#1Standard Bank standardbank.com.na SBN Holdings Limited Annual report for the year ended 31 December 2022 Kunene River - Namibia SBN Holdings Limited Annual report for the year ended 31 December 2022 NAMIBIA IS OUR HOME, WE DRIVE HER GROWTH Standard Bank Also trading as Stanbic Bank#2Contents Reporting Introduction Who Our value creation story suite 01 we 22 02 Our approach 04 to Our stakeholder 06 Our material 08 Our top 09 en Our strategy 12 Our delivery 14 our 16 Allocating Our performance Chairman's Chief Financial Our Our accountability Corporate Board Executive report 18 executive's 20 review 22 SEE 28 governance 34 of 40 committee 44 Annual financial statements SBN HOLDINGS LIMITED Annual report 2022 The annual report Our primary report to stakeholders provides an assessment of our ability to create value over time and information relevant to our shareholders, including our annual financial statements. Reporting suite To meet the information needs of our diverse stakeholders, we produce a suite of reports. management Environmental, social and governance report Our environmental, social and governance (ESG) report provides an overview of the processes and governance structures that relate to social and environmental matters, together with an assessment of our social, economic and environmental (SEE) impacts. To ensure we meet the needs of our stakeholders, we merged our report to society and ESG report into a single report to provide a comprehensive review of our activities for the year. Navigating our report Refers readers to information within this report. Refers readers online, to information across our suite of reports. Directors' responsibility 4&nd Annexures Report of the 49 inde A 122 Subsidiaries Director's report 55 B- Risk and 125 capital Statements of 57 financial C Emalments Income statements 58 D Detailed 148 of accounting po Statements of other comprehensive Shareholder information Statements of 6@hanges Statements of 62 cas Notice Accounting policy elections and 63 restatements Form Key management 68 assumption Shareholder Notes to the annual3 financ Contact of annual1 76 general meeting of 179 proxy analysis 181 and 183 other details Spitzkoppe - Namibia Additional reports and other financial information, including the notice of annual general meeting (AGM), can be found online at: https://www.standardbank.com. na/namibia/personal/about-us/ investor-relations 1 Oversight The board audit subcommittee is responsible for providing oversight of the financial reporting process. The committee recommended the annual report to the SBN Holdings Limited (the group or SBN Holdings) board of directors (the board) for approval. The board approved the report on 22 March 2023. Feedback We welcome the views of our stakeholders on the reports in our reporting suite. Please contact Thea Maas at Investor [email protected]#32 INTRODUCTION Who we are Namibia is our home, we drive her growth. Our history Operating in Namibia for over 100 years, Standard Bank is one of the country's oldest companies. Our original vision when our first branch opened in Lüderitz in 1915 was to better understand our customers and better connect borrowers to lenders, employing people with a strong knowledge of local business conditions. Standard Bank has a strong presence in Namibia and has always lived up to the promise of bringing banking to the nation. This vision has created the foundation for the bank we would become and the qualities our customers and clients can expect. We are proud to be part of the Standard Bank Group, a financial services organisation with a 160-year legacy of operations across 20 sub-Saharan African countries. Growing from a few employees to over 1 300 today, we are committed to making banking available to all Namibians. We have a wide network of branches and ATMs across Namibia and have evolved and adapted with our customers to grow a rich heritage while nurturing and protecting our reputation. Our physical footprint Transactional volumes on our digital platforms Internet Banking 4 308 342 2021: 3 591 280 FU C Branches (including in-store) 60 2021: 62 ATMs 436 2021: 409 T ப O ATM: Automated teller machine USSD: Unstructured supplementary service data. Our company structure General public (including Purros Trust) 25.1% Standard Bank Group 74.9% SBN HOLDINGS LIMITED 100% SBN HOLDINGS LIMITED Annual report 2022 100% Standard Bank Namibia Limited 100% Standard Insurance Brokers (Namibia) (Pty) Ltd 100% Stanfin (Namibia) (Pty) Ltd 100% 50.9% Arleo Investments Sixteen (Pty) Ltd Mobicash Payment Solutions (Pty) Ltd (MobiPay) 000 100% Standard Bank Namibia Nominees (Pty) Ltd 100% Spearmint Investments (Pty) Ltd¹ PayPulse 1 075 537 000 000 000 2021: 962 963 0 USSD 1 122 250 2021: 1 136 606 Please refer to Annexure A in the annual financial statements for a full list of the material subsidiaries of Spearmint Investments (Pty) Ltd. Sossusvlei - Namibia 3#4OUR VALUE CREATION STORY 4 Our approach to value creation Our approach is underpinned by integrated thinking, connecting the emerging trends affecting our business and the issues that may impact our strategic execution and our ability to deliver sustainable growth and value for all our stakeholders. Transform client experience Bxg Execute with excellence SBN HOLDINGS LIMITED Annual report 2022 5 Drive sustainable growth and value Executing our strategy Our strategic priorities create the framework that outlines and clarifies our medium-term goals to better fulfil our purpose, and deliver our 2025 Ambition. Our purpose the reason we exist Namibia is our home, we drive her growth Our strategic priorities - what we need to do to deliver our purpose. We will transform client experience using digital technology, amplified by the human touch. We aim to understand our clients as deeply and empathetically as we can, and then use our human skill and digital capabilities to help meet their needs and enable them to achieve their goals. We will execute with excellence, delivering innovative and cost-effective products and services ourselves and in partnership with others. We will drive long-term, environmental and socially sustainable growth and value. We will responsibly allocate our resources and strive to deliver positive impact. 88 & Measuring our progress We have measures and targets with which we track the progress we are making in achieving our 2025 Ambition Client focus We provide consistently excellent client and partner experiences via an expanded range of innovative solutions. Employee engagement We ensure our people feel deeply connected to our purpose and are empowered and recognised. Risk and conduct We do the right business, the right way. Operational excellence We use technology and data to better serve and protect our clients, reduce costs, and scale our platforms. Financial outcome We allocate our resources to deliver attractive shareholder returns. SEE impact We drive Namibia's growth by delivering shared value and positive impact. ■By placing the interests of our customers, clients and the communities impacted by our business at the centre of our decision-making, we ensure that we act in accordance with what is good for these communities and what is good for the group. By ensuring that the economic value we generate for our shareholders is underpinned by the creation of value for society, we build trust and long-term relationships with our clients and motivate and inspire our employees. ■ By building more equitable and prosperous economic growth, we grow our client base and potential markets, and by thinking long-term, we ensure that our markets remain viable and prosperous into the future. Where we have the most meaningful impact AND WELL-BEING on the United Nations Sustainable Development Goals (SDGs): Our target outcomes Growth and scale Growth and scale Efficiency and resilience Informing our thinking Our operating context Key trends provide opportunity for growth and development that justify the optimism that underpins our strategy and allows us to navigate the volatility, uncertainty, complexity and ambiguity in our environment. Our material matters Our material matters are those that have the potential to substantially impact on our Organising our business and allocating our resources Our delivery model Our legitimacy and scale enables us to secure the resources we need to transform, grow, innovate and compete effectively. Accounting to our stakeholders Efficiency and resilience commercial viability, our social relevance and the quality of our relationships with our stakeholders. Legitimacy SDG 3-w GOOD HEALTH SDG SDG - SDG SDG 4 59 67 QUALITY GENDER EDUCATION EQUALITY AND SANITATION -SDG -SDG SDG SDG CLEAN WATER 7-% AFFORDABLE AND CLEAN ENERGY SDG 8 95 10€ 11 13 DECENT WORK INDUSTRY AND ECONOMIC INNOVATION AND REDUCED INEQUALITIES SUSTAINABLE CITIES CLIMATE AND COMMUNITIES ACTION GROWTH INFRASTRUCTURE Legitimacy Our stakeholders Our stakeholders provide the resources and capital we need to achieve our strategy and purpose. Our resource allocation framework We use a formal decision-making framework to allocate resources and apply scenario planning to deliver our target outcomes through our business activities for the benefit of all our stakeholders. Our approach to good governance promotes strategic decision-making that reconciles the interests of the group and society in our pursuit of sustainable value in the short, medium and long term.#56 OUR VALUE CREATION STORY SBN HOLDINGS LIMITED 7 Annual report 2022 Our stakeholder priorities Our stakeholders are the individuals, groups and organisations that materially affect or could be affected by our business activities, products, services and performance. Clients and customers How we engage ■Two-way engagement methods that can include client surveys, online communication channels and in person at our branch network. How we measure the quality of the relationship Key metrics to assess relationship ■ Net promoter score (NPS) and client satisfaction index. Employees How we engage ■Two-way engagement methods that can include employee surveys, online communication channels and in person sessions. How we measure the quality of the relationship Key metrics to assess relationship ■ Employee NPS (eNPS) ■ Emotional promoter score ■ Organisational alignment score ■ Engagement dimensions score (work satisfaction) ■ Workforce diversity ■Turnover data and exit interviews ■ Average learning hours per person ■ Workforce return on investment. Priorities and concerns ■ Personalised solutions relevant for individuals and businesses ■ Omnichannel options, speed, and straight-through- processing ■ Digital convenience and human interaction when needed ■ Accessibility, affordability and relevance of services ■ System stability and reliability, data security protection from fraud and cybercrime ■Integrity and confidentiality Priorities and concerns ■Digital skills development, career growth ■■Work-life balance ■Recognition, appreciation, good communication ■Compensation and benefits ■Diversity and inclusion ■ Opportunities for advancements expected at a major financial institution ■Training and opportunities to undertake approved tertiary education programmes ■Financial assistance to reach educational goals. Our response OO ■ Truly digital, truly human approach ■ Differentiated personalised offers for retail customers on our digital channels informed by data analytics ■ Implementation of a small- to medium-sized enterprise (SME) scoring capability drawing on non-traditional data sources to assess credit worthiness and enable loan disbursements for small-scale traders ■ Improved system stability and resilience, and significantly improved response and recovery times ■Increased customer awareness of cyber and fraud risks through targeted campaigns ■Further strengthened anti-financial crime controls ■ Offering feedback mechanism to ensure that issues are managed and resolved. Our response ■Invested in employee development, with a focus on digital and technology skills ■ Further improved diversity metrics at senior and executive levels, through targeted ☐ leadership development initiatives Offering qualifying employees opportunities to pursue career advancement through bespoke training programmes, multi-country experience across the Standard Bank Group and bursaries for tertiary studies. Regulators How we engage Including the Bank of Namibia (BON), the South African Reserve Bank (SARB), Financial Intelligence Centre, Namibia Revenue Authority (NamRa), Namibia Financial Institutions Supervisory Authority (NAMFISA) ■Two-way engagement methods that can include online communication channels and in person sessions. How we measure the quality of the relationship Key metrics to assess relationship ■Constructive and positive engagements with our regulators Priorities and concerns ■Financial crime controls, anti-money laundering and combatting the financing of terrorism (AML/CFT) ■Foreign exchange controls Cyber security and data protection and security ■FinTech, regulation of cryptocurrencies, digital platforms, open banking, cloud, outsourcing ■Financial inclusion and affordability ■ Conduct and compliance with the Namibia Financial Sector Charter ■ Adherence and compliance with ■ regulations and statutes Management of customer complaints ■System stability ■Climate and environmental risks and the role of banks. Our response Engagement on key issues to ensure understanding of expectations, challenges Enhanced customer due diligence, record keeping, suspicious and unusual transaction reporting (STR) and risk management ■ Strengthened internal reporting on conduct risk and metrics ■ Automation and machine learning to improve risk management ■ Our reporting on conduct metrics. Shareholders and investors How we engage ■Two-way engagement methods that can include online communication channels and in person sessions, investor and market participant feedback, AGM, presentations. How we measure the quality of the relationship Key metrics to assess relationship ■Shareholder value created - return on equity (ROE), earnings growth, net asset value growth and dividends ■Investor and other market participant feedback ■ AGM voting outcomes ■ESG disclosures and ratings and sustainable finance solutions. Priorities and concerns ■Competitiveness of offering ■ Governance, ethics, market conduct, internal controls ■ System stability ■ SEE metrics and target setting ■ Strength of ESG risk management and link to reward ■Climate risk management and ability to measure financed emissions ■ Growth through sustainable strategies and increasing effective digitisation ■ Access to appropriate skills and talent ■ Availability of specialised skills to ensure market share growth. Our response ווה Regular investor engagement on ESG, SEE and climate issues ■ Engagement with ratings agencies ■ Quarterly reporting of investor issues to executives and board. Communities How we engage ■ Two-way engagement methods that can include online communication channels and in person discussions. How we measure the quality of the relationship Key metrics to assess relationship ■ Constructive engagements and media monitoring Priorities and concerns ■Social and environmental impacts of business activities ■Information on financed emissions and related targets ■Involving business in addressing social and economic inequalities ■Positively impacting the quality of life for disadvantaged Namibians ■Partnering with businesses to create and monitor effective socioeconomic interventions that address local issues and enable financial education. Our response ■Robust screening, due diligence and engagement to assess social, economic and environmental risks and opportunities associated business activities ■ Dedicating 1% of net profit after tax to corporate social investment (CSI) programmes ■Identify primary needs in the housing, education, health and environmental sectors ■ Support flagship projects (MycoHAB, Buy-A-Brick) on an ongoing basis.#6OUR VALUE CREATION STORY 8 Our material matters The issues that are material to our strategy are those that have a significant impact on our ability to create enterprise value in the short, medium and long term. 2022 material issues We measure our strategic progress against our six value drivers and have identified the material issues that are most likely to have an impact on them and therefore our ability to achieve our strategic aspirations. Our materiality assessment process We use the concept of double materiality which considers both internal and external factors to ensure that we have considered how material issues may impact internally on our business, across our six value drivers, and how our business materially impacts externally on society. This approach is crucial to ensure we deliver both financial outcomes and positive SEE impacts. To identify and adequately interrogate our material issues, we consider: ■ Our key impacts on society and the environment ■The expectations and concerns of our stakeholders regarding our impacts ■The economic, social and environmental context in which we operate ■The risks and opportunities facing our business, as identified through our enterprise risk process. Our material issues Based on our understanding of our strategic aspirations and stakeholder priorities, our material issues for 2022 are as follows: Our strategic priorities Transform client experience 000 Execute with excellence Drive sustainable growth and value + + Value drivers Material issues SBN HOLDINGS LIMITED Annual report 2022 Our top enterprise risks Our top enterprise risk are the issues that could have a material impact on our ability to achieve our strategic objectives. They are risks from all categories in our risk universe and can be prevalent or emerging risks. The top enterprise risks are identified though a robust process that includes content gathering from internal and external sources, followed by detailed analysis and curation of the information and then prioritisation and reflect the group's view of top risks for the medium-term. No significant changes to the top enterprise risks have been identified and, while all risks are pertinent and managed as part of our operations, we prioritise these for extra focus. Top medium-term enterprise risks Unlikely Rare Severe Possible Major Moderate 11 10 13 Likely 6 LEGEND Strategic risk Non-financial risk Client focus - issues material to our clients Employee engagement issues material to our people - Risk and conduct - issues that may impact our governance frameworks and value chain Operational excellence issues that may impact our systems and processes Financial outcome - issues that are material to our providers of capital SEE impact - issues that may impact our community ■ Customer experience ■Competitiveness in face of new forms of competition and changing client expectations ■Fair outcomes for clients ■ Employee engagement, health and wellbeing ■ Workforce diversity ■ Digital skills ■Culture of responsible banking ■Integration of ESG risk management, with a focus on climate risk and opportunity ■Information security, data privacy, cybersecurity ■Third-party risk as we transform to a platform and ecosystem business ■Reliability of digital transaction channels ■ Delivering sustainable value to shareholders ■ Delivery of positive SEE impacts, with a focus on sustainable finance solutions and supporting a just transition Our top enterprise risks Fitness to execute our strategy Certain Lack of appropriate infrastructure in the group may hinder the execution of the platform organisation strategy, delay or prevent the transformation of the way we operate and increase operating and governance costs. Infrastructure includes funding, organisational processes, technology and leadership and operating skills. Drive sustainable growth and value Impact ■Duplicated functions and additional costs ■Misalignment of deliverables and agreed objectives ■Decision referrals and opportunity losses ■Repeat failures due to poor consequence management ■Impact of unrealised cost savings on a platform organisation ■ Credibility loss due to failure to achieve the strategy. Neutral Treatment ■ Workstreams and skilled teams appointed to manage strategic transformation ■ Transformation of non- digital leaders ■Review of decision- making processes and mandates ■Data collection and analysis of planned cost reduction. Competitiveness of our customer value proposition New customer solutions may offer a mediocre value proposition that is generic and easily substitutable due to poor research and development, resulting in loss of market share. Transform client experience | Execute with excellence Impact ■Loss of brand loyalty and client retention ■Loss of market share and revenue Costly innovation that does not yield anticipated outcomes ■Investor concerns about our sustainability. Treatment Neutral ■ Propositions carefully tailored to support customer journeys ■Design and scale competitive solutions for client needs Ongoing relevant investor and stakeholder communications. Strategic priority Trend effect#710 10 OUR VALUE CREATION STORY SBN HOLDINGS LIMITED Annual report 2022 11 Our top enterprise risks continued 3 Psychological effects of Covid-19 Employees, customers, third parties and other partners experience widespread post-pandemic stress that results in low productivity, misconduct, debt defaults and business closures. Transform client experience Impact ■Mental and physical health distress and fear of large gatherings or return to work ■Inability to perform work duties and related impact on employees taking up the slack ■Portfolio impact due to financial stress. Neutral Treatment ■ Employee wellbeing initiatives ■ Update recovery and resolution plans and embed in business continuity measures ■Credit portfolio management. 6 Ability to manage large scale changes Strategic priority Trend effect Introducing new change initiatives before the completion, closure or realisation of benefits from previous change initiatives results in resistance to change, strained resources and poor delivery. Transform client experience | Execute with excellence Impact ■ Overwhelmed employees contribute to poor service delivery and inflated costs ■ Non-delivery of strategic initiatives results in opportunity losses and failure to achieve strategic objectives. Treatment Neutral ■Lessons learnt support future development ■Monitoring of external environment to ensure continued relevance of changes. Operational dependence on third parties A number of third-party partners enable critical services to our customers which may result in the loss of internal process intellectual property or know-how. If the third-party is disrupted, the group might not have adequate internal skills or capacity to continue operating these critical services. Execute with excellence Impact ■Limited internal capacity may cause lengthy disruption of payment or platform services ■ Unauthorised access and Increasing Treatment use of data may compromise the integrity of the group's data ■ Partners could leverage their position to exert undue influence during performance disputes. ■Identify risk exposures and establish third-party management framework ■Cross-skill employees as subject matter experts ■Increase due diligence processes ■ Perform regular 11 Strategic priority Trend effect Regulatory constraints related to digital transformation Financial services innovation outpaces updates to regulatory frameworks, including that of suitable regulations for platform environments. Legacy regulations in some jurisdictions impede progress and allow unregulated competitors to progress faster. Execute with excellence Impact Increasing ■ Unsuitable/legacy regulations stifle innovation Regulatory processes can impede implementation of innovative solutions ■ Non-regulated competitors and new entrants in some jurisdictions create competitive arbitrage. business continuity exercises and disaster recovery testing. 12 Treatment ■ In-country engagement with regulators to share strategy and regulatory implications Participate in regulatory initiatives. 4 Technology instability Recurring unavailability of digital services erodes customer trust in the 'always on' promise that is core to the platform organisation value proposition. Execute with excellence Impact ■Frustrated clients switch over to competitors Temporary loss of transaction volumes and revenue ■Reputation damage and reduced customer trust in our ability to operate a platform. 5 Neutral Treatment ■Incident management and analysis ■IT landscape simplification and resilience programme ■ Enhanced scenario analysis and system testing ■Improved business resilience capability. Fraud via digital channels Clients are defrauded by external parties on the digital channel we promoted as part of the digital strategy. Execute with excellence Impact ■Customer loss as Neutral Treatment customer culpability is not covered and the lack of resolution options frustrates clients and customer-facing employees Negative perceptions circulate on social media ■Customer trust is impaired. ■Increase customer awareness on fraud scams and methods, and use of digital security ■Increase transaction monitoring to identify suspicious activity and minimise losses. Threat posed from major and emerging technology companies Big Techs and FinTechs offer efficient and affordable banking and other services through existing and familiar platforms. Competitors have limited regulations restricting their innovations. Incumbent banks are slower to market new solutions. Transform client experience | Execute with excellence Impact ■Inability to scale disruptive products on legacy systems ■ High number of market misses and innovation write-offs ■ Unrestrained by regulations, competitors' market innovative new products faster ■Loss of customers to competitors. 8 Treatment Neutral ■ Accelerated decommissioning of legacy systems ☐ Building competitive solutions ■ Strategic partnerships to build a platform organisation ■ Participation in Resourcing for ESG risk management regulation development. A lack of dedicated resources to lead the management of ESG risks combined with limited client data sources limits our ability to demonstrate our commitment to sustainable financing. This may increase the cost or limit the availability of capital in international markets. Drive sustainable growth and value Impact ■ Slow development and implementation of ESG risk management processes ■Flight of international capital to entities with established climate risk management ■Client environmental and social requirement breaches not tracked and reported. Neutral Treatment ■ Increased board focus on ESG issues ■Strengthening ESG risk management. 10 Technology and data skills scarcity and talent war Inability to attract and retain talent and the global shortage of future skills (IT engineering, data science, artificial intelligence (AI), robotics, quantum computing), may prevent the successful and timely delivery of strategic IT dependent initiatives and increase salary and consulting costs. Transform client experience | Execute with excellence Impact ■Talent shortage and sub-par recruitments may limit strategic transformation ■Rising consultant costs to fill skills gaps ■ Employee costs may exceed market rate ■ Securing scarce skills may impact local employment metrics ■ Competition for skills leads to bidding wars and high employee turnover. Increasing Treatment ■ Aggressive recruitment and retention of scarce skills ■Future-ready skills development ■Increase focus on internal talent pipeline. Ransomware attacks Criminals could implant the latest malware to infect the group's network and hold our systems and data hostage to disrupt critical customer services. This may also result in large-scale data privacy breaches. Execute with excellence Impact Increasing ■Loss of client and transaction data ■ Corrupted, inaccessible or unusable data ■Disruptions of critical client services ■Client information may be used to commit crime ■Fines or penalties from multiple regulators, reputation damage and loss of trust ■Reputation damage. 13 Increasing Treatment ■ Maintain information asset register ■Regular data back-ups on-site and off-site ■ Business continuity plans ■ Cyber insurance to enable quick access to services. Back-to-back extreme weather events Repeat and severe extreme weather events deplete resources. The impact of drought (i.e three years of water scarcity) or flooding on agriculture reliant economies may be devastating and result in climate refugees. Execute with excellence Impact ■ Depleted disaster recovery resources ■Damage to physical assets and lives lost ■ Food and water shortages ■ Prolonged disruption affecting access to basic goods and services ■ High credit losses and deep economic recession. Treatment ■ Business continuity plans.#8OUR VALUE CREATION STORY 12 Our strategy Our strategy is underpinned by our purpose. Our updated strategic priorities will enable us to better fulfil our purpose as we deliver our 2025 Ambition and achieve our financial targets. Our targets Our strategic priorities + Translating 2025 Ambition into execution Client focus ■ Top quartile client and partner satisfaction scores ■ Revenue growth 5% to 9% Short term We are focused on defending and growing our franchise Medium term Each client segment will maintain and protect their strengths, building new ecosystems in focused and clearly identified areas to meet the expanding needs of our clients. We enhance our offering to our clients by facilitating partnerships with technology providers. D Transform client experience We will transform client experience using digital technology, amplified by the human touch. We aim to understand our clients as deeply and empathetically as we can and then use our human skill and digital capabilities to help meet their needs and enable them to achieve their goals. Execute with excellence 000 We will execute with excellence, delivering innovative and cost- effective products and services, ourselves and in partnership with others. + H + Employee engagement ■ Upward trend in eNPS ■ Increasingly diverse workforce ■Improved workforce return on investment We are focused on accelerating skills development in key areas to develop, attract and retain critical skills and drive platform thinking Our people are learning to think and act differently while developing new and more relevant skills. Risk and conduct ■ Operate within risk appetite and conduct framework ■ Common equity tier 1 (CET 1) ratio> 11% ■ Credit loss ratio 70bps to 100bps We are committed to doing the right business, the right way ■We are committed to world-class governance and risk management, embedded in the way we do things. Operational excellence ■ Lower cost to serve ■ Cost-to-income below 60% System security and stability ■ Improving data monetisation We will deliver innovative solutions that support our platform ambitions We will deliver innovative solutions that can be scaled through the right infrastructure that provides an always on, always secure digital foundation. 0000 Drive sustainable growth and value We will drive long-term, environmental and socially sustainable growth and value. We will responsibly allocate our resources and strive to deliver positive impact. 函 SBN HOLDINGS LIMITED 13 Annual report 2022 Financial outcome ■ Sustained headline earnings growth ■ROE of above 15% Execution requires capital reallocation ■ We are focused on efficient investment, preserving the strong franchises we have and investing in capital efficient, high-margin growth in growing segments where the return on investment is clear and attractive to deliver our 2025 targets. SEE impact ■ Support the development of alternative building materials We are committed to making a positive impact We are committed to promoting sustainable and inclusive development, considering the environmental and social impacts of our decisions and actions, taking into account our stakeholder views and preferences. We will continue to increase the transparency of our decision-making and enhance our ESG reporting. & Walvis Bay - Namibia#9OUR VALUE CREATION STORY 14 Our delivery model Our business model enables us to manage our resources and relationships responsibly to deliver the best outcomes for our stakeholders. Our inputs Capital inputs Financial capital Our large, well-balanced portfolio is underpinned by an appropriate risk appetite mandate, a robust capital structure, and a future-focused resource allocation framework that provides the resilience and flexibility to manage change, uncertainty, innovation and growth. LLLLL Our trade-offs and constraints Client focus ■The stability of our digital platforms and cyber security remains a top priority ■ Growing scale in selected markets, particularly as competition from non-traditional financial services providers continues to intensify. + Employee engagement ■Competition for skills in financial services continues to increase ■ Accelerating our people's ability to grow and adapt, as we evolve the way we operate ■ Supporting the wellbeing of our people by nurturing healthy relationships and creating a safe work environment. + Intellectual capital Our recognised brand strength and legitimacy enables us to leverage our future-ready capabilities to offer relevant, competitive and innovative banking, insurance, and asset management solutions through our digital platforms. Human capital Our strong executive and leadership teams, deeply skilled and experienced people, and high-performance, client centric and ethical culture are rooted in our purpose. We are investing in strategies to equip our people with the mindset and skills needed for the future in support of our 2025 Ambition. Our business activities and outputs Our solutions We deliver solutions that help our clients to transact, earn, grow, insure, save and leave lasting legacies for future generations. Risk and conduct ■ Managing the natural tension between client convenience, the speed at which we can fulfil their needs, and the parameters of our mature and continually evolving regulatory, supervisory and control environment. Manufactured capital Our physical branch network and access points are complemented by our modernised digital backbone and increasingly simplified systems architecture, allowing us to deliver better client and employee experiences and higher levels of efficiency. Banking We lend money to our clients, provide transactional banking facilities and knowledge-based services as well as market access and risk mitigation solutions Operational excellence ■ Delivering digital capabilities that improve client experience and efficiency while solving the correct client needs requires accelerated investment in digitisation to achieve a lower cost to serve over time. Our outcomes Strong relationships with diverse and growing client base ■Recognised brand strength and legitimacy ■ Strong strategic partnerships support excellent client experience Physical and digital presence supports distribution capability. SBN HOLDINGS LIMITED Annual report 2022 15 ■Strong executive and leadership teams Deeply skilled and experienced people High-performance, ethical culture connected to our purpose. Distributing value Inflows from clients N$2.73 billion (2021: N$2.44 billion) ■Trusted relationships with stakeholders ■ Mature governance and control systems ■Well-developed financial risk and capital management framework Invested in our people N$812.6 million (2021: N$838.9 million) + ■ Strategic partnerships and future-ready capabilities support developing innovative solutions ■ Digital capabilities focused on providing 'always on, always secure' services ■Increasingly simplified systems architecture. Direct and indirect taxes to governments and regulators N$263.7 million (2021: N$196.4 million) Invested in our operations, suppliers and third parties N$866.1 million (2021: N$747.9 million) Social and relationship capital Our trust-based relationships with all our stakeholders underpin our ability to deliver our purpose and strategy. We are deepening our strategic partnerships to support our engagements with our clients, lower our cost to serve and develop innovative solutions. Our social and economic impacts are embedded into our business strategy and decision-making processes, enabling us to deliver positive impacts in the communities in which we operate. Natural capital We are driving sustainable investment by embedding SEE as a commercial approach, aligned to Africa's wellbeing. We partner with clients and other stakeholders to create and implement climate smart solutions. Investment and Insurance ■We provide long- and short-term insurance, investment products and advisory services Beyond ■We derive revenue from non-financial services and solutions and strategic investments Financial outcome ■ To continue to attract the capital needed to fund growth, we must provide an appropriate rate of return to our providers of capital, while still creating value for our other stakeholders. This requires we balance our ability to generate revenue with the costs incurred to do so. ■Large and well-balanced portfolio ■Robust capital structure and strong balance sheet ■Future-focused resource allocation. Returns to shareholders N$182.9 million (2021: N$156.7 million) Reinvesting in the business N$464.8 million (2021: N$133.8 million) SEE impact ■ Embedding SEE impact areas into our business strategy to deliver positive social and economic outcomes. ■ Well-developed SEE strategy ■ Focused positive impact in seven areas ■Develop a climate policy that supports a just energy transition.#10OUR VALUE CREATION STORY 16 Our resource allocation framework Allocating our resources We carefully allocate our resources - capital, funding, capabilities and expertise - using our resource allocation framework. Designed to drive sustainable growth and value, our resource allocation process is aimed at addressing specific client needs. Once these have been identified, gated hurdle rates are applied to assess the soundness of the investment required. If the investment meets these hurdles, targeted metrics ensure that our rates of return are met as the solution is implemented. Detailed scenario-based thinking allows us to anticipate and plan for volatility and complexity and frames the allocation process. Led through the lens of client strategy We invest to serve clients more efficiently, creating and distributing relevant, personalised and innovative solutions. Supported by a prioritised investment portfolio We are deliberate in tilting our portfolio to grow the core banking franchise and to grow a capital efficient business. Resource allocation decisions subjected to gated hurdle rates Our decision-making framework is aligned to our strategy and resource allocation requests are subject to hurdle rates of return. Allocation tested against risk appetite We regularly review and amend our risk appetite across segments and solutions. Progress measured against set targets We develop, refine and track metrics that are easy to understand and measure, are actionable and aligned to our strategy. SBN HOLDINGS LIMITED Annual report 2022 Dead vlei-Namibia 17#1118 OUR PERFORMANCE SBN HOLDINGS LIMITED Annual report 2022 Chairman's report Final dividend per share 46 cents 2021 15 cents Total capital adequacy ratio ↑17.7% 2021: 14.7% ROE ↑13.7% 2021: 8.6% Herbert Maier Chairman "In 2022, our purpose 'Namibia is our home, we drive her growth' formed the foundation of the work we did to transform client experience and deliver results that are reflective of sound management and governance of the group's operations. We are therefore well-positioned, as Namibia emerges to new opportunities, to grow sustainable value for shareholders, customers and other stakeholders" Operating environment In 2022, the global economy experienced another fundamental shift. The optimism felt at the start of the year had focused on a faster than anticipated economic recovery, particularly as the Covid-19 pandemic began to generally subside in most parts of the world. Yet, as the year progressed, complex challenges arose in the global operating context. In response to the Ukraine invasion the West instituted sanctions against Russia, driving up commodity prices. The geopolitical tension between China and the United States continue to disrupt global supply chains. Other factors such as rising inflation and interest rates, China's zero Covid policy and slower growth all compounded to significantly impact the growth outlook. Despite this, Namibia's economic recovery continued in 2022 with GDP growth forecasted at 4.2%. Delivering our strategic objectives Our focus for 2022 remained on transforming client experience by developing bank specific capabilities that enhance our processes and drive efficiency while also improving service delivery to customers. We developed and then successfully delivered relevant and bespoke digital products and solutions to meet the needs of customers and employees, supported by leveraging the group's key strategic partnerships. It is therefore a privilege to present our financial results showing a growth in profit for the year of 70.5%, and an increase in ROE from 8.6% to 13.7%, albeit still below our aspired target of 15%. As a board we are pleased by these improved results due to the focus and dedicated efforts made by the group's people. We remain confident that the group is well positioned to take advantage of the current and future opportunities the country holds. Increased investment in green energy and renewables, as well as the discovery of oil will continue to drive economic growth and thereby create value for society. We continue to invest in our people and support their wellbeing to ensure that they can embrace the rapid changes in our environment. We are equipping them with the skills to make extensive use of the new technology, digital capabilities and data that we need, to deliver our purpose. Sustainability over the long term is central to our strategy and our ability to deliver inclusive and sustainable growth. We continue to make a meaningful difference in our communities, ensuring that our social, economic and environment (SEE) as well as our corporate social investment (CSI) efforts contribute to the improvement and upliftment of the socioeconomic circumstances of the communities in which we operate. Changes to the board During the year, Mr Alpheus Mangale and the chief financial officer, Mrs Letitea du Plessis, resigned from the board and Mr Jerry Muadinohamba retired. We thank them for their contribution to the group. There will be more changes in the composition of the board during 2023. Ms Natasha Bassingthwaighte, Mrs Birgit Rossouw as well as myself, as chairman, will be retiring from the board after serving on the SBN board for more than 10 years. This is in line with the group's board succession plan for directors. Mrs Maria Dax has reached the age of 70 years and, as prescribed by BID-1 which became effective during December 2022, she will also retire from the board at the 2023 AGM. We are honoured to be joined by Ms Silke Hornung, Ms Suné Brugman and Nangosora Ashley Tjipitua. We welcome them as directors on the board. Looking ahead A gloomier outlook is now expected during the coming year, with the world's economic growth expected to slow to 1.7% in 2023, down from 2.9% in 2022 according to the World Bank's latest reports. Challenges are expected to remain as geopolitical tension, climate events, global supply chain disruptions and higher food and oil prices will continue to drive volatility and growing socioeconomic challenges, due to the increased cost-of-living and higher household debt. Namibia's economic growth over the medium term is expected to be higher than the pre-pandemic growth levels, however, given the current global environment, this will be slightly slower than initially anticipated. The International Monetary Fund (IMF)¹ forecasts Namibia's GDP to grow 3.0% for 2022 and 3.2% for 2023. We remain optimistic about the reforms ahead that are likely to come to fruition towards the end of the mid-term expenditure framework. Large structural investments in both the green and blue economy, as well as the discovery of offshore oil, place Namibia in an excellent position to become an energy 1 International Monetary Fund - Regional economic outlook (October 2022): https://www.imf.org/en/Publications/REO/SSA/Issues/2022/10/14/ regional-economic-outlook-for-sub-saharan-africa-october-2022 powerhouse on the African continent over the medium-to longer-term and alleviate its and the regions energy needs. This has the potential to accelerate economic growth moving forward, and we are well positioned to navigate this future with our strategic partners. We are also looking forward to assisting our clients in these industries to achieve their aspirations. Our strategy for 2023 will continue to focus on our clients, our people as well as operational excellence, thereby ensuring that our people, processes and systems are properly aligned to continue to deliver the appealing and relevant customer value propositions across all segments. Appreciation I would like to express my deep gratitude and appreciation to our clients, our employees and the executive management team, my board colleagues and numerous other stakeholders for their ongoing support, tireless work and efforts to produce these pleasing improved results in continued challenging times. Without your valuable support these results would not be possible. You faced the year courageously and this enabled significant progress in the delivery of our strategic priorities. 19#1220 20 OUR PERFORMANCE Chief executive's review Profit for the year ↑N$624 million 2021: N$366 million Net interest margin ↑4.4% 2021: 3.9% Progress Last year, I referred to resilience as the capacity of any entity to prepare for disruptions, to recover from shocks and stresses, and adapt and grow through disruptive experience. In 2022, we are in fact, realising the resilience dividend following the credible performance. We embarked on the delivery of our strategic priorities during the year with optimism and encouragement, to build on our sound management and governance frameworks with the aim of restoring our performance to pre-pandemic levels, which was indeed a stretched aspiration for the team. I am proud of the progress that we have made, as evidenced by the successful delivery of key projects, that will enable us to deliver automation, stability, security and ultimately improved customer experience. One of our most significant achievements is the successful upgrade and migration of our core banking platform. This involved client data migration, and enables us to build a future-ready platform business which delivers value for our clients through an expanded range of innovative onboarding, client servicing and lending solutions. It is against this background that we developed and launched our Salesforce Disruptor award-winning Blu-Market platform, a digital marketplace that will unlock trade opportunities for our clients. Our PayPulse wallet platform, which is designed in partnership with MobiPay primarily supporting financial inclusion, has been further improved. We delivered enhanced security features on PayPulse with biometric onboarding, we delivered the wallet to bank account payment functionality and, enabled our clients to subscribe for a funeral plan and a group savings scheme on the platform. Through our remittance partners, the transactional values on the platform have grown 20.8% and revenue increased by 17% year on year while our active customer base has increased by a remarkable 98.3%. Credit loss ratio ↓0.60% 2021 1.09% Mercia Geises Chief executive We received the Best Investment Bank award from EMEA, the Global Banking and Finance Awards as well as the World Economic Magazine awards. In Corporate and Investment Banking (CIB) we focused on servicing our key ecosystems. We have achieved resounding successes as evidenced by the growth in loans and advances in this segment by 35.5% and profit for the year have grown by 79.5%, which ultimately turned CIB into the biggest contributor to headline earnings for the group in 2022. The group had another first - raising N$400 million of funding in the debt capital markets through a green bond issuance. The proceeds will be used to finance - and refinance - eligible renewable energy projects in Namibia in accordance with the Standard Bank Group (SBG) Sustainable Bond Framework, aligning with the SBG SEE impact areas of infrastructure, climate change and sustainable finance and with the UN Sustainable Development Goals (SDG) 7, 11 and 13. The SDGs where we have the most meaningful impact are on page 5. Funding has been used to finance the first corporate green loan in a qualifying deal - a solar power plant that will be operational under the modified single-buyer model. We also received the EMEA accolade of Best Bank in 2022 as we delivered new capabilities and a personalised value proposition in our Consumer and High Net Worth (CHNW) business. We proceeded with caution on growth in loans and advances in this segment given the increasing interest rate and elevated inflation environment. With our Business and Commercial Banking (BCB) segment, the key priority was to reduce our non-performing loan ratio and to turn the business performance around following a five-year loss-making history. As announced to the market, we obtained all regulatory approvals and successfully completed the acquisition of a property portfolio which was non-performing with the aim to dispose of the assets. Overall, we improved our collections strategy and have reduced our credit impairment charges by 44.2%, improving our credit loss ratio (CLR) from 1.09 to 0.60 year on year. The improvement is attributable to the realisation of our key strategic initiatives as encompassed in our non-performing loans (NPL) reduction. strategy, the implementation of which we commenced in 2021, and the improvement in after-write-off recoveries. We are an engaged corporate citizen and have contributed significantly in improving the lives of Namibians through our flagship Buy-A-Brick initiative which enabled us to build 51 houses in the year under review, in partnership with the Shack Dwellers Federation of Namibia. This brings the total houses built to date to 731 houses. Our collaboration with the Motor Vehicle Accident Fund enabled us to refurbish and upgrade the biggest casualty ward in the country at the Katutura State Hospital. We focused our corporate social investment strategy on youth development programmes in hockey, soccer, rugby and go-carting. Noteworthy is the partnership we have with Brighter Day, aimed at addressing post-Covid implications in schools by engaging students and teachers alike in a timely manner in communities still feeling the devastating impact of Covid-19. We are pleased to have supported the Never Walk Alone project with the delivery of 1275 pairs of shoes to barefooted children in the Kunene Region. I am delighted with the progress that we have made, increasing profit for the year by 70.5%. I believe that this is testament to our sound governance, prudent yet bold management, a resilient business that is well positioned for growth and supported by a strong balance sheet. I wish to thank my colleagues for the passion, discipline and resilience they have shown to enable us to deliver a strong set of results. I also want to thank our clients for their continued support and for putting their trust in us. SBN HOLDINGS LIMITED Annual report 2022 21 21#13lances OUR PERFORMANCE 22 "2022 has been a year of renewed recovery for the group with strong growth in profit after tax of over 70%. SBN Holdings also successfully raised N$400 million in its debut green bond issuance, enabling the group to accelerate its progress in transitioning to a low carbon economy." Financial review Net interest income N$m 1600 1400 1200-- 1000-- 800 600 400 200 0 2017 2018 2019 1236 1220 1333 2020 2021 2022 1169 1229 1445 Non-interest revenue N$m 1400 1200 1000 800-- 600 400 200 0 2017 957 2018 1126 1263 2019 2020 2021 1193 1209 2022 1283 Letitea du Plessis Chief financial officer Impairment charges N$m 350 280 Net loans and advances 210 N$m 140- 70-- 23 000 22 000 21 000 20 000 2017 2018 2019 2020* 2021* 2022 22 146 23 475 25 476 24 091 25 382 25 969 % 1,20 1,00 0,80 0,60 0,40 0,20 0 0,00 2017 2018 2019 2020 2021 2022 97 96 239 254 289 161 -- 0.44 0.40 0.91. 1.02 1.09 0.60 Impairments --Credit loss ratio (CLR) Standard Bank ↑ 2.3% Average interest earning assets 27 000 26 000 25.000 24 000 WELCOME Standard WHATEVER YOUR DREAM Deposits from customers and banks N$m 29 000 ↓ 3.2% 28 000 27 000 26 000 الياس 22 000 2017 2018 2019 2020* 24 567 25 637 27 867 2021* 2022 26 134 28 256 27 353 Average interest earning liabilities 25 000 24 000 -- 23 000 -- 4.4% Net interest margin (2021: 3.9%) Trading assets, pledged assets and financial investments N$m 7000 6000 5 000 4000 3 000 2000-- 1000 -- о 2017 2018 2019 2020 2021 2022 3 826 4 586 4 912 5 238 6290 5 398 * The 2020 and 2021 figures were restated. Refer to the restatements in the accounting policy election and restatements section of the annual financial statements for more detail. Operating expenses N$m % 1800 66 1600 64 1400 62 1200-- 1000-- 60 800-- 58 600 56 400-- 54 200 0 52 2017 1312 -- 60 2018 2019 2020 1452 1488 1498 62 57 2021 2022 1587 63 65 1679 62 Operating expenses -Cost to income ratio Profit for the year N$m 700 600 500-- 400 300 200 100 0 2017 546 2018 552 2019 2020 2021 2022 613 421 364 624 SBN HOLDINGS LIMITED Annual report 2022 Net interest income (NII) increased by 17.5% to N$1 445 million, predominantly due to the steady 300 basis point (bps) increase in the repo rate from 3.75% to 6.75% since 1 January 2022 and ongoing improvement in the net interest margin, up from 3.9% to 4.4%. Interest income was up 22.4%, driven by the increase in interest rates and focused growth in loans and advances in CIB. Interest expense increased by 30.6%, due to the additional N$400 million green bond issuance as well as the ongoing focused approach to shifting the composition of our deposits and advances book to attract more term and notice deposits. 23 Non-interest revenue (NIR) increased by 6.1% to N$1 283 million, driven by 31.8% growth in trading revenue due to increased client flows and volatility in currency markets. In addition, other revenue was up 37.1% from N$106 million to N$146 million supported by N$23 million growth in bancassurance revenue, as well as an additional N$26 million in property-related revenue from the acquisition of the Spearmint property portfolio. Credit impairments decreased by 44.2% year on year, primarily due to the ongoing implementation of our 2021 non-performing loan reduction strategy and the achievement of related strategic initiatives. As a result, our credit loss ratio (CLR) reduced by 49bps from 1.09% to 0.60%. This will continue to be a focus area for the group. Operating expenses increased by 5.8% to N$1.7 billion, below the average annual inflation of 6.1%. Staff costs decreased by 3.1%, mainly due to the non-repeat of expenses relating to the voluntary separation package taken by qualifying employees in 2021. Other operating expenses increased by 15.8%, driven by increases in IT expenses, professional fees and amortisation costs to support client growth strategies. The increase also relates to additional activity as employees return to the office, finalisation of service level agreements with the Standard Bank Group for intra-group service management costs, as well as the inclusion of expenses relating to the new property portfolio. The group ensures that there is ongoing robust management and monitoring of the cost containment measures in place to meet its cost-to-income target of below 60%. Return on equity II % 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -- 0.0 2017 2018 18.6 17.8 2019 17.3 2020 2021 2022 10.2 8.6 13.7 Profit for the year increased by 70.5%, up from N$366 million to N$624 million, driven by the increase in repo rate and improvement of our collection strategy to reduce our credit impairment charges. The ROE improved from 8.6% to 13.7%. The group is well-positioned to achieve its ROE target of a minimum of 15% by 2025.#1424 24 OUR PERFORMANCE SBN HOLDINGS LIMITED Annual report 2022 25 Profit for the year N$m 400 000 350 000 300 000 INCOME STATEMENT for the year ended 31 December 2022 Change % 2022 N$'000 2021 Restated¹ N$'000 250 000 200 000-- 150 000 100 000 50 000- 0 -50 000 -100 000 Net interest income Non-interest revenue 17.5 1 444 802 1 229 312 6.1 1 283 086 1 208 806 Net fee and commission revenue 1.4 912 644 900 347 Trading revenue 31.8 150 178 113 935 Other revenue 37.1 145 901 106 383 CHNW BCB CIB Central and other Other gains and losses on financial instruments (15.6) 74 363 88 141. Total income 2022 2021 278 700 268 609 13 231 (59 020) 379 538 (47 189) Credit impairments 11.9 (44.2) 2 727 888 2 438 118 (161 213) (288 751) 211 390 (54 768) Income before operating expenses 19.4 2 566 675 2 149 367 Operating expenses 5.8 (1 678 675) (1 586 804) Staff costs (3.1) (812 550) (838 915) Other operating expenses 15.8 (866 125) (747 889) Net income before tax 57.8 888 000 562 563 Taxation (indirect and direct) 34.3 (263 720) (196 352) 70.5 624 280 366 211 Consumer and High Net Worth (CHNW) Profit for the year increased by 3.8% due to the 300 bps increase in repo rate but also through a deliberate plan to reduce impairments. Increase in costs above inflation was due to a reallocation of costs between CHNW, BCB and CIB. NII grew by 9.6% driven by improved liquidity management. Credit impairments were down 26.9% due to focused actions to manage impairments. Profit after tax 1 Refer to restatement narrative included in the accounting policy elections and restatements section for the restatements of accrued interest and interest in suspense. STATEMENT OF FINANCIAL POSITION as at 31 December 2022 2021 Change % 2022 N$'000 Restated² N$'000 Business and Commercial Banking (BCB) The key priority for BCB was to reduce its non-performing loan ratio and to become a profitable unit. It is therefore pleasing to report that BCB delivered N$13.2 million profit for the year. Impairments decreased by 64.6%. BCB had previously held a significant non-performing loan portfolio but through the successful execution of a debt settlement transaction, non-performing loans reduced during the year. Assets Cash and balances with central banks Loans and advances to customers 12.4 1 673 337 1 488 497 Trading and pledged assets and financial investments (14.2) 5 397 635 6 290 130 Loans and advances to banks 14.0 3 714 600 3 257 649 0.6 22 254 850 22 124 673 >200 491 154 24 892 0.5 2 143 121 2 133 208 1.0 35 674 697 35 319 049 Properties in possession Other assets Total assets Liabilities Deposits from banks Deposits from customers Debt securities Corporate and Investment Banking (CIB) CIB's profit for the year increased significantly by 79.5% year on year due to strong asset growth, which also contributed significantly towards the 55.4% growth of NII. Both trading revenue and electronic banking transaction fees were the drivers for the 13.8% growth in NIR year on year. A more focused approach was adopted to support key clients in sectors like the NBFI, Mining & Metals, Consumer, Oil & Gas and Power & Infrastructure which saw the CIB team provide attractive solutions to valuable clients. Other liabilities Total liabilities Equity Total equity and liabilities (3.0) 1 430 532 1 474 539 (3.2) 25 922 875 26 781 347 28.9 2 528 252 32.2 1 010 046 1961 123 763 764 (0.3) 30 891 705 30 980 773 10.3 4 782 992 4 338 276 1.0 35 674 697 35 319 049 2 Refer to the restatement narrative included in the accounting policy elections and restatement section for the restatements of loans and advances as well as deposit and current accounts.#15OUR PERFORMANCE 26 FUNDING AND LIQUIDITY SBN HOLDINGS LIMITED Annual report 2022 LOANS AND ADVANCES BCB and CNHW Home services Vehicle and asset finance Card and payments Other loans and advances CIB Corporate lending Sovereign lending Gross loans and advances to customers Banks Gross loans and advances Credit impairments on loans and advances Net loans and advances Change % 2022 N$'000 (7.8) 17 692 082 19 190 012 (7.5) 11 822 800 12 776 0771 (8.9) 2 893 913 3 177 030 (1.4) 140 088 142 026 (8.4) 2 835 281 3 094 8791 2021 N$'000 Deposits from banks Deposits from customers Demand deposits Card creditors Savings deposits Term deposits Negotiable certificates of deposit (NCDs) 35.5 5 324 551 3 930 100 Deposits from customers and banks 51.8 5 057 176 3 332 015 Debt securities (55.3) 267 375 598 085 (0.4) 14.0 1.3 (23.5) 23 016 633 23 120 112 3 714 600 3 257 6491 26 731 233 (761 783) 2.3 25 969 450 1 Refer to the restatement narrative included in the accounting policy elections and restatement section for the restatements of loans and advances. 26 377 761 (995 439)¹ 25 382 322 Total funding Change % 2022 N$'000 20211 N$'000 (3.0) 1 430 532 1 474 439 (3.2) 25 922 875 26 781 347 (2.5) 3.8 (12.0) 1.2 (9.1) 18 989 429 27 037 19 472 335 3 018 670 603 177 26 036 685 688 2 982 189 3 284 562 3 615 099 (3.2) 27 353 407 28 255 886 28.9 2 528 252 1 961 123. (1.1) 29 881 659 30 217 009 1 Refer to the restatement narrative included in the accounting policy elections and restatement section for restatements of deposits. Deposits from customers and banks declined moderately by 3.2% to N$27 billion, predominantly driven by a decline in NCDs, savings deposits and demand deposits. Debt securities increased by 28.9% due to our inaugural Green Bond issuance that raised N$400 million across two notes. Term deposits increased by 1.2%, in line with the group's strategy to become compliant with the anticipated Basel III liquidity requirements and aims to change our deposit mix. The group's liquidity position remained strong and within approved risk appetite and tolerance limits. Commentary Gross loans and advances to customers remained almost flat at N$23.0 billion in the year. The CIB portfolio grew by 35.5%, driven by strong growth in corporate lending due to increased client activity. The CHNW and BCB portfolios declined by 7.8% to N$17.7 billion, partly driven by the 8.4% decrease in other loans and advances due to the acquisition of a property portfolio as part of a debt settlement transaction. Composition of loans and advances to customers (%) 2022 2021 2022 2021 Home services 51 55 Vehicle and asset finance 13 14 Card and payments 11 Other loans and advances 12 13 Corporate lending 22 14 Sovereign lending 13 Gross loans and advances N$m 30 000 25 000 20 000 15 000 10 000 5000 0 |||||| 2017 2018 2019 2020 20 211 22 309 26 235 24 950 2021 2022 26 378 26 731 Capital adequacy ratio % 19.0 Capital management 18.0 The group maintained its strong capital adequacy ratios with total regulatory capital at 17.7% (2021: 14.7%) and total tier 1 capital at 15.6% (2021: 11.9%). 