Performance

The operating environment was very challenging in respect of a muted GDP growth, challenges in the mining and agriculture sectors as well as rising unemployment. Within this context, the performance of the Bank was very strong with profit after tax (PAT) of P195 million, representing an annual growth of 48 percent.

Net Interest income

With an annual growth of 31 percent, this represents the biggest driver of the growth in overall income and resulted from a mix of balance sheet re-balancing and efforts to sustainably optimise interest rates. Loan book growth remained muted for most of the year until the last quarter and this was mainly due to the low credit appetite from clients. There was also a total of 100 basis points in rate cuts from August 2015. The combined effect of these was a 9 percent year-on-year decline in interest income. However, this risk was mitigated by the stability in market liquidity during the year and the effectiveness of internal cash management framework, resulting in the reduction of interest expense by 40 percent.

Non-Interest income

This income accrues from transaction processing fees and market risk (i.e. exchange rates and interest rates) warehousing. While general economic activity was soft during the year, the superior new core-banking system implemented in 2013 has progressively enabled the introduction of new lifestyle-aligned payments solutions (i.e. value added services). These accounted for the 5 percent growth in fees and commissions, as our clients continue to patronise our digital channels and applications with increased confidence. Even though the moratorium on fee increases was lifted during the year, the impact on income was not material as the bank moderated the levels of the increase in fees.

The most significant contribution to non-interest income was accrued from the Global Markets trading desks, albeit from compressed margins and steep competition.

Impairment

Credit risks management was a top priority during the year. The business and economic environment worsened over the course of the year. There were a number of business closures and resultant job losses. The main sources of household wealth being real estate and agriculture were strained resulting in worrying levels of household debt. This situation reflects in the annual increase of 41 percent in credit provisioning. This level of provisioning, while appearing elevated, benefited from intense focus on credit counselling, remediation and recoveries. While the outlook credit risk is a concern, the Bank will continue to proactively support viable economic activity through businesses and households.

Operating expenses

During the year, the Bank made appropriate investments to secure the long term sustainability of the Bank. A number of these investments were made to embed the employee value proposition. The most important form of the investments was directed at building personal effectiveness and leadership of all supervisors and managers across the Bank.

Additional investments were also made into the enhancement and widening of digital channels, and streamlining operational processes to elevate the client experience at all touch points across the bank. I would also like to mention that the localisation of the cost of the core-banking systems from the Standard Bank Group balance sheet to the Botswana balance provided some material cost savings.

Business performance

The Corporate and Investment Banking (CIB) business had leadership changes during the year. The changes were smooth and brought fresh perspectives to the client engagement processes. The capabilities of the Transactional Products and Services (TPS) team received a big boost with the successful implementation of the fully integrated collections / payments interface model which links clients’ accounting systems directly to the Bank’s core banking system. The revenue contribution from this team is increasing to reduce the concentration on Global Markets trading income which could be more volatile. Overall, the CIB business posted a modest 4 percent growth in profits and was mainly due to extended periods of subdued loan book, which only picked up in the later part of the year. The outlook however on this unit remains very positive.

The Personal and Business Banking (PBB) unit is showing strong signs of recovery against a back-drop of higher sensitivity to monetary policy induced rate cuts experienced over the years. The close to breakeven position achieved by this unit represent a 90 percent year-on-year improvement. This was mainly driven by improved market liquidity and effective cash flow management which resulted in 40 percent reduction in cost of funds. Additionally, game-changing interventions including revamped client value propositions and improved digital / client-facing channels have also had a positive impact on fees which increased by 10 percent. PBB is well positioned to continue with the improving trend and is expected to return to full profitability by 2017.

Balance sheet and capital management

During the year, the Bank remained strongly committed to funding and supporting viable corporate and commercial business opportunities as well as personal wealth creation. The 11 percent growth in the loan book reflects the success of this drive, albeit within a very challenging macro-economic environment. The economic realities also required some measure of counter-balance with the need to keep credit risk pressure at acceptable levels.

The 3 percent decline in customer deposits was a deliberate cash flow management outcome to optimise the balance sheet and also to control cost of funds. It was also the outcome of re-balancing the concentration on institutional funding with retail deposits. This resulted in retail deposits growing by 6 percent to fund the percentage decline in CIB deposits.

For the first time in three years, dividends of P150 million were declared and paid in June. Also, notes qualifying as tier II capital amounting to P50 million were redeemed and not refinanced. This is in line with the Bank’s dividend policy, capital management policy and Note Programme.

Basel II

The Central Bank implemented the Basel II Accord in Botswana effective 1 January 2016. This implementation resulted in a significant increase to the risk weighted assets (RWA) of the bank with increased risk grading for credit exposures and new capital allocations to cover market risks and operational risks. These additional risks accounts for most of the P1.9 billion increased in RWA as stipulated under note 22.2 of the financial statements.

