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NIC BANK LIMITED
Annual Report & Financial Statements • 2014 1
BUSINESS REVIEW
3 WhoWeAre 9 FiveYearFinancialReview 10 DeliveringonourStrategicObjectives 15 Chairman’sStatement 18 TaarifayaMwenyekiti 22 GroupManagingDirector’sStatement 24 TaarifayaMkurugenziMkuu
CORPORATE GOVERNANCE
26 TheBoardofDirectors 30 SeniorManagement 32 CorporateInformation 33 StatementonCorporateGovernance 44 CorporateCitizenship 48 EmployeeWelfare 52 Directors’Report 54 StatementofDirectors’Responsibilities
INDEPENDENT AUDITOR’S REPORT
FINANCIAL STATEMENTS
56 StatementofProfitorLoss 57 StatementofComprehensiveIncome 58 StatementofFinancialPosition 59 ConsolidatedStatementofChangesinEquity 60 BankStatementofChangesinEquity 61 StatementofCashFlows 62 NotestotheFinancialStatements
OTHER INFORMATION
144 NoticeoftheAnnualGeneralMeeting145 TangazolaMkutanoMkuuwaMwaka146 Notes147 ProxyForm148 FomuyaUwakilishi
TABLEOFCONTENTS
NIC BANK LIMITED
Annual Report & Financial Statements • 20142
OURMISSIONTobetheleadingfinancialservicesprovidertoourtargetmarket;we
arecommittedtothehigheststandardsofserviceandtoexceedingourstakeholders’expectations.
OURVISIONToestablishlongterm,profitablecustomerrelationshipsthroughthe
provisionofacompleterangeofbankingandfinancialservices.
OURVALUES
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 3
WHO WE ARE
OUR HISTORY
NICBank(formerlyNationalIndustrialCreditBankLimited)wasincorporatedinKenyaon29thSeptember1959asajointventurebetweenMercantileCreditLimitedandStandardBank.NICBankwasamongthefirstnon-bankfinancialinstitutionstoprovidehirepurchaseandinstalmentcreditfinancefacilitiesinKenya.
NICBankwentpublicbylistingontheNairobiSecuritiesExchange(NSE) in1971.BarclaysBankofKenyaLimited(BBK)acquired51%ofNICBank’stotalsharesthroughtheacquisitionofMercantileCreditLimitedinthe1970sandthereafter,StandardBank’sshareholdinginthe1980s.Between1993and1996,BBKdivestedallofitssharesinNICBankbysellingthem(i)38%tothepublicthroughtheNSEand,(ii)20%toFirstCharteredSecuritiesLimited.
Inordertoeffectivelydiversifyintomainstreamcommercialbanking,NICBankmergedwithAfricanMercantileBankLimited(AMBank)inNovember1997,throughashareswap.AlthoughtheCompany’snamewasoriginallyNationalIndustrialCreditLimited,andlaterNationalIndustrialCreditBankLimited,allthroughitshistoryitwasknownbyitsinitials–NIC-andtoreflectthis,theBank’snamewasin2005officiallychangedtothepresentNICBankLimited.
In2008,NICBankbroadeneditsservicestocustomersbyprovidinginvestmentbankingproductsandservicesthroughNICCapitalLimited.Thereafter, itacquiredastockbrokingbusiness (Solid InvestmentSecuritiesLimited, laterrenamedNICSecuritiesLimited),andalsosecuredalicensetosellBancassuranceproductsthroughNICInsuranceAgentsLimited.ThiseffectivelypositionedtheBankasa‘one-stopshop’financialservicessolutionproviderinthemarket.
In2009,NICBankacquired51%ofSavingsandFinanceCommercialBankandin2010,rebrandedittoNICBankTanzaniaLimited.AsatDecember2014,itholds70%ofNICBankTanzania.In2012,theGroupestablishedNCBankUgandaasawhollyownedgreen-fieldsubsidiary,whichbeganoperationson1stJune2012.
Laterin2012,theGroupimplementedtheTemenos(T24)corebankingsystem.
In2014, theGroupannouncedastrategicshift towardsanewwayofbanking–brandedNOWbanking, inanswer to theemerging“NOW”generationthatdemandseverythingattheirfingertipsnow.ThroughtheMOVEtoNOWinitiativetheBankfocusesondevelopinginnovativeproductsandservicesthatcanbedeliveredinafastandefficientmannersuchastheNICNOWMobileapplication,onlineaccountopeningandonlinechequedeposit.
Inmid-2014,NICBankreceivedalongtermcreditratingofA+fromGlobalCreditRatings.TheratingwasbasedonthesolidtrackrecordofgrowthexhibitedbytheBankovertheyears,aswellastheexperiencedExecutiveandSeniormanagementteam.
NIC BANK LIMITED
Annual Report & Financial Statements • 20144
WHO WE ARE (Continued)
OUR PRODUCTS
The product range includes the following:
Corporate Banking
Corporate Overdrafts Thisproductcatersforthefinancingofcustomer’sworkingcapitalcycletakingintoaccounttheleadtimesinprocurementof
stocks,themanufacturingprocessandanytermsofsuppliercreditincludingcreditextendedtothecustomer.
Term Loans Companiesoftenrequirefinancingforprojectssuchasbusinessexpansion,purchaseofstock,purchaseofproperty,construction
ofbusinesspremises,amongstothers.Termloansprovidethemuchneededfundingbymatchingtheloanrepaymentstothecustomerscashflows.
Trade Finance NIC Bank Group provides advice and services that importers and exporters need to achieve their international business
objectives.
TheBankoffersanextensiverangeoftraderelatedproducts,someofwhichinclude: • DocumentaryCredits • BillsforCollection • OpenAccounts • AdvancePayments • GuaranteesandIndemnities • LettersofCredit
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 5
Institutional Banking NIC Bank Group’s Institutional Banking offering is designed for non-borrowing corporate organizations and not-for-profit
institutionsincludinglocalandinternationalNon-Governmentalorganizations,donor-fundedGovernmentparastatals,donor-fundedGovernmentministries,diplomaticmissionsandtheiraffiliatedonor/aidentities,faith-basedorganizationsandlocalandmultinationalcorporateorganizations.
Custodial Services Custodialservicesincludestorageandsafekeepingofclientsecurities(assets)includingcash,titledocumentsanddeedsfor
pensionschemes.Wealsocollectdividends,interestandanyotherentitlementsduetoascheme(pensionschememanagement). TheactivitiesofthisbusinessunitareregulatedbytheRetirementBenefitsAuthority(RBA)andtheCapitalMarketsAuthority
(CMA).
Personal Banking
Current Accounts Weofferarangeofsolutionsthatgiveourcustomersaccesstocustomized,affordable,securealternatebankingchannels.
Whetheroneissalariedorself-employed,theoptionof“payasyougo”orpayingaflatfeepermonthisavailable.WealsomakebankingevenmoreconvenientbyofferingadedicatedRelationshipManagerandaccesstopremiumbenefitssuchasnegotiatedratesforcashdepositsandforeignexchangetransactions.
Savings Accounts Forcustomerswhoarekeenonsavingmoney,NICSavingsAccountsofferawidevarietyofsolutionstosuitindividualtastes.In
addition,weofferhigh-yielddepositaccountsofferingtieredinterestratespayablehalfyearly.
Junior Accounts AtNICBank,webelieveincultivatingsoundfinancialmanagementhabitsinouryouthfromchildhoodstagesoflifeintoyoung
adulthood.Weoffertailor-madesolutionsforchildrenandstudentswithlowminimumbalancerequirements,nomonthlyfeesandcompetitiveinterestrates.
Credit Cards NICBankoffersthreetypesofVisabrandedCreditCards:Platinum,GoldandFreedomCreditCard.Thesecardsenableyouto
carryouttransactionsinover200countriesandterritoriesand2.1millionATMsworldwide,givingyouflexibility,convenienceandsecurity,yetitisasgoodascash.Eachcardofferingincludesfreeinsurancecovers(Termsandconditionsapply).
MortgageNICMortgagemakesitpossibleforcustomerstoownpropertybyofferingupto90%financingfor:
• Homeorplotpurchase
• Constructionfinancing
• Equityrelease
• Top-upsonexistingmortgages
• Balancetransfers
SME Banking
NIC Entrepreneur Account
This is a contemporary business account that provides customized business solutions for clients’ business needs. The NICEntrepreneurAccountisdesignedtogiveclientsatotalsolutionforalltheirbusinessneedsrangingfromtransactional,cashflowmanagement,insurance,assetfinancetosavingsandinvestments.
ThisaccountalsogivesyouaccesstotheNICEntrepreneurClub.Theclubregularlyhostsworkshopsthatbringtogetherbusinesspeopleacrossindustries.Attheworkshops,clientsnetworkandreceivevaluabletrainingonemergingissuesandneeds.
WHO WE ARE (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 20146
WHO WE ARE (Continued)
Asset Finance NICBankGroup’sAssetFinanceofferinghasbeenaroundsince1959andoffersquickturnaroundtimesandcompetitiveinterest
rates.NICBankGroupoffersfinancingforawiderangeofmovableassetsincluding: • MotorVehicles • Plant&Machinery • ConstructionEquipment • AgriculturalEquipment • ITEquipment • OtherSpecializedEquipment(medical,telecoms)
Insurance Premium Financing (IPF) WeofferInsurancePremiumFinancing(IPF)whichenablesclientstopayfortheirinsurancepremiumsinaffordableinstallments
overaperiodoftime.IPFisalsoavailablethroughNICInsuranceAgentstocustomersoftheGroup.
Treasury Services Cash Transactions or Bureau De Change BureauDeChangetransactionsareover-the-countertransactionsforpurchaseandsaleofforeigncurrency.Weacceptover-the-
countercashforallthemajorforeigncurrencies.
Other products on offer include:• SpotForeignExchangeOperations• InwardForeignRemittances• OutwardForeignRemittances• ForeignDemandDrafts• ForeignCurrentAccounts• ForeignDeposits• ForwardExchangeContracts
Investment Banking through NIC CapitalNICCapitalisasubsidiaryofNICBankandhasitsoriginsin2005whentheBoardofDirectorsresolvedtoestablishanInvestmentBankthatwouldsupporttheevergrowingadvisoryandfinancingneedsofKenyancorporates.NICCapital,throughitsdebtandequityplatforms,advisescompaniesonoptimalcapitalraisingalternatives.TheInvestmentBankisqualifiedinmergers&acquisitions,de-mergers,saleofstake,capitalstructureadvisoryaswellasinpursuingcapitalraisinginitiatives–bothintheprivateandpublicrealms.
Stock Brokerage through NIC SecuritiesNICSecuritiesisastockbrokeragefirmlicensedbytheCapitalMarketsAuthorityandamemberoftheNairobiSecuritiesExchange.NICSecuritiesprovidesinvestorswithasecureplatformtoparticipateinadiversifiedarrayofinvestmentsintheequityandbondmarkets,backedbysolidadvicefromtheresearchandadvisoryteams,toenableclientsmeettheirreturnobjectives.
Bancassurance through NIC Insurance AgentsWeofferinsuranceforallthroughourinsurancebrokeragefunctionavailableatalltheGroup’sbranches.ProductsonofferincludeHealthInsurancei.e.inpatientandoutpatientmedicalcovers;BusinessRisksInsurancewhichcoverspropertydamage,GroupPersonalAccidentcovers;TravelInsurancewhichcoversmedicalexpenses,lossofluggage,andemergencyevacuationfortravellers;HomeInsuranceforhouseholdpropertyincludingpersonaleffectsandMotorVehicleInsuranceforbothprivateandcommercialvehicles.
Leasing through NIC Leasing LLP NICLeasingLLPisapartnershipbetweenNICBankLimitedandMercantileFinanceCompanyLimitedandispartoftheNICBankGroup.TheLLPwasincorporatedinMarch2015toundertakedirectoperatingleasebusiness.NICLeasingLLPallowscustomerstotakeupvarioustypesofassetsonleaseoverspecifiedperiodsoftime.Maintenanceandinsurancearepartoftheleasestructuringthereforeprovidingflexibilityandconvenienceforthecustomer.Thecustomersthereforegettoenjoytheuseoftheassetsandderivebenefitsoverthecontractualperiod.
NIC BANK LIMITED
Annual Report & Financial Statements • 20147
Mobile BankingNIC Customers can access their bank accounts at their convenience through the new
NOW Mobile Application or App.
NOW Mobile App enables customers with smart phones to conduct all the banking requirements wherever they are.
The App is accessible from most platforms, i.e. Android, Windows and Apple.
The following are some features that clients enjoy once they have downloaded the NOW Mobile App:
• Account balance enquiry and viewing of their mini statements
• Mobile funds transfers via EFT, RTGS, Mobile Money (M-PESA) and internally within NIC
• Mobile requests – Cheque book, statement and forex request
• Mobile airtime top up – for Safaricom, Airtel, Orange & Yu • Bill payments – KPLC Pre paid & Postpaid, Nairobi Water Postpaid, DSTV, Zuku, Access@home, Safaricom Postpaid, Airtel Postpaid, Orange
Postpaid• Mobile Lifestyle- Gives you access to traffic cameras, news, religious
books and cinema guides
• Standing order requests
Customers on the USSD Mobile Banking service (*488#) continue to access the service and conduct majority of the above transactions and requests.
Borderless BankingWiththeT24corebankingsystem,NICBankGroupcustomersnowenjoyseamlessbankingservicesacrosstheregions.
Agency BankingNICBankinpartnershipwithPostBankLimitedoffersAgencyBankingservices.ThisarrangementallowsNICcustomerstodepositorwithdrawcashfromanyofthe102PostBankbranchescountrywide.CorporateclientsalsobenefitimmenselybecausetheycaneasilycollectcashfromanywhereinthecountryanddeposititintotheirNICBankaccountsinrealtime.
WHO WE ARE (Continued)
VALUE ADDED SERVICESOnline Banking CustomershaveaccesstotheNICOnlineBankingservicefromanywhereintheworldthroughtheinternet.ThefollowingaresomefeaturesthatclientsenjoyoncetheyhavesigneduponNICOnline:
• Checkingaccountstatementsandbalances
• ElectronicFundsTransfers(EFTs)bothwithinNICBankGroupandtootherbanksinKenyaorabroad
•OrderingofBankersCheques
•Salaryandsupplierpaymentprocessing
• Analysisofloansandinvestmentoptions
• M-Pesafunctionality
CustomerscaneffecttransferstoandfromtheirM-Pesaaccountsdirectlytoandfromtheirbankaccounts
• KRAtaxpayments
• Creationandeditingofbeneficiariesforvarioustypesofpayments
• Printingofdepositslipsandswiftpaymentconfirmations
NICBANKLIMITED
AnnualReport&FinancialStatements•20148
Innovation at NIC Bank
Customers are becoming increasingly sophisticated. Innovative new products,alternative banking channels, and superior customer experience define this ever-evolvinglandscape.Asamid-tierplayerinahighlyfragmentedandcompetitivemarket,NICBankisplayingonitslegacystrengthsincorporatebankingandassetfinancingaswecurveoutnewopportunitiesintheretailandsmalltomediumenterprise(SME)segments.
Overthelast10years,NICBankhasseenmarkedgrowthfrombeingalocalfinanciertobecomeanintegratedfinancialservicesproviderintheregion.Theinnovationcultureembeddedwithintheorganisationhasbeenakeyenablertothegrowthandsuccesstheorganizationhasseenovertheseyears.
ThevariousinnovationstheBankhasrolledoutovertheyearsisatestamenttotheInnovationpositionwewanttoowninthemarketplace.
Mobile App Trading
In2014,NICcontinuedtoleverageontheadvancementoftechnologyandwasthefirst bank to launch a share trading feature on the NIC NOW mobile App whichallowscustomerstotradetheirsharesfromthepalmoftheirhands.ThroughtheApp,customerscanaccesstheNairobiSecuritiesExchange(NSE)fromanywhereandtradesharesattheirownconvenience.WiththisnewenhancedfunctionalityourNICSecuritiesclientscanbeassuredthattheynevermissatradingopportunitywithinstantaccesstotheirtradingaccount,fundsandthesecuritiesexchangeinasimple,userfriendlyandphonecompatibleenvironment.Tradescanbeplacedandmanagedonthegothroughappviaitssimple,intuitiveinterface,whichwasdesignedfromthegrounduptofunctionseamlesslyonallmobiledevices.Theappisdesignedtoallowclientstoviewtheiraccountstatus,accessstockprices,retrievestatements,viewportfoliovaluationsandgetinstantmarketupdatesandtips.
Online Share Trading
Inthesameyear,theNICSecuritiesOnlineSharesTradingPlatformwaslaunched.ThisplatformprovidesourclientsaccesstotheNSEandtheirtradingaccountonlinewherevertheyareintheworld.Throughtheonlineportal,clientscanviewthepricesofthevariousstocksontheNSE,placeorders,viewtheirstatementsandportfoliovaluations.
‘Move to Now’ Service
2014markedyetanothermilestonefortheBank.Wetookaboldsteptoaddressthelifestyleof‘theNOWgeneration’.
TheNOWgenerationarethepeopledemandingnotjustcustommadeproductsandservices, but want them faster, easier, safer and as conveniently as possible. Welaunchedanewbankingconcept,MOVEtoNOW,whichtapsintothedigitalecosystemthat has seen our customers morph into NOW consumers demanding for bankingservicesontheGO.
Inlinewiththisstrategy,NICBankGrouphasalreadydevelopedanumberofinnovationssuchasNICNOWMobileApplication,OnlineBanking,OnlineaccountopeningandOnlineChequedepositing.Thisservicegivescustomersthechoiceandflexibilityforeitherfacetofaceornon-facetofacechannelstoengagethebankdependingonthetransactiontherebyaddressingthetimefactorbysavingourcustomerstedioustripstothebranches.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 9
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2010 2011 2012 2013 2014Shs`000 Shs`000 Shs`000 Shs`000 Shs`000
Assets
Government securities 5,074,031 7,500,288 17,478,232 18,093,150 19,223,686 Loans and advances to customers 38,912,579 54,782,221 69,581,050 81,418,136 100,575,330 Property and equipment 750,530 967,988 1,009,891 1,119,264 1,595,110 Others 14,276,782 15,733,508 20,279,420 20,432,189 24,386,379
Total Assets 59,013,922 78,984,005 108,348,593 121,062,739 145,780,505 LiabilitiesCustomer deposits 48,492,224 66,293,053 83,379,576 91,565,005 100,434,954 Borrowings 303,284 190,280 3,655,414 3,628,169 14,358,480 Other liabilities 1,865,185 1,977,719 5,831,981 8,300,659 8,276,301
Total Liabilities 50,660,693 68,461,052 92,866,971 103,493,833 123,069,735 Total Equity 8,353,229 10,522,953 15,481,622 17,568,906 22,710,770 Total Liabilities and Equity 59,013,922 78,984,005 108,348,593 121,062,739 145,780,505
CONSOLIDATED STATEMENT OF PROFIT OR LOSSInterest income 4,757,544 6,831,580 11,467,574 11,642,416 13,711,068 Interest expense 1,543,893 2,552,092 5,983,706 4,374,437 5,712,949
Net interest income 3,399,471 4,279,488 5,483,868 7,267,979 7,998,119 Credit impairment charges 316,640 258,151 297,485 1,092,873 329,133
Net interest income after credit impairment charges 3,082,831 4,021,337 5,186,383 6,175,106 7,668,986 Non-interest income 1,814,009 2,323,246 2,832,257 3,155,207 3,508,139
Net operating income 4,896,840 6,344,583 8,018,640 9,330,313 11,177,125 Operating expenses 2,288,448 2,739,635 3,500,673 4,320,742 4,946,475
Profit before income tax 2,608,392 3,604,948 4,517,967 5,009,571 6,230,650 Income tax expense 744,474 897,811 1,481,173 1,772,270 2,113,976
Profit for the year 1,863,918 2,707,137 3,036,794 3,237,301 4,116,674Less profit/ (loss) attributable to non-controlling interests 46,686 54,679 52,388 (86,080) (4,181)
Profit attributable to equity holders of the bank 1,817,232 2,652,458 2,984,406 3,323,381 4,120,855Earnings Per Share (Shs) 4.60 5.54 6.03 6.12 7.07 Dividend Per Share (Shs) 0.50 0.50 1.00 1.00 1.00
OTHER DISCLOSURESNon-performing loans and advances a) Non-performing loans and advances 1,570,797 1,961,277 2,332,701 4,520,926 4,032,008 b) Allowance for impairment 1,420,444 1,690,526 1,652,986 2,592,033 2,680,360
c) Net Non-performing loans and advances (a-b) 150,353 270,751 679,715 1,928,893 1,351,648
Number of Employees 514 712 783 909 1,001
Number of Branches 16 24 24 30 32KEY PERFORMANCE INDICATORSReturn on capital employed (ROCE) 31.23% 34.26% 29.18% 28.51% 27.43%Non-interest income to total income 34.79% 35.19% 34.06% 30.27% 30.49%Non-performing loans to total loans 4.04% 3.58% 3.35% 5.55% 4.01%Return on total assets 4.42% 4.56% 4.17% 4.14% 4.27%Cost to Income ratio 43.89% 41.49% 42.10% 41.45% 42.99%
FIVE YEAR FINANCIAL REVIEW
NIC BANK LIMITED
Annual Report & Financial Statements • 201410
Profit Before Income Tax (PBIT)
• NIC Bank Group aims to achieve consistent growthin profits by growing its core business units anddiversifyingitsrevenuesources.
• In 2014, PBIT grew by 24% year-on-year to Shs6,231m, driven mainly by volume growth in lendingandnon-fundedincome.
• All theGroup’ssubsidiariescontributedpositivelytothegrowthinpre-taxprofits.
Total Income
• Totalincomeincreasedby10%fromprioryeartoShs11,506min2014.Thisincreaselargelyreflectedrobust balance sheet growth and strengthenedperformancefromtheBank’ssubsidiaries.
• We have seen good growth over the years andare strategicaly positioned to maintain the samemomentum.
Earnings Per Share (EPS)
• EPS has grown consistently driven by steady growthinrevenueswhilstconstantlysimplifyingourbusinessmodel and investing in technology so as to increaseefficiencyandeffectivenessandtomakeourbusinessmoreagile.
• EPSgrew16%toShs7.07in2014.NetincomeattributabletoequityholdersincreasedtoShs4,121m.
Profit Before Income Tax (Shs m)
Total Income (Shs m)
Earnings Per Share (Shs)
Return on Equity (ROE)
• The Group achieved a pre-tax ROE of 27% in adifficult year,which isconsistentwith theGroup’sstrategic objectives. This level of return reflectsthe Group’s relative strength and stability, as theindustry felt the effects of the difficult operatingenvironment.
• Year-on-year, pre-tax ROE declined from 29% to27%duetothecapitalinjectioninthelastquarteroftheyear.
Return on Equity (ROE)
DELIVERING ON OUR STRATEGIC OBJECTIVES
2010
2,608
3,605
4,518
5,010
6,231
2011 2012 2013 2014
2010
31%
34%
29% 29%27%
2011 2012 2013 20142010
5,2136,603
8,316
10,42311,506
2011 2012 2013 2014
2010
4.605.54
6.603 6.12 7.07
2011 2012 2013 2014
CAGR 24%
CAGR 22%
CAGR 11%
Compound Annual Growth Rate(CAGR)
Compound Annual Growth Rate(CAGR) Compound Annual Growth Rate(CAGR)
Compound Annual Growth Rate(CAGR)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 11
Productivity Ratio (Cost / Income Ratio)
• Efficiency savings were partialy offset by volumerelated expenses and ongoing investments in thebusiness.
• Ourproductivityratioremainsoneofthelowestintheindustryreflectiveofoureffectivecostmanagementstructure.
Loans and advances to customers
• Loans and advances to customers increased by24% year-on-year to Shs 101b in 2014, despite thecompetitiveenvironmentheightenedbytransparencyinlendingrateswiththeintroductionofKenyaBanksReferenceRate(KBRR).
• All our lending business units have contributedpositivelytothisgrowth,withbothretailandcorporateloansportfoliosgrowingby37%and26%respectively.
Productivity Ratio (Cost / Income Ratio)
Loans & Advances to Customers (Shs b)
DELIVERING ON OUR STRATEGIC OBJECTIVES (Continued)
2010
43.9%
41.5%
42.1%
41.5%
43.0%
2011 2012 2013 2014
2010
38.9
54.8
69.6
81.4
100.6
2011 2012 2013 2014
Credit Impairment Charges
• Impairment on loans and advances decreasedsignificantly by 70% to Shs 329m in 2014,driven primaliry by continued strong credit riskmanagementculture.
Credit Impairment Charges (Shs m)
2010
317258 297
1,093
329
2011 2012 2013 2014
Non-Performing Loans
• Total non-performing loans have decreased by11%despitethegrowthintheGroup’sloanbookof 24% year-on-year demonstrating continuedimprovementinthecreditqualityofloanportfolios.
Non-Performing Loans (Shs m)
2010
1,571
1,9612,333
4,5214,032
2011 2012 2013 2014
CAGR 27%
CAGR 27%
Compound Annual Growth Rate(CAGR) Compound Annual Growth Rate(CAGR)
NIC BANK LIMITED
Annual Report & Financial Statements • 201412
Customer Deposits
• Growth in customer deposits, which is consistentwith the Group’s strategic objective to diversify itscustomerbase,hasovertheyearsbeendrivenmainlybythegrowthindepositbalancesheldbyindividuals,small businesses, government institutions and non-governmentalinstitutions.
• In 2014, customer deposits recorded a 10% increasefromShs91.6b in2013 toShs100.4b in2014,drivenbyfocuseddepositbuildingactivities.Thisfundedtheincrease in loans and advances and our holdings ofTreasurybillsandbondsoverthesameperiod.
Customer Deposits (Shs b)
Total Assets
• TheGroup’stotalassetshavegrownby20%year-on-yeartoShs146b.Thisgrowthwasmainlydrivenbytheincreaseofourlendingbook,cashandourholdingsofTreasurybillsandbonds.
• The growth in assets was funded by the increasein customer deposits, the Shs. 2b Rights Issue,Surbodinated Medium term bond of Shs. 5b andadditionalborrowingsofShs.5b.
Liquidity Ratio
• TheGroupendeavorstobuildstrongliquiditybufferstoguardagainstunexpectedfundingdifficulties.
• TheGrouphassignificantlygrownitsliquiditypositioninadifficultenvironment.
Total Assets (Shs b)
Liquidity Ratio
DELIVERING ON OUR STRATEGIC OBJECTIVES (Continued)
2010
59.079.0
108.3121.1
145.8
2011 2012 2013 2014
2010
30%
27%
35%
29%
33%
2011 2012 2013 2014
2010
48.566.3
83.4
91.6
100.4
2011 2012 2013 2014
CAGR 20%
CAGR 25%
Compound Annual Growth Rate(CAGR)
Compound Annual Growth Rate(CAGR)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 13
• TheGroupaimstostrengthenitscapitalratiostosupportinvestors’anddepositors’confidenceandprovidegreateroperationalandstrategicflexibility.
• The regulatory capital adequacy minimum ratios were increased with a 2.5% capital conservation buffereffectiveJanuary2015tocaterforlossesduringperiodsoffinancialandeconomicstrain.
• CapitalratioshaveincreasedduetothesuccessfulRightsIssue,subordinatedmediumtermbond,longtermborrowingsandtheretainedprofitsfortheyear.
• TheBank’sratiosmorethanadequatlymeettherequiredratios.
The trends for NIC Bank Ltd are as shown hereunder:
Bank Capital Adequacy Ratios
DELIVERING ON OUR STRATEGIC OBJECTIVES (Continued)
2010
15.0%14.7%
16.3% 16.8%
20.5%
2011 2012 2013 2014
2010
14.6%15.0%
15.6%
14.8%
14.4%
2011 2012 2013 2014
2010
15.5% 15.9% 16.4%15.6%
20.9%
2011 2012 2013 2014
1. Core capital to total deposits ratio – Minimum 8%
2. Core capital to total risk weighted ratio (Tier1) – Minimum 10.5%
3. Total capital to total risk weighted ratio (Tier 2) – Minimum 14.5%
NIC BANK LIMITED
Annual Report & Financial Statements • 201414
INTRODUCING 24X7 NOW BANKING.NOW will change the way you bank. From M-PESA transactions to RTGS transfers, bill payments, paperless account opening, internet banking and online cheque deposit; banking is NOW simpler. Change to NOW Banking and invest every second to get closer to your dream.
Time is money,make the most of it
NOWR
M O V E T O
Regulated by the Central Bank of Kenya
CLICK TO EXPERIENCE
www.nic-bank.com@nicbankkenya
Call: 020 2888217, 0711041111, 0732141111, SMS 20488 or email [email protected]
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 15
Dear Shareholder
ItgivesmegreatpleasuretopresenttheNICBankGroupAnnualReportandFinancialStatementsfortheyearended31stDecember2014.
OPERATING ENVIRONMENT IN 2014
Kenya maintained a stable economic environment despite thechallengesofimplementingthedevolvedsystemofgovernanceanduncertaintiesoccasionedbyanumberofsecurityconcernsduringtheyear.Thecountry’seconomyrecordedagrowthrateof5.8%in2014comparedto4.5%in2013.Duringtheyearunderreview,thecountryrebaseditseconomy,resultingina25%riseintheGrossDomesticProducttoShs4.76trillion,effectivelypropellingKenyaintoamiddle-incomestatuseconomy.
The Government accelerated several large-scale publicinfrastructure projects spanning the energy, transport andagriculturesectors.TheseincludethefirstphaseoftheStandardGaugeRailwaylinefromMombasatoNairobi,thesecondcontainerterminal at the Port of Mombasa, the Lamu Port, GreenfieldAirportTerminal inNairobiandanewoilpipeline.Furthermore,the280MegawattOlkariaIandIVgeothermalpowerprojectwascommissionedinDecember2014.
PositiveinvestorsentimentwasevidentintheoversubscribedUSD2billionsovereignEurobond,whichwasfollowedbyafurtherUSD750 million issue in December 2014. Overall investor interest isattributedtopromisingoildiscoveries,robustmanagementoftheeconomy,decisivestepstowardstheintegrationoftheEastAfricaCommunitycountriesandthegrowinginfluenceofNairobiastheregionalhub.
Despite thepressure introducedby theVATAct, inflationclosedtheyearatalowof6.02%.TheKenyanshillingmaintainedastabletrend, despite pressure from the dollar on major internationalcurrencies.TheshillingendedtheyearatShs90.5978totheUSDollar.
TheCentralBankofKenyamonetarypolicycommitteemaintainedtheCentralBankRateat8.5%throughouttheyear,signalingitsintentiontoholdinterestrateslowandmaintainastableinflation.
Anotabledevelopmentin2014wastheintroductionoftheKenyaBanksReferenceRate(KBRR),astheonlybaserateforalllendingbycommercialbanks.Itwasdevelopedaspartoftherecommendationstoenhancethesupplyofprivatesectorcreditandmortgagefinancingbyfacilitatingatransparentcreditpricingframework.TheKBRRratewassetat9.13%inJuly2014,andwillbereviewedevery6months.
The Financial Sector posted strong growth in the second half of 2014. Financial innovations that continue to drive downtransactions’costsandarobustgrowthincustomeradvanceswerethemainfactorsbehindtheimprovedperformance.Overall,customerloansandadvancesgrewby23%toShs1.97trillion,totaldepositsgrewby18%toShs2.3trillion,whiletotalincomegrewby16%toShs415billion.InresponsetothenewCBKPrudentialGuidelinesoncapitaladequacyofbankinginstitutions,totalcapitallevelsincreasedsignificantlyovertheperiod.
TurningtoTanzania,theeconomycontinueditsfastpacedgrowth,registeringaGDPgrowthof7%for2014.Thiswasmainlydrivenbythemining,telecommunications,transportandfinancialservicessectors.Inflationremainedcontainedandendedtheyearat6.1%comparedto7.9%in2013.Theeconomyisexpectedtocontinuegrowing,boostedbynewgasdiscoveriesandtheconstructionofanewport.
Uganda’seconomyreboundedtogrowat6.6%comparedto5.2%registered in2013.Theeconomy isexpected tocontinuegrowingstrongly,providedthattheupcomingcampaignsfornationalelectionsareconductedpeacefully.
NIC GROUP CAPITAL RAISING INITIATIVES
Inordertogrowourbusinessbytappingunfoldingopportunitiesinthedomesticandregionaleconomy,wedecidedtostrengthenourcapitalbasetosupportincreasedlendingtolocalcorporates,SMEsegmentsandretail.
CHAIRMAN’S STATEMENT
NIC BANK LIMITED
Annual Report & Financial Statements • 201416
NICBankembarkedonasuccessfulcapital-raisingprogrammein2014involvingamixtureofdebtandequity.Thebondandrightsissueswerewellreceivedbythemarketandwereover-subscribed,underlininginvestorconfidenceinourbusinessprospectsgoingforward.
• Medium Term Note / Bond
TheBanklaunchedaShs8billionSubordinatedMediumTermNoteprogrammewiththefirsttrancheofShs3billionbeingissuedin2014.ThefirsttranchereceivedoffersinexcessofShs6.5billionandtheBoardofDirectorsapprovedtheallotmentupsizedtoShs5.5billion.ThebalanceoftheMediumTermNotewillbeissuedwithinthenext5years.
• Rights Issue
FollowingShareholders’approvalduringtheExtraordinaryGeneralMeetingheldon6thAugust2014andsubsequentreceiptof thenecessary regulatoryapprovals, theBankundertookaRights Issueofoneshare forevery fourteensharesheldamountingto42,663,040sharesatadiscountedpriceofShs49.25pershare.Theissueregistereda121%oversubscriptionandresultedinanincreaseofsharecapitalbyShs213,315,200(Shs5pershare)andsharepremiumofShs1,887,839,520(Shs44.25pershare).
DIVIDEND PAYOUT
GiventhestrongperformanceoftheNICBankGroupin2014,forwhichitrecordedaprofitbeforetaxofShs6.2billion,theBoardofDirectorsrecommendsafirstandfinaldividendofShs1pershare.Thisrepresentsadistributionof17%oftheprofitaftertax,equivalenttoShs639million.
ThebalanceoftheprofitretainedistosupporttheGroup’sgrowthstrategyinKenyaandtheregion.
SUBSIDIARIES AND DIVERSIFICATION
ThegrowthanddevelopmentofoursubsidiarycompaniesremainsakeystrategicobjectiveandonethatisaimedatbroadeningtherangeoffinancialservicesofferedtocustomersandenhancingearningsdiversitywithintheNICBankGroup.
NC Bank Uganda, NIC Bank Tanzania, NIC Capital (Investment Banking), NIC Insurance Agents (Bancassurance) and NICSecurities(Brokerage)allcontributedpositivelytotheGroup’sfinancialperformancein2014.
EMPLOYEES AND VALUES
NICBankGrouphadatotalemployeebaseof1,001asatDecember31st2014.Wevalueourpeopleandcontinuouslyinvestinenhancingtheirskillsetsinlinewiththegrowingdemandsofthebusinessandourcustomers.Weappreciatethatinanextremelycompetitiveenvironment,itisnoteasytoretainthebesttalent.ItisforthatreasonthattheGrouphascontinuedtoreformtheemployeerewardandretentionpractices.WestrivetoinfusetheGroup’svaluesofIntegrity,Passion,Responsiveness,InnovationandProfessionalisminallouremployeesacrosstheorganization.
CORPORATE GOVERNANCE AND RECOGNITION
NICBankGroupadherestothehigheststandardsofcorporategovernance.Wecontinuouslyreviewourcorporategovernancestructuresinlinewithexistingandemergingregulatoryrequirements.TheGroup’sgovernancestructuresandprocessesaresetoutingreaterdetailintheCorporateGovernancesectionofthisreport.
In June 2014, NIC Bank Group appointed Mrs. Esther Ngaine as a Non-Executive Director. Mrs. Ngaine brings a wealth ofexperiencetotheBoardhavingrecentlyretiredfromadistinguishedcareerwithaleadinginternationalbank.
Iamalsopleasedtoreportthatin2014NICBankreceivedthefollowingindustryrecognitions;
• InNovember2014,NICBankwasthewinneroftheprestigious‘BestIntegratedMarketingCampaign2014’AwardbytheMarketingSocietyofKenya(MSK)Awards.
• Inthesamemonth,theBankreceivedtheawardfortheBestBondDealoftheYearattheThinkBusinessAwards.NICCapitalalsoemergedas1stRunners-Upinthe‘InvestmentBankoftheYear’and‘LeadTransactionAdvisor’categories,whileNICSecuritiesclinchedthe2ndRunnerUpinthe‘Stockbrokeroftheyear”category,atthesameawards.Theseawardsattesttotheconfidencethatthecapitalmarketsandclientshaveintheadvisoryandtradingservicesthatweoffer.
• AdditionalyinNovember2014,theBankemergedthe2ndRunner-Upinthe“FinanceandInvestmentSector’CategoryattheInstituteofCertifiedPublicSecretariesofKenya(ICPSK)Awards.
CHAIRMAN’S STATEMENT (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 17
CHAIRMAN’S STATEMENT (Continued)• InOctober2014,NICBankemergedasthe1stRunners-Upinthe‘CorporateGovernance’categoryattheFinancialReporting
(FiRe)AwardspromotedjointlybytheNairobiSecuritiesExchange(NSE),theInstituteofCertifiedPublicAccountantsofKenya(ICPAK),andtheCapitalMarketsAuthority(CMA).
• Earlierin2014,NICBankwasrecognizedattheThinkBankingAwardsasthe1stRunners-Upinthe“BestBankinAssetFinance’Category.
CORPORATE CITIZENSHIP
TheNICBankGroupiscommittedtocorporatesocialresponsibilityandtakesitsrelationshipswithvariousstakeholdersveryseriously.OursuccessasabusinessispremisedonthewellbeingofcommunitiesandtheenvironmentwithinwhichtheGroupoperates.
Inthesecondhalfof2014theBanklaunchedarobustthreeyearCitizenshipstrategyfocusingonfourKeyPillars:Education,Innovation,HealthandHumanitarianassistance/emergingbusinessneeds.
UnderEducation,theBankcontinuedwithitspartnershipwithEdumedTrust,PalmhouseFoundationandJuniorAchievementKenyatosupportstudentsinvariouscountiescountrywideaswellasoptimizeontheemployeesskillsformentorshipsessionsforthestudents.
OnHealth,NICBankGroupprioritizedeffortstostrengthenmanagementofmedicalproductsandtechnologiesbysupportingtheMombasaCountyGovernmentthroughtheMabatiMedicalClinicCentreinMariakaniwheretheGroupfundedthepurchaseofDiagnosticEquipmentforthehospital.
TheGroupcontinuedwithitssupportoftheFarajaCancerSupportTrust,NairobiHospitalChildren’sHeartFund,theMaterHeartRunProgramandtheJiggereradicationcampaignthroughtheAhadiTrust.
POSITIONING FOR GROWTH
Prospects for the domestic and regional economies remain bullish as East African Community (EAC) integration gathersmomentum.
Onthedomesticfront,aMarketPerceptionSurveyconductedbytheCentralBankofKenyainDecember2014showsthattheprivatesectorexpectsinflationandtheforeignexchangeratestoremainstable,andtheeconomyisexpectedtoperformstronglyin2015.Theseexpectationsareunder-pinnedbyanimprovedbusinessenvironmentasaresultofremovalofbottleneckstotradeaswellaslarge-scalepublicinvestmentinenergy,transportandagriculturesectors.
TheregionhascontinuedtoattractincreasingforeigndirectinvestmentintheoilandgassectorsfollowingthediscoveriesofgasinTanzaniaandoilinKenyaandUganda.Thiswillcertainlyspurinvestmentininfrastructure,ICTandservicesthusencouragingbusinessestoexploreopportunitiesintheregion.
TheintroductionoftheSingleVisaisexpectedtobuoytradeandtourismbyfacilitatingeasiermovementofpeopleintheregion.Ourgrowthstrategy isanchoredon leveragingEACeconomic integrationandanticipatedeconomicboomtostrengthenourpresenceintheregion.Weplantoenhanceourbranchfootprintintheregionoverthenextthreeyears.
APPRECIATION
Wewouldnotbewherewearetodaywithouttheconsistent,unwaveringsupportofourvariousstakeholders.
TheBoard,ManagementandStaffhighlyappreciatethesupportofourover25,000shareholders.ThesuccessofthebondandrightsissuesistestimonytotheconfidencetheyhaveintheBank.TheBoardandManagementofNICBankGroupassuresthemofourcommitmenttogrowingshareholdervalue.
Ourcustomersarethereasonforourbusiness.Wedonottaketheirsupportforgrantedandcontinuallystrivetobeworthyofthetrustbestowedonus.
WealsoremainhighlyappreciativeofourbusinesspartnersandtheregulatorswhocontinuetoprovideinvaluablesupportnotjustinKenya,butacrosstheregionwherewehaveapresence.
OnbehalfoftheBoard,IwishtothankeachandeveryemployeeofNICBankGroupforplayingtheirpartinmaking2014yetanothersuccessfulyear.
Inconclusion,IthankmyfellowDirectorsfortheircontributionandcommitmenttotheGroupatbothboardandcommitteelevels.
J P M NdegwaChairman
NIC BANK LIMITED
Annual Report & Financial Statements • 201418
NinaonafaharikubwakuwasilishaRipotinaTaarifayaMwakayaKifedhayaBenkiyaNICBankGroupkatikamwakauliokamalizikiatarehe31Desemba2014.
MAZINGIRA YA KIBIASHARA YA MWAKA 2014
Kenyailiendeleakushuhudiamazingirathabitiyakiuchumilichayachangamotozakutekelezamfumowaserikaliyaugatuzipamojanahaliyataharukiiliyosababishwanavisakadhaavyaukosefuwausalamakatikamwakahuo.Uchumiwanchiulikuakwa5.8%mwaka2014ikilinganishwana4.5%katikamwaka2013.Katikamwakahuounaorejelewa,nchiiliratibishaupyauchumiwakenamatokeoyakeyakawaniukuwajiwa25%katikaJumlayaMapatoyaKitaifa(GDP)nahatimayekuipandishaKenyahadikufikiahadhiyamataifayenyeuchumiwakatikati.
Serikali iliharakishamiradikadhaamikubwayaummainayojumuishasektazakawi,usafirinakilimo.MiradihiinikamavileawamuyakwanzayamradiwaReliyaKisasakutokaMombasahadiNairobi,sehemuyapiliyakituochaBandariyaMombasa,BandariyaLamu,mradiwaGreenfieldkatikaUwanjamkuuwaNdegepapahapajijiniNairobinabombajipyalakusafirishamafuta.Vilevile,mradiwakawiyaardhiniyenyeMegawati280unaofahamikakamaOlkaria1naIVulizinduliwamnamoDesemba2014.