17.0 16.0 15.0 14.0 13.0 The group proactively manages its capital levels 12.0 to support business growth, maintain deposits and creditor confidence. This close monitoring allows the group to create value for shareholders while ensuring regulatory compliance. 11.0 10.0 2017 2018 2019 2020 2021 2022 -- 15.2 14.4 16.0 14.7 14.7 17.7 - 13.3 12.9 14.7 13.3 11.9 15.6 --Total capital adequacy ratio --Tier I adequacy ratio 27#16OUR PERFORMANCE 28 SBN HOLDINGS LIMITED Annual report 2022 29 Our SEE impact At Standard Bank Namibia, we believe in people. We believe that all Namibians irrespective of their social and economic status are deserving of dignity and access to food, water, education and quality healthcare. We are privileged to run a successful business, one of the country's oldest, for over 100 years. We therefore take pride in our ability to use our resources to give back to the community and support the very people who make our success possible. Without people we are nothing. Our future is dependent on the future of the people in the communities in which we make a meaningful impact. We therefore want to ensure that the future is bright for us all. Our approach to SEE Our approach to our social, economic and environmental (SEE) initiatives is to ensure they are an integral part of our involvement in our communities, engaging with compassion by serving to make a meaningful difference. Our investment in ensuring positive SEE impact is predominantly through our corporate social responsibility which represents a serious commitment to socioeconomic upliftment through various projects and initiatives that we support. Through our corporate social investment (CSI) initiatives, Standard Bank aims to create meaningful and lasting benefit for the communities we serve and for our business. In addition, contributing to the improvement of the socioeconomic circumstances of the communities in which we operate also contributes positively to the morale of our people, enhances our corporate reputation and demonstrates our local relevance and responsiveness to social and economic imperatives. Our approach to CSI The impact we have is central to how we do business. Our CSI strategy has been repurposed to ensure that it aligns to our strategic direction and contributes to the development of communities in our target market, with a clear focus on specific areas where we have an opportunity to make a meaningful impact. Our CSI strategy is overseen by the board's corporate social investment subcommittee, which reports directly to the SBN Holdings board of directors (board). The subcommittee is ultimately accountable for ensuring that our CSI strategy and initiatives positively impact on our reputation and the Standard Bank brand. Read more about its mandate in the corporate governance report. Our CSI policy sets out our CSI principles, governance structures, roles and responsibilities, reporting requirements, and the prevention and management of conflicts of interest. It clearly defines what constitutes CSI expenditure and differentiates this from sponsorships. Additionally, the policy requires that our CSI initiatives have an impact across all regions in Namibia. We commit 1% of our net profit after tax to the CSI initiatives we have identified as focus areas of our SEE strategy. This is four times the Namibian Financial Sector Charter requirement. CSI expenditure is approved by the board corporate social investment subcommittee. Our impact areas of focus for SBN Holdings SEE investment Selecting social partners We proactively identify programmes that provide opportunities for us to positively contribute to addressing key social and business development issues rather than respond to requests for charitable donations. We aim to form long-term funding partnerships with government and local non-governmental organisations (NGOs) who have clearly defined programmes that provide maximum positive impact in communities. When selecting social partners, the following criteria is considered Projects must result in meaningful socioeconomic development and community wellness or upliftment Funding must be directed at historically disadvantaged communities or incumbents Projects should align to the Namibian Government's priorities and national objectives, as far as possible Programmes should preferably provide a platform for increased employee involvement We only consider registered charitable organisations. When a request is received that is in line with our CSI policy and objectives, a site visit is conducted and due diligence is undertaken prior to recommending the project to the working CSI committee and board subcommittee. When a project is approved, a contract is entered into with the beneficiary organisation and payments are made once project implementation starts. The project is monitored through biannual beneficiary reports which include a detailed breakdown of how funds have been spent and the impact achieved. All projects are reviewed annually to ensure that they are achieving their intended objective. On completion of the project, the close-out process includes a project evaluation. Our commitment to CSI The wellbeing of our communities are at the heart of what we do as a bank. This is demonstrated in the various projects that Standard Bank has undertaken over the years, serving many communities across the length and breadth of the country. Over time, our efforts have evolved from simply making donations to ensuring that our support directly benefits and positively impacts the communities in which we operate in a meaningful way. Being involved in our communities is ingrained in the Standard Bank DNA and shows in the type of projects we have supported over many years. The causes and programmes we support are broad and wide ranging, touching many aspects of community life, including empowering women and girls, covering the medial costs of under privileged children, supporting charities that work with children and enterprise development. A significant part of the SBN Holdings CSI outreach is driven by our employees who take a day in the year to touch the lives of people through donations and sponsoring food and other needed materials. EDUCATION HEALTH COMMUNITY UPLIFTMENT#1730 30 OUR PERFORMANCE Our CSI initiatives SBN HOLDINGS LIMITED Annual report 2022 31 Investing in academic excellence We believe that education is the vital key to unlock doors for generations of the future. We have partnered with the Ministry of Education to encourage exceptional academic excellence at secondary schools across the country. Through this partnership - which began in 2011 - Standard Bank rewards the top three best performing Grade 10 and Grade 11 learners in each region. The most improved government school (Grade 10 or JSC) also receives N$50 000 donated towards a project of their choice. Our Flagship Project: COMMUNITY UPLIFTMENT Buy-A-Brick Merchandising This initiative started in 2020 in collaboration with Footprint Socks to sell merchandise to raise funds for our flagship programme. During 2022, we built 51 houses in partnership with the Shack Dwellers Federation of Namibia, bringing the total houses built to date to 731 houses. It has proven successful and resulted in our own employees incorporating this into their team efforts by starting small fundraising activities for the Buy-A-Brick initiative. Each department and branch within Standard Bank Namibia is given a challenge at the start of each year: to identify fundraising activities that raise enough funds to build at least one low income house. Buy-A-Brick testimonies Lovisa Shiulwa (Okongo) "I joined the Shack Dwellers Federation in 2014. I did not really understand what the purpose of the federation was but as time passed by I started to learn more about the federation and started to like what they were doing. What motivated me to join the federation was one particular lady who was younger than myself. She built a house for herself through contributions to the federation. She made a living by doing needlework and I told myself that if someone as young as that can build herself a house through savings, I too should be able to build myself a house. It is at that point that I started to also start saving some money. By then I was only living in a shack which was very small and uncomfortable. I had the desire to bring my kids from the village to stay with me in town so they can get a better education and enjoy watching television during weekends. But because of my circumstances, it was impossible to do so. When I joined the federation, I started raising money to pay my membership fee which was N$120 per year. In 2017, annual membership fees were increased to N$800 which I paid off in two instalments. Since I was a member of the federation for a long time, I had saved up quite a bit of money, in the region of N$10 000 plus. After that effort, I was approved to become eligible for a house. However, I was still not sure about getting a house. I just couldn't believe that I was in line to get a house. I was full of doubt about the process but things changed when I was given a loan through the Buy-a-Brick Initiative which was under Standard Bank. Things work differently with the Buy-a-Brick project and the Federation. We provide labour and do most of the work ourselves during the construction of our houses. In my case, I was involved in the brick making process and when construction started I also was responsible for passing sand concrete mix to the brick layers. You don't just walk into an already existing house which was built for you by other people. Here we work hard for ourselves. I am now a proud owner of my own house. I am encouraging others to also join the federation to get out of shacks and start to live in a decent housing structure. I am really thankful to Standard Bank for making it easy to own a house. Gone are the days when, during rainy season, my shack will be under water. Also when the wind was blowing, I will find that my house would be full of sand. I even bought a wardrobe while living in a shack but it could not fit anywhere because the place was small. But I am now happy to live in this brick house. It is really nice. I even put in tiles. I never imagined staying in a brick house in town. But look at me now. Let's continue to save up so we can all one day be proud home owners under the Buy-a-Brick Initiative. I really also want to thank other supporting organisations such as MTC and NamPower who have sponsored bulbs for our houses. Thank you once again." EDUCATION Making education possible for an individual learner This year, Standard Bank sponsored N$50 000 to Taimi Asino, one of the students who performed exceptionally in Grade 12 while enduring difficult circumstances. She is currently a first year student at the University of Namibia, studying to become a medical doctor. We followed her story and what she endured in the lead-up to writing her Grade 12 exams. Knowing what she experienced, losing her parents and then her aunt who supported her following her parents passing, and her eventual reliance on a network of friends and extended family, was sad and emotional. Yet, despite these challenges, she remained focused and achieved the best result in the Karas region and sixth best Grade 12 learner overall. "It is against that background that Standard Bank decided to lighten her burden and sponsored her with N$50 000 to use to support herself during her studies. It is the bank's hope that she will use the money wisely during the time of her studies and that she will eventually graduate, get a job, and support herself and those who looked after her during her time as a learner." Brighter Day initiative The Brighter Day Hope Foundation is a psychosocial support and holistic education development organisation that has been operating in partnership with Standard Bank and endorsed by the Ministry of Education, Arts and Culture since 2021. Financial Literacy Initiative The Financial Literacy Initiative (FLI) monitors and evaluates the efficiency of its projects and undertakes financial capability research. Standard Bank has been a strategic partner of FLI since 2013, committing 0.2% of its net profit after tax annually. FLI is a national platform initiated by the Ministry of Finance to enhance financial education and micro-small-sized enterprises. Its supporters include the Namibian public, private and civil society sectors that aim to work in a co-ordinated effort to improve the financial capacity of all Namibians. In 2022, our contribution to FLI was N$200 000. The Brighter Day Initiative provided psychosocial support services to the following regions: Karas, Hardap, Erongo, Kunene, Otjozondjupa, Kavango East, Kavango West and Zambezi, visiting more than 50 schools, and engaging with more than 20 000 students and around 300 teaching and support personnel. The initiative was aimed at addressing post-Covid implications in schools, by engaging students and teachers alike in a timely manner in communities still feeling the devastating impact of Covid-19. "Through the program objectives, we were able to establish that there is an acute need for interventions to address psychosocial wellbeing among a myriad of many issues affecting both teachers and students. Psychosocial support builds internal and external resources for children and their families to cope with adversity." The aim was to initiate conversations, with both students and teachers alike in a safe environment to discuss uncomfortable topics and issues. We engaged our target audience to create an understanding where help and health seeking behaviour is normalised. Through various facilitation sessions and presentations to both students and teachers, the discussions addressed topics including: ■ The Process of Bereavement and Counselling Coping strategies: management of anxiety and stress ■ Holistic wellbeing in dealing with academic pressure: workload and time management strategies. ■ Workplace adjustments for teachers and support staff ■Substance use and mental health awareness ■Teenage pregnancy ■ Suicide prevention.#1832 OUR PERFORMANCE SBN HOLDINGS LIMITED Annual report 2022 33 NAMIBIA HOPE VILLAGE Helping our people everywhere VILLAGE Standard Bank hockey development programme Standard Bank is a strategic partner of the Hockey School of Excellence, setting out to make dreams possible by identifying talent and nurturing love for the sport in areas where it is not known. Standard Bank Namibia recently renewed its sponsorship for the Junior Hockey Development Programme, contributing N$500 000 for the second of its three-year commitment. The programme focuses on realising more than simply a dream of playing hockey. It is about building strength of character in the boys and girls who will later become the men and women who will lead us in society, either in government or the corporate sector. Stand hk Sta The aims and objectives of the Standard Bank Namibia Junior Hockey initiative are ■ To produce national players for the Youth Olympics and Indoor World Cup teams ■To develop indoor hockey and Hockey5's throughout Namibia ■To equip players, coaches and umpires with skills. ■ To create jobs and keep children off the streets. 68 bisbr±2 Hope Village Standard Bank has supported Hope Village for 14 years, ensuring that orphans, abandoned children and HIV/ AIDS child victims can find love, care and a home to call their own. "We can't just hop into these kid's lives and hop out again. We are in it for the long haul. We are building our future and our legacy in these kids."- then CEO, Mr Pumzi Pupuma. The first house Standard Bank built was in 2007, and 12 children moved into it in 2008. Within a month, the house was filled with 24 children. As the Hope Village grew, Standard Bank House became the house for girls. Our support included annual maintenance of the house, pest control in the village twice a year, a birthday party and gifts for Christmas. The first child of Hope Village to finish Grade 12 was given a full scholarship and Julius Kamata, the lucky recipient, studied Hospitality and Tourism and is now a hospitality manager at B2Gold for Welwitchia Catering and Cleaning Services. Standard Bank also identified the need for a vehicle to transport the children to and from school, first donating a Combi and later donating an 18-seater bus with Liberty Life, which still takes 42 children to 13 different schools every day. When House Mother and Founder, Marietjie de Klerk, was diagnosed with breast cancer six years ago, Standard Bank provided the salary of an operations manager to help run the house. Additionally, former retired Standard Bank employee, Sophie Mouton, is currently in a full-time operational role. HOPE COMMUNITY UPLIFTMENT MycoHAB Namibia The infamous mushrooms have made quite the impression globally. So much so that our Biohab project was featured in the Wall Street Journal. Driving the growth of Namibia means finding ways to protect resources and finding alternative ways to make use of resources that are in abundance. As an extension of the Buy-A-Brick initiative, MycoHAB was born: to make Namibia a shack-free country, grow employment and provide food security, all through the cultivation of mushrooms. Additionally, the project aims to eliminate the indigenous encroacher bush that poses a significant ecological and environmental problem. In partnership with the Massachusetts Institute of Technology's (MITS) Label Free Research Group inside the Centre for Bits and Atoms and US-based architecture firm, Redhouse Studio, we are part of the innovative and exciting social upliftment project using fungal material from mushrooms to develop housing and food products. By leveraging technology developed during a NASA project, waste material is processed to create food, jobs and shelter. In short, MycoHAB Namibia is turning encroacher bush into food and building materials while storing carbon dioxide and offsetting global greenhouse gas emissions. Although we are yet to build the first houses using the bricks as they are being tested to ensure they are of the proper quality, we are excited for what the future of MycoHAB holds. COMMUNITY UPLIFTMENT Standard Bank and NamPharm Foundation partnership For the past seven years, Standard Bank has pledged N$200 000 annually to ensure that children have the opportunity to undergo a corrective cleft-pallet operation. In 2022, the NamPharm Foundation performed 42 of these procedures. HEALTH Katutura Hospital emergency unit renovation Standard Bank partnered with he MVA Fund in 2021 to launch the 'Project 9682 - You are more than a number. In a public-private partnership between the Ministry of Health and Social Services, Standard Bank and the MVA Fund, we launched one of the biggest renovation projects ever to be undertaken at the Katutura State Intermediate Hospital emergency unit since independence was announced. The project, currently in its final stages, undertook to revamp the hospital's emergency unit which had been in existence for over 60 years and served as the main emergency referral unit in the entire country, helping over 200 patients daily. COLOR HO LO VE TWO-GO 790 Project Never Walk Alone Standard Bank contributed N$400 000 to Project Never Walk Alone, a proudly national imitative registered as an NGO that raises funds to buy shoes for children. According to data, there are over 100 000 children across the 14 regions of Namibia without shoes. These children face a range of challenges, including social bullying, diseases transmitted through their feet, low self-esteem and confidence, and dropping out of school. The sponsorship focused on the Kunene region which currently has over 4 813 children without shoes. We assisted over 1 200 children by providing locally produced, brand-new, high quality leather shoes with 80% of the material sourced in Namibia.#19OUR ACCOUNTABILITY 34 34 SBN HOLDINGS LIMITED Annual report 2022 Namib Desert- Namibia Corporate governance report The board operates on the understanding that sound governance practices are fundamental to earning the trust of stakeholders, which is critical to sustaining performance and preserving shareholder value. The group's governance framework enables the board to balance its role of providing risk oversight and strategic counsel and ensuring adherence to regulatory requirements and risk tolerance. The board is committed to upholding the fundamental tenets of governance, which include discipline, independence, responsibility, fairness, social responsibility, transparency and accountability of directors to all stakeholders. The board's approach to governance is to embrace relevant local and international best practice. The principles of the Namcode inform the governance framework and practices of the group and its subsidiaries. SBN Holdings board Board committees Board audit committee Board credit committee Board risk committee Board IT committee Board people and culture committee Management committees Board corporate social investment committee EXCO PROJECT EXCO ALCO HRC CRMC RMC CC IFC NPC TBC EXCO: Executive committee ALCO: Asset and liquidity management committee HRC: High risk committee CRMC: Credit risk management committee RMC: Risk management committee CC: Credit committee IFC: Internal financial control committee NPC: New product approval committee TBC: Tender board committee Governance framework Codes, regulations and compliance Complying with all applicable legislation, regulations, standards and codes is integral to the group's culture. The board delegates responsibility for compliance to management and monitors this through the compliance function. Oversight of compliance risk management is delegated to the audit committee, which reviews and approves the compliance mandate submitted by the head of compliance, who reports on a quarterly basis on, among others, the status of compliance risk management in the group, significant areas of non-compliance, as well as feedback on interactions with regulators. The compliance function, as well as the compliance policy and governance standards are subject to review and audit by the internal audit function. Material regulatory issues are escalated to the board risk committee. Board and directors The board of directors is the group's highest decision-making body and is ultimately responsible for governance. The group has a unitary board structure, and the roles of chairman and chief executive are separate. The chairman is an independent non-executive director, as are the majority of directors on the board. The split of executive, non-executive and independent directors ensures a balance of power on the board, so that no individual or group can dominate board processes or decision- making and ensures the appropriate level of challenge. Director composition (%) Independent non-executive Non-executive Executive 2021 2022 2022 2021 6220 60 20 20 Independent non-executive directors The board annually reviews and confirms the classification of non-executive directors as independent. Six non-executive directors are independent. Succession planning Succession planning is a key focus, and the board considers the composition of the board and its committees on an ongoing basis. The group aims to retain board members with considerable experience to ensure that appropriate levels of management oversight are maintained. The board is satisfied that the current talent pool available within the group and the work being done to strengthen it provides adequate succession depth over the short and long term. The board is also satisfied that there is a clearly articulated talent strategy which focuses on creating a strong talent pool for key roles, and that the group is building capability on core areas to enable business strategy and ensure regulatory compliance. The board is further pleased to note that the employee value proposition (EVP) has now been implemented. Skills, knowledge, experience and attributes of directors The board ensures that directors possess the skills, knowledge and experience to fulfil their duties. The directors bring a balanced mix of attributes to the board, including: ■domestic and international experience ■ operational experience _ understanding of macroeconomic and microeconomic factors affecting the group ■ financial, legal, information technology, human capital, entrepreneurial and banking skills ■expertise in risk management and internal financial control. The board regularly considers board members individually and collectively to ensure the board remains strategically, demographically and operationally appropriate. Access to information and resources Executive management and the board interact regularly. This is encouraged and the executive committee attends all board meetings. Directors have unrestricted access to management and company information, as well as the resources to carry out their roles and responsibilities. This includes external legal advice at the group's expense. Strategy The board is responsible for determining the group's strategic direction. Management presents the group's strategy annually and discusses and agrees it with the board. The board ensures the strategy is aligned with the group's values, performance and sustainability objectives, and addresses the associated risks. Financial performance is monitored through quarterly management reports. In line with banking regulations, the board agrees the group's corporate governance and risk management objectives for the year ahead. The board and the relevant risk committees monitor performance against governance and risk objectives respectively. Board responsibilities The general powers of the directors are set out in the group's articles of association. They have further unspecified powers and authority, in respect of matters, which may be exercised and dealt with by the group, which are not expressly reserved for the members of the group in general meeting. The main responsibilities of the board as set out in the board mandate are as follows: ■approval of the strategic plan and the annual business plan, the setting of objectives and the review of key risks and performance areas ■ monitoring the implementation of board plans and strategies against a background of economic, environmental and social issues relevant to the group and international political and economic conditions, as well as the mitigation of risks by management appointment of the chief executive and maintenance of a succession plan ■appointment of directors, subject to election by the members in general meeting ■ determination of overall policies and processes to ensure the integrity of the group's management of risk and internal control. Delegation of authority The board retains effective control through a well-developed governance structure that provides a framework for delegation. Board committees facilitate the discharge of board responsibilities and provide in-depth focus on specific areas. The board reviews the mandate of each committee at least annually. The board delegates authority to the chief executive and executive directors to manage the business and affairs of the group. The executive committee assists the chief executive when the board is not in session, subject to statutory parameters and the board's limits on the delegation of authority to the chief executive. The company secretary monitors board-delegated authorities. 35#2036 36 OUR ACCOUNTABILITY Board meetings The board meets once per quarter. Ad hoc meetings are held when necessary. BOARD ATTENDANCE 2022 BOARD AUDIT COMMITTEE ATTENDANCE 2022 1 March 2022 8 June 4 March 2022 31 May 2022 Special board Q1 board 2022 Q2 board Special board 30 August 25 November 2022 B Rossouw (chairperson) Q3 board 2022 Q4 board N Bassingthwaighte ✓ Attended H Maier (chairperson) N Bassingthwaighte M Dax L Du Plessis M Geises S Hornung¹ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ N/A N/A N/A N/A ✓ ✓ ✓ A Mangale² J Muadinohamba³ B Rossouw P Schlebusch I Tjombonde ✓ Attended A Apologies N/A Not available 1 Appointed on 26 July 2022 2 Resigned on 2 June 2022 3 Retired on 22 April 2022 ✓ A N/A N/A N/A ✓ N/A N/A N/A N/A ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Suné Brugman was appointed to the board on 15 December 2022, and Nangosora Tjibitua on 10 March 2023. SBN HOLDINGS LIMITED Annual report 2022 37 21 February 2022 Q1 2 March 2022 Special BAC 20 May 2022 Q2 15 August 18 November 2022 Q3 2022 Q4 During the year, BAC had two members while waiting for the revised BID-1 from BoN on director appointments. Mrs S Hornung was appointed during December 2022 as the third member of BAC. Board credit committee The purpose of the board credit committee (BCC) is to ensure that effective credit governance is in place in order to provide for the adequate management, measurement, monitoring and control of credit risk, including country risk. The BCC has the right to recommend to the board the roles and responsibilities for the credit risk management committee, with clearly defined mandates and delegated authorities as defined in the bank's credit standards. The board assigned the following duties and responsibilities to the committee: ■adoption of the group's credit standards ■to ensure that all committees within the credit governance structure operate within clearly defined mandates and delegated authorities, as delegated to them by the board ■ to ensure that an appropriate credit framework and structure exist. BOARD CREDIT COMMITTEE ATTENDANCE 2022 22 February 2022 Q1 16 May 2022 Q2 15 August 14 November 2022 2022 Q3 Q4 Board effectiveness and evaluation An annual evaluation of board performance is conducted, to assess the achievement of goals set against its objectives. The aim of the evaluation is to assist the board in improving its effectiveness. The outcome of the evaluation is discussed at a board meeting and any areas of concern are addressed. Relevant action points are also noted for implementation. Executive directors do not participate in discussions regarding management performance or remuneration. Education and induction The company secretary arranges an appropriate induction programme for new directors. This includes an explanation of their fiduciary duties, responsibilities and arranging visits to operations, where discussions with management facilitate an understanding of the company's affairs and operations. Directors are regularly appraised, wherever relevant, of any new legislation and changing commercial risks that may affect the affairs of the group. In terms of the mandate of the board, directors can obtain independent professional advice in order to act in the best interests of the group, at the cost of the group. Any director also has unrestricted access to the chairman, executive directors and the group company secretary. Board committees Each board committee's mandate sets out the role, responsibilities, scope of authority, composition and procedures to be followed. All board committee mandates were reviewed in 2022 to take into account amendments to relevant legislation and the requirements of the Namcode. Board audit committee The board audit committee (BAC) assists the board in discharging its duties relating to the safeguarding of assets and evaluation of internal control frameworks within SBN Holdings and any of its subsidiary companies. The BAC reviews and assesses the integrity and effectiveness of the accounting, financial, compliance and other control systems. Some of the duties and responsibilities assigned to the audit committee are as follows: ■to review the audit plan with the external auditor, with specific reference to the proposed audit scope and approach to the group's activities falling within the high risk areas, the effectiveness of the audit and audit fee ■to review the accounting policies adopted by the group and all proposed changes in accounting policies and practices, and recommend such changes where these are considered appropriate in terms of International Financial Reporting Standards (IFRS) ■ to review the group's interim and audited annual financial statements and all financial information intended for distribution to the shareholders and the general public, prior to submission to the full board and to consider the adequacy of disclosures ■to assess the performance of financial management and review the quality of internal accounting control systems and reports produced by financial management ■to review the basis on which the company has been determined a going concern and make a recommendation to the board ■to review the group's compliance plan, and to consider reports and letters received from banking supervisory authorities and other regulatory bodies, and management's responses thereto where they concern matters of compliance and the duties and responsibilities of the board of directors of the group ■to monitor ethical conduct of the group and executives and other senior officials and to review reports from management on violations of the code of ethics. The organisation has complied with the debt listing requirements of the JSE Limited (JSE) and in particular paragraph 7 (g). N Bassingthwaighte (chairperson) H Maier P Schlebusch ✓ Attended Board risk committee The board risk committee has the responsibility of reviewing and recommending the risk philosophy, strategy and policies for approval and adoption by the board of directors. The committee assists the board in the discharge of its duties relating to the corporate accountability and associated risks in terms of management, assurance and reporting. BOARD RISK COMMITTEE ATTENDANCE 2022 23 February 2022 Q1 18 May 2022 Q2 17 August 16 November 2022 Q3 2022 Q4 I Tjombonde (chairperson) N Bassingthwaighte B Rossouw P Schlebusch ✓ Attended ✓ Board IT committee The board IT subcommittee has the authority to review, monitor and provide guidance on matters related to SBN Holdings' IT strategy, operations, policies and controls. BOARD IT COMMITTEE ATTENDANCE 2022 I Tjombonde (chairperson) B Rossouw P Schlebusch ✓ Attended A Apologies 23 February 2022 17 May 2022 16 August 15 November 2022 Q1 Q2 Q3 2022 Q4 ✓ A A#21OUR ACCOUNTABILITY 38 SBN HOLDINGS LIMITED Annual report 2022 39 Board people & culture (BPC) committee The role of the BPC subcommittee is to: ■provide oversight on the compensation of senior management and other key personnel and ensure that compensation is consistent with the group's culture, objectives, strategy and control environment ■ perform other duties related to the bank's compensation structure in accordance with applicable laws, rules, policies and regulations. The term 'compensation' includes salaries, allowances, long-term incentives, bonuses, severance arrangements and other benefits, rights or remuneration received under the group's policies. The goal of the subcommittee is to maintain compensation policies, which will attract and retain the highest quality senior managers, which will reward the senior managers for the group's progress and enhancement of shareholder value. Another objective of the subcommittee is to consider and evaluate nominations made for the appointment of independent, non-executive and/or executive directors to sit on the board of directors and to recommend fees for the directors. BPC COMMITTEE ATTENDANCE 2022 H Maier (chairperson) J Muadinohamba¹ N Bassingthwaighte² M Dax 21 February 2022 Q1 20 May 2022 Q2 19 August 18 November 2022 2022 Q3 Q4 N/A N/A N/A N/A ✓ N/A ✓ ✓ Attended N/A Not available 1 Retired 22 April 2022. 2 Appointed May 2022. Going concern Board corporate social investment (CSI) committee The role of the board CSI committee is to: ■ratify the group CSI strategy, policy and guidelines ■ratify alignment of the CSI strategy to the business strategy ■ratify proposed amendments to the focus area of CSI policy from time-to-time ■ note the CSI decisions made by the relevant social investment committees of SBN ■take overall accountability for the reputation management of all CSI initiatives that impact the Standard Bank brand. BOARD CSI COMMITTEE ATTENDANCE 2022 M Dax (chairperson) Dr N Hamunime J Muadinohamba¹ I Tjombonde 9 February 2022 Q1 ✓ Attended N/A Not available Community upliftment N/A 9 November 2022 Q4 N/A Retired 22 April 2022. SBN Holdings pledges 1% of net profit after tax generated by its business operations to CSI initiatives through its SEE strategy. The strategic focus is to invest in entrepreneurship development, education, environmental matters, and health and wellness. Company secretary The role of the company secretary is to ensure the board remains cognisant of its duties. In addition to guiding the board on discharging its responsibilities, she keeps the board abreast of relevant changes in legislation and governance best practices. The company secretary also oversees the induction of new directors, including directors of subsidiary companies, as well as the ongoing education of directors. To enable the board to function effectively, all directors have full and timely access to information that may be relevant to the proper discharge of their duties. This includes information such as corporate announcements, investor communications and other developments which may affect the group and its operations. All directors have access to the services of the company secretary. On the recommendation of the BAC, the board considers and assesses the going concern basis in the preparation of the annual financial statements annually at year end. At the interim reporting period, a similar process is followed to enable the board to consider whether or not there is sufficient reason for this conclusion to be affirmed. Relationship with stakeholders Regular, pertinent communication with stakeholders is part of the group's fundamental responsibility to create shareholder value and improve stakeholder relationships. In addition to the ongoing engagement facilitated by the company secretary, the chairman encourages shareholders to attend the annual general meeting (AGM) where interaction is welcomed. The chairmen of the BAC and BPC committees are available at the meeting to respond to questions from shareholders. The group proposes separate resolutions on each issue put forward to shareholders. Connecting with our stakeholders SBN Holdings' relevance to the markets and society in which it operates depends on continued and meaningful engagement with all stakeholders. Stakeholder management involves the optimal employment of the organisation's resources to build and maintain good relationships with stakeholders. This helps the group to manage the expectations of society, minimise reputational risk and form strong partnerships, which all underpin business sustainability. Sustainability The Namcode recommends that a company integrates financial and non-financial reporting. This means that the annual report to stakeholders must reflect how economic, social and environmental issues impact on the company's business strategy and, in turn, how these are considered when making business decisions. This evolution in reporting stems from the growing realisation that environmental and social issues have material costs impacts and could directly impact a company's long-term viability. Building on the group's previous non-financial disclosure in its annual reports, this year the group has improved its reporting to include more information on the issues that are material to stakeholders and the group's long-term sustainability which can be found in the SBN Holdings Limited ESG report. Ethics and organisational integrity The group's code of ethics is designed to empower employees and enable effective decision-making at all levels of the business according to defined ethical principles. It also aims to ensure that, as a significant organisation in the financial services industry, the group adheres to the highest standards of responsible business practice. The code interprets and defines the group's values in greater detail and provides value-based decision-making principles to guide its conduct. It is aligned with other SBN Holdings policies and procedures and supports the relevant industry regulations and laws. The code specifies acceptable and unacceptable practices and assists in making ethical infringements easy to identify. It also promotes awareness of, and sensitivity to, ethical issues. The chief executive and ethics officer are the formal custodians of the group code of ethics and ultimately responsible for its implementation. Ethics incidents are reported via the ethics and fraud hotline, human resources department, risk department, financial crime control department and the ethics officers. Reported incidents include fraud, harassment, ethical dilemmas in procurement and abuse of authority. Quarterly ethics reports are presented to the BAC. Conflict of interest The board has a detailed process in place to ensure that outside business interests and conflicts of Interest are declared by all directors on the board. We are comfortable that during the period under review there were no conflicts of interests declared which would have an impact on any of the decisions made in relation to matters put before the board for discussion and/or approval. Remuneration Remuneration philosophy The group's remuneration philosophy aligns with its core values, including growing our people and delivering value to our shareholders. The philosophy continues to emphasize the fundamental value of our people and their role in ensuring sustainable growth. This approach is crucial in an environment where skills remain scarce. The group's board of directors sets the principles for the remuneration philosophy in line with approved business strategy and objectives. The philosophy aims to maintain an appropriate balance between employee and shareholder interests. A key success factor for the bank is its ability to attract, retain and motivate the talent it requires to achieve its strategic and operational objectives in Namibia. Remuneration governance The following key factors have informed the implementation of reward policies and procedures that support the achievement of business goals: ■the provision of rewards that enable the attraction, retention and motivation of employees and the development of a high-performance culture ■ maintaining competitive remuneration in line with our markets, trends and required statutory obligations ■rewarding people according to their contribution allowing a reasonable degree of flexibility in remuneration processes and choice of benefits by employees ■ educating employees on the full employee value proposition. Board remuneration structure Non-executive directors Terms of service All independent non-executive directors are provided with a letter of appointment setting out the terms of their engagement. Directors are appointed by the shareholders at the AGM and interim board appointments are allowed between AGMs. One-third of the longest serving, non-executive directors are required to retire at each AGM and may offer themselves for re-election. If recommended by the directors and supported by the board, the board then proposes their re-election to shareholders. Fees The remuneration of board members is reviewed by the board of directors and approved and ratified at the AGM. Non-executive directors receive fixed fees for service on boards and board committees. This includes a retainer that has been calculated in line with market practices. There are no contractual arrangements for compensation for loss of office. Non-executive directors do not receive short-term incentives, nor do they participate in any long-term incentive schemes. The fees for non-executive directors are reviewed on an annual basis to ensure that such fees at all times remain market-related. Executive directors Executive directors receive a remuneration package and qualify for long-term incentives on the same basis as other employees. The components of a remuneration package are as follows: guaranteed remuneration - based on market value and the role they play Transformation annual bonus and pension incentive - used to incentivise the achievement of group objectives share-based incentives - rewards the sustainable creation of shareholder value and aligns behaviour to this goal pension - provides a competitive post-retirement benefit in line with group employees executive directors are not subject to retention agreements The group through the Bankers Association of Namibia is a signatory to the Namibia Financial Sector Charter. The group is committed to achieving full compliance with the minimum targets set out in the Charter. This is tracked by the board and management at the highest level. Details of non-executive directors' fees can be found in Annexure C.#2240 OUR ACCOUNTABILITY Board of directors Non-executive directors* SBN HOLDINGS LIMITED Annual report 2022 41 COMMITTEE MEMBERSHIPS BCC BIT BRC BAC CSI BPC Committee chairman Herbert Maier Chairman and independent non-executive director QUALIFICATIONS BCom (University of Cape Town, RSA (UCT)), CTA (UCT), CA(SA), CA(Nam), Digital Savvy Board Certificate (MIT Sloan, USA) EXPERIENCE During July 2011, Herbert joined IJG Holdings, initially on a consulting basis, assisting on the corporate advisory and private equity operations. Since June 2012, in addition to having bought into IJG Holdings, Herbert has taken control of the private equity management business. He was appointed to the SBN board of directors on 1 October 2010 as an independent non- executive director and appointed to the position of chairman to the board during 2011. DIRECTORSHIPS ■SBN Holdings Ltd ■Standard Bank Namibia Ltd ■IJG Holdings (Pty) Ltd ■IJG Capital (Pty) Ltd ■ NEC Power & Pumps (Pty) Ltd ■Stahl Construction (Pty) Ltd ■NEO Paints Holdings (Pty) Ltd ■Omburu Sun Energy (Pty) Ltd Isac Hiriua Tjombonde Independent non-executive director QUALIFICATIONS Master of Science (MSC) Information Systems (The American University of Washington, DC, USA), Bachelor of Business Administration (B.B.A) Computer & Information Sciences (Temple University, Philadelphia, PA, USA), Certificate in Corporate Governance, University of Johannesburg, RSA), Executive Development Programme (University of Stellenbosch, RSA), Digital Savvy Board Certificate (MIT Sloan, USA) EXPERIENCE Head of Information Services at NamPower, responsible for information and communication technology. Isac is a trustee of NamPower Provident Fund. DIRECTORSHIPS ■SBN Holdings Ltd ■ Standard Bank Namibia Ltd ■ Trustee NamPower Provident Fund ■Namibia Ports Authority (Pty) Ltd ■Mobicash Payment Solutions (Pty) Ltd Peter Schlebusch Non-executive director QUALIFICATIONS BCom (Wits), BCom (Hons), Accounting (Wits), CA(SA), Dip Banking Law (RAU), HDIP Tax Law (RAU), SEP (Stanford University) EXPERIENCE Peter was appointed to the board of SBN Holdings and Standard Bank Namibia on 19 January 2019. Peter currently serves as a senior banker for the chief executive of SBG. In the past, he also served as chief executive of PBB SBG from 2008 to 2018. DIRECTORSHIPS ■SBN Holdings Ltd ■ Standard Bank Namibia Ltd ■Standard Bank Offshore Group Ltd ■ Standard Bank Jersey Ltd ■ Standard Bank Isle of Man ■Standard Bank Insurance Brokers Ltd ■Melville Douglas Investment Management Ltd Adv Natasha Bassingthwaighte Independent non-executive director QUALIFICATIONS BJuris, LLB (University of Namibia) EXPERIENCE Natasha was admitted as a legal practitioner of the High Court of Namibia during 2002 and has been practising as an advocate since 2006. DIRECTORSHIPS ■SBN Holdings Ltd ■Standard Bank Namibia Ltd ■Standard Insurance Brokers (Namibia) (Pty) Ltd ■ Desert SPV One Investments (Pty) Ltd ■ Old Mutual Black Brokers Trust Rainy Day Investments Eighteen (Pty) Ltd ■The Auas View Investment Unit Eight (Pty) Ltd Birgit Rossouw Independent non-executive director QUALIFICATIONS BPhil (University of Stellenbosch); CA(Nam), BCom (UP); BCom (Hons) (UP), CTA (UP); Digital Savvy Board Certificate (MIT Sloan, USA) EXPERIENCE Birgit currently serves as independent non-executive director of Namibia Asset Management Limited, an asset manager listed on the Namibian Stock Exchange. She currently also serves as independent non-executive director on the board of the IJG Frontier Investment Fund. DIRECTORSHIPS ■SBN Holdings Ltd ■ Standard Bank Namibia Ltd ■Stanfin (Namibia) (Pty) Ltd ■ Namibia Asset Management Ltd ■ IJG Frontier Investment Fund Maria Shivute Dax Independent non-executive director QUALIFICATIONS Dip Management Studies (MANCOSA), MBA (MANCOSA), BA (Social Science), Accredited Public Relations Practitioner (APR) (PRISA) EXPERIENCE Maria was appointed to the board of SBN Holdings and Standard Bank Namibia on 19 January 2019. She served as acting CEO of the Government Institutions Pension Fund (GIPF) and prior to that as the general manager of Corporate Communication and Stakeholder Relations for ten years. Maria has also served as a trustee on GIPF and TUCSIN's board of trustees, likewise, she served as the chairperson of PRISA Namibia and NamibRe. DIRECTORSHIPS ■SBN Holdings Ltd ■Standard Bank Namibia Ltd ■ Government Institutions Pension Fund ■The University Centre for Studies in Namibia COMMITTEES COMMITTEES COMMITTEES COMMITTEES COMMITTEES COMMITTEES O APPOINTED 2010 APPOINTED 2015 APPOINTED 2019 APPOINTED 2011 APPOINTED 2012 APPOINTED 2019 * At publication.#2342 OUR ACCOUNTABILITY Non-executive directors* continued Suné Brugman Non-executive director QUALIFICATIONS BA LLB and Mining Tax Certificate cum laude EXPERIENCE Suné Brugman, was appointed as a non-executive director of SBN Holdings Limited and Standard Bank Namibia Limited effective 15 December 2022. Suné is a currently the Chief Data and Analytics Officer at Standard Bank Group. She is responsible for Data and Analytics for Standard Bank Group Banking and other financial services. Additionally, Suné leads group wide data culture, ethics, privacy and governance transformation programmes and, as an executive, she is also responsible for establishing and leading a strategic scenario planning group/capability for Standard Bank Group mandated by the Group Chief Executive. Previously Suné served as the chief risk officer, a traditional embedded role and scope that included Corporate Credit Model Development, Trading Analytics, Sovereign and Country Risk as well as Equity Risk. She also served as the Global Head: Debt Products - Investment Banking in the Corporate Investment Banking unit of Standard Bank Group. During that tenure, she was responsible for management of global debt teams based across Africa, Middle East, UK and Asia. DIRECTORSHIPS ■SBN Holdings Ltd ■Standard Bank Namibia Ltd. ■Deutsche Internationale Schule ■ Farm 1326 Banhoek (Pty) Ltd Silke Hornung Independent non-executive director QUALIFICATIONS B Com Hons Accounting Sciences; CA (Nam); Chartered Management Accountant ACMA CGMA; Administration of Estates Diploma EXPERIENCE Silke Hornung, was appointed as a non-executive director of SBN Holdings Limited and Standard Bank Namibia Limited effective 26 July 2022. Silke is a qualified Chartered Accountant as well as Chartered Management Accountant with specific skills in analysing detail of numbers, corporate governance and ethics, risk management, internal and external audit as well an in-depth understanding of investment management. She has over 12 years senior executive experience at Bidvest Namibia Limited; spent two years as Wealth Manager at Pointbreak and two years as director at NamPower, among others. She is also a qualified financial executive with superior expertise in financial analyses and reporting from multinational corporates to SMEs. She held numerous executive positions in the corporate world and serves on a number of public and private companies' boards of directors. DIRECTORSHIPS ■SBN Holdings Limited ■ Standard Bank Namibia Limited ■Namibia Power Corporation (Proprietary) Limited (NamPower) Nangosora Ashley Tjipitua Independent non-executive director QUALIFICATIONS MBC (University of Stellenbosch), LLB (University of Namibia), B.Juris (University of Namibia) EXPERIENCE Ms Tjipitua is a Legal and Corporate Governance Practitioner; she has worked in the legal and governance profession for over 13 years of which nine years have been at a management and senior executive level. Her professional expertise includes commercial litigation, organizational management, corporate legal advice, board governance, compliance risk management and competition law. Ms Tjipitua served as a director for the enforcement department at the Namibian Competition Commission, where she led significant market intervention in various industries and sectors, including the financial sector. DIRECTORSHIPS ■Business Intellectual Property Authority of Namibia (BIPA) ■ Allan Gray Namibia (Pty) Ltd ■ Allan Gray Namibia Unit Trust Management Ltd Executive directors Mercia Geises Chief executive director QUALIFICATIONS BJuris (UNAM), LLB (UFS), LLM (UFS), MBA (USB), Global Executive Leadership Programme (London Business School) EXPERIENCE Mercia was appointed to the board of SBN Holdings and Standard Bank Namibia on 1 May 2021 as chief executive officer. Previously, Mercia was the Head of the former Personal and Business Banking segment from July 2016 to April 2021. Prior to her time at the SBN Holdings group, she worked through the ranks at the Old Mutual Namibia Group from 2005 to 2016 in various senior roles, ranging from Assistant Portfolio Manager to the CEO of OMIGNAM and Unit Trust. She is also an admitted legal practitioner and completed her legal articles with what was known as Dr Weder, Kruger & Hartmann in 2005. DIRECTORSHIPS ■SBN Holdings Ltd ■Standard Bank Namibia Ltd ■ Standard Insurance Brokers (Namibia) (Pty) Ltd ■Stanfin (Namibia) (Pty) Ltd Letitea du Plessis Chief financial officer QUALIFICATIONS BACC (University of Stellenbosch), PDA (University of Stellenbosch), ACA (UCT), ACIDealing (Cert), CA(SA), Global Executive Leadership Programme (London Business School) EXPERIENCE Letitea was appointed to the board of SBN Holdings and Standard Bank Namibia on 10 February 2020. Letitea is currently Standard Bank Namibia Chief Financial Officer a position she held since July 2019. In the past she also served as Head: Treasury (2017 to 2019) and Head: Investment Banking (2014 to 2017) and prior Manager: Investment Banking (2012 to 2014). Letitea worked as Senior Auditor (2006- 2007) and Audit Trainee (2003- 2005) for PricewaterhouseCoopers (UK and Namibia) before she joined Standard Bank Namibia. DIRECTORSHIPS ■Arleo Investments Sixteen (Pty) Limited ■ Purros Investments (Pty) Limited ■SBN Holdings Ltd ■ Standard Bank Namibia Ltd ■Mobicash Payment Solutions (Pty) Limited COMMITTEES COMMITTEES COMMITTEES SBN HOLDINGS LIMITED 43 Annual report 2022 COMMITTEE MEMBERSHIPS APPOINTED 2023 APPOINTED 2022 APPOINTED 2023 APPOINTED 2021 APPOINTED 2020 BCC BIT BRC BAC CSI BPC None of the directors have been involved in the disclosures pertaining to section 4.10(b)(ii) - (xii) of the JSE debt listing requirements. O Committee chairman#24OUR ACCOUNTABILITY 44 Executive committee SBN HOLDINGS LIMITED Annual report 2022 Mercia Geises Chief executive Qualifications BJuris (UNAM), LLB (UFS), LLM (UFS), MBA (USB), Global Executive Leadership Programme (London Business School) Letitea du Plessis Chief financial officer Qualifications BACC (University of Stellenbosch), PDA (University of Stellenbosch), ACA (UCT), ACI Dealing (Cert), CA(SA), Global Executive Leadership Programme (London Business School) Nolan Angermund Head Platform Qualifications Certified Internal Auditor (CIA), Master in Internal Audit (MPHILL Internal Audit), BCom (Hons) Internal Audit Jules Baruani Head Technology and Operations Qualifications BSc Computer Science and Mathematics (UNAM), MSC Computer Science (Stellenbosch), Post-grad diploma in Mathematical Sciences (UCT) Joined the group 2016 Appointed 2016 Joined the group 2012 Appointed 2017 Joined the group 2015 Appointed 2017 Joined the group 2012 Appointed 2021 Magreth Mengo Head Marketing communications and CSI Qualifications BCom, International Financial Management, (Amsterdam School of Business) Joined the group 2015 Appointed 2019 Lucy Mhambi Head Internal Audit (Acting) Qualifications N.Dip Internal Audit (Tshwane University of Technology, TUT), Internal Audit Technician (IIA SA), Certified Enterprise Risk Manager (IABFM), Management Development Programme (University of Stellenbosch Business School) Adri Spangenberg Head - BCB Qualifications MBA (Australian Institute of Business); (University of Stellenbosch); Bank and Credit Risk Management (Damelin); Mastering Strategic Client Management (Graduate School of Business, UCT) Joyce Swartz Head Digital Transformation and Innovation Qualifications BA Media Studies/Industrial Psychology (UNAM), Postgrad Diploma Digital Business (Emeritus, Columbia) Joined the group 2018 Appointed 2021 Joined the group 1989 Appointed 2021 Joined the group 2007 Appointed 2021 Rejoice Itemba Head Client Solutions Qualifications BA Media and Cultural Studies (UNAM), MA Media and Cultural Studies (University of Sussex, UK) Joined the group 2010 Appointed 2021 Vivian Kaposambo Head - People and Culture Qualifications MPhil People Management (UCT), B-TECH HRM (NUST), ND HRM (NUST) Joined the group 2021 Appointed 2021 Nelson Lucas Head - CIB Qualifications BCompt (UNISA), HBCompt (UNISA), CA(Nam), CA(SA), Programme in Advanced VAT (UNISA), Programme in Investment Analysis and Portfolio Management (UNISA), BCom Honours in Financial Management (UNISA), Global Executive Leadership Programme (London Business School) Joined the group 2019 Appointed 2020 Arlington Matenda Chief risk officer Qualifications BAcc (Hons) (UZ), BCompt Honours (UNISA), CA(Nam), CA (Z), Leadership Development Programme (GIBS Business School) Joined the group 2021 Appointed 2021 Sigrid Tjijorokisa Head-Legal and governance and company secretary Qualifications LLB (UWC), MDP (Damelin College), Advanced Diploma in Banking Law and Practice (UP), Diploma in Compliance Risk Management (UP), IODSA and the Compliance Institute of South Africa Joined the group 2012 Appointed 2012 Karen van der Merwe Head CHNW Qualifications BA (Hons) Business Management (Lincoln, UK) Joined the group 2011 Appointed 2022 Roxzaan Witbooi Head Compliance Qualifications BJuris (UNAM), LLB (UNAM), CAMS, Global Executive Leadership Programme (London Business School) Joined the group 2012 Appointed 2014 45#25AFRICA IS OUR HOME Kunene River WE DRIVE HER GROWTH Namibia ANNUAL FINANCIAL STATEMENTS 48 Directors' responsibility and approval 49 Report of the independent auditor 55 Directors' report 57 Statements of financial position 58 Income statements 59 Statements of other comprehensive income 60 Statements of changes in equity 62 Statements of cash flows 63 Accounting policy elections and restatements 68 Key management assumptions 73 Notes to the annual financial statements 122 Annexure A - Subsidiaries 125 Annexure B - Risk and capital management 146 Annexure C - Emoluments of directors 148 Annexure D - Detailed accounting policies#2648 DIRECTORS' RESPONSIBILITY AND APPROVAL SBN HOLDINGS LIMITED Annual report 2022 49 REPORT OF THE INDEPENDENT AUDITOR In accordance with the Companies Act of Namibia (Companies Act), the directors are responsible for the preparation of the annual financial statements. These annual financial statements conform to International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), the Institute of Chartered Accountants' of Namibia (ICAN) Financial Reporting Guides as issued by the Accounting Practices Committee, the Namibian Stock Exchange (NSX) and Johannesburg Stock Exchange (JSE) Listings Requirements, Financial Pronouncements as issued by the Financial Reporting Standards Council, as well as the requirements of the Namibian Companies Act and fairly present the affairs of the group and company as at 31 December 2022, and the net income and cash flows for the year then ended. The company is also in conformity with its memorandum of incorporation. The directors are ultimately responsible for the internal controls of the group and company. Management enables the directors to meet these responsibilities. Standards and systems of internal controls are designed, implemented and monitored by management to provide reasonable assurance of the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for shareholder investments and company and group assets. Systems and controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties. It is the responsibility of the independent auditors to report on the fair presentation of the financial statements. Based on the information and explanations provided by management and the group and company's internal auditors, the directors are of the opinion that the internal financial controls are adequate and that the financial records may be relied upon for preparing the financial statements in accordance with IFRS and to maintain accountability for the group and company's assets and liabilities. Nothing has come to the attention of the directors to indicate that a breakdown in the functioning of these controls, resulting in material loss to the group and the company, has occurred during the year and up to the date of this report. The directors have a reasonable expectation that the group and company will have adequate resources to continue in operational existence and as a going concern in the financial year ahead. The 2022 annual financial statements, which appear on pages 55 to 175, were approved by the board on 22 March 2023 and signed on its behalf by: La Mr H Maier Chairman Meises. Mrs M Geises Chief executive To the Members of SBN Holdings Limited Our opinion In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of SBN Holdings Limited (the Company) and its subsidiaries (together the Group) as at 31 December 2022 and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of Namibia. What we have audited SBN Holdings Limited's consolidated and separate financial statements set out on pages 55 to 175 comprise: ■the directors' report for the year ended 31 December 2022 ■the consolidated and separate statements of financial position as at 31 December 2022; ■the consolidated and separate income statements for the year then ended ■the consolidated and separate statements of other comprehensive income for the year then ended; the consolidated and separate statements of changes in equity for the year then ended; ■the consolidated and separate statements of cash flows for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies, excluding the sections marked as unaudited in Annexure B pages 126 to 127 and 142 to 145. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated and separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants International Code of Ethics for Professional Accountants (including International Independence Standard) (Code of Conduct) and other independence requirements applicable to performing audits of financial statements in Namibia. We have fulfilled our other ethical responsibilities in accordance with the Code of Conduct and in accordance with other ethical requirements applicable to performing audits in Namibia. Our audit approach Overview Materiality Group Scoping Key audit matters Overall group materiality Overall group materiality: N$42 943 150 which represents 5% of consolidated profit before direct taxation. Group audit scope A full scope audit was performed on the Company and Standard Bank Namibia Limited based on its financial significance to the Group. ■Specified procedures were performed on the Properties in possession which arose from the acquisition of Spearmint Investments (Pty) Ltd, due to their associated risk to the Group. Analytical review procedures were performed on the remaining subsidiaries being financially inconsequential components. Key audit matters Expected credit losses on Corporate and Investment Banking (CIB) loans and advances; and ■Expected credit losses on Business and Commercial Banking (BCB) and Consumer and High Net Worth (CHNW) clients loans and advances. Acquisition of a subsidiary, Spearmint Investments (Pty) Ltd. As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole. PricewaterhouseCoopers, Registered Auditors 344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia PO Box 1571, Windhoek, Khomas Region, Republic of Namibia T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na Country Senior Partner: Chantell N Husselmann The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel, Hannes van den Berg, Willem A Burger Practice Number 9406, VAT reg no. 00203281-015#2750 REPORT OF THE INDEPENDENT AUDITOR continued SBN HOLDINGS LIMITED Annual report 2022 Overall group materiality How we determined it Rationale for the materiality benchmark applied N$42 943 150 5% of consolidated profit before direct taxation. We chose profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark. We chose 5% which is consistent with quantitative materiality thresholds used for profit-oriented companies in this sector. How we tailored our group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The consolidated financial statements are a consolidation of the Company and its five subsidiaries (each a "component") for purposes of our group audit scope. Full-scope audits were performed on the Company and a subsidiary, Standard Bank Namibia Limited, based on their financial significance to the Group, in relation to its contribution to the Group's consolidated profit before direct taxation. Specified procedures were performed on the Properties in possession which arose from the acquisition of Spearmint Investments (Pty) Ltd, due to their associated risk to the Group. Analytical review procedures were performed on the remaining subsidiaries being financially inconsequential components. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the group audit team. All testing was performed centrally by the group audit team. By performing the procedures outlined above, we obtained sufficient and appropriate audit evidence regarding the financial information of the Group to provide a basis for our opinion on the consolidated financial statements as a whole. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined that there are no key audit matters to communicate in our report in respect of the separate financial statements. Key audit matter Expected credit losses on Corporate and Investment Banking (CIB) loans and advances Refer to the following notes to the consolidated financial statements for the related disclosures and detail: ■Key management assumptions, Expected Credit Loss (ECL) Note 5, Loans and advances; Note 30, Credit impairment charges; ■Annexure B-Risk and Capital Management, Credit Risk; and ■Annexure D, Detailed accounting policies, Impairment. The ECL for CIB loans and advances was considered to be a matter of most significance to our current year audit due to the level of subjective judgement applied by management, the effect that the ECL has on the Group's credit risk management processes and operations, and the magnitude of the ECL recognised in the consolidated financial statements. In their calculation of the ECL on CIB loans and advances management applied International Financial Reporting Standard ("IFRS") 9-Financial Instruments ("IFRS 9"), as described in the notes to the consolidated financial statements. ECL on CIB exposures is calculated separately based on rating models per customer. In calculating the ECL on CIB loans and advances, the key areas of significant management judgement and estimation included: Evaluation of Significant Increase in Credit Risk ("SICR"); ■Incorporation of macro-economic inputs and forward looking information; and ■Input assumptions applied to estimate the probability of default ("PD"), exposure at default ("EAD") and loss given default ("LGD") within the ECL calculation. How our audit addressed the key audit matter We assessed the accounting policies applied to the CIB loans and advances with reference to the requirements of IFRS 9. Making use of our actuarial expertise, our audit procedures addressed the key areas of significant judgement and estimation in determining the ECL on CIB loans and advances, as follows: We assessed the Group's ECL methodology applied in determining the ECL recognised on CIB loans and advances with reference to the requirements of IFRS 9. We recalculated the ECL using management's models, inputs and assumptions, for mathematical accuracy. We evaluated the appropriateness of the credit ratings allocated specifically to the CIB clients. In this evaluation, quantitative information was evaluated such as: Financial ratios; ■Asset quality; ■Operations and profitability ratios; and Liquidity and funding ratios. We also evaluated quantitative factors to evaluate the CIB ratings such as: ■Client specific outlooks; and Operating environment status. We tested the inputs into the CIB ECL calculation. This included the inputs which determine the credit risk score of each client. We inspected the collateral which drives the LGD. We inspected loan origination documentation and approvals for existence. Key audit matter Evaluation of SICR For CIB exposures, SICR is largely driven by the movement in credit ratings assigned to counterparties on origination and then at reporting date, based on the Group's 25-point master rating scale to quantify credit risk for each exposure. Macro-economic inputs and forward-looking information Macroeconomic expectations are incorporated in CIB's client ratings to reflect the Group's expectation of future economic and business conditions. In the determination of the forward-looking impact, the Group applied judgement in assessing the impact of the Group's macroeconomic outlook expectations on forward- looking information. Input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement The input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement are subject to management judgement and are determined at an exposure level. Expected credit losses on Business and Commercial Banking (BCB) Consumer and High Net Worth clients (CHNW) loans and advances Refer to the following notes to the consolidated financial statements for the related disclosures and detail: Key management assumptions, Expected Credit Loss (ECL); Note 5, Loans and advances; Note 30, Credit impairment charges; ■ Annexure B-Risk and Capital Management, Credit Risk; and Annexure D, Detailed accounting policies, Impairment. The ECL for BCB and CHNW loans and advances was considered to be a matter of most significance to our current year audit due to the level of subjective judgement applied by management, the effect that the ECL has on the Group's credit risk management processes and operations, and the magnitude of the ECL recognised in the consolidated financial statements. ECLS on BCB and CHNW loans and advances are based on the product categories or subsets of the product categories, with tailored ECL models per portfolio. The key areas of significant management judgement applied within the ECL calculation include: Evaluation of SICR; ■Incorporation of macro-economic inputs and forward looking information; Application of out-of-model adjustments into the ECL calculation; ■Assessment of ECL raised for individual exposures; and ■Input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement. Evaluation of SICR The Group determines the SICR threshold by utilising an appropriate transfer rate of exposures that are less than 30 days past due (DPD) to stage 2. The SICR thresholds are reviewed regularly to ensure that they are appropriately calibrated to identify SICR by portfolio vintage and to consequently facilitate appropriate impairment coverage. How our audit addressed the key audit matter Evaluation of SICR Through inquiry of management and inspection of underlying documentation we obtained an understanding of and tested relevant controls relating to the approval of credit facilities, subsequent monitoring and remediation of exposures, manual transfer of exposures between the various stages, key system reconciliations and collateral management. We selected a sample of counterparties and assessed the appropriateness of their assigned credit rating by: ■ Agreeing the inputs into the credit rating system, to the financial information relating to the exposure of the relevant customer, as well as to management's 25-point rating scale; and ■Assessing the reasonableness of management's assumptions made during the credit risk rating process, by obtaining an understanding of the process for assigning credit ratings based on the exposure type and industry factors; and performing a review of the counterparty and comparing the results to those used by management. Macro-economic inputs and forward-looking information We selected a sample of counterparties and assessed the incorporation of macro-economic inputs and forward-looking information into their assigned credit risk rating by obtaining an understanding of the forward-looking information including the impact of Covid-19, which was considered for the counterparty. Input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement Utilising our actuarial expertise, we assessed the reasonableness of the input assumptions applied within the PD, EAD and LGD models with reference to the requirements of IFRS 9 by performing an independent recalculation of PD, EAD and LGD. We assessed the accounting policies applied to the BCB and CHNW loans and advances with reference to the requirements of IFRS 9. Making use of our actuarial expertise, our audit procedures addressed the key areas of significant judgement and estimation in determining the ECL on BCB and CHNW loans and advances, as follows: We assessed the Company and Group's ECL methodology applied in determining the ECL recognised on BCB and CHNW loans and advances with reference to the requirements of IFRS 9. We recalculated the ECL using management's models, inputs and assumptions, for mathematical accuracy. We also assessed the reasonability of the inputs and assumptions applied by management in their ECL calculation. PricewaterhouseCoopers, Registered Auditors 344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia PO Box 1571, Windhoek, Khomas Region, Republic of Namibia T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na Country Senior Partner: Chantell N Husselmann The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel, Hannes van den Berg, Willem A Burger Practice Number 9406, VAT reg no. 00203281-015 PricewaterhouseCoopers, Registered Auditors 344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia PO Box 1571, Windhoek, Khomas Region, Republic of Namibia T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na Country Senior Partner: Chantell N Husselmann The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel, Hannes van den Berg, Willem A Burger Practice Number 9406, VAT reg no. 00203281-015 51#2862 52 REPORT OF THE INDEPENDENT AUDITOR continued SBN HOLDINGS LIMITED Annual report 2022 Key audit matter Macro-economic inputs and forward looking information Forward-looking expectations are included in the ECL for BCB and CHNW loans and advances based on the Group's macro- economic outlook, using models that correlate these parameters with macro-economic variables. Where modelled correlations are not viable or predictive, adjustments are based on judgement to predict the outcome based on the Group's macro-economic outlook expectations. The group's forward-looking economic expectations were applied in the determination of the ECL at the reporting date. Application of out-of-model adjustments into the ECL measurement Management may identify that due to modelling complexity, certain aspects of the ECL may not be fully reflected by the underlying model and forward looking information such as specific event risks and industry data, have been taken into account in ECL estimates when required, through the application of out-of-model adjustments. Assessment of ECL raised for individual exposures A lifetime ECL is calculated on stage 3 exposures that are assessed to be credit impaired due to evidence of default, significant financial difficulty of the borrower and/or modification, probability of bankruptcy or financial reorganisation or disappearance of an active market due to financial difficulties. This assessment relates primarily to business lending accounts and incorporates judgement in determining the foreclosure value of the underlying collateral. Input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement Input assumptions applied to estimate the PD, EAD and LGD as inputs into the ECL measurement are subject to management judgement and are determined at an exposure level. Acquisition of a subsidiary The Standard Bank Namibia Limited group acquired 100% shareholding in Spearmint Investments (Pty) Ltd ("Spearmint"), a property holding company that owns 100% of the total issued share capital of the property investment entities listed in Annexure A-Subsidiaries, of the notes to the separate financial statements (the "property companies"). This acquisition was as a result of a debt settlement transaction and represents the recovery of the corresponding credit impaired loans and advances provided to the counterparty. The effective date of the transaction was 3 August 2022. The acquisition of Spearmint was considered to be a matter of most significance to our current year audit due to the level of subjective judgement applied by management in valuing the shares in the subsidiaries recognised in the Standard Bank Namibia Limited separate financial statements, the magnitude of the transaction, the complexity of the accounting treatment, and the resultant value of Properties in possession recognised in the consolidated financial statements (note 42-Properties in possession). How our audit addressed the key audit matter Evaluation of SICR We reperformed the calculation of the significant deterioration in roll rates per product category and compared these rates per product category to those used by management. Through inquiry of management and inspection of underlying documentation we obtained an understanding of and tested relevant controls relating to the approval of credit facilities, subsequent monitoring and remediation of exposures, manual transfer of exposures between the various stages, key system reconciliations and collateral management. For a sample of stage 1, 2 and 3 exposures, we evaluated if the exposures are appropriately classified by recalculating the days in arrears. Macro-economic inputs and forward looking information We evaluated the appropriateness of forward-looking economic expectations included in the ECL model, by comparing the forward-looking expectations to independently sourced industry data. Application of out-of-model adjustments into the ECL measurement For a sample of out-of-model adjustments we evaluated the reasonableness of the adjustments by assessing the key assumptions applied, with reference to independent sources of information. Assessment of ECL raised for individual exposures Regarding Stage 3 exposures, we independently recalculated the ECL based on our assessment of the expected cash flows and the recoverability of collateral at an individual exposure level. For collateral held in respect of the sample of stage 3 exposures referred to above, we inspected legal agreements and other documentation to assess the existence and legal right to collateral. We assessed the collateral valuation techniques applied by management against the Group's valuation guidelines. Making use of our valuation methodology, we performed an independent reasonability test to evaluate the valuation of collateral for a sample of loans in stage 3.. Input assumptions applied to estimate the PD, EAD and LGD within the ECL measurement Making use of our actuarial expertise, we assessed the assumptions relating to historical default experience, estimated timing and amount of forecasted cash flows and the value of collateral applied within the PD, EAD and LGD models with reference to the requirements of IFRS 9. In addition, our procedures included assessing the appropriateness of the statistical models by way of reperformance and validation procedures. Key audit matter Accounting treatment Management has performed an assessment to determine whether this was a business combination in terms of IFRS 10- Consolidated Financial Statements ("IFRS 10") or an asset acquisition in terms of IFRS 3-Business Combinations ("IFRS 3"). Refer to note 42-Acquisition of subsidiaries, to the consolidated financial statements for detail. Management concluded that it was an asset acquisition in terms of IFRS 3. Valuation of properties in possession arising from the debt settlement transaction ECL was raised on the loans receivable from the counterparty to the extent that loans receivable exceeded the Fair Value loans of the collateral, as determined by management expert valuators noted above. The loans receivable and ECL were then derecognised and the investments in Spearmint's shares recognised at this value at a subsidiary level. In the consolidated financial statements, the assets of the property investment entities are accounted for as Properties in possession, being the fair value of the properties acquired as set out above. The Properties in possession is subsequently measured at the lower of cost or net realisable value, in line with the current accounting policy. The fair value of the shares in the property companies at initial recognition in the separate financial statements at a subsidiary level was determined in line with the requirements of IFRS 13 - Fair Value Measurement. Management's expert valuators were used by the Group to provide guidance on the measurement of the fair value of shares in the property companies received in Spearmint. The investment in Spearmint is subsequently measured at cost in line with the subsidiary accounting policy described in Annexure D - Detailed accounting policies. The cost at acquisition date represents the fair value of the underlying property companies. ECL was raised on the loans receivable from the counterparty to the extent that loans receivable exceeded the fair value loans of the collateral, as determined by management's expert valuators referred to above. The loans receivable and ECL were then derecognised and the investments in Spearmint's shares recognised at this determined value in the subsidiary financial statements as at 31 December 2022. In the consolidated financial statements, the properties of the property investment entities are accounted for as Properties in possession, being the fair value of the properties acquired as set out above. The Properties in possession are subsequently measured at the lower of cost or net realisable value, in line with IAS 2-Inventories ("IAS 2"). How our audit addressed the key audit matter Accounting treatment Making use of our IFRS technical experts, we considered the asset concentration test and the fact that this is a debt restructuring transaction in concluding on the accounting treatment. Valuation of shares or properties in possession arising from the debt settlement transaction We utilised our valuation experts to evaluate the measurement of the value of the shares received in Spearmint recognised in the separate financial statements, with reference to the requirements of IFRS 13, and the value of Properties in possession recognised in the consolidated financial statements, with reference to IAS 2. We assessed the valuation methodology and key valuation assumptions applied by management's expert valuator and performed a reasonability test to determine a reasonability test range of values. We regard any value that falls within range as indicated by our reasonability test to be indicative of fair value. We agreed the value of the loans receivable and ECL that were derecognised to the value of the share investment in Spearmint recognised. PricewaterhouseCoopers, Registered Auditors 344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia PO Box 1571, Windhoek, Khomas Region, Republic of Namibia T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na Country Senior Partner: Chantell N Husselmann The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel, Hannes van den Berg, Willem A Burger Practice Number 9406, VAT reg no. 00203281-015 PricewaterhouseCoopers, Registered Auditors 344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia PO Box 1571, Windhoek, Khomas Region, Republic of Namibia T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na Country Senior Partner: Chantell N Husselmann The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel, Hannes van den Berg, Willem A Burger Practice Number 9406, VAT reg no. 00203281-015 53#2954 REPORT OF THE INDEPENDENT AUDITOR continued SBN HOLDINGS LIMITED Annual report 2022 Other information The directors are responsible for the other information. The other information comprises the information included in the document titled "SBN Holdings Limited Annual report for the year ended 31 December 2022". The other information does not include the consolidated or the separate financial statements and our auditor's report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated and separate financial statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of Namibia, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group and the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: ■Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ■ Obtain an understanding of internal control relevant to the audit 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 Group's and the Company's internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. ■Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit. evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and/or Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. hinterhandler PricewaterhouseCoopers Registered Accountants and Auditors Chartered Accountants (Namibia) Per: Louis van der Riet Partner Windhoek Date: 22 March 2023 DIRECTORS' REPORT for the year ending 31 December 2022 Review of activities Main business and operations SBN Holdings Limited (the group or SBN Holdings) is the holding company for Standard Bank Namibia Limited. SBN Holdings Limited is a Namibia-incorporated company and is listed on the NSX. It conducts its operations through the following businesses: ■Banking services through Standard Bank Namibia Limited, a registered Namibian commercial bank. ■Insurance broking services through fellow subsidiary companies Stanfin (Namibia) (Proprietary) Limited and Standard Insurance Brokers (Namibia) (Proprietary) Limited. ■Personal lines insurance through Hollard Insurance Limited. ■ Safe custodianship through its 100%-owned subsidiary company Standard Bank Namibia Nominees (Proprietary) Limited. ■ Asset management and unit trust services through a related company, Liberty Life Namibia Limited. ■Property investment and construction through subsidiary companies Arleo Investments Sixteen (Proprietary) Limited and Spearmint Investments (Proprietary) Limited as listed in Annexure A. Mobile payment and services through subsidiary Mobicash Payment Solutions (Proprietary) Limited. The group operates in all main areas within Namibia and its head office is located in Windhoek. The group also offers an international banking service through its association with Standard Bank Group Limited (SBG), a company registered in the Republic of South Africa and dual listed on the Johannesburg Stock Exchange (JSE) and NSX, with representation throughout sub-Saharan Africa. Registered and business address 1 Chasie Street, Kleine Kuppe, Windhoek, Namibia Registration number 2006/306 County of incorporation Republic of Namibia Results for the period Net profit of the group for the year was N$624 million (2021: N$366 million), after taxation of N$264 million (2021: N$196 million). Events after the reporting period There were no events after the reporting date to report. Authorised and issued share capital The company's authorised share capital consisted of 800 000 000 ordinary shares of 0.002 cents each of which 522 471 910 have been issued. The authorised and issued share capital remained unchanged for the year. Borrowings The group's borrowings consist mainly of deposit and current accounts originated through banking operations and long-term financing. Property, equipment and right-of-use assets The group's property and equipment are disclosed in note 8 to the annual financial statements. Dividends Interim dividend declared 30 August 2022 (2021: 24 August 2021) and paid 14 October 2022 (2021: 24 August 2021). Final dividend declared 22 March 2023 (2021: 4 March 2022) and will be paid 26 May 2023 (2021: 7 May 2022). Total dividends declared and paid in respect of 2022 2021 cents N$'m cents N$'m 20.00 104.5 16.00 83.6 46.00 240.3 15.00 78.4 the annual financial year 66.00 344.8 31.00 162.0 Ownership At 31 December 2022, Standard Bank Group Limited owned 74.9% (2021: 74.9%) of the issued share capital. The general public, including the staff share scheme, owned 25.1% of the issued share capital. The following directors each hold issued shares as follows: Number of ordinary shares Adv N Bassingthwaighte 2022 2021 Beneficial shares, all indirectly held Mrs M Geises 153 000 248 624 118 395 118 395 Mr JL Muadinohamba 118 395 118 395 118 395 Mrs L du Plessis 2 385 2 385 392 175 606 194 Mr IH Tjombonde PricewaterhouseCoopers, Registered Auditors 344 Independence Avenue, Windhoek, Khomas Region, Republic of Namibia PO Box 1571, Windhoek, Khomas Region, Republic of Namibia T: +264 (61) 284 1000, F: +264 (61) 284 1001, www.pwc.com/na Country Senior Partner: Chantell N Husselmann The Firm's principal place of business is at 344 Independence Avenue, Windhoek, Republic of Namibia, Khomas Region, Republic of Namibia Partners: Louis van der Riet, Anna EJ Rossouw (Partner in charge: Coast), Gerrit Esterhuyse, Samuel N Ndahangwapo, Hans F Hashagen, Johannes P Nel, Hannes van den Berg, Willem A Burger. Practice Number 9406, VAT reg no. 00203281-015 55#3056 56 DIRECTORS' REPORT continued STATEMENTS OF FINANCIAL POSITION as at 31 December 2022 SBN HOLDINGS LIMITED Annual report 2022 57 Directors The directors of the company during the year and to the date of this report are as follows: Name Executive directors Mrs M Geises Mrs L du Plessis Non-executive directors Mr H Maier (Chairperson) Mr AN Mangale¹ Mrs B Rossouw Mr IH Tjombonde Nationality Namibian Namibian Namibian South African Namibian Namibian Mr JL Muadinohamba² Namibian Mrs M Shivute Dax Namibian Adv N Bassingthwaighte Namibian Mr P Schlebusch Ms S Hornung³ Ms S Brugman4 Ms NA Tjipitua 1 Mr AN Mangale resigned on 2 June 2022. 2 Mr JL Muadinohamba retired on 22 April 2022. 3 Ms S Hornung was appointed on 26 July 2022. 4 Ms S Brugman was appointed on 15 December 2022. 5 Ms NA Tjipitua was appointed on 10 March 2023. See Annexure C for details of the directors' remuneration. Company secretary South African Namibian South African Namibian S Tjijorokisa, based at 1 Chasie Street, Kleine Kuppe, Windhoek, Namibia Debt officer Y Fourie, based at 1 Chasie Street, Kleine Kuppe, Windhoek, Namibia Compliance with BID-2 The group's annual financial statements comply with the Bank of Namibia's (BON) Determination on Asset Classification, Suspension of Interest and Provisioning (BID-2) and Determination on Policy Changes in Response to Economic and Financial Stability Challenges as a result of the COVID-19 Pandemic (BID-33), except for paragraph 10.(e) (BID-2) and paragraph 6.1.(d) (BID-33) regarding when an asset must be written off. The guidance received from BoN indicates that if an asset, which is overdue for 360 days or more should be written off unless it is well secured, in the process of collection and the time needed to realise the collateral does not exceed three years after judgement. IFRS 9.5.4.4 states that an entity shall directly reduce the gross carrying amount of a financial asset when the entity has no reasonable expectation of recovering a financial asset or contractual cash flows in its entirety or a portion thereof. The BID-2 and BID 33 requirement to write-off an asset if it takes more than three years after judgement to realise the collateral even though the asset is well secured, is not aligned with IFRS 9 which requires an entity to only write off if there is no reasonable expectation of recovery. Given the fact that the asset is well secured there is reasonable expectation of recovery. As such, in terms of IFRS 9, it cannot be written off. Interest in subsidiaries The company owns 100% of the share capital of Standard Bank Namibia Limited, Standard Insurance Brokers (Namibia) (Proprietary) Limited, Arleo Investment Sixteen (Proprietary) Limited and Stanfin (Namibia) (Proprietary) Limited. The company also owns 50.91% of the share capital of Mobicash Payments Solutions (Proprietary) Limited. Refer to Annexure A for further information on interests in subsidiaries. Insurance The group and company protects itself against financial loss by maintaining banker's comprehensive crime and professional indemnity cover. The insurance terms and conditions are reviewed by the SBG insurance committee annually to ensure they are 'fit-for-purpose' in terms of the group and company's risk exposures. Events during 2022 Standard Bank Namibia Ltd (Standard Bank) previously advanced various loans to a company (the Financing Entity) who, in turn, provided funding to various related entities within a property development portfolio. These funding transactions were structured in various ways and the underlying properties provided as collateral to Standard Bank, through a package of security arrangements, underpinning the various loans to the Financing Entity. Over time, the property development portfolio experienced financial difficulties, which ultimately culminated in default on various obligations to Standard Bank as well as to other lenders. These defaults then led to the commencement of liquidation proceedings against the Financing Entity. Given Standard Bank reliance on the property development portfolio to recover its exposure, there was a need to realise collateral over multiple properties held by multiple entities. In the previous financial reporting period, the loans to the Financing Entity were included in Standard Bank's non-performing loans (NPLs). To execute on this collateral and minimise the potential for any further losses to Standard Bank, on 31 March 2022, Standard Bank and Spearmint (acting in concert, as Spearmint was created as a Standard Bank special purpose vehicle (SPV) subsidiary to acquire the security), the property-owning entities and related shareholders entered into a share acquisition agreement (SAA). All the regulatory approvals and conditions precedent to the SAA have been fulfilled and thus the acquisition of the property-owning entities by Spearmint became unconditional and effective from 3 August 2022. The SAA was executed to ensure that Standard Bank obtained direct access to the properties provided as collateral, as opposed to the lengthy and uncontrolled process of realising the collateral through multiple separate liquidations of the related property owning entities. The ultimate purpose of the transaction was to enable a debt settlement to minimise the potential for any further losses to Standard Bank, and also to reduce the level of NPLs. Refer to note 42 for further details regarding the Spearmint transaction. Assets Cash and balances with the central bank Derivative assets Trading assets Pledged assets Financial investments Normal tax asset Loans and advances Other assets GROUP Note 2022 N$'000 2021 Restated¹ N$'000 123 1 January 2021 Restated¹ N$'000 COMPANY 2022 N$'000 2021 N$'000 1 673 337 138 918 474 621 1 488 497 1 035 972 291 326 312 401 73 326 619 584 372 288 417 542 520 956 4 923 014 49 351 5 670 546 165 126 4 25 969 450 491 154 25 382 322 24 892 317 973 4 299 673 123 772 24 090 594 13 242 319 110 52 37 763 921 986 Properties in possession² 42 6 441 296 6 346 Interest in subsidiaries 7 921 986 Property, equipment and right-of-use assets 8 951 764 1 027 366 1 083 502 Goodwill and other intangible assets 9 517 733 13 44 059 547 857 1 560 35 674 697 35 319 049 32 800 870 1 219 658 1 272 150 Deferred tax asset Total assets Equity and liabilities Equity Equity attributable to the ordinary shareholders Ordinary share capital Ordinary share premium Reserves 642 189 500 769 23 450 642 189 1 045 4 782 992 4 338 276 4 129 020 1 208 505 1 257 934 4 767 462 4 323 423 4 114 990 1 208 505 1 257 934 10 1 045 1 045 1 045 11 642 189 4 124 228 3 680 189 Non-controlling interest 15 530 14 853 3 471 756 14 030 1 045 642 189 565 271 642 189 614 700 Liabilities 30 891 705 30 980 773 Derivative liabilities 2 140 763 Trading liabilities 12 36 799 Deposits and current accounts 14 27 353 407 Debt securities issued 15 2 528 252 Provisions and other liabilities 16 805 008 Deferred tax liability 13 27 476 28 255 886 1961 123 625 266 12 168 Total equity and liabilities 35 674 697 35 319 049 32 800 870 1 219 658 1 272 150 11 153 14 216 362 123 34 532 70 576 55 754 28 671 850 26 133 840 1 620 305 515 694 5 356 11 153 14 216 1 Refer to restatement narrative included in the accounting policy elections and restatements section for the restatements of loans and advances, other assets and deposits. 2 As part of the acquisition of Spearmint Investments (Pty) Ltd, the group's properties in possession increased by N$465 million. To enhance disclosure, properties in possession, which were previously presented as part of other assets, are now disclosed separately. Comparative information has been restated accordingly.#3158 INCOME STATEMENTS for the year ended 31 December 2022 STATEMENTS OF OTHER COMPREHENSIVE INCOME for the year ended 31 December 2022 SBN HOLDINGS LIMITED Annual report 2022 GROUP COMPANY Note 2022 N$'000 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 Net interest income 1 444 802 1 229 312 Interest income 23 2 406 153 1 965 259 Interest expense 24 (961 351) (735 947) Non-interest revenue 1 283 086 1 208 806 135 142 280 596 Net fee and commission revenue 912 644 900 347 Fee and commission revenue Fee and commission expense Trading revenue Other revenue 28 Other gains on financial instruments 29 22222 25 1 213 989 1 161 708 Profit for the year Other comprehensive income/(loss) - net of taxation² Items that may be subsequently reclassified to profit or loss Net change in fair value of equity financial assets measured at fair value through other comprehensive income (FVOCI) Net change in expected credit loss (ECL) Net change in fair value GROUP COMPANY 2022 N$'000 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 624 280 3 337 366 211 (213) 133 472 275 564 (1 879) (8906) 294 (1939) (2 173) (6.967) 26 (301 345) (261 361) 27 150 178 113 935 Items that may not be subsequently reclassified to profit or loss Fair value movement on post-employment benefit (note 34) 5 216 8 693 145 901 106 383 135 142 280 596 74 363 88 141 Total comprehensive income for the year 627 617 Attributable to ordinary shareholders 626 940 Total income 2 727 888 2 438 118 135 142 280 596 Attributable to non-controlling interest 677 365 998 365 175 823 133 472 133 472 275 564 275 564 Credit impairment charges 30 (161 213) (288 751) Net income before operating expenses 2 566 675 2 149 367 135 142 280 596 Operating expenses 31 (1 678 675) (1586 804) Net income before indirect taxation 888 000 562 563 (1 670) 133 472 (5 032) 1 Refer to restatement explanation included in the accounting policy elections and restatements section for details. 2 Income tax relating to each component of other comprehensive income is disclosed in note 32.2. 275 564 Indirect taxation 32 (29 137) (43 356) Profit before direct taxation Direct taxation Profit for the year 858 863 519 207 133 472 275 564 32 (234 583) (152 996) 624 280 366 211 133 472 275 564 Attributable to ordinary shareholders Attributable to non-controlling interest Basic and diluted earnings per ordinary share 623 603 677 365 388 823 133 472 275 564 38 119 70 1 Refer to restatement narrative included in the accounting policy elections and restatements section for the restatements of accrued interest and interest in suspense. 59#3260 60 STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2022 Note Ordinary share capital and premium N$'000 GROUP Balance at 1 January 2021 as previously reported Restatement² Balance at 1 January 2021 - restated Total comprehensive income for the year Profit for the year Other comprehensive (loss)/income after tax for the year Transactions with the shareholders, recorded directly in equity Transfer between reserves Dividends paid Balance at 1 January 2022 Total comprehensive income for the year Profit for the year Other comprehensive (loss)/income after tax for the year Transactions with the shareholders, recorded directly in equity Transfer between reserves Dividends paid Balance at 31 December 2022 1 The FVOCI reserve comprises the FVOCI reserve for debt financial investments (note 4). 2 Refer to the restatement narrative included in the accounting policy elections and restatement section for details. All balances are stated net of tax where applicable. Accounting policies regarding reserves are detailed in Annexure D. COMPANY Balance at 1 January 2021 Total comprehensive income for the year Profit for the year Transactions with the shareholder, recorded directly in equity Dividends paid Total comprehensive income for the year Balance at 1 January 2022 Profit for the year Transactions with the shareholder, recorded directly in equity Dividends paid Balance at 31 December 2022 Accounting policies regarding reserves are detailed in Annexure D. All balances are stated net of tax where applicable. Post- Statutory credit risk reserve N$'000 Retained earnings N$'000 Share-based payment reserve N$'000 Fair value adjustments on FVOCI financial assets¹ N$'000 employment benefit reserve N$'000 SBN HOLDINGS LIMITED Annual report 2022 61 Ordinary shareholders equity N$'000 Non- controlling interest N$'000 Total equity N$'000 643 234 7 685 35 209 58 510 3 421 876 4 166 514 14 030 4 180 544 (51 524) (51 524) (51524) 643 234 7 685 (8906) 35 209 58 510 3 370 352 4 114 990 14 030 4 129 020 8 693 365 388 365 388 365 175 823 365 998 365 388 823 366 211 (8906) 8 693 (213) (213) 74 873 74 873 33.7 (231 615) (74 873) (156 742) (156 742) (156 742) (156 742) (156 742) 643 234 (1 221) (1 879) 43 902 133 383 3 504 125 4 323 423 5 216 623 603 623 603 (1 879) 5 216 (24 083) (24 083) 33.7 (158 818) 24 083 (182 901) 626 940 623 603 3 337 (182 901) 14 853 677 4 338 276 627 617 677 624 280 3 337 (182 901) (182 901) (182 901) 643 234 (3 100) 49 118 109 300 3 968 910 4 767 462 15 530 4 782 992 Ordinary Note share capital and premium N$'000 Retained earnings N$'000 Total equity N$'000 643 234 495 878 1 139 112 275 564 275 564 275 564 275 564 (156 742) (156 742) 33.7 (156 742) (156 742) 643 234 614 700 1 257 934 133 472 133 472 133 472 133 472 (182 901) (182 901) 33.7 (182 901) (182 901) 643 234 565 271 1 208 505#3329 62 STATEMENTS OF CASH FLOWS for the year ended 31 December 2022 Note 2022 N$'000 GROUP 2021 Restated¹ N$'000 COMPANY 2022 N$'000 2021 Restated¹ N$'000 Net cash flows (used in)/from operating activities (87 195) 1 476 768 197 980 274 928 Cash flow from operations 33.1 1 356 237 1 049 013 67 221 38 647 Interest and commission receipts 3 561 767 3 122 635 68 891 43 679 Interest payments Recoveries on loans previously written-off (952 923) (759 732) Cash payments to suppliers and employees 33.4 Net movement in working capital 41 244 (1 293 851) (1 271 187) 35 954 (1349 844) (1 670) (5 032) 593 723 64 508 3 473 (Increase)/decrease in income-earning assets (Decrease)/increase in deposits and other liabilities 33.2 (601 702) (1 391 904) 67 571 33.3 (669 485) 1 985 627 (3 063) 5 837 (2364) Dividends received Direct taxation paid 33.5 (172 245) 631 (166 599) 66 251 236 917 (4109) Net cash flows used in investing activities (69 814) (157 194) Capital expenditure on property and equipment 8 (50 196) (62 318) Proceeds from sale of property and equipment 33.6 5 045 1 661 Capital expenditure on intangible assets 9 (24 663) (96 537) 349 286 163 902 (182 901) Net cash flows from/(used in) financing activities Principal element of lease payments 16.1 (17 813) (15 956) Subordinated debt issued 15 250 000 Subordinated debt redeemed 15 (100 000) Senior debt issued 15 400 000 1 543 000 Senior debt redeemed 15 (1 206 500) Dividends paid 33.7 (182 901) (156 642) (182 901) Net increase in cash and balances with the central bank Cash and balances with the central bank at the beginning of the year 192 277 1 483 476 15 079 (156 642) 118 286 33.8 4 739 268 3 270 130 312 401 194 115 Effects of exchange rate changes on cash and balances with the central bank (148 012) (14 338) Cash and balances with the central bank at the end of the year 312 401 1 Refer to restatement narrative included in the accounting policy elections and restatements section for details of restatements in the statements of cash flows. 33.8 4 783 533 4 739 268 327 480 ACCOUNTING POLICY ELECTIONS AND RESTATEMENTS SBN HOLDINGS LIMITED Annual report 2022 (156 642) The principal accounting policies applied in the presentation of the group and company's annual financial statements are set out below. Basis of preparation The group's consolidated and company's separate annual financial statements (annual financial statements) are prepared in accordance with IFRS as issued by the IASB, its interpretations adopted by the IASB and the Namibian Companies Act. The annual financial statements have been prepared on the historical cost basis except for the following material items in the statements of financial position: ■Financial assets classified at FVOCI, financial assets and liabilities classified as fair value through profit or loss (FVTPL) and liabilities for cash-settled share-based payment arrangements. ■ Post-employment benefit obligations that are measured in terms of the projected unit credit method. The following principal accounting policy elections in terms of IFRS have been made, with reference to the detailed accounting policies shown in brackets: ■investments in associates and joint ventures are initially measured at cost and subsequently accounted for using the equity method in the separate financial statements (accounting policy 2). ■purchases and sales of financial assets under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned are recognised and derecognised using trade date accounting (accounting policy 3). ■commodities acquired principally for the purpose of selling in the near future or generating a profit from fluctuation in price or broker-traders' margin are measured at fair value less cost to sell (accounting policy 3). ■the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities on a net basis (accounting policy 4). ■intangible assets and property, equipment and right-of-use assets are accounted for at cost less accumulated amortisation and impairment (accounting policy 6). Functional and presentation currency The annual financial statements are presented in Namibian dollars, which is the functional and presentation currency of the group and company. All amounts are stated in thousands of Namibian dollars (N$'000), unless indicated otherwise. Changes in accounting policies The accounting policies are consistent with those reported in the previous year. There are no new or amended standards that are effective for the current reporting period. The group also did not early adopt any amended standards during the current reporting period. Standards issued not yet adopted or effective The following new standards, and amendments are not yet effective for the year ended 31 December 2022 and have not been applied in preparing these annual financial statements: ■IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (amendments) Effective date: deferred the effective date for these amendments indefinitely Background: The amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be applied prospectively and are not expected to have a material impact on the group's financial statements. ■IFRS 17 Insurance Contracts Effective date: 1 January 2023 Background: IFRS 4 Insurance Contracts (IFRS 4), the existing standard dealing with the accounting treatment for insurance contracts will be replaced by IFRS 17 for the group's 2023 financial year (with comparative information restated as required by the standard). IFRS 17 provides the basis of measurement for defined insurance contracts, including investment contracts with discretionary participation features. The difference between IFRS 4 (existing measurement standard) and IFRS 17 carrying values (including any related tax impacts) will be recognised in opening retained earnings on 1 January 2022. The main principle that IFRS 17 adopts is to recognise revenue (and profit or loss) over the duration of the applicable policyholder contracts that best reflects the delivery of contracted obligations in the specific reporting period. IFRS 17 also distinguishes the sources of income splitting between insurance services and financing activities. As such, the standard does not allow for profit to emerge on 'day one, being the initial recognition of the contract but does require contracted losses (onerous contracts) to be recognised immediately to the extent onerous. These revenue recognition principles are aligned to IFRS 15 Revenue from Contracts with Customers. Under IFRS 17, a general measurement model (GMM) is applicable to long-term insurance contracts and is based on a fulfilment objective (risk-adjusted present value of probability-weighted estimates of future cash flows). It requires the use of current estimates, which are those informed by actual trends and investment markets. IFRS 17 establishes a contractual service margin (CSM) at the initial measurement of the liability. The CSM represents the unearned profit on the contract and results in no gain at initial recognition. The CSM is released over the life of the contract in line with the level of service provided in each period. The interest rate used to discount cash flows and determine the initial CSM is locked in at the rate at inception in regard to future CSM movements. All other probability-weighted estimates of cash flows contained in the measurement of insurance assets or liabilities are however measured at current values. The GMM is modified for contracts that are substantially investment-related contracts, in which case the variable fee measurement approach (VFA) is used to measure the contract. This approach effectively amortises the 63#34ACCOUNTING POLICY ELECTIONS AND RESTATEMENTS continued 64 SBN HOLDINGS LIMITED Annual report 2022 65 65 future participation in changes in investment values over the remaining life of the contract. An optional simplified premium allocation approach (PAA) is available for contracts that have a coverage period of 12 months or less, or if it is reasonably expected that the PAA would produce a measurement of the liability for remaining coverage (LRC) that would not materially differ from the one produced applying the GMM. The PAA is similar to the current unearned premium reserve profile recognised over time. Quantitative impact: Management has developed a better understanding of the transition statement of financial position to be presented as at 1 January 2022, although this is still a work in progress and subject to certain assumptions and estimates being finalised. The impact of IFRS 17 can only be reliably determined on the date of transition of IFRS 17. This impact is primarily dependent on the finalisation of the group's methodologies, assumptions and estimates, conclusion of audit procedures by the group's external auditors as well as the group's internal reviews and validations. Transition approaches: The standard requires retrospective application of IFRS 17 prior to the transition date, which is 1 January 2022, unless it is impracticable to do so. If it is impracticable, an entity can choose either between the modified retrospective or a fair value approach to measure the initial IFRS 17 balances on the transition date. The group intends to use a combination of all three transition approaches (namely, full retrospective, modified retrospective, and fair value) depending on the historical data (including assumptions, methodologies and particularly, availability of risk adjustment data for certain years prior to the adoption of IFRS 17) that is available per the IFRS 17 defined groups. IFRS 9 Financial Instruments: The group applied IFRS 9 for years commencing 1 January 2018. At this stage, there is no expected change to previously applied classification and designation of financial assets that back policyholder liabilities as a result of IFRS 17. Tax implications: Within Namibia, no specific tax legislation has been announced or introduced relating to the introduction of the IFRS 17 accounting statement. Current tax principles will apply. Regulatory capital/capital implications: At this stage, IFRS 17 should not impact any aspect of the regulatory capital assessment. ■IAS 1 Presentation of Financial Statements (amendments) Effective date: 1 January 2023 Background: The amendment clarifies how to classify debt and other liabilities as current or non-current. The objective of the amendment is aimed to promote consistency in applying the requirements by helping entities determine whether, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendment also includes clarifying the classification requirements for debt an entity might settle by converting it into equity. These are clarifications, not changes, to the existing requirements, and so are not expected to affect entities' financial statements significantly. However, these clarifications could result in reclassification of some liabilities from current to non-current, and vice versa. The amendment will be applied retrospectively. Pending the finalisation of the exposure draft on ED/2021/9 - Non-Current Liabilities with Covenants: Proposed Amendments to IAS 1, the effective date of all IAS 1 amendments will be deferred to 1 January 2024. The impact on the annual financial statements has not yet been fully determined, however not expected to have a significant impact on the company. ■IFRS 16 Leases (narrow scope amendments) Effective date: 1 January 2024 Background: The amendments add to requirements explaining how a company accounts for a sale and leaseback after the date of the transaction. IFRS 16 had not previously specified how to measure the transaction when reporting after that date. The amendments add to the sale and leaseback requirements in IFRS 16, thereby supporting the consistent application of the standard. These amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction. The amendments will be applied retrospectively and are not expected to have a material impact on the company's financial statements. Refer to Annexure D - detailed accounting policies. Interest rate benchmarks and reference interest rate reform The Financial Stability Board has initiated a fundamental review and reform of the major interest rate benchmarks used globally by financial market participants. This review seeks to replace existing interbank offered rates (IBORS) with alternative risk-free rates (ARRS) to improve market efficiency and mitigate systemic risk across financial markets. The IBOR rates which the bank is exposed to will be replaced by Secured Overnight Financing Rate (SOFR), Sterling Overnight Index Average (SONIA), Euro Short Term Rate (ESTR), Tokyo Overnight Average (TONA) and Swiss Average Rate Overnight (SARON). In certain instances, other suitable rates may be used, such as Central Bank Policy Rates. While there are plans to replace JIBAR, there is currently no indication of when the designated successor rate will be made available. The ARR transitioning introduces a number of risks to the company including, but not limited to: ■model risk-risk of the valuation models used within the company not being able to cater for the changes in the intended manner. ■legal risk-risk of being non-compliant to the agreements previously agreed with clients. ■ operational risk-risk of the company's systems not being able to accommodate for the changes to the interest rates as agreed with the clients. ■financial risk - risk of not appropriately pricing the deals which will result in a transfer of value between the company and clients. ■compliance/regulatory risk - risk that the bank is exposed regulatory sanctions due to failing to meet the regulatory expectations in relation to the transition. ■reputational risk - the risk to the bank's reputation from failing to adequately prepare for the transition. ■conduct risk-risk that arises when transitioning existing contracts linked to IBORS as value-transfer may occur, or clients may be transitioned to inferior rates or on unfair contractual terms, or in circumstances where they do not fully appreciate the impact of the transition or the alternatives available to them. The bank ceased booking new IBOR linked exposures from 1 October 2021, and new exposures have been booked using the ARRs. At 31 December 2022 the company had one USD medium term loan and four deposits linked to three months LIBOR that extends beyond 2022. The LIBOR's administrator, the Intercontinental Exchange Benchmark Administration Limited announced during the 2021 financial year that it will not publish the three month LIBOR rate after 30 June 2023. The company's treasury and capital management (TCM) team manages the transition to ARRs, and is working closely with the CIB business team to establish pricing for new lending products indexed to the ARR in impacted jurisdictions. The TCM team have a transition plan which details the transition process for transition of our exposures, comprised of the following work streams: risk management and measurement, legal, communications, accounting and systems. Pricing is being managed centrally by TCM using the recommendations from the main industry bodies, namely ISDA for derivatives, Loan Markets Association for Loans and ICMA for Bonds Markets. We are also tracking updates and incorporating best practice recommendations emanating from official sector working groups established to catalyse transition. By way of policy, all new contracts or exposures referencing IBORS include robust fallback language, and work is underway in some areas to actively transition the legacy exposure away from LIBOR. Changes in impacted systems are being implemented and ready to book at new rates. Communications to clients will continue via multiple platforms along with one-to-one conversations. The company is also ensuring that employees attend relevant training and received the required updates and communication. Financial instruments impacted by the reform which are yet to transition Total assets recognised on the balance sheet subject to IBOR reform Loans and advances² USD LIBOR 2022 N$'000 USD LIBOR 2021 N$'000 515 016 660 744 515 016 660 744 545 379 564 810 Total liabilities recognised on the balance sheet subject to IBOR reform Deposits and current accounts 545 379 564 810 1 These balances represent the notional amount directly impacted by the IBOR reform. 