Abch annual report dec 2012

608 views

Published on

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
608
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Abch annual report dec 2012

  1. 1. ABC Holdings Limited is the parentcompany of a number of banksoperating under the BancABC brandin Sub-Saharan Africa, with operationsin Botswana, Mozambique, Tanzania,Zambia and Zimbabwe. A group servicesoffice is located in South Africa.Our vision is to be Africa’s preferredbanking partner by offering world classfinancial solutions. We will realise thisby building profitable, lifelong customerrelationships through the provision ofa wide range of innovative financialproducts and services – to the benefitof all our stakeholders. The Group offersa diverse range of services including butnot limited to the following: corporatebanking, treasury services, retail andSME banking, asset management andstock broking.ABC Holdings Limited is registered inBotswana. Its primary listing is on theBotswana Stock Exchange, with asecondary listing on the ZimbabweStock Exchange. ABC Holdings Limited2012 Annual ReportAbout BancABCwww.bancabc.comABCHoldingsLimitedANNUALREPORT2012
  2. 2. ABC Holdings Limited is the parentcompany of a number of banksoperating under the BancABC brandin Sub-Saharan Africa, with operationsin Botswana, Mozambique, Tanzania,Zambia and Zimbabwe. A group servicesoffice is located in South Africa.Our vision is to be Africa’s preferredbanking partner by offering world classfinancial solutions. We will realise thisby building profitable, lifelong customerrelationships through the provision ofa wide range of innovative financialproducts and services – to the benefitof all our stakeholders. The Group offersa diverse range of services including butnot limited to the following: corporatebanking, treasury services, retail andSME banking, asset management andstock broking.ABC Holdings Limited is registered inBotswana. Its primary listing is on theBotswana Stock Exchange, with asecondary listing on the ZimbabweStock Exchange. ABC Holdings Limited2012 Annual ReportAbout BancABCwww.bancabc.comABCHoldingsLimitedANNUALREPORT2012
  3. 3. CONTENTS ifc Our values 1 Highlights 2 Five-year financial highlights 3 Salient features 6 Chairman’s report 16 Chief Executive Officer’s report 25 Corporate social responsibility report 29 Risk and governance report 39 Directors and Group management 43 Directors’ responsibility 44 Directors’ report 48 Annual financial statements 153 Analysis of shareholdersibc Contact informationABC Holdings LimitedDirectors: H Buttery, FM Dzanya, D Khama, N Kudenga,B Moyo, DT Munatsi, L Shyam-Sunder, MM Schneiders,J KoskeloABC House, Plot 62433, Fairground Office Park,Gaborone, BotswanaTel: +267 3674300 Fax: +267 3902131Administrative office – South Africa205 Rivonia Road, Morningside, 2196Johannesburg, South AfricaTel: +27 (11) 722 5300 Fax: +27 (11) 722 5360www.bancabc.comBancABC BotswanaDirectors: D Khama, L Makwinja, B Moyo, DT Munatsi,J Kurian, A ChilisaBancABC House, Plot 62433, Fairgrounds Office Park,Gaborone, BotswanaTel: +267 3674300 Fax: +267 390 1583Branches:Square branch +267 3160400Fairgrounds branch +267 3674300Francistown branch +267 2414133Game City branch +267 3704700Airport Junction branch +267 371 9700Maun branch +267 682 0000mybancbw@bancabc.comBancABC Mozambique SADirectors: B Alfredo, H Chambisse, DT Munatsi, LS Simao,TET Venichand, J Sibanda, F MucaveHead Office: 999 Avenida Julius Nyerere,Polana Cimento, Maputo, MozambiqueTel: +258 (21) 482100 Fax: +258 (21) 486808Branches:Beira branch +258 (23) 320655/7Chimoio branch +258 (25) 123007/8Tete branch + 258 (25) 222984Matola branch +258 (21) 720005/8Chiundi branch +258 (21) 493715Nacala branch +258 (26) 526608Nampula branch +258 (26) 21313925 Setembro +258 (21) 342700abcmoz@bancabc.comBancABC TanzaniaDirectors: JP Kipokola, R Dave, J Doriye, W Nyachia,DT Munatsi, L Sondo, B Nyoni1st Floor Barclays House, Ohio Street, PO Box 31,Dar es Salaam, TanzaniaTel: +255 (22) 2111990 Fax: +255 (22) 2112402Branches:Kariakoo branch +255 (22) 2180108/182/212Upanga branch +255 (22) 2121537-9Quality Center branch +255 (22) 2865904-10Arusha branch +255 (27) 2546390/2abctz@africanbankingcorp.com abctz@bancabc.comTanzania Development Finance Company LimitedDirectors: JP Kipokola, J Doriye, W Nyachia, DT Munatsi,B Nyoni1st Floor Barclays House, Ohio Street,Dar es Salaam, TanzaniaPO Box 2478, Dar es Salaam, TanzaniaTel: +255 (22) 2111990 Fax: +255 (22) 2112402abctz@africanbankingcorp.com abctz@bancabc.comBancABC ZambiaDirectors: C Chileshe, DT Munatsi, C Simatyaba,JW Thomas, L Mwafulilwa, A Dudhia, R Credo, J MuwoBancABC House, Plot 746B, Corner Nasser Road/Church Road, Ridgeway, LusakaTel: +260 (211) 257970-5 Fax: +260 (211) 257980Branches:Cairo Road branch + 260 (211) 227690/3Kitwe branch +260 (212) 222426/7Livingstone branch + 260 (213) 320681Lumumba Road branch + 260 (211) 230796Ndola branch +260 (212) 621715/6Chipata branch +260 (216) 223758Kasumbalesa branch +260 (212) 643002Mongu branch +260 (217) 221147Kasama branch +260 (214) 222193Chingola branch +260 (212) 310997Mansa branch +260 (212) 821931abcz@bancabc.comBancABC ZimbabweDirectors: N Kudenga, P Sithole, FE Ziumbe, NM Matimba,A Mabhena, FM Dzanya, H Matemera,TW Mudangwe1 Endeavour Crescent, Mount Pleasant Business Park,Mount Pleasant, Harare, ZimbabweTel: +263 (4) 369260-99 Fax: +263 (4) 369932Branches:Beitbridge branch +263 (286) 23172/3/4Checheche branch +263 (317) 258; 277; 314; 327Chiredzi branch +263 (31)2254-6/4136-9Graniteside branch +263 (4) 781046/7; 781615-7Heritage branch +263 (4) 781837-40Hotsprings branch +263 772 160 739-44Hwange branch +263 (281) 21703-10Kwekwe branch +263 (55) 25216-23Jason Moyo branch +263 (9) 73700-11Msasa branch +263 (4) 486087; 486139; 486508Mt Pleasant branch +263 (4) 369260-99Mutare branch +263 (20) 67939; 67941Redcliff branch +263 (55) 62875-82Victoria Falls branch +263 (13) 45101-8TSF branch +263 (4) 667039; 667892Zvishavane branch +263 (51) 2940-5Masvingo branch +263 (39) 266613/20Triangle branch +263 (33) 6340-4/5305/5315/5405Ngezi branch +263 (0) 772 164401/6Bindura branch +263(271) 6721/24/26/27BancABC Infinite Belgravia branch +263 (4) 369460-9abczw@africanbankingcorp.comcompany informationOUR VALUESOUR SYMBOLOur core values centreon five distinct areas.They remain the guidingprinciples by which weoperate and form the basisof our corporate personality.The sun is a symbol of hope andawesome power; the sun’s energy is thepowerhouse of the planet. Its life-givinglight bathes every corner of the earth,dispelling darkness, bringing vitality andinspiration. An image of creative force,courage, passion, knowledge, intellect,inspiration and leadership, its wonderfulcolour spectrum – yellow, red, gold,bronze and topaz – radiates the spirit andpotential of Africa at its heart. The logosymbolises a new dawn on this ancientand mighty continent.BotswanaZambiaTanzaniaMozambiqueZimbabwe
  4. 4. CONTENTS ifc Our values 1 Highlights 2 Five-year financial highlights 3 Salient features 6 Chairman’s report 16 Chief Executive Officer’s report 25 Corporate social responsibility report 29 Risk and governance report 39 Directors and Group management 43 Directors’ responsibility 44 Directors’ report 48 Annual financial statements 153 Analysis of shareholdersibc Contact informationABC Holdings LimitedDirectors: H Buttery, FM Dzanya, D Khama, N Kudenga,B Moyo, DT Munatsi, L Shyam-Sunder, MM Schneiders,J KoskeloABC House, Plot 62433, Fairground Office Park,Gaborone, BotswanaTel: +267 3674300 Fax: +267 3902131Administrative office – South Africa205 Rivonia Road, Morningside, 2196Johannesburg, South AfricaTel: +27 (11) 722 5300 Fax: +27 (11) 722 5360www.bancabc.comBancABC BotswanaDirectors: D Khama, L Makwinja, B Moyo, DT Munatsi,J Kurian, A ChilisaBancABC House, Plot 62433, Fairgrounds Office Park,Gaborone, BotswanaTel: +267 3674300 Fax: +267 390 1583Branches:Square branch +267 3160400Fairgrounds branch +267 3674300Francistown branch +267 2414133Game City branch +267 3704700Airport Junction branch +267 371 9700Maun branch +267 682 0000mybancbw@bancabc.comBancABC Mozambique SADirectors: B Alfredo, H Chambisse, DT Munatsi, LS Simao,TET Venichand, J Sibanda, F MucaveHead Office: 999 Avenida Julius Nyerere,Polana Cimento, Maputo, MozambiqueTel: +258 (21) 482100 Fax: +258 (21) 486808Branches:Beira branch +258 (23) 320655/7Chimoio branch +258 (25) 123007/8Tete branch + 258 (25) 222984Matola branch +258 (21) 720005/8Chiundi branch +258 (21) 493715Nacala branch +258 (26) 526608Nampula branch +258 (26) 21313925 Setembro +258 (21) 342700abcmoz@bancabc.comBancABC TanzaniaDirectors: JP Kipokola, R Dave, J Doriye, W Nyachia,DT Munatsi, L Sondo, B Nyoni1st Floor Barclays House, Ohio Street, PO Box 31,Dar es Salaam, TanzaniaTel: +255 (22) 2111990 Fax: +255 (22) 2112402Branches:Kariakoo branch +255 (22) 2180108/182/212Upanga branch +255 (22) 2121537-9Quality Center branch +255 (22) 2865904-10Arusha branch +255 (27) 2546390/2abctz@africanbankingcorp.com abctz@bancabc.comTanzania Development Finance Company LimitedDirectors: JP Kipokola, J Doriye, W Nyachia, DT Munatsi,B Nyoni1st Floor Barclays House, Ohio Street,Dar es Salaam, TanzaniaPO Box 2478, Dar es Salaam, TanzaniaTel: +255 (22) 2111990 Fax: +255 (22) 2112402abctz@africanbankingcorp.com abctz@bancabc.comBancABC ZambiaDirectors: C Chileshe, DT Munatsi, C Simatyaba,JW Thomas, L Mwafulilwa, A Dudhia, R Credo, J MuwoBancABC