Mtazamomzuriwawawekezajiulishuhudiwawakatiwakuuzatoleokuu lahisazaEurobondkwaDolazaMarekani (USD)2bilioni,ambalolilifuatiwanatoleojinginelaUSD750milionimweziDesemba2014.Jumlayamvutowawawekezajiilihusishwanaugunduziwamafutayavisukuku,usimamizimzuriwauchumi,hatuabunifuzinazoelekeakatikauundajiwaJumuiyayaAfrikaMashariki(EAC)pamojanauchipukajiwajijilaNairobikamakitovuchauchumiwaukandahuu.
LichayamsukumoulioibuliwanauanzishajiwaSheriayaushuruwaVAT,mfumkowabeiulishukachinihadi6.02%mwishonimwamwaka.ShilingiyaKenyailidumishamkondothabiti,lichayamsukumokutokakwadoladhidiyasarafukuuduniani.ShilingiilifungamwakaikibadilishwakwaSh90.5978kwakilaDolayaMarekani.
KamatiyaserayakifedhayaBenkiKuuyaKenya(CBK)ilidumishaRibaya8.5%yaBenkiKuuyaKenyakwamwakamzima,ikiashirialengo lake lakudumishaviwangovyachini vya ribapamojanakuthibitimfumko.Kati yamiradi yamaendeleo iliyodhiihirikamnamomwakawa2014ilikuwanipamojanauanzishajiwaKiwangochaKuthibitiRibakatikaBenkizaKenya(KBRR),kamamsingiwa ribakwabenki zote zakibiashara zinazokopesha fedha. Ilibuniwakamasehemuyamapendekezo yaliyotolewa ilikuupanguvuufadhiliwakifedhanamakaokatikasektayakibinafsikwakuwezeshauwepowamuongozowawaziwaukadiriajiwamikopo.KiwangochaRibachaKBRRkiliwekwakuwa9.13%mnamoJulai2014,nakitakadiriwaupyakilabaadayamiezi6.
SektayaKifedhailipataukuajimkubwakatikanusuyapiliyamwaka2014.Ubunifuwakifedhaunaoendeleakupunguzagharamayashughulizakifedha,naukuajimkubwawawatejawanaotakamikopondizozilizokuwasababukuuzilizochangiauimarikajiwamatokeoyetu.Kwajumla,mikopoyawatejanaarubuniilikuakwa23%hadikufikiaSh1.97trilioni,uwekajiakibaukakuakwa18%hadiSh2.3trilioni,hukujumlayamapatoikikuakwa16%hadikufikiaSh415bilioni.KatikakuandamaMiongozoMipyanaKamilifuyaCBKkuhusuupatikanajiwamitajiyakifedhakwenyeasasizabenki,jumlayaviwangovyamtajivilikuakwakiasichakuridhishakatikamudahuounaorejelewa.
TukirudiupandewaTanzania,uchumiuliendeleakustawiharaka,ambapoulisajiliukuajiwaGDPwa7%katikamwakawa2014.Hiihasa ilitokananasekta zauchimbajimadini,mawasiliano yasimu,usafirinahudumazakifedha.Mfumkowabeiulizidikudhibitiwanakufungamwakaukisimamiakatika6.1%ikilinganishwana7.9%mwaka2013.Uchumiunatarajiwakuzidikukuahukuukipigwajekinataarifayakugunduliwakwagesinaujenziwabandarimpya.
UchumiwaUgandanaoulizindukanakukuakwa6.6%ikilinganishwana5.2%iliyopatikanamnamo2013.Uchumihuounatarajiwakuendeleakukuakwakasi,ilmuradikampenizijazozauchaguziziendelezwekwanjiayaamani.
MIKAKATI YA UKUSANYAJI MTAJI WA SHIRIKA LA NIC
Ilikukuzabiasharayetukwakuwekezakwenyemiradiinayoibukakatikauchumiwakitaifanaulewakikanda,tuliamuakuimarishamsingiwetuwamtaji ilikuwezeshaukopeshajiulioongezekakwamashirikayahumunchininaBiasharazaKiwangoKidogo(SME)pamojanazilezarejareja.
BenkiyaNICilirejeleamipangofaafuyakuchangishamtajimnamo2014ikijumuishamsetowamadeninahisa.Hatizadhamananamatoleoyahisayalipataufanisimkubwakwenyesokonahatawanunuziwakapitishakiwangokilichokuwakimewekwa,haliiliyodhihirishaimaniwaliyonayowawekezajikwenyebiasharayetu.
TAARIFA YA MWENYEKITI
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 19
TAARIFA YA MWENYEKITI (Inaendelea)
• Hati za Dhamana za Kipindi cha Wastani
BenkihiiilizinduampangowaHisa/HatizaDhamanawaKipindichaWastanichaSh8BilioniambapoKiwangochamgaowasehemuyakwanzayaSh3bilionikilitolewamnamowamwaka2014.SehemuhiyoyakwanzailipatawanunuziwaliozidithamaniyajumlailiyowekwawalipotoaSh6.5bilioni.BodiyaWakurugenziWakuuililazimikakuongezamgaohadikufikiaSh5.5bilioni.SaliolatoleohilolaHisazaKipindichaWastanilitatolewakatikamudawamiaka5ijayo.
• Toleo la Hisa
Kufuatia idhinisho lililotolewa na wenyehisa kwenye Mkutano Maalum uliofanyika tarehe 6 Agosti 2014 na kisha kupataidhinizasheriazilizostahili, BenkihiiiliamuakuuzaToleolaHisakatikakiwangochahisamojakwakilahisakuminannezinazomilikiwanakufanikiwakuuzahisa42,663,040kwabeiiliyopunguzwayaSh49.25kwakilahisa.Toleohilolilinunuliwakwa121%zaidiyathamaniiliyohitajikanakupelekeakuongezekakwamtajiwahisakwaSh213,315,200(Sh5kwakilahisa)nakufikishajumlayathamaniyahisakuwaSh1,887,839,520(Sh44.25kwakilahisa).
ULIPAJI MGAO
KuambatananamatokeomazuriyaBenkiyaNICkatikamwaka2014,yaliyotoafaidakablayaushuruyaSh6.2bilioni,BodiyaWakurugenziWakuuinapendekezamgaowakwanzanawamwishowaSh1kwakilahisa.Hiiinawakilishamgaowa17%wafaidabaadayakutolewaushuru,ambaonisawanaSh639milioni.SaliolafaidalililohifadhiwalitasaidiamkakatiwaukuajiwaBenkinchiniKenyanaukandamzimakwaujumla.
MATAWI NA UPANUZI WA KIKANDA
UkuajinaustawiwamatawiyakampuniyetuunabakiakuwalengomuhimulakimikakatilinalodhamiriakupanuakiwangochahudumazetuzakifedhazinazotolewakwawatejanakuwezeshamapatoyaliyopanukayaBenkiyaNIC.
Matawi ya Benki Uganda, Tanzania, Biashara za NIC Capital (Huduma ya Benki ya Uwekezaji), Maajenti wa Bima ya NIC(Bancassurance)naNICSecurities(UdalaliwaHisa),yoteyalichangiakatikamafanikioyamatokeoyakifedhayaBenkihiikatikamwakawa2014.
WAFANYAKAZI NA THAMANI
ShirikalaBenkiyaNIClilikuwanajumlayawafanyakazi1,001kufikiatarehe31Desemba2014.Tunawathaminiwatuwetunatunaendeleakuwekezakatikauimarishajiwamaarifayaokulingananamahitajiyakibiasharanawatejayanayozidikupanuka.Tunatambua kuwa katika mazingira yenye ushindani mkubwa, si rahisi kubakia na wafanyakazi wenye vipawa vya juu. Nikutokananasababuhiyoambapokampunihiiimeendeleakufanyiamageuzimienendoyakeyakuwazawidinakuwahifadhikaziniwafanyakaziwake.Tunajizatitikujiegemezakatikamienendoyakimaadili,ari,uwajibikaji,ubunifunaUtaalamumiongonimwawafanyakaziwetukotekwenyeshirikaletulote.
USIMAMIZI WA SHIRIKA NA UTAMBULIKAJI
ShirikalaBenkiyaNIClinadumishaviwangovyajuuvyausimamiziwashirika.Tunaendeleakutathminimiundoyausimamiziwetu wa shirika kulingana na kanuni za kisheria zilizopo na zinazoibuka. Miundo na harakati za usimamizi wa Shirika hiliimenakiliwakwamapanazaidikatikasehemuyaUsimamiziwaShirikayaRipotihii.
MnamoJuni2014,ShirikalaBenkiyaNIClilimteuaBiEstherNgainekamaMkurugenziMkuuasiyenamamlakayautendaji.Bi.NgaineanaingiakatikaBodihiinaujuzimpanabaadayakustaafukutokabenkimaarufuyakimataifahivimajuzi.
Ningependapiakutangazakwambakatikamwakawa2014BenkiyaNICilitambuliwakatikasektakadhaazabiasharahiikamaifuatavyo:
• KatikamweziwaNovemba2014,BenkiyaNICiliibukamshindiwaTuzoya‘KampeniBorayaMauzo-Msetomnamomwaka2014’,tuzoiliyotolewanaChamachaMauzochaKenya(MSK).
• Mwezihuohuo,Benkihii ilipokeatuzoyaBiasharaBorayaHatizaDhamanayaMwakakwenyetuzoza‘ThinkBusinessAwards’. Biashara ya NIC Capital pia iliibuka nambari mbili katika vitengo vya tuzo za Benki Bora ya Uwekezaji yaani‘InvestmentBankoftheYear’napiaileMshauriMkuuwaUsimamiziwaKibiasharayaani‘LeadTransactionAdvisor’,hukubiasharayaNICSecuritiesikimalizayatatukatikatuzozaDalaliBorawaMwakayaani(StockbrokeroftheYear)kwenyetuzohizo.Hiiinadhihirishaimaniwaliokonayowahusikawamasokoyahisanawatejakwenyehudumazaushaurinabiasharatunazotoa.
NIC BANK LIMITED
Annual Report & Financial Statements • 201420
• Bado katika mwezi wa Novemba 2014, Benki ya NIC iliibuka nambari tatu katika kitengo cha ‘Sekta ya Kifedha naUwekezaji’wakatiwaTuzozaICPSK.
• MnamoOktobamwaka2014,BenkiyaNICiliibukanambarimbilikatikakitengocha‘UsimamiziwaShirika’kwenyeTuzozaUtoajiRipotizaKifedha(FiRe)shughuliambayoilidhaminiwanaSokolaHisalaNairobi(NSE)kwaushirikianonaTaasisiyaMahasibuwaUmmaWalioidhinishwanchiniKenya(ICPAK),naMamlakayaMasokoyaHisa(CMA).
• Mapemamwaka2014,BenkiyaNICilitambuliwakwenyehaflayaTuzoza‘ThinkBankingAwards,kamanambarimbilikatikakitengocha“BestBankinAssetFinance’.
JUKUMU LA SHIRIKA KWA JAMII
Shirika la Benki ya NIC limejitolea kudumisha jukumu la shirika kwa jamii na huchukulia mahusiano yake na wadaumbalimbali kwa uzingativu mkubwa. Ufanisi wetu kama shirika la kibiashara umeegemezwa kwa uthabiti wa jamii namazingiraambayoShirikahililinaendesheabiasharayake.
Katikanusuyapiliyamwaka2014,BenkihiiilizinduamikakatimadhubutiyamiakamitatukwawanajamiinainayolengaNguzonneKuu:
Elimu,Ubunifu,AfyanamsaadawaKibinadamu/mahitajiibukayakibiashara.
KuhusuElimu,Benkihii iliendeleanaushirikianowakenamashirikayaEdumedTrust,WakfuwaPalmhousenaJuniorAchievementKenyakwalengolakuwasaidiawanafunzikutokakauntimbalimbalinchinimbalinakutumiavyemamaarifayawafanyakazikwaajiliyashughulizakuwaelekezawanafunzihao.
KuhusuAfya,ShirikalaBenkiyaNIClilizipaumuhimujitihadazakuimarishausimamiziwabidhaazaafyanateknolojiakwakusaidiaSerikaliyaKauntiyaMombasakupitiaKituochaAfyachaMabatiMedicalCliniceneolaMariakaniambapoShirikahilililifadhiliununuziwaVifaavyaKutathminiMagonjwayawagonjwakatikahiyo.
ShirikahilililiendeleanampangowakusaidiashirikalaFarajaCancerSupportTrust,HazinayaWatotoyaNairobiHospitalChildren’sHeartFund,mpangowambiowaMaterHeartRunpamojanakampeniyauangamizajiwaFunzakupitiakwashirikalaAhadiTrust.
KUJIWEKA TAYARI KWA UKUAJI
UwezekanowaustawiwauchumiwanchihiinaukandahuuunabakiakuwamwingihukujuhudizakuimarishaJumuiyayaAfrikaMashariki(EAC)zikishikakasi.
Katikaupeowakitaifa,UtafitiwaMtazamowaKimasokoulioendeshwanaBenkiKuu yaKenyamnamoDesemba2014unaonyeshakwambasektayakibinafsiinatarajiakushuhudiauthabitikatikamfumkowabeinaviwangovyaubadilishanajiwasarafuzakigeni,hukuuchumiukitarajiwakuimarikakatikamwaka2015.Matarajiahayayanaegemeakwamazingirayakibiasharayaliyoimarikakufuatiakuondolewakwavikwazovyakibiasharapamojanauwekezajiwaummawakiwangochajuukatikasektazakawi,uchukuzinakilimo.
UkandahuuumeendeleakuvutiauwekezajiwamojakwamojawakigenikatikasektazamafutanagesikufuatiakugunduliwakwagesinchiniTanzanianamafutanchiniKenyanaUganda.Halihiibilashakaitainuauwekezajikatikamiundomsingi,Teknohama(ICT)nahudumanyinginezohivyobasikupelekeawawekezajikutafutanafasizakibiasharakatikaukandahuuwaAfrikaMashariki.
UanzishajiwaVisaMojaunatarajiakuboreshabiasharanautaliikwakuwezeshakurahisishataratibunamifumoyausafiriwawatukwenyeukandahuu.MkakatiwetuwaukuajiumejikitakatikakuinuabiasharayapamojayaAfrikaMashariki(EAC)namatarajioyakukuakwauchumiilikuimarishauwepowetukatikaukandahuu.Tunapangakuimarishamatawiyetukatikaukandahuukwenyekipindichamiakamitatuijayo.
TAARIFA YA MWENYEKITI (Inaendelea)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 21
SHUKRANI
Hatungekuwahapatulipofikaleobilamsaadathabitinausiokatikawawadauwetumbalimbali.
Bodihii,WakurugenzinaWafanyakaziwanatambuakwadhatimchangowawenyehisawetuwanaozidi25,000.UfanisiwamatoleoyahatizadhamananahisanithibitishotoshalaimaniwaliyonayokatikaBenkihii.BodinaUsimamiziwaShirikalaBenkiyaNICwanawahakikishiakujitoleakwetukatikaudumishajiwaviwangovyathamaniyawenyehisawetuinayoendeleakukua.
Mhimili wa biashara yetu ni wateja. Hatufanyii masihara mchango wao, hivyo tunaendelea kujitahidi kustahili imaniwaliyotuwekea.
PiatunasaliakutambuakwadhatiwashirikawetuwakibiasharanawasimamizikisheriawanaoendeleakutupamchangowaowathamanikuusiotunchiniKenya,lakinipiakatikasehemuzotetunazotoahudumazetu.
KwaniabayaBodihii,ningependakushukurukilamfanyakaziwaShirikalaBenkiyaNICkwakuwajibikakikaziilikufanikishamwaka2014.
Kwakuhitimisha,ninawashukuruWakurugenziwenzangukwamchangowaowadhatinakujitoleakwaShirikahilikatikaviwangovyabodinakamati.
J P M NdegwaMwenyekiti
TAARIFA YA MWENYEKITI (Inaendelea)
NIC BANK LIMITED
Annual Report & Financial Statements • 201422
A Year of Growth
NICBankGrouprecordedstrongresults in2014and it ismypleasure to present highlights of our financial performance,operationaldevelopmentsandtheoutlookfor2015.
Over the course of 2014, we maintained progressively goodgrowth quarter on quarter, delivering against a balancedscorecard of growth and efficiency supported by a stronggovernanceandcontrolframework.
Tosupportourgrowthin2014andbeyond,weembarkedonasuccessfulcapitalraisingexercisewhichsawusraiseinexcessofShs12billion inadditionalcapital tosupportgrowth intheloanbookforSME,RetailandCorporatesegments.
Financial Performance
TheNICBankGrouprecordedprofitaftertaxofShs4.1billionfortheyearended31stDecember2014representinganincreaseof27%fromtheShs3.2billionnetprofitrecordedin2013.
NetoperatingincomefortheyearexcludingcreditimpairmentchargeswasShs11.5billion,agrowthof10%over2013.Thisincrease was driven by robust growth in the balance sheet,enhancedbusinessefficienciesandstrengthenedperformancefromtheBank’ssubsidiaries.
Netinterestincomegrewby10%toShs8.0billion,whilenon-fundedincomealsogrewby11%toShs3.6billioninlinewiththeGroup’sstrategytodiversifyitsrevenuesources.
TheGroup’scosttoincomeratioincreasedmarginallyto43%comparedto42%theprioryear,representingoneofthebestefficiencyratiosinthemarket.
TheGroup’sloanbookasat31stDecember2014stoodatShs100.6billion,a24%increasefromShs81.4billiontheprioryear,whilecustomers’depositsclosedatShs100.4billionreflectinga10%growthfromShs91.6billion.
TheGroup’scorecapitalbaseclosedtheyear2014atShs22.8billion,agrowthofShs5.1billionover2013.
Operational Highlights
In2014, theBanklaunched itsawardwinningMOVETONOWstrategicplatform.ItisonthisplatformthattheBankintroduceditsmobileapp,NICNOW,whichallowscustomerstodotheirbankingattheirconvenience.
NICBankGroupcontinuedtoleverageontheadvancementoftechnology and was the first bank to launch a share tradingfeature on NIC NOW, which allows customers to trade theirsharesfromthepalmoftheirhands.
GROUP MANAGINGDIRECTOR’SSTATEMENT
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 23
TheGroupalsolauncheditsVisaPlatinumCreditCard,aprestigiousofferingtargetingtheaffluentsegmentofourcustomerbase.ThecreditcardhasoneofthehighestlimitsinthemarketandoffersawiderangeofbenefitstoourPlatinumcustomers.
Wealsoopenedtwonewbranches,oneinNairobi (Riverside,Waiyakiway)andanotheroneinMachakostown,bringingthetotalnumberofbranchesto32.OurVillageMarketbranchwasalsorefurbishedandrelocatedtocaterforthegrowingcustomerbase.Ourtotalcustomeraccountbasenowstandsat179,852representingagrowthof16%comparedto2013.
2015 Outlook
2015marksthebeginningofournewstrategiccycle.Ourstrategycallsforaclearfocusonkeysegmentsoftheeconomy(retail,SMEand localcorporates),ourbrand,ourpeopleandright-scaling inorder todeliveracceptablereturns toourshareholders.Weremainveryoptimisticaboutthefuture.WearepositioningourselvestogrowourRetailandSMEsegmentsalongsideouralreadystrongCorporateBankingandAssetFinancebusinesses.
Thiswillbesupportedbyanenhancedbranchfootprintacrosstheregionaswellasproductsandservicesthatleverageinnovative,newmulti-channelsolutionsandstrategicallianceswithcomplementarypartners.
OnbehalfoftheManagementandStaffofNICBankGroup,IsincerelyextendourappreciationtoourBoard,shareholders,customers,regulatorsandbusinesspartners.WeshallcountonyoursupportaswetakeNICBanktogreaterheights.
John GachoraGroup Managing Director
GROUP MANAGING DIRECTOR’S STATEMENT (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 201424
ShirikalaBenkiyaNIClilipatamatokeomazurikatikamwakawa2014,nakwahivyoninafurahakuuninapowasilishakwenukwamukhtasaritumatokeoyakifedha,upanuziwautendakazinamustakabaliwabiasharayetukatikamwakawa2015.
Katikamwakawa2014,tulidumishaukuajithabititokarobomojayamwakahadinyingine,tukifanikiwakufikiamalengoyetuyaukuajipamojanautendakaziborauliowezeshwanausimamizimzurinamuongozoborawakudhibitishughulizetu.
Ilikuwezeshaukuajiwetumwaka2014nabaadaye, tulizingatiashughulinamikakatiyakukusanyamtaji,hatuaambayoilituwezeshakukusanyamtajiwaziadawaSh12bilioniilikuinuaukuajiwamikopokwavitengovyaBiasharazaKiwangoKidogo(SME),UchuuzinahalikadhalikaMashirika.
Matokeo ya Kifedha
ShirikalaBenkiyaNIClilipatafaidayaSh4.1bilionibaadayaushurukatikamwakauliokamilikiatarehe31Desemba2014,ambayonisawanaongezekola27%kutokaSh3.2bilionikamafaidabaadayaushuruiliyopatikanamwaka2013.
Jumla ya mapato katika mwaka huo yalifika Sh11.5 bilioni, ukuaji wa 10% yakilinganishwa na mapato ya mwaka 2013.Ongezeko hili lilisukumwa na ukuaji madhubuti kwenye mahesabu ya mizania, uboreshaji wa biashara ulioimarika namatokeoyaliyoimarikayamatawiyaBenki.
Mapatoyaribabaadayakutoagharamayalikuakwa10%hadikufikiaSh8.0bilioni,hukumapatoyasiyofadhiliwayakikuakwa11%hadiSh3.6bilioni,yakiingilianasawanamkakatiwakupanuanjiazamapatozashirikahili.
NgawirayaGharamanamapatoyaShirikahiliiliongezekakidogohadikufikia43%kutoka42%katikamwakauliotangulia,hiiikiwakilishamojawapoyangawiraborazaidikwenyesoko.
ShughulizaukopeshajizaShirikahilikufikiatarehe31Desemba2014zilifikishaSh100.6bilioni,sawanaongezekola24%kutokaSh81.4bilionimwakauliotangulia,hukuakibazawatejazikiwaSh100.4bilionimwishonimwamwaka,hii ikiakisiukuajiwa10%kutokaSh91.6bilioni.
Mtaji mkuu wa Shirika hili ulifunga mwaka 2014 ukiwa umegonga Sh22.8 bilioni, huu ukiwa ni ukuaji wa Sh5.1 bilioniukilinganishwanaulewa2013.
Ripoti ya Utendakazi
Katikamwaka2014,BenkihiiilizinduamuongozowamkakatiwaHAMIAKWAUSASA(MOVETONOW)ulioshindatuzo.NikatikamsingihuoambapoBenkihiiilianzishahudumayakeyasimuyamkononiyaNICNOW,ambayoinawawezeshawatejakuendeshashughulizabenkizaokwawepesi.
NIC iliendeleakujiinuakutokananamaendeleoyakiteknolojiana ikawabenkiyakwanzakuzinduahudumayauuzajinaununuziwahisakwenyeNICNOW,hudumainayowawezeshawatejakuuzanakununuahisakwenyeviganjavyamikonoyao.
ShirikahilipialilizinduaKadiyaMkopoyaVisayaPlatinum,hililikiwatoleolakifaharilinalolengakundilawatejawetuwenyeuwezomkubwawakifedha.KadihiyonimiongonimwazilezenyekiasikikuuchafedhakwenyesokonahutoamanufaamapanakwawatejawetuwaPlatinum.
PiatulifunguamatawimawilimapyakatikaeneolaNairobi(Riverside)namjiwaMachakosnahivyokufikishamatawiyetukuwa32kwa jumla.Tawi letu laVillageMarketpia lilifanyiwauboreshajinakuhamishwailikukidhiongezekolawateja.Jumlayawatejawetuwametimu179,852kwasasa,hiiikiwakilishaukuajiwa16%ikilinganishwanamwaka2013.
TAARIFA YA MKURUGENZI MKUU
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 25
TAARIFA YA MKURUGENZI MKUU (Inaendelea)
Mustakabali wa 2015
Mwaka2015unakuwamwanzowamzungukompyawakimikakati.Mkakatiwetuunahitajiumulikajiangavuwasektakuuzauchumi(uchuuzi,SMEnamashirikayahumunchini),mfumowabiasharayetu,watuwetunakuwekaviwango-sahihivyautendakaziilikufanikishamapatoyanayokubalikakwawenyehisawetu.Amakwahakika,tunamatumainimengikuhusumustakabaliwakibiasharayetu.TunajiwekaimarailikukuzavitengovyetuvyaUchuuzinaSME,sambambanabiasharayetuyaShughulizaBenkikwenyeShirikanaAmalizaKifedha(CorporateBankingnaAssetFinance).
Mikakatihiiitapigwajekinaupanuziwamatawiyetukotekatikaukandahuupamojanabidhaanahudumazinazowezeshaubunifu,msetowanjiampyazausuluhishajinaulinganishajiwamikakatinawashirikawetukimahuluti.
Kwa niaba ya Wafanyakazi wa Shirika la Benki ya NIC, ninatoa shukrani zangu za dhati kwa bodi, wenyehisa, wateja,wasimamiziwakiserikalinawashirikawetuwakibiashara.TutazidikutegemeamchangowenuhukutukiendeleakuinuaBenkiyaNIChadikwenyeupeowajuunaufanisi.
John GachoraMkurugenzi Mkuu
NIC BANK LIMITED
Annual Report & Financial Statements • 201426
THE BOARD OF DIRECTORS
From left to right seated: John Gachora I James P M Ndegwa I Frederick M Mbiru
From left to right standing: Andrew S M Ndegwa I Paras V Shah I Francis N Mwanzia I Michael L Somen I Esther Ngaine I I Ochola – Wilson I George A Maina I Kairo Thuo I Livingstone Murage I Alan J Dodd
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 27
From left to right standing: Andrew S M Ndegwa I Paras V Shah I Francis N Mwanzia I Michael L Somen I Esther Ngaine I I Ochola – Wilson I George A Maina I Kairo Thuo I Livingstone Murage I Alan J Dodd
NIC BANK LIMITED
Annual Report & Financial Statements • 201428
James P M Ndegwa
Age: 51
Chairman (Non-Executive)
Mr. Ndegwa holds a MA (Hons) degree from Oxford University, UK, and is an Associate of the Chartered Insurance Institute, UK. He is the Chairman of First Chartered Securities Limited and a director of several companies. Prior to his present position, he was the Managing Director of Lion of Kenya Insurance Company until 2003. He joined the Board on 19th November 2003 and was appointed Chairman in 2005.
Frederick M Mbiru
Age: 77
Vice Chairman (Non-Executive Independent)
Mr. Mbiru holds a Bachelor of art degree in Business Administration (Hons) degree from Makerere University and is an Associate of the Chartered Institute of Bankers. He is currently a Management Consultant and a director of several companies having retired as General Manager of Barclays Bank of Kenya in 1993. He joined the Board on 16th February 1993.
John Gachora
Age: 47
Group Managing Director (Executive)
Mr. Gachora holds a Masters Degree in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology, USA as well as an Masters in Business Administration from the Wharton School, University of Pennsylvania, USA. He joined NIC from Barclays Africa where he had been Managing Director and Head of Corporate & Investment Banking. Prior to this, he held several executive positions at Absa Bank, in South Africa, as well as Bank of America and Credit Suisse First Boston in the United States. He joined NIC Bank in September 2013 as Group Managing Director and was appointed to the Board on 21 August 2013.
Andrew S M Ndegwa
Age: 47
Director (Non-Executive)
Mr. Ndegwa holds a MA (Hons) degree in Philosophy, Politics and Economics from Oxford University, UK. He is the Executive Director of First Chartered Securities Limited and a director of several companies. He previously worked for Citibank and AMBank until 1995. He joined the Board on 23rd April 1997.
Alan J Dodd
Age: 59
Executive Director
Mr. Dodd holds a BA (Hons) degree in Economics from Portsmouth University, UK. He is an Associate of the Chartered Institute of Bankers. He has extensive regional and international banking experience covering East and Southern Africa, Middle East and Asia. He joined NIC Bank in January 2006 as Director, Corporate Banking, and was appointed to the Board on 22nd February 2006.
George A Maina
Age: 63
Director (Non-Executive Independent)
Mr. Maina holds a B. Tech (Hons) degree in Aeronautical Engineering and Design from Loughborough University, UK. He is currently a Business Consultant and a director of several companies. He has extensive experience in the oil industry in Africa, the Caribbean and Central America including being Managing Director of Kenya Shell and BP Kenya Limited from 1998 to 2002. He joined the Board on 1st June 2002.
THE BOARD OF DIRECTORS (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 29
THE BOARD OF DIRECTORS (Continued)
I Ochola – Wilson
Age: 66
Director (Non-Executive, Independent)
Mrs. Ochola-Wilson holds a Bachelor of arts degree from Dar-es-Salaam University and an Masters in Business Administration from University of British Columbia, Canada. She is currently a Business Consultant having retired as a Project Manager for DFID’s Business Partnership Programme in 2005. She joined the Board on 5th November 1999.
Esther Ngaine
Age: 57
Director (Non-Executive, Independent)
Ms. Ngaine, is a senior banker with over 36 years of experience in a global financial institution. Prior to joining the NIC Bank board, Ms. Ngaine was the Director and Head of Public Sector at Citibank. She has extensive banking experience and over the years has a played a role in the development of the Financial Services Sector in Kenya and the East Africa Region. She joined the Board in June 2014.
Michael L Somen
Age: 78
Director (Non-Executive, Independent)
Mr. Somen is a Barrister-at-Law, Grays Inn, England, and holds an Masters in Business Administration (Hons) degree from Brasenose College, Oxford. He is an Advocate of the High Court of Kenya. He retired in 2002 as Senior Partner of Hamilton Harrison & Mathews Advocates but remained as a consultant with the firm until 2010. He joined the Board on 21st February 2001.
Francis N Mwanzia
Age: 70
Director (Non-Executive Independent)
Mr. Mwanzia holds a Bachelor of Commerce (Hons) degree from University of Nairobi and is a qualified member of the Association of Chartered Certified Accountants, UK and Chartered Institute of Secretaries and Administrators, UK. He is also a member of ICPAK and ICPSK. He is currently a businessman having retired as Group Financial Controller and Company Secretary of NAS Airport Services in 1999. He joined the Board on 3rd August 1995.
Kairo Thuo
Age: 40
Director (Non-Executive, Independent)
Mr Thuo is both a lawyer and accountant by profession. He is a consultant and a founder member of Viva Africa Consulting LLP and Viva Africa Consulting Limited and was previously responsible for establishing and running the Tax Transaction Advisory group at Deloitte and Touche. He joined the board on 27 November 2013.
Paras V Shah
Age: 41
Director (Non-Executive, Independent)
Mr Shah, is a lawyer by profession and a Certified Public Secretary. He holds an LLB (Hons) degree, from King’s College London, Diploma in legal practice from the College of Law, London, Diploma in Legal practice from Kenya School of Law and Diploma in Management from Henley School of Management. He is an Advocate of the High Court of Kenya and currently a partner of Hamilton Harrison & Mathews Advocates. He joined the Board on 23rd February 2010.
Livingstone Murage
Age: 57
Group Company Secretary (Executive)
Mr. Murage holds a Bachelor of Commerce(Hons) degree from University of Nairobi and is a Certified Public Accountant and a Certified Public Secretary. He is also a member of ICPAK and ICPSK. He previously worked for PriceWaterhouse and Mobil Oil before joining the banking sector in 1986. He was appointed Company Secretary on 2nd September 1999.
NIC BANK LIMITED
Annual Report & Financial Statements • 201430
John GachoraGroup Managing Director (Executive)
Mr. Gachora holds a Masters Degree in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology, USA as well as an Masters in Business Administration from the Wharton School, University of Pennsylvania, USA. He joined NIC from Barclays Africa where he had been Managing Director and Head of Corporate & Investment Banking. Prior to this, he held several executive positions at Absa Bank, in South Africa, as well as Bank of America and Credit Suisse First Boston in the United States. He joined NIC Bank in September 2013 as Group Managing Director and was appointed to the Board on 21 August 2013.
Alan J Dodd Director, Corporate Banking (Executive)
Mr. Dodd holds a BA (Hons) degree in Economics from Portsmouth University, UK. He is an Associate of the Chartered Institute of Bankers. He has extensive regional and international banking experience covering East and Southern Africa, Middle East and Asia. He joined NIC Bank in January 2006 as Director, Corporate Banking, and was appointed to the Board on 22nd February 2006.
Livingstone MurageGroup Company Secretary (Executive)
Mr. Murage holds a Bachelor of Commerce (Hons) degree from University of Nairobi and is a Certified Public Accountant and a Certified Public Secretary. He is also a member of ICPAK and ICPSK. He previously worked for PriceWaterhouse and Mobil Oil before joining the banking sector in 1986. He was appointed Company Secretary on 2nd September 1999.
Sankul MandaviaDirector, Treasury
Mr. Mandavia holds a Bachelor of Science in Business Administration from United States International University (USIU). Before his appointment he was the Assistant General Manager Institutional Banking and Liability Management at Commercial Bank of Africa. He also served as Head of Treasury at First American Bank of Kenya.
Julius KamauDirector, Operations & Technology
Mr. Kamau holds a degree in Bachelor of Commerce, Marketing from the University of Nairobi. He joined NIC Bank from Ecobank-Kenya where he was the Head of Operations & Technology. Prior to this, he held various positions at Citi Bank and Standard Chartered Bank respectively. He is a Certified Public Accountant, CPA (K) with 15 years of extensive experience in managing banking, IT operations and projects.
Margaret KimumaDirector, Credit Risk
Ms. Kimuma holds a Bachelor of Science in International Business Administration from United States International University (USIU) as well as a Diploma in Customer Relationship Management from the Institute of Financial Services (UK). Prior to her appointment, she was the Head of Credit Risk. She has 22 years of experience in banking having also worked for Barclays Bank (K) Limited. Ms. Kimuma is an Associate of the Kenya Institute of Bankers.
SENIOR MANAGEMENT
Rosalind Kimani-GichuruDirector, Marketing, Communication & Citizenship
Mrs. Gichuru holds a Masters in Business Administration from Northeastern University, Boston, US and a Bachelor of Commerce degree from McMaster University, Hamilton, Ontario, Canada. She is a seasoned Marketer with over 17 years of Marketing Strategy, Trade Execution and Leadership experience in the United States and across Africa. Her Marketing career began at The Gillette Company in Boston Massachusetts where she held Brand Management positions in the Duracell and Oral B / Braun Divisions for the US market. She then joined NIC Bank from The Coca-Cola System where she held leadership positions with Coca-Cola SABCO and The Coca-Cola Company across 39 countries in Sub Sahara Africa.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 31
SENIOR MANAGEMENT (Continued)
Maurice OpiyoManaging Director, NIC Capital Ltd
Mr. Opiyo holds a Bachelor in Business Administration degree in Finance from Maseno University and is in the final stages of achieving Chartered Financial Analyst (CFA) certification. He joined NIC Group in 2009 as a Senior Associate from Old Mutual where he was a Senior Investment Analyst. Maurice successfully built his career at NIC Capital rising to the position of Associate Director before his appointment to Managing Director, NIC Capital.
David Abwoga Director, Finance & Strategy
Mr. Abwoga holds a Bachelor of Arts degree in Economics from Moi University and an MBA (Strategic Management) from the University of Nairobi. He joined NIC Bank from Citibank N.A where he was the East Africa Cluster Chief Financial Officer (CFO), responsible for Kenya, Tanzania, Uganda and Zambia. Prior to this, he held various executive management positions at Citi, Marshalls (EA) Ltd and Deloitte & Touché. David is a Certified Public Accountant, CPA (K) and CPS (K) with 22 years of extensive experience in Audit, Operations and Finance.
Catherine KaritaGeneral Manager, NIC Securities Ltd
Ms. Karita holds a Masters in Business Administration from the University of Baltimore, Baltimore County and a Bachelor of Science Degree in Information Systems from the University of Maryland. Prior to joining NIC Bank Catherine was the Head of Corporate and Institutional Sales at CfC Stanbic Financial Services Limited where she established the Local and Foreign Institutional business. Her banking career started off at Bank of America, in the US where she worked for 4 years in Relationship Management and various Sales positions.
Faith MwendiaGeneral Manager, NIC Insurance Ltd
Mrs. Mwendia holds a Bachelor of Commerce Degree (1st Class Honors) from University of Nairobi. Prior to this role, she worked as a Relationship Manager in the Insurance Premium Finance Department of NIC Bank. Faith steered the set up the Bancassurance department in NIC Bank Group in 2008. Before joining NIC Bank Mrs. Mwendia worked at CBA Bank.
Monicah W. KihiaDirector, Human Resources
Mrs. Kihia holds a Masters in Business Administration in Marketing & Strategic Management from the University of Nairobi, and Bachelor of Education (Mathematics & Economics) from Egerton University. Prior to joining NIC Bank, Mrs. Kihia held various roles with Citibank N.A with the latest being Head of Learning & Development – Sub Sahara Africa cluster and Deputy East Africa HR Head & Senior HR Business Partner – Kenya. Monica is a Certified Executive Coach by the Academy of Executive Coaching.
Pankaj KansaraManaging Director, NIC Bank Tanzania Ltd
Mr. Kansara holds a Masters in Business Administration in Finance and Banking from the University of Wisconsin, USA as well as a Bachelor of Business Administration in Accounting from Loyola College of Baltimore, USA. Mr. Kansara has been in the banking industry for over 25 years having worked with several Local and Multinational Banks in Kenya.
John OkuloManaging Director, NC Bank Uganda Ltd
Mr. Okulo holds a Masters in Science in Economics from the University of Gdansk in Poland. He has 14 years of extensive banking experience in East Africa having worked for various multinational banks in both Kenya and Uganda. Mr. Okulo has spent most of his banking career in corporate banking.
NIC BANK LIMITED
Annual Report & Financial Statements • 201432
CORPORATE INFORMATION
DIRECTORS
J P M Ndegwa - ChairmanF M Mbiru - Vice ChairmanJ Gachora - Group Managing Director•A Dodd• **G A MainaF N MwanziaA S M NdegwaI Ochola-WilsonM L SomenP V ShahK ThuoE N Ngaine
•Executive directors**British
CREDIT RISK COMMITTEE
F M Mbiru - ChairmanF N MwanziaA S M NdegwaM L SomenP V Shah
EXECUTIVE COMMITTEE
A S M Ndegwa - ChairmanG A MainaM L SomenP V Shah
RISK MANAGEMENT COMMITTEE
G A Maina - ChairmanF M MbiruI Ochola-Wilson
AUDIT COMMITTEE
F N Mwanzia - ChairmanF M MbiruI Ochola-WilsonK Thuo
NOMINATIONS COMMITTEE
G A Maina - ChairmanJ P M NdegwaA S M NdegwaP V Shah
HUMAN RESOURCES AND COMPENSATION COMMITTEE
I Ochola-Wilson - ChairmanF M MbiruA S M Ndegwa
GROUP COMPANY SECRETARY
L MurageCertified Public Secretary (Kenya)NIC House, Masaba RoadP.O Box 44599 - 00100Nairobi
REGISTERED OFFICE
NIC HouseMasaba RoadP.O Box 44599 - 00100Nairobi
REGISTRARS AND TRANSFERS OFFICE
Custody & Registrars Services Limited6th Floor, Bruce House, Standard StreetP.O Box 8484 - 00100Nairobi
AUDITORPricewaterhouseCoopersCertified Public Accountants (Kenya)PwC TowerWaiyaki Way/Chiromo Road, WestlandsP.O Box 43963 - 00100Nairobi
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 33
Theroleofthefinancialservicesindustryinsocietyhascomeunderincreasedscrutinyinrecentyears.Thisisparticularlysoasaresultofthehighprofilemalpracticesandcorporatefailuresthatalmostledtothecollapseofthefinancialbankingindustryindifferentpartsoftheworld,andthedevastatingimpactthatthesehavehadonthoseeconomiesandsociety.Someofthesemalpracticesand failureshavebeenbroughtaboutbyperceivedbreakdowns in thecorporategovernancestructures in theaffectedinstitutions.Theseinclude:
• Theuseofinappropriatecompensationandrewardstructuresthatpromotedimprudentrisktakingandincreasedfocusonshort-termgainattheexpenseofthelong-termstabilityoftheinstitution;
• Thefailureofcommercialbankstofullyunderstandtherisksassociatedwithcomplexfinancialstructures;
• Risk management structures and controls that failed to keep pace with the increased complexity and size of financialtransactionsandrelationships;
• Inadequatedisclosuresinfinancialstatementsabouttheforeseeableriskfactorsandaboutthesystemsformonitoringandmanagingrisks;and
• Conflictsofinterestamongstdifferentstakeholdersinfinancialinstitutions.
Thestrengthandwellbeingofthefinancialsystemiscriticaltobotheconomicandsocialdevelopmentandfinancialregulatorsaroundtheworldhavetakenmeasurestoensurethatthefailuresexperiencedintherecentpastdonotrecur.TheNICBankGroup’smainregulators,theCentralBankofKenya(CBK),theBankofTanzania(BOT),theBankofUganda(BOU),theCapitalMarketsAuthority(CMA),theNairobiSecuritiesExchange(NSE)andtheInsuranceRegulatoryAuthority(IRA),haveenhancedtheirregulationsandenrichedriskmanagementguidelinessothatbanksandotherfinancialinstitutionscaneffectivelymitigatethemyriadriskstowhichtheyareexposed.TheGrouphasfullyembracedthesechangesandremainsattheforefrontinadoptingbestpracticesincorporategovernanceandriskmanagementintherapidlyevolvingfinanciallandscape.
During2014,theNICBankGroupachievedhighlevelsofcorporategovernancebycontinuingtoadheretothefollowingprinciplesamongstothers:
• Optimisingshareholderreturnsthroughtheadoptionofappropriatestrategiesaimedatenablingandpromotingthelongtermprosperityofthebusiness;
• Timelyandrelevantdisclosuresandtransparencytoprovidestakeholderswithaclearunderstandingofourbusinesses;
• Implementation of strong audit procedures through ensuring audit independence, maintaining strong internationallyrecognisedaccountingprinciples,ensuringtheundertakingofawellscopedannualauditandmaintenanceofrobustinternalcontrols;
• WelldefinedBoarddutiesandaccountabilities,ensuringappropriatedirectorcompetencies,maintaininganappropriatemixofnon-executiveandindependentnon-executivedirectors,establishmentofindependentcommitteesandundertakingannualboardevaluations;
• Employeeparticipationinenhancingstakeholders’longterminterests;
• Compliancewithlawsanddisclosureofpoliciestoallrelevantstakeholders;and
• Upholdingthehighestlevelsofintegrityintheorganisation’scultureandpracticesthroughawelldefinedandimplementedcodeofconductandethics.
