Annual Financial Statements 2020

84 - ANNEXURE C RISK AND CAPITAL MANAGEMENT STANDARD BANK NAMIBIA LIMITED Annual financial statements 2020 85 2020 N$'000 2019 N$'000 593 230 593 230 2 626 265 2 347 325 3 219 495 2 940 555 (512 647) (318 289) (271 073) (180 741) (176 774) (89 989) (64 800) (47 559) 2 706 848 2 622 266 80 000 100 000 361 868 558 680 274 618 234 696 716 486 893 376 3 423 334 3 515 642 Including unappropriated Excluding unappropriated profits profits % Target ratio % 2020 % 2019 % 2020 % 2019 % Overview Capital management The company's capital management function is designed to ensure that regulatory requirements are met at all times and that the company and its principal subsidiaries are capitalised in line with the company'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 company's budget and forecasting process. The capital plan is tested under a range of stress scenarios as part of the company's annual ICAAP and recovery plan. The capital management function is governed primarily by management level subcommittees that oversee the risks associated with capital management, namely the asset and liability committee (ALCO) and one of its subcommittees, the capital management committee. The principal governance documents are the capital management governance framework and the model risk governance framework. Risk management The company'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 company's approach to managing risk and capital is set out in the company's risk, compliance and capital management (RCCM) governance framework approved by the risk management committee and ALCO. Covid-19 The group's results for the twelve months ended 31 December 2020 reflect the very difficult operating environment. Covid-19 placed considerable strain on our retail, business and corporate clients, particularly in South Africa. The group's strong capital position, going into the crisis, enabled us to respond quickly and significantly. Risk management is a cornerstone of the group's response to the Covid-19 crisis, enabling fast, targeted and responsible support of our clients, at the same time protecting our people while preserving the group's financial position. Prior years' focus on transitioning the company to a digital platform, made it possible to quickly respond to the pandemic. The company implemented a pandemic response plan early March 2020 with its primary objective being the prevention of the spread of the virus in the country, communities and within the bank. The plan was based on four key pillars - employees, clients, facilities and shareholders - preservation being of utmost importance. Some of the immediate actions therefore included the establishment of a Covid-19 steering committee; the suspension of physical meetings in favour of virtual meetings; the suspension of international business travel; the implementation of Covid-19 related safety measures at the company's premises; and the implementation of a work-from-home policy. In line with the company's commitment to its employees, the majority of employees were permitted to transition between working from the office premises and working from home interchangeably throughout 2020. The company further enhanced its employee support programme through the provision of employee support packages and ongoing executive engagement sessions with all employees. The company also recognised the need for support to vulnerable communities that were least prepared and hardest hit by the first wave of the pandemic and the company donated water tanks and food packages, amongst other essential supplies. An extensive facilities programme was rolled out, which included a decontamination protocol in the event of any confirmed cases on the company's premises, and the provision of sanitisers to the public making use of the company's facilities such as ATMs and point-of-sale devices. These measures remain in place and are aimed at reassuring employees, clients and the public using the facilities that their health and safety continue to remain the company's foremost priority. The company has performed more frequent risk appetite, product parameter, industry and client reviews, to ensure that the group remains its clients' financial services partner of choice throughout this unfolding pandemic. Client relief programmes comprised of assisting clients with temporary liquidity constraints as a result of the impact of Covid-19, in the form of covenant relaxations and payment holidays. These relief programmes resulted in no change in the present value of the estimated future cash flows resulting in no economic gain or loss (i.e. no net modification gain or loss) refer to note 6.3 for further detail in this regard. Capital management The company 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 Banks 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 Ill rules divided by total RWA. Perpetual non-cumulative preference shares that comply with Basel I and Basel II rules are included in tier I capital but are currently subject to regulatory phase-out requirements over a 10-year period, which commenced on 1 January 2013. 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. Subordinated debt that complies with Basel I and Basel II rules is included in total capital but is currently subject to regulatory phase-out requirements, over a 10-year period, which commenced on 1 January 2013. BASEL III REGULATORY CAPITAL (UNAUDITED) Tier 1 Ordinary share capital and premium Ordinary shareholders' reserves Less: regulatory adjustments Intangible assets Deferred tax asset Defined benefit pension fund assets and liabilities Common equity tier 1 capital Tier II Subordinated debt Current unappropriated profits General allowance for credit impairments Total eligible capital (including unappropriated profits) CAPITAL ADEQUACY RATIOS (UNAUDITED) Bank Total capital adequacy ratio Tier I capital adequacy ratio Tier I leverage ratio Minimum regulatory requirement BASEL III RISK-WEIGHTED ASSETS (UNAUDITED) Credit risk Market risk Operational risk Total risk-weighted assets 10 11 12 13.53 14.06 7 7.7 8.2 12.13 12.72 6 6.6 7.2 8.95 7.82 13.53 10.70 7.89 14.06 10.49 6.45 2020 N$'000 21 969 420 468 351 2019 N$'000 21 552 357 413 719 3 036 583 2 868 295 25 306 066 25 002 659