ACCESS BANK ZAMBIA LIMITED ANNUAL REPORT AND ...

ACCESS BANK ZAMBIA LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

Access Bank Zambia Limited Annual Report and Financial Statements For the year ended 31 December 2015

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Table of contents Page Directors’ report 3-5 Statement of directors’ responsibilities 6 Report of the independent auditor 7-8 Financial statements: Statement of profit or loss and other comprehensive income 9 Statement of financial position 10 Statement of changes in equity 11 Statement of cash flows 12 Notes to the financial statements 13- 60

Access Bank Zambia Limited Directors Report For the year ended 31 December 2015

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The Directors present their report together with the audited financial statements for the year ended 31 December 2015, which disclose the state of affairs of Access Bank Zambia Limited (the "Bank”). General information Access Bank Zambia Limited is incorporated under the Zambian Companies Act, 1994 (as amended) as a limited company and is domiciled in the Republic of Zambia. The Bank is also licensed under the Zambian Banking and Financial Services Act, 1994 (as amended) to conduct commercial banking services. The Bank commenced operations on 28 August 2008. The address of its registered office is as follows: Plot 682 P.O. Box 35273 Cairo Road LUSAKA The Bank’s activity is the provision of retail and corporate banking services. Results

Net interest income

2015 K

27,228,321

2014 K

11,055,712

Profit / (loss) before tax 1,823,035

(18,191,769)

The profit for the year has been deducted from accumulated losses. The Directors do not recommend the payment of a dividend for the year ended 31 December 2015 (2014: Nil).

Share capital The Bank did not issue any new shares during the year. Directors The Directors who held office during the year and to the date of this report were: Caleb Mulenga - Chairman Tunde Balogum - Managing Director Obinna Nwosu - Non-executive Lynda Mataka - Non-executive Yusuf Dodia - Non-executive Roosevelt Ogbonna - Non-executive Directors' interests and emoluments Except for the Managing Director, no other Director has a service contract with the Bank. No Director had an interest in any significant contract entered into by the Bank during the year. Directors’ emoluments paid during the year ended 31 December 2015 were K1, 556,824 (2014: K895,508).

Access Bank Zambia Limited Directors Report For the year ended 31 December 2015

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Leasehold improvements and equipment The Bank purchased leasehold improvements and equipment amounting to K6,548,267 (2014: K3,835,148) Research and developments During the year, the Bank did not conduct any research and development activities (2014: Nil).

Related party transactions As required by the Banking and Financial Services Act, related party transactions are disclosed in note 31 of the financial statements. Employees The average number of employees for each month during the period was 114 (2014: 119).

Month Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Number 111 110 106 109 112 105 111 17 114 110 117 115

The total amount spent on employees’ remuneration and welfare during the year was K17.3 million (2014: K14.3 million) as disclosed under note 11 of the financial statements. Health and safety of employees The Directors are aware of their responsibilities regarding the safety and health of employees and have put appropriate measures in place to safeguard the safety and health of the Bank's employees. Risk management and control In its normal operations, the Bank is exposed to a number of risks, the most significant of which are credit, market, operational and liquidity risks. These are described and explained in greater detail under risk management in the notes to the financial statements. The Directors have approved policies to mitigate the above risks by introducing controls that are designed to safeguard the Bank’s assets while allowing sufficient freedom for the normal conduct of business. The Audit, Loan Review and Risk Management Committees carry out independent reviews to ensure compliance with financial and operational controls. Gifts and donations The Bank made donations to charitable organisations and events amounting to K37,000 (2014: K81,829) during the year. Other material facts, circumstances and events The directors are not aware of any material facts, circumstances or events which have occurred between the reporting date and the date of this report which might influence a reassessment of the Bank’s financial position or the results of its operations.

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REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OFACCESS BANK ZAMBIA LIMITED

Report on the financial statements We have audited the accompanying financial statements of Access Bank Zambia Limited which comprise the statement of financial position as at 31 December 2015 , the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Directors’ responsibility for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards and with the requirements of the Zambia Companies Act, the Zambia Banking and Financial Services Act and the Securities Act of Zambia and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion

In our opinion the financial statements give a true and fair view of the financial position of Access Bank Zambia Limited as at 31 December 2015, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and with the requirements of the Zambia Companies Act, the Zambian Banking and Financial Services Act and the Securities Act of Zambia. PricewaterhouseCoopers, PwC Place, Stand No 2374, Thabo Mbeki Road, P.O. Box 30942, Lusaka, Zambia T: +260 (211) 334000 , F: +260(211) 256474, www.pwc.com/zm A list of Partners is available from the address above

http://www.pwc.com/zm

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Access Bank Zambia Limited Financial statements For the year ended 31 December 2015

Statement of profit or loss and other comprehensive income

For the year ended 31 December

Notes

2015 2014

K K Interest income 7 51,053,304 31,278,681 Interest expense 8 (23,824,983) (20,222,969)

Net interest income

27,228,321

11,055,712

Loan impairment charges

17

(1,018,543)

(880,000)

Net interest income after impairment charges

26,209,778

10,175,712

Fee and commission income 9 20,303,941 12,467,723 Other income - 85,982 Foreign exchange income 10 9,251,367 2,390,838 Personnel expenses

11 (17,332,405) (14,339,422)

Depreciation and amortisation 19,20 (3,220,534) (3,097,236) Operating lease expenses 21 (6,280,671) (5,791,843) Administrative expenses 12 (27,108,441) (20,083,523)

Profit /(loss) before income tax

1,823,035

(18,191,769) Income tax (expense)/ credit

13 (1,222,208) 630,641

Profit /(loss) after tax 600,827 (17,561,128) Other comprehensive income - -

Total comprehensive income for the year

600,827

(17,561,128)

The notes on pages 13 to 60 are an integral part of these financial statements.

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Statement of changes in equity

Share capital

Share premium

Funds awaiting allotment of shares

Regulatory Reserve

Accumulated losses

Total

K K K K K K Balance at 1 January 2014 9,000,000 8,756,997 55,287,009 - (44,133,933) 28,910,073 Comprehensive income

Loss for the year - - - - (17,561,128) (17,561,128) Total comprehensive income for the year

-

-

-

-

(17,561,128)

(17,561,128)

Transactions with Owners

Shares issued 33,673,469 65,326,531 - - - 99,000,000 Tax on capital injection - (862,561) - - - (862,561) Transfers for the year 45,871,081 9,412,928 (55,287,009) - 3,000 -

79,544,550

73,876,898

(55,287,009)

-

3,000

98,147,439

Balance at 31 December 2014

88,544,550

82,633,895

-

-

(61,692,061)

109,486,384

Balance at 1 January 2015 88,544,550 82,633,895 - - (61,692,061) 109,486,384 Comprehensive income Profit for the year

-

-

-

-

600,827

600,827

Total comprehensive income for the year

-

-

-

-

600,827

600,827

Transfers for the year - - - 144,790 (144,790) (144,790)

-

-

-

144,790

456,037

600,827 Balance at 31 December 2015

88,544,550

82,633,895

-

144,790

(61,236,024)

110,087,211

The notes on pages 13 to 60 are an integral part of these financial statements.

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Statement of cash flows For the year ended 31 December

Note 2015

K

2014 K

Cash flows from operating activities

Profit / (loss) before income tax 1,823,035 (18,191,769)

Adjustment for: Depreciation of leasehold improvements and equipment

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2,336,190

2,536,822 Amortisation of intangible assets 20 884,344 560,413 Profit on disposal of leasehold improvements and equipment

-

(85,980)

5,043,569 (15,180,514)

Changes in operating assets and liabilities - cash balances at Bank of Zambia (24,970,547) (41,213,944)

- other assets 30,404,624 (39,647,640)

- loans and advances to customers (63,015,274) (14,853,549)

- deposits from customers 82,123,831 107,610,418

- amounts due to other banks 32,663,321 -

- other liabilities (22,671,881) (2,977,060)

Net cash from / (used) in operating activities 39,577,643 (6,262,289)

Cash flows from investing activities

Purchases of leasehold improvements and equipment 19 (6,548,267) (3,835,148)

Purchases of intangible assets 20 (2,147,715) (973,701) Proceeds from the disposal of leasehold improvements and equipment

-

86,168

Maturities / (purchases) of held-to-maturity investment securities

11,669,601

(51,883,874)

-

-

Net cash from / (used in) investing activities

2,973,619 (56,606,555)

Cash flows from financing activities

Proceeds from capital contribution - 98,137,440

Net cash from financing activities

-

98,137,440

Net increase in cash and cash equivalents 42,551,262 35,268,596

Cash and cash equivalents at beginning of year 92,653,815 57,385,219

Cash and cash equivalents at end of year

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135,205,077

92,653,815

The notes on pages 13 to 60 are an integral part of these financial statements


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Notes to the financial statements

1 General information

Access Bank Zambia Limited (“the Bank”) is domiciled in Zambia. The registered office of the Bank is Plot 682, Cairo Road, Lusaka. The Bank is primarily involved in corporate and retail banking as well as provision of related financial services.