TheBoardiscommittedtoensuringthatthebusinessisruninaprofessional,transparent,justandequitablemannersoastoprotectandenhanceshareholdervalueandsatisfytheinterestsofallitsstakeholders.Inadditiontotheaboveconsiderations,theprinciplesandstandardsimplementedandadheredtobytheBoardandNICBankGroup’sgovernancestructure,havebeendevelopedwithclosereferencetoguidelinesoncorporategovernanceissuedbytheCentreforCorporateGovernance,theCapitalMarketsAuthorityforpubliclylistedcompaniesinKenya,theCentralBankofKenyaforthebankingindustry,andotherbestpractices.
STATEMENT ON CORPORATE GOVERNANCE
NIC BANK LIMITED
Annual Report & Financial Statements • 201434
TherolesplayedbyeachoftheabovecommitteesaredescribedlaterinthissectionoftheAnnualReport.
During 2014, the Board’s focus was geared towards the achievement of compliance with the qualitative aspects of goodgovernancewhilstensuringthatimplementationmatchestheneedsofthebusiness.
Board Size, Composition and Independence
TheBoardconsistsoftwelveDirectors,tenofwhomareNon-executiveDirectors(includingtheChairman).AmongtheDirectorsareeightIndependentNon-executiveDirectors.InJune2014themembershipoftheBoardwasincreasedbytheappointmentofoneadditionalDirector.
TheNon-executiveDirectorsareindependentofManagement.Theirroleistoadvise,constructivelychallenge,provideoversight,andmonitorthesuccessoftheManagementindeliveringtheagreedstrategywithintheapprovedriskappetiteandcontrolframeworkthatissetbytheBoard.
TheBoardiswellcomposedintermsoftherangeanddiversityofskills,backgroundandexperienceofDirectors,andhasanappropriatebalanceofExecutive,Non-executive,andIndependentNon-executiveDirectors.
TheDirectors’abridgedbiographiesappearonpage28to29ofthisAnnualReport.
STATEMENT ON CORPORATE GOVERNANCE (Continued)
NICBankGroup’sgovernancestructureissummarizedinthechartbelow:
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 35
AlltheNon-executiveDirectorsaresubjecttoretirementbyrotation,andmustseekre-electionbyshareholdersatleastonceevery three years in accordance with the Articles of Association of the Company. Any Director appointed during the year isrequiredtoretireandseekre-electionatthenextAnnualGeneralMeeting.
Board Responsibilities
TheBoard’sprincipaldutyistopromotethelong-termsuccessoftheGroupbycreatinganddeliveringsustainableshareholdervalue.TheBoardCharterdefines thegovernanceparameterswithinwhich theBoardexistsandoperates, setsout specificresponsibilitiestobedischargedbytheBoard,itscommitteesandDirectorscollectively,aswellascertainrolesandresponsibilitiesincumbentupontheDirectorsasindividuals.
AsummaryoftheBoard’sresponsibilitiesisasfollows:
• ProvidingentrepreneurialleadershiptotheGroupwithinaframeworkofprudentandeffectivecontrolswhichenablesrisktobeassessedandmanaged;
• Strategyformulationandensuringthatthereareadequatepolicies,systemsandstructurestosuccessfullyimplementtheGroupstrategies;
• Monitoring theGroup’sperformanceagainst itsstrategicplansandobjectivesonanongoingbasis,aswellas throughmandatoryquarterlymeetings;
• Reviewandapprovalofthepublicationofthequarterlyfinancialstatements;
• Theselection,appointmentandappraisalofseniorexecutiveofficerswhoarequalifiedandcompetenttomanagetheaffairsoftheGroupeffectively;
• Approvalof theriskmanagement framework,andensuring that thereareadequatestructuresandsystemsto identify,measure,controlandmonitorthekeyrisksfacingtheGroup,includingcompliancerelatedrisks;
• Reviewingtheeffectivenessofthesystemsformonitoringandensuringcompliancewithrelevantlaws,regulations,industryrulesandstandards;
• DeterminingthetermsofreferenceofallBoardCommittees,andthereviewingofreportsandminutesofthedeliberationsofthoseCommittees;
• Developing,reviewingandmonitoringtheGroup’scorporategovernancepoliciesandpractices;and
• ReviewingtheGroup’scapitallevelstoensurethatthereisadequatecapacityfortheplannedgrowthandexpansionwithinthestrategiccycle,andapprovingmajorcapitalexpenditure,acquisitionsanddivestitures.
Chairman and Group Managing Director
TherolesandresponsibilitiesoftheChairmanoftheBoardandtheGroupManagingDirectorremaindistinctandseparate.TheChairmanprovidesoverallleadershiptotheBoardwithoutlimitingtheprinciplesofcollectiveresponsibilityforBoarddecisions.TheGroupManagingDirectorisresponsibletotheBoardandtakesresponsibilityfortheeffectiveandefficientrunningoftheGroupanditssubsidiariesonaday-to-daybasis.
TheDeputyChairmandeputizesfortheChairmanatmeetingsoftheBoardandsupportshiminhisrole.
Board Remuneration
Non-executiveDirectorsarepaidamonthlyfee,togetherwithasittingallowanceforeverymeetingattended.Theyarenoteligibleforpensionschememembership,anddonotparticipateinanyoftheCompany’sremunerationorcompensationschemes.
DetailsoftheDirectors’feesfortheNon-executiveDirectorsandremunerationoftheExecutiveDirectorspaidin2014aresetoutinnote40(c)ofthefinancialstatements.
STATEMENT ON CORPORATE GOVERNANCE (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 201436
Directors’ Shareholding
NoneoftheDirectorsasattheendofyear2014heldsharesintheirindividualcapacityofmorethan1%oftheCompany’stotalequity.
Board and Strategy Meetings
TheBoardanditsCommitteesmeetregularlyinaccordancewithbusinessrequirements.AllDirectorsparticipateindiscussingthestrategy,performanceandthefinancialandriskmanagementoftheGroup.MeetingsoftheBoardarestructuredtoallowsufficienttimeforconsiderationofallmattersandtheChairmanencouragesconstructivechallengeanddebate.
TheBoardWorkPlantogetherwiththecalendarofmeetingsfor2014wasfixedinadvanceandprovidedtoallDirectors.Adequatenotice was given for each meeting and the agenda and supporting papers were distributed in advance of all Board and itsCommitteemeetingstoallowtimeforappropriatereviewandtofacilitatefulldiscussionatallmeetings.
In2014, inadditionto the fourscheduledBoardmeetings, theBoardhelda further twoboardmeetingstoconsiderspecialmattersincludingthecapitalraisinginitiatives.TheBoardalsoheldatwodayretreattoreviewtheachievementsofthe2012-2014StrategicPlanandtodiscussandformulatethe2015-2017StrategicPlan.Themainthrustofthe2015-2017strategiccycleistopositiontheGrouptogrowitsSMEandRetailsegmentsalongsidethealreadyverystrongCorporateBankingandAssetFinancebusinesses.
TheBoardateachofitsregularmeetingsduringthecourseoftheyearreviewedthefollowing:
• Progressagainstfinancialobjectives,businessdevelopments,andinvestorandexternalrelations.
• ReportsfromtheChairsofBoardCommitteesontherespectiveactivitiesoftheBoardandmanagementcommitteessincethepreviousBoardmeeting.
• PresentationsfromtheGroupManagingDirectoronthemacroeconomicenvironmentandtheimpactonbankingbusiness,areviewofthefinancialservicesindustryandcapitalmarketsoverview,areviewoftheregulatoryandcompetitiveenvironment,strategyandbusinessdevelopment,andthefinancialperformanceofthebankingindustry.
• The Group’s risk appetite profile, top and emerging risks, risk management, liquidity, litigations, compliance and anyreputationalissues.
MembersofExecutiveManagementareregularlyinvitedtoattendBoardanditsCommitteemeetingsasrequiredandmakepresentationstogivetheDirectorsgreaterinsightsintotheirbusinessareas.
TheBoardhasownershipovertheGroup’sstrategicdirection.AteachBoardmeetingprogresstowardsthetargetsoftheapprovedbusinessplansisreviewedandguidanceprovidedtoSeniorManagementasappropriate.
DirectorsareatcompletelibertytocommunicatedirectlywithSeniorManagementwithaviewtoclarifyinganyissuesthathaveasignificanteffectontheGroup’sperformance.
ThesummaryoftheBoardandBoardCommitteemeetingsandattendanceisshownonpage43.
Directors’ external activities and Conflicts of Interest
DirectorshaveastatutorydutytoavoidsituationsinwhichtheyhaveormayhaveintereststhatconflictwiththoseoftheGroup.Businesstransactionswithallparties,includingtheDirectorsortheirrelatedpartiesarecarriedoutatanarms’length.
In2014,theDirectorssubmittedtheirannualdeclarationsofinterestswhichincluded:
• AnacknowledgementthatshoulditcometotheattentionofaDirectorthatamatterconcerningtheGroupmayresultinaconflictofinterest,theyareobligedtodeclarethesameandwillexcludethemselvesfromanydiscussionordecisionoverthematterinquestion.
• Anacknowledgement thatshould theDirectorbeappointed to theBoardoracquireasignificant interest inabusinesscompetingwiththeGroup,theDirectorwillbeobligedtooffertheirresignation.
• AnacknowledgementthattheforegoingalsoappliestointerestsoftheimmediatefamilymembersoftheDirectors.
BusinesstransactionswiththeDirectorsortheirrelatedpartiesaredisclosedonpageinnote40ofthefinancialstatements.
STATEMENT ON CORPORATE GOVERNANCE (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 37
Board Structure
The Board operates under a comprehensive structure made up of Committees established to assist it in discharging itsresponsibilities and obligations. The Committees assist the Board in carrying out its functions and ensuring that there isindependentoversightofinternalcontrolsandriskmanagement.
The Board has determined the purpose and number of Committees required to support it in carrying out its duties andresponsibilitiesandinguidingManagement.TheseCommitteeshavebeenestablishedwithsetsofspecifictermsofreference,whicharecontinuouslyreviewedandupdated.TheappointmentofthememberstotheseCommitteesdrawsontheskillsandexperienceofindividualDirectors.TheroleplayedbytheBoardCommitteeshasbecomeincreasinglyimportantovertheyearsandformsaprincipalpointofcontactbetweentheDirectorsandSeniorManagement.
TheBoardCommitteesare:Audit;CreditRisk;Executive;HumanResources&Compensation;Nominations;andRiskManagement.ThesearesupportedbyfivekeyManagementCommittees:ExecutiveManagement(Excom),Management(Mancom),AssetsandLiabilitiesManagement(ALCO),CreditRiskManagementandSeniorRiskCommittees.
All theBoardCommitteeshaveat leastthreenon-executivedirectorsasmembers.TheChairof theCommitteesmustbeanon-executiveDirectorwhile insomeCommitteessuchas theAudit,Nominations,HumanResources&CompensationandRiskManagement,theyareIndependentNon-executiveDirectorswiththemajorityofthemembershipbeingIndependentNon-executiveDirectorsasprescribedbytheCentralBankofKenyaPrudentialGuidelines.
AteverymeetingoftheBoardtheChairofeachCommitteepresentsanupdateofitsactivities,decisionsandrecommendationsoftheirrespectiveCommitteessincethepreviousBoardmeeting.
MembershipofthevariousBoardCommitteesisshownonpage32.
TheGroupCompanySecretarysitsinalltheBoardandCommitteemeetingsandisresponsibleformonitoringandcoordinatingthecompletionanddispatchofBoardandCommitteeagendapapers,andotherbriefingmaterials.TheGroupCompanySecretaryisalsoresponsible forensuring that theminutesof theCommittees’deliberationsarecirculated ina timelymanner to theCommittees’membersandtheBoard.AllDirectorshaveaccesstotheservicesandadviceoftheGroupCompanySecretary.Detailsoftheskills,experienceandexpertiseoftheGroupCompanySecretaryaresetoutonpage29ofthisReport.
ManagementandexternalserviceprovidersplusanyrequiredSubjectMatterExpertsattendbyinvitationfromtimetotimeascircumstancesdictate.Directors’attendanceofthesecommitteesisprovidedonpage43TheBoardandDirectors’EvaluationsaresenttotheCentralBankofKenyaasrequiredbylawannually,bythe31stMarchofeachyear.
DetailsoftheseCommitteesaregivenherebelow:
• Audit Committee
ThecommitteeplaysavitalroleinensuringtheintegrityofthefinancialstatementspriortothereviewandapprovalbytheBoard.Tothisend,theAuditCommitteereviewstheaccountingpolicies,financialreportingandregulatorycompliancepracticesoftheGroup.TheCommitteealsocontinuallyevaluatestheeffectivenessoftheinternalcontrolsystemsoftheGroupinaccordancewithitsapprovedauditplan.
TheCommitteeisinvolvedintheappointment,supervisionandperformanceappraisaloftheexternalauditorandtheinternalauditor.TheCommitteereceivesreportsonthefindingsoftheinternalandexternalauditorsandManagement’scorrectiveactionsinresponsetothefindings.TheCommitteemeetsquarterlyandtheexternalauditorsareinvitedtoattendwhenevernecessarybutatleasttwiceinayearwheretheymeetwithoutSeniorManagement’spresence.Eachyear,theCommitteereviewsandapprovestheoverallscopeandplansfortheexternalauditactivities,includingthefeeswhichhavetoberatifiedbytheshareholders.Externalauditperformanceisreviewedannually.
TheCommitteeafterevery three years invitesprequalifiedauditfirms tobid forprovisionofprofessionalauditand taxservices.Theauditfirmsmakepresentations to theCommitteeandareevaluatedonasetcriteriaand theCommitteerecommendstotheBoardeitherthereappointmentoftheexistingauditfirm,orappointmentofanewauditfirm.TheBoardthenrecommendstotheshareholdersthereappointmentofanexistingauditorortheappointmentofanewauditor.
TheAuditCommitteeisinvolvedintheappointmentandperformanceassessmentoftheHeadofInternalAudit,whoreportsdirectlytothisCommittee.TheCommitteealsoreviewstheoverallscope,annualplansandbudgetfortheInternalAuditfunction’sactivitiesandoverseesthealignmentofriskmanagementprogramsandInternalAuditactivities.TheCommitteereviewsallInternalAuditreportsandhasregulardirectaccesstotheHeadofInternalAudit.
STATEMENT ON CORPORATE GOVERNANCE (Continued)
NIC BANK LIMITED
Annual Report & Financial Statements • 201438
STATEMENT ON CORPORATE GOVERNANCE (Continued)
• Credit Risk Committee
TheCommitteereviewsandoverseestheoveralllendingpoliciesoftheGroupandapprovescreditapplicationsthatareabovetheapprovallimitsformanagement.Itensuresthatthereareeffectiveprocedurestoidentifyandmanageirregularandproblemfacilities,minimizecreditlossandmaximizerecoveries.
The Committee regularly reviews and recommends to the Board discretionary credit limits for the Board Credit RiskCommitteeandManagementCreditRiskCommittee.
• Executive Committee
ThecommitteeassiststheBoardindischargingitsresponsibilitiesrelativetostrategy,technology,andgeneraloperationsoversight.Thecommitteemeetsregularly toreviewandrecommendforBoardapprovalmajorcapitalprojects,periodicstrategicplans,annualbudgetsandkeypolicyguidelinesasdevelopedbymanagement.
• Human Resources and Compensation Committee
TheCommitteereviewstheHumanResourcespoliciesandproceduresandensuresthattheyadequatelysupporttheGroup’sstrategy.ItensuresthattheGroupcontinuestoprovideremunerationpackagesthatfairlyrewardstafffortheircontributiontothebusinessandcontinuestoattract,motivateandretainstaffofthehighestcaliber.
ThecommitteeensuressuccessionplansareinplaceforallseniorexecutivemanagementoftheGroup.
• Nominations Committee
TheNominationsCommitteeprovidesanefficient,effectiveandreliablemechanismthatidentifiesandrecommendstotheBoardtheappointmentof individualstoserveasDirectorsoftheGroup.ItconductsregularreviewsoftherequiredmixofskillsandexperienceofDirectorsoftheGroupinordertoensuretheeffectivenessoftheBoardanditsCommitteesinmeetingtheneedsofthebusiness.
• Risk Management Committee
The Risk Management Committee is responsible for setting the strategic risk parameters through policies/guidelines,tolerance limits, andapproving the riskmanagementstrategyaswell assignificantpoliciesandprograms.Thereafter,itmonitorscompliancewiththeriskpolicies,limitsandprograms.Italsoreviewstheadequacyoftheriskmanagementframework inrelation to therisks facedby theGroupand incomparison to theapproved tolerances.TheCommittee isassistedinthesefunctionsbyvariousmanagementlevelcommitteesthatundertakebothregularandad-hocreviewsoftheGroup’sriskmanagementenvironment,theresultsofwhicharereportedatappropriatelevelsforreviewandaction.
Theriskmanagementpolicies,whicharereviewedbytheCommittee,aredetailedonpages78to106andareinlinewithInternationalFinancialReportingStandards.
Management Committees
AsignificantfactorintheGroup’songoingsuccessisthestrengthofthemanagementteam.Membersofthemanagementteambring togethera vital combinationof leadershipskillsandextensiveexperience fromboth localand internationalbanks.Toharnessthatstrength,theGroupManagingDirectorhasestablishedcommitteestoassisthiminthemanagementoftheGroup.ThesecommitteesarechairedbytheGroupManagingDirectorandincludetherespectiveHeadsofDepartments,withotherseniormanagersbeingco-optedonaneedbasis.Thesecommitteesinclude:
• The Executive Management Committee (EXCOM)
Thiscommitteemeetsregularlyandatleastmonthlytodiscussstrategyformulationandimplementation,policymattersandfinancialperformance.Itisalsochargedwiththeresponsibilityofensuringcompliancewiththeregulatoryframeworkandguidelinesandadherencetocompanypolicyandprocedures.ThiscommitteealsoservesasalinkbetweentheBoardandManagement.
• The Management Committee (MANCOM)
ThiscommitteemeetsmonthlytoreviewoperationalissuesoftheGroup,withemphasisontheassessmentandmonitoringoftheinstitution’soperationalrisks.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 39
STATEMENT ON CORPORATE GOVERNANCE (Continued)
• The Assets and Liabilities Management Committee (ALCO)
Thiscommitteemeetseverymonthormorefrequentlyifnecessary.ALCO,ariskmanagementcommittee,istaskedwiththeresponsibilityofensuringthatallforeseeablefundingcommitmentsanddepositwithdrawalscanbemetasandwhentheyfalldue,andthattheGroupwillnotencounterdifficultiesinmeetingitsobligationsorfinancialliabilitiesastheyfalldue.Thisincludesmanagementofoperationalrisks,interestrate,marketandexchangeraterisksandensuringcompliancewithstatutoryrequirementsgoverningliquidity,cashratioandforeignexchangeexposure,investmentpolicies,anditsinternalcapitaladequacymanagement.
• The Management Credit Risk Committee
ThiscommitteemeetsregularlytoapprovenewcreditapplicationsandrenewalswithinthedelegatedlimitssetbytheBoard.ThecommitteealsoregularlymakesrecommendationstotheBoardCreditRiskCommitteeontherevisionoflimits.Allapprovalsareindependentoftheoriginatingbusinessunit.
• The Senior Credit Risk Committee
ThiscommitteemeetsmonthlytoreviewtheperformanceoftheGroup’slendingbookanddeterminesthelevelofprovisionsrequiredinaccordancewiththeapprovedpoliciesandregulatoryguidelines.
Board and Directors Effectiveness and Evaluation in 2014
InordertoensurethatBoardmembersareeffectiveintheircontributiontothemanagementoftheGroup,itisimportantthattheydevelopagoodunderstandingoftheGroupanditsoperations.Thisisachievedthroughvarioustraininganddevelopmentsessionstoensurethattheyunderstandtherelevantfacetsofthecomplexandconstantlyevolvingfinancialservicesindustry.ThisisparticularlyimportanttoensurethattheyappreciatealltheriskstowhichtheGroupisexposed,theimpactontheGroupanditsoperations,andhowtoeffectivelymanageandmitigatetheserisks.
AspartoftheContinuousProfessionalDevelopmentprogramme,allthedirectorsoftheGroupattendedafulldaytrainingon15thSeptember2014covering:
• AreviewoftheregulatoryenvironmentintheEastAfricaregion
• TheRegulatorylandscape,aBaselperspective
• Supervisoryexpectationsofbanks
• RoleoftheRegulator
Directors also gain further knowledge about the Group through site visits, informal interaction with management and staff,regularin-depthreportsandpresentations.
Inordertoassessandimprovethecapacity,functionalityandeffectivenessoftheBoardanditsCommittees,anannualself-evaluationreviewisundertaken.Theself-evaluationreviewsthecapacity,functionalityandeffectivenessoftheBoardandindividualDirectorsduringthefinancialyear.ThereviewisalsoinaccordancewiththerequirementsoftheCentralBankofKenyaPrudentialGuidelinesonCorporateGovernance.
TheevaluationmeasurestheperformanceoftheBoardagainstitskeydutiesandresponsibilities,thatofitscommitteesandindividualmembersoftheBoard.
The 2014 evaluation process was conducted through questionnaires and the Directors were evaluated against the followingcriteriaamongstothers;
• EffectivepreparationforandparticipationatmeetingsoftheBoardanditsCommittees.
• Understandingofbusinessandspecifically thefinancial industry,andkeepingabreastof the latestdevelopments in theeconomygenerallyandparticularlythebankingsector.
NIC BANK LIMITED
Annual Report & Financial Statements • 201440
STATEMENT ON CORPORATE GOVERNANCE (Continued)
• CommunicationswithfellowDirectors,managementandotherstakeholders.
• AbilitytotakeanindependentviewonmattersbroughtfordiscussionatBoardandCommitteemeetings.
• Declarationofpersonal interestsandensuringthattheyavoidparticipationindecisionmakingwheresuchinterestsarediscussed.
• Awarenessandcompliancewithregulatoryguidelines.
• RegularattendanceatBoardandCommitteemeetings.
Overall,itisconsideredthatin2014theBoardanditsCommittees;
• Carriedouttheirrolesandresponsibilitiessatisfactorily.
• Regularlyreviewed,formulatedandapprovedthestrategicdirectionoftheGroupinlightofthebusinessenvironmentandregulatoryframework.
• DevelopedappropriatepolicyguidelinestoassistManagementindecisionmaking.
• FulfilledtheirroletotheGroup’svariousstakeholders.
• GenerallyguidedandsupportedtheManagement,whichhasbeenresponsivetotheadviceprovided.
AreportontheoverallevaluationassessmentwassubmittedtotheCentralBankofKenyainaccordancewiththePrudentialGuidelinesonCorporateGovernance.
Code of Conduct & Ethics
TheGrouphasaCodeofConduct&EthicsthatbindsboththeDirectorsandemployees.TheNICBankGrouptakescognizanceofthefactthatitssuccessisdependentontheenvironmentandthecommunitiesinwhichitoperates.TheGrouppolicyensuresthatitsactivitiesmeetandexceedthesocial,economicandenvironmentalexpectationsofitsstakeholders.
TheCodeofConduct&EthicsalsoincludesachapteronGovernanceRiskandCompliancethathighlightstheGroup’scommitmenttohavinganintegratedriskmanagementframework.
AllDirectors,ManagementandstaffofNICBankGroupmustsignanacknowledgementtheyhavereadandunderstoodtheCodeofConduct&Ethics.TheCodeofConduct&Ethics,alongwithourVisionStatement:“Toestablishlongterm,profitablecustomerrelationshipsthroughtheprovisionofacompleterangeofbankingandfinancialservices”;ourMissionStatement:“tobetheleadingfinancialservicesprovidertoourtargetmarket;wearecommittedtothehigheststandardsofserviceandtoexceedingourstakeholders’expectations”;andourValues:“Integrity,Passion,Responsiveness,InnovationandProfessionalism”;guideourethicaldecisionmakingandtheconductofourDirectors,officersandemployees.
TheGroupencouragesemployeesandofficerstoraiseconcernsaboutethicalconductandviolationsoftheCodeofConduct&Ethics.SeniorManagementinvestigatescomplaintsandtakesappropriateaction,escalatingtotheBoardHumanResourcesCommittee if necessary. The whistleblower procedures allow employees to report concerns anonymously, without fear ofretaliation.
Relationship with Shareholders
The Group is committed to relating openly with its shareholders by providing regular information on its performance andaddressinganyareasofconcern.ThisisachievedthroughquarterlypublicationofextractsofitsfinancialperformanceinthedailynewspapersinlinewiththeCentralBankofKenyarequirements,publicationofannualauditedaccounts,andholdingoftheAnnualGeneralMeeting.ThemostrecentlypublishedfinancialresultsarealsoavailableontheGroup’swebsite,www.nic-bank.com.TheGrouphasaninteractivewebsitewhichhastherelevantinformationrelatingtothecompanies.
TheGrouphasengagedtheservicesofaregistrar,Custody&RegistrarServices,whotogetherwiththeGroupCompanySecretary,regularlyaddressissuesraisedbytheshareholders.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 41
STATEMENT ON CORPORATE GOVERNANCE (Continued)
Internal Control
TheDirectorsacknowledgetheirresponsibilityassetoutonpage54fortheGroup’ssystemofinternalfinancialcontrol,includingtakingreasonablestepstoensurethatadequatesystemsarebeingmaintained.InternalcontrolsystemsaredesignedtomeettheparticularneedsoftheGroup,andtheriskstowhichit isexposedwithproceduresintendedtoprovideeffective internalfinancialcontrol.
The Board has reviewed the Group’s internal control policies and procedures and is satisfied that appropriate controls andproceduresareinplace.
TheBoardhasputinplaceacomprehensiveriskmanagementframeworktoidentifyallkeyrisks,measuretheserisks,managetheriskpositionsanddeterminecapitalallocations.Thepoliciesareintegratedintheoverallmanagementreportingstructure.TheHeadoftheRiskManagementandComplianceDepartmentreportsdirectlytotheBoard’sRiskManagementCommittee.
TheGroup’sperformancetrendisreportedregularlytotheBoardandincludesananalysisofperformanceagainstbudgetandpriorperiods.Thefinancialinformationispreparedusingappropriateaccountingpolicieswhichareappliedconsistently.
TheGrouphasanInternalAuditDepartmentwhichisanindependentfunctionthatreportsdirectlytotheBoardAuditCommitteeandprovidesindependentconfirmationthattheGroup’sbusinessstandards,policiesandproceduresarebeingcompliedwith.Wherefoundnecessary,correctiveactionisrecommended.
TheGroupalsohasaRiskManagementandComplianceDepartmentwhichreportstotheBoardRiskCommitteethatdevelopsandimplementsthecomplianceframeworkwhileensuringadherencetothecompany’spolicyandregulatoryrequirements.
Going Concern
TheBoardconfirmstheFinancialStatementsarepreparedonagoingconcernbasis,astheDirectorsaresatisfiedthat theGrouphasadequateresourcestocontinueinbusinessfortheforeseeablefuture.Inmakingthisassessment,theDirectorshaveconsideredawiderangeof informationrelatingtopresentandfutureconditions, includingfutureprojectionsofprofitability,cashflowsandcapitalresources.Forthisreason,itcontinuestoadoptthegoingconcernbasiswhenpreparingthefinancialstatements.
NIC BANK LIMITED
Annual Report & Financial Statements • 201442
STATEMENT ON CORPORATE GOVERNANCE (Continued)
SHARE HOLDING PROFILES
TheCompany,throughitsRegistrar,filesreturnsregularlyinlinewiththerequirementoftheCapitalMarketsAuthorityandtheNairobiSecuritiesExchangeunderthelistingregulationsontransactionsrelatedtoshareholders.
Thenumberofshareholdersasat31stDecember2014was25,376(2013–25,097).
A. Principal Shareholders
Thetop10majorshareholders,basedontheGroup’sshareregisterasat31stDecember2014areasfollows:
Names Number of Shares
%
FirstCharteredSecuritiesLtd 101,383,047 15.84
ICEAAssetManagementLtdA/C2000 58,603,280 9.16
LivingstoneRegistrarsLtd 55,870,153 8.73
RivelKenyaLtd 53,063,367 8.29
SaimarLtd 26,922,967 4.21
AmwaHoldingsLtd 13,592,676 2.12
MakimwaConsultantsLtd 8,664,740 1.35
MurwokiHoldingsLimited 7,038,541 1.10
StandardCharteredNomineesA/C9230 6,384,094 1.00
ThuthumaLimited 6,375,645 1.00
Total 337,898,510 52.80
B. Distribution Schedule
Category Number of Shareholders
Number of Shares %
1-500shares 8,352 1,546,396 0.24
501-5,000shares 13,163 26,480,841 4.14
5,001-10,000shares 1,623 11,787,120 1.84
10,001-100,000shares 1,811 51,331,331 8.02
100,001-1,000,000shares 363 102,173,036 15.97
1,000,001andover 64 446,626,879 69.79
Total 25,376 639,945,603 100.00
C. Shareholder Profile
Category Number of Shareholders
Number of Shares %
Localindividualinvestors 23,585 110,463,568 17.26
Localinstitutionalinvestors 1,601 518,395,024 81.01
Foreignindividualinvestors 168 3,810,477 0.60
Foreigninstitutionalinvestors 22 7,276,534 1.14
Total 25,376 639,945,603 100.00
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 43
STATEMENT ON CORPORATE GOVERNANCE (Continued)2014 BOARD & BOARD COMMITTEES MEMBERSHIP AND ATTENDANCE
Director Classification Designation Board AuditCredit Risk
Risk Management
Human Resources &
Compensation ExecutiveStategy & Training* Nominations
J P M Ndegwa
Non-executive
ChairmanBoard
Membership √ √ √
Attendance6/6 2/2 1/1
F M MbiruNon-executive
ChairmanCredit Risk Committee
Membership √ √ √ √ √ √
Attendance 6/6 4/4 10/11 2/2 2/2 2/2
J Gachora ExecutiveGroup Managing Director
Membership √ √ √ √ √
Attendance 6/6 11/11 2/2 4/4 2/2
G A MainaNon-executive
ChairmanNominations & Risk ManagementCommittees
Membership √ √ √ √
Attendance 6/6 2/2 4/4 2/2 1/1
F N Mwanzia
Non-executive
ChairmanAudit Committee
Membership √ √ √ √
Attendance 6/6 4/4 11/11 2/2
A S M Ndegwa
Non-executive
ChairmanExecutive Committee
Membership √ √ √ √ √ √
Attendance 4/6 10/11 2/2 4/4 2/2 1/1
I Ochola-Wilson
Non-executive
ChairmanHuman Resources and CompensationCommittee
Membership √ √ √ √ √
Attendance 5/6 4/4 2/2 2/2 2/2
M L Somen
Non-executive
Membership √ √ √ √
Attendance 5/6 8/11 3/4 2/2
A Dodd ExecutiveMembership √ √ √ √
Attendance 6/6 11/11 4/4 2/2
K ThuoNon-Executive
Membership √ √ √
Attendance 5/6 4/4 2/2
P ShahNon-Executive
Membership √ √ √ √ √
Attendance 5/6 10/11 4/4 2/2 1/1
E.NgaineNon-Executive
Membership √
Attendance 4/6
* Represents strategy and training sessions held by the Board during the year 2014.
Notes:
√ Member of respective committee
• WhereadirectordidnotattendaBoardorBoardCommitteemeeting,anacceptableapologyhadbeenreceivedbythe Chairmanwellinadvanceofthescheduledmeeting.
• TheGroupManagingDirectorandExecutiveDirectorarenotmembersoftheAuditCommitteeandtheHuman Resources&CompensationCommitteebutattendbyinvitation.
NIC BANK LIMITED
Annual Report & Financial Statements • 201444
CORPORATE CITIZENSHIP
Today,bringingtogethertheneedsofbusinessandtheneedsofsocietyisadefiningbusinessissueofourtime.
AtNICBank,webelieve that thestrengthandsustainabilityofourbusinessisdirectlyrelatedtooursociallicensetooperate,which we must earn daily by keeping our promises to ourcustomers, employees, shareholders andcommunities.
AsNICBankGrouplookstowardsthe future, we want to remaincommitted to contributingto economic and societaldevelopment, while behavingethically and improving thequality of life in the localcommunities and the societyat large. Our “Roadmap forWinning” calls out CorporateCitizenship as a crucial buildingblocktowardsthecompany’s3yearstrategy.
OUR CITIZENSHIP AGENDA
Rosalind GichuruDirector-Marketing,Communications&Citizenship
Currently,wearesupportingthefollowingprogrammes;
Palmhouse Foundation
This charitable trust focuses on financing secondaryeducation fordeservingstudents,mentoringthemthroughlife, which in turn has a positive impact on the society.The foundation sponsors bright students from financiallychallengedfamilieswhohavegainedadmissiontonationalandprovincialsecondaryschools.
ThepartnershipbetweenNICBankandPalmhousestartedin2008withtheBanksupportingfourstudents.Sevenyearsdowntheline,theannualsponsorshiphasgrownwithatotalof26studentsfromdifferentcountiesbenefiting.
Besidesthemonetarysupport, theBankhasalso investedin a holistic mentorship program where staff volunteerto participate in the competitive countrywide CandidateSelectionPanelsat thebeginningofeveryyear,aswellasperiodicmentorshipsessionsheldduringtheschoolbreaks.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 45
CORPORATE CITIZENSHIP (Continued)
Edumed Trust
Edumed Trust’s strategic approach aims to address secondaryschool education needs. It channels funds to students byobservinghighstandardsof integrityandaccountability.This isachievedthroughthestudents’selectioncriteriaandtheprudentuseoffundsentrustedtoitbyitspartners.
NIC Bank Group is proud to be associated with this Christiancharitable trust due to its achievements. Established in 1996,Edumedstartedsupportingstudents in1997andcurrentlyhasaportfolioof approximately254students.TheBank’sdonationcatersfor15students’fouryearsinsecondaryschool.
JustlikethePalmhouseFoundationsupport,NICBanknotonlyinvests in monetary form but also in its employees skills bysendingrepresentationtothecandidatesselectionpanelsaswellasmentorshipsessionsforthestudents.
Junior Achievement
JuniorAchievement(JA)isthecountry’slargestorganisationdedicated to educating students and youth aboutentrepreneurship, work readiness and financial literacythroughexperiential,hands-onprograms.
Theorganisation’sprogramsprepareyoungpeople for thereal world by showing them how to generate wealth andeffectively manage it, how to create jobs that make theircommunitiesmorerobust,andhowtoapplyentrepreneurialthinkingtotheworkplace.
Duringtheyear,inadditiontotheannualdonation,theBankhosted students for the Job Shadow Week in Nairobi andMombasa.ItalsosupportedthefinalsforJuniorAchievementCompanyprogram.
The NSE Investment Challenge
NICBank(throughNICSecurities)hasco-sponsoredtheNairobiStockExchange (NSE) InvestmentChallengewithNairobiStockExchange and Smart Youth since 2010. The NSE InvestmentChallengetargetingyouthinuniversitiesandtertiaryinstitutionsexposes them to a proprietary online software (Smart Trader)where they have hands on opportunities to simulate trading ofvirtualsharesandbondslistedontheNSE.
The intention of the competition, which is also a form ofentertainmentthroughthisonlinesimulation,istobuildasavingsand investments culture among the youth through trading ofstocksandbonds.Eachparticipatingteamgetsanonlineaccountwith virtual start-up capital of Kes 3M to trade with using realtimedataofsharesandbondpricesstreamedfromtheNSEfor
thedurationofthecompetitionperiod.StudentsarealsomentoredonlinebyselectedmentorsfromNSE,NICSecuritiesandSmartYouthstaff.Thewinningteamisexpectedtomakethemostprofitsaswellasconsistentlyparticipateinonlinediscussionsaswellasdocumenttheinvestmentdecisionsmadeoverthecourseofthecompetition.
NIC BANK LIMITED
Annual Report & Financial Statements • 201446
Health
Strengthening the health system is at the core ofthe government’s reform agenda. A strong, well-functioningandsustainablehealthsystem–capableof efficiently delivering and managing health careservices is vital to improving the health status ofKenyans.
The transfer of health service delivery to countygovernments requires new capacity-building andtechnical support. NIC Bank Group has prioritisedefforts to strengthen management of medicalproducts and technologies by supporting theMombasa County Government through the MabatiMedicalClinicCentreinMariakani.
TheMabatiMedicalCentrewasfoundedto improvethehealthofthelocalcommunitybyprovidingaffordablemedicalcaretothepoorusingeffectiveandefficientmedicalfacilities.In2014,theGroupfundedthepurchaseofdiagnosticequipment–X-rayandultrasoundmachinesforthecentresaswellasbuildingthelaboratoryrooms.
Besides, the above, the Bank also supported Nairobi Hospital Children’s Heart Fund through their annual 2014fundraisingprogramthemed‘GivingLittleHeartsBigDreams’.Thedonationwenttowardsprovidingsupport to30needychildren.
TheBankalsodonatedtotheannualMaterHeartRunProgramandralliedstaffmemberstoparticipateintheannualwalkthatisaimedatraisingfundstosupportthecostlycardiacsurgeryoperationforneedychildren.
Additionalfinancial support toFarajaCancerSupportTrustand the jiggereradicationkitty support toAhadiTrustinKamahindu,Lari, capped theBank’s initiativeonhealth in2014.AhadiKenyaworks inpartnershipwithseveralcorporatebodiesinKenyainthetreatmentandfumigationofjiggersandfleas,ineducationandawarenesscreationonthejiggerplightandsomeofthewaysofpreventingtheirexistenceandrecurrence.
CORPORATE CITIZENSHIP (Continued)
“Braving the wild waters of Sagana in the fight against cancer”,
NIC staff participate in the white water rafting challenge
organized by Faraja Cancer Support Trust.
“This is how it’s done” NIC Bank Group Managing Director John
Gachora demonstrates how to correctly clean feet during a jigger
eradication campaign held at Kamahindu Primary School.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 47
CORPORATE CITIZENSHIP (Continued)
GOINGFOWARD »
Inthesecondhalfof2014theNIC Bank launched a robustthree-yearCitizenshipstrategyfocusing on four key pillars:Education, Innovation, HealthandHumanitarianassistance/emerging business needs/environment.
With these four pillars,the Bank seeks to shape asustainable future for thecommunitythroughoptimisingon our existing skills set andsynergieswithpartners.
Educationisthemostsignificantindicatorofsocialprogress.Withtheincreasingglobalrealizationofhowthebusinesscommunitycan(andshould)contributetosocialobjectives,supportingeducationisanimportantagendaforNICBankGroup.SupportingeducationespeciallyofbrightstudentsfromdisadvantagedbackgroundsisinlinewiththenationalagendathatsinglesouteducationandtrainingasavehiclethatwilldriveKenyaintoamiddle-incomeeconomy
Weendeavortobethemostinnovativebank.Innovationplaysapivotalroleineconomicdevelopment.InnovationcanmakeadifferenceinaddressingurgentdevelopmentalchallengesinAfricaandotherdevelopingregionsoftheworld.
Social development is a consequence of good health. Unfortunately, healthhas been poorly invested upon by countries with low human development,andthehealthsectorstillremainslargelyuntappedandcontinuestosufferneglect.Asacorporatecitizenwemustaddressthesechallenges.TheBankconductsannualhealthandsafetyaudits.
Asweendeavor tobea top-tierbank inKenya, it is important that in theadventofanynationwidecrisis,westepupandbeseentobesupportingthenation.Additionaly, theBankhasanEnviromentalandSocialPolicy (ESP)manualwhichasuresasystematicandconsistentapproachtoassessingandmitigatingtheenviromentalandsocialrisks.
OURKEYPILLARS
Launch of E-learning portal
The Bank takes cognisance of its vast websavvy staff hence integrating e-learning into theorganisation’sstrategicplan.
In December 2014, the Bank launched itsE-Learning portal to enable staff enhance theirprofessionalskillsaswellasbuild theircapacityin thevariousareasofspecialisation.Thisnewlylaunched knowledge management system isembedded on our virtual network, while thecontentisderivedfromeducationpartnersacrosstheglobe.
Staff Team building
The Bank invests in team-building activities to strengthen therelationships among staff and help develop an atmosphere ofconfidence, trust and mutual respect. Our team-building events,dubbedTouchDownSaturdays,wereheldinOctoberandNovemberthroughaJungleEditiondubbed‘LeaveNoManBehind’.
Thethemeallowedforanevengreaterexplorationandimprovementofthepotentialofallemployees,bygivingthemmorevariedoptionsforworkingtogetherforagreaterlengthoftime.
NICBANKLIMITED
AnnualReport&FinancialStatements•201448
EMPLOYEE WELFARE
At NIC Bank Group, EmployeeWelfare is among the cogs thatmove the strategy wheels of thebusiness. The Group’s prioritiesarefocusedonpromotingefficientmanagement of human resourcesand a continuous increase inemployees’ professional skills,motivation,healthandsafety.
Monicah W. KihiaDirector-HumanResources
NIC BANK LIMITED
Annual Report & Financial Statements • 201449
Work place wellness programs
TheBankrecognisesthathealthieremployeesmakefor a stronger company. NIC Bank is committedto building a workplace with more staff solidarity,greaterproductivityandlessabsenteeism.
NICBankhasovertheyearsheldWellnessmonthsinallitsofficesandbranches.TogetherwithitspreferredpartnerAON,NIChasorganisedstaffmedicalcampsat its offices and organised with reputable medicalinstitutionstoofferexamsthatneedmoretechnicalanalyses.
With such medical camps, staff are given theopportunity to monitor their health with variouscheck-ups,including:-bloodpressure,bloodsugarandcholesterol,eyecheck-up,dentalassessmentsand body composition among other quick analysisdoneonthespot.
Flu vaccines and cervical cancer screening wereprovided to staff and their families at subsidizedrates.
During the Breast Cancer Month, in October 2014,theBankorganisedworkshopsaimedatgivingstaffabasicunderstandingofbreastcancerrisk,factors,cause,symptoms,diagnosisandtreatmentofbreastcancer.Thestaffarealsotaughtthepropertechniquefordoingabreastexamination.
EMPLOYEE WELFARE (Continued)
NIC staff run to eradicate jiggers during the annual staircase relay
held at the KICC.Funds raised in the event support treatment and
rehabilitation of children infested with jiggers in Kenya.
An NIC Staff prepares to donate blood during a blood drive.
NIC staff and family during the annual team building session at Karura forest.
NIC staff mark the cancer month in style, during the month themed
pinktober.
NIC BANK LIMITED
Annual Report & Financial Statements • 201450
Over the course of 2014, we maintained progressively good growth, delivering against a balanced scorecard of growth and efficiency supported by a strong governance and control framework.