2 Gross carrying amount excluding allowances for expected credit losses (ECL). Restatements Correction of prior period errors - reconciliation differences In the current year the group enhanced the control environment surrounding its client management system (CMS) by embedding a client contribution report tool for accrued interest. The report tool improves the process of reconciliation of interest accrued balances between the CMS and the balance sheet accounts. As part of the reconciliation process, all transactional data for accrued interest income, accrued interest expense and interest in suspense for the period 2012 to 2021 was analysed: Unsubstantiated accrued interest income of N$30.5 million, interest in suspense to the value of N$8 million, accrued interest expense to the value of N$14.0 million and credit impairments to the value of N$23 million were adjusted and restated accordingly for periods ended up to 31 December 2020. For the 2021 financial year, a net total of N$7.4 million in interest income and expense was restated. The N$24.2 million normal tax impact of these restatements has also been reflected in the periods ended up to 31 December 2020. For 2021 the tax impact of N$2.4 million was also adjusted for. The above restatement had the following impact on the primary statements within these results: GROUP Assets Loans and advances Other assets Normal tax asset Total assets 2021 Previously reported N$'000 Restatement N$'000 Restated N$'000 165 126 25 447 708 (65 386) 25 382 322 346 814 138 521 (3949) 342 865 26 606 (42 729) Equity attributable to ordinary shareholders 4 379 958 (56 535) 4 323 423 Liabilities 28 242 080 13 806 (42 729) 28 255 886 Equity Deposits and current accounts Total equity and liabilities#35ACCOUNTING POLICY ELECTIONS AND RESTATEMENTS continued 66 GROUP Net interest income Interest income Interest expense Non-interest revenue Total income Credit impairment charges Net income before operating expenses Operating expenses Net income before indirect tax Indirect taxation Profit before direct taxation Direct taxation Profit for the year Attributable to ordinary shareholders Attributable to non-controlling interest Basic and diluted earnings per ordinary share (735 947) 2021 Previously reported N$'000 Restatement N$'000 Restated N$'000 1 236 682 1 972 847 (736 165) (7 370) (7588) 218 1 229 312 1 965 259 1 208 806 1 208 806 2 445 488 (7 370) 2 438 118 (288 751) (288 751) 2 156 737 (7 370) 2 149 367 (1 586 804) (1 586 804) 569 933 (7 370) 562 563 (43 356) (43 356) 526 577 (7 370) 519 207 (155 355) 2 359 (152 996) 371 222 (5 011) 366 211 370 399 (5 011) 365 388 823 823 71 70 Change in method of statements of cash flows presentation and refinement of definition of cash and cash equivalents During 2022, the group performed benchmarking and internal investigations to reassess the definition of cash and cash equivalents when compiling the statement of cash flows. The following have been identified as industry best practice during this exercise and have resulted in the following restatements, changes to accounting presentation policies and related additional disclosures: ■The direct method provides more reliable presentation of the cash flow movements for the group and company which is not available under the indirect method. This change only impacted net cash flows from operating activities within the statement of cash flows for the group and company. ■The group restated its financial statements to appropriately reflect and present the change from on demand loans and advances to banks to cash and cash equivalents in the statement of cash flow and updated the related accounting policy accordingly, refer to note 33.8. These balances, amounting to N$3.3 billion in the 2021 closing cash and cash equivalents balance and N$2.2 billion in the opening balance, were in prior periods excluded from cash and cash equivalents and instead included in income-earning assets. Both the balances and movement (N$1.0 billion) have now been appropriately included within the cash and cash equivalents line in the statement of cash flows. ■ Specific accounting policies, refer to section 3 in Annexure D, have been included for the following: -Cash and balances with central banks -Cash and cash equivalents. The above changes had the following impact on the statement of cash flows: GROUP Net cash flows from operating activities Cash flows from operations (indirect method) Net income before capital items and equity-accounted earnings Adjusted for non-cash items and other adjustments included in the income statement (Increase)/decrease in income-earning assets Increase/(decrease) in deposits and other liabilities Interest received Dividends received Interest paid Direct tax paid Net cash flows from operating activities Cash flows from operations (direct method) Interest and commission receipts Interest payments Recoveries on loans previously written off Cash payments to suppliers and employees Working capital changes (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Dividends received Taxation paid Net cash flows from investing activities Net cash flows from financing activities Net increase/(decrease) in cash and balances with the central bank Cash and balances with the central bank at the beginning of the year Effects of exchange rate differences on cash and balances with the central bank Cash and balances with the central bank at the end of the year COMPANY SBN HOLDINGS LIMITED Annual report 2022 2021 Previously reported N$'000 Restatement N$'000 Restated N$'000 446 661 (446 661) 569 933 (569 933) (751 308) (2 416 969) 2002 190 1 968 515 631 (759 732) (166 599) 751 308 2 416 969 (2 002 190) (1968 515) (631) 759 732 166 599 1 476 768 1 476 768 1 049 013 1 049 013 3 122 635 3 122 635 (759 732) 35 954 (1349 844) 593 723 (1 391 904) 1 985 627 631 (166 599) (759 732) 35 954 (1349 844) 593 723 (1 391 904) 1 985 627 631 (166 599) (157 194) (157 194) 163 902 163 902 453 369 1 030 107 1 483 476 1 035 972 2 234 158 (13 494) 1 488 497 (844) 3 250 771 3 270 130 (14 338) 4 739 268 2021 Previously N$'000 Restated N$'000 reported Restatement N$'000 Net cash flows from operating activities Cash flows from operations (indirect method) 274 928 (274 928) Net income before capital items and equity-accounted earnings 275 564 (275 564) Adjusted for non-cash items and other adjustments included in the income statement (Increase)/decrease in income earning assets Increase/(decrease) in deposits and other liabilities (236 917) 5 837 (2364) Dividends received 236 917 Direct tax paid (4109) 236 917 (5.837) 2 364 (236 917) 4 109 Net cash flows from operating activities Cash flows from operations (direct method) Interest and commission receipts Cash payments to suppliers and employees Working capital changes (Increase)/decrease in operating assets Increase/(decrease) in operating liabilities Dividends received Taxation paid Net cash flows from financing activities Net increase/(decrease) in cash and balances with the central bank Cash and balances with the central bank at the beginning of the year Cash and balances with the central bank at the end of the year 274 928 274 928 38 647 38 647 43 679 43 679 (5 032) (5 032) 3 473 3 473 5 837 5 837 (2364) (2 364) 236 917 236 917 (4109) (4109) (156 642) (156 642) 118 286 118 286 194 115 194 115 312 401 312 401 67#36KEY MANAGEMENT ASSUMPTIONS continued 68 KEY MANAGEMENT ASSUMPTIONS SBN HOLDINGS LIMITED 69 Annual report 2022 In preparing the group and company annual financial statements, estimates and assumptions are made that could materially affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on factors such as historical experience and current best estimates of future events. While models have been enhanced, no material changes to assumptions have occurred during the current year. The following represents the most material key management assumptions applied in preparing these financial statements. The key management assumptions below apply to group and company, unless otherwise stated. Expected credit loss (ECL) During the current reporting period models have been enhanced, but no material changes to assumptions have occurred. Covid-19 placed considerable strain on our operations over the past two years, specifically retail, business and corporate clients, however, the group's risk appetite remained unchanged. As such the below significant increase in credit risk (SICR) and default assumptions, thresholds and/or triggers were not amended. - IFRS 9 drivers ECL on financial assets For the purpose of determining the ECL: ■■The BCB and CHNW portfolios are based on the product categories or subsets of the product categories, with tailored ECL models per portfolio. The impairment provision calculation excludes post-write-off recoveries (PWOR) from the loss given default (LGD) in calculating the ECL. These LGD parameters are aligned to market practice. ■CIB client exposures are calculated separately based on rating models for each of the asset classes. ECL measurement period ■The ECL measurement period for stage 1 exposures is 12-months (or the remaining tenor of the financial asset for CIB client exposures if the remaining lifetime is less than 12-months). ■A loss allowance over the full lifetime of the financial asset is required if the credit risk of that financial instrument has increased significantly since initial recognition (stage 2). ■ A lifetime measurement period is applied to all credit impaired (stage 3) exposures. ■The measurement periods for unutilised loan commitments use the same approach as on-balance sheet exposures. SICR and low credit risk Home services, vehicle and asset finance, card, personal, business and other lending products All exposures are assessed to determine whether there has been SICR at the reporting date, in which case an impairment provision equivalent to the lifetime expected loss is recognised. SICR thresholds, which are based on behaviour scores, are derived for each portfolio vintage of exposures with similar credit risk and are calibrated over time to determine which exposures reflect deterioration relative to the originated population and consequently reflect an increase in credit risk. Behaviour scorecards are based on a combination of factors which include the information relating to customers, transactions and delinquency behavioural (including the backstop when contractual payments are more than 30 days past due (DPD) to provide a quantitative assessment (score), and more specifically, a ranking of customer creditworthiness. The creditworthiness of a customer is summarised by a score, with high scores corresponding to low-risk customers, and conversely, low scores corresponding to high-risk customers. These scores are often taken into account in determining the probability of default (PD) including relative changes in PD. The group and company determine the SICR threshold by utilising an appropriate transfer rate of exposures that are less than 30 days DPD to stage 2. This transfer rate is such that the proportion of the 0 - 29 DPD book transferred into stage 2 is no less than the observed 12-month roll rate of 0-29 days accounts into 30 or more days in arrears. The SICR thresholds are reviewed regularly to ensure that they are appropriately calibrated to identify SICR by portfolio vintage and to consequently facilitate appropriate impairment coverage. Where behaviour scores are not available, historical levels of delinquency are applied in determining whether there has been SICR. For all exposures, the rebuttable presumption of 30 days past due as well as exposures classified as either debt review or as 'watch-list' are used to classify exposures within stage 2. In accordance with BoN's policy directives in response to economic and financial stability challenges, following the fallout of the Covid-19 pandemic where a restructure is considered due to Covid-19 related factors, the group determines whether the exposure is expected to remain in a not overdue status subsequent to the relief period. These restructured exposures are classified as Covid-19 related restructures and the determination of temporary or permanent distress is assessed on a regular basis. Temporary distressed accounts are classified as stage 1 or stage 2 based on the risk profile and permanently distressed accounts are classified as stage 3. Corporate, sovereign and bank lending products (including certain business banking exposures) The group uses a 25-point master rating scale to quantify the credit risk for each exposure. On origination, each client is assigned a credit risk grade within the group's 25-point master rating scale. Ratings are mapped to PDs by means of calibration. formulae that use historical default rates and other data for the applicable portfolio. These credit ratings are evaluated at least annually or more frequently as appropriate. CIB exposures are evaluated for SICR by comparing the credit risk grade at the reporting date to the origination credit risk grade. Where the relative change in the credit risk grade exceeds certain pre-defined ratings' migration thresholds or, when a contractual payment becomes more than 30 days overdue (IFRS 9's rebuttable presumption), the exposure is classified within stage 2. These pre-defined ratings' migration thresholds have been determined based on historic default experience which indicate that higher rated risk exposures are more sensitive to SICR than lower risk exposures. Based on an analysis of historic default experience, exposures that are classified by the group's master rating scale as investment grade (within credit risk grade 1 - 12 of the group's 25-point master rating scale) are assessed for SICR at each reporting date but are considered to be a low credit risk customer. To determine whether a client's credit risk has increased significantly since origination, the group and company would need to determine the extent of the change in credit risk using the table below. Group master rating scale-band SB 1-12 SB 13-20 SB 21-25 SICR trigger (from origination) Low credit risk 3 rating or more 1 rating or more From a Namibian perspective, for Covid-19 related qualifying exposures the SICR methodology remains unchanged (comparing the credit risk grading) to determine whether these exposures are classified within stage 1 or stage 2. The credit risk grade is assessed at the time of the relief, and subsequent monthly reviews of the status of the request and client's performance are conducted. Incorporation of forward-looking information (FLI) in ECL measurement The group determines the macroeconomic outlook, over a planning horizon of at least three years based on the group's global outlook and its global view of commodities. For home services, vehicle and asset finance, card, personal, business and other lending products these forward-looking economic expectations are included in the ECL where adjustments are made based on the group's macroeconomic outlook, using models that correlate these parameters with macroeconomic variables. Where modelled correlations are not viable or predictive, adjustments are based on expert judgement to predict the outcomes based on the group's macroeconomic outlook expectations. In addition to forward-looking macroeconomic information, other types of FLI, such as specific event risks and industry data, have been taken into account in ECL estimates when required, through the application of out-of- model adjustments. These out-of-model adjustments are subject to group credit risk management committee oversight. The group's macroeconomic outlook is incorporated in corporate, sovereign and bank products' client rating and include specific forward-looking economic considerations for the individual client. The client rating thus reflects the expected client risk for the group's expectation of future economic and business conditions. Further adjustments, based on point-in-time market data, are made to the PDs assigned to each risk grade to produce PDs and ECL representative of existing market conditions. Default The definition of default, which triggers the credit impaired classification (stage 3), is based on the group and company's internal credit risk management approach and definitions. While the specific determination of default varies according to the nature of the product, it is compliant to the Basel definition of default, and generally determined as occurring at the earlier of: ■where, in the group and company's view, the counterparty is considered to be unlikely to pay amounts due on the due date or shortly thereafter without recourse to actions such as the realisation of security; or ■when the counterparty is past due for more than 90 days (or, in the case of overdraft facilities in excess of the current limit). The group and company have not rebutted the 90 DPD rebuttable presumption. Write-off policy An impaired loan is written off once all reasonable attempts at collection have been made and there is no material economic benefit expected from attempting to recover the balance outstanding (i.e. no reasonable expectation of recovery). This assessment considers both qualitative and quantitative information, such as past performance, behaviour and recoveries. The group assesses whether there is a reasonable expectation of recovery at an exposure level. As such, once the below criteria are met at an exposure level, the exposure is written off. The following criteria must be met before a financial asset can be written off: ■the financial asset has been in default for the period defined for the specific product (i.e. vehicle and asset finance, mortgage loans, etc.) which is deemed sufficient to determine whether the group is able to receive any further economic benefit from the impaired loan. The period defined for unsecured BCB and CHNW products are determined with reference to post-default payment behaviour such as cumulative delinquency, as well as an analysis of post write-off recoveries which includes an assessment of the factors resulting in post write-off recoveries. Factors that are within the group's control are assessed and considered in the determination of the period defined for each product. The post-default payment period is generally once the rehabilitation probability (repayment of arrear instalments) is considered low to zero, and a period between 180 and 360 days post default with no payments; and ■at the point of write-off, the financial asset is fully impaired (i.e. 100% ECL allowance) with no reasonable expectation of recovery of the asset, or a portion thereof. As an exception to the above requirements: ■where the exposure is secured (or for collateralised structures), the impaired exposure can only be written off once the collateral has been realised. Post-realisation of the collateral, the shortfall amount can be written off if it meets the second requirement listed above. ■■CIB products, write-off are assessed on a case-by-case basis and approved by the CIB client credit governance committee based on the individual facts and circumstances. For unsecured exposures, post write-off collection and enforcement activities include outsourcing to external debt collection agents as well as, collection/settlement arrangements to assist clients to settle their outstanding debt. The group continuously monitors and reviews when exposures are written off, the levels of post write-off recoveries as well as the key factors causing post write-off recoveries. which ensure that the group's point of write-off remains appropriate and that post write-off recoveries are within acceptable levels after time. Curing Continuous assessment is required to determine whether the conditions that led to a financial asset being considered to be credit impaired (i.e. stage 3) still exist. Distressed restructured financial assets that no longer qualify as credit impaired remain within stage 3 for a minimum period of six months (i.e. six full consecutive monthly payments per the terms and conditions). In the case of financial assets with quarterly or longer dated repayment terms, the classification of a financial asset out of stage 3 may be made subsequent to an evaluation by the group's CIB, BCB and CHNW credit governance committee (as appropriate), such evaluation will take into account qualitative factors in addition to compliance with payment terms and conditions of the agreement. Qualitative factors include compliance with covenants and with existing financial asset terms and conditions. Where it has been determined that a financial asset no longer meets the criteria for SICR, the financial asset will be moved from stage 2 (lifetime ECL model) back to stage 1 (12-month ECL model) prospectively.#37KEY MANAGEMENT ASSUMPTIONS continued 70 SBN HOLDINGS LIMITED Annual report 2022 The group's forward-looking economic expectations were applied in the determination of the ECL at the reporting date. A range of base, bullish and bearish forward-looking economic expectations were determined, as at 31 December 2022, for inclusion in the group's forward-looking process and ECL calculation. Namibia economic expectation Base scenario Although the global economic outlook and risks have worsened, we still forecast a stable recovery in the Namibian domestic economy over the forecast period. The recovery is expected to stem from a robust performance in the mining industry, particularly diamonds. Continued water supply and high input cost constraints will place pressure on uranium mining prospects until alleviated. Most of the sectors under the secondary and tertiary industries are similarly expected to register positive but low growth. Higher inflation and interest rates are likely to reduce discretionary consumer expenditure in the short term. A marginal recovery is expected once inflationary pressure stabilises over the midterm. We expect economic growth over the midterm to be higher than the pre-pandemic growth trend supported by structural and fiscal Government reforms and elevated terms of trade. Risks to the forecast are skewed to the downside with geopolitical tensions, climatic challenges, global supply chain disruptions and higher food and oil prices weighing on the forecast. Further tightening of financial conditions has led to depreciating real incomes for households which exerts pressure on consumption and remains a risk for growth. Bear scenario The risks of a bearish scenario materialising are predicated on the more long lasting negative global shocks are based primarily Main macroeconomic factors on higher oil prices and slower growth in China. This scenario also assumes that commodity prices fall under the weight of slowing demand, with longer lasting supply chain disruptions and a period of persistently higher inflationary pressure. Domestically, failure to successfully implement structural and fiscal reforms occurs. Economic recovery would be more protracted, leading to persistent structural growth constraints. In this scenario, worsening public finances may trigger a ratings downgrade and result in significant capital outflows. Electricity supply, rail and port infrastructure inefficiencies and stalling reform momentum in South Africa weigh on potential growth and suppresses economic activity in the region. The effects of the economic downturn in South Africa would carry over into the Namibian economy and likely weigh negatively on growth. Failure to contain inflationary pressure accompanied by a weaker Rand (and by extension the Namibian dollar) would force BoN to raise policy rates, further hindering recovery efforts. In this scenario, growth is persistently lower and as domestic demand remains subdued, partly owing to the larger permanent destruction of businesses and jobs in key sectors of the economy. Bull scenario Generally, there is a low probability of a bullish scenario in which the implementation of fiscal and structural reforms, which had started but continues at a slow pace in the baseline, gains momentum. This supports the growth rebound, including fixed investment and employment growth, as well as capital inflows. The scenario also assumes elevated terms of trade due to higher commodity prices. In this scenario, a recovery in growth over the medium term would boost government revenues and speed up the fiscal adjustment process leading to an improved fiscal outlook. Domestic GDP growth would pick up significantly, averaging at almost 3.3% over the remaining forecast period. The turnaround would be supported by a recovery in consumer demand and commodity prices. The following table shows the main macroeconomic factors used to estimate the forward-looking impact on the ECL provision on financial assets. For each scenario the average values of the factors over the next 12 months, and over the remaining forecast period, are presented. Base scenario Remaining forecast period¹ Bull scenario Bear scenario Remaining forecast period¹ 12 months Next 12 months Next Remaining forecast period¹ Next 12 months Macroeconomic factors 2022 Namibia² Inflation (%) 5.60 4.61 5.99 5.16 4.84 3.96 Real GDP³ (%) 3.10 2.56 1.54 1.67 3.93 3.31 Exchange rate (USD/NAD) 16.60 15.99 17.58 17.25 15.86 15.01 Prime (%) 11.00 10.54 12.00 11.40 10.75 10.25 2021 Namibia² Inflation (%) Real GDP³ (%) Exchange rate (USD/NAD) Prime (%) 4.20 4.25 4.60 4.99 3.53 3.90 3.40 2.98 1.65 1.49 4.15 3.67 15.03 15.15 15.58 16.19 14.43 14.41 8.06 9.29 8.25 9.48 7.75 1 The remaining forecast period is 2024 to 2026. 2 The scenario weighing is: Base at 55%, Bear at 30% and Bull at 15%. 3 Gross domestic product. 8.71 Sensitivity analysis of home services, vehicle and asset finance, card, personal, business and other lending products forward-looking impact on ECL provision The following table shows a comparison of the FLI on the provision as at 31 December 2022, based on the probability weightings of the above three scenarios resulting from recalculating each of the scenarios using a 100% weighting of the above factors. Forward-looking impact Scenarios Base Bear Bull 2021 2022 Total ECL I/S (release)/ provision N$'000 charge N$'000 Total ECL provision N$'000 I/S (release)/ charge N$'000 68 252 (5 636) 73 888 (11 091) 60 214 (8 038) 66 515 157 872 327 89 620 (67 925) 170 728 221 (7373) 96 840 (73 667) The income statement impact of N$5.6 million for 2022 was assessed by applying the same sensitivity analysis principles mentioned above. The impact on the total ECL provision for each scenario is N$60 million (decrease of N$8 million) for the base scenario, N$158 million (increase of N$90 million) for the bear scenario and N$0.3 million (decrease of N$68 million) for the bull scenario. Post-model adjustments The company's forward-looking scenarios remain aligned to base case (55%), bull (15%) and bear (30%). The current period ECL charge decreased from N$74 million to N$68 million in support of the positive sentiment expected. Fair value Financial instruments In terms of IFRS, the group is either required to or elects to measure a number of its financial assets and financial liabilities at fair value, being the price that would, respectively, be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market between market participants at the measurement date. Regardless of the measurement basis, the fair value is required to be disclosed, with some exceptions, for all financial assets and financial liabilities. Fair value is a market-based measurement and uses the assumptions that market participants would use when pricing an asset or liability under current market conditions. When determining fair value it is presumed that the entity is a going concern and is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. Information obtained from the valuation of financial instruments is used to assess the performance of the group and, in particular, provides assurance that the risk and return measures that the group has taken are accurate and complete. Valuation process The group's valuation control framework governs internal control standards, methodologies and procedures over its valuation processes, which include: Prices quoted in an active market: The existence of quoted prices in an active market represents the best evidence of fair value. Where such prices exist, they are used in determining the fair value of financial assets and financial liabilities. Valuation techniques: Where quoted market prices are unavailable, the group establishes fair value using valuation techniques that incorporate observable inputs, either directly, such as quoted prices, or indirectly, such as those derived from quoted prices, for such assets and liabilities. Parameter inputs are obtained directly from the market, consensus pricing services or recent transactions in active markets, whenever possible. Where such inputs are not available, the group makes use of theoretical inputs in establishing fair value (unobservable inputs). Such inputs are based on other relevant input sources of information and incorporate assumptions that include prices for similar transactions, historic data, economic fundamentals, and research information, with appropriate adjustments to reflect the terms of the actual instrument being valued and current market conditions. Changes in these assumptions would affect the reported fair values of these financial instruments. Valuation techniques used for financial instruments include the use of financial models that are populated using market parameters that are corroborated by reference to independent market data, where possible, or alternative sources, such as, third-party quotes, recent transaction prices or suitable proxies. The fair value of certain financial instruments is determined using industry standard models such as, discounted cash flow analysis and standard option pricing models. These models are generally used to estimate future cash flows and discount these back to the valuation date. For complex or unique instruments, more sophisticated modelling techniques may be required, which require assumptions or more complex parameters such as correlations, prepayment spreads, default rates and loss severity. Valuation adjustments: Valuation adjustments are an integral part of the valuation process. Adjustments include, but are not limited to: ■credit spreads on illiquid issuers, ■implied volatilities on thinly traded instruments, ■correlation between risk factors, ■prepayment rates and other illiquid risk drivers. In making appropriate valuation adjustments, the group applies methodologies that consider factors such as bid-offer spreads, liquidity, counterparty and own credit risk. Exposure to such illiquid risk drivers is typically managed by: ■using bid-offer spreads that are due to the relatively low liquidity of the underlying risk driver ■raising day one profit or loss provisions in accordance with IFRS ■quantifying and reporting the sensitivity to each risk driver ■prepayment rates limiting exposure to such risk drivers and analysing exposure on a regular basis. Validation and control: All financial instruments carried at fair value, regardless of classification, and for which there are no quoted market prices for that instrument, are fair valued using models that conform to international best practice and established financial theory. These models are validated independently by the group's model validation unit and formally reviewed and approved by the market risk methodologies committee. This control applies to both off-the-shelf models, as well as those developed internally by the group. Further, all inputs into the valuation models are subject to independent price validation procedures carried out by the group's market risk unit. Such price validation is performed on at least a monthly basis, but daily where possible given the availability of the underlying price inputs. Independent valuation comparisons are also performed, and any significant variances noted are appropriately investigated. Less liquid risk drivers, which are typically used to mark level 3 assets and liabilities to model, are carefully validated and tabled at the monthly price validation forum to ensure that these are reasonable and used consistently across all entities in the group. Sensitivities arising from exposures to such drivers are similarly scrutinised, together with movements in level 3 fair values. They are also disclosed on a monthly basis at the market risk and asset and liability committees. Refer to note 18 for assets and liabilities at fair value disclosures. 71#38KEY MANAGEMENT ASSUMPTIONS continued 72 Consolidation of entities The group controls and consolidates an entity where the group has power over the entity's relevant activities; is exposed to variable returns from its involvement with the investee; and has the ability to affect the returns through its power over the entity. Determining whether the group controls another entity requires judgement by identifying an entity's relevant activities, being those activities that significantly affect the investee's returns, and whether the group controls those relevant activities by considering the rights attached to both current and potential voting rights, de facto control and other contractual rights, including whether such rights are substantive. Goodwill impairment In terms of IFRS, the group is required on an annual basis to test its recognised goodwill for impairment. The impairment tests are performed by comparing the cash-generating units' (CGU) recoverable amounts to the carrying amounts in the functional currency of the CGU being assessed for impairment. The recoverable amount is defined as the higher of the entity's fair value less costs of disposal and its value in use. The review and testing of goodwill for impairment inherently requires significant management judgment as management needs to estimate the identified CGU's future cash flows. The principal assumptions considered in determining an entity's value in use include: ■Future cash flows - the forecast periods adopted reflect a set of cash flows which, based on management's judgement and expected market conditions, could be sustainably generated over such a period. A forecast period of five years has been used. ■ Discount rates - the weighted average cost of capital (WACC) was calculated based on comparable companies in the industry. In determining the WACC, we have used the capital asset pricing model (CAPM). Cost of debt was calculated using the risk-free rate in Namibia of 9.19% - 9.47% (2021: 6.54% - 7.07%) and adding a credit spread of 2.0% - 3.0% (2021: 2.0% - 3.0%). The after tax cost of debt was derived after taking into account the Namibian tax at a rate of 32% (2021: 32%). The following table summarises the impairment test methodology applied and the key inputs used in testing the group's goodwill relating to Mobicash Payments Solutions (Proprietary) Limited. Mobicash Payments Solutions (Proprietary) Limited 2022 2021 Properties in possession As a result of default by a client, Standard Bank Namibia called upon the property owning entities of which the property were put up as collateral. These entities are presented under interest in subsidiary and initially measured at fair value of date of acquisition. The fair value was determined by reference to property valuation certificates obtained from independent valuers adjusted by Standard Bank management for events or conditions in existence at year end in accordance with the requirements of IFRS. The independent valuers determined the fair values considering, among other factors, whether the property within the property owning entity is commercial or residential, using the following methods as applicable: 1. Direct sales comparisons method The sales comparison approach consists of comparing the subject property with sales of similar properties that have sold. It is based upon the principle of substitution and implies that a prudent investor will not pay more for an existing property than he will to buy an identical substitute property. Physical characteristics such as zoning, site location, access, land size, shape of earth, topography, drainage, nature of structure, quality and condition, age, features, problems, and orientation are factors that are considered to establish a comparative market value. 2. Land residual approach This approach contains elements of the market and the income capitalisation approaches, as well as a cash flow analysis. It comprises an investor's model based on the concept that the land value is equivalent to the net present value of the difference between the income that will be derived from the sale of the sub-divided erven and the costs that would be incurred in producing that income, taking the development and sales periods into account. Deducted from the total gross sell-out-value based on comparable sales will be marketing costs, constructions costs, service installation costs, professional fees, municipal costs and any other general costs associated with township development. This sell-out-value less holding costs is discounted over the time period it would take to sell all the serviced erven. The value takes the location and bulk services into consideration as well as the layout. Specific aspects considered determining a market value: ■Market conditions in terms of the demand for similar properties. The local economic outlook. The location of the subject property. Size of the land available for development. NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1. 2. Cash and balances with the central bank Coins and bank notes¹ Balances with the Bank of Namibia 1.2 Cash balances Total SBN HOLDINGS LIMITED Annual report 2022 73 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 543 548 478 714 1 129 789 1 009 783 291 326 312 401 1 673 337 1 488 497 291 326 312 401 1 Coins and bank notes and the reserve balance with the BoN are classified as FVTPL while temporary excess balance with BoN is classified at amortised cost. 2 These balances primarily comprise reserving requirements levied by BoN. These balances are available for use by the group, subject to certain restrictions and limitations imposed by BoN. These balances are held at FVTPL. Derivative instruments All derivatives are classified as either derivatives held-for-trading or held-for-hedging. A summary of the fair values of the derivative assets and derivative liabilities is as follows: GROUP Held-for-trading Held-for-hedging Total Fair value of assets Fair value of liabilities 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 138 918 138 918 71 896 1 430 73 326 (136 263) (4 500) (70 576) (140 763) (70 576) 2.1 Use and measurement of derivative instruments 2.2 The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks are also measured across the product range in order to take into account possible correlations. In the normal course of business, the group enters into a variety of foreign exchange, interest rate, commodity, credit and equity derivative transactions for trading purposes. Derivative instruments used by the group in trading activities include swaps, options, forwards, futures and other similar types of instruments. Derivatives held-for-trading The group transacts derivative contracts to address client demand, both as a market maker in the wholesale markets and in structuring tailored derivatives for clients. The company also takes proprietary positions for its own account. Trading derivative products include the following: Fair value of assets 2022 N$'000 2021 N$'000 Fair value of liabilities 2022 N$'000 2021 N$'000 Notional amount¹ 2022 N$'000 2021 N$'000 derivatives 125 676 62 796 Interest rate derivatives 13 242 Total 138 918 9 100 71 896 (123 021) (13 242) (136 263) (61 476) (9 100) 3 885 351 369 918 99 924 (70 576) 3 885 351 469 842 1 The notional amount is the sum of the absolute value of all bought and sold contracts for both derivative assets and liabilities. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group's participation in derivative contracts. Discounted cash flow Discount rate (nominal) (%) 15.50 14.36 Forecast period (years) Terminal growth (nominal) (%) 5 5.1 5 4.1 The application of these assumptions did not result in an impairment. Post-employment benefits The group and company's post-employment benefits consist of both post-employment retirement funds and healthcare benefits. The group and company's obligations to fund these benefits are derived from actuarial valuations performed by the appointed actuaries taking into account various assumptions. The funds are subject to a statutory financial review by the group's independent actuaries at intervals of not more than three years. The principal assumptions used in the determination of the group and company's post-employment benefits obligation are set out in note 34. ■ Cost related to the providing of bulk infrastructure services, considering the topography of the terrain. ■ As applicable, that no development be allowed in a 50 year flood line and that a proper river crossing be designed by a registered professional Engineer to at least be accommodative of a 50 year flood level. 3. Income capitalisation rate method The income capitalisation approach assumes that a purchaser will not pay more for a property with a certain income flow than the amount for which he can obtain a similar income flow with a similar risk elsewhere. The conversion of the net income stream into a present value is known as capitalisation and the rate of conversion is known as the capitalisation rate. The rate of capitalisation is the initial yield obtained from the investment, i.e., the ratio between the net income and the present worth (value) or purchase price, expressed as a percentage on an annual basis. The rates applied range for the applicable properties as follows: 5.2% - 12%. Conditions in existence at year end that were considered in accordance with the requirements of IFRS include forced sale discounts estimated based on historical discounts which considers the time to sell. Refer to note 42 for further details. GROUP Foreign exchange#3974 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 2. Derivative instruments continued 2.3 Financial instruments held-for-hedging Derivatives and other financial instruments held-for-hedging 2.3.1 Where all relevant criteria are met, derivatives are classified as derivatives held-for-hedging and hedge accounting is applied to remove the accounting mismatch between the derivative (hedging instrument) and the underlying instrument (hedged item). All qualifying hedging relationships are designated at fair value. The group applies hedge accounting in respect of interest rate risk. Derivatives designated as hedging instruments in fair value hedging relationships 3. Trading assets mm 3.1 Classification GROUP 2022 Interest rate risk fair value hedging relationships SBN HOLDINGS LIMITED Annual report 2022 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Government, municipality and utility bonds Treasury bills 17 572 474 621 578 822 Reverse repurchase and other collateralised agreements Total 474 621 23 190 619 584 Fair value Maturity Assets N$'000 Liabilities N$'000 Net fair value N$'000 Less Between than 1 year N$'000 Contract/ Fair value 1 and Over 5 notional gain/ 4. Financial investments 5 years N$'000 years N$'000 amount¹ (loss) N$'000 N$'000 Interest rate swaps Total 2021 Interest rate risk fair value hedging relationships Interest rate swaps 1 430 Total 1 430 1 (4 500) (4 500) (4 500) 49 300 (4 500) (4 500) (4 500) 49 300 1 430 1 430 1 430 1 430 99 924 (4 695) 99 924 (4 695) The notional amount is the sum of the absolute value for both derivative assets and liabilities. The amount cannot be used to assess the market risk associated with the positions held and should be used only as a means of assessing the group's participation in derivative contracts. The notional amount is directly impacted by the JIBAR interest rate benchmark reform. 2.3.2 Hedged items classified as fair value hedges 2.3.3 GROUP 2022 Interest rate risk fair value hedging relationships Deposits and current accounts Total 2021 Interest rate risk fair value hedging relationships Deposits and current accounts Total Fair value liabilities N$'000 Accumulated fair value (loss)/gain at 31 December N$'000 Fair value (loss)/gain used to test hedge ineffectiveness N$'000 Accumulated fair value hedge adjustments N$'000 (47 169) 2 131 2 131 2 131 (47 169) 2 131 2 131 2 131 (101 371) 4 739 4 739 4 739 (101 371) 4 739 4 739 4 739 Hedge ineffectiveness recognised in profit or loss Hedge ineffectiveness in qualifying hedge relationships arises predominantly due to the presence of costs contained within hedging instruments. This ineffectiveness was recognised in net interest income together with the gains and losses on the underlying hedged item according to the nature of the risk being hedged as follows: GROUP Fair value hedges Interest rate risk fair value hedging relationships Net interest income 2022 N$'000 2021 N$'000 (2 369) 44 Ineffectiveness relating to highly probable forecast transactions no longer expected to occur during both 2022 and 2021 amounted to N$nil. There was no material ineffectiveness relating to basis in relation to foreign currency hedging relationships during 2022 and 2021. GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 Government bonds and treasury bills Mutual funds and unit-linked investments Total 3 742 926 3 969 129 1 180 088 1 701 417 4 923 014 5 670 546 Accounting classification: Net debt financial investments measured at amortised cost Gross debt financial investments measured at amortised cost Less: ECL for debt financial investments measured at amortised cost 39 415 39 426 39 415 39 426 Financial investments measured at FVTPL - mandatory Debt financial investments measured at FVOCI Total 1 180 088 1 701 417 3 703 511 3 929 703 4 923 014 5 670 546 2021 N$'000 75#40NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 76 5. 5.1 Loans and advances Classification SBN HOLDINGS LIMITED Annual report 2022 77 5. Loans and advances continued 5.3 Reconciliation of ECL for loans and advances measured at amortised cost GROUP 2022 N$'000 2021 Restated¹ N$'000 25 382 322 Net loans and advances measured at amortised cost 25 969 450 Gross loans and advances measured at amortised cost 26 731 233 26 377 761 Home services 11 822 800 12 776 077 Vehicle and asset finance (note 5.2) 2 893 913 Card and payments 140 088 Corporate lending Sovereign lending Bank lending² Other loans and advances³ 5 057 176 267 375 3 714 600 3 177 030 142 026 3 332 015 598 085 3 257 649 2 835 281 3 094 879 Expected credit losses (note 5.3)4 (761 783) (995 439) COMPANY 2022 N$'000 2021 N$'000 Net loans and advances 25 969 450 25 382 322 1 Refer to restatement narrative included in the accounting policy elections and restatements' section for the restatements of accrued interest and interest in suspense and the impact on loans and advances. 2 Included in bank lending is an amount of N$3.1 billion (2021: N$3.3 billion) relating to on-demand gross loans and advances to banks that qualifies as cash and cash equivalents (note 33.8). 3 Comprises personal unsecured lending and business and other lending. 4 The overall lower ECL is mainly driven by the realisation of management's strategic initiatives, as encompassed in our non-performing loan (NPL) reduction strategy, that was implemented in 2021. 5.2 Vehicle and asset finance GROUP COMPANY 2022 N$'000 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 Gross investment in vehicle and asset financing Receivable within one year 3 538 505 3 643 720 1 245 000 Receivable after one year but within five years Receivable after five years Unearned finance charges deducted 2 207 762 85 743 (644 592) 255 980 2 467 934 919 806 (466 690) 3 177 030 Receivable within one year Net investment in vehicle and asset financing 2 893 913 1 112 857 247 613 Receivable after one year but within five years Receivable after five years 1 724 377 56 679 2 194 043 735 374 1 Refer to restatement narrative included in the accounting policy elections and restatements section for the restatements of accrued interest and interest in suspense and the impact on loans and advances. Leases entered into are at market-related terms. Under the terms of the lease agreement, no contingent rentals are payable. Moveable assets are leased or sold to customers under finance leases and instalment sale agreements for periods varying between 12 and 72 months. Depending on the terms of the agreement, the lessee may have the option to purchase the asset at the end of the lease term. Stage 1 N$'000 Stage 2 N$'000 Stage 3 (including IIS) N$'000 Total5 N$'000 GROUP Opening ECL 1 January 2021 92 663 166 849 541 778 801 290 Transfers between stages¹ 18 287 (8538) (9 749) Transfers (from)/to stage 1 (5 648) (12 639) (18 287) Transfers to/(from) stage 2 5 648 2 890 8 538 Transfers to/(from) stage 3 12 639 (2 890) 9 749 Net ECL (released)/raised (34 425) 16 538 346 050 328 163 ECL on new exposures raised² Subsequent changes in ECL 17 262 Change in ECL due to derecognition (47 464) (4 223) 5 497 13 379 (2 338) 15 577 330 473 38 336 296 388 (6561) Impaired accounts written off³ (122 651) Exchange and other movements4 (11 363) (122 651) (11 363) Closing ECL 31 December 2021 - restated6 76 525 174 849 744 065 995 439 Opening ECL 1 January 2022 76 525 174 849 744 065 995 439 Transfers between stages¹ 13 606 (2 400) (11 206) Transfers to/(from) stage 1 (5 495) (8 111) (13 606) Transfers (from)/to stage 2 5 495 (3 095) 2 400 Transfers (from)/to stage 3 8 111 3 095 11 206 Net ECL (released)/raised ECL on new exposures raised² Subsequent changes in ECL Change in ECL due to derecognition 1 051 40 347 161 701 203 099 17 391 33 329 4 377 55 097 (15 305) (1 035) 13 132 (6 114) 157 310 155 137 14 (7 135) Impaired accounts written off³ Exchange and other movements4 Closing ECL 31 December 2022 (751) 19 (456 442) 20 419 (456 442) 19 687 90 431 212 815 458 537 761 783 1 The group policy is to transfer opening balances based on the ECL stage at the end of the reporting period. Therefore, exposures can be transferred directly from stage 3 to stage 1 as the curing requirements would have been satisfied during the reporting period. 2 The ECL recognised on new exposures originated during the reporting period (which are not included in opening balances) are included within the line 'ECL on new exposures raised' ECL stage as at the end of the reporting year. 3 The contractual amount outstanding on loans and advances that were written off during the reporting period that are still subject to enforcement activities is N$204 million (2021: N$123 million). 4 Exchange and other movements include the time value of money (TVM) unwind and net interest in suspense (IIS) raised and released. 5 The ECL raised is for loans and advances and undrawn facilities. 6 Refer to restatement narrative included in the accounting policy elections and restatements section for the restatements of accrued interest and interest in suspense and the impact on loans and advances.#41NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 78 5. Loans and advances continued 5.3 Reconciliation of ECL for loans and advances measured at amortised cost continued A reconciliation of the ECL for loans and advances, by product: Opening ECL 1 January 2022 N$'000 Transfer stage 1 (to)/ from N$'000 Transfer stage 2 (to)/ from N$'000 Transfer stage 3 (to)/ from N$'000 Total transfers Net ECL Impaired between raised/ accounts stages (released) 5 written off N$'000 N$'000 Closing ECL N$'000 Exchange and other movements N$'000 31 December 2022 N$'000 ུག 5. 5.3 SBN HOLDINGS LIMITED Annual report 2022 Loans and advances continued Reconciliation of ECL for loans and advances measured at amortised cost continued A reconciliation of the ECL for loans and advances, by product: Closing ECL Opening ECL Total 31 Transfer Transfer Transfer transfers 1 January 2021 N$'000 stage 1 stage 2 stage 3 (to)/from (to)/from N$'000 N$'000 (to)/from N$'000 between stages N$'000 Net ECL raised/ Impaired accounts (released) written off N$'000 N$'000 Exchange and other movements N$'000 December 2021 Restated¹ N$'000 GROUP Home services¹ 588 608 (8 402) (2 076) 10 478 164 496 (251 140) (69 438) 432 526 GROUP Stage 1 Home services² 397 809 19 097 998 7 404 8 402 Stage 2 51 135 Stage 34 518 376 (998) (7 404) 3 074 2 076 (3 074) (10 478) (5 971) 27 747 142 720 (13 300) 6233 7 067 175 307 21 528 (22 235) 37 727 588 608 80 958 Stage 1 23 104 4 769 (251 140) (69 438) 330 040 Stage 2 51 622 Vehicle and asset Stage 36 323 083 (4 769) (8 531) 8531 (1464) 13 300 (17 307) 19 097 (6 233) 1464 (7 067) 5 746 186 868 (22 235) 37 727 51 135 518 376 finance 103 772 273 (1 782) 1509 Stage 1 7 651 (163) (110) Stage 2 40 783 163 1 619 Stage 34 55 338 110 (1 619) (273) 1782 (1509) 19 334 542 (11 426) (103) 111 577 Vehicle and asset finance 116 847 (5 333) 2 171 3 162 4922 (2 890) 7 920 39 675 (17 997) 103 772 Stage 1 9546 1646 3 687 5333 (7228) 7 651 21 682 (11 426) (103) 63 982 Stage 2 50 309 Card and payments 17 510 (159) (137) 296 Stage 36 56 992 6 771 (1646) (3 687) (525) (2 171) (7 355) 40 783 525 (3 162) 19 505 (10 705) (1 517) 12 059 (17 997) 55 338 Stage 1 2 442 102 Stage 2 7 397 (102) 57 239 159 91 2 692 Card and payments 18 599 (398) 110 288 7 634 (8 723) 17 510 137 431 7 965 Stage 1 1642 244 154 398 402 2 442 Stage 34 7 671 (57) (239) (296) 6 249 (10 705) (1 517) 1402 Stage 2 3 943 (244) 134 (110) 3 564 7 397 Corporate lending³ 39 695 (4 746) 4 746 5 652 (5 649) 1479 41 177 Stage 36 13 014 (154) (134) (288) 3668 (8 723) 7 671 Stage 1 10 572 4 746 4 746 123 223 15 664 Corporate lending4 31 783 (402) 422 (20) 7914 (2) 39 695 Stage 2 19 325 (4 746) (4 746) 6 036 637 21 252 Stage 1 14 263 402 402 (4 093) 10 572 Stage 34 9 798 (507) (5 649) 619 4 261 Sovereign lending³ 1665 124 Stage 1 1046 (124) (124) (583) 746 1828 Stage 2 Stage 36 15 020 2500 (402) (20) 20 (422) 20 4 726 1 19 325 7281 (3) 9798 Stage 2 619 124 (124) 124 (1225) 746 Sovereign lending4 19 2 317 642 443 1385 (2 317) 1646 1665 Stage 1 Stage 34 Bank lending³ 4 502 2142 (2142) (109) (2 338) Stage 2 Stage 36 16 36 (2 317) (2 317) 3 360 1046 2 317 2 317 (1714) 619 2 055 Stage 1 3 882 (2142) Stage 2 620 2142 (2142) 2142 491 (600) (1720) (618) 511 1544 Bank lending4 3 831 Stage 1 3 756 Stage 34 Stage 2 75 671 126 545 4 502 3882 620 Other loans and Stage 36 advances² 239 687 (2838) 3 915 (1 077) 7 538 (177 522) 90 858 160 561 Stage 1 31 835 2 078 Other loans and advances³ 232 402 Stage 2 54 970 Stage 34.5 152 882 (2 078) (760) 760 (1837) 2 838 7000 41 673 (1171) 1837 (3 915) 1077 8 981 60 036 Stage 1 40 349 1919 904 (8 443) (177 522) 90 858 58 852 Stage 2 45 864 (904) (748) 267 (1 015) 130 069 (73 694) (49 090) 239 687 1171 (9 685) 31 835 Stage 36 146 189 (267) 1 015 (1919) 748 11 025 54 970 128 729 Total 3,4,5 (73 694) (49 090) 152 882 995 439 (13 606) 2400 11 206 203 099 (456 442) 19 687 761 783 Total 4,5,6 801 290 (18 287) 8 538 9 749 328 163 (122 651) (11 363) 995 439 1 Comprises residential and commercial property loans. 2 Comprises personal unsecured lending and business and other lending. 3 "Corporate" "Sovereign" and "Bank" categories relate to ECL on CIB client loans and advances, while the remaining categories relate to ECL on CHNW and BCB client loans and advances. 4 Includes interest in suspense (IIS). 5 The overall lower ECL is mainly driven by the realisation of management's strategic initiatives, as encompassed in our NPL reduction strategy, that was implemented in 2021. 1 Refer to restatement narrative included in the accounting policy elections and restatements section for the restatements of accrued interest and interest in suspense and the impact on loans and advances. 2 Comprises residential and commercial property loans. 3 Comprises personal unsecured lending and business and other lending. 4 "Corporate", "Sovereign" and "Bank" categories relate to ECL on CIB client loans and advances while the remaining categories relate to ECL on CHNW and BCB loans and advances. 5 The overall higher ECL is mainly attributable to constrained collections and further protraction in the legal environment stemming from the national Covid-19 lockdown, increased forward-looking provisioning on the back of the weakened economic outlook (refer to the key management assumptions for further information in this regard), and changes from stage 1 to stages 2 and 3 based on risk profile assessments and stress caused by the impact of Covid-19. 6 Includes interest in suspense (IIS). 79#42NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 80 5. Loans and advances continued Changes in gross exposures relating to changes in ECL (group) The below is an explanation of significant changes in the gross carrying amount on financial instruments used to determine the above changes in ECL: ■The ECL on new exposures raised of N$55.1 million (2021: N$38.3 million) primarily relates to the growth in the gross carrying amount of: - home services of N$652 million (2021: N$958 million) - vehicle and asset finance of N$1.1 billion (2021: N$1.26 billion) - other loans and advances of N$500 million (2021: N$696 million) corporate lending of N$4.45 billion (2021: N$1.2 billion) ■ The decrease in ECL due to impaired accounts written off of N$469 million (2021: N$123 million) resulted in an equal decrease to the gross carrying amount of loans and advances as exposures are fully provided for before being written off. Modifications on loans and advances measured at amortised cost The gross carrying amount for modifications during the reporting year that resulted in no economic gain or loss (i.e. no net modification gain or loss) is N$899 million (2021: N$1.5 billion). Included in this amount is a total exposure for CHNW and BCB clients amounting to N$862 million and for CIB clients amounting to N$37 million that underwent restructuring and covenant relaxation. 6. Other assets GROUP COMPANY 2022 N$'000 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 Financial assets² Trading settlement assets 239 298 96 564 6 346 37 763 5 174 19 081 Other debtors 234 124 77 483 6 346 37 763 Non-financial assets 201 998 221 409 Prepayments 32 911 27 157 Accrued income 17 959 Prepaid staff employee benefit costs 141 056 Items in the course of collection 10 072 14 241 159 376 20 635 Total 441 296 317 973 6 346 37 763 1 Refer to the restatement narrative included in the accounting policy elections and restatements section for further information. 2 Due to the short-term nature of these assets and historical experience, other assets - bar prepaid staff loans - are regarded as having a low PD. Therefore, the ECL has been assessed to be insignificant. Prepaid staff loans have a low probability of defaults due to the employment relationships and debit order deductions in place. 7. Interest in subsidiaries Interest in subsidiary companies (note 7.1) Total 7.1 Interest in subsidiary companies Shares at cost Total Further information about subsidiaries is disclosed in note 40 and Annexure A. SBN HOLDINGS LIMITED Annual report 2022 GROUP 2022 N$'000 2021 N$'000 2022 N$'000 COMPANY 2021 N$'000 921 986 921 986 921 986 921 986 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 921 986 921 986 921 986 921 986 81#4382 22 8. NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Property, equipment and right-of-use assets Property Equipment Furniture IT Freehold Leasehold N$'000 N$'000 equipment N$'000 Motor vehicles N$'000 Office equipment N$'000 and fittings N$'000 Right-of-use assets Branches N$'000 ATM spacing and other N$'000 Buildings N$'000 Total N$'000 GROUP Net book value 1 January 2021 728 900 Cost 749 995 27 661 103 052 Accumulated depreciation (21 095) (75 391) 151 484 579 290 (427 806) 3 280 26 203 (22 923) 10 489 39 946 (29 457) 130 730 6 395 24 563 1 083 502 282 149 11 774 62 275 (151 419) (5 379) (37 712) 474 (474) 1 855 158 (771 656) Movements (28 341) Additions 1 523 (7232) 4 973 (14 569) (2541) 12 188 (16 496) (3 807) 4 023 639 (56136) 43 863 80 2 085 9 794 2 818 19 071 912 85 119 Modifications Impairments (117) 7 469 (172) 7 180 Disposals/terminations Transfers Depreciation (13 938) (1961) 118 (11) (9) (923) (24) (109) (4432) (5 499) (46) (15 926) (10 362) (58 412) (1698) 13 922 (3 795) (102) (26 142) (6 399) (2016) (18 085) (101) (140 920) Net book value 31 December 2021 700 559 20 429 136 915 739 Cost 737 556 Accumulated depreciation (36 997) 45 329 (24 900) 620 167 (483 252) 22 917 (22 178) 22 677 55 834 (33 157) 114 234 291 589 2 588 28 586 639 1 027 366 12 214 63 446 1 074 1 850 126 (177 355) (9 626) (34 860) (435) (822 760) Movements (16 400) (8 290) (25 018) 3 441 (2 270) (21 460) (1 742) (3 514) (349) (75 602) Additions 1 219 4 236 34 672 4 423 2 229 3 417 10 574 60 770 Modifications Impairments 2 863 Disposals/terminations (1528) (17) (74) 2 863 (1619) Transfers (1 766) 545 (8) (1) (1 775) Depreciation (16 091) (12 526) (58 452) (545) (437) 583 (5 008) (583) (24 286) (1 742) (16 951) (348) (135 841) Net book value 31 December 2022 684 159 Cost Accumulated depreciation 736 951 (52 792) 12 139 49 566 (37 427) 111 897 4 180 20 407 92 774 846 25 072 290 951 764 376 233 (264 336) 24 636 (20 456) 55 177 (34 770) 291 016 1 689 52 685 1 074 (198 242) (843) (27 613) (784) 1 589 027 (637 263) Right-of-use assets and corresponding liabilities are recognised for all rental contracts that meet the definition of a lease contract. The company leases various offices, branch spaces, parking and ATM space. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Rental contracts are typically made for fixed periods of two to ten years but may have extension periods. Each right-of-use of asset is recognised over the lease term. Refer to note 16 for the disclosure of lease liabilities. SBN HOLDINGS LIMITED 83 Annual report 2022#44NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 84 Goodwill and other intangible assets 9. 9.1 Group 10. Ordinary share capital 10.1 Authorised SBN HOLDINGS LIMITED Annual report 2022 85 55 Goodwill N$'000 Customer relationships Computer GROUP COMPANY N$'000 software¹ N$'000 Total N$'000 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Net book value 1 January 2021 39 020 8 335 453 414 500 769 800 000 000 ordinary shares at N$0.002 per share 1 600 1 600 1 600 1 600 Cost 39 020 10 103 588 216 637 339 Accumulated amortisation (1768) (134 802) (136 570) 10.2 Issued (1768) 48 856 47 088 Movements Additions 96 537 96 537 Amortisation (1768) (47 681) (49 449) 39 020 6 567 502 270 547 857 Net book value 31 December 2021 Cost 39 020 10 103 Accumulated amortisation (3.536) 684 754 (182 484) 733 877 (186 020) (1 768) (28 356) (30 124) Movements 10.3 Additions 24 663 24 663 522 471 910 ordinary shares at N$0.002 per share There was no change in the issued share capital in the current year (2021: no change). Unissued GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 1 045 1 045 1 045 1 045 Amortisation (1 768) (53 019) (54 787) Net book value - 31 December 2022 Cost Accumulated amortisation 39 020 4 799 473 914 517 733 39 020 10 103 (5 304) 709 417 758 540 (235 503) (240 807) 277 528 090 ordinary shares at N$0.002 per share GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 555 555 555 555 1 Computer software mainly comprises the company's core banking system, Finacle, with a carrying amount of N$288 million (2021: N$289 million) and a remaining amortisation period of eight years. 9.2 Goodwill composition Gross N$'000 2022 Accumulated impairment N$'000 2021 Total N$'000 Gross N$'000 Accumulated impairment N$'000 Total N$'000 GROUP Mobicash Payments Solutions (Proprietary) Limited 39 020 Total 39 020 39 020 39 020 39 020 39 020 11. Ordinary share premium GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Share premium on issue of shares 642 189 642 189 642 189 642 189 12. Trading liabilities 39 020 39 020 COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 Government, municipality and utility bonds 36 799 55 754 Total 36 799 55 754 GROUP 2021 N$'000 Based on the impairment test performed, no impairment was recognised for 2022 (2021: nil). Details on key management assumptions used to determine the recoverable amount are disclosed in the key management assumptions section.#45NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 86 13. Deferred tax 13.1 Deferred tax analysis GROUP Originating/(reversing) temporary differences arising from: 2022 N$'000 2021 N$'000 Deferred tax asset Property, equipment and intangible assets (245 761) (65 074) Assets on lease (7 477) Post-employment benefits 36 194 493 Provision for loan impairment 125 471 Provisions and other differences 48 040 664 Tax losses 87 592 65 477 Deferred tax asset closing balance 44 059 1 560 Deferred tax asset 44 059 1 560 Deferred tax liability Property, equipment and intangible assets (47 004) (211 495) Assets on lease (10 782) Provisions and other differences 116 703 Provisions for loan impairment 60 996 Post-employment benefits 34 357 Goodwill (2048) Tax losses 21 575 Other differences (2344) 397 Deferred tax liability closing balance (27 476) (12 168) Deferred tax liability (27 476) (12 168) COMPANY 2022 N$'000 2021 N$'000 13. Deferred tax continued 13.2 Deferred tax reconciliation Deferred tax asset SBN HOLDINGS LIMITED Annual report 2022 GROUP COMPANY 2021 N$'000 2022 N$'000 2022 N$'000 Deferred tax asset balance at the beginning of the year 1 560 23 450 Temporary differences for the year: 42 499 (21 890) Property, equipment and intangible assets (180 687) Assets on lease (7 477) (3440) 137 Post-employment benefits 35 701 Provisions for loan impairments 125 471 Provisions and other differences 47 376 Tax losses 22 115 (5 979) (12 608) Deferred tax asset balance at the end of the year 44 059 1 560 Deferred tax liability Deferred tax liability balance at the beginning of the year (12 168) Temporary differences for the year: (15 308) (5 356) (6 812) Property, equipment and intangible assets Assets on lease 164 491 10 782 1 832 9 737 Provisions and other differences (116 703) Provisions for loan impairments Post-employment benefits (60 996) (34 357) (16 629) Deferred tax on acquisition Goodwill Tax losses 296 (2 317) (203) Other differences 21 575 (397) 768 Deferred tax liability balance at the end of the year (27 476) (12 168) 16 474 (10 608) Net deferred tax balance at the end of the year Temporary differences for the year comprise: Recognised in profit or loss Recognised in OCI (note 32.2) Recognised in retained earnings Total (53 437) 17 321 221 26 025 9 254 (27 191) 26 575 14. Deposits and current accounts 2021 N$'000 GROUP COMPANY 2022 N$'000 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 Deposits from banks 1 430 532 1 474 539 Deposits and current accounts from customers 25 922 875 26 781 347 Current accounts 7 714 366 Cash management deposits Card creditors Call deposits Term deposits 1 334 140 27 037 9 940 923 8 222 857 1956 685 26 036 9 292 793 Savings accounts Negotiable certificates of deposit Total 603 177 685 688 3 018 670 2 982 189 3 284 562 3 615 099 27 353 407 28 255 886 1 Refer to the restatement narrative included in the accounting policy elections and restatements section for further information. 