SBN Holdings Limited UNAUDITED CONDENSED … · w SBN Holdings Limited’s condensed consolidated...

UNAUDITED CONDENSED CONSOLIDATED

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

SBN Holdings Limited

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SBN Holdings Limited’s condensed consolidated interim results, including the statement of financial position, income statement, statement of changes in equity, statement of other comprehensive income and statement of cash flows, for the six months ended 30 June 2018 (results) are prepared in accordance with the requirements of the Namibia Stock Exchange (NSX) Listings Requirements, the requirements of International Financial Reporting Standards (IFRS) and its interpretations as adopted by the International Accounting Standards Board, the presentation requirements of IAS 34 Interim Financial Reporting and the requirements of the Companies Act of Namibia, applicable to summarised financial statements.The group’s results are prepared in accordance with the going concern principle under the historical cost basis as modified by the fair value accounting of certain assets and liabilities where required or permitted by IFRS. This report is presented in Namibian dollar (N$), which is the presentation currency of the group. All amounts are stated in thousands of Namibian dollars (N$’000), unless indicated otherwise. The accounting policies applied in the preparation of these unaudited condensed consolidated interim results are in terms of IFRS. This includes IFRS 9 Financial Instruments (IFRS 9), which is effective for the group from 1 January 2018.

Refer to page 24 for details on accounting policies.

The accounting policies applied are consistent with the accounting policies applied in the preparation of the group’s previous consolidated annual financial statements, with the exception of the adoption of IFRS 9.

The group has, as permitted by IFRS 9, elected not to restate its comparative financial statements. Therefore, comparability will not be achieved by the fact that the comparative financial information has been prepared on an IAS 39 basis. Accordingly, the impact of adopting IFRS 9 has been applied retrospectively with an adjustment to the group’s opening 1 January 2018 reserves. The application of IAS 39 for its 2017 and previous financial years was unaffected by the application of IFRS 9.

Interim results have not been audited or independently reviewed by the group’s external auditors. The group’s 2017 annual financial information has been correctly extracted from the underlying audited consolidated annual financial statements for the year ended 31 December 2017, unless otherwise stated.

1H18 refers to the first half year results for 2018. 1H17 refers to the first half year results for 2017. FY17 refers to the full year results for 2017. Change % reflects 1H18 change on 1H17. All amounts relate to the group’s results unless otherwise specified.

The board of directors (the board) of the group takes full responsibility for the preparation of this report. The preparation of the group’s results was supervised by the group financial director, Bryan Mandy CA (NAM), CA (SA).

The results were made publicly available on 23 August 2018.

The group no longer posts a physical copy of this announcement to its shareholders.

BASIS OF PREPARATION

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CONTENTS

OVERVIEW 2 Highlights 3 Overview of financial results

UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS 4 Financial statistics 5 Condensed consolidated statement

of financial position 6 Condensed consolidated income

statement 6 Condensed consolidated statement

of other comprehensive income 7 Condensed consolidated statement

of changes in equity 8 Condensed consolidated statement

of cash flows 9 Notes26 Accounting policy elections

OTHER INFORMATION36 Administrative and contact details

SBN Holdings Limited Unaudited condensed consolidated interim results for the six months ended 30 June 2018 1

N$255 millionPROFIT AFTER TAX1H17: N$282 million

9.5%

16.81%RETURN ON EQUITY1H17: 19.88%

15.4%

62.42%COST-TO-INCOME RATIO1H17: 58.85%

6.1%

15.49%TOTAL CAPITAL ADEQUACY RATIO1H17: 14.34%

8.1%

12.28%TIER I CAPITAL ADEQUACY RATIO1H17: 11.17%

9.9%

0.453%CREDIT LOSS RATIO1H17: 0.448%

0.7%

HIGHLIGHTS

16

12

8

4

0

■■ Tier I ■■ Tier II Total required capital

Capital adequacy – SBN Holdings

2013 2014 2015 2016 1H17 2017 1H18

30 000 000

25 000 000

20 000 000

15 000 000

10 000 000

5 000 000

0

■■ Loans and advances to customers ■■ Deposits from customers

Customer balances N$’000

1H18 1H17 FY17

2

OVERVIEW

OVERVIEW OF FINANCIAL RESULTS

Group resultsSBN Holding Limited’s results for the period ended 30 June 2018 were robust, underpinned by our universal client offering and increasingly digital capabilities. Profit after tax decreased by 9.5% period on period, reflective of the current economic climate in Namibia and the impact of the adoption of the expected credit loss model. Operating costs were well managed, although negatively impacted by the timing of certain expenses in 2H17. Credit loss ratio worsened to 0.453% from 0.448% mainly as a result of the impact of the IFRS 9 introduction. Group return on equity (ROE) declined from 19.88% to 16.81% as we are holding additional capital for the imminent introduction of Basel 3. As at 30 June 2018, the group’s capital position remained strong with a tier 1 capital adequacy ratio of ratio of 12.28% (1H17: 11.17%).

Operating environmentThe challenges facing Namibia, namely low growth, high unemployment and high levels of inequality, are well publicised. During the period, despite business confidence levels remaining low overall, certain parts of the economy did grow. The moderate recovery in commodity prices provided some support to miners. As the drought abated in certain parts of the country towards the end of 2017, it provided much-needed respite to parts of the agricultural sector. Consumers had an opportunity to catch their breath as rates remained flat and inflation trended downwards. Underlying credit growth remained lacklustre, supported by low single digit real corporate growth while household credit continued to stagnate.

RevenueTotal income grew by 4.8% period on period to N$1.12 billion, driven primarily by weaker trading revenue and other revenue which decreased. Net interest income (NII) increased 5.5% underpinned by loans and advances offset by net interest margin (NIM) compression. NIM contracted by 12 bps to 428 bps driven by higher funding costs and the impact of the 25 bps rate reduction in 2H17.

Non interest revenue (NIR) was impacted negatively by other revenue which declined 8.3%. Trading revenue was broadly flat – relatively lower rate volatility in Namibia and in South African markets reduced the opportunity to generate revenue. Net fee and commission income increased 5.3% period on period due to increased volumes and marginal cost increases.

Credit impairment chargesThe group adopted IFRS 9 with effect from 1 January 2018 and, as permitted by IFRS 9, elected not to restate its comparative financial statements. Therefore, comparability will not be achieved by the fact that the comparative financial information has been prepared on an IAS 39 basis. The credit loss ratio has increased by 5 bps from 448 bps in 1H17. The increased credit impairments are mainly as a result of increased provision in vehicle and asset and other term loans reflecting the adoption of IFRS 9.

Operating expensesOperating expenses increased 11.2% period on period driven by tight control on headcount and focus on discretionary spend. Operating costs grew by 13% mainly as a result of the timing of certain operating expenses in 2H17 resulting in the cost-to-income ratio increasing from 58.85% to 62.42%.

Loans and advancesGross loans and advances to customers grew 7.0% period on period, supported by strong growth in mortgage loans and other secured lending offset by a reduction in loans and advances to banks.

Capital, funding and liquidityThe group remains well capitalised with a Tier 1 capital adequacy ratio of 12.28% (1H17: 11.17%) and a total capital adequacy ratio of 15.49% (1H17: 14.34%). The group’s capital position remains strong and in excess of the group’s target ranges. The group continues to monitor a number of developments locally that could negatively impact the group’s capital ratios, most pertinent of which is the finalisation of the Basel III implementation for Namibia.

Deposits and current accounts from customers increased 13.8% period on period. The group remains focused on sourcing stable deposits from a diverse range of sources at appropriate margins. During the period, the group’s liquidity position remained strong and within approved risk appetite and tolerance limits. Market cost of liquidity tightened marginally during the period. As at 30 June 2018, the group’s quarterly average internal liquidity coverage ratio (LCR) amounted to 106%, exceeding the minimum requirement of 100%. The group also met an internal net stable funding ratio requirement throughout 1H18.

ProspectsLooking ahead, stronger global growth and firmer commodity prices should provide some support in 2H18. In sub-Saharan Africa, the macro environment is expected to continue to improve and interest rates are expected to remain flat as inflation moderates. In terms of Namibia’s outlook, the expectations of a recovery in 2018 have moderated and the current Bank of Namibia (BON) forecast is for 0.5% growth for the year.

In the period, we have successfully embedded the five value drivers of client focus, employee engagement, risk and conduct, financial outcomes and social, economic and environmental (SEE) impact in the businesses. They underpin our decisions and drive the group’s shared value outcomes.

Across our CIB franchise, we remain committed to partnering our clients on their growth journeys and delivering exceptional client experiences. We bank clients, not economies, and will continue to seek out pockets of growth. We continue to develop our PBB franchise in a consciously systematic manner; banking the employees, suppliers and customers of our corporate clients. Our strategy of banking the ecosystems surrounding our clients continues to gain traction.


We will continue to invest in our digital capabilities and the re-skilling of our employees, with the primary objective of improving the client experience. We recognise that we are not where we want to be in terms of customer satisfaction and are making changes to ensure that we improve on this going forward. Our core banking replacement journey in Namibia remains on track to close by the end of the Q1 2019. Although it has been a long and costly exercise, we remain of the opinion that it provides us with the resilient platform required to compete in a digital world. We will continue to seek opportunities to successfully collaborate with FinTechs and support relevant IT skills development initiatives.