Annual Growth
John Gachora Group Managing Director
Financial Highlights
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 51
27%Increase in Profit
After tax to
Shs 4.1b
20%Increase in Net
Operating Income to
Shs11.2b
10%Increase in Customer
Deposits to
Shs 100.4b
24%Increase in Loans and Advances to
Customers to
Shs 100.6b
20%Increase in Total
Assets to
Shs 145.8b
33%Increase in Total
Equity to
Shs 22.9b
NIC BANK LIMITED
Annual Report & Financial Statements • 201452
DIRECTORS’ REPORTTheBoardofDirectorshaspleasureinsubmittingtheannualreporttogetherwiththeauditedfinancialstatementsfortheyearended31December2014inaccordancewithSection22oftheBankingActandSection157oftheKenyanCompaniesActwhichdisclosesthestateofaffairsofNICBankLimited(the“Bank”/”Company”)anditssubsidiaries(together,the“Group”).
1. ACTIVITIES
TheprincipalactivitiesoftheGrouparetheprovisionofretailandcorporatebanking,stockbrokerage,bancassurance,investmentbankingservicesandLeasing.
2. RESULTS FOR THE YEAR
TheGroupprofitfortheyearofShs4,116,674,000(2013:Shs3,237,301,000)hasbeenaddedtoretainedearnings.
3. MEDIUM TERM NOTE /BOND
TheBanklaunchedaShs8billionSubordinatedMediumTermNoteProgrammewiththefirsttrancheofShs3billionbeingissuedin2014.ThefirsttranchereceivedoffersinexcessofShs6.5billionandtheBoardofDirectorsapprovedtheallotmentupsizedtoShs5.5billion.ThebalanceoftheMediumTermNotewillbeissuedwithinthenext5years.
4. RIGHTS ISSUE
FollowingShareholders’approvalduringtheExtraordinaryGeneralMeetingheldon6thAugust2014andsubsequentreceiptofthenecessaryregulatoryapprovals,theBankundertookaRightsIssueofoneshareforeveryfourteensharesheldamountingto42,663,040sharesatadiscountedpriceofShs49.25pershare.Theissueregistereda121%oversubscriptionandresultedinanincreaseofsharecapitalbyShs213,315,200(Shs5pershare)andsharepremiumofShs1,887,839,520(Shs44.25pershare).
5. DIVIDENDS
No interimdividendwaspaid toshareholders in theyear.TheBoardhasresolved to recommend to theshareholdersat theforthcomingAnnualGeneralMeeting,scheduledfor20thMay2015,thepaymentofafirstandfinaldividendfortheyearofShs1.00pershare(2013:interimdividendofShs0.25andfinaldividendofShs0.75).ThedividendwillbepayabletotheshareholdersregisteredontheCompany’sregisteratthecloseofbusinesson9thApril,2015andwillbepaidonorabout20thMay2015.Theregisterwillremainclosedforonedayon10thApril,2015.
Thetotaldividendfortheyear,therefore,isShs1.00(2013:Shs1.00)foreveryoneordinaryshareamountingtoShs639,946,000(2013:Shs542,984,000).
6. NIC PROPERTIES LIMITED
InApril2014,theBankacquireda100%shareholdinginCodicoteLimitedforaconsiderationofShs550million.ThesoleassetofCodicoteLimitedisLandknownasLRNO.209/13628,whichisadjacenttotheheadquartersoftheBankinUpperhill,Nairobi.
ThecompanynameofCodicoteLimitedwassubsequentlychangedtoNICPropertiesLimited.ThesoleactivityofNICPropertiesLimitedistheownershipoftheaboveland.
7. NIC BANK TANZANIA LIMITED
InNovember2013,theBoardofDirectorsoftheBankapprovedfullparticipationinthesecondRightsIssueofNICBankTanzaniaLimitedforTZShs8.5billion(Shs714million)andthetake-upofanyRightsthatwerenotexercisedbytheothershareholders.NICBankLimitedinvestedTZShs5.6billion(Shs366million)inDecember2013andanadditionalTZShs302million(Shs16million)in2014relatingtoRightsnottakenupbyminorityshareholders.TheRightsIssuewasconcludedon30thJune2014andtheBank’sshareholdinginNICBankTanzaniaLimitedincreasedfrom68.97%to69.84%.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 53
DIRECTORS’ REPORT (Continued)8. DIRECTORS
Thedirectorswhoheldofficeduringtheyearandtodateareshownonpage2.InaccordancewithArticles97oftheArticlesofAssociation,EstherNkathaNgainewhowasappointedasaDirectoron18thJune2014retiresfromofficeandbeingeligible,offersherselfforre-election.Inaccordancewitharticles108,109and110oftheArticlesofAssociation,MLSomen,GAMainaandFNMwanziaretirebyrotationand,beingeligible,offerthemselvesforre-election.
10. AUDITOR
Theauditor,PricewaterhouseCoopers,hasexpresseditswillingnesstocontinueinofficeinaccordancewithSection159(2)oftheCompaniesAct(Cap.486).
11. APPROVAL OF FINANCIAL STATEMENTS
ThefinancialstatementswereapprovedandauthorisedforissuebytheBoardofDirectorson4thMarch2015.
BY ORDER OF THE BOARD
L MURAGE Group Company Secretary
NIC BANK LIMITED
Annual Report & Financial Statements • 201454
STATEMENT OF DIRECTORS’ RESPONSIBILITIESTheKenyanCompaniesActrequiresthedirectorstopreparefinancialstatementsforeachfinancialyearthatgiveatrueandfairviewofthestateofaffairsoftheGroupandtheBankasattheendofthefinancialyearandoftheGroup’sprofitorloss.ItalsorequiresthedirectorstoensurethattheBankkeepsproperaccountingrecordsthatdisclose,withreasonableaccuracy,thefinancialpositionoftheBank.TheyarealsoresponsibleforsafeguardingtheassetsoftheBank.Thedirectorsacceptresponsibilityforthepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatementswhetherduetofraudorerror.Theyalsoacceptresponsibilityfor:• Designing,implementingandmaintaininginternalcontrolnecessarytoenablethepreparationoffinancialstatementsthatare
freefrommaterialmisstatements,whetherduetofraudorerror;• Selectingandapplyingappropriateaccountingpolicies;and• Makingaccountingestimatesandjudgementsthatarereasonableinthecircumstances.
ThedirectorsareoftheopinionthatthefinancialstatementsgiveatrueandfairviewofthestateofthefinancialpositionoftheGroupandoftheBankat31December2014andoftheGroup’sfinancialperformanceandcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandardsandtherequirementsoftheKenyanCompaniesAct.
NothinghascometotheattentionofthedirectorstoindicatethattheBankanditssubsidiarieswillnotremainagoingconcernforatleasttwelvemonthsfromthedateofthisstatement.
ApprovedbytheBoardofDirectorson4thMarch2015andsignedonitsbehalfby:
J P M NDEGWA J GACHORA(Chairman) (Group Managing Director)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 55
INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF NIC BANK LIMITED
Report on the consolidated financial statementsWehaveauditedtheaccompanyingfinancialstatementsofNICBankLimited(the“Bank”)anditssubsidiaries(together,the“Group”),setoutonpages56to143.Thesefinancialstatementscomprisetheconsolidatedstatementoffinancialpositionasat31December2014andtheconsolidatedstatementsofprofitorloss,comprehensiveincome,changesinequityandcashflowsfortheyearthenended,togetherwiththestatementoffinancialpositionoftheBankstandingaloneat31December2014andthestatementsofprofitorloss,comprehensiveincome,changesinequityandcashflowsoftheBankfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.
Directors’ responsibility for the financial statementsThedirectorsareresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithInternationalFinancialReportingStandardsandtherequirementsoftheKenyanCompaniesActandforsuchinternalcontrol,asthedirectorsdeterminenecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatements,whetherduetofraudorerror.
Auditor’s Responsibility Ourresponsibilityistoexpressanindependentopiniononthefinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformouraudittoobtainreasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement.Anaudit involvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosures inthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheBank’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
OpinionInouropinion,theaccompanyingfinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheGroupandtheBankat31December2014andofthefinancialperformanceandcashflowsoftheGroupandtheBankfortheyearthenendedinaccordancewithInternationalFinancialReportingStandardsandtheKenyanCompaniesAct.
Report on other legal requirements AsrequiredbytheKenyanCompaniesActwereporttoyoubasedonourauditthat:• wehaveobtainedall the informationandexplanationswhich to thebestofourknowledgeandbeliefwerenecessary for the
purposesofouraudit;• inouropinionproperbooksofaccounthavebeenkeptbytheBank,sofarasappearsfromourexaminationofthosebooks;• theBank’sstatementsoffinancialpositionandprofitorlossaccountareinagreementwiththebooksofaccount.Theengagementpartnerresponsiblefortheauditresultinginthisindependentauditor’sreportisCPAKang’eSaiti–P/No1652.
Certified Public Accountants Nairobi31stMarch,2015
PricewaterhouseCoopersCPA.PwCTower,WaiyakiWay/ChiromoRoad,WestlandsPOBox43963–00100Nairobi,KenyaT:+254(20)2855000F:+254(20)2855001www.pwc.com/ke
Partners:AErikssonKMuchiruMMugasaFMuriuPNgahuANjeruRNjorogeBOkundiKSaitiRShah
NIC BANK LIMITED
Annual Report & Financial Statements • 201456
STATEMENT OF PROFIT OR LOSS FORTHEYEARENDED31DECEMBER2014
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Note Shs’000 Shs’000
12,376,325 10,313,258 Interest income 7 13,711,068 11,642,416
(5,096,846) (3,779,478) Interest expense 8 (5,712,949) (4,374,437)
7,279,479 6,533,780 NET INTEREST INCOME 7,998,119 7,267,979
(295,494) (479,185) Credit impairment charges 12(c) (329,133) (1,092,873)
6,983,985 6,054,595 Net interest income after credit impairment charges 7,668,986 6,175,106
1,356,149 1,136,212 Fee and commission income 9 1,532,293 1,303,629
(52,283) (52,323) Fee and commission expense 9 (65,041) (63,111)
1,303,866 1,083,889 NET FEE AND COMMISSION INCOME 1,467,252 1,240,518
1,344,782 1,229,908 Net trading income 10 1,448,056 1,363,033
286,131 253,995 Other operating income 11 592,831 551,656
9,918,764 8,622,387 NET OPERATING INCOME 11,177,125 9,330,313
(2,051,939) (1,896,850) Employee benefits 13 (2,560,942) (2,367,508)
(391,854) (363,966) Depreciation and amortisation 14(a) (504,635) (446,106)
(1,393,690) (1,140,714) Other operating expenses 14(b) (1,880,898) (1,507,128)
(3,837,483) (3,401,530) OPERATING EXPENSES (4,946,475) (4,320,742)
6,081,281 5,220,857 PROFIT BEFORE INCOME TAX 6,230,650 5,009,571
(2,062,114) (1,835,281) Income tax expense 15(a) (2,113,976) (1,772,270)
4,019,167 3,385,576 PROFIT FOR THE YEAR 4,116,674 3,237,301
Profit for the year attributable to:
4,019,167 3,385,576 Equity holders of the Bank 4,120,855 3,323,381
- - Non-controlling interests (4,181) (86,080)
4,019,167 3,385,576 4,116,674 3,237,301
Shs 6.90 Shs 6.24 EARNINGS PER SHARE (SHS) - BASIC 16 Shs 7.07 Shs 6.12
Thenotesonpages62to143areanintegralpartofthesefinancialstatements.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 57
STATEMENT OF COMPREHENSIVE INCOME FORTHEYEARENDED31DECEMBER2014
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Note Shs’000 Shs’000
4,019,167 3,385,576 PROFIT FOR THE YEAR 4,116,674 3,237,301
OTHER COMPREHENSIVE INCOME:
Items that will not be subsequently reclassified to profit or loss
- 39,243 Revaluation surplus on property 36(b) - 39,243
Items that may be subsequently reclassified to profit or loss
7,166 (179,036)Fair value (loss)/ gain on available for sale investments, net of deferred tax 36(c) (79,089) (175,407)
- -Exchange differences on translation of foreign operations 36(d) 42,269 (122,324)
7,166 (139,793) OTHER COMPREHENSIVE INCOME FOR THE YEAR NET OF TAX (36,820) (258,488)
4,026,333 3,245,783 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,079,854 2,978,813
Attributable to:
4,026,333 3,245,783 Equity holders of the Bank 4,084,035 3,064,893
- - Non-controlling interests (4,181) (86,080)
4,026,333 3,245,783 4,079,854 2,978,813
Thenotesonpages62to143areanintegralpartofthesefinancialstatements.
NIC BANK LIMITED
Annual Report & Financial Statements • 201458
STATEMENT OF FINANCIAL POSITION ASAT31DECEMBER2014
Bank Group
2014 2013 2014 2013Shs’000 Shs’000 Note Shs’000 Shs’000
ASSETS
9,106,501 7,044,946 Cash and balances with Central Banks 17 10,539,496 8,743,544
484,521 215,693 Items in the course of collection 18 519,958 243,514 7,843,903 4,189,408 Due from banking institutions 19 8,753,909 5,920,199
16,454,111 15,946,330 Government securities 20 19,223,686 18,093,150 118,781 41,232 Derivative assets 21 118,781 48,049
92,957,230 75,038,910 Loans and advances to customers 22 100,575,330 81,418,136 1,060,332 1,190,474 Other assets 23 1,286,699 1,531,206
56,570 - Current income tax 15(c) 185,185 188,847 2,098,420 2,044,162 Due from group companies 24 - - 5,398,306 5,440,670 Investments 25 1,615,965 2,325,637
843,775 825,910 Property and equipment 27 1,079,110 1,119,264 548,776 629,560 Intangible assets 28 1,045,559 1,095,155
7,125 7,250 Operating lease prepayments 29 523,125 7,250 109,113 302,269 Deferred income tax 26 313,702 328,788
137,087,464 112,916,814 Total assets 145,780,505 121,062,739
LIABILITIES92,791,078 84,236,189 Customer deposits 30 100,434,954 91,565,005
4,625,406 4,910,171 Due to banking institutions 31 5,411,664 5,896,33413,844,209 3,628,169 Borrowings 32 14,358,480 3,628,169
809,452 537,980 Due to group companies 33 - -- 296,595 Current income tax 15(c) 12,613 306,709
1,676,419 1,604,548 Other liabilities 34 2,129,198 2,025,38382,883 72,233 Unclaimed dividends 35 82,883 72,233
113,829,447 95,285,885 Total liabilities 122,429,792 103,493,833
EQUITYCapital and reserves attributable to equity holders of the Bank
3,199,728 2,714,921 Share capital 36(a) 3,199,728 2,714,9212,731,255 1,208,068 Share premium 36(a) 2,731,255 1,208,068
184,764 189,545 Revaluation surplus on property 36(b) 184,764 189,545(202,657) (209,823) Investments revaluation reserve 36(c) (285,283) (206,194)
- - Foreign currency translation reserve 36(d) (494,149) (536,418)919,004 729,104 Regulatory reserve(s) 36(e) 1,041,058 975,617
- - Other reserves 36(f) (157,172) (154,126)15,785,977 12,591,876 Retained earnings 36(g) 16,012,992 12,592,743
639,946 407,238 Proposed dividend 35 639,946 407,238
23,258,017 17,630,929Total capital and reserves attributa-ble to equity holders of the Bank 22,873,139 17,191,394
- - Non-controlling interests 37 477,574 377,512
23,258,017 17,630,929 Total equity 23,350,713 17,568,906
137,087,464 112,916,814 Total liabilities and equity 145,780,505 121,062,739
Thefinancialstatementsonpages56to143wereapprovedandauthorisedforissuebytheBoardofDirectorson4thMarch2015andweresignedonitsbehalfby J P M NDEGWA J GACHORA(Chairman) (Group Managing Director)
F N MWANZIA L MURAGE(Director) (Group Company Secretary)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 59
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,488
)To
tal c
ompr
ehen
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me
for
the
year
--
39,2
43(1
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(122
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)-
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323,
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-3,
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(86,
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2,97
8,81
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Tran
sfer
of e
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s de
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iatio
n36
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ight
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of s
hare
s to
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-con
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NIC
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k Ta
nzan
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--
--
--
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155,
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Acqu
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f int
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on-c
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sts
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NIC
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k Ta
nzan
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imite
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(a)
--
--
--
(170
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-(1
70,9
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(178
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)(3
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NIC
Sec
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ight
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d36
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Div
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ds p
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-
F
inal
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35-
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--
--
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(542
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) -
Inte
rim
for
2013
35-
--
--
--
(135
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(135
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(135
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Pro
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d fin
al d
ivid
end
2013
35-
--
--
--
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At 3
1 D
ecem
ber
2013
2,71
4,92
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407,
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217
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At 1
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uary
201
42,
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rofit
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--
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--
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iatio
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Rig
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Issu
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sha
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IC B
ank
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IC B
ank
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Fin
al fo
r 20
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--
--
--
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(407
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)(4
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38)
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07,2
38)
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sed
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div
iden
d 20
1435
--
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--
-(6
39,9
46)
639,
946
--
-A
t 31
Dec
embe
r 20
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199,
728
2,73
1,25
518
4,76
4(2
85,2
83)
(494
,149
)1,
041,
058
(157
,172
)16
,012
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639,
946
22,8
73,1
3947
7,57
423
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,713
The
note
son
pag
es6
2to
143
are
an
inte
gral
par
toft
hese
fina
ncia
lsta
tem
ents
.
Non
-Dis
trib
utab
le
D
istr
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able
NIC BANK LIMITED
Annual Report & Financial Statements • 201460
BA
NK
STA
TEM
ENT
OF
CH
AN
GES
IN E
QU
ITY
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
Shar
eca
pita
lSh
are
prem
ium
Rev
alua
tion
surp
lus
on
prop
erty
Inve
stm
ents
re
valu
atio
n re
serv
eR
egul
ator
yre
serv
eR
etai
ned
earn
ings
Pro
pose
d di
vide
nd T
otal
Equi
tyN
ote
Shs’
000
Shs’
000
Shs’
000
Shs’
000
Shs’
000
Shs’
000
Shs’
000
Shs’
000
At 1
Jan
uary
201
32,
714,
921
1,20
8,79
915
5,08
3(3
0,78
7)63
7,17
49,
836,
433
542,
984
15,0
64,6
07P
rofit
for
the
year
--
--
-3,
385,
576
-3,
385,
576
Oth
er c
ompr
ehen
sive
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me,
net
of t
ax-
-39
,243
(179
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)-
--
(139
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)To
tal c
ompr
ehen
sive
inco
me
for
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--
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43(1
79,0
36)
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385,
576
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245,
783
-Tr
ansf
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f exc
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tran
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s de
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(b)
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ansf
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ulat
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sact
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d di
rect
ly th
roug
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hts
issu
e ex
pens
es p
aid
36(a
)-
(731
)-
--
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(731
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pai
d:
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Fin
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r 20
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--
--
--
(542
,984
)(5
42,9
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In
teri
m fo
r 20
1335
--
--
-(1
35,7
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35,7
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P
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d 20
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--
--
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-A
t 31
Dec
embe
r 20
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5(2
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12,5
91,8
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7,23
817
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At 1
Jan
uary
201
42,
714,
921
1,20
8,06
818
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5(2
09,8
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729,
104
12,5
91,8
7640
7,23
817
,630
,929
-P
rofit
for
the
year
--
--
-4,
019,
167
-4,
019,
167
Oth
er c
ompr
ehen
sive
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me,
net
of t
ax-
--
7,16
6-
--
7,16
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tal c
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ehen
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inco
me
for
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--
-7,
166
-4,
019,
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-4,
026,
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Tran
sfer
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s de
prec
iatio
n36
(b)
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--
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0-
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efer
red
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(2,0
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to r
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e-
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-18
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sact
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ly th
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us is
sue
of s
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(a)
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--
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ight
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of s
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(a)
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315
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9-
--
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4R
ight
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sue
expe
nses
pai
d36
(a)
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--
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160)
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iden
ds p
aid:
-
F
inal
for
2013
35-
--
--
-(4
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38)
(407
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) -
Pro
pose
d fin
al d
ivid
end
2014
35-
--
--
(639
,946
)(6
39,9
46)
-A
t 31
Dec
embe
r 20
143,
199,
728
2,73
1,25
518
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4(2
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919,
004
15,7
85,9
7763
9,94
623
,258
,017
The
note
son
pag
es6
2to
143
are
an
inte
gral
par
toft
hese
fina
ncia
lsta
tem
ents
.
Non
-Dis
trib
utab
le
D
istr
ibut
able
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 61
STATEMENT OF CASH FLOWS FORTHEYEARENDED31DECEMBER2014
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Note Shs’000 Shs’000
CASH FLOWS FROM OPERATING ACTIVITIES
4,815,676 (1,072,049) Cash generated from / (used in) operations 39 (a) 3,364,099 (1,164,223)
(2,213,588) (1,940,225) Income tax paid 15 (c) (2,284,718) (2,052,900)
2,602,088 (3,012,274) Net cash from/ (used in) operating activities 1,079,381 (3,217,123)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in NIC Bank Tanzania:
(16,008) (349,357) - acquisition of interest from non-controlling interest 37 (a) (16,008) (349,357)
- (730,813) - rights issues of shares - -
- - Investment in NIC Securities (683) (17,870)
Investment in NIC Properties:
(550,000) - - Acquisition (Share capital) 25 (a) - -
- - - Leasehold land addition 29 (516,000) -
- - - Goodwill 28 (b) (34,000) -
(233,254) (197,243) Purchase of property and equipment 27 (293,402) (303,434)
(95,658) (148,415) Purchase of intangible assets 28 (a) (105,329) (156,697)
1,245 12,107 Proceeds from sale of motor vehicle and equipment 39 (c) 1,245 12,145
(893,675) (1,413,721) Net cash used in investing activities (964,177) (815,213)
CASH FLOWS FROM FINANCING ACTIVITIES
(396,588) (660,451) Dividends paid 35 (396,588) (660,451)
- -Rights issue of shares to non-controlling interests in NIC Bank Tanzania 37 (a) 117,888 155,157
2,101,154 - Rights issue of shares 2,101,154 -
(93,160) (731) Bonus and rights issue expenses paid 36 (a) (93,160) (731)
1,611,406 (661,182) Net cash generated from/(used in) financing activities 1,729,294 (506,025)
3,319,819 (5,087,177)NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,844,498 (4,538,361)
4,909,299 9,996,476 CASH AND CASH EQUIVALENTS AT 1 JANUARY 7,561,599 12,110,149
- - Effect of foreign exchange rate changes 122,334 (10,189)
8,229,118 4,909,299 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 39 (b) 9,528,431 7,561,599
Thenotesonpages62to143areanintegralpartofthesefinancialstatements.
NIC BANK LIMITED
Annual Report & Financial Statements • 201462
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2014
1) Reporting EntityNICBankLimited(the“Bank/Parent”)anditssubsidiaries(together,the“Group”)provideretail,corporatebanking,brokerage,bancassurance,leasingandinvestmentbankingservices.NICBankLimitedisincorporatedinKenyaundertheCompaniesActasapubliclimitedliabilitycompanyandisdomiciledinKenya.TheBank’ssharesarelistedontheNairobiSecuritiesExchange(NSE).NICBankLimitedanditssubsidiariesoperateinKenya,TanzaniaandUgandathroughitssubsidiariesNICBankTanzaniaLimitedandNCBankUgandaLimited.
The address of its registered office is as follows:
LR Plot No.8182NIC House, Masaba RoadP O Box 44599-00100Nairobi
FortheKenyaCompaniesActreportingpurposes,thebalancesheetisrepresentedbythestatementoffinancialpositionandprofitandlossaccountbythestatementofprofitorlossinthesefinancialstatements.
2) Standards and interpretations affecting the reported result or financial position
Theprincipalaccountingpoliciesappliedinthepreparationofthesefinancialstatementsaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoallyearspresented,unlessotherwisestated.
Basis of preparation
Thefinancialstatementshavebeenprepared inaccordancewith InternationalFinancialReportingStandards(IFRS)andIFRSInterpretationsCommittee(IFRIC)applicabletocompaniesreportingunderIFRS.
i) Basis of measurement Themeasurementbasisusedisthehistoricalcostbasisexceptwhereotherwisestatedintheaccountingpoliciesbelow.Forthoseassetsandliabilitiesmeasuredatfairvalue,fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Whenmeasuringthefairvalueofanassetoraliability,theBankusesmarketobservabledataasfaraspossible.Ifthefairvalueofanassetoraliabilityisnotdirectlyobservable,itisestimatedbytheBankusingvaluationtechniquesthatmaximisetheuseofrelevantobservableinputsandminimisetheuseofunobservableinputs(e.g.byuseofthemarketcomparableapproachthatreflectsrecenttransactionpricesforsimilaritemsordiscountedcashflowanalysis).Inputsusedareconsistentwiththecharacteristicsoftheasset/liabilitythatmarketparticipantswouldtakeintoaccount.Fairvaluesarecategorisedintothreelevelsoffairvaluehierarchybasedonthedegreetowhichtheinputstothemeasurementsareobservableandthesignificanceoftheinputstothefairvaluemeasurementinitsentirety:- Level1fairvaluemeasurementsarederivedfromquotedprices(unadjusted)inactivemarketsforidenticalassetsor liabilities.- Level2fairvaluemeasurementsarederivedfrominputsotherthanquotedpricesincludedwithinLevel1thatare observablefortheassetorliability,eitherdirectly(ieasprices)orindirectly(iederivedfromprices).- Level3fairvaluemeasurementsarethosederivedfromvaluationtechniquesthatincludeinputsfortheassetor liabilitythatarenotbasedonobservablemarketdata(unobservableinputs).TransfersbetweenlevelsofthefairvaluehierarchyarerecognisedbytheBankattheendofthereportingperiodduringwhichthechangeoccurred.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 63
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
2) Standards and interpretations affecting the reported result or financial position (Continued)
Basis of preparation(Continued)
ii) Use of estimatesThepreparationoffinancialstatementsinconformitywithIFRSrequirestheuseofcertaincriticalaccountingestimates.ItalsorequiresthedirectorstoexercisetheirjudgmentintheprocessofapplyingtheGroup’sandBank’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgmentorcomplexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinnote5.
iii) Changes in accounting policy and disclosures
Adoption of new and revised standards Allnewandrevisedstandardsandinterpretationsthathavebecomeeffectiveforthefirsttimeinthefinancialyearbeginning1January2014arenotmaterialtotheBankandGroup.Theseinclude:Amendments to IAS 32, ‘Financial instruments:Presentation’onoffsettingfinancialassetsandfinancial liabilities.Thisamendmentclarifiesthattherightofset-offmustnotbecontingentonafutureevent.Itmustalsobelegallyenforceableforallcounterpartiesinthenormalcourseofbusiness,aswellasintheeventofdefault, insolvencyorbankruptcy.Theamendmentalsoconsiderssettlementmechanisms.TheamendmentdidnothaveasignificanteffectontheGroupfinancialstatements.Amendments to IAS 39, ‘Financial instruments: Recognition and measurement’ on the novation of derivatives and thecontinuation of hedge accounting. This amendment considers legislative changes to ‘over-the-counter’ derivatives andtheestablishmentofcentralcounterparties.UnderIAS39novationofderivativestocentralcounterpartieswouldresultindiscontinuanceofhedgeaccounting.Theamendmentprovidesrelieffromdiscontinuingofhedgeaccountingwhennovationofahedginginstrumentmeetsspecifiedcriteria.TheGrouphasappliedtheamendmentandtherehasbeennosignificantimpactontheGroupfinancialstatements.
New and revised standards and interpretations which have been issued but are not yet effectiveTheGrouphasnotappliedthe followingrevisedstandardsand interpretationsthathavebeenpublishedbutarenotyeteffectivefortheyearbeginningafter1January2014.IFRS9,‘Financialinstruments’,addressestheclassification,measurementandrecognitionoffinancialassetsandfinancialliabilities.ThecompleteversionofIFRS9wasissuedonJuly2014.ItreplacestheguidanceinIAS30thatrelatestotheclassificationandmeasurementoffinancialinstruments.IFRS9retainsbutsimplifiesthemixedmeasurementsmodelandestablishesthreeprimarymeasurementcategoriesforfinancialassets:amortisedcost,fairvaluethroughOtherComprehensiveIncome(OCI)andfairvaluethroughprofitorloss.Thebasisofclassificationdependsontheentity’smodelandthecontractualcashflowcharacteristicsofthefinancialasset.InvestmentsinequityinstrumentsarerequiredtobemeasuredatfairvaluethroughprofitorlosswiththeirrevocableoptionatinceptiontochangesinfairvalueinOCInotrecycling.ThereisnowanewexpectedcreditlossesmodelthatreplacestheincurredlossimpairmentmodelusedinIAS39.Forfinancialliabilitiestherewerenochangestotheclassificationandmeasurementexceptfortherecognitionofchangesinowncreditriskinothercomprehensiveincome,forliabilitiesdesignatedatfairvaluethroughprofitorloss.IFRS9relaxestherequirementsforhedgeeffectivenessbyreplacingthebrightlinehedgeeffectivenesstests.Itrequiresaneconomicrelationshipbetweenthehedgeditemandhedginginstrumentandforthe‘hedgedratio’tobethesameastheonemanagementactuallyuseforriskmanagementpurposes.ContemporaneousdocumentationisstillrequiredbutisdifferenttothatcurrentlypreparedunderIAS39.Thestandardiseffectiveforaccountingperiodsbeginningonorafter1January2018.Earlyadoptionispermitted.TheGroupisyettoassessthefullimpactofIFRS9.
NIC BANK LIMITED
Annual Report & Financial Statements • 201464
NOTES TO THE FINANCIALS STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
2) Standards and interpretations affecting the reported result or financial position (Continued)
Basis of preparation (Continued)
iii) Changes in accounting policy and disclosures (Continued)New and revised standards and interpretations which have been issued but are not yet effective (Continued) IFRS 15, ‘Revenue fromcontractswithcustomers’,dealswithrevenuerecognitionandestablishesprinciplesforreportingusefulinformationtousersoffinancialstatementsaboutthenature,amount,timinganduncertaintyofrevenueandcashflowsarisingfromanentity’scontractswithcustomers.Revenueisrecognisedwhenacustomerobtainscontrolofagoodorserviceandthushastheabilitytodirecttheuseandobtainthebenefitsfromthegoodorservice.Thenewstandardiseffectiveforannualperiodsbeginningonorafter1January2017,andreplacesIAS11andIAS18.TheDirectorsareassessingtheimpactofthestandardsandwillsubsequentlychoosetheadoptiondate.
3. Summary of significant accounting policies
a) Consolidation
i) Subsidiaries
TheconsolidatedfinancialstatementscomprisethefinancialstatementsofNICBankLimitedanditssubsidiarycompaniesmadeupto31December.Subsidiaryundertakingshavebeenfullyconsolidated.Allintercompanytransactions,balancesandunrealisedsurplusesanddeficitsontransactionsbetweenGroupcompanieshavebeeneliminated.
SubsidiariesareallentitiesoverwhichtheGrouphascontrol.Thegroupcontrolsanentitywhenthegroupisexposedto,orhasrightsto,variablereturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.Subsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtothegroup.Theyaredeconsolidatedfromthedatethatcontrolceases.
TheaccountingpoliciesofsubsidiarieshavebeenchangedwhennecessarytoalignthemwiththepoliciesadoptedbytheGroup.
AlistingoftheBank’ssubsidiariesissetoutinNote25(b).
Theacquisitionmethodofaccountingisusedwhensubsidiariesareacquiredbythegroup.Thecostofanacquisitioninabusinesscombinationismeasuredatfairvalue,whichiscalculatedasthesumoftheacquisition-datefairvaluesoftheconsiderationtransferredbytheGroup,liabilitiesassumedbytheGroupfromtheformerownersoftheacquireeandtheequityinterestsissuedbytheGroupinexchangeforcontroloftheacquiree.Acquisition-relatedcostsarerecognisedinprofitorlossasincurred.
Attheacquisitiondate,theacquiredidentifiableassetsandtheliabilitiesassumedaregenerallymeasuredandrecognizedattheirfairvalue.
Goodwill ismeasuredas theexcessof thesumof theconsiderationtransferred, theamountofanynon-controllinginterestsintheacquiree,andthefairvalueoftheGroup’spreviouslyheldequityinterestintheacquiree(ifany)overthenetoftheacquisition-dateamountsoftheidentifiableassetsacquiredandtheliabilitiesassumed.
Intheeventthattheamountsofnetassetsacquiredisinexcessoftheaggregateoftheconsiderationtransferred,theamountofnon-controllinginterestandthefairvalueofGroup’spreviouslyheldequityinterest,thedifferenceisrecognisedimmediatelyinprofitorlossasabargainpurchase.
Inabusinesscombinationachievedinstages,thepreviouslyheldequityinterestisre-measuredattheacquisition-datefairvaluewiththeresultinggainorlossrecognisedinprofitorloss.
Non-controllingintereststhatarepresentownershipinterestsandentitletheirholderstoaproportionateshareoftheentity’snetassetsintheeventofliquidationmaybeinitiallymeasuredeitheratfairvalueoratthenon-controllinginterests’proportionateshareoftherecognisedamountsoftheacquiree’sidentifiablenetassets.Thechoiceofmeasurementbasisismadeonatransaction-by-transactionbasis.Othertypesofnon-controllinginterestsaremeasuredatfairvalueor,whenapplicable,onthebasisspecifiedinanotherIFRS.
Additionalinformationrequiredbytheregulatorybodiesisincludedwhereappropriate.
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3) Summary of significant accounting policies (Continued)
a) Consolidation (Continued)
ii) Changes in ownership interest in subsidiaries without change of controlTransactionswithnon-controllingintereststhatdonotresultinlossofcontrolareaccountedforasequitytransactions–thatis,astransactionswiththeownersintheircapacityasowners.Thedifferencebetweenfairvalueofanyconsiderationpaidandtherelevantshareacquiredofthecarryingvalueofnetassetsofthesubsidiaryisrecordedinequity.Gainsorlossesondisposalstonon-controllinginterestsarealsorecordedinequity.
b) Foreign currencies
i) Functional and presentation currencyThefinancialstatementsofeachof theGroup’sentitiesaremeasuredusing thecurrencyof theprimaryeconomicenvironmentinwhichtheentityoperates(the“functionalcurrency”).TheconsolidatedfinancialstatementsarepresentedinKenyaShillings,whichistheBank’sfunctionalandpresentationcurrency.Exceptasindicated,financialinformationpresentedinKenyaShillingshasbeenroundedtothenearestthousand.
ii) Transactions and balancesForeigncurrencytransactionsthataretransactionsdenominated,orthatrequiresettlement,inaforeigncurrencyaretranslatedintotherespectivefunctionalcurrenciesoftheoperationsusingtheexchangeratesprevailingatthedatesofthetransactions.Attheendofeachreportingperiod,monetaryitemsdenominatedinforeigncurrenciesareretranslatedattheratesprevailingatthatdate.Foreigncurrencyexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyearendexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesarerecognisedinprofitorloss.Translationdifferencesonnon-monetaryfinancialinstruments,suchasequitiesheldatfairvaluethroughprofitorloss,arereportedaspartofthefairvaluegainorloss.Translationdifferencesonnon-monetaryfinancialinstruments,suchasequitiesclassifiedasavailable-for-salefinancialassets,areincludedinothercomprehensiveincome.
iii) Group companiesTheresultsandfinancialpositionofGroupentitiesthathaveafunctionalcurrencydifferentfromthepresentationcurrencyarere-translatedintothepresentationcurrencyasfollows:Forthepurposeofpresentingconsolidatedfinancialstatements,theassetsandliabilitiesoftheGroup’sforeignoperationsareexpressedinKenyanshillingsusingexchangeratesprevailingatthereportingdate.Incomeandexpenseitemsofforeignoperationsareretranslatedataverageexchangeratesfortheperiod.Foreigncurrencyexchangedifferencesarereportedas“exchangedifferencesontranslationsofforeignoperations”andarerecognisedinothercomprehensiveincomeandpresentedintheforeigncurrencytranslationreserveinequity.
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3) Summary of significant accounting policies (Continued)
c) Income recognition
i) Interest income and expense
Interestincomeandexpenseforallinterestbearingfinancialinstrumentsarerecognisedinprofitorlossonaccrualbasisusingtheeffectiveinterestmethod.Theeffectiveinterestrateistheratethatexactlydiscountstheestimatedfuturecashpaymentsandreceiptsthroughtheexpectedlifeofthefinancialinstruments(or,whereappropriate,ashorterperiod)tothecarryingamountofthefinancialinstruments.Theeffectiveinterestrateisestablishedoninitialrecognitionofthefinancialinstrument.
Thecalculationoftheeffectiveinterestrateincludesallfeesandpointspaidorreceivedtransactioncosts,anddiscountsorpremiumsthatareanintegralpartoftheeffectiveinterestrate.Transactioncostsareincrementalcoststhataredirectlyattributabletotheacquisition,issueordisposalofafinancialinstrument.
Onceafinancialassetoragroupofsimilarfinancialassetshasbeenwrittendownasaresultofanimpairmentloss,interestincomeisrecognisedusingtherateofinterestthatwasusedtodiscountthefuturecashflowsforpurposesofmeasuringtheallowanceforimpairment.
InterestincomeandexpenseonalltradingassetsandliabilitiesareconsideredtobeincidentaltotheGroup’stradingoperationsandarepresentedtogetherwithallotherchangesinthefairvalueoftradingassetsandliabilitiesinnettradingincome.
ii) Fee and commission income and expenses
Inthenormalcourseofbusiness,theGroupearnsfeesandcommissionincomefromadiverserangeofservicestoitscustomers.Feesandcommissionincomeandexpensesthatareintegraltotheeffectiveinterestrateonafinancialinstrumentareincludedinthemeasurementoftheeffectiveinterestrate.
Otherfeesandcommissionincome,includingaccountservicingfees,investmentmanagementfees,placementfees,brokeragefees,bancassurancefees,andsyndicationfees,arerecognisedastherelatedservicesareperformed.Whenaloancommitmentisnotexpectedtoresultinthedraw-downofaloan,loancommitmentfeesarerecognisedonastraight-linebasisoverthecommitmentperiod.
Otherfeesandcommissionexpenserelatesmainlytotransactionandservicefees,whichareincurredastheservicesarereceived.
iii) Net trading incomeNettradingincomearisesfromthemarginswhichareachievedthroughmarket-makingandcustomerbusinessandfromchangesinmarketvaluecausedbymovementsininterestandexchangerates,equitypricesandothermarketvariables.Itcomprisesgainslesslossesrelatedtotradingassetsandliabilities,andincludesallrealisedandunrealisedfairvaluechanges,interest,dividendsandforeignexchangedifferences.
d) Financial instruments
i) RecognitionRegularpurchasesandsalesoffinancialassetsarerecognisedonthetrade-date–thedateonwhichtheGroupcommitstopurchaseorselltheasset. Loansandreceivablesareinitiallyrecognisedatfairvalueplustransactioncostsandsubsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod.
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3) Summary of significant accounting policies (Continued)
d) Financial instruments (Continued)
ii) Classification
1. Financial assets
TheGroupclassifiesitsfinancialassetsintothefollowingcategories:
• Atfairvaluethroughprofitorloss• Loansandreceivables• Held-to-maturityinvestments• Available-for-saleinvestments
Managementdeterminestheappropriateclassificationofitsinvestmentsatinitialrecognition
a) Financial assets at fair value through profit or loss
Thiscategoryhastwosub-categories:Financialassetsclassifiedasheldfortradingandthosedesignatedatfairvaluethroughprofitorlossatinception.
Afinancialasset isclassifiedasheldfortradingifacquiredprincipallyforthepurposeofsellingintheshortterm.Derivativesarealsocategorisedasheldfortradingunlesstheyaredesignatedandeffectiveashedginginstruments.Financialinstrumentsincludedinthiscategoryarerecognisedinitiallyatfairvalue,transactionscostsaretakendirectlytoprofitorloss.Gainsandlossesarisingfromchangesinfairvalueareincludeddirectlyinprofitorloss.
Thegroupdesignatescertainfinancialassetsuponinitialrecognitionasatfairvaluethroughprofitorloss(fairvalueoption). Thisdesignationcannotsubsequentlybechangedandcanonlybeappliedwhen the followingconditionsaremet:
theapplicationofthefairvalueoptionreducesoreliminatesanaccountingmeasurementmismatchor
thefinancialassetsarepartofaportfoliooffinancialinstrumentswhichisriskmanagedandreportedtokeymanagementpersonnelonafairvaluebasis.
For theGroup, thesecomprisederivativeassets (Note21), certaingovernmentsecuritiesassetout inNote20,quotedsharesandunquotedequity investments(Note25).Fairvaluechangesrelatingtofinancialassetsdesignatedatfairvaluethroughprofitorlossarerecognisedin‘Netgainsonfinancialinstrumentsdesignatedatfairvaluethroughprofitorloss’under‘nettradingincome’(Note10).
b) Loans and receivables
Loans and advances to customers and trade receivables are non-derivative financial assets with fixed ordeterminablepaymentsandfixedmaturitiesthatarenotquotedinanactivemarketandwhichtheGroupdoesnotintendtosellimmediatelyorinthenearterm.Loansandadvancestocustomersarerecognisedwhencashisadvancedtoborrowers.
c) Held-to-maturity investments
Thesearenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitiesthattheGrouphasthepositiveintentionandabilitytoholdtomaturity.Whereasaleoccurs,otherthananinsignificantamountofheld-to-maturityassets,theentirecategorywouldbetaintedandclassifiedasavailableforsale.
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3) Summary of significant accounting policies (Continued)
d) Financial instruments (Continued)
II) Classification (Continued)
1. Financial assets (Continued)
d) Available-for-sale investments
Available-for-salefinancialassetsareassetsthatareintendedtobeheldforanindefiniteperiodoftime,whichmaybesoldinresponsetoneedsforliquidityorchangesininterestrates,exchangeratesorequitypricesorthatarenotclassifiedas(a)financialassetsatfairvaluethroughprofitorloss,(b)loansandreceivables,or(c)financialassetsheldtomaturity.
Availableforsalefinancialassetsareinitiallyrecognisedatfairvalueandmeasuredsubsequentlyatfairvaluewithgainsandlossesbeingrecognisedinothercomprehensiveincomeandaccumulatedintheinvestmentsrevaluationreservewiththeexceptionof;• impairmentlosses,• interestcalculatedusingtheeffectiveinterestratemethod,• foreignexchangegainsandlossesonmonetaryassetswhicharerecognisedinprofitorloss.
