Annual Report 2017 - novinsight.com · 6 2017 ANNUALREPORT BRIEF PROFILE 100% Arise B.V. 45.59% Industrial Development Corporation (IDC) 25% LuSE Free Float 16% NAPSA 10% LIZARA Investments

Annual Report 2017

A partner for growth

2007-2017 2018 & beyond

2017 ANNUALR EPORT 3

• Official opening of the Zanaco Water Falls Branch

2017 ANNUALR EPORT4

CONTENTS

2017 events in photos

Brief Profile

Financial Highlights

Board of Directors

Executive Management

Chairperson’s Report

Managing Director’s Report

Directors’ Report

Statement of Corporate Governance

Corporate Social Responsibility

Statement of Responsibility for Financial Statements

Independent Auditor’s Report

Financial Statements

5

6

7

8-9

10

12-13

14-15

16-17

18-33

34-35

36

37-40

41-96

2017 ANNUALR EPORT

1 . National Economic & Business Conference.2. Bank here launch at Pamodzi Hotel.3. Sales & service bootcamp session.4. Financial Literacy week exhibition.5. Zanaco participating in the Bankers build.6. Hand over of water system to primary school at Muwaya.7. Donation to Levy Mwanawasa Hospital.8. Zanaco Xpress Road Show.

5

EVENTS IN PHOTOS

1 2

3 4 5

7 86

2017 ANNUALR EPORT6

BRIEF PROFILE

100%

Arise B.V. 45.59%

Industrial Development Corporation (IDC) 25%

LuSE Free Float 16%

NAPSA 10%

LIZARA Investments Limited 3.41%(As Nominees of Zambia National Farmers Union (ZNFU)

45.59%

25%

16%

10%

3.41%

HistoryZambia National Commercial Bank (Zanaco) Plc was established in 1969 to service the financial needs of the Zambian economy and it has since evolved into a leading Bank nationwide. In 2007, the Government of the Republic of Zambia (GRZ) sold a 49% stake in the Bank to Rabo Development B.V. a subsidiary of the Cooperatieve Centrale Raiffeisen-Boerenleen Bank (Rabobank) of the Netherlands. Subsequently, Rabo Development sold a 3.41% stake to Lizara Investments Limited, a nominee of the Zambia National Farmers Union (ZNFU), following the Bank’s Initial Public Offering in 2008.

In 2016 the Government of the Republic of Zambia (GRZ) transfered its 25% shareholding to Industrial Development Corporation (IDC). The Industrial Development Corporation is a State Owned Enterprise (SOE) charged with the mandate to spearhead the Government’s commercial investments agenda aimed at strengthening Zambia’s Industrial base and job creation.

On 30th June 2017, Rabo Development B.V. transferred its 45.59% shareholding to Arise B.V. Arise B.V. is a leading African Investment company backed by three reputable cornerstone investors namely Norfund, Rabobank and the Dutch Development Bank (FMO).

The Bank remains majority-owned by Zambians and is thus considered “citizen owned”. The relationship with Arise B.V. enables Zanaco to benefit from technical assistance and best practices in various areas of banking.

Our CustomersIn our quest to meet customer expectations, Zanaco’s strategic focus has been centred around improved service delivery. Guided by the Bank’s Vision, Mission and Values, the Bank is determined and commi¦ed to ensuring that it not only meets the expectations of its over 1 million customers who cut across the Personal, Corporate, Government, SME and Agriculture sectors, but exceeds them.

Innovation and sustainability for the Bank means doing things be¦er and smarter, driven by the needs of the Bank’s customers; it means making eïcient use of the Bank’s resources and empowering the customer with financial services and products that help them a¦ain their goals and aspirations. Our PeopleThe Bank’s members of staff are its number one resource. The Bank is proud of its 1,228 dedicated, inspired and motivated staff who drive its agenda. Zanaco is the largest employer in the Zambian banking sector.

To ensure the Bank maximises output and get the best out of its employees, the Bank invests in training and ensures it takes good care of their wellbeing.

Ownership StructureThe current ownership structure of Zanaco is as follows:


FINANCIAL HIGHLIGHTS

15.2%K918m

Net Interest Income

Total Operating Income

Net Loans and Advances

Customer Deposits

Total Assets

Shareholders’ Funds

K’000 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000

K’000 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000

K’000 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000

K’000 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000

K’000 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000

K’000 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000

18.7%K1,437m

1.1%K3,223m

19.2%K7,455m

19.3%K9,543m

17.58%K1,024m

2013201420152016

2016*

2017Restated

2013201420152016

2016*

2017Restated

2013201420152016

2016*

2017Restated

2013201420152016

2016*

2017Restated

2013201420152016

2016*

2017Restated

2013201420152016

2016*

2017Restated

2017 ANNUALR EPORT8

BOARD OF DIRECTORSMs Lumpa is an accomplished executive with over 32 years working experience in the insurance, banking, tourism and telecommunications industries. Ms Lumpa retired from active employment in 2015 and has previously held the positions of Managing Director of the then Zambia National Tourism Board, Ecobank Zambia Limited and Airtel Networks Zambia Plc. To her achievements is having successfully set up Ecobank Zambia Limited as a greenfield project in 2008 and became its founding Managing Director.

She is also the Chairperson of the SOS Children’s Villages Zambia and serves as a Director on the boards of Air Namibia (and is the Chairperson of the Audit Commi�ee), Livingstone International University of Tourism Excellence and Business Management and on the government appointed project board of the Women’s Bank Zambia Limited. Ms Lumpa also serves as an investment panellist of the Malawi Innovation Challenge fund, an impact investment fund of DFID, IFAD and UNDP in Malawi.

Ms Lumpa holds a Masters Degree in Business Administration (Finance), a Bachelors of Art Degree in Public Administration and a postgraduate Diploma in Marketing Management.

Mr. Mtine has a career spanning over 40 years as a Chartered Accountant. He is currently serving as the Managing Partner of MPH Chartered Accountants having previously served as Senior Partner of KPMG for 15 years until 2011. He serves on a number of Boards which include Mopani and Kwacha Pension Trust Fund where he is the Chairperson. He also serves on the Audit Commi�ee of Zambeef Plc.

Mr Mtine has been a Fellow of ACCA and ZICA since 1989. Additionally he holds a Bachelor of Laws Degree from University of Zambia (UNZA).

He received several awards in the accountancy profession including Life time achievement and Presidents Award from ZICA, Member Advocate of the year, lead winner for ACCA in recognition of his contribution to the development of the Accounting profession in Zambia.

Mr Mtine is actively involved with various institutions focusing on SME activities.

Ms ‘t Lam is currently the Chief Financial and Risk O�icer (CFRO) of Arise and executive member on the Arise board of Directors. She has experience in corporate and retail banking, corporate strategy, credit and risk management. Ms. ‘t Lam works in the financial industry since 2003. Ms ‘t Lam held various positions in Rabobank and Rabobank International. She was Vice President Renewable Energy and Infrastructure financing Europe and Asia. She served as strategic advisor to the Executive Board of Rabobank Group. She was also an Executive Director on the board of several local Rabobanks in the Netherlands responsible for retail, SME and corporate banking. Prior to joining Arise she was CFRO of Rabo Development. Ms ‘t Lam holds a Master’s Degree in International Business, a Bachelor’s Degree in Dutch Law and several professional qualifications in credit risk assessment, retail banking, structuring of complex loans, risk management, strategy and governance.

Mr Mulder has a career spanning over 35 years in the Banking industry. He has built up 35 years of International Banking experience and during the last 23 years as CEO of several Banks in South America, Europe, Middle East and Asia, mainly with ABN AMRO bank and Rabobank. Mr. Mulder studied Hotel Management and obtained a Masters in Law from the Netherlands. He has built up experience in strategic, general and change management in multicultural, emerging economies. He has had extensive experience in restructuring none or poor performing banks to becoming profitable banks and gaining market leadership. His last assignment before coming to Zambia was Managing Director Rabo Development.

Ms. Akapelwa is the Founder and Vice Chancellor of the Victoria Falls University of Technology (VFU). Her career extends over 45 years in the Information Technology, banking and education sectors.

Ms Akapelwa is a recipient of the following awards: the Zambia Society for Public Administrators John Mwanakatwe Distinguished Award, the Zambia Association of University Women (ZAUW) Recognition and Honour for being the pioneer female Computer Scientist; and the IBM Systems Engineering Professional Excellence Award. She also received the Overall, Regional and Country winner Awards for Africa’s Most In¢uential Women in Business in 2013, 2014 and 2015. She is the owner and CEO of La Residence Guest House as well as a Board member on Zambia Railways Limited.

Ms Akapelwa previously served as Board Chairperson of the Zambia Information & Communications Technology Authority (ZICTA) and a member of the Millennium Challenge Account Zambia Steering Commi�ee and the Technical Commi�ee for the Government of the Republic of Zambia Lands Information Management System. She also previously worked at the African Development Bank for 23 years in di�erent capacities in both Ivory Coast and Tunisia.

Ms. Akapelwa holds a Doctorate in Education/ABT from the University of Liverpool, a Masters Degree in PublicAdministration from Harvard University, a B.SC in Mathematics with Education from the University of Zambia and is also a certified IBM Systems Engineer.

Charity Chanda Lumpa

Hastings Mtine

Mirjam t’ Lam

Henk G. Mulder

Getrude M. Akapelwa


BOARD OF DIRECTORSMr. De Villiers is Chairman of the CIO Council of South Africa and previous Group CIO at Absa Bank, Nedbank, First National Bank, Transaction Capital and Telkom Group.

He has 30 years’ experience in the IT industry and is considered to be one of the top CIO’s in South Africa. He was voted “the most admired CIO in South Africa” by the CIO Council of South Africa consisting of the top 200 CIO’s in the country and was also voted as one of the Top 10 CIO’s in South Africa by IITPSA / MWEB in 2016.

He has held the position of Managing Director of Microdata, Executive Director at Datakor Holdings, Managing Director of Nedbank’s Group Operation and Managing Director of Nedbank’s Group Technology and Support Services (GTSS).

Mr. De Villiers is also a recipient of several top achiever awards as well as the Nedbank CEO award in 1998.Mr. De Villiers’ currently based in South Africa in Johannesburg and holds the following board positions: • Non-Executive Director at BCX (South Africa’s largest IT Company) • Non-Executive Director at IEMAS Financial Services• Chairman of all their IT Board Sub Commi�ees • Non-Executive Director at University of Pretoria (Advisory Board) • Non-Executive Director of Moyo Advisory Services• Strategic Advisor to the Public Investment Corporation (PIC) on Information Technology.

Mr. Chikuba is the Permanent Secretary (Economic Management) in the Ministry of Finance. He is also a director on the National Pensions Scheme Authority Board, Zambezi River Authority Board, the National Road Fund Agency Board and on the Boards of two mines in which Government has a stake.

Mr. Chikuba has extensive experience in economic and monetary policy management, commerce and trade and external debt management. He additionally has considerable experience in the banking sector emanating from the di�erent portfolios he had held in the public sector.

Mr. Chikuba holds a Bachelors Degree in Economics, a Master’s Degree in Development Studies, a Master’s Degree in Business Administration (Finance) and is currently pursuing a Doctorate in Business Administration.

Mr. Wanjelani is the Chief Executive O�icer of Newgen Holdings Limited, a financial consultancy, risk management and construction company.

Mr. Wanjelani has extensive experience in banking, accumulated over a period of 20 years. He also has considerable experience in organisational change and transformation, finance and financial planning and corporate governance.

He has held positions of Head Assets Liability Management (ALM), Barclays Africa Treasury, Regional O�ice, Johannesburg and Chief Financial O�icer and Executive Director at Barclays Bank Zambia Plc. He has additionally held position of Board Chairman of the Rural Electrification Authority (REA) and the position of Board Member on the ZESCO Limited Board, Real Estate Investments Zambia Plc and the Lusaka Water and Sewerage Company Board and was the Chairman the Board Audit Commi�ee.

Mr. Wanjelani currently holds the position of Executive Director on the Kumil Energy Limited Board and Newgen Construction Limited Board. He is a non-executive Director on the Center for Infectious Diseases Research (Z) Board and the Blue Light Risk Management Limited Board.

Mr Wanjelani is a fellow of the Association of Chartered and Certified Accountants (ACCA) and a Fellow of the Zambia Institute of Certified Accountants (ZICA). He holds an MBA from Oxford Brookes University UK and has a Diplomas in Business Administration and Professional Accounting. Mr Wanjelani has also trained in Leadership for the Cu�ing Edge from GIBS University, South Africa.

Mr. Chinyanta is currently the Country Head of Human Resource at Cargill Zambia. He is currently serving as Executive Director on the Boards of both Cargill Zambia (2009) Limited and Zamanita Limited. He has extensive local and International experience as a Human Resource Professional in the areas of Talent Management, Talent Development, Leadership Development, Employee relations, Policy Development, Change Management and HR Information Systems.

Mr Chinyanta is also a So¬ware Engineer with experience in se�ing and administering of IT systems and infrastructre, Enterprise Resource Planning systems and Project management.

He has held various positions as Shared Services Head of Anglphone at Airtel Africa, Head of HR Operations Analysis, Talent Development, Management and Engagement Manager at both Airtel Zambia and Airtel DRC, and as an Information Technology Specialist at John Snow Incorporated.

Mr. Chinyanta holds a Master’s in Business Administration in Strategic Planning, a SAQA Certified Occupationally Directed Education and Training Development Practitioner Certificate (OD-ETDP), Bachelor’s Degree in Computer Science and is a Microso¬ Certified Professional (MCP).

Leonard De Villiers

Mukuli Chikuba

Patrick Wanjelani

Yamfwa Chinyanta

2017 ANNUALR EPORT10

EXECUTIVE MANAGEMENT

Henk G. MulderManaging Director & Chief

Executive O�icer

Lishala C. SitumbekoChief Commercial O�icer

Mumbi MwilaChief Human Resources &

Training O�icer

Moono SimatyabaChief Financial O�icer

Hamish Chipungu Chief Risk O�icer

Kaluba G. Kaulung’ombe -Inampasa

Company Secretary

Diana KangwaChief Operations O�icer

Charity C. MwanzaActing - Chief Digital Banking

O�icer


Lusaka Townhall - Levelup

2017 Trade Fair Award 2017 LuSE Corporate Governance Award to Zanaco


CHAIRPERSON’S REPORT

The year 2017 was a pivotal year for the Bank in which a strong foundation had been laid for the continued transformation of the organisation. Business performance was encouraging, and the Bank moved from a 5th position in the market to an average of 2 as ranked by deposits and 1st as ranked by revenue generation. This re¢ects well on Management’s strategic choices and with the implementation of the Medium Term Plan 2020 (MTP). The MTP, which aims to establish Zanaco Plc as the top transactional and digital bank by 2020, provides a strong impetus for continued growth in 2018. Furthermore, the Zanaco Plc share price tripled in 2017 from K0.26 per share to K0.96.

Operational E�iciencyThe MTP is further premised on improving the functional e�iciencies, processes, policies, products and propositions. Significant progress has been made in 2017 whilst implementing improvement initiatives will be a key focus in 2018. This will significantly boost revenue and balance sheet growth as the following focus areas are tightened:

a. Embedding of customer segmentation and value propositions;

b. Devising and embedding risk ratings in credit risk management;

c. Systems and process improvements to support business and cost containment objectives; and

d. Developing sta� and a customer-centric culture.

Whereas all the above are critical for sustainable and long-term growth of the Bank’s business performance, the Bank’s focus continues to be to reduce its cost

to income ratio. Zanaco performed well in this regard and recorded an impressive 20% reduction from 88% in 2016 to 70% in 2017. The focus for 2018 will be to further improve operational e�iciencies to enhance overall performance through digitisation of the branch processes.

Prudent Risk ManagementThe micro economic challenges will continue to pose a risk in the credit portfolio. In order to mitigate this risk, Zanaco went through a process of reviewing its credit risk end-to-end administration process in order to resolve any identified gaps. The Management team has made great progress in reviewing the entire credit portfolio to ensure there is no unidentified underlying risk. This was also in tandem with the Bank’s compliance with IFRS 9 which will poise the Bank for improved business performance in 2018.

Further to support the drive for an improved risk control environment the Management has introduced Enterprise Risk Management (ERM) across the board which will be fully embedded by 2020.

Zanaco’s 2017 Success StoriesRefreshed BrandIn order to align the conducting of business to our Strategy, it became imperative for the Bank to make a major overhaul of our business processes. This entailed changing the ways of working for the ultimate benefit of our customers through enhanced service delivery. Management has redefined who we want to be and how we want to be perceived by our customers, sta�, shareholders and stakeholders. Roadshows were undertaken to sensitise sta� who were subsequently trained in the interpretation of our refreshed brand and what it means.

Board Changes With the introduction in September 2017 of the Bank of Zambia Corporate Governance Directives, the Board of Directors underwent some changes.Essentially the changes were the retirement or resignation of Directors who had served over six years and the shareholders change of their nominated Directors. The new members who have been brought in come with di�erent skill sets which will go a long way in bu�ressing the existing ones and thus help to provide improved oversight over the Bank. The Board is also encouraging empowerment of the youth generation by infusing young professionals as part of its succession strategy.

The new Board members are Ms Mirjam T’Lam, Mr Patrick Wanjelani, Mr Yamfwa Chinyanta, Mr Len De Villiers and Mr Mukuli Chikuba.

Innovation InvestmentInnovation continues to be at the center of what we do. Management successfully launched the Zanaco Mobile Application using our ground breaking Xapit platform which was also refreshed and strengthened. This is a testimony of our commitment to continuously invest in technology and tool sets that will help to enhance service delivery as well as financial inclusion.

New Board Commi�eeRecognising the importance of technology and the need for e�ective oversight on its implementation, the Board established the Technology and Service Delivery (Operations) Commi�ee. The Commi�ee will help to oversee developments that will focus on the utilisation of technology and

Dear Valued Shareholders,

On behalf of the Board of Directors, it gives me great pleasure to present the 2017 annual report.


its symbiotic relationship with service delivery. This supports our goal to be innovative, cost e�icient and proactive in ensuring the a�ainment of being the Top Transactional and Digital Bank by the year 2020.

ChallengesThe Bank has achieved significant successes on the back of some steep and not-so-steep challenges. To tackle these challenges this Board introduced, amongst other things, a robust performance appraisal system that was rolled out in 2017 with the Executive Management. The Key Performance Indicators (KPIs) for the Managing Director and his Executive team enhanced accountability and focus on the execution of initiatives for the be�erment of the Bank’s performance, and ultimately of all the sta�.

Enhancing the levels of compliance to support growth and a strong control environment is a key deliverable of the Board, the Managing Director, and the Executive and Senior Management teams. Further, the central bank conducted an onsite regulatory examination of the Bank as at 30 September 2017, and reported back to the Board at our 23 February 2018 meeting. Whereas it was pleasing to note that there were no surprise findings contained in the report, it was even more appreciative that the Board and Management had already identified and embarked on a�ending to all the major issues.

Future ProspectsHaving successfully implemented elements of the prioritised initiatives to raise Zanaco as a front runner in the

digital and transactional space, we feel confident that the Bank is well positioned to compete strongly now and in the future. We continue to see remarkable improvement in the Bank’s performance, revenue generation, share price, profitability and operational e�iciency.

The Board and Management remain proud that the implementation of the 2020 strategic plan has translated into improved financial and people performance. We remain confident, and are keenly aware, that despite this success, continuous improvements are required for the Bank’s enhanced performance, and are assured that the Managing Director and his Executive Management team are well poised to do that with the able support of the Board.

Acknowledgments I wish to sincerely thank the Board of Directors for the unwavering commitment and support rendered to the Managing Director and his Management team. The high levels of engagement and interaction between the Board and Management provide a great platform for proactively responding to the ever changing environment in the sector and the industry.

Further, I wish to acknowledge the contribution of the Directors who le¬ the Board in 2017 and had over the years supported Management: Mr Eric Drok, Mr Fred Weenig, Mr Peter Van Jaarsveld, Dr Ronald Simwinga, and Mr Guy Robinson. I also wish to acknowledge the commitment, contributions and support of Director Gertrude Akapelwa who is retiring from the Board on 29th March 2018 a¬er completing 11 years of service.

I further wish to thank the Executive team, Management and sta� of Zanaco for their tireless e�orts in ensuring that we make Zanaco great again. This has been done through the identified corporate values, continuously working to enhance our customers’ experience, whilst improving compliance and ultimately the control environment. There is still a lot of work to be done to be where we desire.

I am confident that all our valued sta� will continue to work with one accord, and to the best of their abilities, execute the very clear strategy that will ensure Zanaco remains the go-to bank and business partner for our nearly 1 million customers and millions more of potential clients.

I further wish to acknowledge the invaluable support of our esteemed customers, shareholders and stakeholders for the growth that the Bank continues to experience. The Board and management aim to deliver the best compliant and best performing Bank that must also be seen as the employer of choice by our sta� and the financial and banking sector.

2018 is indeed a year when Zanaco will dominate the market as the refreshed BIG, STRONG AND RELIABLE Bank.

God bless us all.

Charity C LumpaCHAIRPERSON


MANAGING DIRECTOR’S REPORT

The strategic direction to become the Top Transactional and Digital Bank was embraced by sta� and therefore implementation progressed very well during 2017. We are beginning to see improvements in some of our key areas of our operating environment. By end of 2017 our position improved substantially compared to the prior year.

The investment in our new operating model has set a solid platform for us to deliver a superior customer experience, reduce costs, enhance business growth and improve the way we conduct business. There can be no be�er way to enhance shareholder value than by ensuring that we continue to build a sustainable business. I am confident that we are on the right track – thanks to the relentless e�ort of our Board of Directors, Management team and sta� who worked tirelessly during the year to ensure that we keep our Bank Big, Strong, Reliable and Innovative.

Strategic Agenda on Course - Major Milestones

Technology developmentsWe continue to champion innovation in the industry. We launched the Zanaco Mobile App and the new Xapit USSD aimed at easing access

to banking services and improving customer experience.

The response from our customers was impressive leading to over 40,000+ Mobile App downloads in the first two months of the launch. Active customers on Xapit USSD doubled to 700,000 following the launch of the new platform.

Improved Segmentation and Refined Product O�eringFollowing our customer segmentation process, we developed tailor made value propositions to ensure customers are served with the right products and services that best suit their needs. This will ultimately translate into e�icient and e�ective customer service delivery and will help create value for our customers.

Improved Sales and ServiceIn response to our customers’ needs, our branches are being transformed into sales and service centers with focused leadership.

The fact that most of our customers get in contact with us through the branches compelled us to enhance their experiences in branches by embedding the value of relationship management in our service standards. This means that at any

given time, customers who visit our branches enjoy personalized a�ention and service by relationship managers tasked with this role. Branch back o�ice processes are being re-engineered and automated to enforce the service model and improve turnaround times.

Optimisation of Distribution Channels We have carefully relooked at our distribution model to ensure that we improve access to our products and services. We have amongst others repositioned Zanaco Xpress (Agency Banking) as a strategic alternative to our brick and mortar distribution network. We are further looking at enhancing this o�ering by extending locations to places easily accessible by targeted clientele.

2017 Financial Performance SummaryWe continue to steadily grow our revenue recording an impressive 18.7% growth on prior year. The following were the key drivers for revenue growth:

• 26.5% growth in Fees and Commission on the back of improved business growth in line with our strategy to grow non funded income.• 132% growth in investment income

Building the Bank of the Future

While the pace of changes in the banking operating environment continued to accelerate in 2017, our Bank responded with a comprehensive set of efforts aimed at building a Bank of the future.


from K173 million in 2016 to K401 million in 2017. Investment securities balances grew by 302% from K769.7 million to K3,099.7 million funded by the 19% growth in customer deposits.

Operating costs grew by 5% from K896 million to K942 million – lower than in¢ation due to improved cost control, which resulted in Operating Profit before tax increasing from a loss of K60 miliion to K180 million.

Loan growth has been ¢at throughout the banking industry, mainly a�ributed to the high interest rates. Our people – Our Pride and Number One ResourceWe continue to recognise sta� as our number one resource. We also believe that sta� are the game changer and di�erentiators in the execution of the Bank’s objectives.

It is for this reason that we proactively plan for the growth andempowerment of our sta� for them to realise their maximum potential.

We heavily invest in training them for enhanced output. Sta� were trained in relevant skills such as customer service, leadership and sales during the year. We believe that only when sta� are equipped with relevant knowledge and skills can they perform to the expectations of stakeholders.

