationships which includes Government Credit Reference Bureau by other accredited holders update their information accordingly. (authorities, agencies, parastatals, Local credit providers and service providers as well Governments, Development Organisations as to reform the Deposit Protection Fund. We recognise that the business of the Bank (Embassies, High Commissions, Donor The Act also allows the Central Bank to make is built on trust and integrity and as such all agencies, Development partners, and United revisions to the capital requirements of a staff are required to conduct themselves in Nations Agencies clients in and within financial institution as well as a requiring a accordance with the Bank’s values and code Uganda. The structure of our businesses bank to maintain capital buffers. of ethics. In a bid to uphold the highest levels ensures that services reach the intended of integrity, a zero tolerance to corruption grass root beneficiary. The Non-Governmental Organisations (NGO) is adopted and further entrenched through Act No.5/216 was passed and it repealed trainings on prevention of fraud and We have a long history in the sector and replaced the NGO Act Cap 113. All NGOs corruption. Avenues for whistle blowing to supported by our origins in Uganda as a are now required to register and acquire a report any unlawful, irregular or unethical bank of the people. It was not until 2007 permit from the NGO Board. The Act also conduct are also provided to staff. that the Government of Uganda floated made provisions meant to strengthen and its 10% shareholding to the public. We promote the capacity of NGOs and to provide We endeavor to continuously engage with have however maintained the culture of for the corporate status of National Bureau our regulators and to report to them in a supporting Government programmes and for NGOs.The Bank subsequently made timely manner as required by the law. our commitment is manifested in some of amendments to its Know Your Customer In collabourating with all business functions, the landmark transactions executed across (KYC) requirements for NGOs. our goal is to embed a culture of compliance Uganda’s public sector. The more recent within the Bank through delivering transactions include the Ministry of Finance The Capital Markets Authority (Amendment) comprehensive compliance programmes Planning & Economic Development Interest Act No. 8 of 2016 was passed to create a and trainings aimed at educating staff on Rate Swap executed in 2016, as well as being new category of licensees and also to require regulatory obligations as well as our internal appointed to provide Government of Uganda approval from the Authority prior to the policies and procedures. (GoU) with an e-cash payment platform. undertaking of prescribed transactions. As a company listed on the Uganda Securities With infrastructure development one of Exchange, the Bank has been keen on ensuring Customer Experience the fundamental areas of focus, GoU’s that the amendments are adhered to. Our 2016 strategic roadmap pointed out inclination to Public Private Partnerships “Placing the Customer at the center of (PPPs) has tremendously grown. PPPs Uganda implemented a key milestone of everything we do” as one of the core issues will support Governments’ accessibility carrying out a National Risk Assessment to focus on. This issue speaks to our pledge to quicker finance and its complementary following the recommendation of a Mutual to move our customers forward by providing medium to long term plans through product Evaluation Report on FATF standards. This them superior financial needs to enable innovation. report was submitted to the Eastern and them succeed financially. Our customer

Stanbic Bank Uganda Limited Annual Report 2016 63 SUSTAINABILITY Building a responsible business

centered culture has seen us reach a vast and only after successful resolution is the Inclusive customer value propositions majority of Ugandans, including those in query or complaint closed in the system. A In 2016, we unveiled a new offering that rural areas thanks to our superior branch daily report is circulated to all the branches promises our salaried customers a powerful network spanning 78 branches and several and business units showing the complaints bouquet of banking solutions to keep up customer service points. This is in addition that are still outstanding. This effectively with the fast-paced world of modern and to our new range of easy to access products drives turnaround times and at every time across mobile platforms and online banking the Customer Care Centre is able to have digital banking. The new SMART banking all intended to provide superior value to our a view of what has been resolved and what offering was developed using state of the customers. is still outstanding. Through the reports that art technology and will avail a number of are provided on a weekly basis, we are able interesting features to salaried customers Customer Satisfaction. to deal with the root cause of the complaint ensuring their banking needs are met The main measure of customer satisfaction and this in turn helps in the reduction of quickly and efficiently through a wide range within Stanbic Bank is the NPS (Net recurring issues. The CRM Tool provides the of digital channels. A SMART current Promoter Score). It is a question that asks Bank with a central view of what is not going account comes along with a free Contract customers whether or not they would well within the business and provides an Save account that allows them to grow recommend the Bank to a family member, opportunity for resolution of complaints. their money. It avails a Chip and PIN Silver a friend or a colleague. The response tells Visa Debit Card that is accepted at millions us the satisfaction level of the customer as Managing complaints of ATMs and Point of Sale globally. It a positive response means the customer Our aim is to develop a consistent approach also has SMART link providing free ATM is happy with the Bank and a negative to complaints management aligned to transactions at Stanbic ATMs, Free SMS response is an indication that the customer regulatory requirements and ensures that alerts, free Mobile and Internet banking is dissatisfied with the services of the Bank. customer complaints are handled in an allowing customers to transact and access In addition to the NPS, there were other accessible, transparent and efficient manner their account wherever and whenever. customer satisfaction and experience in line with the Bank’s commitment to Other benefits of the offer include free surveys that included the Client Insight treating its customers fairly. The diversity retrenchment cover (up to 3 months) that Survey - for the CIB customers called of our client base by age, location, banking enables customers to live a smart life as Qualtrics, onboarding survey for new needs, nationality, business lines and gender they look for a new job, free funeral cover customers and branch experience survey means that every interaction with the Bank is for customers transacting in the branch. an opportunity for us to make a memorable that grants customers a smart send-off, free Customer forum groups and Customer-led contribution to their lives but also means life cover that is paid to your next of kin in 6 meetings are also held in the branches. All we can jeopardise this valuable relationship instalments 24/7 Customer Contact Centre these surveys and interactions saw us reach by being unresponsive to complaints from ready to support you at any time of need and out to about 26,800 customers. There was our customers. We therefore strengthened attractive interest rates to enable customers mixed feedback from customers who both our complaints framework in 2016 to meet those unexpected expenses. appreciated the Bank’s efforts of improving include all operations across the Stanbic the customer experience but also expected Bank. A query or complaint starts when it is 2016 also saw us launch the Stanbic App a lot more from the Bank. The general initiated by the customer, and ends when the to the Ugandan market. It offers greater consensus was that the Bank was putting the customer has received a full and satisfactory flexibility for our customers and introduces customer at the forefront of everything they resolution. In order to adequately address all exciting new functionalities. The app gives do but the impact was not yet at the desired customer complaints or queries we do have our customers a single-view platform for levels. a formal compliants handling framework all interaction with the services offered in all our areas of representation that by the Bank. Our customers can access The Customer Relationship Management covers walk-in customers in our branches, their business and personal accounts as (CRM) Tool was developed and adopted to telephonic, email or postal correspondence, well as insurance, wealth management deal with both customer complaints and dedicated customer care centers, our queries. The tool sits within the Customer website, individual staff members, media and stockbroking activities in one go. Care Centre and is directly managed by and social networks, Bank of Uganda, Functionality includes comprehensive this team. Each and every staff member senior management and the Office of the beneficiary management, payments to has access to this tool and is able to log in a Chief Executive. These avenues ensure phone contacts, cash withdrawal services complaint or query from his/her desk. The that customers are treated fairly and without a card, future-dated and recurring complaint is then assigned to a specific unit transparently in all we that we do. payments among others.

Environmental Responsibility Stanbic Bank Uganda is committed to the aspects of environmental sustainability. support of the environmental conservation This assesses the Bank’s impacts on programmes through ensuring use of Stanbic Bank Uganda’s goal is to reduce living and non-living natural systems, adequate infrastructure, tools and methods environmental emissions through green including ecosystems, land, air, and for environmental sustainability. The Board technologies and processes. We subscribe water. Environmental Indicators cover of Directors and Executive Committee of the to the same Environmental Policies of performance related to inputs (e.g., Bank are committed to ensuring governance The Standard Bank Group. The Bank material, energy, water) and outputs that fosters environmental sustainability. continuously tracks the consumption trends (e.g., emissions, effluents, waste). In The Bank’s employees’ awareness and for its energy resources including water, addition, they cover performance related to training programmes are designed to diesel and electricity and implements any biodiversity, environmental compliance, and address environmental requirements. observed/recommended requirements other environmental expenditure and the Operations are governed by standard for dealing any deviations from the desired impacts of bank products and services. processes and procedures that promote trends.

Stanbic Bank Uganda Limited Annual Report 2016 64 SUSTAINABILITY Building a responsible business

Environmental Highlights 2016 2015 2014 Electricity purchased kilowatt hours 4,063,357 4,816,580 3,919,627 Fuel consumed liters 543,205 391,476 376,693 Water consumed kiloliters 18,800 18,192 17,948 Paper consumed tons 66 65 65 Carbon Emissions tons 1919 1223 1207

Energy Consumption Energy consumption has a direct effect on operational costs and exposure to fluctuations in energy supply and prices. Our environmental footprint is shaped in part by our choice of energy sources. Energy utilised at Stanbic bank is basically in the form of hydro-electric power that is required to power up out machines and at the same time provide lighting amongst other uses. Hydroelectric power is regarded as clean energy and thus doesn’t pose any negative material impact to the environment.

2016 2015 2014 Electricity purchased kilowatt hours 4,063,357 4,816,580 3,919,627

Electricity Usage Comments 6 Our electricity consumption reduced in 2016. This was driven by various 5 4.8 initiatives undertaken in order to reduce our total energy consumption.

3.9 4.1 4 These initiatives include the LED project which saw us move from fluorescent lighting to LED lighting and is estimated to reduce 3 electricity costs by over 50%. Automatic Air Conditioners which do not require human control 2 Millions Kilowatt hours where also introduced during the year. These are automatically

1 switched of at specific times and switch on relative to given temperatures. This is expected to reduce inefficiencies.

0 2014 2015 2016

Fuel Consumption Fuel Consumption has a direct impact on the emissions released to the environment. At Stanbic, our fuel usage usually comes in the form of motor vehicle and generator fuel.In 2015, Stanbic piloted and rolled out electronic tracking & monitoring of fuel in order to check abuse and total consumption by the Bank. This initiative resulted into a 30% cost reduction within a period of six months after roll out.

2016 2015 2014 Fuel consumed liters 543,205 391,476 376,693

Diesel (litres)

800,000

700,000 Comments

543,205 600,000 There is increased use of Diesel over the years. The rise is driven 500,000 by increased power outages that result into an increase in

376,693 391,476 generator runs coupled with increased operational travel in 400,000 view of growth in business activity.

300,000 In 2016 offsite ATMs had their inverters serviced and 200,000 batteries replaced as backup to avoid use of diesel generators. 100,000

0 2014 2015 2016

Stanbic Bank Uganda Limited Annual Report 2016 65 SUSTAINABILITY Building a responsible business

Materials Our value creation process does not require a significant input of materials and as such our major input is paper which is used in form of stationery of all nature. This is used to print necessary source documents as well as various reports.

2016 2015 2014 Paper consumed tons 66 65 65

Paper Consumption

70 65.2 65 66

60 Comments 50 Paper consumption is marginally up in view of broad growth 40 in business operations despite digitalisation of some of the processes. The rise is attributed to increase in customers as 30 well as products, which has led to the increase in processing requirements required for the customers hence introduction 20 of new units.

10

0

2014 2015 2016 Water Usage Clean freshwater is becoming increasingly scarce, and can impact production processes that rely on large volumes of water. Our value chain at Stanbic Bank isn’t one that requires significant volumes of water and as such much of the water used is for basic sanitary services. In 2016 we consumed 18,800 kilolitres of water which is provided by the National Water and Sewage Co-operation which collects water from available water bodies such as Lake Victoria and the system is self-recycling and used water is recycled back through the system. The levels of water consumption do not pose a systemic risk to the environment.

2016 2015 2014 Water consumed kiloliters 18,800 18,192 17,948

Water (Kilolitres)

20,000 18,800 17,948 18,192

15,000 Comments

The increasing trend in water over the years results from a

10,000 general increase in operations over the years, an uptake of piped water at several branches that initially relied on ordinary suppliers.

5,000

0 2014 2015 2016

Greenhouse Gas Emissions Greenhouse gas emissions are the main cause of climate change. In July 2015 Uganda signed to the ratifications of the Kyoto Protocol an initiative of the United Nations Framework Convention on Climate Change. Under the Protocol, countries’ actual emissions have to be monitored and precise records have to be kept of the trades carried out. Much our value chain doesn’t result into significant emissions into the environment, our operational practices cause a few emissions to the environment which arise in form of motor vehicle and Generator diesel combustion, flight, air- conditioning and Fluorescent emissions. Various initiatives are currently in place to reduce our emissions to the environment.

In 2016 the Bank carried out the LED Project, which saw the Bank move from fluorescent lighting to LED technology and a pilot electronic solution that optimises the running of the air conditioning on one floor.

Automatic Air Conditioners are also currently being rolled out across the Bank and these are self-regulating which means that they switch on and off at prescribed times. This is intended to reduce the amount of time that air conditioners run and as a result will reduce on the gaseous substances released by the air conditioners.

Stanbic Bank Uganda Limited Annual Report 2016 66 SUSTAINABILITY Building a responsible business

Carbon emissions (tons) 2016 2015 2014 Total emissions 1,919 1,223 1,207

Carbon emissions(tonnes) 3,000 Comments

Our carbon footprint increased in 2016 driven majorly by our increased 2,500 reliance on diesel due to power outages, as well as an increase in commercial flights. 1,919 2,000 Various initiatives are being undertaken to reduce our carbon foot print and these include but are not limited to the LED Project which saw us 1,500 move from fluorescent lighting to LED lighting and is estimated to reduce 1,207 1,223 electricity costs by over 50%.

1,000 Automatic Air Conditioners which do not require human control where also introduced during the year. These are automatically switched of 500 at specific times and switch on relative to given temperatures. This is expected to reduce wasteful consumption be employees.

- 2014 2015 2016

Energy Audit and Strategic Environmental Initiatives The Bank continues to take deliberate steps to the mercury and phosphor traces found in abuse and total consumption by the Bank. This cut down its energy consumption and optimise some fluorescent lights. initiative resulted into a 30% cost reduction the spend on energy. To this end the following within a period of six months after roll out. initiatives are being driven; Installation of Air Conditioning (AC) control systems – a successful pilot was done in 2016 The Bank also carried out a power audit Installation of LED lights across the Banks whereby the functionality of ACs is automated across all its branches, the Head Office network – this project was 80% complete and it resulted into 25% savings in energy and two offsite ATMs (as a representative by end of 2016 and is due for completion spend. The solution is being rolled out in 2017. sample) in June 2015. The objective of the in January 2017. It is projected to cut down audit was to assess power infrastructure the energy by 10% and total cost of lighting In 2014/15, Stanbic piloted and rolled out and management procedures and come up by up to 40%. The LED lights are also electronic tracking and monitoring of fuel for with recommendations towards reducing environmentally safer as they do not contain both vehicles and generators in order to check consumption.

Stanbic Bank Uganda’s goal is to reduce environmental emissions through green technologies and processes.

Stanbic Bank Uganda Limited Annual Report 2016 67 SUSTAINABILITY Building a responsible business (case studies)

Transforming lives Supporting local Businesses

Stanbic Uganda believes in creating shared value with all its stakeholders. Our success is linked to the prosperity of local communities and businesses and we take pride in building strong relationships with our clients and transforming their lives and businesses.

As the leading bank in Uganda, we’ve take keen interest in looking for opportunities to support the growth of local businesses. We have an important role to play in responsibly and efficiently providing financial solutions for activities that will generate growth and development, and support business transformation.

Over the years, Stanbic Bank has established excellent partnerships with various businesses represented across key sectors from commercial and large scale to small and medium enterprises.

This year, we are profiling clients that have grown with us and shared their success stories on how their business have transformed.

Stanbic Bank Uganda Limited Annual Report 2016 68 SUSTAINABILITY Building a responsible business (case studies)

Don Uganda Limited

“We are proud that Stanbic is our partner. With their support, our business has grown from two to twenty eight petrol stations across the country.” Kasozi Muwanga, CEO

Don Uganda Limited is a local Ugandan company dealing in importation and sale of petroleum products particularly, petrol, diesel and kerosene. Stanbic Bank partnered with Don Uganda Limited in 2016 and has seen the market share of the company in the industry increase in terms of usage and product volumes imported.

From two stations, the company has grown its network to over 28 stations as of 2016. These outlets are strategically located and spread across the country to serve both DUL’s retail and commercial customers with a plan to further expand to 35 stations by 2019. In the near future, the company also plans to incorporate liquefied petroleum gas, lubricants and oils countrywide.

Following this, Uganda Revenue Authority now categorises Don Uganda under Large TaxPayers Office from Medium Tax Payers Office previously, following significant growth in imported volumes which trickles down to increased duty payments.

The company also has a workforce of 353 employees which has contributed to the national growth in terms of employment.

The brand and commercial clientele has grown due to efficient service with the modern machinery financed 80% under Stanbic Bank Vehicle and Asset Financing facility. Stanbic has also financed sourcing of product from Kenya under the Import Loan facility and enabled DUL to pay taxes on petroleum products imported through the flexible Overdraft facility.

Stanbic Bank Uganda Limited Annual Report 2016 69 SUSTAINABILITY Building a responsible business (case studies)

Macos Uganda “Stanbic helped us set a strong foundation for our business. Starting from humble beginnings with only four employees, our team has grown to over forty five employees.” Mr. Jabel Nsibirwa - Managing Director

In consistence with its theme “transforming lives” Stanbic Bank works with Macos Uganda, a local engineering company that specialises in electrical, civil, mechanical engineering and I.T works to undertake electric infrastructural maintenance and revamp Stanbic Bank branches country wide.

Macos Uganda Limited has facilitated Stanbic Bank operations through reducing power outages at Data Recovery centres and its branches countrywide enabling energy saving. The company which began with few customers in 2012 has grown sequentially in recent years and is contracted by reputable firms and boasts of a workforce of 45 employees up from only 4 when it started.

Stanbic Bank also supported the company through referrals which have been useful to the firm as it expands its clientele base.

In this area of technical expertise, Macos Uganda is among the few and reputable local firms that offering their services to a wide range of businesses and creating further employer through value chain from their wider network of sub-contractors.

Stanbic Bank Uganda Limited Annual Report 2016 70 SUSTAINABILITY Building a responsible business (case studies)

Lithocraft

“Honesty and trust are the cornerstone of success at Lithocraft Investments Ltd, Uganda. We value the support that Stanbic has provided over the years that has resulted in this shared success.” Joseph Lubega – CEO

Any company that is willing to work hard and take risks can get their good ideas off the ground and into the marketplace, Lithocraft is one such firm. From a simple start with a single cutting machine and two employees, Lithocraft has expanded its capacity to provide a wide range of quality printing services from its factory on Balintuma Road. In consonance with its theme of working with local businesses, Stanbic Bank has all its printing done by Lithocraft.

The firm credits Stanbic for the strides it has made among which is acquisition of machinery to cover all the standard printing processes, which in turn has created employment opportunities for more people in the economy.

The business support from Stanbic Bank has also enabled the company to service bank credit facilities for the machinery.

Stanbic Bank also effects payment for services and products on time enabling Lithocraft to reinvest the revenue into the business and therefore ensuring expansion of range of services and products.

The company has now diversified into poultry farming in Nakaseke.

Stanbic Bank Uganda Limited Annual Report 2016 71 Stanbic Bank Uganda Limited Annual Report 2016 71 SUSTAINABILITY

Transforming lives through Corporate Social Responsibility

While achieving significant growth, Stanbic Bank continues to reaffirm its commitment to supporting and transforming the lives of people in our communities through our Corporate Social Investments (CSI) programmes. We focus on developing sustainable programmes that have a positive impact and enable the communities to benefit in the long term.

The key focus area for our Corporate Social tertiary education, adult education in financial interventions in this report. We will continue Investments is Education. We believe that literacy and entrepreneurship training. to make progress towards improving quality education is critical to achieving the learning experience of our children social and economic growth. We therefore Through our renewed approach to social and generally empower individuals with focus on creating sustainable interventions investments, our education programmes entrepreneurial skills to provide greater that support education at different levels reached over 8,000 lives through improved impact and generate long-term sustainable including; early childhood development, education facilities, business mentorships development in communities where we primary and secondary level education, and financial literacy among other operate.

Stanbic Bank Uganda Limited Annual Report 2016 72 SUSTAINABILITY Contributions to society continued

The impact of all our CSI Employee Community programmes in 2016 was Involvement spread to over 10,145 Programmeme (ECI) beneficiaries across the No. Beneficiaries country as shown below. 627

Cost of Intervention 116,366,664

Philanthropy Education No. Beneficiaries No. Beneficiaries 1,474 8,044

Cost of Intervention Cost of Intervention 346,250,086 671,324,524

10,145 TOTAL NO. OF BENEFICIARIES UShs 1,133,941,274 TOTAL COST OF INTERVENTION

Stanbic Bank Uganda Limited Annual Report 2016 73 SUSTAINABILITY Contributions to society

Stanbic Bank Uganda Limited Annual Report 2016 74 SUSTAINABILITY Contributions to society

This programmeme provides opportunities for children in underserved communities to acquire literacy and numeracy skills in a safe, clean and inspirational environment.

Stanbic Bank Early Childhood Development Programmeme

The Challenge Our Involvement new ECD Centre with a maximum capacity of 40 children who majorly Early Childhood Development (ECD) is an Stanbic Bank Uganda partnered with Ka come from vulnerable families. These important facet of an effective educational Tutandike Uganda to refurbish the children can now access basic journey for any child, however this is not market ECD Centre which serves over 40 education in a healthy and inspirational provided by government which inevitably vulnerable children. The principal objective space which enhances their potential of excludes children from vulnerable families of this programmeme is to provide a safe growing into affluent leaders of from accessing it. Only 9% of the children and inspirational learning environment for tomorrow, which potential would aged 3–5 are currently being enrolled into children from vulnerable families to develop otherwise be crippled without nursery or preschool according to the their numeracy, literacy and social skills. the centre. National ECD Training Institutions Additionally, the programmeme is aimed at Association (2015), which translates into a offering parents of these children, business • The centre also protects these children gap of 91%. There is a positive link between skills and mentorship to grow their from market hazards such as drowning early childhood learning and future holistic businesses and improve their livelihoods and burn accidents. Previously children development of a child. According to since most of them are already engaged in lost their lives to such accidents and UNICEF, by 2020, 5 million children of age micro businesses within the market. We do many have escaped with scarred lives. 3-5 will live in Uganda. It is estimated that aspire to roll this partnership to other approximately 3 million of them will not markets around the country in future. • The community in Ggaba and the have access to pre-primary education and, teachers now have confidence in the as a result, will be subject to irreversible Impact centre and are more committed to damage to their future potential and • Stanbic Bank together with Ka providing the best learning experience violations to their most basic rights. Tutandike Uganda has constructed a for the children.

Stanbic Bank Uganda Limited Annual Report 2016 75 SUSTAINABILITY Contributions to society

Stanbic Bank National Schools Championship

The youth today are faced with many Our Involvement They also underwent a financial literacy challenges especially in the face of an Stanbic Bank partnered with the Ministry training on basic personal and financial increasingly complex world. The Schools of Education for the second season of the management skills. Championship is an alternative channel national schools competition targeted, through which the youth can apply their for secondary schools across Uganda to Over 3,000 students from 40 secondary energies productively. The competition stimulate students to sharpen their critical schools are expected to participate in the involves four major stages i.e. the patron thinking, while creating problem-solving competition in which they will be trained on teachers’ induction, essay competition, quiz skills. the following skills among others; competition and a bank assimilation project. The objective is to nurture young people to • Financial literacy The Challenge develop positive attitudes, values and coping • Leadership 70% of Uganda’s population is below the skills which subsequently prepares them for • Crisis management age of 24 (World Bank - Africa Development greater responsibilities in the future. Indicators Report, 2013) yet statistics in • Conflict resolution Uganda suggest that 83% of people under Interim results • Selling skills 24 years are unemployed majorly because 40 patron teachers from 40 schools were • Communication and self-expression they lack employable skills. comprehensively inducted to help them • Entrepreneurship prepare students for the competition.

Stanbic Bank Uganda Limited Annual Report 2016 76 SUSTAINABILITY Contributions to society Philanthropy and Commitment to Humanitarian projects

At Stanbic Bank we are cognisant of the fact • Elizabeth Glazer Paediatric AIDS • Bank of Uganda Charity Walk – that every community is different and their Foundation (EGPAF) - Contributed Contributed toward the improvement of needs divergent. We provide both financial toward the maternal and child health maternal and child health care for health and in-kind support to our communities camp in which basic health services centres in Arua, Gulu, Mbarara and to enable each of them reach their distinct such as HIV testing, antenatal, etc. was Mbale. goals. In 2016, we contributed to a wide offered to community members for free. variety of initiatives in form of donations and • Kisoro Annual Youth Camp - Supported sponsorships and invested over UShs 170m • Fields of Life Uganda - Contributed 1000 youth to acquire soft and of our Social Investment budget to these toward the construction of a Rain Water vocational skills. activities. Organisations that were supported Harvesting system for Nyakabale Primary School. • Missionaries of the Poor Homes - include: Supported less privileged and vulnerable • Bundibugyo Mudslides victims - Offered children in disadvantaged homes. • Rotary Children & Youth Village – relief to 771 household that were affected • Theresa Home - Supported less contributed toward the construction of by the mudslides. privileged and vulnerable children in a school and home for disadvantaged • Masaka Marathon/Bugabira Primary disadvantaged homes. children. School - Contributed toward the • Rahab Girls - Supported less privileged • Infectious Disease Institute - SBU reconstruction of Bugabira Primary and vulnerable girls in disadvantaged adopted 5 HIV patients for 2016 to School class rooms. homes. access Highly Active Anti-retroviral • Nyaka AIDS Foundation - Raised Therapy (HAART), Line 1 and also UShs 10m for support to AIDS orphans. • Hospital children’s Ward - improved their livelihoods through Supported less privileged and vulnerable providing entrepreneurial training. • Oliji Refugee Settlement - provided basic children at the hospital. items to 700 refugee families from South • Plan Uganda- Empowered vulnerable Sudan. girls and women in urban slums with practical skills to support themselves and their families.

Stanbic Bank Uganda Limited Annual Report 2016 77 SUSTAINABILITY Contributions to society

1. Over 8,000 people benefited from our Education Programmemes

2. Board of Directors and Staff at the staff at the Ggaba Market ECD Centre

3. Over UShs 1.13 bn invested in our community interventions

4. 210 SME’s were mentored and trained in business management skills through Stanbic Bank Business Mentorship Programmeme

Stanbic Bank Uganda Limited Annual Report 2016 78 SUSTAINABILITY Contributions to society

Employee Community Involvement Programmeme

Through our Employee The Bank through its Grant Matching policy extends the impact of volunteerism by contributing to causes that Community Involvement staff have donated to. In 2016, 133 staff volunteered their expertise, time and financial contributions to help solve some Programmeme, we of the social challenges encountered by our communities.

encourage staff to actively Besides grant matching, our staff also volunteer on some of the programmes that the Bank is undertaking such as the volunteer on community Stanbic Bank Early Childhood Development Programmeme. In all, our volunteering programmes, we focused on building programmes they are both on our staff’s talents and skills to make a positive difference within the communities. Therefore, staff do not need special passionate about and are skills to participate in these programmes. We are confident aligned with our CSI focus that encouraging volunteerism and engaging staff in CSI activities they are truly passionate about makes them areas. believe in our mission and work towards delivering on it while supporting their leadership development thereby creating a lasting transformation in the communities we operate.

Stanbic Bank Uganda Limited Annual Report 2016 79 SUSTAINABILITY Contributions to society

Strategic Partnerships b.) Stanbic Bank in partnership with c.) Stanbic Bank in partnership with We’ve continued to harness the expertise Junior Achievement on a youth GiZ - Banking on Financial Literacy and unique experience that partners entrepreneurship programmeme in Uganda bring in helping us achieve our shared Stanbic Bank partnered with Junior Stanbic Bank partnered with GiZ, Bank mission. Below are some of 2016’s key Achievement to provide the youth with of Uganda and DFCU to develop financial partnerships that were able to make a practical skills that will enable them literacy tools that can be used to train significant improvement in beneficiaries’ become entrepreneurs and create jobs. people on how to manage their money livelihoods. more effectively. The Challenge: a.) Stanbic Bank - AVSI partnership The Challenge: on Financial Literacy Training to Youth unemployment rates are really The 2013 FinScope study on financial eradicate extreme poverty and high and not only in Uganda but the literacy found that approximately half hunger world over. Statistics in Uganda suggest that 83% of people under 24 years are of the Ugandan population cannot differentiate between monthly and The Challenge: Many people have unemployed, yet more than two thirds annual interest rates. This knowledge lost their property/savings due to poor of Uganda’s population is below the age gap is not only valid for people with financial decisions resulting from lack of of 24. (World Bank - Africa Development little or no schooling or for the poor, but financial knowledge. Indicators Report, 2013). Therefore, the youth unemployment challenge is real runs across all education and income levels. This specific gap in knowledge is According to the FinScope Report 2010, and is perhaps Uganda’s most pressing exemplary of a wider problem of financial almost half of the adult Ugandans are challenge. illiteracy in Uganda, i.e. people lacking currently borrowing (45%), of which 20% the knowledge and skills to manage their have ever saved but stopped and 35% Our Involvement: personal finances well. This leads people have never saved. The Bank invested UShs 20m in a student’s innovation camp that involved into poor financial decisions, low savings, high default rates, over indebtedness and Far too many Ugandans (about 72%) 10 secondary schools. Each club in many cases unnecessary economic don’t use banks at all, despite the financial developed a company and products hardship. advantages they provide. or services to trade in. These student companies are guided by JA experts and Our Involvement: Our Involvement: mentored by Stanbic Bank staff – who in Stanbic Bank partnered with GIZ FSD In partnership with AVSI, Stanbic Bank this case are volunteering to offer real life Programmeme Uganda, Bank of Uganda organised 20 financial literacy trainings experiences. and DFCU to develop 5 financial literacy for 750 vulnerable households across the tools that can be used to improve the country to teach them important aspects The objective was to prepare young population’s knowledge, skills and about personal saving, debt management, people for the real world by showing them confidence to manage their personal budgeting, and financial services among how to generate wealth and effectively finances effectively. others. manage it, how to create jobs that make their communities more robust, and how Impact/outcome Impact/outcome to apply entrepreneurial thinking to the workplace. Developed 3 financial literacy tools i.e. • Various households were trained in a financial literacy card game, e-learning Financial Literacy. Impact/outcome course and FL Ring that are ready for • Average household incomes doubled • 50 students trained in entrepreneurial pilot among our staff and customers. It from UShs 48,560 to UShs 122,324 – skills. will be interesting to learn how these will a growth of 251%. influence people’s financial management • 10 student mini companies were habits and the effectiveness of each tool formulated at the innovation camp. in achieving a prudent behavioral change towards managing personal finances.

Stanbic Bank Uganda Limited Annual Report 2016 80 SUSTAINABILITY

Reporting Practices

GRI Index The 2016 Sustainability report was compiled in reference to the Global Reporting Initiative (GRI) guidelines and supported by the G4 Financial Services Sector Supplement.