In a complex business environment, we rely on the people across our network to navigate the challenges each business faces and make appropriate decisions in line with strategic priorities. Doing the right business, the right way remains a priority. Regulatory change, both locally and internationally, has continued apace and appears unlikely to slow. We continue to engage with policymakers and regulators across our footprint to broker

FINANCIAL STATISTICSfor the six months ended 30 June 2018

%change 1H18 1H17 FY17

Financial performance (%)Profit after tax (N$’000) (9.5) 255 264 282 065 545 925Credit loss ratio (%) 0.7 0.453 0.450 0.448Return on equity (%) (15.4) 16.81 19.88 18.55Net interest margin on total assets excl derivatives (%) (3.2) 4.28 4.42 4.31Cost to income (%) 6.1 62.42 58.85 59.82Loans and advances to customers (N$’000) 11.0 20 943 310 18 872 748 20 059 978Deposits from customers (N$’000) 13.3 23 840 733 21 051 206 24 345 680Capital adequacy ratios – Standard Bank NamibiaTier 1 capital adequacy ratio (%) 4.7 10.89 10.40 10.92Total capital adequacy ratio (%) 4.0 13.91 13.38 13.83Leverage ratio (%) 3.0 7.82 7.59 7.49

appropriately balanced outcomes. In Namibia specifically, we will continue to actively engage in the debates around the banking sector’s role in promoting transformation and inclusive economic growth.

As underpinned by our purpose of driving Africa’s growth, our view is that a financial institution’s role in society is broader than providing superior returns to shareholders. In terms of our SEE impact, we have a responsibility to facilitate growth in the markets in which we operate, improve financial literacy and access, and develop local markets in a responsible and sustainable way.

We are focused on the levers available to deliver on our targets, including positive jaws, efficient capital management and improving our cost of funds.

Vetumbuavi Mungunda Herbert MaierChief executive Chairman

6 August 2018

4

Overview of financial results continued

OVERVIEW

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 30 June 2018

%change

1H18Unaudited

N$’000

1H17Unaudited

N$’000

FY17AuditedN$’000

AssetsCash and balances with central banks 113.9 1 754 465 820 061 1 357 937Derivative assets 178.6 55 355 19 869 64 198Trading assets (79.3) 83 558 403 233 430 186Pledged assets 178 294Financial investments 16.7 3 495 553 2 996 164 3 395 582Current and deferred tax assets 56.7 80 124 51 141 46 258Loans and advances 7.0 21 523 859 20 120 625 22 146 338Other assets (35.6) 890 579 1 383 380 1 691 260Assets in group companies and joint ventures (10.9) 875 461 982 111 562 369Property and equipment 37.6 798 380 580 009 768 723Intangible assets (7.2) 310 999 335 076 323 038

Total assets 8.5 30 046 627 27 691 669 30 785 889

Equity and liabilitiesEquityShare capital – ordinary 1 000 1 000 1 000Share premium on issue of shares 442 234 442 234 442 234Reserves 7.4 2 659 652 2 476 326 2 665 638

Total equity 6.3 3 102 886 2 919 560 3 108 872

LiabilitiesDerivative liabilities 250.8 47 937 13 665 58 280Trading liabilities (99.9) 92 127 711 92Current and deferred taxation liability (100.0) 29 229 41 236Deposit and current accounts 13.8 24 268 626 21 331 272 24 567 292Debt securities issued 0.4 1 218 830 1 213 747 1 218 731Provisions and other liabilities (10.4) 435 546 486 164 505 701Loans from group companies (38.1) 972 710 1 570 321 1 285 685

Total liabilities 8.8 26 943 741 24 772 109 27 677 017

Total equity and liabilities 8.5 30 046 627 27 691 669 30 785 889


CONDENSED CONSOLIDATED INCOME STATEMENTfor the six months ended 30 June 2018

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME1

for the six months ended 30 June 2018

%change

1H18Unaudited

N$’000

1H17Unaudited

N$’000

FY17AuditedN$’000

Net interest income 5.5 641 827 608 594 1 242 769Non-interest revenue 3.9 486 344 467 893 949 956

Total income 4.8 1 128 171 1 076 487 2 192 725Credit impairment charges 12.1 (48 622) (43 377) (97 047)

Income after credit impairment charges 4.5 1 079 549 1 033 110 2 095 678Operating expenses 11.2 (704 163) (633 508) (1 311 612)

Net income (6.1) 375 386 399 602 784 066Share of profit/(losses) from equity accounted investments (6.7) 756 810 1 359

Net income before indirect taxation (6.1) 376 142 400 412 785 425Indirect taxation 48.6 (20 254) (13 633) (31 528)

Profit before direct taxation (8.0) 355 888 386 779 753 897Direct taxation (3.9) (100 624) (104 714) (207 972)

Profit for the period (9.5) 255 264 282 065 545 925

1H18Unaudited

N$’000

1H17Unaudited

N$’000

FY17AuditedN$’000

Profit for the period 255 264 282 065 545 925Other comprehensive loss after tax for the period (384) 6 488 10 762

Items that may be subsequently reclassified to profit and loss (384) 6 488 5 942Movement in the available-for-sale revaluation reserve1 (1 156) 6 488 5 942Movement in debt instruments measured at fair value through other

comprehensive income (OCI)1 772Items that may not be reclassified to profit and loss 4 820Defined benefit fund 4 820

Total comprehensive income for the periodAttributable to ordinary shareholders 254 880 288 553 556 687

1 The group has, as permitted by IFRS 9, elected not to restate its comparative financial statements. Therefore, comparability will not be achieved by the fact that the comparative financial information has been prepared on an IAS 39 basis.

6

UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the six months ended 30 June 2018

Ordinary shareholders’

equityN$’000

Total equityN$’000

Balance at 1 January 2017 (audited) 2 789 962 2 789 962Total comprehensive income for the period 288 553 288 553Transactions with owners recorded directly in equity (158 955) (158 955)

Equity-settled share-based payment transactions 1 537 1 537Deferred tax on share-based payment transactions (492) (492)Net dividends paid (160 000) (160 000)

Balance at 30 June 2017 (unaudited) 2 919 560 2 919 560

Balance at 1 July 2017 (unaudited) 2 919 560 2 919 560Total comprehensive income for the period 268 134 268 134Transactions with owners and non-controlling interests recorded directly in equity (78 822) (78 822)

Equity-settled share-based payment transactions 1 732 1 732Deferred tax on share-based payment transactions (554) (554)Net dividends paid (80 000) (80 000)

Balance at 31 December 2017 (audited) 3 108 872 3 108 872

Balance at 1 January 2018 2 961 760 2 961 760

IFRS 9 transition (147 112) (147 112)Balance at 1 January 2018 (audited) 3 108 872 3 108 872

Total comprehensive income for the period 254 880 254 880Transactions with owners and non-controlling interests recorded directly in equity (113 754) (113 754)

Equity-settled share-based payment transactions 9 185 9 185Deferred tax on share-based payment transactions (2 939) (2 939)Net dividends paid (120 000) (120 000)

Balance at 30 June 2018 (unaudited) 3 102 886 3 102 886


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSfor the six months ended 30 June 2018

1H18Unaudited

N$’000

1H17Unaudited

N$’000

FY17AuditedN$’000

Net cash flows from operating activities 578 520 (161 019) 670 862

Direct taxation paid (98 954) (94 910) (183 817)Other operating activities 677 474 (66 109) 854 679

Net cash flows (used in)/generated from investing activities (61 992) (217 493) (436 598)

Capital expenditure (61 992) (217 493) (436 598)

Net cash flows used in financing activities (120 000) (161 300) (236 200)

Dividends paid (120 000) (160 000) (240 000)Other financing activities (1 300) 3 800

Net increase/(decrease) in cash and cash equivalents 396 528 (539 812) (1 936)Cash and cash equivalents at the beginning of the period 1 357 937 1 359 873 1 359 873

Cash and cash equivalents at the end of the period 1 754 465 820 061 1 357 937

Comprising:Cash and balances with central banks 1 754 465 820 061 1 357 937

8


NOTES

1. Loans and advances1

as at 30 June 2018

1H18Unaudited

N$’000

FY17AuditedN$’000

Financial investmentsMortgage loans 11 057 089 8 714 447Vehicle and asset finance 2 931 708 3 382 521Card debtors 190 501 210 568Other loans and advances 2 472 219 3 069 773Corporate lending 2 502 676 3 571 630Sovereign lending 1 489 858 1 111 039Bank lending 879 808 2 086 360

Net loans and advances 21 523 859 22 146 338

Gross loans and advances 21 951 956 21 994 996Credit impairments for loans and advances (IAS 39) (151 342)

Specific credit impairments (105 535)Portfolio credit impairments (45 807)

Expected credit loss measured at amortised cost (358 381)

Stage 1 (69 469)Stage 2 (179 941)Stage 3 (108 971)Stage 3 – purchased credit impairedInterest in suspense (69 716)



1. Loans and advances continued

Opening ECL Transfers between stages Income statement movement1

Exchange and other

movementsN$’000

Reclassifications into/out of this

classification category

N$’000

ClosingECL balance

30 June 2018N$’000

1 January2018

N$’000

Transferto/fromstage 1N$’000



TotalN$’000

New impairments

raisedN$’000

Subsequent changes

in ECLN$’000

Derecognised includingwrite-offs

N$’000Total

N$’000

Mortgage loans (67 979) (58 316) (53 143) 111 459 (9 052) 905 (8 147) 4 360 (71 766)

Stage 1 (9 750) 10 883 47 433 58 316 (904) (58 780) (59 684) (11 118)Stage 2 (36 957) (10 883) 64 026 53 143 (8 148) (43 127) (51 275) (35 089)Stage 3 (21 272) (47 433) (64 026) (111 459) 102 812 102 812 4 360 (25 559)

Vehicle and asset finance (104 567) (24 411) (1 785) 26 196 (2 452) (18 601) (21 053) 23 865 (101 755)

Stage 1 (8 880) 16 242 8 169 24 411 (1 452) (22 618) (24 070) (8 539)Stage 2 (47 443) (16 242) 18 027 1 785 (1 000) 2 809 1 809 (43 849)Stage 3 (48 244) (8 169) (18 027) (26 196) 1 208 1 208 23 865 (49 367)

Card debtors (24 041) (471) 3 733 (3 262) (21) (6 879) (6 900) 5 262 (25 679)

