ABCH Annual Report Single_Dec 2010_Final

8/7/2019 ABCH Annual Report Single_Dec 2010_Final

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ABC HoldingsLimitedAnnual Report

2010


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ABOUT

BancABC

ABC Holdings Limited is the parent company of a

number of banks operating under the BancABC brand

in Sub-Saharan Africa, with operations in Botswana,

Mozambique, Tanzania, Zambia and Zimbabwe.

A group services office is located in South Africa.

Our vision is to be Africas preferred banking partner

by offering world class financial solutions. We willrealise this by building profitable, lifelong customer

relationships through the provision of a wide range

of innovative financial products and services to the

benefit of all our stakeholders. The Group offers a

diverse range of services including but not limited to

the following: wealth management, corporate banking,

treasury services, leasing, asset management, stock

broking, and retail banking.

ABC Holdings Limited is registered in Botswana. Its

primary listing is on the Botswana Stock Exchange,

with a secondary listing on the Zimbabwe StockExchange.


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CONTENTS

ifc Our values

1 Highlights

2 Five-year financial highlights

3 Salient features

4 Chairmans report

10 Chief Executive Officers report17 Corporate social responsibility report

19 Risk and governance report

27 Directors and Group management31 Directors responsibility32 Directors report33 Annual financial statements

111 Analysis of shareholders112 Contact information


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OUR

VALUES

Our core values centre

on five distinct areas.

They remain the guidingprinciples by which we

operate and form the

basis of our corporate

personality.


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1

WHERE WEOPERATE

HIGHLIGHTS

Financial:

Totalincomeincreasedby39%toBWP546 million.

Operatingexpensesincreasedby19%toBWP435 million.

Operatingprofitincreasedby327%toBWP111 million.

Costtoincomeratioimprovedto77%from82%intheprioryear.

Impairmentchargesonloansandadvancesreducedby69%to BWP16 million.

Basicearningspershareimprovedby15%from40.4thebeto 46.3 thebe.

Thebalancesheetgrewby36%fromBWP4.4billionin2009to BWP6.0 billion.

Loansandadvancesincreasedby54%fromBWP2.0billionto BWP3.1 billion.

Customerdepositsgrewby46%fromBWP3.4billionin2009toBWP4.9 billion.

NetassetvaluepershareupfromBWP2.73toBWP2.93.

Returnonaverageequitywas16%comparedto14%in2009.

Operational:

AllbankingoperationsreportedprofitforthefirsttimeinthehistoryoftheGroup

Totalnumberofretailbranchesincreasedto17asat28February2011

SuccessfulturnaroundoftheZambiaoperationwhichisnowprofitable BancABCMozambique,BancABCZambiaandBancABCZimbabwerecapitalisedduringtheyear


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ABC Holdings LimitedANNUAL REPORT 2010

2

FIVE-YEAR FINANCIAL HIGHLIGHTSon a historical cost basis in US$000s

31 Dec 2010

US$000s

31 Dec 2009

US$000s

31 Dec 2008

US$000s

31 Dec 2007

US$000s

31 Dec 2006

US$000s

Income statementNetinterestincomeafterimpairment 41,542 17,948 20,498 12,152 16,085Noninterestrevenue 38,930 37,402 31,650 37,849 28,849

Total income 80,472 55,350 52,148 50,001 44,934Operatingexpenditure (64,089) (51,610) (34,679) (26,126) (24,757)

Net income from operations 16,383 3,740 17,469 23,875 20,177Shareofprofitsofassociatesandjointventure (2,966) 2,281 337 540 1,912

Profit before taxation 13,417 6,021 17,806 24,415 22,089Taxation (3,314) 2,225 (4,905) (3,417) (7,444)

Profit for the year 10,103 8,246 12,901 20,998 14,645

Attributableto

Equityholdersofparent 9,827 8,202 12,592 20,174 14,587 Minorityinterests 276 44 309 824 58

Profit for the year 10,103 8,246 12,901 20,998 14,645

Balance sheetCashandcashequivalents 154,997 132,194 68,056 87,832 71,312Financialassetsheldfortrading 173,375 134,707 90,956 143,642 141,709Financialassetsdesignatedatfairvalue 12,274 Derivativeassetsheldforriskmanagement 6,516 1,195 5,891 Loansandadvancestocustomers 477,415 299,099 298,450 207,372 156,396Investments 8,224 7,387 8,988 11,795 8,745Investmentinassociatesandjointventure 5,405 6,138 5,471 5,064 7,086Otherassetsandinvestmentproperty 34,048 32,123 14,101 16,426 7,013Propertyandequipment 51,217 41,818 28,776 9,178 8,349

Intangibleassets 8,903 7,558 5,653 5,824 6,226

932,374 662,219 526,342 487,133 406,836

Shareholdersequity 67,911 62,325 60,572 54,230 46,681Deposits 761,083 502,932 374,385 326,096 255,239Derivativeliabilitiesheldforriskmanagement 162 293 294 849 1,182Borrowedfunds 89,868 81,519 79,565 96,855 91,132Otherliabilitiesandtaxation 13,350 15,151 11,526 9,103 12,602

932,374 662,219 526,342 487,133 406,836

Sharesinissue 146,419,524 146,419,524 146,419,524 132,568,680 132,568,680Costtoincomeratio(%) 77 82 59 47 50Averageshareholdersequity 65,118 61,449 57,401 50,456 41,537Returnonaverageshareholdersequity(Headline)(%) 15 13 23 42 37Netassetvaluepershare(cents) 44.7 40.9 39.7 39.4 33.6

Closing exchange rates to US$

BotswanaPula 6.45 6.67 7.54 6.02 6.05Euro 0.75 0.69 0.72 0.68 0.76MozambicanMetical(droppedthreezeroin2006) 32.58 29.19 25.50 25.86 25.97TanzanianShilling 1,505.01 1,339.51 1,315.02 1,146.01 1,264.05ZambianKwacha 4,800.00 4,650.00 4,795.00 3,850.00 4,390.24ZimbabweDollar(droppedthreezeroin2006and10zerosin2008) official 5,059,942.76 30,000.00 250.00 calculated 642,901,315.78 4,948,961.54 2,400.99


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33

2010 2009 % change

Income statement (BWP000s)

Profitattributabletoordinaryshareholders 66,710 58,117 15%

Balance sheet (BWP000s)

Totalassets(attributable) 6,011,439 4,417,745 36%

Loansandadvances 3,078,110 1,995,325 54%

Deposits 4,907,045 3,355,118 46%

Netassetvalue 422,336 399,069 6%

Financial performance (%)

Returnonaverageequity 16% 14%

Returnonaverageassets 1.3% 1.4%

Operating performance (%)Noninterestincometototalincome 48% 68%

Costtoincomeratio 77% 82%

Impairmentlossesonloansandadvances

togrossaverageloansandadvances 5% 6%

Effectivetaxrate 25% -37%

Share statistics (000s)

Numberofsharesinissue 146,420 146,420 0%

Weightedaveragenumberofshares 143,956 143,846 0%

Share statistics (thebe)

Earningspershare 46.3 40.4 15%

Dividendpershare 10.0

Netassetvaluepershare 2.93 2.77 6%

SALIENTFEATURES


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CHAIRMANSREPORTHJButtery

TheGroupperformedwellduringtheperiodunderreview,

reflectingtheimprovedeconomicandbusinessenvironment

acrossthemarketsinwhichthebankoperates;asituation

broughtaboutinpartbythewidespreadrecoveryfromthe

recentglobalfinancialcrisis.

Inaddition,thedecisiontakentocurtaillendingfollowing

thestartof theglobalrecession hasbeenvindicated as

evidencedbythesignificantreductionincreditimpairments.

Followingtheintroductionofretailbanking,theGroupnow

offersafullsuiteofbankingproductswhichwillenablethe

businesstogetahighershareofthewallet.Alltherequired

informationtechnologysystems,distributionchannelsalbeit

limitedandkeypersonnelarenowinplace.Asaresult,

retailbankingisexpectedtocontributepositivelytoincome

in2011andbeyond.

Review of the economic environment

During 2010, theworld economy began a widespread

recovery,movingsteadilyawayfromtheeconomiclowsof

2008and2009.Therecoverywasledbyemergingmarkets

whichenjoyedhighergrowthratesthanthoseexperienced

indevelopedmarkets.

Itshouldbenotedthoughthatthepresentrapidbounce-

backtoprosperityisunlikelytocontinueatitscurrent

pace, but will revert to a lower but more sustainable

growthrate.

Economic growthin Sub-Saharan Africa

Africaisvulnerabletoeconomicdislocationsthroughmany

sources.Theseincludefluctuationsincommodityprices,

naturaldisastersandpoliticalinstabilitywithinthecontinent.

Additional inherent risks arise from a dependence on

aidandfinancialflows.Despitethis,during2010overall

economicgrowthinSub-SaharanAfrica(SSA)wasrevised

upwardsbyIMFto5.0%(fromaninitialprojectionof4.3%).Thiswasasignificantincreasefromthe2.6%experienced

in2009, whichwaslargely spurredby firmingcommodity

pricesandimprovedresourceinflows.Thetrendis setto

continueduring2011,wheneconomicgrowthinSSAis

projectedtoacceleratefurthertoalevelof5.5%.

However,cognisancestillhastobetakenofthefactthat

EuroperemainsthelargesttradingpartnerofseveralSSA

countries.Thecontinuingfiscalausteritymeasuresinthe

EuropeanUnioncouldthereforehaveadampeningeffect

onregionalgrowthprospects.ThestatusofAsia,whichis

experiencing burgeoninglevels of trade andinvestment

links,alsoneedstobeconsideredaspartofthechanging

globaldynamics.AreductioninactivitybetweenChinaand

The Group performed well during

the period under review, reecting

the improved economic and business

environmentacrossthemarketsin

whichthebankoperates;asituation

brought about in part by the wide-

spreadrecoveryfromtherecentglobal

nancialcrisis.


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SSAcausedbyasignificantslowdownofChineseeconomic

activity, could impactnegatively on growth prospects in

thisregion.Thiswouldparticularlybethecaseinthefields

ofmineralandoilexports.

TheeconomicrecoveryinSub-SaharanAfricahasbeen

drivenbyhighcommoditypriceswhichhaveincreased

exports,thoughpre-crisislevelsinsomeinstancesareyet

tobeachieved.

Gold,platinumandpalladium,thepreciousmetals,which

aretraditionallyusedassafehavensduringtimesof

economicuncertaintybenefitedfromtheweakeningof

the USDollar. The oil pricewaslargelyinfluencedby

financialflowsasthemarketwaswellsupplied.

OilproductionfrombothOPECandnon-OPECcountries,includingCanada, Brazil andKazakhstanrose in thelast

fewmonthsoftheyear,takingplacesimultaneouslywith

an increase in oil prices. Most agricultural commodities

recordedsharppriceincreasesin2010.Thesepriceincreases

wereduelargelytoimprovedglobaldemandandalso,in

somecases,tosupplyconstraints.