CLAIM: Material references Disclosures 102(1-39), GRI 201(1-4), GRI 202(1-2) GRI 203(1-2), GRI 204 (1), GRI 205 (1-2), GRI 206(1) GRI301(1-3), GRI 302(1-5), GRI 303(1-3), GRI 304(1-3), GRI 305(1-7), GRI 306(1-5), GRI 307(1), GRI 308(1-2), GRI 401(1-3), GRI 402(1), GRI 403(1-4), GRI 404(1-3), GRI 405(1-2), GRI 406(1), GRI 407(1), GRI 408(1), GRI 409(1), GRI 410(1), GRI 411(1), GRI 412(3), GRI 413(1-2), GRI 414(2), GRI 415(1), GRI 416(1-2), GRI 417(1-3), GRI 418(1), GRI 419(1)

Disclosure Required for Cross Reference/ Description Page Reference Number CORE Heading Organisational Profile 102-1 Name of the organisation Core Who we are 2 Who we are and 102-2 Activities, brands, products, and services Core 8 & 164 Supplementary Information Who we are and 102-3 Location of headquarters Core 7 supplemantary Who we are and 102-4 Location of operations Core 9 & 164 Supplementary Information 102-5 Ownership and legal form Core Who we are ii Who we are and 102-6 Markets served Core 9 Supplementary Information 102-7 Scale of the organisation Core 2 & 3 102-8 Information on employees and other workers Core Investing in our employees 58 - 62 102-9 Supply chain Core Our products and Services 8 102-10 Significant changes to the organisation and its supply chain Core N/A 102-11 Precautionary Principle or approach Core N/A 102-12 External initiatives Core Direct benefit to society 73 102-13 Membership of associations Core N/A Strategy 102-14 Statement from senior decision-maker Core Chief Executive’s Statement 20 - 22 102-15 Key impacts, risks, and opportunities Compliance practices 63 Ethics and Integrity 102-16 Values, principles, standards, and norms of behavior Core Covered in our values 5 102-17 Mechanisms for advice and concerns about ethics Risk management and control 40 Governance 102-18 Governance structure Core Corporate Governance 90 102-19 Delegating authority N/A Executive-level responsibility for economic, environmental, and 102-20 N/A social topics Consulting stakeholders on economic, environmental, and 102-21 Corporate Governance 93 social topics Composition of the highest governance body and its 102-22 Corporate Governance 90 committees 102-23 Chair of the highest governance body Corporate Governance 88 102-24 Nominating and selecting the highest governance body Corporate Governance 91 102-25 Conflicts of interest Corporate Governance 91 Role of highest governance body in setting purpose, values, and 102-26 Corporate Governance 91 strategy 102-27 Collective knowledge of highest governance body N/A 102-28 Evaluating the highest governance body’s performance Corporate Governance 91 Identifying and managing economic, environmental, and social 102-29 Risk and management control 40 impacts 102-30 Effectiveness of risk management processes Risk and management control 40 102-31 Review of economic, environmental, and social topics Corporate Governance 93 102-32 Highest governance body’s role in sustainability reporting Corporate Governance 93

Stanbic Bank Uganda Limited Annual Report 2016 81 SUSTAINABILITY Reporting Practices

102-33 Communicating critical concerns N/A 102-34 Nature and total number of critical concerns N/A 102-35 Remuneration policies Remunaration report 94 -95 102-36 Process for determining remuneration Corporate Governance 94 -95 102-37 Stakeholders’ involvement in remuneration Corporate Governance 94 -95 102-38 Annual total compensation ratio Corporate Governance 94 -95 102-39 Percentage increase in annual total compensation ratio Corporate Governance 94 -95 Stakeholder Engagement 102-40 List of stakeholder groups Core Stakeholders Engagement 56 - 57 102-41 Collective bargaining agreements Core Investing in our employees 58 - 62 102-42 Identifying and selecting stakeholders Core N/A 102-43 Approach to stakeholder engagement Core Stakeholders Engagement 57 102-43 Approach to stakeholder engagement Core Stakeholders Engagement 57 102-44 Key topics and concerns raised 102-45 Entities included in the consolidated financial statements Core N/A Reporting Practice 102-46 Defining report content and topic Boundaries Core About this report 49 102-47 List of material topics Core About this report 49 102-48 Restatements of information Core N/A 102-49 Changes in reporting Core N/A 102-50 Reporting period Core About this report 49 102-51 Date of most recent report Core About this report 49 102-52 Reporting cycle Core About this report 49 102-53 Contact point for questions regarding the report Core Supplementary information 163 102-54 Claims of reporting in accordance with the GRI Standards Core About this report 49 & 51 102-55 GRI content index Core GRI index 81 102-56 External assurance Core N/A Management Approach 103-1 Explanation of the material topic and its Boundary Core N/A 103-3 Evaluation of the management approach Core Chairman’s statement 18 Economic Approach 201-1 Direct economic value generated and distributed Stakeholder management 53 - 55 Financial implications and other risks and opportunities due to 201-2 Environmental responsibility 64 - 67 climate change 201-3 Defined benefit plan obligations and other retirement plans N/A 201-4 Financial assistance received from government N/A Market Presence Ratios of standard entry level wage by gender compared to local 202-1 N/A minimum wage Proportion of senior management hired from the local 202-2 N/A community Indirect Economic Impacts 203-1 Infrastructure investments and services supported N/A Covered in environmental 203-2 Significant indirect economic impacts 65 responsibility Procurement Practices Covered in building a 204-1 Proportion of spending on local suppliers 58 responsible business Anti-Corruption 205-1 Operations assessed for risks related to corruption N/A Communication and training about anti-corruption policies and 205-2 Compliance practices 63 procedures 205-3 Confirmed incidents of corruption and actions taken N/A Anti-Competitive Behavior Legal actions for anti-competitive behavior, anti-trust, and 206-1 Compliance practices 63 monopoly practices Materials 301-1 Materials used by weight or volume Environmental responsibility 65 301-2 Recycled input materials used N/A 301-3 Reclaimed products and their packaging materials N/A

Stanbic Bank Uganda Limited Annual Report 2016 82 SUSTAINABILITY Reporting Practices

Energy 302-1 Energy consumption within the organisation Environmental responsibility 65 302-2 Energy consumption outside of the organisation Environmental responsibility 65 302-3 Energy intensity Environmental responsibility 65 302-4 Reduction of energy consumption Environmental responsibility 65 302-5 Reductions in energy requirements of products and services Environmental responsibility 65 Water 303-1 Water withdrawal by source Environmental responsibility 66 303-2 Water sources significantly affected by withdrawal of water Environmental responsibility 66 303-3 Water recycled and reused Environmental responsibility 66 Bio-Diversity Operational sites owned, leased, managed in, or adjacent to, 304-1 protected areas and areas of high biodiversity value outside N/A protected areas Significant impacts of activities, products, and services on 304-2 N/A biodiversity 304-3 Habitats protected or restored N/A IUCN Red List species and national conservation list species 304-4 N/A with habitats in areas affected by operations Emissions 305-1 Direct (Scope 1) GHG emissions Environmental responsibility 66 - 67 305-2 Energy indirect (Scope 2) GHG emissions Environmental responsibility 66 - 67 305-3 Other indirect (Scope 3) GHG emissions Environmental responsibility 67 305-4 GHG emissions intensity Environmental responsibility 67 305-5 Reduction of GHG emissions Environmental responsibility 67 305-6 Emissions of ozone-depleting substances (ODS) Environmental responsibility 67 Nitrogen oxides (NO ), sulfur oxides (SO ), and other significant 305-7 X X N/A air emissions Effluents and Waste 306-1 Water discharge by quality and destination Environmental responsibility 66 306-2 Waste by type and disposal method N/A 306-3 Significant spills N/A 306-4 Transport of hazardous waste N/A 306-5 Water bodies affected by water discharges and/or runoff N/A Environmental Compliance 307-1 Non-compliance with environmental laws and regulations N/A Supplier Environmental Assesment 308-1 New suppliers that were screened using environmental criteria N/A Negative environmental impacts in the supply chain and actions 308-2 N/A taken Employment 401-1 New employee hires and employee turnover Investing in our employees 58 - 62 Benefits provided to full-time employees that are not provided 401-2 Investing in our employees 58 - 62 to temporary or part-time employees 401-3 Parental leave Investing in our employees 58 - 62 Labour/Management Relations 402-1 Minimum notice periods regarding operational changes N/A Occupational Health and Safety Workers representation in formal joint management–worker 403-1 Investing in our employees 58 - 62 health and safety committees Types of injury and rates of injury, occupational diseases, lost 403-2 Investing in our employees 58 - 62 days, and absenteeism, and number of work-related fatalities Workers with high incidence or high risk of diseases related to 403-3 Investing in our employees 58 - 62 their occupation Health and safety topics covered in formal agreements with 403-4 Investing in our employees 58 - 62 trade unions Training and Education 404-1 Average hours of training per year per employee Investing in our employees 58 - 62 Programmes for upgrading employee skills and transition 404-2 Investing in our employees 58 - 62 assistance programmes

Stanbic Bank Uganda Limited Annual Report 2016 83 SUSTAINABILITY Reporting Practices

Percentage of employees receiving regular performance and 404-3 Investing in our employees 58 - 62 career development reviews Diversity and Equal Opportunity 405-1 Diversity of governance bodies and employees Investing in our employees 58 - 62 405-2 Ratio of basic salary and remuneration of women to men N/A Non-Discrimination 406-1 Incidents of discrimination and corrective actions taken N/A Freedom of Association and Collective Bargaining Operations and suppliers in which the right to freedom of 407-1 N/A association and collective bargaining may be at risk Child Labour Operations and suppliers at significant risk for incidents of child 408-1 N/A labour Forced and Compulsory Labour Operations and suppliers at significant risk for incidents of 409-1 N/A forced or compulsory labour Security Practices Security personnel trained in human rights policies or 410-1 N/A procedures Rights of Indigenous People 411-1 Incidents of violations involving rights of indigenous peoples N/A Human Rights Assessment Operations that have been subject to human rights reviews or 412-1 N/A impact assessments 412-2 Employee training on human rights policies or procedures Investing in our employees 58 - 62 Significant investment agreements and contracts that include 412-3 N/A human rights clauses or that underwent human rights screening Local Communities Operations with local community engagement, impact 413-1 Direct contribution to society 73 - 80 assessments, and development programmes Operations with significant actual and potential negative 413-2 73 - 80 impacts on local communities Supplier Socio Assessment 414-1 New suppliers that were screened using social criteria N/A 414-2 Negative social impacts in the supply chain and actions taken N/A Public Policy 415-1 Political contributions N/A Customer health and Safety Assessment of the health and safety impacts of product and 416-1 N/A service categories Incidents of non-compliance concerning the health and safety 416-2 N/A impacts of products and services Marketing and Labelling 417-1 Requirements for product and service information and labelling N/A Incidents of non-compliance concerning product and service 417-2 N/A information and labelling Incidents of non-compliance concerning marketing 417-3 N/A communications Customer Privacy Substantiated complaints concerning breaches of customer 418-1 N/A privacy and losses of customer data Socioe-conomic Compliance Non-compliance with laws and regulations in the social and 419-1 N/A economic area

Stanbic Bank Uganda Limited Annual Report 2016 84 Stanbic Bank Uganda Limited Annual Report 2016 85 Corporate Governance

Stanbic Bank Uganda Limited Annual Report 2016 86 88 Board of Directors

89 Executive committee

90 Corporate governance statement

94 Renumeration Report

96 Report of the audit committee

98 Directors’ report

99 Statement of Directors’ responsibilities

Stanbic Bank Uganda Limited Annual Report 2016 87 CORPORATE GOVERNANCE

Board of Directors

1 2 3 4

5 6 7

8 9 10

1. JAPHETH KATTO /65 4. SAMUEL SEJJAAKA /53 6. RUTH EMUNU /68 8. CLIVE TASKER/61 Chairman Board Non-Executive Director Non-Executive Director Non-Executive Director Bcom Honours, ACCA Bcom (Makerere) BA. (Minnesota), BA. LIB (Natal) Appointed: 2014 MSc (Financial Studies , PGD (Public Administration) AMP (Wharton, Pennsylvania) Committee: None Strathclyde) (Makerere) Appointed: 2016 PhD (Accounting and Finance , Appointed: 2009 Committee: Risk and Audit 2. PATRICK MWEHEIRE /46 Makerere) Committee: C/M Risk and Audit Chief Executive Appointed: 2007 9. GREG BRACKENRIDGE/58 BSc (Econ, Daemen) Committee: C/M Audit 7. PATRICK J. MANGHENI /65 Non-Executive Director MBA (Harvard) Non-Executive Director Chief Executive East Africa Appointed: 2012 5. BARBARA MULWANA /52 BSc Mathematics (Makerere) region Standard Bank Group Committee: Credit and Risk Non-Executive Director BA Pure Mathematics (Oxford) Associate Institute of Bankers BSc (Electrical Engineering MSc Analysis & Topology South Africa 3. KEVIN WINGFEILD/49 and Computer (Oxford) Appointed: 2016 Executive Director Science, Northwestern), PhD Functional Aanalysis Committee: C/M Human Capital BCom.University of Natal, Appointed 2009 (Oxford) Committee: C/M Credit 10. EVA KAVUMA /55 Pietermaritzburg Appointed: 2015 Non-Executive Director Chatered Accountant South Committee: Risk and Credit BSc Business Administration Africa (Ithaca, New York) Appointed: 2016 MA Interntional Management Committee: None (Thunderbird, Arizona) Appointed: 2016 Committee: Credit and Human Capital

Stanbic Bank Uganda Limited Annual Report 2016 88 CORPORATE GOVERNANCE

Executive Committee

1 2 3 4

5 6 7

8 9 10

1. PATRICK MWEHEIRE 4. SAMUEL FREDRICK 7. CANDY WEKESA 9. RITA BALAKA Chief Executive MWOGEZA OKOBOI (Ag) Head, Compliance Joined the Bank: 2012 Chief Financial 0fficer Head, Legal / Company Joined the Bank: 2014 Joined Exco: 2012 Joined the Bank: 2010 Secretary Joined Exco: 2014 Joined Exco: 2015 Joined the Bank: 2016 2. KEVIN WINGFIELD Joined Exco: 2016 10. MIRIAM NAIGEMBE Head, Personal & Business 5. HERBERT OLOWO Head, Operations Banking Chief Information Officer 8. GEORGE MUKASA (Ag) Joined the Bank: 2013 Joined the Bank: 2015 Joined the Bank: 2015 Chief Risk Officer Joined Exco: 2014 Joined Exco: 2015 Joined Exco: 2015 Joined the Bank: 2016 Joined Exco: 2016 3. EDWIN MUCAI 6. MOSES MBUBI WITTA Head, Corporate & Head, Human Capital Investment Banking Joined the Bank: 2013 Joined the Bank: 2015 Joined Exco: 2013 Joined Exco: 2015

Stanbic Bank Uganda Limited Annual Report 2016 89 CORPORATE GOVERNANCE

Corporate Governance Statement

Introduction This Corporate Governance statement sets out the governance framework adopted by the Board of Stanbic Bank Uganda Limited (the Bank) and highlights the key activities during the 2016 financial year.

In its approach to governance, the Board function on, among other things, the status of also ensures the appropriate level of challenge. embraces best practice principles based on compliance risk management in the Bank and The number and calibre of independent non- the understanding that sound governance significant areas of non-compliance. executive directors on the Board ensures that practices are fundamental to earning the trust board decision-making is sufficiently informed of each stakeholder. This is critical to sustaining On a quarterly basis the Board Risk Committee by independent perspectives. the performance of the Bank and preserving also reviews the significant interactions and shareholder value. The Bank applies a broad correspondences with the Regulator. based Corporate Governance approach which it Succession Planning has detailed in a policy for that purpose. The compliance function and governance Succession planning is a key focus of the Board, standards are subject to review by Internal which on an ongoing basis, considers the The Board strives to embrace relevant local and Audit. composition of the Board and its committees to international best practice and is committed ensure continued effectiveness. The retention to upholding the fundamental tenets of The impact of new and proposed legislation of the Board members with considerable governance which include independence, social and regulations is assessed by management experience is sought to ensure that appropriate responsibility, discipline, accountability and and material regulatory issues and legislative levels of management are maintained. fairness to stakeholders. Owing to the Bank’s developments are escalated to the Board Risk relationship with the Standard Bank Group and Audit Committees. Following the passing of As part of the Board’s responsibility to and where appropriate, the principles of the the Ugandan Companies Act, No. 1 of 2012, the ensure that effective management is in place King Code inform a significant portion of the Board implemented changes in the course of to implement Bank strategy, management governance framework and practices of 2013 and continues to adhere to new legislative succession planning is an ongoing the Bank. changes. consideration, and under the oversight of the Board Human Capital committee. In the year under review, the Bank complied Whilst the Bank continues to nurture a strong with all applicable laws, rules, regulations and culture of governance and responsible risk Skills, knowledge, experience guidelines on Corporate Governance. management in line with the risk appetite and governance framework of the Standard Bank and attributes of Directors The Bank’s governance framework enables Group, it is constantly monitoring its practices The Board ensures that Directors possess the the Board to fulfil its role of providing oversight to ensure that they are best fit for it and serve to skills, knowledge and experience necessary to and strategic counsel in balance with its enhance business and community objectives. fulfil their duties. The Directors bring a balanced responsibility to ensure conformance with mix of attributes to the Board, including: regulatory requirements and risk tolerance. It The Bank is committed to social responsibility • Exposure to domestic and international also provides the parameters for delegating and sound environmental management in its financial services sector experience ; its authority. lending and other activities. • Operational matters • Knowledge and understanding of both Codes and regulations Board of Directors macro-economic and micro-economic As a licensed commercial bank and listed Board structure and composition, factors affecting the Bank and the banking entity, the Bank operates in a highly regulated including independence classification industry environment and is committed to complying The Board of Directors is the Bank’s highest • Regulatory experience; with legislation, regulations, and codes of best decision-making body and is ultimately practice. • Expertise in risk management and internal responsible for governance. Directors go financial control through a strict internal vetting process prior to Complying with all applicable legislation, Bank of Uganda approval and are finally elected • Financial, entrepreneurial and banking regulations, standards and codes is integral by the shareholders. The Bank has a unitary skills. to the Bank’s culture. The Board delegates Board structure and the roles of the Chairman responsibility for compliance to management and Chief Executive are separate and distinct. The Directors’ qualifications are summarised and monitors this through the Compliance on page 88. function. Oversight of compliance risk The Chairman is an independent Non-Executive management is delegated to the Board Risk Director, as are the majority of Directors on the Committee, which annually reviews and Board. The balance of Executive, Non-Executive Access to information and resources approves the compliance plan. and Independent Directors ensures a balance Executive Management and the Board interact of power and diversity on the Board, so that regularly. The Executive Committee Members On a quarterly basis the Board Risk Committee no individual or group can dominate Board are invited to attend Board Meetings where received reports from the Compliance processes or decision making. This balance necessary. In addition, Non-Executive Directors

Stanbic Bank Uganda Limited Annual Report 2016 90 CORPORATE GOVERNANCE Skills, knowledge, experience and attributes of Directors continued

meet without the Executive Directors in closed • Reviews and monitors the performance The Executive Committee is set out on page 89. sessions, where necessary. of the Chief Executive and Executive Management Board Meetings Directors have unrestricted access to • Establishes and reviews annually and management and the Bank information, as well The Board meets once a quarter with an approves major changes to relevant as the resources required to carry out their additional meeting annually to consider policies roles and responsibilities. This includes external strategy. Ad hoc meetings are held when legal and other professional advice at the Bank’s • Approves the remuneration of Non- necessary, and Directors are provided with expense where necessary. A policy to regulate Executive Directors on the Board comprehensive documentation at least five this process was first adopted by the Board in Committees and make recommendations days prior to each of the scheduled meetings in 2012, in addition to a policy that regulates the to shareholders for approval the annual board calander. periodic review of these policies to cater for • Ensures that an adequate budget and any changes in and outside the industry. It also planning process exists and measures The attendance of Board meetings in 2016 is set includes unlimited access to the advice and performance against budgets and plans out in the following table: services of the Bank Secretary, who assists in and approves annual budgets for the Bank providing any information or documentation Name of 23 25 3 19 15 that may be required to facilitate the discharge • Considers and approves the annual Director Mar May Aug Oct Dec of their duties and responsibilities. financial statements, interim results, J B Katto √ √ √ √ √ dividend payable, distribution S Sejjaaka √ √ √ √ √ announcements and notices to R Emunu √ √ A √ √ Appointments shareholders The appointment of Directors is governed by J Okot √ NA NA NA NA • Assumes ultimate responsibility for the Bank’s articles of association and is subject B Mulwana √ √ A √ √ financial, operational and internal systems to regulatory approval in line with the applicable of control and ensures adequate reporting K Wingfield A √ √ √ A legislation and regulations. While Directors are P Mangheni √ √ √ √ √ elected by shareholders at the AGM, interim of these by respective committees and Board appointments are allowed between • Takes ultimate responsibility for regulatory P Mweheire √ √ √ √ √ AGMs. These appointments are then confirmed compliance and ensures that reporting to G NA NA √ A √ at the next following AGM. the Board is comprehensive. Brackenridge E Kavuma NA NA √ √ √ There is a formal process for the appointment Strategy C Tasker NA NA NA NA NA of Directors. Information is provided to The Board is responsible for the Bank’s shareholders of the Director’s education, strategic direction. The Bank’s strategic plan is √ = Attendance; A = Apology; qualifications, experience and other NA = Not Applicable; Directorships. reviewed annually and any updates presented by Management are discussed and agreed with The Board takes cognisance of the knowledge, the Board. The Board ensures that the strategy Board effectiveness and skills and experience of prospective Directors, takes account of any associated risks and is evaluation as well as other attributes considered necessary aligned with the Bank vision, values, performance The Board is committed to continued for the role. The Board also considers the need and sustainability objectives. improvements to its effectiveness and for demographic and gender representation. performance. The Board’s performance and Once the financial, governance and risk Furthermore, candidates are subject to a “fit that of its Committees is assessed annually objectives for the following year have been and proper test”, as required by the Financial against their respective mandates. The Institutions Act. agreed the Board monitors performance against objective of these evaluations is to assist the these objectives on a quarterly basis. Financial Board and Committees to constantly improve The role of the Board performance is also monitored through quarterly their effectiveness by addressing areas The Board’s role is reflective of its corporate reports from Management, and governance governance objectives: and board are monitored by the relevant risk requiring improvement and providing Directors with the necessary training. The results of this • Reviews annually the corporate committees, and reviewed by the Board. assessment are then considered by the Board. governance and risk management process and assesses achievement against Delegation of Authority objectives The Board retains effective control through The Board assessed its performance and that a well-developed governance structure that of its Committees in 2016. The evaluations • Reviews the Board mandate at least provides the framework for delegation. Board annually and approves recommended assessed the Board’s performance in terms of changes Committees facilitate the discharge of the structure, process and effectiveness. Individual Board’s responsibilities by providing in-depth questionnaires were completed, the results • Delegates to the Chief Executive or any focus on specific areas of Board responsibility. collated, and feedback discussed by the Board. Director holding any Executive Office or The Committees each have a mandate that is any Senior Executive any of the powers, regularly reviewed and approved by the Board. authorities and discretion vested in the The relevant action points from the Details of how these Committees operate are Directors, including the power of sub- assessments were noted for implementation. renumarated on page 92. delegation No major areas of concern were highlighted other than the Board’s increasing information • Delegates similarly such powers, The Board delegates authority to the Chief authorities and discretions to any Executive and Executive Committee to manage needs due to the changing regulatory committee and subsidiary Bank boards the business and affairs of the Bank. The landscape. In 2016, the increasing need as may exist or may be created from time Executive Committee assists the Chief Executive for information saw the Board continue its to time in the execution of his mandate. The Chief education programmeme started in 2015 in • Determines the terms of reference and Executive is tasked with the implementation of emerging areas such as cyber security and procedures of all Board Committees and Board decisions with a clear flow of information technology in banking. review their reports and minutes between management and the Board, which • Considers and evaluates reports, facilitates the qualitative evaluation of the Bank’s The performance of the Chairman and Chief submitted by members of the Executive; performance. Executive is also assessed annually. In 2016, • Ensures that an effective risk management the performance of individual Directors was process exists and is maintained through The Bank Secretary’s office monitors board- evaluated by the Chairman who discussed the the Bank delegated authorities. results with each individual Director.

Stanbic Bank Uganda Limited Annual Report 2016 91 CORPORATE GOVERNANCE

Education and induction Internal Financial Controls are in place to ensure A comprehensive risk management report is the integrity of the Bank’s qualitative and provided starting on page 40, which sets out the Ongoing board education remains a focus quantitative financial information, which is used framework for risk and capital management in for the Bank. The directors are kept abreast by a variety of stakeholders. The Chief Financial the Bank. of all applicable legislation and regulations, Officer is ultimately responsible for implementing changes to rules, standards and codes, as well and maintaining internal Financial Controls. as relevant sector developments, which could Board Credit Committee potentially impact the Bank and its operations. Assurance of the effectiveness of Internal The role of this committee is to ensure that Additional time is scheduled outside of Board Financial Controls is achieved through effective frameworks for credit governance are meetings to run dedicated sessions highlighting management confirmation that the Financial in place in the Bank. This involves ensuring that key issues for the Board. This programme is Governance Controls and Internal Financial the Management Credit Risk Committee and supplemented by external courses and on-site Controls supporting the assertions in the the credit function operate according to clearly visits where relevant. financial statements operated effectively during defined mandates and delegated authority, the year and coordinated audit work by the On appointment, each new Director receives and providing for the adequate management, internal and external auditors as part of their an induction pack that includes all relevant measurement, monitoring and control of credit annual risk based audit plans. governance information such as mandates, risk, including country risk. management structures, significant reports, The committee considers reports from internal important legislation and policies. In addition, The Committee reports to the Board on credit audit on any weaknesses in controls that have one-on-one meetings are scheduled with portfolios, adequacy of provisions and status been identified, including financial controls, and management to introduce new Directors to the of non-performing loans. It does not approve considers corrective actions to be implemented Bank and its operations. The Bank Secretary individual credit applications which remain by management to prevent such incidences is responsible for the induction and ongoing within the ambit of the Credit Risk Management recurring. This takes place on an ongoing basis. education of Directors. Committee, credit function and the Board, The audit committee has complied with its for significant facilities. Further detail on the Board Committees mandate in the year under review, as well as management of credit risk is set out in the Board Committees operate in accordance its legal and regulatory responsibilities. Four comprehensive risk management report with mandates which are reviewed and scheduled meetings were held. provided starting on page 40. approved by the Board on an regular basis. Each Committee’s mandate sets out the The Committee’s composition includes Name of 21 23 2 18 role, responsibilities, scope of authority, Director Mar May Aug Oct an Executive Director and Non-Executive composition and procedures to be followed. All Directors. Board Committee mandates take into account S Sejjaaka √ √ √ √ amendments to relevant legislation and other R Emunu √ √ A √ The Credit Committee complied with its pertinent changes in the Bank’s operating B Mulwana √ √ √ NA mandate for the year under review. Four environment. scheduled meetings were held. √ = Attendance; A = Apology; NA = Board Audit Committee Not Applicable; Name of 22 24 2 18 Director Mar May Aug Oct The Committee is constituted in accordance with the Financial Institutions Act which Board Risk Management B Mulwana √ √ A √ requires the Board to appoint at least two Non- Committee J Okot √ NA NA NA Executive Directors to the Committee. The Board is ultimately responsible for risk P Mweheire √ √ √ √ management. The main purpose of the As per the law, the Board has appointed the committee is to provide independent and P Mangheni NA √ √ √ members of the committee which is comprised objective oversight of risk management within E Kavuma NA NA √ √ solely of independent Non-Executive Directors. the Bank. A number of management committees help the committee to fulfil its mandate, the √ = Attendance; A = Apology; NA = The role of this Committee is to review main one of these being the risk management Not Applicable; the Bank’s financial position and make committee. recommendations to the Board on all financial matters, risks, internal financial To achieve oversight, the committee reviews and Board Human Capital Committee controls, fraud and IT risks relevant to assesses the integrity of risk control systems The Board Compensation Committee was financial reporting. This includes assessing and ensures that risk policies and strategies renamed the Board Human Capital Committee the integrity and effectiveness of accounting, are managed effectively and contribute to a and in addition to 1 and 2 below, its role was financial compliance and control systems. The culture of discipline and control that reduces expanded to: committee has a constructive relationship the opportunity of fraud. Assurance on with the Head Internal Audit, who has access the effectiveness of the risk management 1. Provide oversight on the compensation to the committee members as required. processes is provided to the committee through of Directors, Executive and Senior The Committee also ensures effective management reporting. Management and other key personnel and communication between the internal auditors, ensure that the compensation is consistent external auditors, the Board, management and The committee’s composition includes Executive with the Bank’s culture, objectives, strategy regulators. and Non-Executive Directors. The committee and control environment. complied with its mandate for the year under 2. Perform other duties related to the Bank’s The Committee is responsible for, amongst review. Four scheduled meetings were held. compensation structure in accordance other things, the internal control framework, with applicable laws, rules, policies and which combines the Bank’s three lines of Name of 22 24 2 18 regulations. defence model with the Bank’s Corporate Director Mar May Aug Oct Governance Framework. The three lines of 3. Attend to human capital matters. R Emunu √ √ √ √ defence model seeks to separate the relevant duties and ensure independent reporting lines J Okot √ NA NA NA The goal of the committee is to maintain to underpin effective internal control and risk P Mweheire √ √ √ √ compensation policies which will attract and management. More detail on the approach to P Mangheni A √ √ √ retain the highest quality executive and senior risk management is provided in the Risk and managers and which will reward the executives Capital Management section which starts on √ = Attendance; A = Apology; NA = and senior managers of the Bank for the Bank’s page 40. Not Applicable; progress and enhancement of the shareholder

Stanbic Bank Uganda Limited Annual Report 2016 92 CORPORATE GOVERNANCE Board Human Capital Committee continued

value. In light of its expanded mandate, the Relationship with shareholders trading policy and an insider trading policy are committee oversees the welfare, talent and skill Regular, pertinent communication with in place to prohibit Employees and Directors development, and other human capital matters. shareholders is part of the Bank’s fundamental from trading in securities during closed periods, In fulfilling its mandate, the committee is guided responsibility to create shareholder value and which are in effect from 1 June to the publication by the Standard Bank Group philosophy and improve stakeholder relationships. In addition of the interim results and from 1 December to policy as well as by the specific social, legal, to the ongoing engagement facilitated by the the publication of final results. During other economic context of Uganda. Investor Relations Manager and Governance periods, where employees are in possession of Officer, the Chairman encourages shareholders price sensitive information, closed periods are The committee comprises solely Non-Executive to attend the annual general meeting where imposed on these employees. Compliance with Directors. The Chief Executive attends the interaction is welcomed. The other Directors are the policies is monitored on an ongoing basis. meetings by invitation. Other members of available at the meeting to respond to questions Executive Management can be invited to attend from shareholders. Voting at General Meetings Sustainability when appropriate to assist the committee in is conducted by show of hands. The Board The sustainability report on pages 48 - 84, aims fulfilling its mandate. proposes separate resolutions on each issue to provide a balanced analysis of the Bank’s put forward to shareholders. sustainability performance in relation to issues No individual, irrespective of position, is present when his or her remuneration is discussed. that are relevant and material to the Bank and to In line with cost reduction initiatives, its stakeholders. The report provides: shareholders who still hold shares in certificated • An overview of the Bank’s sustainability Name of Director 22 2 18 form were encouraged to receive annual and performance in 2016 Mar Aug Oct interim reports and dividend announcements in electronic format. • An overview of stakeholder interaction S Sejjaaka √ NA NA during the year and Ruth Emunu √ √ NA The articles of association of the Bank require • Material issues affecting the Bank. every shareholder to register his or her address B Mulwana NA A √ in Uganda with the Bank. Shareholders who still G Brackenridge NA √ A hold shares in certificated form are advised to Ethics and organisational notify the Bank’s Share Registrars in writing of E Kavuma NA √ √ integrity any change in their postal or email addresses or The code of ethics is designed to empower bank account details. √ = Attendance; A = Apology; employees and enable effective decision NA = Not Applicable; making at all levels of our business according to Connecting with stakeholders defined ethical principles. It also aims to ensure Bank Secretary The Bank’s relevance to the markets and that. As a significant organisation in the financial societies in which we operate depends on services industry, we adhere to the highest The role of the Bank Secretary is to ensure continued and meaningful engagement with all standards of responsible practice. The code the Board remains cognizant of its duties and stakeholders. interprets and defines Standard Bank Group responsibilities. In addition to guiding the Board “Group” and the Bank’s values in greater detail on discharging its responsibilities, the Bank Stakeholder management at the Bank involves and provides value-based decision making Secretary keeps the Board abreast of relevant the optimal employment of the organisation’s principles to guide our conduct. It is aligned changes in legislation and governance best resources to build and maintain good with other Bank policies and procedures, and relationships with stakeholders. This helps the practices. The Bank Secretary also oversees supports the relevant industry regulations and Bank to manage the expectations of society, the induction of new Directors as well as the laws. minimise reputational risk and form strong ongoing education of Directors. To enable partnerships, which all underpin business the Board to function effectively, all Directors sustainability. The code specifies acceptable and have full and timely access to information unacceptable practices and assists in making that may be relevant to the proper discharge Stakeholder relationships and related issues are ethical infringement easy to identify. It also of their duties. This includes information discussed at Board meetings. promotes awareness of, and sensitivity to, such as corporate announcements, investor ethical issues. communications and other developments Several stakeholder engagement initiatives which may affect the Bank and its operations. took place during the year. More information The Chief Executive is the formal custodian of All Directors have access to the services of the on these initiatives can be found in the the code of ethics and is ultimately responsible Sustainability report on page 48. Secretary. for its implementation.