Stage 1 (3 667) 343 128 471 (16) (396) (412) (3 608)Stage 2 (14 975) (343) (3 390) (3 733) (5) 4 107 4 102 (14 606)Stage 3 (5 399) (128) 3 390 3 262 (10 590) (10 590) 5 262 (7 465)

Other loans and advances

Stage 1 (29 371) 21 509 10 393 31 902 (5 555) (26 392) (31 947) (29 416)Stage 2 (76 537) (21 509) 12 472 (9 037) (1 822) 6 891 5 069 (80 505)Stage 3 (30 620) (10 393) (12 472) (22 865) (11 240) (11 240) 38 145 (26 580)

Corporate lending (18 098) (1 082) 1 082 (6 911) 60 3 093 (3 758) (21 856)

Stage 1 (15 133) 1 082 1 082 (6 497) 3 408 1 471 (1 618) (15 669)Stage 2 (2 965) (1 082) (1 082) (414) (3 348) 1 622 (2 140) (6 187)Stage 3

Sovereign lending (2) 1 (1) 1 1 (1)

Stage 1 (1) (1) (1) 1 1 (1)Stage 2 (1) 1 1 Stage 3

Bank lending (980) (473) (193) 823 157 (823)

Stage 1 (980) (473) (488) 823 (138) (1 118)Stage 2 295 295 295Stage 3

Total (352 195) (116 181) (41 077) 157 258 (352 195) (26 286) (55 448) 3 916 (77 818) 71 632 (358 381)

Stage 1 (67 782) 50 058 66 123 48 399 (14 897) (105 265) 2 294 (117 868) (69 469)Stage 2 (178 878) (50 058) 91 135 (137 801) (11 389) (32 373) 1 622 (42 140) (179 941)Stage 3 (105 535) (66 123) (91 135) (262 793) 82 190 82 190 71 632 (108 971)

1 Net impairments raised/(released) less recoveries of amounts written off in previous years, as well as credit recovery on off-balance sheet exposure, equals income statement impairment charges.

Modification No material gains or losses arose from modifications during the period under review.

10


1. Loans and advances continued

Opening ECL Transfers between stages Income statement movement1

Exchange and other

movementsN$’000



N$’000

ClosingECL balance

30 June 2018N$’000

1 January2018

N$’000




TotalN$’000

New impairments

raisedN$’000

Subsequent changes

in ECLN$’000


N$’000Total

N$’000

Mortgage loans (67 979) (58 316) (53 143) 111 459 (9 052) 905 (8 147) 4 360 (71 766)

Stage 1 (9 750) 10 883 47 433 58 316 (904) (58 780) (59 684) (11 118)Stage 2 (36 957) (10 883) 64 026 53 143 (8 148) (43 127) (51 275) (35 089)Stage 3 (21 272) (47 433) (64 026) (111 459) 102 812 102 812 4 360 (25 559)

Vehicle and asset finance (104 567) (24 411) (1 785) 26 196 (2 452) (18 601) (21 053) 23 865 (101 755)

Stage 1 (8 880) 16 242 8 169 24 411 (1 452) (22 618) (24 070) (8 539)Stage 2 (47 443) (16 242) 18 027 1 785 (1 000) 2 809 1 809 (43 849)Stage 3 (48 244) (8 169) (18 027) (26 196) 1 208 1 208 23 865 (49 367)

Card debtors (24 041) (471) 3 733 (3 262) (21) (6 879) (6 900) 5 262 (25 679)

Stage 1 (3 667) 343 128 471 (16) (396) (412) (3 608)Stage 2 (14 975) (343) (3 390) (3 733) (5) 4 107 4 102 (14 606)Stage 3 (5 399) (128) 3 390 3 262 (10 590) (10 590) 5 262 (7 465)

Other loans and advances

Stage 1 (29 371) 21 509 10 393 31 902 (5 555) (26 392) (31 947) (29 416)Stage 2 (76 537) (21 509) 12 472 (9 037) (1 822) 6 891 5 069 (80 505)Stage 3 (30 620) (10 393) (12 472) (22 865) (11 240) (11 240) 38 145 (26 580)

Corporate lending (18 098) (1 082) 1 082 (6 911) 60 3 093 (3 758) (21 856)

Stage 1 (15 133) 1 082 1 082 (6 497) 3 408 1 471 (1 618) (15 669)Stage 2 (2 965) (1 082) (1 082) (414) (3 348) 1 622 (2 140) (6 187)Stage 3

Sovereign lending (2) 1 (1) 1 1 (1)

Stage 1 (1) (1) (1) 1 1 (1)Stage 2 (1) 1 1 Stage 3

Bank lending (980) (473) (193) 823 157 (823)

Stage 1 (980) (473) (488) 823 (138) (1 118)Stage 2 295 295 295Stage 3

Total (352 195) (116 181) (41 077) 157 258 (352 195) (26 286) (55 448) 3 916 (77 818) 71 632 (358 381)

Stage 1 (67 782) 50 058 66 123 48 399 (14 897) (105 265) 2 294 (117 868) (69 469)Stage 2 (178 878) (50 058) 91 135 (137 801) (11 389) (32 373) 1 622 (42 140) (179 941)Stage 3 (105 535) (66 123) (91 135) (262 793) 82 190 82 190 71 632 (108 971)

1 Net impairments raised/(released) less recoveries of amounts written off in previous years, as well as credit recovery on off-balance sheet exposure, equals income statement impairment charges.

Modification No material gains or losses arose from modifications during the period under review.


2. Financial investments1

as at 30 June 2018

1H18Unaudited

N$’000

FY17AuditedN$’000

Government, municipality and utility bonds 89 974 162 782Treasury bills 2 142 132 1 681 978Mutual funds 1 263 447 1 550 822

Net financial investments1 3 495 553 3 395 582

Gross financial investments 3 496 383

Expected credit loss measured at amortised cost (58)Stage 1 (58)Stage 2Stage 3Stage 3 – purchased credit impairedInterest in suspenseExpected credit loss measured at fair value through OCI (772)

Stage 1 (772)Stage 2Stage 3Stage 3 – purchased credit impairedAccumulated gains and losses recognised in fair value through OCI reserve

1 The group has, as permitted by IFRS 9, elected not to restate its comparative financial statements, but the group aligned its financial investments as disclosed in the annual financial statements for the year ended 31 December 2017 to the categories as disclosed for 1H18. This did not result in a restatement to the group’s statement of financial position as at 31 December 2017.

12


Notes continued

2. Financial investments1

as at 30 June 2018

1H18Unaudited

N$’000

FY17AuditedN$’000

Government, municipality and utility bonds 89 974 162 782Treasury bills 2 142 132 1 681 978Mutual funds 1 263 447 1 550 822

Net financial investments1 3 495 553 3 395 582

Gross financial investments 3 496 383

Expected credit loss measured at amortised cost (58)Stage 1 (58)Stage 2Stage 3Stage 3 – purchased credit impairedInterest in suspenseExpected credit loss measured at fair value through OCI (772)

Stage 1 (772)Stage 2Stage 3Stage 3 – purchased credit impairedAccumulated gains and losses recognised in fair value through OCI reserve

1 The group has, as permitted by IFRS 9, elected not to restate its comparative financial statements, but the group aligned its financial investments as disclosed in the annual financial statements for the year ended 31 December 2017 to the categories as disclosed for 1H18. This did not result in a restatement to the group’s statement of financial position as at 31 December 2017.

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2. Financial investments continued Reconciliation of expected credit loss of financial investments at amortised cost

Opening ECL Transfers between stages Income statement movement

Exchangeand other

movementsN$’000


classificationcategory

N$’000

Closing ECL balance

30 June2018

N$’000

1 January 2018

N$’000

Transfer to/from stage 1N$’000



TotalN$’000

Newimpairments

raisedN$’000

Subsequentchanges

in ECLN$’000

Derecognised (including write-offs)

N$’000Total

N$’000

Sovereign (1 188) 1 188 1 188

Stage 1 (1 188) 1 188 1 188Stage 2Stage 3

Mutual funds and unit-linked investments (9 003) (58) 9 003 8 945 (58)

Stage 1 (9 003) (58) 9 003 8 945 (58)Stage 2Stage 3

Reconciliation of expected credit loss of financial investments at fair value through other comprehensive income


Exchangeand other

movementsN$’000



N$’000

ClosingECL balance30 June 18

N$’000

1 January 2018

N$’000


Transfer to/fromstage 2N$’000


TotalN$’000

Newimpairments

raisedN$’000

Subsequentchanges

in ECLN$’000


N$’000Total

N$’000

Sovereign (508) (772) 508 (264) (772)

Stage 1 (508) (772) 508 (264) (772)Stage 2Stage 3

Reconciliation of fair value through OCI reserve relating to financial investments

Balance at1 January

2017 (unaudited)

N$’000Reclassifications

N$’000

Net changein fair value

N$’000

Realisedfair value

adjustments transferred

to profitor loss

N$’000

Netexpected

credit loss raised/

(released) during the

periodN$’000

Exchangeand other

movementsN$’000

30 June 2018

(unaudited)N$’000

Sovereign (508) (264) (772)

Total (508) (264) (772)

14


Notes continued

2. Financial investments continued Reconciliation of expected credit loss of financial investments at amortised cost


Exchangeand other

movementsN$’000


classificationcategory

N$’000

Closing ECL balance

30 June2018

N$’000

1 January 2018

N$’000




TotalN$’000

Newimpairments

raisedN$’000

Subsequentchanges

in ECLN$’000


N$’000Total

N$’000

Sovereign (1 188) 1 188 1 188

Stage 1 (1 188) 1 188 1 188Stage 2Stage 3

Mutual funds and unit-linked investments (9 003) (58) 9 003 8 945 (58)

