ANNUAL INTEGRATED REPORT AND FINANCIAL STATEMENTS 2017 STATEMENTS AND FINANCIAL REPORT INTEGRATED ANNUAL Stanbic Holdings Plc Holdings Stanbic Stanbic Holdings Plc Annual Integrated Report and Financial Statements 2017 Our report Our 2017 Annual Integrated Report is a demonstration of our commitment to, and strategies for, creating value for our customers, people, shareholders and community. This report aims to inform stakeholders about our financial and non-financial performance in 2017. This includes a look at how we create value over time and how our new strategy is structured to address the challenges, risks and opportunities Stanbic faces in a fast-changing world. We are committed to the principles of integrated reporting as they align with long-term value creation and the role we play as a bank in society, in moving Kenya forward. Our scope and content Unless otherwise stated, all information included in this report refers to the year ended 31st December 2017. It covers the operations of Stanbic Holdings Plc and the ways we are creating value for our stakeholders – in the context of our operating environment. All financial information presented, including the comparative periods, is in accordance with the International Financial Reporting Standards (IFRS) applicable to our operations and businesses. The non-financial sections of this report are guided by the International Integrated Reporting Council’s (IIRC) International Integrated Reporting Framework. We have determined the content of this report after extensive engagement with our customers, people, shareholders and community. Our materiality review We consider a material theme to be any matter that has the capacity to affect our shared value creation from the standpoint of the “Group” and its main stakeholders. Determining material themes is crucial to guide decision-making, since it provides a broader vision of the risks and opportunities inherent to the business and connects the strategies to the multiple outside interests. As part of our engagement with stakeholders, we have identified the environmental, social and governance issues presenting significant risk and opportunity to our business, and our ability to create value. Following this year’s materiality review, prioritised themes for disclosure remain similar to 2016. Responding to our stakeholders EMPLOYEES REGULATORS AND SHAREHOLDERS COMMUNITIES CUSTOMERS AND THEIR GOVERNMENTS AND INVESTMENT AND CIVIL REPRESENTATIVES ANALYSTS SOCIETY Retail Long-term employees National Treasury Investors Beneficiaries Corporate Short-term employees Central Bank of Kenya Shareholders Corporate Social Banking, insurance and Bank of South Sudan Analysts Investment Finance union Capital Market Authority Partners Securities Exchange Media Bankers Associations Advocacy Groups Public Our stakeholders are those individuals or organisations that have an interest in and whose actions impact on our ability to execute our strategy. Our intention is to build and promote stakeholder engagement activities and relationships that are meaningful, and support us in fulfilling our purpose, enhancing our reputation and meeting regulatory requirements. Material issues The world around us is constantly changing. This section highlights several trends that have a major impact on both our operating environment and that of our competitors. This includes the economy and current interest rate environment, increasing regulatory scrutiny and costs, IFRS 9, digitisation and changing customer behaviour, and what our stakeholders expect of us. Stanbic Holdings Plc Annual Integrated report 2017 1 OUR BUSINESS Who we 8 6 are 2017 performance highlights 11 OUR STRATEGIC PROGRESS Our approach 14 to 12 value creation Our Group 16 strategy How our material issues 18 affect our stakeholders Our shared 22 value model Value added 24 statement Measuring our 26 strategic progress Macroeconomic Environment 35 CONTENTS 2 OUR PERFORMANCE 36 Message from 38 the Chairman Message from the 40Chief Executive, Stanbic Holdings Plc Message from the outgoing Chief Executive, 41 Stanbic Bank Kenya Ltd Message from the incoming Chief Executive, 42 Stanbic Bank Kenya Ltd Group financial 43 revIew Corporate and 50 Investment Banking Personal and 54 Business Banking Wealth 56 Customer centricity 57 Stanbic Digital 59 2.0 Universal financial 60 services organisation An engaged team 62 SEE REPORT 64 Social, Economic 65 and Environmental Delivering social, economic and environmental 66 (SEE) value Sustainability Activities 70 in 2017 OUR ACCOUNTABILITY 72 Risk management 74 Board of 86 Directors Corporate governance 89 overview Report by the 93 Board Audit Committee Report by the Board Nominations94 Committee Remuneration overview 95 96 ANNUAL FINANCIAL