Going concern Dealing in securities Ethics incidents are reported via the ethics and In line with its commitment to conducting fraud hotline, human resources department, The Directors have sufficient reason to believe business professionally and ethically, the Bank risk department and business unit ethics that the Bank has adequate resources to has a policy that restricts dealing in securities by officers. Reported incidents include fraud and continue operating as a going concern. Directors and Employees. A personal account human resources-related issues.

Stanbic Bank Uganda Limited Annual Report 2016 93 CORPORATE GOVERNANCE

Remuneration report

All Board Human Capital Committee decisions are guided by the Bank and the Group philosophy and policy, as well as by the specific social, legal and economic context of the country.

Where considered appropriate, the Board first quarter of the year and market data is used employees of Stanbic Bank Uganda are eligible Human Capital Committee of the Bank initiates for benchmarking. to participate in. Participation rights under the modifications to remuneration designs to en- The longer term aim of the Board Human EGS and share options under the GSIS are sure that regulatory requirements are met and Capital Commitee is to move from a fixed salary granted to qualifying employees. Grants of our remuneration policies, are progressive and and benefits to a ‘cost-to-Bank’ philosophy rights or options are typically made annually are consistent with, and promote effective risk whereby a cash sum is delivered from which all as part of the annual reward review; however, management. benefits are deducted. grants are also made to new employees on Benefits appointment or as ad hoc awards for retention Remuneration philosophy and Benefits are provided in line with market purposes. EGS and GSIS long term incentives policy practice and regulatory requirements. The Bank are awarded to key talent and are motivated by an individual’s current performance and The Bank is committed to building a leading provides medical cover and death benefits for future potential. No awards are made to Non- emerging markets bank that attracts and staff and dependents. In addition, retirement Executive Directors. retains world-class people. Consequently, benefits are provided on a deferred contribution we work to develop a depth and caliber basis linked to fixed pay. No participation rights or options are issued at of human resource that is capable of a pricing discount, nor can they be re-priced, delivering sustainable growth across multiple Variable pay except as provided for in terms of the scheme in geographies, products and regulatory regimes, Annual Incentive relation to a reduction or re-organisation of the and always within our agreed risk tolerance. Annual incentives are provided to ensure issued share capital of Standard Bank Group. appropriate reward for performance. Incentive At the heart of this commitment lies the value pools are allocated to teams shaped by The table below sets out the general we place on our people. Therefore, effective a combination of overall bank and team vesting conditions of the various options or management and remuneration of our talent performance within the set risk tolerance levels. participating rights issued. The Standard Bank must be a core competency of our Bank. Individual awards are based on personal Group Directors have the discretion to vary the vesting categories but not the expiry periods. As an integral part of growing and fortifying performance, both financial and non-financial. our human capital skills, the Human Capital In some cases, a portion of the annual incentive Committee continually reviews the Bank’s above a certain threshold is deferred. Vesting Ye a r Cumulative Expiry remuneration philosophies, structures and Category Vesting % Deferral Schemes practices. A 3, 4, 5 50, 75, 100 10 years

To determine the remuneration of employees of Deferred Bonus Scheme (DBS) B 5, 6, 7 50, 75, 100 10 years The Bank has implemented a DBS, to the Bank, the Board Human Capital Committee C 2, 3, 4 50, 75, 100 10 years compulsorily defer a portion of incentives over a reviews market and competitive data, and minimum threshold for some senior managers considers the Bank’s performance against and executives. This improves alignment of Terms of employment financial objectives and individual performance. shareholder and management interests and Retention agreements A key step in this development was taken enables claw back under certain conditions, Retention agreements are only entered into by the committe and management to seek supporting risk management. All employees in exceptional circumstances and retention benchmarking guidance from Hay Group and who are awarded an incentive over a certain payments have to be repaid should the Global Remuneration Services (GRS). threshold are subject to a mandatory deferral of individual concerned leave within a stipulated a certain percentage of their bonus into the DBS period. Certain specialist departments, for example, for up to 42 months. Severance payments human resources and finance, provide Severance payments are determined by supporting information and documentation To enhance the retention component of the legislation, market practice and where relating to matters considered by the Board scheme, additional increments of the deferred applicable, agreement with recognised trade Human Capital Committee. bonus become payable at vesting and one year unions to employee forums. It is not the practice thereafter. of Stanbic Bank Uganda to make substantial Structure of remuneration for managerial and severance awards. general employees Claw back provision Restrictive covenants A claw back provision was introduced on the Some executive employment contracts include Terms of service deferred remuneration plan. A key provision restrictive covenants on poaching of employees The terms and conditions of employment of all in the plans is that unvested awards may be or customers. No other restrictions are included managers and general employees are guided reduced or forfeited, in full or in part, at the in contracts at present. by local legislation and are aligned to Group Board Human Capital Committee’s discretion Sign on payments practices. Notice periods are stipulated by subject to prescribed conditions In attracting key employees, it may be legislation and can go up to three months. necessary to compensate for the loss of Long term incentives unvested awards with their prior employer. In Structure of the remuneration such cases we would consider compensating such new employees in the appropriate share Fixed pay Share incentive schemes incentive scheme or in certain situations a Fixed pay is intended to attract and retain The Standard Bank Group runs a Standard employees by ensuring competitive positioning Bank Equity Growth Scheme (EGS) and Group cash sign on payment may be made on joining, in the local market and in certain cases, globally. Share Incentive Scheme (GSIS) to which certain subject to repayment should the employee Fixed pay is normally reviewed annually, in the leave the Bank within a certain period.

Stanbic Bank Uganda Limited Annual Report 2016 94 CORPORATE GOVERNANCE Remuneration report continued

Directors’ remuneration Terms of service Fees Remuneration of Executive Directors All Non-Executive Directors are provided with Non-Executive Directors receive a fee for their The remuneration packages and long term a letter of appointment setting out the terms of service on the Board and a meeting attendance engagement. incentives for Executive Directors are fee for Board Committee meetings. Fees are paid quarterly in arrears. determined along with other employees on Directors are appointed by shareholders at the the same basis and using the same qualifying AGM. Between AGMs interim appointments There are no contractual arrangements criteria. may be made by the Board. These interim for compensation for loss of office. Non- appointees are required to retire at the following Executive Directors do not receive short-term The compensation of the Chief Executive AGM where they then offer themselves for incentives, nor do they participate in any is subject to an annual review process that re-election by shareholders. In addition, one long term incentives schemes. The Board includes the Board. -third of Non-Executive Directors are required Human Capital Committee reviews the fees to retire at each AGM and may offer themselves paid to Non-Executive Directors annually and for re-election. The disclosure of the remuneration of the makes recommendations to the Board for consideration. highest paid employees who are not Directors, If supported by the Board, the Board then is considered competitor sensitive and after due proposes their re-election to shareholders. In determining the remuneration of the Non- consideration, the Board has resolved not to Executive Directors, the Board considers the publish this information. There is no limitation on the number of times extent and nature of their responsibilities, and a Non-Executive Director may stand for re- reviews of comparative remuneration offered by Non-Executive Directors’ remuneration and election. Proposals for re-election are based on other major Ugandan and International Banks. terms of engagement individual performance and contribution.

The table below shows the breakdown of Directors’ Emoluments for the year ended 2016 Category Services as Board Cash Portion Performance Other Pension Total Directors Committee Of package Incentives * Benefits Contributions Fees UShs ‘000 UShs ‘000 UShs ‘000 UShs ‘000 UShs ‘000 UShs ‘000 UShs ‘000 Executive Directors - - 2,168,500 1,245,938 1,995,520 512,166 5,922,123 Non-Executive Directors 302,495 149,743 - - - - 452,238 Former Non-Executive Directors 40,493 6,222 - - - - 46,714 Total 342,987 155,965 2,168,500 1,245,938 1,995,520 512,166 6,421,075

The table below shows the breakdown of directors’ emoluments for the year ended 2015 Executive Directors - - 1,117,427 1,518,526 1,171,199 288,197 4,059,349 Non-Executive Directors 339,759 160,949 - - 4,516 - 505,224 Former Non-Executive Directors ------Total 339,759 160,949 1,117,427 1,518,526 1,175,715 288,197 4,600,573

Performance-related pay is aligned to the financial year. Performance is assessed at the end of the year and paid in the following year. The amounts herein are performance awards paid in the current year but relate to performance in the prior year.

Stanbic Bank Uganda Limited Annual Report 2016 95 CORPORATE GOVERNANCE

Report of the Audit Committee

This report is provided by the Audit Committee in respect of the 2016 financial year of Stanbic Bank Uganda Limited. The Committee’s operation is guided by a detailed mandate that is informed by the Companies Act 2012, the Financial Institutions Act (2004 as amended) and is approved by the Board.

The Committee is appointed by the Board performing loans and impairment of other differences of opinion between the internal annually. Information on the membership assets, and the formulae applied by the audit function and management and composition of the Audit Committee, its Bank in determining charges for and levels • Assessed the adequacy of the performance terms of reference and its activities is provided of impairment of performing loans of the internal audit function and adequacy in greater detail in the corporate governance • Ensured that the annual financial of the available internal audit resources and statement. statements fairly present the financial found them to be satisfactory position of the Bank, as at the end of the Execution of functions • Received assurance that proper and financial year and the results of operations adequate accounting records were The Audit Committee has executed its duties and cash flows for the financial year and maintained and that the systems and responsibilities during the financial year considered the basis on which the Bank safeguarded the assets against in accordance with its mandate as it relates determined to be a going concern unauthorised use or disposal thereof to the Stanbic Bank accounting, internal • Ensured that the annual financial • Based on the above, the committee formed auditing, internal control and financial reporting statements conform with IFRS practices. the opinion that, at the date of this report, • Considered accounting treatments, there were no material significant unusual transactions and During the year under review, the committee, Breakdowns in internal control, including accounting judgements among other matters, considered the following: internal financial controls, resulting in any • Considered the appropriateness of the material loss to the group In respect of the external auditors and the accounting policies adopted and changes • Reviewed and approved the mandate of external audit: thereto financial crime as an independent risk • Recommended to the Board for an • Reviewed and discussed the external function approval of the appointment of KPMG auditors’ audit report Certified Public Accountants Uganda, as • Discussed significant financial crime external auditors for the financial year • Considered and made recommendations to matters and control weaknesses identified the Board on the interim and final dividend ended 31 December, 2016, in accordance • Reviewed any significant legal and tax payments to the shareholder with all applicable legal requirements matters that could have a material impact • Approved the external auditors’ terms of • Noted that there were no material reports on the financial statements or complaints received concerning engagement, the audit plan and budgeted • Considered quarterly reports from the audit fees payable accounting practices, internal audit, internal financial controls, content of group and company’s internal financial • Reviewed the audit process and evaluated the annual financialstatements, internal controls committee the effectiveness of the audits controls and related matters. • Considered the independent assessment • Obtained assurance from the external of the effectiveness of the internal audit auditors that their independence was not In respect of the annual report: function impaired • Recommended the annual report to the • In respect of legal, regulatory and • Considered the nature and extent of all Board for approval compliance requirements non-audit services provided by the external • Evaluated management’s judgments • Reviewed, with management, matters that auditors and reporting decisions in relation to the could have a material impact on the Bank • Through the Chairman, approved proposed annual report and ensured that all material • Monitored compliance with the Ugandan contracts with the external auditors for disclosures are included Companies Act, the Financial Institutions the provision of non-audit services and • Reviewed forward-looking statements, Act, all other applicable legislation and pre-approved proposed contracts with the financial and sustainability information in governance codes and reviewed reports external auditors for the provision of non- respect of internal control, internal audit from internal audit, external auditors and audit services above an agreed threshold and financial crime control compliance detailing the extent of this amount • Reviewed and approved the annual • Noted that no complaints were received • Confirmed that no reportable irregularities internal audit charter and audit plan and through the Banks’s Ethics and Fraud were identified and reported by the external evaluated the independence, effectiveness Hotline concerning accounting matters, auditors. and performance of the internal audit internal audit, internal financial controls, department and compliance with its charter contents of financial statements, potential In respect of the financial statements: • Considered reports of the internal and violations of the law and questionable • Confirmed the going concern principle external auditors on the group’s systems of accounting or auditing matters as the basis of preparation of the annual internal control, including internal financial • Reviewed and approved the annual financial statements controls and maintenance of effective compliance mandate and compliance plan. internal control systems • Examined and reviewed the interim and In respect of risk management and it: annual financial statements prior to • Reviewed significant issues raised by the • Considered and reviewed reports from submission and approval by the Board internal audit processes and the adequacy management on risk management, of corrective action in response to such including fraud and its risks as they pertain • Reviewed reports on the adequacy of findings the provisions for performing and non- to financial reporting and the growing • Noted that there were no significant concern assessment

Stanbic Bank Uganda Limited Annual Report 2016 96 CORPORATE GOVERNANCE Report of the audit committee continued

In respect of the coordination of assurance Independence of the external • The auditors’ independence was not activities, the committee: prejudiced as a result of any previous auditors appointment as auditor • Reviewed the plans and work outputs The Audit Committee is satisfied that of the external and internal auditors as • The criteria specified for independence KPMG Certified Public Accountants. are by the independent regulatory. well as compliance and financial crime independent of the Bank. This conclusion control, and concluded that these were was arrived at, inter alia, after taking into Board for Auditors and international adequate to address all significant account the following factors: regulatory bodies were met. financial risks facing the business • The representations made by KPMG Certified Public Accountants Uganda to In conclusion, the Audit Committee has • Considered the expertise, resources and the Audit Committee complied with its legal, regulatory and experience of the finance function and governance responsibilities as set out in its • The auditors do not, except as external mandate. the senior members of management auditors or in rendering permitted non- responsible for this function and audit services, receive any remuneration concluded that these were appropriate or other benefits from the Bank • The auditors’ independence was not • Considered the appropriateness of the impaired by any consultancy, advisory On behalf of the Audit Committee experience and expertise of the Group or other work undertaken by the Chairman, Audit Committee Financial Director and concluded auditors 27 March 2017

Stanbic Bank Uganda Limited Annual Report 2016 97 CORPORATE GOVERNANCE

Directors’ report

The Directors submit their report together Dividends Directors’ interest in shares with the audited financial statements for The Directors recommend the payment of At 31 December, 2016, the following Director the year ended 31 December, 2016, which final dividends of UShs 60 bn for the year has held a direct interest in the Bank’s ordi- disclose the state of affairs of Stanbic Bank ended 31 December, 2016. nary issued share capital as reflected in the Uganda Limited (“the Bank”). table below:

Share Capital Director Number of Shares Principal activities The total number of issued ordinary shares The Bank is a licensed financial institution P Mangheni 100,000 as at year end was 51,188,669,700 of Uganda Total 100,000 under the Financial Institutions Act and is a UShs 1 each. member of the Uganda Bankers Association. Insurance The Bank is engaged in the business of com- Directors and Secretary The Bank maintained Directors and officers’ mercial banking and the provision of related The Directors who held office during the year liability insurance during the year. banking services. The Bank is also among and to the date of this report were: the six primary dealers selected by the Bank Japheth Katto - Chairman Events subsequent to balance of Uganda to deal in Government of Uganda S Sejjaaka - Non-Executive Director securities. sheet date B Mulwana - Non-Executive Director There is no material event that has occurred R Emunu - Non-Executive Director between the reporting date and the date of Results J Okot - Non-Executive Director this report that would require adjustment to The Bank’s results for the year ended these financial statements. J Mangheni - Non-Executive Director 31 December, 2016 are shown in the income statement on page 106, and an operating and E Kavuma - Non Executive Director financial review of the results for the year is C Tasker - Non Executive Director Management by third parties given on pages 26 - 30. G Brackenridge - Non Executive Director None of the business of the Bank has been managed by a third person or a company P Mweheire - Chief Executive inwhich a director has had an interest during A general review of the business is given by C Okoboi - Secretary the Chairman and Chief Executive on pages the year. 18 - 22. By order of the Board

Candy Okoboi Secretary, Board of Directors 27 March, 2017

Stanbic Bank Uganda Limited Annual Report 2016 98 CORPORATE GOVERNANCE

Statement of Directors’ responsibility The Directors are responsible for the preparation and fair presentation of the financial statements of Stanbic Bank Uganda Limited set out on pages 106-154 which comprise the statement of financial position as at 31 December 2016, the income statement and statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards, the Companies Act of Uganda and the Financial Institutions Act, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error.

The Directors’ responsibilities include; designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. They are also responsible for the safeguarding the assets of the Company.

Under the Companies Act of Uganda, the Directors are required to prepare financial statements for each financial year which give a true and fair view of the operating results of the Company for that year. It also requires the Directors to ensure that the Company keeps proper accounting records which disclose with reasonable accuracy the financial position of the Company.

The Directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards, and the reporting requirements of the Financial Institutions Act and the Companies Act of Uganda. The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Company and of its operating results for the year ended 31 December, 2016. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements as well as adequate systems of internal financial control.

The Directors have made an assessment of the Company’s ability to continue as a going concern and have no reason to believe the Company will not be a going concern for at least the next twelve months from the date of this statement.

Approval of the financial statements The financial statements of Stanbic Bank Uganda Limited, were approved by the Board of Directors on 27 March, 2017 and were signed on its behalf by:

……………………………………... …………………………………….

Chairman Chief Executive 27 March, 2017 27 March, 2017

Stanbic Bank Uganda Limited Annual Report 2016 99 Independent Auditors’ Report to the members of Stanbic Bank Uganda Limited

Report on the Audit of the Financial then ended in accordance with International we have fulfilled our other ethical responsibilities Statements Financial Reporting Standards, the Financial in accordance with these requirements and the Institutions Act, 2004 (as amended in 2016) IESBA Code. We believe that the audit evidence Opinion and the Companies Act of Uganda. we have obtained is sufficient and appropriate We have audited the financial statements of to provide a basis for our opinion. Stanbic Bank Uganda Limited (“the Bank”), Basis for Opinion which comprise the statement of financial We conducted our audit in accordance with Key Audit Matters position as at 31 December 2016, the income International Standards on Auditing (ISA). Key audit matters are those matters that, statement and statements of comprehensive Our responsibilities under those standards in our professional judgment, were of most income, changes in equity and cash flows are further described in the Auditors’ significance in our audit of the financial for the year then ended, and the notes to the Responsibilities for the Audit of the Financial statements of the current period. These matters financial statements, including significant Statements section of our report. We are were addressed in the context of our audit of accounting policies, set out on pages 106 - 154. independent of the Bank in accordance with the financial statements taken as a whole, and In our opinion, the financial statements the International Ethics Standards Board for in forming our opinion thereon, and the report give a true and fair view of the financial Accountants Code of Ethics for Professional below is not intended to constitute separate position of Stanbic Bank Uganda Limited Accountants (IESBA Code), together with the opinions on these key audit matters. as at 31 December 2016, and of its financial ethical requirements that are relevant to our performance and its cash flows for the year audit of the financial statements in Uganda and

Key audit matter How our audit addressed the matter

Impairment of loans and advances to customers

Refer to notes 2(j) and 3(a)-3(f) to the financial statements.

Impairment represents the directors’ best estimate of the non recoverable Our audit procedures in this area included among others: portion of Loans and Advances. For both individual and collective portfolios: Impairments are calculated on individual and collective basis on non-performance loans. The Bank has put in place financial models — We obtained an understanding of the credit impairment process of to determine the individual and collective impairment for loans and the Bank and tested the design and operating effectiveness of the advances. The models are complex and require high levels of judgment in key controls. These included testing determining key inputs which mainly include; • System-based and manual controls over the timely recognition Probability of default - of impaired loans and advances. - Exposure at default - Emergence period • Controls over the impairment calculation models including - Roll rates data inputs. - Loss given default. • Controls over collateral valuation estimates. Because of the significance of these judgements on the loan impairment balance and the size of loans and advances in the financial statements, the impairment of loans and advances was considered a key audit matter. For individual portfolios:

— We tested a sample of loans and advances including those that had not been identified by management as potentially impaired to determine whether impairment events had occurred and to assess whether impairments had been identified in a timely manner.

— We challenged management as to whether all loans were considered for individual impairment especially those in the sectors of construction, agriculture, real estate, wholesale and retail.

— We challenged management assumptions on projected cash flows when assessing individual impairment with reference to current economic performance, assumptions most commonly used in the client specific industry, and comparison with external evidence or historical financial trends.

For collective portfolios:

— We evaluated work done by credit risk modelling experts to determine the appropriateness of the assumptions and financial models used in arriving at the collective impairment.

— We assessed the experts’ competence and their professional qualifications, experience, and independence.

Stanbic Bank Uganda Limited Annual Report 2016 100 Key audit matter How our audit addressed the matter Fair value measurement of financial instruments

Refer to note 3(h) to the financial statements The Bank has UShs. 902,147,774,000 of its financial instruments held Our audit procedures in this area included among others; at fair value and qualifying under level 2 and 3 of the fair value hierarchy. • We tested the design and operating effectiveness of the The levels 2 and 3 require the Directors to calculate the fair value of key controls in the Bank’s financial instrument valuation the qualifying financial instruments which is based on complex and processes, including the controls over data inputs into significant judgement. valuation models and the controls over testing and approval of new models or changes to existing models. These fair value calculations are dependent on various sources of data inside and outside the Bank and complex modelling techniques. • We assessed the effectiveness of the general IT controls on the fair valuation models. The valuation of the Bank’s financial instruments was determined to be a key audit matter due to the degree of complexity involved in determining • We also involved our valuation experts to challenge fair value for level 2 and level 3 financial instruments and the significance managements valuation methodologies used. of the judgments and estimates made by the Directors. • We tested a sample of financial instruments using independent models and source data from reputable independent third parties and comparing the results to the Bank’s valuations.

Transfer pricing on related party transactions

Refer to note 39 in the financial statements

In the normal course of business, the Bank incurs expenses with related Our audit procedures in this area included among others; parties mainly arising from, expense recharges by the parent company in South Africa. • Obtaining an understanding of the process followed by the Directors in determining the appropriate tax treatment of These expenses are reported under operating expenses in the financial related expenses and the intangible asset. statements. • On a sample basis, we recomputed and assessed the reasonableness of the recharges against the principles In addition, during the year the Bank purchased the core banking agreed between the Bank and its parent. system, Finacle Solution from the parent company which is reported • We used our tax specialists to assist us in assessing whether as an intangible asset in the financial statements amounting to UShs a transfer pricing report prepared by the Bank’s external 83,405,154,000. tax experts is consistent with the URA transfer pricing regulations. The report also assessed the methodology The tax treatment of these expenses and the intangible asset is subject applied in arriving at the recharges for consistency with the to transfer pricing rules issued by Uganda Revenue Authority (URA). Organisation for Economic Co-operation and Development (OECD) guidelines. These rules are complex and there is a high level of judgment required of • With regards to the intangible asset, we evaluated an the Directors in arriving at transfer pricing of these related services and independent experts transfer pricing report which determining the impact on the financial statements. assessed the reasonableness of purchase price charged to the Bank. Due to the complexity and judgement involved and the significance of the purchase of the intangible asset during the year, the transfer pricing on these relates services was considered a key audit matter.

Other Information The directors are responsible for the other information set out on pages 1 - 99 and 155 - 166. The other information comprises the information includ- ed in the annual report, but does not include the financial statements and our auditors’ report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors for the Financial Statements The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards, Financial Institutions Act 2004 (amended in 2016) and the Companies Act of Uganda, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so.

Stanbic Bank Uganda Limited Annual Report 2016 101 Auditors’ Responsibilities of accounting estimates and related and are therefore the key audit matters. for the Audit of the Financial disclosures made by the Directors. We describe these matters in our auditors’ Statements report, unless law or regulation precludes • Conclude on the appropriateness of the public disclosure about the matter or when, in Our objectives are to obtain reasonable Directors’ use of the going concern basis extremely rare circumstances, we determine assurance about whether the financial of accounting and, based on the audit that a matter should not be communicated in statements as a whole are free from material evidence obtained, whether a material our report because the adverse consequences misstatement, whether due to fraud or error, uncertainty exists related to events or of doing so would reasonably be expected to and to issue an auditors’ report that includes conditions that may cast significant outweigh the public interest benefits of such our opinion. Reasonable assurance is a high doubt on the Bank’s ability to continue communication. level of assurance, but is not a guarantee that as a going concern. If we conclude that an audit conducted in accordance with ISAs will a material uncertainty exists, we are always detect a material misstatement when it required to draw attention in our auditors’ Report on Other Legal and exists. Misstatements can arise from fraud or report to the related disclosures in the Regulatory Requirements error and are considered material if, individually financial statements or, if such disclosures As required by the Companies Act of Uganda or in the aggregate, they could reasonably be are inadequate, to modify our opinion. we report to you, based on our audit, that: expected to influence the economic decisions Our conclusions are based on the audit of users taken on the basis of these financial evidence obtained up to the date of our i. We have obtained all the information and statements. auditors’ report. However, future events or explanations, which to the best of our As part of an audit in accordance with ISAs, we conditions may cause the Bank to cease to knowledge and belief were necessary for exercise professional judgment and maintain continue as a going concern. the purpose of our audit. professional scepticism throughout the audit. ii. In our opinion, proper books of account We also: • Evaluate the overall presentation, structure have been kept by the Bank, so far as and content of the financial statements, appears from our examination of those • Identify and assess the risks of material including the disclosures, and whether books. misstatement of the financial statements, the financial statements represent the whether due to fraud or error, design and underlying transactions and events in a iii. The Bank’s statements of financial perform audit procedures responsive to manner that achieves fair presentation. position and comprehensive income are in those risks, and obtain audit evidence agreement with the books of account. that is sufficient and appropriate to We communicate with the Directors regarding, provide a basis for our opinion. The risk among other matters, the planned scope and The engagement partner responsible for the of not detecting a material misstatement timing of the audit and significant audit findings, audit resulting in this independent auditors’ resulting from fraud is higher than for one including any significant deficiencies in internal report is CPA Benson Ndung’u - P0116. resulting from error, as fraud may involve control that we identify during our audit. collusion, forgery, intentional omissions, We also provide Directors with a statement misrepresentations, or the override of that we have complied with relevant ethical internal control. requirements regarding independence, and to communicate with them all relationships and • Obtain an understanding of internal control other matters that may reasonably be thought relevant to the audit in order to design audit to bear on our independence, and where procedures that are appropriate in the applicable, related safeguards. KPMG circumstances, but not for the purpose of Certified Public Accountants expressing an opinion on the effectiveness rd From the matters communicated with the 3 Floor, Rwenzori courts of the Bank’s internal control. Directors, we determine those matters that Plot 2 & 4A, Nakasero Road P O Box 3509 Evaluate the appropriateness of accounting were of most significance in the audit of the • Kampala, Uganda policies used and the reasonableness financial statements of the current period Date: 28 March 2017

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Stanbic Bank Uganda Limited Annual Report 2016 103 Financial statements & notes

Stanbic Bank Uganda Limited Annual Report 2016 104 106 Income statement

107 Statement of comprehensive income

108 Statement of financial position

109 Statement of changes in equity

111 Statement of cash flows

112 Notes to the financial statements

Stanbic Bank Uganda Limited Annual Report 2016 105 FINANCIAL STATEMENTS

Income statement for the year ended 31 December 2016

2016 2015 Notes UShs’ 000 UShs’ 000

Interest income 6 423,855,935 350,330,210 Interest expense 7 (47,500,475) (38,850,179) Net interest income 376,355,460 311,480,031 Fee and commission income 8 116,447,582 108,878,606 Fee and commission expenses 8 (1,814,906) (3,178,947) Net fees and commission income 114,632,676 105,699,659 Net trading income 9 151,834,914 114,459,189 Other operating income 10 623,578 894,479 Total income before credit impairment charge 643,446,628 532,533,358 Impairment charge for credit losses 11 (36,640,522) (28,747,373) Total income after credit impairment charge 606,806,106 503,785,985 Employee benefit expenses 12 (136,769,846) (120,118,291) Depreciation and amortisation 24 & 25 (22,714,254) (16,917,933) Other operating expenses 13 (193,373,385) (163,451,913) Profit before income tax 253,948,621 203,297,848 Income tax expense 14 (62,796,786) (52,538,567) Profit for the year 191,151,835 150,759,281 Earnings per share for profit attributable to the equity holders of the Bank during the year

(expressed In UShs per share): Basic & diluted 15 3.73 2.95

The notes set out on pages 112 - 154 form an intergral part of these financial statements.

Stanbic Bank Uganda Limited Annual Report 2016 106 FINANCIAL STATEMENTS

Statement of comprehensive income for the year ended 31 December 2016

2016 2015 Notes UShs’ 000 UShs’ 000 Profit for the year Other comprehensive income for the year after tax: 191,151,835 150,759,281 Net gain/(loss) on available for sale revaluation reserves 27 19,009,663 (8,829,581) Total comprehensive income for the year 210,161,498 141,929,700

The notes set out on pages 112-154 form an intergral part of these financial statements.

107 Stanbic Bank Uganda Limited Annual Report 2016 107 FINANCIAL STATEMENTS

Statement of financial position as at 31 December 2016

Notes 2016 2015 UShs’ 000 UShs’ 000 Assets Cash and balances with Bank of Uganda 16 709,350,387 589,841,286 Derivative assets 29 10,066,617 2,638,073 Government securities - held for trading 17 250,484,271 177,809,717 Government securities - available for sale 17 640,941,821 507,024,434 Other investments 20 62,930 60,690 Current income tax recoverable 14 12,496,197 14,247,605 Loans and advances to banks 18 758,656,662 345,265,985 Amounts due from group companies 38 36,147,113 29,380,268 Loans and advances to customers 19 1,976,748,072 1,917,243,556 Other assets 23 49,330,012 78,721,808 Prepaid operating leases 22 98,660 108,998 Property and equipment 25 63,318,002 49,209,285 Goodwill and other intangible assets 24 79,601,588 2,811,538 Deferred income tax asset 21 1,307,349 14,777,770 Total assets 4,588,609,681 3,729,141,013

Shareholders’ equity and liabilities Shareholders’ equity Ordinary share capital 26 51,188,670 51,188,670 Available for sale revaluation reserve 27 3,071,123 (15,938,540) Statutory credit risk reserve 28 22,893,968 19,901,192 Retained earnings 577,788,232 449,606,422 Proposed dividends 35 60,000,000 40,000,000 714,941,993 544,757,744 Liabilities Derivative liabilities 29 592,135 2,119,522 Deposits from customers 30 3,058,504,763 2,438,420,865 Deposits from banks 31 293,726,727 365,209,914 Amounts due to group companies 38 242,805,246 190,407,880 Borrowed funds 32 11,579,364 11,110,540 Subordinated debt 34 72,137,386 23,740,086 Other liabilities 33 194,322,067 153,374,462 Total Liabilities 3,873,667,688 3,184,383,269

Total equity and liabilities 4,588,609,681 3,729,141,013

The notes set out on pages 112 - 154 form an intergral part of these financial statements.