Stage 1 (9 003) (58) 9 003 8 945 (58)Stage 2Stage 3

Reconciliation of expected credit loss of financial investments at fair value through other comprehensive income


Exchangeand other

movementsN$’000



N$’000

ClosingECL balance30 June 18

N$’000

1 January 2018

N$’000


Transfer to/fromstage 2N$’000


TotalN$’000

Newimpairments

raisedN$’000

Subsequentchanges

in ECLN$’000


N$’000Total

N$’000

Sovereign (508) (772) 508 (264) (772)

Stage 1 (508) (772) 508 (264) (772)Stage 2Stage 3

Reconciliation of fair value through OCI reserve relating to financial investments

Balance at1 January

2017 (unaudited)

N$’000Reclassifications

N$’000

Net changein fair value

N$’000

Realisedfair value

adjustments transferred

to profitor loss

N$’000

Netexpected

credit loss raised/

(released) during the

periodN$’000

Exchangeand other

movementsN$’000

30 June 2018

(unaudited)N$’000

Sovereign (508) (264) (772)

Total (508) (264) (772)


3. Contingent liabilities and commitments as at 30 June 2018

1H18Unaudited

N$’000

FY17AuditedN$’000

Letters of credit and bankers’ acceptances 577 2 350Guarantees 3 117 208 2 401 008Irrevocable unutilised facilities 2 491 996 4 262 314

Contingent liabilities 5 609 781 6 665 672

Property and equipment 141 081 138 090

Commitments 141 081 138 090

Expected credit loss reconciliation

Opening ECL Transfers between stages Income statement movementsCurrency

translationand other

movementsN$’000

ClosingECL balance

30 June2018

N$’000

1 January2018

N$’000




TotalN$’000

Newimpairments

raisedN$’000

Subsequent changes

in ECLN$’000


N$’000Total

N$’000

Letters of credit and bankers’ acceptances (1) (1)

Stage 1 (1) (1)Stage 2 Stage 3

Guarantees (3 783) (5) 5 (47) 1 2 461 2 415 (1 368)

Stage 1 (3 783) 5 5 (47) 55 2 461 2 469 (1 309)Stage 2 (5) (5) (54) (54) (59)Stage 3

Irrevocable unutilised facilities (1 006) (64) 64 (1 315) (549) 141 (1 723) (2 729)

Stage 1 (919) 64 64 (1 260) (282) 95 (1 447) (2 302)Stage 2 (87) (64) (64) (55) (267) 46 (276) (427)Stage 3

Total (4 790) (69) 69 (1 362) (548) 2 602 692 (4 098)

Stage 1 (4 703) 69 69 (1 307) (227) 2 556 1 022 (3 612)Stage 2 (87) (69) (69) (55) (321) 46 (330) (486)Stage 3

16


Notes continued

3. Contingent liabilities and commitments as at 30 June 2018

1H18Unaudited

N$’000

FY17AuditedN$’000

Letters of credit and bankers’ acceptances 577 2 350Guarantees 3 117 208 2 401 008Irrevocable unutilised facilities 2 491 996 4 262 314

Contingent liabilities 5 609 781 6 665 672

Property and equipment 141 081 138 090

Commitments 141 081 138 090

Expected credit loss reconciliation

Opening ECL Transfers between stages Income statement movementsCurrency

translationand other

movementsN$’000

ClosingECL balance

30 June2018

N$’000

1 January2018

N$’000




TotalN$’000

Newimpairments

raisedN$’000

Subsequent changes

in ECLN$’000


N$’000Total

N$’000

Letters of credit and bankers’ acceptances (1) (1)

Stage 1 (1) (1)Stage 2 Stage 3

Guarantees (3 783) (5) 5 (47) 1 2 461 2 415 (1 368)

Stage 1 (3 783) 5 5 (47) 55 2 461 2 469 (1 309)Stage 2 (5) (5) (54) (54) (59)Stage 3

Irrevocable unutilised facilities (1 006) (64) 64 (1 315) (549) 141 (1 723) (2 729)

Stage 1 (919) 64 64 (1 260) (282) 95 (1 447) (2 302)Stage 2 (87) (64) (64) (55) (267) 46 (276) (427)Stage 3

Total (4 790) (69) 69 (1 362) (548) 2 602 692 (4 098)

Stage 1 (4 703) 69 69 (1 307) (227) 2 556 1 022 (3 612)Stage 2 (87) (69) (69) (55) (321) 46 (330) (486)Stage 3


Fair value disclosuresFinancial assets and liabilities measured at fair valueFair value is a market-based measurement and uses the assumptions that market participants would use when pricing an asset or liability under current market conditions. When determining fair value, it is presumed that the entity is a going concern and that it is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. Information obtained from the valuation of financial instruments is used to assess the performance of the group and, in particular, provides assurance that the risk and return measures the group has taken are accurate and complete.

Valuation processThe group’s valuation control framework governs internal control standards, methodologies and procedures over its valuation processes, which include:

Prices quoted in an active market: The existence of quoted prices in an active market represents the best evidence of fair value. Where such prices exist, they are used in determining the fair value of financial assets and financial liabilities.

Valuation techniques: Where quoted market prices are unavailable, the group establishes fair value using valuation

techniques that incorporate observable inputs either directly, such as quoted prices, or indirectly, such as those derived from quoted prices for such assets and liabilities. Parameter inputs are obtained directly from the market, consensus pricing services or recent transactions in active markets, whenever possible. Where such inputs are not available, the group makes use of theoretical inputs in establishing fair value (unobservable inputs). Such inputs are based on other relevant input sources of information and incorporate assumptions that include prices for similar transactions, historic data, economic fundamentals and research information, with appropriate adjustment to reflect the terms of the actual instrument being valued and current market conditions. Changes in these assumptions would affect the reported fair values of these financial instruments.

Valuation techniques used for financial instruments include the use of financial models that are populated using market parameters corroborated by reference to independent market data, where possible, or alternative sources, such as third-party quotes, recent transaction prices or suitable proxies. The fair value of certain financial instruments is determined using industry standard models such as discounted cash flow analysis and standard option pricing models. These models are generally used to estimate future cash flows and discount these back to the valuation date. For complex or unique instruments, more sophisticated modelling techniques may be required, which in turn require assumptions or more complex parameters such as correlations, prepayment spreads, default rates and loss severity.

Accounting classifications and fair values of financial assets and liabilities (IFRS 9)The table below categorises the group’s assets and liabilities as at 30 June 2018, between that which is financial and non-financial. All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for those items.

Fair value through P/L

Amortised cost

N$’000

Fair-value through other comprehensive income

Other non-financial assets/

liabilities1

N$’000

Totalcarrying amountN$’000

Fairvalue2

N$’000

Held-for-trading

N$’000

Designatedat fair value

N$’000

Fair valuethrough P/L –

defaultN$’000

Debt instruments

N$’000

Equity instruments

N$’000

Assets (unaudited)Cash and balances with central banks 1 754 465 1 754 465 1 754 465Derivative assets 55 355 55 355 55 355Trading assets 83 558 83 558 83 558Pledged assets 178 294 178 294 178 294Financial investments 1 263 447 89 974 2 142 905 3 496 326 3 495 553Current and deferred tax assets 80 124 80 124Loans and advances 21 523 859 21 523 859 23 424 466Other assets 890 579 890 579Assets in group companies and joint ventures 875 461 875 461 875 461Property and equipment 798 380 798 380Intangible assets 310 999 310 999

Total assets 1 893 378 1 263 447 22 489 294 2 321 199 2 080 082 30 047 400

Liabilities (unaudited)Derivative liabilities 47 937 47 937 47 937Trading liabilities 92 92 92Current and deferred taxation liabilities Deposit and current accounts 24 268 626 24 268 626 21 856 893Debt securities issued 1 218 830 1 218 830 1 265 646Provisions and other liabilities 435 546 435 546Loans from group companies 972 710 972 710 972 710

Total liabilities 48 029 26 460 166 435 546 26 943 741

1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks.2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities.

18


Notes continued

Valuation adjustments: Valuation adjustments are an integral part of the valuation process. Adjustments include, but are not limited to:

•• Credit spreads on illiquid issuers

•• Implied volatilities on thinly traded instruments

•• Correlation between risk factors

•• Prepayment rates

•• Other illiquid risk drivers.

In making appropriate valuation adjustments, the group applies methodologies that consider factors such as bid-offer spreads, liquidity, counterparty and own credit risk. Exposure to such illiquid risk drivers is typically managed by:

•• Using bid-offer spreads that are reflective of the relatively low liquidity of the underlying risk driver

•• Raising day one profit and loss provisions in accordance with IFRS

•• Quantifying and reporting the sensitivity to each risk driver

•• Limiting exposure to such risk drivers and analysing exposure on a regular basis.

Validation and control: All financial instruments carried at fair value, regardless of classification, and for which there are no quoted market prices for that instrument, are fair valued using models that conform to international best practice and established financial theory. These models are validated independently by the group’s model validation unit and formally reviewed and approved by the market risk methodologies

committee. This control applies to off-the-shelf models as well as those developed internally by the group. Further, all inputs into the valuation models are subject to independent price validation procedures carried out by the group’s market risk unit. Such price validation is performed on at least a monthly basis, but daily where possible, given the availability of the underlying price inputs. Independent valuation comparisons are also performed and any significant variances noted are appropriately investigated. Less liquid risk drivers, which are typically used to mark level 3 assets and liabilities to model, are carefully validated and tabled at the monthly price validation forum to ensure that these are reasonable and used consistently across all entities in the group. Sensitivities arising from exposures to such drivers are similarly scrutinised, together with movements in level 3 fair values. They are also disclosed on a monthly basis at the market risk and asset and liability committees.

Portfolio exception: The group has, on meeting certain qualifying criteria, elected the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities on a net basis.