87#4688 15. 16. 16.1 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued SBN HOLDINGS LIMITED Annual report 2022 89 Debt securities issued Maturity date Carrying Notional Carrying Notional value¹ 2022 N$'000 value¹ 2022 N$'000 value¹ 2021 N$'000 value¹ 2021 N$'000 16. 16.2 Provisions and other liabilities continued Maturity analysis of discounted lease liabilities: GROUP Within 1 year N$'000 2022 From 1 to 5 years N$'000 2021 Within From 1 to 5 Total N$'000 1 year N$'000 years N$'000 Total N$'000 SBKN23 2023/10/26 304 041 300 000 302 757 300 000 GROUP SBNA24 2024/05/24 347 304 344 500 346 574 344 500 SBN02² 2024/08/02 318 133 314 000 316 926 314 000 Buildings 635 Branches 9 997 306 14 147 941 24 144 SBNG25 2025/07/05 203 792 200 000 SBNG27 2027/07/05 203 937 200 000 SBNA26 2026/05/25 156 851 155 500 156 451 155 500 ATM spacing and other Total 399 399 1 859 10 748 309 874 2 733 15 649 26 397 421 730 11 031 14 453 25 484 12 916 16 944 29 860 SBKN26 2026/07/13 301 633 296 500 300 071 296 500 SBN03² Subordinated debt 2026/08/03 2032/11/01 438 804 433 000 437 163 433 000 253 757 250 000 101 181 100 000 Maturity analysis of undiscounted contractual cash flows: 2 528 252 2 493 500 1961 123. 1 943 500 1 The difference between the carrying and notional value represents transaction costs included in the initial carrying amounts and accrued interest. 2 The debt securities are listed on the JSE. Within 1 year N$'000 2022 From 1 to 5 years N$'000 2021 Total N$'000 Within 1 year N$'000 From 1 to 5 years N$'000 Total N$'000 Provisions and other liabilities GROUP COMPANY GROUP Buildings Branches 543 12 505 292 14 605 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 ATM spacing and other Total 314 835 27 110 314 1 933 15 574 886 2 819 334 16 751 998 32 325 1 332 13 362 14 897 28 259 17 841 18 635 36 476 Financial liabilities 484 239 422 888 11 663 14 021 ECL for off-balance sheet exposures - guarantees and letters of credit 2 830 2 386 Lease liabilities (note 16.1) 25 484 29 860 Other liabilities and accruals 455 925 390 642 11 663 14 021 Non-financial liabilities 320 769 202 378 (510) 195 Staff-related accruals 109 683 88 413 Obligation toward post-employment benefits (note 34) 113 043 108 905 Other liabilities and accruals 98 043 5 060 (510) 195 The group leases various offices, branch spaces, parking and ATM spaces. Rental contracts are typically made for fixed average periods of between two to ten years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are considered in the lease term when there is reasonable certainty that those options will be exercised. The assessment of reasonable certainty is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee. The modifications relate to the increase in the rent paid to Arleo Investments Sixteen (Proprietary) Limited. The additions during 2022 primarily related to new contracts entered for branch spaces that had expired and or early terminated and for the leasing of a new storeroom. Refer to Note 8 for the disclosure of the right-of-use asset and the related depreciation. Total 805 008 625 266 11 153 14 216 Reconciliation of lease liabilities Balance at 1 January 2022 Additions N$'000 N$'000 Modifications N$'000 Terminations/ cancellations N$'000 Interest expense N$'000 Payments¹ N$'000 Balance at 31 December 2022 N$'000 GROUP Buildings 2 733 39 (1831) 941 Branches 26 397 10 574 2 863 1 120 ATM spacing and other 730 14 (16 810) (345) 24 144 399 Total 29 860 10 574 2 863 1 173 (18 986) 25 484 Balance at Balance at 1 January 2021 N$'000 Additions N$'000 Modifications N$'000 Terminations/ cancellations N$'000 Interest 31 December expense Payments¹ N$'000 N$'000 2021 N$'000 GROUP Buildings 1 900 2 818 (19) Branches 19 562 19 071 6 229 (124) (4 465) 1 563 2 098 ATM spacing and other 81 912 (149) (6) Total 21 543 22 801 (4 589) 3 655 1 (3405) (16 098) (108) (19 611) 2 733 26 397 730 29 860 These payments include the principal lease payments as disclosed in the statement of cash flows of N$17.6 million (2021: N$16.0 million) for the group. The remainder is the interest expense paid during the year.#4790 90 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 17. Classification of assets and liabilities Accounting classifications and fair values of assets and liabilities The tables that follow set out the group and company classification of assets and liabilities, and their fair values. GROUP 2022 Assets Cash and balances with the central bank Derivative assets Trading assets Financial investments Loans and advances Other financial assets² Other non-financial assets Total assets Liabilities Derivative liabilities Trading liabilities Deposits and current accounts from banks Deposits and current accounts from customers Debt securities issued Other financial liabilities¹² Other non-financial liabilities² Total liabilities SBN HOLDINGS LIMITED Annual report 2022 91 FVTPL FVOCI Other non- Held-for- Designated Debt Equity Note trading N$'000 at fair value N$'000 instruments N$'000 instruments N$'000 Total fair value N$'000 Amortised cost N$'000 financial assets/ liabilities N$'000 Total carrying amount N$'000 Fair value¹ N$'000 12345 882 874 138 918 474 621 1 180 088 3 703 511 882 874 790 463 138 918 474 621 4 883 599 39 415 25 969 450 239 298 1 673 337 138 918 474 621 4 923 014 25 969 450 239 298 2 256 059 1 673 337 138 918 474 621 4 923 014 26 574 783 239 298 2 256 059 613 539 2 062 962 3 703 511 6 380 012 27 038 626 2 256 059 35 674 697 2211 140 763 12 36 799 14 14 177 562 COMPANY 2022 Assets Cash balances Other financial assets² Other non-financial assets Total assets Liabilities Other financial liabilities² Other non-financial liabilities² Total liabilities 1 1 Carrying value has been used where it closely approximates fair value, excluding non-financial instruments. Refer to the fair value section in accounting policy 4 - Fair value and key management assumptions for a description on how fair values are determined. 2 The fair value of other financial assets and liabilities approximates the carrying value due to their short-term nature. 140 763 36 799 1 430 532 140 763 36 799 1 430 532 484 239 348 245 140 763 36 799 1 430 532 25 955 659 2 586 969 484 239 25 922 875 25 922 875 2 528 252 2 528 252 484 239 348 245 177 562 30 365 898 348 245 30 891 705 291 326 291 326 291 326 6 346 6 346 6 346 921 986 921 986 297 672 921 986 1 219 658 11 663 11 663 11 663 11 663 (510) (510) (510) 11 153#4892 22 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 17. Classification of assets and liabilities continued GROUP 2021 Assets Cash and balances with the central bank Derivative assets Trading assets Financial investments Loans and advances Other financial assets² Other non-financial assets Total assets Liabilities Derivative liabilities Trading liabilities Deposits and current accounts from banks Deposits and current accounts from customers Debt securities issued Other financial liabilities² Other non-financial liabilities Total liabilities FVTPL Designated at fair value N$'000 Fair value through OCI Debt instruments N$'000 Equity instruments N$'000 Total fair value N$'000 Amortised cost N$'000 Note Held-for- trading N$'000 12345 Other non-financial assets/ Total carrying liabilities N$'000 amount N$'000 SBN HOLDINGS LIMITED Annual report 2022 93 Fair value¹ N$'000 799 284 73 326 619 584 799 284 73 326 689 213 619 584 1 701 417 3 929 703 5 631 120 39 426 25 382 322 96 564 5 670 546 25 382 322 1 988 210 692 910 2 500 701 3 929 703 7 123 314 26 207 525 1 988 210 1 488 497 73 326 619 584 96 564 1 988 210 35 319 049 1 488 497 73 326 619 584 5 670 546 25 489 734 100 513 12 14 15 22445 70 576 55 754 126 330 COMPANY 2021 Assets Cash balances Other financial assets² Other non-financial assets Total assets Liabilities Other financial liabilities² Other non-financial liabilities Total liabilities 1 1 Carrying value has been used where it closely approximates fair value, excluding non-financial instruments. Refer to the fair value section in accounting policy 4 Fair value and key management assumptions for a description on how fair values are determined. 2 The fair value of other financial assets and liabilities approximates the carrying value due to their short-term nature. 70 576 55 754 1 474 539 26 781 347 70 576 55 754 70 576 55 754 1 475 255 1 474 539 26 781 347 1961 123 26 894 645 1 961 123 422 888 126 330 30 639 897 214 546 214 546 422 888 214 546 1 961 123 422 886 30 980 773 312 401 37 763 312 401 312 401 37 763 37 763 921 986 921 986 350 164 921 986 1 272 150 14 021 195 14 021 195 14 021 14 021 195 14 216#49NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 94 18. 18.1 Assets and liabilities at fair value Financial assets and liabilities measured at fair value on a recurring basis¹ The table below sets out the financial assets and liabilities measured at fair value for the group. GROUP Assets 2022 Level 1 N$'000 Level 2 N$'000 Level 3 N$'000 Total N$'000 Level 1 N$'000 2021 Level 2 N$'000 Level 3 N$'000 Total N$'000 SBN HOLDINGS LIMITED Annual report 2022 18. Assets and liabilities at fair value continued 18.2 18.2.1 Assets and liabilities not measured at fair value for which fair value is disclosed Fair value hierarchy of items for which fair value is disclosed 2022 2021 Level 1 N$'000 Level 2 N$'000 Level 3 N$'000 Total N$'000 Level 1 N$'000 Level 2 N$'000 Level 3 N$'000 Total N$'000 GROUP Assets Cash and balances with the central bank 882 874 882 874 799 284 799 284 Derivative assets 138 918 138 918 73 326 73 326 Trading assets 474 621 474 621 619 584 619 584 Financial investments¹ Total 84 223 4799 376 4 883 599 132 433 5 498 687 5 631 120 Cash and balances with the central bank Financial investments 790 463 790 463 689 213 39 415 39 415 39 426 Loans and advances 26 574 783 26 574 783 1441 718 4 938 294 6 380 012 1 551 301 5 572 013 7 123 314 Liabilities Derivative liabilities Trading liabilities 140 763 140 763 70 576 70 576 Other financial assets Total 829 878 239 298 239 298 26 814 081 27 643 959 728 639 Total 36 799 36 799 36 799 140 763 177 562 55 754 55 754 55 754 70 576 126 330 689 213 39 426 25 489 734 25 489 734 100 513 100 513 25 590 247 26 318 886 1 The classification of treasury bills was changed from level 1 to level 2, after the nature of the Namibian market was assessed. Consequently the adjustment was made to 2021 as well to maintain comparability. Assets and liabilities transferred between level 1 and level 2 During the year no significant assets or liabilities were transferred between level 1 and level 2 (2021: nil). Input and valuation techniques Derivatives Options Financial investments and trading securities Valuation technique Black-Scholes model and discounted cash flow model or combination of both Observable input Market discount rate and curves Spot prices of underlying transactions and correlation factors Spot prices Valuation and level Standard derivative contracts are valued using market-accepted models and quoted parameter inputs Level 2 A forward curve is used to Level 2 calculate future cash flows Swaps Discounted cash flow model Market discount rates and curves of underlying transactions a discount curve over the Forward Discounted cash agreements flow model. and then discounted using contractual period A forward curve is used to Level 2 Market discount rates and curves Spot prices of underlying transactions calculate future cash flows and then discounted using a discount curve over the contractual period Treasury bills Broker quotes Money market Discounted cash flow model Market discount rates and curves Market discount rates and curves Interest rate curve Based on broker quotes Level 2 JIBAR rate and spread Future cash flows are discounted using a market- Level 2 related interest rate funds Market discount rates and curves JIBAR rate and spread Future cash flows are Level 2 discounted using a market- related interest rate Market discount JIBAR rate and rates and curves spread Future cash flows are discounted using a market- related interest rate Level 2 Liabilities Negotiable Discounted cash certificates flow model of deposit Promissory Discounted cash notes flow model Liabilities Deposits from banks 1 430 532 1430 532 1 475 255 1475 255 Deposits from customers Debt securities issued 25 955 659 25 955 659 26 894 645 26 894 645 2 586 969 2 586 969 1961 123 1961 123 Provisions and other liabilities Total 29 973 160 484 239 484 239 484 239 30 457 399 422 886 422 886 30 331 023 422 886 30 753 909 2022 Level 1 N$'000 Level 2 N$'000 Level 3 N$'000 Total N$'000 Level 1 N$'000 2021 Level 2 N$'000 Level 3 N$'000 Total N$'000 COMPANY Assets Cash balances Total 291 326 291 326 The hierarchy of levels is explained below: Level 1: Level 2: Level 3: 291 326 291 326 312 401 312 401 Quoted unadjusted prices in active markets for identical assets or liabilities that the company can access at measurement date. Inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly. Unobservable inputs for the asset or liability. Significant unobservable inputs 312 401 312 401 The fair value of level 3 assets and liabilities is determined using valuation techniques that include reference to recent arm's length transactions, discounted cash flow analyses, pricing models and other valuation techniques commonly used by market participants. However, such techniques typically have unobservable inputs that are subject to management judgement. These inputs include credit spreads on illiquid issuers, implied volatilities on thinly traded stocks, correlation between risk factors, prepayment rates and other illiquid risk drivers. Exposure to such illiquid risk drivers is typically managed by: ■using bid-offer spreads that are reflective of the relatively low liquidity of the underlying risk driver; ■raising day one profit provisions in accordance with IFRS; quantifying and reporting the sensitivity to each risk driver; limiting exposure to such risk drivers; and ■ analysing this exposure on a regular basis. 95#50NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 96 19. Financial instruments subject to offsetting, enforceable master netting arrangements or similar agreements 20. 20.1 IFRS requires a financial asset and a financial liability to be offset and the net amount presented in the statement of financial position when, and only when, the company has a current legally enforceable right to set off recognised amounts, as well as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. There are no instances where the group has a current legally enforceable right to offset as well as the intention to settle on a net basis or to realise the asset and settle the liability simultaneously. Maturity analysis of assets Financial assets The following table discloses the maturity for the group and company's financial assets on a contractual discounted basis. GROUP 2022 Cash and balances with the central bank¹ Derivative assets Trading assets Financial investments Loans and advances Other financial assets Note Redeemable on demand N$'000 Maturing within Maturing within 1 to 5 1 year N$'000 years N$'000 Maturing after five years N$'000 Total N$'000 123456 1 673 337 138 918 474 621 1 180 088 3 627 971 72 372 42 583 6 780 414 4 403 783 6 265 460 9 281 576 239 298 9 873 137 8 645 293 6 337 832 9 324 159 2021 Cash and balances with the central bank¹ Derivative assets Trading assets Financial investments Loans and advances Other financial assets 1234 1 488 497 1 701 417 73 326 619 584 3 825 059 130 380 5 4 137 496 3 448 334 4 504 119 13 690 14 287 812 6 96 564 7 423 974 7 966 303 4 634 499 14 301 502 1 On demand cash and balances with the central bank includes notes and coins. 20. Maturity analysis of assets continued 20.1 Financial assets continued 20.2 1 673 337 138 918 474 621 4 923 014 26 731 233 239 298 34 180 421 SBN HOLDINGS LIMITED Annual report 2022 97 Note Redeemable on demand N$'000 Maturing within 1 year N$'000 Maturing within 1 to 5 years N$'000 Maturing after 5 years N$'000 Total N$'000 COMPANY 2022 Cash balances 1 291 326 Other financial assets 6 346 297 672 2021 Cash balances 1 312 401 Other financial assets 37 763 350 164 291 326 Non-financial assets The following table discloses the maturity for the company's non-financial assets on a contractual discounted basis. Less than 12 More than 12 months 1 488 497 73 326 619 584 5 670 546 26 377 761 96 564 34 326 278 2022 GROUP Normal tax asset Property, equipment and right-of-use assets Goodwill and other intangible assets Deferred tax asset Properties in possession Other assets 2021 Normal tax asset Property, equipment and right-of-use assets Goodwill and other intangible assets Deferred tax asset Properties in possession Other assets 6 346 297 672 312 401 37 763 350 164 Note months after reporting period N$'000 after reporting period N$'000 Total N$'000 42 80326 9 13 49 351 951 764 49 351 951 764 517 733 517 733 44 059 44 059 491 154 491 154 201 998 201 998 201 998 2 054 061 2 256 059 165 126 13 823 1 027 366 9 389 547 857 1 171 24 892 165 126 1 027 366 547 857 1 560 24 892 6 221 409 221 409 221 798 1 766 412 1988 210#51NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 98 21. 21.1 Maturity analysis of liabilities Financial liabilities The following table discloses the maturity for the group's financial liabilities on a contractual discounted basis. Note On demand N$'000 Maturing within 1 month N$'000 Maturing between Maturing between 1 to 6 months N$'000 6 to 12 months N$'000 Maturing after 12 months N$'000 Total N$'000 21. 21.2 Maturity analysis of liabilities (continued) Non-financial liabilities SBN HOLDINGS LIMITED Annual report 2022 99 The following table discloses the maturity for the group's non-financial liabilities on a contractual discounted basis. Note months after reporting period N$'000 Less than 12 More than 12 months after reporting period N$'000 Total N$'000 GROUP 2022 Derivative liabilities 2 32 310 108 453 Trading liabilities 12 8 075 25 942 2 782 140 763 36 799 Deposits and current accounts 14 21 217 184 319 444 2 512 200 2 426 957 877 622 27 353 407 GROUP 2022 Provisions and other liabilities Deferred tax liability 16 207 726 113 043 320 769 13 27 476 27 476 207 726 140 519 348 245 Debt securities issued 15 304 041 2 224 211 2 528 252 2021 Provision and other liabilities 16 457 388 21 217 184 817 217 5 596 2 652 191 5 769 15 486 484 239 Provisions and other liabilities Deferred tax liability 16 93 473 108 905 202 378 13 6 797 5 371 12 168 2 739 549 3 117 319 30 543 460 100 270 114 276 214 546 2021 Derivative liabilities 2 12 045 27 808 Trading liabilities 12 10 020 14 857 21 715 15 865 24 020 70 575 55 755 Deposits and current accounts 14 21 004 959 205 520 3 525 168 2 169 283 1 350 956 28 255 886 COMPANY 2022 Provisions and other liabilities 16 (510) (510) (510) (510) Debt securities 2021 issued 15 1 961 123 1961 123 Provision and other Provisions and other liabilities 16 195 195 liabilities 16 391 539 5 483 8 057 17 807 21 017 004 634 887 3 567 223 2 217 225 3 329 886 422 886 30 766 225 195 195 Refer to Annexure B for funding and liquidity risk information.#52NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 100 22. Contingent liabilities and commitments 22.1 Contingent liabilities 2022 N$'000 Letters of credit 134 412 GROUP 2021 N$'000 14 371 Guarantees 1 677 317 1 825 266 Unutilised borrowing facilities 2 981 232 2 251 174 Total 4 792 961 4 090 811 22.2 Capital commitments Contractual capital expenditures Total COMPANY 2021 2022 N$'000 N$'000 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 11 531 18 842 11 531 18 842 The expenditure relates to property and equipment and will be funded from internal resources. 22.3 Lease commitments 22.3.1 The future minimum payments under non-cancellable operating leases are as follows: GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Low value assets and short-term leases Within one year 7 083 6 756 After one year but within five years 6 767 7 579 Total 13 850 14 335 22.4 Legal proceedings Third-party claim Standard Bank Namibia Ltd received a letter of complaint by a third-party, who is not a client of the bank, that relates to an alleged N$60 million loss by the third-party as a result of the alleged unauthorised conduct of the bank's employee. The legal department of the bank has investigated the matter in conjunction with external senior counsel and should legal action be instituted against the bank in relation to this matter, it will rigorously defend the matter. The bank is comfortable that it has reasonable prospects of success in defending the matter. Other In the ordinary course of business, the group is involved as a defendant in litigation, lawsuits and other proceedings. Management recognises the inherent difficulty of predicting the outcome of defended legal proceedings. Nevertheless, based on management's knowledge from investigation, analysis and after consulting with legal counsel, management believes that there are no individual legal proceedings that are currently assessed as being 'likely to succeed and material' or 'unlikely to succeed but material should they succeed. The group is also the defendant in some legal cases for which the group is fully indemnified by external third parties, none of which are individually material. Management is accordingly satisfied that the legal proceedings currently pending against the group should not have a material adverse effect on the group's consolidated financial position and the directors are satisfied that the group has adequate insurance programmes and, where required in terms of IFRS for claims that are probable, provisions in place to meet claims that may succeed. 23. Interest income 24. GROUP 2022 N$'000 SBN HOLDINGS LIMITED Annual report 2022 COMPANY 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 Effective interest rate income on: Financial investments 234 257 147 761 Loans and advances 2 070 344 1 724 680 Interest income on credit impaired financial assets Total 101 552 92 818 2 406 153 1 965 259 Comprising: Interest income on items measured at amortised cost Interest income on items measured at FVOCI 2 171 896 234 257 1 817 498 147 761 1 Refer to the restatement narrative included in the accounting policy elections and restatements section for further information. Interest expense Interest on current accounts Interest on savings and deposit accounts Interest on lease liabilities Interest on other interest-bearing liabilities² Total Comprising: Interest expense on items measured at amortised cost GROUP COMPANY 2022 N$'000 2021 Restated¹ N$'000 2022 N$'000 2021 N$'000 48 144 29 117 122 251 78 569 1 173 3 655 789 783 624 606 961 351 735 947 961 351 735 947 1 Refer to the restatement narrative included in the accounting policy elections and restatements section for further information. 2 Includes interest expense charges relating to the JSE listed bonds detailed in note 15. 25. Fee and commission revenue GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Account transaction fees 276 122 277 181 Card-based commission 279 383 241 456 Electronic banking fees 372 756 338 664 Foreign currency service fees 27 560 25 563 Documentation and administration fees 89 032 96 151 Custody fees 29 487 34 202 Trustees and executors' fees 6 705 6 353 Arrangement fees 16 743 25 151 Guarantees commission 17 470 19 788 Agent's commission fees 54 882 51 873 Other¹ Total 1 Other primarily comprises of fee and commission revenue earned on sundry services such as arrangement and agency fees as well as guarantee and commitment commissions. All fee and commission revenue reported above relates to financial assets or liabilities not carried at FVTPL for the group. 43 849 45 326 1 213 989 1 161 708 101#53NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 102 26. Fee and commission expense Account transaction fees Card-based commission Documentation and administration fees Electronic banking fees Total GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 14 720 135 201 11 452 97 490 132 128 126 739 19 296 25 680 301 345 261 361 22 27. All fee and commission expenses reported above relate to financial assets or liabilities not carried at FVTPL for the group. Trading revenue 30. Credit impairment charges GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 31. Foreign exchange gains 117 484 92 553 Net fair value adjustments on held-for-trading financial assets 32 694 21 382 Total 150 178 113 935 28. Other revenue SBN HOLDINGS LIMITED Annual report 2022 103 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Net ECL raised and released 202 457 324 705 Financial investments (note 4) (359) Loans and advances (note 5.3) 203 099 (1938) 328 163 Letters of credit, bank acceptances and guarantees (note 22.1) (283) Recoveries on loans and advances previously written off Total (41 244) (1520) (35 954) 161 213 288 751 Cash and balances with central bank, financial investments, other financial assets, and off-balance sheet exposures as detailed in notes 1, 4, 6 and Annexure B, reflect balances where the group transacted with counterparties with low credit risk for the purpose of impairment assessment. Operating expenses GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 COMPANY 2021 N$'000 Auditor's remuneration Audit fees Other services¹ Amortisation Communication expenses Depreciation IT expenses 11 402 6 839 10 784 6 537 370 370 116 116 618 302 54 787 49 449 13 508 14 954 135 841 140 920 276 712 225 149 Operating lease rentals² 19 762 15 570 Professional fees 181 168 137 158 606 3 491 (Profit)/loss on sale of property and equipment and modifications/terminations of leases (3426) (703) Impairment loss on property and equipment Premises costs 1 775 2 016 49 780 45 026 Staff costs 812 550 838 915 Salaries and allowances 725 942 751 374 Post-employment benefits - pension - defined contribution plan 68 887 69 882 COMPANY 2021 N$'000 Post-employment benefits - medical expenses 17 721 17 659 Other expenses 3.4 124 816 111 511 694 1 425 Total 1 678 675 1 586 804 1 670 5 032 GROUP 2022 N$'000 2021 N$'000 2022 N$'000 Property-related revenue 26 482 650 Commission revenue from insurance broking services Profit share income 43 000 46 226 68 891 42 429 68 891 Other non-banking related revenue 7 528 16 447 42 429 1 250 Dividends on unlisted financial investments¹ 631 66 251 236 917 Total 145 901 106 383 135 142 280 596 1 Included in dividends on unlisted financial investments for the company is dividend income from subsidiary companies. 29. Other gains on financial instruments GROUP 2021 N$'000 2022 N$'000 2022 N$'000 default Fair value gains on financial instruments measured at FVTPL 74 363 88 141 Total 74 363 88 141 1 All fees for services paid to the group and company's auditors were considered and approved by the board audit committee in terms of its non-audit services policy. 2 This relates to low value and short term lease payments. 3 Other expenses mainly comprise marketing and advertising expenses, operational risk losses, security expenses and travel and entertainment expenses. 4 See Annexure C for details of the directors' remuneration.#54104 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 32. Taxation 32.1 Indirect taxation Value-added tax (VAT)¹ Duties and other Total GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 20 855 8 282 34 041 9 315 29 137 43 356 1 The group earns certain amounts of VAT exempt income which result in these amounts of VAT input not being able to be claimed from the revenue authorities. 32.2 Direct taxation 33. Statement of cash flows notes 33.1 Net cash flow used in operations SBN HOLDINGS LIMITED Annual report 2022 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Profit before taxation 888 000 562 563 133 472 275 564 Depreciation of property, equipment and ROU assets (note 8) Impairment of property, equipment and ROU assets (note 8) Amortisation of intangible assets (note 9) 135 841 140 920 1 775 2016 54 787 49 449 Foreign exchange differences on cash and cash equivalents ECL raised and released (note 30) 148 012 14 338 202 457 324 705 Unwinding of discount element of loans and advances Movement in interest income accruals Movement in interest expense accruals (94 805) (79 963) 36 430 75 631 (8 701) 8 843 (27 885) 5 042 21 270 9 595 17 129 4 318 (19 375) 20 202 (29 137) (43 356) (Profit)/loss on disposal of property and equipment (note 33.6) (3426) Gain on modifications/terminations of leases Dividend income (note 28) Total (2 863) (703) (7228) (631) 1 356 237 1 049 013 (66 251) 67 221 (236 917) 38 647 GROUP COMPANY Interest benefit on staff loans 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Movement in staff-related accruals Accrued interest on debt securities Fair value adjustments Normal taxation 288 020 125 244 Indirect taxation (note 32.1) Current year charge 263 032 131 368 Adjustments to prior years 24 988 Deferred taxation (53 437) (6124) 27 752 Current year charge (53 437) 27 752 Total 234 583 152 996 Income tax recognised in OCI The table below sets out the amount of income tax relating to each component within OCI: GROUP 2022 Change in fair value of post-employment benefit obligations Change in fair value of FVOCI debt financial assets - IFRS 9 Total 2021 Change in fair value of post-employment benefit obligations Change in fair value of FVOCI debt financial assets - IFRS 9 Total Namibian tax rate reconciliation Tax (charge)/ 33.2 Before tax N$'000 credit N$'000 After tax N$'000 7 671 (2 455) 5 216 (4 113) 2 234 (1 879) 3 558 (221) 3 337 12 784 (12 047) 737 (4 091) 3 141 (950) Refer to the accounting policy elections and restatements section for details of restatements. (Increase)/decrease in income-earning assets Financial investments Pledged assets 8 693 (8906) (213) Trading assets Loans and advances Properties in possession Derivative assets Other assets Total GROUP COMPANY 2022 % 2022 N$'000 2021 % 2021 N$'000 2022 % 2022 N$'000 2021 % 2021 N$'000 33.3 Direct taxation - statutory rate 32.0 274 836 32.0 166 146 Permanent differences: (4.7) (40 253) (2.5) (13 150) 32.0 (32.0) 42 711 (42 711) 32.0 (32.0) 88 180 (88 180) Non-taxable income - dividends (4.2) (35 682) (5.7) (34 025) (32.4) (43 245) (27.5) (73 583) Non-taxable income - other¹ (0.1) (842) (0.1) (597) (5.1) (15 101) Non-deductible expenses Other² 0.2 (0.6) 1 324 (5 053) 0.5 2.8 2 985 0.4 534 0.6 504 18 487 Effective direct taxation rate 27.3 234 583 29.5 152 996 1 Comprises non-taxable interest income for the group and profit-share income for the company. 2 2022 includes N$30.7 million deferred tax asset on assessed losses relating to a subsidiary which was recognised during the year. Refer to the accounting policy elections and restatements section for details of restatements. GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 730 459 179 420 (1422 566) 520 956 (178 485) (1 312 365) (595 216) (1685) 24 892 (65 592) (131 939) 298 962 (40 447) 67 571 5 837 (601 702) (1 391 904) 67 571 5 837 Increase/(decrease) in deposits and other liabilities Deposits and current accounts Trading liabilities Derivative liabilities Provisions and other liabilities Total Refer to the accounting policy elections and restatements section for details of restatements. GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 (893 778) 2 150 150 (18 955) 21 222 70 187 (291 547) 173 061 105 802 (3 063) (2 264) (669 485) 1 985 627 (3 063) (2264) 105#55106 33. 33.4 33.5 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Statement of cash flows notes continued Cash payments to suppliers and employees Cash flows to suppliers Cash flows to employees Total Refer to the accounting policy elections and restatements section for details of restatements. Direct taxation paid GROUP 2022 N$'000 2021 N$'000 2022 N$'000 COMPANY 2021 N$'000 (511 414) (506 376) (1 670) (5 032) (782 437) (843 468) (1 293 851) (1349 844) (1 670) (5032) GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 Normal tax at beginning of the year Recognised in income statement Normal tax at end of the year 165 126 123 772 2021 N$'000 (4109) (288 020) (125 244) (49 351) (165126) Total (172 245) (166 599) (4109) 33.6 Proceeds from the sale of property and equipment Net book value of disposals Profit on disposal Total 33.7 Dividends paid 33.8 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 1 619 3 426 958 703 5 045 1 661 2022 N$'000 GROUP 2021 N$'000 COMPANY 2022 N$'000 2021 N$'000 Dividend declared during the year Movement in accrual for dividend (182 901) (156 742) 100 (182 901) (156 742) 100 Total (182 901) (156 642) (182 901) (156 642) Cash and cash equivalents GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Cash and balances with the central bank (note 1) 1 673 337 1 488 497 291 326 312 401 On demand gross loans and advances to banks (note 5.1) Other assets on demand (note 6) 3 110 196 3 250 771 36 154 Total 4 783 533 4 739 268 327 480 312 401 Refer to the accounting policy elections and restatements section for details of restatements. 34. Post-employment benefits 34.1 SBN HOLDINGS LIMITED Annual report 2022 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Amounts recognised as a liability in the statement of financial position Post-employment healthcare benefit medical aid 113 043 108 905 Amounts recognised as expenses in profit and loss for the year Retirement fund 63 378 Post-employment healthcare benefit medical aid 17 721 66 246 17 659 Total 81 099 83 905 Retirement fund All eligible full-time employees are members of the Standard Bank Namibia Pension Fund, which has been registered in Namibia in accordance with the requirements of the Pension Funds Act. The fund is a defined contribution fund and is governed by the Pension Funds Act of 1956, and is actuarially valued every three years. An actuarial valuation was conducted as at 30 November 2022 and the actuary certified the fund as being financially sound as at that date. Members of the fund comprise 99% of the full- time staff. The contribution to the pension fund is based on a percentage of pensionable earnings and charged to income as incurred. Employer's contribution for the year GROUP COMPANY 2021 N$'000 2022 N$'000 2022 N$'000 63 378 66 246 2021 N$'000 107#56108 34. 34.2 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Post-employment benefits Post-employment healthcare benefits Post-employment medical scheme The liability represents a post-employment healthcare benefit scheme that covers all employees who joined on or before 1 March 2009. The liability is unfunded and is valued every year using the projected unit credit method. The latest full statutory actuarial valuation was performed on 31 December 2022. Expected premiums to post-employment medical schemes for the year ending 31 December 2023 are N$5.3 million. GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 SBN HOLDINGS LIMITED Annual report 2022 34. 34.2 Post-employment benefits continued Post-employment healthcare benefits continued Sensitivity analysis GROUP Assumption % change in aggregate of % change in obligation service and interest cost Change in assumption 2022 2021 2022 2021 Healthcare cost inflation: 1% increase 14.60 16.20 15.30 17.70 1% decrease (12.00) (13.20) (13.70) (14.50) Mortality rate: PA (90)-1 2.90 3.10 Discount rate: 1% increase 1% decrease (11.90) 14.60 (13.10) 16.40 2.20 (7.70) 7.70 3.00 (8.50) 9.80 (17 157) (3 195) (4 290) The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting year) has been applied as when calculating the pension liability recognised within the statement of financial position. Through its defined post-employment medical plan, the company is exposed to a number of risks, the most significant of which are detailed below: Changes in bond yields Inflation risk Life expectancy A decrease in corporate bond yields will increase plan liabilities. The company post-employment medical obligation is linked to inflation, and higher inflation will lead to higher liabilities. The company post-employment medical obligation is to provide benefits for the life of the member, so an increase in life expectancy will result in an increase in the plan's liabilities. Movement in the present value of defined medical scheme benefit obligation: Balance at beginning of the year 108 905 109 114 Current service cost 3 044 2 963 Interest cost 12 932 13 902 Remeasurement of post-employment benefit obligations relating to change in actuarial assumptions (7 671) (12 784) Changes in financial assumptions (16 536) 7 568 Changes in demographic assumptions 6 833 Changes in other assumptions 2 032 Contributions by employer (4 167) 113 043 108 905 Balance at end of the year Consisting of: Present value of unfunded obligations 113 043 108 905 Obligation recognised in the statement of financial position 113 043 108 905 The amounts recognised in profit or loss are determined as follows: Current service cost Interest cost Included in staff costs 3 044 2 963 12 932 13 902 15 976 16 865 The amounts recognised in statements of other comprehensive income Remeasurement of post-employment benefit obligations relating to changes in actuarial assumptions, before tax The principal actuarial assumptions used for accounting purposes were: Discount rate Healthcare cost inflation Remaining service life of employees (years) Mortality rates used: During employment: SA85-90 (Light) ultimate table Post-employment: PA (90) ultimate table rated down two years plus 1% improvement per annum (from a base year of 2006). (7 671) (12 784) 12.84% 12.12% 9.16% 9.44% 18.0- 18.0- 22.5 22.5 Current active employee members: Particulars in respect of the current employee members belonging to the medical scheme for which there is a post-retirement medical aid liability as at the reporting date are as follows: Number of employees Average age (years) 246 45 264 44 Current pensioner members Details of the current pensioner members belonging to the medical aid fund are as follows: Number of employees 117 103 Average age (years) 67 68 109#57110 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 35. 35.1 35.2 Related party disclosures Parent SBN Holdings Limited is a subsidiary of Standard Bank Group Limited. Subsidiaries Refer to note 7.1 and Annexure A for further disclosure on investments in subsidiaries. 35.3 Key management personnel Key management personnel has been defined as directors of the group companies and executive management of SBN Holdings Limited. Non-executive directors are included in the definition of key management personnel as required by IFRS. The definition of key management includes the close members of family of key management personnel and any entity over which key management exercises control or joint control. Close members of family are those family members who may be expected to influence, or be influenced by, that person in their dealings with SBN Holdings Limited. They may include the individual's domestic partner and children, the children of the person's domestic partner, and dependents of the individual or the individual's domestic partner. GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Key management compensation Salaries and other short-term benefits Post-employment benefits 34 613 35 574 69 IFRS 2 value of share options and rights expensed 1 612 3 220 36 225 38 863 The transactions below are entered into in the normal course of business. Loans and advances¹ Loans outstanding at beginning of the year Change in key management structure 23 531 30 120 (3523) Net loans (repaid)/granted during the year 3 748 (3 066) Loans outstanding at end of the year 27 279 23 531 Deposit and current accounts² Deposits outstanding at beginning of the year Change in key management structure Net deposits received/(withdrawn) during the year Deposits outstanding at end of the year 4 752 2 493 (791) (3 034) 3 050 1 718 4 752 1 Loans include mortgage loans, vehicle and asset finance and credit cards. All loans and advances in respect of loans granted to key management in the current or prior year follow the normal ECL processes of the group and company. No impairments have been recognised in the current or prior year. The mortgage loans and vehicle and asset finance are secured by the underlying assets. All other loans are unsecured. 2 Deposits include cheque, current and savings accounts. Interest received on loans and advances, and interest paid on deposit and current accounts is in the ordinary course of business, except for staff loans which are charged at preferential rates. 35. 35.4 35.5 35.6 Related party disclosures continued (Purchase)/rendering of services SBN HOLDINGS LIMITED Annual report 2022 111 GROUP 2022 N$'000 2021 N$'000 Relationship Type The Standard Bank of South Africa Limited (SBSA) Fellow subsidiary Royalty fees (77 377) (73 354) SBSA Fellow subsidiary Information technology (90 631) (47 926) SBSA Fellow subsidiary License fees (17 217) (61 258) SBSA Fellow subsidiary Other services 5 103 (3 749) SBSA Fellow subsidiary Training (886) (181 008) (619) (186 906) Commissions and dividends received/(paid) GROUP COMPANY Relationship Type 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 SBSA SBSA SBSA Purros Investments Standard Bank Fellow subsidiary Fellow subsidiary Parent company Employee share trust Namibia Subsidiary Commission paid Commission received Dividends paid Dividends paid Dividends received (12 442) (15156) 465 (136 966) 23 (189 287) (21 892) (136 966) (189 287) 57 504 136 917 Stanfin (Namibia) Dividends (Pty) Ltd Subsidiary received 1 102 Standard Insurance Brokers (Namibia) (Pty) Ltd Subsidiary Dividends received (148 943) (226 312) 7 645 (70 715) 100 000 47 630 Interest income/(expense) SBSA SBSA 35.7 Trading income SBSA GROUP 2022 Relationship Type N$'000 2021 N$'000 Fellow subsidiary Fellow subsidiary Interest income 86 691 32 427 Interest expense (55 771) (37 049) 30 920 (4 622) GROUP Relationship Type 2022 N$'000 2021 N$'000 Fellow subsidiary Trading income 107 641 188 397 107 641 188 397#58112 35. 35.8 35.9 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Related party disclosures continued Contributions to funds GROUP 2022 N$'000 2021 N$'000 Relationship Type Standard Bank Namibia Pension Fund Defined contribution plan Contributions 63 378 63 378 66 246 66 246 Transfer pricing arrangements for 2022 and 2021 The company entered into various transfer pricing agreements with other SBG subsidiaries. These agreements have all been entered into on an arm's length basis in accordance with the pricing principles contained in the Organisation for Economic Co-operation and Development Guidelines and relevant domestic legislation. The nature of the agreements are such that the related parties performing relevant functions, assuming relevant risks and owning relevant assets in the day-to-day business activities of the group and company, are compensated on an arm's length basis. The integrated business model, in relation to functional, risk and asset profile and in accordance with the nature of the agreement, resulted in payments being made by both SBSA and fellow subsidiaries during the 2022 and 2021 financial years. Related party year end balances SBN HOLDINGS LIMITED Annual report 2022 113 36. 36.1 Equity-linked transactions Share-based payments The group's share incentive schemes enable key management personnel and senior employees to benefit from the performance of Standard Bank Group Limited shares. Summary of the company's share incentive GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 schemes and expenses recognised in staff costs: Deferred bonus schemes 5 509 4 344 Total expense recognised in staff costs 5 509 4 344 Summary of liabilities recognised in other liabilities: Deferred bonus schemes 9 515 5 206 Total liability recognised in other liabilities 9 515 5 206 GROUP 36.2 2022 N$'000 2021 N$'000 Relationship Receivables from related parties SBSA SBSA Stanbic Bank Botswana Limited Stanbic Bank Zambia Limited Stanbic Bank Kenya Limited SBSA SBSA Stanbic Bank Zimbabwe Limited Standard Bank (Mauritius) Limited Stanlib (Proprietary) Limited Purros Investments (Proprietary) Limited Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Fellow subsidiary Sister company Type Trading assets Loans and advances Loans and advances Loans and advances Loans and advances Derivatives Other assets Other assets Other assets Other assets Other assets 23 190 1 545 004 1 932 415 1 173 261 35 1 173 50 41 052 62 373 6 931 5 820 90 90 36 33 23 4 183 1 593 409 2 030 523 The loans issued to subsidiaries and fellow subsidiaries are repayable on demand. Interest is charged based on the prevailing market rate. The loans are unsecured and the loans are fully performing. Derivatives are carried at fair value. Sundry receivables with subsidiaries and fellow subsidiaries are repayable on demand and attract no interest. All related party transactions were made on terms equivalent to those that prevail in arm's length transactions. Equity compensation plans The group has two equity compensation plans, namely the company Share Incentive Scheme (GSIS) and the Equity Growth Scheme (EGS). The GSIS, which is equity-settled, confers rights to employees to acquire ordinary shares at the value of the SBG share price at the date the option is granted. The EGS, which is cash-settled, was implemented in 2005 and represents appreciation rights allocated to employees. The eventual value of the right is effectively settled by the issue of shares equivalent in value to the value of the rights. 36.2.1 Equity-settled share-based payments Group Share Incentive Scheme A reconciliation of the movement of share options is detailed below: Options outstanding at beginning of the year Transferred in/(out) Options outstanding at the end of the year The weighted average share price for the year was ZAR161.11 (2021: ZAR131.30). Number of rights 2022 2021 195 6 250 (6055) 195 195 The following options granted to employees, including executive directors, had not been exercised at 31 December 2022: Number of ordinary shares 195 Option price 98.8 Weighted average price Option expiry year 98.8 Year to 31 December 2023 GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 Relationship Туре Payables to related parties SBSA Deposits and current Stanbic Bank Botswana Limited Fellow subsidiary Fellow subsidiary Stanbic Bank Zambia Limited Standard Bank Angola, S.A. Fellow subsidiary Purros Investment (Proprietary) Limited Standard Bank Namibia SBSA Fellow subsidiary Employee share trust accounts Deposits and current accounts Deposits and current accounts Deposits and current accounts 1 242 229 1 290 132 48 26 12 19 222 12 20 Deposits and current accounts Deposits and current SBSA Subsidiary Fellow subsidiary Fellow subsidiary accounts 291 326 312 401 Derivatives 100 729 10 697 Other liabilities 9 261 11 217 Stanbic Bank Zimbabwe Limited 60 60 SBSA 253 757 101 181 Fellow subsidiary Other liabilities Fellow subsidiary Subordinated debt 1 606 115 1 413 345 Deposit and current accounts held with subsidiaries and fellow subsidiaries are repayable on demand. Interest is charged based on the prevailing market rate. Sundry payables with subsidiaries and fellow subsidiaries are repayable on demand and attract no interest.#59114 NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued SBN HOLDINGS LIMITED Annual report 2022 115 36. 36.3 Equity-linked transactions continued Cash compensation plans 36.3.1 Cash-settled share-based payments All employees granted an annual performance award over a threshold and who is in employment in a company entity domicile outside of South Africa have part of their award deferred. In addition the company makes special awards to qualifying employees in employment of a company entity. The awards are classified as cash-settled awards. The award units are denominated in employee's host countries' local currency, the value of which moves parallel to the changes in the price of the SBG shares listed on the JSE and accrue notional dividends over the vesting period which are payable on vesting. Awards vest in three equal tranches at 18 months, 30 months and 42 months from the date of award. Final payout is determined with reference to SBG share price on vesting date. 36. 36.4 Equity-linked transactions continued Performance reward plan The performance reward plan (PRP) is performance-driven share plan which rewards value delivered against specific targets. The PRP incentivises a group of senior executives to meet the strategic long-term objectives that deliver value to shareholders, to align the interests of those executives with those of shareholders and to act as an attraction and retention mechanism in a highly competitive marketplace for skills. The PRP operates alongside the existing conditional, equity-settled long-term plans, namely the EGS, DBS, and other share incentive schemes. The awards are indexed to SBG's share price and accrues notional dividends during the vesting period, which are payable on vesting. Shares that vest (if any), and that are delivered to the employee, are conditional on the pre-specified performance metrics. These awards have been partially hedged through the use of equity forwards. Awards are issued to individuals in employment of a group entity domiciled outside of South Africa are classified as cash- settled. 2022 units Weighted average fair value at Expected life at grant date Transferred Currency grant date (years) Opening balance between group Granted Exercised Forfeited companies Outstanding NAD 143.65 2.51 48 869 18 966 XOF ZAR 4 359 (30 779) (59 576) (1 241) 37 056 142 400 82 824 3 118 2021 units Weighted average fair value at Expected life at grant date Transferred Currency grant date (years) Opening balance Granted Exercised Forfeited between group companies Outstanding NAD 143.77 ZAR 152.64 2.51 2.51 41 687 14 647 4 348 (8144) (689) 679 700 48 869 4 359 36.3.2 Deferred bonus scheme (DBS) It is essential for the group to retain key skills over the longer term. This is done particularly through share-based incentive plans. The purpose of these plans is to align the interests of the group, its subsidiaries and employees, as well as to attract and retain skilled, competent people. The group has implemented a scheme to defer a portion of incentive bonuses over a minimum threshold for key management and executives. This improves the alignment of shareholder and management interests by creating a closer linkage between risk and reward, and also facilitates retention of key employees. The purpose of the Deferred Bonus Scheme 2012 is to encourage a longer-term outlook in business decision making and closer alignment of performance with long-term value creation. All employees granted an annual performance award over a threshold have part of their award deferred. The award is indexed to the group's share price and accrues notional dividends during the vesting year, which are payable on vesting. The awards vest in three equal amounts at 18 months, 30 months and 42 months from the date of award. The final payout is determined with reference to the group's share price on vesting date. Reconciliation Units outstanding at beginning of the year Awarded Exercised Transfers Units outstanding at end of the year Weighted average fair value at grant date Expected life (years) Units 2022 2021 5 683 (3 286) (63) 63 2 397 N$143.65 2.51 Movement summary Units outstanding at beginning of the year Lapsed Units outstanding at end of the year Units 2022 2021 24 200 35 600 (11 000) (11400) 13 200 24 200#60116 37. NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Segment reporting The company is organised on the basis of products and services and the segments have been identified on this basis. The principal business units in the company are as follows: 37. Segment reporting continued Scope of operations continued Business unit continued Segmental structure for key business lines SBN Holdings Namibia Banking Client segments The client segments are responsible for designing and executing the client value proposition strategy. Client segments own the client relationship and create multi-product customer experiences to address life events distributed through our client engagement platforms. Consumer & High Net Worth The Consumer & High Net Worth (CHNW) client segment is responsible for the end-to-end lifecycle of clients. CHNW services individual clients across sub-Saharan Africa. We enable our clients' daily lives by providing relevant solutions throughout their life journeys. Business & Commercial Banking The Business & Commercial Banking (BCB) client segment provides broad based client solutions for a wide spectrum of small- and medium-sized businesses as well as large commercial enterprises. Our client coverage support extends across a wide range of industries, sectors and solutions that deliver the necessary advisory, networking and sustainability support required by our clients to enable their growth. Corporate & Investment Banking The Corporate & Investment Banking (CIB) segment serves large companies (multinational, regional and domestic), governments, parastatals and institutional clients across Africa and internationally. Our clients leverage our in-depth sector and regional expertise, our specialist capabilities and our access to global capital markets for advisory, transactional, trading and funding support. Insurance Client solutions Client solutions support the client segments and the group as a whole. This team works in partnership with the client segments in pursuit of the client value proposition strategy. Client solutions provide products and services for banking, insurance and investments and will expand into non-financial services and solutions over time. SBN HOLDINGS LIMITED Annual report 2022 Home services Residential accommodation financing solutions, including related value added services. Retail lending Comprehensive suite of lending products provided to individuals and small and medium-sized businesses. Vehicle and asset finance Comprehensive finance solutions in instalment credit, fleet management and related services across our retail and business markets. Retail transactional Comprehensive suite of transactional, savings, payment and liquidity management solutions. Card and payments Credit card facilities to individuals and businesses. Merchant acquiring services. Enablement of digital payment capabilities through various products and platforms. Mobile money and cross- border businesses. 117 Investment banking Full suite of advisory and financing solutions, from term lending to structured and specialised products across equity and debt capital markets. Transactional products and services Comprehensive suite of cash management, international trade finance, working capital and investor services solutions. Global markets Trading and risk management solutions across financial markets, including foreign exchange, money markets, interest rates, equities, credit and commodities. Short-term and long-term insurance activities ■Financial advisory and brokerage service activities: - Short-term: Homeowners' insurance, household contents, vehicle insurance and commercial all risk insurance. - Long-term: Life, disability, funeral cover and credit life offered in conjunction with related banking products. Wealth management and trust administration services Wealth management, passive investments, international investments, structured products and social impact investing. Integrated fiduciary services including fiduciary advice, will drafting, custody services and trust and estate administration. Central and other Group hedging activities. Unallocated capital. Liquidity earnings. Central costs.#61118 37. 38. NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Segment reporting continued Scope of operations continued The segment report includes the consolidated results of each business unit containing all the activities of the segments across the group. No geographical segment information is disclosed due to the fact that business activities predominantly relate to Namibia. Client segments GROUP Net interest income Inter-segment revenue Non-interest revenue Total income Credit impairment charges Income after credit impairment charges Operating expenses Net income/(loss) before indirect taxation Indirect taxation Profit/(loss) before direct taxation Direct taxation Profit/(loss) for the year Operating information Total assets Total liabilities Other information Depreciation Amortisation CHNW 2022 N$'000 2021 Restated N$'000 2022 N$'000 BCB 2021 Restated N$'000 2022 N$'000 CIB 2021 Restated N$'000 Central & Other 2022 N$'000 2021 Restated N$'000 2022 N$'000 Total 2021 Restated N$'000 1 375 984 1 201 688 176 510 177 680 (92 513) (144 138) (572 482) (468 671) 86 440 55 688 499 526 406 080 697 109 706 776 203 258 157 214 397 494 349 364 1 500 611 (110 030) 1 439 793 466 208 390 582 804 507 611 306 (15 179) (13 484) (14 775) (43 438) (5 918) 1 444 802 1 229 312 6 903 (4548) (3563) 1 283 086 1 208 806 2 727 888 2 438 118 (150 517) (46 550) (131 408) (4 633) (6 826) (161 213) (288 751) 1 390 581 1 289 276 (998 530) (896 481) 419 658 (400 397) 259 174 799 874 604 480 (43 438) (336 107) (275 766) 392 051 392 795 19 261 (76 933) 524 108 (301 217) 303 263 (3.982) (3563) (52 999) 2 566 675 2 149 367 (1 678 675) (1 586 804) (8 625) 383 426 (104 726) 278 700 (12 864) (1058) (7 287) (1953) (1615) (47 420) (17 501) (56 562) 888 000 562 563 (21 590) (29 137) (43 356) 379 931 18 203 (111 322) 268 609 (4.972) (84 220) 25 200 13 231 (59 020) 522 155 (142 617) 379 538 301 648 (90 258) 211 390 (64 921) 17 732 (47 189) (78 152) 858 863 519 207 23 384 (54 768) (234 583) (152 996) 624 280 366 211 15 375 489 15 951 138 2 991 393 3 294 708 16 102 184 15 091 852 1 205 631 4 540 695 4 248 452 4 135 218 4 626 171 20 770 636 21 625 466 1 445 156 981 351 480 684 35 674 697 30 891 705 35 319 049 30 980 773 (84 228) (3 020) (48 913) (3168) (6 856) (180) (39 892) (657) (4 772) (1 685) (4386) (1634) (39 985) (49 902) (47 729) (43 990) (135 841) (54 787) (140 920) (49 449) Where reporting responsibility for individual cost centres and divisions within segments change, the segmental analyses' comparative figures are restated accordingly. Earnings per share The calculation of earnings per share is as follows: The calculations of basic earnings and headline earnings per ordinary share are as follows: Basic earnings attributable to ordinary shareholders (N$'000) GROUP COMPANY 2022 2021 2022 2021 623 603 365 388 Headline earnings (N$'000) (note 39) 622 480 366 281 Weighted average number of ordinary shares in issue ('000) 522 472 522 472 Basic earnings per ordinary share (cents) Headline earnings per ordinary share (cents) 119 119 70 70 Basic and headline earnings per ordinary share equals diluted and headline earnings per share as there are no potential dilutive ordinary shares in issue. SBN HOLDINGS LIMITED Annual report 2022 119#62120 39. NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued Headline earnings GROUP 2022 2021 Non- Non- controlling Gross N$'000 Tax N$'000 interest Net N$'000 N$'000 Gross N$'000 Tax N$'000 controlling interest N$'000 Net N$'000 Profit for the year Headline earnings adjustments: 858 863 (234 583) (1 651) 528 (677) 623 603 (1123) 519 207 (152 996) (823) 365 388 1 313 (420) 893 IAS 16 (Profit)/loss on sale of property and equipment IAS 28 Loss on derecognition of equity accounted joint venture IAS 36 Impairments on property and equipment (3426) 1 096 (2 330) (703) 225 SBN HOLDINGS LIMITED Annual report 2022 121 (478) 42. Acquisition of subsidiaries Acquisition of Spearmint The group acquired 100% shareholding in Spearmint, a property holding company that owns 100% of the total issued share capital of the property investment entities listed in Annexure A. This acquisition was as a result of a debt settlement transaction and represents the recovery of the corresponding credit impaired loans and advances provided to the counterparty. The effective date of the transaction is 3 August 2022. Management has performed an assessment to determine whether this was a business combination in terms of IFRS 3 or an asset acquisition. Management has elected to apply the optional asset concentration test described in IFRS 3. In applying the asset concentration test, an entity determines whether all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If so, the set is not considered a business. Based on the assessment performed, substantially all of the fair value of the gross assets acquired by the group is concentrated in a single asset or group of similar assets (investment properties), the asset concentration test in terms of paragraph B7B of IFRS 3 has been met and as a result, the group has accounted for the acquisition as that of a group of assets. Since the group controls Spearmint, the group has consolidated Spearmint. The fair value of the shares at initial recognition in the property companies in Standard Bank's stand-alone financial statements was determined in line with the requirements of IFRS 13 Fair Value. Management expert valuators were used by the group to provide guidance on the measurement of the fair value of the shares in Spearmint. The investment in Spearmint is subsequently measured at cost, in line with the current accounting policy. The cost at acquisition date represents the fair value of the underlying property companies. ECL was raised on the loans receivable from the counterparty to the extent that loans receivable exceeded the fair value loans of the collateral, as determined by management expert valuators. The loans receivable and ECL were then derecognised and the investments in Spearmint's shares recognised at this value at a subsidiary level. In the consolidated financial statements, the assets of the property investment entities are accounted for as properties in possession, being the fair value of the properties acquired as set out above. The properties in possession is subsequently measured in line with the current accounting policy, as set out in Annexure D. 1 775 Headline earnings 857 212 (568) (234 055) 1 207 2016 (677) 622 480 520 520 (645) (153 416) 1 371 (823) 366 281 40. Dividends Ordinary dividends GROUP COMPANY 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 GROUP 2022 N$'000 Final dividend declared 78 371 73 146 78 371 73 146 Interim dividend declared 104 530 83 596 104 530 83 596 Purchase consideration: Settlement of loans and advances 438 175 Total dividends recognised in the statement of changes in equity Total non-cash consideration 438 175 182 901 156 742 182 901 156 742 A final dividend of 46 cents per ordinary share was declared on 22 March 2023, payable on 26 May 2023 to all shareholders registered on 12 May 2023, bringing the total dividends declared in respect of 2022 profits earned to 66 cents per share (2021: 31 cents per share). The assets and liabilities recognised as a result of the acquisition are as follows: Properties in possession 464 577 Other assets Deferred tax liability 41. Events after the reporting period No subsequent events occurred between the year end and the date of signing of the financial statements. Other liabilities Net assets acquired All assets and liabilities were considered to be fairly valued at acquisition date. 227 (26 025) (604) 438 175 Further information on the subsidiaries are disclosed in Annexure A. The acquisition of Spearmint caused a significant increase in the group's properties in possession value, as indicated in the table below: Properties in possession balance at the beginning of the year Properties in possession acquired as part of the Spearmint transaction Other movements during the year Properties in possession balance at the end of the year GROUP 2022 N$'000 24 892 464 577 1 685 491 154#63122 ANNEXURE A - SUBSIDIARIES Material subsidiaries SBN HOLDINGS LIMITED Annual report 2022 123 Issued Issued share capital Effective holding 2022 2021 Nature of operation N$ % Net indebtedness by/(to) subsidiary 2022 % N$'000 Effective holding share capital 2022 2021 Nature of operation N$ % 2021 % Net indebtedness by/(to) subsidiary 2022 2021 N$'000 N$'000 N$'000 Subsidiaries of SBN Holdings Standard Bank Namibia Limited Banking services 2 000 015 100 100 Arleo Investment Sixteen (Proprietary) Limited Property holding company 1 100 100 Standard Insurance Brokers (Namibia) (Proprietary) Limited Insurance broking Stanfin (Namibia) (Proprietary) Limited services Insurance broking services 1 100 100 2 100 100 Mobicash Payment Solutions (Proprietary) Limited Mobile and payment services 2 312 51 Subsidiaries of Standard Bank Namibia Standard Bank Nominees (Proprietary) Limited Spearmint Investments (Proprietary) Limited Safe custodian 2 100 100 8 8 8 8 5 8 25 620 51 Property holding company 100 100 Subsidiaries of Spearmint Investments (Proprietary) Limited Ardeco Accommodation (Pty) Ltd Property investment 100 100 Arleo Investments 27 (Pty) Ltd Property investment 100 100 Arleo Investments 28 (Pty) Ltd Property investment 100 100 Arleo Investments 29 (Pty) Ltd Property investment 100 100 Arleo Investments 30 (Pty) Ltd Property investment 100 100 Arleo Investments 31 (Pty) Ltd Property investment 100 100 Arleo Investments 32 (Pty) Ltd Property investment 100 100 Arleo Investments 33 (Pty) Ltd Arleo Investments 34 (Pty) Ltd Arleo Investments 35 (Pty) Ltd Arleo Investments 36 (Pty) Ltd Anastasis Property One (Pty) Ltd Anastasis Property Two (Pty) Ltd Anastasis Property Three (Pty) Ltd Anastasis Property Four (Pty) Ltd Anastasis Property Five (Pty) Ltd Anastasis Property Six (Pty) Ltd Anastasis Property Seven (Pty) Ltd Anastasis Property Eight (Pty) Ltd Anastasis Property Nine (Pty) Ltd Ardeco Investments (Pty) Ltd Graham Town 228 (Pty) Ltd Graham Town 269 (Pty) Ltd Tenbergen Investments 01 (Pty) Ltd Tenbergen Investments 02 (Pty) Ltd Tenbergen Investments 08 (Pty) Ltd Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Tenbergen Investments 14 (Pty) Ltd Tenbergen Investments 15 (Pty) Ltd Tenbergen Investments 16 (Pty) Ltd Tenbergen Investments 20 (Pty) Ltd Tenbergen Investments 21 (Pty) Ltd Tenbergen Investments 23 (Pty) Ltd Tenbergen Investments 24 (Pty) Ltd Tenbergen Investments 26 (Pty) Ltd Tenbergen Investments 29 (Pty) Ltd Tenbergen Investments 31 (Pty) Ltd Imandra Investments (Pty) Ltd Reger Park Property Number One (Pty) Ltd Reger Park Property Number Two (Pty) Ltd Reger Park Property Number Three (Pty) Ltd Reger Park Property Number Four (Pty) Ltd Fish Eagle Real Estate 69 (Pty) Ltd Fish Eagle Real Estate 70 (Pty) Ltd Fish Eagle Real Estate 71 (Pty) Ltd Fish Eagle Real Estate 72 (Pty) Ltd Monte Piana Investments 05 (Pty) Ltd Monte Piana Investments 13 (Pty) Ltd Monte Piana Investments 14 (Pty) Ltd Monte Piana Investments 15 (Pty) Ltd Monte Piana Investments 16 (Pty) Ltd Monte Piana Investments 17 (Pty) Ltd Monte Piana Investments 22 (Pty) Ltd Monte Piana Investments 23 (Pty) Ltd Monte Piana Investments 24 (Pty) Ltd Monte Piana Investments 25 (Pty) Ltd Monte Piana Investments 26 (Pty) Ltd Monte Piana Investments 27 (Pty) Ltd Monte Piana Investments 30 (Pty) Ltd Monte Piana Investments 39 (Pty) Ltd Monte Piana Investments 40 (Pty) Ltd Monte Piana Investments 44 (Pty) Ltd Monte Piana Investments 45 (Pty) Ltd African Precast Concrete Industries (Pty) Ltd Property investment 100 100 Property investment 100 100 Property investment Property investment Property investment 100 100 100 100 100 100 Property investment Property investment Property investment 100 100 100 100 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment Property investment 100 100 100 100 Property investment 100 100 Property investment 100 100 Property investment Property investment Property investment 100 100 100 100 100 100 Property investment 100 100 Property investment Property investment Property investment 100 100 100 100 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Barleo Investments Eight (Pty) Ltd Barleo Investments Ten (Pty) Ltd Barleo Investments Eleven (Pty) Ltd Barleo Investments Fourteen (Pty) Ltd Barleo Investments Twenty Three (Pty) Ltd Barleo Investments Twenty Four (Pty) Ltd Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment 100 100 Property investment Property investment 100 100 100 100 Tenbergen Investments 09 (Pty) Ltd Tenbergen Investments 11 (Pty) Ltd Tenbergen Investments 13 (Pty) Ltd Property investment 100 100 Property investment 100 100 Property investment 100 100 All subsidiaries are incorporated and operate within Namibia. All subsidiary undertakings are included in the consolidation. The proportion of voting rights in the subsidiary undertakings held directly by the company does not differ from the proportion of ordinary shares held.#64ANNEXURE A SUBSIDIARY continued 124 SBN HOLDINGS LIMITED Annual report 2022 125 ANNEXUREB - RISK AND CAPITAL MANAGEMENT Non-controlling interests (NCI) Set out below is summarised financial information for the subsidiary that has NCI that are material to the group. The amounts disclosed are before inter-company eliminations. Summarised statement of financial position Current assets Current liabilities Current net assets Non-current assets Non-current liabilities Non-current net assets Net assets Accumulated NCI Summarised income statement Fee and commission revenue Fee and commission expense Other revenue Total comprehensive income Profit/(loss) allocated to NCI Summarised statement of cash flows Cash flows from operating activities Mobicash Payment Solutions (Proprietary) Limited 2022 N$'000 2021 N$'000 37 649 36 251 (20 307) (18 509) 17 342 17 742 6 435 5 645 6 435 5 645 23 777 23 387 15 530 14 853 (30 511) 60 737 48 218 (37 271) 8 295 12 276 1 379 677 1 676 823 10 685 (10 434) (2 051) (4 876) 5 809 Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents (12 485) Overview Capital management The group's capital management function is designed to ensure that regulatory requirements are met at all times and that the group and its principal subsidiaries are capitalised in line with the group's risk appetite and target ratios, both of which are approved by the board. It further aims to facilitate the allocation and use of capital, such that it generates a return that appropriately compensates shareholders for the risks incurred. Capital adequacy is actively managed and forms a key component of the group's forecasting process. The capital plan is tested under a range of stress scenarios as part of the group's annual internal capital adequacy assessment process (ICAAP) and recovery plan. The capital management function is governed primarily by the management level subcommittee that oversees the risks associated with capital management, namely the asset and liability committee (ALCO). The principal governance documents are the capital management governance framework and the model risk governance framework. Risk management The group's activities give rise to various financial as well as insurance risks. Financial risks are categorised into credit, funding and liquidity and market risk. The group's approach to managing risk and capital is set out in the group's risk, compliance and capital management (RCCM) governance framework approved by the group risk and capital management committee (GRCMC). Climate-related financial risks Standard Bank Namibia recognises the immense scale of the present and future expected environmental, social and economic impacts of climate change. Exposure to the risks associated with climate change arise for the company both in respect of its own activities and operations, but more materially through the transmission of climate risk drivers into credit, market, reputational and other risk exposures from the lending to, investing in and otherwise transacting with clients and counterparties. Two distinct climate risk drivers are recognised as primary sources of these risks for Standard Bank Namibia. Firstly, the risk of financial loss arising through increasing severity and frequency of physical climate risk drivers. Such drivers may be more frequent and extreme climate change related weather events such as storms, wildfires, and other physical hazards. Or such drivers may be more chronic longer term changes in climate, such as drought, rising sea levels and average temperature rises. Secondly, the risk of financial loss arising through transition risk drivers, being changes associated with microeconomic (individual and corporate level) and macroeconomic (economy and country level) adjustments made in transitioning to a lower carbon emissions economy and business operating model. Such drivers include climate related changes in policies, legislation and regulations, changes due to technology improvements that support transition to a lower carbon economy, changes in market demand for products and services that support the transition, and reputational risks associated with changing customer preferences. The current and future expected costs, including for possible stranded assets that do not deliver an economic return because of changes associated with a transition to a lower carbon economy, are higher for clients and counterparties of the company that operate in sectors that are more vulnerable to these transition risk drivers. Physical risks Acute physical risks such as more frequent and more intense extreme weather events, pose a risk to Standard Bank Namibia's own operations and those of its customers in sectors Standard Bank Namibia has identified as being vulnerable, including agriculture and others. Chronic physical risks such as rising average temperatures and changing precipitation patterns over the medium to long term, that lead to heat stress, droughts, higher wildfire risks and water shortages, may impact Standard Bank Namibia's clients in affected sectors including mining, industrial, manufacturing and agriculture through water shortages, labour productivity, economic output and occupational health.#65ANNEXURE B RISK AND CAPITAL MANAGEMENT continued 126 SBN HOLDINGS LIMITED Annual report 2022 Capital management The group manages its capital levels to support business, growth, maintain depositor and creditors' confidence, create value for the shareholders and ensure regulatory compliance. The main regulatory requirements to be complied with are those specified in the Banking Institutions Act and related regulations, which are aligned with Basel III. Regulatory capital adequacy is measured through the following three risk-based ratios: Common equity tier 1 (CET 1): ordinary share capital, share premium, retained earnings, other reserves and qualifying non-controlling interest less impairments divided by total risk weighted assets (RWA). Tier 1: CET 1 and other qualifying non-controlling interest plus perpetual, non-cumulative instruments with either contractual or statutory principal loss absorption features that comply with the Basel III rules divided by total RWA. Total capital adequacy: tier 1 plus other items such as general credit impairments and subordinated debt with either contractual or statutory principal loss absorption features that comply with the Basel III rules divided by total RWA. BASEL III REGULATORY CAPITAL (UNAUDITED) GROUP BANK 2022 N$'000 2021 N$'000 2022 N$'000 2021 N$'000 CAPITAL ADEQUACY RATIOS (UNAUDITED) Minimum regulatory requirement Group Total capital adequacy ratio Tier 1 capital adequacy ratio Tier 1 leverage ratio Bank Total capital adequacy ratio Tier 1 capital adequacy ratio Tier 1 leverage ratio Including unappropriated profits % Target ratio % 2022 % 256 Excluding unappropriated profits 2021 % 2022 % 2021 % 10 >11.5 17.73 14.66 15.56 7.5 >9.5 15.63 11.90 13.15 14.66 11.90 >6.8 10.62 8.95 8.93 7.95 076 10 >11.5 15.63 13.33 14.22 13.33 >8.5 13.60 12.09 11.72 10.67 >6.8 9.56 8.13 8.24 7.18 BASEL III RISK-WEIGHTED ASSETS (UNAUDITED) Tier 1 Ordinary share capital and premium Ordinary shareholders' reserves Less: regulatory adjustments Intangible assets Deferred tax asset GROUP BANK 2022 N$'000 2021 N$'000 2022 N$'000 643 234 643 234 3 310 682 2 975 922 594 100 3 044 173 3 953 916 3 619 156 3 638 273 (647 359) (697 472) (594 498) 594 100 2 738 038 3 332 138 (697 472) Credit risk Market risk Operational risk 21 232 392 717 964 21 291 246 412 104 22 071 697 717 964 3 190 989 2 846 650 3 178 996 2021 N$'000 21 436 174 412 104 2 846 650 Total risk-weighted assets 25 141 345 24 550 000 25 968 657 24 694 928 (517 733) (397 932) (468 554) (397 932) (16 583) (213 648) (14 902) (213 648) (113 043) (85 892) (111 042) (85 892) 3 306 557 2 921 684 3 043 775 2 634 666 Defined benefit pension fund assets and liabilities Common equity tier 1 capital/tier 1 capital Tier 2 Subordinated debt Current unappropriated profits General allowance for credit impairments 250 000 624 280 275 730 60 000 363 852 254 151 250 000 60 000 489 038 342 959 275 730 254 151 1 150 010 678 003 1 014 768 657 110 Total eligible capital (including unappropriated profits) 4 456 567 3 599 687 4 058 543 3 291 776 127#66ANNEXURE B - RISK AND CAPITAL MANAGEMENT continued 128 CREDIT RISK SBN HOLDINGS LIMITED Annual report 2022 Definition Credit risk is the risk of loss arising out of the failure of obligors to meet their financial or contractual obligations when due. It is composed of obligor risk (including borrowers and trading counterparties), concentration risk and country risk. Approach to managing and measuring credit risk The group's credit risk is a function of its business model and arises from wholesale and retail loans and advances, underwriting and guarantee commitments, as well as from the counterparty credit risk arising from derivative and securities financing contracts entered into with our customers and trading counterparties. To the extent equity risk is held on the banking book, it is also managed under the credit risk governance framework, except in so far as approval authority rests with the board risk committee (BRC). The management of credit risk is aligned to the group's three lines of defence framework. The business function owns the credit risk assumed by the group and as the first line of defence is primarily responsible for its management, control and optimisation in the course of business generation. The credit function acts as the second line of defence and is responsible for providing independent and objective approval and oversight for the credit risk-taking activities of business, to ensure the process of procuring revenue, while assuming optimal risk, is undertaken with integrity. Further second-line oversight is provided by the group risk function through independent credit risk assurance. The third line of defence is provided by group internal audit (GIA), under its mandate from the board audit committee (BAC). Credit risk is managed through: ■ maintaining a culture of responsible lending and a robust risk policy and control framework ■identifying, assessing and measuring credit risk across the group, from an individual facility level through to an aggregate portfolio level ■defining, implementing and continually re-evaluating risk appetite under actual and stressed conditions ■monitoring the group's credit risk exposure relative to approved limits ■ ensuring that there is expert scrutiny and approval of credit risk and its mitigation independently of the business functions. A credit portfolio limit framework has been defined to monitor and control the credit risk profile within the group's approved risk appetite. All primary lending credit limits are set and exposures measured on the basis of risk weighting in order to best estimate exposure at default (EAD). Pre-settlement counterparty credit risk (CCR) inherent in trading book exposures is measured on a potential future exposure (PFE) basis, modelled at a defined level of confidence, using approved methodologies and models, and controlled within explicit approved limits for the counterparties concerned. Credit risk mitigation Wherever warranted, the group will attempt to mitigate credit risk, including CCR to any counterparty, transaction, sector, or geographic region, so as to achieve the optimal balance between risk, cost, capital utilisation and reward. Risk mitigation may include the use of collateral, the imposition of financial or behavioural covenants, the acceptance of guarantees from parents or third parties, the recognition of parental support, and the distribution of risk. Collateral, parental guarantees, credit derivatives and on- and off-balance sheet netting are widely used to mitigate credit risk. Credit risk mitigation policies and procedures ensure that risk mitigation techniques are acceptable, used consistently, valued appropriately and regularly, and meet the risk requirements of operational management for legal, practical and timely enforcement. Detailed processes and procedures are in place to guide each type of mitigation used. In the case of collateral where the group has an unassailable legal title, the group's policy is such that collateral is required to meet certain criteria for recognition in loss given default (LGD) modelling, including that it: ■is readily marketable and liquid ■is legally perfected and enforceable ■has a low valuation volatility ■is readily realisable at minimum expense ■has no material correlation to the obligor credit quality ■has an active secondary market for resale. The main types of collateral obtained by the group for its banking book exposures include: ■mortgage bonds over residential, commercial and industrial properties ■cession of book debts ■pledge and cession of financial assets ■bonds over plant and equipment ■the underlying movable assets financed under leases and instalment sales. Reverse repurchase agreements and commodity leases to customers are collateralised by the underlying assets. Guarantees and related legal contracts are often required, particularly in support of credit extension to groups of companies and weaker obligors. Guarantors include banks, parent companies, shareholders and associated obligors. Creditworthiness is established for the guarantor as for other obligor credit approvals. For trading and derivatives transactions where collateral support is considered necessary, the group typically uses internationally recognised and enforceable International Swaps and Derivatives Association (ISDA) agreements, with a credit support annexure (CSA). Netting agreements, such as collateral under the CSA of an ISDA agreement, are only obtained where the group firstly, has a legally enforceable right to offset credit risk by way of such an agreement, and secondly, where the group has the intention of utilising such agreement to settle on a net basis. Other credit protection terms may be stipulated, such as limitations on the amount of unsecured credit exposure acceptable, collateralisation if the mark-to-market credit exposure exceeds acceptable limits, and termination of the contract if certain credit events occur, for example, downgrade of the counterparty's public credit rating. Wrong-way risk arises in transactions where the likelihood of default (i.e. the probability of default (PD) by a counterparty and the size of credit exposure (as measured by EAD) to that counterparty tend to increase at the same time. This risk is managed both at an individual counterparty level and at an aggregate portfolio level by limiting exposure to such transactions, taking adverse correlation into account in the measurement and mitigation of credit exposure and increasing oversight and approval levels. The group has no appetite for wrong-way risk arising where the correlation between EAD and PD is due to a legal, economic, strategic or similar relationship (i.e. specific wrong-way risk). General wrong-way risk, which arises when the correlation between EAD and PD for the counterparty, due mainly to macro factors, is closely managed within existing risk frameworks. To manage actual or potential portfolio risk concentrations in areas of higher credit risk and credit portfolio growth, the group implements hedging and other strategies from time-to-time. This is done at individual counterparty, sub-portfolio and portfolio levels through the use of syndication, distribution and sale of assets, asset and portfolio limit management, credit derivatives and credit protection. Use of internal estimates Our credit risk rating systems and processes differentiate and quantify credit risk across counterparties and asset classes. Internal risk parameters are used extensively in risk management and business processes, including: ■setting risk appetite ■setting concentration and counterparty limits credit approval and monitoring. Corporate, sovereign and banking portfolios Corporate entities include large companies, as well as small medium entities (SMEs) that are managed on a relationship basis. Corporate exposures also include specialised lending (project, object and commodity finance, as well as income-producing real estate (IPRE) and public sector entities. Sovereign and bank borrowers include sovereign government entities, central banks, local and provincial government entities, bank and non-bank financial institutions. The creditworthiness of corporate (excluding specialised lending), sovereign and bank exposures is assessed based on a detailed individual assessment of the financial strength of the borrower. This quantitative analysis, together with expert judgement and external rating agency ratings, leads to an assignment of an internal rating to the entity. Specialised lending's creditworthiness is assessed on a transactional level, rather than on the financial strength of the borrower, in so far as the group relies only on repayment from the cash flows generated by the underlying assets financed. Concentration risk management is performed to ensure that credit exposure concentrations in respect of obligors, countries, sectors and other risk areas are effectively managed. This includes concentrations arising from credit exposure to different entities within an obligor economic group, such as exposure to public sector and other government entities that are related to the same sovereign. Credit portfolio characteristics and metrics Maximum exposure to credit risk Debt financial assets at amortised cost and FVOCI as well as off-balance sheet exposure subject to an ECL are analysed and categorised based on credit quality using the group's master rating scale. Exposures within stage 1 and 2 are rated between 1 to 25 in terms of the group's master rating scale. The group uses a 25-point master rating scale to quantify the credit risk for each borrower (corporate asset classes) or facility (specialised lending and retail asset classes), as illustrated in the table below. These ratings are mapped to PDs by means of calibration formulae that use historical default rates and other data from the applicable home services, VAF, card, personal, business lending and other product portfolios. The group distinguishes between through-the- cycle PDs and point-in-time PDs, and utilises both measures in decision-making, managing credit risk exposures and measuring impairments against credit exposures. Exposures which are in default are not considered in the 1 to 25-point master rating scale. Default The group's definition of default has been aligned to its internal credit risk management definitions and approaches. While the specific determination of default varies according to the nature of the product, it is generally determined (aligned to the Basel definition) as occurring at the earlier of: ■where, in the group's view, the counterparty is considered to be unlikely to pay amounts due on the due date or shortly thereafter without recourse to actions such as the realisation of security; or ■when the counterparty is past due for more than 90 days (or, in the case of overdraft facilities in excess of the current limit). The group will not rebut IFRS 9's 90 DPD rebuttable presumption. A financial asset is considered to be in default when there is objective evidence of impairment. The following criteria are used in determining whether there is objective evidence of impairment for financial assets or groups of financial assets: ■significant financial difficulty of borrower and/or modification (i.e. known cash flow difficulties experienced by the borrower) ■a breach of contract, such as default or delinquency in interest and/or principal payments ■ disappearance of active market due to financial difficulties ■it becomes probable that the borrower will enter bankruptcy or other financial reorganisation ■where the group, for economic or legal reasons relating to the borrower's financial difficulty, grants the borrower a concession that the group would not otherwise consider. Exposures which are overdue for more than 90 days are also considered to be in default. 129#67ANNEXURE B RISK AND CAPITAL MANAGEMENT/RISK continued 130 MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY SB 1-12 SB 13 - 20 SB 21-25 Default Gross carrying amount N$'000 Stage 1 N$'000 Stage 2 N$'000 Stage 1 N$'000 Stage 2 N$'000 Stage 1 N$'000 2022 Loans and advances at amortised cost Home services Vehicle and asset finance Card and payments Other loans and advances Personal unsecured lending Business lending and other Corporate lending 11 822 800 2 893 913 140 088 2 835 281 Sovereign lending Bank lending Gross carrying amount Less: total credit impairment on loans and advances Net carrying amount of loans and advances measured at amortised cost Financial investments measured at amortised cost Sovereign Gross carrying amount Less: total ECL for financial investments measured at amortised cost Net carrying amount of financial investments measured at amortised cost Securities Stage 2 N$'000 Stage 3 N$'000 Total gross carrying amount of default exposures N$'000 and expected recoveries on default exposures N$'000 Interest in suspense on default exposures N$'000 Balance sheet ECL on default exposures - stage 3 N$'000 SBN HOLDINGS LIMITED Annual report 2022 131 Gross default coverage Non- performing exposures % % 9 469 760 2 472 646 122 610 2 425 991 1 243 668 1 114 973 1 591 613 1 311 018 5 057 176 312 046 4 411 154 267 375 3 714 600 1 707 208 672 1 850 250 1 863 839 264 281 56 996 511 1 288 712 1 064 328 1 064 328 782 667 40 430 237 311 26 346 204 16 076 161 264 75 063 75 063 11 083 63 980 85 97 225 64 039 1 402 248 026 31 470 216 556 1 402 1 402 100 248 026 107 922 43 834 93 443 55 9319 31 470 216 556 6 984 100 938 (1 706) 45 540 24 067 69 376 71 53 14 34 65 493 4 202 4 202 (72) 13 4 261 102 26 731 233 2 164 003 20 974 672 321 788 1 877 749 1 393 021 1 393 021 901 600 84 277 400 397 (761 783) 25 969 450 39 415 39 415 39 415 39 415 39 415 Financial investments at fair value through OCI Sovereign 3 703 511 3 703 511 3 703 511 3 703 511 (3 100) Gross carrying amount Add: fair value reserve relating to fair value adjustments Total financial investment at fair value through OCI Off-balance sheet exposures Letters of credit and banker's acceptances Guarantees Irrevocable unutilised facilities 3 700 411 134 412 134 412 1 677 317 1 248 085 352 544 47 829 25 863 2 996 2 981 232 274 488 2 624 285 82 166 293 Total exposure to off-balance sheet credit risk 4 792 961 1 656 985 2 976 829 129 995 26 156 2 996 (2 829) 4 790 132 ECL for off-balance sheet exposures Net carrying amount of off-balance sheet exposures Total exposure to credit risk on financial assets subject to an ECL Add the following exposures not subject to ECL: Cash and balances with the central bank¹ Derivative assets¹ Other financial investments¹ Trading assets¹ Other financial assets² Total exposure to credit risk 34 499 408 1 673 337 138 918 1 180 088 474 621 239 298 38 205 670 1 These balances are not in scope of the ECL model as it is measured at fair value through profit or loss. 2 Due to the short-term nature of these financial assets, historical experience and forward-looking information, other amortised cost financial assets are regarded as having a low PD.#68ANNEXURE B RISK AND CAPITAL MANAGEMENT/RISK continued 132 MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY continued SB 1-12 SB 13 - 20 SB 21-25 Default Gross carrying amount N$'000 Stage 1 N$'000 Stage 2 N$'000 Stage 1 N$'000 Stage 2 N$'000 Stage 1 N$'000 Stage 2 N$'000 Stage 3 N$'000 Securities Total gross carrying amount of default exposures N$'000 and expected recoveries on default exposures N$'000 SBN HOLDINGS LIMITED Annual report 2022 133 Interest in suspense on default Balance exposures N$'000 sheet ECL on default exposures N$'000 Gross default coverage % Non- performing exposures % 2021 Loans and advances at amortised cost Home services Vehicle and asset finance Card and payments 12 776 077 3 177 030 2 251 142 026 10 627 226 2 816 996 41 450 120 534 Other loans and advances 3 094 879 2 564 584 250 805 16 361 184 212 421 057 1 727 794 65 528 5 131 1 727 794 1 328 387 10 230 (2540) 606 443 529 26 65 528 5 131 55 337 84 7 671 150 346 083 Personal unsecured lending 1 252 946 1 119 587 93 523 Business lending and other 1 841 933 1 444 997 90 689 39 836 306 247 346 083 39 836 306 247 126 249 50 876 175 672 49 11 4 536 121 713 812 50 064 34 568 89 141 104 62 17 42413N Corporate lending 3 332 061 21 947 2 751 697 480 526 67 570 10 321 10 321 (53) 9 798 Sovereign lending 598 085 2 569 366 242 229 274 Bank lending Gross carrying amount Less: total credit impairment on loans and advances Net carrying amount of loans and advances measured at amortised cost Financial investments measured at amortised cost Sovereign Gross carrying amount Less: total ECL for financial investments measured at amortised cost Net carrying amount of financial investments measured at amortised cost 3 257 603 3 254 711 2 892 26 377 761 3 281 478 19 250 171 751 250 940 005 2 154 857 2 154 857 1 462 273 51 482 692 007 (995 439) 25 382 322 39 426 39 426 39 426 39 426 39 426 Financial investments at fair value through OCI Sovereign 3 929 703 3 929 703 3 929 703 3 929 703 Gross carrying amount Add: fair value reserve relating to fair value adjustments (before the ECL balance) Total financial investment at FVOCI Off-balance sheet exposures Letters of credit and banker's acceptances Guarantees (1221) 3 928 482 14 371 10 308 4 063 1 825 266 1 159 085 661 085 Irrevocable unutilised facilities 2 251 174 2 026 057 135 070 67 535 5 096 22 512 Total exposure to off-balance sheet credit risk 4 090 811 3 195 450 800 218 67 535 27 608 (2 385) 4 088 426 ECL for off-balance sheet exposures Net carrying amount of off-balance sheet exposures Total exposure to credit risk on financial assets subject to an ECL Add the following exposures not subject to ECL: Cash and balances with the central bank - held at fair value¹ Derivative assets¹ Other financial investments¹ Trading assets¹ Other financial assets² 33 438 656 1 488 497 73 326 1 701 417 619 584 100 513 Total exposure to credit risk 37 421 993 1 These balances are not in scope of the ECL model as it is measured at fair value through profit or loss. 2 Due to the short-term nature of these financial assets, historical experience and forward-looking information, other amortised cost financial assets are regarded as having a low PD.#69ANNEXURE B RISK AND CAPITAL MANAGEMENT/RISK continued 134 SBN HOLDINGS LIMITED Annual report 2022 Credit impairment losses on loans and advances Loans and advances are assessed for possible impairment at each reporting date. Before impairments are allocated to individual loans, consideration is first given to whether there is evidence of a decrease in expected cash flows from a portfolio of loans and advances. This will include estimations of the emergence period between the date of the occurrence of the loss event and the identification of that loss. Portfolio impairments are calculated for both performing and non-performing but not specifically impaired loans. Factors such as national- and industry-specific economic conditions, the extent of early arrears and any legislation that could affect recovery, are all considered when calculating the portfolio impairment charge. For those non-performing loans (NPL) where there is objective evidence of default, specific impairments are calculated using methodologies that include inputs such as segmentation, modelled expected loss and PD. Estimates of future cash flows on individually impaired loans are based on historical loss experience for similar loans. Concentration risk Concentration risk is the risk of loss arising from an excessive concentration of exposure to a single counterparty, an industry, a product, a geography, maturity, or collateral. The group's credit risk portfolio is well-diversified. The group's management approach relies on the reporting of concentration risk along key dimensions, the setting of portfolio limits and stress testing. IFRS: INDUSTRY SEGMENTAL ANALYSIS GROSS LOANS AND ADVANCES Collateral The table on the following pages show the financial effect that collateral has on the group's maximum exposure to credit risk. The table is presented according to Basel asset categories and includes collateral that may not be eligible for recognition under Basel but that management takes into consideration in the management of the group's exposures to credit risk. All on- and off-balance sheet exposures that are exposed to credit risk, including NPL, have been included. Collateral includes: ■mortgage bonds over residential, commercial and industrial properties ■cession of book debts ■pledge and cession of financial assets bonds over plant and equipment ■the underlying movable assets financed under leases and instalment sales. Netting agreements, which do not qualify for offset under IFRS but which are nevertheless enforceable, are included as part of the group's collateral. All exposures are presented before the effect of any impairment provisions. Of the group's total exposure, 3% (2021: 13%) is unsecured and mainly reflects short-term exposures to individuals. Collateral coverage - Total collateral Gross exposure N$'000 Impairments N$'000 Unsecured N$'000 Secured N$'000 1 to 50 % N$'000 50 to 100% N$'000 Agriculture Construction Electricity Finance, real estate and other business services Individuals Manufacturing Mining Other services Transport Wholesale Gross loans and advances All loans are recorded in Namibia. IFRS: SEGMENTAL ANALYSIS OF STAGE 3 ECL OF LOANS AND ADVANCES Agriculture Construction Electricity Finance, real estate and other business services Individuals Manufacturing Other services Transport Wholesale Total ECL for stage 3 loans and advances excluding IIS All impairments relate to loans that are recorded in Namibia. 2022 N$'000 2021 N$'000 522 934 636 458 136 921 35 014 6 961 548 15 201 703 14 658 770 2 146 266 523 718 615 172 713 714 144 802 443 155 321 459 123 724 272 429 7 623 080 1 474 257 445 522 108 348 2022 Corporate Sovereign Bank Retail Retail mortgage Other retail Total 5 137 652 41 177 267 375 1 828 2 169 311 23 949 856 11 774 737 12 175 119 2 055 716 723 432 526 284 197 2 167 256 5 096 475 265 547 5 096 475 265 547 2 167 256 140 235 23 092 898 23 092 898 11 342 211 11 342 211 140 235 11 750 687 11 750 687 31 524 194 761 783 140 235 30 622 176 30 622 176 26 731 233 26 377 761 Add: Financial assets not exposed to credit risk 7 449 188 (761 783) (216 012) 2022 N$'000 2021 N$'000 (30 000) (4 271) (81129) (8977) (289) (329) (55 856) (259 620) (3 810) (10 718) (2 386) (367 044) (692 007) 1 (94) (350 577) (1760) (29 716) (1 651) (1856) Less: Impairments for loans and advances Less: Unrecognised off-balance sheet items Total exposure Reconciliation to statement of financial position: Cash and balances with central banks Derivative assets Trading assets Financial investments Loans and advances Other financial assets¹ Total (4 792 961) 33 418 638 1 673 337 138 918 474 621 4 923 014 25 969 450 239 298 33 418 638 Other financial assets are included in other assets in the statements of financial position. 135#70ANNEXURE B RISK AND CAPITAL MANAGEMENT/RISK continued 136 FUNDING AND LIQUIDITY RISK SBN HOLDINGS LIMITED Annual report 2022 137 Collateral coverage - Total collateral Gross exposure N$'000 Impairment N$'000 Unsecured N$'000 Secured N$'000 1 to 50% N$'000 50 to 100% N$'000 3 925 445 6 127 596 4 655 210 598 085 4 113 827 39 694 1665 4503 690 071 3 925 445 596 420 596 420 4 109 324 4 109 324 21 101 450 12 783 842 949 968 588 608 2 462 793 17 688 689 18 322 830 12 195 234 12 195 234 8 317 608 361 360 2 462 793 5 493 455 30 468 572 995 830 3 152 864 26 319 878 26 954 019 7 948 517 (995 439) 2021 Corporate Sovereign Bank Retail Retail mortgage Other retail Total Add: Financial assets not exposed to credit risk Less: Impairments for loans and advances Less: Unrecognised off-balance sheet items Total exposure Reconciliation to statement of financial position Cash and balances with central banks Derivative assets Trading assets Financial investments Loans and advances (4 090 811) 33 330 839 1 488 497 73 326 619 584 5 670 546 25 382 322 Other financial assets¹ Total 96 564 33 330 839 1 Other financial assets are included in other assets in the statements of financial position. Definition Liquidity risk is defined as the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms. Approach to managing liquidity risk The nature of the group's banking and trading activities gives rise to continuous exposure to liquidity risk. Liquidity risk may arise where counterparties, who provide the group with short- term funding, withdraw or do not roll over that funding, or normally liquid assets become illiquid as a result of a generalised disruption in asset markets. The group manages liquidity in accordance with applicable regulations and within the group's risk appetite framework. The group's liquidity risk management governance framework supports the measurement and management of liquidity across both the corporate and retail sectors to ensure that payment obligations can be met by the group's legal entities, under both normal and stressed conditions. Liquidity risk management ensures that the group has the appropriate amount, diversification and tenor of funding and liquidity to support its asset base at all times. The group manages liquidity risk as three interrelated pillars, which are aligned to the Basel III liquidity requirements. The group maintains a prudent approach to liquidity management in accordance with the applicable laws and regulations. Appropriate liquidity buffers were held in excess of the minimum prudential liquid asset requirements as prescribed by the regulator. Proactive liquidity management in line with group liquidity standards ensured that, despite volatile and constrained liquidity environments at the onset of the Covid-19 pandemic, adequate liquidity was maintained to fully support balance sheet strategies. This has been achieved through continuous engagements between treasury and capital management, risk and business units in which the liquidity risk with respect to on- and off-balance sheet positions was carefully monitored. At the same time consideration has been provided to the adequacy of contingent funding, ensuring sufficiency to accommodate unexpected liquidity demands. The group continues to leverage the extensive deposit franchises across the portfolio to ensure that it has the appropriate amount, tenor and diversification of funding to support its current and forecast asset base while minimising cost of funding. The group manages its liquidity through an internal behavioural profiling of its portfolios. Through this mechanism, the group continuously ensure that it has sufficient marketable assets available in its portfolio to meet the outflow demand in both business as usual as well as stress circumstances. Maturity analysis of financial liabilities by contractual maturity The following table analyses cash flows on a contractual, undiscounted basis based on the earliest date on which the group can be required to pay (except for trading liabilities and derivative liabilities, which are presented as redeemable on demand) and will, therefore, not agree directly to the balances disclosed in the consolidated statement of financial position (SOFP). Derivative liabilities are included in the maturity analysis on a contractual, undiscounted basis when contractual maturities are essential for an understanding of the derivatives' future cash flows. Management considers only contractual maturities to be essential for understanding the future cash flows of derivative liabilities that are designated as hedging instruments in effective hedge accounting relationships. All other derivative liabilities, together with trading liabilities, are treated as trading and are included at fair value in the redeemable on demand bucket since these positions are typically held for short periods of time.#71ANNEXURE BRISK AND CAPITAL MANAGEMENT/FUNDING AND LIQUIDITY RISK continued 138 The table also includes contractual cash flows with respect to off-balance sheet items. Where cash flows are exchanged simultaneously, the net amounts have been reflected. GROUP 2022 Liabilities Redeemable Maturing within Maturing between Maturing between on demand N$'000 1 month N$'000 1-6 months N$'000 6-12 months N$'000 Maturing after 12 months N$'000 Total N$'000 Derivative liabilities 32 310 108 453 Trading liabilities 8 075 25 959 2 782 Deposits and current accounts 20 631 824 338 304 2 618 978 2 207 335 Debt securities issued Other financial liabilities 458 755 Total 21 090 579 1 981 380 670 8 017 300 000 7 838 1 556 966 2 193 500 14 897 2 761 407 2 517 955 3 765 363 Unrecognised financial liabilities Letters of credit and bankers' acceptances 320 134 092 134 412 Guarantees 6 984 32 005 1 340 863 297 465 1 677 317 Unutilised borrowing facilities 2 981 232 2 981 232 Total 2 981 232 6 984 32 325 1 474 955 297 465 4 792 961 2021 Liabilities MARKET RISK SBN HOLDINGS LIMITED Annual report 2022 140 763 36 816 27 353 407 2 493 500 491 488 30 515 974 70 576 55 772 28 242 080 1961 123. 637 435 30 966 986 Definition Market risk is the risk of a change in the market value, actual or effective earnings, or future cash flows of a portfolio of financial instruments, including commodities, caused by adverse movements in market variables such as equity, bond and commodity prices, currency exchange and interest rates, credit spreads, recovery rates, correlations and implied volatilities in all of these variables. The group's key market risks are trading book market risk ■Interest rate in the banking book (IRRBB) ■foreign currency risk Trading book market risk Definition Trading book market risk is represented by financial instruments, including commodities, held in the trading book, arising out of normal global markets' trading activity. Approach to managing market risk in the trading book The group's policy is that all trading activities are undertaken within the group's global markets' operations. The market risk functions are independent of the group's trading operations and are overseen by the market risk committee which is accountable to the relevant legal entity ALCOS. All value at risk (VaR) and stressed VaR (SVaR) limits require prior approval from the respective entity ALCOs. The market risk functions have the authority to set these limits at a lower level. Market risk teams are responsible for identifying, measuring, managing, monitoring and reporting market risk as outlined in the market risk governance standard. Exposures and excesses are monitored and reported daily. Where breaches in limits and triggers occur, actions are taken by market risk functions to bring exposures back in line with approved market risk appetite, with such breaches being reported to management and entity ALCOs. VaR and SVaR The group uses the historical VaR and SVaR approach to quantify market risk under normal and stressed conditions. For risk management purposes VaR is based on 251 days of unweighted recent historical data updated at least monthly, a holding period of one day and a confidence level of 95%. The historical VaR results are calculated in four steps: ■calculate 250 daily market price movements based on 251 days' historical data. Absolute movements are used for interest rates and volatility movements; relative for spot, equities, credit spreads, and commodity prices ■calculate hypothetical daily profit or loss for each day using these daily market price movements ■aggregate all hypothetical profits or losses for day one across all positions, giving daily hypothetical profit or loss, and then repeat for all other days ■ VaR is the 95th percentile selected from the 250 days of daily hypothetical total profit or loss. Daily losses exceeding the VaR are unlikely to occur. Limitations of historical VaR are acknowledged globally and include: ■the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature ■the use of a one-day holding period assumes that all positions can be liquidated or the risk offset in one day. This will usually not fully reflect the market risk arising at times of severe illiquidity, when a one-day holding period may be insufficient to liquidate or hedge all positions fully ■the use of a 95% confidence level, by definition, does not take into account losses that might occur beyond this level of confidence. VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily reflect intra-day exposures. VaR is unlikely to reflect loss potential on exposures that only arise under significant market movements. Derivative liabilities 12 046 27 808 14 857 15 865 Trading liabilities 10 040 20 990 24 742 Deposits and current accounts 20 521 638 1 967 320 2 708 392 1 883 507 1 161 223 Debt securities issued 7 756 35 911 43 667 1 873 789 Other financial liabilities 583 307 2 940 11 898 11 633 27 657 Total 21 116 991 2015 864 2 792 048 1 979 414 3 062 669 Unrecognised financial liabilities Letters of credit and bankers' acceptances 14 182 189 14 371 Guarantees 66 268 1 450 459 308 540 1 825 267 Unutilised borrowing facilities 5 588 026 5 588 026 Total 5 588 026 80 450 1 450 459 308 729 7 427 664 139#72MARKET RISK continued 140 Trading book portfolio characteristics VaR for the year under review Trading book market risk exposures arise mainly from residual exposures from client transactions and limited trading for the group's own account. In general, the group's trading desks have run decreased levels of market risk throughout the year for all asset classes when compared to 2021 aggregate normal VaR, and aggregate SVaR. TRADING BOOK NORMAL VAR ANALYSIS BY MARKET VARIABLE 2022 Foreign exchange risk Interest rates Aggregate¹ 2021 Normal VaR Maximum¹ N$'000 Minimum¹ N$'000 Average N$'000 Closing N$'000 456 30 201 119 98 20 43 78 1 450 54 219 155 Foreign exchange risk 787 51 162 Interest rates 105 10 40 258 42 Aggregate¹ 806 51 176 259 1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different days. TRADING BOOK STRESSED VAR ANALYSIS BY MARKET VARIABLE 2022 Foreign exchange risk Interest rates Aggregate¹ 2021 Stressed VaR Maximum¹ N$'000 Minimum¹ N$'000 Average N$'000 Closing N$'000 1 359 81 608 269 1955 136 443 1 566 1 849 230 806 1 308 INTEREST RATE SENSITIVITY ANALYSIS¹ 2022 SBN HOLDINGS LIMITED Annual report 2022 141 NAD USD TOTAL 200 100 1 053 100 173 568 (1 026) (185 971) Increase in basis points Sensitivity of annual net interest income (N$'000) Decrease in basis points² 172 515 200 (184 945) Sensitivity of annual net interest income (N$'000) 2021 Increase in basis points Sensitivity of annual net interest income (N$'000) Decrease in basis points² Sensitivity of annual net interest income (N$'000) 200 217 124 100 36 217 160. 200 100 (274 478) (14) (274 492) Before tax 2 A floor of 0% is applied to all interest rates under the decreasing interest rate scenario, resulting in asymmetric rate shocks in low rate environments. Foreign currency risk Definition The group's primary non-trading-related exposures to foreign currency risk arise as a result of the translation effect of the group's foreign- denominated financial assets and liabilities. Approach to managing foreign currency risk The group asset and liability committee manages the risk according to existing legislation, Namibian exchange control regulations and accounting parameters. It takes into account naturally offsetting risk positions and manages the group's residual risk by means of forward exchange contracts, currency swaps and option contracts. Foreign currency risk sensitivity analysis The table that follows reflects the expected financial impact, in N$ equivalent, resulting from a 5% shock to foreign currency risk exposures, against N$. The sensitivity analysis is based on net open foreign currency exposures arising from foreign-denominated financial assets and liabilities inclusive of derivative instruments, cash balances and accruals. The sensitivity analysis reflects the sensitivity to OCI and profit or loss on the group's foreign denominated exposures other than those trading positions for which sensitivity has been included in the trading book VaR analysis. FOREIGN CURRENCY RISK SENSITIVITY IN N$ EQUIVALENTS1 USD Euro GBP Other Total Foreign exchange risk 3 134 138 525 772 Interest rates 4 810 GROUP 362 962 473 2022 Aggregate¹ 4 850 440 1 131 899 Total net long/(short) position Sensitivity N$'000 % 4 576 66 174 1 401 5 5 5 5 1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different days. Impact on profit or loss/ equity Total net long/(short) position Sensitivity N$'000 N$'000 229 3 9 70 311 4 576 66 174 1 401 % (5) (5) (229) (3) (9) (70) (311) Approach to managing IRRBB Banking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on banking book earnings (IRRBB) (net interest income and banking book mark-to-market profit or loss) and the economic value of equity. The group's approach to managing IRRBB is governed by applicable regulations and is influenced by the competitive environment in which the group operates. The group' treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of ALCO. Measurement The analytical techniques used to quantify IRRBB include both earnings- and valuation-based measures. The analysis takes into account embedded optionality such as loan prepayments and accounts where the account behaviour differs from the contractual position. The results obtained from forward-looking dynamic scenario analyses, as well as Monte Carlo simulations, assist in developing optimal hedging strategies on a risk-adjusted return basis. Impact on profit or loss/ equity N$'000 2021 Total net long/(short) position Sensitivity N$'000 10 047 4 506 252 6 753 % 5 5 5 5 Impact on profit or loss/ equity N$'000 502 225 13 338 1 078 Total net long/(short) position Sensitivity Impact on profit or loss/ equity N$'000 N$'000 10 047 4 506 252 6 753 % (5) (5) (5) (5) (502) (225) (13) (338) (1 078) 1 Before tax. A 5% appreciation in N$ will have an equal and opposite impact on profit or loss to the amounts disclosed above.#73142 OPERATIONAL RISK - UNAUDITED SBN HOLDINGS LIMITED Annual report 2022 Introduction Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Reputational risk and strategic risk are, in line with general market convention, excluded from the definition of operational risk. Operational risk exists in the natural course of business activity. It is not an objective to eliminate all exposure to operational risk as this would be neither commercially viable nor indeed possible. The group's approach to managing operational risk is to adopt fit-for-purpose operational risk practices that assist business line management in understanding their inherent risk and reducing their risk profile in line with the group's risk tolerance, while maximising their operational performance and efficiency. Framework The group has set minimum requirements for managing operational risk through the group operational risk governance standard. These requirements have been fully implemented and embedded across the group. The framework sets out a structured and consistent approach for managing operational risk across the group. The risk management approach involves identifying, assessing, measuring, managing, mitigating, and monitoring the risks associated with operations, enabling comprehensive analysis and reporting of the group's operational risk profile. The framework is based on the following core components: ■Risk identification and control methodology: Facilitates the identification of risks and the management thereof across each business and operational function. It comprises of the following key elements: - Risk and control self-assessments: Each business unit and group enabling function is required to analyse its business activities and critical processes to identify the key operational risks to which it is exposed, and assess the adequacy and effectiveness of its controls. For any area where management concludes that the level of residual risk is beyond an acceptable level, it is required to define action plans to reduce the level of risk. The assessments are facilitated, monitored and challenged by the relevant operational risk function aligned to each business unit and group enabling function. - Indicators: Based on the key risks and controls identified above, relevant indicators are used to monitor key business environment and internal control factors that may influence the group's operational risk profile. Each indicator has trigger thresholds to provide an early-warning indicator of potential risk exposures and/or a potential breakdown of controls. Operational risk incidents: All areas are required to report operational risk incidents to their relevant operational risk function. The definition of operational risk incidents includes not only events resulting in actual loss, but those resulting in non-financial impacts and near misses. This process is intended to enable the root cause of individual incidents, or trends of incidents, to be analysed and actions taken to reduce the exposure or to enhance controls. All incidents relating to the group are consolidated within a central group database, which is also integrated with risk and control self-assessments and indicators. ■Reporting: Operational risk reports are produced on both a regular and an event-driven basis. The reports include a profile of the key risks to business units' achievement of their business objectives, relevant control issues and operational risk incidents. Specific reports are prepared on a regular basis for the relevant business unit committees and for the board risk committee. The primary responsibility for managing operational risk forms part of the day-to-day responsibilities of management and employees at all levels. Business line management is ultimately responsible for owning and managing risks resulting from their activities. The risks are managed where they arise. The operational risk management function is independent from business line management and is part of the second line of defence. It is organised as follows: ■Individual teams are dedicated to each business unit and group enabling functions. These teams are based alongside their business areas and facilitate the business's adoption of the operational risk framework. As part of the second line of defence, they also monitor and challenge the business units' and group enabling functions' management of their operational risk profile. ■ A central function, based at a group level, provides group wide oversight and reporting. It is also responsible for developing and maintaining the operational risk management framework. ■The primary oversight body for operational risk is RMC, which reports to Exco, the BRC and ultimately the board. RMC is chaired by the group head of risk and includes representation from group specialist functions and business units. RMC is also responsible for approving group wide operational risk policies and methodologies. ■In addition to the operational risk management function, there are individual focus areas on particular aspects of operational risk, including: specialist functions that are responsible for oversight of specific components of operational risk, including compliance, legal, financial crime, information security and business continuity management an internal financial controls framework has been established to ensure the robust control over balance sheet substantiation and other key financial controls within the group's IT and operations functions, there are dedicated areas focused on the day-to-day management of operations control and IT risk. Measuring operational risk The group continues to calculate capital based on the standardised approach in accordance with BoN requirements Specialist operational risk types The definition of operational risk is very broad. Operational risk contains specific sub-risks that are subject to management and oversight by dedicated specialist functions. Model risk The term model refers to a quantitative method, system or approach that applies statistical, economic, financial, or mathematical principles and processes to translate input data into quantitative estimates. The group uses models to measure risk across the various risk types. Examples include credit grading, pricing, valuation and risk appetite metrics. Model risk is the potential for adverse consequences from measurement, pricing and management decisions based on incorrect or inappropriate use of models. Incorrect or inappropriate use of models may arise from incorrect assumptions, incomplete information, inaccurate implementation and limited model understanding leading to incorrect conclusions by the user. The group's approach to managing model risk is based on the following principles: ■ All new models, both internal and external, are subject to validation and independent review in which the various components of a model and its overall functioning are evaluated to determine whether the model is performing as intended. ■The three lines of defence governance model is adopted, being model development, independent model validation and internal audit oversight functions. ■ Appropriateness and fit-for-purpose use of models in technical forums is challenged. ■Model validation summaries that highlight model limitations and recommend improvements. ■Implementation of approved models into production systems is controlled. ■Model performance, including requirements for an annual review process, is monitored on an ongoing basis. ■Data that is used as model inputs, which includes independent price testing of mark-to-market positions is reviewed and governed. Where this is not available, industry consensus services are used. ■Governance is achieved through committees with appropriate board and executive management members for material models, and through policies which deal with minimum standards, materiality, validation criteria, approval criteria, roles and responsibilities. ■Auditable, skilled and experienced pool of technically competent staff is maintained. Taxation risk In terms of the group tax policy, the group fulfils its responsibilities under tax law in each jurisdiction in which it operates, both in terms of domestic and international taxes with specific reference to transfer pricing principles across jurisdictions, whether in relation to compliance, planning or client service matters. Tax law includes all responsibilities which the group may have in relation to group taxes, personal taxes, indirect taxes and tax administration. Compliance with this policy is aimed at ensuring that the group pays neither more nor less tax than tax law requires. The group continually reviews its existing and planned operations in this regard and ensures that, where clients participate in group products, these clients are either aware of the probable tax implications or are advised to consult with independent professionals to assess these implications, or both. The framework to achieve compliance with the group tax policy comprises four elements: ■Identification and management of tax risk ■Human resources policies, including an optimal mix of staffing and outsourcing ■Skills development, including methods to maintain and improve managerial and technical competency ■Communication of information affecting tax within the group. Good corporate governance in the tax context requires that each of these elements is in place, as the absence of any one would seriously undermine the others. Legal risk Legal risk is defined as exposure to the adverse consequences of non-compliance with legal or statutory responsibilities and/ or inaccurately drafted contracts and their execution, as well as the absence of written agreements or inadequate agreements. This includes exposure to new laws, as well as changes in interpretations of existing law by appropriate authorities. This applies to the full scope of group activities and may also include others acting on behalf of the group. Legal risk arises where: ■the group's businesses or functions may not be conducted in accordance with, or benefit from, applicable laws in the countries in which it operates ■regulatory requirements are incorrectly applied ■the group may be liable for damages to third parties ■contractual obligations may be enforced against the group in an adverse way, resulting from legal proceedings being instituted against it. The following sub-categories of legal risk are recognised: Contract non-conclusion risk ■Contract unenforceability risk ■Security interest failure risk ■Netting and set-off disallowance risk Adverse tax and regulatory treatment risk ■Contract breach, damages and fines risk Copyright loss or contravention risk ■Litigation risk ■Anti-competitive behaviour risk. The group has processes and controls in place to manage its legal risk. Failure to manage these risks effectively could result in legal proceedings impacting the group adversely, both financially and reputationally. 