The financial statements on pages 106 - 154 were approved for issue by the Board of Directors on 27 March, 2017 and signed on its behalf by:

………………………………………………………………. ………………………………………………………………. Chairman Chief Executive

………………………………………………………………. ………………………………………………………………. Director Company Secretary

Stanbic Bank Uganda Limited Annual Report 2016 108 FINANCIAL STATEMENTS

Total Total - - - 22,751 UShs’ 000 UShs’ 191,151,835 19,009,663 (40,000,000) 210,161,498 210,161,498 544,757,744 544,757,744 714,941,993 714,941,993

- - - - earnings earnings Retained Retained 22,751 UShs’ 000 UShs’ 191,151,835 191,151,835 191,151,835 577,788,232 577,788,232 449,606,422 449,606,422 (60,000,000) (2,992,776)

- - - - - dividends Proposed Proposed - - UShs’ 000 UShs’ 60,000,000 60,000,000 40,000,000 40,000,000 (40,000,000) 60,000,000

------Reserve Reserve - - Statutory UShs’ 000 UShs’ Credit Risk Credit 2,992,776 19,901,192 19,901,192 22,893,968 22,893,968

reserve reserve for sale sale for 3,071,123 3,071,123 Available Available 19,009,663 ------UShs’ 000 UShs’ 19,009,663 revaluation revaluation (15,938,540)

------51,188,670 51,188,670 51,188,670 51,188,670 UShs’ 000 UShs’ - - Share capital Share

35 39 27 Notes Notes

Year ended 31 December 2016 ended 31 December Year Profit for the year in equity directly recorded with owners Transactions At 1 January 2016 January 2016 1 At Net gain/loss in available for sale revaluation reserve the period for income comprehensive Total Dividend paid Statutory credit risk reserve Equity-settled share-based payment transactions 2016 at 31 December Balance Proposed dividend The notes set out on pages 112-154 form an intergral part of these financial statements. 112-154 form an intergral part The notes set out on pages Statement of changes in equity for the year ended 31 December 2016 ended 31 December the year for in equity changes of Statement

Stanbic Bank Uganda Limited Annual Report 2016 109 FINANCIAL STATEMENTS Statement of changes in equity continued

Total Total - - - - UShs’ 000 UShs’ 831,702 831,702 544,757,744 544,757,744 150,759,281 150,759,281 141,929,700 141,929,700 486,969,534 486,969,534 (8,829,581) (84,973,192)

earnings earnings - - - Retained Retained UShs’ 000 UShs’ 831,702 831,702 150,759,281 150,759,281 150,759,281 150,759,281 (16,311,196) 354,326,635 354,326,635 449,606,422 449,606,422 (40,000,000)

------dividends Proposed Proposed UShs’ 000 UShs’ 84,973,192 84,973,192 40,000,000 40,000,000 40,000,000 (84,973,192)

Reserve Reserve ------Statutory Statutory Credit Risk Credit UShs’ 000 UShs’ 16,311,196 16,311,196 19,901,192 19,901,192 3,589,996 3,589,996

reserve reserve UShs’ 000 UShs’ (7,108,959) (8,829,581) (8,829,581) ------Available for for Available (15,938,540) sale revaluation revaluation sale

------UShs’ 000 UShs’ 51,188,670 51,188,670 Share capital capital Share 51,188,670 51,188,670

27 35 39 Notes Notes

Profit for the year year for the Profit At 1 January 2015 January 2015 1 At Transactions with owners recorded directly in equity directly recorded with owners Transactions Dividend paid Total comprehensive income for the period for income comprehensive Total risk reserve credit Statutory transactions payment share-based Equity-settled Proposed dividend Proposed Net change in available for sale revaluation reserve Year ended 31 December 2015 ended 31 December Year Balance at 31 December 2015 2015 at 31 December Balance

The notes set out on pages 112-154 form an intergral part of these financial statements. of these notes set out on pages 112-154 form an intergral part The

Stanbic Bank Uganda Limited Annual Report 2016 110 FINANCIAL STATEMENTS

Statement of cashflows for the year ended 31 December 2016

2,016 2,015 Notes UShs’ 000 UShs’ 000 Cash flows from operating activities Interest received 458,139,781 366,870,173 Interest paid (48,273,398) (40,332,601) Net fees and commissions received 114,918,322 105,726,176 Net trading and other income/recoveries 162,552,205 126,982,056 Cash payment to employees and suppliers (351,673,270) (294,900,975) Cash flows from operating activities before changes in operating assets and liabilities 335,663,640 264,344,829 Changes in operating assets and liabilities Income tax paid 14 (55,721,957) (56,688,077) (Increase)/decrease in derivative assets (7,428,544) 752,091 Decrease in government securities - available for sale 87,705,289 123,711,780 (Increase) /decrease in government securities - trading (72,674,554) 79,712,218 Increase in cash reserve requirement (48,980,000) (24,630,000) Increase in loans and advances to customers (140,476,308) (355,977,012) Decrease/(Increase) in other assets 29,103,910 (22,825,860) Increase in customer deposits 620,856,821 307,547,247 (Decrease)/increase in deposits and balances due to other banks (71,483,187) 202,606,005 Increase/(decrease) in deposits from group companies 52,397,366 (385,439,366) (Decrease)/ increase in derivative liabilities (1,527,387) 2,052,782 Increase in other liabilities 62,510,735 49,367,470 Net cash from operating activities 789,945,824 184,534,107 Cash flows from investing activities Purchase of property and equipment 25 (30,390,727) (18,056,899) Purchase of computer software (83,405,154) - Proceeds from sale of property and equipment 136,571 333,882 Net cash used in investing activities (113,659,310) (17,723,017)

Cash flows from financing activities Dividends paid to shareholders (40,000,000) (84,973,192) Increase/(decrease) in borrowed funds 468,824 (2,957,197) Increase in subordinated debt 48,397,300 4,195,887 Net cash from/(used in) financing activities 8,866,124 (83,734,502) Net increase in cash and cash equivalents 685,152,638 83,076,588 Cash and cash equivalents at beginning of the year 934,426,339 851,349,751 Cash and cash equivalents at end of the year 37 1,619,578,977 934,426,339

The notes set out on pages 112-154 form an intergral part of these financial statements.

Stanbic Bank Uganda Limited Annual Report 2016 111 FINANCIAL STATEMENTS NOTES

Notes 1. General information Estimates and underlying assumptions are Amendment to IAS 12 Income Taxes. (The reviewed on an ongoing basis. Revisions to amendments apply for annual periods Stanbic Bank Uganda Limited provides accounting estimates are recognised in the beginning on or after 1 January 2017 and early personal, business, corporate and investment period in which the estimate is revised and in application is permitted). Banking services in Uganda. The Bank is a any future periods affected. limited liability company and is incorporated The amendments provide additional guidance and domiciled in Uganda. The address of its Information about significant areas of on the existence of deductible temporary registered office is: Plot 17 Hannington Road estimation uncertainty and critical judgements differences, which depend solely on a Short Tower - Crested Towers, PO Box 7131, in applying accounting policies that have comparison of the carrying amount of an asset Kampala. the most significant effect on the amounts and its tax base at the end of the reporting recognised in the consolidated financial period, and is not affected by possible future The Bank’s shares are listed on the Uganda statements are described in notes 4. changes in the carrying amount or expected Securities Exchange (USE). manner of recovery of the asset. New and amended standards adopted by The amendments also provide additional For Ugandan Companies Act reporting the Bank guidance on the methods used to calculate purposes, the balance sheet is represented future taxable profit to establish whether a by the statement of financial position and IFRS 10 and IAS 28 Sale or Contribution of deferred tax asset can be recognised. the profit and loss account by the income Assets between an investor and its associate Guidance is provided where an entity may statement in these financial statements. or joint venture (The effective date is yet to be assume that it will recover an asset for more confirmed). than its carrying amount, provided that there is 2. Summary of significant sufficient evidence that it is probable that the accounting policies The amendments address an inconsistency entity will achieve this. The principal accounting policies adopted in between the requirements in IFRS 10 and Guidance is provided for deductible temporary the preparation of these financial statements those in IAS 28, in dealing with the sale or differences related to unrealised losses are not are set out below. These policies have been contribution of assets between an investor assessed separately for recognition. These are consistently applied to all years presented, and its associate or joint venture. The main assessed on a combined basis, unless a tax unless otherwise stated. consequence of the amendments is that a full law restricts the use of losses to deductions gain or loss is recognised when a transaction against income of a specific type. The Bank is a) Basis of preparation involves a business (whether it is housed in assessing the impact of this amendment to the The annual financial statements are prepared a subsidiary or not). A partial gain or loss is financial statements of the Bank. in compliance with International Financial recognised when a transaction involves assets Reporting Standards (IFRS) as issued by that do not constitute a business, even if Standards and Interpretations issued but the International Accounting Standards these assets are housed in a subsidiary. The not yet effected Board (IASB) and in the manner required by the Companies Act 2012. and the Financial amendments will be applied prospectively and have no impact on the Bank’s financial IFRS 16 Leases(effective for annual periods Institutions Act. The financial statements beginning on or after 1 January 2019). are presented in the functional currency, statements. Uganda UShs (UShs), rounded to the nearest IAS 1 presentation of Financial Amendments This standard will replace the existing thousand, and prepared under the historical standard IAS 17 Leases as well as the related cost convention except for assets and (effective annual periods beginning on or after 1 January 2016). interpretations and sets out the principles for liabilities held for trading, financial instruments the recognition, measurement, presentation designated at fair value through profit or and disclosure of leases for both parties to a loss; liabilities for cash-settled share-based The amendments clarifies that materiality applies to the financial statements as a contract, being the lessee (customer) and the payment arrangements and available-for-sale lessor (supplier). financial assets that are measured at fair value. whole and that the inclusion of immaterial information can inhibit the usefulness of the financial disclosures. The amendment further The core principle of this standard is that The preparation of the financial statements in the lessee and lessor should recognise all conformity with IFRS requires management to states that professional judgement should be used in determining where and in what rights and obligations arising from leasing make judgements, estimates and assumptions arrangements on balance sheet. The most that affect the application of accounting order information is presented in the financial disclosures. significant change pertaining to the accounting policies and the reported amounts of assets, treatment of operating leases is from the liabilities, income and expenses. Actual results lessees’ perspective. IFRS 16 eliminates the may differ from these estimates. The amendment will be applied retrospectively. The revised standards and interpretations did classification of leases as either operating leases or finance leases as is required by IAS The following principle accounting policy not have any effect on the Bank’s reported earnings or financial statement position and 17 and introduces a single lessee accounting elections in terms of IFRS have been made, model, where a Right Of Use (ROU) asset with reference to the detailed accounting had no material impact on the accounting together with a liability for the future payments policies shown in brackets: policies. is to be recognised for all leases with a term of Early adoption: more than 12 months, unless the underlying • Purchases and sales of financial assets Amendment to IAS 7 Statement of Cash Flow under a contract whose terms require (The amendments apply for annual periods asset is of low value. delivery of the asset within the time frame beginning on or after 1 January 2017 and early established generally by regulation or application is permitted). The lessor accounting requirements in IAS convention in the marketplace concerned 17 has not changed substantially in terms of are recognised and derecognised using The amendments provide for disclosures this standard as a result a lessor continues Trade Date Accounting (accounting policy that enable users of financial statements to to classify its leases as operating leases or (i)); evaluate changes in liabilities arising from finance leases and accounts for these as it financing activities, including both changes currently done in terms of IAS 17. • The portfolio exception to measure the arising from cash flow and non-cash changes. fair value of certain groups of financial This includes providing a reconciliation In addition, the standard requires lessor to assets and financial liabilities on a net basis between the opening and closing balances for (accounting policy (i)). liabilities arising from financing activities. provide enhanced disclosures about its leasing activities and in particular about its • Intangible assets and property and The Bank is assessing the impact of this exposure to residual value risk and how it is equipment are accounted for using the amendment to the financial statements of the managed. cost model (accounting policy J and T). Bank. The standard will be applied retrospectively.

Stanbic Bank Uganda Limited Annual Report 2016 112 FINANCIAL STATEMENTS NOTES Summary of significant accounting policies continued

The impact on the annual financial statements that are within the scope of the standards clarifications to existing IFRS. has not yet been fully determined. on leases, insurance contracts or financial instruments. There are no other IFRSs or IFRIC Financial Instruments IFRS 9 (effective annual interpretations that are not yet effective that periods beginning on or after 1 January 2018). The core principle of the standard is that would have a material impact on the financial revenue recognised reflects the statements of the Bank. This standard will replace the existing standard consideration to which the company expects on the recognition and measurement of to be entitled in exchange for the transfer of (b) Interest income and expense financial instruments and requires all financial promised goods or services to the customer. Interest income and expense are recognised assets to be classified and measured on in the income statement using the effective the basis of the entity’s business model The standard incorporates a five step analysis interest method for all interest bearing financial for managing the financial assets and the to determine the amount and timing of revenue instruments, except for those classified at fair contractual cash flow characteristics of the recognition which include. value through profit or loss using the effective financial assets. • Identify the contract(s) with a customer interest method. • Identify the performance obligations in the The accounting for financial assets differs in contract The effective interest method is a method of various other areas to existing requirements calculating the amortised cost of a financial such as embedded derivatives and the • Determine the transaction price asset or a financial liability and of allocating recognition of fair value adjustments in other • Allocate the transaction price to the the interest income or interest expense over comprehensive income (OCI). performance obligations in the contract the relevant period. The effective interest rate • Recognise revenue when (or as) the entity is the rate that exactly discounts estimated All changes in the fair value of financial satisfies a performance obligation future cash payments or receipts through liabilities that are designated at fair value the expected life of the financial instrument through profit or loss due to changes in own or, when appropriate, a shorter period to the The standard will be applied retrospectively. credit risk will be required to be recognised net carrying amount of the financial asset The impact on the Banks financial statements within OCI. or financial liability. The calculation includes has yet been fully determined all fees paid or received between parties to The standard has introduced a new expected- the contract that are an integral part of the Share-based Payment IFRS 2 (amendment) loss impairment model that will require more effective interest rate, transaction costs and all effective for annual periods beginning on or timely recognition of expected credit losses. other premiums or discounts. This new model will apply to financial assets after 1 January 2018. measured at either amortised cost or fair value Interest income and expense presented in the The amendments are intended to eliminate through OCI, as well as loan commitments income statement include interest on financial when there is present commitment to extend diversity in practice in three main areas of the classification and measurement of share assets and financial liabilities measured at credit (unless these are measured at fair value amortised cost. through profit or loss). based payment transactions are: • The effects of vesting conditions on the When loans and advances become doubtful With the exception of purchased or originated measurement of a cash-settled share of collection, they are written down to their credit impaired financial assets, expected based payment transaction recoverable amounts and interest income is credit losses are required to be measured • The classification of a share-based thereafter recognised based on the original through a loss allowance at an amount equal to payment transaction with net settlement effective interest rate that is used to discount either 12-month expected credit losses or full features for withholding tax obligations future cash flows for the purpose of measuring lifetime expected credit losses. • The accounting where a modification the recoverable amount. to the terms and conditions of a share- A loss allowance for full lifetime expected credit based payment transaction changes its Fair value gains and losses on realised debt losses is required for a financial instrument if classification from cash-settled to equity- financial instruments, including amounts the credit risk of that financial instrument has settled. reclassified from OCI in respect of available- increased significantly since initial recognition for-sale debt financial assets, and excluding as well as for certain contract assets or trade The amendments will be applied prospectively. those classified as held-for-trading, are receivables. For all other financial instruments, The impact on the annual financial statements included in net interest income expected credit losses are measured at an has not yet been fully determined amount equal to 12-month expected credit (c) Net fees and commission losses. Foreign Currency Transactions and Advance Fee and commission revenue, including Consideration IFRIC 22 effective for annual transactional fees, account servicing The revised general hedge accounting periods beginning on or after 1 January 2018 fees, investment management fees, sales requirements are better aligned with an entity’s commissions and placement fees are risk management activities, provide additional The IFRIC provides guidance on how to recognised as the related services are opportunities to apply hedge accounting and determine the date of the transaction for the performed. Loan commitment fees for loans various simplifications in achieving hedge purpose of determining the exchange rate that are not expected to be drawn down are accounting. to use on initial recognition of the related recognised on a straight-line basis over the asset, expense or income (or part of it) on the commitment period. The standard will be applied prospectively. The derecognition of a non-monetary asset or non- impact on the annual financial statements has monetary liability arising from the payment or not yet been fully determined. Refer to page 40 receipt of advance consideration in a foreign Loan syndication fees, where the Bank of the risk management report for details of the currency. does not participate in the syndication or group’s implementation project. participates at the same effective interest rate The IFRIC will be applied retrospectively or for comparable risk as other participants, are IFRS 15, ‘Revenue from Contracts with prospectively. The impact on the annual recognised as revenue when the syndication Customers’ (applicable beginning on or after 1 financial statements has not yet been fully has been completed. Syndication fees that January 2018 determined but is not expected to have a do not meet these criteria are capitalised as significant impact on the group. origination fees and amortised to the income This standard will replace the existing revenue statement as interest income. The fair value of standards and their related interpretations. Annual Improvements 2014 – 2016 cycle issued financial guarantee contracts on initial The standard sets out the requirements Various effective dates, the earliest being for recognition is amortised as income over the for recognising revenue that applies to all the Bank’s 2017 financial year. term of the contract. contracts with customers except for contracts The IASB has issued various amendments and Fee and commission expenses, included in

Stanbic Bank Uganda Limited Annual Report 2016 113 FINANCIAL STATEMENTS NOTES Summary of significant accounting policies continued

net fee and commission revenue, are mainly Non-monetary items measured at historical Loans and receivables are initially recognised transaction and service fees relating to cost denominated in a foreign currency are at fair value plus transaction cost and financial instruments, which are expensed translated with the exchange rate as at the date measured subsequently at amortised cost as the services are received. Expenditure is of initial recognition; non- monetary items in a using the effective interest method. Loans recognised as fee and commission expenses foreign currency that are measured at fair value and receivables are reported in the statement where the expenditure is linked to the are translated using the exchange rates at the of financial position as loans and advances production of fee and commission revenue. date when the fair value was determined. to Banks or customers. Interest on loans Foreign exchange gains and losses resulting is included in the income statement and is (d) Net trading revenue from the settlement of foreign currency reported as ‘Interest income’. Net trading revenue comprises gains or transactions and from the translation at year- losses related to trading assets and liabilities, end exchange rates of monetary assets and In the case of impairment, the impairment loss and include all realised and unrealised fair liabilities denominated in foreign currencies are is reported as a deduction from the carrying value changes, interest and foreign exchange recognised in profit or loss. value of the loan and recognised in the income differences. statement as ‘Impairment charge for credit Changes in the fair value of monetary assets losses’. (e) Dividends denominated in foreign currency classified Dividend income is recognised when the right to as available-for-sale are analyzed between (iii) held-to maturity receive income is established. Usually this is the translation differences resulting from changes Held-to-maturity investments are non- ex-dividend date for equity securities. Dividends in the amortized cost of the security and other derivative financial assets with fixed or changes in the carrying amount of the security. are reflected as a component of other operating determinable payments and fixed maturities Translation differences related to changes in income based on the underlying classification that management has the positive intention and the amortized cost are recognised in profit or of the equity investment. ability to hold to maturity. Were the Bank to sell loss, and other changes in the carrying amount, more than an insignificant amount of held-to- are recognised in other comprehensive income. (f) Segment reporting maturity assets, the entire category would have to be reclassified as available for sale. An operating segment is a distinguishable Translation differences on non-monetary component of the Bank engaged in providing financial instruments, such as equities held at (iv) Available-for-sale products or services that are subject to risks fair value through profit or loss, are reported and returns that are different from those as part of the fair value gain or loss. Translation Available-for-sale financial assets are financial of other business segments and whose differences on non- monetary financial assets that are intended to be held for an operating results are reviewed to assess its instruments, such as equities classified as indefinite period of time, which may be sold performance and for which discrete financial available-for-sale financial assets, are included in response to needs for liquidity or changes information is available. The Bank’s primary in other comprehensive income. in interest rates, exchange rates or equity business segmentation is based on the Bank’s prices or those that are non-derivative financial internal reporting about components of the (h) Financial assets assets that are not classified under any of the Bank as regularly reviewed by the Board and categories (i) to (iii) above. executive management committees. Segments The Bank classifies its financial assets into the following categories: financial assets at results include items directly attributable to Purchases and sales of financial assets at fair a segment as well as those that are allocated fair value through profit or loss; loans and receivables; held-to-maturity investments; and value through profit or loss, held- to-maturity on a reasonable basis. Business segments are and available-for-sale are recognised on trade- the only segments presented since the Bank available-for-sale financial assets and liabilities. Management determines the appropriate date – the date on which the Bank commits operates in a single geographical segment, to purchase or sell the asset. Financial assets Uganda. classification of its investments at initial recognition. are initially recognised at fair value plus, for all financial assets except those carried at fair In accordance with IFRS 8, the Bank has the (i) Financial assets at fair value through profit value through profit or loss, transaction costs. following business segments: Personal and or loss Business Banking, Corporate and Investment This category has two sub-categories: financial Financial assets are derecognised when the Banking and Treasury and Capital Management assets held for trading, and those designated rights to receive cash flows from the financial The Transactions between segments are priced at fair value through profit or loss at inception. assets have expired or where the Bank has at market related rates. A financial asset is classified in this category if transferred substantially all risks and rewards acquired principally for the purpose of selling of ownership. (g) Foreign currency translation in the short term or if so classifying eliminates or significantly reduces a measurement Loans and receivables and held-to-maturity (i) Functional and presentation currency inconsistency. Derivatives are also categorised investments are carried at amortised cost Items included in the Bank’s financial as held for trading. statements are measured using the currency using the effective interest method. Available- for-sale financial assets and financial assets of the primary economic environment in (ii) Loans and receivables at fair value through profit or loss are carried which the entity operates Uganda UShs (“the Loans and receivables are non-derivative at fair value. Gains and losses arising from functional currency”). The financial statements financial assets with fixed or determinable are presented in Uganda UShs (UShs) and payments that are not quoted in an active changes in the fair value of ‘financial assets at figures are stated in thousands of UShs unless market, other than: fair value through profit or loss’ are included otherwise stated. in the income statement in the period in which (a) Those that the entity intends to sell they arise. Gains and losses arising from (ii) Transactions and balances immediately or in the short term, which changes in the fair value of available-for-sale Foreign currency transactions are translated are classified as held for trading, and those financial assets are recognised directly in other into the functional currency using the exchange that the entity upon initial recognition comprehensive income until the financial asset rates prevailing at the dates of the transactions. designates as at fair value through profit or is derecognised or impaired, at which time the loss cumulative gain or loss previously recognised in Monetary items denominated in foreign equity is recognised in the income statement. currency are translated with the closing rate (c) Those that the entity upon initial However, interest calculated using the effective as at the reporting date. If several exchange recognition designates as available for sale interest method is recognised in the income rates are available, the forward rate is used at statement. Dividends on available-for-sale which the future cash flows represented by (d) Those for which the holder may not recover equity instruments are recognised in the the transaction or balance could have been substantially all of its initial investment, income statement when the Bank’s right to settled if those cash flows had occurred. other than because of credit deterioration. receive payment is established.

Stanbic Bank Uganda Limited Annual Report 2016 114 FINANCIAL STATEMENTS NOTES Summary of significant accounting policies continued

Fair value measurement permitted under IFRSs, or for gains and losses Fair value is the amount for which an asset arising from a group of similar transactions If there is objective evidence that an could be exchanged, or a liability settled, such as in the Bank’s trading activity. impairment loss on loans or held-to-maturity between knowledgeable, willing parties investments carried at amortised cost has in an arm’s length transaction on the (i) Impairment of financial asset been incurred, the amount of the loss is measurement date. When available, the Bank measured as the difference between the measures the fair value of an instrument using (i) Assets carried at amortised cost asset’s carrying amount and the present quoted prices in an active market for that value of estimated future cash flows The Bank assesses at each statement of instrument. (excluding future credit losses that have not financial position date whether there is been incurred) discounted at the financial A market is regarded as active if quoted objective evidence that a financial asset or a instrument’s original effective interest rate. prices are readily and regularly available and group of financial assets is impaired. A financial The carrying amount of the asset is reduced represent actual and regularly occurring asset or a group of financial assets is impaired through the use of an allowance account market transactions on an arm’s length basis. and impairment losses are incurred if, and only and the amount of the loss is recognised in if, there is objective evidence of impairment as the income statement. If a loan or held-to- If a market for financial instrument is not a result of one or more events that occurred maturity investment has a variable interest active, the Bank establishes fair value using after initial recognition of the asset (a “loss rate, the discount rate for measuring any a valuation technique. Valuation techniques event”) and that loss event (or events) has an impairment loss is the current effective include using recent arm’s length transactions impact on the estimated future cash flows of interest rate determined under the contract. between knowledgeable, willing parties (if the financial asset or group of financial assets As a practical expedient, the Bank may available), reference to the current fair value that can be reliably estimated. Objective measure impairment on the basis of an of other instruments that are substantially evidence that a financial asset or group of instrument’s fair value using an observable the same, discounted cash flow analyses and assets is impaired includes observable data market price. option pricing models. that comes to the attention of the Bank about the following loss events: The calculation of the present value of the Financial assets that may be sold or repledged estimated future cash flows of a collateralised by the Bank’s counterparty in the absence of • Significant financial difficulty of the issuer financial asset reflects the cash flows that may default by the Bank would be represented in or obligor; result from foreclosure less costs for obtaining the statement of financial position as pledged • A breach of contract, such as default and selling the collateral, whether or not assets. or delinquency in interest or principal foreclosure is probable. repayments; Amortised cost measurement • The Bank granting to the borrower, When a loan is uncollectible, it is written The amortised cost of a financial asset or off against the related provision for loan for economic or legal reasons relating liability is the amount at which the financial impairment. Such loans are written off after to the borrower’s financial difficulty, a asset or liability is measured at initial all the necessary procedures have been concession that the lender would not recognition, minus principal repayments, plus completed and the amount of the loss has otherwise consider; or minus the cumulative amortisation using been determined. Subsequent recoveries of the effective interest method of any difference • It becoming probable that the borrower amounts previously written off decrease the between the initial amount recognised and will enter bankruptcy or other financial amount of the provision for loan impairment in the maturity amount, minus any reduction for reorganisation; the income statement. impairment. • The disappearance of an active market for that financial asset because of financial If, in a subsequent period, the amount of (v) De-recognition difficulties; or observable data indicating the impairment loss decreases and the The Bank derecognises a financial asset when that there is a measurable decrease in decrease can be related objectively to an event the contractual rights to the cash flows from the estimated future cash flows from a occurring after the impairment was recognised the financial asset expire, or when it transfers (such as an improvement in the debtor’s credit group of financial assets since the initial the financial asset in a transaction in which rating), the previously recognised impairment recognition of those assets, although the substantially all the risks and rewards of loss is reversed by adjusting the allowance decrease cannot yet be identified with the ownership of the financial asset are transferred account. The amount of the reversal is individual financial assets in the group, or in which the Bank neither transfers nor recognised in the income statements. including: retains substantially all the risks and rewards of ownership and it does not retain control of - Adverse changes in the payment In addition to the measurement of impairment the financial asset. status of borrowers in the group. losses on loans and advances in accordance with the International Financial Reporting - National or local economic Any interest in transferred financial assets Standards as set out above, the Bank is also that qualify for de-recognition that is created conditions that correlate with required by the Financial Institutions Act (FIA) or retained by the Bank is recognised as a defaults on the assets in the group. 2004 to establish minimum provisions for separate asset or liability in the statement losses on loans and advances as follows: The Bank first assesses whether objective of financial position. On de-recognition of a evidence of impairment exists individually i) A specific provision for those loans and financial asset, the difference between the for financial assets that are individually advances considered to be non-performing carrying amount of the asset (or the carrying significant, and individually or collectively based on criteria and classification of such amount allocated to the portion of the asset for financial assets that are not individually loans and advances established by the Bank transferred), and consideration received of Uganda, as; (including any new asset obtained less any new significant. If the Bank determines no liability assumed) is recognised in profit or loss. objective evidence of impairment exists for a) Substandard assets being facilities in an individually assessed financial asset, arrears between 91 and 180 days – 20%. (vi) offsetting whether significant or not, it includes the b) Doubtful assets being facilities in arrears Financial assets and liabilities are offset and asset in a group of financial assets with between 181 days and 360 days – 50%. the net amount presented in the statement similar credit risk characteristics and of financial position when, and only when, the collectively assesses them for impairment. c) Loss assets being facilities in arrears Bank has a legal right to set off the recognised Assets that are individually assessed for between over 360 days – 100%. amounts and it intends either to settle on a impairment and for which an impairment net basis or to realise the asset and settle the loss is or continues to be recognised are ii) A general provision of at least 1% of their liability simultaneously. Income and expenses not included in a collective assessment of total outstanding credit facilities net of are presented on a net basis only when impairment. specific provisions and interest in suspense.

Stanbic Bank Uganda Limited Annual Report 2016 115 FINANCIAL STATEMENTS NOTES Summary of significant accounting policies continued

Where provisions for impairment of loans Cost includes expenditures that are directly and advances determined in accordance with attributable to the acquisition of the asset. Assets that are subject to amortization are the Financial Institutions Act 2004 exceed The cost of self-constructed assets includes reviewed for impairment whenever events or amounts determined in accordance with the cost of materials and direct labour, any changes in circumstances indicate that the International Financial Reporting Standards, other costs directly attributable to bringing the carrying amount may not be recoverable. An the excess is taken to the statutory credit assets to a working condition for their intended impairment loss is recognised for the amount risk reserve as an appropriation of retained use, the costs of dismantling and removing by which the asset’s carrying amount exceeds earnings. Otherwise, no further accounting the items and restoring the site on which its recoverable amount. The recoverable entries are made. they are located and capitalised borrowing amount is the higher of an asset’s fair value costs. Purchased software that is integral to less costs of disposal and value in use. For Renegotiated loans the functionality of the related equipment is purposes of assessing impairment, assets Loans that would otherwise be past due capitalised as part of that equipment. are grouped at the lowest levels for which or impaired and whose terms have been there are largely independent cash inflows When parts of an item of property or renegotiated and exhibit the characteristics (Cash – generating units). Prior impairments equipment have different useful lives, they of a performing loan are reset to performing of non- financial assets (other than goodwill) are accounted for as separate items (major loan status. Loans whose terms have been are reviewed for possible reversal at each components) of property and equipment. renegotiated are subject to ongoing review to reporting date. determine whether they are considered to be Items of property and equipment are impaired or past due. (l) Income tax derecognised on disposal or when no future Income tax expense is the aggregate of the economic benefits are expected from their use The effective interest rate of renegotiated charge to the income statement in respect of or disposal. The gain or loss on disposal of an loans that have not been derecognised current income tax and deferred income tax. item of property and equipment is determined is redetermined based on the loan’s Current tax is determined for current period by comparing the proceeds from disposal with renegotiated terms. the carrying amount of the item of property transactions and events and deferred tax is and equipment, and are recognised net within determined for future tax consequences. (ii) Assets carried at fair value other income in profit or loss. Available-for-sale financial assets are impaired Current income tax is the amount of income if there is objective evidence of impairment, Subsequent costs tax payable on the taxable profit for the year resulting from one or more loss events that The cost of replacing a part of an item of determined in accordance with the Ugandan occurred after initial recognition but before property or equipment is recognised in the Income Tax Act. The rates used are based on the statement of financial position date, that carrying amount of the item if it is probable laws enacted or substantially enacted at the have an impact on the future cash flows of that the future economic benefits embodied reporting date. the asset. In addition, an available-for-sale within the part will flow to the Bank and its cost equity instrument is generally considered can be measured reliably. Deferred income tax is provided in full, impaired if a significant or prolonged decline using the liability method, for all temporary in the fair value of the instrument below its The carrying amount of the replaced part is differences arising between the tax bases of cost has occurred. Where an available-for-sale derecognised. The costs of the day-to-day assets and liabilities and their carrying values asset, which has been re-measured to fair servicing of property and equipment are for financial reporting purposes. However, value directly through equity, is impaired, the recognised in profit or loss as incurred. if the deferred income tax arises from the impairment loss is recognised in the income initial recognition of an asset or liability in a statement. If any loss on the financial asset Depreciation transaction other than a business combination was previously recognised directly in equity Depreciation is recognised in profit or loss on that at the time of the transaction affects as a reduction in fair value, the cumulative a straight-line basis over the estimated useful neither accounting nor taxable profit nor loss, it net loss that had been recognised in equity is lives of each part of an item of property and is not accounted for. transferred to the income statement and is equipment since this most closely reflects recognised as part of the impairment loss. The the expected pattern of consumption of the Deferred income tax is determined using tax amount of the loss recognised in the income future economic benefits embodied in the rates that have been enacted or substantively statement is the difference between the asset. Leased assets under finance leases are enacted at the statement of financial position acquisition cost and the current fair value, less depreciated over the shorter of the lease term date and are expected to apply when the any previously recognised impairment loss. and their useful lives. Land is not depreciated. related deferred income tax asset is realised or the deferred income tax liability is settled. If, in a subsequent period, the amount The estimated useful lives for the current and relating to impairment loss decreases and the comparative periods are as follows: Deferred income tax assets are recognised decrease can be linked objectively to an event only to the extent that it is probable that future occurring after the write-down, the write-down Leasehold buildings over the shorter period of taxable profits will be available against which is reversed through the income statement. lease or 50 years temporary differences can be utilised. This is applicable to debt instruments only Furniture and fittings 5 years as reversals for equity instruments are not Motor vehicles 5 years Deferred tax is recognised in direct taxation permitted through the income statement. except to the extent that it relates to a business Other computer equipment 5 years combination (relating to a measurement, Financial liabilities Laptops and personal computers 4 years period adjustment where the carrying amount The Bank’s holding in financial liabilities Office equipment 8 years of the good will is greater than zero) or represents mainly deposits from Banks and items recognised directly in equity or in oher customers and other liabilities. Such financial comprehensive income liabilities are initially recognised at fair value Depreciation methods, useful lives and and subsequently measured at amortized cost. residual values are reassessed at each financial year-end and adjusted if appropriate. Deferred income tax assets and liabilities are offset when there is a legally enforceable right (j) Property and equipment to offset current income tax assets against (k) Impairment of non-financial current income tax liabilities and when the Recognition and measurement assets deferred income taxes relate to the same Items of property and equipment are Intangible assets that have an indefinite useful fiscal authority. Deferred income taxes are measured at cost less accumulated life or intangible assets not ready to use are not calculated on all temporary differences under depreciation and accumulated impairment subject to amortization and are tested annually the balance sheet liability method using tax losses. for impairment. rates currently enacted.