Accounting classifications and fair values of financial assets and liabilities (IFRS 9)The table below categorises the group’s assets and liabilities as at 30 June 2018, between that which is financial and non-financial. All financial assets and liabilities have been classified according to their measurement category with disclosure of the fair value being provided for those items.

Fair value through P/L

Amortised cost

N$’000

Fair-value through other comprehensive income

Other non-financial assets/

liabilities1

N$’000

Totalcarrying amountN$’000

Fairvalue2

N$’000

Held-for-trading

N$’000


N$’000

Fair valuethrough P/L –

defaultN$’000

Debt instruments

N$’000

Equity instruments

N$’000

Assets (unaudited)Cash and balances with central banks 1 754 465 1 754 465 1 754 465Derivative assets 55 355 55 355 55 355Trading assets 83 558 83 558 83 558Pledged assets 178 294 178 294 178 294Financial investments 1 263 447 89 974 2 142 905 3 496 326 3 495 553Current and deferred tax assets 80 124 80 124Loans and advances 21 523 859 21 523 859 23 424 466Other assets 890 579 890 579Assets in group companies and joint ventures 875 461 875 461 875 461Property and equipment 798 380 798 380Intangible assets 310 999 310 999

Total assets 1 893 378 1 263 447 22 489 294 2 321 199 2 080 082 30 047 400

Liabilities (unaudited)Derivative liabilities 47 937 47 937 47 937Trading liabilities 92 92 92Current and deferred taxation liabilities Deposit and current accounts 24 268 626 24 268 626 21 856 893Debt securities issued 1 218 830 1 218 830 1 265 646Provisions and other liabilities 435 546 435 546Loans from group companies 972 710 972 710 972 710


1 Includes financial assets and financial liabilities for which the carrying value has been adjusted for changes in fair value due to designated hedged risks.2 Carrying value has been used where it closely approximates fair values, excluding non-financial assets and liabilities.


Accounting classifications and fair values of financial assets and liabilities (IAS 39)as at 31 December 2017

Held-for-trading

N$’000


N$’000

Loans andreceivables

N$’000

Available-for-saleN$’000

Otheramortised

costN$’000

Otherassets/

liabilitiesN$’000

TotalcarryingamountN$’000

Fair valueN$’000

Assets (audited)Cash and balances with central banks 1 357 937 1 357 937 1 357 937Derivative assets 64 198 64 198 64 198Trading assets 430 186 430 186 430 186Financial investments 1 713 604 1 681 978 3 395 582 3 395 582Current and deferred tax assets 46 258 46 258 46 258Loans and advances 22 146 338 22 146 338 21 775 880Other assets 1 691 260 1 691 260 1 691 260Assets in group companies and joint ventures 562 369 562 369 562 369Property and equipment 768 723 768 723 768 723Intangible assets 323 038 323 038 323 038

Total assets 494 384 1 713 604 23 504 275 1 681 978 3 391 648 30 785 889

Liabilities (audited)Derivative liabilities 58 280 58 280 58 280Trading liabilities 92 92 92Current and deferred taxation liability 41 236 41 236 41 236Deposit and current accounts 24 567 292 24 567 292 24 567 292Debt securities issued 1 218 731 1 218 731 1 256 457Provisions and other liabilities 505 701 505 701 505 701Loans from group companies 1 285 685 1 285 685 1 285 685


Financial assets and liabilities measured at fair valueas at 30 June 2018

Fair value hierarchyThe table that follows analyses the group’s financial instruments carried at fair value, by level of fair value hierarchy. The different levels are based on the extent that available market data is used in the calculation of the fair value of the financial instruments. The levels have been defined as follows:

Level 1 – fair value is based on quoted market prices (unadjusted) in active markets for an identical financial asset or liability.

Level 2 – fair value is determined through valuation techniques based on observable inputs, either directly, such as quoted prices, or indirectly, such as those derived from quoted prices.

Level 3 – fair value is determined through valuation techniques using significant unobservable inputs.

1H18 (unaudited) FY17 (audited)

Level 1N$’000

Level 2N$’000

Level 3N$’000

TotalN$’000

Level 1N$’000

Level 2N$’000

Level 3N$’000

TotalN$’000

Financial assetsMeasured on a recurring basisDerivative assets 55 355 55 355 64 198 64 198Trading assets 83 558 83 558 1 135 429 051 430 186Pledged assets 178 294 178 294 Financial investments 89 974 3 405 579 3 495 553 162 782 3 232 800 3 395 582

Total assets at fair value 268 268 3 544 492 3 812 760 163 917 3 726 049 3 889 966

Financial liabilitiesMeasured on a recurring basisDerivative liabilities 47 937 47 937 58 280 58 280Trading liabilities 92 92 92 92

Total liabilities at fair value 48 029 48 029 58 372 58 372

Recurring fair value measurements of assets or liabilities are those assets and liabilities that IFRS require or permit to be carried at fair value in the statement of financial position at the end of each reporting period.

20


Notes continued

Accounting classifications and fair values of financial assets and liabilities (IAS 39)as at 31 December 2017

Held-for-trading

N$’000


N$’000

Loans andreceivables

N$’000

Available-for-saleN$’000

Otheramortised

costN$’000

Otherassets/

liabilitiesN$’000

TotalcarryingamountN$’000

Fair valueN$’000

Assets (audited)Cash and balances with central banks 1 357 937 1 357 937 1 357 937Derivative assets 64 198 64 198 64 198Trading assets 430 186 430 186 430 186Financial investments 1 713 604 1 681 978 3 395 582 3 395 582Current and deferred tax assets 46 258 46 258 46 258Loans and advances 22 146 338 22 146 338 21 775 880Other assets 1 691 260 1 691 260 1 691 260Assets in group companies and joint ventures 562 369 562 369 562 369Property and equipment 768 723 768 723 768 723Intangible assets 323 038 323 038 323 038

Total assets 494 384 1 713 604 23 504 275 1 681 978 3 391 648 30 785 889

Liabilities (audited)Derivative liabilities 58 280 58 280 58 280Trading liabilities 92 92 92Current and deferred taxation liability 41 236 41 236 41 236Deposit and current accounts 24 567 292 24 567 292 24 567 292Debt securities issued 1 218 731 1 218 731 1 256 457Provisions and other liabilities 505 701 505 701 505 701Loans from group companies 1 285 685 1 285 685 1 285 685



Level 2 and 3 – valuation techniques and inputs

ITEM AND DESCRIPTION VALUATION TECHNIQUEMAIN INPUTS AND ASSUMPTIONS

Derivative financial instruments

Derivative financial instruments comprise foreign exchange, interest rate, commodity, credit and equity derivatives that are either held for trading or designated as hedging instruments in hedge relationships.

Standard derivative contracts are valued using market accepted models and quoted parameter inputs. More complex derivative contracts are modelled using sophisticated modelling techniques applicable to the instrument. Techniques include:

•• Discounted cash flow model

•• Black-Scholes model

•• Combination technique models

For level 2 and 3 fair value hierarchy items

•• discount rate*

•• spot prices of the underlying

•• correlation factors

•• volatilities

•• dividend yields

•• earnings yields

•• valuation multiplesTrading assets and liabilitiesTrading assets and liabilities comprise instruments which are part of the group’s underlying trading activities. These instruments primarily include sovereign and corporate debt, commodities, collateral, collateralised lending agreements and equity securities.

Pledged assetsPledged assets comprise instruments that the group has provided to its lending counterparty as collateral and that may be sold or re-pledged by the group’s counterparty in the absence of default by the group.

Financial investmentsFinancial investments are non-trading financial assets and primarily comprise sovereign and corporate debt, listed and unlisted equity instruments, listed sovereign or corporate debt, investments in debentures issued by the SARB, investments in mutual fund investments and unit-linked investments.

Where there are no recent market transactions in the specific instrument, fair value is derived from the last available market price adjusted for changes in risks and information since that date. Where a proxy instrument is quoted in an active market, the fair value is determined by adjusting the proxy fair value for differences between the proxy instrument and the instrument being fair valued. Where proxies are not available, the fair value is estimated using more complex modelling techniques. These techniques include discounted cash flow and Black-Scholes models. Combination techniques are used to value unlisted equity securities and include inputs such as earnings and dividend yields of the underlying entity.

Loans and advances

Loans and advances comprise:

•• Loans and advances to banks: call loans, loans granted under resale agreements and balances held with other banks.

•• Loans and advances to customers: mortgage loans (home loans and commercial mortgages), other asset-based loans, including collateralised debt obligations (instalment sale and finance leases), and other secured and unsecured loans (card debtors, overdrafts, other demand lending, term lending and loans granted under resale agreements).

For certain loans fair value may be determined from the market price of a recently occurring transaction adjusted for changes in risks and information between the transaction and valuation dates. Loans and advances are reviewed for observed and verified changes in credit risk and the credit spread is adjusted at subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. In the absence of an observable market for these instruments, discounted cash flow models are used to determine fair value. Discounted cash flow models incorporate parameter inputs for interest rate risk, foreign exchange risk, liquidity and credit risk as appropriate. For credit risk, probability of default and loss given default parameters are determined using credit default swaps (CDS) markets where available and appropriate, as well as the relevant terms of the loan and loan counterparty such as the industry classification and subordination of the loan.



Notes continued

22


ITEM AND DESCRIPTION VALUATION TECHNIQUEMAIN INPUTS AND ASSUMPTIONS

Deposits and debt funding from banks and customers

Deposits from banks and customers comprise amounts owed to banks and customers, deposits under repurchase agreements, negotiable certificates of deposit, credit-linked deposits and other deposits.

For certain deposits, fair value is determined from the market price of a recently occurring transaction adjusted for all changes in risks and information between the transaction and valuation dates. In the absence of an observable market for these instruments, discounted cash flow models are used to determine fair value based on the contractual cash flows related to the instrument. The market risk parameters are valued consistently to similar instruments held as assets stated in the section on loans and advances. The credit risk of the reference asset in the embedded CDS in credit-linked deposits is incorporated into the fair value of all credit-linked deposits that are designated to be measured at fair value through profit or loss. For collateralised deposits that are designated to be measured at fair value through profit or loss, such as securities repurchase agreements, the credit enhancement is incorporated into the fair valuation of the liability.