House, Plot 746B, Corner Nasser Road/Church Road, Ridgeway, LusakaTel: +260 (211) 257970-5 Fax: +260 (211) 257980Branches:Cairo Road branch + 260 (211) 227690/3Kitwe branch +260 (212) 222426/7Livingstone branch + 260 (213) 320681Lumumba Road branch + 260 (211) 230796Ndola branch +260 (212) 621715/6Chipata branch +260 (216) 223758Kasumbalesa branch +260 (212) 643002Mongu branch +260 (217) 221147Kasama branch +260 (214) 222193Chingola branch +260 (212) 310997Mansa branch +260 (212) 821931abcz@bancabc.comBancABC ZimbabweDirectors: N Kudenga, P Sithole, FE Ziumbe, NM Matimba,A Mabhena, FM Dzanya, H Matemera,TW Mudangwe1 Endeavour Crescent, Mount Pleasant Business Park,Mount Pleasant, Harare, ZimbabweTel: +263 (4) 369260-99 Fax: +263 (4) 369932Branches:Beitbridge branch +263 (286) 23172/3/4Checheche branch +263 (317) 258; 277; 314; 327Chiredzi branch +263 (31)2254-6/4136-9Graniteside branch +263 (4) 781046/7; 781615-7Heritage branch +263 (4) 781837-40Hotsprings branch +263 772 160 739-44Hwange branch +263 (281) 21703-10Kwekwe branch +263 (55) 25216-23Jason Moyo branch +263 (9) 73700-11Msasa branch +263 (4) 486087; 486139; 486508Mt Pleasant branch +263 (4) 369260-99Mutare branch +263 (20) 67939; 67941Redcliff branch +263 (55) 62875-82Victoria Falls branch +263 (13) 45101-8TSF branch +263 (4) 667039; 667892Zvishavane branch +263 (51) 2940-5Masvingo branch +263 (39) 266613/20Triangle branch +263 (33) 6340-4/5305/5315/5405Ngezi branch +263 (0) 772 164401/6Bindura branch +263(271) 6721/24/26/27BancABC Infinite Belgravia branch +263 (4) 369460-9abczw@africanbankingcorp.comcompany informationOUR VALUESOUR SYMBOLOur core values centreon five distinct areas.They remain the guidingprinciples by which weoperate and form the basisof our corporate personality.The sun is a symbol of hope andawesome power; the sun’s energy is thepowerhouse of the planet. Its life-givinglight bathes every corner of the earth,dispelling darkness, bringing vitality andinspiration. An image of creative force,courage, passion, knowledge, intellect,inspiration and leadership, its wonderfulcolour spectrum – yellow, red, gold,bronze and topaz – radiates the spirit andpotential of Africa at its heart. The logosymbolises a new dawn on this ancientand mighty continent.BotswanaZambiaTanzaniaMozambiqueZimbabwe
  5. 5. 1Total income up by 65% fromBWP659 million to BWP1,087 millionNet operating income up 93% fromBWP113 million to BWP218 millionPre-tax profit 97% up fromBWP108 million to BWP212 millionAttributable profit to shareholdersincreased by 60% fromBWP83 million to BWP133 millionOperating expenses up 59% fromBWP546 million to BWP869 millionfrom continued expansion into theRetail and SME banking marketsegmentCost to income ratio decreasedto 71% (2011: 74%)Basic EPS of 72.1 thebe(2011: 56.6 thebe) and diluted EPSof 66.5 thebe (2011: 56.6 thebe)Deposits increased by 45% fromBWP7.4 billion to BWP10.7 billionLoans and advances increased by 50%from BWP6.1 billion to BWP9.1 billionTotal assets increased by 46% fromBWP9.2 billion to BWP13.4 billionAverage return on equity at 15%(2011: 16%)Retail branches have increasedto 61 from 49 in 2011Staff numbers increased to1,310 from 1,008 in 2011highlights
  6. 6. ABC Holdings Limited ANNUAL REPORT 2012231 Dec 12 31 Dec 11 31 Dec 10 31 Dec 09 31 Dec 08US$’000s US$’000s US$’000s US$’000s US$’000sIncome statementNet interest income after impairment 70,388 48,692 41,542 17,948 20,498Non-interest revenue 72,604 47,692 38,930 37,402 31,650Total income 142,992 96,384 80,472 55,350 52,148Operating expenditure (114,316) (79,873) (64,089) (51,610) (34,679)Net income from operations 28,676 16,511 16,383 3,740 17,469Share of (losses)/profits of associatesand joint venture (741) (757) (2,966) 2,281 337Profit before taxation 27,935 15,754 13,417 6,021 17,806Taxation (10,147) (2,924) (3,314) 2,225 (4,905)Profit for the year 17,788 12,830 10,103 8,246 12,901Attributable to  Equity holders of parent 17,473 12,143 9,827 8,202 12,592  Non-controlling interests 315 687 276 44 309Profit for the year 17,788 12,830 10,103 8,246 12,901Balance sheetCash and cash equivalents 239,288 166,122 154,997 132,194 68,056Financial assets held for trading 131,643 86,980 173,375 134,707 90,956Financial assets designated at fair value 24,414 29,563 14,400 – –Derivative assets held for riskmanagement 4,346 4,320 6,516 1,195 5,891Loans and advances to customers 1,176,838 811,940 477,415 299,099 298,450Investments 7,014 6,721 6,098 7,387 8,988Investment in associates andjoint venture 1,442 2,343 5,405 6,138 5,471Other assets and investment property 37,894 32,773 34,048 32,123 14,101Property and equipment 84,792 68,788 51,217 41,818 28,776Intangible assets 17,908 17,417 8,903 7,558 5,6531,725,579 1,226,968 932,374 662,219 526,342Shareholders’ equity 148,788 81,839 67,911 62,325 60,572Deposits 1,373,887 985,260 761,083 502,932 374,385Derivative liabilities held forrisk management 2,911 6,288 162 293 294Borrowed funds 156,079 131,167 89,868 81,519 79,565Other liabilities and taxation 43,915 22,414 13,350 15,151 11,5261,725,579 1,226,968 932,374 662,219 526,342Shares in issue 232,805,464 149,472,131 146,419,524 146,419,524 146,419,524Cost to income ratio 71% 74% 77% 82% 59%Average shareholders’ equity 115,313 74,875 65,118 61,449 57,401Return on averageshareholders’ equity 15% 16% 15% 13% 23%Net asset value per share (cents) 62.9 53.3 44.7 40.9 39.7Closing exchange rates to US$Botswana Pula 7.77 7.49 6.45 6.67 7.54Euro 0.76 0.77 0.75 0.69 0.72Mozambican Metical 29.75 27.31 32.58 29.19 25.50Tanzanian Shilling 1,585.01 1,590.01 1,505.01 1,339.51 1,315.02Zambian Kwacha 5,195.01 5,110.01 4,800.00 4,650.00 4,795.00Zimbabwe Dollar(dropped 10 zeros in 2008)– official – – – – 5,059,942.76– calculated – – – – 642,901,315.78FIVE-YEAR FINANCIAL HIGHLIGHTSon a historical cost basis in US$’000s
  7. 7. 32012 2011 % changeIncome statement (BWP’000s)Profit attributable to ordinary shareholders 132,774 83,002 60%Balance sheet (BWP’000s)Total assets (attributable) 13,407,765 9,183,888 46%Loans and advances 9,144,042 6,077,399 50%Deposits 10,675,111 7,374,700 45%Net asset value 1,137,044 596,811 91%Financial performance (%)Return on average equity 15% 16%Return on average assets 1.2% 1.2%Operating performance (%)Non-interest income to total income 51% 49%Cost to income ratio 71% 74%Impairment losses on loans and advances 1.8% 1.7%to gross average loans and advancesEffective tax rate 36% 19%Share statistics (000’s)Number of shares in issue 232,806 149,473 56%Weighted average number of shares 184,194 146,760 26%Share statistics (thebe)Basic earnings per share 72.1 56.6 27%Diluted earnings per share 66.5 56.6 17%Dividend per share 16.0 17.5 (9%)Net asset value per share 4.88 3.99 22%“Attributable profit increased phenomenally by 60%.”Salient Features
  8. 8. ABC Holdings Limited ANNUAL REPORT 20124
  9. 9. 5GROUP CHAIRMAN’S AND CEO’S REPORT 6 Chairman’s report 16 Chief Executive Officer’s report 23 Social and environmental policy
  10. 10. ABC Holdings Limited ANNUAL REPORT 20126chairman’s report Global Economic DevelopmentsThe global economy has yet to fully recover from thefallout experienced during the crisis of 2008 – 2009. Globaleconomic growth continued to slow down, droppingfrom 3.9% in 2011 to 3.2% in 2012, which indicates thatabout a half a percentage point has been shaved offthe long-term trend since the crisis emerged. However,coordinated policy actions have resulted in a reduction inacute crisis risks in the euro area and the United States.In the euro area, however, the economic recovery is stillto be realised after the protracted contraction in growthand it is expected to be slow. Meanwhile, Japan has slidinto recession, something that is expected to be short-lived as it is expected that the effects of temporary factors,such as the car subsidy and disruptions to trade with China,will subside.In emerging markets such as China, economic growth isexpected to improve from 7.8% in 2012 to 8.2% in 2013,whilst in India, growth is set to increase from 4.5% to5.9% during the same period. In the medium term, it isexpected that as China, India, Brazil, and others maturefrom rapid, investment-intensive “catch-up“ growth toa more balanced model, the structural ‘speed limits’ oftheir economies will most likely decline, bringing downglobal growth despite the expected recovery in advancedeconomies beyond 2013.Economic Growth in thesub-Saharan Africa RegionAlthough there has been some improvement in recentyears, by and large, Sub-Saharan Africa (SSA) remainsunintegrated internally. Although the majority of thecountries in the region are richly endowed with naturalresources which form the cornerstone of the regionalexport sector, the economies are still predominantlyagro-based and rely on agriculture to provide the mainsource of employment.The underlying performance of theGroup was strong during 2012. Thiswas largely driven by significant growthin Retail Banking business in Botswana,Zambia and Zimbabwe as thesebusinesses are getting close to criticalmass. The phenomenal growthexperienced over the last 12 to18 months provides a strong foundationfor the future. However, Tanzaniaposted a disappointing set of results,while Mozambique is yet to gaintraction in this segment of the market.These operations are receiving thenecessary management attention andwe are confident that they should startcontributing positively to the bottomline in the not too distant future.
