Standard Chartered Bank Zambia Plc - 2006

Standard Chartered Bank Zambia Plc �

� Standard Chartered Bank Zambia Plc

Standard Chartered Bank Zambia Plc �

� Standard Chartered Bank Zambia Plc

Operating Income increased by �7%, from ZMK�99bn to ZMK�5�bn.

Pre-Tax profit increased by 53%, from ZMK74bn to ZMK113bn.

Earnings per share increased by 47%, from ZMK��.�8 to ZMK�8.06

Loans and Advances increased by 94%, from ZMK343bn to ZMK665bn.

Customer deposits increased by 50%, from ZMK967bn to ZMK1,447bn.

The Bank’s excellent performance was possible due to the combination of focused execution of the Bank’s strategy and a positive economic environment.

As a result, the Directors are pleased to recommend a full year dividend of ZMK 12.00 per share for 2006. The Bank paid an interim dividend of ZMK 4.00 per share for the first half of 2006. The final dividend will be ZMK 8.00 per share. The full year dividend is the highest ever paid by the Bank. Even so, the Bank will retain ZMK25 billion of profits to be reinvested into the franchise in Zambia.

Economic Environment The overall economic environment in Zambia continued to improve in 2006. The country achieved GDP growth of 6.2% and significantly reduced year-on-year inflation to only 8.2%. The Kwacha started the year very strong, trading in the 3,200 – 3,500 range until July when it began to depreciate. By the end of 2006, the Kwacha had fallen to 4,400, which was nearly back to the levels at which it traded in mid-2005.

Zambia’s economic momentum was led by an excellent performance in the mining sector. Strong exports and good, although slightly lower prices for copper, continued to attract substantial investment into new mines on the Copperbelt. The Tourism sector continued to record high growth, particularly in Livingstone, while the agriculture sector rebounded from a difficult year in 2005.

Zambian voters turned out in record numbers to participate in General Elections in September. His Excellency President Levy Patrick Mwanawasa, SC was re-elected to a second five year term.

The banking sector enjoyed favourable conditions during 2006, which enabled the Bank to record its strong performance.

Interest rates reduced gradually during 2006. The yield on the benchmark 91-day treasury bill fell from 14.5% in January 2006 to 8.9% at the end of the year. This movement was consistent with the downward trend in inflation.

Corporate GovernanceThe Directors strongly believe that exemplary corporate governance is a fundamental component of performance.

To that end, the Bank actively engages with all our regulators to share our skills and expertise and to work in constant partnership.

Community Partnership I am proud that Standard Chartered Bank Zambia Plc has a sincere and sustained commitment to community partnership. Through the Group’s “Community Partnership for Africa” programme, we provide financial

Chairman’s Statement

I am delighted to report on an outstanding year for Standard Chartered Bank Zambia Plc. The Bank celebrated 100 years in Zambia with unprecedented growth and record profits.

Standard Chartered Bank Zambia Plc 3

support to a wide range of community projects which change lives and make a meaningful difference in the communities where we live and work.

We launched “Nets For Life” in Lusaka on Africa Malaria Day in April 2006. This exciting initiative, which was later rolled out in Uganda and Kenya, involved the free distribution of 35,000 Long Lasting Insecticide Treated Nets in several communities around Zambia. We also continued our Youth Lifeskills Development Programme, which touched over 20,000 students at 42 high schools in Lusaka and the Copperbelt, and our “Seeing is Believing” programme within which our staff raised funds to restore eye sight to Zambians suffering from curable blindness.

We also remain a leader in promoting HIV/AIDS awareness and treatment among our employees and the general public. For example, under our “Living with HIV” programme, we are providing ARVs to our employees, their spouses and children.

Focus for �007Looking to the year ahead, the banking sector in Zambia faces a number of challenges: heightened competition from new entrants; margin compression; strict but necessary regulatory requirements; and growing sophistication of our customers, who demand more products and better services.

However, the Zambian economy enters the new year with good momentum, which bodes well for the Bank and for our customers.

In order to continue to improve our performance in 2007 we will focus on an ambitious strategic agenda:

1. DeliverSuperiorFinancialPerformance- We will continue to grow profitably while aggressively managing costs and maintaining credit quality standards.

2. CreateMoreandBetterLeaders– We will continue to prioritise various initiatives aimed at improving staff performance and engagement. This involves attracting, training, motivating and retaining the best people in the market.

3. OptimisetheValueofourFranchise– We will concentrate efforts to maximise the growth potential in Consumer Banking and Wholesale Banking by introducing new products and attracting new customers.

4. BuildEfficientFoundationsforGrowth– We will invest in people, branches, systems, infrastructure, service quality, health & safety, risk management and control processes to ensure that we have the capacity to grow.