143#74144 OPERATIONAL RISK - UNAUDITED continued SBN HOLDINGS LIMITED Annual report 2022 145 Compliance risk Compliance risk is the risk of legal or regulatory sanctions, financial loss or damage to reputation that the group may suffer as a result of its failure to comply with laws, regulations, codes of conduct and standards of good practice that are applicable to its financial services activities. Approach to compliance risk management The group's approach to managing compliance risk is proactive and premised on internationally accepted principles of risk management, including those recommended by Basel. It is aligned with other group risk type methodologies. Group compliance supports business in complying with current and emerging regulatory developments, including money laundering and terrorist financing control, sanctions management, identifying and managing conflicts of interest and market abuse, TCF and mitigating reputational risk. Framework and governance Compliance risk management is a core risk management activity overseen by the BRC. The head of compliance has unrestricted access to the chief executive and to the chairman of the BAC, thereby ensuring the function's independence. The group's compliance framework is based on the principles of effective compliance risk management, as outlined in the Banking Institutions Act, and recommendations from international policy-making bodies. Our business compliance model includes dedicated compliance support and advisory services to business which is supplemented by training. A robust risk management reporting and escalation procedure requires both business unit and functional area heads to report monthly and quarterly on the status of compliance risk management in the group. Money laundering and terrorist financing control Legislation across SBN pertaining to money laundering and terrorist financing control imposes significant requirements in terms of: ■customer identification ■record keeping ■ staff training ■obligations to detect, prevent and report money laundering and terrorist financing. SBG minimum standards are implemented throughout the group. The group also subscribes to the principles of the Financial Action Task Force, an inter-governmental body developing and promoting policies to combat money laundering and terrorist financing, of which Namibia is a member country. Compliance training Employees are made aware of their responsibilities in terms of current and emerging legislative and regulatory requirements through ongoing training and awareness initiatives. Employees, including senior management, are made aware of their legislative responsibilities either through e-learning, face-to-face interventions or through targeted awareness campaigns. Training is key to embedding a culture of compliance in the group. Regulatory change The group aims to embed regulatory best practice in our operations in a way that balances the interests of various stakeholders, while supporting the long-term stability and growth in the markets where we have a presence. The group operates in a highly regulated industry across multiple jurisdictions, including the need to comply with legislation with extra-territorial reach. The group's regulator is the Bank of Namibia (BON). BoN supervises both the group and Standard Bank Namibia Limited, the banking entity, on a consolidated basis. Environmental and social risk Environmental and social risk assessment and management deals with two aspects, being those over which: ■we do not have control but which have potential to impact on our operations and those of our clients ■we have direct control such as waste management and the use of energy and water. The uncontrolled aspects include threats to the global environment result from changing global climate and its impact on weather patterns, fresh water, infrastructure, economic growth and social resilience. The group uses two approaches to screen and process projects, namely the Equator Principles for project finance loans and an internally developed appraisal system for other financial product types. These tools are designed to identify the risks associated with a transaction and the customer's ability to manage environmental and social issues, as well as the risks associated with the transaction itself such as the nature and value of the loan, and the industry sector involved. All project finance deals will in future be screened for climate change risk and human rights impacts. This is in addition to the more traditional environmental and social risks which include those associated with occupational health and safety, relocation of communities and the impact on livelihoods of individuals. From a governance perspective, the group's material issues are companied into six broad categories which form the basis of engagement on sustainability issues with the group executive committee and the board. These are: ■sustainable long-term financial performance ■governance, regulation and stakeholder engagement ■sustainable and responsible financial services ■socioeconomic development ■a positive and consistent employee experience ■the environment. Business continuity management and resilience Business continuity management is defined as a holistic management process that identifies potential impacts that threaten the group and provides a basis for planning in mitigation to these operational impacts. It further provides a framework for building resilience and the capability for an effective response that safeguards the interests of key stakeholders, reputation, brand and value-creating activities. The group has business resiliency and continuity plans in place to ensure its ability to operate on an ongoing basis and limit losses in the event of severe business disruptions. Crisis management is based on a command and control process for managing the business through a crisis to full recovery. These processes may also be deployed to manage non-operational crises, including business crises, at the discretion of senior management. Contingency and recovery plans for core services, key systems and priority business activities have been developed and are revisited as part of existing management processes to ensure that continuity strategies and plans remain relevant. Information risk management Information risk is defined as the risk of accidental or intentional unauthorised use, modification, disclosure or destruction of the group's information resources, which compromises confidentiality, integrity or availability. Information risk management deals with all aspects of information in its physical and electronic forms. It focuses on the creation, use, transmission, storage, disposal and destruction of information. Information risk management is responsible for establishing an information security management system inclusive of an information risk management framework, and promotes information risk management policies and practices across the group. The execution of these policies and standards is functionally overseen by the group chief information security officer. Financial crime control Financial crime includes fraud, money laundering, violent crime and misconduct by staff, customers, suppliers, business partners, stakeholders and third parties. The group will not condone any instance of financial crime and where these instances arise, the group takes timely and appropriate remedial action. Financial crime control is defined as the prevention and detection of, and response to, all financial crime in order to mitigate economic loss, reputational risk and regulatory sanction. The group's financial crime control unit is mandated by the BAC to provide capabilities which minimise the overall impact of financial crime on the group. This ensures the safety of our people and assets, and builds trust with our stakeholders. The group's financial crime control function reports to the head of risk. This function enables a holistic view of the status and landscape of financial crime prevention, detection and response, including emerging threats. The group head of financial crime control has unrestricted access to executives and the chairperson of the BAC, thereby supporting the function's independence. Occupational health and safety The health and safety of all employees remains a priority. Training of health and safety officers and employee awareness is an ongoing endeavour. Group policies are being rolled out to all operations and the number of incidents being reported is reducing. Other risks Business risk Business risk is the risk of loss due to operating revenue not covering operating costs and is usually caused by the following: ■inflexible cost structures ■market-driven pressures, such as decreased demand, increased competition or cost increases ■group-specific causes, such as a poor choice of strategy, reputational damage or the decision to absorb costs or losses to preserve reputation. It includes strategic risk and post-retirement obligation risk. Business risk is governed by Exco which is ultimately responsible for managing the costs and revenues of the group. The group mitigates business risk in a number of ways: ■ Extensive due diligence during the investment appraisal process is performed, in particular for new acquisitions. ■New product processes per business line through which the risks and mitigating controls for new and amended products and services are tabled and discussed. ■Stakeholder management ensures favourable outcomes from external factors beyond the group's control. ■The profitability of product lines and customer segments is consistently monitored. ■Tight control is maintained over the group's cost base, including the management of its cost-to-income ratio. This allows for early intervention and management action to reduce costs where necessary. ■Being alert and responsive to changes in market forces. ■There is a strong focus in the budgeting process on achieving headline earnings growth while containing cost growth. In addition, contingency plans are built into the budget that allow for costs to be significantly reduced in the event that expected revenue generation does not materialise. ■The group continually aims to increase the ratio of variable costs to fixed costs, allowing for more flexibility to proactively reduce costs during economic downturn conditions. Strategic risk Strategic risk is the risk that the group's future business plans and strategies may be inadequate to prevent financial loss or protect the group's competitive position and shareholder returns. The group's business plans and strategies are discussed and debated by members of management and non-executive board members. Post-retirement obligation risk Post-retirement obligation risk is the risk to the group's earnings that arises from the requirement to contribute as an employer to an under-funded defined benefit plan. The risk arises due to either an increase in the estimated value of medical liabilities or a decline in the market value of the fund's assets or reduction in their investment returns. The group operates a defined contribution plan. The group maintains a number of defined benefit pension and medical aid provider schemes for past and certain current employees, collectively termed post-retirement obligations. Refer to note 34. Reputational risk Reputational risk results from damage to the group's image which may impair its ability to retain and generate business. Such damage may result in a breakdown of trust, confidence or business relationships. Safeguarding the group's reputation is of paramount importance. Each business line, legal entity or support function executive is responsible for identifying, assessing and determining all reputational risks that may arise within their respective areas of business. The impact of such risks is considered alongside financial or other impacts. Matters identified as a reputational risk to the group will be reported to the group head of governance and assurance who, if required, will escalate these matters to exco. Should a risk event occur, the group's crisis management processes are designed to minimise the reputational impact of the event. Crisis management teams are in place both at executive and business line level to ensure the effective management of any such events. This includes ensuring that the group's perspective is fairly represented in the media.#75146 ANNEXURE C - EMOLUMENTS OF DIRECTORS SBN HOLDINGS LIMITED Annual report 2022 147 Linking remuneration and strategic progress Remuneration policy summary People are at the heart of our business. To satisfy our clients, meet their needs and accelerate our strategy to achieve higher growth and efficiency, our people must be highly skilled, experienced and engaged. Our responsibility to them is to ensure that they have the resources and advanced capabilities needed to support our ambitions and are recognised and rewarded for their performance and the value they create for our stakeholders. The remuneration policy sets out our methodology, agreed by remco, to remunerate our employees and it ensures that value is appropriately shared among our shareholders, senior executives and employees. Key objectives guiding our remuneration policy 1 Measure and reward for value created for all stakeholders over the short, medium and long term. 2 Be competitive in the global marketplace for skill. 3 Reward our people fairly while avoiding a bonus-centric culture that distorts motivations and may encourage excessive and irresponsible risk-taking. Executive directors and prescribed officers' emoluments Basic salary Mrs M Geises¹ 2022 N$'000 2021 N$'000 Mr V Mungunda² 2022 N$'000 2021 N$'000 Mrs L du Plessis 2022 N$'000 2021 N$'000 2022 N$'000 Total 2021 N$'000 Cost to company package 3 918 2 574 1 818 2 209 2 124 6 127 6 516 1 815 1 135 1 293 1 753 1 682 3.568 4 110 Retirement contributions paid during the year 602 388 147 244 235 846 770 Other benefits and allowances 1 501 1 051 378 212 207 1 713 1 636 Short-term cash incentive 1 350 1 812 610 611 1960 2 423 Total reward (excluding conditional long-term incentive awards) 5 268 2 574 3 630 2 819 2 735 8 087 8 939 DBS vesting cash and notional dividends 1 115 871 1 880 329 311 1 444 3 062 Total reward (including conditional long-term incentive awards) 6 383 3 445 5 510 3 148 3 046 9 531 12 001 1 Mrs M Geises was appointed as chief executive on 1 May 2021. 2 Mr V Mungunda resigned as chief executive on 30 April 2021. Non-executive directors¹ Fixed remuneration Services as directors of SBN Holdings N$'000 SBN Holdings committee fees N$'000 Services as directors of subsidiaries N$'000 compensation for the year N$'000 Total 2022 474 258 732 4 Mr H Maier 2021 494 209 703 Promote and reward teamwork. 2022 220 380 142 742 Mrs B Rossouw 2021 247 362 138 747 2022 254 242 496 Mr IH Tjombonde 2021 247 276 523 2022 108 63 171 Mr JL Muadinohamba² 2021 247 153 400 2022 234 467 142 843 Adv N Bassingthwaighte 2021 230 362 138 730 2022 93 93 Ms S Hornung³ 2021 2022 Mrs MS Shivute Dax Total Total 2021 2022 2021 254 179 433 247 140 387 1 637 1 589 284 3 510 1 712 1 502 276 3 490 1 Mr P Schlebusch has not been included as he is remunerated by Standard Bank Group Limited. 2 Retired 22 April 2022. 3 Appointed 26 July 2022.#76148 ANNEXURE D - DETAILED ACCOUNTING POLICIES SBN HOLDINGS LIMITED Annual report 2022 149 The following are the significant accounting policies were applied in the preparation of the group and company financial statements. Basis of consolidation Subsidiaries Separate financial statements Consolidated financial statements 1. Basis of consolidation Subsidiaries Separate financial statements Common control transactions Foreign currency translations Group companies Transactions and balances Investments in subsidiaries are accounted for at cost less accumulated impairment losses (where applicable) in the separate financial statements. The carrying amounts of these investments are reviewed annually for impairment indicators and, where an indicator of impairment exists, are impaired to the higher of the investment's fair value less costs to sell or value in use. Consolidated financial statements The accounting policies of subsidiaries that are consolidated by the group conform to the group's accounting policies. Intragroup transactions, balances and unrealised gains/(losses) are eliminated on consolidation. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment. The proportion of comprehensive income and changes in equity allocated to the group and non-controlling interest are determined on the basis of the group's present ownership interest in the subsidiary. Subsidiaries are consolidated from the date on which the group acquires control up to the date that control is lost. Control is assessed on a continuous basis. For mutual funds the group further assesses its control by considering the existence of either voting rights or significant economic power. Туре Acquisitions Disposal of a subsidiary Partial disposal of a subsidiary Initial measurement of non-controlling interest Description The acquisition method of accounting is used to account for the acquisition of subsidiaries by the group. The consideration transferred is measured as the sum of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. The consideration includes any asset, liability or equity resulting from a contingent consideration arrangement. The obligation to pay contingent consideration is classified as either a liability or equity based on the terms of the arrangement. The right to a return of previously transferred consideration is classified as an asset. Transaction costs are recognised within profit or loss as and when they are incurred. Where the initial accounting is incomplete by the end of the reporting period in which the business combination occurs (but no later than 12 months since the acquisition date), the group reports provisional amounts. Where applicable, the group adjusts retrospectively the provisional amounts to reflect new information obtained about facts and circumstances that existed at the acquisition date and affected the measurement of the provisional amounts. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess (shortage) of the sum of the consideration transferred (including contingent consideration), the value of non- controlling interest recognised and the acquisition date fair value of any previously held equity interest in the subsidiary over the fair value of identifiable net assets acquired is recorded as goodwill in the statement of financial position (gain on bargain purchase, which is recognised directly in non-trading and capital related items). When a business combination occurs in stages, the previously held equity interest is remeasured to fair value at the acquisition date and any resulting gain or loss is recognised in non-trading and capital related items. Increases in the group's interest in a subsidiary, when the group already has control, are accounted for as transactions with equity holders of the group. The difference between the purchase consideration and the group's proportionate share of the subsidiary's additional net asset value acquired is accounted for directly in equity. A disposal arises where the group loses control of a subsidiary. When the group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between the fair value of the consideration received (including the fair value of any retained interest in the underlying investee) and the carrying amount of the assets and liabilities and any non-controlling interest. Any gains or losses in OCI that relate to the subsidiary are reclassified to profit or loss at the time of the disposal. On disposal of a subsidiary that includes a foreign operation, the relevant amount in the FCTR is reclassified to profit or loss at the time at which the profit or loss on disposal of the foreign operation is recognised. A partial disposal arises as a result of a reduction in the group's ownership interest in an investee that is not a disposal (i.e. a reduction in the group's interest in a subsidiary while retaining control). Decreases in the group's interest in a subsidiary, where the group retains control, are accounted for as transactions with equity holders of the group. Gains or losses on the partial disposal of the group's interest in a subsidiary are computed as the difference between the sales consideration and the group's proportionate share of the investee's net asset value disposed of and are accounted for directly in equity. On the partial disposal of a subsidiary that includes a foreign operation, a proportionate share of the balance of the FCTR is transferred to non-controlling interest. The group elects on each acquisition to initially measure non-controlling interest on the acquisition date at either fair value or at the non-controlling interest's proportionate share of the investees' identifiable net assets.#77ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 150 SBN HOLDINGS LIMITED Annual report 2022 151 1. Basis of consolidation continued 2. Common control transactions Common control transactions, in which the company is the ultimate parent entity both before and after the transaction, are accounted for at book value. Foreign currency translations Group companies The results and financial position of foreign operations that have a functional currency that is different from the group's presentation currency are translated into the group's presentation currency as follows: ■assets and liabilities (including goodwill, intangible assets and fair value adjustments arising on acquisition) are translated at the closing rate at the reporting date; ■ income and expenses are translated at average exchange rate; and ■ all resulting foreign exchange differences are accounted for directly in a separate component of OCI, being the group's FCTR. Transactions and balances Foreign currency transactions are translated into the respective group entities' functional currencies at exchange rates prevailing at the date of the transactions (in certain instances a rate that approximates the actual rate at the date of the transaction is utilised, for example an average rate for a month). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in profit or loss (except when recognised in OCI as part of qualifying cash flow hedges and net investment hedges). Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated using the exchange rate at the transaction date, and those measured at fair value are translated at the exchange rate at the date that the fair value was determined. Exchange rate differences on non-monetary items are accounted for based on the classification of the underlying items. Foreign exchange gains and losses on equities (debt) classified as fair value through OCI are recognised in the fair value through OCI reserve in OCI (trading revenue) whereas the exchange differences on equities (debt) that are classified as held at fair value through profit or loss are reported as part of other revenue (trading revenue). Foreign currency gains and losses on intragroup loans are recognised in profit or loss except where the settlement of the loan is neither planned nor likely to occur in the foreseeable future. In these cases the foreign currency gains and losses are recognised in the group's FCTR. Interest in joint ventures Joint ventures are initially measured at cost and subsequently accounted for using the equity method at an amount that reflects the group's share of the net assets of the joint venture (including goodwill). Equity accounting is applied from the date on which the entity becomes a joint venture up to the date on which the group ceases to have joint control. Equity accounting of losses is restricted to the interests in these entities, including unsecured receivables or other commitments, unless the group has an obligation or has made payments on behalf of the joint venture. Unrealised profits from transactions are eliminated in determining the group's share of equity accounted profits. Unrealised losses are eliminated in the same way as unrealised gains (but only to the extent that there is no evidence of impairment). Where there is an indicator of impairment the carrying amount of the investment is tested for impairment by comparing its recoverable amount with its carrying amount. Impairment losses are recognised through non-trading and capital related items. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, but only to the extent that the investment's carrying amount does not exceed the carrying amount that would have been determined, net of equity accounted losses, if no impairment loss had been recognised. For a disposal of a joint venture, being where the group loses joint control over a joint venture, the difference between the sales proceeds and any retained interest and the carrying value of the equity accounted investment is recognised as a gain or loss in non-trading and capital related items. Any gains or losses in OCI reserves that relate to the associate or joint venture are reclassified to non-trading and capital related items at the time of the disposal. The accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies of the group. Private equity and venture capital investments Private equity and venture capital investments, including mutual funds held by investment-linked insurance funds that are associates. These associates are either designated on initial recognition at fair value through profit or loss, or are equity accounted. 3. Financial instruments Initial measurement - financial instruments All financial instruments are measured initially at fair value plus directly attributable transaction costs and fees, except for those financial instruments that are subsequently measured at fair value through profit or loss where such transaction costs and fees are immediately recognised in profit or loss. Financial instruments are recognised (derecognised) on the date the group commits to purchase (sell) the instruments (trade date accounting). Financial instruments Financial assets Financial liabilities Financial guarantee contracts Derivatives Hedge accounting Other Amortised cost Held-for- trading Fair value through OCI Designated Held for trading Designated at fair value through profit or loss Fair value through profit or loss - default at fair value through profit or loss Amortised cost Fair value hedges Cash flow hedges Sale and repurchase agreements and lending of securities (including commodities) Hedge accounting Offsetting risk management strategy#78ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 152 SBN HOLDINGS LIMITED Annual report 2022 153 3. Financial instruments continued Financial assets Nature Amortised cost A debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss): ■Held within a business model whose objective is to hold the debt instrument (financial asset) in order to collect contractual cash flows; and Fair value through OCI Held for trading Designated at fair value through profit or loss Fair value through profit or loss-default ■The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are not considered de minimis and are inconsistent with a basic lending arrangement, the financial asset is classified as fair value through profit or loss - default. A debt instrument that meets both of the following conditions (other than those designated at fair value through profit or loss): ■Held within a business model in which the debt instrument (financial asset) is managed to both collect contractual cash flows and sell financial assets; and ■The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. This assessment includes determining the objective of holding the asset and whether the contractual cash flows are consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are not considered de minimis and are inconsistent with a basic lending arrangement, the financial asset is classified as fair value through profit or loss - default. Equity financial assets which are not held for trading and are irrevocably elected (on an instrument-by-instrument basis) to be presented at fair value through OCI. Financial assets acquired principally for the purpose of selling in the near term (including all derivative financial assets) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Included are commodities that are acquired principally for the purpose of selling in the near future or generating a profit from fluctuations in price or broker-trader margin. Financial assets are designated to be measured at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch that would otherwise arise. Financial assets that are not classified into one of the above mentioned financial asset categories. 3. Financial instruments continued Subsequent measurement Subsequent to initial measurement, financial assets are classified in their respective categories and measured at either amortised cost or fair value as follows: Amortised cost Fair value through OCI Held for trading Designated at fair value through profit or loss Fair value through profit or loss - default Amortised cost using the effective interest method with interest recognised in interest income, less any expected credit impairment losses which are recognised as part of credit impairment charges. Directly attributable transaction costs and fees received are capitalised and amortised through interest income as part of the effective interest rate. Debt instrument: Fair value, with gains and losses recognised directly in the fair value through OCI reserve. When a debt financial asset is disposed of, the cumulative fair value adjustments, previously recognised in OCI, are reclassified to the other gains and losses on financial instruments within non-interest revenue. Expected credit impairments losses are recognised as part of credit impairment charges. However, for these FVOCI debt instruments the expected credit loss is recognised in OCI and does not reduce the carrying amount of the financial asset in the statement of financial position. Interest income on a debt financial asset is recognised in interest income in terms of the effective interest rate method. Dividends received are recognised in interest income within profit or loss. Equity instrument: Fair value, with gains and losses recognised directly in the fair value through OCI reserve. When equity financial assets are disposed of, the cumulative fair value adjustments in OCI are reclassified within reserves to retained income. Dividends received on equity instruments are recognised in other revenue within non- interest income. Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue. Fair value gains and losses (including interest and dividends) on the financial asset recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue. Debt instruments: Fair value gains and losses (including interest and dividends) on the financial asset recognised in the income statement as part of other gains and losses on financial instruments within non-interest revenue. Equity instruments: Fair value gains and losses on the financial asset recognised in the income statement as part of other gains and losses on financial instruments. Dividends received on equity instruments are recognised in other revenue within non-interest revenue. Impairment ECLS are recognised on debt financial assets classified as at either amortised cost or fair value through OCI, financial guarantee contracts that are not designated at fair value through profit or loss as well as loan commitments that are neither measured at fair value through profit or loss nor are used to provide a loan at a below market interest rate. The measurement basis of the ECL of a financial asset includes assessing whether there has been a SICR at the reporting date which includes forward-looking information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. The measurement basis of the ECL, which is set out in the table that follows, is measured as the unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes, the time value of money and forward-looking information. Stage 1 Stage 2 Stage 3 (credit impaired assets) A 12-month ECL is calculated for financial assets which are neither credit-impaired on origination nor for which there has been a SICR. A lifetime ECL allowance is calculated for financial assets that are assessed to have displayed a SICR since origination and are not considered low credit risk. A lifetime ECL is calculated for financial assets that are assessed to be credit impaired. The following criteria are used in determining whether the financial asset is impaired: ■ default ■ significant financial difficulty of borrower and/or modification probability of bankruptcy or financial reorganisation ■ disappearance of an active market due to financial difficulties.#79ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 154 SBN HOLDINGS LIMITED Annual report 2022 155 3. Financial instruments continued Impairment continued The key components of the impairment methodology are described as follows: Significant increase in credit risk Low credit risk Default Forward-looking information Write-off At each reporting date the group assesses whether the credit risk of its exposures has increased significantly since initial recognition by considering the change in the risk of default occurring over the expected life of the financial asset. Credit risk of exposures which are overdue for more than 30 days are also considered to have increased significantly. Exposures are generally considered to have a low credit risk where there is a low risk of default, the exposure has a strong capacity to meet its contractual cash flow obligations and adverse changes in economic and business conditions may not necessarily reduce the exposure's ability to fulfil its contractual obligations. The group's definition of default has been aligned to its internal credit risk management definitions and approaches. A financial asset is considered to be in default when there is objective evidence of impairment. The following criteria are used in determining whether there is objective evidence of impairment for financial assets or groups of financial assets: ■ significant financial difficulty of borrower and/or modification (i.e. known cash flow difficulties experienced by the borrower) ■ a breach of contract, such as default or delinquency in interest and/or principal payments disappearance of active market due to financial difficulties ■■it becomes probable that the borrower will enter bankruptcy or other financial reorganisation ■where the group, for economic or legal reasons relating to the borrower's financial difficulty, grants the borrower a concession that the group would not otherwise consider. Exposures which are overdue for more than 90 days are also considered to be in default. Forward-looking information is incorporated into the group's impairment methodology calculations and in the group's assessment of SICR. The group includes all forward-looking information which is reasonable and available without undue cost or effort. The information will typically include expected macro-economic conditions and factors that are expected to impact portfolios or individual counterparty exposures. Financial assets are written off when there is no reasonable expectation of recovery. Financial assets which are written off may still be subject to enforcement activities. ECLS are recognised within the statement of financial position as follows: Financial assets measured at amortised cost (including loan commitments) Off-balance sheet exposures (excluding loan commitments) Financial assets measured at fair value through OCI Recognised as a deduction from the gross carrying amount of the asset (group of assets). Where the impairment allowance exceeds the gross carrying amount of the asset (group of assets), the excess is recognised as a provision within other liabilities. Recognised as a provision within other liabilities. Recognised in the fair value reserve within equity. The carrying value of the financial asset is recognised in the statement of financial position at fair value. Cash and balances with the central bank Cash and balances with the central bank comprise coins and bank notes and balances with BoN. Included in balances with central bank are balances that primarily comprise of reserving requirements held with the central bank which are readily convertible to a known amount of cash and available for use by the group and company within less than three months since initial deposit, subject to certain restrictions and limitations levied by the central bank, but are subject to an insignificant risk of changes in value. Coins and bank notes and balances with central banks comprising reserving requirements are measured at fair value through profit or loss-default. Cash and cash equivalents Cash and cash equivalents comprise of cash and balances with the central bank and on demand gross loans and advances to banks, which are readily convertible to a known amount of cash and available for use by the group and company within less than three months since initial deposit. The on demand gross loans and advances to banks are held to meet short-term cash commitments, rather than for investment purposes. 3. Financial instruments continued Reclassification Reclassifications of debt financial assets are permitted when, and only when, the group changes its business model or managing financial assets, in which case all affected financial assets are reclassified. Reclassifications are accounted for prospectively from the date of reclassification as follows: ■Financial assets that are reclassified from amortised cost to fair value are measured at fair value at the date of reclassification with any difference in measurement basis being recognised in other gains and losses on financial instruments ■The fair value of a financial asset that is reclassified from fair value to amortised cost becomes the financial asset's new carrying value ■Financial assets that are reclassified from amortised cost to fair value through OCI are measured at fair value at the date of reclassification with any difference in measurement basis being recognised in OCI ■The fair value of a financial asset that is reclassified from fair value through OCI to amortised cost becomes the financial asset's new carrying value with the cumulative fair value adjustment recognised in OCI being recognised against the new carrying value ■The carrying value of financial assets that are reclassified from fair value through profit or loss to fair value through OCI remains at fair value ■The carrying value of financial assets that are reclassified from fair value through OCI to fair value through profit or loss remains at fair value, with the cumulative fair value adjustment in OCI being recognised in the income statement at the date of reclassification. Financial liabilities Nature Held-for-trading Designated at fair value through profit or loss Amortised cost Subsequent measurement Those financial liabilities incurred principally for the purpose of repurchasing in the near term (including all derivative financial liabilities) and those that form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Financial liabilities are designated to be measured at fair value in the following instances: ■to eliminate or significantly reduce an accounting mismatch that would otherwise arise where the financial liabilities are managed and their performance evaluated and reported on a fair value basis ■ where the financial liability contains one or more embedded derivatives that significantly modify the financial liability's cash flows. All other financial liability's not included in the above categories. Subsequent to initial measurement, financial liabilities are classified in their respective categories and measured at either amortised cost or fair value as follows: Held-for-trading Designated at fair value through profit or loss Amortised cost Fair value, with gains and losses arising from changes in fair value (including interest and dividends) recognised in trading revenue. Fair value, with gains and losses arising from changes in fair value (including interest and dividends but excluding fair value gains and losses attributable to own credit risk) are recognised in the other gains and losses on financial instruments as part of non-interest revenue. Fair value gains and losses attributable to changes in own credit risk are recognised within OCI, unless this would create or enlarge an accounting mismatch in which case the own credit risk changes are recognised within trading revenue. Amortised cost using the effective interest method recognised in interest expense.#80ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 156 SBN HOLDINGS LIMITED 157 Annual report 2022 3. Financial instruments continued Derecognition and modification of financial assets and liabilities Financial assets and liabilities are derecognised in the following instances: Financial assets Financial liabilities DERECOGNITION Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets have expired, or where the group has transferred its contractual rights to receive cash flows on the financial asset such that it has transferred substantially all the risks and rewards of ownership of the financial asset. Any interest in the transferred financial assets that is created or retained by the group is recognised as a separate asset or liability. The group enters into transactions whereby it transfers assets, recognised in its statement of financial position, but retains either all or a portion of the risks or rewards of the transferred assets. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with the retention of all or substantially all risks and rewards include securities lending and repurchase agreements. When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction, similar to repurchase transactions. In transactions where the group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, the asset is derecognised if control over the asset is lost. The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. Financial liabilities are derecognised when the financial liabilities' obligation is extinguished, that is, when the obligation is discharged, cancelled or expires. Financial guarantee contracts MODIFICATION Where an existing financial asset or liability is replaced by another with the same counterparty on substantially different terms, or the terms of an existing financial asset or liability are substantially modified, such an exchange or modification is treated as a derecognition of the original asset or liability and the recognition of a new asset or liability at fair value, including calculating a new effective interest rate, with the difference in the respective carrying amounts being recognised in other gains and losses on financial instruments within non-interest revenue. The date of recognition of a new asset is consequently considered to be the date of initial recognition for impairment calculation purposes. If the terms are not substantially different for financial assets or financial liabilities, the group recalculates the new gross carrying amount by discounting the modified cash flows of the financial asset or financial liability using the original effective interest rate. The difference between the new gross carrying amount and the original gross carrying amount is recognised as a modification gain or loss within credit impairments (for distressed financial asset modifications) or in other gains and losses on financial instruments within non-interest revenue (for all other modifications). A financial guarantee contract is a contract that requires the group (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contracts are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee. Financial guarantee contracts (that are not designated at fair value through profit or loss) are subsequently measured at the higher of the: ■ECL calculated for the financial guarantee; or ■unamortised premium. Derivatives In the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange, interest rate, inflation, credit, commodity and equity exposures. Derivative instruments used by the group in both trading and hedging activities include swaps, options, forwards, futures and other similar types of instruments based on foreign exchange rates, credit risk, inflation risk, interest rates and the prices of commodities and equities. Derivatives are initially recognised at fair value. Derivatives that are not designated in a qualifying hedge accounting relationship are classified as held-for-trading with all changes in fair value being recognised within trading revenue. This includes forward contracts to purchase or sell commodities, where net settlement occurs or where physical delivery occurs and the commodities are held to settle another derivative contract. All derivative instruments are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The method of recognising fair value gains and losses on derivatives designated as a hedging instrument depends on the nature of the hedge relationship. 3. Financial instruments continued Hedge accounting The group applied IAS 39 for all micro (hedge relationships that minimise/manage the risk exposure of a single instrument) for the 2020 reporting period. The group has no macro hedges. As of 1 January 2021, the group applied IFRS 9 to all micro hedge relationships. Derivatives, whether accounted for under IAS 39 or IFRS 9, are designated by the group as follows: TYPE OF HEDGE Fair value hedges NATURE Hedges of the fair value of recognised financial assets, liabilities or firm commitments. Hedge accounting risk management strategy TREATMENT Where a hedging relationship is designated as a fair value hedge, the hedged item is adjusted for the change in fair value in respect of the risk being hedged. Gains or losses on the remeasurement of both the derivative and the hedged item are recognised in profit or loss. Fair value adjustments relating to the hedging instrument are allocated to the same line item in profit or loss as the related hedged item. Any hedge ineffectiveness is recognised immediately in profit or loss. If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for fair value hedge accounting, or the designation is revoked, then hedge accounting is discontinued. The adjustment to the carrying amount of a hedged item measured at amortised cost, for which the effective interest method is used, is amortised to profit or loss as part of the hedged item's recalculated effective interest rate over the period to maturity. Where all relevant criteria are met, derivatives are classified as derivatives held-for-hedging and hedge accounting is applied to remove the accounting mismatch between the derivative (hedging instrument) and the underlying instruments (hedged item). All qualifying hedging relationships are designated as either fair value, cash flow, or net investment hedges for recognised financial assets or liabilities, and highly probable forecast transactions. The group and company apply hedge accounting in respect of the following risk categories. Foreign currency risk The company operate internationally and are exposed to foreign exchange risk and translation risk. Foreign exchange risk arises from recognised assets and liabilities and future highly probable forecast commercial transactions denominated in a currency that is not the functional currency of the company. The risk is evaluated by measuring and monitoring the net foreign monetary asset value and the forecast highly probable foreign currency income and expenditures of the company for each respective currency. Foreign currency risk is hedged with the objective of minimising the earnings volatility associated with assets, liabilities, income and expenditure denominated in a foreign currency. ■Translation risk arises on consolidation from recognised assets and liabilities denominated in a currency that is not the reporting currency of the company. The risk is evaluated by measuring and monitoring the net foreign non-monetary asset value of the company for each respective currency. The group uses a combination of currency forwards, swaps and foreign denominated cash balances to mitigate against the risk of changes in the future cash flows and functional currency value on its foreign-denominated exposures. Under the company's policy, the critical terms of these instruments must align with the foreign currency risk of the hedged item and is hedged on a 1:1 hedge ratio. The elects for each foreign currency hedging relationship, using either foreign currency forwards and swaps, to include the currency forward points (basis) contained in the derivative instrument from the hedging relationship. Hedge effectiveness between the hedging instrument and the hedged item is determined at the inception of the hedge relationship and through periodic effectiveness assessments to ensure that an economic relationship exists. For hedges of foreign currency risk, the company enter hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the company use the hypothetical derivative method to assess effectiveness.#81158 3. ANNEXURE D - DETAILED ACCOUNTING POLICIES continued SBN HOLDINGS LIMITED Annual report 2022 159 Financial instruments continued Interest rate risk Banking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on banking book earnings (IRRBB) (net interest income and banking book mark-to-market profit or loss). The group and company's approach to managing IRRBB is governed by applicable regulations and is influenced by the competitive environment in which the group and company operate. The group and company's treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of group ALCO. The group and company's interest rate risk management is predominantly controlled by a central treasury department (group treasury) under approved policies. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the group's operating units. ALCO provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. In adherence to policies regarding interest rate risk management the group applies fair value hedge accounting in respect of the interest rate risk element only, present within the following exposures: ■Specifically identified long-term fixed interest rate loans and advances and deposits and debt funding and Subordinated debt. To manage the risk associated with such risk exposures the group uses one or more cash collateralised fix for floating interest rate swaps that matches the critical terms or that exhibits the same duration as the of the underlying risk exposure. ■ Specifically identified long-term interest rate basis risk (CPI vs. JIBAR) inherent in loans and advances. To manage the basis risk associated with such risk exposures the group uses one or more cash collateralised floating for floating basis interest rate swaps that matches the critical terms or that exhibits the same duration as the of the underlying risk exposure and ■ Portfolio interest rate risk present within a designated portfolio of loans and advances and deposits and debt funding. Portfolio interest rate risk hedging is conducted on an aggregate asset and liability portfolio basis. The hedge ratio and rebalancing frequency of portfolio hedges is determined using a dynamic approach reflecting the duration of portfolio exposure in accordance with a exposure bucketing approach. The group and company observe interest rate risk in respect of these exposures using an unfunded cash collateralised interest rate derivatives discount curve. Hedge effectiveness between the hedging instrument and the hedged item is determined at the inception of the hedge relationship and through periodic effectiveness assessments to ensure that an economic relationship exists using regression analysis between the hedged items and the hedging instruments for sensitivity of changes to changes in interest rate risk only. The group and company use a combination of interest rate swaps and interest rate basis swaps to mitigate against the risk of changes in market value of hedged items for changes in interest rates. The group elects for each fair value interest rate risk hedging relationship, using swaps, to include forward points (basis) contained in the derivative instrument in the hedging relationship. Where the basis is included in the hedging relationship this exposes the hedge relationship to hedge ineffectiveness. Other Sale and repurchase agreements and lending of securities (including commodities) Securities sold subject to linked repurchase agreements (repurchase agreements) are reclassified in the statement of financial position as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral. The liability to the counterparty is included under deposits and current accounts or trading liabilities, as appropriate. Securities purchased under agreements to resell (reverse repurchase agreements), at either a fixed price or the purchase price plus a lender's rate of return, are recorded as loans and included under trading assets or loans and advances, as appropriate. For repurchase and reverse repurchase agreements measured at amortised cost, the difference between the purchase and sales price is treated as interest and amortised over the expected life using the effective interest method. Securities lent to counterparties are retained in the annual financial statements. Securities borrowed are not recognised in the annual financial statements unless sold to third parties. In these cases, the obligation to return the securities borrowed is recorded at fair value as a trading liability. Income and expenses arising from the securities borrowing and lending business are recognised over the period of the transactions. Offsetting Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle the asset and the liability on a net basis, or to realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the counterparties to the transaction. 4. Fair value Fair value hierarchy Hierarchy levels Hierarchy transfer policy Inputs and valuation techniques Fair value Portfolio valuations Day one profit or loss Cost exception In terms of IFRS, the group is either required to or elects to measure a number of its financial assets and financial liabilities at fair value. Regardless of the measurement basis, the fair value is required to be disclosed, with some exceptions, for all financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market between market participants at the measurement date under current market conditions. Fair value is a market-based measurement and uses the assumptions that market participants would use when pricing an asset or liability under current market conditions. When determining fair value it is presumed that the entity is a going concern and is not an amount that represents a forced transaction, involuntary liquidation or a distressed sale. In estimating the fair value of an asset or a liability, the group takes into account the characteristics of the asset or liability that market participants would take into account when pricing the asset or liability at the measurement date. Fair value hierarchy The group's financial instruments that are both carried at fair value and for which fair value is disclosed are categorised by level of fair value hierarchy. The different levels are based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement. Hierarchy levels The levels have been defined as follows: Level 1 Fair value is based on quoted market prices (unadjusted) in active markets for an identical financial asset or liability. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 Fair value is determined through valuation techniques based on observable inputs, either directly, such as quoted prices, or indirectly, such as those derived from quoted 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 where all significant inputs are directly or indirectly observable from market data. Level 3 Fair value is determined through valuation techniques using significant unobservable inputs. This category includes all instruments where 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 where significant unobservable adjustments or assumptions are required to reflect differences between the instrument being valued and the similar instrument.#82ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 160 SBN HOLDINGS LIMITED Annual report 2022 4. Fair value continued Hierarchy transfer policy Transfers of financial assets and financial liabilities between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period. Inputs and valuation techniques Fair value is measured based on quoted market prices or dealer price quotations for identical assets and liabilities that are traded in active markets, which can be accessed at the measurement date, and where those quoted prices represent fair value. If the market for an asset or liability is not active or the instrument is not quoted in an active market, the fair value is determined using other applicable valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. These include the use of recent arm's length transactions, discounted cash flow analyses, pricing models and other valuation techniques commonly used by market participants. Fair value measurements are categorised into level 1, 2 or 3 within the fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement. Where discounted cash flow analyses are used, estimated future cash flows are based on management's best estimates and a market-related discount rate at the reporting date for an asset or liability with similar terms and conditions. If an asset or a liability measured at fair value has both a bid and an ask price, the price within the bid-ask spread that is most representative of fair value is used to measure fair value. The group's valuation control framework governs internal control standards, methodologies, and procedures over its valuation processes, which include the following valuation techniques and main inputs and assumptions per type of instrument: Item and description Derivative financial instruments Derivative financial instruments comprise foreign exchange, interest rate, commodity, credit and equity derivatives that are either held-for-trading or designated as hedging instruments in hedge relationships. Trading assets and trading liabilities Trading assets and liabilities comprise instruments which are part of the group's underlying trading activities. These instruments primarily include sovereign and corporate debt, commodities, collateral, collateralised lending agreements and equity securities. Pledged assets Pledged assets comprise instruments that may be sold or repledged by the group's counterparty in the absence of default by the group. Pledged assets include sovereign and corporate debt, equities, commodities pledged in terms of repurchase agreements and commodities that have been leased to third parties. Financial investments Financial investments are non-trading financial assets and primarily comprise of sovereign and corporate debt, listed and unlisted equity instruments, investments in debentures issued by BoN, investments in mutual fund investments and unit-linked investments. Valuation technique Standard derivative contracts are valued using market accepted models and quoted parameter inputs. More complex derivative contracts are modelled using more sophisticated modelling techniques applicable to the instrument. Techniques include: ■Discounted cash flow model. ■Black-Scholes model ■ combination technique models. Where there are no recent market transactions in the specific instrument, fair value is derived from the last available market price adjusted for changes in risks and information since that date. Where a proxy instrument is quoted in an active market, the fair value is determined by adjusting the proxy fair value for differences between the proxy instrument and the financial investment being fair valued. Where proxies are not available, the fair value is estimated using more complex modelling techniques. These techniques include discounted cash flow and Black- Scholes models using current market rates for credit, interest, liquidity, volatility and other risks. Combination techniques are used to value unlisted equity securities and include inputs such as earnings and dividend yields of the underlying entity. Main inputs and assumptions For level 2 and 3 fair value hierarchy items: discount rate* ■spot prices of the underlying ■correlation factors ■ volatilities ■dividend yields ■ earnings yield ■valuation multiples. 