  11. 11. 7ECONOMIC GROWTH IN SELECTED COUNTRIESUSA Germany France Japan UK Russia China India Brazil South Africa World20132011 20121.82.32.03.10.9 0.61.70.2 0.32.0-0.61.2 0.9-0.21.04.33.63.79.37.88.2 7.94.55.92.71.03.5 3.52.32.83.93.23.5To date, the effect of the sluggish performance of the globaleconomy on sub-Saharan countries has been largely muted.Economic growth in the region is projected to improve.However, the IMF postulates that although most SSA countrieshave rebounded from the ‘Great Recession’, many have beenslow to rebuild their fiscal positions that were weakened duringthe downturn, a factor which still leaves them vulnerable toany global downturn.Unlike most SSA economies, South Africa (SA), the largesteconomy in Africa accounting for nearly 33.3% of thecontinent’s total output remains depressed, having sufferedthe biggest effects of the Euro Crisis. SA was downgradedby leading rating agencies to BBB1 with negative outlookin September 2012. When this background is taken intoaccount, there are fears that negative developments in SAcould filter through to regional countries due to the country’sstrong links with other regional economies.Elsewhere, reflecting what has become trademark soundmacro-economic management profile, Moody’s upheldBotswana’s A2 rating with a stable outlook at the end ofNovember 2012. However, economic growth in the countryslowed down from 5.1% in 2011 to 3.8% in 2012 due tosubdued levels of diamond exports. On a year-on-year basis,
  12. 12. ABC Holdings Limited ANNUAL REPORT 20128GDP growth projection of 6.8% is expected to be supportedby investments associated with the country’s oil and gasexploration programmes.Despite the current uncertainty prevailing in the global economicenvironment, the Zambian economic performance was impressiveduring the period under review, showing only a muted responseto the international economic position. In 2012, the economygrew by an estimated 6.5%, which was significantly higher thanthe Sub-Saharan average GDP growth of 5.5%. The country’sprospects for 2013 remain good and, in the absence of anyfurther deterioration in the global economy, real GDP growthis projected to be about 8.3%. This will be underpinned byexpanded output from mining operations, as well as the ZambianGovernment’s drive to expand infrastructure development.The rapid economic growth momentum experienced inZimbabwe in 2010 and 2011 appears to have dissipated in2012. Economic growth, which peaked at 9.4% in 2011,decelerated markedly to 4.4% in 2012, the slowest growthrate recorded since dollarisation of the economy took place.The subdued economic performance in 2012 was a directresult of the under-performance of key sectors of the economysuchas mining, manufacturing and to some extent, agriculture.During the course of the year, the liquidity crunch becamemore entrenched, resulting in several financial institutionsscaling down their lending activities. In 2013, economic growthmomentum is expected to remain subdued as the countrycontemplates holding watershed elections.as of October 2012, diamond prices as measured by theAntwerp Diamond Index declined by 15.8% largely due to weakglobal demand. However, the planned relocation of De Beers’diamond-sorting and sales activity from London to Botswanaby end-2013 is expected to boost economic activity withinthe country.Despite the unfavourable global environment, economic growthin Mozambique has been amongst the most rapid experiencedanywhere in the world. Economic growth in 2012 was estimatedat 7.5% in part reflecting the stronger than expected contributionfrom the local coal industry. In 2013, anticipated growth of8.4% is expected to be underpinned by coal production, higherexport earnings and implementation of major infrastructureprojects. However, transport infrastructure bottlenecks areproving to be a challenge with reports that mining companies arestruggling to transport coal to the ports somewhat dampeningexpectations during 2013.Tanzania, the second largest economy in the East Africanregion, recently announced that large deposits of offshore gashad been discovered. Total reserves of this energy resourceare estimated at 25 trillion cubic feet (tcf). The Tanzanianeconomy posted a strong performance, growing by 6.5% in2012. Economic activities recording buoyant growth were thetransportandcommunication,financialservices,manufacturing,and trade sectors. Due to insufficient hydro-power generationbeing nationally available, the decision was taken by theauthorities to cover the shortfall by procuring fuel-basedgeneration capacity from the private sector. In 2013, strongChairman’s Report continuedECONOMIC GROWTH IN SELECTED AFRICAN COUNTRIESKenya Malawi Namibia Tanzania Botswana Mozambique Zambia Zimbabwe South Africa SSAAngola20132011 20123.96.85.54.45.15.64.3 4.35.74.04.94.16.4 6.5 6.85.13.8 4.17.1 7.58.46.6 6.58.39.44.45.03.52.32.85.34.85.8
  13. 13. 9INFLATION DEVELOPMENT IN SELECTED MARKETS IN 20128.88.28.07.57.77.37.86.67.17.17.47.47.6Botswana Mozambique Tanzania Zambia Zimbabwe South Africa5.13.53.83.42.32.31.91.41.61.82.32.02.619.719.419.018.718.217.415.714.913.512.912.112.116.16.46.06.46.56.66.76.26.46.66.86.97.36.64.34.34.04.04.04.03.93.63.23.43.02.93.76.36.16.06.15.75.54.95.05.55.65.65.75.7Inflation DevelopmentsMozambique and Zimbabwe experienced very low inflationaryenvironments during 2012. In Tanzania, although inflationremained high with double-digit levels being recorded, inflationdecelerated steadily for several consecutive months, endingthe year at 12.1%, the lowest inflation rate experienced sinceJune 2011. This entrenched downward momentum is expectedto result in single digit inflation levels during 2013.In contrast to this picture, the annual inflation rate in Botswanaand South Africa remained stubbornly above the targets ofthe authorities, reflecting in part the impact of imported goodsand services on inflation.In Botswana, annual inflation eased for three consecutivemonths, dropping from 8.8% in January 2012 to 7.5% in April.Since May, inflation did not exhibit any clear cut trends andended the year at 7.4%. This was significantly above the Bankof Botswana’s expected medium-term range of 3% to 6%.Transportinflation,whichreacheddouble-digitlevelscontributedto the high level of inflation recorded in the economy.However, contrary to regional trends, food inflation decreasedduring the last three months of 2012, ending the year at 7.2% –the lowest level since September 2011.BOTSWANA – INFLATION RATEOther items inflation TransportFood Overall inflationSep07Mar08Sep08Mar09Sep09Mar10Sep10Mar11Sep11Mar12Sep12Sharetooverallinflation100806040200(20)Overallinflation%161412108642In Mozambique the annual headline inflation (the nationalaverage measure for inflation that incorporates price informationfrom three cities, namely Maputo, Beira and Nampula) whichpeaked at 17.4% at end-2010, continued to decelerate sharply,reaching a low of 1.4% in August 2012, the lowest rate recordedin SADC. During subsequent months, the rate gradually increasedrising to 2.3% in November before retreating again, to end theyear at 2.0%. It appears as if the inflationary expectations havebeen tamed, as core inflation (excluding food, transport andenergy prices) declined from 8.4% at end-2010 to less than1% in October 2012. This in part reflects the lagging effectsof monetary tightening in 2011, lower-than-expected prices ofimported food, and stable administered prices.
  14. 14. ABC Holdings Limited ANNUAL REPORT 201210MOZAMBIQUE – FOOD, NON-FOOD ANDOVERALL INFLATIONDec09Apr10Aug10Dec10Apr11Aug11Dec11Apr12Aug12Dec122520151050Food Overall inflation Non-foodTo a degree, the inflation rates of most sub-Saharan Africancountries are impacted by the weighting of food componentsin the CPI baskets. This, as adverse weather conditions arecommon across the continent, causes spikes in the inflationrate when food prices surge in response to drought or otherconditions.In East Africa, the drought during 2011 caused a surge in pricesacross Kenya, Tanzania and Uganda. In Tanzania inflationpeaked at close to 20% during the latter part of 2011 beforecommencing the disinflation trend in 2012. Average inflationstood at 16.1% in 2012 compared to 12.7% in 2011. Sustaineddeclines in food inflation, which fell from 26.2% in January2012 to 13.3% in December, contributed significantly to thereduction in overall inflation during 2012. Most importantly,energy inflation declined from 30.1% in January 2011 to17.8% in December 2012, despite elevated international oilprices that prevailed during the year.However, core inflation (excluding food and energy) hasremained in the 8.5% to 9% range in the past few months,almost twice as high as the average during 2009 – 2010.TANZANIA – FOOD, NON-FOOD ANDOVERALL INFLATIONDec10Mar11Jun11Sep11Dec11Mar12Jun12Sep12Dec122520151050Food Overall inflation Non-foodThe Bank of Zambia (BoZ) altered its monetary policyframework in April 2012 by moving from targeting monetaryaggregates to the use of a policy rate that is reviewedmonthly. According to BoZ, this new framework was introducedto anchor inflation expectations and influence commercialbanks’ decisions on pricing credit products.Over the past three years, Zambia’s inflation rate has benefitedfrom bumper harvests which eased the pressures from foodinflation. Headline inflation was broadly stable during 2012,before surging in the fourth quarter of 2012 and breaching the7% mark in December. The rise in inflation was partiallyattributed to the pass-through effect of the recent depreciationof the Kwacha – imports are equal to a third of GDP. Inaddition, the changes in Treasury bills and bonds auctions(from 1 week to 2 weeks, and 1 month to 1 quarter respectively),have resulted in some excess liquidity in the market, therebyexerting upward pressures on prices.ZAMBIA INFLATION TRENDJan11Mar11May11Jul11Sep11Nov11Jan12Mar12May12Jul12Sep12Nov127.57.06.56.05.5Overall inflation Inflation targetIn 2012, Zimbabwe’s annual inflation averaged 3.7%compared to 3.5% in 2011 and -3.1% in 2010. There arecontrasting inflation trends between 2011 and 2012. In 2011,annual inflation began to accelerate in the second half of theyear largely on account of adverse inflation expectations andadministered price adjustments. During H2-12, the down-ward trend in inflation was attributed to an erosion of realdemand for goods and services in the economy, largelydue to low disposable income for the majority of the public.Prices of basic goods and services have generally remainedstable. This is due to the fact that retailers have little roomto manoeuvre and raise prices as disposable incomes havenot grown due to the economy remaining hamstrung in aliquidity trap. In addition, Zimbabwe’s low inflation environmentalso benefited immensely from a weaker South African Randagainst the US Dollar, which made imports cheaper.Chairman’s Report continued
  15. 15. 11MOZAMBIQUE BANK RATE2008 20122009 2010 201118141062Overnight 91-day T-billStanding deposit facilityIn Tanzania, the overnight rate (Inter-bank cash market (IBCM))rate is the key instrument used to control the level of liquidityin the market. It softens when there is excess liquidity andincreases when liquidity becomes tight. The IBCM openedabove 30% in 2012 when liquidity was very tight and this ledto the appreciation of the Shilling. Improvement in liquidityduring the year saw the IBCM softening to bottom at 2.67%in November before gradually firming to end at 9.97%.Deposit rates (12-months) averaged 10.2% in 2012 comparedto 7.8% in 2011. The lending rate (12-months) was generallystable at 14.1% during 2012, which was marginally lower than14.5% in 2011. Yields on 91-day T-bill which were broadly insingle digit level in 2011 firmed to double-digit level during 2012.TANZANIA BANK RATEDec09Jun10Dec10Jun11Dec11Jun12Dec121612840Lending rate Deposit rate 91-day T-billIn April 2012 the Bank of Zambia (BoZ) introduced its referencerate known as the BoZ policy rate which was pegged at 9.0%and remained unchanged until October. Due to rising inflationpressures in the economy, the Monetary Policy Committeeraised the BoZ Policy Rate by 25 basis points to 9.25% witheffect from November 2012 where it remained unchangedup to the end of the year. Prior to the introduction of the BoZpolicy rate, the 91-day T-bill rate was pegged at 2 percentagepoints lower than the BoZ rate (old).ZIMBABWE INFLATION TREND2012 Inflation 2011 InflationJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec54.543.532.52Interest rate DevelopmentsIn Botswana, the Bank Rate is the key policy instrument usedto signal the direction and magnitude by which the CentralBank wants market interest rates (deposit and lending rates)to change.The Bank rate remained fixed at 9.5% during 2012, remainingat a rate introduced in December 2010. During the year, theBank of Botswana continued to issue 14-day (91-day or 3mBoBC i.e. Bank of Botswana Certificates) central bank billson a weekly (monthly) basis. The 3m BoBC was broadlystable throughout the year trading around 5.36% except inMarch and April when the rate fell to around 4.44%.BOTSWANA BANK RATEDec08Jun09Dec09Jun10Dec10Jun11Dec11Jun12Dec12Prime rate Bank rate 3m BoBC1612840The Bank of Mozambique (BM) became increasingly concernedabout growth in economic activity as well as the risks posedby the global climate to Mozambique. In a series of rate cuts,the Monetary Policy Committee reduced the Standing LendingFacility (FPC) interest rate five times during 2012. As aconsequence, the FPC fell by 550bps to 9.5% over the periodFebruary – November 2012, and remained unchanged fortheremainderoftheyear.Likewise,duringthecorrespondingperiod, the Standing Deposit Facility (FPD) interest rate fellby 280bps to 2.25% while the 91-day T-bill rate also declinedby 590bps.