Wheatpricesfirmedonthebackofweather-relatedsupply

lossesinCanadaandKazakhstanandalsobecauseofthe

grainexportbanimposedbyRussiaandUkraine.

This export ban isexpected tolast untiltheend ofthe2011harvestseason.The tightwheatmarketresultedin

increaseddemandformaizeandsoya-beans.Cottonprices

firmedduetofearsthatthecurrentseasonscropmaynot

besufficienttomeetdemand.

Economic growth in BancABC markets

EconomicgrowthprospectsinBancABCoperationalmarkets

havesignificantlyimprovedinlinewiththepositiveemerging

marketseconomicoutlook.Firmcommoditypricesare

expectedtoprovideanimpetustosustainedgrowthinthe

commoditydriveneconomiesinthesemarkets.

Botswana

In Botswana, economic growth was supported largely

byrecoveringdemandfordiamondsandgrowthinbase

metalprices.For 2010, the projected GDP growth rate

wasestimatedat8.4%,comparedtothedeclineof6%in

GDPduring2009.

Mozambique

TheMozambicaneconomyisestimatedtohavegrownby

6.5%in2010.Itisprojectedtotest8%overthemedium

term.Thiscomparesfavourablywiththe6.3%growthrate

achievedin2009.

Tanzania

Tanzaniahadanexcellentyear,withtheGDPgrowthrate

increasingfrom5.0%in2009toabout7.5%in2010.

Zambia

Zambiaseconomyreboundedfollowingtherecoveryof

copperpricesonworldmarkets.Zambiaseconomywas

expected to expand in real terms by 6.6% in 2010,

comparedto5.3%in2009.

Zimbabwe

Zimbabwe, having recently emerged from 10 years of

uninterrupteddepression,is expectedto post positive

growthforasecondconsecutiveyear.Economicgrowth

projections for 2010 were revised upwards by both

GovernmentandtheIMF.Governmentnowexpectsthe

economytogrowby8.1%thisyear,whileIMFprojects

a 5.9% growth.Theimprovedeconomic growthoutlook

has largely been underpinned by expected double digit

growthintheagricultureandminingsectors.


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Chairmans reportcontinued

Inflation developments

Generally,inflationarypressuresin themarketsin whichtheGroupoperateshavebeensubdued,despitethelow

interestrateswhichhaveprevailedinthesemarketssince

theonsetoftheglobalfinancialcrisis.

Thelowinflationarypressurescanbeplacedatthedoorof

subduedconsumerdemand.Consumerdemandisyetto

recoverasconservativeconsumersareprimarilyfocusing

onreducingtheirpresentdebtlevelsratherthanundertaking

newobligations.Inaddition,thepricesofimportedcom-

moditiesaresetwithinrangesthatwouldadverselyaffect

theinflationoutlookof anyofthesecountries.Oilprices

havingalreadyrisensharplyin2011,couldbeaconcern

goingforwardifthetrendissustained.

InBotswana,theannualaverageinflationratein2010was

6.9%,whichcomparedfavourablyto8.2%in2009.The

endof year inflationrate was 7.4% in December 2010,

compared to 5.8% in December 2009. An increase

inVATfrom10%to12%hadamarginaleffectonthe

inflationrate.

Inflation in Tanzania was lower as a result oflow food

pricesthatprevailedformostoftheyear.Averageannual

inflation was 7.2% compared to12.1% in 2009. The

inflationrateendedtheyearat5.6%comparedto12.2%inDecember2009.Weatherconditionshavealargepart

toplayinthecountrysfooddeficitsorsurplus,henceany

changesinweatherpatternscouldhaveanadverseimpact

ontheinflationoutlook.

InZambia,overallinflationcontinueditsdownwardspiral

in2010,largelyduetolowerfoodinflation.Volatilefood

inflation, whichwasin double digitlevelsduring2009,

dipped to 7.1% in January 2010 and stood at 2.8% in

September2010;thelowestlevelsinceJanuary2007.In

November, the annual inflationrate declined to 7.1%,

representing thelowestlevel in over 15 years.Average

inflationforthefirst11monthsoftheyearwas8.6%which

wassignificantlylowerthanthe13.8%of2009.

Zimbabwes inflation position in 2010 remained at an

average of 3.1%. Assisted by improved availability of

consumergoodsonthemarket,inflationpressureshave

beenwellcontained.Morerecently,reflectingseasonal

patterns and firming international oil prices, inflation

pressuresgraduallyfirmed.

Mozambiquewastheonlyexceptionasfarasinflationwas

concerned. Year-on-year inflation increased from 4.2% in

December 2009 to 16.6% atthe end of 2010. This was

primarilydrivenbyimportedinflationduetotheweakening

ofthelocalcurrency(Metical)againstkeyforeigncurrencies

suchastheSouthAfricanRandandUSDollar.Thisweakness

wasexacerbated byareductionin Governmentsubsidies

onfuel,resultinginanincreaseintheoverallpricetothe

consumer.Inevitably,therewasaknock-oneffectonthe

pricesofotherkeygoodsandservices.

Interest rate developments

Relaxedmonetarypolicies,adoptedasameansofpropping

upeconomic activityin the wakeof the world financial

crisis,continuedtoprevailinmostcountriesduring2010.

ThiswasthealsothecaseinSub-SaharanAfrica.TheBank

ofBotswana,afterloweringthe bank rate severaltimes

in2009,maintaineditat10%fromDecember2009until

December 2010, then reducedit bya further 50basis

pointsto9.5%.

InTanzania,thelowinterestratepositionthatexistedat

theendof2009continued,withtheovernightand91-day

T-billratebeinginthe1.5%to2%and3.5%to3.9%range,

respectively. However, during thefirstnine monthsto

September2010,averagelendinganddepositrateswere

14.1%and8.2%,respectively.Thisreflectedtheineffi-

cienciesthatexistwithinthemarket.

TheBankofZambiarate(BOZrate),whichistheCentral

Bankskeypolicyrate,softenedfrom8.3%inDecember

2009 to 3.9% in April 2010. Sincethen, the BOZ rate,

however, increased for consecutive months to 7.6% inAugust2010,beforeretreatingto5.8%inNovember2010.

The 91-day T-bill rate which is pegged at2 percentage

pointslowerthantheBOZratealsomirroredchanges

inthepolicyrate.During2010,lendingand90-daydeposit

ratesremainedbroadlystable,averaging28%and7.4%,

respectively.

InZimbabwe, thereis stillno lender oflast resort asthe

countryusesabasketofforeigncurrencies.Awidedisparity

betweenlendinganddepositratesexistsinthebanking

industry.Lendingrateshavebeenunderpressureaidedby

thefactthattheborrowersarealsoincreasinglyresisting

highlendingrates.Thisisoccurringasborrowerscanno

longer pass thesecostson toconsumers. Depositrates


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arebroadlyinthelowersingledigitlevels,withtheexception

ofsomefixedtermdeposits,whichattractratesofinterest

ofupto20%insomeinstances,dependingontheamount

andinstitution.

Mozambiquesinterestratepolicywasdifferentfromthe

otherfourcountriesinthesensethatthepolicyrates

increased dramaticallyin anattemptto counterinflation.

TheStandingLendingFacility,whichwasat11.5%in

December2009,wasraisedby100basispointsinApril

2010to12.5%.Itincreasedfurtherto14.5%inJuneand

15.5% inSeptemberwhereit hasremainedunchanged.

TheStanding Deposit Facility(SDF),anotherbenchmark

interestratefortheBankofMozambique,wasreviewed

upwardsby100basispointsto4%inJune2010,whereit

remainedunchangedfortheremainderoftheyear.

Exchange rate developments

TheUS Dollar remainedunderpressure during much of

2010.Thiswasduetoitsdecliningappealasasafehaven

currency, asrisk appetiteimproved andinvestorsbegan

tobewaryofariseinUSinflationresultingfromthe

aggressive monetary policies it pursued to counteract

therecession.

Onanannualbasis,theBotswanaPulaappreciatedby3.5%

againsttheUSDollarfromBWP6.67/USDinDecember

2009toBWP6.44/USDinDecember2010.ThePula,how-

ever, depreciated massively by 8% against the SouthAfricanRand(ZAR).

TheMozambicanMeticalhadaturbulentyear,depreciating

rapidlyagainsttheUSDollar.Howeverthecurrencyappre-

ciatedby7.1%againstthedollarinDecember2010.Not-

withstandingtheappreciationin Decemberon anannual

basisthecurrencydepreciatedby 19.6%againsttheUS

Dollaranddepreciatedby32.2%againsttheZAR.

In2010, theTanzanianShillingwas consistentlyunder

pressureagainsttheUSDollarandtheZAR.However,the

effectoftheexchangeratedepreciationoninflationwasveryminimal.Theexchangeratedepreciationagainstthe

USDollarwasinthemainduetolowdomesticinterest

rates.Highdemandforforeignassetsinthebanks(largely

duetoatechnicalchangeinthecalculationofthelimiton

theirnetopenforeignexchangepositions)alsocontributed.

TheTanzanianShillingweakenedagainsttheUSDollarby

10.8%fromTZS1,326.6/USDollarattheendofDecember

2009toTZS1,469.9/USDollarasofendofDecember2010.

Similarly, since December 2009, the Tanzanian Shilling

alsoweakenedby24%againsttheZARand14.8%against

theBotswanaPula.

The Zambian Kwacha was range bound against the US

Dollarfor muchof theyear.On ayear-on-yearbasis,the

assets


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8

Kwacha appreciated against the Euro (4.0%) and GBP

(1.1%)butdepreciatedagainstthe USDollar(3.4%)and

ZAR(15.2%).

Financial sector developments

Conservativeattitudetowardsriskexercisedbymostbanks,

asaresultoftherecentfinancialturmoil,isbeingliberalised

asmarketscontinuetoreturntonormalcy.Banksarenow

beginningtograduallyloosentheirlendingcriteria.Regional

marketsthatwerebatteredbybaddebtsduringthecrisis

(such as Botswana and Zambia) have largely stabilised.

However,thebaddebtsproblemisstillamajorconcernfor

thebankingindustryparticularlyinTanzania.

InBotswana,totalbankingsector depositsincreasedby

10%fromUSD5.6billioninDecember2009toUSD6.5billion

inOctober2010.Theshareofforeigncurrencydenominated

deposits(FCAs) has, however, notrecoveredfromthe

levelsthatprevailedpriortotheglobalrecession.Asat

October 2010, total bank loans to the private sector

amountedtoUSD3.3billion.Thehouseholdsectoraccounted

forthelargestshareofbankingsectorloansat57.1%.This

was followed by the business servicessector at 8.3%;

(thisincludeslegal,advisory,accounting,auditing,data

processing,consulting,engineering,surveying,advertising,

rentingandleasingofmachineryandequipmentservices);

trade accounted for 8.4%; construction, 4.3%; manufac-

turing,3.8%;andmining,2.7%.Miningsectorcompanies

have capacity to borrow offshore at favourable termsandconditions.Hence,theshareofcreditofthemining

sectorisverylow,despitetheimportanceofthissector

totheeconomy.