We remain hopeful - 2018 outlook is promisingWe anticipate that the favourable economic conditions experienced towards the end of 2017 will continue in 2018. We expect that the loan book challenges experienced in the industry will continue but are confident that with the right measures taken and positive economic developments, the loan book will start to grow again.

We continue to be a trusted partner for growth for the communities in which we serve, as we help in the provision of support and capacity building in Financial Education, Digital Literacy, Educational Scholarships for capable underprivileged young students, Health and Water and Sanitation.

ConclusionWe continue to believe in the e�ort, commitment and trust of all our Bank’s stakeholders to steer our growth in the right direction. I applaud the Board of Directors for their support to the Bank sustainably and with integrity, and Management and sta� for their professionalism and passion, for believing in our Bank, The Zambian Bank. We remain commi�ed to continuously enhance shareholder value and to exceed our customers’ expectations of us. .

Henk G. MulderManaging Director & CEO


DIRECTORS’ REPORT

The Directors present their report together with the audited financial statements for the year ended 31 December 2017.

Principal ActivitiesThe principal activity of the Bank is the provision of commercial banking and related services to the general public.

Share CapitalThere were no changes to the authorised and issued share capital during the year.

Significant Shareholding in the BankAs at 31 December 2017, substantial shareholding (5 per cent or more) in the Bank’s share capital were as follows:

2017 2016Arise B.V 45.59% -RABO - 45.59% Industrial Development Corporation 25% 25%National Pension Scheme Authority 10% 8.91%LuSE Free Float 16% 18%Lizara Investments 3.41% 3.41%

Results and DividendThe net profit for the year amounted to K114,119,000 (2016: Restated Loss K61,802,000). The Bank did not pay a dividend during the year.

The Board does not recommend a dividend for the year ended 31 December 2017.

RestatementThe 2016 financial statements have been restated to take into account the understatement of the impairment charge for that year. See note 39.

DirectorsThe Directors who held office during the year and to the date of this report were:

Ms C C Lumpa Chairperson - Appointed 31/03/2015Mr H Mtine Vice Chairperson - Appointed 31/03/2015Ms M T’Lam Non-Executive Director - Appointed 16/10/2017Mr L De Villiers Non-Executive Director - Appointed 18/12/2017Mrs G M Akapelwa Ehueni Non-Executive Director - Appointed 03/04/2007Mr Y Chinyanta Non-Executive Director - Appointed 22/11/2017Mr P Wanjelani Non-Executive Director - Appointed 22/11/2017Mr M Chikuba Non-Executive Director - Appointed 14/02/2018Mr H G Mulder Managing Director - Appointed 01/11/2016Mr E Drok Non-Executive Director - Resigned 01/09/2017Mr P Van Jaarsveld Non-Executive Director - Resigned 01/09/2017Mr G Robinson Non-Executive Director - Resigned 15/12/2017Dr R Simwiinga Non-Executive Director - Resigned 15/12/2017Mr F Weenig Non-Executive Director - Resigned 31/03/2017 Number of Employees and Remuneration The total remuneration of employees during the year amounted to K463,084,000 (2016: K400,660,000) and the average number of employees for each month of the year was as follows:

Month Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17Total Head count 1,165 1,182 1,129 1,145 1,175 1,196 1,204 1,202 1,208 1,219 1,227 1,228

Employees PoliciesThe Bank has policies and procedures to safeguard the occupational health, safety and welfare of its employees.

Gifts And DonationsDuring the year the Bank made donations of K3,829,000 (2016: K3,129,800 ) to charitable organisations and events.


DIRECTORS’ REPORT

Property, Plant and Equipment The Bank purchased property and equipment amounting to K65,507,000 (2016:K24,838,000) during the year. In the opinion of the Directors, the recoverable amount of property, plant and equipment is not less than the carrying value.

Research and DevelopmentDuring the year, the Bank did not incur any Research and Development costs (2016: Nil). However, the Bank incurred K10,720,211 (2016:K14,415,000) for the development of various products.

Related Party TransactionsRelated party transactions are disclosed in Note 33 to the financial statements.

Directors’ Emoluments And InterestsDirectors’ emoluments and interests are disclosed in Note 33 to the financial statements.

Prohibited Borrowings or LendingsThere were no prohibited borrowings or lendings as defined under Sections 72 and 73 of the Banking and Financial Services Act, 1994 (as amended).

Risk Management and ControlThe Bank, through its normal operations, continues to be exposed to a number of risks, the most significant of which are credit, market, operational and liquidity risks. The Bank’s risk management objectives, policies and strategies are disclosed in Note 37 to the financial statements.

Compliance FunctionThe Bank has a compliance function whose responsibility is to monitor compliance with regulatory requirements and the various internal control processes and procedures.

Know Your Customer (KYC) and Anti-Money Laundering (AML) PoliciesThe Bank continues to utilise and update its know-your-customer (“KYC”) and anti-money laundering (“AML”) policies and comply with current legislation in these areas.

AuditorsA resolution to consider the appointment of the Auditors of the Bank for the Financial Year ending 31 December 2018 and authorise the Directors to set the Auditors remuneration will be put to the Annual General Meeting.

By order of the Board.

Mrs Kaluba G Kaulung’ombe - InampasaCompany Secretary

Date : 7th March, 2018


STATEMENT OF CORPORATE GOVERNANCE

Introduction

Zanaco’s vision is to be Zambia’s leading, admired, preferred and innovative financial institution that provides a fair deal to each customer segment and strives to bank the unbanked. Zanaco’s mid-term mission is now to be the top transactional bank by 2020. As such corporate governance, stands at the core of the Bank’s endeavor to realise its vision and mission through fostering values of fairness, accountability, responsibility and transparency.

The concept of corporate governance is embeded in Zanaco through the development of a clear governance framework which has increased the level of governance in the organisation. This has led to increased independent scrutiny in decision-making and the alignment of the organisation to a robust legislative and ethical framework, in order to constantly improve the organisation’s corporate governance culture.To underscore the necessity for increased focus on corporate governance, the Bank has continued to ensure best corporate governance practice at all times through the development of governance frameworks.

Compliance Status of Corporate Governance RulesA review of the Bank’s compliance with the Lusaka Stock Exchange Corporate Governance Code as at 31 December 2017, showed that the Bank fully complied with the applicable rules.

Board PerformanceThe Board continued to perform its oversight role, while also providing strategic direction to the Executive Management.All Board appointments are subject to a fit-and-proper test by the Central Bank, while Shareholder approval is sought for the appointment of new Directors at Annual General Meetings.

The role of the Chairperson is to ensure that there is the right balance on the Board, with the requisite industry knowledge and to lead and manage the work of the Board to ensure the Board’s e�icient and e�ective discharge of its legal and regulatory responsibilities.

In keeping with best practice, the activities of the Board are planned and documented. These may include engagement with third parties, such as Pension Fund Managers and Organisational Development Consultants to get deeper insights into the relevant changes to legislation and market trends.

The Board agrees on its Annual Plan which includes a Strategy Session, review of the Succession Planning, Budgeting and Performance Review for Senior Executives. The Chairperson, with assistance of the Chief Executive O�icer and Company Secretary, ensures that the Directors are provided with timely information to facilitate an interactive dialogue during Board sessions.

To ensure transparency, the activities of the Board are documented and planned. Although the Board has the ultimate responsibility for the success of the Bank, this is managed on a delegated basis. The Board appoints the Chief Executive O�icer and monitors the Chief Executive O�icer’s performance in leading the Bank and delivering the strategy.

The Chief Executive O�icer provides a regular report to the Board that includes information on financial performance of the Bank and the achievement of financial objectives, operational ma�ers, the operating environment, strategic development, corporate social responsibility, human resource and stakeholder relations.

The Board promotes good behavior and demonstrates clear values and high ethical standards, being mindful of the overriding duty of each Director to act in good faith and promote the success of the Bank.

The Board has a planned programme for each financial year to ensure that all necessary ma�ers are covered and to also allow for su�icient debate and challenge.

The Board continues to guard against the risk of complacency by encouraging openness and appropriate levels of challenge. While engaging with Management both formally and informally, the Board strives to ensure that it remains su�iciently detached to maintain its independence.

The Bank, through the Board Orientation Policy, has put in place a formal induction process for new Board members that takes into account the di�erent backgrounds and experience of each Director. New Board members are properly inducted into the Bank’s policies and procedures to ensure that they are well versed with the governance structures which have been developed over the years.



The Board CharterDuring the 2017 financial year, the Board, in compliance with the Bank of Zambia (BOZ) Directives on Corporate Governance and the Lusaka Securities Exchange Corporate Governance Code, developed a Board Charter which sets out the following:

a) The roles, functions, responsibilities and powers of the Board;b) The roles, functions, responsibilities and powers of individual Directors;c) Stakeholder engagement;d) The remuneration principles of Board of Directors;e) The annual evaluation process for the Board and Board Commi�ee;f ) The powers delegated to the various Board Commi�ees;g) The roles, functions, responsibilities and powers of the Chief Executive O�icer and Management; andh) The roles, functions and responsibilities of the Company Secretary.

Board Commi�ee ChartersThe Board extensively reviewed and revised the Board Commi�ee Charters in line with the Bank of Zambia Corporate Governance Directives and other relevant legislation.

Establishment of new Board Commi�eeThe Board in November 2017 established the Technology and Operations Commi�ee to oversea the technological transformation of the Bank into a Digital Bank.

Development of Board Policies The following Board Policies have been put in place to ensure good corporate governance of the Bank:

a) Appointment of Directors Policyb) Board Orientation Policyc) Board Training Policyd) Con¢ict of Interest Policye) Disclosure of Information Policyf) Investor and Shareholder Relations Policyg) Stakeholder Relations Policy

Board Training and Continuous DevelopmentIn line with Central bank directives, the Board has put in place a robust Corporate Governance training plan for the 2018 financial year.

Equitable Treatment of Minority ShareholdersThe corporate governance framework of the Bank continues to ensure that equitable treatment is accorded to all shareholders, including minority shareholders, by:

a) Ensuring that the Board adopts a shareholders’ perspective when making decisions and ensuring minority interests are protected;b) Improving communication and interaction between minority shareholders, Board Members and Management;c) Ensuring that appointment of Directors is subjected to the final approval of all shareholders (including minority shareholders) at the Annual General Meeting; andd) Ensuring that minority shareholders are duly accorded with their three basic rights to: i) seek information;

ii) voice an opinion; andiii) seek redress.

The equitable treatment of shareholders has been further entrenched by the Investor and Shareholders Relations Policy which outlines the Bank’s interaction with shareholders and investors.

Management TeamOur Executive Management team provided leadership and direction for the organisation. Respective members of the Executive Team participated in various industry initiatives, such as those promoted by the Bankers Association of Zambia (BAZ) and its commi�ees, the Zambia Chamber of Commerce and Industry, the Zambia Federation of Employers and the Ministry of Labour and participated in Tripartite engagements on labor law reforms. In addition, the Management Team participated in various industry initiatives which were driven by the regulators, such as the implementation of the Basel II framework. The Board, within its responsibility for succession planning for the Executive Management team, also engaged with sta� at every opportunity available. In addition, the Board periodically discussed the People’s Balance sheet which is a tool for developing and managing talent within the Bank.



Risk ManagementThe Board continued to manage both risks and controls in the Bank. To further demonstrate its focus on the various risks with the potential to impact the Bank’s performance, the Board has approved governance structures, internal controls and the risk management framework, which are both prudent and e�ective.

The Board continues to have processes in place to ensure that it receives the right information in the right form and at the right time to enable it to e�ectively discharge its duties.

The Board continued to maintain rigor in reviewing the strategy for the future of the Bank. A key requirement is that the Bank has robust processes to identify, evaluate and manage risks so that Directors have visibility of the major risks. To this end, the Bank has developed a system of internal controls that encompasses policies, processes, tasks and behaviours to facilitate the e�ective and e�icient operation of the Bank.

The Bank also developed policies and procedures to drive consistency and clarity on how risks are managed and subsequently reported.While the Board accepts final responsibility for the risk management and internal control systems of the Bank, it is the delegated duty of Management to ensure that adequate internal financial and operational control systems are developed and maintained on an on-going basis in order to provide reasonable assurance regarding:

a) E�ectiveness and e�iciency of operations;b) Safeguarding of the Bank’s assets (including information);c) Compliance with applicable laws, regulations and supervisory requirements;d) Reliability of accounting records;e) Business sustainability under normal and adverse conditions; andf ) Responsible behavior towards all stakeholders.

The e�iciency of internal control systems is dependent on their compliance with prescribed measures. There is always a risk of sta� non-compliance with such measures. Consequently, even a strict and e�icient internal control system can provide no more reasonable measures of assurance in respect of the above-mentioned objective.

Internal auditors evaluate and assess the adequacy of internal controls and regularly report to Senior Management and the Audit Commi�ee of the Board on their findings and recommendations. The Internal Audit team independently reviews the risk identification procedures and control processes implemented by Management.

It provides objective assurance of the operations and validity of the systems of internal control through a risk based audit programme making recommendations for business and control improvements as required.

Enterprise Risk Management The Bank has adopted and started implementing the Enterprise-wide approach to risk management. This will reach maturity level by 2019. The Enterprise-wide Risk Management (ERM) approach can be defined as a process that enables the Bank to e�ectively deal with varied types of risks and opportunities, thus increasing stakeholder value. This approach is a departure from a ‘silo’ approach to risk management. The advantages of adopting ERM can be summarised as follows:

• More e�icient use of capital and resources; • Reduced likelihood of operational losses; • Lower compliance and auditing costs; • Earlier detection of unlawful activities; • Fewer surprises; • Focus on lower cost prevention rather than higher cost resolution strategies; • Cost savings by using risk information to streamline and improve processes; • Increased awareness and integrated view of risks (existing and emerging); • Systematic, repeatable approach to mitigate risks and identify opportunities; and • Clearer, be�er informed decisions.

The Board appoints the Chief Risk O�icer who has overall responsibility for the Bank’s risk management function. The Chief Risk O�icer ensures that all the risks which are part of the Risk Universe are properly managed under an appropriate risk policy, and to advise on Risk Appetite and the Bank’s risk profile. The Chief Risk O�icer appoints a Risk Owner for each major risk type (known as Tier 1 risk), who is responsible for working with the process owners in the business units to ensure that each risk type is appropriately managed and controlled. Risks identified are categorised by sources to facilitate the determination of root cause and subsequently to assign responsibility for responses. The following represents Zanaco’s risk universe:



Key Risk DefinitionBrand and reputational risk Threats to the brand equity or brand di�erentiators that make consumers choose a competitor and the competitors products and services.

Business risk The achievement of the Bank’s business objectives will be adversely a�ected by defective strategic planning and/or failure to execute business initiatives.

Strategic risk This is the risk to current or prospective earnings arising from inappropriate business decisions or the improper implementation of such decisions. Capital risk This is the risk of the Bank’s total capital base not being managed in a prudent manner, or the failure to comply with the Bank of Zambia regulatory requirements, resulting in possible suspension of or loss of banking licence.

Corporate sustainability risk Failure to consider Corporate Social Responsibility, Social and Environmental issues in both strategic and operational decision-making that could result in the Bank su�ering reputation damage, financial penalties and loss of credibility in the eyes of key stakeholders.

Operational risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

Credit risk Failure by the Bank’s borrowers or counterparties to perform their payment, guarantee or other obligations, or failure by a sovereign to honour its domestic, cross-border or foreign currency obligations or to allow local customers to make foreign currency payments.

Financial reporting and Failure to monitor and report on statutory and standards on financial reporting and taxation leading to taxation risk penalties.

Governance and Failure to achieve business objectives as a result of non-compliance with best practice corporate compliance risk governance frameworks, corporate ethics requirements and regulatory requirements.

Information Technology risk Strategic technology investments are not aligned to Bank’s vision or business strategy, or catastrophic failure of technology to deliver secure IT services which provide critical business services.

Legal risk Exposure to legal risk arising from business or transactions not conducted in accordance with applicable laws.

Liquidity and funding risk Failure to meet payment obligations when they fall due and to replace funds when they are withdrawn or to repay depositors and fulfil commitments to lend.

Market risk Business objectives are adversely a�ected by changes in the level of volatility of market rates or prices such as interest rates, foreign exchange rates, equity and commodity prices.

People risk Failure to achieve the Bank’s business objectives through problems which may arise through people issues.

Projects risk Failure to control requirements relating to the implementation of approved projects within the Bank.

Risk Governance The Board has ultimate leadership authority and responsibility for identifying and controlling all risks that a�ect Zanaco.The responsibility for managing and monitoring risks has been delegated to other independent bodies such as the Risk Commi�ee and the Credit Commi�ee.

The Risk Commi�ee (“RC”) has the overall responsibility for the development of Zanaco’s risk strategy and proposed the approval of the strategy by the Board. Management is then charged with the responsibility to implement the risk principles, frameworks, policies and limits.

The Board:• Provides overall strategic direction and oversight;• Ensures implementation of appropriate internal risk management, financial, compliance and audit controls and frameworks;• Ensures the establishment and implementation of corporate culture values;• Approves credit and investment policies, budgets and business plans; and• Monitors and reviews Zanaco’s performance against strategy.



Responsibilities of the Board Commi�ees

Risk Commi�eeThe Risk Commi�ee reviews and recommends to the Board, the Risk Management Strategy and Risk Appetite Statement. It reviews and monitors the Bank’s risk profile against the Risk Appetite Statement on a quarterly basis and recommends for approval to the Board, the Risk Policies for all the risk types. The Risk Commi�ee is also responsible for reviewing the Enterprise-wide Risk Management framework for the identification, evaluation and mitigation of actual and potential risks that the Bank is exposed to and defining the risk management roles and responsibilities across the Bank. The Commi�ee also ensures that a robust risk management culture prevails in the Bank.

Audit and Compliance Commi�eeThe Audit and Compliance Commi�ee has a responsibility to assist the Board of Directors’ in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control, the internal and external audit process, and the Bank’s process for monitoring compliance with laws and regulation and code of conduct.

The Commi�ee acknowledges and embraces its role of protecting the interests of shareholders in relation to the published financial information by the Bank and the e�ectiveness of the audit thereof. The Commi�ee also plays a key role in ensuring that the report and accounts are fair, balanced and understandable and contain su�icient information on the Bank’s performance, business model and strategy.

The Commi�ee is governed by a Commi�ee Charter, which is agreed by the Board and subject to annual review the last review being in November 2017. The responsibilities of the commi�ee include;

• Consideration of the appointment, re-appointment or removal of the external auditor;• The negotiation of the audit fee;• Agreeing the nature and scope of the Bank’s financial audit;• Monitoring the integrity of the financial statements;• Considering and reporting on any significant issues in relation to the financial statements;• Reviewing the cost e�ectiveness of the audit and the independence and objectivity of the external auditor;• Reviewing the half-year and annual financial statements, and any audited accounts, before submission to the Board, and confirming to the Board of Directors their opinion that the report and accounts are fair, balanced and understandable and contain su�icient information on the Bank’s performance, business model and strategy;• Discussing with the Bank’s auditors any issues and reservations arising from the interim review of the year-end audit;• Reviewing, on behalf of the Board, the Bank’s system of internal control and making recommendations to the Board;• Reviewing the requirement for an audit; and• Reviewing the Bank’s whistle-blowing procedures.

Credit Commi�eeThe Credit Commi�ee is responsible for approving all credit exposures exceeding the authority of the Management Credit Commi�ee.

Risk Governance FrameworkE�ective risk management also requires multiple points of control or safeguards to be consistently applied at various levels throughout the Bank.

Business Units within Zanaco are accountable for executing specific aspects of the Bank’s activities. Authority is delegated to the head of each Business Unit by the Chief Executive O�icer (CEO). The head of each functional unit delegates responsibility to individual sta� for carrying out specific tasks in accordance with delegated authorities and with the procedural disciplines of the Bank.

The Bank’s profit is directly derived from how successfully it manages and prices for risk. Risk management is, therefore, at the core of banking and risk awareness must be embedded in the whole organisation. Risk governance is designed according to the three ‘lines of defence’ as per best banking practice:

• The first line refers to both commercial, customer-facing sta� as well as sta� in back o�ices and operational departments. All departments are directly responsible to identify and manage all risks that will or can materialise in the course of doing business. This includes the monitoring of risk management in each policy and procedure and making sure procedures are designed to include checks and balances through internal control activities and the separation of duties as much as possible.• The second line of defence are the various departments in the risk directorate. These departments play a supporting and controlling role for the benefit of the first line of defence, ensuring necessary risk activities are executed with the necessary detail and quality.• The third line of defence is the Internal Audit function. The Internal Audit department works independently, objectively and reports to the Board Audit Commi�ee.



Risk CultureA strong risk culture is critical to Zanaco’s success and underpins both the business strategy and risk appetite of the Bank. Zanaco’s culture is to actively take risks that are adequately rewarded and that support its objectives and vision. Shareholder value is added by creating profits measured a¬er charging for the cost of the risk or by activities that are of strategic importance and related to a wider shareholder value growth opportunity.

Risk AppetiteThe Bank’s risk appetite is defined as the amount of risk that the Bank is willing to seek or accept in pursuit of its long-term objectives of the Bank. A Risk Appetite Statement (RAS) is a board-approved statement that defines the types and aggregate levels of risk that an organisation is willing to accept in pursuit of business objectives. It includes qualitative statements and guidelines as well as quantitative metrics and exposure limits.

The Bank’s Risk Appetite and resource management process frames its decision-making and is integrated into the strategic objectives.The financial resource management process sets minimum targets for these resources. Risk is inherently present in the lending and financing activities of the Bank, where credit is extended in the form of loans. In addition to credit risk, Zanaco is exposed to operational and other balance sheet risks which include interest rate, foreign exchange and liquidity risk.

The Bank has developed and embraced a Risk Appetite Statement which is positioned to assist it achieve the strategic plan. The Risk Appetite Statement covers Credit, Market, Capital and non- financial risks. Zanaco has a prudent risk taking culture but acknowledges that some risks need to be taken to a�ain strategic goals. The consequent development and embracing a RAS is a step towards this position and assists the Bank in the following ways:

• Aligning planned strategic and financial goals with necessary risk exposures; • Managing earnings volatility within acceptable levels;• Optimising the use of available capital and liquidity;• Enhancing e�ective decision-making, management and control of the business.

Zanaco has defined risk tolerance parameters to safeguard its robust financial position. In quarterly meetings, portfolio variables are compared with the risk tolerance variables. The levels of internal risk tolerance are generally stricter than the Central Bank of Zambia requirements.

The Risk Appetite Statement is set by the Risk Commi�ee and, ultimately, approved by the Board. The Bank di�erentiates between tolerance levels for balance sheet, credit and operational risk as follows:

• Balance sheet risks comprise of interest-rate risk, liquidity risk, market risk and other risks, and also encompass management of the regulatory ratios.• Credit risk captures the potential loss from a borrower, obligor, or counterparty which fails to honour their contracted debt obligations in a timely manner.• Operational risk is the risk resulting in a direct or indirect loss caused by human error, inadequate internal process and systems or by external calamities.

Tolerance levels for balance-sheet risk are monitored by the Asset and Liability Commi�ee (ALCO). The Board assumes responsibility for ensuring that risks are adequately managed and controlled through the Board Risk Commi�ee. Risk Appetite measures and stress scenario results are included in risk and management reports across the businesses and at Board level, and are continually refined.

The tolerance variables for operational risk are currently being developed by the Intergrated Risk Department.

The Board assumes responsibility for ensuring that risks are adequately managed and controlled through the Board Risk Commi�ee.Risk appetite measures and stress and scenario results are included in risk and management reports across the businesses and at Board level, and are continually refined.

Stress TestingZanaco’s stress testing objective continues to ensure that the Bank can meet its capital requirements in a forward-looking manner, under severe but plausible economic stresses specific to Zanaco’s portfolios and risk profile. The results of the entity-wide stress tests assist the Bank in ascertaining whether it has su�icient capital in periods of stress. Both stress scenarios and sensitivity analysis are considered during stress testing, with regard to credit, market, operational and liquidity risks. The Bank calculates a capital bu�er based on the stress testing results, holding this capital bu�er as part of its capital base to ensure that capital remains above the minimum regulatory ratio should the stresses materialise. Mitigating actions are included to provide a realistic view of the impact on the Bank’s earnings and capital under the stress scenario.