2 Summary of significant accounting policies The Bank’s financial statements have been prepared in accordance with International Financial

Reporting Standards (IFRSs) the measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policy below. The financial statements are presented in Kwacha (K).

In accordance with the Zambia Company's Act and the Banking Financial Services Act, the financial

statements for the period ended 31 December 2015 have been approved for issue by the Directors. Neither the entity’s owner nor others have the power to amend the financial statements after issue.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires the Directors to exercise judgement in the process of applying the Company’s accounting policies. The areas involving higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

(a) Basis of preparation

The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kwacha (K).

Changes in accounting policy and disclosures (i) New and amended standards adopted by the Fund

The Bank has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2015:

- Annual Improvements to IFRSs – 2010-2012 Cycle and 2011 – 2013 Cycle as follows: - IFRS 13 confirms that short term receivables and payable s can continue to be measured at invoice amounts if the impact of discounting is immaterial. - IFRS 13 clarifies that the portfolio exception in IFRS 13 (measuring the fair value of a group of financial assets and liabilities on a net basis) applies to all contracts within the scope of IFRS

13 and IAS 39. - IAS 24 – where an entity receives management services from a third party ( a management entity), the fees paid for those services must be disclosed by the reporting entity but not the compensation paid by the management entity to its employees or directors.

ii) New standards and interpretations that are not yet effective and have not been early adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2015, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Fund, except the following set out below: IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L.


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Notes to the financial statements (continued)

2 Summary of significant accounting policies (continued)

(b) Basis of preparation (continued)

Changes in accounting policy and disclosures (continued) (ii) New standards and interpretations that are not yet effective and have not been early adopted

(continued)

IFRS 9, ‘Financial instruments’ (continued)

The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Bank is yet to assess IFRS 9’s full impact There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Bank. (c) Functional and presentation currency

(i) Functional and presentation currency translation Items included in the financial statements are measured using the currency of the primary economic environment in which the Fund operates (the functional currency).The financial statements are presented in the Zambian Kwacha which is the functional currency. (ii)Transactions and balances Transactions in foreign currencies during the year are converted into Zambia Kwacha at rates prevailing at transaction dates. Foreign exchange gains and losses resulting from settlement of such transactions and from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of changes in net assets available for benefits.

(c) Interest income and expense

Interest income and expense are recognised in profit or loss using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.


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(c) Interest income and expense (continued)

Interest income and expense presented in the statement of comprehensive income include:

- interest on financial assets and financial liabilities measured at amortised cost calculated on an

effective interest basis; and

- interest income and expense on all trading assets and liabilities are considered to be incidental to the Bank’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

(d) Fees and commission Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees are recognised as the related services are performed. If a loan commitment is not expected to result in the drawdown of a loan, then the related loan commitment fees are recognised on a straight – line basis over the commitment period. Other fees and commission expense relate to transactions and service fees, which are expensed as the services are provided.

(e) Net trading income Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest and foreign exchange differences.

(f) Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in deposits from banks or deposits from customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements.

(g) Financial assets and liabilities The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity and available-for-sale financial assets. The directors determine the classification of its financial assets at initial recognition. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and, in the case of assets classified as held-to-maturity, re-evaluates this designation at the end of each reporting period.


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(g) Financial assets and liabilities (continued)

(i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: (a) those that the Bank intends to sell immediately or in the short term, which are classified as held for trading, and those at initial recognition are designated as at fair value through profit or loss; (b) those that the Bank upon initial recognition designates as available-for-sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. Loans and receivables are initially recognised at fair value – which is the cash consideration to originate or purchase the loan including any transaction costs – and measured subsequently at amortised cost using the effective interest method.

(ii)Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the directors have the positive intention and ability to hold to maturity, other than: (a) those that the Bank upon initial recognition designates as at fair value through profit or loss; (b) those that the Bank designates as available-for-sale; and (c) those that meet the definition of loans and receivables. Held-to-maturity investments are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective interest method.

(h) Determination of fair value For financial instruments traded in active markets, the determination of fair values of financial instruments is based on quoted market prices or dealer price quotations. This includes listed equity securities and quoted debt instruments on major exchanges and broker quotes from Bloomberg and Reuters. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indicators that a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer spread or where there are few recent transactions. For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, using inputs (for example, LIBOR yield curve, FX rates, volatilities and counterparty spreads) existing at the reporting dates. The Bank uses widely recognised valuation models for determining fair values of non-standardised financial instruments of lower complexity, such as options or interest rate and currency swaps. For these financial instruments, inputs into models are generally market-observable.


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(h) Determination of fair value (continued) For more complex instruments, the Bank uses internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models such as present value techniques are used primarily to value derivatives transacted in the over-the-counter market, unlisted debt securities (including those with embedded derivatives) and other debt instruments for which markets were or have become illiquid. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The impact on net profit of financial instrument valuations reflecting non-market observable inputs (level 3 valuations) is disclosed in Note 4.3. The Bank uses its own credit risk spreads in determining the current value for its derivative liabilities and all other liabilities for which it has elected the fair value option. When the Bank's credit spreads widen, the Bank recognises a gain on these liabilities because the value of the liabilities has decreased. When the Bank's credit spreads narrow, the Bank recognises a loss on these liabilities because the value of the liabilities has increased. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Bank holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risks, liquidity risk and counterparty credit risk. Based on the established fair value model governance policies, related controls and procedures applied, the directors believe that these valuation adjustments are necessary and appropriate to fairly state the values of financial instruments carried at fair value. Price data and parameters used in the measurement procedures applied are generally reviewed carefully and adjusted, if necessary – particularly in view of the current market developments. In cases when the fair value of unlisted equity instruments cannot be determined reliably, the instruments are carried at cost less impairment.The fair values of contingent liabilities and irrevocable loan commitments correspond to their carrying amounts.

(i) Deregonition Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Bank tests control to ensure that continuing involvement on the basis of any retained powers of control does not prevent derecognition). Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.


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(j) Classes of financial instruments The Bank classifies the financial instruments into classes that reflect the nature of information and take into account the characteristics of those financial instruments. The classification made can be seen in the table as follows:

Loans and receivables

Loans and advances to banks

Loans and advances to customers

Loans to individuals (retail)

Overdrafts

Term loans

Loans to corporate entities

Large corporate

customers

SMEs

Others

Held to maturity investments

Investment securities

Government Securities

Financial liabilities at armortised cost

Loans and advances from banks

Deposits from customers

Retail customers

Large corporate customers

SMEs and Public Sector customers

Off-balance sheet financial Instruments

Loan commitments

Guarantees, acceptances and other financial facilities

Letters of Credits

(k) Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.


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(l) Impairment The Bank assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include: - significant financial difficulty of the borrower or issuer; - default or delinquency by a borrower; - the restructuring of a loan or advance by the Bank on terms that the Bank - would not consider otherwise; - indications that a borrower or issuer will enter bankruptcy; - the disappearance of an active market for a security; or - observable data relating to a Bank of assets such as adverse changes in the payment status of borrowers - or issuers in the Bank, or economic conditions that correlate with defaults in the Bank. The estimated period between a loss occurring and its identification is determined by the directors for each identified portfolio. In general, the periods used vary between 3 and 12 months; in exceptional cases, longer periods are warranted. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit and loss . If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (e.g. changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and advances to banks and customers are classified in loan impairment charges whilst impairment charges relating to investment securities (held-to-maturity and loans and receivables categories) are classified in 'Net gains/(losses) on investment securities'.


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(l) Impairment (continued) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss.