InMozambique,totalbankdepositsinUSDollarterms

declined from USD3.4 billion in December 2009 to

USD3.0billioninJuly2010.Thiswasprimarilyduetothe

massivedepreciationof theMeticalagainsttheUSDollar.

In some cases, a weak Metical can influence depositors

to relinquish the local currencydeposits in preference to

theFCAsinordertorestorevalue.InOctober2010,total

bankdepositswereUSD3.15billion,whiletheratioofFCAstototaldepositsimprovedto43%.Byandlarge,thevast

majorityofMozambicansarestillnot servedbyregistered

institutions.Inaddition,although,bothdepositandcredit

ratiosrelativetoGDPhavebeengrowingovertheyears,

theyarestillconsideredtobeverylow.Bankdepositsto

GDPimprovedsignificantlyfrom13.3%in2006to18.5%

in2008andgrewfurtherto26%in2009.Similarly,private

sectorcredittoGDPratioimprovedfrom15%in2007to

28%in2010.

In Tanzania, total bank deposits (US Dollar equivalent)

marginally improved from USD5.5 billion in December

2009to USD5.7 billion in September 2010.Reflectinga

significantimprovementin financialdeepening,over the

courseofthepastfewyears,TanzaniasloantoGDPratio

hassteeplytrendedupwardsfrom4.7%in2000to18%in

2008beforemarginallydecliningto16.3%in2009.Priorto

recentyears,TanzaniasprivatesectorloanstoGDPratio

had been one of the lowest when compared to other

countriesintheregion.Thisnotwithstanding,areportby

Ernst&Youngindicatesthatonlyabout4millionTanzanians

(outofapopulationofabout40millionpeople)haveaccess

to loans provided by banks and non-banking financial

institutions.Only10%of thepopulationhasaccess to

bankingsectorloanssuggestingthatthereis stilla huge

potentialforgrowthinthismarket.Inspiteofverylow

interestrates,mostbankscontinuedtoholdexcessively

highreserves,whiletheprivatesectorcreditgrowthshowed

signsofmodestrebound.Annualgrowthinprivatesector

creditimprovedto22.3%inSeptember2010comparedto9.6% inDecember 2009.In nominal terms, credit tothe

privatesectorgrewbyTZS723billionfromTZS4,992billion

inDecember2009toTZS5,715billioninSeptember2010.

TheZambianfinancialservicessector,thoughnotdirectly

exposedto theinfamous toxic assets,wasnone theless

indirectlyaffectedbythefinancialcrisis.During2010,there

was some recovery evident, with most banks improving

their lending criteria to customers.The bankingsector

depositsinUSDollartermsincreasedfromUSD2.7billionin

December2009to about USD3.3billion inOctober2010.

TheloansalsomarginallyincreasedfromUSD1.6billiontoUSD1.7billioninOctober2010.

ThebankingsysteminZambiawasfacedwithaminorcrisis

ofconfidencefollowingthetake-overof Finance Bank of

ZambiaLimited(FBZL)byBankofZambia(BOZ).According

to BOZ, FBZL is alleged to have had weak corporate

governanceandriskmanagementsystemsandwaslikely

tofailtoconductbusinessinasafeandsoundmanner.This

situationisnotexpectedtohaveamaterialadverseimpact

onthebankingsectoringeneral,asdepositorsfundswere

protectedbyBOZ.

InZimbabwe,thebankingsectorcontinuedtoexperience

aremarkablerecoveryduring2010asreflectedbystrong

growthindepositsandloans.Totalbankingsectordeposits,

which increased from USD300 million at the beginning

of 2009 to USD1.4 billion in December 2009, are now

estimatedtohaveincreasedby79%toUSD2.5billionin

December2010.Likewise,bankingsectorloans,which

stoodatUSD636millioninDecember2009improvedto

about USD1.6 billion in December 2010, representing a

loantodepositratioof65%.However,duetotheabsence

of a functionalmoney market,aggressive credit growth

witnessedinthebankingsectorhasexposedmostbanks

toheightenedliquidityandcreditrisks.

Chairmans reportcontinued


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According tothe IMF, Zimbabwesbankingsector isstill

fragile.TheIMFhasurgedtheReserveBankofZimbabwe

tostepupsupervisoryeffortsinordertoensurethatthe

bankingsystemcanwithstandanyshocksthatmightarise

duetosystemicrisks.

Outlook

The growth recovery of the world economy is still very

fragileanditssustainabilityremainsuncertainforanumber

ofreasons.Theeffectsof thelargestimuluspackages

thatcountries hadto provideto helpstem-out growth

areunknown,asthisisthefirsttimethatsuchwidespread

useofstimuluspackageshasoccurred.Theimpactofthe

variousstimuluspackagesoneconomicgrowthisstillto

bedetermined.

The sovereign debt crisis in Europe, the socio-political

instabilities in theArab world, austerity measures being

undertaken by some large developed economies and

riskofassetpricebubblesdevelopinginChinapointtoa

potentiallynegativeoutlookontheworldeconomicgrowth.

Goingforward,oilpricesareexpectedtoremainfirmdespite

slowerdemandgrowthandlargesurpluscapacityasOPEC

now prefers a wider price range of USD70 90/bbl. Oil

pricesin2011have,however,beenmuchhigherthanthis

range. Base metal prices are expected to record further

pricegains onthebackdropofcontinued strong demand

from China, falling stocks and supply constraints. Some

expertsprojectanincreaseinbasicfoodpriceswhichcould

sparkriotsandgeneralunrestinsomedevelopingcountries.

However,thiscouldbeshort-livedifproductionreturnsto

normalandcountriesstartrebuildingstrategicfoodstocks.

AccordingtotheInternationalMonetaryFund(IMF),global

economic growth is expected to weaken somewhat in

2011,beforepickingupin 2012.TheIMFestimatesthat

the global economy, which grew by4.8%in 2010,will

grow by4.2% andrebound in 2012. TheIMF, however,

noted that although financial conditions have begun to

normalise,institutionsandmarketsremainfragile.

Inmanyhighincomeeconomiesanddevelopingterritories

inEasternEuropeandCentralAsia,economicgrowthwill

be largelydependent on restructuring andright-sizingin

thebankingandconstructionsectors,aswellasongoing

fiscalandhouseholdconsolidationexercisesamongothers.

Inthedevelopingcountries,economicgrowthwillbenefit

fromsomewhatstrongerremittanceinflows,arecoveryin

tourismandhighercommodityprices.

Theeconomiesin whichthe Grouphas afootprintare

expectedtocontinuegrowingintothefuture.Improvements

indemandandconsequently,pricesofcommodities,willbe

thecommondrivertoeconomicgrowthinallthesemarkets.

Zimbabwe, however, is still grapplingwith theKimberly

Processso that it cangain fullaccess to international

diamondmarketsforitsMarangediamonds.Theuncertain-

tiesthatcharacterisethepoliticalarrangementareunnerving

for foreign investors and are limiting foreign investor

participationinthelocalmarket.Weremainhopefulthatthe

Zimbabweaneconomywillberestoredtoitsformersizein

themediumterm.

Change of shareholding

TheDirectorswishto adviseshareholders that African

DevelopmentCorporation(ADC),aMauritianregistered

company,hasrecentlyacquired20%ofthecompanys

sharesthroughtheopenmarket.

DividendTheDirectorshavedeclaredafinaldividendofBWP0.10

(tenThebe)(USDequivalentcurrently1.52cents)pershare

in respectof theyear ended 31 December 2010. The

dividendwillbepayabletoshareholdersregisteredinthe

booksofthecompanyatthecloseofbusinessonFriday,

1April2011.

Governance

IwelcomeMrFrancisDzanya,theChiefOperatingOfficer,

andMrBekiMoyo,theChiefFinancialOfficer,whowere

electedinMay2010totheBoard.

Acknowledgements

Iwouldliketothankmyfellowdirectors,managementand

staff for the positive results achieved by the Group in

2010.TheseresultspositiontheGroupwellinitsquestto

bethepre-eminentfinancialservicesgroupinAfrica.

HJ Buttery

GroupChairman


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10

CHIEF EXECUTIVEOFFICERS REPORTDTMunatsi

It is pleasing to report that for the

rst time in the short history of the

institution,alltheGroupsoperating

banking subsidiaries posted com-

mendableresults.Operatingprotat

BWP111 million is more than four

times the BWP26 million that was

achievedin2009.

Itispleasingtoreportthatforthefirsttimeintheshort

historyoftheinstitution,alltheGroupsoperatingbanking

subsidiariespostedcommendableresults.Operatingprofit

atBWP111millionismorethanfourtimestheBWP26million

thatwasachievedin2009.

Thequalityofearningshasimproved,withmostofthe

incomebeinggeneratedfromcorebankingactivities.This

contrastsmarkedlywith2009andprioryears,whennon-

recurrentincomecontributedsignificantlytotheprofitability

ofthebusiness.

Businessgrowthwasachievedacrossalloperationsasthe

Group continuedwideningandstrengtheningits footprint

throughtheexpansionintotheretailbankingsector.The

Grouphastodatesetup17retailbranchesacrossits

network.TheretailexpansionwasfundedentirelyfromGroupresources,whichispleasing.Themovehasbeenwell

receivedinallmarkets,particularlyinZimbabwewherethe

retail businessachievedprofitability afterits first year in

operation.Thisachievementexceededinternalexpectations,

which had estimated that profitability would be achieved

18to24monthsafterthedoorsopenedforbusiness.

Thequalityoftheloanbookcontinuedtoimprove.During

theperiodunderreview,non-performingloansreduced

from10%to8%,resultingina69%reductionincharges

forcreditimpairments.Tanzaniawastheonlyoperation

that hadsignificant impairmentsand itscontribution ishigherthanalltheotheroperationscombined.Theother

operationsrecordednetwrite-backs.Whilstweareconfident

thatwearewellsecuredformostoftheseexposures,the

courtsysteminTanzaniaissuchthattherecoveryprocess

willbeprotracted.

Notwithstandingthehugeshareoflossfromassociates,

attributable profit at BWP66 million is 14% ahead of

BWP58millionachievedinprioryear.Boththereturnon

equityandthenetassetvaluepershareimprovedasa

consequence.