The Bank’s objective is to o�er value by undertaking to deliver sustainable earnings within a desired risk profile. Stress testing is embedded in the risk management of the Bank and is a key focus area in the strategic planning processes. It is an integral part of the Bank’s Internal Capital Adequacy Assessment Process (ICAAP) and is used to assess and manage the adequacy of capital.



Through stress testing and scenario analysis, the Bank is able to assess the performance of its portfolios under potentially adverse economic conditions. It focuses on the key macroeconomic variables that impact the Balance Sheet and Income Statement.

The business plan for the next three years is included in the budget and forecasting process. Scenario planning is then used to assess whether the desired profile can be delivered and whether the business stays within the constraints it has set for itself. The scenarios are based on changing macroeconomic variables, plausible event risks and regulatory and competitive changes.

Stress testing is employed in the:• Strategic planning and budgeting process;• Capital planning and management process including the se�ing of a capital bu�er for the Bank;• Communication with internal and external stakeholders; and• Assessment of the impact of changes in the macroecomic factors on the Bank’s performance.

Financial Resources ManagementThe strategy, risk and financial resource management processes in¢uence the capital and funding plans of the Bank. The capital position provides a bu�er over and above the minimum regulatory limit against adverse business performance under extremely severe economic conditions.

The financial, treasury, capital and risk information both actual and budgeted, is used as the basis for risk, capital and financial analysis and stress testing.

Internal Capital Adequacy Assessment Process (ICAAP)ICAAP outlines the process to ensure the Bank achieves its capital management objectives. In order to achieve these objectives, the Bank needs to:

• Ensure that at least the minimum amount of regulatory capital is held at all times for the Bank of Zambia to allow the Bank to conduct business;• Hold su�icient capital that will instill confidence in the Bank’s ongoing solvency and status as a creditworthy counterparty for all stakeholders;• Allocate capital to businesses based on an understanding of the risk and reward drivers of the income streams and to ensure that appropriate returns are earned on capital deployed;• Ensure that the bu�er over the minimum regulatory capital requirement is su�icient to cater for income and capital volatility and economic risk which may manifest through business disruption, regulatory intervention or credit downgrades, where applicable; and• Ensure that Zanaco’s capital adequacy ratios and other limits remain within approved thresholds during di�erent economic and business cycles.

The optimal level and composition of capital is determined a¬er taking into account the Bank’s organic growth plans as well as targeted capital ratios, future business plans, appropriate bu�ers in excess of minimum requirements, proposed regulatory changes and risk appetite.

Additionally, this requires that the Bank develops and maintains a capital plan that incorporates, among others, the following:• Anticipated capital utilisation;• Planned issuance of capital instruments;• Stress tests and scenario analysis;• Appropriation of profits and dividend payments;• Desired level of capital, inclusive of a bu�er;• Expansion and strategic initiatives; and• General contingency plan for dealing with divergences and unexpected events.

ICAAP is an integral tool in meeting the above capital management objectives and is key to the Bank’s risk and capital management processes. ICAAP allows and facilitates:

• The link between business strategy, introduced risk and capital required to support the strategy;• The establishment of frameworks, policies and procedures for the e�ective management of material risks;• The embedding of a responsible risk culture at all levels in the organisation;• The e�ective allocation and management of capital in the organisation;• The development of recognised stress tests to provide useful information which serve as early warnings or triggers, so that contingency plans can be implemented; and• The determination of the capital management strategy and how the Bank will manage its capital including during periods of stress.


STATEMENT OF CORPORATE GOVERNANCECapital ManagementCapital management is a key contributor to shareholder value. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial position, are:

• To comply with the capital requirements set by the Banking and Financial Services Act, 1994 (as amended);• To safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders;• To maintain a strong capital base to support the development of its business;• To allocate capital to businesses using a risk-based capital allocation system, to support the Bank’s strategic objectives, including optimising returns on shareholder and regulatory capital; and• Maintain the dividend policy and dividend declarations of the Bank while taking into consideration shareholder and regulatory expectations.

Capital adequacy and use of regulatory capital are monitored regularly by Management, employing techniques based on the guidelines developed by the Basel Commi�ee, as implemented by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.

Capital Target Se�ingCapital target-se�ing is key to ensuring that su�icient capital resources are available to meet Zanaco’s regulatory requirements while supporting Zanaco’s ability to meet its strategic objectives and a�ain its desired balance sheet growth. Zanaco’s capital target-se�ing is linked to the results of its stress testing.

The capital targets are defined taking into account the impact of stress testing on Zanaco’s Capital Adequacy Ratios (CAR). The capital targets are based on the Bank of Zambia requirements for minimum Basel II capital adequacy at both the Tier 1 and Total Capital levels. These targets are reviewed and potentially revised based on changes in Zanaco’s capital position, portfolio structure, capital plans and risk appetite. The capital targets are also guided by regulatory developments.

Financial ReportingThe Directors accept final responsibility for the preparation of the annual financial statements which fairly present:

• The financial position of the Bank as at the end of the year under review; and• The financial results of operations as well as the cash ¢ows for that period.

The responsibility for compiling the annual financial statements was delegated to Management. The external auditors report on whether the annual financial statements are fairly presented.

The Directors are satisfied that during the year under review:

• Adequate accounting records were maintained;• An e�ective system of internal controls and risk management monitored by Management was maintained;• Appropriate accounting policies supported by reasonable and prudent judgements and estimates were used consistently; and• The financial statements were compiled in accordance with International Financial Reporting Standards approved by the Zambia Institute of Chartered Accountants (ZICA), the Banking and Financial Services Act 1994 (as amended), the Zambian Companies Act 1994 (as amended), the Securities Act 1993 (as amended) and the Stock Exchange Listing Rules.

Board EngagementThe Board continued to meet on a quarterly basis. The a�endance by the Directors during the year was as follows:

Director’s name Category of director February April July November DecemberMs. C.C. Lumpa NED X √ √ √ √ Mr. H. Mtine NED √ √ √ √ √ Ms. G.M. Akapelwa NED √ √ x √ √ Mr. G. Robinson NED √ √ √ √ √ Mr. F. Weeing NED √ n/e n/e n/e n/eMr. R. Simwinga NED √ √ √ √ √ Mr. E. Drok NED √ √ √ n/e n/eMr. P. Jaarsveld NED n/e x √ n/e n/eMs. M.T’Lam NED n/e n/e n/e √ √ Mr. P.Wanjelani NED n/e n/e n/e n/e √ Mr. Y.Chinyanta NED n/e n/e n/e n/e √ Mr. H.Mulder ED √ √ √ √ √

NED- Non Executive DirectorED-Executive Directorn/e-Not eligible to attend


STATEMENT OF CORPORATE GOVERNANCEMr. F Weenig retired from the Board on 31st March 2017 and was not eligible to attend subsequent meetings of the Board.Mr. E Drok resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the Board.Mr. P Jaarsveld resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the Board.Ms T’Lam was appointed as a Director on 16th October 2017 and was not eligible to attend prior meetings of the Board.Mr P Wanjelani was appointed as a Director on 22nd November 2017 and was not eligible to attend prior meetings of the Board.Mr Y Chinyanta was appointed as a Director on 22nd November 2017 and was not eligible to attend prior meetings of the Board.

Directors’ CompensationThe disclosure of Directors’ fees and remunerations is made in Note 33 of the financial statements. The Directors do not have any shares in the Bank and are not entitled to share options. Directors’ fees and any amendments are approved by shareholders at the Annual General Meeting.

Board EvaluationAs a ma�er of usual practice, the Board annually conducts a self-assessment of its performance during the financial year through the engagement of an external third party, which covers the following:

• Performance against the Board’s objectives at the beginning of the year;• E�ectiveness with respect to the Bank’s strategic direction;• Responsiveness to shareholders and stakeholders’ concerns;• Maintenance and implementation of the Board’s governance principles;• Access to and review of information from Management and the quality of such information;• Review of the composition and diversity of the skills and exposure of the Board; and• Continuous professional development for Board members.

The Board’s evaluation of its 2017 performance will however be conducted in July 2018. The postponment of the performance evaluation process to July 2018, was neccesitated by the significant changes in the Board’s composition during the la�er part of 2017.

Board Commi�eesTo help it discharge its executive functions, the Board has established six principal standing commi�ees, each governed by wri�en terms of reference defining the frequency of meetings, power and duties, and reporting obligations. These commi�ees continuously evaluate the progress made towards meeting the Bank’s overall objectives, in addition to ensuring the e�icient and e�ective management of the entire Bank’s core functions. A Non-Executive Director chairs each of the five commi�ees. The commi�ees are Audit, Risk, Credit & Loans Review, Human Resources and Remuneration, Nominations and Governance and Techonology and Service Delivery (Operations). It should be noted that the Technology and Service Delivery (Operations) Commi�ee was appointed in November 2017 and its inaugural meeting will be held in April 2018.

(a)Audit and Compliance Commi�eeThe Audit and Compliance Commi�ee is chaired by a Non-Executive Director and consists of three other Non-Executive Directors. The Commi�ee meets at least four times per year to evaluate, among other things, accounting practices, the internal control systems and the auditing and financial reporting. Its tasks include evaluating critical risk areas identified with the help of Management, as well as reporting on them to the Board.

The Commi�ee operates under a formal charter approved by the Board and the Commi�ee Members have unlimited access to all information. Certain members of Management are invited to a�end and give feedback at Commi�ee meetings. The Audit Commi�ee also recommends to the Board the remuneration of the external auditors. The Commi�ee also holds separate meetings with the Head Internal Audit and the external auditors when required, in order to ensure that ma�ers are considered without undue in¢uence.

The a�endance by the Directors during the year was as follows:

Director’s name Category of director February April July November Mr. H. Mtine NED √ √ √ √ Ms. C.C. Lumpa NED x √ √ √ Mr. F. Weenig NED √ n/e n/e n/eMr. R. Simwinga NED √ √ √ √ Mr. P.Jaarsveld NED n/e x √ n/eMs. M. T’Lam NED n/e n/e n/e √ Mr. H. Mulder ED √ √ √ √


Mr. F Weenig retired from the Board on 31st March 2017 and was not eligible to attend subsequent meetings of the Committee.Mr. P Jaarsveld resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the Committee.Ms T’Lam was appointed as a Director on 16th October 2017 and was not eligible to attend prior meetings of the Committee.


STATEMENT OF CORPORATE GOVERNANCE(b) Risk Commi�eeThe Risk Commi�ee is chaired by a Non-Executive Director and consists of three other Non-Executive Directors and one ExecutiveDirector, who is also the Chief Executive O�icer of the Bank. On a quarterly basis, the Commi�ee reviews the collectability of the Bank’slending portfolio by not only ensuring adherence to statutory and regulatory requirements, but also ensuring that lending practicesand procedures are in line with the credit policy of the Bank, including on ma�ers relating to provisions and allowances for impairment. Additionally, the Commi�ee supervises the e�ective implementation of credit and risk management policies and ensures the enhancement of the Bank’s credit risk management systems and processes, in line with best practices in loan rating/credits, risk modeling, loan pricing and strategic loan management, including the identification and control of the concentration of risk.

The a�endance by Directors during the year was as follows:

Director’s name Category of director February April July November Mr. H. Mtine NED √ √ √ √ Ms. C.C. Lumpa NED x √ √ √ Mr. F. Weenig NED √ n/e n/e n/eMr. R. Simwinga NED √ √ √ √ Mr. P. Jaarsveld NED n/e x √ n/eMs. M.T’Lam NED n/e n/e n/e √ Mr. H. Mulder ED √ √ √ √


Mr. F Weenig retired from the Board on 31st March 2017 and was not eligible to attend subsequent meetings of the Committee.Mr. P Jaarsveld resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the CommitteeMs T’Lam was appointed as a Director on 16th October 2017 and was not eligible to attend prior meetings of the Committee.

(c) Credit and Loans Review Commi�eeThe Credit and Loan Review Commi�ee is chaired by a Non-Executive Director and consists of two other Non-Executive Directors and one Executive Director, who is also the Chief Executive O�icer of the Bank. Certain members of the Executive Management a�end by invitation. The Commi�ee also approves credits with values beyond the mandate of Management.The a�endance by the Directors during the year was as follows:

Director’s name Category of director February April July November Ms. G.M. Akapelwa NED √ √ x xMr. G. Robinson NED √ √ √ √ Mr. E. Drok NED √ √ √ n/eMs. M.T’Lam NED n/e n/e n/e √ Mr. H. Mulder ED √ √ √ √


Mr. E Drok resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the Committee.Ms T’Lam was appointed as a Director on 16th October 2017 and was not eligible to attend prior meetings of the Committee.

(d) Human Resources and Remuneration Commi�eeThe Commi�ee provides oversight over the remuneration and compensation for all sta� in the Bank, except the Executive Management whose remuneration and compensation is determined by the Nominations and Governance Commi�ee. This function of the Commi�ee seeks to retain and motivate sta� to perform at the level of the quality required.

Currently, the Bank participates annually in local market surveys and those focusing on the rest of Africa in order to ensure market-related salaries are paid and that market related trends are also followed when changes are made to employee benefits. The remuneration of all managerial sta� in the Bank is also linked to their individual performance.



The a�endance by the Directors during the year was as follows:

Director’s name Category of director February April July November Ms. G.M. Akapelwa NED x √ x xMr. E. Drok NED √ √ √ n/eMr. G. Robinson NED √ √ √ √ Ms. C. Lumpa NED x √ √ √ Mr. H.Mulder ED √ √ √ √


Mr. E Drok resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the Committee.

(e) Nominations and Governance Commi�eeThe Nominations and Governance Commi�ee is chaired by the Board Chairperson and consists of a total of four Non-Executive Directors. The Commi�ee meets at least once a year and assists the Board in identifying and recruiting competent and qualified candidates for Board membership, chairpersons of Board, Board Commi�ees, Commi�ee members and members of Executive Management. The Commi�ee operates under a formal charter approved by the Board. The Commi�ee assesses the e�ectiveness of the Board, Board Director’s a�endance of Board and Board Commi�ee meetings. The Commi�ee further reviews the adequacy of governance principles and practices of Board Directors.

Director’s name Category of director February April July September October November Ms. C.C. Lumpa NED x √ √ √ √ √ Mr. H. Mtine NED (On Invitation) n/e n/e n/e √ √ √ Ms. G.M. Akapelwa NED √ √ x √ √ xMr. G. Robinson NED √ √ √ √ √ √ Mr. E. Drok NED √ √ √ n/e n/e n/eMr. H. Mulder ED √ √ √ √ √ √


Mr. E Drok resigned from the Board on 1st September 2017 and was not eligible to attend subsequent meetings of the Committee.Mr H Mtine was invited to attend three meetings of the Committee which were called for the purpose of interviewing Board Directorship candidates.

Company SecretaryThe Board appoints the Company Secretary and all Board Members have access to the services of the Company Secretary. Where necessary, the Board may seek independent professional advice on any ma�er.

The Company Secretary:• Ensures that the Annual calendar for Board meetings is circulated to all Board Members a¬er approval;• Ensures that adequate information is provided to all the Members prior to commencement of the Board and Board Commi�ee meetings;• Ensures the culture of Good Corporate Governance is promoted;• Serves as key liaison with the Bank of Zambia, the Securities and Exchange Commission (SEC), the Lusaka Securities Exchange (LuSE) and the Patents and Companies Registration Agency (PACRA);• Ensures that Statutory Registers are maintained;• Acts as the key liaison for investors and contact point for shareholders;• Ensures that the Board is updated on relevant statutory amendments and developments; and• Ensures the induction and continuous training of Directors to enable the Board discharge their responsibilities.

External AuditThe external auditors are responsible for reporting on whether the financial statements are fairly presented in accordance with International Financial Reporting Standards and in the manner required by the Zambian Companies Act and the Banking and Financial Services Act. Consultation occurs between external and internal auditors to e�ect an e�icient audit process. The external auditors consider all the reports issued by the Internal Audit Department and which are duly supplied to them by the Bank.



Internal AuditInternal audit is an independent, objective assurance and consulting activity designed to add value to the Bank as well as to improve its operations. It helps the Bank accomplish its objectives by bringing a systematic and disciplined approach to evaluating and improving Risk Management, control and governance processes.

The Internal Audit function encompasses the examination and evaluation of the adequacy, e�ectiveness and e�iciency of Governance, Risk Management and Control processes.

The Internal Audit Department (IAD) evaluates and makes appropriate recommendations for improving the governance process in promoting appropriate ethical values in the Bank as well as ensuring e�ective bank performance management and accountability.

The IAD evaluates the e�ectiveness and adequacy of the Risk Management Framework of the Bank and contributes to the improvement of Risk Management processes. IAD provides the Board with the objective assurance that the major business risks are being managed appropriately and the Risk Management and Internal Control Framework is operating e�ectively. The IAD also evaluates the risk involved in governance, operations, and information systems that relate to compliance with laws, regulations, policies, procedures, and contracts. Internal audit plans are prepared annually by using a risk assessment model that ensures audit resources are directed towards high-risk areas that are consistent with the Bank’s strategic and operational goals.

The plan is developed in consultation with Management and the Audit Commi�ee to ensure their input and expectations are considered in the planning process. IAD also considers proposed consulting engagements based on the engagement’s potential to improve the management of risk and Bank’s operations. The audit plan is then approved by the Audit Commi�ee to ensure independence of the Internal Audit function. The Head Internal Audit functionally reports to the Audit Commi�ee and, administratively, to the Managing Director.

The Internal Audit function is governed by an Internal Audit Charter which defines its purpose, authority and responsibility. The Internal Audit Charter is reviewed and updated to meet best international practices at least once a year. The IAD assists the Bank in maintaining e�ective controls by evaluating their e�ectiveness and e�iciency and by promoting continuous improvement. The control processes are expected to ensure, among other things, that:

• The Bank’s strategic objectives are achieved;• Financial and operational information is reliable and possesses integrity;• Operations and programs are performed e�iciently and e�ectively;• Assets are safeguarded; and• Actions and decisions of the Bank are in compliance with laws, regulations, policies, procedures and contracts.

Compliance FunctionThe Bank has an independent Compliance Function with overall responsibility for co-ordinating the identification and management of compliance risk. The Compliance Function is guided by a Compliance Charter, which defines the fundamental principles, roles and responsibilities of the Compliance Function within the Bank, as well as its relationship with Executive Management, the Board of Directors, other control functions and the business.

The Charter is updated periodically to re¢ect the legal and regulatory evolution. The Board of Directors is responsible for formally approving the Compliance Charter. In line with the Compliance Charter, the Compliance Function independently reports to the Board Audit and Compliance Commi�ee on material compliance issues in the Bank through a Compliance quarterly report to enable the Board to appreciate the level of compliance risk and to solicit their timely guidance.

The objectives of the Independent Compliance Function are to:• Identify and evaluate the compliance risks within the Bank;• Organise, co-ordinate and structure compliance related risks and controls;• Control and monitor all measures taken to mitigate compliance risks;• Report to the Executive Management and the Board of Directors as appropriate; and• Act as the compliance advisor within the Bank.

To help guide the Compliance Function, the Compliance Charter is complemented by the Compliance Standards, Anti-Money Laundering Policy and Whistleblowing Policy. The Compliance Function and Compliance programme are subject to an independent review by both an internal and external audit for the appropriateness of the policies and their implementation.

Compliance StandardsThe Compliance Standards re¢ect the Bank’s core values, of which Integrity is the basic principle of the Compliance Function. These Standards describe the behaviours the Bank expects of employees in relation to meeting their compliance obligations. By promoting the integrity and safety of all aspects of the Bank, the Compliance Standards help to build trust in Zanaco.



The key areas covered under the Compliance Standards are:

• Customer Due Diligence and Anti-Money Laundering• Corrupt Practices• Fraud • Con¢icts of Interest• Market Abuse• Treating Customers Fairly• Customer Data Protection• Disclosure and Transparency

Several Compliance training programmes were conducted to members of sta�, as well as agents during the year to help them understand and appreciate their compliance requirements.

Anti-Money Laundering PolicyThe Bank has in place an Anti-Money Laundering Policy, which gives policy statements on how to prevent money laundering, financing of terrorism or proliferation and other o�ences. The Policy takes into account provisions in the Prohibition and Prevention of Money Laundering Act of 2001, Financial Intelligence Centre Act of 2010, Bank of Zambia Anti-Money Laundering and Combating the Financing of Terrorism or Proliferation Directives of 2017 as well as Securities and Exchange Commission Directives on Anti-Money laundering and Countering the Financing of Terrorism or Proliferation of 2017.

Implementation of these policy statements is captured in an Anti-money Laundering Procedures Manual. The two documents have been widely circulated to all sta� to enable them understand how to identify and report suspicious transactions as well as other related obligations. To help in the detection and reporting of suspicious activities the Bank has an Anti-Money Laundering (AML) and Watch List Management (WLM) solution, which automatically screens transactions and names of customers. The Bank, also, conducted several compliance training programmes during the year where members of sta� and agents were trained on the identification and reporting of suspicious activities as well as the obligations that go with the above regulatory requirements.

WhistleblowingThe Whistleblowing Policy is a vital corporate governance tool. It is intended to make it easier for members of sta�, consultants and other service providers to report irregularities in good faith without the fear of adverse consequences for them. The Whistleblowing Policy continues to be a key element in demonstrating the Bank’s commitment to the highest possible standards of transparency, integrity, probity and accountability in its operations with all stakeholders and is in line with the provisions of the Public Interest Disclosure (Protection of Whistleblowers) Act. Protecting the integrity and reputation of the Bank requires the active support of all members of sta� who, in most cases, are the first to notice and who are required to report incidents of suspected fraud, corruption, collusion and coercion and other serious infringements of the rules and policies in force at the Bank.

To enhance whistleblowing reporting, the Bank has a Trusted Person, appointed by the Board, who is an outsider. Bank sta� are required, under the whistleblowing Policy, to report serious concerns of possible malpractice and wrong doing concerning employees of the Bank, by opting to identify themselves or anonymously, to the Trusted Person. The Trusted Person is the entry point for all reports of malpractice for on-ward submission to the Trusted Commi�ee for consideration and resolution. The Bank continued to issue communication to all sta� during the year on the existence of the Whistleblowing Policy and their responsibilities to report cases of malpractice to the Trusted person.

Gender and DiversityIn an e�ort to improve gender awareness in the organisation, the Board approved a Gender Policy which will provide guidance in embedding gender equality in all Bank structures.

Environmental and Social Management PolicyCompliance with Legislation on Environmental and Social aspects of business is increasingly becoming focal measurement points for Good Governance. The Bank’s approach has been to develop and implement innovative monitoring and screening processes that adhere to both its internal guidelines and the Zambian Environmental Laws. Alongside the environmental laws, the Bank has developed an Environmental and Social Management Policy (E and S) that is in full compliance with local environmental laws. In order to operationalise this policy, the Bank has also enhanced its environmental assessment screening process which is an integral part of loan origination and appraisal processes.



The E and S Policy has been refreshed to incorporate counterparty requirements and introducing an E and S Due Diligence (E500) to be used in assessing category A Customers. The policy has been disseminated to all sta� and rolled out to stakeholders by way of a clinic.Broadly, the process is categorised into three parts:

• Category A – Projects with potential significant adverse social or environmental impacts;• Category B – Projects with potential limited adverse social or environmental impacts; and• Category C – Projects with minimal or no significant social or environmental impacts.

As a good corporate citizen, Zanaco continues to actively work towards the realisation of sustainable development. Through its business activities and services, the Bank will continue to support environmental conservation e�orts within its operational scope as well as those in the service supply chain in order to contribute to the realisation of sustainable development in Zambia.

The Bank remains commi�ed to raising sta� awareness on environmental issues and sustainable development and encourages sta� observance of the following at the workplace:

• Preventing of pollution by reducing, reusing and recycling materials and goods purchased;• Encourage energy-saving, reduce water consumption, and promote good housekeeping practices; and• Improve and maintain the quality of the working environment within the Bank and all our branches/a�iliates (internal air quality, water quality, waste management, paper use, energy use, etc).

Internal Environmental ManagementA broad-based approach has been pursued in terms of managing Environmental and Social Management Policy at the place of work. It includes the formation of a cross- function Environmental and Social Management commi�ee made up of sta� from Public Relations,Human Resources, Facilities, Credit and Procurement to spear-head internal Corporate Social Responsibility / Environmental and Social Management activities. An action plan has been devised with specifics for who, what, when status.

The Public Relations and Credit departments are responsible for the joint reporting of the Environmental and Social Management/Corporate Social Responsibility in Bank reporting such as the annual report.