Third-party financial liabilities arising on the consolidation of mutual funds (included in other liabilities)

These are liabilities that arise on the consolidation of mutual funds.

The fair values of third-party financial liabilities arising on the consolidation of mutual funds are determined using the quoted put (exit) price provided by the fund manager and discounted for the applicable notice period. The fair value of a financial liability with a demand feature is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.



* Discount rates, where applicable, include the risk-free rate, risk premiums, liquidity spreads, credit risk (own and counterparty as appropriate), timing of settlement, storage or service costs, prepayment and surrender risk assumptions and recovery rates/loss given default.


Non-interest revenuefor the six months ended 30 June 2018

1H18Unaudited

N$’000

1H17Unaudited

N$’000

FY17AuditedN$’000

Net fee and commission revenue 395 165 375 366 765 497

Fee and commission revenue 486 194 464 506 957 596

Account transaction fees 174 322 186 018 359 717Electronic banking 107 602 94 155 192 747Knowledge-based fees and commission 6 22Card-based commission 80 260 64 293 153 368Insurance – fees and commission 19 790 19 480 41 173Documentation and administration fees 47 342 44 592 89 464Foreign currency service fees 6 129 5 056 9 761Other 50 749 50 906 111 344

Fee and commission expense (91 029) (89 140) (192 099)

Trading revenue 62 802 61 595 122 517Other revenue 28 377 30 932 61 942

Total non-interest revenue 486 344 467 893 949 956

Credit impairment chargesfor the six months ended 30 June 2018

1H18Unaudited

N$’000

1H17Unaudited

N$’000

FY17AuditedN$’000

Credit impairments raised/(released) in terms of IAS 391 43 377 97 047

Portfolio impairments 895 5 786Specific impairments 42 482 91 261

Net expected credit loses raised and released for financial investments (10 133)

Stage 1 (10 133)Stage 2Stage 3

Net expected credit loses raised and released for Loan and advances 77 818

Stage 1 117 868Stage 2 42 140Stage 3 (82 190)

Net expected credit loses raised and released on off balance sheet exposures (692)

Stage 1 (1 022)Stage 2 330Stage 3

Recoveries on loans and advances previously written off (18 371)

Total credit impairment charge 48 622 43 377 97 047


Notes continued

24


Related party transactionsBalances and transactions with Standard Bank GroupThe following significant balances and transactions were entered into between the group and Standard Bank Group.

1H18Unaudited

N$’000

FY17AuditedN$’000

Amounts included in the group’s statement of financial positionDerivative assets 35 822 32 069Assets in group companies 866 609 554 277Derivative liabilities 19 936 32 951Loans from group companies 972 710 1 285 686Debt securities issued 101 701 101 726

Condensed segment reportfor the six months ended 30 June 2018

The group’s primary segments (PBB, CIB and central and other) comprise the group’s banking activities.

1H18Unaudited

N$’000

1H17Unaudited1

N$’000

FY17Audited1

N$’000

Net interest income contribution by business unitPBB 452 372 445 879 897 616CIB 201 665 190 439 395 167Central and other (12 210) (27 724) (50 014)

SBN Holdings 641 827 608 594 1 242 769

Non-interest revenue by business unitPBB 366 505 358 319 714 001CIB 125 765 116 825 247 953Central and other (5 926) (7 251) (11 998)

SBN Holdings 486 344 467 893 949 956

Revenue contribution by business unitPBB 818 877 804 198 1 611 617CIB 327 430 307 264 643 120Central and other (18 136) (34 975) (62 012)

SBN Holdings 1 128 171 1 076 487 2 192 725

Profit or loss attributable to ordinary shareholdersPBB 145 994 171 039 320 611CIB 104 430 106 385 216 713Central and other 4 840 4 641 8 601

SBN Holdings 255 264 282 065 545 925

Total assets by business unitPBB 17 791 809 16 457 461 16 796 677CIB 12 011 007 9 851 892 12 863 822Central and other 243 811 1 382 316 1 125 390

SBN Holdings 30 046 627 27 691 669 30 785 889

Total liabilities by business unitPBB 16 193 760 14 852 567 15 443 444CIB 10 348 142 8 974 069 11 580 676Central and other 401 839 945 473 652 897

SBN Holdings 26 943 741 24 772 109 27 677 017


ACCOUNTING POLICY ELECTIONSAdoption of new and amended standards effective for the current financial period

The accounting policies are consistent with those reported in the previous year except for of the adoption of the following standards and amendments effective for the current period:

•• IFRS 9 Financial Instruments (IFRS 9) with effect from 1 January 2018, replaced IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 introduced new requirements which included an expected credit loss (ECL) impairment model and new requirements for the classification and measurement of financial assets as follows:

– IFRS 9 introduces a principles-based approach to the classification of financial assets where financial assets, including hybrid contracts, are measured at fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) or amortised cost based on the nature of the cash flows of the assets and an entity’s business model. These categories replace the IAS 39 classifications of FVTPL, available for sale (AFS), loans and receivables, and held-to-maturity. Equity instruments are measured at FVTPL, unless the financial assets are not held for trading purposes, in which case an irrevocable election can be made on initial recognition to measure them at FVOCI with no subsequent reclassification to profit or loss. For financial liabilities, most of the pre-existing requirements for classification and measurement previously included in IAS 39 were carried forward unchanged into IFRS 9. The only change relates to financial liabilities that are designated at FVTPL, with the changes due to own credit risk being recognised within OCI.

– The ECL model applies to financial assets measured at either amortised cost or FVOCI, loan commitments when there is a present commitment to extend credit (unless these are measured at FVTPL) and financial guarantees. ECL is, at a minimum, required to be measured at an amount equal to the 12-month ECL of the financial asset. A loss allowance for lifetime ECL is required for a financial asset if the credit risk of that financial instrument has increased significantly since initial recognition.

The group retrospectively adopted IFRS 9 on 1 January 2018 with an adjustment to the group’s opening 1 January 2018 reserves and, as permitted by IFRS 9, did not restate its comparative financial results. Accordingly, the group’s previously reported financial results up to 31 December 2017 are presented in accordance with the requirements of IAS 39 and for 2018 and future reporting periods are presented in terms of IFRS 9. However, the group has elected to continue to apply the hedge accounting requirements of IAS 39. The group prepared an IFRS 9 Transition Report (report), on which a reasonable assurance audit opinion was provided by the group’s external auditors that outlined the impact of the transition to IFRS 9. For further information regarding the transition impact, please refer to the report, available at www.standardbank.com/reporting.

•• IFRS 15 Revenue from Contracts with Customers (IFRS 15), with effect from 1 January 2018, replaces the existing revenue standards and the related interpretations. The standard sets out the requirements for recognising revenue that applies to all contracts with customers (except for contracts that are within the scope of the standards on leases, insurance contracts or financial instruments). The core principle of the standard is that revenue recognised reflects the consideration to which the company expects to be entitled in exchange for the transfer of promised goods or services to the customer. The standard incorporates a five-step analysis to determine the amount and timing of revenue recognition. The group retrospectively adopted IFRS 15 on 1 January 2018 with an adjustment to the group’s opening 1 January 2018 reserves and, as permitted by IFRS 9, did not restate its comparative financial results. The standard does not apply to revenue associated with financial instruments and therefore does not impact the majority of the group’s revenue.

•• IFRIC 22 Foreign Currency Transactions and Advance Consideration (IFRIC 22) provides guidance on how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the de-recognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency.

Apart from IFRS 9 the above-mentioned standard and interpretation to the IFRS standards, adopted on 1 January 2018, did not have any effect on the group’s previously reported financial results or disclosures and had no material impact on the group’s accounting policies.

The IFRS 9 accounting policies that are relevant to the preparation of these resultsThe group’s 2018 accounting policies (including these IFRS 9 accounting policies) are available upon request.

26


Financial instrumentsInitial measurement – financial instrumentsAll financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those financial instruments that are subsequently measured at fair value through profit or loss where such transaction costs and fees are immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the group commits to purchase (sell) the instruments (trade date accounting).

Financial assets

Nature

AMORTISED COST A debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss):

•• held within a business model whose objective is to hold the debt instrument (financial asset) in order to collect contractual cash flows; and

•• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are not considered de minimis and are inconsistent with a basis lending arrangement, the financial asset is classified as fair value through profit or loss – default.

FAIR VALUE THROUGH OCI Includes:

•• A debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss):

– held within a business model in which the debt instrument (financial asset) is managed to both collect contractual cash flows and sell financial assets; and

– the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are not considered de minimis and are inconsistent with a basis lending arrangement, the financial asset is classified as fair value through profit or loss – default.

•• Equity financial assets which are not held for trading and are irrevocably elected (on an instrument-by-instrument basis) to be presented at fair value through OCI.

HELD FOR TRADING Those financial assets acquired principally for the purpose of selling in the near term (including all derivative financial assets) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.

Included are commodities that are acquired principally for the purpose of selling in the near future or generating a profit from fluctuations in price or broker-trader margin.

DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets are designated to be measured at fair value to eliminate or significantly reduce an accounting mismatch that would otherwise arise.

FAIR VALUE THROUGH PROFIT OR LOSS – DEFAULT

Financial assets that are not classified into one of the above-mentioned financial asset categories.


Subsequent measurementSubsequent to initial measurement, financial assets are classified in their respective categories and measured at either amortised cost or fair value as follows:

AMORTISED COST Amortised cost using the effective interest method with interest recognised in interest income, less any expected credit impairment losses which are recognised as part of credit impairment charges.