2. Financial liabilitiesFinancial liabilitiesarerecognisedwhentheGroupenters into thecontractualprovisionsof thearrangementswithcounterparties,whichisgenerallyontradedate,andinitiallymeasuredatfairvalue,whichisnormallytheconsiderationreceived,netofdirectlyattributabletransactioncostsincurred.Subsequentmeasurementoffinancialliabilitiesisatamortisedcostusingeffectiveinterestratemethod.Financialliabilitiesincludedepositsfrombanksorcustomers,tradepayablesinthebrokerageandborrowingsforwhichthefairvalueoptionisnotapplied.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
3) Summary of significant accounting policies (Continued)
d) Financial instruments (Continued)
II) Classification (Continued)
Classes of financial instrumentsTheGroupclassifiesthefinancialinstrumentsintoclassesthatreflectthenatureofinformationandtakeintoaccountthecharacteristicsofthosefinancialinstruments.Theclassificationmadecanbeseeninthetableasfollows:
Category (as defined by IAS 39) Class (as determined by the Group) Subclasses
Financial assets and liabilities
Financial assets at fair value through profit or loss
Financial assets held for trading
Debt securities (Government securities)
Financial assets designated at fair value through profit or loss
Derivative assetsQuoted sharesUnquoted equity investments
Loans and receivables
Cash and balances with Central Banks (excluding mandatory reserves)Items in the course of collectionDue from banking institutions
Loans and advances to customers
Loans to individuals (retail)
OverdraftsCredit cardsTerm loansMortgages
Loans to corporate entities
Large corporate customersSMEsOthers
Other assetsDue from group companies
Held-to-maturity investments
Investment securities - debt securities
Government securities
Available-for-sale financial assets
Investment securities - debt securities
Government securities
Financial liabilities at armortised cost
Due to banking institutionsDue to group companiesBorrowingsOther liabilities
Deposits from customers
Deposits from individuals (retail)
Retail customers
Deposits from corporate entities
Large corporate customersSMEs
Off-balance sheet financial instruments
Loan commitments
Guarantees, acceptances and other financial facilities
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3) Summary of significant accounting policies (Continued)
d) Financial instruments (Continued)
iii) DerecognitionThe Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, orsubstantiallyalltherisksandrewardsofownershipincidentaltothefinancialassetaretransferred.Afinancialliabilityisderecognisedwhenitscontractualobligationsareredeemedorotherwiseextinguished.
iv) MeasurementFinancialinstrumentsareinitiallyrecognisedatfairvalueplustransactioncosts.Financialassetsat‘fairvaluethroughprofitorloss’aresubsequentlycarriedatfairvalue.Gainsandlossesarisingfromchangesinthefairvalueinthoseassetsarerecognisedinprofitorloss.Gainsandlossesarisingfromchangesinthefairvalueof‘available-for-salefinancialassets’arerecognisedinothercomprehensiveincomeintheperiodinwhichtheyariseandaccumulatedintheinvestmentrevaluationreserves.Whensecuritiesclassifiedasavailable-for-salearesoldorimpaired,theaccumulatedfairvalueadjustmentspreviouslyrecognisedintheinvestmentrevaluationreservesarereclassifiedtoprofitorloss.Dividendsonavailable-for-saleequity instrumentsarerecognisedinprofitorlossaspartofotherincomewhentheGroup’srighttoreceivepaymentsisestablished.The fair values of quoted investments are based on the most representative price within the bid-ask spread. If themarketforafinancialassetisnotactive(andforunquotedsecurities),theGroupestablishesfairvaluebyusingvaluationtechniques that include the use of various valuation methodology. The fair value of financial instruments where noactivemarketexistsorwherequotedpricesarenototherwiseavailablearedeterminedbyusingvaluationtechniques.Inthesecases,thefairvaluesareestimatedfromobservabledatainrespectofsimilarfinancialinstrumentsorusingmodels.Wheremarketobservableinputsarenotavailable,theyareestimatedbasedonappropriateassumptions.Wherevaluationtechniques(forexample,models)areusedtodeterminefairvalues,theyarevalidatedandperiodicallyreviewedbyqualifiedpersonnelindependentofthosethatsourcedthem.Loansandreceivablesandheldtomaturityinvestmentsarecarriedatamortisedcostusingtheeffectiveinterestratemethod.Financialliabilitiesaresubsequentlymeasuredatamortisedcost.
v) Impairment of financial assets
1. Amounts carried at amortised cost
The Group reviews regularly, on a case-by–case basis, whether any objective evidence exists of impairment,individuallyforfinancialassetsthataresignificantandindividuallyorcollectivelyforfinancialassetsthatarenotindividuallysignificant.Financialassetsareimpairedwhenobjectiveevidencedemonstratesthatalosseventhasoccurredaftertheinitialrecognitionoftheassetandthatthelosseventhasanimpactonthefuturecashflowsoftheassetthatcanbeestimatedreliably.
Loansandreceivablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod,lessprovisionforimpairment.AprovisionforimpairmentofloansandreceivablesisestablishedwhenthereisobjectiveevidencethattheGroupwillnotbeabletocollectallamountsdueaccordingtotheoriginaltermsofthereceivables.Theamountofprovisionisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedattheoriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccount,andtheamountofthelossisrecognisedinprofitorlossas‘Creditimpairmentcharges’.Whenaloanorreceivableisuncollectible,itiswrittenoffagainsttherelatedallowanceaccount.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedthroughprofitorloss.
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3) Summary of significant accounting policies (Continued)
d) Financial instruments (Continued)
v) Impairment of financial assets (Continued)
1. Amounts carried at amortised cost (Continued)Objectiveevidencethatloansandreceivablesareimpairedincludessignificantfinancialdifficultiesofthedebtor,probabilitythatthedebtorwillenterbankruptcyorfinancialreorganisation,anddefaultordelinquencyinpayments(morethan30daysoverdue),thedisappearanceofanactivemarketforasecurity,orotherobservabledatarelatingtoagroupofassetssuchasadversechanges in thepaymentstatusofborrowersor issuers in thegroup,oreconomicconditionsthatcorrelatewithdefaultsintheGroupareconsideredindicatorsthattheloansorreceivableisimpaired.Inassessingimpairmentlosses,theGroupconsidersthefollowingfactors,ineachcategory:
a. Individually assessed loans• TheaggregateexposuretotheGroup.• Theviabilityof thecustomer’sbusinessmodeland itscapacity to tradesuccessfullyoutoffinancial
difficultiesandgeneratesufficientcashflowstomeetitsdebtobligations.• Therealisablevalueofthesecurity(orothermitigants)andlikelihoodofsuccessfulrepossessionnetof
anycostsinvolvedinrecoveryofamounts.• Theamountandtimingofexpectedreceiptsand,incasesofliquidationorbankruptcy,dividendavailable.• TheextentandcomplexityofothercreditorscommitmentrankingparipassuwiththeGroupandthe
likelihoodofothercreditorscontinuingtosupportthecustomer.
b. Collectively assessed Forloansnotsubjecttoindividualassessment,tocoverlosseswhichhavebeenincurredbuthavenotyetbeenidentified.Forhomogeneousgroupsofloansthatarenotconsideredindividuallysignificant,wherethereisobjectiveevidenceofimpairment.
Homogeneous groups of loansForhomogeneousgroupsof loans thatarenotconsidered individuallysignificant,or inothercases,whentheportfoliosize issmallorwhen information is insufficientornotreliableenough,theGroupadoptsa formulaicapproachwhichallocatesprogressivelyhigherpercentagelossratesinlinewiththeperiodoftimeforwhichacustomer’sloanisoverdue.Lossratesarecalculatedfromthediscountedexpectedfuturecashflowsfromaportfolio. These rates and the expected timing of future recoveries are regularly benchmarked against actualoutcomestoensuretheyremainappropriate.
Loan write – offs Anuncollectibleloaniswrittenoffagainsttherelevantprovisionforimpairment,eitherpartiallyorinfull,whenthereisnorealisticprospectofrecoveryandtheproceedsfromrealisingthesecurityhavebeensubstantiallyorfullyrecovered.
Restructured loans Restructuredloans,whosetermshavebeenrenegotiatedarenolongerconsideredtobepastduebutaretreatedasnewloansaftertheminimumrequirednumberofpaymentsunderthenewarrangementhavebeenreceived.
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3) Summary of significant accounting policies (Continued)
d) Financial instruments (Continued)
v) Impairment of financial assets (continued)
2. Amounts classified as available for saleInthecaseofequitysecuritiesclassifiedasavailable-for-sale,asignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscostisconsideredasanindicatorthatthesecuritiesareimpaired.Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativelossmeasuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedinprofitorloss–isremovedfromothercomprehensiveincomeandrecognisedinprofitorloss.Impairmentlossesrecognisedinprofitorlossonequityinstrumentsarenotreversedthroughprofitorloss.
vi) Impairment of non-financial assets
At theendof each reportingperiod, theGroup reviews thecarryingamountof its tangibleand intangibleassets todeterminewhetherthereisanyindicationthattheseassetshavesufferedanimpairmentloss.
Ifobjectiveevidenceonimpairmentlossesexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccountandtheamountofthelossisrecognisedinprofitorloss.Incaseswheretheassetiscarriedatrevaluedamount,theimpairmentlossistreatedasarevaluationdecrease.
Indeterminingtherecoverableamount,theGroupconsidersthehigherofthefairvalueoftheassetlesscoststosell,andvalueinuse.Inestimatingvalueinuse,theGroupiscognisantoftheestimatedfuturecashflowsdiscountedtothepresentvalueusingapre-taxdiscountratethatisreflectiveofthecurrentmarketassessmentoftimevalueofmoneyandtherisksspecifictotheassetitself.
Intangibleassetswithindefiniteusefullifearetestedforimpairmentannually,andwhenthereisindicationthattheassetmaybeimpaired.
Whereimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(orcash-generatingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamount thatwouldhavebeendeterminedhadno impairment lossbeenrecognised,unlesssuchasset iscarriedatrevaluedamount,inwhichcasethereversaloftheimpairmentlossistreatedasrevaluationincome.
Impairmentlossongoodwillisnotreversed.
e) Offsetting Financialinstrumentsareoffsetandthenetamountreportedinthestatementoffinancialpositionwhenthereisalegalrighttosetofftheamountsandthereisanintentiontosettleonanetbasisortorealisetheassetandsettletheliabilitysimultaneously.
f) Employee expenses
i) Retirement benefit obligations TheGroupoperatesadefinedcontributionplanunderwhichtheGrouppaysfixedcontributionsintoaseparateentity.TheGrouphasnoobligation,legalorconstructive,topayfurthercontributionsiftheschemedoesnothavesufficientassetstopayallemployeesthebenefitsrelatingtoemployeeserviceinthecurrentandpriorperiods.Theassetsoftheschemeareheldinaseparatetrusteeadministeredfund,whichisfundedbycontributionsfromboththeGroupandtheemployees.Inaddition,theGroupalsocontributestotheNationalSocialSecurityFundinKenya,ParastatalPensionFundinTanzaniaandNationalSocialSecurityFundinUganda,whicharedefinedcontributionschemeregisteredunderrespectiveActsofParliamentintherespectivecountries.
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3) Summary of significant accounting policies (Continued)
f) Employee expenses (Continued)
i) Retirement benefit obligation (Continued)TheGroup’scontributionstothedefinedcontributionschemesarechargedtotheprofitorlossintheyearinwhichtheyrelate.Contractstaffareentitledtogratuitypaymentatthecompletionofthecontract.Provisionismadeforgratuityinlinewiththecontracts.
ii) Short-term benefitsShort-termemployeebenefitobligations(e.gmedicalreimbursementsandinsurance)aremeasuredonanundiscountedbasisandareexpensedastheemployeerendersservice.Themonetarybenefitsforemployeeaccruedleaveentitlementatthereportingdatearerecognisedasanexpenseaccrual.
g) Leasehold landPaymentstoacquireleaseholdinterestinlandaretreatedasprepaidoperatingleaserentalsandamortisedonstraightlinebasisovertheperiodofthelease.Whenaleaseincludeslandandbuildingselements,thebankassessestheclassificationofeachelementaseitherafinanceleaseoranoperatinglease.Indeterminingclassificationofthelandelement,animportantconsiderationisthatlandnormallyhasanindefiniteeconomiclife.Thereforethefinanceleaseoroperatingleaseclassificationofthelandisconsideredacriticalareaofjudgment.Seenote5tothesefinancialstatements.
h) Income tax expense
Incometaxexpensecomprisescurrentanddeferredtax.Currenttaxistheexpectedtaxpayableonthetaxableprofitfortheyearusingcurrentlyenactedtaxrates,andanyadjustmenttotaxpayableinrespectofpreviousyears.
Thecurrentincometaxchargeiscalculatedonthebasisoftaxlawsenactedorsubstantivelyenactedatthereportingdate.Managementperiodicallyevaluatespositionstakenintaxreturnswithrespecttosituationsinwhichapplicabletaxregulationissubjecttointerpretation.
Managementestablishesprovisionswhereappropriateonthebasisofamountsexpectedtobepaidtothetaxauthorities.
Deferredtaxisprovidedusingtheliabilitymethod,fortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesforfinancialreportingpurposesandtheamountsusedfortaxationpurposes.Deferredtaxismeasuredatthetaxratesthatareexpectedtobeappliedtothetemporarydifferenceswhentheyreverse,basedonthelawsthathavebeenenactedorsubstantivelyenactedbythereportingdate.Currentlyenactedtaxratesareusedtodeterminedeferredtax.
Adeferredtaxassetisrecognisedonlytotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilised.Deferredtaxassetsarereviewedateachreportingdateandarereducedtotheextentthatitisnolongerprobablethattherelatedtaxbenefitwillberealised.
Thetaxeffectsofcarry-forwardsofunusedlossesorunusedtaxcreditsarerecognisedasanassetwhenitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheselossescanbeutilised.
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in othercomprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in othercomprehensiveincomeordirectlyinequityrespectively.Wherecurrenttaxordeferredtaxarisesfromtheinitialaccountingforabusinesscombination,thetaxeffectisincludedintheaccountingforthebusinesscombination.
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3) Summary of significant accounting policies (Continued)
i) Earnings per share TheGrouppresentsbasicanddilutedearningspershare(EPS)dataforitsordinarysharesinthefinancialstatements.BasicEPSiscalculatedbydividingtheprofitorlossattributabletoordinaryshareholdersoftheBankbytheweightedaveragenumberofordinarysharesoutstandingduringtheperiod.DilutedEPSisdeterminedbyadjustingtheprofitorlossattributabletoordinaryshareholdersandtheweightedaveragenumberofordinarysharesoutstandingadjustedfortheeffectsofallpotentiallydilutiveordinaryshares.
j) Dividends on ordinary shares
Dividendsarechargedtoequityintheperiodinwhichtheyaredeclared.ProposeddividendsarenotaccrueduntiltheyhavebeenratifiedattheAnnualGeneralMeeting.
k) Leases
When theGroup is the lessor ina leaseagreement that transferssubstantiallyallof therisksandrewards incidental toownershipofanassettothelessee,thearrangementisclassifiedasafinanceleasewithinloansandreceivables.Allotherlesseesareclassifiedasoperatingleases.
Minimumleasepaymentsmadeunderfinanceleasesareapportionedbetweenthefinanceincomeandthereductionoftheoutstandingprincipal.Thefinanceincomeisallocatedtoeachperiodduringtheleasetermsoastoproduceaconstantperiodicrateofinterestontheremainingbalanceoftheasset.
Rentalincomefromoperatingleasesisrecognisedonastraight-linebasisoverthetermoftherelevantlease.Rentalspayableunderoperatingleasesarechargedtoprofitorlossoverthetermsoftherelevantlease.
l) Repurchase agreements
WhentheGrouppurchasesafinancialassetandsimultaneouslyentersintoanagreementtore-selltheasset(orasubstantiallysimilarasset)atafixedpriceonafuturedate(“reverserepoorstockborrowing”),thearrangementisaccountedforasaloanorreceivable,andtheunderlyingassetisnotrecognisedintheGroup’sfinancialstatements.
m) Property and equipment
i. Recognition and measurement
Itemsoffixturesandequipmentarestatedathistoricalcostlessaccumulateddepreciation.Buildingscomprisingmainlyoftheheadofficearestatedinthestatementoffinancialpositionattheirrevaluedamounts,beingthefairvalueatthedateofrevaluation,lessanysubsequentaccumulateddepreciation.Valuationsareperformedwithsufficientregularitytoensurethatthefairvalueofarevaluedassetdoesnotdiffermateriallyfromitscarryingamount.Anyaccumulateddepreciationatthedateofrevaluationiseliminatedagainstthegrosscarryingamountoftheasset,andthenetamountisrestatedtotherevaluedamountoftheasset.
Costincludesexpendituresthataredirectlyattributabletotheacquisitionoftheasset.Thecostofself-constructedassetsincludesthecostofmaterials,directlabourandanyothercostsdirectlyattributabletobringingtheassettoaworkingconditionforitsintendeduse.Purchasedsoftwarethatisintegraltothefunctionalityoftherelatedequipmentiscapitalisedaspartofthatequipment.
Whenpartsofanitemofpropertyorequipmenthavedifferentusefullives,theyareaccountedforasseparateitemsofpropertyandequipment.
Thegainorlossarisingonthedisposalorretirementofanitemofpropertyorequipmentisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinprofitorlossfortheyear.
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3) Summary of significant accounting policies (Continued)
m) Property and equipment (Continued)
ii. Subsequent costs
ThecostofreplacingpartofanitemofpropertyorequipmentisrecognisedinthecarryingamountoftheitemifitisprobablethatthefutureeconomicbenefitsembodiedwithinthepartwillflowtotheGroupanditscostcanbemeasuredreliably.Thecostsoftheday-to-dayservicingofpropertyandequipmentarechargedtoprofitorlossfortheyearasincurred.
Inrelationtobuildings,revaluationsareperformedwithsufficientregularitysuchthatthecarryingamountsdonotdiffermateriallyfromthosethatwouldbedeterminedusingfairvalueatthereportingdate.Anyincreasearisingontherevaluationisrecognisedinothercomprehensiveincomeandaccumulatedintherevaluationsurplusonproperty.Decreasesthatoffsetpreviousincreasesofthesameassetarerecognisedinothercomprehensiveincomeandchargedagainsttherevaluationsurplusonproperty;allotherdecreasesarechargedtotheprofitorlossfortheyear.
iii. Depreciation
Depreciationwhichisrecognisedinprofitorlossiscalculatedonastraight-linebasistoallocatethecostsorrevaluedamountsovertheirestimatedusefullivesasfollows:
Building 2.5%
Furniture,fittingsandequipment 20.0%
Motorvehicles 20.0%
Computers 33.3%
Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,attheendofeachreportingperiod.Assetsarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.
Excessdepreciation, representing theadditionaldepreciationbasedon revaluedamountsoverdepreciationbasedonhistoricalcosts,istransferredannuallyfromrevaluationsurplusonpropertytoretainedearnings,netofdeferredtax.
n) Intangible assets
i. Goodwill
GoodwillarisesonbusinesscombinationsthroughacquisitionofsubsidiarieswhenthecostofacquisitionexceedsthefairvalueoftheGroup’sshareoftheidentifiableassets,liabilitiesandcontingentliabilitiesacquired.IftheGroup’sinterestinthefairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesofanacquiredbusinessisgreaterthanthecosttoacquire,theexcessisrecognisedimmediatelyinprofitorloss.
Goodwillisallocatedtocash-generatingunitsforthepurposeofimpairmenttesting,whichisundertakenatthelowestlevelatwhichgoodwillismonitoredforinternalmanagementpurposes.Impairmenttestingisperformedatleastannually,andwheneverthereisanindicationthatthecash-generatingunitmaybeimpaired,bycomparingthepresentvalueoftheexpectedfuturecashflowsfromabusinesswiththecarryingvalueofitsnetassets,includingattributablegoodwill.Goodwillisstatedatcostlessaccumulatedimpairmentlosseswhicharechargedtoprofitorloss.
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3) Summary of significant accounting policies (Continued)
n) Intangible assets (Continued)
ii. Computer software Costsassociatedwithmaintainingcomputersoftwareprogramsarerecognisedasanexpenseasincurred.DevelopmentcoststhataredirectlyattributabletothedesignandtestingofidentifiableanduniquesoftwareproductscontrolledbytheGrouparerecognisedasintangibleassetswhenthefollowingcriteriaaremet:
• itistechnicallyfeasibletocompletethesoftwareproductsothatitwillbeavailableforuse;
• managementintendstocompletethesoftwareproductanduseorsellit;
• thereisanabilitytouseorsellthesoftwareproduct;
• itcanbedemonstratedhowthesoftwareproductwillgenerateprobablefutureeconomicbenefits;
• adequatetechnical,financialandotherresourcestocompletethedevelopmentandtouseorsellthesoftware productareavailable;and
• theexpenditureattributabletothesoftwareproductduringitsdevelopmentcanbereliablymeasured.
Directlyattributablecoststhatarecapitalizedaspartofthesoftwareproductincludethesoftwaredevelopmentemployeecostsandanappropriateportionofrelevantoverheads.Computersoftwaredevelopmentcostsrecognisedasassetsareamortisedovertheirestimatedusefullives,whichisthreetofiveyears.Acquiredcomputersoftwarelicencesarecapitalizedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Thesecostsareamortisedonthebasisoftheexpectedusefullives.Softwarehasamaximumexpectedusefullifeof5years.
iii. License Separatelyacquiredlicencesinbusinesscombinationare initiallyrecognisedattheirfairvalueattheacquisitiondate.Licenceswithanindefiniteusefullifearenotamortisedandarereviewedateachreportingdatetodeterminewhethereventsandcircumstancescontinuetosupportanindefiniteusefullifeassessmentoftheasset.WheretheGroupre-assessestheusefullifeofanintangibleassetasfiniteratherthanindefinite,theassetmaybeconsideredtobeimpaired.TheGroupteststheassetforimpairmentannuallyandwheneverthereisanindicationthattheintangibleassetmaybeimpairedbycomparingit’srecoverableamount,withthecarryingamountandrecognisinganyexcessofthecarryingamountovertherecoverableamountasanimpairment.
o) Legal and other claims
ProvisionsforlegalclaimsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itisprobablethatanoutflowofresourceswillberequiredtosettletheobligation;andtheamounthasbeenreliablyestimated.Provisionsarenotrecognisedforfutureoperatinglosses.
Wherethereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequiredinsettlementisdeterminedbyconsideringtheclassofobligationsasawhole.Aprovisionisrecognisedevenifthelikelihoodofanoutflowwithrespecttoanyoneitemincludedinthesameclassofobligationsmaybesmall.
p) Cash and cash equivalents
Cashandcashequivalentscomprisebalanceswith less than threemonths’maturity from thedateofacquisition.Theseincludesnotesandcoinsonhand,unrestrictedbalancesheldwithCentralBanks,itemsinthecourseofcollectionfromotherbanks,depositsheldatcallwithbanks,netofdepositsandbalancesduetobankinginstitutionsandtreasurybillswithoriginalmaturitiesoflessthanthreemonths.Suchassetsaregenerallysubjecttoinsignificantriskofchangesintheirfairvalue,andareusedbytheGroupinthemanagementofitsshort-termcommitments.
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3) Summary of significant accounting policies (Continued)
q) Share capital and share premiumOrdinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofnewsharesareshowninequityasadeduction,netoftax,fromtheproceeds.
r) Regulatory reservesIAS39requirestheGrouptorecogniseanimpairmentlosswhenthereisobjectiveevidencethatloansandreceivablesareimpaired.However,prudentialguidelinesissuedbybankingregulatorsrequiretheGrouptosetasideamountsforimpairmentlossesonloansandreceivablesbasedontheirguidelines.ExtralossesoverandabovethosealreadyrecognisedunderIAS39areaccumulatedunderregulatoryreservesthroughappropriationsofretainedearnings.
s) Contingent liabilitiesLettersofcredit,acceptances,guaranteesandperformancebonds,whicharecredit-relatedinstruments,aregenerallygivenbytheGrouptosupportperformancebyacustomertothirdparties.NominalprincipalamountsrepresentamountsatriskshouldtheGroupberequiredtomeettheseobligationsintheeventthecustomerdefaults.Theseobligationsareaccountedforasoffbalancesheettransactionsanddisclosedascontingentliabilities.
t) Fiduciary activitiesTheGroupprovidescustody,trustee,corporateadministration,investmentmanagementandadvisoryservicestothirdparties,whichinvolvetheGroupmakingallocationandpurchaseandsaledecisionsinrelationtoawiderangeoffinancialinstruments.Thoseassetsthatareheldinafiduciarycapacityarenotincludedinthesefinancialstatements.
u) Derivative financial instruments Derivativesarefinancialinstrumentsthatderivetheirvaluefromthepriceofunderlyingitemssuchasequities,bonds,interestrates,foreignexchange,creditspreads,commoditiesandequityorotherindices.Derivativesareintendedtoacquire,increase,reduceoralterexposuretomarketrisks.Thegroupusesderivativesforitscustomersandonitsownaccounttomanageexposuretomarketrisks.Derivativeassetsandliabilitiesondifferenttransactionsareonlysetoffifthetransactionsarewiththesamecounterparty,alegalrightofset-offexistsandthecashflowsareintendedtobesettledonanetbasis.
v) Segmental reporting Operatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecisionmaker(Groupmanagement).ThemanagementthenallocatesresourcestoeachoperatingsegmentoftheGroupandassessestheirperformance.TheoperatingsegmentsarebasedontheGroup’smanagementandinternalreportingstructure.InaccordancewithIFRS8,OperatingSegments,theGrouphasthefollowingbusinesssegments;corporateandinstitutionalbanking,treasurydealingandbrokerage,retailbanking,assetfinanceandinvestmentbankingandothers(seenote6).
w) ComparativesExceptotherwiserequired,allamountsarereportedordisclosedwithcomparativeinformation.Wherenecessary,comparativefigureshavebeenadjustedtoconformtochangesinpresentationinthecurrentyear.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives
Group risk management framework and governance structures
Risk management overview
Inthefinancialservicessector,sustainablegrowthinprofitabilityinvolvesselectivelytakingandmanagingrisks.TheGroup’sgoalistoearn,onbehalfofthestakeholders,anoptimal,stableandsustainablerateofreturnforeveryshillingofriskwetake,whilecontinuallyinvestinginourbusinesstomeetourfuturegrowthobjectives.Theriskmanagementresourcesandprocessesaredesignedtoidentify,understand,measureandreportrisksthattheGroup’sbusinessesareexposedto,anddevelopgovernance,controls,andriskmanagementframeworksnecessarytomitigatetheserisksasappropriate.TheseresourcesandprocessesarestrengthenedbytheGroup’sculturewhichemphasisestransparency,accountabilityandresponsibilityformanagingtherisksweareexposedto.
TheGroupdefinesriskasaneventoreventsofuncertaintywhichcanbecausedbyinternalorexternalfactorsresultinginthepossibilityoflosses(downsiderisk).However,theGroupappreciatesthatsomeriskeventsmayresultintoopportunities(upsiderisk)andshouldthereforebeactivelysoughtandexploited.
TheGroupoperatesinanenvironmentofnumerousrisksasshownbelowthatmaycausefinancialandnon-financialresultstodiffersignificantlyfromtheexpectedoutcomes.TheGrouphasanenterprise-wideapproachtotheidentification,measurement,monitoringandmanagementofrisksfacedacrosstheregion.Theserisksareclassifiedasfollows:
Financial risks: • Credit&counterpartyrisk• Liquidity&fundingrisk• Marketriskthatfallwithin:
- Interestraterisk- Foreignexchangerisk- Pricerisk
a) Credit and counterparty risk
CreditandcounterpartyriskisthepotentialforlossduetotheGroup’scustomers’orcounterparties’failureorunwillingnesstomeettheircontractualcreditobligations.ItisthesinglelargestfinancialriskthattheGroupfaces.Itarisesprincipallyfrom,butisnotlimitedto,commercialandretailloansandadvances,commitmentsfromforwardforeignexchangecontracts,financialguarantees,lettersofcreditandacceptances,investmentsindebtsecuritiesandotherexposuresarisingfromtradingandsettlementactivitieswithmarketcounterparties.
Theamountspresentedinthesefinancialstatementsarenetofimpairmentallowancesbasedonprudentassessmentofthecustomers’orcounterparties’abilitiestomeettheircontractualobligations.
TheGroup’slendingprinciplesarelaidoutinanelaborateseriesofcorporatestrategies,policies,standards,guidelines,directivesandprocedures,allofwhicharedeveloped,approvedandreviewedregularlybytheBoardCreditRiskCommitteeandrespectiveRiskManagementCommittees.ThisistoensurepoliciesarecurrentandconsistentwiththeGroup’sriskappetite.Thestructure,limits,collateralrequirements,ongoingmanagement,monitoringandreportingofcreditexposuresareallgovernedbytheseprinciples.
Who manages credit & counterparty risk
TheBoardofDirectorsandSeniorManagementpayspecialattentiontocreditriskexposureatalltimes.TheBoardretainstheresponsibility forunder-writingand independentreviewofthecreditriskexposuresthroughspecificallyconstitutedBoardsub-committees:theBoardCreditRiskCommitteeandtheBoardRiskManagementCommitteerespectively.Tofacilitatethedaytodaymanagementofcreditriski.e.under-writingfunctions,monitoringandcontrol,thereisaspecialised,independentandcentralisedcreditreview/approvalteamheadedbytheDirectofCreditwhoreportstotheGroupManagingDirector.TheBoardofDirectorsretainstheauthoritytoapprovecreditfacilitiesthataresignificantinsizeorcomplexity.
EffectivecreditriskmanagementbeginswithexperiencedandprofessionallendingofficerswhohavebeenformallymandatedtoauthorisecreditexposuresfortheGroup.Theseindividualsaresubjectedtoarigorouslenderqualificationprocessandoperatewithinadisciplinedenvironmentwithcleardelegationofmanagementdiscretionarylimitsatboththeindividualandjointlevelsdependingonthesizeandcomplexitiesofthecreditdecisionstheymake.
Tofacilitatequickcreditdecisions,theBoardCreditRiskCommitteehasgrantedformaldiscretionarylimitstoseveralSeniorManagers(atindividualandcommitteelevels),inlinewiththeirskills,experienceandabilitytomakesoundcreditdecisions.
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4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (Continued)
Who manages credit & counterparty risk (Continued)
Toseparatethesalesandcreditunder-writingfunctionsfromcreditoperations,acreditadministrationunitthatreportsdirectlytotheHeadofTechnologyandOperations,handlespost-approvalcreditadministrationaswellasthedailymonitoringofcreditexposuresagainstapprovedlimits.Thistogetherwiththecompletesegregationofsalesactivitiesfromtheunderwritingprocess,maintainsanadequategovernancestructurethateliminatesconflictsofinterestthatmayoccurinthecourseofbusiness.
Creditriskmanagementkeyperformanceindicators,includingthequalityofourcreditportfolios,portfolioconcentrations,amongstothers,areindependentlyreviewedbytheHeadofRiskManagement&CompliancewithoversightfromtheBoardRiskManagementCommittee.
RegularindependentauditsoftheapprovalprocessandadherencetocreditriskmanagementprogramsarecarriedoutbytheInternalAuditDepartment.AdversefindingsaresubmittedtoSeniorManagementandtheBoardAuditCommitteeforinformationandcorrectiveactionsimplementation.Furthermore,auditprogramsarecarriedoutusingariskbasedapproachtoconcentrateactivitieswherehighprobabilityand/orhighimpactriskeventsareenvisaged.
How credit and counterparty risk is managed
Credit and counterparty risk measurement & assessment
Theestimationofcreditexposuresattheindividualandportfoliolevelsiscomplexandrequirestheuseofspecialmodels,asthevalueofproductsorportfoliosvarieswithchangesinmarketvariables,expectedcash-flowsandthepassageoftime.Theassessmentofaportfolioofassets’creditexposuresentailsfurtherestimationofthelikelihoodofdefaultsoccurring,ofassociatedlosses,andofdefaultcorrelationsbetweenborrowersorcounterparties,thefacilitiesgranted,andtheirindustries.Thisisachievedusingacreditratingmodeldevelopedinternallyforuseinthebusiness.
Credit & counterparty risk limit control and mitigation policies
TheBoardCreditRiskCommitteeregularlysets,reviewsandapprovesexposurelimitsforthelargercounterpartiesaswellastolerancelimitsonaportfoliobasis.Inturn,theGroupmanagesthelimitsandcontrolsconcentrationsofcreditriskexposuresagainstinternalandregulatoryrequirementswithrespecttoindividualcounterpartiesorrelatedgroupsofcounterparties,industrysectors,amongstothers.
Exposurestoanyoneborrower(includingbankcounterparties)arefurtherrestrictedbysub-allocatinglimitscoveringseparateonandoff–balancesheetexposures,aswellasdailydeliveryexposures inrelationtotrading itemse.g. forwardforeignexchangecontracts.
Lendinglimitsarereviewedregularlyinlinewiththechangingbusiness/financialrisksoftheborrowers,inadditiontoindustryandgeneraleconomicconditionsinwhichtheyoperate.Toenableprudentandconsistentcreditassessmentsattheindividuallevel, theGrouphasrobustapprovalprocessesandmodelscoveringdifferentbusinesssegments.Thisprocessbasicallycapturestheborrower’sfinancialviability,industry/economicperformance,geopoliticalrisksanditsmanagements’abilitytosteertheorganisation.Thesemodelsaresuitedtocounterpartieswhoarehomogeneousinnatureforeaseoftheiruse.
Limitsforcommercialandcorporateclientsarereviewedatleastonceannually.Thecreditreviewprocessensuresthatanappropriatefacilitystructure,includingcovenantmonitoring,isinplaceforeachclient.Thefrequencyofreviewsisincreasedinaccordancewiththelikelihoodandsize/complexityofpotentialcreditlosses,withdeterioratinghigher-risksituationsreferredtoindependentdebtrecoveryunitsforcloserattentionandremediationwhereappropriate.
Therisksinindustrysectorsaremanagedthroughlimitsandlendingcriteria/guidelinesrelevanttoeachparticularindustry.Borrower limits are set within the context of established guidelines for individual borrowers and particular industries toensuretheGroupdoesnothaveexcessiveconcentrationinanyrelatedgroupofborrowersorindustry.Throughthisportfoliomanagementprocess,loansmaybesyndicatedtoreduceoverallexposuretoasinglenameand/orindustry.
Exposuresagainsttolerancelimitsinrelationtocreditriskcategoriesaremeasuredandmonitoredperiodicallyonanaggregatedbasis. Actual exposures against limits are monitored daily through the well-established credit management informationsystemsthatareinplace.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (Continued)
Other specific control and mitigation measures are outlined belowAlthoughtheGrouponlylendstocounterpartiesthatprimarilydemonstrateadequatecapacitytorepayloans,italsoemploysarangeofpolicies,guidelinesandmodelstomitigatecreditriskasfollows:
i. Collateral
ThisisonlyconsideredinthosecaseswheretheGroupwouldwanttotakeacreditriskmitigant.TheGrouphasdevelopedspecificpoliciesandguidelinesfortheacceptanceofdifferentclassesofcollateralwhoseestimatedfairvaluesarewellunderstood.
Estimatesofthecollateral’sfairvaluesarebasedonthevalueofcollateralindependentlyandprofessionallyassessedatthetimeofborrowing,andre-valuedwithafrequencycommensuratewithnatureandtypeofthecollateralandcreditadvanced.CollateralstructuresandcovenantsaresubjectedtoregularreviewtoensuretheycontinuetofulfiltheintendedpurposetotheGroup.
Collateralisgenerallynotheldinrespectofdepositsandbalancesduefrombankinginstitutions,itemsinthecourseofcollection,andGovernmentsecurities,exceptwhensecuritiesareheldforreversepurchaseandsecuritiesborrowingactivity.
ii. Credit rating
The Group uses an internal rating system for its borrowing clients. The system sets maximum exposure limits forindividualsorgroupsofclientsusingtheratingattainedbytheborrowers.Theratingsystemwillalsoinformthebasisofdeterminingthevalueandclassesofcollateralacceptablefortheborrower(s).
iii. Settlement risk
Thisistheriskoflossduetothefailurebycounterpartytohonouritsobligationstodelivercash,securitiesorotherassetsascontractuallyagreed.Itarisesinsituationswhereapaymentincashismadeinanticipationofcorrespondingreceiptofcashsecuritiesorotherassets.Dailysettlementlimitsareapprovedbytherelevantauthoritylevelsandestablishedforeachcounterpartytocovertheaggregateofallsettlementrisksarisingfromthecounterparty’smarkettransactionsonasingleday.Acceptanceofthecounterparty’ssettlementriskisdeterminedonthebasisoffinancialstrengthsandothernon-financialconsiderationssubjecttoBoardCreditRiskCommittee’sapprovals.
Impairment policies
Acrossall itsloanportfolios,theGroupemploysadisciplinedapproachtoimpairmentallowancesevaluation,withpromptidentification of problem loans being a key risk management objective. The Group maintains both collective and specificimpairmentallowances forcredit losses, thesumofwhich issufficient to reduce thebookvalueofcreditassets to theirestimatedrealisablevalue.Specificimpairmentallowancesreducetheaggregatecarryingvalueofcreditassetswherethereisspecificevidenceofdeteriorationincreditquality.Inlinewithregulatoryguidelines,acollectiveallowanceismaintainedtocoverpotentialimpairmentintheexistingportfoliothatcannotbeassociatedwithspecificcredit.Theseallowancesarereviewedandupdatedonaregularbasis.
Write-off policy
TheGroupwritesoffloansandadvancesnetofanyrelatedallowancesforimpairmentlosseswhenitdeterminesthattheloansareuncollectableandsecuritiesunrealisable.Thisdeterminationisreachedafteraccessingobjectiveevidenceoroccurrenceofsignificantchangesintheborrowerorissuer’sfinancialpositionsuchthattheyarenolongerabletorepaytheobligation,orthatproceedsfromthesaleofcollateralwillnotbesufficienttopaybacktheentireexposures.Thisisdoneafterexhaustingallothermeansincludinglitigation.ForRetailandAssetFinanceloans,chargeoffdecisionsaregenerallybasedonproductspecificdayspastduestatusandthesizeofbalancesowedperborrower.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (continued)
I. Maximum exposure to credit risk before collateral held
GROUP 2014 2013Shs’000 % Shs’000 %
Credit exposures On – balance sheet itemsBalances with Central Banks 9,066,532 7 7,273,400 7Items in the course of collection 519,958 - 243,514 -Due from banking institutions 8,753,909 6 5,920,199 4Loans and advances to customers 100,575,330 64 81,418,136 63Government securities 19,223,686 12 18,093,150 14Other assets – trade receivables 154,122 - 196,622 -Derivative assets 118,781 - 48,049 -
138,412,318 89 113,193,070 88Off-balance sheet itemsLetters of credit 3,490,696 2 5,177,622 4Guarantees and performance bonds 13,793,897 9 10,557,519 8
17,284,593 11 15,735,141 12155,696,911 100 128,928,211 100
BANK 2014 2013Shs’000 % Shs’000 %
Credit exposures
On – balance sheet items
Balances with Central Bank 8,079,859 6 5,950,797 6Items in the course of collection 484,521 - 215,693 -Due from banking institutions 7,843,903 5 4,189,408 4Loans and advances to customers 92,957,230 66 75,038,910 65Government securities 16,454,111 11 15,946,330 13Derivative assets 118,781 - 41,232 -
125,938,405 88 101,382,370 88Off-balance sheet itemsLetters of credit 3,374,438 2 4,763,734 4Guarantees and performance bonds 13,633,024 10 10,168,363 8
17,007,462 12 14,932,097 12142,945,867 100 116,314,467 100
Theaboverepresentstheworstcasescenarioofcreditexposureforbothyears,withouttakingintoaccountcollateralheldorothercreditenhancements/mitigants.
TheGroupLoansandadvancestocustomersandothertraderelateditems(off-balancesheetitems)compriseof75%(2013:75%)ofthetotalcreditexposure.
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (Continued)
Collateral
Whilecollateralisanimportantmitiganttocreditrisk,theGroup’sunderwritingpolicyensuresthatloansarestrictlygrantedonagoingconcernbasiswithupfrontadequatedemonstrationofrepaymentcapacity.OtherthanexposuresamountingtoShs3,634,944,000(2013:Shs2,354,572,000)thatareunsecured,allotherfacilitiesaresecuredbycollateralintheformofchargesovercash,landandbuildings,marketablesecurities,plantandmachinery,amongstothers.ThefairvalueofcollateralheldforimpairedloansandadvancesisShs1,351,648,000(2013:Shs1,928,893,000).
Collateral and other credit enhancements obtained
ThefairvalueofassetsheldbytheGroupasat31Decemberascollateralwasasfollows:
Carrying amount
Bank Group
2014 2013 2014 2013
Shs `000 Shs `000 Shs `000 Shs`000
Nature of assets
942,381 1,142,393Charges over cash, land and buildings, marketable securities, plant and machinery 1,351,648 1,928,893
Collateral repossessed
ItistheGroup’spolicytodisposeofrepossessedpropertiesontheopenmarket,atfairmarketvalue.Theproceedsareusedtoreduceorrepaytheoutstandingclaim.Ingeneral,theGroupdoesnotoccupyorforecloserepossessedpropertiesforitsownbusinessuse.
TheGroupisconfidentthatitscreditpoliciesandprogramsprovidesufficientsafeguardsagainstthecreditriskexposureshowninthetablesoverleaf:
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (Continued)
ii. Classification of loans & advances to customers
Group
Kenya Tanzania Uganda Total
At 31 December 2014 Shs `000 Shs `000 Shs `000 Shs `000
Gross loans and advances
Neither past due nor impaired 90,433,598 3,724,419 3,047,388 97,205,406
Past due but not impaired
Past due 30 to 90 days 1,643,408 408,083 31,879 2,083,370
Individually impaired 3,244,092 644,815 143,101 4,032,008
Total gross loans advanced 95,321,098 4,777,317 3,222,368 103,320,784
Impairment allowances
Neither past due nor impaired - - - -
Past due but not impaired
Past due 30 to 90 days (62,157) - (2,937) (65,094)
Individually impaired (2,301,711) (372,450) (6,162) (2,680,360)
Impairment allowances (2,363,868) (372,450) (9,099) (2,745,454)
Net loans and advances 92,957,230 4,404,867 3,213,269 100,575,330
Coverage ratio of the individually impaired 71% 58% 43% 67%
At 31 December 2013
Gross loans and advances
Neither past due nor impaired 70,835,258 2,910,900 2,199,220 75,945,378
Past due but not impaired
Past due 30 to 90 days 3,204,280 509,687 - 3,713,967
Individually impaired 3,138,721 1,382,205 - 4,520,926
Total gross loans advanced 77,178,259 4,802,792 2,199,220 84,180,271
Impairment allowances
Neither past due nor impaired - - - -
Past due but not impaired
Past due 30 to 90 days (143,021) (25,404) (1,677) (170,102)
Individually impaired (1,996,328) (595,705) - (2,592,033)
Impairment allowances (2,139,349) (621,109) (1,677) (2,762,135)
Net loans and advances 75,038,910 4,181,683 2,197,543 81,418,136
Coverage ratio of the individually impaired 64% 43% 0% 57%
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NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (Continued)
Credit quality of loans and advances
Allloansandadvancesarecategorisedasneitherpastduenorimpaired,pastduebutnotimpaired,orimpaired.Impairedloansincluderestructuredloans.Forthepurposesofthesedisclosures:
• Aloanisconsideredpastduewhentheborrowerhasfailedtomakeapaymentwhendueunderthetermsoftheexistingloancontract;
• Theimpairmentallowanceincludesallowancesbothagainstfinancialassetsthathavebeenindividually impairedandthosesubjecttocollectiveimpairment;
• Loansneitherpastduenorimpairedconsistpredominantlyofcorporateandretailloansthatareperforming.Theseloans,althoughunimpaired,maycarryanunidentifiedimpairmentallowance;and
• ImpairedloansthatarecollectivelyassessedforimpairmentconsistpredominantlyofRetailloansthatare1dayormorepastdueforwhichacollectiveimpairmentallowanceisraised.