  16. 16. ABC Holdings Limited ANNUAL REPORT 201212The lending and weighted base rate declined from levels ofaround 26% and 19% respectively that prevailed in 2011, tohistorically low levels of around 16% and 9% respectively.Prior to this decline in lending rates, authorities were concernedthat lending rates were punitively high and this was to thedetriment of the entire economy, notwithstanding increasedcompetition amongst the 19 commercial banks, relatively lowerinflationandloweryields.Thisalsoculminatedintheintroductionof caps on lending interest rates.ZAMBIA BANK RATEDec08Jun09Dec09Jun10Dec10Jun11Dec11Jun12Dec122520151050Lending rate Deposit rate 91-day T-billSpreadIn Zimbabwe, the quoted lending rates vary widely, indicatingdifferent cost structures among banks in mobilising depositsand savings, and the varying risk profiles of borrowers. Lendingrates charged by commercial banks ranged between 6% and35% compared to the 15% to 30% charged by merchant banks.Savings deposits broadly varied from 5% to 20%, with somebanks, particularly those that were in tight liquidity situations,offering high rates to attract deposits.The lending rates although reflective of the difficult operatingenvironment, are considered to be highly punitive. There is,however, increasing concern regarding the return of interestrate controls as they could militate against the ever growingintermediary role of banks.SAVINGS AND LENDING RATESDec10Feb11Apr11Jun11Aug11Oct11Dec11Feb12Apr12Jun12Aug12Oct12Dec124035302520151050Savings ratesLendingratesChairman’s Report continuedExchange Rate DevelopmentThe volatility of the South African Rand (ZAR) in 2012 wasinfluenced by global and domestic factors, having depreciatedby 3.7% against the US$. The ZAR suffered its biggest monthlydrop of 10.2% in May 2012, whilst the second largest drop of5.0% occurred in October 2012. During the first half of 2012,the ZAR traded at an average rate of 7.94 to the US$ comparedto 8.48 in the second half of the year. The second half of theyear was associated with labour unrest, work stoppages, creditdowngrades and heightened domestic political risk which allfiltered into the currency market, triggering the ZAR weakness.Due to the heavy weight of ZAR in the Pula basket of currencies(ZAR (55%) and SDR (45%)), the South African Rand hassignificant influence on the Pula crawling exchange ratemechanism. Likewise, the Pula was relatively weaker in thesecond half of the year as reflected by its trading rangeagainst the US$ of 7.60 – 8.04 compared to 7.12 – 7.89 inthe first half of 2012. Overall, the Pula depreciated by 3.3%against the US$ but appreciated marginally by 0.4% againstthe ZAR.EXCHANGE RATE DEVELOPMENTJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec9.08.78.48.17.87.57.2USD/ZAR H1 Avg Ex rate H2 Avg Ex rateDuring the course of 2012, the US$/MZN exhibited a gradualdepreciating trend. However, the Central Bank managed toavert further upward pressure on US$/MZN through the directintervention in the foreign exchange market as well as directprovision of foreign currency to fuel importers. In December2012, the MZN was trading at 29.57 against the US$, havingdepreciated by 9% on a year-on-year basis. The MZN alsodepreciated by 4.2% against the ZAR over the same period.By and large, the Shilling has been range-bound, trading inthe range of TZS1,584 – 1,594 against the US$ in Q1: 2012;TZS1,577 – 1,589 in Q2: 2012; TZS1,574 – 1,586 in Q3: 2012and TZS1,575 –1,584 in Q4: 2012. The stability in the Shillingis largely attributed to intervention in the foreign exchangemarket by Bank of Tanzania (BoT). BoT has been supplyingforeign currency as and when demand exceeded supply inthe market.
  17. 17. 13The Zambian Kwacha (ZMK) did not exhibit any clear-cutmovement against the major currencies. Having traded at5,133 against the US$ at the end of January 2012, the Kwachagradually depreciated to 5,344 as of end of May, beforeappreciating for two consecutive months to 4,962 in July. Sincethen, the Kwacha remained relatively weak, ending the yearat 5,147. On a year-on-year basis, the ZMK depreciated by 0.6%against the US$, 4.8% (GBP) and 2.5% (Euro) but appreciatedby 4.2% against the ZAR.EXCHANGE RATE VS USD2012 2011ZMKTZSMZNBWPZAR0.66.77.79Appreciation Depreciation(20) (10) 0 10 20 30-17.53.316.93.723.6EXCHANGE RATE VS ZAR2012 2011ZMKTZSMZNBWP0.1(12.7)(3.8)Appreciation Depreciation(35) (25) (15) (5) 0 5(12.9)4.2(33.2)(0.4)(5.5)(4.2)
  18. 18. ABC Holdings Limited ANNUAL REPORT 201214Chairman’s Report continuedHowever, as efforts to serve the unbanked population gathermomentum, financial institutions have adopted various initiativesmeant to broaden accessibility of banking services. Theseinitiatives include amongst others, development of e-money,e-wallet products, the proliferation of microfinance institutionsas well as partnerships between banks and telecommunicationcompanies.Total bank deposits in Botswana improved from US$5,632 millionin 2009 to US$5,759 million in 2011. During the correspondingperiod, credit to the private sector also increased from US$2,963million to US$3,717 million. In 2012, deposit growth continuedand stood at US$6,071 million whilst credit to the privatesector was US$4,207 million, resulting in a loan to deposit ratioof 69%. However, banks are largely exposed to householdswhich account for the largest share of credit of around 55%.In Mozambique, total bank deposits were US$5,337 millionin 2012 which represents a significant growth from 2011deposit level of US$4,659 million. During this period, creditto private sector increased by 16.9% from US$3,622 millionto US$3,847 million. Of the total loans advanced to the privatesector, foreign currency loans account for nearly 25%.Total bank deposits in Tanzania increased by US$979 millionfrom US$6,816 million in 2011 to US$7,795 million in 2012. InDecember 2012, foreign currency deposits accounted for about33% of total deposits. However, annual growth in private sectorcredit slowed down to 18.2% in 2012 compared to 27.2% in2011. In nominal terms, credit to the private sector grew byUS$876 million in 2012 compared to US$1,030 million in 2011.In Zambia, total bank deposits increased by US$961 millionto US$4,768 million in 2012. The introduction of StatutoryInstrument 33 of 2012 (SI 33 – 2012), which made it mandatoryfor all domestic transactions to be effected in Zambian Kwacha(ZMK), was aimed at reinforcing the use of local currency asthe legal tender. Consequently, the reversal of dollarisationsaw the share of FCA to total deposits plummeting fromnearly 40% to around 25%.The banking sector in Zimbabwe went through a difficultyear characterised by intermittent liquidity challenges whichsaw some banks closing operations. Nonetheless, bankingsector deposits grew by close to $850 million to end the yearat around US$4 billion. Total loans advanced to the private sectorwere US$3.3 billion, resulting in a loan to deposit ratio of 88%.Banked Non-banked formalInformal only ExcludedFINANCIAL INCLUSION LEVELS IN SELECTEDAFRICAN COUNTRIESSouth Africa 11Botswana 09Nigeria 10Zimbabwe 11Kenya 09Malawi 08Zambia 09Tanzania 09Mozambique 0963% 5% 5% 27%41% 18% 8% 33%30% 6% 17% 47%24% 14% 22% 40%23% 18% 26% 33%19% 7% 19% 55%14% 9% 14% 63%12% 4% 28% 56%12%1%9% 78%Financial Sector DevelopmentsThe banking systems remained sound with lending to theprivate sector having exceeded the 2008/09 pre-crisis level.Financial intermediation as reflected by private sector creditto GDP ratio has been improving, although it remains low.In BancABC markets, the ratio varies between 15% and 30%,which is significantly lower than 70% in South Africa.PRIVATE SECTOR CREDIT TO GDPPRIVATE SECTOR CREDIT TO GDP151123182624282731687710ZambiaTanzaniaBotswanaMozambiqueZimbabweSouh Africa2012 20092012 2009Zambia Tanzania Botswana Mozambique Zimbabwe South AfricaUnsurprisingly, surveys indicate that the majority of the popu-lations in many African countries remain unbanked. Amongstthe African countries in which FinScope surveys have beenconducted, South Africa (SA) had the highest proportion of thebanked population at 63%, while 27% were financially excluded(not banked). Similarly, Mozambique (12%), Tanzania (12%) andZambia (14%) had the lowest proportion of banked population,while the unbanked population stood at 78%, 56% and 63%,respectively. In Zimbabwe, 24% of the population is bankedwhile 40% is financially excluded, using neither formal nor informalproducts to manage their finances, but mainly relying on familyor friends. In Botswana which has a population of just over twomillion, 41% of the population is banked and 33% is unbankedor financially excluded.
