Information supplied on CD Questionnaire Governance and accountability Risk and capital management report Absa Group Limited Sustainability review Question form for the annual general meeting (AGM) of ordinary shareholders to be held in the P W Sceales Auditorium, Key performance indicators Absa Towers, 160 Main Street, Johannesburg on Wednesday, 21 April 2010, at 11:00 and feedback form in respect of the annual report. Customer relations Note: Should you wish to pose a question at the AGM, kindly complete this form and fax it to the office of the Group Human resources Secretary at: 011 350 4009, for the attention of: Hendré van Zyl ([email protected]), before Wednesday, 14 April Corporate Social Investment 2010. Kindly keep the questions short and relevant to the matters set out in the notice of AGM. We will endeavour to Absa Group Limited Annual report 2009 Absa address the more frequently raised questions during the course of the AGM. If time does not permit us to address all Absa Group sponsorships questions at the AGM we will prepare responses and make these available on our website. Environmental sustainability Group Limited Financial performance Name of shareholder: Annual report Value-added statement Address: Eight-year summary for the year ended 31 December 2009 Telephone number: GRI Index Fax number: Email address: Questions: Kindly provide us with your feedback on the Absa Group 2009 annual report: Amount of information: Very poor/Poor/Average/Good/Excellent Layout of information: Very poor/Poor/Average/Good/Excellent Ease of finding information: Very poor/Poor/Average/Good/Excellent Readability: Very poor/Poor/Average/Good/Excellent Ease of comprehension: Very poor/Poor/Average/Good/Excellent Visual appearance: Very poor/Poor/Average/Good/Excellent How can Absa’s annual report be improved? I, (Name: ), hereby request the Company not to send me a printed annual report in future, but rather to email the electronic version or the link to the online annual report to the following address: (Email: ). Signed: Absa Group Limited. Authorised financial services and registered credit provider (NCRCP7) !BSA"ANK,IMITED 2EG.O!UTHORISED&INANCIAL3ERVICES0ROVIDER2EGISTERED#REDIT0ROVIDER2EG.O.#2#0 Absa Group Limited Annual report for the year ended 31 December 2009 1 Incorporated in the Republic of South Africa. Registration number: 1986/003934/06 !BSA"ANK,IMITED 2EG.O!UTHORISED&INANCIAL3ERVICES0ROVIDER2EGISTERED#REDIT0ROVIDER2EG.O.#2#0 Contents Introduction 1 Introduction 2 2009 Highlights 3 Financial performance highlights 4 ‘One Absa’ strategy 6 Absa Group structure 7 Chairman’s statement 10 Group chief executive’s review 14 The Absa Group board of directors 22 The Absa Group Executive Committee (Exco) Governance and accountability 29 Corporate governance statement 42 Compliance report Risk and capital management report 47 Group remuneration report Business review 65 Profit contribution by business area 66 • Retail banking 69 • Absa Capital (including Absa Wealth) 74 • Corporate and commercial banking 77 • Bancassurance 8 3 • Absa Africa Sustainability review 87 Integrated sustainability reporting 89 Stakeholder engagement Key performance indicators Customer relations Human resources Investing in communities (Corporate Social Investment) Absa Group sponsorships Environmental sustainability Financial performance 97 Directors’ report 105 Consolidated and Company financial statements Value-added statement Eight-year summary Additional information 329 Share performance and shareholders’ information 332 AGM information 343 Administration GRI Index 347 Glossary 351 Questionnaire Information available on CD supplied. BASTION GRAPHICS Introduction Since its establishment in 1991, Absa has become a well- diversified financial services group with in excess of 11 million customers across retail, business and investment banking as well as a highly regarded bancassurance operation. 2009 was no doubt a test of the Group’s resilience as an organisation, but despite the impact of the global economic downturn Absa has delivered strong underlying performance, improved its risk management and continued to strengthen the balance sheet. Absa maintains a strong capital base and is well positioned for future growth. During the year the ‘One Absa’ strategy was launched which aims to drive an integrated approach across all businesses so that customers are served in a seamless manner. Absa is listed on the JSE Limited. Absa Group Limited Annual report for the year ended 31 December 2009 1 2009 Highlights The Group managed to deliver a resilient financial performance for the year ended 31 December 2009 in a tough economic environment. Absa’s customer base continued to grow, to approximately 11,7 million. The Group also maintained its strong capital levels. Absa received a number of awards during the year, the main one being that of the ‘Most Innovative Bank in Africa’ from the African Banker magazine. Resilient financial ■ Headline earnings per share declined by 25,5% to 1 099,4 cents performance