Basel IIThe implementation of the International convergence of Capital Measurement and Capital Standards also known as Basel II is progressing. The Bank is in compliance with the Bank of Zambia regulation regarding the Basel International Convegence on capital measurement

During the year, the Bank submi�ed the 2016 Internal Capital Adequacy Assessment Process (ICAAP) document and Pillar III disclosures to the Bank of Zambia.

Stakeholder managementThe Bank always strives to ensure that it has consistent and e�icient engagement with all its stakeholders. The following was achieved during the year:

Regulators

a) Bank of ZambiaThe Board interacted closely with the Bank of Zambia in following instances:

i. The Board Directors a�ended the Bank of Zambia Workshop on the Corporate Governance Directives that was held on 19th May 2017 at Intercontinental Hotel;ii. The Board Chairperson, on behalf of the Board, a�ended most of the quarterly Governor’s Luncheons organised by the Bank of Zambia Governor; andiii. The Board, through correspondence from the Company Secretary’s o�ice, engaged the Bank of Zambia particularly in relation to the implementation of the Corporate Governance Directives and requests for dispensation in the full implementation of the Directives.

b) Securities and Exchange Commission (SEC)Through the Company Secretary’s o�ice, SEC was engaged regarding notifications of changes on the Board and other compliance filings.

c) The Lusaka Securities Exchange (LuSE)Through the Company Secretary’s o�ice, LuSE was engaged regarding notifications of changes on the Board and other compliance filings.

Shareholdersa) The Board interacted with all the shareholders during the 2017 Annual General Meeting in which shareholders present were free to make their comments on, and ask questions on various ma�ers relating to the Bank which were all addressed.

b) The Company Secretary also interacted with shareholders, on behalf of the Board, though the resolution of the various shareholder queries that came through the Company Secretary’s o�ice throughout the year.



Governmenta) Farmer Support Input ProgrammeThe Bank assisted the Ministry of Finance, the Ministry of Agriculture and Smart Zambia in finding a solution to ensure the smooth running of the Programme.b) Participation in the Luapula ExpoThe Bank participated in the Expo as an exhibitor and sponsor and engaged with the Government at various levels.

c) Provision of Financing to Industrial Development Corporation (IDC)The Bank provided USD3M financing to IDC.

d) Credit Guarantee SchemeThe Bank assisted the Government in se�ing up the Scheme through the provision of technical assistance and sta�ing.

Customersa) Resolution of customer complaints and concerns

i. Customer service complaint processes were reviewed in 2017 to improve the service delivery and compliant resolution timelines.ii. Customer contact channels to the Bank were increased to include Facebook and Whatsapp, apart from the already existing phone calls and emails.iii. The Call Centre head count was increased to manage the increased customer needs following the digitisation of the Bank.iv. Call Centre Sta� training arrangements were concluded last year and training is to be rolled out this year.

b) Promotion of products and servicesi. The Bank embarked on the promotion of products and services through Facebook amongst other media platforms.ii. The Bank undertook media campaigns for Zanaco Express to create awareness, amongst the Bank’s customers, of the Zanaco Express Agents in order to decongest the Bank.iii. The Zanaco Mobile App was launched to improve the digital provision of products and services to the customers.

Employeesa) Several town halls were held in 2017 in which employees engaged with Management. During the town halls the Strategy of the Bank was discussed in detail and the buy in of the employees obtained. Additionally, employees were given an opportunity to make their comments and ask questions on various ma�ers relating to the Bank, which were addressed.

b) Management also sought and obtained feedback from employees on their view of the Bank through the quarterly net promoters score.

c) Branch visits in various parts of the Country were also undertaken.

CommunitiesThe Bank undertook various corporate social responsibility activities which included the following:

a) 2017 Financial Fitness Programme24,319 people benefi�ed from the countrywide Financial Fitness programme which took place during the Financial Literacy Week and targeted children, the youth, employees and entrepreneurs.

b) Water and Sanitation600 school children and over 2,000 members of the community benefi�ed from the Bank’s donation of a mechanised water system to Muyawa Primary School in Masaiti District. The donation was aimed at contributing to a clean, safe and healthy school and community environment.

c) Community SupportThe Bank o�ered support to several learning institutions and low income communities including the Chengelo Training Farm Centre. The donation covered the cost for part of the construction for the training centre.

Financial Sector PlayersThe Bank interacted closely with other players in the sector through the quarterly meetings of the Bankers Association of Zambia and in which Association, all Banks are represented.



SuppliersThe Bank, through the Supply Chain Management Unit, engaged suppliers on a one on one basis at contract award, contract renewal or contract termination. Further an avenue of communication was put in place through email, phone calls or personal engagement with contract managers or the Supply Chain Management team.

The MediaThe Bank paid courtesy calls to various electronic and print media houses to strengthen the collaboration between the Bank and those media houses. The Bank additionally had informal social gatherings with representatives of the various electronic and print media houses.

Employee WellnessThe Bank continues to promote wellness by participating and initiating work-place programmes that can be implemented and operated in a way that creates sustainable value to both the organisation and employees.

In 2017 a number of wellness activities were conducted:

• Eye checkup and Health Checkups were done for members of sta� in Branches and Head O�ice (approximately 180 sta� were a�ended to) by Phil Optician and Vision Care during the course of the year.

• Annual Employee Fitness event by Defined Style Fitness where 40 members of sta� participated. This also included health check up, health talks with Medlink.

• Team Building activities also took place which involved some physical activities centered around building stronger teams and relationships.


CORPORATE SOCIAL RESPONSIBILITY

A. INTRODUCTIONAs Zanaco, we remain commi�ed to operating in a manner that strives to help improve lives of our customers and the community. Our Corporate Social Responsibility (CSR) focuses on building financial capabilities for individuals and businesses through the Financial Fitness programme. We believe that financial health helps individuals; households; and industry grow and succeed. We further commit to meeting prevailing social economic challenges such as access to water.

B. FINANCIAL FITNESS Helping citizens manage their finances be�er through financial education and other capacity building initiatives remained our focus in 2017. This is one way of promoting wealth creation among citizens thereby driving economic growth. In addition to innovative products and distribution channels to support financial inclusion, we focus on promoting financial literacy and general entrepreneurship.

During the period under review 24,319 people were reached through the Financial Fitness programme targeting children, youth, employees and entrepreneurs. Our members of sta� were actively involved in general sensitisation that included country wide commemorations such as the Financial Literacy Week and world savings day.

Some of the notable institutions the Bank worked with are Levy Mwanawasa General Hospital, Lusaka City Council, Ndola City

1. Winner of the 2017 LuSE Corporate Governance Award2. 1st Position Excellency in Financial Education – Bankers Association of Zambia3. Best Theme Interpretation award - 2017 BOZ Governor’s award3. Financial Literacy Legacy Award - 2017 BOZ Governor’s award

Council and Churches Health Association of Zambia (CHAZ). The Bank recognises the critical role such institutions play in citizen’s key life events such as health services, family planning, marriage and acquiring of critical assets such as land. Empowering citizens with knowledge to meet the financial obligations associated with the life events proved to be beneficial among the target audience. Activities supported included training of trainers in Financial Literacy and making donations towards facilities to help improve service delivery. Health institutions were further sensitised on the strong link between financial management and health.

Improvements in financial outcomes through financial planning, saving, investment and proper use of credit have been observed among most target groups. Financial Fitness helps consumers gain from most productive use of financial resources and products and avoidance of undue risks.

AwardsOur Financial Fitness programme continues to receive wide recognition as evidenced from awards received.

1

2

3


CORPORATE SOCIAL RESPONSIBILITY

D. COMMUNITY SUPPORTThe Bank o�ered support to several institutions and low income communities. Among those partnered with is Chengelo Farm Training centre. The donation covered costs for part of the construction for the training centre. Chengelo Training Farm has a vision to instil a passion for agriculture in school children, farm workers, and farmers. The training centre aims at producing trainees with practical, marketable skills to feed into the Zambian agricultural industry. The farm is located in Mkushi District, Central Province.

Zanaco continues partnering with APTERS Zambia (Appropriate Paper Technology) through provision of used paper to help make lives of children with disabilities be�er through production and provision of assistive devices using waste paper. Donation of used paper promotes environmental protection while meeting the needs of children with disabilities.

C. WATER AND SANITATIONZanaco acknowledges the importance of water to health and general wellbeing of citizens. As the People’s Bank,it has a role to play in supplementing government e�ort in providing clean water to a�ected communities. In Zambia, a significant part of the population does not have access to clean water or improved water sources. The most a�ected populations reside in rural areas and densely populated urban communities. Women, children and the sick bear the greatest burden of poor access to clean water.

In 2017, Zanaco donated a mechanised water system to Muyawa Primary School in Masaiti District with the aim of contributing to a

clean, safe and healthy school and community environment. Benefiting from the water system are 600 School children and over 2,000 community members. The water system is comprised of solar power, water pump, water tank, tank stand and piping connecting 5 taps to supply piped water to Muyawa primary school and surrounding community. Water support was also provided to Habitat for Humanity for construction of a water kiosk to help improve access to water in low income communities.

Section 164(6) of the Companies Act, 1994 (as amended) requires the Directors to prepare �nancial statements for each �nancial year which give a true and fair view of the state of a�airs of the Bank and of the pro�t or loss for that period.

The Directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual �nancial statements and related information. The independent external auditors, Messrs PricewaterhouseCoopers, have audited the annual �nancial statements and their report is shown on pages 37 - 40.

The Directors are also responsible for the systems of internal control. These are designed to provide reasonable, but not absolute assurance as to the reliability of the �nancial statements and to adequately safeguard, verify and maintain accountability for assets and to prevent and detect material misstatements. The systems are implemented and monitored by suitably trained personnel with an appropriate segregation of authority and duties. Nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

The annual �nancial statements are prepared on a going concern basis. Nothing has come to the attention of the Directors to indicate that the Bank will not remain a going concern in the foreseeable future.

In the opinion of the Directors:

• The statement of profit or loss is drawn up so as to give a true and fair view of the profit of the Bank for the financial year ended 31 December 2017;• The statement of financial position is drawn up so as to give a true and fair view of the state of affairs of the Bank as at 31 December 2017;• There are reasonable grounds to believe that the Bank will be able to pay its debts as and when they fall due; and• The financial statements have been prepared in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1994 (as amended), Securities Act, No. 41 of 2016 and the Banking and Financial Services Act,1994 (as amended).

Signed on behalf

_______________________ _______________________Director Director _______________________ _______________________Director Secretary


STATEMENT OF RESPONSIBILITY FOR ANNUAL FINANCIAL STATEMENTS

_______________________


Report on the audit of the financial statements Our OpinionIn our opinion, the financial statements give a true and fair view of the financial position of Zambia National Commercial Bank Plc (the “Bank”) as at 31 December 2017, and of its financial performance and its cash ¢ows for the year then ended in accordance with International Financial Reporting Standards and the requirements of Zambia Companies Act and the Zambia Banking and Financial Services Act and the Securities Act of Zambia.

What we have auditedThe financial statements of Zambia National Commercial Bank Plc as set out on pages 41 to 96 and comprise:• statement of financial position as at 31 December 2017;• statement of profit or loss;• statement of other comprehensive income for the year then ended;• statement of changes in equity for the year then ended;• statement of cash ¢ows for the year then ended; and• notes to the financial statements, which include a summary of significant accounting policies.

Basis for opinionWe 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 financial statements section of our report. We believe that the audit evidence we have obtained is su�icient and appropriate to provide a basis for our opinion.

IndependenceWe are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) that are relevant to our audit of the financial statements in Zambia. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

Key audit ma¤ersKey audit ma�ers are those ma�ers that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These ma�ers were addressed in the context of our audit of the Bank financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these ma�ers.

i) Impairment provision for loans and advances to customers

Impairment provision for loans and advances to customers

Management exercises judgement when determining both when and how much to record as loan impairment provisions. Judgement is applied to determine the appropriate parameters and assumptions used to estimate the provision. These judgements, together with the value of loans and advances to customers (K3, 223 million) make this a key audit ma�er.

The bank assesses individual impairment for the following categories:

• Term loans past due for more than 90 days

• Overdra¬ facilities – if the facility has expired but remains outstanding, if the outstanding balance exceeds the approved facility limit or if the facility is not performing (for example it appears to develop a hard core balance even if below the approved facility limit)

For these individually assessed loans and advances, judgements are applied in estimating the recoverable amounts of contractual

Identification of loans subject to specific impairment provision

• As the identification of loans subjected to specific impairment assessment is reliant on information systems, we understood and tested key information technology general controls, controls over access to data, controls over creation of data and controls over changes to data.

• We tested that the system appropriately identifies past due loans and overdra¬s that are above the approved limits or those that have expired.

• We tested that the system accurately calculates the number of days past due.

• We performed audit procedures regarding:- the appropriateness of the criteria used by management to identify facilities that should be assessed individually for impairment; and

Key audit ma¤er How our audit addressed the key audit ma¤er

INDEPENDENT AUDITOR’S REPORTTo the to the Shareholders of Zambia National Commercial Bank Plc

PricewaterhouseCoopers, PwC Place, Stand No 2374, Thabo Mbeki Road, P.O. Box 30942, Lusaka, ZambiaT: +260 (211) 334 000 , F: +260(211) 256474, www.pwc.com/zm

A list of Partners is available from the address above


cash ¢ows from debt servicing and/or cash ¢ows from the realisation of collateral, in estimating the recovery period and in estimating the recovery costs.

When estimating the impairment provision for collectively assessed loans and advances, judgements are applied in determining the probability of default, the loss given default and the emergence period.

Further details on loans and advances have been disclosed in the Note 16 of the financial statements..

Other information The Directors are responsible for the other information. The other information comprises the information included in the Bank’s Annual Report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

- the identification and inclusion of restructured facilities in the specific impairment assessment Identification of facilities subject to collective impairment

• We tested that all facilities not individually assessed for impairment were included in the collective impairment assessment.• We tested for the inclusion in the collective impairment assessment, of loans and advances for which no impairment provision was required to be recorded following individual impairment assessment

Impairment assessment for individually assessed loans and advances

Where impairment assessment was based on debt servicing cash ¢ows, we challenged management’s assumptions underlying the expected cash ¢ows to establish their reasonableness and recomputed the discounted cash ¢ows using the applicable original e�ective interest rate.

Impairment assessment for individually assessed loans and advances (continued)

Where impairment assessment was based on recovery of securities held as collateral:

• For physical assets related collateral, we agreed their forced sale values to collateral valuation reports.

• For cash cover related securities, we agreed the cash cover to restricted cash deposits included in deposits from customers.

• We challenged management’s assumptions regarding the recovery costs and recovery period used in determining the recoverable amount of collateral.

Impairment assessment for collectively assessed loans and advances

We performed audit procedures regarding the reasonableness of the probability of default, loss given default and emergency period, and we compared the impairment provision recorded using this basis to the impairment provision that would have arisen by applying the adjusted historical loss ratio to the loans and advances portfolio subject to collective impairment assessment.




In connection with our audit of the 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 financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information, 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 financial statements

The Directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of the Zambia Companies Act, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, ma�ers related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so. The Directors are responsible for overseeing the Bank’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the 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 in¢uence the economic decisions of users taken on the basis of these 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 financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is su�icient 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 e�ectiveness of the Bank’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 Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw a�ention in our auditor’s report to the related disclosures in the 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 Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain su�icient appropriate audit evidence regarding the financial information of the entities or business activities within the Bank to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the Bank audit. We remain solely responsible for our audit opinion.

We communicate with the Directors regarding, among other ma�ers, 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 ma�ers that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the ma�ers communicated with the Directors, we determine those ma�ers that were of most significance in the audit of the financial statements of the current period and are therefore the key audit ma�ers. We describe these ma�ers in our auditor’s report unless law or regulation precludes public disclosure about the ma�er or when, in extremely rare circumstances, we determine that a ma�er 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.

Report on other legal and regulatory requirements

The Zambia Companies Act requires that in carrying out our audit we consider whether the Bank has kept proper accounting records, other records and registers as required by this Act.In our opinion, based on our examination of those records, the Bank has kept proper accounting records, other records and registers as required by the Zambia Companies Act.

In respect of the foregoing requirements, we have no ma¤er to report.

In addition, the Zambia Banking and Financial Services Act require that our audit report should state whether, among other ma�ers, Zambia National Commercial Bank Plc has complied with the provisions of the Act. In accordance with the requirements of the Zambia Banking and Financial Services Act, we are required to report to you whether:

i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii) there are transactions or conditions a�ecting the ability of the Bank to continue as a going concern which have come to our a�ention and that in our opinion are not satisfactory and require rectification;

iii) the Bank had 6 non-performing or restructured loans with a total value of K668 million whose individual values exceeded 5% of the Bank’s regulatory capital. These have been included in the impairment provisions as per note 16 in the financial statements. In accordance with the requirements of Rule 18 of the Securities (Accounting and Financial Requirements) Rules, Statutory Instrument No.163 of 1993, we confirm that:

i) the annual financial statements of the Bank have been properly prepared in accordance with SEC rules:ii) the Bank has, throughout the financial year, kept proper accounting records in accordance with the requirements of SEC rules;iii) the statement of financial position, income statement and statement of comprehensive income are in agreement with the Bank’s accounting records;iv) we have obtained all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.

PricewaterhouseCoopersChartered Accountants Lusaka 7th March 2018

Andrew ChibuyePracticing Certificate Number: AUD/F002378Partner signing on behalf of the firm

for the year ended 31 December 2017

Interest incomeInterest expense

Net interest income

Fee and commission income Other operating income

Total Operating income

Impairment on loans and advancesNet operating income Operating expensesTransformation costs

Profit/(loss) before income tax

Income tax expense

Profit/(loss) for the year

Basic and diluted earnings/(loss) per share (Kwacha)

NOTES

45

67

16

88

9

10

12

2017 K’ 000

1,231,551 (313,526)

918,025

496,997 22,661

1,437,683

(248,353) 1,189,330

(942,437) (67,308)

179,585

(65,466)

114,119

0.079

Restated2016

K’ 000

1,024,236 (227,527)

796,709

392,863 21,219

1,210,791

(208,652) 1,002,139 (895,723) (166,160)

(59,744)

(2,058)

(61,802)

(0.043)

FINANCIALS | STATEMENT OF PROFIT OR LOSS

The notes on pages 46 to 96 are an intergral part of these financial statements


Profit/(loss) for the year

Other comprehensive income, net of income tax

Items that may be reclassified to profit or lossLoss on available-for-sale financial assetsTax relating to revaluation of available for sale assets

Items that will not be reclassified to profit or lossRemeasurement of the net defined benefit assetMovement on revaluation surplus property and equipmentTax relating to items that will not be reclassified to profit or loss

Other comprehensive income for the year, net of tax

Total comprehensive income/(loss) for the year

The notes on pages 46 to 96 are an intergral part of these financial statements

NOTES

30

2330

2017 K’ 000

114,119

(6,765) 2,368

(4,397)

21,646 45,107

(23,363) 43,390

38,993

153,112

Restated2016

K’ 000

(61,802)

2,640 (924) 1,716

1,793 -

(116) 1,677

3,393

(58,409)

for the year ended 31 December 2017FINANCIALS | STATEMENT OF OTHER COMPREHENSIVE INCOME


ASSETSCash and balances with Bank of ZambiaBalances with other banksFinancial Investment - available for saleLoans and advances to customersCurrent tax assetsDeferred tax assetsOther assets Property and equipment

Total assets

LIABILITIESCustomer depositsDeposits from other banksDeferred tax liabilitiesCurrent tax liabilitiesOther liabilitiesProvisions for liabilities and chargesBorrowings

Total liabilities

EQUITYShare capitalShare premiumStatutory reservesGeneral reservesRevaluation reservesRetained earnings

Total equity

Total equity and liabilities

NOTES

1314151610221718

20212210242526

2727282930

Certain amounts shown here do not correspond to the 2016 �nancial statements and re�ect adjustments made, refer to Note 39. The �nancial statements on pages 41 to 96 were approved for issue by the Board of Directors on 7 March 2018 and signed on its behalf by: The notes on pages 46 to 96 are an intergral part of these �nancial statements Director Director Director Secretary

2017 K’ 000

1,598,457 804,773

3,099,659 3,223,173

5,468 109,709 411,786

290,063

9,543,088

7,454,624 130

- 28,132

311,920 39,367

684,863

8,519,036

86,625 2,622

86,625 231,215 79,855 537,110

1,024,052

9,543,088

Restated*2016

K’ 000

2,541,635 838,507 769,742

3,187,597 24,084 41,345

361,026 237,868

8,001,804

6,256,182 3,033

- -

218,189 92,804

560,656

7,130,864

86,625 2,622

86,625 167,500 54,932

472,636

870,940

8,001,804

for the year ended 31 December 2017FINANCIALS | STATEMENT OF FINANCIAL POSITION

2015K’ 000

1,626,539 1,167,784 1,134,338

3,446,554 16,707

- 283,795 270,055

7,945,772

6,033,084 1

10,206 -

198,349 410

663,438

6,905,488

86,625 2,622

86,625 299,409

51,314 513,689

1,040,284

7,945,772


At 1 January 2016Profit for the yearImpact on restatement (Note 39)Restated loss for the year

Other comprehensive income:Gain on available-for-sale financial assets (note 30)Tax on available-for-sale finanacial assetsTax on revalued propertiesReversal of excess depreciation (Note 30)Tax on excess deprecationRemeasurement of the net defined benefit asset (Note 23)Tax on Remeasurement of the net defined benefit assetTotal comprehensive incomeTransactions with owners: Dividend paid (Note 11)General reserve transfer (Note 29)Impact on restatement (Note 39)

At 31 December 2016

Share capital K’000

86,625 - --

-

- - - - -

- - -

-

86,625

Share premium

K’000

2,622 - --

-

- - - - -

- - -

-

2,622

Statutory reserves

K’000

86,625 - --

-

- - - - -

- - -

-

86,625

Revaluation reserves

K’000

51,314 - - -

2,640 (924)

512 (2,599)

909 -

538

- -

3,080

3,618

54,932

General reserves

K’000

299,409 - - -

-

-

- -

-

- 101,640

(233,549)

(131,909)

167,500

Retained earnings

K’000

513,689 30,106

(91,908) (61,802)

-

2,599 (909) 1,793

(628) (58,947)

(43,313) (101,640)

162,847

(41,053)

472,636

Total K’000

1,040,284

30,106 (91,908) (61,802)

2,640 (924)

512

- 1,793

(628) (58,409)

(43,313) -

(67,622)

(169,344)

870,940

for the year ended 31 December 2017FINANCIALS | STATEMENT OF CHANGES IN EQUITY


* Certain amounts shown here do not correspond to the 2016 financial statements and re�ect adjustments made, refer to Note 39.The notes on pages 46 to 96 are an intergral part of these financial statements

At 1 January 2017Profit for the year

Other comprehensive income:Revaluation surplus property and equipment (Note 30)Tax on revaluation of property and equipmentLoss on available-for-sale financial assets (Note 30)Tax on available for sale financial assetsRemeasurement of the net defined benefit asset (Note 23)Tax on Remeasurement of the net defined benefit assetTotal comprehensive incomeGeneral reserve transfer

At 31 December 2017

Share capital K’000

86,625 -

--

- -

- -

- - -

86,625

Share premium

K’000

2,622 -

--

- -

- -

- -

-

2,622

Statutory reserves

K’000

86,625 -

--

- -

- -

- -

-

86,625

Revaluation reserves

K’000

54,932 -

45,107 (15,787) (6,765)

2,368 - -

24,923 -

24,923

79,855

General reserves

K’000

167,500 -

- - - - - - -

63,715

63,715

231,215

Retained earnings

K’000

472,636 114,119

----

21,646 (7,576)

128,189 (63,715)

64,474

537,110

Total K’000

870,940

114,119

45,107 (15,787) (6,765)

2,368 21,646 (7,576) 153,112

-

153,112

1,024,052

Cash ¡ows from operating activitiesProfit before income taxAdjustments for:Impairment loss recognised on loans and advancesImpairment loss recognised on other assetsNet exchange (gains)/losses on borrowingsGain on sale of propertyDepreciation expenseCash ¡ows from operating activities before changes in operating assets and liabilities

Changes in operating assets and liabilities:- loans and advances to customers- statutory depositsother assets- Corporate Bonds- customer depositsother liabilities- financial investment - available for sale

Cash generated from operations

Withholding tax su¡eredTax paid during the year

Net cash generated from operating activities

Cash ¡ows from investing activitiesPurchase of property and equipmentProceeds from sale of property and equipment

Net cash used in investing activities

Cash ¡ows from financing activitiesProceeds from borrowingsRepayment of borrowingsDividends paid

Net cash used in financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

NOTES

161726

18

1010

18

262611

32

2017 K’ 000

179,585

248,353 (22,502)

1,259 (3,179) 53,136

456,652

(35,576)445,123

(50,760) -

1,198,442 40,295

(2,825,733) (1,228,209)

(39,455) (62,560)

(102,015)(1,330,224)

(65,507) 3,682

(61,825)

302,250 (179,302)

-

122,948

(812,450)

2,325,162

1,512,712

Restated2016

K’ 000

(59,744)

208,651 11,094

(61,053) (543)

56,948

155,353

(13,260) (32,768) (79,762) (11,985) 222,654 118,061

404,223 607,163

(33,465) (44,772) (78,237)528,926

(24,838) 622

(24,216)

298,500 (340,229)

(43,313)

(85,042)

575,021

1,750,141

2,325,162

for the year ended 31 December 2017FINANCIALS | STATEMENT OF CASH FLOWS


The notes on pages 46 to 96 are an intergral part of these financial statements Certain amounts shown here do not correspond to the 2016 financial statements and re�ect adjustments made, refer to Note 39.