Stanbic Bank Uganda Limited Annual Report 2016 116 FINANCIAL STATEMENTS NOTES Summary of significant accounting policies continued

(m) Cash and cash equivalents any non-monetary benefits such as medical (q) Borrowings For the purposes of the statement of cash aid contributions. Short-term employee benefit Borrowings are recognised initially at fair flows, cash and cash equivalents comprise obligations are measured on an undiscounted value, being their issue proceeds (fair value balances with less than three months’ maturity basis and are expenses as the related service of consideration received) net of transaction from the date of acquisition, including cash and is provided. A liability is recognised for the costs incurred. Borrowings are subsequently non-restricted balances with Central Banks, amount expected to be paid under short term stated at amortised cost; any difference treasury bills and other eligible bills, loans and cash bonus plans or accumulated leave if between proceeds net of transaction costs advances to Banks, amounts due from other the Bank has a present legal or constructive and the redemption value is recognised in Banks and government securities. obligation to pay this amount as a result of the income statement over the period of the past service provided by the employee and the borrowings using the effective interest method. (n) Accounting for leases obligation can be estimated reliably. Leases in which a significant portion of the (r) Sale and repurchase agreements risks and rewards of ownership are retained by (iii) Termination benefits Securities sold subject to repurchase the lessor are classified as operating leases. Termination benefits are recognised as an agreements (‘repos’) are classified in the Leases where the lessee assumes substantially expense when the Bank is committed without financial statements as pledged assets when all the risks and rewards incidental to realistic possibility of withdrawal, to a formal the transferee has the right by contract or ownership are classified as finance leases. detailed plan to terminate employment custom to sell or re-pledge the collateral. The before the normal retirement date, or to counterparty liability is included under deposits (i) With the Bank as lessee provide termination benefits as a result from banks and deposits from customers. To date, all leases entered into by the Bank of an offer made to encourage voluntary are operating leases. Payments made under redundancy. Termination benefits for voluntary Securities purchased under agreements to operating leases are charged to the income redundancies are recognised if the Bank resell (‘reverse repos’) are recorded as loans statement on a straight-line basis over the has made an offer encouraging voluntary and advances to other Banks or customers, as period of the lease. Lease incentives received redundancy, it is probable that the offer will be appropriate. are recognised as an integral part of the total accepted, and the number of acceptances can lease expense, over the term of the lease. be reliably estimated. A liability is recognised The difference between sale and repurchase tothe best estimate of the amount to settle the price is treated as interest and accrued (ii) With the Bank as lessor obligation over the life of the agreements using the When assets are leased out under a finance effective interest method. Securities lent lease, the present value of the lease payments (iv) Share based payment transactions to counterparties are also retained in the is recognised under loans and advances The grant date fair value of equity-settled financials. to customers. The difference between the share-based payment awards (i.e.stock options) granted to employees is recognised gross receivable and the present value of the (s) Acceptances and letters of receivable is recognised as unearned finance as an employee expense, with a corresponding increase in equity, over the period in which the credit income. Lease income is recognised over the Acceptances and letters of credit are term of the lease using the net investment employees unconditionally become entitled to the awards. The amount recognised as an accounted for as off-balance sheet method (before income tax), which reflects a transactions and disclosed as contingent constant periodic rate of return. expense is adjusted to reflect the number of share awards for which the related service and liabilities. non-market performance vesting conditions (o) Employee benefits are expected to be met such that the amount (t) Intangible assets (i) Retirement benefit obligations ultimately recognised as an expense is The Bank operates a defined contribution based on the number of share awards that Goodwill pension scheme for its employees. The defined do meet the related service and non-market Goodwill arises on business combinations and contribution plan is a pension plan under which performance conditions at the vesting date. represents the excess of the consideration the Bank pays fixed contributions into a fund For share- based payment awards with non- transferred over the net fair value of the net managed by a board of trustees and will have vesting conditions, the grant-date fair value identifiable assets, liabilities and contingent no legal or constructive obligations to pay of the share-based payment is measured to liabilities of the acquiree and the fair value of further contributions if the fund does not hold reflect such conditions and there is no true-up the non – controlling interest in the acquiree. sufficient assets to pay all employees benefits for differences between expected and actual relating to employee service in the current and outcomes. The estimate of the number of Goodwill on acquisitions is reported in the prior periods. options/shares expected to vest is reassess statement of financial position as an intangible the remaining vesting period. Also include asset. In addition all employees are obliged to be the accounting treatment upon vesting and members of the National Social Security Fund, settlement of shares/options. At each statement of financial position date the a state managed defined contribution pension Bank assesses whether there is any indication scheme. The Bank contributes to the scheme (v) Other entitlements of impairment. If such indications exist, The in line with the requirements of the National The estimated monetary liability for goodwill is first allocated to a cash genetaing Social Security Fund Act. and adjusted against employees’ accrued annual leave entitlement unit (SGU) on an analysis is performed to p/l and equity over. at the reporting date is recognised as an assess whether the carrying amount of expense accrual. goodwill is fully recoverable. The regular contributions by the Bank and employees constitute net periodic costs for (p) Derivative financial instruments A write down is made if the carrying amount the year in which they are due and as such are Derivatives, which comprise forward foreign exceeds the recoverable amount. Impairment included in employee benefit expenses. exchange contracts and swaps, are initially losses are allocated first to reduce the carrying recognised at fair value on the date the amount of any goodwill allocated to a CGU and The Bank’s contributions to the defined derivative contract is entered into and are then to reduce the carrying amount of other contribution schemes are charged to the subsequently measured at fair value. The fair assets in the CGU on a pro rata basis. income statement in the year to which they value is determined using forward exchange relate. market rates at the statement of financial Computer software development costs position date or appropriate pricing models. Costs associated with maintaining computer (ii) Short term benefits The derivatives do not qualify for hedge software programmes are recognised as an Short term benefits consist of salaries, accounting. Changes in the fair value of expense as incurred. Development costs that accumulated leave payments, bonuses and derivatives are recognised immediately in the are directly attributable to the design and income statement. testing of identifiable and unique software

Stanbic Bank Uganda Limited Annual Report 2016 117 FINANCIAL STATEMENTS NOTES Summary of significant accounting policies continued

products controlled by the Bank are recognised Dividends on ordinary shares 3. Financial risk management as intangible assets when the following criteria Dividends on ordinary shares are charged to are met: equity in the period in which they are declared. 3(a) Strategy in using financial Dividends declared after the statement of instruments • It is technically feasible to complete the financial position date are disclosed in the software product so that it will be available By their nature, the Bank’s activities are dividend note. This is transfered from retained for use. principally related to the use of financial earnings to a separate item of equity. instruments including derivatives. The Bank • management intends to complete the accepts deposits from customers at both fixed software product and use or sell it. Earnings per share and floating rates, and for various periods, • there is an ability to use or sell the software The Bank presents basic and diluted earnings and seeks to earn above-average interest product. per share (EPS) data for its ordinary shares. margins by investing these funds in high-quality • it can be demonstrated how the software Basic EPS is calculated by dividing the profit assets. The Bank seeks to increase these product will generate probable future or loss attributable to ordinary shareholders of margins by consolidating short-term funds economic benefits. the Bank by the weighted average number of and lending for longer periods at higher rates, • adequate technical, financial and other ordinary shares outstanding during the period. while maintaining sufficient liquidity to meet all resources to complete the development claims that might fall due. and to use or sell the software product are Diluted EPS is determined by adjusting available. the profit or loss attributable to ordinary The Bank’s risk management policies are designed to identify and analyse these risks, • the expenditure attributable to the shareholders and the weighted average to set appropriate risk limits and controls, and software product during its development number of ordinary shares outstanding for the can be reliably measured. to monitor the risks and adherence to limits by effects of all dilutive potential ordinary shares. means of reliable and up-to-date information Directly attributable costs that are capitalised systems. The Bank regularly reviews its risk (x) Financial guarantee contracts management policies and systems to reflect as part of the software product include the Financial guarantee contracts are contracts software development employee costs and an changes in markets, products and emerging that require the issuer to make specified appropriate portion of relevant overheads. best practice. Risk management is carried payments to reimburse the holder for a loss out centrally under policies approved by the Other development expenditures that do it incurs because a specified debtor fails to Board of Directors. The Global Markets team not meet these criteria are recognised as make payment when due, in accordance with identifies, evaluates and hedges financial risks an expense as incurred. Development costs the terms of a debt instrument. Such financial in close co- operation with the Bank’s operating previously recognised as an expense are not guarantees are given to other Banks, financial units. recognised as an asset in a subsequent period. institutions and other bodies on behalf of customers to secure loans, overdrafts and The Board provides written principles for Computer software development costs other facilities. overall risk management, as well as written recognised as assets are amortised over their policies covering specific areas, such as foreign estimated useful lives, which does not exceed Financial guarantees are initially recognised exchange risk, interest rate risk, credit risk, use fifteen years. in the financial statements at fair value on the of derivative financial instruments and non- derivative financial instruments. In addition, Acquired computer software licenses are date the guarantee was given. Subsequent to capitalised on the basis of the costs incurred to initial recognition, the Bank’s liabilities under internal audit is responsible for the independent acquire and bring to use the specific software. such guarantees are measured at the higher review of risk management and the control environment. The most important types of risk of the initial investment, less amortisation are credit risk, liquidity risk, market risk and These costs are amortised on the basis of the calculated to recognise in the income other operational risk. Market risk includes expected useful lives. Software has a maximum statement the fee income earned on a straight expected useful life of 15 years. currency risk, interest rate and other price risk. line basis over the life of the guarantee and the best estimate of the expenditure required The Bank also seeks to raise its interest (u) Provisions to settle any financial obligation arising at the Provisions are recognised when the Bank has margins by obtaining above-average margins, statement of financial position date. a present legal or constructive obligation as a net of allowances, through lending to result of past events, where it is probable that commercial and retail borrowers with a range an outflow of resources embodying economic (w) Equity compensation plans of credit standing. Such exposures involve benefits will be required to settle the obligation, The parent company operates two equity not just on-statement of financial position and a reliable estimate of the amount of the settled share based compensation plans loans and advances; the Bank also enters into obligation can be made. through which certain key management staffs guarantees and other commitments such as of the Bank are compensated. The fair value letters of credit and performance, and other Employee entitlements to annual leave and long of equity settled share options is determined bonds. service leave are recognised when they accrue on the grant date and accounted for as an to employees. employee service The Bank also trades in financial instruments expense over the vesting period of the share where it takes positions in traded and over- A provision is made for the estimated liability the-counter instruments to take advantage for annual leave and long-service leave as a options. At each Statement of financial position of short-term market movements in bonds, result of services rendered by employees up to date the estimate of the number of options currency and interest rate. The Board places the statement of financial position date. expected to vest is reassessed and adjusted against income over the remaining vesting trading limits on the level of exposure that can be taken in relation to both overnight and intra- (v) Share capital period. day market positions. The Bank classifies capital instruments as financial liabilities or equity instruments (x) Comparatives Foreign exchange and interest rate exposures in accordance with the substance of the Where necessary, the comparative figures associated derivatives are normally offset contractual terms of the instruments. Ordinary have been adjusted to conform to changes shares are classified as equity. by entering into counterbalancing positions, in presentation in the current year. For thereby controlling the variability in the net 2015 figures restated, refer to note 41 cash amounts required to liquidate market reclassifications and restatements. positions.

Stanbic Bank Uganda Limited Annual Report 2016 118 FINANCIAL STATEMENTS NOTES Financial risk management continued

(b) Capital management under the same law, the Bank is required to the statement of financial position and a total The Bank’s objectives when managing capital, maintain minimum paid up capital of UShs 25 capital (tier 1 + tier 2) of not less than 12% of which is a broader concept than the equity on bn. The Bank is compliant with this requirement its total risk adjusted assets plus risk adjusted the face of the statement of financial position, with a holding of UShs 51 bn. These ratios items off the statement of financial position. are: measure capital adequacy by comparing the Bank’s eligible capital with its statement of Off-balance-sheet credit related commitments • To comply with the capital requirements financial position assets, off-balance- sheet and forwards are taken into account by of the regulator, Bank of Uganda, that are commitments at weighted amounts to reflect applying different categories of credit enshrined in the Financial Institutions Act their relative risk. conversion factors, designed to convert these and accompanying Financial Institutions items into statement of financial position (Capital Adequacy) Regulations, 2005. The market risk approach covers the general equivalents. The resulting credit equivalent market risk and the risk of open positions in amounts are then weighted for credit risk using • To safeguard the Bank’s ability to continue currencies and debt and equity securities. the same percentages as for statement of as a going concern so that it can continue Assets are weighted according to broad financial position assets. to provide returns for shareholders and categories of notional credit risk, being assigned benefits for other stakeholders; and a risk weighting according to the amount of Tier 1 capital consists of shareholders’ • To maintain a strong capital base to support capital deemed to be necessary to support equity comprising paid up share capital, the development of its business. them. Four categories of risk weights (0%, share premium and retained earnings less 20%, 50%, and 100%) are applied. Certain intangible assets, deferred income tax asset The Bank monitors the adequacy of its capital asset categories have intermediate weightings. and investments in financial companies, not using capital adequacy ratios established under The Bank is required at all times to maintain a consolidated. Tier 2 capital includes the Bank’s the Financial Institutions Act, which ratios core capital (tier 1) of not less than 8% of total eligible long-term loans, and general provisions. are broadly in line with those for the Bank for risk adjusted assets plus risk adjusted items off Tier 2 capital is limited to 50% of Tier 1 capital. International Settlements (BIS). In addition

The table below summarises a composition of the regulatory capital 2016 2015 UShs’ 000 UShs’ 000 Core capital (Tier 1) Shareholders’ equity 51,188,670 51,188,670 Retained earnings 577,788,232 449,606,422 Available for sale revaluation reserve - (15,938,540) Less: Deductions determined per Bank of Uganda requirements (84,668,113) (17,589,308) Total core capital 544,308,789 467,267,244 Supplementary capital (Tier 2) Unencumbered general provisions for losses 30,181,079 24,847,509 Subordinated term debt 72,137,386 23,740,086 Total supplementary capital 102,318,465 48,587,595 Total capital (core and supplementary) 646,627,254 515,854,839

Breakdown of deductions determined by the Financial Institutions Act 2016 2015 UShs’ 000 UShs’ 000 Goodwill and other intangible assets 79,601,588 2,811,538 Unrealised gains on securities 3,759,176 - Deferred tax asset 1,307,349 14,777,770 84,668,113 17,589,308

Stanbic Bank Uganda Limited Annual Report 2016 119 FINANCIAL STATEMENTS NOTES Financial risk management continued

The Bank’s capital adequacy level was as follows: Financial position nominal balance Risk weighted balance 2016 2015 2016 2015 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Statement of financial position Cash and balances with Bank of Uganda 709,350,387 589,841,286 - - Government securities - available for sale 640,941,821 507,024,434 - - Government securities - held for trading 250,484,271 177,809,717 - - Placements with local banks 10,013,157 44,580,251 2,002,631 8,916,049 Repo 480,328,161 - - Placements with foreign banks 268,315,344 300,685,734 135,971,334 254,669,334 Amounts due from group companies 36,147,113 29,380,268 36,147,113 29,380,268 Loans and advances to customers-BOU 1,980,006,537 1,912,499,765 1,980,006,537 1,912,499,765 Other investment securities 62,930 60,690 62,930 60,690 Prepaid operating leases 98,660 108,998 98,660 108,998 Other assets 71,892,826 95,607,486 71,892,826 95,607,486 Deferred tax asset 1,307,349 14,777,770 - - Goodwill 1,901,592 1,901,592 - - Other intangible assets 77,699,996 909,946 - - Property and equipment 63,318,002 49,209,285 63,318,002 49,209,285 4,591,868,146 3,724,397,222 2,289,500,033 2,350,451,875 Off-balance sheet items Contingencies secured by cash collateral 43,519,315 47,930,367 - - Guarantees and acceptances 36,873,142 325,410,033 36,873,142 325,410,033 Performance bonds 919,684,153 107,627,642 459,842,077 53,813,821 Trade related and self liquidating credits 27,857,232 83,717,711 5,571,446 16,743,542 Other commitments 555,003,308 204,251,089 277,501,654 102,125,545 1,582,937,150 768,936,842 779,788,319 498,092,941 Total risk weighted assets 3,069,288,352 2,848,544,816

Capital Bank ratio FIA minimum ratio 2016 2015 2016 2015 2016 2015 UShs’ 000 UShs’ 000 % % % % Tier 1 capital 544,308,789 467,267,244 17.7 % 16.4% 8% 8%

Tier 1 + Tier 2 capital 646,627,254 515,854,839 21.1% 18.1% 12% 12 %

*Loans and advances to customers (net of provisions as required by the Financial Institutions Act)

Loans and advances to customers -Bank of uganda 2016 2015 UShs’ 000 UShs’ 000 Gross Loan and advances 2,034,928,134 1,964,018,585 Less Specific Provisions (Regulatory) (50,892,949) (41,828,707) Interest in suspense(regulatory) (2,399,084) (2,124,299) Net loans and advances to customers 1,981,636,101 1,920,065,579 Less Secured by Cash Cover (1,629,564) (7,565,814) 1,980,006,537 1,912,499,765

Stanbic Bank Uganda Limited Annual Report 2016 120 FINANCIAL STATEMENTS NOTES

3(c) Credit risk (i) The Bank assesses the probability of entities are generally secured; revolving The Bank takes on exposure to credit risk, default of individual counterparties individual credit facilities are generally which is the risk that a counter party will using internal rating tools tailored to unsecured. In addition, in order to minimise cause a financial loss for the Bank by failing the various categories of counterparty. the credit loss the Bank will seek additional to discharge an obligation in full when They have been developed internally and collateral from the counterparty as soon as due. Impairment provisions are provided combine statistical analysis with credit impairment indicators are noticed for the for losses that have been incurred at the officer judgment and are validated, where relevant individual loans and advances. statement of financial position date. Significant appropriate, by comparison with externally changes in the economy, or in the health of a available data. Clients of the Bank are Collateral held as security for financial assets particular industry segment that represents segmented into four rating classes. The other than loans and advances is determined a concentration of the Bank’s portfolio, could Bank’s rating scale, which is shown below, by the nature of the instrument. Debt securities, result in losses that are different from those reflects the range of default probabilities treasury and other eligible bills are generally provided for at the statement of financial defined for each rating class. This means unsecured, with the exception of asset-backed position date. Management therefore carefully that, in principle, exposures migrate securities and similar instruments, which are manages its exposure to credit risk. between classes as the assessment of their secured by portfolios of financial instruments. probability of default changes. The rating The Bank structures the levels of credit risk tools are kept under review and upgraded (b) Derivatives it undertakes by placing limits on the amount as necessary. The Bank regularly validates The Bank maintains strict control limits on net of risk accepted in relation to one borrower, or the performance of the rating and their open derivative positions (ie, the difference groups of borrowers, and to industry segments. predictive power with regard to default between purchase and sale contracts), by both Such risks are monitored on a revolving basis events. amount and term. At any one time, the amount subject to credit risk is limited to the current and subject to annual or more frequent review. The Bank’s internal ratings scale Limits on the level of credit risk by product, fair value of instruments that are favourable and mapping to external ratings and to the Bank (ie, assets where their fair value industry sector and by country are approved by representing days in arrears is as below: the Board of Directors. is positive), which in relation to derivatives is only a small fraction of the contract, or The exposure to any one borrower including notional values used to express the volume Banks is further restricted by sub-limits Bank’s Description Days rating of instruments outstanding. This credit risk exposure is managed as part of the overall covering on- and off-balance sheet exposures 1 Standard monitoring 0-29 and daily delivery risk limits in relation lending limits with customers, together with to trading items such as forward foreign 2 Special mention 30-89 potential exposures from market movements. exchange contracts. Actual exposures against Collateral or other security is not usually 3 Sub standard 90-179 limits are monitored daily. obtained for credit risk exposures on these 4 Doubtful 180-364 instruments, except where the Bank requires Exposure to credit risk is managed through margin deposits from counterparties. regular analysis of the ability of borrowers 5 Loss 365+ and potential borrowers to meet interest Settlement risk arises in any situation where a Observed defaults per rating category vary and capital repayment obligations and by payment in cash, securities or equities is made year on year, especially over an economic changing lending limits where appropriate. in the expectation of a corresponding receipt cycle. Exposure to credit risk is also managed in in cash, securities or equities. Daily settlement part by obtaining collateral and corporate and (ii) Exposure at default is based on the limits are established for each counterparty personal guarantees, but a significant portion amounts the Bank expects to be owed at to cover the aggregate of all settlement risk is personal lending where no such facilities can the time of default. For example, for a loan arising from the Bank’s market transactions on be obtained. this is the face value. For a commitment, any single day. the Bank includes any amount already (a) Credit risk measurement drawn plus the further amount that may (c) Credit related commitments have been drawn by the time of default, The primary purpose of these instruments is to Debt securities should it occur. ensure that funds are available to a customer All debt securities the Bank purchases are as required. Guarantees and standby letters of issued by Government of Uganda and thus (iii) Loss given default or loss severity credit, which represent irrevocable assurances considered to be risk-free under normal represents the Bank’s expectation of the that Bank will make payments in the event that operating conditions. extent of loss on a claim should default a customer cannot meet its obligations to third occur. It is expressed as percentage loss parties, carry the same credit risk as loans. Loans and advances per unit of exposure and typically varies by Documentary and commercial letters of credit, In measuring credit risk of loan and advances to type of counterparty, type and seniority of which are written undertakings by the Bank on customers and to Banks at a counterparty level, claim and availability of collateral or other behalf of a customer authorising a third party the Bank reflects three components credit mitigation to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, (i) the ‘probability of default’ by the client or (a) Collateral are collateralised by the underlying shipments of goods to which they relate and therefore counterparty on its contractual obligations; The Bank employs a range of policies and carry less risk than a direct borrowing. practices to mitigate credit risk. The most (ii) current exposures to the counterparty and traditional of these is the taking of security for its likely future development, from which Commitments to extend credit represent funds advanced, which is common practice. the Bank derive the ‘exposure at default’; unused portions of authorisations to extend The Bank implements guidelines on the and credit in the form of loans, guarantees or acceptability of specific classes of collateral or letters of credit. With respect to credit risk on (iii) the likely recovery ratio on the defaulted credit risk mitigation. The principal collateral commitments to extend credit, the Bank is obligations (the ‘loss given default’).These types for loans and advances are: potentially exposed to loss in an amount equal credit risk measurements are embedded in to the total unused commitments. However, • Mortgages over residential properties; the Bank’s daily operational management. the likely amount of loss is less than the total The operational measurements can be • Charges over business assets such unused commitments, as most commitments contrasted with impairment allowances as premises, inventory and accounts to extend credit are contingent upon customers required under IAS 39, which are based receivable; maintaining specific credit standards. The on losses that have been incurred at the Bank monitors the term to maturity of • Charges over financial instruments such as statement of financial position date (the credit commitments because longer-term debt securities and equities ‘incurred loss model’) rather than expected commitments generally have a greater degree losses. Longer-term finance and lending to corporate of credit risk than shorter-term commitments.

Stanbic Bank Uganda Limited Annual Report 2016 121 FINANCIAL STATEMENTS NOTES Credit risk contnued

(d) Impairment and provisioning policy The internal rating systems described in Note 3 (c) (a) focus more on credit-quality mapping from the inception of the lending and investment activities. In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the statement of financial position date based on objective evidence of impairment (see Note 2(I)). Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and Banking regulation purposes.

The impairment provision shown in the statement of financial position at year-end is derived from each of the five internal rating grades. However, the majority of the impairment provision comes from the bottom two gradings. The table below shows the percentage of the Bank’s on and off balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank’s internal rating

2016 2015 Loans & Impairment Loans & advances Impairment advances provision % provision % Standard & special monitoring 96.8 1.0 98.5 1.2 Sub-standard, doubtful and loss 3.2 56.6 1.5 88.1 100.0 2.9 100.0 2.4

The internal rating tool assists management The Bank’s policy requires the review of Collectively assessed impairment allowances to determine whether objective evidence of individual financial assets that are above are provided for: impairment exists under IAS 39, based on the materiality thresholds at least annually or following criteria set out by the Bank: more regularly when individual circumstances (i) Portfolios of homogenous assets that are • Delinquency in contractual payments of require. Impairment allowances on individually individually below materiality thresholds; principal or interest; assessed accounts are determined by an and evaluation of the incurred loss at reporting date • Cash flow difficulties experienced by the on a case-by-case basis, and are applied to all (ii) Losses that have been incurred but borrower (e.g. equity ratio, net income individually significant accounts. have not yet been identified, by using percentage of sales); the available historical experience, The assessment normally encompasses • Breach of loan covenants or experienced judgment and statistical collateral held (including re-confirmation of its techniques. conditions; enforceability) and the anticipated receipts for that individual account. (iii) Maximum exposure to credit risk before • Initiation of Bankruptcy proceedings; collateral held or other credit impairments • Deterioration of the borrower’s competitive position; • Deterioration in the value of collateral;

Stanbic Bank Uganda Limited Annual Report 2016 122 FINANCIAL STATEMENTS NOTES Credit risk contnued

Credit risk exposures relating to assets included on the statement of financial position are as follows: 2016 2015 UShs’ 000 UShs’ 000 Bank of Uganda 498,566,026 362,764,469 Loans and advances to banks 786,681,098 370,737,222 Investment securities Treasury bonds - available for sale 243,120,818 284,033,633 Treasury bills - available for sale 397,821,003 222,990,801 Loans and advances to customers Loans to individuals Overdrafts 33,747,800 631,647 Term loans 422,496,340 459,360,158 Mortgages 304,392,323 117,416,044 Loans to corporate entities Large corporate entities 924,934,311 878,908,231 Small & medium size entities 349,357,360 507,702,116 Trading assets Treasury bonds 73,990,002 30,176,530 Treasury bills 176,494,269 147,633,187 Derivative assets 10,066,617 2,638,073 Other 49,330,012 78,721,808 4,270,997,979 3,463,713,919

Credit risk exposures relating to assets not included on the statement of financial position are as follows: 2016 2015 UShs’ 000 UShs’ 000 Financial guarantees 983,225,153 455,075,086 Loan commitments and other credit related liabilities 599,711,996 313,861,757 1,582,937,149 768,936,843 5,853,935,129 4,232,650,762

The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December, 2016 and 2015, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the statement of financial position.

The table below shows the collateral coverage for the secured loans as at 31 December, 2016.

As at 31 December 2016 Collateral coverage Netting off agreements Exposure Customer after netting loans off 51-100% Over 100% Total UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Secured loans 1,022,781,860 1,629,564 1,021,152,296 341,191,017 554,396,446 895,587,463 Unsecured loans 1,012,146,274 - 1,012,146,274 - - - 2,034,928,134 1,629,564 2,033,298,570 341,191,017 554,396,446 895,587,463

As at 31 December 2015 Collateral coverage Customer Netting off Exposure after 51-100% Over 100% Total loans agreements netting off UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Secured loans 890,841,424 7,565,814 883,275,610 276,949,458 539,707,310 816,656,768 Unsecured loans 1,073,177,159 - 1,073,177,159 - - - 1,964,018,583 7,565,814 1,956,452,769 276,949,458 539,707,310 816,656,768

Stanbic Bank Uganda Limited Annual Report 2016 123 FINANCIAL STATEMENTS NOTES Credit risk contnued

Management remains confident in its ability to continue to control the exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following: • 96% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2015: 96%); • Mortgage loans, are backed by collateral; • 81.7% of the loans and advances portfolio are considered to be neither past due nor impaired (2015: 85%); and • All debt securities held by the Bank are issued by the Bank of Uganda on behalf of the Government of Uganda.

Loans and advances are summarised as follows;

2016 2015 Loans & Loans & Loans & Loans & advances to advances to advances to advances to customer Banks customer Banks UShs’000 UShs’000 UShs’000 UShs’000 Neither past due nor impaired 1,663,150,238 758,656,662 1,719,752,499 345,265,985 Past due but not impaired 306,201,788 - 213,859,142 - Impaired loans and advances 65,576,108 - 30,406,943 - Gross loans and advances 2,034,928,134 758,656,662 1,964,018,584 345,265,985 Allowances for impairment (58,180,062) - (46,775,029) - 1,976,748,072 758,656,662 1,917,243,555 345,265,985

The allowances for impairment are summarised per segment as follows;

2016 2015 Loans & Loans & Loans & Loans & advances to advances to advances to advances to customer Banks customer Banks UShs’000 UShs’000 UShs’000 UShs’000 Personal and Business banking - Mortgage lending (7,096,232) - (4,974,067) - - Instalment sales and fin. Leases (2,499,183) - (3,362,555) - - Other loans (28,084,888) - (29,818,227) - Corporate and investment banking - Corporate lending (20,499,759) - (8,620,180) - (58,180,062) - (46,775,029) -

The total impairment provision for loans and advances is UShs 58,180 million (2015: UShs 46,775 million) of which UShs 37,104 million (2015: UShs 26,784 million) represents the individually impaired loans and the remaining amount of UShs 21,076 million (2015: UShs 19,991 million) represents the portfolio provision. Further information of the impairment allowance for loans and advances to Banks and to customers is provided in Note 19.

Stanbic Bank Uganda Limited Annual Report 2016 124 FINANCIAL STATEMENTS NOTES Credit risk contnued

Net loans 1,416,914 1,416,914 1,416,914 1,416,914 3,534,119 3,534,119 3,404,099 3,404,099 impaired impaired 27,786,072 27,786,072 UShs’000 1,770,538 1,770,538 26,369,158 26,369,158 5,170,268 5,170,268 19,430,940 19,430,940 9,564,974 9,564,974 9,564,974 9,564,974 UShs’000 27,802,714 27,802,714 37,367,688 37,367,688 20,861,907 20,861,907

- -

loans 889,870 889,870 against against 1,731,000 1,731,000 2,620,870 2,620,870 2,620,870 2,620,870 Security Security impaired impaired UShs’000 6,114,965 6,114,965 6,761,522 6,761,522 4,075,079 UShs’000 11,256,854 11,256,854 11,256,854 11,256,854 16,951,566 16,951,566 28,208,420 28,208,420

UShs’000 UShs’000 694,730,183 694,730,183 UShs’000 UShs’000 Total loans Total 66,499,670 66,499,670 739,101,830 924,934,311 924,934,311 304,392,323 304,392,323 1,085,110,352 1,085,110,352 70,625,263 70,625,263 319,754,906 319,754,906 878,908,231 878,908,231 878,908,231 878,908,231 1,964,018,583 1,964,018,583 1,109,993,823 2,034,928,134

Total Total 1,416,914 1,416,914 1,416,914 1,416,914 4,423,989 4,423,989 3,404,099 3,404,099 21,161,940 21,161,940 UShs’000 5,845,618 5,845,618 30,406,942 30,406,942 28,990,028 28,990,028 UShs’000 11,285,233 11,285,233 27,623,429 27,623,429 65,576,108 65,576,108 20,821,829 20,821,829 20,821,829 20,821,829 44,754,280 44,754,280

-

Loss Loss 1,619 1,619 25,926 25,926 1,416,914 1,416,914 1,416,914 1,416,914 246,874 246,874 246,874 246,874 9,999,263 9,999,263 11,442,103 11,442,103 10,025,189 10,025,189 UShs’000 3,279,330 3,279,330 6,564,072 6,564,072 9,845,020 9,845,020 UShs’000 10,091,894 10,091,894

-

252,255 Doubtful 396,974 396,974 2,189,109 2,189,109 Non Performing loans Non Performing Doubtful UShs’000 12,445,532 12,445,532 12,445,532 12,445,532 10,004,168 10,004,168 1,744,904 1,744,904 UShs’000 38,717,492 38,717,492 18,142,537 18,142,537 20,574,955 20,574,955 20,574,955 20,574,955 16,000,659

-

-

impaired 3,125,918 3,125,918 1,158,509 1,158,509 6,519,307 6,519,307 6,519,307 6,519,307 2,234,880 2,234,880 impaired UShs’000 5,447,025 5,447,025 5,058,699 5,058,699 UShs’000 6,260,999 6,260,999 Individually 16,766,723 16,766,723 Individually

Total Total 67,221,164 67,221,164 UShs’000 877,491,317 877,491,317 877,491,317 877,491,317 315,330,917 315,330,917 UShs’000 673,568,243 673,568,243 1,933,611,641 1,933,611,641 60,654,053 60,654,053 711,478,400 1,056,120,324 1,056,120,324 293,107,090 293,107,090 904,112,482 904,112,482 1,969,352,025 1,065,239,543

but not Past due Past impaired UShs’000 23,715,803 23,715,803 10,609,829 10,609,829 10,609,829 10,609,829 213,859,141 213,859,141 42,800,585 42,800,585 UShs’000 136,732,924 136,732,924 15,524,152 15,524,152 203,249,312 203,249,312 29,547,283 29,547,283 136,973,311 136,973,311 136,973,311 136,973,311 Past due but Past 124,157,042 124,157,042 not impaired 169,228,477 169,228,477 306,201,788 306,201,788

Performing loans Performing

due nor due nor impaired impaired UShs’000 UShs’000 852,871,011 852,871,011 43,505,360 43,505,360 45,129,901 45,129,901 536,835,319 536,835,319 767,139,172 767,139,172 866,881,488 866,881,488 866,881,488 866,881,488 272,530,332 272,530,332 Neither past Neither past 587,321,358 1,719,752,499 1,719,752,499 896,011,066 263,559,807 263,559,807 Neither past Neither past 1,663,150,238

Personal and Business and Business Personal Banking

2015 at 31 December As and Corporate Banking Investment to and advances Loans customers

2016 at 31 December As Personal and Business and Business Personal Banking - Mortgage lending - Instalment sales and fin. Leases - Mortgage lending - Mortgage and fin. sales - Instalment Leases - Other loans lending - Corporate

Loans and advances to and advances Loans customers

- Other loans

- Corporate lending Corporate and Corporate Banking Investment e) Credit quality Credit e) The credit quality of financial assets is managed by the Bank using internal ratings. table below shows q uality class asset for risk related items, based on the Bank’s credit rating system.