Loans and advances that are neither past due nor impaired
TheGroupclassifiesloansandadvancesunderthiscategoryiftheyareuptodateandinlinewiththeircontractualagreements(within 0-30 days). Such loans would have demonstrated the meeting of their financial and non-financial conditions plusobligationsandtheborrowerswouldhaveprovenforwardlookingcapacitytorepaytheloans.Theseexposureswillnormallybemaintainedlargelywithinapprovedfacilityprogramsandwithnodepictionofimpairmentordistresssigns.Theseexposuresarecategorisedasnormalaccounts(category1)inlinewithinternalguidelinesandthoseissuedbyregulatorswhereapplicable.Acollectiveprovisiononthetotaloutstandingbalancesismadeandappropriatedfromrevenuereservestostatutorycreditriskreserves.
Past due but not impaired
Thiscategoryincludesexposuresthatarebetween31–90dayspastdue,wherelossesmayhavebeenincurredbuthavenotbeenclearlyidentified.Theseexposuresaregradedascategory2inlinewithourinternalguidelinesandthoseissuedbybankingregulators.Acollectiveimpairmentallowanceismadeasdescribedabovetocoverlosseswhichhavebeenincurredbuthavenotyetbeenidentified.
Individually Impaired loans and advances
ImpairedloansandadvancesarethosewhichtheGroupdeterminesthatitishighlyprobablethatitwillbeunabletocollectallprincipalandinterestdueaccordingtothecontractualtermsoftheloansecuritiesagreement(s).Theseloansaregradedbetweencategories3(91-180days),4(181-360days)and5(over360days)usingtheGroup’sinternalcreditratingsystem.Theseclients,underguidelinesissuedbytheCentralBanksintheregionsweoperatein,aretermedasnon-performingloans.TheGroupestablishesaspecificallowanceforimpairmentlossesforeachloanthatrepresentstheestimateoflossesthatwillbeincurredinitsloanportfolio.
Concentrations of risk
TheGroupmonitorsconcentrationofriskexposuresinitslendingandotherassetportfoliosbyindividualsorgroupsofrelatedborrowersandindustrysectorconcentrationsinlinewithBoardofDirectors’approvedlimits.Theselimitsarereviewedregularlyusingeconomicriskindicatorsidentifiedinparticularindustrialsectors.Ananalysisofconcentrationswithintheloansandadvancestocustomersandoffbalancesheetitemsareasshowninthenextpage.
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Annual Report & Financial Statements • 2014 85
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
a) Credit and counterparty risk (Continued)
Loans and advances to customers
Bank Group
2014 2013 2014 2013
% % % %
25 24 Manufacturing 26 25
24 18 Social community and personal services 24 18
17 12 Transport and communication 16 11
10 10 Wholesale and retail 10 10
6 7 Agriculture 6 7
2 4 Electricity 2 4
2 5 Financial 2 5
14 20 Other 14 20
100 100 100 100
Contingent liabilities
Bank Group
2014 2013 2014 2013
% % % %
9 27 Agriculture 9 27
11 5 Business services 11 5
10 6 Wholesale and retail 10 6
5 4 Real estate and construction 5 4
20 10 Transport and communication 20 10
33 19 Manufacturing 33 19
12 29 Other 12 29
100 100 100 100
b) Liquidity and funding risk
Liquidityriskisthepotentialforlosstoaninstitutionarisingfromeitheritsinabilitytomeetitsobligationswhentheyfalldueortofundincreasesinassetwithoutincurringunacceptablecostsorlosses.Effectiveliquidityriskmanagementisessentialinordertomaintaintheconfidenceofdepositorsandcounterparties,andtoenableourcorebusinesstocontinueoperatingevenunderadverseliquiditycircumstances.
NIC BANK LIMITED
Annual Report & Financial Statements • 201486
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
b) Liquidity and funding risk (Continued)
Who manages liquidity and funding risk
TheAssetsandLiabilitiesCommittee(ALCO),amanagementcommittee,istaskedwiththeresponsibilityofensuringthatallforeseeablefundingcommitmentsanddepositswithdrawalscanbemetasandwhentheyfalldue,andthattheGroupwillnotencounterdifficultiesinmeetingitscurrentandfuturefinancialobligationsorfinancialliabilitiesastheyfalldue.
ALCOreliessubstantiallyon theGroup’sTreasuryDepartment tocoordinateandensuredisciplineacross theGroupandbusinessunits,certifysufficientliquidityunderbothnormalandstressedconditions,withoutincurringunacceptablelossesand/orriskingdamagetotheGroup’sreputation.
TheBoardExecutiveCommitteehasoversightoverALCOsactivities throughregular reviewof itsminutesandsignificantreportsoutliningtheGroup’scurrentexposuresagainstapprovedrisklimits.ThesereportsarealsoreviewedbytheBoardRiskManagementCommitteeonaregularquarterlybasis.
Liquiditypolicies/guidelinesandlimitsarereviewedperiodically,orastheneedarises.
How liquidity and funding risk is managed
i. Liquidity and funding management
TheGroup’sliquidityandfundingpoliciesrequirethatit:
• Entersintolendingcontractssubjecttoavailabilityoffunds.
• Projectscashflowsbymajorcurrenciesandconsiderthelevelofliquidassetsnecessaryinrelationthereto.
• Monitorsliquidityratiosagainstinternalandregulatoryrequirementsandguidelines.
• Maintainsanarrayofadiverserangeoffundingsourcesascontingencyback–upfacilities.
• Monitorsdepositorconcentrationtoavoidunduerelianceonlargeindividualdepositorsandensureasatisfactory fundingmixisattained.
• Investsinshorttermliquidinstruments,whichcaneasilybesoldinthemarketwhentheneedarises.
• Ensureinvestmentsinlargecashoutlayprojectse.gpropertyandequipmentpurchasesarebudgetedforand carriedoutonlywhentheGrouphassufficientlyliquidcashflows.
• Maintainsliquidityandfundingcontingencyplans.Theseplansandkeyriskindicatorsclearlyidentifyearlystress conditionsanddescribeactionstobetakenintheeventofdifficultiesarisingfromsystemicorothercrisiswhile minimisingadverselong-termimplications.
ii Sources of funding
TheGroup’smajorsourceoffundingiscustomerdeposits.Tothisend,theGroupmaintainsadiversifiedandstablefundingbasecomprisingofthecoreretailandcorporatecustomersandwholesalebankingclientele.TheGroupplacesconsiderableimportanceon thestabilityof thesedeposits,which isachieved through theGroup’scorporate, institutionalandretailbankingactivitiesandbymaintainingdepositorconfidenceintheGroup’sbusinessstrategiesandfinancialstrength.Ananalysisofconcentrationswithinthecustomerdepositsisasfollows:
Customer deposits
Bank Group2014 2013 2014 2013
% % % %
- - Co-operative societies - -5 4 Insurance companies 5 4
15 15 Non-profit institutions and individuals 16 1680 81 Private enterprises 79 80
100 100 100 100
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 87
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
b) Liquidity and funding risk (Continued)
How liquidity and funding risk is managed (Continued)
II. Sources of funding (Continued)
TheGroupalsoborrowsfromtheinter-bankandwholesalemarketssuchaspensionfundsandinsurancecompaniestomeetitsshorttermliquidityandotherinvestmentobjectives.
TheGroupdoesnotmaintaincashreservestomeetallitsobligationsasexperienceovertimehasshownthataminimumlevelofreinvestmentofmaturingcustomerfundscanbepredictedwithahighlevelofcertainty.Althoughthecontractualrepaymentsofmanycustomeraccountsareondemandorshortnotice,inpracticefromabehavioralperspective,short-termdepositbalancesremainstableasinflowsandoutflowsbroadlymatch.
III Exposure to liquidity risk
ThekeymeasuresusedbytheGroupformanagingliquidityriskare;
• Theratioofnetliquidassetstodepositsfromcustomers(liquidityratio).Forthispurpose,netliquidassetsincludecashandcashequivalentsandinvestmentsinsecuritiesforwhichthereisanactiveandliquidmarketlessanydepositsfrombanks,aswellasotherborrowingsandcommitmentsmaturingwithinthenextmonth.ThebankingregulatorsalsorequirethattheGroupmaintainsacashreserveratiocomputedaspercentageofeligiblecustomerdeposits.
ThebankingregulationsrequirethattheGroupmaintainsaminimumliquidityratioof20%.TheGroupcompliedwiththeliquidityrequirementsduringtheyear.
Theaverageliquidityratiofortheyearwas29%(2013:32%).
• Thematurityanalysisofassetsandliabilitiesreportispresentedinthenextpages.TheGroupusesthematuritymismatchladderstocomparecashinflowsandoutflowseachmonthandoveraseriesoftime-bands.ThematuritymismatchladdershowsthenetcashflowsoftheGroupinvarioustimebands.TheGroupnetfundingrequirementsaredeterminedbyanalysingpresentandfuturecashflowsoftheentirestatementoffinancialpositionatselectedmaturitydates,basedonassumptionsofthebehaviourofassets,liabilitiesandoff-balancesheetitems.Calculationswillincludethecumulativenetexcessorshortfalloverthetimeframeoftheliquidityassessment.
TheGroupalsomonitorsitsliquidityexposuresthroughanarrayofinternallydevelopedriskindicatorssuchasseveraltypesofadvancestodepositratios,proportionoflargestdepositorstototaldeposits,liquiditygapanalysisratios,inter-bankborrowingsasaproportionoftotaldeposits,amongstothers.Attheendof2014,theGroupbeguntousetheBaselAccordpreferredLiquidityCoverageratioandNetStableFundingratiotoassessitsshortandlongtermliquiditystability.Thisenablesthegrouptoarrestanyearlywarningsignsandtaketimelycorrectiveaction.
Aspartof theALCOfunction,Treasuryreceives informationfrombusinessunitsregardingtheliquidityprofileoftheirfinancialassetsandliabilitiesplusdetailsofotherprojectedcashflowsarisingfromprojectedfuturebusiness.Treasurythenmaintainsaportfolioofshort-termliquidassets,largelymadeupofshort-termliquidinvestmentgradesecurities,loansandadvancestobanksandotherinter-bankfacilities,toensurethatsufficientliquidityismaintainedwithintheGroupasawhole.Theliquidityrequirementsofbusinessunitsandsubsidiariesaremetthroughvariousfundingoptions tocoveranyshort-termfluctuationsand longer term funding toaddressanystructural liquidityrequirements.
Theamountsdisclosedinthetablesonpages88to91arethecontractualundiscountedcashflows,whereastheGroupmanagestheliquidityriskbasedonadifferentbasis,notresultinginasignificantlydifferentanalysis.
NIC BANK LIMITED
Annual Report & Financial Statements • 201488
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
4) F
inan
cial
ris
k m
anag
emen
t obj
ecti
ves
(Con
tinu
ed)
G
roup
ris
k m
anag
emen
t fra
mew
ork
and
gove
rnan
ce s
truc
ture
s (C
onti
nued
)
b)
Li
quid
ity
and
fund
ing
risk
(Con
tinu
ed)
How
liqu
idit
y an
d fu
ndin
g ri
sk is
man
aged
(Con
tinu
ed)
III
E
xpos
ure
to li
quid
ity
risk
(Con
tinu
ed)
LI
QU
IDIT
Y R
ISK
(Und
isco
unte
d) –
201
4 (G
roup
)
Upt
o 1
Mon
th
1 to
3
Mon
ths
4 to
12
Mon
ths
1 to
3 Y
ears
Ove
r 3
Year
s To
tal
Shs
’000
S
hs’0
00
Shs’
000
Shs
’000
S
hs’0
00
Shs’
000
FIN
AN
CIA
L LI
AB
ILIT
IES
Cus
tom
er d
epos
its51
,838
,242
39,2
44,4
4712
,926
,717
--
104,
009,
407
Due
to b
anki
ng in
stitu
tions
5,51
1,24
2-
--
-5,
511,
242
Bor
row
ings
--
837,
380
1,66
1,95
312
,577
,071
15,0
76,4
04To
tal fi
nanc
ial l
iabi
litie
s57
,349
,484
39,2
44,4
4713
,764
,097
1,66
1,95
312
,577
,071
124,
597,
053
FIN
AN
CIA
L A
SSET
S
Cas
h an
d ba
lanc
es w
ith C
entr
al B
anks
4,57
1,83
83,
654,
664
2,31
2,99
4-
-10
,539
,496
Item
s in
the
cour
se o
f col
lect
ion
519,
958
--
--
519,
958
Due
from
ban
king
inst
itutio
ns8,
760,
044
10,9
17-
--
8,77
0,96
1G
over
nmen
t sec
uriti
es29
,802
19,7
858,
911,
932
7,25
1,78
44,
666,
715
20,8
80,0
17D
eriv
ativ
e as
sets
118,
781
--
-11
8,78
1Lo
ans
and
adva
nces
to c
usto
mer
s16
,448
,401
10,8
16,1
4923
,069
,660
41,1
31,9
2029
,607
,283
121,
073,
413
30,4
48,8
2414
,501
,516
34,2
94,5
8648
,383
,704
34,2
73,9
9816
1,90
2,62
7
Net
liqu
idit
y ga
p26
,900
,660
24,7
42,9
31(2
0,53
0,48
9)(4
6,72
1,75
1)(2
1,69
6,92
7)(3
7,30
5,57
4)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 89
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
4) F
inan
cial
ris
k m
anag
emen
t obj
ecti
ves
(Con
tinu
ed)
G
roup
ris
k m
anag
emen
t fra
mew
ork
and
gove
rnan
ce s
truc
ture
s (C
onti
nued
)
b)
Li
quid
ity
and
fund
ing
risk
(Con
tinu
ed)
How
liqu
idit
y an
d fu
ndin
g ri
sk is
man
aged
(Con
tinu
ed)
III
Expo
sure
to li
quid
ity
risk
(Con
tinu
ed)
LI
QU
IDIT
Y R
ISK
(Und
isco
unte
d) –
201
3 (G
roup
)
Upt
o 1
Mon
th
1 to
3
Mon
ths
4 to
12
Mon
ths
1 to
3 Y
ears
Ove
r 3
Year
s To
tal
Shs
’000
S
hs’0
00
Shs’
000
Shs
’000
S
hs’0
00
Shs’
000
FIN
AN
CIA
L LI
AB
ILIT
IES
Cus
tom
er d
epos
its55
,256
,809
34,8
47,9
033,
228,
705
171,
777
-93
,505
,194
Due
to b
anki
ng in
stitu
tions
5,07
6,61
584
5,91
1-
--
5,92
2,52
6
Bor
row
ings
12,6
63-
16,7
231,
379,
453
2,59
8,96
74,
007,
806
Tota
l fina
ncia
l lia
bilit
ies
60,3
46,0
8735
,693
,815
3,24
5,42
81,
551,
230
2,59
8,96
710
3,43
5,52
6
FIN
AN
CIA
L A
SSET
S
Cas
h an
d ba
lanc
es w
ith C
entr
al B
anks
6,34
6,35
41,
677,
633
333,
531
620,
635
-8,
978,
153
Item
s in
the
cour
se o
f col
lect
ion
243,
514
--
--
243,
514
Due
from
ban
king
inst
itutio
ns5,
924,
633
--
--
5,92
4,63
3
Gov
ernm
ent s
ecur
ities
1,13
2,56
72,
961,
260
2,28
2,46
96,
429,
089
5,36
5,26
518
,170
,650
Der
ivat
ive
asse
ts48
,049
--
--
48,0
49
Loan
s an
d ad
vanc
es to
cus
tom
ers
11,1
81,8
867,
893,
269
24,1
80,5
3127
,214
,545
32,4
66,3
4510
2,93
6,57
6
24,8
77,0
0312
,532
,162
26,7
96,5
3134
,264
,269
37,8
31,6
1013
6,30
1,57
5
Net
liqu
idit
y ga
p35
,469
,084
23,1
61,6
52(2
3,55
1,10
3)(3
2,71
3,03
9)(3
5,23
2,64
3)(3
2,86
6,04
9)
NIC BANK LIMITED
Annual Report & Financial Statements • 201490
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
4) F
inan
cial
ris
k m
anag
emen
t obj
ecti
ves
(Con
tinu
ed)
G
roup
ris
k m
anag
emen
t fra
mew
ork
and
gove
rnan
ce s
truc
ture
s (C
onti
nued
)
b)
Li
quid
ity
and
fund
ing
risk
(Con
tinu
ed)
How
liqu
idit
y an
d fu
ndin
g ri
sk is
man
aged
(Con
tinu
ed)
III
Expo
sure
to li
quid
ity
risk
(Con
tinu
ed)
LI
QU
IDIT
Y R
ISK
(Und
isco
unte
d) –
201
4 (B
ank)
Upt
o 1
Mon
th
1 to
3
Mon
ths
4 to
12
Mon
ths
1 to
3 Y
ears
Ove
r 3
Year
s To
tal
Shs
’000
S
hs’0
00
Shs’
000
Shs
’000
S
hs’0
00
Shs’
000
FIN
AN
CIA
L LI
AB
ILIT
IES
Cus
tom
er d
epos
its47
,837
,859
38,1
96,7
4210
,540
,141
--
96,5
72,7
42
Due
to b
anki
ng in
stitu
tions
4,64
9,92
1-
--
-4,
649,
921
Bor
row
ings
--
651,
629
1,83
6,95
712
,047
,833
14,5
36,4
19
Tota
l fina
ncia
l lia
bilit
ies
52,4
85,7
8038
,196
,742
11,1
91,7
701,
836,
957
12,0
47,8
3311
5,75
9,08
2
FIN
AN
CIA
L A
SSET
S
Cas
h an
d ba
lanc
es w
ith C
entr
al B
anks
3,13
8,84
23,
654,
664
2,31
2,99
4-
-9,
106,
501
Item
s in
the
cour
se o
f col
lect
ion
484,
521
--
--
484,
521
Due
from
ban
king
inst
itutio
ns7,
852,
203
--
--
7,85
2,20
3
Gov
ernm
ent s
ecur
ities
-19
,785
5,90
0,33
76,
230,
560
4,58
4,05
416
,734
,736
Der
ivat
ive
asse
ts11
8,78
1-
--
-11
8,78
1
Loan
s an
d ad
vanc
es to
cus
tom
ers
15,1
88,4
0710
,522
,111
22,5
08,0
1427
,810
,463
41,1
31,9
2011
7,16
0,91
5
26,7
82,7
5414
,196
,560
30,7
21,3
4534
,041
,023
45,7
15,9
7415
1,45
7,65
7
Net
liqu
idit
y ga
p25
,703
,025
24,0
00,1
82(1
9,52
9,57
5)(3
2,20
4,06
6)(3
3,66
8,14
1)(3
5,69
8,57
5)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 91
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
4) F
inan
cial
ris
k m
anag
emen
t obj
ecti
ves
(Con
tinu
ed)
G
roup
ris
k m
anag
emen
t fra
mew
ork
and
gove
rnan
ce s
truc
ture
s (C
onti
nued
)
b)
Li
quid
ity
and
fund
ing
risk
(Con
tinu
ed)
How
liqu
idit
y an
d fu
ndin
g ri
sk is
man
aged
(Con
tinu
ed)
III
Expo
sure
to li
quid
ity
risk
(Con
tinu
ed)
LI
QU
IDIT
Y R
ISK
(Und
isco
unte
d) –
201
3 (B
ank)
Upt
o 1
Mon
th
1 to
3
Mon
ths
4 to
12
Mon
ths
1 to
3 Y
ears
Ove
r 3
Year
s To
tal
Shs
’000
S
hs’0
00
Shs’
000
Shs
’000
S
hs’0
00
Shs’
000
FIN
AN
CIA
L LI
AB
ILIT
IES
Cus
tom
er d
epos
its52
,220
,766
33,1
50,6
901,
733,
694
112,
647
-87
,217
,797
Due
to b
anki
ng in
stitu
tions
4,19
2,53
674
3,82
2-
--
4,93
6,35
8
Bor
row
ings
12,6
63-
16,7
231,
379,
453
2,59
8,96
74,
007,
806
Tota
l fina
ncia
l lia
bilit
ies
56,4
25,9
6533
,894
,512
1,75
0,41
71,
492,
100
2,59
8,96
796
,161
,961
FIN
AN
CIA
L A
SSET
S
Cas
h an
d ba
lanc
es w
ith C
entr
al B
anks
5,26
4,64
51,
443,
024
333,
531
3,74
6-
7,04
4,94
6
Item
s in
the
cour
se o
f col
lect
ion
215,
693
--
--
215,
693
Due
from
ban
king
inst
itutio
ns4,
193,
842
--
--
4,19
3,84
2
Gov
ernm
ent s
ecur
ities
34,4
842,
862,
552
1,47
5,19
16,
286,
336
5,36
5,26
516
,023
,828
Der
ivat
ive
asse
ts41
,232
--
--
41,2
32
Loan
s an
d ad
vanc
es to
cus
tom
ers
8,16
5,10
27,
517,
687
22,8
77,7
4225
,530
,475
32,4
66,3
4596
,557
,351
Tota
l fina
ncia
l ass
ets
17,9
14,9
9811
,823
,263
24,6
86,4
6431
,820
,557
37,8
31,6
1012
4,07
6,89
2
Net
liqu
idit
y ga
p38
,510
,967
22,0
71,2
49(2
2,93
6,04
7)(3
0,32
8,45
7)(3
5,23
2,64
3)(2
7,91
4,93
1)
NIC BANK LIMITED
Annual Report & Financial Statements • 201492
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
c) Market risk
Marketriskistheriskthatthevaluesofassetsandliabilitiesorrevenueswillbeadverselyaffectedbychangesinmarketconditionsormarketmovements.MarketrisksintheGrouparisefrommovementsinmarketpricesparticularlychangesininterestrates,foreigncurrencyexchangerates,fixedratesecuritiesandequitypriceswhichweareexposedto.Itisoftenpropagatedbyotherformsoffinancialriskssuchascreditandmarketliquidityriskevents.Theobjectiveofmarketriskmanagementprogramsistomanageandcontrolmarketriskexposuresinordertooptimisereturnonrisktakenwhilemaintainingagoodmarketprofileasaprovideroffinancialproductsandservices.
Who manages market risk?
TheBoardRiskManagementCommitteereviewsandapprovesmarketriskpoliciesandlimitsperiodicallyorastheneedarises.TheTreasuryDepartmentinconsultationwiththeRiskManagementDepartmentareresponsibleforthedevelopmentofdetailedmarketriskmanagementpolicies,subjecttoreviewandsupportbyALCOandapprovalbytheBoardRiskManagementCommittee.
TheBoardreceivesquarterlyreportsofmarketriskexposuresoractivitiesthroughrelevantALCOminutes,andTreasuryreportsoutliningcurrentriskexposuresagainstapprovedrisklimitsorappetite.
How market risk is managed
TheGroup’sAsset&LiabilityCommittee(ALCO)overseestheapplicationoftheframeworksetbytheBoardofDirectorsandmonitorstheGroup’smarketriskexposuresaswellasactivitiesthatgiverisetotheseexposures.OverallresponsibilityforthemanagementofmarketrisksrestswithALCOwhichreviewsmarketriskactivityreportsmonthly.Treasuryisresponsibleforthedaytodayimplementationofthosepoliciesorprogramsandlimits.
Inviewofthefactthatourmarketriskoperationsarenotverycomplex,webasicallyuseinterestratesvarianceanalysismodels(againstbudgetandpriormonth),interestrategapanalysis,proportionofinterestsensitivedepositstototaldeposits,amongstothermethodologiesandkeyperformanceindicators,appropriateforourGroup’soperations.Themanagementofmarketriskissupplementedbythemonitoringofkeymarketriskandeconomicperformancevariables.
The distinct market risk exposures faced by the Group are:
• Interestraterisk.
• Foreignexchangerisk.
• Pricerisk.
I. Interest rate risk
Interestrateriskrepresentsexposurestoinstrumentswhosevaluesvarywiththelevelorvolatilityofinterestrates.Theseinstrumentsinclude,butarenotlimitedtoloans,debtsecurities,certaintradedassetsandliabilities,deposits,borrowingsandderivativeinstruments.Generally,hedginginstrumentsusedbybankstomitigatesuchrisksincluderelatedderivativessuchasoptionsandswaps.
TheGroupisexposedtotheriskthatthevalueofafinancialinstrumentwillfluctuateduetochangesinmarketinterestrates,asfundsaresourcedandinvestedatbothfixedandfloatingrates.Thematuritiesofassetsandliabilities,plustheabilitytoreplaceinterestbearingliabilitiesatanacceptablecostastheymature,areimportantfactorsinassessingtheGroup’sexposuretochangesininterestrates.
Inadditiontomaintaininganappropriatemixbetweenfixedandfloatingratesdepositbase,interestratesonadvancestocustomersandotherriskassetsaremainlypeggedtotheKenyaBankersReferenceRate(KBRR)-forfloatingrateloans.TheKBRRisadjustedevery6monthsorwhennecessary(ifearlier)toreflectprevailingmarketcostsofTreasurybillratesandtheCentralBankReferencerate.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 93
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
5) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
c) Market risk (Continued)
I. Interest rate risk (Continued) InterestratesoncustomerdepositsarenegotiatedbetweentheGroupanditscustomers,withtheGroupretainingthediscretiontore-negotiatetheratesatmaturityinlinewithchangesinmarkettrends.Theinterestratesgivenorchargedtoclientsthereforefluctuatedependingonthemovementsinthemarketinterestrates.TheGroupalsoinvestsinfixedinterestrateinstrumentsissuedbytheGovernmentofKenya,TanzaniaandUgandathroughtheirrespectiveCentralBanks.Theinterestrateriskassessmenttablesarefoundunderpages94to97.
ThematchingandcontrolledmismatchingofthematuritiesandinterestratesofassetsandliabilitiesisfundamentaltothemanagementoftheGroup’sinterestraterisk.Itisunusualforabankevertocompletelybematchedduetothenatureofbusinesstermsandtypesofproductsoffered.
Interest rate risk – stress testsTheGroupmonitors the impactof risksassociatedwith theeffectsoffluctuations inprevailing interestrates.At31stDecember2014,thefollowingtablesummarisestheestimatedimpactofanimmediatehypotheticalincreaseordecreaseininterestratesof125basispointsonconsolidatedprofitbeforeincometaxexpense,andcurrentinterestrateriskprofile.
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
265,635 292,011 125 basis points increases in interest rates 375,861 366,042
(424,318) (360,624) 125 basis points decrease in interest rates (508,168) (468,331)
Themodeldoesnottakeintoaccountanycorrectiveactioninresponsetointerestratemovements,particularlyinadversesituations.
NIC BANK LIMITED
Annual Report & Financial Statements • 201494
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
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201
4
4) F
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ris
k m
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M
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I. In
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Cas
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-2,
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--
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--
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,223
,686
Der
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ts-
--
--
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8,78
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8,78
1
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13.1
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,158
,730
1,28
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63,
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1,77
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-10
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102,
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,983
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FIN
AN
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L LI
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tom
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--
--
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3.
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Tota
l fina
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l lia
bilit
ies
37,8
76,9
3938
,023
,477
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682,
179,
331
11,3
93,5
6517
,926
,118
120,
205,
098
Inte
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rat
e se
nsit
ivit
y ga
p64
,971
,063
(35,
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(3,6
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4,34
7,97
5 (1
,360
,582
)(9
,210
,638
)19
,526
,062
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 95
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
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201
4
4) F
inan
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ris
k m
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--
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13.1
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,169
,162
789,
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1,54
4,99
63,
475,
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1,43
9,11
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81,4
18,1
36
Tota
l fina
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l ass
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78,3
89,5
655,
034,
231
4,11
3,18
911
,842
,134
4,93
2,08
510
,155
,387
114,
466,
591
FIN
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L LI
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9118
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,738
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142,
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-23
,382
,110
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7.83
5,87
4,57
421
,760
--
--
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,156
1,24
8,03
52,
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-3,
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Tota
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bilit
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24,2
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1240
,065
,617
9,69
4,55
31,
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2,35
1,36
823
,382
,110
101,
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Inte
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ivit
y ga
p54
,184
,253
(35,
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(5,5
81,3
64)
10,4
51,5
852,
580,
717
(13,
226,
723)
13,3
77,0
81
NIC BANK LIMITED
Annual Report & Financial Statements • 201496
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
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201
4
4) F
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-2,
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--
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10.8
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Der
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--
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12.2
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7-
92,9
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30
Tota
l fina
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l ass
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100,
447,
225
837,
502
4,90
7,68
95,
059,
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9,06
2,06
56,
650,
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126,
965,
047
FIN
AN
CIA
L LI
AB
ILIT
ES
Cus
tom
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7129
,025
,729
36,9
64,5
899,
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946
--
17,2
18,8
1492
,791
,078
Due
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7.61
4,61
4,22
311
,183
--
--
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6
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3.
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-78
8,69
21,
661,
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Tota
l fina
ncia
l lia
bilit
ies
33,6
39,9
5236
,975
,772
10,3
70,6
381,
661,
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11,3
93,5
6417
,218
,814
111,
260,
693
Inte
rest
rat
e se
nsit
ivit
y ga
p66
,807
,273
(3
6,13
8,27
0)(5
,462
,949
)3,
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31,4
99)
(10,
567,
858)
15,7
04,3
54
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 97
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
5) F
inan
cial
ris
k m
anag
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risk
(Con
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(201
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Up
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--
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--
--
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inst
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373,
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731,
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--
--
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Gov
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10.8
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-15
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Der
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--
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12.2
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,078
,086
166,
178
794,
646
636,
067
1,43
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0-
75,0
38,9
10
Tota
l fina
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l ass
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77,5
35,5
853,
694,
139
2,12
4,60
58,
841,
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3,89
87,
301,
871
104,
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FIN
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CIA
L LI
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Cus
tom
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7113
,461
,444
32,0
81,3
131,
576,
085
83,2
88-
37,0
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5984
,236
,189
Due
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anki
ng in
stitu
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7.61
4,91
0,17
1-
--
--
4,91
0,17
1
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row
ings
3.34
-12
,610
16,1
561,
248,
035
2,35
1,36
8-
3,62
8,16
9
Tota
l fina
ncia
l lia
bilit
ies
18,3
71,6
1532
,093
,923
1,59
2,24
11,
331,
323
2,35
1,36
837
,034
,059
92,7
74,5
29
Inte
rest
rat
e se
nsit
ivit
y ga
p59
,163
,970
(28,
399,
784)
532,
364
7,51
0,27
42,
702,
530
(29,
732,
188)
11,7
77,1
66
NIC BANK LIMITED
Annual Report & Financial Statements • 201498
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
c) Market Risk (Continued)
II. Foreign exchange riskForeigncurrencyexchangeriskrefers to thepotentialchanges incurrentand futureearningsorcapitalarising frommovements in foreign exchange market rates. The Group, through stringent intra-day and overnight exposure limits,ensuresthatthepotentialriskoflossarisingfromforeignexchangefluctuationstotheGroup’searningsandcapitaliswithinprudentialguidelinesandinternalpolicies.Anymaterialovernightpositioniscoveredbystoplossorderswithourinternationalcounter-parties.
TheGroupisexposedtotheriskthatthevalueofforeigncurrencydenominatedfinancialinstrumentsitholdswillfluctuateduetochangesinmarketforeignexchangerates.TheBoardofDirectorsperiodicallyapprovespoliciesandlimitsonthemaximumlevelofexposuresbycurrencyandintotalforbothovernightandintra-daypositions.Foreigncurrencyriskisaddressedthroughthefollowingmeasures:• Onadailybasis,theoverallforeignexchangeriskexposureismeasuredusingspotmid-ratesanddoesnotexceed10%
oftheGroup’scorecapital.• Anysinglecurrencyexposure,irrespectiveofshortorlongpositionsdoesnotexceedthelimitof10%ofcorecapital.• Intra-dayandovernightforeignexchangepositionsarelimitedwithinstrictlydefinedexposureandstoplosslimits
approvedperiodicallybytheBoardRiskManagementCommittee.
Thetablesonpages99to102summarisetheGroup’sandBank’sexposuretoforeigncurrencyexchangeraterisks.
At31December2014,ifthefunctionalcurrenciesintheeconomicenvironmentinwhichtheGroupoperatesi.e.theKenyaShillinghadweakenedorstrengthenedby10%againsttheworld’smajorcurrencies,withallothervariablesheldconstant,consolidatedprofitbeforeincometaxexpensewouldhavebeenhigherorlowerasdepictedinbelowtable:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
10% depreciation/appreciation
4,189 5,477 USD 8,769 9,466
72 75 GBP 9,456 10,686
201 168 EUR 6,278 5,225
36 185 Others 16,665 20,146
4,498 5,905 Total 41,168 45,523
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 99
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
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201
4
4) F
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Cas
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863,
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Tota
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9,18
556
,048
,567
FIN
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Cus
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its28
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,791
1,54
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52,
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5132
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3,12
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7
Oth
er li
abili
ties
2,28
3,78
09,
119
49
,526
1,65
22,
344,
077
Bor
row
ings
8,90
6,29
4-
--
8,90
6,29
4
Tota
l fina
ncia
l lia
bilit
ies
47,2
64,5
941,
556,
834
2,15
2,86
768
,417
47,0
42,7
12
Net
bal
ance
she
et p
osit
ion
6,96
2,38
055
,385
1,37
7,32
261
0,76
89,
005,
855
OFF
BA
LAN
CE
SHEE
T P
OSI
TIO
N7,
952,
094
(2,0
46,6
75)
(4
69,0
50)
140,
402
5,57
6,77
1
NIC BANK LIMITED
Annual Report & Financial Statements • 2014100
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
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201
4
4) F
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k m
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ris
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GB
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Oth
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TOTA
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Shs’
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anks
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449,
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539
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from
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king
inst
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274,
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335,
176
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Loan
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tom
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83,8
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115
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Oth
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31,
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4,33
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Tota
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ncia
l ass
ets
41,1
88,0
961,
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2,09
6,92
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4,70
845
,583
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L LI
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tom
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its23
,925
,848
3,31
7,10
92,
407,
377
114,
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29,7
65,1
14
Due
to b
anki
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stitu
tions
4,23
5,75
23
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859,
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4,29
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7
Oth
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abili
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3,62
8,16
9-
--
3,62
8,16
9
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row
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1,61
7,30
537
6,49
213
,028
7,08
52,
031,
910
Tota
l fina
ncia
l lia
bilit
ies
33,4
07,0
743,
693,
604
2,47
0,99
013
1,13
239
,702
,800
Net
bal
ance
she
et p
osit
ion
7,80
1,02
2(2
,249
,647
)(3
74,0
70)
723,
576
5,90
0,88
1
OFF
BA
LAN
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SHEE
T P
OSI
TIO
N7,
952,
094
(2,0
46,6
75)
(46
9,05
0)14
0,40
25,
576,
771
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 101
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
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201
4
4) F
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ris
k m
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Oth
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Shs’
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Shs’
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Cas
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anks
687,
163
119,
461
77,0
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,844
917,
537
Due
from
ban
king
inst
itutio
ns7,
201,
912
770,
228
1,38
3,86
557
5,67
79,
931,
682
Loan
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tom
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39,2
41,8
0671
8,36
02,
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35,6
7142
,005
,747
Oth
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sset
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5,10
01,
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809
126
197,
403
Tota
l fina
ncia
l ass
ets
47,3
25,9
811,
609,
417
3,47
1,65
364
5,31
853
,052
,369
FIN
AN
CIA
L LI
AB
ILIT
ES
Cus
tom
er d
epos
its28
,207
,832
1,54
4,68
72,
087,
997
43,3
5131
,883
,867
Due
to b
anki
ng in
stitu
tions
3,12
5,72
9-
15,3
4423
,414
3,16
4,48
7
Oth
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abili
ties
113,
630
9,11
9
49,5
261,
652
173,
927
Bor
row
ings
8,10
8,71
1-
--
8,10
8,71
1
Tota
l fina
ncia
l lia
bilit
ies
39,5
55,9
021,
553,
806
2,15
2,86
768
,417
43,3
30,9
92
Net
bal
ance
she
et p
osit
ion
7,77
0,07
955
,611
1,31
8,78
657
6,90
19,
721,
377
OFF
BA
LAN
CE
SHEE
T P
OSI
TIO
N(8
,636
,082
)57
,639
(1,2
05,6
74)
(198
,383
)(9
,982
,500
)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014102
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
MEN
TS (C
ontin
ued)
FOR
TH
EYE
ARE
ND
ED3
1D
ECEM
BER
201
4
4) F
inan
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ris
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ris
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Shs’
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Cas
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anks
448,
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434,
518
368,
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63,7
801,
315,
539
Due
from
ban
king
inst
itutio
ns2,
543,
980
335,
176
49,3
5935
4,54
03,
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Loan
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4532
,481
,601
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483
1,04
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,661
3,51
1,50
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Tota
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ncia
l ass
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36,6
56,2
721,
427,
877
2,06
9,52
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8,02
640
,591
,704
FIN
AN
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L LI
AB
ILIT
ES
Cus
tom
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its21
,549
,710
3,30
3,62
52,
382,
968
74,7
6727
,311
,070
Due
to b
anki
ng in
stitu
tions
3,24
9,85
1-
50,5
849,
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3,30
9,44
4
Oth
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abili
ties
3,62
8,16
9-
--
3,62
8,16
9
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row
ings
450,
198
273,
415
11,9
444,
201
739,
758
Tota
l fina
ncia
l lia
bilit
ies
28,8
77,9
283,
577,
040
2,44
5,49
687
,977
34,9
88,4
41
Net
bal
ance
she
et p
osit
ion
7,77
8,34
4(2
,149
,163
)(3
75,9
67)
350,
049
5,60
3,26
3
OFF
BA
LAN
CE
SHEE
T P
OSI
TIO
N7,
952,
094
(2,0
46,6
75)
(46
9,05
0)14
0,40
25,
576,
771
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 103
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
c) Market Risk (Continued)
III. Price risk
SharesquotedintheNairobiSecuritiesExchange(“NSE”)i.e“listedshares’’arestatedattheirfairvalueonthelastdayofbusinessintheyear.Thesevaluesaresubjecttofrequentvariationsduetochangesintheirmarketprices.
At31December2014,ifthepricesattheNSEhadappreciated/depreciatedby5%withallothervariablesheldconstant,theimpactonthestatementofprofitorloss,andshareholders’equitywouldhavebeenShs3,076,000(2013:Shs2,150,000)higher/lower.
TheGroup’scarriesitsunquotedequityinvestmentinTanzaniaMortgageRefinanceCompanyatfairvalue(Note25).ThefairvalueoftheGroup’sinvestmentinTanzaniaMortgageRefinanceCompanyisequaltothecostofsharespurchasedinthecompany.Thevariabilityintherangeofreasonablefairvalueestimatesforthisinvestmentisnotsignificant.
d) Capital management
The Group’s objectives when managing capital are:
• TosafeguardtheGroup’sabilitytocontinueasagoingconcerninordertoprovideacceptablereturnstotheshareholdersandbenefitsforotherstakeholderswhilemaintaininganoptimalcapitalstructure.
• TocomplywithcapitalrequirementssetbyourregulatorswithinthemarketsthattheGroupoperatesin.
• Tomaintainastrongcapitalbasetosupportcontinuedbusinessdevelopment.
• TocreateanacceptablebuffercateringforunexpectedlossesthattheGroupmayincurinadversemarketscenariosduringthecourseofitsbusiness.
• Tomanageitscapitalstructureandmakeadjustmentstoitaccordingtochangesineconomicconditionsandtheriskcharacteristicsofitsactivities.Inordertomaintainoradjustthecapitalstructure,theGroupmayadjusttheamountofdividendpaymenttoshareholders,returncapitaltoshareholdersorissuecapitalsecurities.
TheGroup’sobjectiveswhenmanagingcapitalarebroadlycoveredasfollows:
I Banking
Inlinewithourindustry,thebroaderconceptofcapitalanditsadequacyisbasedonguidelinesdevelopedbytheBaselCommittee’sAccordsandimplementedforsupervisorypurposesbythecentralbanks.
CentralBankofKenya(CBK),BankofTanzania(BOT)andBankofUganda(BOU)largelysegregatethetotalregulatorycapitalintotwotiers;
• Tier 1 Capital (Core Capital), which includes ordinary share capital, share premium and retained earnings. Theinvestmentinsubsidiariesorotherfinancialinstitutionsisdeductedinarrivingattier1capital.
• Tier 2 Capital (Supplementary Capital) includes among others, 25% of property revaluation reserves (subject toregulatoryapproval),unsecuredsubordinateddebtinstruments(bondsandlongtermborrowings)havinganoriginalmaturityofatleastfiveyearsandcollectiveimpairmentallowances.
Theriskweightedassetsaremeasuredbymeansofahierarchyoffourriskweightsclassifiedaccordingtothenatureof,andreflectinganestimateof,thecreditriskassociatedwitheachassetandcounterparty.Asimilartreatmentisadoptedforoff-balancesheetexposure,withsomeadjustmentstoreflectthemorecontingentnatureofthepotentiallosses.
Duringtheyear,thebankswithinthegrouphadcompliedinfullwithallitsexternallyimposedcapitalrequirements(2013:thesame).