(m) Leasehold improvements and equipment Leasehold improvements and equipment is initially stated at historical cost and subsequently measured at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of these assets. Subsequent expenditures are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are charged to ‘operating expenses’ during the period in which they are incurred. Depreciation on other assets is calculated on the straight line basis to allocate their cost less their residual values over their estimated useful lives, as follows:

Furniture and fittings 20%

Leasehold improvements Over life of lease

Motor vehicles 25%

Office equipment 20%

Computer hardware 33 1/3% Leasehold improvements are written off over the shorter of the period of the lease or the economic life of the asset.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in ‘other operating expenses’ in profit or loss.

(n) Intangible assets –computer software All software costs are stated at historical cost less amortisation. Historical cost includes expenditure that is directly attributable to the acquisition of these assets. Subsequent expenditure on software assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

(o) Impairment non financial assets

At each reporting date, the Bank reviews the carrying amounts of its non-financial assets (other than investment properties and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest Bank of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or CGUs.


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(o) Impairment non financial assets The ‘recoverable amount’ of an asset or CGU is the greater of its value in use and its fair value less costs to sell. ‘Value in use’ is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. The Bank’s corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the corporate assets are allocated. Impairment losses are recognised in profit or loss. They are allocated to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(p) Current and deferred income tax (i) Current income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws substantively enacted at the reporting date in the countries where the bank operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. (ii) Deferred income tax Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been substantively enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.


22



(q) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, including: cash and non-restricted balances with the Central Bank, treasury and other eligible bills, and amounts due from other banks. Cash and cash equivalents excludes the cash statutory reserve requirement held with the Central Bank.

(r) Employee benefits

A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Bank pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

(s) Share capital The Board classifies capital instruments in accordance with the substance of the contract terms of the instruments as financial liabilities or equity instances.

Ordinary shares are classified as equity instruments. Incremental costs directly attributable to the issue of ordinary shares are deduction from the initial instrument of the equity instrument.

(t) Prepaid capital contributions Funds received from shareholders for a fixed number of shares before they are issued, for which there is no possibility of the prepayment being refunded are credited to equity as funds awaiting allotment of shares.

(u) Fiduciary activities The Bank commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, and other institutions. These assets and the income arising thereon are excluded from these financial statements as they are not assets or income of the Bank.

(v) Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. The Bank leases certain property, plant and equipment. Leases of property, plant and equipment where the Bank has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.


23


3 Critical accounting estimates

In preparing these financial statements, management has made judgements, estimates and assumptions that affect the application of the Bank’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. (a) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended 31 December 2015 is set out below in relation to the impairment of financial instruments and in the following notes:

Accounting policy (p) – recognition of deferred tax assets: availability of future taxable profit against which carry forward tax losses can be used

Impairment of financial instruments

Assets accounted for at amortised cost are evaluated for impairment on the basis described in accounting policy (l). The individual component of the total allowance for impairment applies to financial assets evaluated individually for impairment and is based on management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a debtor’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function. A collective component of the total allowance is established for:

groups of homogeneous loans that are not considered individually significant; and

groups of assets that are individually significant but that were not found to be individually impaired (loss 'incurred but not reported' or IBNR). The collective allowance for groups of homogeneous loans is established a formula approach based on historical loss rate experience. The roll rate methodology uses statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgement to ensure that the estimate of loss arrived at on the basis of historical information is appropriately adjusted to reflect the economic conditions and product mix at the reporting date. Roll rates and loss rates are regularly benchmarked against actual loss experience. The IBNR allowance covers credit losses inherent in portfolios of loans and advances, and held-to-maturity investment securities with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired items but the individual impaired items cannot yet be identified. In assessing the need for collective loss allowance, management considers factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, assumptions are made to define how inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowance depends on the model assumptions and parameters used in determining the collective allowance. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Where the net present value of estimated cash flows to differs by +/-1%, the impairment loss is to be estimated at K297,263 higher or 297,263 lower.


24


4 Financial risk management The Bank has exposure to the following risks from financial instruments: a) Introduction and overview

The Bank has exposure to the following risks from financial instruments:

credit risk; liquidity risk; market risks; and operational risks.

This note presents information about the Bank’s objectives, policies and processes for measuring and managing risk. Risk management framework The Company’s board of directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The board of directors has established the Bank Asset and Liability Management Committee (ALCO), which is responsible for developing and monitoring the Bank’s risk management policies. The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Bank’s activities. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Bank Audit Committee oversees how management monitors compliance with the Bank’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Bank Audit Committee.

(b) Credit risk

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances to customers and other banks, and investment debt securities. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).

The market risk in respect of changes in value in trading assets arising from changes in market credit spreads applied to debt securities and derivatives included in trading assets is managed as a component of market risk.


25


4 Financial risk management (b) Credit risk (continued)

Settlement risk The Bank’s activities may give rise to risk at the time of settlement of transactions and trades. ‘Settlement risk’ is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.

For certain types of transactions, the Bank mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval/limit monitoring process described earlier. Acceptance of settlement risk on free-settlement trades requires transaction-specific or counterparty-specific approvals from the Bank’s Risk Department.

Management of credit risk

The board of directors has delegated responsibility for the oversight of credit risk to its Bank Credit Committee. The Bank’s Credit Committee, is responsible for managing the Bank’s credit risk, including the following.

Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. Establishing the authorisation structure for the approval and renewal of credit facilities. Authorization limits are allocated to business unit Credit Officers. Larger facilities require approval by the Bank’s Credit Department, the Head of Credit, the Credit Committee or the Board of Directors as appropriate. Reviewing and assessing credit risk: The Bank’s Credit Committee assesses all credit exposures in excess of designated limits, before facilities are committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process. Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances, financial guarantees and similar exposures), and by issuer, credit rating band, market liquidity and country (for investment securities). Developing and maintaining the Bank’s risk gradings to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of eight grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approving executive or committee, as appropriate. Risk grades are subject to regular reviews by the Bank Asset and Liabilities Committee and Credit and Operational Risk Committee. Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to the Credit Department, which may require appropriate corrective action to be taken. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk. Each business unit is required to implement Bank credit policies and procedures, with credit approval authorities delegated from the Bank’s Credit Committee. Each business unit has a Chief Credit Risk officer who reports on all credit-related matters to local management and the Bank’s Credit Committee. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval. Regular audits of business units and the bank’s credit processes are undertaken by Internal Audit.


26

Notes to the financial statements (continued) 4 Financial risk management (continued)

(c) Liquidity risk Liquidity risk’ is the risk that the Bank will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Management of liquidity risk The Bank’s board of directors sets the Bank’s strategy for managing liquidity risk and delegates responsibility for oversight of the implementation of this policy to ALCO. ALCO approves the Bank’s liquidity policies and procedures. Treasury Department manages the Bank’s liquidity position on a day-to-day basis and reviews daily reports covering the liquidity position of both the Bank and operating subsidiaries and foreign branches. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO. The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation. The key elements of the Bank’s liquidity strategy are as follows. Maintaining a diversified funding base consisting of customer deposits (both retail and corporate)

and wholesale market deposits and maintaining contingency facilities. Carrying a portfolio of highly liquid assets, diversified by currency and maturity. Monitoring liquidity ratios, maturity mismatches, behavioral characteristics of the Bank’s financial

assets and financial liabilities, and the extent to which the Bank’s assets are encumbered and so not available as potential collateral for obtaining funding. Carrying out stress testing of the Bank’s liquidity position.

The Bank’s Treasury receives information from other business units regarding the liquidity profile of their financial assets and financial liabilities and details of other projected cash flows arising from projected future business. The Treasury Department then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. The liquidity requirements of business units and subsidiaries are met through loans from The Treasury department to cover any short-term fluctuations and longer-term funding to address any structural liquidity requirements. If an operating subsidiary or branch is subject to a liquidity limit imposed by its local regulator, then the subsidiary or branch is responsible for managing its overall liquidity within the regulatory limit in co-ordination with Treasury Department. Treasury Department monitors compliance of all operating subsidiaries and foreign branches with local regulatory limits on a daily basis. Regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The scenarios are developed taking into account both Bank-specific events (e.g. a rating downgrade) and market-related events (e.g. prolonged market illiquidity, reduced fungibility of currencies, natural disasters or other catastrophes).


