SBN HOLDINGS LIMITED Annual Report 2022

ACCOUNTING 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