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11

loansaresecuredbymoveableassets,bythetimejudgement

isissued,thevalueofthoseassetsmayhavesubstantially

declined.Inviewthereof,wehavedecidedtobeextremely

cautiousinourlendingapproachinTanzania,andasmuch

aspossibletakeimmoveablepropertiesascollateral.Efforts

torecoverfromallthedelinquentclientsareintensifying.

Non interest income

NoninterestincomeatBWP264millionwasmarginallydown

onprioryear.Whatiscomfortingthoughisthatincomefrom

bankingservicesincreased,whilstnon-recurrentincome

reducedsignificantly. In2009, theGrouprealisedonce-off

incomeofBWP94millioninrespectofdisposalofassociates

andtheequityportfolioinZimbabwe.Alltheoperationswith

theexceptionofBancABCBotswanarecordedsignificant

increases in non interestincome BancABCBotswana

experienced a slump in foreign exchange trading income

duetoamarket-widereductioninbothvolumesandmargins.

Operating expenses

OperatingexpensesatBWP435millionwere19%above

theBWP366millionrecordedin2009.Thisincreasewas

largelyattributabletotheZimbabweoperation,wherecosts

roseby71%post-dollarisation,andtheretailbankingroll-

outwhichcostBWP63millioncomparedtoBWP35million

in2009.Notwithstandingtheincreaseincosts,thecostto

incomeratiodeclinedby5percentagepointsfrom82%in

2009to77%fortheperiodunderreview.Whilstcostswillcontinuetoincreaseaswerampuptheretailprogramme,

weexpectthecosttoincomeratiotocomedownasa

resultofrevenuecontributionbytheretailbankingsegment.

Themedium-termtargetistoreducethecosttoincome

ratioto50%.Weare,however,cognisantofthefactthat,

whilsttheratiowilldecline,itwillstillbehigherthanthis

targetinthenear-term.

Tax

The Group incurreda net tax charge ofBWP22 million

comparedtoacreditofBWP16millionin2009.Changesto

thetaxationrulesinZimbabwein2009resultedinataxcredit

fortheGroupthroughthereductionofdeferredtaxinrespect

ofgainsondisposalofquotedmarketablesecurities.

Financial performance

Net interest income

NetinterestincomeofBWP298millionis67%higherthan

theBWP178millionrecordedinthepreviousreporting

year.Thiswaslargelyduetoa54%increaseinloansand

advances,coupledwithahighernetinterestmarginof6.8%,

upfrom5.6%.AlloperationswiththeexceptionofBancABC

Mozambique recordedan improvementin netinterest

income.Mozambiquewasimpactedbyexcessivelyvolatile

interestrateswhichresultedinmarginsbeingsqueezed.In

addition,theloanportfolioincreasedonlymarginally,dueto

thesignificantdepreciationoftheMeticalagainstallmajor

currencies.Ontheotherhand,BancABCZimbabweper-

formedexceptionallywellalbeitoffalowbase.

Impairment losses on loans and advances

NetimpairmentchargesofBWP16millionare69%below

theprioryearchargesofBWP51million.Thisimprovement

wasduetoacombinationofanimprovementintheeconomic

environmentandstrictcreditmonitoringoffacilities.Owing

to the above a number of clients that were previously

adversely classified were able to service their facilities.

Thisresultedinsignificantreversalsofloanimpairments.

The level of non-performing loans, whilst still high, is

reducing.Thestrategyofcurtailinglendingatthestartofthe

globalcrisishasbeenvindicated.Thequalityoftheloanbook

is sound and barring any unforeseen adverse changes in

theregional economies,thelevelof non-performingloans

shouldcontinuetodeclineandbeinlinewiththoseofother

industryplayers.

BancABCTanzaniasnetimpairmentchargesatBWP18million

were41%higherthantheBWP13millionrecordedinprior

yearandexceededtheGrouptotalasotheroperations

recordedsignificantrecoveries.Mostofthesefacilities

aresecuredby tangible assets, hence they should be

recoverable.Thebiggestchallenge,however,isthecomplex

courtsystemwhichresultsincasesgenerallytakingan

inordinateamountoftimetoresolvein-spiteofthefactthat

therewillbeaclearbreachofcontract.Asaresult,where


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12

Chie Executive Ofcers reportcontinued

Balance sheet

The balance sheet grew by 36% from BWP4.4 billion

toBWP6billionas at31 December 2010. Loans and

advancesincreasedby54%fromBWP2billionin2009to BWP3.1 billion. Deposits increased by 46% from

BWP3.4billiontoBWP4.9billion.

LoansandadvancesinBancABCZimbabweincreasednine-

foldfromBWP98milliontoBWP975million.Zimbabwenow

constitutes32%ofthetotalloanportfolio,upfrom5%inthe

previous year. BancABC Zimbabwes market share has

increasedfrom3.1%in2009to8.8%in2010.Thiswas

achieveddespitethebankstillbeingpredominantlycorporate

innature.Marketshareisexpectedtoincreaseontheback

oftheretailexpansion.Alltheotherbankingsubsidiarieswith theexception ofTanzaniaregisteredgrowthin loans

andadvances.BancABCTanzaniamanagementfocusedon

collectionsandrehabilitationofnon-performingloans.

Thequalityoftheloanbookinallsubsidiaries,otherthan

Tanzania,wasgood.ThestrategyinTanzaniawillbepremised

on growing quality loans and collecting on delinquent

accounts.

Deposits increased by 46% from BWP3.4 billion toBWP4.9billion.Overthelastfiveyearsdepositshavegrown

byanannualcompoundrateof32%.Alltheoperations

recordedgrowthin deposits.Botswanas contributionat

40%isstillthehighestandBancABCZimbabwehascome

instronglyandnowcontributes22%ofthebook,upfrom

8%inprioryear.


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13

reve

nue

Attributable profit by operation

The banking subsidiaries recordedattributableprofitsof

BWP98million,up151%fromBWP39millioninprioryear.

Head office and other non-banking operations posted a

lossofBWP11million,whileassociatescontributedalossof

BWP20million.AlthoughtheGroupwillcontinuetosupport

theassociates,theyremainavailableforsaleaslongasa

reasonablepricecanberealised.Headofficeintheprior

yearrecordedsomeonce-offgainsthroughthesaleofequity

investmentsthatwere being used forcapital preservation

purposesinZimbabwe.

Operational performance

Botswana

BancABCBotswanaperformedwellonthebackofthe

economicrecoveryascommoditypricesimproved.Profit

aftertaxof BWP20millionwas15%higherthanthe

BWP17millionachievedin2009.Thebalancesheetgrew

by30%,largelyduetoincreasedcustomerdeposits,which

grewby40%toBWP2billion.Thisadditionalliquiditywas

investedpartlyinmoneymarketinstruments,includingBank

ofBotswanacertificatesaswellasinloansandadvances.

Thefirmingofmarginsinlendingactivitiescoupledwithan

increaseinthebalancesheetsize,resultedin highernet

interestincome.Net interestincomeincreased by 48%

fromBWP35milliontoBWP51million.Ontheotherhand,

noninterestincomedeclinedby22%(BWP9million),largely

due to a reduction in foreign exchange trading income

onaccountofareductioninbothvolumesandmargins.

Managementactedproactively inmanagingthequality of

theloanbook,collectingonsomepreviouslyimpairedloan

accounts.Non-performingloansinBotswanahavecome

downandthissituationisexpectedtoimprovefurtherin

2011.Owingtotheabove,BancABCBotswanahadazero

netchargeforcreditimpairmentsin2010.


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14


Operatingexpensesincreasedby27%(BWP13million)to

BWP59millionasaresultofexpenditurerelatedtothe

roll-outoftheretailprogramme.

Mozambique

BancABCMozambiquewasadverselyaffectedbythehigh

volatilityinmarketinterestandexchangeratesduringthe

year.Thesedevelopmentsnegativelyimpactedthebanks

marginsandledtosubduedbalancesheetgrowth.As

a consequence, net interest income declined by 25%

(BWP10million)toBWP29millionandnoninterestincome

declinedby7%toBWP57million.

Onapositivenote,thecreditimpairmentchargedeclined

by77%toBWP2millionfromBWP10millionin2009.This

wasduetocollectionsonpreviouslyadverselyclassified

accountsandtightmonitoringofthequalityoftheloanbook.

Asa result,no newaccountswereadverselyclassified.

Operatingexpensesweretightlymanaged.Despiteincreased

staffnumbersandbusinessactivitiesfollowingtheintro-

ductionofretailservices,operatingexpensesincreasedonly

by6%(BWP3million).

AftertaxprofitatBWP23millionwas24%lowerthanthe

BWP30millionachievedin2009.

Tanzania

DespitethehighimpairmentsrecordedbyBancABCTanzania

during the year, the subsidiary managed to increase its

attributableprofitsby 207%toBWP16million.Thiswas

achievedon theback of increased revenuesacross the

board.

Thebanksdepositsincreasedby18%(BWP119million).

Loansandadvances,however,declinedby8%(BWP40million).

Theexcess liquidity generated was invested in money

marketinstruments, includingGovernmentbonds.Net

interestincomeincreasedonthebackofincreasedvolumes

andmarginsasthecostoffundsinthemarketdeclinedto

historiclows.Asaresult,noninterestincomeincreasedby

40%fromBWP27milliontoBWP38million.

Theaboveachievementswere,however,negatedbyan

increaseinimpairmentsfromafewlargeclientswhodid

notservicetheirdebtsonschedule.Creditmanagementand

monitoring has been strengthened and benefits of these

actionsshould be realisedin thenear-term.Operating

expenses increased by 18% (BWP7 million) as the bank

intensifiedtheretailbankingroll-out.

Zambia

BancABCZambiaachievedasuccessfulturnaround,posting

aprofitaftertaxofBWP11million.Thiscomparedfavourably

tothelossofBWP34millionthebankrecordedin2009.

BancABCZambiareinforceditsimprovedpositionbygrowing

itscustomerdepositbaseby 21%to BWP253million,

despitea22%declineinitsloanbooktoBWP233million.

Thecapitalpositionofthebankhadbecomeprecariousdue

tohistoricallosses.AsaresultnewequityofUSD6million

wasinjectedbytheholdingcompany.Asthebanksfortunes

changeditbecamecorrespondinglyeasiertoraisedeposits

atareasonablecost.Netinterestincomeincreasedby9%

toBWP67millionwhilenoninterest incomeincreased by

110%toBWP21milliononthebackofincreasedtransac-

tionalvolumesduringtheyear.

Thequalityof theloan bookimproved significantly. This

enabled the entity to record a net impairment recovery

ofBWP3millioncomparedtoachargeofBWP27million

in2009.Operatingexpensesweretightlymanagedand

onlyincreasedby5%,mainlythroughsynergiesachieved

followingthemergerofthebankandthemicrofinanceunit

in2009.Thereremains,however,substantialworktobe

doneonthebankingsideofthebusinesstoensurethat

profitabilityaccelerates.