27


4 Financial risk management (continued)

(d) Market risks ‘Market risk’ is the risk that changes in market prices – such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) – will affect the Bank’s income or the value of its holdings of financial instruments. The objective of the Bank’s market risk management is to manage and control market risk exposures within acceptable parameters to ensure the Bank’s solvency while optimising the return on risk. Management of market risks The Bank separates its exposure to market risks between trading and non-trading portfolios. Trading portfolios are mainly held by the Investment Banking unit, and include positions arising from market making and proprietary position taking, together with financial assets and financial liabilities that are managed on a fair value basis. With the exception of translation risk arising on the Bank’s net investments in its foreign operations, all foreign exchange positions within the Bank are transferred by Central Treasury to the Investment Banking unit. Accordingly, the foreign exchange positions are treated as part of the Bank’s trading portfolios for risk management purposes. Overall authority for market risk is vested in ALCO. ALCO sets up limits for each type of risk in aggregate and for portfolios, with market liquidity being a primary factor in determining the level of limits set for trading portfolios. The Bank is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation. The Bank employs a range of tools to monitor and limit market risk exposures. Bank’s audit and Risk management. Exposure to market risk – non-trading portfolios The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. ALCO is the monitoring body for compliance with these limits and is assisted by the Treasury Department in its day-to-day monitoring activities. Equity price risk is subject to regular monitoring by Bank Market Risk, but is not currently significant in relation to the overall results and financial position of the Bank. The effect of structural foreign exchange positions on the Bank’s net investments in foreign subsidiaries and branches, together with any related net investment hedges, is recognised in OCI. The Bank’s policy is only to hedge such exposures when not doing so would have a significant impact on the regulatory capital ratios of the Bank and its banking subsidiaries. The result of this policy is that hedging generally only becomes necessary when the ratio of structural exposures in a particular currency to risk-weighted assets denominated in that currency diverges significantly from the capital ratio of the entity being considered. In addition to monitoring VaR in respect of foreign currency, the Bank monitors any concentration risk in relation to any individual currency in regard to the translation of foreign currency transactions and monetary assets and liabilities into the functional currency of Bank entities, and with regard to the translation of foreign operations into the presentation currency of the Bank (after taking account of the impact of any qualifying net investment hedges).


28


This note presents information about the Bank’s exposure to financial risks and the Bank’s management of

capital.

Credit risk:

i. Analysis of credit quality

ii. Concentrations of credit risk

ii. Impaired loans and advances and investment debt securities

Liquidity risk

Market risk

Capital management

(a) Credit risk

For the definition of credit risk and information on how credit risk is managed by the Bank, see Note 4(b).

(i) Analysis of credit quality

The tables below set out information about the credit quality of financial assets and the allowance for impairment/loss held by the Bank against those assets.


29



a) Credit risk (continued)

(i) Credit quality analysis (continued) Loans and advances to

customers Investment securities Balances with Bank of Zambia Balances with other Banks

2015 2014 2015 2014 2015 2014 2015 2014 K K K K K K K K

Carrying amount 173,466,981 110,451,707 114,254,909 125,924,510 94,645,863 69,675,316 135,205,077 92,653,815

At amortised cost Grade 1-3: Low - fair risk 133,006,258 72,246,306 114,254,909 125,924,510 94,645,863 69,675,316 135,205,077 92,653,815 Grade 4-5: Watchlist 11,622,615 26,638,170 - - - - - - Grade 6: Substandard 3,612,370 6,118,924 - - - - - - Grade 7: Doubtful 1,211,112 2,158,626 - - - - - - Grade 8:Loss 24,014,626 3,289,680 - - - - - -

Carrying amount 173,466,981 110,451,706 114,254,909 125,924,510 94,645,863 69,675,316 135,205,077 92,653,815

Past due but not impaired: 30 – 60 days 1,473,394 3,039,660 - - - - - - 60 – 90 days 23,996,150 1,195,050 - - - - - -

Carrying amount 25,469,544 4,234,710 - - - - - -

Individually impaired : Grade 6: Substandard 2,804,712 1,637,530 - - - - - - Grade 7: Doubtful 2,066,823 598,239 - - - - - - Grade 8: Loss 2,278,517 2,286,450 - - - - - -

7,150,052 4,522,219 - - - - - -

Neither past due nor impaired: Grade 1-3: Low - fair risk 133,114,733 76,160,353 114,254,909 125,924,510 94,645,863 69,675,316 135,205,077 92,653,815 Grade 4-5: Watchlist 11,631,927 28,415,159

144,746,660 104,575,512 114,254,909 125,924,510 94,645,863 69,675,316 135,205,077 92,653,815

Allowance for impairment Individual -3,761,098 -2,312,283 - - - - - - Collective -138,177 -568,451 - - - - - -

Carrying amount 173,466,981 110,451,707 114,254,909 125,924,510 94,645,863 69,675,316 135,205,077 92,653,815


30


4 Financial risk management (continued) a) Credit risk (continued) (i) Credit measurement (continued)

Impaired loans and investment debt securities The Bank regards a loan and advance or a debt security as impaired in the following circumstances.

- There is objective evidence that a loss event has occurred since initial recognition and the loss event has an impact on future estimated cash flows from the asset.

- A retail loan is overdue for 90 days or more.

- A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment.

- Loans that are subject to a collective IBNR provision are not considered individually impaired.

- Impaired loans and advances are graded 6 to 8 in the Bank’s internal credit risk grading system.

- Loans and investment debt securities that are past due but not impaired

- Loans and investment debt securities that are ‘past due but not impaired’ are those for which contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security or collateral available and/or the stage of collection of amounts owed to the Bank. The amounts disclosed exclude assets measured at fair value through profit or loss.

Loans with renegotiated terms and the Bank’s forbearance policy The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance with the accounting policy.

The Bank renegotiates loans to customers in financial difficulties (referred to as ‘forbearance activities’) to maximise collection opportunities and minimise the risk of default. Under the Bank’s forbearance policy, loan forbearance is granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the debtor is expected to be able to meet the revised terms.

The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. Both retail and corporate loans are subject to the forbearance policy. The Bank’s Audit Committee regularly reviews reports on forbearance activities. For the purposes of disclosures in these financial statements, ‘loans with renegotiated terms’ are defined as loans that have been restructured due to a deterioration in the borrower’s financial position, for which the Bank has made concessions by agreeing to terms and conditions that are more favourable for the borrower than the Bank had provided initially and that it would not otherwise consider. A loan continues to be presented as part of loans with renegotiated terms until maturity, earlier repayment or until it is written off.

Irrespective of whether loans with renegotiated terms have been derecognised or not, they remain disclosed as impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows and there are no other indicators of impairment.


31


(a) Credit risk (continued)

(ii) Concentration of credit risk


Investment securities

Off balance sheet

2015 2014 2015 2014 2015 2014

K K K K K K

Concentration by sector

Corporate 74,808,615 67,005,126 - - 57,970,095 27,945,241 Government - - 114,254,909 125,924,510 - -

Retail 10,040,530 13,283,581 - - - -

Commercial 88,617,836 30,163,000 - - 207,009,084 66,596,539

173,466,981

110,451,707

114,254,909

125,924,510

264,979,179

94,541,780

Concentration by location for loans and advances, and for lending commitments and financial guarantees, is based on the sector of the customer.


32


4 Financial risk management (continued) (a) Credit risk (continued) (iii) Impaired loans and advances

Set out below is an analysis of the gross and net (of allowance for impairment) amounts of individually impaired loans and advances.