Stanbic Bank Uganda Limited Annual Report 2016 125 FINANCIAL STATEMENTS NOTES Credit risk contnued

(b) Loans past due but not impaired

Gross amount of loans and advances by class of customers that were past due but not impaired were as follows:

Past due upto P a s t d u e P a s t d u e Total 30 days 30 - 60 days 60 - 90 days UShs’000 UShs’000 UShs’000 UShs’000 As at 31 December 2016 Personal and Business Banking - Mortgage lending 21,218,380 7,469,557 859,346 29,547,283 - Instalment sales and fin. Leases 10,436,560 4,938,292 149,299 15,524,151 - Other loans 113,239,406 6,368,442 4,549,195 124,157,043 144,894,346 18,776,291 5,557,840 169,228,477 Corporate and investment Banking - Corporate lending 125,992,476 10,980,780 55 136,973,311 125,992,476 10,980,780 55 136,973,311 270,886,822 29,757,071 5,557,895 306,201,787 As at 31 December 2015 Personal and Business Banking - Mortgage lending 28,870,967 12,637,030 1,292,589 42,800,586 - Instalment sales and fin. Leases 19,733,197 3,545,252 437,355 23,715,804 - Other loans 115,444,250 15,643,951 5,644,723 136,732,924 164,048,414 31,826,233 7,374,667 203,249,314 Corporate and investment Banking - Corporate lending 1,932,872 432,767 8,244,189 10,609,827 1,932,872 432,767 8,244,189 10,609,827 165,981,286 32,259,000 15,618,856 213,859,141

(c) Loans and advances to Banks The total gross amount of individually impaired loans and advances to Banks as at 31 December, 2016 was nil (2015: nil). No collateral is held by the Bank.

(d) Other Financial Assets No other financial assets are individually or collectively impaired (2015: nil). No collateral is held by the Bank.

(e) Re-possessed properties 2016 2015 UShs’ 000 UShs’ 000 Nature of assets Residential properties 7,559,000 6,733,761 Commercial properties 5,716,000 5,721,000 Vehicles 767,000 742,649 14,042,000 13,197,410

Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. Repossessed properties are not included in the statement of financial position on account of uncertainity relating to the period of time it will take the Bank to dispose of these properties and the amounts that will subsequently be recovered from this process.

(f) Renegotiated loans as at 31 December 2016 2016 2015 UShs’ 000 UShs’ 000 Loans and advances to customers 179,724,804 195,383,150 Loans and advances to banks - - 179,724,804 195,383,150

Stanbic Bank Uganda Limited Annual Report 2016 126 FINANCIAL STATEMENTS NOTES Credit risk contnued

Total Total 78,721,808 UShs’ 000 UShs’ 177,809,717 49,330,012 49,330,012 - - 507,024,434 794,803,775 794,803,775 250,484,271 250,484,271 640,941,821 1,964,018,584 3,102,220,796 3,770,488,013 3,770,488,013 2,034,928,134 2,034,928,134

yu 374,646,253

- -

Others Others 78,721,808 ------UShs’ 000 UShs’ 49,330,012 49,330,012 892,325,199 971,047,007 - - 1,058,185,176 1,058,185,176 1,008,855,164 1,008,855,164

- - - -

UShs’ 000 UShs’ Individuals 439,560,913 439,560,913 418,754,851 418,754,851 418,754,851 418,754,851 ------

- - - -

Transport Transport 38,048,155 38,048,155 UShs’ 000 UShs’ 43,818,063 43,818,063 43,818,063 43,818,063 ------

- -

UShs’ 000 UShs’ 234,750,414 234,750,414 Agriculture Agriculture ------248,298,176 248,298,176 248,298,176 248,298,176 - - - -

-

UShs’ 000 UShs’ 359,333,903 359,333,903 ------311,921,959 311,921,959 311,921,959 311,921,959 ------Manufucturing

Financial UShs’ 000 UShs’ institutions institutions 507,024,434 794,803,775 794,803,775 640,941,821 640,941,821 1,059,480,404 1,689,509,788 1,689,509,788 ------177,809,717 374,646,253 3,279,921 3,279,921 250,484,271 250,484,271

Concentrations of risk of financial assets with credit risk exposure risk with credit financial assets risk of of Concentrations

Other assets - Debt securities Financial assets designated at fair value: at fair designated Financial assets Loans and advances to customers Government securities - AFS Loans and advances to banks - Debt securities 2015 at 31 December As Other assets Loans and advances to banks Loans and advances to customers

Government securities - AFS Financial assets designated at fair value: at fair designated Financial assets As at 31 December 2016 at 31 December As

(g) The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorised by industry secto rs of our counterparties.

Stanbic Bank Uganda Limited Annual Report 2016 127 FINANCIAL STATEMENTS NOTES

3(d) Market risk The Bank applies ‘value at risk’ methodology probability (2%) that actual loss could be (VaR) to its trading and banking portfolio, greater than the VAR estimate. Pv01 is the The Bank takes on exposure to market risks, to estimate the market risk of foreign present value impact of a one basis point move which is the risk that the fair value or future cash exchange positions held and the maximum in an interest rate. flows of a financial instrument will fluctuate losses expected. Management applies Pv01 because of changes in market prices. Market methodology to it’s trading and non trading risks arise from open positions in interest rate, The use of these approaches does not prevent portfolios to estimate the market interest rate currency and equity products, all of which losses outside of these limits in the event of risk of positions held and the maximum losses are exposed to general and specific market more significant market movements. that could arise. The estimates are based upon movements and changes in the level of volatility a number of assumptions for various changes of market rates or prices such as interest rates, As VaR and Pv01 constitute an integral part of in market conditions. The assets and liabilities credit spreads, foreign exchange rates and the Bank’s market risk control regime, limits are committee (ALCO) sets limits on both the value equity prices. established by the Board annually for all trading of risk and Pv01 that may be acceptable for the and non-trading portfolios. Actual exposure Bank. These are monitored on a weekly basis by Market risk measurement against limits, together with a consolidated the Risk Management department. group-wide VaR, is reviewed daily by the Bank’s techniques: Treasury. VaR is a statistically based estimate of the As part of the management of market risk, the potential loss on the current portfolio from The quality of the VaR model is continuously Bank’s major measurement techniques used to adverse market movements. It expresses the monitored by back-testing the VaR results for measure and control market risk is value at risk ‘maximum’ amount the Bank might lose, but trading books. All back-testing exceptions and and Pv01 (present value at one). only to a certain level of confidence (98%). any exceptional revenues on the profit side of There is therefore a specified statistical the VAR distribution are investigated.

The VaR summaries for 2016 and 2015 are as follows: 31 December, 2016

31 December, Average Maximum Minimum 2016

UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Interest rate book - Trading 303,451 1,243,655 7 7,65 8 549,903 Interest rate book - Available for sale 551,931 937, 163 159,291 254,721 Foreign exchange trading book VAR 203,902 1,030,235 12,483 205,669

12 months to 31 December, 2015 31 December, Average Maximum Minimum 2015 UShs’000 UShs’000 UShs’000 UShs’000 Interest rate book - Trading 205,428 417,130 86,577 256,093 Interest rate book - Available for sale 521,465 646,618 357,599 543,229 Foreign exchange risk VAR 86,142 348,104 5,865 124,744

In 2016, we saw high volatility in the interest 17% in March to 12% in December 2016. Interest loosen its monetary stance and the yield curve rates while the shilling remained relatively stable rates across the yield curve followed suit and we began to adjust lower. for the greater part of the year but began to saw the 1yr T-Bill drop from a high of 25% in depreciate in the last quarter of the 2016. January, 2016 to 15.69% in December, 2016. In all, the interest rate trading desks increased their Value at risk limit utilization from an For most of 2015, the central bank decided The resultant stability of the shilling from the average of UShs 205m in 2015 to an average to adopt a tight monetary stance to forestall tight monetary stance made it difficult for the of UShs 303m in 2016 which also resulted into significant profit for the Bank in 2016. anticipated inflationary pressures. As a result, FX. Proprietary desk to take positions. The tight we saw interest rates across the yield curve monetary stance also resulted into subdued edge up during this period with the most aggregate demand in the economy and thus (i) Foreign exchange risk significant increments registered in the 91day, subdued demand for dollars by corporate The Bank takes on exposure to the effects of 182 day and 364 day which edged up to 18.60% clients, this reduced appetite for dollars fluctuations in the prevailing foreign currency exchange rates on its financial position and cash from 11.33% ,21.70% from 13.16% and 22.74% negatively impacted the FX. Sales desks. flows. The Asset and Liability Committee sets from 13.95%. Against this backdrop, inflation limits on the level of exposure by currency and in pressures dissipated and there was a significant The trading desk decided to take long positions total for both overnight and intra-day positions, threat to credit growth at the start of 2016. This at the beginning of Q1 on the interest rate trading which are monitored daily. prompted the central bank to ease its monetary desks which resulted into significant gains on stance with a total of 500bps cut in CBR from those desks when the central bank decided to

Stanbic Bank Uganda Limited Annual Report 2016 128 FINANCIAL STATEMENTS NOTES Market risk contnued

The Bank had the following significant foreign currency exposure positions (all amounts expressed in millions of Uganda UShs):

USD Euro Other Total UShs’m UShs’m UShs’m UShs’m

As at 31 December 2016 Assets Cash and balances with Bank of Uganda 209,744 70,783 14,200 294,727 Loans and advances to banks 242,325 16,864 5,304 264,493 Amounts due from group companies 5,797 - 22,228 28,025 Loans and advances to customers 1,039,920 8,297 616 1,048,833 Other investment securities - 63 - 63 Derivative assets 7,816 - - 7,816 Deferred income tax assets - - - - Other assets 14,182 35,700 7,430 57,312 Total Assets 1,519,784 131,707 49,778 1,701,269 Liabilities: Customer deposits 940,528 123,608 23,468 1,087,604 Amounts due to banks 268,580 1,485 59 270,124 Amounts due to group companies 197,168 1,398 15,945 214,511 Derivative liabilities 7,816 - - 7,816 Managed Funds - - 611 611 Subordinated bonds/debt 72,137 - - 72,137 Other liabilities 33,516 5,235 9,951 48,702 Total Liabilities 1,519,745 131,726 50,034 1,701,505 Net statement of financial position 39 - 19 - 257 - 237

Net currency forwards (42,300) - - (42,300) Commitments to extend credit (70,236) - - (70,236) Net mismatch (112,497) (19) (257) (112,773)

As at 31 December 2015 Total Assets 1,389,512 77,761 30,045 1,497,318 Total Liabilities 1,367,901 92,101 28,204 1,488,206 Net statement of financial position 21,611 (14,340) 1,841 9,112

Net currency forwards - 42,300 - - (42,300) Commitments to extend credit - 70,236 (70,236) Net mismatch - 90,925 - 14,340 1,841 - 103,424

(ii) Interest rate risk

The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Asset and Liability Committee (ALCO) sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored daily.

The table that follows summarises the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates. The Bank does not bear an interest rate risk on items not on the statement of financial position.

Stanbic Bank Uganda Limited Annual Report 2016 129 FINANCIAL STATEMENTS NOTES Market risk contnued

Up to 1 1 - 6 6 - 12 Non-interest month months months Over 1 year bearing Total UShs’m UShs’m UShs’m UShs’m UShs’m UShs’m

At 31 December 2016 Asset: Cash and balances with Bank of Uganda - - - - 709,350 709,350 Government securities - available for sale 11,964 230,605 176,672 221,701 - 640,942 Government securities - for trading 79,705 70,899 26,697 73,183 - 250,484 loans and advances to banks 758,657 - - - - 758,657 Amounts due from group companies 36,147 - - - - 36,147 Loans and advances to customers 104,252 138,810 134,550 1,599,136 - 1,976,748 Derivative assets - - - - 10,067 10,067 Other investment securities - - - - 63 63 Tax recoverable - - - - 12,496 12,496 Other assets - - - - 193,656 193,656 Total assets 990,725 440,314 337,919 1,894,020 925,632 4,588,610 Liabilities and shareholders’ funds: Customer deposits 2,880,077 164,135 14,263 31 - 3,058,506 Deposits due to other banks 95,425 - - 198,302 - 293,727 Borrowed funds 342 5,000 2,248 3,989 - 11,579 Amounts due to group companies 242,805 - - - - 242,805 Derivative liabilities - - - - 592 592 Other liabilities - - - - 194,322 194,322 Subordinated bonds / debts - - - 72,137 - 72,137 Total liabilities 3,218,649 169,135 16,511 274,459 194,914 3,873,668 Shareholders’ equity 714,942 714,942 Total interest repricing gap (2,229,279) 271,179 321,408 1,619,561 17,130 0

At 31 December 2015 Total Assets 443,552 768,723 240,044 1,523,595 753,227 3,729,141 Total Liabilities 2,608,610 76,226 317,491 26,562 155,494 3,184,383 Shareholders’ equity 544,758 544,758 Total Interest Re-pricing gap (2,165,058) 692,497 - 77,447 1,497,033 52,975 0

Furthermore the ALCO monitors the sensitivity of net interest income to changes in interest rates. Limits are set and monitored monthly.

NII sensitivity in LCY (UShs) is as follows 31st December, 2016 31st December, 2015 Change in % of net interest Change in net % of net interest net Interest income Interest income income income UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 400bps increase in interest rate 27,442,492 9.9 7,895,655 4.2 350bps decrease in interest rate (21,520,438) ( 7.8 ) (5,079,808) (2.7)

NII sensitivity in FCY (USD) is as follows 31st December, 2016 31st December, 2015 Change in % of net interest Change in net % of net interest net Interest income Interest income income income USD USD USD USD 100bps increase in interest rate 2,734,652 12.1 1,713,189 8.6 100bps decrease in interest rate (1,652,136) (7.3) (2,566,272) (12.9)

Stanbic Bank Uganda Limited Annual Report 2016 130 FINANCIAL STATEMENTS NOTES

3(e) Liquidity risk borrowing facilities that should be in place requirements; and managing the to cover withdrawals at unexpected levels of concentration and profile of debt maturities. Liquidity risk is the risk that the Bank is unable demand. to meet its payment obligations associated with • Monitoring and reporting take the form of its financial liabilities when they fall due and to cash flow measurement and projections for replace funds when they are overdrawn. The The Bank’s liquidity management process, as consequence may be the failure to meet carried out within the Bank and monitored by the next day, week and month respectively, obligations to repay depositors and fulfil the Treasury and Capital Management (TCM) as these are key periods for liquidity commitments to lend. team, includes: management. The starting point for those projections is an analysis of the contractual The Bank is exposed to daily call on its available • Day-to-day funding, managed by maturity of the financial liabilities and the cash resources from overnight deposits, monitoring future cash flows to ensure that expected collection date of the financial current accounts, maturing deposits, and calls requirements can be met. These include assets on cash settled contingencies. The Bank does replenishment of funds as they mature or not maintain cash resources to meet all of these are borrowed by customers. The assets and liability management team needs as experience shows that a minimum (ALM) within TCM also monitors unmatched level of reinvestment of maturing funds can be • Maintaining a portfolio of highly marketable medium-term assets, the level and type of predicted with a high level of certainty. assets that can easily be liquidated undrawn lending commitments, the usage of as protection against any unforeseen overdraft facilities and the impact of contingent The Asset and Liability Committee sets limits interruption to cash flow; liabilities such as standby letters of creditand on the minimum proportion of maturing guarantees. • Monitoring balance sheet liquidity funds available to meet such calls and on ratios against internal and regulatory the minimum level of inter- Bank and other

2016 2015 UShs’ 000 UShs’ 000

Total liquid assets 2,080,485,057 1,601,480,412 Total deposits 3,058,504,763 2,438,420,865 Liquidity ratio 68.0% 65.7% Regulatory requirement 20.0% 20.0%

Stanbic Bank Uganda Limited Annual Report 2016 131 FINANCIAL STATEMENTS NOTES Liquidity risk continued

The table below presents the undiscounted cash flows payable by the Bank under financial liabilities by remaining contractual maturities at the balance sheet date and from financial assets by expected maturity dates. All figures are in millions of Uganda UShs.

Future 1-5 Years Over 5 Years Up to 1 month 2-6 Months 7-12 Months interest Total UShs’ m UShs’ m UShs’ m UShs’ m UShs’ m UShs’ m UShs’ m At 31 December 2016 Liabilities - Deposits from customers 2,897,746 148,389 30,312 30 - (17,973) 3,058,505 Deposits from other banks 50,470 9,509 16,300 198,343 - 19,105 293,727 Amounts due to group 51,958 1,383 - 179,763 - 9,702 242,805 companies Derivative liabilities 74 - 1,982 - - (1,465) 591 Borrowed Funds 5,342 - 2,248 3,989 - - 11,579 Subordinated debt - - - 72,125 - 13 72,137 Total financial liabilities (contractual maturity dates) 3,005,590 159,281 50,842 454,250 - 9,382 3,679,345 Assets Cash and bank balances with 709,350 - - - - - 709,350 Bank of Uganda Government securities- 12,067 237,580 194,470 185,535 - 11,289 640,942 Available for sale Government securities- Held 80,937 72,733 30,766 21,296 50,160 (5,407) 250,484 for trading Loans and advances to banks 758,657 - - - - - 758,657 Amounts due from group 32,057 - - 1,610 - 2,479 36,147 companies Loans and advances to 164,695 138,810 134,550 1,296,219 302,916 (60,442) 1,976,748 customers Investment securities - - - - 63 - 63 Derivative Assets 129 114 (1,394) (1,936) - 13,154 10,067 Total financial assets (expected maturity dates) 1,757,892 449,237 358,392 1,502,725 353,140 (38,927 ) 4,382,458 Liquidity gap (1,247,698 ) 289,956 307,549 1,048,475 353,139 (48,309) 703,112 Cumulative Liquidity Gap (1,247,698) (957,742) (650,193) 398,282 751,421 703,112 - Off-Balance Sheet Guarantees 62,839 165,031 212,268 543,087 - - 983,225 LCs 14,425 22,836 5,170 2,278 - - 44,709 Commitments to extend 555,003 - - - - - 555,003 credit Operating lease commitments 2,307 - - 18,317 - - 20,624 Total Off-Balance Sheet 634,574 187,867 217,438 563,682 - - 1,603,561 Liquidity gap (1,882,272) 102,089 90,111 484,792 353,139 (48,309) (900,449) Cumulative Liquidity Gap (1,882,272) (1,780,183) (1,690,071) (1,205,279) (852,140) (900,449) -

As at 31 December 2015 Total financial liabilities (contractual maturity dates) 2,409,889 95,339 362,325 183,281 - (19,824) 3,031,010 Total financial assets (expected maturity dates) 1,031,537 834,063 277,439 1,436,707 746,932 (697,594) 3,629,084 Liquidity gap (1,378,352) 738,724 (84,886) 1,253,426 746,932 (677,770) 598,074 Cumulative Liquidity Gap (1,378,352) (639,628) (724,514) 528,912 1,275,844 598,074 Total Off Balance sheet 508,549 278,355 13,470 - 800,374 Net Liquidity gap (1,886,901) (917,983) (737,984) 528,912 1,275,844 598,074 (1,140,038) Net Cumulative liquidity gap (1,886,901) (2,804,884) (3,542,868) (3,013,956) (1,738,112) (1,140,038)

Stanbic Bank Uganda Limited Annual Report 2016 132 FINANCIAL STATEMENTS NOTES Liquidity risk continued

Assets available to meet all of the liabilities and 3 (f) Off-balance sheet items (ii) Other financial facilities to cover outstanding loan commitments include Other financial facilities (Note 36) are cash, central Bank balances, items in the course (i) Loan commitments also included below based on the earliest of collection; loans and advances to Banks; and The dates of the contractual amounts contractual maturity date. loans and advances to customers. In addition, of the Bank’s off-balance sheet financial debt securities and treasury and other bills have instruments that commit it to extend credit (iii) Operating lease commitments been pledged to secure liabilities. The Bank to customers and other facilities (Note 36), would also be able to meet unexpected net cash Where the Bank company is the lessee, outflows by selling securities and accessing are summarised in the table below. the future minimum lease payments under additional funding sources such as asset- non-cancellable operating leases are backed markets. summarised in the table below.

Not later than 1 to 5 years Above 5 years Total 1 year UShs’000 UShs’000 UShs’000 UShs’000 As at 31 December 2016 Letters of credit 42,430,277 2,278,412 - 44,708,689 Guarantees 440,138,087 543,087,066 - 983,225,153 Commitments to extend credit 555,003,308 - - 555,003,308 Operating lease commitments 2,306,759 18,316,956 - 20,623,715 1,039,878,430 563,682,434 - 1,603,560,865 As at 31 December 2015 Letters of credit 107,880,440 1,730,227 - 109,610,667 Guarantees 195,968,923 245,636,617 13,469,546 455,075,086 Commitments to extend credit 204,251,089 - - 204,251,089 Operating lease commitments 450,444 30,988,046 - 31,438,490 508,550,896 278,354,890 13,469,546 800,375,332

3(g) Fair value of financial assets and liabilities The table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s statement of financial position at their fair value.

Carrying Value Fair Value 2016 2015 2016 2015 UShs’000 UShs’000 UShs’000 UShs’000 Financial assets Cash and Balances with Bank of Uganda 709,350,387 589,841,286 709,350,387 589,841,286 Loans and advances to banks 758,656,662 345,265,985 758,656,662 345,265,985 Amounts due from group companies 36,147,113 29,380,268 36,147,113 29,380,268 Loans and advances to customers 1,976,748,072 1,917,243,556 1,976,748,072 1,917,243,556 Other Investment 62,930 60,690 62,930 60,690 Other assets 49,330,012 78,721,808 49,330,012 78,721,808 Financial liabilities Customer deposits 3,058,504,763 2,438,420,865 3,058,504,763 2,438,420,865 Amounts due to other banks 293,726,727 365,209,914 293,726,727 365,209,914 Borrowed funds 11,579,364 11,110,540 11,579,364 11,110,540 Amounts due to group companies 242,805,246 190,407,880 242,805,246 190,407,880 Other liabilities 194,322,067 153,374,462 194,322,067 153,374,462 Subordinated debt 72,137,386 23,740,086 72,137,386 23,740,086

(i) Due from other Banks and group (ii) Loans and advances to customers credit, maturity and yield characteristics and companies Loans and advances are net of provisions for equity securities at fair value through profit and Due from other Banks includes inter-Bank impairment. The estimated fair value of loans loss. placements and items in the course of and advances represents the discounted collection. amount of estimated future cash flows (iv) Due to other Banks, customers and group expected to be received. Expected cash flows companies The fair value of floating rate placements and are discounted at current market rates to The estimated fair value of deposits with no overnight deposits is their carrying amount. The determine fair value. stated maturity, which includes non- interest- estimated fair value of fixed interest bearing bearing deposits, is the amount repayable deposits is based on discounted cash flows (iii) Investment securities on demand. The estimated fair value of fixed using prevailing money-market interest rates Investment securities include only interest- interest- bearing deposits and other borrowings for debts with similar credit risk and remaining bearing assets classified as available for sale are not quoted in an active market is based on maturity. measured at fair value. Where this information discounted cash flows using interest rates for is not available, fair value is estimated using new debts with similar remaining maturity. quoted market prices for securities with similar

Stanbic Bank Uganda Limited Annual Report 2016 133 FINANCIAL STATEMENTS NOTES

3 (h) Fair value hierarchy Level 1: Quoted market price (unadjusted) in an Level 3: Valuation techniques using significant The determination of fair value for financial active market for an identical instrument. unobservable inputs. This category includes assets and liabilities for which there is no all instruments where the valuation technique observable market price requires the use of Level 2: Valuation techniques based on includes inputs not based on observable data valuation techniques. For financial instruments observable inputs, either directly (i.e., as prices) and the unobservable inputs have a significant that trade infrequently and have little price or indirectly (i.e., derived from prices). This effect on the instrument’s valuation. transparency, fair value is less objective, and category includesinstruments valued using: requires varying degrees of judgment depending quoted market prices in active markets for This category includes instruments that are on liquidity, concentration, uncertainty of similar instruments; quoted prices for identical valued based on quoted prices for similar market factors, pricing assumptions and other or similar instruments in markets that are instruments where significant unobservable risks affecting the specific instrument. The Bank considered less than active; or other valuation adjustments or assumptions are required to measures fair values using the following fair techniques where all significant inputs are reflect differences between the instruments. value hierarchy that reflects the significance of directly or indirectly observable from market the inputs used in making the measurements: data.

The information below shows the classification of financial instruments held at fair value into the valuation hierarchyas at 31 December, 2016 and 2015:

31 December 2016 Level 1 Level 2 Level 3 Total UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Financial assets - Derivative assets - 10,066,617 - 10,066,617 - Government securities - Held for trading - 250,484,271 - 250,484,271 - Government securities - AFS - 640,941,821 - 640,941,821 - Amount due from group company - 3,644,485 - 3,644,485 Total assets - 905,137,194 - 905,137,194 Financial liabilities - Derivative liabilities - 592,135 - 592,135 - Amount due to group company - 10,444,775 - 10,444,775 Total liabilities - 11,036,910 - 11,036,910

31 December 2015 Level 1 Level 2 Level 3 Total UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Financial assets - Derivative assets - 2,638,073 - 2,638,073 - Government securities - Held for trading - 177,809,717 - 177,809,717 - Government securities - AFS - 507,024,434 - 507,024,434 - Amount due from group company - 3,127,975 - 3,127,975 Total assets - 690,600,199 - 690,600,199 Financial liabilities - Derivative liabilities - 2,119,522 - 2,119,522 - Amount due to group company - 587,905 - 587,905 Total liabilities - 2,707,427 - 2,707,427

Sensitivity and interrelationships of inputs the range of possible and reasonable fair the inputs to a reasonable possible alternative The behaviour of the unobservable parameters value estimates is taken into account when assumption would have on profit or loss at used to fair value level 3 assets and liabilities determining appropriate model adjustments. the reporting date (where the change in the is not necessarily independent, and may often unobservable input would change the fair hold a relationship with other observable and The table that follows indicates the valuation value of the asset or liability significantly). The unobservable market parameters. Where techniques and main assumptions used in the changes in the inputs that have been used in material and possible, such relationships are determination of the fair value of the level 3 the analysis have been determined taking into captured in the valuation by way of correlation assets and liabilities measured and disclosed account several considerations such as the factors, though these factors are, themselves, at fair value. The table further indicates the nature of the asset or liability and the market frequently unobservable. In such instances, effect that a significant change in one or more of within which the asset or liability is transacted.

Our main input/assumptions Favourable (Unfavourable) measurement UShs’ 000 UShs’ 000 2016 Other investments spot rate of underlying From (3%) to 6% 3,776 (1,888) Total 3,776 (1,888)

2015 spot rate of underlying and Other investments net assets value per share From (3%) to 6% 3,641 (1,821) Total 3,641 (1,821)

Stanbic Bank Uganda Limited Annual Report 2016 134 FINANCIAL STATEMENTS NOTES Fair value hierarchy continued

The table below shows Items not measured at fair value for which fair value is disclosed

31 December 2016 Level 1 Level 2 Level 3 Total UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Financial assets Loans and advances to banks - - 758,656,662 758,656,662 Amounts due from group companies - - 36,147,113 36,147,113 Loans and advances to customers - - 1,976,748,072 1,976,748,072 Other Investment - - 62,930 62,930 Other assets - - 49,330,012 49,330,012 Total assets - - 2,820,944,789 2,820,944,789 Financial liabilities Customer deposits 2,553,460,986 - 505,043,777 3,058,504,763 Amounts due to other banks - - 293,726,727 293,726,727 Borrowed funds - - 11,579,364 11,579,364 Amounts due to group companies - - 242,805,246 242,805,246 Other liabilities - - 194,322,067 194,322,067 Total liabilities 2,553,460,986 - 1,247,477,181 3,800,938,167

31 December 2015 Level 1 Level 2 Level 3 Total UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Financial assets Loans and advances to banks - - 345,265,985 345,265,985 Amounts due from group companies - - 29,380,268 29,380,268 Loans and advances to customers - - 1,917,243,556 1,917,243,556 Other Investment - - 60,690 60,690 Other assets - - 78,721,808 78,721,808 Total assets - - 2,370,672,307 2,370,672,307 Financial liabilities Customer deposits 2,075,751,113 - 362,669,752 2,438,420,865 Amounts due to other banks - - 365,209,914 365,209,914 Borrowed funds - - 11,110,540 11,110,540 Amounts due to group companies - - 190,407,880 190,407,880 Other liabilities - - 153,374,462 153,374,462 Total liabilities 2,075,751,113 - 1,082,772,548 3,158,523,661

The unobservable valuation inputs used to assess financial assets and liabilities not fair valued but for which fair value is reported include risk-free rate, risk premiums, liquidity spreads, credit risk , timing of settlement, service costs and pre-payment.