NIC BANK LIMITED
Annual Report & Financial Statements • 2014104
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
d) Capital management (Continued)
I Banking (Continued)
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
18,826,499 14,108,111 Tier 1 capital 20,722,594 15,972,003
8,513,693 767,875 Tier 2 capital 8,630,471 880,590
27,340,192 14,875,986 Total capital 29,353,065 16,852,593
Risk–weighted assets
119,900,142 82,368,553 On-balance sheet 127,704,854 89,314,748
11,144,400 12,851,033 Off-balance sheet 11,791,780 13,587,927
131,044,542 95,219,586 Total risk-weighted assets 139,496,634 102,902,675
Minimum requirements
Regulatory ratios 2014 2013
14.37% 14.82% Core capital/risk assets 10.5% 8.0%
20.47% 16.79% Core capital/deposits 8.0% 8.0%20.86% 15.62% Total capital/risk assets 14.5% 12.0%
II Investment banking & stock brokerage businesses
TheCapitalMarketsAuthority,whichregulatestheGroup’sInvestmentBankingandStockBrokeragebusinessesi.eNICCapitalLimitedandNICSecuritiesLimitedrespectively,prescribesminimumcapitalisationrequirementsandaworkingcapitalofnotbelow20%oftheprescribedminimumshareholders’fundsorthreetimestheaveragemonthlyoperatingcostswhicheverishigher.Thesubsidiariesmaintainedtheircapitaltogetherwiththeotherrequirementswellabovetheminimumrequirementsasoutlinedbelow;
NIC Capital NIC Securities
Shs’000 Shs 000
Minimum capital 250,000 50,000
Capital held as at;
31 December 2014 518,764 349,230
31 December 2013 509,899 377,120
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 105
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
e) Fair value of financial assets and liabilities (Continued)
IFRS7specifiesahierarchyofvaluationtechniquesbasedonwhetherinputsusedinthevaluationtechniquesoffinancialinstrumentsareobservableorunobservable.Financialinstrumentsaregroupedinto3levelsbasedonthedegreetowhichfairvaluedata/inputisobservable.
i. Level1fairvaluemeasurementsarethosederivedfromquotedprices(unadjusted)inactivetradingmarketsforidenticalassetsorliabilities.ThislevelincludeslisteddebtandequityinstrumentstradedmainlyontheNairobiSecuritiesExchange(“NSE”).
ii. Level2fairvaluemeasurementsarethosederivedfrominputsotherthanquotedpricesthatareobservablefortheassetorliability,eitherdirectly(i.e.asaprice)orindirectly(i.e.derivedfromprices).InputdataforthiscategoryissourcedmainlyfromReutersandtheNairobiSecuritiesExchange.Theexternalvaluationofbuildingshasbeenperformedusingasalescomparisonapproach.
iii. Level3fairvaluemeasurementsarethosederivedfromvaluationtechniquesthatincludeinputsthatarenotbasedonobservablemarketdata(unobservableinputs).ThefairvalueoftheGroup’sinvestmentinTanzaniaMortgageRefinanceCompanyisequaltothecostofsharespurchasedinthecompany.Thevariabilityintherangeofreasonablefairvalueestimatesforthisinvestmentisnotsignificant.
Thetablebelowshowsananalysisoffinancialinstrumentsatfairvaluebylevelofthefairvaluehierarchy.
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Note Shs’000 Shs’000
Level 1
- -Treasury bonds - fair value through profit and loss 20 126,762 155,335
13,256,988 11,974,223 Treasury bonds – available for sale 20 13,580,526 12,393,099
- - Quoted shares at fair value 25 123,780 33,990
13,256,988 11,974,223 13,831,068 12,582,424
Level 2
118,781 41,232 Derivative assets 21 118,781 48,049
370,000 370,000 Buildings 370,000 370,000
488,781 411,232 488,781 448,049
Level 3
- -Unquoted equity security in Tanzania Mortgage Refinance Company 25,380 25,470
- - Unquoted equity investment in the NSE 25 - 191,000
- - 25,380 216,470
TherewasatransferfromLevel3tolevel1,followingthelistingoftheNSEsharesinthestockexchangewhichwere previouslyunquoted.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014106
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
4) Financial risk management objectives (Continued)
Group risk management framework and governance structures (Continued)
e) Fair value of financial assets and liabilities (Continued)
Thetablebelowshowsananalysisofthefairvalueoffinancialinstrumentsthatarenotcarriedatfairvaluebylevelofthefairvaluehierarchy;
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
Level 1
3,197,123 3,972,106 Government securities – held to maturity 5,515,795 5,544,716
Level 2
Financial assets
9,106,501 7,044,946 Cash and balances with central banks 10,539,496 8,743,544
484,521 215,693 Items in the course of collection 519,958 243,514
7,843,903 4,189,408 Due from banking institutions 8,753,909 5,920,199
92,957,230 75,038,910 Loans and advances to customers 100,575,330 81,418,136
2,098,420 2,044,162 Due from group companies - -
1,466,805 2,075,177 Investments 1,615,965 2,325,637
113,957,380 90,608,296 122,004,658 98,651,030
Financial liabilities
92,791,078 84,236,189 Customer deposits 100,434,954 91,565,005
4,625,406 4,910,171 Due to banking institutions 5,411,664 5,896,334
13,844,209 3,628,169 Borrowings 14,358,480 3,628,169
809,452 537,980 Due to group companies - -
112,070,145 93,312,509 120,205,098 101,089,508
Therewerenotransfersbetweenlevels1,2and3intheperiodandforlevel3,therewasnomovement.
Level1–Wehavedeterminedthefairvalueusingquotedprices(unadjusted)fromtheNairobiSecuritiesExchange.
Level2–Thefairvalueofthesebalancesisequaltotheiramortisedcost.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 107
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
5) Critical accounting estimates and judgments in applying the Group’s accounting policies
I Impairment losses on loans and advances
TheGroupreviewsitsloanportfoliostoassessimpairmentregularly.Indeterminingwhetheranimpairmentlossshouldberecordedintheincomestatement,theGroupmakesjudgementsastowhetherthereisanyobservabledataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsfromaportfolioofloans,beforeadecreasecanbeidentifiedwithanindividualloaninthatportfolio.ThisevidencemayincludeobservabledataindicatingthattherehasbeenanadversechangeinthepaymentstatusofborrowersinaGroup,ornationalorlocaleconomicconditionsthatcorrelatewithdefaultsonassetsintheGroup.Managementusesestimatesbasedonhistoricallossexperienceforassetswithcreditriskcharacteristicsandobjectiveevidenceofimpairmentsimilartothoseintheportfoliowhenschedulingitsfuturecashflows.Themethodologyandassumptionsusedforestimatingboththeamountandtimingoffuturecashflowsarereviewedregularlytoreduceanydifferencesbetweenlossestimatesandactuallossexperience.
II Held -to-maturity investments
TheGroupfollowstheguidanceofIAS39onclassifyingnon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturityasheld-to-maturity.Thisclassificationrequiressignificantjudgement.Inmakingthisjudgement,theGroupevaluatesitsintentionandabilitytoholdsuchinvestmentstomaturity.IftheGroupfailstokeeptheseinvestmentstomaturityotherthanforthespecificcircumstances–forexample,sellinganinsignificantamountclosetomaturity–itwillberequiredtoreclassifytheentireclassasavailable-for-sale.Theinvestmentswouldthereforebemeasuredatfairvalueandnotamortisedcost.
III Goodwill impairment
TheGroup’saccountingpolicyforgoodwillisdescribedinNote3(n)I.Goodwillisallocatedtocash-generatingunits(‘CGU’)forthepurposeofimpairmenttesting.WhentheprocessofidentifyingandevaluatinggoodwillimpairmentdemonstratesthattheexpectedcashflowsofaCGUhavedeclinedand/orthatitscostofcapitalhasincreased,theeffectistoreducetheCGU’sestimatedfairvalue.IfthisresultsinanestimatedrecoverableamountthatislowerthanthecarryingamountoftheCGU,achargeforimpairmentofgoodwillwillberecorded,therebyreducingbyacorrespondingamounttheGroup’sprofitfortheyear.Goodwillisstatedatcostlessaccumulatedimpairmentlosses.SignificantmanagementjudgementisinvolvedindeterminingthecostofcapitalassignedtoanindividualCGUandinestimatingitsfuturecashflows.
IV Property and equipment
Criticalestimatesaremadebythedirectorsindeterminingdepreciationratesforpropertyandequipment.
V Fair value of trade receivables and payables
Thecarryingvaluelessimpairmentprovisionoftradereceivablesandpayablesareassumedtoapproximatetheirfairvalues.ThefairvalueoffinancialliabilitiesfordisclosurepurposesisestimatedbydiscountingthefuturecontractualcashflowsatthecurrentmarketinterestratethatisavailabletotheGroupforsimilarfinancialinstruments.
VI Taxes
TheGroupissubjectedtonumeroustaxesandleviesbyvariousgovernmentandquasi-governmentregulatorybodies.Asaruleofthumb,theGrouprecognisesliabilitiesfortheanticipatedtax/leviespayablewithutmostcareanddiligence.However,significantjudgmentisusuallyrequiredintheinterpretationandapplicabilityofthosetaxes/levies.Shoulditcometotheattentionofmanagement,inonewayortheother,thattheinitiallyrecordedliabilitywaserroneous,suchdifferenceswillimpactontheincomeandliabilitiesintheperiodinwhichsuchdifferencesaredetermined.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014108
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
5) Critical accounting estimates and judgments in applying the Group’s accounting policies ( Continued)
VII Valuation of financial instruments
Thefairvalueoffinancialinstrumentswherenoactivemarketexistsorwherequotedpricesarenototherwiseavailablearedeterminedbyusingvaluation techniques. In thesecases, the fair valuesareestimated fromobservabledata inrespectofsimilarfinancialinstrumentsorusingmodels.Wheremarketobservableinputsarenotavailable,theyareestimatedbasedonappropriateassumptions.Wherevaluationtechniques(forexample,models)areusedtodeterminefairvalues,theyarevalidatedandperiodicallyreviewedbyqualifiedpersonnelindependentofthosethatsourcedthem.ThedirectorsbelievethatthechosenvaluationtechniquesandassumptionsusedinthevaluationofitsinvestmentsinNSEsharesareappropriateindeterminingthefairvalueoffinancialinstruments.
VIII Classification of leases of land and buildings as finance or operating leases
Attheinceptionofeachleaseoflandorbuilding,theGroupconsidersthesubstanceratherthantheformoftheleasecontract.Examplesofsituationsthatindividuallyorincombinationwouldnormallyleadtoaleasebeingclassifiedasafinanceleaseare:
• Theleasetransfersownershipoftheassettothelesseebytheendoftheleaseterm;
• Thelesseehastheoptiontopurchasetheassetatapricethatisexpectedtobesufficientlylowerthanthefairvalueatthedatetheoptionbecomesexercisableforittobereasonablycertain,attheinceptionofthelease,thattheoptionwillbeexercised;
• Theleasetermisforthemajorpartoftheeconomiclifeoftheasseteveniftitleisnottransferred;
• Attheinceptionoftheleasethepresentvalueoftheminimumleasepaymentsamountstoatleastsubstantiallyallofthefairvalueoftheleasedasset;and
• Theleasedassetsareofsuchaspecialisednaturethatonlythelesseecanusethemwithoutmajormodifications.
• TheGroupalsoconsidersindicatorsofsituationsthatindividuallyorincombinationcouldalsoleadtoaleasebeingclassifiedasafinancelease.Examplesofsuchindicatorsinclude:
• Ifthelesseecancancelthelease,thelessor’slossesassociatedwiththecancellationarebornebythelessee;
• gainsorlossesfromthefluctuationinthefairvalueoftheresidualaccruetothelessee(forexample,intheformofarentrebateequallingmostofthesalesproceedsattheendofthelease);andthelesseehastheabilitytocontinuetheleaseforasecondaryperiodatarentthatissubstantiallylowerthanmarketrent.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 109
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
6) Operating segments
a) Geographical segments
The Group operations are within three geographical segments, Kenya, Tanzania and Uganda. The table below containssegmentalinformationprovidedtotheChiefOperatingDecisionMaker(theGroupExecutiveCommitteeofmanagement)fortheyearended31December2014.
2014 Kenya Tanzania Uganda Total
Shs `000 Shs `000 Shs `000 Shs `000
Interest income 12,376,325 927,740 407,003 13,711,068
Interest expense (5,074,013) (489,165) (149,771) (5,712,949)
Net interest income 7,302,312 438,575 257,232 7,998,119
Credit impairment charges (295,494) (26,171) (7,467) (329,133)
Net interest income after credit impairment charges 7,006,818 412,404 249,765 7,668,98
Net fee, commission, trading and other income 3,231,560 238,784 37,795 3,508,138
Operating income 10,238,378 651,188 287,560 11,177,125
Depreciation and amortisation (393,019) (81,660) (29,956) (504,635)
Other operating expenses (3,686,149) (513,701) (241,991) (4,441,841)
Profit before income tax 6,159,210 55,827 15,612 6,230,650
Income tax (expense)/credit (2,104,050) (15,011) 5,068 (2,113,976)
Profit / (loss) for the year 4,055,160 40,816 20,698 4,116,674
Loans and advances to customers 92,957,230 4,404,867 3,213,233 100,575,330
Customer deposits 92,791,078 6,194,331 1,449,545 100,434,954
Additions to non-current assets (71,458) (50,460) 13,205 (108,713)
Non-current assets 1,402,525 238,391 103,864 1,744,780
NIC BANK LIMITED
Annual Report & Financial Statements • 2014110
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
6) Operating segments (Continued)
a) Geographical segments (Continued)
2013 Kenya Tanzania Uganda Total
Shs `000 Shs `000 Shs `000 Shs `000
Interest income 10,313,259 1,087,040 242,117 11,642,416
Interest expense (3,760,140) (532,412) (81,885) (4,374,437)
Net interest income 6,553,119 554,628 160,232 7,267,979
Credit impairment charges (479,185) (612,074) (1,614) (1,092,873)
Net interest income after credit impairment charges 6,073,934 (57,446) 158,618 6,175,106
Net fee, commission, trading and other income 2,861,056 249,329 44,822 3,155,207
Operating income 8,934,990 191,883 203,440 9,330,313
Depreciation and amortisation (365,025) (57,090) (23,991) (446,106)
Other operating expenses (3,167,578) (530,016) (177,042) (3,874,636)
Profit before income tax 5,402,387 (395,223) 2,407 5,009,571
Income tax (expense)/credit (1,887,043) 117,735 (2,962) (1,772,270)
Profit after income tax 3,515,344 (277,488) (555) 3,237,301
Loans and advances to customers 75,038,910 4,181,683 2,197,543 81,418,136
Customer deposits 84,236,189 6,040,852 1,287,964 91,565,005
Additions to non-current assets 27,128 59,967 (10,309) 76,786
Non-current assets 1,473,983 288,851 90,659 1,853,493
b) Business segments TheGroupmaintainsthefollowingbusinesssegmentsforallocationofresourcesandassessmentofperformance.
I. Corporate and Institutional Banking
Targetsmediumtolargecorporateclienteleandinstitutions,withafocusonliabilitymobilizationandassetgrowth.
II. Treasury dealing and brokerage Treasurydealingtargetscorporateclienteleandinstitutions,withafocusonthosewithaforeignexchangecomponentintheirbusiness,whereasthestockbrokeragefocusesontheexecutionoftransactionsattheNairobiSecuritiesExchangeonbehalfofhighnetworthandinstitutionalclients.
III. Retail banking TargetsthemassaffluenttohighnetworthandSMEbankingclientele,withafocusonbecomingthecustomers’coredeposit,transactionalbankerandfinancier.Thisalsoincludesourassetfinanceproduct.
IV. Investment bankingTargetslargeandmediumsizedcompaniesforresearch,advisoryandcapitalrestructuringrequirements.ThesegmentinformationprovidedtotheExecutiveCommitteeofmanagementforthereportedsegmentsiscontainedonthenextpage.Therewerenochangesinthereportablesegmentsduringtheyear.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 111
NO
TES
TO T
HE
FIN
AN
CIA
L ST
ATE
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ontin
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TH
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666,
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NIC BANK LIMITED
Annual Report & Financial Statements • 2014112
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
7) Interest income
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
From customers
2,977,065 2,715,229 - Finance leases 2,982,837 2,844,617
7,402,830 5,876,851 - Loans and advances 8,386,187 6,759,582
10,379,895 8,592,080 11,369,024 9,604,199
Government securities
380,435 440,315 - Held to maturity 647,777 588,590
- - - At fair value through profit or loss 24,033 68,160
1,404,156 1,127,882 - Available for sale 1,407,945 1,135,706
1,784,591 1,568,197 2,079,755 1,792,456
211,839 152,981 Due from banking institutions 262,289 245,761
12,376,325 10,313,258 13,711,068 11,642,416
30,879 45,637 Interest income earned on impaired financial assets 30,879 45,637
InterestincomeearnedonimpairedfinancialassetsrepresentstheunwindingofdiscountinginaccordancewithIAS39.
8) Interest expense
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
4,567,464 3,535,051 Customer deposits 5,062,509 4,001,167
366,093 121,497 Due to banking institutions 440,751 156,776
163,289 122,930 Borrowings 209,689 216,494
5,096,846 3,779,478 5,712,949 4,374,437
9) Net fee and commission income
a) Fee and commission income
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
983,368 799,318 Credit related fees and commissions 1,060,521 880,990
372,781 336,894 Service / transaction fees 471,772 422,639
1,356,149 1,136,212 1,532,293 1,303,629
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 113
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
9) Net fee and commission income (Continued)
b) Fee and commission expense
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
23,739 20,171 Credit card related expenses 23,739 20,171
28,544 32,152 Transactional expenses 41,302 42,940
52,283 52,323 65,041 63,111
10) Net trading income
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
1,039,583 1,018,443 Foreign exchange income 1,142,181 1,146,510
305,199 211,465 Bond trading income 305,886 211,465
- -Fair value gain on investment in quoted shares (note 25 (a)) (11) 5,058
1,344,782 1,229,908 1,448,056 1,363,033
11) Other operating income
Thefollowingitemsareincludedinotheroperatingincome;
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
8,592 8,519 Rental income 5,050 4,979
1,151 1,749Gain on disposal of motor vehicle and equipment (note 39 (c)) 1,151 1,749
656 6,872 Bad debt recoveries 8,337 8,459
104,753 89,044 Trust and other fiduciary fees 104,753 89,044
12) Credit impairment charges
a) Specific allowance for impairment
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
1,996,326 1,583,147 At 1 January 2,592,033 1,652,986
- - Exchange difference on translation (5,996) (42,900)
376,358 435,628 Charge for the year 408,718 1,030,279
(70,973) (22,449) Write-offs (314,395) (48,332)
2,301,711 1,996,326 At 31 December 2,680,360 2,592,033
NIC BANK LIMITED
Annual Report & Financial Statements • 2014114
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
12) Credit impairment charges (Continued)
b) Collective allowance for impairment
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
143,021 99,464 At1January 170,102 107,508
- - Exchange difference on translation (25,423) -
(80,864) 43,557 Charge for the year (79,585) 62,594
62,157 143,021 At 31 December 65,094 170,102
c) Total allowance for impairment
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
2,139,347 1,682,611 At1January 2,762,135 1,760,494
- - Exchangedifferenceontranslation (31,419) (42,900)
295,494 479,185 Chargefortheyear 329,133 1,092,873
(70,973) (22,449) Write-offs (314,395) (48,332)
2,363,868 2,139,347 At 31 December 2,745,454 2,762,135
13) Employee benefits
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
1,771,191 1,635,487 Salariesandwages 2,174,346 2,015,066
5,032 296 Gratuityprovision 5,032 296
14,551 13,570 Directors’emoluments–fees 31,562 23,512
133,908 138,712 –other 188,836 193,119
2,395 1,659 Pension costs - statutory contributions 25,285 21,878
124,862 107,126 Pension costs – defined contribution 135,881 113,637
2,051,939 1,896,850 At 31 December 2,560,942 2,367,508
Thetotalnumberofemployeesasat31December2014fortheGroupwas1,001(2013:909).
14) (a) Depreciation and amortisation
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
215,287 202,648 Depreciation(note27) 297,153 249,108
176,442 161,193 Amortisationofcomputersoftware(note28(a)) 207,357 196,873
125 125 Amortisation of operating lease (note 29) 125 125
391,854 363,966 At 31 December 504,635 446,106
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 115
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
14) (b) Other operating expenses
The following items are included under this category:
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’0004,500 3,956 Auditor’s remuneration 13,108 9,046
173,819 138,420 Rental charges 290,441 252,66724,092 21,785 Share registrations costs 24,092 21,785
135,172 92,344 Publicity and advertising 144,555 98,04793,585 75,254 Other premises costs 108,263 88,212
116,067 101,801 Deposit protection fund 129,823 109,488149,611 108,816 IT expenses 168,347 123,154
15) Income tax
(a) Income tax expense
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Current tax Shs’000 Shs’0001,992,665 1,854,682 Income tax based on taxable profit for the year at 30% 2,044,527 1,803,410
(19,102) - Prior year under provision - current tax (20,071) -1,973,563 1,854,682 2,025,425 1,803,410
Deferred tax (note 26)
94,962 (82,252) Current year 95,931 (93,991)(6,411) 62,851 Prior year under provision (6,411) 62,851
2,062,114 1,835,281 2,113,976 1,772,270
b) Reconciliation of tax expense to expected tax base based on accounting profit
Thetaxontheprofitbeforetaxdiffersfromthetaxchargethatwouldapplyifallprofithadbeentaxedusingthestatutoryincometaxrate:
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’0006,081,281 5,220,857 Profit before tax 6,230,650 5,009,571
1,824,384 1,566,257 Income tax - at the statutory rate of 30 % (2013: 30%) 1,869,195 1,502,871816,245 705,540 Tax effect of expenses not deductible for tax 816,133 705,540
(553,002) (499,367) Tax effect of revenues that are not taxable (544,870) (498,992)Prior year under provision:
(19,102) - - Current tax (20,071) -(6,411) 62,851 - Deferred tax (6,411) 62,851
2,062,114 1,835,281 2,113,976 1,772,270
NIC BANK LIMITED
Annual Report & Financial Statements • 2014116
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
15) Income tax (Continued)
c) Current income tax payable/(recoverable) movement
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
296,595 382,138 At 1 January 117,862 365,465
- - Exchange difference on translation (30,172) 1,887
1,992,665 1,854,682 Tax charge (note 15 (a)) - current year 2,044,527 1,803,410
(19,102) - Tax charge (note 15 (a)) - prior year (20,071) -
(2,213,588) (1,940,225) Income taxation paid (2,284,718) (2,052,900)
56,570 296,595 At 31 December (172,572) 117,862
Comprising;
56,570 - Current income tax recoverable (185,185) (188,847)
- 296,595 Current income tax payable 12,613 306,709
56,570 296,595 At 31 December (172,572) 117,862
16) Earnings per share
Earningspershareiscalculatedbydividingtheprofitattributabletoequityholdersoftheparentcompanybytheweightedaveragenumberofordinarysharesoutstandingduringtheyear.
Bank Group
2014 2013 2014 2013
4,019,167 3,385,576Profit attributable to equity holders of the Bank (Shs’000) 4,120,855 3,323,381
Weighted average number of shares for purposes of basic and diluted earnings per share:
542,984,148 542,984,148 Issued ordinary shares at 1 January 542,984,148 542,984,148
3,555,253 - Effects of rights issue exercised 3,555,253 -
36,198,943 - Effects of bonus shares issued 36,198,943 -
582,738,344 542,984,148 At 31 December 582,738,344 542,984,148
6.90 6.24 Earnings Per Share (Shs) 7.07 6.12
Thecalculationofbasicanddilutedearningspershareisbasedoncontinuingoperationsattributabletotheordinaryequityholdersoftheparentcompany.Therewerenodiscontinuedoperationsduringtheyear.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 117
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
17) Cash and balances with Central Banks
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
1,026,642 1,094,149 Cash on hand 1,472,964 1,470,144
Balances with central banks:
2,996,571 - - Reverse purchase agreement 2,996,571 -
300,367 1,640,932 - Other (available for use by the Group) 560,394 2,238,206
4,323,580 2,735,081 Included in cash and cash equivalents (note 39 (b)) 5,029,929 3,708,350
4,782,921 4,309,865 Mandatory reserve deposits 5,509,567 5,035,194
9,106,501 7,044,946 10,539,496 8,743,544
ThemandatoryreservedepositsmainlyrepresentsregulatorycashratiorequirementsbasedonthecustomerdepositswiththeGroup.Asat31December2014,thecashratiorequirementwas5.25%(2013:5.25%)inKenya,10.0%(2013–10.0%)inTanzaniaand8.5%(2013–8.5%)inUgandaofeligibledeposits.ThesefundsarenotavailableforthedaytodayoperationsoftheGroupandarenoninterestearning.
Amountsincludedincashandcashequivalentsarecurrent.Mandatoryreservedepositsarenon-current.
Cashandbalanceswithcentralbanksareclassifiedas‘loansandreceivables’..
18) Items in the course of collection
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
484,521 215,693 Clearing account balances 519,958 243,514
Itemsinthecourseofcollectionarecurrentandareclassifiedas‘loansandreceivables’.
19) Due from banking institutions
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
889,249 732,225 Deposits due from banking institutions 1,799,255 1,422,915
6,954,654 3,457,183 Balances due from banking institutions 6,954,654 4,497,284
7,843,903 4,189,408 8,753,909 5,920,199
2.70% 3.65% Weighted average effective interest rate as at year end 3.0% 4.16%
Balancesduesfrombankinginstitutionsarecurrentandareclassifiedas‘loansandreceivables’.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014118
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
20) Government securities
Securitiesheldtomaturityarestatedatamortisedcostwhilethoseclassifiedas“Fairvaluethroughprofitorloss”and“AvailableforSale”arestatedatfairvalue.
a) Government securities are categorised as follows:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
13,256,988 11,974,224 Availableforsale 13,581,129 12,393,099
3,197,123 3,972,106 Heldtomaturity 5,515,795 5,544,716
Fair value through profit or loss
- - Held for trading 126,762 155,335
16,454,111 15,946,330 19,223,686 18,093,150
Thetablebelowsummarisestheweightedaverageeffectiveinterestrateforgovernmentsecuritiesasatyearend.
Bank Group
2014 2013 2014 2013
% % % %
10,42 11.55 Availableforsale 11.76 12.78
11.09 11.09 Heldtomaturity 10.89 10.62
- - Fair value through profit or loss 9.92 9.16
b) The maturity profile of Government securities is a follows:
GroupAvailable
for saleHeld to
maturity
Designated at fair value
through profit or
loss Total Shs `000 Shs `000 Shs `000 Shs `000
2014
Included in cash and cash equivalents - 696,965 - 696,965
Lessthan1year 1,881,810 1,518,813 126,762 3,527,385
1-5years 7,064,823 3,194,357 - 10,259,180
Over5years 4,634,496 105,660 - 4,740,156
13,581,129 5,515,795 126,762 19,223,686
2013
Included in cash and cash equivalents - 3,585,870 - 3,585,870
Lessthan1year 1,617,616 914,011 155,335 2,686,962
1-5years 7,422,145 783,385 - 8,205,530
Over5years 3,353,338 261,450 - 3,614,788
12,393,099 5,544,716 155,335 18,093,150
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 119
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
20) Government securities (Continued)
b) The maturity profile of Government securities is a follows: (Continued)
Bank Available for sale
Held to maturity Total
2014 Shs `000 Shs `000 Shs `000
Included in cash and cash equivalents - 202,520 202,520
Less than 1 year 1,881,810 2,094,653 3,976,463
1-5 years 6,766,282 794,290 7,560,572
Over 5 years 4,608,896 105,660 4,714,55613,256,988 3,197,123 16,454,111
2013Included in cash and cash equivalents - 2,679,288 2,679,288
Less than 1 year 1,198,740 247,983 1,446,723
1-5 years 7,422,145 783,385 8,205,530
Over 5 years 3,353,338 261,450 3,614,78811,974,223 3,972,106 15,946,329
21) Derivative assets
Theamountrepresentsthefairvalueofforwardforeignexchangecontracts.Thesederivativeassetsandliabilitiesaremeasuredatfairvaluethroughprofitorloss.Notionalprincipalamountsaretheamountsunderlyingthecontractatthereportingdate.
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
118,781 41,232 Fair value of forward contracts 118,781 48,04930,381,438 24,858,686 Notional value of forward contracts 32,567,890 34,630,655
Derivativeassetsarecurrent.
22) Loans and advances to customers
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
22,463,366 19,963,644 Finance lease receivables 23,071,819 20,516,783
64,021,727 50,198,767 Commercial loans 71,412,960 56,647,640
8,836,005 7,015,848 Bills discounted 8,836,005 7,015,848
95,321,098 77,178,259 Gross loans and advances to customers 103,320,784 84,180,271Provisions for impairment
2,301,711 1,996,328 Specific allowance 2,680,360 2,592,033
62,157 143,021 Collective allowance 65,094 170,102
2,363,868 2,139,349 Total impairment 2,745,454 2,762,135
92,957,230 75,038,910 Net loans and advances to customers 100,575,330 81,418,136
942,381 1,142,393Net non performing loans and advances to customers 1,351,648 1,928,893
NIC BANK LIMITED
Annual Report & Financial Statements • 2014120
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
22) Loans and advances to customers (Continued)
Financeleasereceivables,maybeanalysedasfollows:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
3,286,614 2,632,611 Notlaterthan1year 3,302,462 2,646,665
19,176,752 17,331,033 Later than 1 year and not later than 5 years 19,769,357 17,870,118
22,436,366 19,963,644 Present value of minimum lease payments receivable 23,071,819 20,516,783
1,239,449 994,447Accumulatedallowanceforuncollectibleminimumleasepaymentsreceivable 1,239,449 994,447
TheGroupandBankenterintofinanceleasingarrangementsforcertainplant,equipment,motorvehiclesandaircraft.Theaveragetermoffinanceleasesenteredintois3years.Unguaranteedresidualvaluesofassetsleasedunderfinanceleasesareestimatedatnil(2013:nil).
Therearenocontingentrentsrecognisedasincomein2013and2014. Theweightedaverageeffectiveinterestratesonloansandadvancestocustomersatyearendwereasfollows:
Bank Group
2014 2013 2013 2013
% % % %
14.08 14.51 Financeleasereceivables 14.08 14.51
11.54 11.81 Commercialloans 11.58 11.28
8.69 9.62 Billsdiscounted 8.69 9.62
Loansandadvancestocustomersareclassifiedascurrentandnoncurrentasfollows:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
45,403,980 35,924,094 Current 49,944,378 39,899,499
47,553,250 39,114,816 Non-current 50,630,952 41,518,637
92,957,230 75,038,910 100,575,330 81,418,136
23) Other assets
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
165,176 128,500 Prepayments 205,071 193,277
895,156 1,061,974 Other receivables 927,506 1,141,307
- - Trade receivables 154,122 196,622
1,060,332 1,190,474 1,286,699 1,531,206
Otherassetsarecurrent.Otherassets,excludingprepayments,areclassifiedas‘loansandreceivables’.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 121
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
24) Due from group companies
Group Bank
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
8,510 6,848 NICCapital - -
9,882 7,398 NICSecurities - -
166,239 352,722 NICBankTanzania - -
1,913,789 1,677,194 NCBankUganda - -
2,098,420 2,044,162 - -
Servicesareprovidedbasedonthepricelistsinforceandtermsthatwouldbeavailabletothirdparties.
Balancesduefromgroupcompaniesarecurrentandareclassifiedas‘loansandreceivables’.
25) Investments
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
3,931,501 3,365,493 Investmentinsubsidiaries - -
- - Availableforsaleinvestments 15,155 33,990
- -UnquotedequitysecurityinTanzaniaMortgageRefinanceCompany 25,380 25,470
1,466,805 2,075,177 CorporateBonds 1,466,805 2,075,177
- - EquityinvestmentinNSE 108,625 191,000
5,398,306 5,440,670 1,615,965 2,325,637
TheGroup’sequityinvestmentintheNairobiSecuritiesExchange(NSE)wasconvertedtosharesintheyearfollowingthelistingofthecompany’sstockonitsownexchange.Thevaluationasat31December2014wasbasedonthequotedshareprice.
Investmentinsubsidiariesisnon-current.Theotherinvestmentsarecurrent.
a) The movement in investments is as follows:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
5,440,670 2,285,324 At start of year 2,325,637 243,931
- - Exchangedifferencesontranslation 90 1,471
550,000 - AcquisitionofNICProperties - -
- - Availableforsaleinvestments (18,835) 5,058
(608,372) 2,075,177 Corporatebonds (608,372) 2,075,177
16,008 1,080,169 InvestmentinNICBankTanzania - -
- - Changesinfairvalue–EquityinvestmentinNSE (82,375) -
5,398,306 5,440,670 At end of year 1,615,965 2,325,637
Investments,excludinginvestmentsinsubsidiaries,areclassifiedas‘assetsatfairvaluethroughprofitandloss’.Noneofthefinancialassetsareimpaired.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014122
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
25) Investments (Continued)
b) Investment in subsidiaries (at cost)
BANK
Name Principal Holding 2014 2013
activity % Shs’000 Shs’000
NC Bank Uganda Banking 100 1,137,538 1,137,538
NIC Bank Tanzania Banking 69.84 1,692,462 1,676,454
NIC Capital Financial advisory 100 500,000 500,000
NIC Insurance Agents Insurance agency 100 1,000 1,000
National Industrial Credit Trustees Dormant 100 500 500
Mercantile Finance Company Dormant 100 50,000 50,000
The African Mercantile Banking Company Dormant 100 1 1
NIC Properties Property 100 550,000 -
3,931,501 3,365,493
NICCapitalLimitedhasasubsidiary,NICSecuritiesLimitedwhoseresultshavebeen incorporated in thesefinancialstatements.DetailsofNICSecuritiesLimitedatcostareasfollows:
Principal Holding 2014 2013 Name activity % Shs `000 Shs `000 NICSecuritiesLimited Brokerageservices 100% 456,923 456,240
All the subsidiary companies have their financial year ended 31 December and are incorporated as limited liabilitycompanies.ExceptforNICBankTanzaniaLimitedandNCBankUgandaLimitedwhichareincorporatedanddomiciledinTanzaniaandUgandarespectively,allothersubsidiariesareincorporatedanddomiciledinKenya.
NCBankUgandaLimitedwasestablishedin2012toofferbankingservicesforourcustomersinUganda.Theauditedfinancialstatementsfortheyearended31December2014showthatthecompanymadeaprofitequivalenttoShs20,698,000(2013:alossofShs555,000).
NICBankLimitedacquired51%ofSavings&FinanceCommercialBankLimitednowrenamedNICBankTanzaniaLtdwitheffectivecontrolbeingpassedon1May2009.AsatDecember2014,theBankholds69.84%ofNICBankTanzania.Theauditedfinancialstatementsfortheyearended31December2014showthatthecompanymadeaprofitequivalenttoShs40,816,000(2013:alossofShs277,488,000).
NICCapitalLimitedwasestablishedin2005toofferinvestmentbankingservices.Theauditedfinancialstatementsfortheyearended31December2014showthatthecompanymadeaprofitofShs8,865,000(2013:Shs72,794,000).
NICCapitalLimited(NICCL)acquiredNICSecuritiesLtd(NICSL)witheffectivecontrolbeingpassedon1January2008.Subsequently,substantiallythroughrightsissues,theshareholdingofNICCLinNICSLhasincreasedto100%.NICSLoffersbrokerageservicesandisaregisteredbrokerwiththeNairobiSecuritiesExchange.Theauditedfinancialstatementsfortheyearended31December2014showthatthecompanymadeaprofitofShs55,485,000(2013:Shs35,162,000).TheresultsofNICSecuritiesLimitedareconsolidatedinthesefinancialstatements.
NIC Insurance Agents Limited was a 68% subsidiary of Mercantile Finance Company Limited (MFC). In 2010, NICBankLimitedacquiredthenon-controlling interestandnowdirectlyowns100%of thecompany.ThecompanyoffersBancassuranceservices.Theauditedfinancialstatementsfortheyearended31December2014showthatthecompanymadeaprofitofShs26,326,000(2013:Shs21,799,000).
NationalIndustrialCreditTrusteesLimitedfunctionsinatrusteecapacity.Theauditedfinancialstatementsshowthatthecompanymadenoprofitorlossfortheyear(2013:Shsnil).
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 123
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
25) Investments (Continued)
b) Investment in subsidiaries (at cost) (Continued)
MercantileFinanceCompanyLimiteddidnottradeduringtheyearended31December2014.Itsactivitiesarelimitedtotherecoveryofitsnonperformingdebts.Theauditedfinancialstatementsshowthatthecompanymadenoprofitorlossfortheyear(2013:Shsnil).
TheAfricanMercantileBankingCompanyLimiteddidnottradeduringtheyearended31December2014.Theauditedfinancialstatementsshowthatthecompanymadenoprofitorlossfortheyear(2013:Shsnil).
InApril2014,theBankacquireda100%shareholdinginCodicoteLimitedforaconsiderationofShs550million.ThesoleassetofCodicoteLimitedisLandLRNO.209/13628adjacenttotheheadquartersoftheBankinUpperhill,Nairobi.TheCompanynamewassubsequentlychangedtoNICPropertieswhosesoleactivityistheownershipoftheLand.Theauditedfinancialstatementsfortheyearended31December2014showthatthecompanymadenoprofitorlossfortheyear(2013:Shsnil).
TheeffectofacquisitiontotheownersoftheBankissummarisedasfollows:
2014
Shs’000
Consideration paid 550,000
Less fair value of net assets acquired 516,000
Excess of consideration paid recognised as goodwill 34,000
NIC BANK LIMITED
Annual Report & Financial Statements • 2014124
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
26) Deferred income tax Thenetdeferredtaxmovementcomputedattheenactedrateof30%,isattributabletothefollowingitems:
Group
Year ended 31 December 2014 1 Jan 2014(Credit)/ Charge to profit or loss
Charge/ (Credit) to OCI 31 Dec 2014
Shs’000 Shs’000 Shs’000 Shs’000
Assets: -
Leave pay accrual (10,153) (837) - (10,990)
Gratuity Provision - (2,034) - (2,034)
Excess depreciation over capital allowances:
- Current year (223,432) (83,249) - (306,681)
- Prior year 62,851 (62,851) - -
Collective allowance for impairment (313,149) 59,451 - (253,698)
Tax losses (38,469) - - (38,469)
(522,352) 89,520 - (611,872)
Liabilities:
Available for sale financial assets:
- Current year (75,174) - 291,963 216,789
- Prior year 187,357 - (187,357) -
Revaluation surplus 76,237 - - 76,237
Exchange differences on translation 5,144 - - 5,144
Deferred income tax asset (328,788) 89,520 104,606 (313,702)
Year ended 31 December 2013 1 Jan 2013(Credit)/ Charge to profit or loss
Charge/ (Credit) to OCI 31 Dec 2013
Shs’000 Shs’000 Shs’000 Shs’000
Assets:
Leavepayaccrual (9,854) (299) - (10,153)
Excessdepreciationovercapitalallowances:
-Currentyear (272,756) 49,324 - (223,432)
-Prioryear - 62,851 - 62,851
Collectiveallowanceforimpairment (185,785) (127,364) - (313,149)
Otherprovisions (214) 214 - -
Taxlosses (22,603) (15,866) - (38,469)
(491,212) (31,140) - (522,352)
Liabilities:
Availableforsalefinancialassets:
-Currentyear 174,161 - (249,335) (75,174)
-Prioryear - - 187,357 187,357
Revaluationsurplus 59,419 - 16,818 76,237
Exchangedifferencesontranslation - - 5,144 5,144
Deferred income tax asset (257,632) (31,140) (40,016) (328,788)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 125
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
26) Deferred income tax (Continued)
Bank
1 Jan 2014Charge/ (Credit) to
profit or loss(Credit)/
charge to OCI 31 Dec 2014
Year ended 31 December 2014 Shs’000 Shs’000 Shs’000 Shs’000
Assets:
Leave pay accrual (9,435) (503) - (9,938)
Gratuity provision - (1,509) - (1,509)
Excess depreciation over capital allowances:
-Currentyear (273,522) 48,042 - (225,480)
-Prioryear 62,851 (62,851) - -
Collective allowance for impairment (274,684) 105,373 - (169,311)
(494,790) 88,551 - (406,239)
Liabilities:
Available for sale financial assets:
-Currentyear (71,074) - 104,606 33,532
-Prioryear 187,357 - - 187,357
Revaluation surplus 76,238 - - 76,238
Deferred income tax asset (302,269) 88,551 104,606 (109,113)
Year ended 31 December 2013 1 Jan 2013Credit to profit or
lossCharge/
(Credit) to OCI 31 Dec 2013
Shs’000 Shs’000 Shs’000 Shs’000
Assets:
Leavepayaccrual (9,688) 253 - (9,435)
Excessdepreciationovercapitalallowances:
-Currentyear (281,661) 8,139 - (273,522)
-Prioryear - 62,851 - 62,851
Collectiveallowanceforimpairment (184,040) (90,644) - (274,684)
(475,389) (19,401) - (494,790)
Liabilities:
Availableforsalefinancialassets:
-Currentyear 174,161 - (245,235) (71,074)
-Prioryear - - 187,357 187,357
Revaluationsurplus 59,420 - 16,818 76,238
Deferred income tax asset (241,808) (19,401) (41,060) (302,269)
NIC BANK LIMITED
Annual Report & Financial Statements • 2014126
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
26) Deferred tax asset (Continued)Asat31December2014,theGrouphadaccumulatedtaxlossesavailableforfuturereliefofShs(2013:Shs122,519,000)relatingtoNCBankUgandaLimited.
UndertheKenyanlegislation,witheffectfrom1January2011,taxlossescanonlybecarriedforwardtoamaximumoffouryears.InUganda,however,thetaxlossescanbecarriedforwardforanindefiniteperiod.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 127
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
27) Property and equipment
GroupBuildings
Furniture, fittings and equipment
Motor vehicles
Work in progress Total
Shs `000 Shs `000 Shs `000 Shs `000 Shs `000
COST OR VALUATION
At 1 January 2013 370,000 1,520,525 60,647 80,456 2,031,628Additions - 210,268 4,604 88,562 303,434Transfers - WIP - 110,751 - (110,751) -Disposals - (10,973) (11,978) - (22,951)Translation adjustments - (7,903) 5,814 5,528 3,439At 31 December 2013 370,000 1,822,668 59,087 63,795 2,315,550
At 1 January 2014 370,000 1,822,668 59,087 63,795 2,315,550Additions - 211,206 26,299 55,896 293,402Transfers - WIP - 53,472 - (53,472) -Disposals - (73,722) (3,452) - (77,174)
Translation adjustments - (7,136) 849 371 (5,916)
At 31 December 2014 370,000 2,006,488 82,783 66,590 2,525,861Comprising:Cost 144,617 2,006,488 82,783 66,590 2,300,478Valuation – 2013 225,383 - - - 225,383
370,000 2,006,488 82,783 66,590 2,525,861
DEPRECIATIONAt 1 January 2013 44,848 953,972 22,917 - 1,021,737Charge for the year 11,213 225,883 12,012 - 249,108Eliminated on disposals - (10,767) (1,788) - (12,555)Revaluation (56,061) - - - (56,061)Translation adjustments - (5,209) (734) - (5,943)At 31 December 2013 - 1,163,879 32,407 - 1,196,286
At 1 January 2014 - 1,163,879 32,407 - 1,196,286Charge for the year 13,214 271,247 12,692 - 297,153Eliminated on disposals - (51,724) (3,452) - (55,176)Translation adjustments - 6,051 2,437 - 8,488
At 31 December 2014 13,214 1,389,453 44,084 - 1,446,751
NET BOOK VALUE
At 31 December 2014 356,786 617,035 38,699 66,590 1,079,110At 31 December 2013 370,000 658,789 26,680 63,795 1,119,264
BuildingswererevaluedatShs370millionasat31December2013byregisteredprofessionalvaluers,KnightFrankValuers,onanopenmarketvaluebasisbyreferencetomarketevidenceofrecenttransactionsforsimilarproperties.Buildingsarerevaluedevery3-5years.At31December2014,thenetbookvalueofbuildingsbasedonoriginalcostwasShs118,323,000(2013–Shs122,706,000).Therewerenocapitalisedborrowingcostsrelatedtotheacquisitionofpropertyandequipmentduringtheyear(2013:Shsnil).