FAIR VALUE THROUGH OCI Debt instrument: Fair value, with gains and losses recognised directly in the fair value through OCI reserve. When a debt financial asset is disposed of, the cumulative fair value adjustments, previously recognised in OCI, are reclassified to the other gains and losses on financial instruments within non-interest revenue.

Interest income on debt financial asset is recognised in interest income in terms of the effective interest rate method. Dividends received are recognised in interest income within profit or loss.

Equity instrument: Fair value, with gains and losses recognised directly in the fair value through OCI reserve. When equity financial assets are disposed of, the cumulative fair value adjustments in OCI are reclassified within reserves to retained income.

Dividends received on equity instruments are recognised in other revenue within non-interest income.

HELD FOR TRADING Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue.

DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

Fair value gains and losses (including interest and dividends) on the financial asset are recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue.

FAIR VALUE THROUGH PROFIT OR LOSS – DEFAULT

Fair value gains and losses (including interest and dividends) on the financial asset are recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue.

ImpairmentExpected credit losses (ECL) are recognised on debt financial assets classified as at either amortised cost or fair value through OCI, financial guarantee contracts that are not designated at fair value through profit or loss as well as loan commitments that are neither measured at fair value through profit or loss nor used to provide a loan at a below market interest rate.

The measurement basis of the ECL of a financial asset includes assessing whether there has been a significant increase in credit risk (SICR) at the reporting date, which includes forward-looking information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The measurement basis of the ECL, which is set out in the table that follows, is measured as the unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and forward-looking information.

STAGE 1 A 12-month ECL is calculated for financial assets that are neither credit-impaired on origination and for which there has been an SICR.

STAGE 2 A lifetime ECL allowance is calculated for financial assets that are assessed to have displayed an SICR since origination and are not considered low credit risk.

STAGE 3 (CREDIT IMPAIRED ASSETS)

A lifetime ECL is calculated for financial assets that are assessed to be credit impaired.

The following criteria are used in determining whether the financial asset is impaired:

•• default

•• significant financial difficulty of borrower and/or modification

•• probability of bankruptcy or financial reorganisation

•• disappearance of an active market due to financial difficulties.

Accounting policy elections continued

28


The key components of the impairment methodology are described as follows:

SIGNIFICANT INCREASE IN CREDIT RISK (SICR)

At each reporting date the group assesses whether the credit risk of its exposures has increased significantly since initial recognition by considering the change in the risk of default occurring over the expected life of the financial asset.

Credit risk of exposures which are overdue for more than 30 days are also considered to have increased significantly.

LOW CREDIT RISK Exposures are generally considered to have a low credit risk where there is a low risk of default, the exposure has a strong capacity to meet its contractual cash flow obligations and adverse changes in economic and business conditions may not necessarily reduce the exposure’s ability to fulfil its contractual obligations.

DEFAULT The group’s definition of default has been aligned to its internal credit risk management definitions and approaches. A financial asset is considered to be in default when there is objective evidence of impairment. The following criteria are used in determining whether there is objective evidence of impairment for financial assets or groups of financial assets:

•• significant financial difficulty of borrower and/or modification (i.e. known cash flow difficulties

•• experienced by the borrower)

•• a breach of contract, such as default or delinquency in interest and/or principal payments

•• disappearance of active market due to financial difficulties

•• it becomes probable that the borrower will enter bankruptcy or other financial reorganisation

•• where the group, for economic or legal reasons relating to the borrower’s financial difficulty, grants the borrower a concession that the group would not otherwise consider.

FORWARD-LOOKING INFORMATION

Forward looking information is incorporated into the group’s impairment methodology calculations and in the group’s assessment of SICR. The group includes all forward looking information which is reasonable and available without undue cost or effort. The information will typically include expected macro-economic conditions and factors that are expected to impact portfolios or individual counterparty exposures.

WRITE-OFF Financial assets are written off when there is no reasonable expectation of recovery. Financial assets which are written off may still be subject to enforcement activities.

ECLs are recognised within the statement of financial position as follows:

FINANCIAL ASSETS MEASURED AT AMORTISED COST (INCLUDING LOAN COMMITMENTS)

Recognised as a deduction from the gross carrying amount of the asset (group of assets). Where the impairment allowance exceeds the gross carrying amount of the asset (group of assets), the excess is recognised as a provision within other liabilities.

OFF-BALANCE SHEET EXPOSURES (EXCLUDING LOAN COMMITMENTS)

Recognised as a provision within other liabilities.

FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH OCI

Recognised in the fair value reserve within equity. The carrying value of the financial asset is recognised in the statement of financial position at fair value.


Financial liabilities

Nature

HELD-FOR-TRADING Those financial liabilities incurred principally for the purpose of repurchasing in the near term (including all derivative financial liabilities) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking.

DESIGNATED AT

FAIR VALUE THROUGH PROFIT OR LOSS

Financial liabilities are designated to be measured at fair value in the following instances:

•• to eliminate or significantly reduce an accounting mismatch that would otherwise arise where the financial liabilities are managed and their performance evaluated and reported on a fair value basis

•• where the financial liability contains one or more embedded derivatives that significantly modify the financial asset’s cash flows.

AMORTISED COST All other financial liabilities not included in the above categories.

Subsequent measurementSubsequent to initial measurement, financial liabilities are classified in their respective categories and measured at either amortised cost or fair value as follows:

HELD-FOR-TRADING Fair value with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue.

DESIGNATED ATFAIR VALUE THROUGH PROFIT OR LOSS

Fair value with gains and losses arising from changes in fair value (including interest and dividends but excluding fair value gains and losses attributable to own credit risk) are recognised in the other gains and losses on financial instruments as part of non-interest revenue. Fair value gains and losses attributable to changes in own credit risk are recognised within OCI, unless this would create or enlarge an accounting mismatch in which case the own credit risk changes are recognised within trading revenue.

AMORTISED COST Amortised cost using the effective interest method recognised in interest expense.


30


De-recognition and modification of financial assets and liabilitiesFinancial assets and liabilities are de-recognised in the following instances:

DESCRIPTION DE-RECOGNITION MODIFICATION

FINANCIAL ASSETS Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired, or where the group has transferred its contractual rights to receive cash flows on the financial asset such that it has transferred substantially all the risks and rewards of ownership of the financial asset. Any interest in the transferred financial assets that is created or retained by the group is recognised as a separate asset or liability.

The group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or a portion of the risks or rewards of the transferred assets. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with the retention of all or substantially all risks and rewards include securities lending and repurchase agreements.

When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction, similar to repurchase transactions. In transactions where the group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, the asset is derecognised if recognised separately as assets and liabilities as appropriate.

In transfers where control over the asset is retained, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

Where an existing financial asset or liability is replaced by another with the same counterparty on substantially different terms, or the terms of an existing financial asset or liability are substantially modified, such an exchange or modification is treated as a derecognition of the original asset or liability and the recognition of a new asset or liability at fair value, including calculating a new effective interest rate, with the difference in the respective carrying amounts being recognised in other gains and losses on financial instruments within non-interest revenue. The date of recognition of a new asset is consequently considered to be the date of initial recognition for impairment calculation purposes.

The difference between the new gross carrying amount and the original gross carrying amount is recognised as a modification gain or loss within credit impairments (for distressed financial asset modifications) or gains and losses on financial instruments within non-interest revenue (for all other modifications).

FINANCIAL LIABILITIES Financial liabilities are derecognised when the financial liabilities’ obligation is extinguished, that is, when the obligation is discharged, cancelled or expires.


Financial guarantee contractsA financial guarantee contract is a contract that requires the group (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee. Financial guarantee contracts (that are not designated at fair value through profit or loss) are subsequently measured at the higher of:

•• the ECL calculated for the financial guarantee

•• unamortised premium.

DESCRIPTION RECOGNITION AND MEASUREMENT

NET INTEREST INCOME Interest income and expense (with the exception of borrowing costs that are capitalised on qualifying assets, that is, assets that necessarily take a substantial period of time to get ready for their intended use or sale and which are not measured at fair value) are recognised in net interest income using the effective interest method for all interest-bearing financial instruments. In terms of the effective interest method, interest is recognised at a rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Direct incremental transaction costs incurred and origination fees received, including loan commitment fees, as a result of bringing margin-yielding assets or liabilities into the statement of financial position, are capitalised to the carrying amount of financial instruments that are not at fair value through profit or loss and amortised as interest income or expense over the life of the asset or liability as part of the effective interest rate.

Where the estimates of payments or receipts on financial assets or financial liabilities are subsequently revised, the carrying amount of the financial asset or financial liability is adjusted to reflect actual and revised estimated cash flows. The carrying amount is calculated by computing the present value of the adjusted cash flows at the financial asset or financial liability’s original effective interest rate. Any adjustment to the carrying value is recognised in net interest income.

When a financial asset is classified as specifically impaired (before 1 January 2018) or as stage 3 impaired (after 1 January 2018), interest income is calculated on the impaired value (gross carrying value less specific impairment) based on the original effective interest rate. The contractual interest income on the gross exposure is suspended and is only recognised in interest income when the financial asset is no longer specifically impaired (before 1 January 2018) or is reclassified out of stage 3 (after 1 January 2018).

Dividends received on preference share investments classified as debt form part of the group’s lending activities and are included in interest income.

Before 1 January 2018:

The following additional amounts are recognised in net interest income:

•• Fair value gains and losses on debt financial assets that are designated at fair value through profit or loss

•• The gain or loss on the derecognition of a financial asset classified as available-for-sale

•• Gains and losses arising from the derecognition of financial assets and financial liabilities classified as at amortised cost

•• Fair value gains and losses financial liabilities (including changes as a result of own credit risk) that are designated at fair value through profit or loss.