Fair value instruments in level 3 The following table presents the changes in Level 3 instruments for the year ended 31 December, 2016 and 2015. Other investments at fair value through profit or loss

Other Investment Fair valued through profit and loss 2016 2015 Shs’000 Shs’000

Opening balance 60,690 1,144,379 Transfers into Level 3 - - Disposal - (1,088,789) Gains and losses recognised in profit or loss 2,240 5,100 Closing balance 62,930 60,690

Total gains or losses for the period included in profit or loss for assets held at the end of the reporting period, under ‘Other gains/losses’ 2,240 5,100 Change in unrealised gains or losses for the period included in profit or loss for assets held at the end of the reporting period - -

Stanbic Bank Uganda Limited Annual Report 2016 135 FINANCIAL STATEMENTS NOTES

3 (i) Classification of assets and liabilities The table below sets out the Banks classification of financial Assets and Liabilities

Designated Other Other Total Held-for- Loans and Available- at fair amortised assets/ carrying trading1 receivables2 for-sale value cost2 liabilities amount Note UShs’ m UShs’ m UShs’ m UShs’ m UShs’ m UShs’ m UShs’ m 2016 Assets Cash and balances with central banks - 210,784 498,566 - - - 709,350 Derivative assets 10,067 - - - - - 10,067 Financial investments 250,484 - - 640,942 - - 891,426 Loans and advances to banks 20 - - 758,657 - - - 758,657 Loans and advances to customers - - 1,976,748 - - - 1,976,748 Amounts due from group companies 39 3,644 - 32,503 - - - 36,147 Other financial assets4 - 63 - - - - 63 Other non-financial assets - - - - - 206,152 206,152 264,195 210,847 3,266,474 640,942 - 206,152 4,588,610 Liabilities Derivative liabilities 593 - - - - - 592 Deposits from banks - - - - 293,727 - 293,727 Deposits from customers - - - - 3,058,505 - 3,058,505 Subordinated debt - - - - 72,137 - 72,137 Amounts due to group companies 39 10,445 - - - 232,360 - 242,805 Borrowed Funds - - - - 11,579 - 11,579 Other liabilities - - - - 194,322 194,322 11,038 - - - 3,668,308 194,322 3,873,668 2015 Assets Cash and balances with central banks - 227,077 362,764 - - - 589,841 Derivative assets 2,638 - - - - - 2,638 Financial investments 177,810 - - 507,024 - - 684,834 Loans and advances to banks 20 - - 345,266 - - - 345,266 Loans and advances to customers - - 1,917,244 - - - 1,917,244 Amounts due from group companies 39 3,128 - 26,252 - - - 29,380 Other financial assets - 61 - - - - 61 Other non-financial assets - - - - - 159,877 159,877 183,576 227,138 2,651,526 507,024 - 159,877 3,729,141 Liabilities Derivative liabilities 2,120 - - - - - 2,120 Deposits from banks - - - - 365,210 - 365,210 Deposits from customers - - - - 2,438,421 - 2,438,421 Subordinated debt - - - - 23,740 - 23,740 Amounts due to group companies 39 588 - - - 189,820 - 190,408 Borrowed Funds - - - - 11,111 - 11,111 Other liabilities - - - - 153,374 153,374 2,708 - - - 3,028,302 153,374 3,184,384

Stanbic Bank Uganda Limited Annual Report 2016 136 FINANCIAL STATEMENTS NOTES

4 Critical accounting estimates and judgements in applying accounting policies The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment losses on loans and advances The Bank assesses its loan portfolios for impairment at each statement of financial position date. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be allocated to an individual loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the identification of a loss on an individual basis. The impairment for performing loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. Whereas historical loss ratios are derived using the Bank’s prior experience, the loss emergence period is based on estimates and as such the resulting impairment provision raises with the estimate made.

Below are the emergence periods in use together with the sensitivity analysis of the impairment provision thereof.

Loss emergence period Sensitivity1

2016 2015 2016 2015 Months Months UShs’000 UShs’000 Personal & Business Banking 3 3 3,688,700 4,262,451 - Mortgage Lending 3 3 483,283 561,041 - Instalment sales & finance leases 3 3 141,194 208,349 - Other lending 3 3 3,064,223 3,493,061 Corporate lending 12 12 834,144 600,272 4,522,844 4,862,723

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

(b) Non-performing loans Retail loans are individually impaired if the amounts are due and unpaid for three or more months. Corporate loans are analysed on a case-by- case basis taking into account breaches of key loan conditions. Management’s estimates of future cash flows on individually impaired loans are based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Recoveries of individual loans as a percentage of the outstanding balances are estimated as follows:

Recoveries as a % of impaired loans Sensitivity1 2016 2015 2016 2015 % % UShs’000 UShs’000

Personal & Business Banking 56% 63% 451,633 387,226 - Mortgage Lending 56% 81% 123,065 43,122 - Instalment sales & finance leases 41% 75% 58,456 192,593 - Other lending 71% 33% 270,112 151,511 Corporate lending 5% 73% 208,218 9,614 659,851 396,840

1 - Sensitivity is based on the effect of a change of one percentage point in the estimated recovery on the value of the impairment.

(c) Fair value of Financial Instruments The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of financial instruments.

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

Had the declines of financial instruments with fair values below cost been considered significant or prolonged, the Bank would suffer no additional loss after tax. (2015: UShs 15,939million) in its financial statements, being the transfer of the negative revaluations within available-for-sale reserve to the income statement.

(e) Income taxes Significant judgment is required in determining the Bank’s provision for income taxes. There are many transactions and calculations for which the ulti- mate tax determination is uncertain during the ordinary course of business. The Bank recognises liabilities for anticipated tax audit issues based on esti- mates of whether 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 deferred tax provisions in the period in which such determination is made.

Stanbic Bank Uganda Limited Annual Report 2016 137 FINANCIAL STATEMENTS NOTES

5 Segment information

The principal business units in the Bank are as follows:

Personal and Business Banking (PBB): Banking and other financial services to individual customers and small to medium sized enterprises throughout Uganda.

PBB incorporates • Mortgage lending- provides residential accommodation loans to individual customers. Instalment sales and finance leases: comprises two main areas - instalment finance in the consumer market mainly vehicles and secondly, finance of vehicles and equipment in the business market.

• Transactional and lending products- Transactions in products associated with the various points of contact channels such as ATMs, internet, and branches. This includes deposit taking activities, electronic Banking, cheque accounts and other lending products.

Corporate and Investment Banking (CIB): Commercial and Investment Banking services to larger corporates, financial institutions, and international counterparties in Uganda.

CIB incorporates • Global markets - includes foreign exchange, fixed income, derivatives, and money market funding units.

• Investment Banking and trade finance - includes corporate lending and transactional Banking businesses, trade finance business and property related lending to corporates.

Treasury and Capital Management (TCM): Oversees the management of liquidity, interest rate risk and surplus capital for the Bank.

The segment results for the years ended 31 December, 2016 and 31 December, 2015 are as follows: Corporate and Personal and Treasury & Capital Investment Total Business Banking management Banking Income statement UShs’ 000 UShs’ 000 Shs’ 000 UShs’ 000 Year ended 31 December 2016 Net Interest income 217,964,544 154,228,952 31,042,308 403,235,804 Net fees and commission 92,881,473 21,751,203 - 114,632,676 Net trading income 13,854,146 111,100,424 - 124,954,570 Other income 216,611 406,967 - 623,578 Total operating income 324,916,774 287,487,546 31,042,308 643,446,628 (36,640,522 Impairment losses (22,601,173) (14,039,349) - ) Other operating expenses (240,034,235) (114,682,468) 1,859,218 (352,857,485) Profit before tax 62,281,366 158,765,729 32,901,526 253,948,621 Income tax expense (15,933,448) (39,198,358) (7,664,980) (62,796,786) Profit after tax 46,347,918 119,567,371 25,236,546 191,151,835

Year ended 31 December 2015 Net Interest income 196,229,937 116,233,979 19,817,646 332,281,562 Net fees and commission 90,953,716 14,745,943 - 105,699,659 Net trading income 15,928,581 77,729,076 - 93,657,657 Other income 629,025 265,455 - 894,480 Total operating income 303,741,259 208,974,453 19,817,646 532,533,358 Impairment losses (24,908,065) (3,839,308) - (28,747,373) Other operating expenses (223,298,594) (77,189,542) - (300,488,137) Profit before tax 55,534,600 127,945,603 19,817,646 203,297,848 Income tax expense (16,612,480) (30,927,399) (4,998,688) (52,538,567) Profit after tax 38,922,120 97,018,204 14,818,958 150,759,281

The segmental information in the table above includes transactions made between different segments with in the Bank that give rise to a cost in one segment and income to another segment. These transactions have no net impact to the Bank as a hole. In 2016 these transactions had a net interest income of UShs 26.9bn (2015:20.8bn) and net trading cost of UShs (26.9) bn. (2015:(20.8)bn)

Stanbic Bank Uganda Limited Annual Report 2016 138 FINANCIAL STATEMENTS NOTES Segment information continued

Statement of financial position

Corporate and Personal and Investment Treasury & Capital Business Banking Banking management Total UShs’ 000 UShs’ 000 Shs’ 000 UShs’ 000 As at 31 December 2016 Total assets 1,525,704,887 2,994,643,190 341,261,603 4,588,609,681 Total Liabilities 1,106,196,479 2,767,471,209 - 3,873,667,688 Equity 146,508,408 227,171,981 341,261,603 714,741,993

Other segment items included in the income statement Depreciation 15,793,332 305,818 - 16,099,150 Amortisation of intangible assets 5,795,511 819,594 - 6,615,104

As at 31 December 2015 Total assets 1,325,753,218 2,249,470,131 153,917,664 3,729,141,013 Total Liabilities 1,169,152,388 2,015,230,880 - 3,184,383,269 Equity 156,600,830 234,239,250 153,917,664 544,757,744 Other segment items included in the income statement Depreciation 14,351,020 2,065,325 - 16,416,345 Amortisation of intangible assets 419,620 81,965 - 501,585

All of the business is carried out in Uganda. There is therefore no secondary (geographical) segment reporting.

Stanbic Bank Uganda Limited Annual Report 2016 139 FINANCIAL STATEMENTS NOTES

6 Interest income 2016 2015 UShs’ 000 UShs’ 000 Government securities 99,392,706 62,694,644 Loans and advances to customers 304,488,643 283,994,485 Loans and advances to banks 19,406,726 3,213,156 Placements with group companies 567,860 427,925 423,855,935 350,330,210

Interest income above includes the unwinding effect of the net fee and commissions income included in determining the effective interest rate on financial assets measured at amortised cost of UShs 3,372 million (2015: UShs 8,373 million).

7 Interest Expense 2016 2015 UShs’ 000 UShs’ 000 Current accounts 7,013,885 4,585,999 Savings and deposit accounts 21,486,976 11,126,403 Subordinated debt: - Group entity 4,357,229 938,680 Deposits and borrowings from banks 9,441,696 10,115,993 Amounts due to group companies 5,183,551 12,049,142 Interest paid on other money market borrowings 17,138 33,962 47,500,475 38,850,179

8 Net fee & commission income 2016 2015 UShs’ 000 UShs’ 000 Fee and commission income Transactional fees & commission income 113,987,495 107,731,550 Credit related fees & commission income 2,460,087 1,147,056 116,447,582 108,878,606 Fee and commission expense Transactional fees & commission expenses (1,814,906) (3,178,947)

Net fee and commission income 114,632,676 105,699,659

Net fee and commission income above excludes amounts included in determining the effective interest rate on financial assets measured at amortised cost of UShs 7,011 million (2015: UShs 7,800 million).

9 Net trading income 2016 2015 UShs’ 000 UShs’ 000 Foreign exchange trading gains - Realized gains 42,747,260 69,163,174 Foreign exchange trading gains - Unrealised gains 2,674,192 (5,664,529) Trading gains on Financial instruments 105,716,399 51,729,921 Unrealised gains/loss on Financial instruments 1,084,984 (572,743) Trading Expense - Other (387,921) (196,634) 151,834,914 114,459,189 Debt securities include the effect of buying & selling and changes in the fair value of government securities. Included in foreign exchange are gains and losses from spot and forward contracts and other currency derivatives.

Stanbic Bank Uganda Limited Annual Report 2016 140 FINANCIAL STATEMENTS NOTES

10 Other operating income 2016 2015 UShs’ 000 UShs’ 000 Gain on disposal of property and equipment 3,717 153,056 Dividend income - 18,962 Other 619,861 722,461 623,578 894,479

11 Impairment charge for credit losses 2016 2015 UShs’ 000 UShs’ 000 Net credit impairment raised and reversed for loans and advances (Note 19) 46,687,946 40,573,143 Recoveries on loans and advances previously written off (10,047,424) (11,825,770) 36,640,522 28,747,373

12 Employee benefit expenses 2016 2015 UShs’ 000 UShs’ 000 Salaries and wages 98,638,610 95,171,985 Contributions to statutory and other defined benefit plans 27,183,677 15,395,102 Other 10,947,559 9,551,204 136,769,846 120,118,291

13 Other operating expenses 2016 2015 UShs’ 000 UShs’ 000 Premises costs 25,537,340 24,362,680 Office expenses 5,237,816 3,101,616 Auditors remuneration 722,271 883,320 Professional fees 11,001,198 5,141,722 IT expenses 46,265,550 49,157,054 Travel and entertainment 8,616,886 7,022,049 Marketing and advertising 8,736,659 7,321,894 Insurance 2,537,502 2,322,532 Deposit Protection Scheme Contribution 5,333,256 4,117,585 Security expenses 10,111,619 9,063,803 Franchise fees 19,305,386 15,975,754 Directors fees & expenses 512,260 505,224 Training costs 2,713,551 3,042,409 Operational losses 6,640,891 1,030,481 Indirect taxes (VAT) 17,661,733 14,881,688 Bank charges 1,485,781 1,516,654 Leased equipment rental 1,341,351 613,657 Credit Bureau expenses 514,506 725,319 Other operating expenses 19,097,829 12,666,472 193,373,385 163,451,913 Included with in other operating costs for 2016 is a 4.2bn relating to digital financial inclusion contribution (2015: Nil) under the Professionals fees are extra provisions made after an assessment of all the legal related cases with in the Bank. The operating losses number for 2016 include a settlement made of 6bn relating to a fraudulent transaction.

Stanbic Bank Uganda Limited Annual Report 2016 141 FINANCIAL STATEMENTS NOTES

14 Income tax expense 2016 2015 UShs’ 000 UShs’ 000 Current income tax 57,473,364 54,499,165 Deferred income tax (see note 21) 5,323,422 (1,960,598) 62,796,786 52,538,567

The income tax on the Bank profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows:

2016 2015 UShs’ 000 UShs’ 000 Profit before income tax 253,948,621 203,297,848 Tax calculated at statutory tax rate of 30% (2015: 30%) 76,184,586 60,989,354 Tax effects of: Income subject to tax at 20% (15,694,885) (10,976,575) Expenses not deductible for tax purposes 2,259,794 2,520,486 Prior year current income tax under provision 47,291 5,302 62,796,786 52,538,567

The movement in the tax recoverable is as follows: 2016 2015 UShs’ 000 UShs’ 000 At start of year (14,247,605) (12,058,692) Prior year under provisions 47,291 5,301 Income tax charge 57,426,073 54,493,863 Tax paid (55,721,956) (56,688,077) At end of year (12,496,197) (14,247,605)

15 Earnings per share – basic and diluted 2016 2015 UShs’ 000 UShs’ 000 Basic Profit attributable to ordinary shareholders (UShs’000) 191,151,835 150,759,282 Weighted average number of ordinary shares in issue (thousands) 51,188,670 51,188,670 Basic earnings per share (expressed in Shs per share) 3.73 2.95

There were no potentially dilutive shares as at 31 December, 2016 or on 31 December, 2015. Therefore, diluted earnings per share are the same as basic earnings per share.

16 Cash and balances with Bank of Uganda 2016 2015 UShs’ 000 UShs’ 000 Coins & bank notes 210,784,361 227,076,817 Balances with Bank of Uganda 498,566,026 362,764,469 709,350,387 589,841,286

Banks are required to maintain a prescribed minimum cash balance with Bank of Uganda. The amount is determined by Bank of Uganda on a pre- set formula on a rolling fortnightly basis; 8.33% in 2016 (2015: 8.33%). The reserve as at 31 December, 2016 was UShs 249,740m (2015: UShs 200,760m). The cash reserves available for use in the Bank’s day to day activities and may fall by upto 50% on a given day. However, there are sanctions for non- compliance.

Stanbic Bank Uganda Limited Annual Report 2016 142 FINANCIAL STATEMENTS NOTES

17 Government securities 2016 2015 UShs’ 000 UShs’ 000 Government securities - available for sale Treasury bills At start of the year 222,990,801 96,352,754 Additions 364,474,686 258,128,706 Disposals (137,034,799) (148,755,103) MTM adjustments mark to market mark to market (52,609,685) 17,264,444 At end of the year 397,821,003 222,990,801 Treasury bonds At start of the year 284,033,633 421,415,512 Additions 8,059,127 57,201,972 Disposals (40,818,519) (195,605,382) MTM adjustments mark to market (8,153,423) 1,021,531 At end of the year 243,120,818 284,033,633 Total at end of year 640,941,821 507,024,434 Current 419,240,944 355,433,381 Non current 221,700,877 151,591,053 640,941,821 507,024,434 Government securities - held for trading Treasury bills At start of the year 147,633,187 244,764,055 Additions 432,474,799 506,308,636 Disposals (303,912,571) (608,782,031) MTM adjustments mark to market (99,701,146) 5,342,527 At end of the year 176,494,269 147,633,187 Treasury bonds At start of the year 30,176,530 15,444,868 Additions 527,471,383 363,862,344 Disposals (470,909,745) (349,745,436) MTM adjustments mark to market (12,748,166) 614,754 At end of the year 73,990,002 30,176,530 Total at end of year 250,484,271 177,809,717 Current 177,301,265 171,600,295 Non current 73,183,006 6,209,422 250,484,271 177,809,717

Government treasury bills are debt securities issued by Bank of Uganda for a term of three months, six months or one year. Government treasury bonds are debt instruments issued by Bank of Uganda for a term of either two, three, five or ten years.

Government securities are categorised as available for sale which are fair valued through reserves and held for trading, which are fair valued through the income statement.

The weighted average effective interest rate on treasury bills and bonds was 18.07% (2015:17.53%).

18 Loans and advances to Banks 2016 2015 UShs’ 000 UShs’ 000 Items in course of collection - foreign banks 3,822,522 1,364,365 Placements with local banks 490,341,318 37,507,746 Placements with foreign banks 264,492,822 306,393,874 758,656,662 345,265,985 The weighted average effective interest rate on loans and advances to Banks was 0.2% (2015: 4.3%)

Stanbic Bank Uganda Limited Annual Report 2016 143 FINANCIAL STATEMENTS NOTES

19 Loans and advances to customers 2016 2015 UShs’ 000 UShs’ 000 Personal and business banking Mortgage lending 304,392,323 319,754,907 Instalment sales and finance leases 66,499,670 70,625,263 Other loans and advances 739,101,830 694,730,184 Corporate and investment banking Corporate lending 924,934,311 878,908,231 Gross loans and advances 2,034,928,134 1,964,018,585 Less: provision for impairment (58,180,062) (46,775,029) 1,976,748,072 1,917,243,556 Current 377,612,072 553,314,267 Non Current 1,599,136,000 1,363,929,289 1,976,748,072 1,917,243,556

Included in other loans and advances is the fair value adjustment of loans advanced to staff at off market rates of UShs 17,219m (2015: UShs 21,345m). Movements in provisions for impairment of loans and advances are as follows: Instalment Mortgage Other loans & Corporate sales and Total lending Advances lending finance leases UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Non performing loans At 1 January 2016 3,837,607 2,742,191 18,787,696 1,416,914 26,784,408 Impaired accounts written off (3,189,532) (2,490,440) (26,495,110) (1,414,684) (33,589,766) Net provisions raised/(released) 4,998,310 1,824,816 26,549,683 9,861,486 43,234,295 Effects of foreign exchange movements (966) 49,948 626,317 675,299 At 31 December 2016 5,646,385 2,075,601 18,892,217 10,490,033 37,104,236 Performing loans At 1 January 2016 1,683,124 625,046 10,479,185 7,203,266 19,990,621 Net impairments raised (233,275) (201,464) (1,286,516) 2,806,460 1,085,205 At 31 December 2016 1,449,849 423,582 9,192,668 10,009,726 21,075,826 Total 7,096,234 2,499,183 28,084,886 20,499,759 58,180,062

Non performing loans At 1 January 2015 1,182,765 10,287,782 18,460,437 604,948 30,535,932 Impaired accounts written off (837,027) (14,736,226) (27,213,485) (42,786,738) Net provisions raised/(released) 3,524,915 7,190,647 28,298,028 811,966 39,825,556 Effects of foreign exchange movements (33,046) (12) (757,284) (790,342) At 31 December 2015 3,837,607 2,742,191 18,787,696 1,416,914 26,784,408 Performing loans At 1 January 2015 2,591,127 740,356 11,735,634 4,175,914 19,243,031 Net impairments raised (908,003) (115,310) (1,256,450) 3,027,353 747,590 At 31 December 2015 1,683,124 625,046 10,479,184 7,203,267 19,990,621 Total 5,520,731 3,367,237 29,266,880 8,620,181 46,775,029

All impaired loans have been written down to their estimated recoverable amount. The net carrying amount of impaired loans at 31 December, 2016 was UShs 37,104 million (2015: UShs 26,784 million). The weighted average effective interest rate on loans and advances was 15.32% (2015: 14.87%)

Stanbic Bank Uganda Limited Annual Report 2016 144 FINANCIAL STATEMENTS NOTES Loans and advances to customers continued

The loans and advances to customers include finance lease receivables as follows: 2016 2015 UShs’ 000 UShs’ 000 Gross investment in finance leases No later than 1 year 14,702,443 16,932,326 Later than 1 year but no later than 5 years 119,147,079 148,996,283 Later than 5 years 387,772 387,813 134,237,294 166,316,422 Unearned future finance income on finance leases (24,969,445) (36,220,566) Net investment in finance leases 109,267,849 130,095,856 The net investment in finance leases may be analysed as follows: No later than 1 year 13,953,567 15,474,975 Later than 1 year but no later than 5 years 95,071,929 114,449,280 Later than 5 years 242,353 171,601 109,267,849 130,095,856

As at 31 December 2016, the Bank had no exposures to a single borrower or group of borrowers exceeding 25% of the core capital of the Bank

20 Other investment securities 2016 2015 UShs’ 000 UShs’ 000 S.W.I.F.T. SCRL 62,930 60,690 62,930 60,690

21 Deferred income tax The movement on the deferred income tax account is as follows:

2016 2015 UShs’ 000 UShs’ 000 As at 1 January 14,777,770 9,033,065 Income statement movement (5,323,423) 1,960,598 Available for sale securities under other operating income (8,146,997) 3,784,107 As at 31 December 1,307,349 14,777,770 The deffered income tax assets of the statement of financial position comprises the following categories Deferred income tax assets Provisions for loans and advances 10,684,553 9,201,504 Available for sale government securities (1,316,196) 6,830,803 Other deductible temporary differences 2,837,851 1,728,702 12,206,208 17,761,009 Deferred income tax liabilities Property, equipment and intangibles (10,898,859 ) (2,983,239) Net deferred income tax asset 1,307,349 14,777,770 Property, equipment and intangibles (7,915,621) 1,206,342 (5,323,423) 1,960,599

2016 2015 UShs' 000 UShs' 000 Property and equipment (7,915,622 ) 1,206,342 Provisions for loans and advances 1,483,049 1,053,482 Other deductible temporary differences 1,109,150 (299,226) (5,323,423 ) 1,960,598

Stanbic Bank Uganda Limited Annual Report 2016 145 FINANCIAL STATEMENTS NOTES

22 Prepaid operating lease 2016 2015 UShs’ 000 UShs’ 000 Cost As at 1 January 239,141 239,141 Additions for the year - - As at 31 December 239,141 239,141 Amortisation As at 1 January (130,143) (119,805) Charge for the year (10,338) (10,338) As at 31 December (140,481) (130,143) Carrying value As at 31 December 98,660 108,998

23 Other assets 2016 2015 UShs’ 000 UShs’ 000 Clearances in transit 10,958,197 9,252,541 Prepayments 27,435,266 27,104,401 Fees receivable 1,011,122 341,927 Other accounts receivable 9,925,427 42,022,939 49,330,012 78,721,808 Note: Included in other accounts recievable for 2015 is UShs 28 bn relating to an investment sold to our customer that had not been settled as at 31 December, 2015

24 Goodwill and other intangible assets Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. There was no impairment of goodwill identified in 2016 (2015: nil).

Computer software Goodwill Total UShs’ 000 UShs’ 000 UShs’ 000 Cost At 1 January 2016 2,938,295 4,753,980 7,692,275 Additions 83,405,154 - 83,405,154 Written off - - - At 31 December 2016 86,343,449 4,753,980 91,097,429 Amortisation At 1 January 2016 2,028,349 2,852,388 4,880,737 Charge for the year 6,615,104 - 6,615,104 At 31 December 2016 8,643,453 2,852,388 11,495,841 Net book value At 31 December 2016 77,699,996 1,901,592 79,601,588 Cost At 1 January 2015 3,065,102 4,753,980 7,819,082 Additions - - - Written off (126,807) - (126,807) At 31 December 2015 2,938,295 4,753,980 7,692,275 Amortisation At 1 January 2015 1,526,764 2,852,388 4,379,152 Charge for the year 501,585 - 501,585 At 31 December 2015 2,028,349 2,852,388 4,880,737 Net book value At 31 December 2015 909,946 1,901,592 2,811,538

Stanbic Bank Uganda Limited Annual Report 2016 146 FINANCIAL STATEMENTS NOTES

25 Property and equipment

Furniture, Land and Computer Motor Work in fittings and Total buildings equipment vehicles progress equipment UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 Cost At 1 January 2016 3,415,496 63,763,679 61,685,119 5,348,515 4,390,680 138,603,489 Additions - 6,085,468 9,210,623 1,045,967 14,048,669 30,390,727 Transfers - - 5,189,854 - (5,189,854) - Disposals - (5,029,612) (7,652,340) (338,387) - (13,020,339) At 31 December 2016 3,415,496 64,819,535 68,433,256 6,056,095 13,249,495 155,973,877

Depreciation At 1 January 2016 950,404 44,001,229 41,989,327 2,453,244 - 89,394,204 Charge for the year 69,081 6,296,522 8,838,277 895,270 - 16,099,150 On disposals - (4,899,339) (7,599,753) (338,387) - (12,837,479) At 31 December 2016 1,019,485 45,398,412 43,227,851 3,010,127 - 92,655,875

Net book value At 31 December 2016 2,396,011 19,421,123 25,205,405 3,045,969 13,249,495 63,318,002

Cost At 1 January 2015 3,415,496 57,368,226 58,954,246 3,619,617 2,906,885 126,264,470

Additions - 5,924,522 5,449,611 4,306,679 18,056,899 2,376,087 Transfers - 2,822,884 - - (2,822,884) - Disposals - (2,351,953) (2,718,738) (647,189) - (5,717,880) At 31 December 2015 3,415,496 63,763,679 61,685,119 5,348,515 4,390,680 138,603,489

Depreciation At 1 January 2015 881,323 38,732,879 36,592,225 2,352,812 - 78,559,239 Charge for the year 69,081 7,550,496 8,049,147 747,624 - 16,416,348 On disposals - (2,282,146) (2,652,045) (647,192) - (5,581,383) At 31 December 2015 950,404 44,001,229 41,989,327 2,453,244 - 89,394,204

Net book value At 31 December 2015 2,465,092 19,762,450 19,695,792 2,895,271 4,390,680 49,209,285

26 Share capital Number of Ordinary ordinary Total share capital shares (thousands) UShs’ 000 UShs’ 000 Issued and fully paid At 1 January 2016 51,188,670 51,188,670 51,188,670 At 31 December 2016 51,188,670 51,188,670 51,188,670

Number of Ordinary ordinary Total share capital shares (thousands) UShs’ 000 UShs’ 000 Issued and fully paid At 1 January 2015 51,188,670 51,188,670 51,188,670 At 31 December 2015 51,188,670 51,188,670 51,188,670

The par value of ordinary shares is UShs 1000 per share. The holders of the ordinary shares are entitled to one vote per share annual or special general meeting of the Bank.

Stanbic Bank Uganda Limited Annual Report 2016 147 FINANCIAL STATEMENTS NOTES

27 Available for sale revaluation reserve 2016 2015 UShs’ 000 UShs’ 000 At 1 January (15,938,540) (7,108,959) Net gains/(losses) from changes in fair value 27,156,660 (12,613,687) Deferred tax on fair value change (8,146,997) 3,784,106 Net movement for the year 19,009,663 (8,829,581) At 31 December 3,071,123 (15,938,540)

28 Statutory credit risk reserve The statutory credit risk reserve represents amounts by which provisions for impairments of loans and advances, determined in accordance with the Financial Institutions Act exceed those determined in accordance with International Financial Reporting Standards. These amounts are appropriated from retained earnings in accordance with accounting policy (j).

2016 2015 UShs’ 000 UShs’ 000 Specific Provisions (Regulatory) 50,892,949 41,828,707 General Provisions (Regulatory) 30,181,080 24,847,513 81,074,029 66,676,220 Less Identified impairment (in accordance with IFRS) 37,104,236 26,784,408 Unidentified impairment (in accordance with IFRS) 21,075,825 19,990,620 Statutory Credit risk reserves 22,893,968 19,901,192

29 Derivative financial assets and liabilities The Bank uses currency forward derivative instruments for non-hedging purposes. Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions. The notional amounts of certain types of financial instrument provide a basis for comparison with instruments recognised on the statement of financial position but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market foreign exchange rates on hand relative to their terms. The aggregate contractual or notional amount of derivative financial instruments, the extent to which instruments are favourable or unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time to time. The maturity analysis of the fair values of derivative instruments held is set out below.

Less than 1 1-5 years Over 5 years Total year UShs’ 000 UShs’ 000 UShs’ 000 UShs’ 000 As at 31 December 2016 Assets Currency forwards 868,997 1,433,167 7,764,453 10,066,617 Fair value of assets 868,997 1,433,167 7,764,453 10,066,617 Liabilities Derivatives held for trading - - - - Currency forwards 592,135 - - 592,135 Fair value of liabilities 592,135 - - 592,135 Net fair value 276,862 1,433,167 7,764,453 9,474,482

As at 31 December 2015 Assets Derivatives held for trading - - - - Currency forwards 2,638,073 - - 2,638,073 Fair value of assets 2,638,073 - - 2,638,073 Liabilities Derivatives held for trading 2,119,522 - - 2,119,522 Currency forwards - - - - Fair value of liabilities 2,119,522 - - 2,119,522 Net fair value 518,551 - - 518,551

Stanbic Bank Uganda Limited Annual Report 2016 148 FINANCIAL STATEMENTS NOTES

30 Customer deposits 2016 2015 UShs’ 000 UShs’ 000 Current and demand deposits 2,553,460,986 2,075,751,113 Savings accounts 224,488,265 189,546,101 Fixed and call deposit accounts 239,215,559 146,656,729 Trading liabilities 41,339,953 26,466,922 3,058,504,763 2,438,420,865 Current 3,058,474,122 2,460,106,994 Non Current 30,641 22,313,871 3,058,504,763 2,438,420,865

The weighted average effective interest rate on customer deposits was 0.98% (2015: 1.06%).

31 Deposits and balances due to Banks 2016 2015 UShs’ 000 UShs’ 000 Balances due to other banks - local currency 54,186,047 73,222,992 Balances due to other banks - foreign currency 239,540,680 291,986,922 293,726,727 365,209,914 The weighted average effective interest rate on deposits and balances due to Banks was 3.02% (2015: 2.69%).

32 Borrowed funds 2016 2015 UShs’ 000 UShs’ 000 Bank of Uganda : Agricultural Credit Facility 11,579,364 6,819,339 Agence Francaise de Developpement (AFD) - 4,291,201 11,579,364 11,110,540 Current 7,590,680 4,132,229 Non Current 3,988,684 6,978,311 11,579,364 11,110,540

The Government of Uganda, through Bank of Uganda, set up an Agricultural Credit Facility scheme for the purpose of supporting agricultural expansion and modernization in partnership with commercial Banks. All eligible Bank customers receive 50% financing from the Government of Uganda while the remaining 50% is provided by the Bank. The outstanding balance as at 31 December, 2016 was UShs 11,579 million (2015: UShs 6,819 million). The Bank does not pay any interest to the Government of Uganda. Refunds to the government are made half yearly and as at 31 December, 2016; the last payable instalment is due on 31 December, 2021.

The Bank entered into a financing agreement with Agence Française de Développement (AFD). Under the terms of the agreement, AFD lent the Bank EUR 7 million over a period of seven years at a fixed rate of 0.6%. Interest is paid semi-annually with 12 equal principal re-payments beginning in January, 2011. The outstanding balance as at 31 December, 2016, was nil (2015: UShs 4,291 million).

The Bank complied with all the terms and conditions of each of the agreements during the year.