in a ■ Net asset value per share increased by 0,6% to 7 038 cents demanding economic ■ Net interest income decreased marginally by 1,1% to R21 854 million environment ■ Cost-to-income ratio steady at 49,6% ■ Final dividend of 220 cents per share declared Maintained strong ■ Group total capital adequacy ratio improved to 15,6% capital adequacy levels ■ Tier I capital adequacy ratio improved to 12,7% Number of customers ■ Banking customer base grew to 11,7 million as at 31 December 2009 continued to grow ■ Customer base increased by 9,3% ■ Internet banking users increased by 10,6% ■ Cellphone banking customers increased by 135,7% ■ NotifyMe users increased by 36,2% ■ Number of active Mzansi accounts increased by 24,0% ■ Number of active Flexi accounts increased by 17,2% Awards received during ■ African ‘Most Innovative Bank in Africa’ the year included: (the African Banker magazine) ■ ‘Coolest Banking Brand’ in South Africa 2009 (Sunday Times Generation Next survey) ■ Number 1 ‘Employer in the Banking Sector’ in South Africa 2009 (Corporate Research Foundation survey) ■ Number 2 ‘Consumer Banking Brand’ in South Africa 2009 (Sunday Times/Markinor Top Brands survey) 2 Absa Group Limited Annual report for the year ended 31 December 2009 Financial performance highlights Absa Group’s financial performance for the year ended 31 December 2009 was affected by rising impairments and adverse market conditions. Within the context of a demanding economic environment, total revenues reflected a resilient performance while sound cost control enabled the Group to cushion the effect of increased impairments. Customer numbers and transaction volumes continued to grow and interest margins improved during the second half of 2009. Earnings per share (EPS) Return on average equity Total assets down 7,3%: declined by 37,5%: (RoE): R717,7 billion 986,7 cents 15,5% (2008: R774,2 billion) per share (2008: 23,4%) (2008: 1 578,5 cents per share) Headline earnings per Cost-to-income ratio: Loans and advances share (HEPS) declined by 49,6% to customers down 5,4%: 25,5%: (2008: 49,2%) R503,6 billion 1 099,4 cents (2008: R532,1 billion) per share (2008: 1 474,8 cents per share) Dividend per ordinary share: Impairment losses on loans Tier I capital adequacy 445,0 cents and advances increased ratio improved: per share by 53,6%: 12,7% (2008: 595,0 cents per share) R8 967 million (2008: 11,6%) (2008: R5 839 million) Net asset value (NAV) per Market capitalisation Total capital adequacy share increased by 0,6%: up 25,4%: ratio improved: 7 038 cents R92,3 billion 15,6% per share (2008: R73,6 billion) (2008: 14,1%) (2008: 6 998 cents per share) Headline earnings per share (cents) Dividends per share (cents) 954,8 1 181,8 1 401,9 1 474,8 1 099,4 445,0 15,4% 23,8% 18,6% 5,2% (25,5%) –% 60,3% 18,4% 6,3% (25,2%) Dec Dec Dec Dec Dec $EC $EC $EC $EC Dec 20051 2006 2007 2008 2009 2009 Notes 1Proforma figures (12 months). 2For the nine months ended 31 December 2005. Absa Group Limited Annual report for the year ended 31 December 2009 3 ‘One Absa’ strategy Sustainable growth What in targeted markets To become the number one bank in South Africa and selected African countries in terms of profitability and return on equity. How ■ Absa Group seeks to identify opportunities to grow value and to enter new markets. ■ This requires a deep understanding of customers’ needs, and working together across business clusters. ■ Meeting all the financial needs of the Group’s customers is critical to success. The power of One Absa Simple, streamlined Group What for customer delivery To establish a ‘One Absa’ mindset in order to improve integration, generate efficiencies and focus on delivery to customers. How ■ The spotlight is on ensuring that Absa’s operating model, systems and processes are streamlined and simplified, and that the Group builds its processes with the customer’s experience in mind. ■ It also means reducing costs by driving efficiencies and capturing opportunities across business sectors. 4 Absa Group Limited Annual report for the year ended 31 December 2009 Balance sheet What optimisation and proactive To have a strong and shock-resilient balance sheet and to proactively manage risks. risk management How ■ Balancing risk and reward while ensuring the optimisation of liquidity and capital management by utilising capital where Absa realises the best returns. ■ Absa continuously endeavours to mitigate all the major risks facing the Group in a prudent manner. The power of One Absa Customer- and people- What centred organisation Great customer service delivered by talented, motivated people. How ■ The Group seeks to have a customer-centred mindset in everything it does in order to deliver a consistent customer service experience and to demonstrate professionalism and integrity in serving its customers. ■ Absa continuously employs talented, energised and passionate people to make this happen. ■ The Group strives to create an enabling environment for its employees to provide leading-edge service to its customers.