Zimbabwe

TheZimbabweaneconomywhichhadbeeninfree-fallfor

more than adecade,recordedgrowth for thefirsttimein

2009followingtheestablishmentofagovernmentofnational

unityanddollarisationoftheeconomy.Thisgrowthcontinued

into2010.However,thedevelopedworldremainsdoubtful

thattheriskprofileofthecountryhasmateriallychanged.

Asaresult,foreigninvestorparticipationisstilllimitedand

theeconomy continues performingata fraction of itsfull

potential.Further,thelackofcapacityby thelenderof last

resorthaslimitedbothloanexpansionandinterbanktrading.

Despite these challenges, BancABC Zimbabweposted

BWP27 millionin profitaftertax,an improvement of

43%fromtheBWP19millionachievedin2009.Thebank

grewitsbalancesheetby215%fromBWP0.5billiontoBWP1.5billion.Customerdepositsincreasedby316%

fromBWP0.25billiontoBWP1.1billion.Loansandadvances

increasedby810%fromBWP0.1billiontoBWP0.9billion.

This,togetherwithincreasedtransactionflows,increased

the banks revenues across the board by 93% from

BWP73millionin2009toBWP140millionin2010.

Operatingexpensesincreasedby71%toBWP107million

fromBWP62million.Theincreaseinoperatingexpenses

waslargelyduetothenormalisationofstaffsalaries,which

wasafeatureofthemarketpost-dollarisation.Inaddition,

theexpansionintotheretailbankingsectorexacerbatedthe

increaseincosts.


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15

Business segments

Treasury and structured finance

Thedivisionperformedwellduringtheyear,withcustomer

depositsincreasingby46%fromBWP3.4billionin2009to

BWP4.9billion.Allsubsidiariesregisteredpositivegrowth

whencomparedto2009,withsignificantgrowthbeing

registeredinBotswanaandZimbabwe.

Thedivisionwasabletoincreasefundsinvestedinmoney

marketinstrumentsresultingina27%increaseinmoney

marketinterest income toBWP201million.This growth

was achievedon thebackof stability in marketinterest

ratesotherthaninMozambique.

TradingactivitiesinMozambique,TanzaniaandZimbabwe

remained high. Tr ading inc ome inc reas ed 8% t o

BWP140 million from BWP129 million in 2009. Growth

washamperedbyadeclineintradingvolumesinBotswana

following the introduction of cheque capping and other

regulations that are restricting transaction volumes.

However, foreign exchange trading income improved

substantiallyinMozambiqueandZimbabwe,whilsttrading

ofGovernmentsecuritieshelpedimprove overalltrading

incomeinTanzaniaandZambia.Centraltreasuryoperations

havebeenbolsteredanditisourhopethatthisunitwill

contributepositivelytoincomegoingforward.

Corporate bankingThedivisionfared welldespitethe tough butimproving

operatingenvironment.Loansandadvancesgrewsignificantly,

eventhoughchallenges,whichmilitatedagainstgrowth,

persistedinZambiaandtoalesserextentinMozambique.

Thequalityoftheloanbookcontinuestoimproveandthe

ratioofnon-performingloansshouldbeinlinewithindustry

peerswithinthenext24months.Theestablishmentofa

separatecreditfunctionacrossallsubsidiariesin2009has

resultedinamorefocusedapproachtocreditmanagement

and has led tomore objective assessment ofany new

loansbeingunderwritten.

Thedivisionrecordeda31% increaseininterestincome

toBWP450 millionandan increaseof23%in feesand

commissionstoBWP103million.Zimbabwenowcontributes

meaningfullytothedivisionsoverallresults.

Retail banking

During2010,thedivisionopened11branchesacrossits

regionalfootprint(bringingthetotalnumberofbranches

openedto15asat31December2010and17todateafter

opening2 morebranchesin JanuaryandFebruary2011)

andbeganmarketingall key products. These products

havebeenwellreceivedacrossallmarkets.In2010,the

divisionraiseddeposits of BWP165 million andunder-

wroteretailloansofBWP109million.Totalrevenueswere

BWP27millionagainstoperatingexpensesofBWP63million

(2009:BWP35million).Allthesystemshavebeenacquired

andasubstantialnumberhasbeendeployedorareinthe

processoffinaldeployment.Withtheintroductionofretail

bankingtheGroupwillnowbeinapositiontoofferafull

suiteofbankingproductsandthisshouldhelpinpushing

formorebusinessfrombothnewandexistingclients.As

previouslyadvisedourtargetistoensurethatallbranches

areprofitablewithin18to24monthsofopening.

Human capital

During theyear, theGroups Human Capitaldepartment

continuedexecutingitsmandateofensuringstandardised

andconsistentpeoplemanagementpracticesinallGroup

operations.TheBalancedScorecardmethodologywhich

is part of the overall performance management and

measurementtoolatentityandindividuallevelhasnow

beenembeddedGroup-wide.Staffgrading,compensation

and incentive schemes were also harmonised during the

year.Toensurecontinuity,thesewerelinkedtoindividualand

countrybalancedscorecards.

Tremendous successes were recorded in the fields of

learninganddevelopment.Ofthemostnoteworthyachieve-

mentswas the success of the Leadership Development

Programmes undertakenby executives,managers andspecialists.TheobjectiveoftheExecutiveLeadership

Development Programme is to achieveuniversal partici-

pationbyallexecutivesandseniormanagers.Withalmost

ayearstilltorun,itisanticipatedthatthisobjectivewill

beachievedbytheendofDecember2011.

Thedivisionsshorttomediumtermplansaretoentrench

strategichumancapitalmanagementpractices,improve

overallemployeeproductivityintheGroup,drivedown

peoplecostsanddrivearobusttalentmanagementsystem

thatincludessuccessionplanning.Asaresultofallthese

policiesweshouldbeabletoattractandretainhighlyskilled

employeeswithintheGroup.


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16


Other support divisions

TheGroup operatesa centralisedInformation Technology

(IT)function.ThefocusofITduringtheyearwastoimprove

overallservicesofferedtointernalandexternalcustomers.Thisinvolvedthesettingupofamorerobusthelp-deskand

buildingtheinfrastructureandsystemsrequiredtosupport

theretailprogrammethroughaspeciallycreatedprogramme

managementoffice.Theroll-outofretailbankingfunctionality

isongoing. To meet thedemandsof thisprogrammethe

departmentwillbebolsteredbyadditionalskilledstaffasthe

roll-outprogresses.

Simultaneouslywiththedevelopmentofnewfunctionality,

the core banking system isbeingupgraded toimprove

performance.Thehigherversionofthecorebankingsoftware

willenabletheGrouptoseamlesslyintegratesystemsfromdifferentvendors.

TheGroupsBankingOperationsdepartmentsupportsvarious

revenue-generatingdepartments.Wecontinuouslylookfor

newandbetterwaysofservicingthecustomerandatthe

same timereduce theerrorrateto negligiblefigures.The

departmentrationalisedexistinginternalfunctionstoimprove

transaction handlingand tocaterforincreasedtransaction

processingfromtheretailprogramme.Italsoreviewedand

wroteanumberofnewprocessmanualstohelpnewstaff

understandtheGroupsstandardwayofhandlingbusiness.

GroupFinanceisresponsibleforfinancialmanagementand

reporting,regulatoryreporting,budgetingandGrouptax.A

newmanagement informationsystemwillbedeployedin

2011whichwillhelpinboththequalityandtimeousreporting

ofallkeyinformation.

GroupRiskmanagesallrisksthattheGroupisexposedto

fromallitsactivities.Thedepartmenthasvariouscommittees

thatidentifyandmanagevarioustypesofrisks.Thekey

committees are the Asset and Liability Management

CommitteeandtheOperationalRiskCommittee.TheLegal

andCompliancedepartmentisalsochargedwiththeday-to-

daymanagingoflegalandcompliancerisks.Tothisend,the

department has developed standardised documents for

wholesaleandretailbanking.Ithasstrengthenedstructures

inthesubsidiariesandestablishedacentralisedfilingsystem

foralllegaldocumentation.

The Legal and Compliance department developed a legal

policy framework that sets uniformlegal documentpro-

tocols.ItalsoadvisedtheBoardofDirectorsonaugmenting

corporatepoliciesinlinewiththenewcorporategovernance

recommendationsmadeintheKingIIIReportoncorporate

governance. The Group Legal Counsel, who heads this

department, also provides legal services as required or in

conjunctionwithexternalattorneys.

GroupCreditmonitorstheloanportfoliooftheGroupand

ensuresthattheGroupisnotexposedtoundueriskfrom

new business that is underwritten. In addition, it also

monitorsexistingcustomerswhomaybefacingfinancial

challenges that impact on their ability to meet their

commitments.

Group InternalAudit plays a keyrole in maintaining and

improvingtheinternalcontrolenvironmentwithintheGroup.

TheGroupHeadofInternalAuditreportsdirectlytothe

RiskandAuditCommittee.

Rating

GlobalCreditRatingmaintainedtheratingfortheGroupat

A3forshort-termsecuritiesandBBBminusforlong-term

securities.The evolutionof theGroupsratingis listed

below.

Security class 2006 2007 2008 2009 2010

Short-term A3 A2 A2 A3 A3

Long-term BBB BBB BBB BBB- BBB-

Outlook

Webelievethateventhoughtheeconomicrecessionhas

bottomedout,fullrecoverywillbeprotracted.Inflationcould

beachallengeasaconsequenceofhigheroilpricesgiven

thechallengescurrentlybeing experiencedin theMiddle

EastandNorthAfrica.TheGrouphasmademajorinvest-mentsintheretailbankingbusinessandthisshouldyield

higherreturnsinthenexttwoyears.Thewholesalebanking

businessremainsrobustandcontinuestogeneratestrong

revenues. Aneven strongerperformance is anticipatedin

2011.Inordertomovethecompanytothenextlevel,it

willbenecessarytoraiseadditionalcapital.TheBoardand

Managementareactivelyexaminingthisimportantmatter,

andfurtherannouncementswillbemadeinduecourse.

Acknowledgements

I wouldliketo extend my sincere thanks tothe Board,

management andthe entire BancABC team forall theirsupportduring2010.

DT Munatsi

GroupChiefExecutiveOfficer


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17

Social and environmental policy

BancABCrecognises,thatsustainabledevelopmentis

dependent upon a positive interaction between economic

growth,socialupliftmentandenvironmentalprotection.Asa

responsiblecorporatecitizen,theGrouphasapolicyframe-workthatisdesignedtoensurethatallprojectsundertaken

adheretosocialandenvironmentalregulationsoftherelevant

local,nationalandinternationallawsandstandards.