  19. 19. 15Economic OutlookAlthough it has registered significant recovery, the globaleconomy is still reeling from the after-effects of the 2008– 2009 financial crisis. Global economic growth is expectedto marginally recover from 3.2% in 2012 to 3.5% in 2013.The gradual upturn in economic performance is largely aresult of significant reduction in acute crisis risks in the euroarea and the United States.Despite sluggish global economic performance, growth inthe sub-Saharan Africa (SSA) is expected to remain broadlyrobust. Economic growth in the region is projected to improveto 5.8% in 2013 compared to 4.8% in 2012. The IMF postulatesthat although most SSA countries have rebounded from the“Great Recession”, many of them have been slow in rebuildingfiscal positions that weakened during the downturn – whichleaves them vulnerable to any global downturn. The downsiderisks to economic growth in SSA thus remain elevated asdeterioration in global economy could quickly spill over intoSSA. It is believed that the high pass through impact will befelt in those countries with a narrow export base and lowpolicy buffers.Rights offerDuring the year, the bank concluded the rights offer wherean additional 83,333,333 shares were issued to existingshareholders and the underwriter ADC Financial Servicesand Corporate Development. This increased the number ofshares in issue to 232,805,464. The proceeds of the rightsissue were deployed immediately into the subsidiaries tostrengthen their capital bases in line with anticipated growthin business volumes going forward.GovernanceMr Johannes Wasmus (“Hans”) retired as a Non-ExecutiveDirector at the annual general meeting on 30 May 2012.Hans had been a Board member since 2003 and served asChairman of the Loans Review Committee and as a member ofthe Risk and Audit Committee. We thank him for his invaluablecontribution and dedication to the Group over many years ofservice. We wish him success in all his future endeavours.The Board was further strengthened with the appointmentofMrJyrkiKoskelo,theformerVicePresidentoftheInternationalFinance Corporation (IFC), the private sector arm of theWorld Bank Group. I welcome Mr Koskelo to the Board as hebrings new insights and a wealth of experience obtained overmany years in the financial services industry across the globe.DividendIn line with the Group dividend policy, a final dividend of8 thebe (about 0.96 US cents) in respect of the year ended31 December 2012 is being proposed by the Board. Thiswill bring the full year dividend to about 16 thebe per share.The final dividend will be paid on 3 May 2013 to shareholderson the register at the close of business on 12 April 2013.AcknowledgementsI would like to thank my fellow directors, management andstaff for the strong results posted by the Group in 2012.H J ButteryGroup Chairman
  20. 20. ABC Holdings Limited ANNUAL REPORT 201216The Group posted an impressiveset of results for the year ended31 December 2012. The Groupcontinued on a growth path in all itsbusinesses, recorded improvedprofitability and balance sheet size,expanded its network, increased staffnumbers and improved its compositemarket share. The solid growthexperienced in the retail bankingbusiness which reached critical mass inBotswana, Zambia and Zimbabwe wasparticularly gratifying. Whilst we haveexperienced limited growth inMozambique and Tanzania we areoptimistic that over time, we would beable to gain traction in these markets.All banking subsidiaries, with the exception of BancABCTanzania and to a lesser extent BancABC Mozambiquereported an excellent set of results. Attributable profitat BWP133 million is 60% higher than BWP83 millionachieved in prior year. Pre-tax profit at BWP212 millionis 97% higher than BWP108 million achieved in 2011.We have increased both physical and electronic productdistribution channels. The number of branches increasedto 61 from 49 in the prior year and the number of employeesincreased to 1,310 from 1,008 in December 2011. Businessgrowth in Botswana, Zambia and Zimbabwe was on theback of consumer loans with deductions for loan repaymentspredominantly being made at source. The growth has notbeen without its challenges and hence risk managementwill become the focus point for the Group going forward.Inordertoensurethatthisgrowthissustained,managementhas identified credit, liquidity and operational risks as thekey risks the Group has to closely manage.The Group balance sheet increased by 46% from BWP9.2billion to BWP13.4 billion. Loans and advances were up50% from BWP6.1 billion to BWP9.1 billion. This was largelyfunded by deposits that increased by 45% from BWP7.4billion to BWP10.7 billion. There was significant growthrecorded in all other major lines of business during theperiod under review.Chief Executive Officer’sReporT
  21. 21. 17FINANCIAL REVIEW23%14%16% 16% 15%13383675886ATTRIBUTABLE PROFIT (BWP m) AND ROE (%)2008Attributable profit ROE20122009 2010 2011Net asset value Net asset value per shareNET ASSET VALUE (BWP m)AND NET ASSET VALUE PER SHARE (BWP)2008438 399 4225971 1372.99 2.73 2.933.994.8820122009 2010 2011Net interest incomeNet interest income of BWP673 million was 63% ahead ofBWP412 million achieved in 2011. All the banking operationswith the exception of BancABC Tanzania recorded an increasein net interest income on the back of significant growth inbalance sheet sizes. Net interest margin increased marginallyfrom 6.5% to 6.7%. Margins are expected to increase as theGroup continues to make inroads in the retail banking space.As at 31 December 2012 the retail banking loan book constituted40% of the total loan book compared to 20% in 2011, whereasretail deposits only constituted 9% (2011: 8%) of the totaldeposit book.Impairment losses on loans and advancesNet impairments increased by 74% from BWP80 million in2011 to BWP138 million. The increase was due to a combi-nation of a higher loan book which increased by 50% fromBWP6.1 billion to BWP9.1 billion as well as increased specificimpairments mostly in Tanzania and Zimbabwe. The slow legalprocess in Tanzania has meant that we have to continuouslyreview the value of security downwards thereby resulting inhigher impairments. In Zimbabwe, the liquidity crunch is puttingsignificant strain on a number of corporates and hence theirability to service their facilities as they fall due.As a consequence of the above, the non-performing loans(NPL) ratio deteriorated to 9.2% from 6.6% in the prior year.The net NPL ratio also deteriorated to 7.1% from 3.3% in 2011.Non-interest incomeNon-interest income of BWP552 million was ahead of prioryear by 69%. The increased reach of the Group, throughincreased retail outlets and other distribution channels, hasseen the Group record significant growth in transactionvolumes thereby resulting in higher non-interest income. Thegrowth in volumes was largely from retail banking customersin Botswana, Zambia and Zimbabwe. BancABC Mozambiqueand BancABC Tanzania had higher foreign exchange tradingvolumes and money market trading income respectively whichled to increased non-interest income in those subsidiaries whencompared to prior year.Operating expenditureOperating expenses at BWP869 million were 59% ahead ofBWP546 million recorded in 2011. The continued rollout ofthe Retail Banking products and increased footprint resultedin higher costs across the network. Cost to income ratio,
  22. 22. ABC Holdings Limited ANNUAL REPORT 201218ATTRIBUTABLE PROFITBanking subsidiaries achieved attributable profits of BWP213million compared to BWP141 million registered in the prior year,a 51% year-on- year growth. BancABC Botswana, BancABCZambia and BancABC Zimbabwe produced substantial double-digit growth in attributable profit. This good performance wasnegated by a reduction in profits in BancABC Mozambique anda substantial loss in BancABC Tanzania.BancABC Botswana’s net profit after tax of BWP94 millionwas 237% higher than BWP28 million recorded in 2011. This waslargely due to an increase in business volumes mostly in theretail banking division. Whilst the balance sheet of BancABCBotswana is not expected to grow anywhere near the 2012 level,we expect profitability to grow quite substantially in 2013 onthe back of the 2012 balance sheet.BancABC Mozambique’s growth in income was weigheddown by the increased growth in operating expenses andhigher impairments. This led to a 39% reduction in profitabilityfrom BWP29 million recorded in 2011 to BWP18 million in thecurrentyear. BancABC Tanzania posted an increased attributableloss of BWP39 million compared to an attributable loss ofBWP3 million in prior year. Higher impairments coupled with areduction in net interest income together with higher costsresulted in a disappointing set of results. The high cost offunds was largely due to high market interest rates that wereexperienced from late 2011 onwards and this put pressure oninterest margins as rates offered to borrowing customers couldnot be increased by the same magnitude.BancABC Zambia’s attributable profit increased by 13% toBWP36 million from BWP32 in the prior year. It is interestingto note that profit before tax increased by 159% to BWP55million from BWP21 million in 2011 largely due to an increasein business volumes. The growth in profit after tax was loweron account of the operation being in a tax paying position inthe current year.BancABC Zimbabwe’s attributable profit of BWP103 millionwas 88% up on BWP55 million recorded in 2011. The growth inprofitability could have been higher were it not for the liquiditychallenges prevailing in that market. The liquidity crunch hasexacerbated the NPL position thereby resulting in higherimpairments.The loss in head office entities together with consolidationadjustments increased by 51% from BWP57 million in theprior year to BWP80 million for the period under review. Thiswas largely due to a reduction in income at head office asexcess liquidity previously held was used to further capitalisesubsidiaries to cater for growth.however, reduced from 74% to 71% owing to higher contributionto income from retail banking. Now that most of the investmentsin retail banking have been concluded, we expect costs tostabilise and increase at a much lower rate going forward.At the same time, revenue growth is expected to acceleratethereby resulting in a reduction in cost to income ratio.COST TO INCOME RATIO59%82% 77% 74% 71%2008 20122009 2010 2011TaxationIn the current period, the Group had a net tax charge ofBWP77 million compared to BWP20 million in the prior year.The effective tax rate is 36% compared to 19% in prior yearwhen the Group was able to utilise tax losses in BancABCZambia to lower the overall tax expense. The deferred tax inBancABC Zambia was recognised in 2011 as it became clearthat the tax losses existing at the time and not yet recognisedin the financial statements would be utilised within a relativelyshort period of time. BancABC Zambia utilised the tax lossesin full in 2012 resulting in a tax charge of BWP19 millioncompared to a profit and loss tax credit of BWP10 million in 2011.Balance sheetThe Group balance sheet increased by 46% from BWP9.2billion (US$1.2 billion) in 2011 to BWP13.4 billion (US$1.7 billion)as at 31 December 2012. Loans and advances increased toBWP9.1 billion from BWP6.1 billion in December 2011.BancABC Botswana’s loan book at BWP3.4 billion constitutesthe largest contribution of 37% followed by BancABCZimbabwe at BWP3.1 billion with a contribution of 33%.Deposits increased by 45% to BWP10.7 billion from BWP7.4billion in December 2011. The growth in the balance sheet hastranslated into higher interest income for the period underreview. This growth sets a solid platform for further increasesin interest income going forward.Chief Executive Officer’s Report continued