NET FEE AND COMMISSION REVENUE

Fee and commission revenue including transactional fees, account servicing fees, investment management fees, sales commissions and placement fees are recognised as the related services are performed. Loan commitment fees for loans that are not expected to be drawn down are recognised on a straight-line basis over the commitment period.

Loan syndication fees, where the group does not participate in the syndication or participates at the same effective interest rate for comparable risk as other participants, are recognised as revenue when the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised to the income statement as interest income. The fair value of issued financial guarantee contracts on initial recognition is amortised as income over the term of the contract.

Fee and commission expenses, included in net fee and commission revenue, are mainly transaction and service fees relating to financial instruments, which are expensed as the services are received. Expenditure is recognised as fee and commission expenses where the expenditure is linked to the production of fee and commission revenue.


32


TRADING REVENUE Trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with related interest income, expense and dividends.

OTHER REVENUE Other revenue includes dividends on equity financial assets, underwriting profit from the group’s short-term insurance operations and related insurance activities and re-measurement gains and losses from contingent consideration on disposals and purchases.

Before 1 January 2018:

Gains and losses on equity instruments designated at fair value through profit or loss are recognised within other revenue. Gains and losses on equity instruments classified as available-for-sale financial assets are reclassified from OCI to other revenue on derecognition or impairment

OTHER GAINS/LOSSES ON FINANCIAL INSTRUMENTS

After 1 January 2018 includes:

•• Fair value gains and losses on debt financial assets that are designated at fair value through profit or loss

•• The gain or loss on the derecognition of a financial asset classified as at fair value through OCI

•• Gains and losses arising from the derecognition of financial assets and financial liabilities classified as at amortised cost

•• Gains and losses arising from the reclassification of a financial asset from amortised cost to fair value

•• Gains and losses arising from the modification of a financial asset (which is not distressed) and financial liability as at amortised cost.

DIVIDEND INCOME Dividends are recognised in interest income (other revenue) for debt (equity instruments) when the right to receipt is established. Scrip dividends are recognised as dividends received where the dividend declaration allows for a cash alternative.

OffsettingIncome and expenses are presented on a net basis only when permitted by IFRS, or for gains and losses arising from a group of similar transactions.

In addition to the above identified changes between IAS 39 and IFRS 9, interest in suspense (IIS) (refers to contractual interest which accrues on financial assets classified as non-performing) is presented as follows:

IAS 39 accounting treatmentUp to 31 December 2017, IAS 18 Revenue (IAS 18) required interest income to be recognised only when it was probable that the economic benefits associated with a transaction would flow to the entity. The group, in line with these requirements, suspended the recognition of contractual interest from the point that a financial asset was classified as specifically impaired. The accounting presentation policy for this suspended contractual interest was to present the balance sheet interest in suspense account as part of the gross carrying amount of the financial asset (i.e. gross carrying amount net of IIS). In addition, upon the curing of the non-performing financial asset, the group elected an accounting presentation policy to recognise this suspended contractual interest (previously unrecognised interest) within interest revenue, line within the income statement. This policy was elected on the basis that the presentation best represented the nature of the amount in terms of IAS 1.

IFRS 9 accounting treatmentRequires that interest for financial assets classified as stage 3 (i.e. in default) only be calculated on the gross carrying amount less impairments (i.e. amortised cost balance). The group has applied this requirement by suspending all contractual interest on such financial assets and recognising interest on the amortised cost balance utilising the financial assets’ effective interest rate. IFRS 9 requires that the suspended contractual interest be recognised as part of the financial assets’ gross carrying amount and be deducted as part of the reconciliation to the net carrying amount which is reported in the balance sheet. Whilst the IIS is recognised in the gross carrying amount it does not impact the net carrying amount of the financial asset as presented on the face of the statement of financial position. Given the IFRS 9 requirement that the gross carrying amount would include the contractual suspended interest on financial assets classified as stage 3. However, the group will, report the balance sheet interest in suspense account as a separate reconciling item when calculating the financial assets’ net carrying amount. This change in presentation will result in an increased gross carrying amount when compared to the IAS 39 gross carrying amount. The group has elected to continue to present, upon the curing of the non-performing financial asset, this suspended contractual interest (previously unrecognised interest) within interest revenue line within the income. This policy was elected on the basis that the presentation best represented the nature of the amount in terms of IAS 1.


IFRS 9 Financial InstrumentsBackgroundWith effect from 1 January 2018, IFRS 9 Financial Instruments (IFRS 9) replaced IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). IFRS 9 introduced new requirements which included an expected credit loss (ECL) impairment model and new requirements for the classification and measurement of financial assets as follows:

ECL IMPAIRMENT REQUIREMENTS

IFRS 9’s ECL impairment model’s requirements represented the most material IFRS 9 transition impact for the group.

The ECL model applies to financial assets measured at either amortised cost or at fair value through other comprehensive income (OCI) (FVOCI), loan commitments when there is a present commitment to extend credit (unless these are measured at fair value through profit or loss (FVTPL)) and financial guarantees.

ECL is, at a minimum, required to be measured through a loss allowance at an amount equal to the lower of 12-month or full lifetime ECL of the financial asset. A loss allowance for full lifetime ECL is required for a financial asset if the credit risk of that financial instrument has increased significantly since initial recognition.

CLASSIFICATION AND MEASUREMENT

IFRS 9 requires all financial assets to be classified and measured on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

The accounting for financial assets differs in various other areas to existing requirements such as embedded derivatives and the recognition of fair value adjustments in OCI.

All changes in the fair value of financial liabilities that are designated at FVTPL due to changes in own credit risk are required to be recognised within OCI.

Adoption of IFRS 9The group retrospectively adopted IFRS 9 on 1 January 2018 with an adjustment to the group’s opening 1 January 2018 reserves and, as permitted by IFRS 9, did not restate its comparative financial results. Accordingly, the group’s previously reported financial results up to 31 December 2017 are presented in accordance with the requirements of IAS 39. IFRS 9’s classification and measurement requirements resulted in an immaterial impact to the group.

IFRS 9’s ECL requirementsThe most material IFRS 9 transition impact for the group is that of IFRS 9’s new ECL requirements, which results in the earlier recognition of credit impairment provisions primarily as a result of the drivers outlined in the table below. This impact was solely as a result of the adoption of IFRS 9 and is not as a result of changes in the credit quality of the group’s loan exposures.

12-MONTH ECL FOR PERFORMING LOANS (STAGE 1)

IFRS 9 contains a minimum 12-month ECL for exposures for which there has not been a significant increase in credit risk (SICR) whereas IAS 39 required credit impairments to be recognised only following the identification of objective evidence of impairment.

SIGNIFICANT INCREASE IN CREDIT RISK (SICR) (STAGE 2)

A lifetime ECL is recognised for all exposures for which there have been SICR, being a material change in the probability of default, since origination.

OFF-BALANCE SHEET EXPOSURES

IFRS 9’s scope includes off-balance sheet exposures, such as unutilised loan commitments, guarantees and letters of credit.

LIFETIME MODEL WORK OUT REQUIREMENT

In terms of determining ECL for stage 1 and 2 being exposures where there is a probability of default, the potential loss from a lifetime perspective is considered, which would include the probability of recovery post default and subsequent re-default.

For stage 3 exposures, being exposures that are either in default or where default is imminent, this would include consideration of cures and subsequent re-default.

FORWARD-LOOKING ECONOMIC EXPECTATIONS

IFRS 9 requires an adjustment for forward-looking economic expectations in the determination of SICR and in the measurement of the ECL.


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IFRS 9 key financial impactsTable 1: Impact on the group’s summarised statement of financial position on 1 January 2018

Group IAS 39 at

31 December2017

N$’000

IFRS 9 transition

adjustment at1 January 2018

IFRS 9 ECLN$’000

IFRS 9 classification

and measure-ments

N$’000Total

N$’000

Group IFRS9 at

1 January2018

N$’000

AssetsFinancial investments 3 395 582 (10 191) (508) (10 699) 3 384 883Loans and advances 22 146 338 (205 642) (205 642) 21 940 696Other assets 5 243 969 69 229 69 229 5 313 198

Total assets 30 785 889 (146 604) (508) (147 112) 30 638 777

Equity attributable to ordinary shareholders 3 108 872 (146 604) (508) (147 112) 2 961 760

Liabilities 27 677 017 27 677 017

Total equity and liabilities 30 785 889 (146 604) (508) (147 112) 30 638 777

Table 2: Impact on the group’s summarised statement of changes in equity on 1 January 2018

Group IAS 39 at

31 December 2017

N$’000

IFRS 9 transition

adjustment at 1 January

2018N$’000

Group IFRS9 at

1 January 2018

N$’000

Ordinary share capital and share premium 443 234 443 234Retained earnings 2 466 954 11 866 2 478 820Statutory credit risk reserve 158 978 (158 978)Other 39 706 39 706

Total ordinary shareholders’ equity 3 108 872 (147 112) 2 961 760


ADMINISTRATIVE AND CONTACT DETAILS

SBN Holdings LimitedRegistration number 2006/306Website: www.standardbank.com.na

Registered office5th Floor, Standard Bank Centre, Corner of Werner List Street and Post Street Mall, PO Box 3327, Windhoek, Namibia

Group secretaryAdv. S TjijorokisaTel: +264 61 294 2036Email: [email protected]

Group financial directorBryan MandyTel: +264 61 294 2237Email: [email protected]

DisclaimerThis document contains certain statements that are ’forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon.

Head office switchboardTel: +264 61 294 9111

DirectorsThe directors of the company during the period under review and to the date of this report are as follows: Mr H Maier, Mr VJ Mungunda*, Mr JL Muadinohamba, Ms PM Nyandoro**, Adv N Bassingthwaighte, Mrs B Rossouw, Mr AG Gain***, Mr I Tjombonde, Mr BJ Mandy*. * Executive ** Zimbabwean *** South African

All nationalities are Namibian, unless otherwise specified above.

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