This policy framework commits the Group to:

provide inhouse environmental education and

support;

recognise the environmental burden caused by

consumptionof resources andrelease of waste

fromourownbusinessactivitiesandaimtoprotect

theenvironmentthroughresourcerecyclingaswellasefficientuseofenergyandresources;

support business activities that contribute to the

protectionandimprovementoftheenvironment;

monitortheeffectsofouractivitiesontheenviron-

mentand work towardscontinuousimprovement

andpollutionprevention;

comply with all applicable laws and regulations

related to environmental protection and other

requirementstowhichBancABCGroupcompanies

aresubjecttoandsubscribeto;and

providefinancingtoprojectswithminimaladverseimpact on the environment while ensuring that

those having potentially major adverse environ-

mental and social impact are accompanied by

adequatemitigationmeasures.

Inordertoensurecompliancewiththelastofthesecommit-

ments,BancABCscreditriskassessmentseekstoensure

that thesocialand environmentaleffects of itsfinancial

support are assessed and monitored. This Environmental

and Social Review Appraisal Procedure (ESRP) enables

the integration of social and environmental safeguards in

projects,toensurethatthepotentialrisksassociatedwith

theseissuesareappropriatelyidentifiedandmitigated.

CORPORATESOCIALRESPONSIBILITYREPORT

BancABC is also a patron of the

arts. The Group supports the view

thatvibrantartsandcultureisavital

expressionofAfricasidentity.Africa

boasts a rich artistic and cultural

heritage that is as diverse as itspeople.Thisheritageisthesoulof

theAfricancontinentandforitto

grow and thrive, the cultural arts

needtobenurturedandcelebrated.


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18

Corporate and social responsibility reportcontinued

The key components of the ESRP are:

an assessment of potential and current environ-

mentalandsocialrisksandimpactarisingoutofthe

proposal;and

thecommitmentand capacityof theborrower to

managethisimpact.

Against this background, the procedure ensures that

projectsfinanced by theGroup areenvironmentally and

socially sound andsustainable and that any potential

environmentalandsocialrisksareidentified,evaluated

andwherenecessary,mitigated.Inlinewithitspolicy,the

Group willnot finance anybusiness activitythat cannot

reasonablybeexpectedtomeettherequiredenvironmental

andsocialstandardsupfront.

Projects financed by the Group shall, at the minimum,

complywiththenationaland/orlocallegislationandguide-

linesforenvironmentalandsocialassessmentandmanage-

ment.TheBankfurtherconformstotheAfricanDevelopment

Banks Environmentaland Social Assessment Procedures

(2001).

Management ensures, through training and coaching,

that there isan appropriateinternalcapacityto handle

environmentalandsocialissues.This issupplemented

byexternalexpertise,astheneedarises.AlltheBanks

employees in the Operations department are provided

withacopyoftheESRP.

TheGroup may financeprojects forwhich no specific

environmentalorsocialguidelinesexist.Insuchcases,

generalenvironmentalandsocialconsiderationspertaining

toemissions,liquid effluents, hazardous materials and

wastes,solidwastes,ambientnoise,occupationalhealth

andsafety,lifeandfiresafetyandotherhazardsareborne

inmindduringtheappraisal.

Corporate Social Investment (CSI)

BancABC recognises it has a responsibility to uplift and

supportsocialprogrammesinAfricaanditplaysanactiverole

inthecommunitiesinwhichitoperatestoachieveasmuch.Through various programmes and initiatives, BancABC is

focusedontheeconomicupliftmentofthemostvulnerable

grouponourcontinentwomenandchildren.

BancABCisalsoapatronofthearts.TheGroupsupports

theviewthatvibrantartsandcultureisavitalexpression

ofAfricasidentity.Africaboastsarichartisticandcultural

heritagethatisasdiverseasitspeople.Thisheritageisthe

souloftheAfricancontinentandforittogrowandthrive,

theculturalartsneedtobenurturedandcelebrated.

Tanzania

BancABCChangeForumteamwasformedin2010forthe

purposeofensuringthatstafflivetheBankscorevalues.

The team managed to work on People as one of

thecorevaluesby ensuringthatall staffparticipatein

CorporateSocialResponsibilitiesandimpactotherpeople

outsidetheBank.Theteamidentifiedoneoftheorphanage

centres in Dar es Salaam known as Kurasini National

ChildrensHomeCenterwhereneedychildrenarelooked

afterandraised.TheBankdonatedvariousmaterialitems,

including50mattresses,100kgofmaizeflour,50kgof

sugar,washingandbathsoaps,drinks,andotherfoodstuff.

Morethan30stafffromBancABCvisitedtheCenterand

hadtimetointeractwiththechildren.

BancABChascontinuedtosupportKiotasWomensHealth

andDevelopmentOrganization(KIWOHEDE).KIWOHEDE

isanon-governmentalcommunity-basedorganisationand

operatesin21townsanddistrictsacrossthecountry.The

centercatersforgirlsbetweentheagesof9to20by

providingcounselling,rehabilitationandalternativepro-

grammes for child prostitutes, domesticworkers, sexually

abusedandothervulnerablechildrenandyouth.TheBanks

projectissupportingfivegirlsthroughtheirsecondaryedu-

cation.Thegirlsaredoingwellatschoolandtheassistanceis

changingtheirlives,thusgivingthemhopeforabetterfuture.

Zimbabwe

BancABChasbeenproudlyinvestinginHarareInternational

FestivalofTheArts(HIFA)throughthelifeoftheFestival.

ThebankpartneredwithHIFAinsponsoringtheBancABC

openingday,inApril2010.Thisyearsthemewasabout

face,whichfocusedonchangesthecountryisgoingthrough. HIFA hasbecome one of the biggest festivals

in Africa,attractinginternational artistsand tourists, and

promotinglocalartsandculture.

Thebank contributedto theKhayelihle Childrens Home

fundraising dinner that was heldin Bulawayo. Thebank

alsopledgedtocontributetowardsthefoundationbuilding

oftheMidlandsStateUniversityLibrary.Thefoundation

willcostUSD62,000andthebankhasalreadycontributed

USD15,000.

Zambia

BancABCZambiasupportsOurLadysHospiceinKalingalinga.

Thehospiceprovidesdaycare,home-basedcareandhospital

facilities forpeoplesufferingfrom fullblownAIDS.It also

givessupportinprovidinganti-retroviraltreatmenttosome

of itspatients. BancABC Zambia supports thehospiceby

providingUSD1,000everymonthtoassistthelabinbuying

astringents.BancABCZambiaalsosupportedtheZambia

JudoAssociationbysponsoringthetracksuitsusedfor

allinternationalevents,andtheZambiaCyclingUnionby

sponsoringtheircyclingeventtosupporthealthyliving

inZambia.


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19

RISK ANDGOVERNANCEREPORT

Risk management

ThedirectorateandmanagementofABCHoldingsrecognise

thateffectiveriskmanagementisfundamentaltothesus-

tainabilityofitsbusiness.Astrongriskmanagementculture

withintheGroupensuresanappropriatebalancebetweenthediverserisksandrewardsinherentinanytransaction,and

underpins sound decision making. Accordingly, a compre-

hensiverisk management processis inplace toevaluate,

monitorandmanagetheprincipalriskstheGroupassumes

inconductingitsactivities.Inthecourseofconductingits

business,theGroup isexposedto variousrisksinherent

inprovidingfinancialservices.Someoftheserisksare

managedinaccordancewithestablishedriskmanagement

policiesandprocedures,mostofwhicharediscussedinthe

Financial Risk Management section. The Groups primary

risksareoutlinedbelow:

Market risk

TheGroupmaybeadverselyimpactedbyglobalmarkets

and economic conditions that can leadto fluctuations

ininterestandexchangerates,as well asequity and

commodityprices.Itmayalsobeadverselyimpactedby

significantholdingsoffinancialassets,orsignificantloans

orcommitmentstoextendloans.

Credit risk

TheGroupmaybeadverselyimpactedbyanincreaseinits

creditexposurerelatedtotrading,lendingandotherbusiness

activities.Potentialcredit-relatedlossescanresultfroman

individual,counterpartyorissuerbeingunableorunwillingto

honourtheircontractualobligations.

Liquidity risk

Thefinancialcondition ofthe Group may beadversely

impactedbyaninabilitytoborrowfundsorsellassetsto

meetitsobligations.

Operational risk

TheGroupmayincurlossesduetothefailureofitspeople,

internalprocessesorsystems,orasaresultofexternalevents.

GroupRiskManagementcontinually

seekstoenhanceitsriskmanagement

techniques and provide assurance

thatrisksareappropriatelyidentied,

monitoredandcontrolled.


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20

Risk and governance reportcontinued

Approach to risk management

TheBoardrecognisesthatitisultimatelyresponsibleand

accountabletoshareholdersfor:

theprocessofriskmanagementandthesystems

ofinternalcontrol;

identifying,evaluatingandmanagingthesignificant

risksfacedbytheGroup;

ensuringthateffectiveinternalcontrolsystemsare

inplacetomitigatesignificantrisksfaced;

ensuringthatadocumentedandtestedprocessis

inplacetoallowtheGrouptocontinueitscritical

businessintheeventofasevereincidentimpacting

itsactivities;and

reviewing the efficacy of the internal control

system.

The Board hasapproved theGroup Risk Management

framework which applies to all Group companies and

dealswithenterprise-wideriskandgovernanceprotocol.

Risk management in theGroup is underpinned by gover-

nancestructuresaswellasriskownership,identificationand

evaluation. Ownership and management of risks begins

in the businessunits of each subsidiary, who identify

andevaluaterisksparticulartotheirfunction.GroupRisk

Management reviews actions taken by business units to

mitigateidentifiedrisks.

Group Risk Management objectives

TheGroupRiskManagementfunction,asmandatedbythe

BoardofDirectorsisto:

coordinate risk management activities across the

organisation,byultimatelybecomingthecustodianof

BancABCsriskmanagementculture;

analyse,monitorandmanageallaspectsofexposures

acrossriskclasses;

ensureriskparametersandlimitsareset,approvedand

implementedandensurethatsuchriskparametersandlimitsareconsistentlyadheredto;and

facilitatevariousriskmanagementcommitteesas

partoftheGroupsriskmanagementprocess.

Legal risk

Legal proceedingsagainst theGrouporinsufficientlegal

protectioncouldadverselyaffectitsoperatingresultsfora

particularperiodandimpactitscreditratings.

Regulatory and legislative risks

ManyoftheGroupsbusinessesarehighlyregulatedand

are subject to, and could be adversely impacted by,

regulatoryandlegislativeinitiatives.