1. CORPORATE INFORMATION The Zambia National Commercial Bank Plc (the “Bank”) is incorporated and domiciled in Zambia under the Companies Act, 1994 (as amended) as a limited liability Company. The address of its registered o ice is: Plot 2118 - 2121 Cairo Road Lusaka The Bank’s principal activities are the provision of commercial banking and related services to the general public. The financial statements for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of the directors on 7 March 2018. 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2.1 Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”). 2.2 Basis of preparation and presentation of financial statements The financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below: Historical cost is generally based on the fair value of the consideration given in exchange for goods and services at the time of the transactions. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Bank takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as value in IAS 2 or value in use in IAS 36. The financial statements are presented in Zambian Kwacha (K) and all values are rounded to the nearest thousand Kwacha, except when otherwise indicated. The Bank presents its statement of financial position in order of liquidity. Financial assets and financial liabilities are generally reported gross in the statement of financial position. They are only o set and reported net when, in addition to having an unconditional legally enforceable right to o set the recognised amounts without being contingent on a future event, the parties also intend to se�le on a net basis in all of the following circumstances: • The normal course of business • The event of default • The event of insolvency or bankruptcy of the Bank and/or its counterparties Positions recognised on a net basis primarily include balances with exchanges, clearing houses and brokers. Derivative assets and liabilities

for the year ended 31 December 2017FINANCIALS | NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


with master ne�ing arrangements are only presented net when they satisfy the eligibility of ne�ing for all of the above criteria and not just in the event of default. Going concern The Bank’s management has made an assessment of the Bank’s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt on the Bank’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. The principal accounting policies are set out below: 2.3 Interest income and expense Interest income and expense for all interest-bearing financial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognised within ‘interest income’ or ‘interest expense’ in profit or loss using the e ective interest method. Interest income from a financial asset is recognised when it is probable that the economic benefits will �ow to the Bank and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the e ective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. E�ective interest rate The e ective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The e ective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. The calculation of the e ective interest rate includes all fees paid or received between parties to the contract that are an integral part of the e ective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been wri�en down as a result of an impairment loss, interest income is recognised using the rate of interest that was used to discount the future cash �ows for the purpose of measuring the impairment loss. 2.4 Fees and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the e ective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank has retained no part of the loan package for itself or has retained a part at the same e ective interest rate as the other participants. Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party - such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of business - are recognised on completion of the underlying transaction. 2.5 Translation of foreign currencies (i) Functional and presentation Items included in the financial statements are measured using the currency of the primary economic environment in which the Bank operates (the “functional currency”). The financial statements are presented in Zambia Kwacha (“K”) which is the Bank’s presentation currency. (ii) Transaction and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

FINANCIALS | NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


2.2 Basis of preparation and presentation of financial statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


Foreign exchange gains and losses resulting from the se�lement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit or loss account. Monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items denominated in foreign currency are not retranslated. Exchange di erences are recognised in profit or loss in the year in which they arise. 2.6 Financial assets Financial assets are recognised when the Bank becomes a party to the contractual provisions of the instruments. Financial assets are initially measured at fair value. Transaction costs that are directly a�ributed to acquisition or issue of financial assets (other than financial assets at fair value through profit or loss) are added to or deducted from the fair value of the financial assets as appropriate, on initial recognition. Transaction costs directly a�ributed to the acquisition of financial assets at fair value through profit and loss (FVTPL) are recognised immediately in the profit or loss. The Bank classifies its financial assets into the following categories: financial assets at fair value through profit or loss; loans, advances and receivables; held-to-maturity financial assets; and available-for-sale assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Management determines the appropriate classification of its financial assets at initial recognition. (i) Loans, advances and receivables Loans, advances and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including bank balances and cash) are measured at amortised cost using the e ective interest method, less any impairment. Interest income is recognised by applying the e ective interest rate, except for short term receivables when the recognition of interest would be immaterial. (ii) Available for sale Available-for-Sale (“AFS”) financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency rates (see above), interest income calculated using the e ective interest method and dividends on AFS equity investments are recognised in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. (iii) Impairment of financial assets The Bank assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred a¦er initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash �ows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:

(a) significant financial di iculty of the issuer or obligor; (b) a breach of contract, such as a default or delinquency in interest or principal payments; (c) the lender, for economic or legal reasons relating to the borrower’s financial di iculty, granting to the borrower a concession that the lender would not otherwise consider; (d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (e) the disappearance of an active market for that financial asset because of financial di iculties; or



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)2.5 Translation of foreign currencies (continued)(ii) Transaction and balances (continued)

(f) observable data indicating that there is a measurable decrease in the estimated future cash �ows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: i) adverse changes in the payment status of borrowers in the portfolio; and

ii) national or local economic conditions that correlate with defaults on the assets in the portfolio. The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between 3 months and 6 months. Future cash �ows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash �ows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to re�ect the e ects of current conditions that did not a ect the period on which the historical loss experience is based and to remove the e ects of conditions in the historical period that do not exist currently. When a loan is uncollectible, it is wri�en o against the related provision for loan impairment. Such loans are wri�en o a¦er all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously wri�en o decrease the amount of the provision for loan impairment in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring a¦er the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss. (iv) Assets carried at amortised cost The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the di erence between the asset’s carrying amount and the present value of estimated future cash �ows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s original e ective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit and loss account. If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current e ective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. The calculation of the present value of the estimated future cash �ows of a collateralised financial asset re�ects the cash �ows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash �ows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. (v) Assets carried at fair value In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the di erence between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)2.6 Financial assets (continued) (iii) Impairment of financial assets (continued)

in profit or loss on equity instruments are not reversed through profit or loss account. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring a¦er the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss account.

(vi) Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due. 2.7 Derecognition of financial assets The Bank derecognises a financial asset only when the contractual rights to the cash �ows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Bank recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Bank retains substantially all the risks and rewards of ownership of a transferred financial asset, the Bank continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the di erence between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

(i) Recognition and measurements

On derecognition of a financial asset other than in its entirety (e.g. when the Bank retains an option to repurchase part of a transferred asset), the Bank allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The di erence between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts. 2.8 Property and equipment All property and equipment except buildings is stated at historical cost. Items of property and equipment are subsequently measured at cost less accumulated depreciation and accumulated impairment losses and property is subsequently measured at fair value less accumulated depreciation. Buildings are stated in the statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent impairment losses. It is the Bank’s policy to perform revaluations with regularity such that the carrying amounts do not di er materially from those that would be determined using fair values every three years. The revaluation di erences are credited to other comprehensive income and accumulated in equity under the heading “revaluation surplus” unless it represents the reversal of a revaluation decrease previously recognized as an expense, in which case it should be recognized as income. A decrease as a result of a revaluation is recognized as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset. When a revalued asset is disposed , any revaluation surplus is transferred directly to retained earnings. Cost includes expenditure that is directly a�ributable to the acquisition of the asset. The cost includes the cost of materials and direct labour and any other costs directly a�ributable to bringing the assets to a working condition for their intended use. Purchased so¦ware that is integral to the functionality of the related equipment is capitalized as party of that equipment. When parts of an item of property and equipment have di erent useful lives, they are componentized as separate items of property and equipment.



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.6 Financial assets (continued) (iii) Impairment of financial assets (continued)

Capital work in progress relates to items of property and equipment that are under construction and are yet to be commissioned for use. Work in progress is measured at the cost incurred in relation to the construction up to the reporting date. The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property and equipment, and is recognized net within other operating income in the statement of profit or loss. (ii) Subsequent costs The cost of replacing a component of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will �ow to the Bank and its cost can be measured reliably. The carrying amount of the replaced component is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred. (iii) Depreciation Depreciation is based on the cost of the asset less its residual value. Components of individual assets are assessed and if a component has a useful life that is di erent from the remainder of that asset, that component is depreciated separately. Capital work in progress is not depreciated. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property and equipment. The estimated useful lives are as follows: Buildings 50 years Fixtures, fi�ings and equipment 5 years Motor vehicles 5 years (iv) Other ma£ers The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. The Bank assesses at each reporting date whether there is any indication that any item of property and equipment is impaired. If any such indication exists, the Bank estimates the recoverable amount of the relevant assets. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are assessed at the lowest levels for which there are separately identifiable cash �ows (cash-generating units). A reversal of an impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. 2.9 Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. (i) Current tax The tax currently payable is based on taxable profit for the year. Taxable profit di ers from profit as reported in profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Bank’s liability for current tax is calculated using tax rates that have been enacted by the reporting date.



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8 Property and equipment (continued)(i) Recognition and measurements

(ii) Deferred tax Deferred tax is recognised on di erences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary di erences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary di erences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that su icient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is se�led or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are o set when there is a legally enforceable right to set o current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Bank intends to se�le its current tax assets and liabilities on a net basis. 2.10 Employee benefits (i) Retirement benefit obligations De�ned contribution plan The Bank and all its employees contribute to the National Pension Scheme, which is a defined contribution scheme. A defined contribution plan is a retirement benefit plan under which the Bank pays fixed contributions into a separate entity. The Bank’s contributions to the defined contribution schemes are charged to profit or loss in the year in which they fall due. De�ned bene�t plan The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Bank and employees. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the e ect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is re�ected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is re�ected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows: • Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and se�lements).• Net interest expense or income.• Remeasurement. The Bank presents the first two components of defined benefit costs in profit or loss in the line item employee benefits expense. Curtailment gains and losses are accounted for as past service costs. The retirement benefit obligation recognised in the statement of financial position represents the actual deficit or surplus in the Bank’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)2.9 Taxation (continued)

A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the o er of the termination benefit and when the entity recognises any related restructuring costs.

(ii) Short-term and other long-term employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash out�ows expected to be made by the Group in respect of services provided by employees up to the reporting date. (iii) Contributions from employees or third parties to defined benefit plans Discretionary contributions made by employees or third parties reduce service cost upon payment of these contributions to the plan. When the formal terms of the plans specify that there will be contributions from employees or third parties, the accounting depends on whether the contributions are linked to service, as follows:

• If the contributions are not linked to services (e.g. contributions are required to reduce a deficit arising from losses on plan assets or from actuarial losses), they are re�ected in the remeasurement of the net defined benefit liability (asset). • If contributions are linked to services, they reduce service costs. For the amount of contribution that is dependent on the number of years of service, the entity reduces service cost by a�ributing the contributions to periods of service using the a�ribution method required by IAS 19 paragraph 70 for the gross benefits. For the amount of contribution that is independent of the number of years of service, the entity reduces service cost in the period in which the related service is rendered / reduces service cost by a�ributing contributions to the employees’ periods of service in accordance with IAS 19 paragraph 70. 2.11 Financial liabilities and equity Classi�cation as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual agreement. Financial liabilities Financial liabilities are classified as borrowed funds, other payables, other liabilities and amounts due to related parties. Borrowed funds, other payables and other liabilities are initially measured at fair value and are subsequently measured at amortised cost using the e ective interest method.

The e ective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The e ective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Derecognition of �nancial liabilities The Bank derecognises financial liabilities when, and only when, the Bank’s obligations are discharged, cancelled or they expire. The di erence between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)2.10 Employee benefits (continued)(i) Retirement benefit obligations

2.12 O¤se£ing (continued) Financial assets and liabilities are o set and the net amount reported in the statement of financial position when there is a legally enforceable right to set o the recognised amounts and there is an intention to se�le on a net basis, or realise the asset and se�le the liability simultaneously. 2.13 Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) are classified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or re-pledge the collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The di erence between sale and repurchase price is treated as interest and accrued over the life of the agreements using the e ective interest method. Securities lent to counterparties are also retained in the financial statements. 2.14 Share capital Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity. 2.15 Dividends payable Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are not recognised as a liability until declared. 2.16 Fiduciary activities The Bank commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Bank. 2.17 Acceptances and le£ers of credit Acceptances and le�ers of credit are accounted for as o -statement of financial position transactions and disclosed as contingent liabilities.

2.18 Provisions Provisions are recognised when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an out�ow of resources will be required to se�le the obligation; and the amount has been reliably estimated. The amount recognised as a provision is the best estimate of the consideration required to se�le the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote. The Bank recognises no provisions for future operating losses. Where there are a number of similar obligations, the likelihood that an out�ow will be required in se�lement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an out�ow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to se�le the obligation using a pre-tax rate that re�ects current market assessments of the time value of money and the risks specific to the obligation.



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.19 Segment reporting Operating segments are reported in a manner consistent with the internal reporting to the Executive Management Commi�ee. The Executive Management Commi�ee consists of the Chieif Executive o icer, Chief Financial o icer, Chief Commercial O icer, Chief Operations O icer and the Cheif Human resources and training o icer who allocates resources to and assesses the performance of the operating segments of the entity. The Executive Management Commi�ee is the Bank’s key management making body. All transactions between business segments are conducted on an arm’s length basis, with intra-segment revenue and cost being eliminated in head o ice. Income and expenses directly associated with each segment are included in determining business segment performance.

2.20 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the e ective interest method; any di erences between proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings.

Borrowings are classified as current liabilities unless the bank has an unconditional right to defer se�lement of the liability for at least 12 months a¦er the balance sheet date.

Under the terms of the major borrowing facilities, the bank is required to comply with various financial covenants as disclosed in note 26.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Bank’s financial statements requires management to make judgements, estimates and assumptions that a ect the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures, as well as the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities a ected in future periods. In the process of applying the Bank’s accounting policies, management has made the following judgements and assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Existing circumstances and assumptions about future developments may change due to circumstances beyond the Bank’s control and are re�ected in the assumptions if and when they occur. Items with the most significant e ect on the amounts recognised in the financial statements with substantial management judgement and/or estimates are collated below with respect to judgements/estimates involved. (a) Impairment losses on loans and advances The Bank reviews its individually significant loans and advances at least quarterly and at each reporting date to assess whether an impairment loss should be recorded in the income statement. The Bank’s impairment methodology for assets carried at amortised cost results in the recording of provisions :for • Specific impairment losses on individually significant or specifically identified exposures; • Collective impairment of: - Individually not significant exposures - Incurred but not yet identified losses (IBNI)

All categories include an element of management’s judgement, in particular for the estimation of the amount and timing of future cash �ows and collateral values when determining impairment losses. These estimates are driven by a number of factors, the changing of which can result in di erent levels of allowances. Additionally, judgements around the inputs and calibration of the collective and IBNI models include the criteria for the identification of smaller homogenous portfolios, the e ect of concentrations of risks and economic data (including levels of unemployment, repayment trends, collateral values such as real estate prices indices for residential mortgages, country risk and the performance of di erent individual groups, and bankruptcy trends), and for determination of the emergence period. The methodology and assumptions are reviewed regularly in the context of actual loss experience.



2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Fair value of financial instruments The fair value of financial instruments 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 at the measurement date under current market conditions (i.e., an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. Judgements and estimates include considerations of liquidity and model inputs related to items such as credit risk (both own and counterparty), funding value adjustments, correlation and volatility. (c) Discount rate used to determine the carrying amount of the Bank’s defined benefit obligation The Bank’s defined benefit obligation is discounted at a rate set by reference to market yields at the end of the reporting period on high quality government bonds (Refer to note 23 for discount rate used). Significant judgement is required when se�ing the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include the issue size of the government bonds, quality of the bonds and the identification of outliers which are excluded. (d) Revaluation of property The Bank reviews the fair value of its property at the end of each reporting period. An independent valuation of the Bank’s properties to determine fair value is carried out by independent valuers. Revaluations are performed with su icient regularity to ensure that the carrying amount does not di er materially from that which would be determined using fair value at the reporting date. (e) Provisions and other contingent liabilities The Bank operates in a regulatory and legal environment that, by nature, has a heightened element of litigation risk inherent to its operations. As a result, it is involved in various litigation, arbitration and regulatory investigations and proceedings both in Zambia and in other jurisdictions, arising in the ordinary course of the Bank’s business.

When the Bank can reliably measure the out�ow of economic benefits in relation to a specific case and considers such out�ows to be probable, the Bank records a provision against the case. Where the probability of out�ow is considered to be remote, or probable, but a reliable estimate cannot be made, a contingent liability is disclosed. However, when the Bank is of the opinion that disclosing these estimates on a case-by-case basis would prejudice their outcome, then the Bank does not include detailed, case-specific disclosers in its financial statements. Given the subjectivity and uncertainty of determining the probability and amount of losses, the Bank takes into account a number of factors including legal advice, the stage of the ma�er and historical evidence from similar incidents. Significant judgement is required to conclude on these estimates.



3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (CONTINUED)



2017 K’000

814,910 401,125 12,487 3,029

1,231,551

280,572 32,954 313,526

126,300 117,523 57,978 23,794 23,995 23,057 16,450 15,974 15,612 13,870 12,289 11,264 7,939 7,729 7,359 6,692 5,228 3,944

496,997

2016 K’000

829,754 172,626

66821,188

1,024,236

194,92832,599227,527

100,779 87,348 31,601 21,146

20,656 20,266 16,308 14,064 12,266 9,855 9,831 6,838 8,666 8,014 4,479 7,203 9,508 4,035

392,863

4 INTEREST INCOME Arising from: Loans and advances Government and other securities Other banks Cash and short term funds

Included in the interest income figure of K1,232 million is interest on non performing loans of K126 million (2016: K116 million) 5 INTEREST EXPENSE Arising on: Customer deposits Borrowings

6 FEE AND COMMISSION INCOME ATM issuer fees Account maintenance fees Sundry Balance inquiry Pay�ex Arrangement and commitment fees Xapit management fees Airtime purchase OTC cash withdrawal Xapit Money Transfer Bill Muster Zanaco Xpress Cash management Excess cash withdrawal Pos Discount Below required minimum balance Le£ers of credit commissions Commission on encashment of salary cheques

Fee and commission income



2017 K’000

14,276 8,385

22,661

463,084 100,408

78,770 53,136

48,858 20,480 20,369 18,625 18,133 17,601 15,079 14,388 14,046 13,584 11,604 8,697 7,976

6,546 5,600 3,829 1,624

942,437 67,308

1,009,745

14,231 16,569 30,800

1,979 430,305 432,284

463,084

2016 K’000

15,145 6,074 21,219

400,660 130,935

87,541 56,948 15,760 17,535 12,822 14,351 9,538

10,552 4,544 11,600 55,548 14,724 24,431

5,162 6,790 7,099 5,044 3,130 1,009

895,723 166,160

1,061,883

10,00619,05429,060

3,725367,875371,600

400,660

(i) Transformation costs relates to voluntary separation payment and consultancy costs.

(ii) Employee benefits mainly relate to Basic Salary, Housing Allowance, Annual Leave pay, Car Allowance, Upkeep, Fuel Allowance and Medical Scheme Cost.

7 OTHER OPERATING INCOME Net Exchange gain Sundry operating income

8 OPERATING EXPENSES The following items are included within operating expenses:

Employee benefits expense ( see note below)Information technology expensesOthersDepreciation of property and equipment (note 18)Professional feesRentZanaco Football club costsSecurity expensesTravelling expensesBank of Zambia supervisory feesAdvertising expensesVisa expensesLegal feesCash in transitStationeryBank chargesSubscriptionsScheme Loans admistrative chargesDirectors’ remunerationDonationsAuditors’ remuneration

Transformation Costs (i)

Employee benefits expense: The following items are included within employee benefits expense: Post-employment benefits

Defined contribution plans Defined benefit plans

Termination benefits Employee benefits (ii)

Total employee benefits expense

9 PROFIT/(LOSS) BEFORE INCOME TAX Profit before tax stated a§er crediting: Interest receivable from other Banks Exchange gains and a§er charging: Depreciation Interest payable to other banks Pension costs Directors emoluments - fees and expenses Donations

10 INCOME TAX EXPENSE Current tax Under provision of tax in prior year Deferred tax (note 22) The movement during the year in Withholding tax (WHT) balances is as follows: At beginning of year Recoveries o¡set against tax liability Withholding tax su¡ered during the year At end of year The movement during the year in the current tax balance is as follows: Tax recoverable at beginning of year

Payable in respect of the year Tax paid during the year WHT tax recoveries in respect of current year Tax from prior year Tax payable/(recoverable) at end of year The tax on the Bank’s profit before income tax di¡ers from the theoretical amount that would arise using the statutory income tax rate as follows:

Profit before income tax Tax calculated at the statutory income tax rate of 35% (2016: 35%) Tax e¡ect of: Under provision of tax in prior year Expenses not deductible for tax purposes Income tax expense

2016 K’000

(59,744)

6686,074

56,94832,59929,060

5,0443,130

50,453 20,852

(69,247)2,058

(3,179) 33,465

(33,908)(3,622)

(13,528) 50,453

(44,773) (33,465)

20,851 (20,462)

(59,744)

(20,909)

20,851 2,116

2,058



2017 K’000

179,585

12,4878,385

53,13632,954

30,800 5,600 3,829

150,532 64

(85,130)65,466

(3,622) 39,455

(41,301)(5,468)

(20,462) 150,545

(62,560) (39,455)

64 28,132

179,585

62,854

64 2,548

65,466

11 DIVIDENDS PAID

The dividend paid in the year 2016 was in respect of the year ended 31 December 2015 representing K0.03 per share. The Board did not recommend a dividend for the year ended 31 December 2017.

Payment of dividends is subject to withholding tax (WHT) at the rate of 15% for resident and non-resident shareholders. However, where there is a double tax treaty, the WHT will be subject to the rates in the treaty. Furthermore, the WHT is taxed at zero percent for individuals because the Bank is listed on the Lusaka Stock Exchange.

12 EARNINGS/(LOSS) PER SHARE Basic earnings/(loss) per share is calculated by dividing the profit/(loss) aër tax a£ributed to equity holders of the Bank by weighted average number of shares in issue during the year. Profit/(loss) a£ributable to equity holdersWeighted number of ordinary shares in issue (thousands)

Basic and diluted earnings/(loss) per share (Kwacha)There are no potentially dilutive shares, hence diluted earnings per share is the same as the basic earnings per share.