2015 2014 Gross Net Gross Net

K K K K Grade 6: Substandard

2,804,712

2,274,239

1,637,530

1,040,545 Grade 7: Doubtful 2,066,823 1,077,028 598,239 484,118 Grade 8: Loss 2,278,517 37,686 2,286,480 685,281

7,150,052

3,388,953

4,522,249

2,209,944


33



b) Liquidity risk

Maturity analysis of financial assets and liabilities

The following table below analyses financial assets and liabilities of the Bank into relevant contractual maturity:

Year ended 31 December 2015

up to up to 3-12 1-5 Total

1 month 3 month months years

K K K K K Cash and cash equivalents 135,205,077 - - - 135,205,077 Cash balances at Bank of Zambia 94,645,863 - - - 94,645,863 Investment securities - 45,000,000 80,000,000 - 125,000,000 Other assets (excluding prepayments) - 27,840,797 - - 27,840,797 Loans and advances to customers 78,403,486 37,055,020 76,137,474 11,482,313 203,078,293

Total assets

308,254,426 109,895,817 156,137,474 11,482,313 585,770,030

Liabilities

Other liabilities 5,085,201 - - - 5,085,201

Amounts due to other banks 32,686,588 - - - 32,686,588

Deposits from customers 181,282,409 114,997,277 149,046,431 63,500,000 508,826,117

Total liabilities

219,054,198

114,997,277

149,046,431

63,500,000

546,597,906

Net liquidity gap

89,200,228.00 (5,101,460) 7,091,043 (52,017,687) 39,172,124


34



b) Liquidity risk (continued)

The following table below analyses financial assets and liabilities of the Bank into relevant contractual maturity:


up to up to 3 – 12 1 – 5 Total

1 month 3 months months years

K K K K

K

Assets

Cash and cash equivalents 92,653,815 - - - 92,653,815 Cash balances at Bank of Zambia 69,675,316 - - - 69,675,316 Investment securities 4,602,133 26,108,952 111,918,809 - 142,629,894 Other assets (excluding prepayments) - 11,354,832 - - 11,354,832 Loans and advances to customers 46,601,939 21,069,425 30,230,060 20,335,143 118,236,567

Total assets 213,533,203 58,533,209 142,148,869 20,335,143

434,550,424

Liabilities

Other liabilities 27,757,082 - - -

27,757,082

Deposits from customers 246,761,229 102,954,168 73,967,478 - 423,682,875

Total liabilities 274,518,311 102,954,168 73,967,478 - 451,439,957

Net liquidity gap (60,985,108) (44,420,959) 68,181,391 20,335,143

(16,889,533)


35



c) Market risk The Bank takes on exposure to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate and currency products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads and foreign exchange rates. The bank separates exposures to market risk into either trading or non-trading portfolios. The market risks arising from trading and non-trading activities are concentrated in the Treasury department and monitored by two teams separately. Regular reports are submitted to the Board of Directors and heads of each business unit.

The Treasury Department in consultation with the Managing Director, Chief Financial Officer and Head of Operations review the foreign exchange buying and selling rates on a daily basis and a decision is made as to whether to hold long or short positions, within the limits stipulated by Bank of Zambia. Similarly the same composition of individuals also monitors the interest rates on a weekly basis and adjustments are made on interest chargeable on loans and advances. The monitoring process pays attention to Treasury bill rates and base rates changes announced by other Banks.

d) Currency risk

The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Bank of Zambia sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily.


36



d) Currency risk (continued)

Exposure to currency risk is as follows:


US dollar Pound Euro Other Kwacha Total

K K K K K K

Assets

Cash and cash equivalents 84,143,513 274,398 7,404,984 1,904,657 41,477,525 135,205,077

Cash balances at Bank of Zambia 40,308,276 - - - 54,337,587 94,645,863

Loans and advances to customers 14,213,742 3,144 1,905 5,393 159,242,797 173,466,981

Investment securities - - - - 114,254,909 114,254,909

Other assets (excluding prepayments) - - - - 27,840,797 27,840,797

Total assets 138,665,531 277,542 7,406,889 1,910,050 397,153,615 545,413,627

Liabilities

Deposits from banks - - - - 32,663,321 32,663,321

Deposits from customers 161,961,116 278,286 149,809 1,341,205 331,595,699 495,326,115

Other liabilities - - - - 5,085,201 5,085,201

Total liabilities 161,961,116 278,286 149,809 1,341,205 369,344,221 533,074,637

Net on-balance sheet position

(23,295,585)

(744)

7,257,080

568,845

27,809,394

12,338,990

A +/- 10 % change in the United States Dollar against the Kwacha will impact profit or loss and equity by K2,329,558 (loss/gain) (2014; K3,196,956 (gain/loss))

Access Bank Zambia Limited

Financial statements For the year ended 31 December 2015

37



d) Currency risk (continued) Exposure to currency risk is as follows:

Year ended 31 December 2014 US dollar Pound Euro Other Kwacha Total K K K K K K Assets

Cash and cash equivalents 75,034,717 988,041

5,098,468 2,939,700 8,592,889 92,653,815 Cash balances at Bank of Zambia 16,770,716 - - - 52,904,600 69,675,316 Loans and advances to customers 15,976,007 1,906 1,641 3,802 94,648,351 110,631,707 Investment securities - - - - 125,924,510 125,924,510 Other assets (excluding prepayments) - 4,320,000 205,760 6,829,072 11,354,832 Total assets 107,781,440 989,947 9,420,109 3,149,262 288,899,422 410,240,180 Liabilities Deposits from customers 118,923,074 460,560 186,627 1,674,232 291,957,792 413,202,285 Other liabilities 240,996 1,184 4,127 - 27,510,774 27,757,081 Total liabilities 119,164,070 461,744 190,754 1,674,232 319,468,566 440,959,366

Net on-balance sheet position (11,382,630)

528,203

9,229,355

1,475,030 (30,569,144) (30,719,186)

The Bank is exposed to currency risk through transactions in foreign currencies. The Bank's transactional exposures give rise to foreign currency gains and losses recognised in profit or loss. These exposures comprise the monetary assets and monetary liabilities of the Bank. In respect of monetary assets and liabilities in foreign currencies that are not economically hedged, the Bank ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.



38



e) Interest rate risk

The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (including investments) and interest-bearing liabilities mature or reprise at different times and/or in differing amounts. In the case of floating rate assets and liabilities the Bank is also exposed to basis risk, which is the difference in reprising characteristics of the various floating rate indices. Asset-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes.


A +/- 100 basis change in interest rate will result will impact net interest income by +/- K356,338 (2014; +/-K978,159).

Carrying Less than 3 4 to 7 to 1 to over

Non-Interest

Amounts months 6 months 12 months 5year 5 years bearing

Assets K K K K K K

Cash and cash equivalents 135,205,077 110,035,000 - - - - 25,170,077

Cash balances at Bank of Zambia 94,645,863 94,645,863 - - - - -

Investment securities 114,254,909 47,243,766 10,343,479 56,667,664 - - -

Loans and advances to customers 173,466,981 100,089,389 53,218,013 11,819,611 7,925,106 414,862 -

Other Assets 27,840,797 - - - - - 27,840,797

Total assets 545,413,627 352,014,018 63,561,492 68,487,275 7,925,106 414,862 53,010,874

Liabilities

Amounts due to other banks 32,663,321 32,663,321 - - - - -

Other liabilities 5,085,201 - - - - - 5,085,201

Deposits from customers 495,373,264 471,013,100 4,872,033 19,488,131 - - -

Total liabilities

533,121,786

503,676,421

4,872,033

19,488,131

-

-

5,085,201

Gap

-

(151,662,403)

58,689,459

48,999,144

7,925,106

414,862

-



39



e) Interest rate risk (continued)


Carrying Less than 3 4 to 7 to 1 to over

Non-Interest

Amounts months 6 months 12 months 5 year 5 years bearing Assets K K K K K K K Cash and cash equivalents 92,653,815 79,017,134 - - - - 13,636,681 Cash balances at Bank of Zambia 69,675,316 - - - - - 69,675,316 Investment securities 125,924,510 4,529,659 24,913,122 96,481,729 - - -

Loans and advances to customers 110,451,707 66,247,820 26,673,591 17,530,296 - - -

Other assets 11,354,832 - - - 11,354,832

Total assets 410,060,180 149,794,613 51,586,713 114,012,025 - - 94,666,829 Liabilities

Other liabilities 27,757,082 - - - - - 27,757,082 Deposits from customers 413,202,284 346,474,709 - 66,737,575 - - -

Total liabilities

440,959,366

346,471,709

-

66,737,575

-

-

-

Gap

-

(196,677,096)

51,586,713

47,274,450

-

-

-



40



(f) Capital management

The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of the statement of financial position, are:

- To comply with the capital requirements set by the Bank of Zambia; - To safeguard the Bank’s ability to continue as a going concern so that it can continue to

provide returns for shareholders and benefits for other stakeholders; and - To maintain a strong capital base to support the development of its business.

The Bank did comply with minimal capital adequacy requirements in the period.