33 Other liabilities 2016 2015 UShs’ 000 UShs’ 000 Uganda Revenue Authority - Tax revenue collections 7,017,166 3,556,576 Bills payable 65,146,705 50,974,436 Unclaimed balances 20,011,925 21,166,645 Sundry creditors 47,105,234 51,689,937 Dividend payable 7,978,692 7,028,875 Other liabilities 47,062,345 18,957,993 194,322,067 153,374,462

Note : Included in other liabilities for 2016 is UShs 20bn relating to accepted usance letters of credit payable to third parties at a determined future date. (2015: Nil) and bills payable country driven change the Bank projects of UShs 10.7bn (2015: UShs 2.3bn), UShs 4.2bn digital finacial inclusion contribution (2015: Nil)

Stanbic Bank Uganda Limited Annual Report 2016 149 FINANCIAL STATEMENTS NOTES

34 Subordinated debt

Carrying Notional

value value Date of issue UShs’ 000 UShs’ 000 As at 31 December 2016 Bonds Subordinated loan facility - Standard Bank South Africa 31 March 2016 72,137,386 72,109,800 72,137,386 72,109,800

As at 31 December 2015 Date of issue UShs’ 000 UShs’ 000 Subordinated loan facility - Standard Bank South Africa 31 October 2011 23,740,086 23,740,086 23,740,086 23,740,086

The Bank signed a 10year term subordinated loan facility agreement with Standard Bank of South Africa (SBSA) as the lender which commenced on 31-Mar-2016 amounting to USD 20million. The option to have the first redemption after the 5th anniversary of the utilisation date is available. The subordinated loan was sourced to supplement SBU capital and diversify funding sources.

The USD 7million subordinated loan which was issued on 31-Oct-2011 was redeemed in October 2016 taking up the option to early redeem after a period of 5 Years from issue date. This was motivated by the subsequent annual reduction in contribution to capital following the optional (1st) redemption date i.e. an annual 20% reduction in contribution year on year. The Bank remained well capitalised closing the period above regulatory and internal requirements at the time of the redemption.

35 Dividends At the annual general meeting to be held in May 2017, a dividend of UShs 1.17 per share amounting to UShs 60 bn in total is to be proposed. (2015: total dividend per share of UShs 0.78 amounting to UShs 40 bn). The payment of dividends is subject to withholding tax at rates depending on the tax status or residence of the recipient.

36 Off balance sheet financial instruments, contingent liabilities and commitments In common with other Banks, the Bank 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. In addition, there are other off-balance sheet financial instruments including forward contracts for the purchase and sale of foreign currencies, the nominal amounts for which are not reflected in the statement of financial position.

2016 2015 UShs’ 000 UShs’ 000 Contingent liabilities Acceptances and letters of credit 44,708,689 109,610,667 Guarantees and performance bonds 983,225,153 455,075,086 1,027,933,842 564,685,753 Commitments Commitments to extend credit 555,003,308 204,251,089 Currency forwards (21,502,243) (73,670,114) Operating lease commitments 20,623,715 31,438,490 554,124,780 162,019,465 1,582,058,622 726,705,218 Operating lease commitments Current 2,306,760 450,444 Non-curent 18,316,956 30,988,046 20,623,715 31,438,490

Nature of contingent liabilities An acceptance is an undertaking by a Bank to pay a bill of exchange drawn on a customer.The Bank expects most acceptances to be presented, and reimbursement by the customer is normally immediate. Letters of credit commit the Bank 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 a customer to third parties. The Bank will only be required to meet these obligations in the event of the customer’s default.

Commitments to lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The Bank may withdraw from its contractual obligation for the undrawn portion of agreed overdraft limits by giving reasonable notice to the customer.

Stanbic Bank Uganda Limited Annual Report 2016 150 FINANCIAL STATEMENTS NOTES Off balance sheet financial instruments, contingent liabilities and commitments continued

Foreign exchange forward contracts are agreements to buy or sell a specified quantity of foreign currency, usually on a specified future date at an agreed rate.

Pending litigation The Bank is a litigant in several other cases which arise from normal day to day Banking. The directors and management believe the Bank has strong grounds for success in a majority of the cases and are confident that they should get a ruling in their favour and none of the cases individually or in aggre- gate would have a significant impact on the Bank’s operations.

The directors have carried out an assessment of all the cases outstanding as at 31 December, 2016 and where considered necessary based on the mer- its of each case, a provision has been raised. In aggregate the total provisions raised amount to UShs 8.2 bn (2015: UShs7.4 bn). Reported under other liabilities.

37 Analysis of cash and cash equivalents as shown in the statement of cash flows 2016 2015 UShs’ 000 UShs’ 000 Cash and balances with Bank of Uganda 709,350,387 589,841,286 Cash reserve requirement (249,740,000) (200,760,000) Government securities maturing within 90 days 365,164,815 170,698,800 Placements with other banks 758,656,662 345,265,985 Deposits from group companies 36,147,113 29,380,268 1,619,578,977 934,426,339

For the purposes of the statement of cash flow, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with central Banks, treasury bills and other eligible bills, and amounts due from other Banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Uganda. (See Note 1).

38 Related parties The Bank is 80% owned by Stanbic Africa Holdings Limited, which is incorporated in the United Kingdom. The ultimate parent and controlling party of the Bank is Standard Bank Group Limited, incorporated in South Africa. There are other companies which are related to Stanbic Bank Uganda Limited through common shareholdings or common directorships. These include Standard Bank Isle of Man Limited, Standard Bank of South Africa, CfC Stanbic Bank Kenya Limited, Stanbic Bank Tanzania Limited, Stanbic Bank , Stanbic International Uganda Limited, StanLib, Stanbic International Insurance Limited and Liberty Life Assurance Uganda Limited.

In the normal course of business, current accounts are operated and placings of foreign currencies are made with the parent company and other group companies at interest rates in line with the market.

The relevant balances are shown below:

2016 2015 UShs’ 000 UShs’ 000 Amounts due from group companies Placements and borrowings 28,024,436 25,471,237 Other assets 4,478,192 781,056 Derivatives 3,644,485 3,127,975 36,147,113 29,380,268 Amounts due to group companies Deposits and current accounts 181,396,318 173,561,813 Derivatives 10,444,775 587,905 Other liabilities 50,964,153 16,258,162 242,805,246 190,407,880 Subordinated debt due to group companies Subordinated loans (see note 36) 72,137,386 23,740,086 Interest income earned 567,860 427,925 Interest expense paid 9,540,780 12,987,822 Trading income 4,539,861 635,821 Operating expenses incurred 48,536,070 47,161,405

Revenue and expenses recognised in respect of these arrangments amounted to UShs (4,433) million and UShs 48,536million at 31 December, 2016

Stanbic Bank Uganda Limited Annual Report 2016 151 FINANCIAL STATEMENTS NOTES Related parties continued

Advances to customers at 31 December, 2016 include loans to directors and loans to employees as follows: 2016 2015 UShs’ 000 UShs’ 000 As at 1 January 2,400,618 4,063,757 Loans extended during the year 19,503,627 251,983 Loan repayments during the year (1,712,051) (1,915,122) 20,192,194 2,400,618

Companies affiliated to directors and key management are Uganda Batteries Limited, Nice House of Plastics, Jesa Farm Dairy Limited, Uganda Breweries Ltd and Impala Heights Ltd.

At 31 December, 2016, advances to key management amounted to UShs 474 million (2015: UShs 1,126 million).

Loans granted to non-executive directors and their affiliates are granted at commercial rates while those granted to executive directors and executives are: Mortgage – 50% of prime rate, staff miscellaneous and car loans – 75% of prime rate, study loans – 0%.

2016 2015 UShs’ 000 UShs’ 000 Interest income from key management loans 775,229 817,882 775,229 817,882

No impairment has been recognised in respect of loans advanced to related parties (2015`: nil). Other related party transactions.

2016 2015 UShs’ 000 UShs’ 000 Deposits by key management and related parties As at 1 January 1,135,020 990,252 Net increase for the year 116,159 144,767 1,251,179 1,135,019 Key management compensation Salaries and other short term employment benefits 10,393,580 11,901,106 Post employment benefits 2,037,090 2,203,276 12,430,670 14,104,382 Directors remuneration Directors fees 452,238 505,224 Other emoluments included in management compensation 5,922,123 4,095,349 6,374,361 4,600,573

Stanbic Bank Uganda Limited Annual Report 2016 152 FINANCIAL STATEMENTS NOTES

39 Equity linked transactions

Standard Bank Group (SBG) has two equity-settled schemes, namely the Group Share Incentive Scheme and the Equity Growth Scheme. The Group Share Incentive Scheme confers rights to employees to acquire ordinary shares at the value of the SBG share price at the date the option is granted. The Equity Growth Scheme was implemented in 2005 and represents appreciation rights allocated to employees. The eventual value of the right is effectively settled by the issue of shares equivalent in value to the value of the rights. the amounts reflected in the income statememt for the two schemes are: 2016 2015 UShs’ 000 UShs’ 000 Group Share Incentive Scheme (135,731) 732,124 Equity Growth Scheme 158,480 99,525 22,750 831,649

The two schemes have five different sub-types of vesting categories as illustrated by the table below:

Ye a r % vesting Expiry Type A 3, 4, 5 50, 75, 100 10 Years Type B 5, 6, 7 50, 75, 100 10 Years Type C 2, 3, 4 50, 75, 100 10 Years Type D 2, 3, 4 33, 67, 100 10 Years Type E 3, 4, 5 33, 67, 100 10 Years

Group Share Incentive Scheme A reconciliation of the movement of share options and appreciation rights is detailed below: Option price Option price range (ZAR) range (UShs) Number of options Group Share Incentive Scheme 31-Dec-16 31-Dec-16 31-Dec-16 31-Dec-15 Options outstanding at beginning of the period 33,117 125,213 Transfers 62.39 - 111.94 16,365-29,362 10,200 (48,763) Lapsed (39,200) Exercised 98.80 - 111.94 25,916-29,362 (17,367) (4,133) Options outstanding at end of the period 25,950 33,117

The weighted average SBG share price for the period to 31 December 2016 year end was ZAR151.63 (2014: ZAR147.88).

The following options granted to employees had not been exercised at 31 December 2016:

Option price Option price Weighted Number of ordinary shares range range average price (ZAR) (ZAR) (ZAR) Option expiry period 21,575 111.94 29,362 111.94 Year to 31 December 2020 4,375 98.8 25,916 98.8 Year to 31 December 2021 25,950

The following options granted to employees had not been exercised at 31 December 2015:

Number of ordinary Option price Weighted shares Option price range range average price (ZAR) (UShs) (ZAR) Option expiry period 400 98 25,706 98 Year to 31 December 2017 3 500 92 24,132 92 Year to 31 December 2018 900 62.39 16,365 62.39 Year to 31 December 2019 11 200 111.94 29,362 111.94 Year to 31 December 2020 17 117 98.8 25,915 98.8 Year to 31 December 2021 33 117

Stanbic Bank Uganda Limited Annual Report 2016 153 FINANCIAL STATEMENTS NOTES Equity linked transactions continued

Business Online Appreciation right price Convenience range (ZAR) range (UShs) Number of rights Equity Growth Scheme 31-Dec-16 31-Dec-16 31-Dec-16 31-Dec-15 Rights outstanding at beginning of the period 90,203 71,314 and simplicity Transfers 62.39 - 156.96 16365-41171 ( 14,253) (11,250) Granted 31,339 Exercised 62.39 - 115.51 16365-30299 ( 62,950) (1,200) Rights outstanding at end of the period 13,000 90,203

At 31 Decemeber 2016 the group would need to issue 8063 (2015: 0 ) SBG shares to settle the outstanding appreciated rights value.

Weighted

Price range Price range average price Number of rights (ZAR) (UShs) (ZAR) Expiry period 12 500 111.94 29,362 111.94 Year to 31 December 2020 500 98.8 25,915 98.8 Year to 31 December 2021 13 000

The following rights granted to employees had not been exercised at 31 December 2015:

Weighted Number of rights Price range Price range average price Expiry period (ZAR) (UShs) (ZAR) 10 000 92 24,132 92,00 Year to 31 December 2018 3 950 62.39 16,365 62,39 Year to 31 December 2019 12 500 111.94 29,362 111.94 Year to 31 December 2020 2 000 98.8 25,915 98.8 Year to 31 December 2021 15 886 115.51 30,299 115.51 Year to 31 December 2023 14 528 126.87 33,278 126.87 Year to 31 December 2024 31 339 156.96 41,171 156.96 Year to 31 December 2025

40 Subsequent events There was no significant event to report.

41 Reclassifications and comparative figures Certain reclassifications have been made to the prior year’s financial statements to enhance comparability with the current year’s financial statements. The pledged assets held by the Bank cannot be sold or repledged by the Bank’s counterparty in the absence of default contrary to the requirements IAS 39.As a result, the pleded asset line has been removed as a line item in the statement of financial position.

The statements of cash flow and the related notes to the financial statements and Comparative figures have been adjusted to conform to the current year’s presentation.

Previously After reported reclassification The Business Online platform is an easy, fast and convenient way to do 2015 2015 your banking anywhere, anytime 247. Business Online (BOL) offers you a UShs’ 000 UShs’ 000 full range of secure, integrated online banking solutions and benefits pledged assets 809,420 including Account management, Funds transfers, International banking Government securities - available for sale 506,215,014 507,024,434 and Foreign exchange services.

For more on Business Online please email: [email protected], call 256 312 226600 or visit our website at http://www.stanbicbank.co.ug

Stanbic Bank Uganda Limited Annual Report 2016 154 Business Online Convenience and simplicity

The Business Online platform is an easy, fast and convenient way to do your banking anywhere, anytime 247. Business Online (BOL) offers you a full range of secure, integrated online banking solutions and benefits including Account management, Funds transfers, International banking and Foreign exchange services.

For more on Business Online please email: [email protected], call 256 312 226600 or visit our website at http://www.stanbicbank.co.ug

Stanbic Bank Uganda Limited Annual Report 2016 155 Supplementary information

Stanbic Bank Uganda Limited Annual Report 2016 156 158 Shareholders analysis

159 Shared holder information

160 Notice to members

160 Directors responsibility statement

161 Proxy form

162 Notes

163 Contact details

164 Branch countrywide

166 Customer service points

Stanbic Bank Uganda Limited Annual Report 2016 157 SUPPLEMENTARY INFORMATION

Shareholder Analysis

Top ten shareholders as at 31 December, 2016 Number of Percentage shareholding Name shares STANBIC AFRICA HOLDINGS LIMITED 40,950,935,760 80.00% NATIONAL SOCIAL SECURITY FUNDS 1,098,598,996 2.15% DUET AFRICA OPPORTUNITIES MASTER FUND IC DUET AFRICA OPPORTUNITIES MASTER FUND IC 588,462,923 1.15% 330,723,247 0.65% KUWAIT INVESTMENT AUTHORITY 248,151,200 0.48%

SBC MAURITIUS RE AFRICA OPPORTUNITY FUND L P SCB M 246,7.3,581 0.48% CENTRAL BANK OF KENYA PENSION FUND 230,615,680 0.45% DUET GAMLA LIV AFRICA OPPORTUNITIES FUND IC 222,474,256 0.43% IBULAIMU KIRONDE KABANDA 202,691,120 0.40% FRONTURA GLOBAL FRONTIER FUND LLC 197,176,920 0.39%

Key Shareholder information Stanbic Uganda is majority-owned by Stanbic Africa Holdings Limited (SAHL), which is a private limited liability company incorporated in the United Kingdom. SAHL is, in turn, wholly-owned by Standard Bank Group and is the vehicle through which Standard Bank Group holds its interests in several Banks in African countries.

Standard Bank Group is a public limited liability Company incorporated in South Africa and is listed on the Johannesburg Stock Exchange (JSE). It is the largest South African Banking Group by Market Capitalization and by assets and earnings. Standard Bank Group as at 31 December 2016 had total assets of ZAR1.95 trillion (USD143 bn), the market capitalization is R245 bn (USD18bn) and employs more than 54,000 people worldwide.

Standard Bank Group, whose year of founding traces back to 1862 in South Africa, trades as Standard Bank in South Africa, Namibia, Mauritius, Mozambique and Swaziland and as Stanbic Bank throughout the remainder of the African Continent. It has wide representation, which spans 20 African countries and owns a controlling stake in the South African listed insurance company Liberty Holdings Limited. While its principal activities are Banking and related financial services, Standard Bank Group has diversified its operations to meet the demands of the fast changing and demanding business world, with investments in insurance, wealth management and investment management. It provides a wide range of Banking and related financial services.

Shareholder Profile as at 31 December 2016.

Range ID Description No. of Investors No Of Shares Held Percent Holding 1 Between 1 and 1,000 Shares 179 96,826 0.0002% 2 Between 1,001 and 5,000 Shares 473 1,464,822 0.0029% 3 Between 5,001 and 10,000 Shares 4,065 39,932,495 0.0780% 4 Between 10,001 and 100,000 Shares 11,914 635,796,528 1.2421% 5 Between 100,001 and 500,000 Shares 4,231 1,075,759,489 2.1016% 6 Between 500,001 and 1,000,000 Shares 810 668,434,590 1.3058% 7 Between 1,000,001 and 5,000,000 Shares 712 1,142,615,589 2.2322% 8 Above 5,000,001 Shares 151 47,624,569,361 93.0373% Total 22,535 51,188,669,700 100.0000%

Stanbic Bank Uganda Limited Annual Report 2016 158 SUPPLEMENTARY INFORMATION

Shareholder Information

Chairman’s letter to shareholders,

Dear shareholder

I extend an invitation to you to attend the Annual General Meeting (AGM) of Stanbic Bank Uganda Limited to be held at the Victoria Ballroom, Serena Hotel, Kampala on 10 May 2017 at 11:00 am.

This is your opportunity to meet and engage members of the Stanbic Bank Uganda Limited board regarding the company’s performance for the year ended 31 December, 2016.

If you are not able to attend the AGM, I would urge you to complete and submit the proxy form in accordance with the instructions and return it to the address indicated on page 160.

The AGM will deal with the ordinary business as detailed in the notice on page 160. I look forward to your attendance and participation at the AGM.

Japheth Katto

Chairman,

Board of Directors

Stanbic Bank Uganda Limited Annual Report 2016 159 SUPPLEMENTARY INFORMATION SUPPLEMENTARY INFORMATION

Notice to members Directors’ responsibility statement

Notice is hereby given that the Annual General Meeting (AGM) of Stanbic The directors, whose names are given on page 99 of the Annual Report, Bank Uganda Limited will be held at Victoria Ballroom, Serena Hotel, collectively and individually accept full responsibility for the accuracyof Kampala on 10 May, 2017 at 11:00 am for the following business: the information given in the Annual Report and certify that to the best of their knowledge and belief there are no facts that have been Agenda omitted which would make any statement in the Annual Report false or misleading, and that all reasonable enquiries to ascertain such facts have 1. To consider, and if deemed fit, pass an ordinary resolution to receive been made and that the notice contains all information required by law and adopt the annual audited financial statements for the year ended and the Listing Rules. December 31st 2016, including the reports of the Directors and Auditors. Interests of directors The interests of the directors in the share capital of the Company are set 2. To consider, and if deemed fit, pass an ordinary resolution to receive out on page 98 of the Annual Report. and adopt the recommendation of the Directors on the declaration of a dividend for the year 2016. Major shareholders Details of major shareholders of the Company are set out on page 158 of 3. To consider, and if deemed fit, pass an ordinary resolution to confirm the Annual Report. the appointment and re-election of Directors in accordance with the provisions of the Company’s Articles of Association. Share capital of the Company Details of the share capital of the Company are set out on page 98 of the 4. To consider, and if deemed fit, pass an ordinary resolution to receive Annual Report. and approve the proposed fees payable to the Non-Executive Directors for the year 2017. Material change There has been no material change in the financial or trading position 5. To consider, and if deemed fit, pass an ordinary resolution to approve of the Company and its subsidiaries since the date of publication of the the appointment of KPMG as the new external auditors of the company’s annual results on 29 March 2017. Company for the year 2017. Stanbic Bank Uganda Limited shareholders may attend, speak and vote Details of directors at the annual general meeting or may appoint one or more proxies (who Directors’ details as required by the Listing Rules of the Uganda Securities need not be shareholders of the Company) to attend, speak and vote at Exchange Limited (the Listing Rules) are set out on page 88 of the annual the annual general meeting on behalf of such shareholder. A proxy form is report that accompanies this notice of annual general meeting (the attached to this notice of annual general meeting. Duly completed proxy Annual Report) forms must be returned to the share registrars of the Company or the registered office of the Company at the addresses set out below, to be received by not later than 5:00 pm on Monday 08th of May 2017.

On behalf of the board Company Secretary

Registered office Share registrars Bond registrars Crested Towers, Short Tower 17 Hannington Deloitte (Uganda) Ltd Stanbic Bank Uganda Limited Crested Road Kampala, Uganda 3rd Floor, Rwenzori House, Towers, Short Tower 17 Hannington Road P.O.Box 7131 Kampala, Uganda 1 Lumumba Avenue, Kampala Kampala, Uganda Fax: +256 41 4230608 636 4207 P.O.Box 10314 Kampala, Uganda P.O.Box 7131Kampala, Uganda Telephone: +256 414 343850 Fax: +256 41 4230608 /636 4207 Fax: +256 414 343887

Stanbic Bank Uganda Limited Annual Report 2016 160 SUPPLEMENTARY INFORMATION

Proxy Form

A shareholder entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend, speak and vote in his/her stead. A proxy need not be a member of the Company.

I/We (Name in block letters) of (Address in block letters) being a shareholder(s) and the holder(s) of ordinary shares of UShs. 1 each and entitled to vote hereby appoint

1 or, failing him/her

1 or, failing him/her the Chairman of the annual general meeting, as my/our proxy to vote for me/us and on my/our behalf at the annual general meeting of shareholders to be held at Victoria Ballroom, Serena Hotel,

...... in the morning, and at any adjournment thereof as follows: Number of Abstai Ordinary resolution to:

1. Receive the annual financial statements 2. Declare a dividend 3. Elect directors 3.1 Gregory Brackenridge 3.2 Eva G. Kavuma 3.3 Clive Tasker 4. Approve the appointment of Klynveld Peat Marwick Gourdeler (KPMG) as 2017 auditors of the Company. 5. Approve non-executive directors’ remuneration

* Insert a cross or tick or number of votes. If no options are marked, the proxy can vote as he/she deems fit.

Signed at on 2017 Assisted by (where applicable)

(State capacity and full name)

Please provide contact details:

Tel: ( )

Fax: ( ) e-mail:

Please read the notes on the next page.

Stanbic Bank Uganda Limited Annual Report 2016 161 SUPPLEMENTARY INFORMATION

Notes

1. A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the space provided. The person whose name stands first on the proxy form and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2. To be effective, completed proxy forms must be lodged by not later than Monday, 8 May, with either the share registrars or the registered office:

Registered address Crested Towers, Short Tower 17 Hannington Road Kampala, Uganda PO Box 7131 Kampala, Uganda Fax: +256 41 4230608

Share registrars Deloitte (Uganda) Ltd 3rd Floor, Rwenzori House, 1 Lumumba Avenue, Kampala P O Box 10314 Kampala, Uganda Telephone: +256 414 343850 Fax: +256 414 343887

3. The completion and lodging of this form of proxy will not prevent the relevant shareholder from attending the annual general meeting and speak- ing and voting in person at the annual general meeting instead of the proxy. 4. The Chairman of the Annual General Meeting may accept or reject any proxy form which is completed and/or received other than in compliance with these notes.

5. The signatories must initial any alteration to this proxy form, other than the deletion of alternatives.

6. Documentary evidence establishing the authority of a person signing the proxy form in a representative capacity must be attached to this proxy form unless previously recorded by the Company. In the case of a corporation, a resolution of the board or equivalent body shall be required.

7. Where there are joint holders of ordinary shares:

a. any one holder may sign the proxy form; and

b. the vote of the senior shareholder (for that purpose seniority will be determined by the order in which the names of the shareholders who tender a vote (whether in person or by proxy) appear in the Company’s register) will be accepted as to the exclusion of the vote(s) of the other joint shareholders.

Stanbic Bank Uganda Limited Annual Report 2016 162 SUPPLEMENTARY INFORMATION

Contact Details

Chief Financial Officer Samuel Fredrick Mwogeza Tel: +256 41 7 154 396

Company Secretary Candy Okoboi Tel: +256 41 7 154 606

Investor relations enquiries Sophie Achak Tel: +256 41 7 154 310

Stanbic Bank Uganda Limited Annual Report 2016 163 SUPPLEMENTARY INFORMATION

Our branches country-wide

BRANCH ADDRESS CENTRAL 1 LUGOGO BRANCH Plot 2-8 Lugogo By-Pass Rd. Lugogo Kampala. Shop No. 5 0312225300 2 KIREKA BRANCH Plot 319 Block 232 Kyadondo 0312225090 3 KYAMBOGO BRANCH Campus 0312225130 4 MUKONO BRANCH Plot 37/39 Kampala Road, Mukono Town 0312225191 5 LUGAZI BRANCH Plot 29 Ntenge Rd. Lugazi 0312226520 6 MULAGO BRANCH Mulago Hospital Floor No.2 0312225690 7 NTINDA BRANCH Plot 3798 Block 216 Kyadondo, Ntinda Trading Centre 0312225770 8 KABALAGALA BRANCH Embassy Plaza, plot 1188, 1189, 1190 0312225034 9 FREEDOM CITY BRANCH Freedom City Mall, Plot 4010 Entebbe Road, Namasuba. 0312226712

EASTERN 10 JINJA BRANCH Plot 2,Martin Rd. Jinja Town 0312225266 11 IGANGA BRANCH Plot 1 & 3 Magumba Road, Iganga Town 0312225270 12 KAMULI BRANCH Plot 2 Gabula Rd. 0772222205 13 TORORO BRANCH Plot 1, Block 5 Uhuru Drive, Tororo Town 0312225290 14 BUSIA BRANCH Plot 1 Tororo Road, Busia Town 0454431258 15 MBALE BRANCH Plot 50/52 Republic Av. Mbale Town 0312225320 16 KAPCHORWA BRANCH Plot 20 Kitale Road, Kapchorwa 0392222207 17 PALLISA BRANCH Plot 11 Dogonya Rd, Block B, Main Street, Pallisa Town 0392701537 18 MOROTO BRANCH Plot 27 Lia Road Moroto 0454435076 19 SOROTI BRANCH Plot 42, Gweri Rd. Soroti Town 0312225360 20 KUMI BRANCH Plot 2 Ngora Road, Kumi 0454471020 21 KOTIDO BRANCH Plot 3A Moroto Road Kotido 0392733104 22 KAKIRA BRANCH Kakira South Estate FRV 10 Folio 23, Kakira 0434123922

FAR WEST 23 MUBENDE BRANCH Plot 2, Block 13 Main Street Mubende 0312225230 24 FORTPORTAL BRANCH Plot 21,Lugard Rd.F/Portal Town 0312335530 25 KASESE BRANCH Plot 27/31 Stanley Street,Kasese 0312335540 26 BUNDIBUGYO BRANCH Plot 4 Block A, Bundibugyo T/ship 0392701526 27 MASINDI BRANCH Plot29/33,Tongue Street Masindi 0312225560 28 HOIMA BRANCH Plot 8A Old Toro Road Hoima 0312225570 29 BWAMIRAMIRA BRANCH Plot 18,Karuguza T/Centre,Kibale Dist. 0392700825 30 BULIISA BRANCH Buliisa -Paara Road, Buliisa Town 0392700618

GREATER KAMPALA 31 BRANCH Plot 64/65 Katwe Rd.Kampala. 0312225100 32 NAKIVUBO BRANCH Plot 31, William Street, Kampala 0312225140 33 WANDEGEYA BRANCH Plot 220 Kagugube Rd. Wandegeya 0141541404 34 LUWERO BRANCH Plot 440,Block 652 Luwero Town 0312225200 35 MPIGI BRANCH Mpigi Town 0392748147 36 MITYANA BRANCH Plot 54 Block 425, Mityana Road, Mityana Township 0312225223 37 KIBOGA BRANCH Plot 100,Block 634Kilulumba Mubende Kiboga Town 0392733311 38 KIGUMBA BRANCH Plot 18 Kampala Gulu High way 0392701540 39 WILLIAM STREET BRANCH Plot 6 William street, Kampala 0312225750 40 NATEETE BRANCH Plot 643 Block 18 Mengo Kibuga, Natete 0312225780 41 APONYE MALL BRANCH Plot 8 Burton street 0312225010 42 KAWEMPE BRANCH Plot 161 Volume 77 Folio 19 0312226530

Stanbic Bank Uganda Limited Annual Report 2016 164 SUPPLEMENTARY INFORMATION Our branches country-wide continued

METRO

43 CORPORATE BRANCH Plot 18 Hannington Road 0312224410 44 GARDEN CITY BRANCH Plot 64-86 Kitante Road, Kampala 0312262979/80 45 METRO BRANCH Plot 4 Jinja Rd. Social Security House 04171544750 46 NAKAWA BRANCH Plot M193/194 Nakawa, Industrial Area 0312225122 47 MAKERERE BRANCH Senate Building 0312225160 48 ENTEBBE MAIN BRANCH Plot 15,Kla.Rd. Entebbe Town 0312225170 49 NAKASERO BRANCH Umoja Building, Plot 20 Nakasero Road, Opposite World Vision 0312225761 50 FOREST MALL BRANCH Plot 3A2 & 3A3 Sports Lane, Lugogo By -Pass, Kampala 0312225800 51 INDUSTRIAL AREA BRANCH Plot 96 and 98, 5th Street, Industrial Area, Kampala 0312225835 52 BUGOLOBI BRANCH Plot 47A Spring Road, 9 Luthuli Av.and 9 Bandali Rise 0417155020 53 ACACIA MALL BRANCH Kisementi, Plot 8A-12A Cooper Road, 0312225900

NORTHERN

54 PADER BRANCH Plot 76 E.Y Komakech Road, Pader 0392225901 55 GULU BRANCH Plot 2 & 4,Acholi Rd.Gulu Town 0312225598 56 APAC BRANCH Plot 18 Akokoro Rd.Apac Town 0392225901 57 LIRA BRANCH Plot 2,Soroti Rd. Lira 0312225610 58 ARUA BRANCH Plot 25,Avenue Rd.Arua Town 0312225620 59 NEBBI BRANCH Nebbi Trading Centre Volume 1274 Folio 22 0392222210 60 MOYO BRANCH Plot 1,Kerere Crescent Rd. Moyo 0476449128 61 PAKWACH BRANCH Plot 94,Pakwach, Arua Road 0392701922 62 ADJUMANI BRANCH Plot 9, Mangi Road, Adjumani 0392700965 63 KITGUM BRANCH Plot 4/6 Philip Adonga Rd, Kitgum 0312225670 64 KOBOKO BRANCH Plot 13 Central Road, Koboko 0312224447

WESTERN

65 MBARARA BRANCH Plot 1/3 Ntare Rd.Mbarara Town 0312335380 66 IBANDA BRANCH Plot 10 - 12 Kamwege Road Ibanda 0485426014 67 ISHAKA BRANCH Plot 44 Rukungiri Road, Ishaka Town 0312335400 68 BUSHENYI BRANCH Plot 13 Bushenyi/Ishaka Rd. Bushenyi T/ship 0312335410 69 NTUNGAMO BRANCH Plot 33, Ntungamo Township 0485424010 70 KABWOHE BRANCH Plot 19B, Kabwohe 0392700926 71 MASAKA BRANCH Plot 4 ,Birch Av. Masaka Town 0312335440 72 KYOTERA BRANCH Plot 32, Masaka Rd.Kyotera Town 0392222203 73 LYANTONDE BRANCH Plot 200,Block 76 Lyantonde Town 0392700514 74 KISORO BRANCH Plot M5, Block 29 Kisoro/Kabale Rd. Kisoro Town 0483444872 75 KABALE BRANCH Plots 150/152,Kabale Rd. Kabale Town 0312335480 76 RUKUNGIRI BRANCH Plot 123,Block 5 Kagunga Rukungiri Town 0486442183 77 KIHIHI BRANCH Plot 63 Block 74 Kinkizi 0392733101 78 KALANGALA BRANCH Kalangala Main Rd.Kalangala Town 0392733102

Stanbic Bank Uganda Limited Annual Report 2016 165 SUPPLEMENTARY INFORMATION

Our customer service points (CSPs)

CSP PLOT DETAILS STREET/ROAD

1 Bwera CSP Saad Village, Mpondwe- Lubiriha, Bwera Town Mpondwe-Lubiriha Road 2 Kaboong CSP Plot 20 Kaabong Central West, Kaabong Trading Centre Kaabong Central West Road 3 Kayunga CSP Plot 472 Block 123, Kayunga Trading Centre Kayunga Road 4 Mayuge CSP Bukoba Road, Mayuge Town Bukoba Road

Stanbic Bank Uganda Limited Annual Report 2016 166 Stanbic Bank Uganda Limited Annual Report 2016 167 www.stanbicbank.co.ug

Stanbic Bank Uganda Limited Annual Report 2016 168