  23. 23. 198%44%49%BancABC BotswanaBancABC MozambiqueBancABC Zimbabwe17% BancABC Zambia(18%) BancABC TanzaniaATTRIBUTABLE PROFIT CONTRIBUTION BY ENTITYOPERATIONAL PERFORMANCEBotswanaBancABC Botswana’s attributable profit of BWP94 millionwas 237% ahead of BWP28 million achieved in prior year.Total income improved by 146% from BWP116 million toBWP285 million on the back of an increase in both volumesand margins. Net interest income improved by 218% toBWP252 million mainly due to improved margins as well asa substantial increase in the balance sheet size. The loanportfolio increased by 107% from BWP1.7 billion to BWP3.4billion in the current year. Growth was predominantly fromthe consumer lending space as payroll deduction and groupscheme loans increased during the year. The growth in theloan book led to an increase in impairments from BWP9 millionto BWP38 million in the current year. However, gross non-performing loans declined to 1.2% from 2.2% in prior year.Non-interest income increased by 57% to BWP72 millionas a result of higher volumes.Operating expenses increased by 97% as the entity continuedto expand its retail banking business. This led to an increasein the level of activity as the entity made inroads in the retailbanking market. The expansion yielded immediate results fromthe growth experienced in income as well as profitability.Cost to income ratio therefore improved from 67% in 2011to 51% in the period under review.The bank is well positioned for further significant growthwith critical mass having been attained in both the wholesaleand retail banking space. The bank has become a significantplayer in the market and this bodes well for future growth.MozambiqueAttributable profit of BWP18 million was 39% lower thanBWP29 million recorded in 2011. The growth in total income of17% was offset by an increase in operating expenses of 43%.Net interest income increased by 52% to BWP92 millionfollowing improvements in margins as well as growth in theinterest earning assets. Loans and advances increased by15% to BWP877 million (2011: BWP762 million) and depositsincreased by 11% to BWP1.4 billion (2011: BWP1.2 billion).Interest margins improved during the year as market interestrates steadily declined. This reduced the overall cost of funds.However, non-interest income only grew by 3% to BWP67 milliondue to a reduction in foreign exchange trading margins as centralbank intervention continued during the year, notwithstandingthe increase in trading volumes.Net impairments increased from BWP5 million to BWP18 millionlargely due to increased non-performing loans. Gross NPLsincreased from 4.5% in prior year to 8.4% in December 2012.Operating expenses increased by 43% to BWP115 million asa result of increased activity levels in line with the currentstrategy to expand the retail banking footprint.BancABC Mozambique is highly liquid which positions it wellfor further expansion in retail banking. Despite the increasedimpairments during the year, the wholesale loan book remainsrelatively clean with strong security for most of the facilities.TanzaniaBancABC Tanzania experienced a tough trading period asimpairments increased whilst net interest income declined.The attributable loss for the year increased to BWP39 millioncompared to an attributable loss of BWP3 million recordedin prior year. Net interest income declined by 42% on accountof higher non-performing loans and cost of funds whichremained high for most of the year under review. Gross NPLsincreased from 15% in the prior year to 33%. Total impairmentstherefore remained high and increased by 17% to BWP38 millionfrom BWP33 million recorded in prior year. The expansion intothe retail banking space resulted in higher operating costswhich increased by 59% to BWP98 million. The combinationof the above factors led to a reduction in the entity’s overallprofitability as the loss recorded in the current year increased.Clearly BancABC Tanzania has some major challenges butmanagement is determined to turnaround the operation withoutfurther delay.ZambiaBancABC Zambia’s attributable profit grew by 13% to BWP36million in the current year. Profit before tax increased pheno-menally by 159% from BWP21 million in 2011 to BWP55million in the current year on the back of increased volume oftransactions in consumer lending. There was growth in profit-ability despite the entity returning into a tax paying positionin the current year, where a tax expense of BWP19 millionwas incurred compared to a tax credit of BWP10 million inthe prior year.
  24. 24. ABC Holdings Limited ANNUAL REPORT 201220growth in customer deposits. This helped fund balance sheetgrowth, which increased by 46%.Foreign exchange trading income increased by 27% fromBWP116 million to BWP147 million due to increased transactionvolumes across the Group. However, money market incomedeclined by 19% from BWP48 million in 2011 to BWP39 millionin the year under review, largely due to a reduction in volumestraded in Tanzania and Zambia. Trading activities were subduedduring the year, with the focus being squarely placed on generatingdeposits to fund the successful retail loan book growth.Zimbabwe continued to experience serious liquidity challengesduring the year. This position is expected to continue until afterthe election in 2013. Once investor confidence improves in theeconomy, we believe the liquidity situation will rapidly improve.Corporate bankingThe Corporate Banking Division recorded a modest growth.This was largely due to a deliberate policy to deploy most of thedeposits to the higher margin business in the retail space.The tight liquidity position coupled with portfolio diversifi-cation resulted in the Corporate Banking book going up by12% from BWP4.9 billion in 2011 to BWP5.5 billion in 2012.The division increased transactional and non-funded business,with Zambia seeing continued good growth through theadoption of this strategy. As a consequence, fee incomeincreased by 15% from BWP102 million in 2011 to BWP118million in 2012. In 2013, the division will continue with itsefforts to increase transactional and trade related businessthrough a strong emphasis on broadening its customer base.NPLs were higher particularly in BancABC Tanzania andBancABC Zimbabwe. The credit culture as well as the legalprocess in Tanzania continues to be a great source of concern.BancABC Zimbabwe remains the largest contributor to thewholesale loan book at BWP2.2 billion from BWP1.7 billion in2011. BancABC Botswana, the next largest contributor, recordedBWP1.4 billion compared to BWP1.3 billion in 2011.The structured finance portfolio consisted of predominantlyZimbabwean commodity and resource-driven businesses.The focus during the year was on consolidating the portfoliobecause of the liquidity constraints prevalent in the market.Moving forward, the Group intends to grow this portfoliothrough centralised expertise focusing on the broader region.Retail and SME bankingThe division achieved phenomenal growth during the yearas the retail offering showed profits. The roll-out of retailproducts continued unabated across the Group’s network,which grew from 49 to 61 branches. These products weregenerally well received by customers, and the customer basegrew from 101,922 to 235,070 during the year.Net interest income grew by 6% to BWP72 million whencompared to 2011. This was despite the reduction in interestrates during the year as a result of new central bank regulationswhich put a cap on interest rates for all financial institutionsin the market. The growth in net interest income emanatedlargely from the increased loan book that grew by 79% fromBWP0.6 billion in 2011 to BWP1 billion in 2012. Gross NPLscontinued trending downwards from 4.5% in prior year to3.3% as at 31 December 2012.Non-interest income increased by 224% to BWP110 millionfrom increased transaction volumes in both the wholesaleand retail banking divisions. Operating expenses increased by58% to BWP126 million on the back of the expansion in retailbanking. Notwithstanding the above, cost to income ratio declinedto 69% from 78% in the prior year.The subsidiary is on a strong footing for growth going intothe future. Transaction volumes in the wholesale division haveimproved significantly during the year and growth in retailbanking continued unabated. The operation has also madesignificant inroads in diversifying the funding of the balancesheet and this should result in a markedly reduced cost of fundsgoing forward.ZimbabweBancABC Zimbabwe’s attributable profit of BWP103 millionwas 88% higher than BWP55 million recorded in the prioryear. This was largely due to continued business growth asthe bank made inroads in group loan schemes. Net interestincome at BWP227 million is 87% up on BWP122 millionposted in prior year. Net impairment charges increased by32% to BWP41 million as gross NPLs increased from 5.8%to 14.2% in the current period. Non-interest income increasedby 65% to BWP212 million owing to an increase in retailbanking volumes. Operating expenses went up by 82% toBWP270 million from the increased activity as the number ofbranches grew.The liquidity situation in Zimbabwe continues to be a sourceof concern for the Group. We expect the liquidity situation toremain tight into the foreseeable future as there is effectivelyno lender of last resort and imports are higher than exports.We have now taken a deliberate strategy to improve liquiditywhich could lead to modest growth in loans in 2013.Business SegmentsTreasury and structured financeThe Treasury Division had an excellent year with wholesaledeposits increasing by 43% from BWP6.8 billion to BWP9.7billion (US$1.2 billion). Total wholesale deposits exceededUS$1.0 billion for the first time, with Botswana having the largestcontribution of BWP3.9 billion against the BWP2.4 billionrecorded in 2011. All subsidiaries experienced substantialChief Executive Officer’s Report continued
  25. 25. 21Customer deposits increased from BWP0.6 billion in 2011to about BWP1 billion in 2012. Loans and advances increasedfrom BWP1.2 billion million in 2011 to BWP3.7 billion in thecurrent year. The increase in loans and advances is largelydue to payroll deduction loans from our corporate clients andgovernments. In 2012 the retail division received the govern-ment deduction code in Zimbabwe and Tanzania.The large growth in loans is reflected in the revenue figures,with total retail banking income increasing from BWP160million in 2011 to BWP508 million in the current year. BancABCbecame the first bank to introduce the EMV VISA prepaidcard in Botswana, Mozambique, Zimbabwe and Tanzania.The prepaid card initiative will be supported by partnershipswith other players in the market which should result in a boostin our non-funded revenues.Human CapitalThe Group’s staff compliment continued to increase with thenumber of staff increasing from 1,008 in 2011 to 1,310 in 2012.Botswana Mozambique Tanzania Zambia Zimbabwe ABCHHUMAN CAPITAL1031872348012516680 101135 128187211 20235250742 56 5720122010 2011During the year the bank continued to ensure that talented staffreceive ongoing leadership development training in partnershipwith the Gordon Institute of Business Science (GIBS). In 2012,61 staff attended programmes that ranged from foundationlevel courses to those designed for executive management.A major emphasis was placed on the development of technicalrather than behavioural skills across all subsidiaries to ensurethat staff are at the cutting edge of learning in their respectiveprofessions.An executive coaching programme was introduced for EXCOmembers, Functional Heads and all Managing Directors andDeputy Managing Directors. The objective of training at thislevel is to ensure that executive and senior management’sleadership skills are further developed, that they remain focusedon business challenges and have the ability to proactively identifysolutions for day-to-day operational issues.The Bank recruited 28 top graduate trainees in 2012, a 57%increase from 2011. These graduates will serve in various areasof the bank once they have successfully completed the two-yearGraduate Development Programme.The Balanced Scorecard is now firmly entrenched in the bank,something that has been confirmed through the responses ofstaff during the bank’s annual ‘People Survey’. All subsidiarieshave Country balanced scorecards, as do departments andindividuals. The challenge in 2013 will be to finalise an effectivebalanced scorecard reporting tool that will aggregate data atGroup level.The Human Capital Learning Strategy was put into effectin 2012. Significant progress was made in measuring andcontrolling staff costs, effecting new staff policies, introducinglong service awards, improving the number of staff receivingtraining, a reduction in staff attrition levels and the creation ofLearning Centres in