Regulatory capital

Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed and maintained by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.

In implementing current capital requirements, Bank of Zambia requires banks to:

maintain a minimum 10% ratio of total capital to total risk-weighted assets or hold a minimum K104 million whichever is higher;

maintain total capital of not less than 10% of risk-weighted assets plus risk-weighted off-balance sheet items.

The Bank’s regulatory capital is analysed into two tiers:

Primary (Tier 1) capital, which includes paid-up common shares, retained earnings, statutory reserves less adjustment for assets of little or no realisable value.

Secondary (Tier 2) capital, which includes qualifying subordinated term debt and revaluation reserves limited to a maximum of 40%. The maximum amount of total secondary capital is limited to 100% of primary capital.

The Bank in response to the new Capital Adequacy framework instituted by the Bank of Zambia opted for a local bank status which required the bank to hold a minimum regulatory capital of K104 million. The Bank met all,the minimum capital requirement and is expected to bring its shareholding structure in line with the Bank of Zambia local bank requirement by 31 December 2017.

The Bank fully complied with all externally imposed capital requirements throughout the year.



41



f) Capital management (continued)

i) Computation of capital position 2015 2014

I Primary (Tier 1) Capital K

K

(a) Paid-up common shares 88,544,550 88,544,550 (b) Eligible preferred shares - - (c) Contributed surplus 82,633,895 82,633,895 (d) Retained earnings (61,091,234) (61,692,061) (e) General reserves - - (f) Statutory reserves - - (g) Minority interests (common shareholders' equity) - -

(h) Sub-total A (items a to g) 110,087,211

109,486,384 Subtractions: (i) Goodwill and other intangible assets (2,464,737) (1,201,366) (j) Investments in unconsolidated subsidiaries and associates - - (k) Lending of a capital nature to subsidiaries and associates - - (l) Holding of other banks' or financial institutions' capital instruments - - (m) Assets pledged to secure liabilities - - (n) Sub-total B (items i to m) (2,464,737) (1,201,366) Provisions - - Assets of little or no realised value - - Other adjustments (prepayment) - - (o) Sub-total C (other adjustments) - (p) Total primary capital [ h – ( n to o)] 107,622,474 108,285,018

II Secondary (tier 2) capital (a) Eligible preferred shares - - (b) Eligible subordinated term debt - - (c) Eligible loan stock / capital - - (d) Eligible general provisions - -

(e) Revaluation reserves. (Maximum is 40% of revaluation reserves) - - (f) Other - - (f) Total secondary capital - - III Eligible secondary capital - -

(The maximum amount of secondary capital is limited to 100% of primary capital) - -

IV Eligible total capital (I(p) + III) (Regulatory capital) 107,622,474

108,285,018 V Minimum total capital requirement (10% of total capital to total risk-weighted assets or hold a minimum of K104 million whichever is higher)

104,000,000

104,000,000

VI Excess (IV minus V) 3,622,474 4,285,018



42


5 Fair value of financial instruments

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank determines fair values using other valuation techniques

Valuation of financial instruments

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank determines fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. (a) Valuation models The Bank measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.

Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments.

Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.

Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

As at 31 December 2015, the bank had financial instruments carried at fair value (2014:Nil)



43


5 Fair value of financial instruments (continued)

Valuation of financial instruments (continued) Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Bank determines fair values using valuation techniques. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist and other valuation models. Assumptions and inputs used in valuation techniques include risk-free interest rates, credit spreads and other premia used in estimating discount rates, bonds and equity prices. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm’s length. The Bank uses widely recognized valuation models for determining the fair value of common and more simple financial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgment and estimation. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. For level 2 assets, fair value was obtained using a recent market transaction during the year under review. Fair values of unquoted debt securities were derived by interpolating prices of quoted debt securities with similar maturity profile and characteristics. There were no transfers between levels 1 and 2 during the year.

6 Financial assets and liabilities The table below sets out the carrying amounts and fair values of the Bank’s financial assets and liabilities: The directors are of the opinion that the carrying amounts are not materially different from the fair values

of the financial instruments.



44

Notes to the financial statements (continued) 6 Financial assets and liabilities (continued)


Note

Loans and receivables

K

Other amortised

cost K

Total carrying amount

K

Fair value

K Cash and cash equivalents 15 - 135,205,077 135,205,077 135,205,077 Cash balances at Bank of Zambia 16 - 94,645,863 94,645,863 94,645,863 Investment securities 18 - 114,254,909 114,254,909 114,254,909 Loans and advances to customers

17

173,466,981

-

173,466,981

173,466,981

Other assets (excluding prepayments)

22

-

27,840,797

27,840,797

27,840,797

173,466,981

371,946,646

545,413,627

545,413,627

Deposits from customers 23 - 495,326,115 495,326,115 495,326,115 Other liabilities 25 - 5,085,201 5,085,201 5,085,201 Amounts due to other banks 24 - 32,663,321 32,663,321 32,663,321

-

533,074,637

533,074,637

533,074,637


Note

Loans and

receivables

Other

amortised cost

Total carrying amount

Fair value

Cash and cash equivalents 15 92,653,815 92,653,815 92,653,815 Cash balances at Bank of Zambia 16 - 69,675,316 69,675,316 69,675,316 Investment securities 18 - 125,924,510 125,924,510 125,924,510 Loans and advances to customers

17 110,451,707

-

110,451,707

110,451,707

Other assets (excluding prepayments)

22

-

11,354,832

11,354,832

11,354,832

110,451,707

299,608,473

410,060,180

410,060,180

Deposits from customers 23 - 413,202,284 413,202,284 413,202,284 Other liabilities 25 - 27,757,082 - -

-

440,959,366

413,202,284

413,202,284



45


7 Interest income 2015 2014

K K Loans and advances to customers 22,318,825 16,648,766 Placements with other banks 5,216,065 738,347 Government securities 23,518,414 13,891,568

51,053,304 31,278,681

8 Interest expense

Deposits from banks 3,774,142 4,068,619 Deposits from customers 20,050,841 16,154,350

Interest expense 23,824,983 20,222,969

Net interest income 27,228,321 11,055,712

9 Fee and commission income

Retail banking customer fees 12,396,918 6,748,562 Loans and advances fees 5,207,307 2,571,095 Other fees and commissions 2,699,716 3,148,066

20,303,941 12,467,723

10 Foreign exchange income

Foreign currency transaction gains 9,251,367 2,390,838

9,251,367 2,390,838

11 Personnel expenses

Salaries and other staff benefit costs 16,358,847 13,420,967

Social security costs 973,558 918,455

17,332,405 14,339,422



46


12 Administrative expenses

2015

K

2014

K

Motor vehicle expenses 661,706 710,519

Postage and communication expenses 2,420,059 2,371,175

Office and security expenses 1,000,308 1,287,099

Travel expenses 1,527,379 1,917,044

Advertising 327,032 450,216

Professional and legal fees 896,677 1,068,017

Printing and stationery 99,531 128,163

Other expenses 10,006,935 7,278,461

Training 1,157,261 159,213

Computer related expenses 3,028,951 1,883,430

Auditor’s remuneration 640,000 712,329

Other consultancy fees 1,674,882 154,559

Recruitment expenses 51,001 8,185

Insurance 320,557 360,825

Cleaning 308,473 266,310

Repairs and maintenance 1,387,073 366,850

Water and electricity 137,870 31,589

Board expenses 1,216,871 681,103

Penalties 245,875 248,436

Total administrative expenses

27,108,441

20,083,523

Penalties substantially relate to Bank of Zambia penalties for cash shortages.

13 Income tax expense

The Bank had no tax paid in the year under review as a result of the incurred losses. The tax charge is determined in accordance with the provisions of the Income Tax Act, 1996 (as amended) and is based on the adjusted profit for the year. Tax on the profit or loss for the year comprises the change in deferred tax asset/liability.



47


13 Income tax expense (continued)

2015

K 2014

K

Deferred tax expenses

Origination and reversal of temporary differences (1,222,208) 630,641 Income tax (expense)/ credit (1,222,208) 630,641

The tax on the Bank’s profit before income tax differs from the theoretical amount that would arise using the effective tax rate as follows:

2015 2014

K K

Profit / (loss) before tax 1,823,034 (18,191,769)

Tax calculated at the statutory income tax rate of 35% (2014: 35%)

(638,062) 6,367,119

Non-deductible expenses ( 888,905) (884,641)

Tax losses (utilised)/unutilised - ( 4,865,670)

Over provided as tax base 304,759 13,833

Income tax (expense) / credit

(1,222,208)

630,641

Tax losses are available for carry forward only for a maximum period of 5 years. The carried forward losses, which are subject to agreement with the Zambia Revenue Authority, are as follows.