The statutory credit risk reserve under Basel II remains under tier I and has not been reclassified from shareholders’ equity to secondary capital (tier II capital). Another important change brought about by this transition is the de-recognition of the 50 percent revaluation reserve amount under tier II capital.

During the year, the Board resolved to accept the offer from Standard Bank Group to sell the core banking software to subsidiaries. The total cost for this intangible asset was P213m and was deductible from equity under local capital rules. The Central Bank granted the Bank a dispensation to phase in the acquisition cost to equity over 5 years. At the close of the year, the Bank’s capital adequacy ratio under Basel II requirement was 17.8 percent, fully satisfying regulatory and Group reserving requirements.

Outlook

Notwithstanding the current market conditions, there is growing confidence across Stanbic Bank in our ability to deliver strong results against expected macroeconomic challenges. The confidence levels stem from investment in staff, technology and improved processes to deliver superior client experience.

Leina Gabaraane Craig Granville

(Chief Executive) (Chairman)

for the year ended 31 December 2016

Stanbic Bank Botswana Limited

Financial Results

Statements of profit or loss and other comprehensive income

For the year ended 31 December 2016In Pula (thousands)

Group Company

2016P000’s

2015P000’s

2016P000’s

2015P000’s

Net interest incomeNon interest income

397 498432 629

302 837396 896

397 498426 020

302 837390 297

Total income 830 127 699 733 823 518 693 134

Credit impairment charges 73 267 52 093 73 267 52 093

Net income 756 860 647 640 750 251 641 041

Total operating expenses 487 487 458 971 484 834 455 952

Profit before indirect tax from continuing operations

269 373 188 669 265 417 185 089

Indirect tax 16 827 19 639 16 804 19 639

Profit before direct tax from continuing operations

252 546 169 030 248 613 165 450

Direct tax 57 053 37 397 56 021 36 956

Profit after tax 195 493 131 633 192 592 128 494

Other comprehensive income

Items that are or may be reclassified to profit and loss

Available for sale reserve

Other comprehensive expense after tax for the year

381 (749) 381 (749)

Total comprehensive income for the year

195 874 130 884 192 973 127 745

Statements of financial position

At 31 December 2016In Pula (thousands)

Group Company

2016 2015 2016 2015

P000’s P000’s P000’s P000’s

Assets

Cash and balances with the Central Bank 517 327 747 208 517 327 747 208

Derivative assets 40 008 40 606 40 008 40 606

Trading portfolio assets 1 094 420 1 244 329 1 094 420 1 244 329

Financial assets designated at fair value 1 153 846 603 069 1 153 846 603 069

Loans and advances 8 856 531 9 153 550 8 856 531 9 153 550

Other assets 61 573 130 114 61 554 125 644

Investment in subsidiaries - - 33 33

Intangible assets 201 510 4 609 201 510 4 609

Property, plant and equipment 71 991 64 977 71 991 64 977

Current tax asset 553 4 898 - 4 309

Deferred tax asset 1 079 - 1 079 -

Total assets 11 998 838 11 993 360 11 998 299 11 988 334

Liabilities and equity

Derivative liabilities 42 013 60 053 42 013 60 053

Deposits 9 521 569 9 541 617 9 539 863 9 557 328

Tax liability 16 645 - 16 264 -

Accruals, deferred income and other liabilities 201 354 167 155 197 515 158 130

Deferred tax liability - 3 192 - 3 192

Debt securities in issue 1 134 700 1 184 700 1 134 700 1 184 700

Equity- attributable to ordinary shareholders 1 082 557 1 036 643 1 067 944 1 024 931

Total liabilities and equity 11 998 838 11 993 360 11 998 299 11 988 334

Statements of changes in equity

For the year ended 31 December 2016In Pula (thousands)

2016Group

Stated capital P000’s

Preference share

capital P000’s

Statutory credit

reserve P000’s

Available-for-sale reserve P000’s

Revaluation reserves

P000’s

Share based

payments reserve P000’s

Retained earnings

P000’s

Total equity

P000’s

Balance at 1 January 2016 390 177 - 21 627 3 549 1 057 858 619 375 1 036 643

Total profit and comprehensive income for the year - - - 381 - - 195 493 195 874

Increase in statutory credit risk reserve - - 27 105 - - - (27 105) -

Dividends paid - - - - - - (150 000) (150 000)

Share options exercised - - - - - (554) 554 -

Share based payment scheme - - - - - 40 - 40

Balance 31 December 2016 390 177 - 48 732 3 930 1 057 344 638 317 1 082 557

Statements of changes in equity

For the year ended 31 December 2015In Pula (thousands)

2015Group

Stated capital P000’s

Preference share

capital P000’s

Statutory credit

reserve P000’s

Available-for-sale reserve P000’s

Revaluation reserves

P000’s

Share based

payments reserve P000’s

Retained earnings

P000’s

Total equity

P000’s

Balance at 1 January 2015 161 084 229 093 20 837 4 298 1 057 4 041 485 349 905 759

