Standard Bank Limited Annual Report for the year ended 31 December 2012 ONE VISION EIGHT VALUES 7. Upholding the highest levels of integrity 2. Guarding against arrogance 3. Delivering to our shareholders 4. Growing our people 5. Respecting each other 6. Working in teams 7. Serving our customers 8. Being proactive Standard Bank Limited Annual Report for the year ended 31 December 2012 Table of Contents Chairman's and Chief Executive Officer's Report 1 Corporate Governance Statement 7 Risk Management and Control 1 9 Directors' Report 21 Statement of Directors' Responsibilities 23 Report of the Independent Auditors 31 Consolidated and Separate Financial Statements: Consolidated and separate statement of financial position 33 Consolidated and separate statement of comprehensive income... 34 Consolidated and separate statement of other comprehensive income 35 Consolidated and separate statement of changes in equity 36 Consolidated and separate statement of cash flows ....38 Notes to the consolidated and separate financial statements ..39 Standard Bank Limited Annual Report for the year ended 31 December 2012 STANDARD BANK MALAWI PROFIT AFTERTAX 2008 2009 2010 201 1 2012 2,072 2,852 2,424 3,546 7,965 2008 2009 2010 2011 2012 EARNINGS AND DIVIDENDS PER SHARE 648 890 2,900 DIVIDEND 1,350 5,000 2008 2009 2010 :?n i ? Earnings Per Share 10.4 14.3 11.4 16.7 37.4 Dividend Per Share 3.2 4.5 6.3 13.6 23.4 40.0 35.0 30.0 ' 25.0 20.0 15.0 10.0 2008 2009 2010 2011 2012 Earnings Per Share Dividend Per Share Standard Bank Limited Annual Report for the year ended 31 December 2012 Etness Chanza Jayesh Patel Kitili Mbathi Head of Legal / Compliance and Director Director Company Secretary B.A (Hons) Economics, M.A Economics B.A (Economics & political Science), Bachelor of Law Hons, ACIS (UK) M.A Banking & Finance for Development Roderick Phiri Rex Harawa Ngeyi Kanyongolo Director Director Director Bachelor of Social Science (Ecomics & B.Soc.Sc. (Honours, Economics), Bachelor of Laws (Honors), Master of Statistics), Financial Programme For Non PhD. (Finance & Economics), M.A (Finance Laws (Merit), PhD (Law) Financial Managers, IATA FIATA & Economics), MSc. (Economics), Chartered Diploma For Airfreight Institute of Arbitrators, Registered Practic- ing Public Accountant & Auditor - Malawi, Certified Public Accountant - USA, Certified Management Accountant - USA, Certified Financial Manager - USA O Standard Bank Limited Annual Report for the year ended 37 December 2012 CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT Economic Overview The economy in 201 2 was burdened by acute foreign exchange and fuel shortages as well as intermittent power supplies. This position was further worsened by negative growth in agriculture which resulted in lower-than-expected foreign exchange earnings from the country's key export crop, tobacco, to US$1 77m from the previous year's earnings of US$293m. The change of government in April 201 2, following the death of the sitting President, came with a number of key reforms which aimed at reviving the ailing economy. The Kwacha was devalued by close to 50% and the exchange rate regime shifted from a managed float to a flexible one. Consequently, GDP growth rate forecast for 201 2 was slashed to 1.6% from 6%. Following the adjustment to the exchange rate regime, the Kwacha lost an additional 35% between May and December 201 2 to close the year at MK336.7080/1 US$. Inflation rate in 201 2 was generally in double digit closing the year at 34.6%. Besides the currency depreciation, inflationary pressures have also fuelled further by soaring food prices caused by a lower-than-expected maize harvest in the 2011 2 growing season. Treasury bill yields also responded to the movements in the bank rate and to liquidity developments in the banking system. For the 91 - day tenor, its average yield moved from an opening level of 6.38% to a close of 20.11 %. The average yield for the 1 82-day tenor bill closed at 24.78% from the year's opening level of 7.25% and the average yield for the 365-day Treasury bill closed at 26.40% from the year's opening level of 9.14%. Monetary policy remained tight for the most part of 201 2 such that the bank rate increased three times to close the year at 25% from an opening of 1 3%. This has resulted in liquidity challenges with money markets going short, albeit, despite an improvement during the last quarter of 201 2. Perfomance The Group delivered a strong set of results despite the challenging operating environment in 201 2. Year on year; total assets grew by 56% due to 47% increase in customer deposits and 29% increase in loans and advances to customers. Profit after tax at MK7. 