Accounting period

Tax loss K

Expiry date

31 December 2011 8,817,285 31 December 2016 31 December 2012 6,041,089 31 December 2017 31 December 2013 3,639,998 31 December 2018 31 December 2014 15,745,709 31 December 2019 Loss carried forward 34,244,081

The tax value of losses expected to be available for utilisation against future taxable income is set off against the deferred tax liability. A deferred tax asset is recognised only where it is probable that the tax benefits will be realised. At 31 December 2015, the Bank recognised a deferred tax assets of K 14.32 million (2014 : K15.54 million).



48


14 Deferred income tax

Deferred income tax is calculated using the enacted income tax rate of 35% (2014: 35%). The movement on the deferred income tax account is as follows: 2015 2014 K K At start of year 15,543,854 14,913,393

(Charge )/ credit to statement of comprehensive income (1,222,209) 630,641

At end of year tax -deferred income tax asset 14,321,645

15,543,854

Deferred tax assets and liabilities are attributable to the following:

A deferred tax asset has been recognised in respect of these items because it is probable that future taxable profits will be available against which the Bank can utilise the benefits there from:

Assets Liabilities Net

2015 2014 2015 2014 2015 2014

K K K K K K

Recognised deferred tax asset

Leasehold improvements and equipment (1,545,271) (1,362,890) - - (1,545,271) (1,362,890)

Other temporary differences (1,284,074) (659,937) - - (1,284,074) (659,937)

Tax losses (11,492,300) (13,521,027) - - (11,492,300) (13,521,027)

Deferred tax assets (14,321,645) (15,543,854) - - (14,321,645) (15,543,854)



49


14 Deferred income tax (continued)

Movement in temporary difference

1-Jan-14 Recognised in profit or loss

Balance at

31-Dec-2014

Recognised in profit or loss

Balance at 31-Dec-

2015

Leasehold improvements and equipment (1,377,758) 14,868 (1,362,890) (183,380) (1,546,270) Provisions (659,936) - (659,936) (604,439) (1,264,375) Tax losses (12,875,699) (645,509) (13,521,028) 2,010,028 (11,511,000)

(14,913,393)

(630,641)

(15,543,854)

1,222,209

(14,321,645)

The Bank applies IAS 12 – Income taxes, which states that deferred tax asset is recognised in respect of deductible temporary differences. A deferred tax asset should be recognised for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the unused tax losses and unused tax credits can be utilised. The bank is expected to be profitable and this will be triggered by growth in loans and advances and customer deposits. This growth will be achieved through the Bank’s intention to increase access to customers through expansion of its physical branch network and increased investment in e-banking. Access pay, the Bank’s corporate banking internet platform has been upgraded. The Bank has introduced an enhanced and robust retail internet banking platform to enhance its product offering, deal making ability and financing for its corporate and individual customers across the country.

Section 30 (1) of the Income Tax Act of 1996, as amended, permits the carry forward of tax losses for period of 5 years. The Bank has therefore, decided to recognise a deferred tax asset as, in the opinion of the management, it is probable that sufficient future taxable profits will arise before the tax losses become out of date for the tax relief.



50

Notes to the financial statements (continued) 15 Cash and cash equivalents

2015

2014

K K

Cash on hand 13,636,682 13,959,645 Balances with other Banks 121,568,395

78,694,170

Balances with Bank of Zambia other than mandatory reserves deposits (Note 16)

94,645,863

69,675,316

229,850,940

162,329,131

16 Cash balances at Bank of Zambia

Mandatory statutory reserve deposit with Bank of Zambia 94,645,863 69,675,316

The statutory deposit held with Bank of Zambia, as a minimum reserve requirement, is not available for the Bank’s daily business. The reserve represents a requirement by the Banking and Financial Services Act and is a percentage of the Bank’s local currency and foreign currency liabilities to the public. At 31 December 2015, the required percentage was 18%. (2014: 14%).

17 Loans and advances to customers

Gross

amount 2015

Impairment

allowance 2015

Carrying

amount 2015

Gross

amount 2014

Impairment

allowance 2014

Carrying

amount 2014

Consumer loans:

Mortgage lending

203,789

(161)

203,629

753,800

(3,769)

750,031 Personal loans

11,774,576

(1,683,433)

10,091,142

7,309,430

(819,282)

6,490,148

11,978,365

(1,683,594)

10,294,771

8,063,230

(823,051)

7,240,179

Wholesale loans: Term loans 52,864,144 (370,595) 52,493,549 31,198,656 (637,695) 30,560,961 Loans and overdrafts

112,523,747

(1,845,086)

110,678,661

74,070,553

(1,419,986)

72,650,567

165,387,891

(2,215,681)

163,172,210

105,269,209

(2,057,681)

103,211,528

177,366,256

(3,899,275)

173,466,981

113,332,439

(2,880,732)

110,451,707


Annual report and financial statements For the year ended 31 December 2015

51


17 Loans and advances to customers (continued) Maturity analysis of loans and advances

The maturity analysis is based on the remaining periods to contractual maturity.

2015

K 2014

K

Maturity within one year 161,877,013 77,044,536

Maturity after 12 months 11,589,968 33,407,171

173,466,981 110,451,707

Included in loans and advances are loans to related parties amounting to K4,082,547 (2014: K2,029,192 (see Note 31).

2015 2014 K K

Allowances for impairment

Balance at 1 January 2,880,732 2,169,632

Net Charge for the year 1,018,543 880,000

Impairment loss written off - (168,900)

Balance at 31 December 3,899,275 2,880,732

Specific allowances for impairment

Balance at 1 January 2,312,283 2,123,927

Charge for the year 1,448,864 357,256 Impairment loss written off - (168,900)


Collective allowances for impairment

Balance at 1 January 568,449 45,705 (Reversals)/charge (430,321) 522,744

Balance at 31 December 138,128 568,449

18 Held-to-maturity investment securities

There were no treasury bills sold to customers under repurchase agreements as at 31 December 2015 (2014: Nil). Included in investment securities are treasury bills with a total face value of K68.8 million (2014:K75 million) pledged as security by the Bank for transactions with various counter parties and the Zambia Electronic Clearing House.

Investment securities Of which mature: Within one year 114,254,909 125,924,510 Within one to five years - -

114,254,909 125,924,510



52


19 Leasehold improvements and equipment

Land and buildings

K

Computer hardware

K

Furniture & fittings

K

Motor vehicles

K

Capital Work-in - progress

K

Total

K

Cost Balance at 1 January 2015 20,534,187

8,717,684

7,412,390

5,064,407 1,761,529 43,490,197

Additions 83,946 766,530 1,026,040 2,384,809 2,286,942 6,548,267

Transfers 611,873 146,061 1,094,209 - (1,852,142) - Balance at 31 December 2015 21,230,006

9,630,275

9,532,639 7,449,216 2,196,329

50,038,464

Balance at 1 January 2014 20,407,177 7,726,023

7,038,649 4,279,531

468,309 39,919,689

Additions 127,010 991,661 373,741 1,049,517 1,293,219 3,835,148

Disposals - - - (264,641) - (264,641) Balance at 31 December 2014 20,534,187 8,717,684

7,412,390

5,064,407

1,761,528 43,490,196

Accumulated depreciation

Balance at 1 January 2015 6,477,595 7,517,958

5,834,803

4,080,383 - 23,910,739

Charge for the year 170,307 813,764 972,242 379,877 - 2,336,190

Balance at 31 December2015

6,647,902 8,331,722

6,807,045

4,460,260 - 26,246,929

Balance at 1 January 2014 5,781,536 6,958,591 4,715,541 4,182,871 - 21,638,539

Charge for the year 696,059 559,367 1,119,262 162,134 - 2,536,822

Disposal - - - (264,622) - (264,622) Balance at 31 December 2014 6,477,595 7,517,958

5,834,803

4,080,383 - 23,910,739

Carrying amounts: Balance at 31 December 2015 14,582,104 1,298,553

2,725,594

2,988,956

2,196,329 23,791,535

Balance at 31 December 2014 14,056,592 1,199,726 1,577,587

984,024

1,761,528 19,579,457

The register showing the details of property, as required by section 193 of the Zambia Companies Act, is available during business hours at the registered office of the Bank.