13 CASH AND BALANCES WITH BANK OF ZAMBIA Cash in hand Balances with Bank of Zambia *Provision *This provision relates to long outstanding items on Bank of Zambia Current Account under investigation. All balances are considered current

14 BALANCES WITH OTHER BANKS Items in course of collection Placements with other banks Current balances with other banks Balances with banks abroad

All balances are considered current

15 FINANCIAL INVESTMENTS AVAILABLE FOR SALE Available for sale Treasury Bills Government securities at fair value - Maturing aër 90 days of the date of acquisition Total available for sale Treasury Bills

Available for sale Bonds - Maturing aër 90 days of the date of acquisition Total available for sale Bonds Total investment securities Current Non current



2016 K’000

43,313

(61,802) 1,443,750

(0.043)

353,999 2,202,985

2,556,984 (15,349)

2,541,635

-

60,273 60,273

778,234 838,507

679,613 679,613

90,129 90,129

769,742

224,010 545,732

769,742

2017 K’000

-

114,119

1,443,750

0.079

403,535 1,195,869

1,599,404 (947)

1,598,457

999 284,723 285,722 519,051 804,773

2,516,576 2,516,576

583,083 583,083

3,099,659

2,584,865 514,794

3,099,659

The movement in Government Bonds and Treasury Bills available for sale investments may be summarised as follows:

At 1 January 2017 Additions Disposals (redemption) (Loss)/Gain from changes in fair value At 31 December 2017 At 1 January 2016 Additions Disposals (redemption) (Loss) from changes in fair value At 31 December 2016

. 16 LOANS AND ADVANCES TO CUSTOMERS



Total K’000

769,742 3,052,700(709,859)

(12,924)

3,099,659

1,134,338 734,643

(1,101,879) 2,640

769,742

Government Bonds K’000

90,129 532,696 (30,797) (8,945)

583,083

68,113 53,445

(35,654)4,225

90,129

Treasury Bills K’000

679,613

2,520,004 (679,062)

(3,979)

2,516,576

1,066,225 681,198

(1,066,225) (1,585)

679,613

Interest on the Treasury bills is receivable on maturity and at varying rates between 9% and 26%. The treasury bills mature on various dates between 26 th February 2018 and 25th December 2018. Interest on Government bonds are received semi-annually at varying rates between 15% and 25%. The bonds mature on various dates between 30 August 2018 and 25 May 2027

2017 K ‘000

1,694,778 974,959 857,956

271,171 1,109

3,799,973

(493,143) (83,657)

(576,800) 3,223,173

535,960 2,687,213

3,223,173

2016 K ‘000

1,568,318 884,298 847,368 274,120

11,505

3,585,609

(392,650) (5,362)

(398,012) 3,187,597

559,164 2,628,433

3,187,597

Commercial loans Personal loans Overdra¨s Mortgages Others Gross loans and advances Less: Provision for impairment of loans and advances - Individually assessed - Collectively assessed Net loans and advances Current Non-current

15 FINANCIAL INVESTMENTS AVAILABLE FOR SALE (CONTINUED)

17 OTHER ASSETS Prepayments and other receivables Allowance for doubtful debts (i) Sta¡ loans marked to market (ii) Card operations Defined benefit surplus (note 23) Investment in Zambia Electronic Clearing House Limited (iii) All balances are current(i) Movement in the allowance for doubtful debts Balance at beginning of year (Credit)/Charge for the year Balance at end of the year The significant increase in the movement of allowance for doubtful debts in the previous was due to unreconciled suspense amounts. (ii) Reconciliation Sta¤ Loans Marked -to- Market At beginning of year Current year fair value adjustment Amortisation to profit or loss



Personal loans

K’ 000

47,318

59,081 (33,130)

73,269 59,081

41,048

6,270 -

6,270

47,318

Commercial overdra§s

K’ 000

74,590

54,355 (10,324)

118,621 54,355

39,945

34,645 -

34,645

74,590

Personal overdra§s

K’ 000

25,601

18,006 (12,418)

31,189

18,006

15,682

12,284 (2,365)

9,919

25,601

MOVEMENT IN PROVISIONS FOR IMPAIRMENT AND LOANS AND ADVANCES ARE AS FOLLOWS:

TotalK’ 000

398,012

248,353 (69,566)

576,800 248,353

191,726

208,652 (2,365)

206,286

398,012

Commercial loans

K’ 000

250,503

116,911 (13,694)

353,720 116,911

95,051

155,453 -

155,452

250,503

At 1 January 2017

Charge for the yearWrite o¡s

At 31 December 2017Net impairment charge

At 1 January 2016

Charge for the yearWrite-o¡

At 31 December 2016

Net impairment charge

2016 K’000

124,317 (53,170)

71,147

200,760 30,629 58,183

307

361,026

42,076 11,094 53,170

142,703 100,328

243,031 (42,271) 200,760

2017 K’000

73,949 (30,668)

43,281

190,005 110,448

67,747 307

411,786

53,170

(22,502) 30,668

200,760 36,051

236,811

(46,806) 190,005

All impaired loans have been wri£en down to their estimated recoverable amount. The aggregate carrying amount of impaired loans at 31 December 2017 was K1,110 million (2016: K855 million). Included in the impairment provisions is a K70 million for additional impairments that may arise from the review of the migration of the loan book that was undertaken in 2014.

16 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

17 OTHER ASSETS (CONTINUED)

Employee loans and advances are o¡ered on concessionary rates. House, Car and personal development loans are enhanced by collateral of landed property and in the case of car loans, the vehicle registration certificate is endorsed with the Bank as absolute owner.

Where sta¡ loans are issued to members of sta¡ at concessionary rates, fair value is calculated based on market rates. This will result in the long term sta¡ loans benefit as shown above.

The consessionary rates applied in the year were as follows: 2017 2016 % %

Personal loan 12 12Personal Development loan 12 12House 8 8Car loan 8 8

Interest income earned on sta¡ loans and advances 30,298 28,522

The bank adjusted the interest received on sta¡ loans by the market rate of 27%.

(iii) Zambia Electronic Clearing House Limited

The investment in Zambia Electronic Clearing House Limited (“ZECHL”) represents the Bank’s contribution to the set up costs for the establishment of the National Switch to enhance ZECHL functionality, more specifically to support electronic point of sale transactions to help minimise cash based transactions and their a£endant costs and risks. The principal activity of ZECHL is the electronic clearing of cheques and direct debits and credits in Zambia for its member banks. The ZECHL is funded by contributions from member banks. As there is no reliable measure of the fair value of this investment, it is carried at cost, and regularly reviewed for impairment at each reporting date.



Capital work in

progressK’ 000

31,288 (25,469)

-

5,819 10,008

----

15,827

- - - - --

-

-

15,827

5,819

Motor VehiclesK’ 000

14,610 4,712

(1,502)

17,820 10,478

- -

(5,588) -

22,710

12,095 1,782

(1,425) 12,452

3,759 (5,429)

-

10,782

11,928

5,368

Cost or valuation

Balance at 1 January 2016AdditionsDisposals

Balance at 31 December 2016AdditionsRevaluation SurplusElimination of depreciation on valuationDisposalsImpairment loss at revaluationBalance at 31 December 2017

Accumulated depreciation and impairmentBalance at 1 January 2016Charge for yearDisposalBalance at 31 December 2016Charge for yearDisposalsElimination of depreciation on valuation

Balance at 31 December 2017

Carrying amountAt 31 December 2017

At 31 December 2016

Fixture, fi£ings and equipment

K’ 000

289,280 31,812

-

321,092 38,837

----

359,929

232,276 34,209

- 266,485

31,652 -

-

298,137

61,792

54,607

Buildings

K’ 000

142,005 5,786

-

147,791 1,148

45,107 (8,465)

- (5,124)

180,457

3,069 3,005

- 6,074 3,003

-(8,465)

612

179,845

141,717

IntangibleAssetsK’ 000

81,761 7,997

-

89,758 5,036

----

94,794

41,449 17,952

59,401 14,722

--

74,123

20,671

30,357

TotalK’ 000

558,944 24,838 (1,502)

582,280 65,507 45,107

(8,465) (5,588) (5,124) 673,717

288,889 56,948 (1,425)

344,412 53,136

(5,429) (8,465)

383,654

290,063

237,868

18 PROPERTY AND EQUIPMENT

Included in the intangible assets are IT so¨wares both internally generated and purchased. An independent valuation of the Bank’s Leasehold buildings was carried out by Messer’s Five star properties to determine the fair value of the buildings as at 31 December 2017. The valuation conforms to Valuation Manual standards as determined by reference to IAS 16: – Property, Plant and Equipment. Had the buildings been measured on historical cost basis, their carrying amount would be as follows:

Cost Accumulated depreciation Carrying amount

19 CAPITAL COMMITMENTS Authorised and contracted for The commitments are current and will be met from internally generated funds and borrowings

20 CUSTOMER DEPOSITS Current and demand deposits Savings accounts Fixed deposit accounts Current

21 DEPOSITS FROM OTHER BANKS Items in course of collection

22 DEFERRED TAX Deferred tax is calculated using the enacted income tax rate of 35% (2016: 35%). The movement on the deferred tax is as follows; At beginning of year Temporal timing di¡erences (Note 10) Deferred tax movement to reserves

At end of year

18 PROPERTY AND EQUIPMENT (CONTINUED)



2016 K’000

59,742 (5,386)

54,356

1,547

3,943,7541,384,032

928,396

6,256,182

6,256,182

3,033

(9,698) 69,247

(18,204)

41,345

2017 K’000

60,890 (5,409)

55,481

8,703

3,868,7521,634,6921,951,180

7,454,624

7,454,624

130

41,345 85,130

(16,766)

109,709

In accordance with section 193 of the Companies Act (as amended), 1994 the Register of Land and Buildings is available for inspection by members and their duly authorised agents at the Registered Records O¡ice of the Bank.

23 RETIREMENT BENEFIT OBLIGATIONS Defined contribution plan Defined contribution plans are a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold su¡icient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Bank’s contributions to the defined contribution schemes are charged to profit or loss in the year to which they relate. The Bank has no further obligation once contributions have been paid. The total expense recognised in profit or loss of K16,563,000 (2016: K19,054,000) represents contributions payable to these plans by the Bank at rates specified in the rules of the plans. National Pension Scheme The Bank and all its employees contribute to the National Pension Scheme (“NAPSA”), which is a statutory defined contribution plan. Defined benefit plan The Bank sponsors funded defined benefit plans for qualifying employees. The defined benefit plans are administered by a separate Fund that is legally separated from the Bank. The board of the pension fund is composed of an equal number of representatives from both employers and (former) employees. The board of the pension fund is required by law and by its articles of association to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees, employers. The board of the pension fund is responsible for the investment policy with regard to the assets of the fund.

At endof yearK’ 000

(22,233) (23,804)

(23,711) (69,748)

(1,081) 176,015

4,523 179,457

109,709

(8,017)(23,370)(20,364)

(51,751)

(3,270)2,155

94,21193,096

41,345

2017

Deferred tax liabilitiesProperty and equipmentRevaluation surplusDefined benefit plan

Deferred tax assetsDeferred arrangement feesCredit impairmentRevaluation of available for sale assets

Net deferred tax asset/(liability)

2016

Deferred tax liabilitiesRevaluation surplusProperty and equipmentDefined benefit plan

Deferred tax assetsDeferred arrangement feesRevaluation of available for sale assetsCredit impairment

Net deferred tax asset

(Charged)Creditedto profit

or lossK’ 000

1 1,137 --

1,137

2,189

81,804

83,993

85,130

-804

-804

(110)-

68,55368,443

69,247

Creditedto equity

K’ 000

- (15,787) (3,347)

(19,134)

--

2,368 2,368

(16,766)

512 -

(17,792)(17,280)

- (924)

-(924)

(18,204)

At beginning

of yearK’ 000

(23,370) (8,017)

(20,364) (51,751)

(3,270) 94,211

2,155 93,096

41,345

(8,529) (24,174) (2,572)(35,275)

(3,160) 3,079

25,65825,577

(9,698)



22 DEFERRED TAX (CONTINUED)

The risk relating to benefits to be paid to the dependants of plan members (widow and orphan benefits) is re-insured by an external insurance company. No other provisions are provided to these employees.

Defined benefit plan The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligation were carried out as at 31 December 2017 by Independent Actuarial Consultancy of Johannesburg, South Africa. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the projected unit credit method. The principal assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate % Expected rate of salary increase %

Average longevity at retirement age for current employees (future pensioners) in years Males Females

Amounts recognised in comprehensive income in respect of these defined benefit plans are as follows

Service cost: Current service cost Net interest expense Components of defined benefit costs recognised in profit or loss Remeasurement: Actuarial (gains)/losses arising from changes in financial assumptions Actuarial losses arising from experience adjustments Net return on plan assets(excluding included in net interest expense) Components of defined benefit income/(cost) recognised in other comprehensive income

23 RETIREMENT BENEFIT OBLIGATIONS (CONTINUED)



The scheme typically exposes the Bank to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk. The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan asset is below this rate, it will create a plan deficit. Currently the plan has a relatively balanced investment in equity securities, debt instruments and real estates. Due to the long-term nature of the plan liabilities, the board of the pension fund considers it appropriate that a reasonable portion of the plan assets should be invested in equity securities and in real estate to leverage the return generated by the fund.

A decrease in the bond interest rate will increase the plan liability; however, this will be partially o¡set by an increase in the return on the plan’s debt investments. The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and aër their employment. An increase in the life expectancy of the plan participants will increase the plan’s liability. The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plan’s liability.

Investment risk

Interest risk

Longevity risk

Salary risk

2016

22 17

21 25

2016K’000

8,210 22,245 30,455

2,974 (24,563)

23,382

1,793

2017

18.5 12.5

22

26

2017K’000

13,183 23,744 36,927

15,594 (18,077)

24,129

21,646


The current service cost and the net interest expense for the year are included in the employee benefits expense in profit or loss K36,927,103 (2016:K30,455,000). In addition, an expense of K16,563,000 (2016:K19,054,000) has been recognised as employer contributions included in the statement of profit or loss. The amount included in the statement of financial position arising from the entity’s obligation in respect of its defined benefit plans is as follows:



Present value of funded defined benefit obligation Fair value of plan assets Funded status

Net surplus arising from defined benefit obligation

Reconciled as follows: At 1 January At 31 December Movement in defined benefit obligation Movements in the present value of the defined benefit obligation in the current year were as follows: Opening defined benefit obligation Age adjustment Current service cost Interest cost Remeasurement (gains) losses: Actuarial gains arising from changes in financial assumptions Actuarial losses arising from experience adjustments Benefits paid Closing defined benefit obligation Movements in the fair value of the plan assets in the current year were as follows: Opening fair value of plan assets restatement remeasurement gain Return on plan assets (excluding amounts included ‘in net interest expense) Others (funded expenses) Contributions from the employer Contributions from plan participants Benefits paid Closing fair value of plan assets The fair value of the plan assets at the end of the reporting period for each category, are as follows: Cash and cash equivalents Equity investments categorised by industry type: – Consumer industry – Manufacturing industry – Energy and utilities – Financial institutions – ICT and telecom Sub total

7,349 58,183

50,834

186,606 (49,936)

8,210 22,245

(2,974) 24,563

(61,534)

127,180

193,954 - -

35,739 (12,357)

19,707 9,854

(61,534)185,363

36,943

9,401 12,771 3,847 19,251

89 82,302

58,183 67,746

9,563

127,180 -

13,183 23,744

(15,594) 18,077

(53,658)

112,932

185,363 (13,639)

-37,768

- 16,563 8,282

(53,658)180,679

30,444

223 735

4,644 33,919

- 69,965

2017 K’000

(112,932)

180,678

67,746

67,746

2016 K’000

(127,180)

185,363

58,183

58,183



Defined benefit plans (Continued) Debt investments categorised by issuers’ credit rating: – AAA – BBB and lower – not rated Subtotal Properties categorised by nature and location: – Retail shops – Commercial properties – Residential properties Subtotal Total

2016 K’000

2,734

22,898 16,542

42,174

1,583 20,580 38,724

60,887

185,363

2017 K’000

-

49,009 15,215

64,224

1,186 15,424 29,880

46,490

180,679


The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets whereas the fair values of properties and derivatives are not based on quoted market prices in active markets. It is the policy of the fund to use interest rate swaps to hedge its exposure to interest rate risk. Foreign currency exposures are fully hedged by the use of the forward foreign exchange contracts. The actual return on plan assets was 22% (2016: 19%). Significant actuarial assumptions for the determination of the defined obligation are discount rate, expected salary increase and mortality. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant. • If the discount rate is 100 basis points higher (lower), the defined benefit obligation would decrease by K8,091,000 (increase by K7,992,000). • If the expected salary growth increases (decreases) by 1%, the defined benefit obligation would increase by K13,585,000 (decrease by K15,849,000). • If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligation would decrease by K9,406,000 (increase by K17,605,000) The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position. There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years. Each year an Asset-Liability-Matching study is performed in which the consequences of the strategic investment policies are analysed in terms of risk-and-return profiles. Investment and contribution policies are integrated within this study. Main strategic choices that are formulated in the actuarial and technical policy document of the Fund are: • Asset mix based on 40% equity instruments and 60% debt instruments. • Interest rate sensitivity caused by the duration of the defined benefit obligation should be reduced by 40% by the use of debt • • instruments in combination with interest rate swaps. • Maintaining an equity bu¡er that gives a 85% assurance that assets are su¡icient within the next 12 months.




There has been no change in the process used by the Bank to manage its risks from prior periods. The Bank fund the cost of the entitlements expected to be earned on a yearly basis. Employees pay a fixed 10% of pensionable salary. The residual contribution (including back service payments) is paid by the Bank. The funding requirements are based on the local actuarial measurement framework. In this framework the discount rate is set on a risk free rate. Furthermore, premiums are determined on a current salary base. Additional liabilities stemming from past service due to salary increases (back-service liabilities) are paid immediately to the Fund.

The average duration of the benefit obligation at 31 December 2017 is 11.6 years (2016: 12.6 years). This number can be analysed as follows: • active members: years 11.6 years (2015: 13.18 years); • deferred members: zero years (2015: 0 years); and • retired members: zero years (2015: 0 years).

Defined benefit plans (continued)

Reconciliation of funded status Present value of obligations Fair value of plan assets Surplus Prepaid pension cost Prepaid pension cost aër asset ceiling restriction 24 OTHER LIABILITIES Accrued expenses Sundry payables VISA transactions payable Deferred arrangement fees Bills payable Statutory payments

All balances are current

25 PROVISIONS FOR LIABILITIES AND CHARGES

At 1 January 2016 Provision Payment At 31 December 2016

At 1 January 2017 Provision Payment At 31 December 2017

All balances are current

2016 K’ 000

(127,180) 185,363 58,183 58,183 58,183

75,620 64,430 40,198

13,411 13,037 11,493

218,189

Total K’ 000

410 92,804

(410) 92,804

92,804 39,379

(92,816) 39,367

2017 K’ 000

(112,932) 180,679

67,747 67,747 67,747

76,558 82,684 107,183 16,690 9,908

18,897

311,920

Provision for legal

claims K’ 000

- - - -

- 1,500

- 1,500

Employee benefits

obligations K’ 000

410 92,804

(410) 92,804

92,804 37,879

(92,816) 37,867



26 BORROWINGS

Payable to: Deutsche Investitions und entwicklungsgesellscha¨ mbh (DEG) Nederlandse financierings-Maatschappij Voor Ontwikkelingslanden N.V Pour LA Cooperation Economique International Financing Corporation African Development Bank

The movement during the year was as follows: At beginning of year Repayments during the year Proceeds from borrowings Net exchange losses At end of year

Repayable as follows: 1 - 12 months 1 - 3 years 3 - 5 years Aër 5 years

Current Non-current

2016 K’ 000

173,250148,500148,50049,50040,906

560,656

663,438 (340,229)

298,500 (61,053) 560,656

160,187 295,625 104,844

- 560,656

167,735392,921

560,656

2017 K’ 000

302,222 176,319 176,319

- 30,003

684,863

560,656 (179,302)

302,250 1,259

684,863

255,355 429,508

- -

684,863

268,794416,069

684,863

The Bank obtained a foreign currency facility of US$10 million from African Development Bank (ADB) in 2010 at 6 months libor plus 3.5% margin. The loan matures in August 2019. The Bank also secured a US$25 million facility from Deutsche investitutions-Undi Entwiciclungsgellscha¨ mbh (DEG) in 2013 at 6 months libor plus a margin of 3.35%. The loan matures in April 2020. The Bank further secured a USD$60 million from Deutsche investitutions-Undi Entwiciclungsgellscha¨ mbh (DEG), Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V (FMO) and Societe de Promotion et de Participation pour la Cooperation Economique (PROPARCO) in 2015 at 6 months libor plus a margin of 3.4%. The loan matures in October 2020. The purpose of these loans is for onward lending to the Bank’s customers.

Under the terms of the FMO and PROPARCO loan, the Bank is required to observe inter alia, the following financial covenants: Covenants

- Capital adequacy ratio: Minimum 12%- Open loan exposure ratio: not to exceed 25%- Single loan exposure: not to exceed 5%- Net Stable fundling Ratio: Minimum 100%- Government Ratio: not to exceed 42%- Cost to income ratio: not exceed 72.5%

The only financial covenant to be observed under the terms of the ADB loan is as follows: - Capital adequacy ratio: Minimum 10%

The financial covenants to be observed under the terms of the DEG loan is as follows: - Capital adequacy ratio: Minimum 12%- Open loan exposure ratio: not to exceed 25%- Related party lending ratio: not to exceed 20%- Net interest margin: Minimum 2%- Cost to income ratio: not exceed 72.5% - Market Risk 25%- liquidity ratio <300- Single group exposure 25There were no securities pledged as collateral for the borrowings.The Bank is not in breach with any of the financial covenants from their lenders who are currently FMO, DEG, ADB and PROPACO. The Bank maintains a guarantee with Rabobank of K95 million (2016:K45 million) as disclosed in note 33(c).

27 SHARE CAPITAL



The total authorised number of ordinary shares is 1,666,666,667 (2016: 1,666,666,667) with a par value of 6 Ngwee per share. 1,443,750,000 (2016: 1,443,750,000) shares are issued and fully paid.

Below is the shareholding structure: Rabo International Advisory Services Arise BV Government of Zambia National Pension Scheme Authority Lizara Investments Limited (as nominees for Zambia National Farmers Union) Africa Life Financial Services Limited managed funds Public Service Pension Fund Mukuba Pension Trust Fund Other Total 28 STATUTORY RESERVES At beginning and end of year The regulatory reserve represents an appropriation from retained earnings to comply with SI No.182 of 1995. 29 GENERAL RESERVES At beginning of year Transfer to (from) retained earnings At end of year

The balance in the general banking reserve represents the excess of impairment provisions determined in accordance with the Bank of Zambia prudential regulations over the impairment provisions recognised in accordance with IFRS. Where the IFRS impairment exceeds the Bank of Zambia provisioning, a reversal is done from general banking reserves to revenue reserves.

30 REVALUATION RESERVES

Property and equipmentAt beginning of yearRevaluation surplusTransfer of excess depreciationDeferred tax on revaluation (note 22)Deferred tax on excess depreciationAt end of year

Available for sale financial assetsAt beginning of yearLoss/(gain) on available for sale financial assetsDeferred tax on available for sale financial assets At end of year



Share premium

K’ 000

2,622

2,622

Ordinary sharesK’ 000

86,625

86,625

Number of shares

1,443,750,000

1,443,750,000

2016 %

45.59

- 25.00

8.91 3.41 3.04 2.76 2.27 9.02 100

86,625

299,409

(131,909)

167,500

2017 %

-

45.59 25.00

8.91 3.41 3.04 2.76 2.27 9.02 100

86,625

167,500 63,715

231,215

2016 K’ 000

60,113 -

(2,599) 512 910

58,935

(5,719) 2,640 (924)

(4,003)

2017 K’ 000

58,935 45,107

- (15,787)

- 88,255

(4,003) (6,765)

2,368 (8,400)

31 OFF STATEMENT OF FINANCIAL POSITION, FINANCIAL INSTRUMENTS, CONTINGENT LIABILITIES AND COMMITMENTS In common with other banks, the Bank conducts business involving acceptances, le£ers of credit, guarantees, performance bonds and indemnities. The majority of these facilities are o¡set by corresponding obligations of third parties.

Contingent liabilities

Acceptances and le£ers of credit Guarantees and performance bonds

Nature of contingent liabilities An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Bank expects most acceptances to be presented, and reimbursement by the customer is normally immediate. Le£ers of credit commit the Bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers. Guarantees are generally wri£en by a bank to support performance by a customer to third parties. The Bank will only be required to meet these obligations in the event of the customer’s default.

Other commitments

Undrawn stand-by facilities, credit lines and other commitments to lend

Nature of commitments Commitments to lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The Bank may withdraw from its contractual obligation for the undrawn portion of agreed overdra¨ limits by giving reasonable notice to the customer.

32 ANALYSIS OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE STATEMENT CASH FLOWS STATEMENT

Cash and balances with Bank of Zambia (Note 13) Less: Statutory deposits requirement Government and other securities

Balances with other banks (Note 14) Amounts due to Banking Institutions (Note 21)

30 REVALUATION RESERVES (CONTINUED)

Total revaluation reserves Property and equipment Available for sale investment At end of year

2016K’ 000

58,935 (4,003)

54,932

2017 K’ 000

88,255 (8,400)

79,855

2016 K’ 000

194,431 104,121

298,552

2017 K’ 000

241,215 33,622

274,837

2016 K’ 000

210,792

2017 K’ 000

674,102



2016 K’ 000

2,541,635 (1,049,789)

58,115

1,549,961

778,234 (3,033)

2,325,162

2017 K’ 000

1,598,457 (604,666)

-

993,791

519,051 (130)

1,512,712

(a) Loans to Directors

Loans and advances issued at arm’s length to companies controlled by Directors.