Role of Group Risk Management

GroupRiskManagementisresponsibleformaintaininga

culture of risk awareness throughout the Group. While

each businessunitis primarilyresponsibleformanaging

its ownrisks, Group Risk Management independently

monitors,managesandreportsonallrisksfacingtheGroup,

asmandatedbytheBoardofDirectors.Itcoordinatesrisk

management activities across the Group to ensure that

riskparametersareproperlysetandadheredtoacrossall

riskcategoriesandinallGroupcompanies.Italsoensures

that all riskexposures canbe measured and monitored

across the Group. Managing risk effectively is one of

thekey driversof theGroups continuous investment in

technology. Group Risk Management continually seeks

newwaystoenhanceitsriskmanagementtechniques.It

alsoupdatestheGroupRiskManagementframeworkona

regularbasistoreflectnewpoliciesadoptedbytheBoard

of Directors. Group Risk Management regularly reportsto the Executive Committee and the Risk and Audit

Committee,toprovidetheBoardwithassurancethatrisks

arebeingappropriatelyidentified,managedandcontrolled.

Group Risk Management is headed by an executive

managerwhoreportstotheChiefExecutiveOfficer(CEO).

The Groups approach to risk management

The Groups approach to risk management involves a

numberoffundamentalelementsthatdriveitsprocesses

across the Group. The procedure and methodology is

describedintheGroupsEnteprise-wideRiskManagement

Framework.TheGroupsriskappetitesetsoutthelevelofriskthattheGroupiswillingtotakeinpursuitofits

businessobjectives.Thisriskappetiteiscalibratedagainst

theGroups broad financial targets, includingprofitability

and impairment targets, dividend coverage and capital

levels business. TheGroups risk methodologiesinclude

systemsthatenabletheGrouptomeasure,aggregateand

reportriskforinternalandregulatorypurposes.Asan

example,theGroupscreditgradingmodelsproduceinternal

ratings through internally-derived estimates of default

probabilities,seediscussiononCreditRiskManagement

below.Thesemeasurementsareusedbymanagementin

anextensiverangeofactivities,fromcreditgrading,pricing

andapprovalto portfoliomanagement, economiccapital

allocationandcapitaladequacyprocesses.


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21

creditCommittee(CREDCO)responsibleforcredit

risk;

assetsandLiabilityCommittee(ALCO)responsible

for interest rate, market, liquidity, counterparty,

currencyandcapitaladequacyrisk;and

operationalRiskCommittee(ORCO)responsiblefor

technology, compliance, legal, human resources,

reputational,operationalandregulatoryrisk.

ReportingEachsubsidiaryorbusinessunitproducesriskreportswhich,

alongwiththedetailedriskinformationprovidedbyGroup

RiskManagement, isdiscussedbytheBoard.Therisk

reportspresentabalancedassessmentofsignificantrisks

and the effectiveness of risk management procedures,

andmanagementactionsinmitigatingthoserisks.

Capital and liquidity risk management

ALCOreviewsthecapitalstatusoftheGrouponamonthly

basis.Italsoconsiderstheactivitiesofthetreasurydesk

whichoperatesintermsofanapprovedtreasurymanagement

policyandinlinewithapprovedlimits.

ALCOreportstotheRiskandAuditCommitteeintermsof

theGroupRiskManagementframework.Capitaladequacy

andtheuseofregulatorycapitalarereportedperiodically

tothecentralbanksoftheGroupsoperatingcountries,inline

withrespectiveregulatoryrequirements.ALCOcomprises

broadlyrepresentativeexecutiveandseniormanagers,

includingthe Group CEO, Chief Operating Officer, Chief

FinancialOfficer,ChiefRiskOfficer,GroupHeadofWholesale

Banking,GroupHeadofCorporateBanking,GroupHeadof

TreasuryandGroupHeadofRetailBanking.

LiquidityriskismanagedbyALCOintermsoftheGroupRiskManagementframework.TheGroupapproachesliquidity

cautiouslyandconservativelybymanagingtheliquidityprofile

withapreferenceforlong-term,fixedratefunding.Assuch,

theGroupisexposedtofundingliquidityrisk.

ALCOreviewsastressmismatchreportmonthly,which

simulates stressscenariosbasedon thecurrent asset

andliabilitystructureoftheGroupforthereportingmonth.

Thereportalsoconsiderstheavailablesourcesofstress

fundingtoaddressanypotentialstrainonthecashflows

oftheGroup.

In addition, the Group has a documented contingency

fundingplan(CFP)thatspecifiesmeasuresthatmustbe

BOARD OF DIRECTORSUltimatelyresponsibleforriskmanagement

Group ALCO Group ORCOManagement Credit Committee

Specialised committees of the BoardResponsibleforenterprise-widerisk

managementacrosstheGroup

ALCO Interestrate Liquidity Market Currency Capitaladequacy

Operational Risk Technology Operational Compliance Legal Regulatory Reputational

Credit Credit

Group Internal Audit

Group Executive CommitteeResponsibleforoverseeingday-to-dayrisk

managementacrosstheGroup

Audit and RiskManagementCommittee

LoansReview

Committee

BoardCredit

Committee

Group Risk Management framework

TheGroupRiskManagementframeworkdocumentstheriskmanagementpoliciesfollowedby theGroup.Thesepolicies

ensurethatrisksareconsistentlymanagedthroughouttheGroupthroughasetofinternalcontrols.Thepoliciesalsoensure

thatriskawarenessfiltersdownthrougheveryleveloftheGroup,andthateveryemployeeunderstandstheirresponsibilityinmanagingrisk.Thefollowingsub-committees,comprisingexecutivesandseniormanagement,areresponsiblefordealing

withtherisksfacingtheGroupinastructuredmanner:


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22


creditscoringtoaligncreditriskappetiteassessmentand

toleranceacrossconsumerandcorporatebusinesses.

BancABCrating scale

BancABC

defaultsrates BancABCretail score Standard &Poors ratings

A+ 0.10% 246255 AAAAA

A 0.25% 236245 AA+

A- 0.33% 226235 AA

B+ 0.40% 216225 AA-

B 0.50% 201215 A+

B- 0.66% 191200 A

C+ 0.80% 181190 A-

C 0.96% 166180 BBB+

C- 1.30% 156165 BBB

D+ 1.80% 146155 BBB-

D 2.65% 136145 BB+

D- 3.80% 126135 BB

E+ 7.85% 116125 BB-

E 12.90% 106115 B+

E- 16.88% 96105 B

F+ 26.00% 8695 B-

F 38.67% 7685 CCC+

F- 45.00% 6175 CCC

G Default 060 CCC-

BancABCdefaultprobabilitiesforeachratingbucketsare

muchmoreconservative,i.e.forthesameratingBancABC

implies a much higherlikelihoodof defaults than the

correspondingS&P.Thedefinitionofdefaultandtheuse

ofPDisstandardasprescribedbytheBaselIIframework

andregulation.

Probability of Default (PD)

ThePDmeasuresthelikelihoodofaclientdefaultingon

itsobligationswithinthenextoneyear,andisaprimary

component of the internal risk rating calculated for all

clients.

Exposure at Default (EAD)

IngeneralEADcan bedefinedas anestimation ofthe

extenttowhichabankmaybeexposedtoacounterparty

intheeventofacounterpartysdefaultwithinaone-year

period. The Group calculates EAD estimates for each

facilitythroughmodelsdevelopedandbasedoninternal

and external default data as well as credit experts

experiencewithparticularproductsorclientgroups.

Loss Given Default (LGD)

The third major risk component measures the loss

expectedonaparticularfacilityintheeventofdefaultand

monitoredto identifyindicationsof liquiditystress early.

Theplan provides managementwith a set of possible

actionstoaddresspotentialliquiditythreats.TheCFP

operates in conjunction with the finance and treasury

managementpolicyandtheassetsandliabilitiesmanage-

ment(ALM)policy to ensure a coordinated approach to

liquiditymanagement.

As part of its monthly meetings, ALCO considers the

Groupssensitivitytointerestratemovementsandreviews

the results of managements analysis of the impact of

interestratemovements.ALCOalsoreceivesinformation

onyieldcurvedevelopmentsandmoneymarketinterest

rates,aswellasanalysisofthepotentialeconomicimpact

on interestratesand interestrate re-pricing. TheGroup

strivestomatchassetandliabilityre-pricingpositionsas

faraspossible.

Credit risk management

IndependentcreditriskcommitteesineachoftheGroups

operatingcountriesareresponsibleformanaging,measuring

andmitigatingcreditrisk.Creditriskmanagementisover-

seenbytheBoardcreditcommitteeandthemanagement

credit committee (CREDCO), a management committee

thatreportstotheRiskandAuditCommittee.Thereisa

highlevelofexecutiveinvolvementinthecreditdecision

makingteam.The managementCREDCO includes the

CEO,ChiefOperatingOfficer,ChiefFinancialOfficer,ChiefRisk Officer, Chief Credit Officer and Group Head of

WholesaleBanking.

TheGroups policy isthat allsanctioningmembersof the

CREDCOhavevotingpowers.AtmanagementCREDCO

level, all decisions to enter a transaction are based on

unanimousconsent.

TheCREDCOformallymeetsonaweeklybasistoconsider

the activities and operations of the credit division, to

considerand debate resultsfromnew business, arrears

andprovisioninganalyses,aswellastoconsiderregulatory

compliance andto setand amend credit policy where

appropriate.

Approach to measuring credit risk

TheGroupsapproachtomeasuringcreditriskaimstoalign

with internationalbestpractice.Credit risk isbroken down

intothecommonriskcomponentsofProbabilityofDefault

(PD), Exposure at Default (EAD) and Loss Given Default

(LGD),modelledataclient,facilityandportfoliolevel.These

riskcomponentsareusedinthecalculationofanumberof

aggregaterisk measuressuchasExpectedLoss(EL).The

modelsusedbytheGroupareaimedtobe compliantwith

regulatoryrequirements.BancABCdefaultprobabilitytable

belowshowsthemappingofthecorporateratingtoretail


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23

thusrecognisesanycreditriskmitigantsemployedbythe

Bank, such as collateral, third party guarantees,credit

derivativeprotectionorothercredithedges.LGDestimates

arecalculated throughinternallydevelopedmodels,as

wellas a broad base ofexpertjudgement from credit

representativesandtheresultsareprimarilydrivenbythe

typeandamountofcollateralheld.

Expected Loss (EL)

Thethree components, PD,EAD andLGD, arebuilding

blocksusedinavarietyofmeasuresofrisk.EListhe

measurementofloss,whichenablestheapplicationof

consistent credit risk measurement across all retail and

wholesalecreditexposures.LGD,EADandPDestimates

arealsousedinarangeofbusinessapplications,including

pricing, customer and portfolio strategy. EL estimatescanbecompareddirectlyto portfolioimpairment figures

within the regulatory capital calculation to ensure that

the organisations estimates of EL from doingbusiness

aresufficientlycoveredbythelevelofgeneralimpairments

raised.