53


20 Intangible assets – Computer software

2015

K 2014

K

Cost

Opening balance 4,760,157 3,786,456

Additions 2,147,715 973,701


Accumulated amortisation

Opening balance 3,558,791 2,998,377

Charge for the year 884,344 560,413


Carrying amount Balance at 31 December 2,464,737 1,201,367

21 Operating lease prepayments

Opening balance 24,746,658 27,480,297

Payments 2,654,017 3,058,204 Recognised in statement of profit or loss and other comprehensive income

(6,280,671)

(5,791,843)

21,120,004

24,746,658

The Bank leases the office premises under an operating lease. The lease runs for a period of 15 year. However, the rent payable is revised every five years with an option to renew the lease after that period. The advances paid during the period are for a period of five years. IAS 17 - Leases, requires all amounts paid upfront at the beginning of the lease to be recognised on a straight line basis over the unexpired portion of the lease term or, if shorter, the useful life of the asset.



54


22 Other assets

Prepayments

2015 K

22,002,551

2014 K

27,626,326

Clearing accounts 35,167,753 76,434,567

Other receivables 27,840,797 11,354,832

85,011,101 115,415,725

(i) Prepayments Prepayments mainly include operating leases K21,120,004 (2014; K24,746,658) and other prepayments K882,548 (2014; K2,879,668).

(ii) Clearing accounts

This is mainly relating to balances from the cheque truncation suspense accounts which arose during the implementation of the cheque truncation project for the industry. The balance outstanding on this account as at 31 December 2015 is K23, 736,897

(2014: K56, 234,804). (iii) Other receivables

The other receivables mainly include withholding tax of K9,287,528 (2014: K6,152,086).

23 Deposits from customers

2015 2014

K K

Savings accounts 11,887,621 9,714,724 Term deposits 162,401,090 156,726,332

Current deposits 321,037,404 246,761,228

495,326,115 413,202,284

Repayable on demand

332,925,024

256,475,953

Repayable with agreed maturity dates or periods of notice, by residual maturity:

- Three months or less 88,088,076 89,988,756 - Between three months and one year 24,313,015 66,737,575 - Between one year and three years 50,000,000 -

495,326,115

413,202,284



55


24 Amounts due to other banks

2015

K

2014

K

Money market deposits 32,500,000 -

Other balances 163,321 -

32,663,321

-

25 Other liabilities

Other payables 411,294 25,156,605

Visa client collateral 2,841,104 1,532,224 Payroll related liabilities 69,954 549,480

Bankers’ cheques payable 1,762,849 518,773

5,085,201

27,757,082

26 Share capital

Number of ordinary

shares

Ordinary share

capital

Share premium

Total

Authorised

K

K

K

Ordinary shares of K1 each 200,000,000 200,000,000 - 200,000,000

Issued and fully paid

Balance on 1 January 2014

27,500,000

27,500,000

9,000,000

36,500,000

Issue of shares 61,044,550 61,044,550 73,876,898 134,921,448

Balance 31 December 2014

88,544,550

88,544,550

82,633,895

171,178,445

Balance 1 January 2015 and 31 December 2015

88,544,550

88,544,550

82,633,895

171,178,445

The total authorised number of ordinary shares is 200,000,000 with a par value of K1 per share. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank.



56

Notes to the financial statements (continued) 27 Regulatory risk reserve

2015

K

2014

K

At start of year - -

Transfers 144,790 -

At end of year

144,790

-

Regulatory reserves warehouses the difference between the allowances for impairment losses under the Bank of Zambia prudential guidelines and the bank’s impairment assessment model under IFRSs requirement.

28 Funds awaiting allotment of shares

This relates to ordinary shares that are yet to be allotted by the Bank for capital paid in advance. There are no specified terms of the ordinary shares to be issued in respect of the capital paid in advance.

29 Contingent liabilities and Commitments

2015 2014 Contingent liabilities:

Transaction related bonds and guarantees 256,792,344 91,006,169 Commitments:

Clean line facilities for letters of credit, unconfirmed letters of credit and other commitments

8,186,834 -

- 3,535,611

264,979,179 94,541,780

There were no other commitments to extend credit or any other off balance sheet guarantees and letters of credit, other than as disclosed in note 28 above.

Legal proceedings The bank had some legal cases against it at 31 December 2015. However based on the banks due diligence there is no significant risk of loss to the bank arising from these, therefore no provision has been made as it is unlikely that any significant loss will arise.

30 Lease commitments

Non-cancellable operating lease rentals are payable as follows:

2015 2014

K K

Less than one year 3,205,106 2,981,044

Between one and five years 10,067,900 11,316,951

Over five years 7,846,997 10,462,663

21,120,003 24,760,658

The Bank leases the Head Office and three branches under operating leases. Three of these leases run for a period of 15 years while the remaining lease is for a period of 5 years. Each of these leases has an option to renew the lease after that period.



57


31 Related parties

The ultimate controlling party of the Bank is Access Bank Plc incorporated in Nigeria. There are other companies that are related to Access Bank Zambia Limited through common shareholdings and common directorships.

Access Bank Plc Access Bank UK

Nature of relationship Holding company Fellow subsidiary

A number of banking transactions are entered into with related parties in the normal course of business. These include loans, deposits and foreign currency transactions. These transactions were carried out on commercial terms and at market rates.

Amounts due from related parties

2015 2014

- From fellow subsidiaries K K

- Access Bank UK 4,326,395 18,336,337

- Access Bank Plc 122,451,303 6,476,724

126,777,698

24,813,061



58


31 Related parties (continued)

Transactions with directors and key management personnel A number of banking and other transactions are entered into with related parties in the normal course of business. These include loans, deposits, foreign currency and other transactions for services. The volumes of related party transactions, outstanding balances at the year end, and the related interest expense and income for the year are as follows:

(i) Loans and advances ZMW

2015 2014 Directors Connected

entities to directors

Key management

staff

Total Directors Connected entities to directors

Key managem

ent staff

Total

Loans outstanding at 1 January

712,500

1,231,388

85,304

2,029,192

911,350

1,685,638 95,737

2,692,725

Loans issued during the year

1,362,156

776,502

-

2,138,659

236,913

176,050 -

412,963

Loan repayments during the year

-

-

(85,304)

(85,304)

(435,763)

(630,300)

(10,433)

(1,076,496)

Loans and advances outstanding at 31 December

2,074,656

2,007,890

-

4,082,547

712,500

1,231,388

85,304

2,029,192

Of which: Executive directors - Non executive directors 2,074,656 2,007,890 - 4,082,547 712,500 1,231,388 - 1,943,888

2,074,656

2,007,890

-

4,082,547

712,500

1,231,388 -

1,943,888

Interest and fee income earned

446,051

134,851

-

207,759

72,908

134,851

-

207,759



59



Transactions with directors and key management personnel (continued) (i) Loans and advances (continued) Loans to non-executive directors are made under commercial terms in the ordinary course of the Bank’s business. Loans to executive directors are made on the same terms as those of other employees of the Bank. No specific impairment provisions have been recognised in respect of loans given to related parties (2014: Nil).

(ii) Deposits


Directors

Connected entities to directors

Key management

staff Total Directors

Connected entities to directors

Key management

staff Total

Deposits at 1 January

658,588 1,331,896 6,205

1,996,689

338,588 1,207,590 6,205

1,552,383

Deposits received/(repaid) during the year

1,256,216

(1,025,566) 31,439

262,089

320,000 124,306 -

444,306

Deposits at 31 December

1,914,804 306,330 37,644

2,258,778

658,588 1,331,896 6,205

1,996,689



60



(iii) Director’s emoluments

2015

K

2014 K

Sitting and other allowances 1,556,824 895,508

1,556,824

895,508

(vi) Key management compensation

Salaries and other short-term employment 2,245,773 1,618,358

Pension Contribution 133,755 76,435

2,379,528 1,694,793

ACCESS BANK ZAMBIA LIMITED ANNUAL REPORT AND ...

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