Annual Financial Statements 2020

36 ANNUAL FINANCIAL STATEMENTS KEY MANAGEMENT ASSUMPTIONS CONTINUED Consolidation of entities These financial statements are the separate financial statements of Standard Bank Namibia. The company is exempted from the preparation of consolidated financial statements as the company is a wholly-owned subsidiary of SBN Holdings Limited, a Namibia-incorporated company which produces consolidated financial statements available for public use. Computer software intangible assets The company reviews its assets under construction and assets brought into use for impairment at each reporting date and tests the carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount (or components of the carrying amount) may not be recoverable. These circumstances include, but are not limited to, new technological developments, obsolescence, changes in the manner in which the software is used or is expected to be used, changes in discount rates, significant changes in macroeconomic circumstances or changes in estimates of related future cash benefits. The impairment tests are performed by comparing an asset's recoverable amount to its carrying amount. The recoverable amount is determined as the higher of an asset's fair value less cost of disposal and its value in use. The value in use is calculated by estimating future cash benefits that will result from each asset and discounting those cash benefits at an appropriate discount rate. The review and testing of assets for impairment inherently requires significant management judgement as it requires management to derive the estimates of the identified assets' future cash flows in order to derive the asset's recoverable amount. Current and deferred tax The company are subject to direct and indirect taxation requirements which are determined with reference to transactions and calculations for which the ultimate tax determination has an element of uncertainty in the ordinary course of business. The company recognise provisions for tax based on objective estimates of the amount of taxes that may be due. Where the final tax determination is different from the amounts that were initially recorded, such differences will impact the income tax expense and deferred tax provisions, disclosed in note 33 and note 14, respectively, in the period in which such determination is made. Uncertain tax positions are provided for in accordance with the criteria defined within IAS 12 Income Taxes and IFRIC 23. 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. The most significant management assumption is the forecasts that are used to support the probability assessment that sufficient taxable profits will be generated by the company in order to utilise the deferred tax assets. Provisions The principal assumptions taken into account in determining the value at which provisions are recorded, include determining whether there is an obligation, as well as assumptions about the probability of the outflow of resources and the estimate of the amount and timing for the settlement of the obligation. For legal provisions, management assesses the probability of the outflow of resources by taking into account historical data and the status of the claim in consultation with the company's legal counsel. In determining the amount and timing of the obligation once it has been assessed to exist, management exercises its judgement by taking into account all available information, including that arising after the reporting date up to the date of the approval of the financial results. Refer to note 17 for provisions and other liabilities disclosures. Post-employment benefits The company's post-employment benefits consist of both post-employment retirement funds and healthcare benefits. The 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 company's independent actuaries at intervals of not more than three years. The principal assumptions used in the determination of the company's obligation are set out in note 35. NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1. Cash and balances with the central bank 2. Coins and bank notes Balances with the Bank of Namibia¹.2 STANDARD BANK NAMIBIA LIMITED Annual financial statements 2020 37 2020 N$'000 2019 N$'000 456 542 405 897 618 441 1 055 832 1 024 338 1 512 374 Total 1 These balances primarily comprise reserving requirements levied by the BoN. These balances are available for use by the company subject to restrictions and limitations imposed by the BoN. 2 Coins and bank notes and the reserve balance with the BoN are classified as FVTPL while temporary excess balance with the BoN is classifie amortised cost. Derivative instruments All derivatives are classified as derivatives held-for-trading. A summary of the fair values of the derivative assets and derivative liabilities is as follows: Fair value of assets Fair value of liabilities 2020 N$'000 2019 N$'000 2020 N$'000 2019 N$'000 Held-for-trading Held-for-hedging 366 163 6 125 Total 372 288 145 793 4 117 149 910 (362 123) (142 511) (362 123) (142 511) 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 company enters into a variety of foreign exchange and interest rate derivative transactions for trading and hedging purposes. Derivative instruments used by the company in trading activities include swaps and other similar types of instruments. Derivatives held-for-trading The company 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 take proprietary positions for its own account. Trading derivative products include the following: Fair value of assets 2020 N$'000 2019 N$'000 Fair value of liabilities 2020 N$'000 2019 N$'000 Notional amount¹ 2020 N$'000 2019¹ N$'000 Foreign exchange derivatives 355 536 Interest rate derivatives² 10 627 Total 366 163 140 281 5 512 145 793 (362 123) (136 964) (5 547) 369 918 (79 256) 650 739 147 693 (362 123) (142 511) 290 662 798 432 1 The notional amount is the sum of the absolute value of all bought and sold contracts for both derivative assets and liabilities. The used to assess the market risk associated with the positions held and should be used only as a means of assessing the company's participation in derivative contracts. 2 This line has been updated for comparatives to include the notional amount for 2019. amount