all subsidiaries, as well as identifying andtracking top talent in all subsidiaries.Other support divisionsThe Group operates a centralised Information Technology(IT) function which is one of the key enablers for the business.During the year, the focus of the IT function was on ensuringthe stability of key production applications. Remarkable pro-gress was made in this area, with application uptimes beingsignificantly increased.During 2013, in addition to stabilisation initiatives, the primarybusiness thrust will be given to improvements in processes,superiormonitoringandsystemperformance.Theintroductionof a new team structure has increased the understandingof delivery standards throughout the IT function. Proactivemonitoring of applications was introduced for key applicationsthat include the core banking system, internet banking, cardsystems and the network.Considerable attention will be paid to the core banking systemduring 2013 so that any issues that have been experiencedover time are cleared, the process is improved and training ofstaff can continue. Key components of service delivery suchas the service desk and service level reporting will be prioritised.Governance activities such as audit, change management andinformation security will also be addressed. A special project(“Run the Bank”) team is on site and will assist with stabilisingand improving the IT platform.The Banking Operations department is the processing hub ofthe bank and seeks to provide the bank’s revenue generatingdepartments with a robust, efficient and effective processingplatform, so they can offer external customers the desiredquality of service. Banking Operations is therefore engagedin a continuous process of improvement to ensure that it isconstantly meeting the changing demands of its internal andexternal customers, and ensuring that customer value ismaximised. The department strives to be at the forefront ofinnovation, and continuously explores more proficient ways ofprocessing transactions to meet changing business needs. Asthe business grows, the department is seeking to grow itscapacityintermsof processing systems, product knowledge,
  26. 26. ABC Holdings Limited ANNUAL REPORT 201222Group Credit monitors the loan portfolio of the Group andensures that it is not exposed to undue risk from new businessthat is underwritten. In addition, it monitors existing customerswho may be facing financial challenges that impact on theirability to meet their commitments.Group Internal Audit is an independent objective assuranceand consulting activity designed to add value and improve thebank’s operations. Internal audit plays a key role in maintainingand improving the internal control process and risk managementwithin the Group. The Group Head of Internal Audit reportsdirectly to the Risk and Audit Committee.OutlookOver the last few years, we have made significant investmentsin retail banking. This investment is beginning to bear fruit andthe Group is now evolving into a universal bank. The balancesheet is very strong and we have no doubt that 2013 resultswill be significantly better than 2012.AcknowledgementsI would like to thank my fellow directors, management andstaff for the strong results posted by the Group in 2012.D T MunatsiGroup Chief Executive Officerand capacity handling through automation, while ensuringthat the bank has adequate processes, procedures and supportstructures that militate against attendant risks.The Group Project Management Office (PMO) provides theGroup with a centrally integrated role on project delivery bystandardising project management practices throughoutthe organisation. This, in conjunction with improved projectmanagement communication, assists senior executives andstakeholders to keep abreast of the status of various projects,a benefit that assists decision-making and the achievementof strategic objectives. The function also assists the businessby seeking ways to reduce costs, improve processes, increaseproductivity and improve customer experience through theintroduction of new and improved technologies that contributeto the bottom line.Group Finance is responsible for financial management andreporting, regulatory reporting, budgeting and Group tax. Thedivision continues to develop state of the art financial reportingsystems to meet increased needs for timely reporting of financialand related information to the various stakeholders within andoutside the Group. It will also prioritise improved businessefficiencies to optimise the Group’s operating expenses andwill ensure that the Group gravitates towards an optimal taxstructure.Group Risk manages all risks that the Group is exposed to fromthe full range of its activities. Various committees identify andmanage different identified types of risks. The major committeesare the Asset and Liability Management Committee andthe Operational Risk Committee. This is all dealt with morecomprehensively under the Risk and Governance reportThe Legal and Compliance department is responsible formanaging day-to-day compliance and legal risk. The departmentendeavours to separate legal and compliance functions inorder to maintain good corporate governance practices. Thedepartment’s main functions include, but are not limited to,reviewing and negotiating contracts (corporate, banking andservice contracts), assisting in the development of bankingproducts,draftingvariouscapitalraisingdocuments(prospectusesand lending agreements), addressing regulatory inquiries,managinglitigation,registersandmonitorstheGroupstrademarks,drafting and filing regulatory documents and drafting andimplementing compliance policies and procedures. In addition,Legal/Compliance professionals are responsible for providingadvice and support with respect to all banking and corporaterelated issues.Chief Executive Officer’s Report continued
  27. 27. 23The key components of the ESRP are:• an assessment of potential and current environmental andsocial risks and impact arising out of the proposal; and• the commitment and capacity of the borrower to managethis impact.Against this background, the procedure ensures that projectsfinanced by the Group are environmentally and socially soundand sustainable and that any potential environmental andsocial risks are identified, evaluated and where necessary,mitigated. In line with its policy, the Group will not finance anybusiness activity that cannot reasonably be expected to meetthe required environmental and social standards up front.Projects financed by the Group shall, at the minimum, complywith the national and/or local legislation and guidelines forenvironmental and social assessment and management.The Bank further conforms to the African Development Bank’sEnvironmental and Social Assessment Procedures (2001).Management ensures, through training and coaching, thatthere is an appropriate internal capacity to handle environmentaland social issues. This is supplemented by external expertise,as the need arises. All the Bank’s employees in the Operationsdepartment are provided with a copy of the ESRP.The Group may finance projects for which no specific environ-mental or social guidelines exist. In such cases, generalenvironmental and social considerations pertaining to emissions,liquid effluents, hazardous materials and wastes, solid wastes,ambient noise, occupational health and safety, life and fire safetyand other hazards are borne in mind during the appraisal.BancABC recognises that sustainable development is depen-dent upon a positive interaction between economic growth,social upliftment and environmental protection. As a responsiblecorporate citizen, the Group has a policy frame-work that isdesigned to ensure that all projects undertaken adhere to socialand environmental regulations of the relevant local, national andinternational laws and standards.This policy framework commits the Group to:• provide in-house environmental education and support;• recognisetheenvironmentalburdencausedbyconsumptionof resources and release of waste from our own businessactivities and aim to protect the environment through resourcerecycling as well as efficient use of energy and resources;• support business activities that contribute to the protectionand improvement of the environment;• monitor the effects of our activities on the environmentand work towards continuous improvement and pollutionprevention;• comply with all applicable laws and regulations relatedto environmental protection and other requirements towhich BancABC Group companies are subject to andsubscribe to; and• provide financing to projects with minimal adverse impacton the environment while ensuring that those havingpotentially major adverse environmental and social impactare accompanied by adequate mitigation measures.Inordertoensurecompliancewiththelastofthesecommitments,BancABC’s credit risk assessment seeks to ensure that thesocial and environmental effects of its financial support areassessed and monitored. This Environmental and SocialReview Appraisal Procedure (ESRP) enables the integrationof social and environmental safeguards in projects, to ensurethat the potential risks associated with these issues areappropriately identified and mitigated.Social and environmental policyfor the year ended 31 December 2012
  28. 28. ABC Holdings Limited ANNUAL REPORT 201224
  29. 29. 25 26 Botswana 26 Mozambique 27 Tanzania 27 Zambia 27 ZimbabweCORPORATE SOCIAL RESPONSIBILITY REPORT
  30. 30. ABC Holdings Limited ANNUAL REPORT 201226CORPORATE SOCIAL RESPONSIBILITY REPORT 2012John Madawo Nswazwi was exiled from Jetjeni to Mafikengin 1947 by the colonial government. Nswazwi died in 1960.He was buried in Jetjeni and his remains were later exhumedand transferred to Nswazwi village where they were interredin 2002.The John Nswazwi Memorial Cup tournament started in 1992,and is held in the villages of Nswazwi, Makuta and Goshwe.BancABC Botswana also makes an annual donation to the LadyKhama Charitable Trust and Cheshire Foundation of Botswana.Both organisations assist with helping the less fortunate.MozambiqueIn 2012 BancABC Mozambique supported two events relatedto education. The first was through a prize for the best student in2012 at a local university (ISPU). A select number of studentswere also offered internship positions at BancABC to enablethem to learn more about banking.The second event that the operation supported was the AfricanHuman rights Moot court competition, an event establishedin 1992 and hosted in 2012 by the main state university UEM,in Maputo. This event saw the participation of:• Students from the UEM faculty of law as well as from otherlocal universities;• 915 teams from 127 universities representing 47 Africancountries;• Human rights organisations (local and international); and• Ministry of justice, independent lawyers and judges fromvarious African countries.The event involved students from different countries debatinga fictitious human rights case as if they are doing so in theAfrican court on human and people’s rights. The moot hasbecome the largest annual gathering of students and lecturersof law on the continent and one of the premier events on theAfrican human rights calendar.As an emerging Pan-African financial institution, BancABCrecognises that it has a responsibility to play an active rolein uplifting communities in which it operates. It achieves thisthrough concentrating its activities in two pillars that it hasidentified for action, namely:• Women and Children – by assisting with the economicupliftment of these groups, presently the most vulnerablegroups on the African continent.• Arts and Culture – vibrant arts and culture are a vitalexpression of Africa’s identity and as such, BancABCbelieves, it deserves to be nurtured and celebrated.We strive to invest in sustainable projects and, through theinvolvement of our staff, actively demonstrate our goodwilland commitment to enhancing the lives of the disadvantagedthrough involvement in community-based initiatives.BotswanaIn 2012, BancABC Botswana built a two bedroomed housefor a destitute family of eight in Moshaneng village, situatedin the south of the country.In November 2012, the bank sponsored the John NswazwiMemorial Cup, a tournament for community football teamsthat was established 20 years ago in honour of Nswazwi, alocal soccer celebrity.