Total profit and comprehensive income for the year - - - (749) - - 131 633 130 884

Increase in statutory credit reserve - - 790 - - - (790) -

Ordinary shares issued 229 093 - - - - - - 229 093

Shares redeemed - (229 093) - - - - - (229 093)

Share options exercised - - - - - (1 598) 1 598 -

Share based payment scheme - - - - - (1 585) 1 585 -

Balance 31 December 2015 390 177 - 21 627 3 549 1 057 858 619 375 1 036 643

Statements of cash flows

For the year ended 31 December 2016In Pula (thousands)

Group Company

2016P000’s

2015P000’s

2016P000’s

2015P000’s

Net cash flows from operating activities 210 938 (14 812) 210 938 (14 812)

Cash flows generated from operations 267 718 46 280 267 080 45 778

Indirect tax paid (16 827) (19 639) (16 804) (19 639)

Direct tax paid (48 050) (43 051) (47 435) (42 549)

Share options exercised - 1 598 - 1 598

Tax refund received 7 716 - 7 716 -

Fair value adjustment on dated financial instruments

381 (749) 381 (749)

Net cash flows in investing activities (240 819) (17 211) (240 819) (17 211)

Net cash flows in financing activities (200 000) (43 500) (200 000) (43 500)

Net movement in cash and cash equivalents (229 881) (75 523) (229 881) (75 523)

Cash and cash equivalents at beginning of the year

747 208 822 731 747 208 822 731

Cash and cash equivalents at end of the year

517 327 747 208 517 327 747 208

Segment reporting

For the year ended 31 December 2016In Pula (thousands)

2016Group

Corporate & Investment

Banking P000’s

Personal & Business BankingP000’s

Total P000’s

Net interest income 141 218 256 280 397 498

Non interest income 265 461 167 168 432 629

Total income 406 679 423 448 830 127

Credit impairment charges (3 706) (69 561) (73 267)

Net income 402 973 353 887 756 860

Total operating expenses (138 376) (349 111) (487 487)

Profit/(loss) before indirect tax from continuing operations

264 597 4 776 269 373

Indirect tax (6 798) (10 029) (16 827)

Profit/(loss) before direct tax from continuing operations

257 799 (5 253) 252 546

Direct tax (56 404) (649) (57 053)

Profit/(loss) after tax 201 395 (5 902) 195 493

Operating information

Total assets 7 970 926 4 027 912 11 998 838

Total liabilities 7 313 353 3 602 928 10 916 281

Other information

Depreciation and amortisation (10 022) (26 882) (36 904)

Segment reporting

For the year ended 31 December 2015In Pula (thousands)

2015Group

Corporate & Investment

Banking P000’s

Personal & Business BankingP000’s

TotalP000’s

Net interest income 133 337 169 500 302 837

Non interest income 245 434 151 462 396 896

Total income 378 771 320 962 699 733

Credit impairment charges 1 136 (53 229) (52 093)

Net income 379 907 267 733 647 640

Total operating expenses (128 694) (330 277) (458 971)

Profit/(loss) before indirect tax from continuing operations

251 213 (62 544) 188 669

Indirect tax (5 775) (13 864) (19 639)

Profit/(loss) before direct tax from continuing operations

245 438 (76 408) 169 030

Direct tax (51 689) 14 292 (37 397)

Profit/(loss) after tax 193 749 (62 116) 131 633

Operating information

Total assets 7 604 339 4 389 021 11 993 360

Total liabilities 7 112 297 3 844 420 10 956 717

Other information

Depreciation and amortisation (3 212) (15 420) (18 632)

PERSONAL AND BUSINESS BANKING

P6 million CORPORATE AND INVESTMENT BANKING

P201 million LOSS AFTER TAX2015: P62 MILLION

PROFIT AFTER TAX2015: P194 MILLION

12.42%2015: 0.41%

JAWS

59%2015: 66%

�COST-TO-INCOME�RATIO

P6.5b2015: P5.9 billion

LOANS�AND�ADVANCES�TO�CUSTOMERS

18%2015: 13%

RETURN�ON�EQUITY

17.80%2015: 24.20%

CAPITAL�ADEQUACY

1.12%2015: 0.88%

�CREDIT�LOSS

Auditor’s opinion on the group financial statements

The auditors, KPMG, have issued their opinion on the consolidated and separate financial statements for the year ended 31 December 2016. The audit was conducted in accordance with International Standards on Auditing. They have issued an unmodified audit opinion. These summarised financial statements have been derived from the consolidated and separate financial statements and are consistent, in all material respects, with the consolidated and separate financial statements. A copy of their audit report is available for inspection at the Bank’s registered office. Any reference to future financial performance included in this announcement, has not been reviewed or reported on by the Bank’s auditors.

Abbreviated Financial Reports