(b) Directors’ interests in the Bank As at 31 December 2017, no Directors held an interest in the Bank, as recorded in the register and on the Lusaka Stock Exchange.

(c) Shareholder’s guarantee

During the year, the Government had guaranteed outstanding le£ers of credit and a loan in respect of two public sector entities all amounting to K45,029,664(2016: K228,086,000).

Rabobank has issued guarantee of K95,000,000(2016:K45,000,000).The guarantee relates to K45,000,000 on VISA clearing obligations and K50,000,000 le£er of credit issued on behalf of Zanaco customers

(d) Key management personnel compensation

Salaries and other short-term employment benefits

The Chief Executive O¡icer is seconded from Rabobank, a significant shareholder of the Bank.

(e) Management fees paid to Rabo International Advisory Services (RIAS) /Arise B.V. Fees relate to the secondment of sta¡ by the Shareholder to the Bank. This is based on the agreed contract.

(f) Other reportable items (i) There were no loans held with Rabo Bank or Arise BV. (ii) There were no deposits with Directors.

(g) Non Executive Directors’ remuneration In connection with the management of the Bank as Directors of the Bank.

32 ANALYSIS OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE STATEMENT CASH FLOWS STATEMENT (CONTINUED)



2016 K’ 000

13,568

2017 K’ 000

15,103

2016 K’ 000

30,934

2017 K’ 000

41,817

10,307

--

5,044

10,772

--

5,600

For the purposes of the statement of cash �ows, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with the Bank of Zambia, Treasury Bills and other eligible bills, and amounts due from other banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Zambia.

Banks are required to maintain a prescribed minimum cash balance with the Bank of Zambia that is not available to finance the Bank’s day-to-day activities. The amount is determined as 8% of the average outstanding customer deposits over a cash reserve cycle period of one week.

The Bank’s major shareholder is Arise e¡ective 30 June 2017. Arise is a partnership between Rabobank, FMO and Norfund. There are no other companies which are related to Zambia National Commercial Bank Plc, listed on the Lusaka Stock Exchange. Government of the Republic of Zambia through the Industrial development Company, IDC hold a 25% interest in the Bank.

In the normal course of business, current accounts are operated and placings of foreign currencies are made with Rabobank at market rates (arms length).

33 RELATED PARTY TRANSACTIONS

Analysis is as follows:

(i) Director’s fees: Ms. C Lumpa Mr. H Mtine Mr. E Drok Dr. R Simwinga Ms. G Akapelwa Mr. F Weenig Mr. G Robinson Mr. Yamfwa Chinyanta Mr. Patrick Wanjelani Mrs. Mirjam ‘t Lam Mr. Peter Van Jaarsveld Mr. B Dick Mr.H Mulder

(ii) Shareholder deposits Deposits

34 SEGMENT REPORTING Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Executive Management Commi£ee (the chief operating decision-maker),the Chief Executive O¡icer, Chief Financial O¡icer, Chief Commercial O¡icer, Chief Risk O¡icer, Chief Human Resources O¡icer and the Chief Operating O¡icer who are responsible for allocating resources to the reportable segments and assesses its performance.The executive management assesses the performance of All operating segments by using Profit before tax as a way of determining operating segments. The Bank has three main business segments: Retail banking:-incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, safe custody, credit and debit cards, consumer loans and mortgages. Corporate banking:-incorporating direct debit facilities, current accounts, deposits, overdra¨s, loans and other credit facilities and foreign currency. Treasury management:-consists of all treasury transactions, which consists of investments in Government securities, placements, Open market operations and all other transactions related to dealing in foregn currencies. Other Bank operations comprise , Credit and computer services, none of which constitute a separate reportable segment and business activities. As the Bank segment operations are all financial with a majority of revenues deriving from interest and the Executive Management Commi£ee relies primarily on net interest revenues to assess the performance of the segment, the total interest income for all reportable segments is presented on a net basis. The Bank’s management reporting is based on a measure of operating profit comprising net interest income, loan impairment charge, net fee and commission income and other income and these are reported at Before Tax to each segment and are in agreement with IFRS standards as at each reporting date. The information provided about each segment is based on the internal reports about segment profit or loss, which are regularly reviewed by Executive Management Commi£ee.

33 RELATED PARTY TRANSACTIONS (CONTINUED) (g) Non Executive Directors’ remuneration (continued)



994 794 476 284 846 340 695

- - - -

408 207

5,044

1,669,603

933825323658676227799

4747

158162

-745

5,600

2,729,808

2017 K’ 000

2016 K’ 000



. Corporate Banking . Retail Banking . Treasury Business segments as at 31 December 2017

Net interest income (external customers) Non-funded income (external customers) Total income

Operational expenses Impairment

Total operating expenses Profit before tax

Business segments as at 31 December 2016

Net interest income Non-funded income Total income

Operational expenses Impairment

Total operating expenses

Profit before tax

Retail banking

K’ 000

354,511 382,170 736,681

(571,222) (36,496)

(607,718)128,963

331,956 287,034 618,990

(279,208) (73,523)

(352,731)

266,259

TreasuryK’ 000

157,075 14,276 171,351

(91,023) -

(91,023)80,328

178,850 14,446

193,296

(210,490) -

(210,490)

(17,194)

TotalK’ 000

918,025 519,659

1,437,684

(1,009,745) (248,354)

(1,258,099)

179,585

796,709 414,082 1,210,791

(1,061,883) (208,652)

(1,270,535)

(59,744)

OthersK’ 000

- 8,340 8,340

- -

-8,340

- 6,074 6,074

(416,401) -

(416,401)

(410,327)

34 SEGMENT REPORTING Business segments

Corporate banking

K’ 000

406,412 114,901 521,313

(342,376) (211,858)

(554,234)(32,921)

285,903 106,528 392,431

(155,784) (135,129)

(290,913)

101,518


Total assets for reportable segments

Total liabilities for reportable segments


Total assets for reportable segments

Total liabilities for reportable segments

Retail banking

K’ 000

1,483,384

2,265,752

1,151,999

1,978,700

TreasuryK’ 000

5,481,919

49,789

4,089,612

3,033

TotalK’ 000

9,543,088

9,543,088

8,001,804

8,001,804

OthersK’ 000

883,958

2,145,031

774,387

1,916,220

Corporate banking

K’ 000

1,693,828

5,082,515

1,985,807

4,103,851



FINANCIALS | NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

35 LEGAL CLAIMS The Bank currently has two significant legal claims from two groups of ex-employees for additional separation benefits. The ma£er of the first group was litigated in previous years in the Industrial Relations Court and appealed to the Supreme Court where the Supreme Court in August 2017 ordered that the Bank be refunded all monies overpaid to the ex-employees. The ma£er awaits assessment by the Industrial Relations Court on how much the Bank is entitled to recover from the ex-employees.

The ma£er of the second group is yet to be heard in Court and the Bank’s external lawyers have advised that the Bank is likely to succeed as the ex-employees were paid in line with their prevailing conditions of service. Accordingly, no additional liabliities have been raised in these financial statements. 36. EVENTS AFTER THE REPORTING DATE There were no material significant events aër the reporting date that require disclosure in or adjustment to the financial statements for the year ended 31 December 2017. 37 FINANCIAL RISK MANAGEMENT The Bank’s activities expose it to a variety of financial risks which include market risk, currency risk, interest rate risk, credit risk and liquidity risk. Those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the Bank’s business, and the financial risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse e¡ects on its financial performance. Risk management is carried out by the Risk Directorate under policies approved by the Executive Management Commi£ee and Board of Directors. Risk Directorate identifies, evaluates and hedges financial risks in close cooperation with the operating units. In carrying out these functions, Risk Directorate is guided by policies contained in the Credit policy document, Business lending standards, Environmental and social policy, Scheme loans policy and Premier loans policies. 37.1 Credit risk The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss to the Bank by failing to pay amounts in full when due. Credit risk is the most important risk for the Bank’s business: Management therefore carefully manages the exposure to credit risk. Credit exposures arise principally in lending and investment activities. There is also credit risk in o¡-statement of financial position financial instruments, such as loan commitments and guarantees. Credit risk management and control are centralised in the Risk Directorate which reports regularly to the Board of Directors. 37.1 Cash and Balances Held in Other Financial institutions Credit risks arises from cash and cash equivalents, held-to-maturity investments, favorable derivative financial instruments and deposits with banks and financial institutions as well as credit exposures to corporate and retail customers. For banks and financial institutions, foreign currency deposits are placed with o¡shore counterparties based on minimum rating as guided by Central Bank and internal risk - based appetite exposures approved by the Board. Local currency placements are made in line with counterparty limits set by management credit commi£ee and approved by the Board. Internal and external factors are taken into consideration during the se£ing of Limits. The credit quality of an institution is assessed together with the financial position, past experiences and other risk factors. Compliance with credit risk for local and international placements is monitored closely by line management. Held to maturity financial instruments consists of treasury bills and government bonds which are considered to be low risk investments. Exposure towards government securities are made in line with risk - based appetite exposure approved by the Board. Compliance and any changes in holdings of Government securities is regularly monitored in Asset and Liability Commi£ee (ALCO) Meetings.



(i) Credit risk measurement

(a) Loans and advances (including commitments and guarantees)

The estimation of credit exposure is complex and requires the use of processes and procedures that will limit the likelihood of default on the loans in the Bank’s portfolio. The assessment of credit risk of a portfolio of assets entails analysis of various risk aspects and a decision made on whether the risk is bankable. The risks assessed include business, financial, market, management, security, structural and industry.

The Loan Portfolio of the Bank is segregated into seven rating classes:

2 - Loan has no arrears 3 - Loan has arrears over 1 day but less than 29 days 4 - Loan has arrears over 30 days but less than 59 days 5 - Loan has arrears over 60 days but less than 89 days 50 - Loan has arrears over 90 days but less than 119 days 51 - Loan has arrears over 120 days but less than 179 days 52 - Loan has arrears over 180 days

(b) Risk limit and mitigation policies

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower and to industry segments. Such risks are monitored on a revolving basis and subject to annual or more frequent review.

The exposure to any one borrower including other banks is further restricted by sub-limits covering on and o¡-statement of financial position exposures.

For example: 1) There is a single name credit exposure limit of 25% of the regulatory capital; and 2) Clean and secured counterparty limits apply for money market operations conducted by the Treasury Division.

(c ) Collateral

The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: . Mortgages over residential properties; . Charges over business assets such as premises, inventory and accounts receivable;

. Charges over financial instruments such as debt instruments; and

. Cash cover.

Longer-term finance and lending to corporate entities are generally secured. Certain personal credit facilities are generally unsecured.

(d) Lending limit

Credit risk exposure is managed as part of overall lending limits with customers, together with potential exposures from market movements.

Se£lement risk arises in any situation where a payment in cash or securities is made in the expectation of a corresponding receipt in cash or securities. Daily se£lement limits are established for each counterparty to cover the aggregate of all se£lement risk arising from the Bank’s market transactions on any single day.

(e) Credit related commitments:

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby le£ers of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans.

%

11%4%

-5%6%1%

73%100%

%

60%13%

-2%1%

-24%

100%

StandardSatisfactory riskWatch riskUnacceptableSub-standardDoubtfulLoss

2345505152



(e) Credit related commitments: (continued)

Documentary and commercial le£ers of credit, which are wri£en undertakings by the Bank on behalf of a customer authorising a third party to draw dra¨s on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or le£ers of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. The Bank holds collateral and other credit enhancements against certain of its credit exposures. The table below sets out the principal types of collateral held against di¡erent types of financial assets.

Type of credit exposure Percentage of exposure that is subject to collateral requirements Loans and advances banksSecurities borrowingLoans and advances to retail customersMortgage lending Overdra¨sOthersLoans and advances to corporate customersCorporate loansOverdra¨sOthers

(i) New loans issued covered by collateral Detail of financial obtained by the Bank during the year covered by collateral held as security against loans and advances as well calls made on credit enhancements and held at the year end are shown below. Guarantees Other (Debentures)

2015 K’000

154,385 54,746

2016 K’000

14,669 12,208

Type of collateral held

Marketable securities

Residential propertyProperty and equipmentProperty and equipment

Property and equipmentGuaranteesProperty and equipment

2016

100

100%32%87%

100%96%93%

2017

100

100%54%87%

100%87%

1%

2017 K’000

163,540

-

(ii) Impairment and provisioning policies The impairment allowance shown in the statement of financial position at year end is derived from each of the seven internal prudential rating grades. The table below shows the percentage of the Bank’s on-statement of financial position credit related obligations.

Rating

2017 Credit impairment

exposure allowance

%

7%2%

---

1%91%

100%

%

34% 28% 12% 4%

- -

22% 100%

2016 Credit impairment

exposure allowance

37 FINANCIAL RISK MANAGEMENT (CONTINUED)



Maximum exposure to credit risk before collateral held Loans and advances to customers Cash and balances with Bank of Zambia Balances with other banks Investment securities Credit risk exposures relating to o¡-statement of financial position items: - Acceptances and le£ers of credit - Guarantee and performance bonds - Commitments to lend

The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2017 and 2016, without taking account of any collateral held or other credit enhancements a£ached. For on-statement of financial position assets, the exposures set out above are based on carrying amounts as reported in the statement of financial position. As shown above, 54% of the total maximum exposure is derived from Investment in Securities and other o¡ balance sheet expores while in 2017 loans and advances to banks and customers accounted for 46% (2016: 75%). Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following:

. the Bank exercises stringent controls over the granting of new loans;

. 57% (2016: 55%) of the loans and advances portfolio are neither past due nor impaired;

. 60% (2016: 68%) of the loans and advances portfolio are backed by collateral; and

. 100% (2016:100%) of the investments in securities are government securities. Financial assets are summarised as below: Investment in securities Cash and balances with Bank of Zambia Balances with other banks Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: allowance for impairment (Note 16) Net No other financial assets are either past due or impaired. Financial assets neither past due nor impaired The credit quality of the portfolio of financial assets that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Bank: Standard

Financial assets past due but not impaired Loans and advances Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows:

37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.1 Credit risk (continued) (e) Credit related commitments (continued)

2017K’ 000

3,223,1731,598,457 804,773

3,099,6598,726,062

241,21533,622

674,103

948,940

2016 K’ 000

769,7422541635838507

1,127,245 5,277,129 855,243 6,132372 (398,012)

5,734,360

2017 K’ 000

3,099,6591,598,457 804,773

2,175,204 515,132

1,109,637 9,302,862 (576,800)

8,726,062

5,277,1297,678,093

2016K’ 000

3,187,5972,541,635 838,507 769,742

7,337,481

211,49345,92641,133

298,552

Past due up to 30 days Past due 31 – 60 days Past due 61 – 90 days Over 90 days Total Fair value of collateral held Financial assets individually impaired Of the total gross amount of impaired financial assets, the following amounts have been individually assessed: Individually assessed impaired financial assets - Corporate - Retail

Fair value of collateral held



37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.1 Credit risk (Continued) (e) Credit related commitments (continued) Financial assets past due but not impaired (continued) Loans and advances (continued) 2016

K’ 000

1,010,418437,657133,936413,597

1,995,608

604,311

2017 K’ 000

467,176 3,477

12,284 32,196

515,133

1,735,370

2016K 000

763,342 91,901

855,243

676,748

2017K 000

988,700 120,937

1,109,637

548,396

Loans

Loans and advances renegotiated

Restructuring activities include extended payment arrangements, approved external management plans, modifications and deferral of payments. Restructuring policies and practices are based on indicators or criteria that, in the judgement of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans – in particular, customer finance loans. In majority cases restructuring results in the asset continuing to be impaired. Renegotiated loans that would otherwise be past due or impaired totaled K85,196million (2016: K149,102 million).

(e) Fair value of collateral The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: • Mortgages over residential properties; • Charges over business assets such as premises, inventory and accounts receivable; • Charges over financial instruments such as debt instruments; • Cash cover; and • Longer-term finance and lending to corporate entities are generally secured. Certain personal credit facilities are generally unsecured. In addition, in order to minimise the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral values are determined through professional appraisals commissioned by the Bank at inception of credit facilities. Assessed open market values are subject to internal haircuts in determining collateral adequacy . The size of the hair cut is in�uenced by the collateral type. Collateral valuations in respect of mortgages are updated every three years.



37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.2 Concentration of risk Industry sector risk concentration were as follows for on-and o¡-statement of financial position.

TotalK’000

3,223,173

3,099,659 152,397

6,475,229

100%

3,187,597

769,742151,026

4,108,365

100%

FinancialsK’000

46,315

3,099,659 152,397

3,298,371

49%

31,617

769,742151,026

952,385

23%

2017

Loans and advances customersInvestment securities: - available-for-saleOther assets

At 31 December 2017

% of Total

2016Loans and advances customersInvestment securities: - available-for-saleOther assets

At 31 December 2016

% of Total

Wholesale and retail

tradeK’000

176,365

--

176,365

3%

118,624

- -

118,624

3%

AgricultureK’000

883,464

--

883,464

13%

1,001,017

- -

1,001,017

24%

Other industries

K’000

513,456

--

513,456

8%

336,514

- -

336,514

8%

IndividualsK’000

1,244,532

--

1,244,532

18%

1,122,859

- -

1,122,859

28%

Manufa-cturing

K’000

243,655

--

243,655

4%

444,821

- -

444,821

11%

Transport & commu-nication

K’000

115,386

--

115,386

6%

132,145

- -

132,145

3%

Financials

- - -

161,356 161,356

316 3,138

--

2,070

5,524

2017

Acceptances and le£ers of creditGuarantee & performance bondsUndrawn stand-by facilities Credit lines and other commitments to lendAt 31 December 2017

Acceptances and le£ers of creditGuarantee & performance bondsUndrawn stand-by facilitiesCredit lines and other Commitments to lend

At 31 December 2016

Wholesale and retail

trade

2,733 9,700

-

35,618 48,051

- - --

18,592

18,592

Agriculture

- - -

193,999 193,999

- 5,266

- -

90,386

95,652

Other industries

188,404 22,591

-

84,691 295,686

161,065 30,459

--

26,266

217,790

Individuals

- - -

3,242 3,242

- - -- -

-

Total

241,215 33,621

-

674,102 948,938

194,431 50,334

--

210,792

455,557

Manuf-acturing

49,678 - -

192,183 241,861

- 1,668

--

72,388

74,056

Transport & communi-

cation

400 1,330

-

3,013 4,743

33,050 9,803

--

1,090

43,943

37.3 Liquidity risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn. The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash se£led contingencies. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Bank of Zambia requires that the Bank maintains a cash reserve ratio. In addition, the Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand. The Treasury department monitors liquidity ratios on a daily basis. The table below presents the undiscounted cash �ows payable by the Bank under financial liabilities by the remaining contractual maturities at the reporting date and from financial assets by expected maturity dates.



At 31 December 2017

LiabilitiesCustomer depositsDeposits from other banksOther liabilitiesBorrowings

O¤ balance sheet obligationsAcceptances and le£ers of creditGurantee and performance bondsUndrawn stand by facilities, credit lines and other comitments to lend

Total financial liabilities

AssetsCash and Balances with Bank of Zambia Balances with other Banks

Loans and advances to customersInvestment in securitiesOther assetsTotal financial assets

Liquidity gap

3-6months

K’000

325,847

--

118,243

----

444,090

--

457,058 1,611,030

-2,068,088

1,623,998

6-12months

K’000

1,772,196

--

144,347

----

1,916,543

--

415,032 1,395,211

-1,810,243

(106,300)

1-3yearsK’000

---

452,113

----

452,113

--

1,032,864 477,806

-1,510,670

1,058,557

3-5 yearsK’000

----

----

-

--

1,510,640 149,360

-1,660,000

1,660,000

TotalK’000

7,724,528 130

292,388 720,907

- 241,215 33,621

674,102

9,686,891

993,791 804,773

4,050,7053,634,045

152,3979,635,711

(51,180)

Up to 1 months

K’000

3,868,752

130 292,388

-

-241,21533,621

674,102

5,110,208

993,791804,773

198,413 -

152,3972,149,374

(2,960,834)

1-3months

K’000

1,757,733 --

6,204

----

1,763,937

--

2,122 --

2,122

(1,761,815)

Over 5 yearsK’000

----

----

-

--

434,575 638

-435,213

435,213

37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.3 Liquidity risk (continued) Liquidity risk maturity analysis

At 31 December 2016LiabilitiesCustomer depositsOther liabilitiesBorrowings

O¤ balance sheet obligationsAcceptances and le£ers of creditGurantee and performance bondsUndrawn stand by facilities, credit lines and other comitments to lend


AssetsCash and Balances with Bank of Zambia Balances with other BanksLoans and advances to customersInvestment in securitiesOther assets

Total financial assets

Liquidity gap

483,067 -

25,916

--

-

508,983

- -

328,990431,821

-

760,811

251,828

301,832

- 70,909

--

-

372,741

- -

211,280326,389

-

537,669

164,928

- -

309,555

--

-

309,555

-

808,02264,945

-

872,967

563,412

- -

109,784

--

-

109,784

- -

1,086,925265

-

1,087,190

977,406

6,351,923170,255587,074

194,43150,334

210,793

7,564,812

1,491,846838,507

3,987,835823,77882,568

7,224,534

(340,277)

4,984,186170,255

-

194,431 50,334

210,792

5,609,998

1,491,846838,507247,269

-82,568

2,660,190

(2,949,808)

582,838 -

70,910

--

-

653,748

- -

134,661 - -

134,661

(519,087)

- - -

--

-

-

- -

1,170,688359

-

1,171,047

1,171,047

1-3 months

K’000

3-6 months

K’000

6-12 months

K’000

1-3 yearsK’000

3-5 yearsK’000

Over 5 years

K’000

TotalK’000

Up to 1 months

K’000



The amounts in the table have been compiled as follows:Type of financial instrumentsNon-derivative financial liabilities and financial assetsIssued financial guarantee contracts, and unrecognised loan commitments

Basis on which amounts are compiled Undiscounted cash �ows, which include estimated interest payments Earliest possible contractual maturity. For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

The Bank’s expected cash �ows on some financial assets and financial liabilities vary significantly from the contractual cash �ows. The principal di¡erences are as follows: . Demand deposits from customers are expected to remain stable or increase; and . unrecognised loan commitments are not all expected to be drawn down immediately. As part of the management of liquidity risk arising from financial liabilities, the Bank holds liquid assets comprising cash and cash equivalents and debt securities which can be readily sold to meet liquidity requirements. In addition, the Bank maintains agreed lines of credit with other banks and holds unencumbered assets eligible for use as collateral with central banks (these amounts are referred to as the ‘Group’s liquidity reserves). Liquidity reserves The table below sets out the components of the Bank’s liquidity reserves: K’000

Balances with central bankCash and cash equivalentsTreasury bills

Total liquidity reserves

2016Fair Value

1 1,153,162 307,557 679,613

2,140,332

2016Carrying amount

1,153,162 307,557 679,613

2,140,332

2017Fair Value

1,195,869 323,491

2,516,576

4,035,936

2017Carrying amount

1,195,869 323,491

2,516,576

4,035,936

37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.3 Liquidity risk (continued) Liquidity risk maturity analysis (continued)

Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, ‘net liquid assets’ include cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issues, other borrowings and commitments maturing within the next month. Details of the reported bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:

At 31 December Average for the periodMaximum for the periodMinimum for the period

37.4 Market risk Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will a¡ect the fair value or future cash �ows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising the return on risk. Overall responsibility for managing market risk rests with the Assets and Liabilities Commi£ee (ALCO).

2016

58.441.758.418.6

2017

80.2663.8780.2642.12

The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios.