9 billion was 1 25% above prior year. Operating income was 93% above prior year due to higher trading income as well as higher income on loans and advances from customers as a result of the positive endowment impact. Operating costs were 73% above prior year due to general price increases of commodities amidst high inflation rates. However, cost to income ratio has reduced from 43% in 2011 to 39% due to a cost containment drive by management thereby maintaining positive jaws. Earnings per share has therefore grown from MK16.65 in 2011 to MK37.39 in 201 2. Strategy Our strategy continues to focus on ensuring prudent capital management, superior customer service, and competitive pricing whilst containing costs. We will also focus on efficiency in our processes and timely execution in our service and product offering. Investing in our people is key to preparing the Group for changes in the economic environment. Standard Bank Limited Annual Report for the year ended 37 December 2012 The Group continues to maintain high standards of Corporate Governance and complies with the requirements of the Malawi code of best practice isr"1 s l corporate governance, Compliance with applicable legislation, regulation and standards is an essentia! part of the Group's operations Leadership The successful performance achieved by the Group this year is testimony to the ability of our people to execute our strategic objectives effectively and consistently. Therefore in the increasingly competitive environment in which we operate, managing talent is a critical factor in maintaining competitive advantage. As a result, the Group will invest significant resources in talent management. During the year, many staff members were trained in various aspects of their areas of work in order for us to maintain our competitive advantage in terms of business performance by our staff. Leadership development and training was provided by The Standard Bank's Global Leadership Centre to our managers as part of our continuous efforts to give our leaders focused development to enable the transitions required from one level to another. Corporate Governance and Directorship The Group continues to maintain high standards of corporate governance and complies with the requirements of the Malawi code of best practice in corporate governance. Compliance with applicable legislation, regulation and standards is an essential part of the Group's operations. The Board monitors regulatory compliance through management reporting. Prospects Meaningful economic growth is expected to rebound in 2013 on the expectation that the agriculture sector will register positive and significant growth which should improve the country's foreign exchange reserves and consequently bring in stability of the Kwacha and encourage production. The inflation rate is therefore expected to stabilise and drop in 201 3 due to a better maize harvest and a stable currency. Thus a more stable macroeconomic environment will form a good basis for economic rebound in 201 3 which therefore calls for timely execution of monetary policy interventions and fiscal discipline. As a Group, we expect to maintain our market share. We will introduce new products in the coming year while keeping our focus on customer service. We will ensure continued profitability by having an efficient statement of financial position and prudent cost control measures. The main areas of focus for the business in 201 3 will be retaining our customers. The Corporate and Investment Banking (CIB) team will continue to be built around customer centric solutions with a growing focus on the energy, agriculture, telecoms sectors, government initiated projects and transactional banking. The Personal and Business Banking (PBB) unit of the Group will pay attention to personal banking, business banking, wealth management and improving efficiencies in the branch network. Appreciation We would like to thank the executive team and staff for the great results delivered in 201 2. We thank our customers for their continued support. We also thank our colleagues on the Board for their sound guidance and support during the year. P A Chitsime C M Mudiwa Chairman Chief Executive Officer 28 February 2013 Standard Bank Limited Annual Report for the year ended 37 December 2012 EXECUTIVE COMMITTEE Standard Bank Limited Annuai Report for the year ended 31 December 20 I 2 Standard Bank Limited Annuai Report for the year ended 31 December 20 I 2 EXECUTIVE COMMITTEE Charles Mudiwa Temwani Simwaka Etness Chanza Chief Executive Officer Chief Financial Officer Head of Legal / Compliance and Company Bachelor of Science Economics Fellow of Chartered Certified Accountants Secretary Bachelor of Law Hons., ACIS (UK) Martin Siwu Phillip Madinga Frank Chantaya Head of Credit Head of Corporate and Investment Banking Head of Global Markets Master of Science Finance Master of Business