STATEMENTS Corporate information 98 Report of 99 the Directors Statement of 101 Directors’ Responsibilities Directors’ Remuneration 102 Report Independent auditor’s 104 report Consolidated and Company 108 statement of profit or loss Consolidated and Company statement of other comprehensive 109 income Consolidated and Company statement110 of financial position Consolidated statement 111 of changes in equity Company statement 112 of changes in equity Consolidated and company 113 statement of cash flows Notes 114 206 ADDITIONAL INFORMATION Statement of compliance with CMA 208 Corporate Governance Code Group shareholding 216 Notice of 217 Annual General Meeting Proxy form 219 Stanbic Holdings Plc Annual Integrated report 2017 3 HOW TO READ OUR REPORT We produce a full suite of reports to cater for the diverse needs of our stakeholders. Our business This section provides information on who we are , Frameworks* applied our mission and vision statement. It also details the performance highlights for 2017 ••King Code IV ••<IR> Framework of the International Integrated Reporting Council pg 6 Our strategic progress This section provides information on our value Frameworks* applied creation model, our strategy, details on how we ••King Code IV use our resources and distribute value to our ••<IR> Framework of the International stakeholders and our leadership team. Integrated Reporting Council It provides a holistic assessment of the group’s ability to create value. It considers the issues that are material to our commercial viability and social relevance, which are required to achieve pg 12 our strategy in the medium to long term. These include the macroeconomic and socio-political conditions in which we operate. Our performance This section contains messages from the Frameworks* applied Chairman and Chief Executives as well as ••IFRS the Business unit heads. It also details the execution of the various facets of our ••Companies Act strategy ••Banking Act ••CBK Prudential Guidelines pg 36 SEE report This section details’ the group’s social, Frameworks* applied economic and environmental impacts ••Equator principles and how these contribute to the group’s sustainability and its ability to achieve its ••King code IV purpose. pg 64 4 Our accountability A detailed review of the group’s risk Frameworks* applied management statement and ••Basel II & III corporate governance and ••Companies Act remuneration practices, including the group’s remuneration policy. ••Banking Act ••CBK Prudential Guidelines pg 72 ••King Code Annual financial statements Sets out the group’s full audited Frameworks* applied annual financial statements. ••IFRS ••Companies Act ••CBK Risk Management Guidelines pg 96 ••Banking Act ••CBK Prudential Guidelines ••The Group accounting policies Assurance Unmodified audit opinion expressed by PricewaterhouseCoopers Additional information This section includes other Frameworks* applied documents such as the AGM Notice ••Companies Act and the Proxy Form as well as an ••CMA Guidelines appendix on our progress in the implementation of the CMA guidelines on Corporate Governance pg 206 Intended readers: primarily our providers of financial capital, being our shareholders, depositors and corporate bondholders, but information relevant to our other stakeholders is also included. *Definitions: IFRS – International Financial Reporting Standards Companies Act – Kenya Companies (Amendment) Act of 2017 The invitation to the annual general CBK Risk Management Guidelines - CBK Risk Management Guidelines of 2013 meeting and the notice of the resolutions to be tabled at the meeting Banking Act – Banking (Amendment) Act of 2016 are on page 217 CBK Prudential Guidelines – Central Bank of Kenya Prudential Guidelines of 2013 CMA Guidelines - Capital Markets Authority Guidelines King Code – King Report on Corporate Governance, also known as King IV The group – Stanbic Holdings Stanbic Holdings Plc Annual Integrated report 2017 5 OUR BUSINESS WHAT’S YOUR NEXT? Kenya is our home and we are passionate about driving her growth and fulfilling the aspirations of our customers and play a central role in changing their lives. As part of our purpose, we are focused on placing our customers at the heart of everything we do and being aware that they are uniquely different with specific needs and aspirations. Our customers are increasingly on digital platforms and we are making this possible through our digitisation agenda that has revolutionised the products and services we offer. We continue to invest in mutually beneficial relationships with our customers and demonstrate that we are the best partner for them. In everything we do, we are enabling our customers to step up to their ‘Next’- whether it is a car, a house, growing their business,