31 December 2017 Market risk measure Assets subject to market risk

Cash and balances with Bank of Zambia Balances with other Banks Loans and advances to customers Investment in securitiesOther assets Liabilities subject to market risk Customer deposits Borrowings Other liabilities 31 December 2016 Assets subject to market risk Cash and cash equivalentBalances with other Banks Loans and advances to customers Investment in securities Other assets

31 December 2016 Assets subject to market risk Customer deposits Other liabilities

O¤ balance sheet itemsGuarantees



Non-trading portfolio

K’000

80,623 367,861

3,223,173 3,099,659

292,388

7,063,704

7,454,624 684,863 292,388

8,431,875

80,6231,516

3,153,6073,099,659

1,050

6,336,455

7,324,663 678,495 80,542

8,083,700

262,601

Carrying amount

K’000

80,623367,861

3,223,1733,099,659

292,388

7,063,704

7,454,624 684,863 292,388

8,431,875

80,6231,516

3,153,6073,099,659

1,050

6,336,455

7,324,663 678,495 80,542

8,083,700

262,601

37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.4 Market risk (continued)

The Bank did not have a trading portfolio. 37.5 Currency risk The Bank is exposed to the e¡ects of �uctuations in the prevailing foreign currency exchange rates on its financial position and cash �ows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank’s exposure to foreign currency exchange rate risk at 31 December 2017. Included in the table are the Bank’s financial instruments, categorised by currency.



At 31 December 2017

AssetsCash and balances with Bank of ZambiaLoans and advances to customers

Other financial assets


LiabilitiesCustomer depositsBorrowings

Other liabilities


Net position

TotalK’000

830,839 1,002,863

- 11,388

1,845,091

1,128,014 684,862

120,574

1,933,450

Euro K’000

41,023

- -

1,628

42,651

38,832 -

6,418

45,250

(2,599)

GBP K’000

14,830 - -

2,431

17,261

16,154 -

608

16,762

499

USDK’000

774,986

1,002,863 -

7,329

1,785,178

1,073,028 684,862

113,548

1,871,438

(86,260)

37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.5 Currency risk (continued)

At 31 December 2016

AssetsCash and balances with Bank of ZambiaLoans and advances to customers

Other financial assets


LiabilitiesCustomer depositsBorrowingsOther liabilities


Net position

TotalK’000

965,127701,708

4,566

1,671,401

1,081,989560,656

56,991

1,699,636

Euro K’000

63,653

5

63,658

60,203

5,926

66,129

(2,471)

GBP K’000

2,416

757

3,173

2,925

602

3,527

(354)

USDK’000

899,058 701,708

3,804

1,604,570

1,018,861560,656

50,463

1,629,980

(25,410)

Sensitivity analysis

At 31 December 2017, if the Kwacha had weakened/strengthened by 10% (2016: 10%) against the USD with all other variables held constant, net profit for the year would have been K8.6 million (2016:K254,100) lower/higher mainly due to the USD denominated term deposits, corporate bonds and cash balances.

The movement in other currencies were not material.



AssetsLoans and advances to customersInvestment in securities


LiabilitiesCustomer depositsBorrowingsTotal financial liabilities

Total interest re-pricing gap

3-6months

K’000

-157,408

157,408

266,76324,750291,513

(134,105)

6-12months

K’000

-46,609

46,609

463,19367,719

530,912

(484,303)

1-3yearsK’000

-356,787

356,787

- 295,625295,625

61,162

3-5YearsK’000

-114,559

114,559

- 104,843104,843

9,716

TotalK’000

3,187,597 769,742

3,957,339

6,256,182560,6666,816,837

(2,859,498)

Up to 1 months

K’000

3,187,59719,727

3,207,324

4,984,186 -

4,984,186

(1,776,862)

1-3months

K’000

-74,652

74,652

542,04067,719

609,759

(535,107)

Over 5 YearsK’000

--

-

- - -

-

37 FINANCIAL RISK MANAGEMENT (CONTINUED)37.6 Interest rate risk

At 31 December 2016

At 31 December 2017

AssetsLoans and advances to customersInvestment in securities


LiabilitiesCustomer depositsBorrowingsTotal financial liabilities

Total interest re-pricing gap

3-6months

K’000

- 416,704

416,704

1,200,900 112,331

1,313,231

(896,527)

6-12months

K’000

- 1,151,049

1,151,049

750,280 137,130

887,410

263,639

1-3yearsK’000

- 391,802

391,802

- 429,507 429,507

(37,705)

3-5YearsK’000

- 122,474

122,474

---

122,474

TotalK’000

3,223,1733,099,658

6,322,831

7,454,624684,862

8,139,487

(1,816,654)

Up to 1 months

K’000

3,223,173 138,130

3,361,303

3,868,752-

3,868,752

(507,449)

1-3months

K’000

- 878,982

878,982

1,634,692 5,894

1,640,586

(761,604)

Over 5yearsK’000

- 517

517

---

517

The table below summarises the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates. The Bank does not bear any interest rate risk on o¡ statement of financial position items.

The Bank takes on exposure to the e¡ects of �actuations in the prevailing levels of market rates on both its fair value and cash �ows. Interest margins may increase as a result of such changes but but may reduce or create losses in the event that inexpected movements arise. The ALCO sets limits on the levels of mismatch of interest rate repricing that may be undertaken, which is monitored daily. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transacted is oën of uncertain terms and of di¡erent types. An unmatched position potentially enhances profitability, but can also increase the risk of losses.

Sensitivity analysis

At 31 December 2017, if the interest rates had increased/decreased by 0.5% (2016: 0.5%) with all other variables held constant, net profit for the year would have been K261,073 (2016:K290,310) lower/higher mainly due to the USD denominated loans.



38. FAIR VALUES MEASUREMENT The fair value of held-to-maturity investment securities at 31 December 2017 is estimated Nil (2016: Nil). The fair values of the Bank’s other financial assets and liabilities approximate the respective carrying amounts, due to the generally short periods to contractual re-pricing or maturity dates as set out above. Fair values are based on discounted cash �ows using discount rates based upon the yield rates on similar financial assets at the reporting date. Fair value hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuations techniques are observable or unobservable. Observable inputs re�ect market data obtained from independent sources; unobservable inputs re�ect the Bank’s market assumptions. The two types of inputs have created the following fair value hierarchy:

This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible.

Financial assets/financial liabilities

Available for sale financial assets

2017K’ 000

3,099,659

2016K’ 000

769,742

Fair value as at 31 December Fair value hierarchy

2

Valuation technique(s) and key input(s)

- Input other than quoted prices included within level 1- Valuation technique: discounted cash�ows

(ii) Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis (but fair value disclosures are required)

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recognised in the financial statements approximate their fair values.

Financial assets Loans and advances to customersCash and balances with Bank of ZambiaBalances with other banksOther assets Fair values of financial assets Financial liabilities Financial liabilities held at amortised cost: Borrowings Customer deposits Deposits from other banksOther liabilities

Fair values of financial liabilities

Carrying amount

K’000

3,223,173 1,598,457

804,773152,397

5,778,800

684,863

7,454,623130

292,388

8,432,004

Fair valueK’000

2,142,220 1,598,457

804,773152,397

4,967,847

650,854 7,399,618

130292,388

8,342,990

Fair valueK’000

2,000,032 2,541,635

838,50782,568

5,462,742

528,800 6,256,182

3,033 170,255

6,958,270

TotalCarrying amount

K’000

3,187,597 2,541,635

838,50782,568

6,650,307

560,656 6,256,182

3,033 170,255

6,990,126

2017 2016

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on stock exchanges (for example, Lusaka Stock Exchange).

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.

This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible.

(i) Fair value of the Bank’s financial assets and financial liabilities that are measured at fair value on a recurring basis.



39 RESTATEMENT

In 2017, the Bank undertook a review of its provisioning levels relating to Loans and Advances in preparation for the implementation of IFRS 9 and determined that the provision for impairment of Non-Performing Loans (“NPLs”) as at 31 December 2016 necessitated a further provision. There were instances where some of the interest rates used to discount collateral values were not appropriate and some collateral values were not updated. This resulted in the understatement of the impairment charge for the year. The impact of the restatement is as follows:

RestatedK’000

(208,652) (2,058)

(61,802)

(0.043)

RestatedK’000

3,187,597 41,345 24,084

8,001,804

218,189

7,130,864

167,500 54,932

472,636

870,940

Impact on restatement

K’000

(141,396) 49,488

(91,908)

(0.0449)

Impact on restatement

K’000

(204,962) 26,806

4,475

(173,681)

36,442

36,442

(233,549) 2,156

21,270

(210,123)

a. Impact on statement of profit or loss

Credit loss expenseIncome tax expense

Profit /(loss) for the year

Basic and diluted earnings/(loss) per share (Kwacha)

b. Impact on statement of financial position

Assets

Loans and advances to customersDeferred tax assetsCurrent tax assets

Total Assets

LiabilitiesOther liabilities

Total Liabilities

c. Impact on statement of changes in equityGeneral reservesRevaluation reservesRetained earnings

Total Equity

Previousy reported

K’000

(67,256) (51,546)

30,106

0.0021

Previousy reported

K’000

3,392,559 14,539 19,609

8,175,485

181,747

7,094,422

401,049 52,776

451,366

1,081,063


Financial assets/financial liabilities

Buildings

2017K’ 000

180,458

2016K’ 000

147,791

Fair value as at 31 December Fair value hierarchy

2

Valuation technique(s) and key input(s)

- Input other than quoted prices included withinlevel 1

- Valuation technique: market approach

(iii) Fair value of non financial assets that are measured at fair value



Regulatory capital adequacy is measured through risk-based ratio.

• Tier 1 capital (primary capital): common shareholders’ equity, qualifying preferred shares and minority interests in the equity of subsidiaries that are less than wholly owned.

• Tier 2 capital (secondary capital): qualifying preferred shares, 40% of revaluation reserves, subordinated term debt or loan stock with a minimum original term of maturity of over five years (subject to a straight-line amortisation during the last five years leaving no more than 20% of the original amount outstanding in the final year before redemption) and other capital instruments which the Bank of Zambia may allow. The maximum amount of secondary capital is limited to 100% of primary capital.

Risk-weighted assets are determined on a granular basis by using risk weights calculated from internally derived risk parameters within the regulatory requirements.

The risk weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of – and re�ecting an estimate of the credit risk associated with – each asset and counterparty. A similar treatment is adopted for o¡-statement of financial position exposure, with some adjustments to re�ect the more contingent nature of the potential losses. The table below summarises the composition of regulatory capital and the ratios of the Bank as at 31 December 2017 as per Bank of Zambia prudential returns:

40. CAPITAL MANAGEMENT Capital management is a key contributor to shareholder value. The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the statement of financial positions, are:

• To comply with the capital requirements set by the Banking and Financial Services Act, 1994 (as amended); • To safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders;

• To maintain a strong capital base to support the development of its business; • To allocate capital to businesses using risk-based capital allocation, to support the Bank’s strategic objectives, including optimising returns on shareholder and regulatory capital; and

• Maintain the dividend policy and dividend declarations of the Bank while taking into consideration shareholder and regulatory expectations. Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed by the Basel Commi£ee, as implemented by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis. Regulatory capital The Bank manages its capital base to achieve a prudent balance between maintaining capital levels to support business growth, maintaining depositor and creditor confidence, and providing competitive returns to shareholders. The Bank of Zambia requires local banks to:

(i) Hold the minimum level of regulatory capital of K104 million;

(ii) Maintain a ratio of total regulatory capital to the risk-weighted assets plus risk-weighted o¡-statement of financial position assets (the ‘Basel ratio’) at or above the required minimum of 10%;

(iii) Maintain primary or tier 1 capital of not less than 5% of total risk weighted assets; and

(iv) Maintain total capital of not less than 10% of risk-weighted assets plus risk-weighted o¡-statement of financial position items.


Tier 1 capital Tier 1 + Tier 2 capital

Risk-weighted assets On-balance sheet O¡-balance sheet

Total risk-weighted assets

Regulatory ratios Tier 1 (Regulatory minimum – 5%) Tier 1 + Tier 2 (Regulatory minimum – 10%)

Computation of regulatory capital (under the Banking and Financial Services Act 1994, as amended)

I Primary (tier 1) capital

(a) Paid up common shares(b) Eligible preferred shares(c) Contributed surplus(d) Retained earnings(e) General reserves(f) Statutory reserves(g) Minority interests (common shareholders’ equity)(h) Shareholders’ loan capital(i) Sub-total

Less (j) Goodwill and other intangible assets(k) Investments in unconsolidated subsidiaries and associates(l) Lending of a capital nature to subsidiaries and associates(m) Holding of other bank’s or financial institutions’ capital instruments(n) Assets pledged to secure liabilities

Sub-total (A) (items i to m)

Other adjustments Provisions (note 2) Assets of li£le or no realisable value (note 3) - specify details or use separate list if necessary.

Other adjustments (prepaid expenses) (o) Sub-total (B)

(Sub-total A above + other adjustments)

(p) Total primary capital (h - n)

II Secondary (tier 2)

(a) Eligible preferred shares (regulations 13 and 17)(b) Eligible subordinated term debt (regulation 17 (b)(c) Eligible loan stock/capital (regulation 17 (b)(d) Revaluation reserves (regulation 17 (a) (Max. is 40% of res. ratio)(e) Other (regulation 17)(f) Total secondary capital


40. CAPITAL MANAGEMENT (CONTINUED)Regulatory capital (continued) 2016

K’000

546,139578,334

3,726,854135,286

3,862,140

14%15%

86,625 -

2,622 464,621

- 86,625

- -

640,493

- 307

----

94,047

94,354

546,139

- - -

32,195 -

32,195

2017K’000

688,096 720,547

- 4,144,295

146,298

4,290,593

16%17%

86,625 -

2,622 580,816

- 86,625

-

756,688

307----

68,285

68,592

688,096

---

32,452 -

32,452



2016K’000

32,195

720,548

372,685 13,529

386,214 262,845

15%14%

2017K’000

32,452

720,548

414,429 14,630

429,059291,488

17%16%

40. CAPITAL MANAGEMENT (CONTINUED)Regulatory capital (continued)

III Eligible secondary capital (the maximum amount of secondary capital is limited to 110% of primary capital)

IV Eligible total capital (i) (o) (Regulatory capital)

V Minimum capital requirement: (10% of total on and o¡ balance sheet risk-weighted assets as established in the first schedule, or K2,000 thousand, whichever is the higher) On-balance sheet O¡-balance sheet

VI Excess (deficiency) – (IV minus V) Regulatory capital as % risk weighted assets Primary capital as % of risk weighted assets

Part 1 - Calculation of risk weighted assets

Assets Notes and coins - Zambian notes and coins- Other notes and coinsBalances held with the Bank of Zambia - Statutory reserves- Other balancesBalances with commercial banks in Zambia - With residual maturity of up to 12 months- With residual maturity of more than 12 monthBalances with commercial banks abroad- With residual maturity of up to 12 months- With residual maturity of more than 12 monthsAssets in transit - From other commercial banks- From branches to reporting bank Investment in debt securities- Treasury bills - Other government securities- private securities- Issued by local government unitsBills of exchangeLoans and advances- Portion secured by cash or treasury bills- Loans to or guaranteed by the government of Zambia - Loans repayable in instalments and secured by a

mortgage on owner-occupied residential property- Loans to or guaranteed by local government units- Loans to parastatals- Other Inter-bank advances and loans/advances- Guaranteed by other banks- With a residual maturity of 12 months- With residual maturity of more than 12 monthsBank premisesAcceptancesOther assetsInvestment in equity of other companiesTotal risk-weighted assets (on balance sheet)

Balance (netof allowance

for losses)

323,49180,623

604,666591,201

100,000-

703,774-

23-

2,360,267554,029

---

-108,771

263,05718,850

288,3592,502,925

- - -

142,007 -

734,359307

9,376,711

Risk- weighted

assets (1 x 2)

- - - - -

20,000 -

140,755 -

11 -

- 110,806

- - - - -

54,386

131,528 18,850

288,359 2,502,925

- - -

142,007 -

734,359 307

4,144,294

RiskWeight

%

--

--

20100

20100

5020

-20

100-

100

-50

50100100100

20100100100100100



Part 2 - O¤ balance sheet obligations (Under first schedule - regulations 21 and 24)

Le£ers of credit - Sight import le£ers of credit - Portion secured by cash/treasury bills - Standby le£ers of credit - Portion secured by cash/treasury bills - Export le£ers of credit confirmed Guarantees and Indemnities - Guarantees for loans, trade and securities - Portion secured by cash/treasury bills - Performance bonds - Securities purchased under resale agreement - Other contingent liabilities - Net open position in foreign currencies

Total risk-weighted assets (o¤ balance sheet)

Total risk-weighted assets (on and o¤ balance sheet)

40. CAPITAL MANAGEMENT (CONTINUED) Regulatory capital (continued)

Balance (netof allowance

for losses)

146,8532,970

88,021 - -

28,3564001,101

-- -

267,701

9,644,411

Risk- weighted

assets (1 x 2)

29,371 -

88,021 - -

28,356

550 - - -

146,298

4,290,593

RiskWeight

%

200

10000

1000

50100100

Classes of financial instruments

The Bank classifies the financial instruments into classes that re�ect the nature of information and take into account the characteristics of those financial instruments. The classification made can be seen in the table as follows:

41. FINANCIAL INSTRUMENT BY CATEGORY

Financial assets

Financial assets available for sale

Loans and receivables

Financial assets available for sale

Loans and advances to customers

Cash and cash equivalents

Other assets

• Government bonds• Treasury bills

• Personal loans• Commercial overdra¨s• Commercial loans• Personal overdra¨s

• Cash and balances with bank of Zambia• Balances with other banks

• items in the course of collections

Category (as defined by IAS 39) Class (as determined by the Bank) Sub classes



42. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

42.1 Amendments to IFRSs that are mandatorily e¤ective for the current year

In the current year, the Bank has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily e¡ective for an accounting period that begins on or aër 1 January 2017:

Amendments to IAS 7 Disclosure Initiative

In January 2016, the International Accounting Standards Board (IASB) issued an amendment to IAS 7 introducing an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities.

The Bank has applied these amendments for the first time in the current year. The amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilites arising from financing activitieis, including both cash and non-cash changes.

The Bank’s liabilities arisng from financing activities consist of borrowings (Note 26). A reconciliation between the opening and closing balances of these items is provided in (Note 26). Consistent with the transition provisions of the amendments, the Bank has not disclosed comparative information for the prior period. Apart from the additional disclosure in (Note 26), the application of these amendments has had no impact on the Bank’s financial statements.

Amendments to IAS 12 Recognition of Deferred Tax Assets for unrealised losses

The Bank has applied these amendments for the first time in the current year. The amendments clarify how an entity should evaluate whether there will be su¡icient future taxable profits against which it can utilise a deductible temporary di¡erence.

Financial liabilities

Other financial liabilities at amortised costst

Other liabilities

Borrowings

Customer deposits

Deposits from other banks

• Trade and other payables

• Long term loans

• Current account• Fixed term deposits

• Savings account

41. FINANCIAL INSTRUMENT BY CATEGORY (CONTINUED)

Financial assets as per statement of net assets available for benefits

Financial assets at fair value through profit or lossFinancial Investment-Available for sale

Loans receivables at amortised costLoans and advances to customersCash and bank with bank of ZambiaBalances with other BanksOther assets

Financial assests

Financial liabilities at amortised cost

Customer depositsDeposits from other banksBorrowingsOther liabilitiesBorrowingsFinancial liabilities at amortised cost

2016K’000

769,742

3,187,5972,541,635

838,50782,568

7,420,049

6,256,1823,033

560,656170,255

560,6567,550,782

2017 K’000

3,099,659

3,223,1731,598,457

804,773152,397

8,878,459

7,454,624130

684,862292,388684,862

9,116,866



42. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 42.2 New and revised IFRSs in issue but not yet e¤ective

E¤ective date1 January 2018

The application of these amendments has had no impact on the Bank’s financial statements as the Bank already assesses the su¡iciency of future taxable profits in a way that is consistent with these amendments. The Bank has not applied the following new and revised IFRSs that have been issued but are not yet e¡ective:

Standard, Amendment or Interpretation

IFRS 9 Financial Instruments

IFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirments by introducing a ”fair value through other comprehensive income” (FVTOCI) measurement category for certain simple debt instruments.

Key requirements of IFRS 9

All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash �ows, and that have contractual cash �ows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash �ows and selling financial assets, and that have contractual terms that give rise on specified dates to cash �ows that are solely payments of principal and interest on the principal amount outstanding are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognised by an acquirer in a business combination) in other comprehensive income with only dividend income generally recognised in profit or loss.

With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of a financial liaiblities that is a£ributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to re�ect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater �exibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligibe for hedge accounting. In addition, the e¡ectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge e¡ectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

Based on an analysis of the Bank’s financial assets and financial liabilities as at 31 December 2017 on the basis of the facts and circumstances that exist at that date, the Directors of the Bank have assessed the impact of IFRS 9 to the Bank’s financial statements as follows:

•

•

•

•


42. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (CONTINUED) 42.2 New and revised IFRSs in issue but not yet e¤ective (continued) “IFRS 9 Financial Instruments (continued)

E¤ective date1 January 2018

Standard, Amendment or Interpretation Financial investments designated as available for sale disclosed in note 15 carried at fair value will be held within a business model whose objective is to collect the contractual cash �ows that are solely payments of principal and interest. Accordingly, these financial assets will be measured at amortised cost upon the application of IFRS 9 in line with the Bank’s business model. This is di¡erent from the current treatment. Loans and advances to customers as disclosed in note 16 and other assets, note 17 that qualify as financial instruments will be held in the business model whose objective is to collect contractual cash �ows that are solely payments of principal and interest on the principal outstanding. Accordingly, these financial assets will continue to be subsequently measured at amortised cost upon the application of IFRS 9; All other financial assets and financial liabilities will continue to be measured on the same bases as is currently adopted under IAS 39. Impairment Financial assets meassured at amortise cost, loans and advances to customer, note 16, Government bonds and Treasury bills, note 15, other assets, note 17 and financial guarantee contracts note 31 will be subject to the impairment provisions of IFRS 9. The Bank expects to apply the general approach to recognise lifetime and 12-month expected credit losses for loans and advances to customers. Government bonds and Treasury bills as disclosed in note 15 have been deemed to have low credit risk by the Directors as they are guranteed by the Government of the Republic of Zambia, the Bank hence expects to recognise 12 month expected credit losses for these items. The Bank expects to apply the simplified approach to recognise lifetime expected credit losses for its other receivables, other assets as permi£ed by IFRS 9. In general, the Directors anticipate that the application of the expected credit loss model of IFRS 9 will result in earlier recognition of credit losses for the respective items and will increase the amount of loss allowance recognised for these items. The Bank is in the progress of developing its models and this is expected to be completed in the first quarter of 2018. Hedge accounting The Directors of the Bank anticipate that this will have no impact on the financial statements of the Bank as the Bank currently does not have any hedges. The bank has considered the requirements of hedge accounting under IFRS 9 and expects that this will have an impact on the Bank in future if the Bank decides to enter into any hedging relationship.

•

•

•




42. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) (CONTINUED) 42.2 New and revised IFRSs in issue but not yet e¤ective (continued) IFRS 9 Financial Instruments (continued)

IFRS 15 – Revenue from contracts with customers.Amendment to IFRS 15 – Revenue from contracts with customers.

(published May 2014)Annual periods beginning on or aër 1 January 2018(published April 2016)

The FASB and IASB issued their long awaited converged standard on revenue recognition on 29 May 2014. It is a single, comprehensive revenue recognition model for all contracts with customers to achieve greater consistency in the recognition and presentation of revenue. Revenue is recognised based on the satisfaction of performance obligations, which occurs when control of good or service transfers to a customer.

The IASB has amended IFRS 15 to clarify the guidance, but there were no major changes to the standard itself. The amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of these areas of guidance. The IASB has also included additional practical expedients related to transition to the new revenue standard.

The Bank is in the process of assessing the impact.

Annual periods beginning on or aër 1 January 2019 – earlier application permi£ed if IFRS 15 is also applied. (published January 2016

IFRS 16 – Leases

This standard replaces the current guidance in IAS 17 and is a far reaching change in accounting by lessees in particular.

Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (o¡ balance sheet). IFRS 16 now requires lessees to recognise a lease liability re�ecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees.

For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be a¡ected by the new standard.

At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

IFRS 16 supersedes IAS 17, ‘Leases’, IFRIC 4, ‘Determining whether an Arrangement contains a Lease’, SIC 15, ‘Operating Leases – Incentives’ and SIC 27, ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’.

The Bank is in the process of assessing the impact.

NOTES


NOTES


Documents

Annual Report 2017 - novinsight.com · 6 2017 ANNUALREPORT BRIEF PROFILE 100% Arise B.V. 45.59% Industrial Development Corporation (IDC) 25% LuSE Free Float 16% NAPSA 10% LIZARA Investments