Operational risk management

Operationalriskisdefinedastheriskoflossresultingfrom

inadequateorfailedinternalprocesses,peopleandsystems

orfromexternalevents.Suchoperationalrisksmayinclude

exposureto theft andfraud,improperbusiness practices,

client suitability and servicing risks, unauthorised trans-

actions,productcomplexityandpricingriskorfromimproper

recording,evaluatingoraccountingoftransactions.The

Groupcouldsufferfinancialloss,disruptiontoitsbusiness,

liabilitytoclients,regulatoryinterventionorreputational

damagefromsuchevents,whichcouldaffectitsbusiness

andfinancialcondition.

OperationalriskismanagedbyORCOintermsofthe

Groupsoperationalriskframework(ORF),asubsetofthe

riskmanagementframework.ORCOcomprisesexecutive

andseniormanagers,includingtheChiefOperatingOfficer,

ChiefRiskOfficer,ChiefInformationOfficer,GroupHead

ofRetailBanking,GroupHeadofMarketandOperational

Risk,GroupHeadofBankingOperations,GroupChiefLegal

CounselandGroupHeadofHumanCapital.

TheGroupsoperationalriskmanagementprocessesfocus

primarilyonriskassessment,lossdatacollectionandthe

trackingofkeyriskindicators.Theresultsoftheseprocesses

areusedtoraiseawarenessofoperationalriskmanagement

andtoenhancetheinternalcontrolenvironment,withthe

ultimateaimofreducinglosses.

LegalandcompliancerisksaredealtwithbyORCO,with

theGroupChiefLegalCounselbeingamemberofORCO.

cred

it


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24


Corporate governance

The Group is committed to the principlesof openness,

integrityand accountability. InFebruary 2003,the Board

endorsed the adoption ofthe secondKingReport onCorporate Governance (King II). In 2010, the Board incor-

poratedsomeoftheprinciplesofKingIIIandspecificallyhas

adopted a combined assurance model of reportingby the

internalauditors,theriskofficersandexternalauditorstoits

AuditCommitteeinordertopromoteacoordinatedapproach

toallassurancereportingontheriskareasofthebusiness.

Board of Directors

The Board currently comprises nine directors, including

fiveindependentnon-executivedirectors,onenon-executive

director and three executive directors.This balanced

representationensuresthatnooneindividualorsmallgroup

candominatedecisionmaking.Thedepthofexperienceand

diversity of the Board ensures that robust and forthright

debateonallissuesofmaterialimportancetotheGroupcan

takeplace.Profilesofdirectorsappearonpages28and29

ofthisreport.

The roles of Chairman and CEO are separate and no

individualhasindependentunfetteredcontroloverdecision

making.TheChairmanisanon-executivedirectorappointed

bytheBoard.

TheBoardisresponsibletoshareholdersforsettingthe

strategicdirectionoftheGroup,monitoringoperationalper-

formance and management, risk management processes

andpolicies,complianceandsettingauthoritylevels,aswell

asselectingnewdirectors.TheBoardisalsoresponsiblefor

theintegrityandqualityofcommunicationwithstakeholders,

includingemployees,regulatorsandshareholders.

TheBoardhasadoptedariskmanagementframeworkand

hasdelegated responsibilityfor riskto theRiskandAudit

Committee.This committeereviews risk management

processes in theGroupand ensuresthat Board policies

and decisions on risk are properly implemented. The

committeeassessestheadequacyandeffectivenessof

risk managementstructuresin theGroupandreports to

theBoardonallrisk-relatedgovernanceissues.

AlldirectorshavedirectaccesstoinformationontheGroups

affairs,aswellastheadviceandservicesofGroupChiefLegal

Counsel.AformalBoardcharterhasbeenadoptedwhichsets

outtheroles,responsibilitiesandproceduresoftheBoard.

Individualcountry operations have their ownboards,with

externalrepresentationandfunctionaspertherequirements

oftheirrespectivejurisdictions.

TheBoardmeets atleastfourtimesannually.Additional

telephonic meetingsarealsoconductedduringthe year.

Compliance risk management

Compliance risk is the risk of non-compliance with all

relevant regulatory statutes, central bank supervisory

requirementsandindustrycodesofpractice.Thecompliancefunction is an integral part of the overall Group Risk

Managementfunction.Adecentralisedcompliancefunction

hasbeenimplementedwithinbusinessunitsandsub-

sidiaries,andcomplianceofficershavebeenappointedin

eachoperatingentity.

Complianceriskiseffectivelymanagedthroughdeveloping

and implementing compliance processes, developing

effectivepolicies andprocedures affecting therespective

regulatoryframeworks,andprovidingadviceandtrainingon

theconstantlychangingregulatoryenvironment.Akeyrole

ofcomplianceofficersintheGroupistodevelopandmaintain

soundworkingrelationshipswithitsvariousregulatorsin

theGroupsoperatingcountries.

Legal risk management

GroupChiefLegalCounselisresponsibleforensuringthat

legalriskisadequatelymanaged.Thisisachievedthrough

standardapprovedlegaldocumentationwhereverpossible;

however,specialisedexternallegaladvisersareusedwhen

requiredfornon-standardtransactions.GroupChiefLegal

Counselensuresthatonlyapprovedlegaladvisersprovide

legalopinionsordrawupspecialisedagreementsforthe

Group.

Group Internal Audit

Theprimaryfunctionofinternalauditistogiveobjective

assurance to the Board that adequate management

processesareinplacetoidentifyandmonitorrisks,and

that effective internal controls are in place to manage

thoserisks.GroupInternalAuditindependentlyauditsand

evaluatestheeffectivenessoftheGroupsriskmanagement,

internalcontrolsandgovernanceprocesses.

Internalauditoperatesundertermsofreferenceapproved

bytheRiskandAuditCommittee.Thetermsofreference

definetheroleandobjectives,authorityandresponsibilityofthe audit function. TheGroups reportingstructures

ensurethattheGroupinternalauditorhasunrestricted

accesstotheChairmanoftheRiskandAuditCommittee

andtheCEO.

Attheoutsetofeachfinancialyear,GroupInternalAudit

carriesout a risk assessmentfor all businessunits and

subsidiaries.Acomprehensiveauditplanfortheyearthat

identifiesspecificareasoffocusisthenderivedfromthis

assessment.The audit planis reviewedregularlyandany

changesmustbeapprovedbytheRiskandAuditCommittee.

Theareasoffocusareconfirmedwithexecutivemanage-

mentbeforebeingsubmittedtotheRiskandAuditCommittee

forapproval.


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TheCEOandseniorexecutivesareavailabletobriefdirectors

whenrequired.

Four Board meetingswereconductedduringthe year.

Directorsattendanceofthesemeetingswasasfollows:

Director Feb June Aug Dec

Buttery P P P P

Chidawu* P n/a n/a n/a

Khama P P P P

Kudenga P P P P

Mothibatsela* P n/a n/a n/a

Munatsi P P P P

Wasmus P P P P

Ipe n/a P A P

Shyam-Sunder n/a P P P

Moyo n/a P P P

Dzanya n/a P P P

P: Present A: Absent *: resigned

Board committees

TheBoardisassistedindischargingitsresponsibilitiesbya

numberofsub-committees.Sub-committeesareaccountable

to theBoard, with minutes of sub-committee meetings

circulatedandreportedonatthefollowingBoardmeeting.Senior executives are invited to attend meetings as

appropriate.

Boardcommitteesmaymakeuseofexternalprofessional

adviserswhennecessarytodischargespecifictasks.

Executive Committee

The Executive Committee (EXCO) assists the CEO in

managingtheGroupandimplementingstrategy,policiesand

procedures,subjecttotheBoardslimitationsondelegation

totheCEO.TheCEOsauthorityinmanagingtheGroupis

unrestricted.EXCOassiststheCEOinmanagingtheGroup

andsettingtheoveralldirectionofthebusinessoftheGroup,

andactsasamediumforcommunicationandcoordination

between businessunits and Group companies, andthe

Board.EXCOmeetingsareconductedmonthly.

Thefollowingdivisionaland functionalheadscomprise

EXCO:CEO(Chairman),ChiefOperatingOfficer,Chief

FinancialOfficer,ChiefRiskOfficerandGroupHeadof

WholesaleBanking.

EXCOalsoconsidersnon-remunerationaspectsofhuman

resourcesmanagementsuchassuccessionplanningand

skillsdevelopment.

Risk and Audit Committee

TheRiskandAuditCommitteeischairedbyMrNKudenga

whoisanon-executivedirector.Thecommitteeadoptedthe

termsofreferenceforboththeRiskCommitteeandAuditCommittee asdetailed in the King Reports on Corporate

Governance.Inparticular,itassiststheBoardinthedischarge

ofitsdutiesrelatingtofinancialreportingtoallstakeholders,

compliance,riskmanagementandtheeffectivenessof

accountingandmanagementinformationsystems.

Meetings are held regularly throughout the year and are

attendedbyexternalandinternalauditors,aswellassenior

executivemanagers.Thecommitteemetfourtimesin2010.

Issues addressedincluded reviewing accountingpolicies,

implementingBaselII, disposingofcertain Groupassets,

capitalraisinginitiatives,theinternalauditratingspolicy,IT

connectivity issues,businesscontinuityplanning,financial

reporting,operationalrisks,capitaladequacyandcompliance,

amongothers.

Thecommitteeconsideredwhetherthecompanyandthe

Grouparegoingconcerns,recommendingthattheBoard

endorseastatementtothiseffectandthatthefinancial

statementspreparedonthisbasisbeapproved.

Loans Review Committee

The Loans Review Committee comprises three non-executive directors and is chaired by Mrs D Khama. In

accordance with its terms of reference, the committees

principalfunctionistoreviewandreporttotheBoardonthe

Groups loanportfolio at least quarterly. The committee

placesspecificemphasisonensuringconformityoftheloan

portfolio and lending function to a sound documented

lendingpolicy.Italsoperiodicallyreviewsthemaximumloan

authoritylimitsforeachGrouplendingauthorityaswellas

write-offswithintheGroup.Thecommitteeisfurthertasked

withthe quarterly review of theadequacy of provisions

madewithrespecttoloansandmakesrecommendationsto

theBoardinthisregard.

Thecommitteemetfourtimesin2010andissuesaddressed

includedthereviewofGroupandcountrycreditpoliciesand

guidelines to ensure that these meet best international

banking practice, as wellas the delinquentloan recovery

strategyandadequacyofGroupprovisions.

Credit Committee

Anewsub-committeewasestablishedduring2010whichis

chairedbyMrButteryandhasamandatetoapproveloans

abovetheinternalmanagementsumof USD7million.The

committeemeetswhenrequiredtoapproveloans.


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Remuneration Committee

TheRemunerationCommitteeischairedbyMrHButtery,a

non-executivedirectorandChairmanoftheBoard.TheCEO

attends committee meetings by invitation, but does notparticipateinanydiscussionsonhisownremuneration.The

committeeisresponsiblefortheseniorexecutiveremune-

rationpolicy.Itfixestheremunerationpacka

Documents

ABCH Annual Report Single_Dec 2010_Final