  31. 31. 27TanzaniaIn 2012 BancABC donated desks for 60 students to Chumbunito assist three schools located in the area to improve thelearning environment for their children. Towards the end ofthe year, a donation was made towards the commemorationof World Mental Health Day (WMHD) held at Lindi.BancABC Tanzania supports the work of the DiplomaticSpouses Group (DSG) by supporting their Annual CharityBazaar.BancABC Tanzania is also the sole sponsor of four girls atKiota Women’s and Development Organisation (KIWOHEDE)and assists with their secondary school education. The younggirls and women attending the KIWOHEDE centers, agedbetween 9 and 20 are all given the opportunity to acquirevarious vocational skills such as reading and writing, tailoring,tie and dye, embroidery, food processing, cookery, carpentry,sculpturing, weaving, hatchery, gardening and bookkeeping.ZambiaBancABC Zambia has continued to support Our Ladies Hospicein Kalingalinga, Lusaka. The hospice provides day care, home-based care and hospital facilities to the community surroundingit and also extends a helping hand to people suffering fromHIV/AIDS-related diseases. In alignment with our CSI pillar ofassisting women and children this particular project is supportedby a monthly donation which assists with the purchase oflaboratory astringents.In November 2012, BancABC Zambia made a donation to assistthe ROMA Parish in Lusaka to repair its roof in readiness for therainy season. The roof of the church had been in a deplorablestate for many years. It made it difficult to conduct the serviceon rainy days, as the church would flood profusely.It was a plight that came to the bank and touched the heartof management. The Managing Director Mr Clergy Simatyabaagreed to make a donation in order to have the roof repaired.A fundraising dinner was held and BancABC’s MD wasasked to speak at the event, which he gladly did as part ofour response to assisting the community we operate in.ZimbabweIn 2012 BancABC Zimbabwe continued to position itself as aresponsible corporate citizen within the community by supportinginitiatives and projects that promoted the welfare of women,children and the arts.BancABC Zimbabwe has invested heavily in the HarareInternational Festival of The Arts (HIFA) since 2000 by sponsoringthe opening day. Since then, HIFA has become one of thelargest festivals of its type in Africa, attracting internationalartists and tourists, and promoting local artists and culture.BancABC Zimbabwe demonstrated its commitment to thecommunity by assisting Tedias Matsito, a local musician, whowas one of the Bank’s first Retail Banking clients. He lost hisleg, which had developed gangrene following a car accident.The Bank assisted to meet the medical bills as well as purchasea prosthetic limb for the musician.The Bank also gave back to the community by adopting theEntembeni Old People’s Home and donated a stipend monthlyfor food and fuel for the Entembeni Home’s generator. TheBank partnered with Highlanders Football Club at the end ofthe year to host a luncheon for the elderly at the home whilstgiving them an opportunity to spend the day with the footballclub. The team and the Bank also donated groceries at the event.The Bank assisted with the costs of one-year-old LeeroyTadiwanashe Kawiri’s trip to India, where he underwent heartsurgery. Leeroy had severe congenital heart defects and hismother, Mrs Agnes Kawiri, was one of the first BancABC clients.During the year BancABC Zimbabwe also made a donation toRose of Sharon, a privately run welfare organisation that caresfor children who have either been abandoned, orphaned orcome from child-headed families. Rose of Sharon currentlyhas three orphanages run as family housing units – MountZion in Marlborough (16 babies from one day old to fiveyears old), Shiloh in Ruwa (20 pre-teens aged 5 to 11) andBethel (15 teenagers aged between 11 and 16 years). Inaddition to the homes, they provide for 40 other childrenwith widowed HIV-positive mothers who live outside thehomes.Other CSR initiatives that the Bank was involved in included:• BancABC donated books towards the Speech and Prize-Giving days of the following schools: Roosevelt High School,Maranatha High School, Beitbridge Missions School andKutama College.• Assisting Just Children Foundation, an organisation thattakes care of children from the streets. The Rotary Club ofMsasa was assisted with a project that involved convertingan old swimming pool into a fish pond for an aquacultureproject. The fish bred from the pond would then benefitthe children and the community around the centre. TheBank donated a water pump towards the project.• BancABC negotiated the reconnection of power supply forMutemwa Leprosy and Care Centre and pledged a donationto the centre for a year to assist with their electricity costs.
  32. 32. ABC Holdings Limited ANNUAL REPORT 201228
  33. 33. 29RISK AND GOVERNANCE REPORTfor the year ended 31 December 2012 30 Risk and governance report 39 Directors and Group management 43 Directors’ responsibility 44 Directors’ report
  34. 34. ABC Holdings Limited ANNUAL REPORT 201230Role of Group Risk ManagementGroup Risk Management is responsible for maintaining aculture of risk awareness throughout the Group. While eachbusiness unit is primarily responsible for managing its own risks,Group Risk Management independently monitors, managesand reports on all risks facing the Group, as mandated bythe Board of Directors. It coordinates risk management activitiesacross the Group to ensure that risk parameters are properlyset and adhered to across all risk categories and in all Groupcompanies. It also ensures that allriskexposurescanbemeasuredand monitored across the Group. Managing risk effectively isone of the key drivers of the Group’s continuous investment intechnology. Group Risk Management continually seeks newways to enhance its risk management techniques. It alsoupdates the Group risk management framework on a regularbasis to reflect new policies adopted by the Board of Directors.Group Risk Management regularly reports to the ExecutiveCommittee and the Risk and Audit Committee, to provide theBoard with assurance that risks are being appropriatelyidentified, managed and controlled. Group Risk Managementis headed by an executive manager who reports to the ChiefExecutive Officer (CEO).The Group’s Approach to Risk ManagementThe Group’s approach to risk management involves a numberof fundamental elements that drive its processes across theGroup. The procedure and methodology is described in Group’sEnterprise-wide Risk Management Framework. The Group’srisk appetite sets out the level of risk that the Group is willingto take in pursuit of its business objectives. This risk appetiteis calibrated against the Group’s broad financial targetsincluding profitability and impairment targets, dividend coverageand capital levels. The Group’s risk methodologies includesystems that enable the Group to measure, aggregate and reportrisk for internal and regulatory purposes. As an example, theGroup’s credit grading models produce internal ratings throughinternally-derived estimates of default probabilities. This isdiscussed further under the Credit Risk Management sectionbelow. These measurements are used by management in anextensive range of activities, from credit grading, pricing andapproval to portfolio management, economic capital allocationand capital adequacy processes.Approach to Risk ManagementThe Board recognises that it is ultimately responsible andaccountable to shareholders for:• the process of risk management and the systems of internalcontrol;• identifying, evaluating and managing the significant risksfaced by the Group;Risk managementThe directorate and management of ABC Holdings recognisethateffectiveriskmanagementisfundamentaltothesustainabilityof its business. A strong risk management culture within theGroup ensures an appropriate balance between the diverse risksand rewards inherent in any transaction, and underpins sounddecisionmaking.Accordingly,acomprehensiveriskmanagementprocess is in place to evaluate, monitor and manage the principalrisks the Group assumes in conducting its activities. In the courseof conducting its business, the Group is exposed to various risksinherent in providing financial services. Some of these risks aremanaged in accordance with established risk managementpolicies and procedures, most of which are discussed in theFinancial Risk Management section. The Group’s primary risksare outlined below:Market riskThe Group may be adversely impacted by global markets andeconomic conditions that can lead to fluctuations in interest andexchange rates, as well as equity and commodity prices. It mayalso be adversely impacted by significant holdings of financialassets, or significant loans or commitments to extend loans.Credit riskThe Group may be adversely impacted by an increase in itscredit exposure related to trading, lending and other businessactivities. Potential credit related losses can result from anindividual, counterparty or issuer being unable or unwilling tohonour their contractual obligations.Liquidity riskThe financial condition of the Group may be adversely impactedbyaninabilitytoborrowfundsorsellassetstomeet its obligations.Operational riskThe Group may incur losses due to the failure of its people,internal processes or systems, or as a result of external events.Legal riskLegal proceedings against the Group or insufficient legalprotection could adversely affect its operating results for aparticular period and impact its credit ratings.Regulatory and legislative risksMany of the Group’s businesses are highly regulated and aresubject to, and could be adversely impacted by, regulatory andlegislative initiatives.Risk and governance report continued
  35. 35. 31• ensuring that effective internal control systems are inplace to mitigate significant risks faced;• ensuring that a documented and tested process is in placeto allow the Group to continue its critical business in theevent of a severe incident impacting its activities; and• reviewing the efficacy of the internal control system.The Board has approved the Group risk management frame-work which applies to all Group companies and deals withenterprise-wideriskandgovernanceprotocol.Riskmanagementin the Group is underpinned by governance structures aswell as risk ownership, identification and evaluation. Ownershipand management of risks begins in the business units of eachsubsidiary, who identify and evaluate risks particular to theirfunction. Group Risk Management reviews actions taken bybusiness units to mitigate identified risks.Group Risk Management ObjectivesThe Group Risk Management function, as mandated by theBoard of Directors is to:• Coordinate risk management activities across the organi-sation, by ultimately becoming the custodian of BancABC’srisk management culture• Analyse, monitor and manage all aspects of exposuresacross risk classes• Ensure risk parameters and limits are set, approved andimplemented and ensure that such risk parameters andlimits are consistently adhered to• Facilitate various risk management committees as partof the Group’s risk management process.Operational Risk• Technology• Operational•  Compliance • Legal•  Regulatory • ReputationalCredit• CreditGroup Internal AuditALCO•  Interest rate • Liquidity•  Market • Currency•  Capital adequacyBOARD OF DIRECTORSUltimately responsible for risk managementGroup ALCO Group ORCOManagement CreditCommitteeSpecialised committeesof the BoardResponsible for enterprise-widerisk management across the GroupGroup Executive CommitteeResponsible for overseeingday-to-day risk managementacross the GroupAudit and RiskManagementCommitteeBoardCreditCommitteeLoansReviewCommittee
  36. 36. ABC Holdings Limited ANNUAL REPORT 201232Liquidity Risk Management StructureShort-term liquidity risk management Long-term liquidity risk managementLiquidity Risk Management Committee• Managing intra-day liquidity• Managing short-term cash flows• Managing interbank and repo levelsALCO• Managing long-term cash flows• Identify and manage mismatches• Establish liquidity risk appetiteContingency liquidity risk management• Establish and manage contingency funding plan• Convene liquidity crisis management committee• Assess regular liquidity stress testing and scenario analysesCapital and Liquidity RiskManagementALCO reviews the capital status of the Group on a monthlybasis. It also considers the activities of the treasury deskwhichoperatesintermsofanapprovedtreasurymanagementpolicy and in line with approved limits.ALCO reports to the Risk and Audit Committee in terms ofthe Group Risk Management Framework. Capital adequacyand the use of regulatory capital are reported periodically tothe central banks of the Group’s operating countries, in line withrespective regulatory requirements. ALCO comprises broadlyrepresentative executive and senior managers including theGroup CEO, Chief Operating Officer, Chief Financial Officer,Chief Risk Officer, Group Head of Corporate Banking, GroupHead of Treasury and Group Head of Retail Banking and countrymanaging directors.Liquidity is of critical importance to financial institutions ashas been recently reminded by the recent failures of globalfinancial institutions in large part due to insufficient liquidity.Our markets present larger challenges primarily due to anunder-developed secondary securities market and illiquidgovernment securities. As such, the bank has in place acomprehensive liquidity and funding policy to address bothfirm-specific and market-wide liquidity events. Our primaryobjective is to be able to fund the bank and to enable our corebusinesses to continue to operate and meet their obligationsunder adverse circumstances.Group Risk Management FrameworkThe Group Risk Management Framework documents the riskmanagement policies followed by the Group. These policiesensure that risks are consistently managed throughout theGroup through a set of internal controls. The policies also ensurethat risk awareness filters down through every level of the Group,and that every employee understands their responsibility inmanaging risk. The following sub-committees, comprisingexecutives and senior management, are responsible for dealingwith the risks facing the Group in a structured manner:• Management Credit Committee (CREDCO) – responsiblefor credit risk;• Assets and Liability Committee (ALCO) – responsible forinterest rate, market, liquidity, counterparty, currency andcapital adequacy risk; and• Operational Risk Committee (ORCO) – responsible fortechnology,compliance,legal,humanresources,reputational,operational and regulatory risk.ReportingEach subsidiary or business unit produces risk reports which,along with the detailed risk information provided by GroupRisk Management, is discussed by the Board. The risk reportspresent a balanced assessment of significant risks and theeffectivenessofriskmanagementprocedures,andmanagementactions in mitigating those risks.Risk and governance report continued

×