4. Fair value continued Inputs and valuation techniques continued * Item and description Loans and advances to banks and customers Loans and advances comprise: Loans and advances to banks: call loans, loans granted under resale agreements and balances held with other banks Loans and advances to customers: mortgage loans (home loans and commercial mortgages), other asset- based loans, including collateralised debt obligations (instalment sale and finance leases), and other secured and unsecured loans (card debtors, overdrafts, other demand lending, term lending and loans granted under resale agreements). Deposits and debt funding Deposits from banks and customers comprise amounts owed to banks and customers, deposits under repurchase agreements, negotiable certificates of deposit, credit-linked deposits and other deposits. Third-party financial liabilities arising on the consolidation of mutual funds (included in other liabilities) These are liabilities that arise on the consolidation of mutual funds. Valuation technique For certain loans fair value may be determined from the market price of a recently occurring transaction adjusted for changes in risks and information between the transaction and valuation dates. Loans and advances are reviewed for observed and verified changes in credit risk and the credit spread is adjusted at subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. In the absence of an observable market for these instruments, discounted cash flow models are used to determine fair value. Discounted cash flow models incorporate parameter inputs for interest rate risk, foreign exchange risk, liquidity and credit risk, as appropriate. For credit risk, probability of default and loss given default parameters are determined using credit default swaps (CDS) markets, where available and appropriate, as well as the relevant terms of the loan and loan counterparty such as the industry classification and subordination of the loan. For certain deposits, fair value may be determined from the market price on a recently occurring transaction adjusted for all changes in risks and information between the transaction and valuation dates. In the absence of an observable market for these instruments, discounted cash flow models are used to determine fair value based on the contractual cash flows related to the instrument. The fair value measurement incorporates all market risk factors, including a measure of the group's credit risk relevant for that financial liability. The market risk parameters are valued consistently to similar instruments held as assets stated in the section above. The credit risk of the reference asset in the embedded CDS in credit-linked deposits is incorporated into the fair value of all credit-linked deposits that are designated to be measured at fair value through profit or loss. For collateralised deposits that are designated to be measured at fair value through profit or loss, such as securities repurchase agreements, the credit enhancement is incorporated into the fair valuation of the liability. The fair values of third-party financial liabilities arising on the consolidation of mutual funds are determined using the quoted put (exit) price provided by the fund manager and discounted for the applicable notice period. The fair value of a financial liability with a demand feature is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. Main inputs and assumptions For level 2 and 3 fair value hierarchy items: ■discount rate* For level 2 and 3 fair value hierarchy items: ■discount rate* For level 2 and 3 fair value hierarchy items: ■discount rate* Discount rates, where applicable, include the risk-free rate, risk premiums, liquidity spreads, credit risk (own and counterparty as appropriate), timing of settlement, storage/service costs, prepayment and surrender risk assumptions and recovery rates/LGD. 11 161#83ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 162 4. Fair value continued Portfolio valuations The group has elected the portfolio exception to measure the fair value of certain groups of financial assets and financial liabilities. This exception permits the group of financial assets and financial liabilities to be measured at fair value on a net basis, with the net fair value being allocated to the financial assets and financial liabilities. Day one profit or loss For financial instruments, where the fair value of the financial instrument differs from the transaction price, the difference is commonly referred to as day one profit or loss. Day one profit or loss is recognised in profit or loss immediately where the fair value of the financial instrument is either evidenced by comparison with other observable current market transactions in the same instrument, or is determined using valuation models with only observable market data as inputs. Day one profit or loss is deferred where the fair value of the financial instrument is not able to be evidenced by comparison with other observable current market transactions in the same instrument, or is determined using valuation models that utilise non-observable market data as inputs. The timing of the recognition of deferred day one profit or loss is determined individually depending on the nature of the instrument and availability of market observable inputs. It is either amortised over the life of the transaction, deferred until the instrument's fair value can be determined using market observable inputs, or realised through settlement. 5. Employee benefits Employee benefits Defined contribution plans Defined benefit plans Employee benefits Short-term benefits SBN HOLDINGS LIMITED Annual report 2022 Type and description Defined contribution plans The group operates a number of defined contribution plans. See note 34 for more information. Defined benefit plans The group operates a number of defined benefit retirement and post-employment medical aid plans. Employer companies contribute to the cost of benefits taking account of the recommendations of the actuaries. See note 34 for more information. Short-term benefits Short-term benefits consist of salaries, accumulated leave payments, profit share, bonuses and any non-monetary benefits such as medical aid contributions. Statement of financial position Accruals are recognised for unpaid contributions. Assets or liabilities measured at the present value of the estimated future cash outflows, using interest rates of government bonds denominated in the same currency as the defined benefit plan (corporate bonds are used for currencies for which there is a deep market of high- quality corporate bonds), with maturity dates that approximate the expected maturity of the obligations, less the fair value of plan assets. A net defined benefit asset is only recognised to the extent that economic benefits are available to the group from reductions in future contributions or future refunds from the plan. A liability is recognised for the amount expected to be paid under short- term cash bonus plans or accumulated leave if the group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Statement of other comprehensive income No direct impact. Remeasurements of the net defined benefit obligation, including actuarial gains and losses, the return on plan assets (excluding interest calculated) and the effect of any asset ceiling are recognised within OCI. No direct impact. Income statement Contributions are recognised as an operating expense in the periods during which services are rendered by the employees. Net interest income/ (expense) is determined on the defined benefit asset/(liability) by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined. benefit asset/(liability). Other expenses related to the defined benefit plans are also recognised in operating expenses. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in operating expenses. The group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed in operating expenses as the related service is provided. 163#84164 ANNEXURE D - DETAILED ACCOUNTING POLICIES continued SBN HOLDINGS LIMITED Annual report 2022 165 6. Non-financial assets Non-financial assets Tangible assets Intangible assets Investment property Property Goodwill Equipment in-force policyholder Land Type and initial and subsequent measurement Tangible assets (property, equipment and land) Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Land is measured at cost less accumulative impairment losses. Costs that are subsequently incurred are included in the asset's related carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the group and the cost of the item can be measured reliably. Expenditure, which does not meet these criteria, is recognised in operating expenses as incurred. Where significant parts of an item of property or equipment have different useful lives, they are accounted for as separate major components of property and equipment. Present value of acquired contracts with discretionary participation features Other intangible assets Useful lives, depreciation or amortisation method or fair value basis Property and equipment are depreciated on the straight-line basis over estimated useful lives (see below) of the assets to their residual values. Land is not depreciated. Buildings IT equipment Motor vehicles Office equipment Furniture 40 years 3-5 years 4-5 years 5-10 years 5-13 years Leased assets Shorter of useful life or lease term The residual values, useful lives and the depreciation method applied are reviewed, and adjusted if appropriate, at each financial year end. Impairment These assets are reviewed for impairment at each reporting date and tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in non-trading and capital related items for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is determined as the higher of an asset's fair value less costs to sell and value in use. Fair value less costs to sell is determined by ascertaining the current market value of an asset and deducting any costs related to the realisation of the asset. In assessing value in use, the estimated future cash flows are 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. For the purposes of assessing impairment, assets that cannot be tested individually are grouped at the lowest cash generating units (CGUS). Impairment losses recognised in respect of CGUS are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. The carrying amount of these other assets may, however, not be reduced below the higher of the CGU's fair value less costs to sell and its value in use. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed through non- trading and capital related items 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. 6. Non-financial assets continued Type and initial and subsequent measurement Goodwill Goodwill represents the excess of the consideration transferred and the acquisition date fair value of any previously held equity interest over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary, associate or joint venture at the date of the acquisition. The group's interest in acquired subsidiaries takes into account any non- controlling interest. Goodwill arising on the acquisition of subsidiaries (associates or joint ventures) is reported in the statement of financial position as part of 'Goodwill and other intangible assets' ('Interest in associates and joint ventures'). Computer software Costs associated with developing or maintaining computer software programmes and the acquisition of software licences are generally recognised as an expense as incurred. However, direct computer software development costs that are clearly associated with an identifiable and unique system, which will be controlled by the group and have a probable future economic benefit beyond one year, are recognised as intangible assets. Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses from the date that the assets are available for use. Expenditure subsequently incurred on computer software is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. Other intangible assets The group recognises the costs incurred on internally generated intangible assets such as brands, customer lists, customer contracts and similar rights and assets, in operating expenses as incurred. The group capitalises brands, customer lists, customer contracts, distribution forces and similar rights acquired in business combinations. Capitalised intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses. Derecognition Useful lives, depreciation or amortisation method or fair value basis Not applicable Amortisation is recognised in operating expenses on a straight line basis at rates appropriate to the expected lives of the assets (two to 15 years) from the date that the asset is available for use. Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted, if necessary Amortisation is recognised in operating expenses on a straight-line basis over the estimated useful lives of the intangible assets, not exceeding 20 years, from the date that the asset is available for use. Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted, if necessary. Impairment The accounting treatment is generally the same as that for tangible assets except as noted below. Goodwill is tested annually for impairment and additionally when an indicator of impairment exists. An impairment loss in respect of goodwill is not reversed. Intangible assets that have an indefinite useful life are tested annually for impairment and additionally when an indicator of impairment exists. The accounting treatment for impairments and reversals of impairments for computer software and other intangible assets is otherwise the same as for tangible assets. Non-financial assets are derecognised on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss on derecognition is recognised in profit or loss and is determined as the difference between the net disposal proceeds and the carrying amount of the non-financial asset.#85166 ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 7. Property developments and properties in possession 9. Leases - lessee accounting policies Property developments and properties in possession Leases 8. Property developments Properties in possession Finance leases Operating leases SBN HOLDINGS LIMITED Annual report 2022 167 Property developments Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification and includes the cost of acquisition and where applicable, development and borrowing costs during development. Properties in possession Properties in possession are properties acquired by the group which were previously held as collateral for underlying lending arrangements that, subsequent to origination, have defaulted. The properties are initially recognised at cost and are subsequently measured at the lower of cost and its net realisable value. Any subsequent write-down in the value of the acquired properties is recognised as an operating expense. Any subsequent increases in the net realisable value, to the extent that it does not exceed its original cost, are also recognised within operating expenses. Equity-linked transactions Equity compensation plans Equity-settled share-based payments Cash-settled share-based payments Equity-settled share-based payments The fair value of the equity-settled share-based payments are determined on grant date and accounted for within operating expenses (staff costs) over the vesting period with a corresponding increase in the group's share-based payment reserve. Non- market vesting conditions, such as the resignation of employees and retrenchment of staff, are not considered in the valuation but are included in the estimate of the number of options expected to vest. At each reporting date, the estimate of the number of options expected to vest is reassessed and adjusted against operating expenses and share-based payment reserve over the remaining vesting period. On vesting of the equity-settled share-based payments, amounts previously credited to the share-based payment reserve are transferred to retained earnings through an equity transfer. On exercise of the equity-settled share-based payment, any proceeds received are credited to share capital and premium. Cash-settled share-based payments Cash-settled share-based payments are accounted for as liabilities at fair value until the date of settlement. The liability is recognised over the vesting period and is revalued at every reporting date up to and including the date of settlement. All changes in the fair value of the liability are recognised in operating expenses. Lessee Lessor Statement of financial position Type and description Lessee accounting policies Single lessee accounting model All leases are accounted for by recognising a right-of- use asset and a lease liability except for: ■leases of low value assets; and ■leases with a duration of twelve months or less. Lease liabilities: Lessee Lessor Initially measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate implicit in the lease unless (as is typically the case for the group) this is not readily determinable, in which case the group's incremental borrowing rate on commencement of the lease is used. The group's internal funding rate is the base on which the incremental borrowing rate is calculated. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: ■Amounts expected to be payable under any residual value guarantee; ■The exercise price of any purchase option granted in favour of the group, should it be reasonably certain that this option will be exercised; ■ Any penalties payable for terminating the lease, should the term of the lease be estimated on the basis of this termination option being exercised. Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets: Initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: ■lease payments made at or before commencement of the lease; ■initial direct costs incurred; and ■the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset. The group applies the cost model subsequent to the initial measurement of the right-of-use assets. Termination of leases: When the group or lessor terminates or cancels a lease, the right-of-use asset and lease liability are derecognised. Income statement Interest expense on lease liabilities: A lease finance cost, determined with reference to the interest rate implicit in the lease or the group's incremental borrowing rate, is recognised within interest expense over the lease period. Depreciation on right-of-use assets: Subsequent to initial measurement, the right of use assets are depreciated on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset should this term be shorter than the lease term unless ownership of the underlying asset transfers to the group at the end of the lease term, whereby the right- of-use assets are depreciated on a straight- line basis over the remaining economic life of the asset. This depreciation is recognised as part of operating expenses. Termination of leases: On derecognition of the right-of-use asset and lease liability, any difference is recognised as a derecognition gain or loss in profit or loss.#86ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 168 9. SBN HOLDINGS LIMITED 169 Annual report 2022 Leases - lessee accounting policies continued Type and description Statement of financial position Lessee accounting policies continued All leases that meet the criteria as either a lease of a low value asset or a short- term lease are accounted for on a straight-line basis over the lease term. Reassessment and modification of leases Separating components of a lease contract Accruals for unpaid lease charges, together with a straight- line lease asset or liability, being the difference between actual payments and the straight-line lease expense are recognised. Income statement Payments made under these leases, net of any incentives received from the lessor, are recognised in operating expenses on a straight-line basis over the term of the lease. When these leases are terminated before the lease period has expired, any payment required to be made to the lessor by way of a penalty is recognised as operating expenses in the period in which termination takes place. Reassessment of lease terms and lease modifications that are not accounted for as a separate lease: When the group reassesses the terms of any lease (i.e. it re-assesses the probability of exercising an extension or termination option) or modifies the terms of a lease without increasing the scope of the lease or where the increased scope is not commensurate with the stand-alone price, it adjusts the carrying amount of the lease liability to reflect the payments to be made over the revised term, which are discounted at the applicable rate at the date of reassessment or modification. The carrying amount of lease liability is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. For reassessments to the lease terms, an equivalent adjustment is made to the carrying amount of the right-of-use asset, with the revised carrying amount being depreciated over the revised lease term. However, if the carrying amount of the right of use asset is reduced to zero any further reduction in the measurement of the lease liability is recognised in profit or loss. For lease modifications that are not accounted for as a separate lease, an equivalent adjustment is made to the carrying amount of the right-of-use asset, with the revised carrying amount being depreciated over the revised lease term. However, for lease modifications that decrease the scope of the lease the carrying amount of the right-of-use asset is decreased to reflect the partial or full termination of the lease, with any resulting difference being recognised in profit or loss as a gain or loss relating to the partial or full termination of the lease. Lease modifications that are accounted for as a separate lease: When the group modifies the terms of a lease resulting in an increase in scope and the consideration for the lease increases by an amount commensurate with a stand-alone price for the increase in scope, the group accounts for these modifications as a separate new lease. This accounting treatment equally applies to leases which the group elected the short- term lease exemption and the lease term is subsequently modified. The group has elected to apply the practical expedient to not separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. The practical expedient is applied to each class of underlying asset. 9. Leases Type and description lessee accounting policies continued Statement of financial position Lessee accounting policies continued Finance leases Leases, where the group transfers substantially all the risk and rewards incidental to ownership, are classified as finance leases Operating leases All leases that do not meet the criteria of a financial lease are classified as operating leases. Finance lease receivable, including initial direct costs and fees, are primarily accounted for as financing transaction in backing activities, with rentals and instalments receivable, less unearned finance charges, being included in loans and advances. The asset underlying the lease continues to be recognised and accounted for in terms of the relevant group accounting policies. Accruals for outstanding lease charges, together with a straight- line lease asset or liability, being the difference between actual payments and the straight-line lease income are recognised. Lessor lease modifications Finance leases Operating leases Income statement Finance charges earned within interest income are computed using the effective interest method, which reflects a constant periodic rate of return on the investment in the finance lease. The tax benefits arising from investment allowances on assets leased to clients are accounted for within direct taxation. Operating lease income net of any incentives given to lessees, is recognised on the straight-line basis, or a more representative basis where applicable, over the lease term and is recognised in operating income. When an operating lease is terminated before the lease period has expired, any payment received/ (paid) by the group by way of a penalty is recognised as income/(expense) in the period in which termination takes place. When the group modifies the terms of a lease resulting in an increase in scope and the consideration for the lease increases by an amount commensurate with a stand-alone price for the increase in scope, the group accounts for these modifications as a separate new lease. All other lease modifications that are not accounted for as a separate lease are accounted for in terms of IFRS 9, unless the classification of the lease would have been accounted for as an operating lease had the modification been in effect at inception of the lease. These lease modifications are accounted for as a separate new lease from the effective date of the modification and the net investment in the lease becomes the carrying amount of the underlying asset. Modifications are accounted for as a new lease from the effective date of the modification.#87170 ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 10. Equity Reacquired equity instruments Equity Black economic empowerment ownership initiative (Tutuwa) Portfolio valuations Day one profit or loss Share issue costs Incremental external costs directly attributable to a transaction that increases or decreases equity are deducted from equity, net of related tax. All other share issue costs are expensed. Dividends Distributions are recognised in equity in the period in which they are declared. Distributions declared after the reporting date are disclosed in the distributions note to the annual financial statements. 11. SBN HOLDINGS LIMITED Annual report 2022 171 Provisions, contingent assets and contingent liabilities Provisions, contingent assets and contingent liabilities Provisions Provisions for legal claims Provision for restructuring Provision for onerous contracts Contingent assets Contingent liabilities Provisions Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability. The group's provisions typically (when applicable) include the following: Provisions for legal claims Provisions for legal claims are recognised on a prudent basis for the estimated cost for all legal claims that have not been settled or reached conclusion at the reporting date. In determining the provision management considers the probability and likely settlement (if any). Reimbursements of expenditure to settle the provision are recognised when and only when it is virtually certain that the reimbursement will be received. Provision for onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the group recognises any impairment loss on the assets associated with that contract. Contingent assets Contingent assets are not recognised in the annual financial statements but are disclosed when, as a result of past events, it is probable that economic benefits will flow to the group, but this will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the group's control. Contingent liabilities Contingent liabilities include certain guarantees (other than financial guarantees) and letters of credit and are not recognised in the annual financial statements but are disclosed in the notes to the annual financial statements unless they are considered remote.#88172 12. ANNEXURE D - DETAILED ACCOUNTING POLICIES continued Taxation Туре Direct taxation: normal tax Direct taxation: deferred tax Indirect taxation Description, recognition and measurement Normal tax is recognised in the direct taxation line in the income statement except to the extent that it relates to a business combination (relating to a measurement period adjustment where the carrying amount of the goodwill is greater than zero), or items recognised directly in equity or in OCI. Normal tax represents the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Deferred tax is recognised in direct taxation except to the extent that it relates to a business combination (relating to a measurement period adjustment where the carrying amount of the goodwill is greater than zero), or items recognised directly in equity or in OCI. Deferred tax is recognised in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill; ■the initial recognition of assets and liabilities in a transaction that is not a business combination, which affects neither accounting nor taxable profits or losses; and ■investments in subsidiaries, associates and jointly controlled arrangements (excluding mutual funds) where the group controls the timing of the reversal of temporary differences and it is probable that these differences will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of the asset or liability and is not discounted. Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally, the group is unable to control the reversal of the temporary difference for associates unless there is an agreement in place that gives the group the ability to control the reversal of the temporary difference. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. Indirect taxes, including non-recoverable value-added tax (VAT), skills development levies and other duties for banking activities, are recognised in the indirect taxation line in the income statement. Offsetting Normal and deferred tax assets and liabilities are offset if there is a legally enforceable right to offset normal tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle normal tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Not applicable 13. SBN HOLDINGS LIMITED Annual report 2022 Revenue and expenditure Description Net interest income Net fee and commission revenue Trading revenue Customer loyalty programmes Dividend income Other gains/ losses on financial instruments Other revenue Recognition and measurement Interest income and expense (with the exception of borrowing costs that are capitalised on qualifying assets, that is assets that necessarily take a substantial period of time to get ready for their intended use or sale and which are not measured at fair value) are recognised in net interest income using the effective interest method for all interest-bearing financial instruments. In terms of the effective interest method, interest is recognised at a rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. Direct incremental transaction costs incurred and origination fees received, including loan commitment fees, as a result of bringing margin-yielding assets or liabilities into the statement of financial position, are capitalised to the carrying amount of financial instruments that are not at fair value through profit or loss and amortised as interest income or expense over the life of the asset or liability as part of the effective interest rate. Where the estimates of payments or receipts on financial assets or financial liabilities are subsequently revised, the carrying amount of the financial asset or financial liability is adjusted to reflect actual and revised estimated cash flows. The carrying amount is calculated by computing the present value of the adjusted cash flows at the financial asset or financial liability's original effective interest rate. Any adjustment to the carrying value is recognised in net interest income. When a financial asset is classified as stage 3 impaired, interest income is calculated on the impaired value (gross carrying amount less specific impairment) based on the original effective interest rate. The contractual interest income on the gross exposure is suspended and is only credit impairments when the financial asset is reclassified out of stage 3. Dividends received on preference share investments classified as debt form part of the group's lending activities and are included in interest income. Fee and commission revenue, including accounting transaction fees, card-based commission, documentation and administration fees, electronic banking fees, foreign currency service fees, custody fees, trustees and executors' fees, arrangement fees, guarantee fees and agent's commission are recognised as the related services are performed. Loan commitment fees for loans that are not expected to be drawn down are recognised on a straight-line basis over the commitment period. Loan syndication fees, where the group does not participate in the syndication or participates at the same effective interest rate for comparable risk as other participants, are recognised as revenue when the syndication has been completed. Syndication fees that do not meet these criteria are capitalised as origination fees and amortised to the income statement as interest income. The fair value of issued financial guarantee contracts on initial recognition is amortised as income over the term of the contract. Fee and commission expenses, included in net fee and commission revenue, are mainly transaction and service fees relating to financial instruments, which are expensed as the services are received. Expenditure is presented as fee and commission expenses where the expenditure is linked to the production of fee and commission revenue. Trading revenue comprises all gains and losses from changes in the fair value of trading assets and liabilities, together with related interest income, expense and dividends. The group's banking activities operate a customer loyalty programme in terms of which it undertakes to provide goods and services to certain customers. The reward credits are accounted for as a separately identifiable component of the fee and commission income transactions of which they form a part. The consideration allocated to the reward credits is measured at the fair value of the reward credit and is recognised over the period in which the customer utilises the reward credits. Expenses relating to the provision of the reward credits are recognised in fee and commission expenses as and when they are incurred. Dividends are recognised in interest income (other revenue) for debt (equity instruments) when the right to receipt is established. Scrip dividends are recognised as dividends received where the dividend declaration allows for a cash alternative. Includes: ■Fair value gains and losses on financial assets that are classified at fair value through profit or loss (designated and default) ■The gain or loss on the derecognition of a debt financial asset classified as at fair value through OCI ■Gains and losses arising from the derecognition of financial assets and financial liabilities classified as at amortised cost ■Gains and losses arising from the reclassification of a financial asset from amortised cost to fair value ■ Gains and losses arising from the modification of a financial asset (which is not distressed) and financial liability as at amortised cost. ■Fair value gains and losses on designated financial liabilities Other revenue comprises of revenue that is not included in any of the categories mentioned above. This could include dividends on equity financial assets, underwriting profit from the group's short-term insurance operations and related insurance activities and re-measurement gains and losses from contingent consideration on disposals and purchases. Offsetting Income and expenses are presented on a net basis only when permitted by IFRS, or for gains and losses arising from a group of similar transactions. 173#89ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 174 SBN HOLDINGS LIMITED Annual report 2022 14. 15. Other significant accounting policies Segment reporting An operating segment is a component of the group engaged in business activities, whose operating results are reviewed regularly by management in order to make decisions about resources to be allocated to segments and assessing segment performance. The group's identification of segments and the measurement of segment results is based on the group's internal reporting to the chief operating decision maker. Fiduciary activities The group commonly engages in trust or other fiduciary activities that result in the holding or placing of assets on behalf of individuals, trusts, post- employment benefit plans and other institutions. These assets and the income arising directly thereon are excluded from these annual financial statements as they are not assets of the group. However, fee income earned and fee expenses incurred by the group relating to the group's responsibilities from fiduciary activities are recognised in profit or loss. Statutory credit risk reserve The statutory credit risk reserve represents the amount which BoN requires in addition to the IFRS impairment provision. Changes in this reserve are accounted for as transfers to and from retained earnings as appropriate. Non-trading and capital related items Non-trading and capital related items primarily include the following: ■gains and losses on disposal of subsidiaries, joint ventures and associates (including foreign exchange translation gains and losses) ■ gains and losses on the disposal of property and equipment and intangible assets ■ Impairment and reversals of impairments of joint ventures and associates ■impairment of investments in subsidiaries, property and equipment, and intangible assets ■ other items of a capital related nature. New standards and interpretations not yet adopted The following new standards, and amendments are not yet effective for the year ended 31 December 2022 and have not been applied in preparing these annual financial statements. Title: IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (amendments) Effective date: deferred the effective date for these amendments indefinitely The amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be applied prospectively and are not expected to have a material impact on the group's financial statements. Title: IFRS 17 Insurance Contracts Effective date: 1 January 2023 Background IFRS 4 Insurance Contracts (IFRS 4), the existing standard dealing with the accounting treatment for insurance contracts will be replaced by IFRS 17 for the group's 2023 financial year (with comparative information restated as required by the standard). IFRS 17 provides the basis of measurement for defined insurance contracts, including investment contracts with discretionary participation features. The difference between IFRS 4 (existing measurement standard) and IFRS 17 carrying values (including any related tax impacts) will be recognised in opening retained earnings on 1 January 2022. The main principle that IFRS 17 adopts is to recognise revenue (and profit or loss) over the duration of the applicable policyholder contracts that best reflects the delivery of contracted obligations in the specific reporting period. IFRS 17 also distinguishes the sources of income splitting between insurance services and financing activities. As such, the standard does not allow for profit to emerge on "day one", being the initial recognition of the contract but does require contracted losses (onerous contracts) to be recognised immediately to the extent onerous. These revenue recognition principles are aligned to IFRS 15 Revenue from Contracts with Customers. Under IFRS 17, a general measurement model (GMM) is applicable to long-term insurance contracts and is based on a fulfilment objective (risk-adjusted present value of probability-weighted estimates of future cash flows). It requires the use of current estimates, which are those informed by actual trends and investment markets. IFRS 17 establishes a contractual service margin (CSM) at the initial measurement of the liability. The CSM represents the unearned profit on the contract and results in no gain at initial recognition. The CSM is released over the life of the contract in line with the level of service provided in each period. The interest rate used to discount cash flows and determine the initial CSM is locked in at the rate at inception in regard to future CSM movements. All other probability-weighted estimates of cash flows contained in the measurement of insurance assets or liabilities are however measured at current values. The GMM is modified for contracts that are substantially investment-related contracts, in which case the variable fee measurement approach (VFA) is used to measure the contract. This approach effectively amortises the future participation in changes in investment values over the remaining life of the contract. An optional simplified premium allocation approach (PAA) is available for contracts that have a coverage period of 12 months or less, or if it is reasonably expected that the PAA would produce a measurement of the liability for remaining coverage (LRC) that would not materially differ from the one produced applying the GMM. The PAA is similar to the current unearned premium reserve profile recognised over time. Title: IFRS 17 Insurance Contracts continued Effective date: 1 January 2023 continued Quantitative impact Management has developed a better understanding of the transition statement of financial position to be presented as at 1 January 2022, although this is still a work in progress and subject to certain assumptions and estimates being finalised. The impact of IFRS 17 can only be reliably determined on the date of transition of IFRS 17. This impact is primarily dependent on the finalisation of the group's methodologies, assumptions and estimates, conclusion of audit procedures by the group's external auditors as well as the group's internal reviews and validations. Transition approaches The standard requires retrospective application of IFRS 17 prior to the transition date, which is 1 January 2022, unless it is impracticable to do so. If it is impracticable, an entity can choose either between the modified retrospective or a fair value approach to measure the initial IFRS 17 balances on the transition date. The group intends to use a combination of all three transition approaches (namely, full retrospective, modified retrospective, and fair value) depending on the historical data (including assumptions, methodologies and particularly, availability of risk adjustment data for certain years prior to the adoption of IFRS 17) that is available per the IFRS 17 defined groups IFRS 9 Financial Instruments The group applied IFRS 9 for years commencing 1 January 2018. At this stage, there is no expected change to previously applied classification and designation of financial assets that back policyholder liabilities as a result of IFRS 17. Tax implications Within Namibia, no specific tax legislation has been announced or introduced relating to the introduction of the IFRS17 accounting statement. Current tax principles will apply. Regulatory capital/capital implications At this stage, IFRS 17 should not impact any aspect of the regulatory capital assessment. Title: IAS 1 Presentation of Financial Statements (amendments) Effective date: 1 January 2024 The first amendment clarifies how to classify debt and other liabilities as current or non-current. The objective of the amendment is aimed to promote consistency in applying the requirements by helping entities determine whether, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendment also includes clarifying the classification requirements for debt an entity might settle by converting it into equity. These are clarifications, not changes, to the existing requirements, and so are not expected to affect entities' financial statements significantly. The impact on the annual financial statements has not yet been fully determined, however not expected to have a significant impact on the group. The second amendment to IAS 1 requires a company to classify debt as non-current only if the company can avoid settling the debt in the 12 months after the reporting date. However, a company's ability to do so is often subject to complying with covenants. For example, a company might have long-term debt that could become repayable within 12 months if the company fails to comply with covenants in that 12-month period. The amendments specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. Instead, the amendments require a company to disclose information about these covenants in the notes to the financial statements and the aim of the amendments therefore is to improve the information companies provide about long-term debt with covenants. The amendments will be applied retrospectively and are not expected to have a material impact on the group's financial statements. Title: IFRS 16 Leases (narrow scope amendments) Effective date: 1 January 2024 The amendments add to requirements explaining how a company accounts for a sale and leaseback after the date of the transaction. IFRS 16 had not previously specified how to measure the transaction when reporting after that date. The amendments add to the sale and leaseback requirements in IFRS 16, thereby supporting the consistent application of the standard. These amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction. The amendments will be applied retrospectively and are not expected to have a material impact on the group's financial statements. 175#90176 NOTICE OF ANNUAL GENERAL MEETING SBN HOLDINGS LIMITED Annual report 2022 177 SBN Holdings Limited (Incorporation in the Republic of Namibia) (Registration number 206/306) ISIN: NAOO0A2PQ3N5 Share Code (NSX): SNO SBN Holdings or the Company Notice is hereby given to all holders of ordinary shares of SBN Holdings Limited (the Company) that the Annual General Meeting of the shareholders of the Company will be held at the Standard Bank Campus, 1 Chasie Street on 24 April 2023 at 08h30 (CAT) for the following business: 1. Ordinary Resolution 1: Approval of minutes of previous Annual General Meeting RESOLVED THAT the minutes of the previous Annual General Meeting be, and hereby are, approved. 9. Ordinary Resolution 9: Approval of non-executive director's remuneration RESOLVED THAT the decision of the board of directors at the 3 March 2023 board meeting to increase board fees of independent non-executive directors by 5%, be approved. SBN Holdings Limited & Standard Bank Namibia Limited Members Chairperson SBN Holdings Limited & Standard Bank Namibia Limited Retainer Members No of meetings per annum Proposed 2023 annual fee (5%) Calculated fee per meeting 5% 4 72 610.80 18 152.70 4 145 226.20 36 306.55 2. Ordinary Resolution 2: Adoption of Annual Financial Statements RESOLVED THAT the Annual Financial Statements for the year ended 31 December 2022 be adopted. 3. Ordinary Resolution 3: Approval of final dividend declared 4. 4.1 RESOLVED THAT the final dividend declared on 22 March 2023 of 46 cents per ordinary share be, and hereby is, approved. Ordinary Resolution 4: Resignation and Retirement from Board of Directors Ms. M Dax (independent non-executive director) having reached the age limit of 70 (seventy) years as prescribed per the provisions of the Determination on the Appointment, Duties and Responsibilities of Directors, Principal Officers and Executive Officers of Banking Institutions and Controlling Companies (BID-1) that came into operation on 16 December 2022, retires from the board of directors effective 24 April 2023. 4.2 4.3 Ms. L. du Plessis has lodged her notice of resignation as Chief Financial Officer and Executive Director of SBN Holdings Limited and Standard Bank Namibia Limited. Ms du Plessis' resignation from the Board of Directors would be effective 24 April 2023. In terms of the Company's Articles of Association, the following directors retire from the Company: Herbert Maier (independent non-executive director) (Board Chairperson) Chairperson Board Audit Committee Members Chairperson Board Risk Committee Member Chairperson Board Directors Affairs Committee Member Chairperson Board Credit Committee Member Chairperson Board IT Committee Member Chairperson 4.3.1 4.3.2 Ms. Natasha Bassingthwaighte (independent non-executive director) 4.3.3 Ms. Birgit Rossouw (independent non-executive director) In terms of the Board succession plan of the Company, which is aligned to the principles of good corporate governance as enunciated in documents such as NamCode and King IV and regulatory prescript as contained in BID 1 referred to in 4.1 above, these directors do not offer themselves up for re-election, their retirement from the board of directors is effective 24 April 2023. Ordinary Resolution 5: Ratification of new director To ratify the appointment of the following non-executive directors of the Company who were appointed by the Board of Directors and approved by the Regulator effective 15 December 2022 and 10 March 2023 respectively and are now recommended by the Board for election by shareholders: 5. 5.1 5.1.1 Ms. Suné Brugman 5.1.2 Ms. Nangosora Ashley Tjipitua Biographical information of the directors concerned is set out on page 42 of the Annual Report. 10. 4 88 278.76 22 069.67 4 176 348.40 44 087.10 4 122 358.12 30 589.53 4 150 818.32 37 704.58 4 30 589.53 30 589.53 4 37 704.58 37 704.58 4 30 589.53 30 589.53 4 37 704.58 37 704.58 4 30 589.53 30 589.53 4 37 704.58 37 704.58 4 30 589.53 30 589.53 4 37 704.58 37 704.58 Board Social Economic and Environmental Committee Member 2 61 179.06 30 589.53 Chairperson 2 75 409.16 37 704.58 Stanfin (Namibia) (Proprietary) Limited Member Chairperson 4 30 589.53 30 589.53 4 37 704.58 37 704.58 Standard Insurance Brokers (Namibia) (Proprietary) Limited Member Chairperson 4 30 589.53 30 589.53 4 37 704.58 37 704.58 Ordinary Resolution 10: Approval of existing remuneration policy RESOLVED THAT the existing remuneration policy remain in force, that no changes are proposed to the current policy and shareholders ratify the current remuneration policy. Ordinary Resolution 11: Appointment of Audit Committee members 11. 6. Ordinary Resolution 6: Control of ordinary shares Incentive Scheme SBN Employee Share 11.1 RESOLVED THAT the following independent non-executive directors be appointed as members of the Audit Committee: Ms. Silke Hornung (Chairperson) RESOLVED THAT all the ordinary shares required for the purpose of carrying out the terms of the SBN Employee Share Incentive Scheme ("the scheme") be, and hereby are, specifically placed under the control of the trustees of the scheme, who are hereby authorised and shall have the power to allot and issue those shares as they become required for the purpose of carrying out and giving effect to the terms of the scheme. 11.2 Ms. Nangosora Ashley Tjipitua 11.3 Ms. Suné Brugman 12. 7. 8. Ordinary Resolution 7: Control of unissued shares RESOLVED THAT all the authorised but unissued shares in the capital of the Company be, and hereby are, placed under the control of the directors who are hereby authorised to allot or issue shares on such terms and conditions as they deem fit, subject to the provisions of the Banking Institution Act 2 of 1998, Companies Act 28 of 2004 ("the Act"), the Articles of the Company and the Listings Requirements of the Namibia Stock Exchange ("NSX"), which provide, inter alia, that: ■Such issue of shares shall not in the aggregate exceed 10% of the Company's shares in issue; and ■The resolution for the issue of shares must be approved by a 75% majority vote cast in favour of such resolution. Ordinary Resolution 8: Re-appointment of external auditors and authority to determine their remuneration RESOLVED THAT PricewaterhouseCoopers Inc. be reappointed as auditors of the Company and authorise the directors to determine the remuneration of the auditors. Ordinary Resolution 12: Delegation of Authority RESOLVED THAT any one of the directors and/or the Group Company Secretary be and are authorised to do all such things, sign all such documents, procure the doing of all such things and the signatures of all such documents as may be necessary or incidental to give effect to all the resolutions proposed and passed at which meetings this resolution is proposed.#91NOTICE OF ANNUAL GENERAL MEETING continued 178 FORM OF PROXY SBN HOLDINGS LIMITED Annual report 2022 Kindly note that voting will be by proxy only. The exact process is set out in full in the Annual General Meeting notice published on our website www.standardbank.com.na. Proxy forms can also be obtained from the website. Our annual report and our Environmental, Social and Governance (ESG) report is available on the website for your information. You are more than welcome to pose any questions in relation to the matters under discussion at the Annual General Meeting. These questions will be responded to individually and a consolidated version will be placed on our website within two weeks of the meeting. All holders of SBN Holdings shares will be entitled to vote by proxy prior to the Annual General Meeting. Voters are required to submit their votes by proxy to the Transfer Secretaries of the Company, who will submit their votes at the Annual General Meeting on their behalf. The holders of ordinary shares will each be entitled to one vote for every ordinary share held. Questions: Any questions on the financial performance of the Company during the period under review can be addressed to the Transfer Secretaries who will provide a written response to the person who raised the question. Proof of Identification Required: Kindly note that meeting participants (including proxies) are required to submit reasonably satisfactory proof of identification when submitting their votes to the Transfer Secretaries. Forms of identification include valid identity documents and passports. Proxies: The Form of Proxy for the Annual General Meeting, which sets out the relevant instructions for its completion, accompanies this notice. In order to be effective, duly completed Forms of Proxy must be submitted to the Transfer Secretaries of the Company by no later than 15h00 (CAT) on Tuesday, 18 April 2023. By order of the board of SBN Holdings Limited Sigrid Tjijorokisa Group Company Secretary 22 March 2023 For completion by the registered ordinary shareholders who hold ordinary shares of the Company for their vote in respect of the items to be tabled for approval at the 2023 Annual General Meeting of the Company to be held at the Standard Bank Head Office, 1 Chasie Street on 24 April 2023 at 08h30 (CAT). I/We Holder number being the holder(s) of Contact ordinary shares in the Company do hereby appoint: (Name in full) as my/our proxy to act for me/us at the Annual General Meeting (as the case may be) which will be held for the purpose of considering and, if deemed fit passing, with or without modification, the resolutions to be proposed thereat and at each adjournment thereof, and to vote on such resolutions in respect of the shares in the issued capital of the Company registered in my/our name/s in accordance with the following instructions (see note): Ordinary Resolutions For* Against* Abstain* Ordinary Resolution 1: Approval of minutes of previous Annual General Meeting Ordinary Resolution 2: Adoption of Annual Financial Statements for 31 December 2022 Ordinary Resolution 3: Approval of final dividend declared Ms. Maria Dax (independent non-executive director) having reached the age limit of 70 (seventy) years as prescribed per the provisions of the (BID-1) that came into operation on 16 December 2022, has tendered her notice to retire and is therefore, not eligible for re-election. Ms Dax retires from the board of directors effective 24 April 2023. 4.2 Ordinary Resolution 4: Noting of Resignation and Retirement from Board of Directors 4.1 4.3 Transfer Secretaries (Pty) Ltd 44 Robert Mugabe Avenue (Entrance in Burg Street), Windhoek. Namibia Tel +264 61 227647, e-mail [email protected]. Sponsor IJG Securities (Pty) Ltd Member of the NSX 4th Floor, 1@Steps c/o Grove and Chasie Street Kleine Kuppe PO Box 186, Windhoek, Namibia Registration No. 95/505 IJG Securities (Pty) Ltd. Member of the NS Ms. Letitiea du Plessis has lodged her notice of resignation as Chief Financial Officer and Executive Director from SBN Holdings Limited and Standard Bank Namibia Limited. Ms du Plessis' resignation from the Board of Directors would be effective 24 April 2023. In terms of the Company's Articles of Association, the following directors retire from the Company. In terms of the Board succession plan of the Company, which is aligned to the principles of good corporate governance as enunciated in documents such as NamCode and King IV and regulatory prescript as contained in BID 1 referred to in 4.1 above, these directors do not offer themselves up for re-election, their retirement from the board of directors is effective 24 April 2023: 4.3.1 4.3.2 4.3.3 Mr. Herbert Maier (independent non-executive director) (Board Chairperson) Ms. Natasha Bassingthwaighte (independent non-executive director) Ms. Birgit Rossouw (independent non-executive director) Ordinary Resolution 5:Ratification of new director 5.1 To ratify the appointment of the following non-executive directors of the Company who were appointed by the Board of Directors and approved by the Regulator effective 15 December 2022 and 10 March 2023 respectively and are now recommended by the Board for election by shareholders: 5.1.1 5.1.2 Ms. Suné Brugman Ms. Nangosora Ashley Tjipitua Ordinary Resolution 6: Control of ordinary shares - SBN Employee Share Incentive Ordinary Resolution 7: Control of unissued shares Ordinary Resolution 8: Re-appointment of external auditors and authority to determine their remuneration Ordinary Resolution 9: Approval of non-executive directors' remuneration Ordinary Resolution 10: Approval of the existing remuneration policy Ordinary Resolution 11: Re-appointment of Audit Committee members 11.1 Ms. Silke Hornung (Chairperson) 11.2 Ms. Nangosora Ashley Tjipitua 11.3 Ms. Suné Brugman Ordinary Resolution 12: Delegation of Authority Insert an X in the appropriate space above to indicate how you wish your vote to be cast. However, if you wish to cast your vote in respect of less than all of the shares that you own in the Company, insert the number of ordinary shares held in respect of which you desire to vote. Signed at Assisted by me (where applicable) Signature this day of 2023. 179#92FORM OF PROXY continued 180 NOTES SHAREHOLDER ANALYSIS Shareholder analysis 1. 2. 3. 4. 5. 6. Please insert an "X" in the relevant spaces according to how you wish to cast your votes. However, if you wish to cast your vote in respect of a lesser number of shares than you own in the Company, insert the number of ordinary shares held in respect of which you wish to vote. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit in respect of the shareholders votes exercisable thereat. A shareholder or his/ her proxy is not obligated to use all the votes exercisable by the shareholder or by the proxy, but the total of the votes cast and in respect whereof abstention is recorded may not exceed the total of the votes exercisable by the shareholder or by the proxy. Forms of proxy must be received at the Company's Transfer Secretaries (Proprietary) Limited, 44 Robert Mugabe Avenue (entrance on Berg Street) Windhoek, (PO Box 2401) Windhoek, Namibia by not later than 15:00 (CAT) on Tuesday, 18 April 2023. Alternatively forms of proxy may be send to the Company's Transfer Secretaries by way of e-mail to [email protected] provided that such e-mails are received by the Transfer Secretaries by no later than 15:00 (CAT) on Tuesday, 18 April 2023. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the Company's Transfer Secretaries or waived by the chairperson of the Annual General Meeting Any alteration or correction made to this form of proxy must be initiated by the signatory/ies. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the Transfer Secretaries of the Company. The chairperson of the Annual General Meeting may reject or accept a form of proxy which is completed and/or received, other than in accordance with these notes, if the chairperson is satisfied as to the manner in which shareholder wishes to vote. Spread of ordinary shareholders ('000) Public Non-public Directors and prescribed offices of SBN Holdings Limited and its subsidiaries Purros Investments (Proprietary) Limited Standard Bank Group Limited Total 7. A proxy may not delegate his/her authority to any other person. SBN HOLDINGS LIMITED Annual report 2022 1811 2022 2021 Number of shares ('000) Number of shares % holding ('000) % holding 86 315 16.5 86 315 16.5 436 157 83.5 436 157 83.5 606 0.1 606 0.1 44 220 391 331 8.5 44 220 8.5 74.9 391 331 74.9 522 472 100.0 522 472 100.0#93182 NOTES Contact and other details SBN Holdings Limited Registration number: 2006/306 Country of incorporation: Republic of Namibia Head office switchboard +26 461 294 2000 Registered address Standard Bank Campus No 1 Chasie Street, Kleine Kuppe, Windhoek Postal address PO Box 3327, Windhoek, Namibia Chief financial officer Letitea du Plessis Tel: +26 461 294 2237 Head: Legal and Governance S Tjijorokisa Tel: +26 461 294 2036 report queries and comments to: Please direct all annual [email protected] Please direct all customer- related queries and comments to: Please direct all investor relations queries and comments to: [email protected] [email protected] Disclaimer This document contains certain statements that are 'forward-looking' with respect to certain of the group's plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as "may", "could", "will", "expect", "intend", "estimate", "anticipate", "aim", "outlook", "believe", "plan", "seek", "predict" or similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group's control, including but not limited to, domestic and global economic conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group's actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The forward-looking statements in this document are not reviewed and reported on by the group's external assurance providers. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon. www.standardbank.com.na