Includedinmotorvehiclesandfurniture,fittingsandequipmentareassetswithacostofShs681,333,000(2013:Shs692,934,000)whichwerefullydepreciated.ThenotionaldepreciationchargeontheseassetswouldhavebeenShs148,275,000(2013:Shs168,875,000).Computerequipmentisincludedunderfurniture,fittingsandequipment.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014128
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
27) Property and equipment (Continued)
Bank Buildings
Furniture, fittings and equipment
Motor vehicles
Work In progress Total
Shs `000 Shs `000 Shs `000 Shs `000 Shs `000COST OR VALUATIONAt 1 January 2013 370,000 1,318,132 37,866 7,770 1,733,768
Additions - 106,111 2,570 88,562 197,243
Transfers - 93,056 - (93,056) -
Disposals - (10,913) (11,978) - (22,891)
At 31 December 2013 370,000 1,506,386 28,458 3,276 1,908,120
At 1 January 2014 370,000 1,506,386 28,458 3,276 1,908,120
Additions - 158,919 23,540 50,795 233,254
Transfers - 43,128 - (43,128) -
Disposals - (27,700) (3,452) - (31,152)
At 31 December 2014 370,000 1,680,733 48,546 10,943 2,110,222
Comprising:Cost 144,617 1,680,733 48,546 10,943 1,884,839
Valuation – 2013 225,383 - - - 225,383
370,000 1,680,733 48,546 10,943 2,110,222
DEPRECIATIONAt 1 January 2013 44,848 889,409 13,899 - 948,156
Charge for the year 11,213 185,833 5,602 - 202,648
Eliminated on disposals - (10,745) (1,788) - (12,533)
Revaluation (56,061) - - - (56,061)
At 31 December 2013 - 1,064,497 17,713 - 1,082,210
At 1 January 2014 - 1,064,497 17,713 - 1,082,210
Charge for the year 13,214 195,153 6,920 - 215,287
Eliminated on disposals - (27,598) (3,452) - (31,050)
Revaluation - - - - -
At 31 December 2014 13,214 1,232,052 21,181 - 1,266,447
NET BOOK VALUEAt 31 December 2014 356,786 448,681 27,365 10,943 843,775
At 31 December 2013 370,000 441,889 10,745 3,276 825,910
BuildingswererevaluedatShs370millionasat31December2013byregistered,professionalvaluers,KnightFrankValuers,onanopenmarketvaluebasisbyreferencetomarketevidenceofrecenttransactionsforsimilarproperties.At31December2014,thenetbookvalueofbuildingsbasedonoriginalcostwasShs118,323,000(2013:Shs122,706,000).
Included in motor vehicles and furniture, fittings and equipment are assets with a cost of Shs 676,472,000 (2013:Shs676,947,000)whichwerefullydepreciated.ThenotionaldepreciationchargeontheseassetswouldhavebeenShs139,857,000(2013:Shs148,890,000).Computersareincludedunderfurniture,fittingsandequipment.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 129
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
28) Intangible assets
Bank Group
2014 2013 2014 2013Shs’000 Shs’000 Note Shs’000 Shs’000
548,776 629,560 Computer software 28(a) 636,133 719,729- - Goodwill 28(b) 409,426 375,426
548,776 629,560 At 31 December 1,045,559 1,095,155
Detailsoftheintangibleassetsareasfollows:
a) Computer software
Bank Group
CapitalisedWork-in
Progress Total CapitalisedWork-in
Progress Total Shs `000 Shs `000 Shs `000 Shs `000 Shs `000 Shs`000
COST 958,343 - 958,343 At 1 January 2013 1,089,115 2,903 1,092,018
- - - Translation adjustment 6,056 - 6,056103,717 44,698 148,415 Additions 111,999 44,698 156,697
32,601 (32,601) - Transfers 35,504 (35,504) -1,094,661 12,097 1,106,758 At 31 December 2013 1,242,674 12,097 1,254,771
1,094,661 12,097 1,106,758 At 1 January 2014 1,242,674 12,097 1,254,771- - - Translation adjustment 20,372 - 20,372
31,793 63,865 95,658 Additions 41,464 63,865 105,329
6,117 (6,117) - Transfers 6,117 (6,117) -
1,132,571 69,845 1,202,416 At 31 December 2014 1,310,627 69,845 1,380,472
AMORTISATION316,005 - 316,005 At 1 January 2013 339,953 - 339,953
- - - Translation adjustments (1,784) - (1,784)161,193 - 161,193 Charge for the year 196,873 - 196,873
477,198 - 477,198 At 31 December 2013 535,042 - 535,042
477,198 - 477,198 At 1 January 2014 535,042 - 535,042- - - Translation adjustments 1,940 - 1,940
176,442 - 176,442 Charge for the year 207,357 - 207,357653,640 - 653,640 At 31 December 2014 744,339 - 744,339
Net Book Value478,931 69,845 548,776 At 31 December 2014 566,288 69,845 636,133617,463 12,097 629,560 At 31 December 2013 707,632 12,097 719,729
AssetsoftheGroupwithagrossvalueofShs236,419,000(2013:Shs222,294,000)arefullyamortisedbutstillinuse.The notionalamortisationchargeontheassetswouldhavebeenShs47,299,000(2013:Shs44,459,000). Theweightedaverageremainingusefullifeofintangibleassets2.9years(2013:3.5years).
NIC BANK LIMITED
Annual Report & Financial Statements • 2014130
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
28) Intangible assets (Continued)
b) Goodwill
ThegoodwillconsistsofequityinterestheldbytheGroupin;
2014 2013Ownership
%Amount Shs’000
Ownership%
Amount Shs’000
NIC Bank Tanzania 69.84 251,996 68.97 251,996NIC Securities 99.93 123,430 99.93 123,430NIC Properties 100.00 34,000 - -At 31 December 409,426 375,426
GoodwillarisingonconsolidationrepresentsthegrowthpotentialofNICBankTanzania,NICSecuritiesandNICProperties.
Impairment tests for goodwill
Managementreviewsthebusinessperformanceoftheabovesubsidiaries.ThesubsidiariesaredeemedCashGenerat-ingUnits(CGU)bytheGroup.TherecoverableamountofallCGUshasbeendeterminedbasedonvalue-in-usecalcula-tionswhicharebasedonkeyassumptionsaboutbudgetedperformance.Thebudgetassumptionsreflectcurrenttrends,anticipatedgrowthdrivenbytheGroup’sstrategyandmanagementexperience.Inparticular,thebudgetforNICBankTanzaniatakesintoaccountexpectedrecoveryinthebusinessfollowingsuccessfulrightsissues.
Basedontheresultsoftheimpairmenttestsperformed,managementbelievesthatthereisnoimpairmentofthecarryingvalueof thegoodwill inanyCGU. Inaddition,no impairmentof theBank’s investments insubsidiaryundertakingsasreferredtoinnote25wasconsiderednecessary..
29) Operating lease prepayments – Leasehold land
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000Cost
10,000 10,000 At 1 January 10,000 10,000
- - Additions 516,000 -10,000 10,000 At 31 December 526,000 10,000
Amortisation 2,750 2,625 At 1 January 2,750 2,625
125 125 Chargefortheyear 125 1252,875 2,750 At 31 December 2,875 2,750
7,125 7,250 Net book value 523,125 7,250
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 131
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
30) Customer deposits
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’00037,028,373 37,034,059 Current 39,578,288 39,717,425
1,351,419 1,141,127 Savings 2,113,683 1,717,71653,606,130 45,859,648 Term 57,869,924 49,820,455
805,156 201,355 Other 873,059 309,40992,791,078 84,236,189 At 31 December 100,434,954 91,565,005
5.16% 4.71% Weightedaverageeffectiveinterestasatyearend 5.04% 4.37%
Customerdepositsarefinancialinstrumentsclassifiedasliabilitiesatamortisedcost.Includedintermdepositsaredepositswhichareatfixedinterestrateswhereasallotherdepositsareatvariablerates.Otherdepositsarethoseheld
ascollateralforirrevocablecommitmentsmainlyunderimportlettersofcreditandperformancebonds.Theirfairvalue approximatesthecarryingamount.:
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’00092,791,078 84,152,901 100,276,320 91,422,491
- 83,288 Current 158,634 142,51492,791,078 84,236,189 Non-current 100,434,954 91,565,005
31) Due to banking institutions
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000Maturing within 90 days:
4,625,406 4,910,171 Due to banking institutions 5,411,664 5,896,3342.97% 8.43% Weightedaverageeffectiveinterestrateasatyearend 2.87% 3.67%
Depositsduetobankinginstitutionsarefinancialinstrumentsclassifiedasliabilitiesatamortisedcost. Balancesduetobankinginstitutionsarecurrent.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014132
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
32) Borrowings
TheBankhasanunsecuredrevolvingmediumtermlinesofcreditforonwardlendingwith;
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’0001,595,883 1,887,941 Agence Francaise De Development (PROPARCO) 2,110,154 1,887,9414,991,461 - The International Finance Corporation (IFC) 4,991,461 -1,521,373 1,740,228 The Dutch Development Finance Institution, FMO 1,521,373 1,740,2285,735,492 - Medium term note 5,735,492 -
13,844,209 3,628,169 14,358,480 3,628,169
Maturity Profile:788,692 28,766 Payable within one year 837,146 28,766
1,661,953 1,248,035 Payable after one year and within three years 2,127,769 1,248,03511,393,564 2,351,368 Payable after three years 11,393,565 2,351,36813,844,209 3,628,169 14,358,480 3,628,169
4.71% 3.34% Weighted average effective interest as at year end 4.72% 3.34% Borrowingsarefinancialinstrumentsclassifiedasaliabilityatamortisedcost.
33) Due to group companies
Bank
2014 2013
Shs `000 Shs `000
Deposits held - NIC Capital 178,038 101,903
- Mercantile Finance Company 5,210 5,210
- NIC Securities 381,109 312,725
- NIC Insurance Agents 34,982 28,381
Other payables - Mercantile Finance Company 42,020 42,020
- NIC Bank Tanzania 681 7,555
- NC Bank Uganda 167,412 40,186
809,452 537,980
Balancesduetogroupcompaniesarecurrent.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 133
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
34) Other liabilities
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
413,915 294,561 Bills payable 415,942 306,567
1,229,374 1,278,536 Other payables and accruals 1,506,348 1,512,355
- - Preference shares 32,994 31,811
- - Legal and other claims 11,695 11,695
- - Trade payables 125,586 129,111
33,130 31,451 Leave pay provision 36,633 33,844
1,676,419 1,604,548 At 31 December 2,129,198 2,025,383
Otherliabilitiesarecurrent.Otherliabilities,excludingnon-financialassets,areclassifiedasliabilitiesatamortisedcost.
LegalandotherclaimsrelatesubstantiallytoaprovisionforchargesbroughtagainsttheGroupbycustomersofthestockbrokeragesubsidiary,NICSecuritiesLimited.Inthedirectors’opinion,aftertakingappropriatelegaladvice,theoutcomeoftheselegalclaimswillnotgiverisetoanysignificantlossbeyondtheamountsprovidedat31December2014.
Thepreferenceshares relate toEastAfricanDevelopmentBank (EADB)which investedTShs650million in8%non-redeemableandnon-cumulativepreferenceshares issuedbyNICBankTanzania inNovember2004.Thepreferenceshareholdershavethediscretiontotransfertotheexistingshareholdersormayconverttheirsharesintoordinarysharesuponattainmentofcertaincovenants.Dividendsonthepreferencesharesarepayablewhentherearesufficientcashresourcesatthedateofdeclaration,subjecttothebusinessandindustryrequirementsofthecompany,makingofprudentreservesandprovisionsingeneralandcomplyingwithallapplicablelegislation.
35) Dividends
AttheAnnualGeneralMeetingscheduledfor20May2015,afirstandfinaldividendinrespectof2014ofShs1.00pershare(2013:finaldividendofShs0.75pershare)amountingtoatotalofShs639,946,000(2013:Shs407,238,000)istobeproposedbythedirectors.
ThetotalestimateddividendfortheyeartobepaidisthereforeShs1pershare(2013:Shs1pershare)amountingtoatotalofShs639,946,000(2013:Shs542,984,000).ThefinalproposeddividendfortheyearissubjecttoapprovalbyshareholdersattheAnnualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements.
Group and Bank
The movement in unclaimed dividends is as follows:
2014 2013
Shs`000 Shs`000
At 1 January 72,233 53,954
Final dividend declared 407,238 542,984
Interim dividend declared - 135,746
Dividends paid (396,588) (660,451)
At 31 December 82,883 72,233
Paymentofdividendstomemberswithshareholdingofupto12.5%issubjecttowithholdingtaxattherateof5.0%for residentsand10.0%fornon-residents.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014134
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
36) Share capital and reserves a) Share capital and share premium
Group and BankNumber of
sharesShare
capital Share
premium
Shs `000 Shs `000 Shs `000
Balance at 1 January 2013 542,984,148 2,714,921 1,208,799
Bonus and Rights issue expenses - - (731)
Balance at 31 December 2013 542,984,148 2,714,921 1,208,068
Balance at 1 January 2014 542,984,148 2,714,921 1,208,068
Bonus Issue 54,298,415 271,492 (271,492)
Rights Issue 42,663,040 213,315 1,887,839
Bonus and Rights issue expenses - - (93,160)
Balance at 31 December 2014 639,945,603 3,199,728 2,731,255
Asat31December2014theauthorisedsharecapitaloftheBankcomprisedof800,000,000(2013:800,000,000)ordinaryshareswithaparvalueofShs5.Theissuedsharesasat31December2014are639,945,603(2013:542,984,148)andarefullypaid.Issuedandfullypaidordinaryshares,whichhaveaparvalueofShs5,carryonevotepershareandcarryarighttodividend.
TheholdersofordinarysharesareentitledtoreceivedividendsasdeclaredfromtimetotimeandareentitledtoonevotepershareatGeneralMeetingsoftheBank.
Premiumsfromtheissueofsharesarereportedassharepremiums.Duringtheyear,aportionofthiswasutilisedtocaterfortheRightsIssueandrelatedRightsIssueexpenses.
b) Revaluation surplus on property
Revaluationreserveismadeupoftheperiodicadjustmentarisingfromthevaluationofbuildings,netoftherelateddeferredtaxation.Thereserveisnotavailablefordistributiontotheshareholders.
Group and Bank
Themovementinrevaluationsurplusonpropertyisasfollows:
2014 2013Shs`000 Shs`000
At 1 January 189,545 155,083Revaluation surplus on building net of deferred tax - 39,243Transfer of excess depreciation (6,830) (6,830)Deferred tax on excess depreciation 2,049 2,049At 31 December 184,764 189,545
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 135
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
36) Share capital and reserves (Continued)
c) Investments revaluation reserve
Thisrepresentstheunrealizedincreaseordecreaseinthefairvalueofavailable-for-saleinvestmentsafterdeductionofdeferredincometaxes,excludingimpairmentlosses.Thereserveisnotavailablefordistributiontotheshareholders.
d) Foreign currency translation reserve
ThereservesrepresentexchangedifferencesarisingfromtranslationofthenetassetsoftheGroup’sforeignoperationswhichareNICBankTanzaniaLimitedandNCBankUgandaLimitedfromtheirfunctionalcurrency(TanzaniaShillingsand Uganda Shillings respectively), to the Group’s presentation currency (Kenya Shillings). These differences arerecogniseddirectlythroughothercomprehensiveincomeandaccumulatedintheforeigncurrencytranslationreserveinequity.Thereserveisnotavailablefordistributiontotheshareholders.
e) Regulatory reserve(s)
Whereimpairmentlossesrequiredbyprudentialguidelinesissuedbythebankingregulatorsexceedthosecomputedunder the International Financial Reporting Standards (IFRS), the excess is recognised as a regulatory reserveandaccounted forasanappropriation fromretainedearnings.Thereserve isnotavailable fordistribution to the
shareholders.
f) Other reserves
Thereserverelatestotransactionswithnon-controllingintereststhatdonotresultinlossofcontrol.Itisthedifferencebetweenfairvalueofanyconsiderationpaidandtherelevantshareacquiredofthecarryingvalueofnetassetsofthesubsidiary.TheGroupincreasedit’sshareholdinginNICTanzaniaLimitedandNICSecuritiesLimitedduringtheyear.Seetherespectivedisclosuresundernotes37(a)and(b).
g) Retained earnings
Thisrepresentsundistributedprofitsfromcurrentandpreviousyears.
37) Non-controlling interests
Thetotalnon-controllinginterestconsistsofequityinterestinsubsidiaries;
2014 2013
Ownership%
Amount Shs’000
Ownership%
Amount Shs’000
NIC Bank Tanzania 30.16 477,574 31.03 377,206
NIC Securities - - 0.07 306
At 31 December 477,574 377,512
NIC BANK LIMITED
Annual Report & Financial Statements • 2014136
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
37) Non-controlling interests (Continued)
a) NIC Bank Tanzania
On1May2009,theGroupacquireda51%stakeinoneofTanzania’smid-sizedcommercialbank,Savings&FinanceCommercialBankLtd,laterrenamedNICBankTanzaniaLimited.NICBankTanzaniaLtdwasfoundedasanon-bankfinancialinstitutionin1994,convertedtoafully-fledgedcommercialbankin2005andhasbranchesinDaresSalaam(3),Mwanza(1),Arusha(1)andKahama(1).Throughdirectbuy-outsandadditionalrightsissues,NICBankLimitedincreaseditsshareholdingfrom51%to68.97%in2013.Thishasbeenfurtherincreasedin2014to69.84%throughthetakingupofrightsnotexercisedbyminorityshareholders.
TheeffectofchangesinownershipinterestofNICBankTanzaniainequityattributabletotheownersofthebankissummarisedasfollows:
2014
Shs’000
Carryingamountofnon-controllinginterestacquired 13,339
Considerationpaidfortheinterests (16,008)
Excess of consideration paid recognised in parent’s equity (2,669)
Movement in non-controlling interests
2014 2013
Shs’000 Shs’000
At1January 377,206 486,558
Carryingamountofnon-controllinginterestacquiredbytheGroup (13,339) (178,404)
Additionalsharesacquiredthroughrightsissue 117,888 155,157
Shareoflossfortheyear (4,181) (86,105)
At 31 December 477,574 377,206
b) NIC Securities
On 31 December 2007, the Bank acquired 57.7% of NIC Securities Limited (formerly Solid Investment SecuritiesLimited) through its wholly owned subsidiary NIC Capital Limited. Through combinations of direct buy-outs andadditionalrightsissues,theGroupincreaseditsshareholdinginthesubsidiaryto91.34%in2009.
Throughdirectbuy-out,theGroupfurtherincreaseditsshareholdinginthesubsidiaryto100%in2014.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 137
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
37) Non-controlling interests (Continued)
b) NIC Securities (Continued)
TheeffectofchangesinownershipinterestofNICSecuritiesinequityattributabletotheownersofthebankissummarisedasfollows:
2014
Shs’000
Carryingamountofnon-controllinginterestacquired 306
Considerationpaidfortheinterests (683)
Excess of carrying amount recognised in parent’s equity (377)
Movement in non-controlling interests
2014 2013
Shs’000 Shs’000
At 1 January 306 34,976
Carrying amount of non-controlling interest acquired by the Group (306) (34,695)
Share of profit for the year - 25
At 31 December - 306
38) Off balance sheet financial instruments, contingent liabilities and commitments
a) Contingent liabilities
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
3,374,438 4,763,734 Letters of credit 3,490,696 5,177,622
13,633,024 10,168,363 Letters of guarantee & performance bonds 13,793,897 10,557,519
17,007,462 14,932,097 At 31 December 17,284,593 15,735,141
Intheordinarycourseofbusiness,theGroupconductsbusinessinvolvingacceptances,lettersofcredit,guarantees,performancebondsandindemnities.Themajorityofthesefacilitiesareoffsetbycorrespondingobligationsofthirdparties.Inaddition,thereareotheroff-balancesheetfinancialinstrumentsincludingforwardcontractsforpurchaseandsaleofforeigncurrencies,thenominalamountsofwhicharenotreflectedinthestatementoffinancialposition.
LettersofcreditarecommitmentsbytheGrouptomakepaymentstothirdparties,onproductionofdocuments,onbehalfofcustomersandarereimbursedbycustomers.LettersofguaranteeandperformancebondsareissuedbytheGroup,onbehalfofcustomers,toguaranteeperformancebycustomerstothirdparties.TheGroupwillonlyberequiredtomeettheseobligationsintheeventofdefaultbythecustomers.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014138
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
38) Off balance sheet financial instruments, contingent liabilities and commitments (Continued)
b) Operating lease prepayments
i) The group as a lessor
Attheendofthereportingperiod,theGrouphadcontractedwithtenantsforthefollowingfutureleasereceivables:
Group and Bank
2014 2013
Shs’000 Shs’000
Within one year 2,750 2,788
In the second to fifth year inclusive 10,013 12,763
At 31 December 12,763 15,551
Leasesarenegotiatedforanaveragetermof6yearsandrentalsarereviewedeverytwoyears.Theleasesarecancellablewithapenaltywhenthetenantsdonotgivethreemonths’noticetovacatethepremises.
ii) The group as a lessee
Attheendofthereportingperiod,theGrouphadnon-cancellableoperatingleaseswhichfalldueasfollows:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
Premises
167,948 127,051 Within one year 244,437 139,940
425,490 337,385 In the second to fifth year inclusive 686,365 408,570
593,438 464,436 At 31 December 930,802 548,510
Office equipment
2,615 2,422 Within one year 2,615 2,422
113 119 In the second to fifth year inclusive 113 119
2,728 2,541 At 31 December 2,728 2,541
OperatingleasepaymentsrepresentrentalspayablebytheGroupfor itsbusinesspremisesandofficeequipment.Premisesleases are negotiated for an average term of 6 years, while office equipment is for an average term of 3 years. For thesecontingentliabilities,noreimbursementisexpected.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 139
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
38) Off balance sheet financial instruments, contingent liabilities and commitments (Continued)
C) Capital commitments
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
- 38,000 Authorisedandcontractedfor - 70,866
680,640 453,940 Authorised but not contracted for 680,640 534,956
680,640 491,940 At 31 December 680,640 605,822
The capital commitments largely relate to branch expansion activities and software acquisition. The Group’smanagementisconfidentthatfuturenetrevenuesandfundingwillbesufficienttocoverthiscommitment.
d) Legal proceedings
Besidesoftheprovisionmade(seenote34),variousclaimsagainsttheGroupareconsideredwithoutmerit,andtheBankisdefendingthemvigorously.ItisnotpossibletoestimatetheBank’spossiblelossinrelationtothesematters,northeeffectthattheymighthaveuponoperatingresultsinanyparticularfinancialperiod.Nocontingentliabilityassociatedwithlegalactionshasbeendisclosedasprofessionaladviceindicatesthatitisunlikelythatanysignificantlosswillarise
e) Other credit commitments
Commitmentstolendareagreementstolendtocustomersinfuturesubjecttocertainconditions.Suchcommitmentsarenormallymadeforfixedperiods.TheGroupmaywithdrawfromitscontractualobligationstoextendcreditbygivingreasonablenoticetothecustomers
NIC BANK LIMITED
Annual Report & Financial Statements • 2014140
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
39) Notes to the consolidated statement of cashflows
a) Cash used in operations
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000Reconciliation of profit before income tax to cash used in operations
6,081,281 5,220,857 Profitbeforeincometax 6,230,650 5,009,571
Adjustments for:215,288 202,648 Depreciation(note27) 297,153 249,108
125 125 Amortisationofoperatingleaseprepayments 125 125
176,442 161,193 Amortisationofintangibleassets(note28) 207,357 196,873
(1,151) (1,749)(Gain)/Lossonsaleofmotorvehicleandequipment(note39(c)) 23,243 (1,749)
6,471,984 5,583,074 Profit before working capital changes 6,758,528 5,453,929(473,056) (397,685) Increaseinbalanceswithcentralbanks
–Mandatoryreservedeposits(535,039) (536,373)
(16,961,541) (10,732,872) Increaseinloansandadvancestocustomers (18,548,822) (11,953,221)
- -Outflowsonpurchaseofquotedshares -held fortrading - (6,529)
(2,985,918) (1,268,789)Increase in Government securities maturing after90days (4,203,136) (1,777,460)
(77,549) 37,492(Increase)/Decrease in derivatives held for riskmanagement (70,649) 35,074
(130,142) (575,318) Decreaseinotherassets (423,753) (617,464)271,472 (513,292) Due(from)/togroupcompanies - -
8,554,889 6,770,147 Increaseincustomerdeposits 8,869,949 8,185,429(71,871) 110,317 Decreaseinotherliabilities 786,710 79,637
10,216,040 (27,245) (Decrease)/increaseinborrowings 10,730,311 (27,245)4,815,676 (1,072,049) Cash used in operations 3,364,099 (1,164,223)
b) Cash and cash equivalents
Analysisofbalancesofcashandcashequivalentsasshownintheconsolidatedstatementoffinancialpositionandnotes;
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Note Shs’000 Shs’0004,323,580 2,735,081 Cash and balances with central banks 17 4,969,263 3,708,350
484,521 215,693 Items in course of collection 18 519,958 243,5147,843,903 4,189,408 Due from banking institutions 19 8,753,909 5,920,199
202,520 2,679,288 Government securities 20 696,965 3,585,870(4,625,406) (4,910,171) Due to banking institutions 31 (5,411,664) (5,896,334) 8,229,118 4,909,299 At 31 December 9,528,431 7,561,599
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 141
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
39) Notes to the consolidated statement of cashflows
c) Proceeds from sale of motor vehicle and equipment
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Note Shs’000 Shs’000
31,152 22,891 Disposal at cost 27 77,174 22,951(31,050) (12,533) Depreciation eliminated on disposal 27 (55,176) (12,555)
1,151 1,749Gain on disposal of motor vehicle and equipment 11 1,151 1,749
- -Loss on disposal of motor vehicle and equipment 11 (24,394) -
1,245 12,107Proceeds from sale of motor vehicle and equipment 1,245 12,145
40) Related party transactions
Partiesareconsideredtoberelatedifonepartyhastheabilitytocontroltheotherpartyorexercisesignificantinfluenceovertheotherpartyinmakingfinancialoroperationdecisions,oroneotherpartycontrolsboth.
There are other companies which are related to NIC Bank Limited through common shareholdings or commondirectorships.
In the normal course of business, a number of banking transactions are entered into with related parties i.e. staff,directors,theirassociatesandcompaniesassociatedwithdirectors.Theseincludeloans,depositsandforeigncurrencytransactions.Loansandadvancestocustomersat31Decemberincludeloansandadvancestostaffandtocompaniesassociatedwithdirectors.Contingentliabilitiesat31Decemberincludeguaranteesandlettersofcreditforcompaniesassociatedwithdirectors..
a) Loans and advances to customers:
Companies associated with directors
Bank Group2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
703,950 973,236 At 1 January 703,950 989,364333,014 (269,286) Net movement during the year 376,010 (285,414)
1,036,964 703,950 At 31 December 1,079,960 703,950
76,431 67,141 Interest earned 78,456 67,141
627,989 429,303Guarantees and letters of credit to companies associated with directors 627,989 429,303
Theaboveoutstandingbalancesarosefromtheordinarycourseofbusinessandaresubstantiallyonthesameterms,includinginterestratesandsecurity,asforcomparabletransactionswiththird-partycounterparties.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014142
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
40) Related party transactions (Continued)
a) Loans and advances to customers (Continued)
Directors
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
4,263 23,871 At 1 January 14,072 23,871
63,971 (19,608) Net movement during the year 78,298 (19,608)
68,234 4,263 At 31 December 92,370 4,263
4,567 358 Interest earned 6,785 358
Theseloansandadvancesareperformingandareadequatelysecured.
b) Customer deposits
Companies associated with directors
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
4,864,462 3,249,503 At 1 January 4,957,594 3,400,490
(657,140) 1,614,959 Net movement during the year (741,485) 1,557,104
4,207,322 4,864,462 At 31 December 4,216,109 4,957,594
197,567 219,658 Interest paid 198,574 221,573
Theaboveoutstandingbalancesarosefromtheordinarycourseofbusinessandaresubstantiallyonthesameterms,includinginterestratesandsecurity,asforcomparabletransactionswiththird-partycounterparties.
Directors
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
116,713 118,981 At 1 January 120,442 133,038
(111,705) (2,268) Net movement during the year (93,414) (12,596)
5,008 116,713 At 31 December 27,028 120,442
2,378 4,867 Interest paid 2,478 4,867
Otheramountsoutstandingattheendofthereportingperiodaredisclosedinnotes24and33.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 143
NOTES TO THE FINANCIAL STATEMENTS (Continued)FORTHEYEARENDED31DECEMBER2014
40) Related party transactions (Continued)
c) Key management compensation
Theremunerationofdirectorsandothermembersofkeymanagementduringtheyearwasasfollows:
Bank Group
2014 2013 2014 2013
Shs’000 Shs’000 Shs’000 Shs’000
290,351 284,065 Salaries and other benefits 392,612 374,679
Directors’ remuneration
14,551 13,570 Fees for services as directors 31,562 23,512
133,908 138,712 Other emoluments (included in key management compensation above)
188,836 193,119
148,459 152,282 220,398 216,631
Inlinewithpolicy,theabovecompensationisaconsolidatedsalarypackageencompassingallemploymentbenefitsandpension.
41) Assets pledged as security
Asat31December2014,therewerenoassetspledgedbytheGrouptosecureliabilitiesandtherewerenosecuredGroupliabilities(2013:nil)).
42) Fiduciary activities
The Group holds asset security documents on behalf of customers with a value of Shs 60,254,564,000 (2013: Shs50,555,796,000). These securities are held by the custody services department and comprise deposits with financialinstitutions,governmentsecuritiesandquotedandunquotedsecurities,amongothers.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014144
NoticeisherebygiventhatthefiftyfifthAnnualGeneralMeetingoftheshareholdersofNICBankLimitedwillbeheldattheKenyattaInternationalConferenceCentre(KICC),NairobionWednesday20thMay2015,at11.00amforthefollowingpurposes:-
1. ToreadtheNoticeconveningtheMeeting.
2. Toreceive,considerandifthoughtfit,adopttheFinancialStatementsfortheyearended31stDecember2014andtheDirectors’andAuditors’Reportsthereon.
3. ToapprovethepaymentofafirstandfinaldividendfortheyearofShs1.00pershare(2013:interimdividendofShs0.25andfinaldividendofShs0.75)onthepaidupcapitalofShs3,199,728,000.
4. ToapprovethepaymentoffeestotheDirectorsfortheyearended31stDecember2014.
5. ToelectDirectors:
i) InaccordancewithArticles97oftheCompany’sArticlesofAssociation,EstherNgaine,whowasappointedtotheBoardsincethelastAnnualGeneralMeeting,retiresfromofficeand,beingeligible,offersherselfforre-election.
ii) InaccordancewithArticles108,109and110oftheCompany’sArticlesofAssociation,GAMainaretiresbyrotationandbeingeligible,offershimselfforre-election.
iii) Specialbusiness:
MLSomenandFNMwanziawhohaveattainedtheageof70years,retireinaccordancewithSection186(2)oftheCompaniesAct(Cap486).SpecialNoticehasbeenreceivedbytheCompanypursuanttoSection142oftheCompaniesAct,thatthefollowingresolutionbeproposedinaccordancewithSection186(5)ofthesaidAct,and,ifthoughtfit,passedbythemembers:
“ThatMLSomen,aDirectorwhohasattainedtheageof70years,beandisherebyre-electedasadirectoroftheCompany”
And
“ThatFNMwanzia,aDirectorwhohasattainedtheageof70years,beandisherebyre-electedasadirectoroftheCompany”.
6. TonotethatPricewaterhouseCooperswillcontinueinofficeastheAuditorsbyvirtueofSection159(2)oftheCompaniesAct(Cap.486)subjecttoCentralBankofKenyaapprovalinaccordancewithsection24(1)oftheBankingAct(Cap.488)andtoauthorizetheDirectorstofixtheirremuneration.
7. TotransactanyotherbusinessoftheAnnualGeneralMeetingofwhichduenoticehasbeenreceived.
BY ORDER OF THE BOARD
Livingstone Murage
Group Company Secretary
Nairobi
23rd March 2015
1. “AMemberentitledtoattendandvoteatthemeetingandwhoisunabletoattendisentitledtoappointaproxytoattendandvoteonhis,heroritsbehalf.AproxyneednotbeaMemberoftheCompany.TobevalidaproxymustbedulycompletedbytheMemberandlodgedwiththeGroupCompanySecretaryattheCompany’sregisteredofficesituatedatNICBankLimited,NICHouse,MasabaRoad,Nairobi,Kenya,before11amonMonday18thMay2015,failingwhichitwillbeinvalid.InthecaseofaMemberwhichisacorporatebodythentheproxymustbegivenunderitscommonseal.”
2. Acopyofthisnotice,proxyformandfullcopyoftheGroupfinancialstatementsincludingexplanatorynotesareavailablefromourwebsitewww.nic-bank.comoraprintedcopymaybeobtainedfromtheCompany’sshareregistrars,Custody&RegistrarServicesLimiteduponrequestandalsowillbemadeavailableatthevenueandonthedayoftheAnnualGeneralMeeting.
NOTICE OF THE ANNUAL GENERAL MEETING
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 145
TangazolinatolewakwambaMkutanoMkuuwaMwakawawenyehisawaBenkiyaNICutafanyikakatikajumbalaMikutanoyaKimataifalaKenyatta(KICC),NairobisikuyaJumatanotarehe20Meimwaka2015,saatanoasubuhiambapoajendazifuatazozitaangaziwa:-
1. KusomailaniinayotangazamaandaliziyaMkutanohuo.
2. Kupokea,kuzingatianazikiidhinishwakuwasawa,kuzikubaliTaarifazaKifedhazamwakauliokamilikaDesemba31,2014pamojanaRipotizaWakurugenziWakuunaWakaguziwaMahesabuyaFedha.
3. KuidhinishamalipoyamgaowakwanzanamwishowamwakaambaoniSh1.00kwakilahisa(mwaka2013:mgaowamwanzowaSh0.25nawamwishowaSh0.75)kwenyemtajiuliolipiwawaSh3,199,728,000.
4. KuidhinishamalipoyaadakwaWakurugenziWakuukwamwakaulioishiaDesemba31,2014.
5. KuchaguaWakurugenziWakuu:
i) KulingananaKifungucha97chaSheriayaUshirikianowaKampuni,EstherNgaine,aliyechaguliwakwenyeBoditanguMkutanoMkuuwaMwakauliopita,anastaafuna,kwasababuanastahili,anajitokezailikuchaguliwatena.
i). KulingananaKifungucha108,109na110chaSheriayaUshirikianowaKampuni,GAMainaanastaafukwazamunakwasababuanastahili,anajitokezailikuchaguliwatena.
iii) ShughuliMaalum:
MLSomennaFNMwanziaambaowamefikishaumriwamiaka70,wanastaafukulingananaSehemuya186 (2)yaSheriayaKampuni(Kifungucha486).IlaniMaalumimepokelewanaKampunihiikulingananaSehemuya142yaSheriayaKampuni,kwambamaazimioyafuatayoyapendekezwekulingananaSehemuya186(5)yaSheriahiyo,nayakionekanakuwasawa,yapitishwenawanachama:
“KwambaMLSomen,MkurugenziMkuuambayeamefikishaumriwamiaka70,awe,nahivyobasianachaguliwatenakamaMkurugenziMkuuwaKampunihii”
Na
“KwambaFNMwanzia,MkurugenziMkuuambayeamefikishaumriwamiaka70,awe,nahivyobasianachaguliwakamaMkurugenziMkuuwaKampunihii”.
6. Kukufahamisheni kwamba kampuni ya PricewaterhouseCoopers itaendelea kushikilia afisi ya Mkaguzi wa MahesabukulingananaSehemuya159(2)yaSheriazaKampuni(Kifungucha486)lakinibaadayakuidhinishwanaBenkiKuuyaKenya(CBK)kwamujibuwasehemuya24(1)yaSheriazaBenki(Kifungucha488),nakuwaamrishaWakurugenziWakuukujipangiamishaharayao.
7. KutekelezashughulinyinginezozotezaMkutanoMkuuwaMwakaambazozimeelezwakwenyeilaniiliyopokelewa.
KWA AMRI YA BODI
Livingstone Murage
Katibu Mkuu wa Kampuni
Nairobi
Tarehe 23 Machi 2015
1. “Mwanachamaanayestahilikuhudhurianakupigakurakatikamkutanohuonaambayehawezikuhudhuriaanakubaliwakuteuamwakilishiiliahudhurienakupigakurakwaniabayake.SilazimamwakilishihuyoaweMwanachamawaKampuni.NailikufuzulazimafomuyauwakilishiijazwenaMwanachamaanayehusikanakuwasilishwakwaKatibuwaKampunihiikwenyeafisiiliyosajiliwayaKampunikatikamakaoyakeyaNICBankLimited,jumbalaNICHouse,barabarayaMasabaRoad,Nairobi,KenyakablayasaatanoasubuhiJumatatutarehe18Meimwaka2015,naiwapoyeyoteatakosakufanyahivyohataruhusiwakushiriki.NaiwapoMwanachamahuyonishirika,lazimafomuyauwakilishi iwasilishweikiwanamhuriwakerasmi.”
2. Nakalayailanihii,fomuyauwakilishipamojananakalakamiliyataarifazakifedhazaKampunihiizikijumuishamaelezozinapatikanakatikawavutiwetuwawww.nic-bank.comaunakalailiyopigwachapainawezakupatikanakatikaafisizahisazaKampunihii,Custody&RegistrarServicesLimited,baadayakutumamaombinapiazitapatikanakwenyeukumbiwaMkutanoMkuuwaMwakasikuyamkutanohuo.
TANGAZO LA MKUTANO MKUU WA MWAKA
NIC BANK LIMITED
Annual Report & Financial Statements • 2014 147
PROXY FORM
The Group Company Secretary,
NIC Bank Limited
NIC House
Masaba Road,
P. O. Box 44599,
00100,GPO Nairobi
I/We_____________________________________________________________________________________________________________
of_______________________________________________________________________________________________________________
beingamember/membersofNICBankLimitedandentitledto___________________________________________________________
votesherebyappoint________________________________________________________________________________________________
of_______________________________________________________________________________________________________________
orfailinghim______________________________________________________________________________________________________
of_______________________________________________________________________________________________________________
asmy/ourProxytovoteforme/usonmy/ourbehalfattheAnnualGeneralmeetingofthecompanytobeheldon20May2015andatanyadjournmentthereof.
Aswitnessmy/ourhandthis________________________dayof_____________2015
Signature(s)of____________________________________________________________________________________________________
Note: In case of a Corporation, the Proxy must be made under its Common Seal.
NIC BANK LIMITED
Annual Report & Financial Statements • 2014148
FOMU YA UWAKILISHI Katibu wa Kampuni,
NIC Bank Limited
NIC House
Masaba Road,
P. O. Box 44599,
00100,GPO Nairobi
Mimi/Sisi________________________________________________________________________________________________________
waanuanihii______________________________________________________________________________________________________
nikiwamwanachama/tukiwawanachamawaNICBankLimitedna
nikiwa/tukiwanahakiyakura_______________________________________________________________________________________
namchagua/tunamchagua_________________________________________________________________________________________
wasandukulaposta_______________________________________________________________________________________________
naakiwahatapatanafasinimechagua/tumechagua____________________________________________________________________
wasandukulaposta_______________________________________________________________________________________________
akiwamwakilishiwangu/wetukunipigia/kutupigiakurakwaniabayangu/yetukatikaMkutanowaMwakawaKampuniutakaofanyikatarehe20Mei2015autareheyoyoteiwapomkutanoutahairishwa.Nashuhudiakwamkono/mikonoyangu/yetusikuhiiya
Tarehe______________________________________mweziwa_____________2015
Sahihi____________________________________________________________________________________________________________
Elewa: Mwakala akiwa anawakilisha kampuni yoyote au shirika nilazima atumie muhuri rasmi wa kampuni hiyo (common seal).
NIC BANK GROUP BRANCHES
KENYA TANZANIA
UGANDA
SUBSIDIARIES
Head Office and BranchNIC House, Masaba Road Nairobi
City Centre BranchPrudential BuildingKaunda Street
The Junction BranchDagoretti/Ngong Road
Prestige BranchPrestige PlazaNgong Road
The Mall BranchWestlands
Harambee Avenue Branch Jeevan Bharat Building Harambee Avenue
Galleria (Bomas) BranchGalleria Shopping MallLangata Road
Village Market BranchVillage MarketLimuru Road
Taj Mall BranchThe Junction of North Airport Road & Outering Road
Sameer Park BranchSameer Park BuildingMombasa Road
ABC, Westlands BranchABC Place, New BuildingWaiyaki Way
Karen BranchKaren Business ParkThe Junction of Langata Road and Ndege Road
Kenyatta Avenue Branch680 Hotel, Kenyatta Avenue
Thika Road Mall BranchThika Road
Riverside DriveICEA Lion Center - Riverside
MOMBASA BRANCHES
Nkurumah BranchNSSF BuildingNkurumah Road
Harbour House BranchMoi Avenue
Changamwe BranchRefinery Place Refinery Road, Changamwe
Nyali BranchCity Mall, Nyali
UP COUNTRY BRANCHES
Nakuru BranchVickers HouseKenyatta Avenue
Meru BranchNjuri Ncheke Street
Kisumu BranchOginga Odinga Street
Eldoret BranchZion Mall, Uganda Road
Thika BranchThika Arcade
Machakos BranchMbolu Malu Road
NIC Bank Tanzania LimitedHead Office and BranchGolden Jubilee Towers Ohio Street
Samora BranchHarbour View TowersSamora Avenue
Kariakoo BranchAggrey/Sikukuu Street
Mwanza BranchPlot 5, Nyerere Road
Arusha BranchCentral PlazaSokoine Road
Kahama BranchIsaka Road
NC Bank Uganda Head Office and BranchRwenzori TowersNakasero Road
NIC Capital LimitedNIC House Masaba Road
NIC Securities LimitedNIC House Masaba Road
NIC Insurance Agents LimitedNIC House Masaba Road