5. CommunityPartnership– We will continue to be the Right Partner in the communities where we live and work by supporting worthy causes and leading the fight against HIV / AIDS, malaria, and preventable blindness.

6. Communication- In this connected and fast changing environment, we will continue to ensure effective and timely communication with our key stakeholders – these being our customers, staff, investors, regulators and the community.

I am grateful to the Directors for their active involvement during 2006 and to all members of staff for their hard work and commitment.

2006 was a year to be proud of.

George SokotaChairman12 February 2007

4 Standard Chartered Bank Zambia Plc

Managing Director’s Review

It gives me great pride to report that Standard Chartered Bank Zambia completed an outstanding year in �006. We delivered record results and once again “Led the Way” in the Zambian banking sector.

The Bank delivered exceptional performance in 2006. This was possible due to outstanding contributions from every business, branch and department around the country. Our talented employees responded to the Board’s challenge at the beginning of the year and created substantial value for our shareholders.

Consumer BankingOur Consumer Banking business continued to be a great success story. The business grew as we welcomed large numbers of new customers and delivered a variety of new products to the market.

The Bank continued to provide access to funding to many of our customers. During the year we grew our portfolio of personal loans by 29% and our portfolio of loans to Small and Medium Enterprises by 67%.

We also improved the efficiency of our distribution channels by replacing all of our ATMs and by refreshing a number of our branches.

The Consumer Bank has bold plans for 2007. We will roll out a new home mortgage product, open new branches and put even more emphasis on the SME segment by offering secured Business Instalment Loans and a wider variety of foreign exchange and interest rate products.

Wholesale Banking The performance of our Wholesale Banking business in 2006 was truly outstanding. In fact, our Client Relationships and Global Markets Sales Teams were recognised by regional management as the “Best in Africa”.

Wholesale Banking extended a large amount of funding to the productive sector during 2006. Specifically, the Wholesale Banking loan portfolio grew by 117% from the end of 2005 to the end of 2006. The team was able to achieve this growth while experiencing only modest loan losses on the portfolio.

Our Wholesale Bank delivers a variety of strategic products to our customers. These include traditional trade finance and cash management products, as well as more complex global markets solutions involving structured finance and hedging products.

The Wholesale Bank will continue with its momentum in 2007. The team is committed to introducing new products such as commodity derivatives, to expanding our banking relationships with the Government, and to building our franchise with Development Organisations and customers in the financial services sector.

Finally, our Wholesale Banking team continues to work with those of our customers in the agriculture sector who have struggled with various business challenges. We work in true partnership with these farmers and have been able to avoid significant loan loss provisions.

Operational ExcellenceAt Standard Chartered, we believe that customer service is the key differentiator in the competitive and ever-changing banking industry. We also realise that our bank must have the proper foundation in place from which to grow and from which to serve our customers. In 2006, we accomplished a number of objectives to improve our operations platform. For example, we replaced much of our old infrastructure, we improved


safety at the workplace, we secured physical access to our premises, and we streamlined various operations.

As a result, we have seen dramatic improvements in service metrics such as the turnaround time for loan approvals, transaction processing and the distribution of cheque books and VISA cards and the uptime for our ATMs.

We will continue to invest in our business during 2007 so that we can achieve our ambition of becoming the World’s Best International Bank, renowned for service excellence, by 2008.

Our People“People Come First” continues to be my personal commitment to our staff. We continue to attract, develop and retain talented people, reward performance and provide the resources and the necessary training to succeed. As a result, our people have exciting opportunities to maximise their potential within the Bank and we have experienced very low levels of attrition.

In 2006, we continued to send talented Zambian staff on 3-month to 3-year assignments at other Standard Chartered operations in various countries. I am proud

that over 25 Zambians have been sent on these assignments around the world since my arrival in mid-2004. I remain very committed to engineering more cross-border moves in the future.

OutlookI am excited about 2007. Both of our businesses have good momentum and the Zambian economy seems poised for continued growth. We will continue to deliver on our strategic agenda and I am confident that we will again live up to our commitment to the Bank’s stakeholders – our customers, staff, investors, regulators and the community.

Finally, I wish to thank my Chairman, fellow Directors, and all members of staff for their dedication and hard work during 2006.

Thomas AakerManaging Director12 February 2007


Board Of Directors

George SokotaNon Executive ChairmanAppointed to the Board on 31 March 1998 and as Chairman in June 1999.

He is a Professional Accountant and Financial Consultant in private practice. He is a fellow of the Institute of Chartered Accountants in England and Wales, Fellow of the Association of Certified Accountants, United Kingdom and Fellow of the Zambia Institute of Chartered Accountants.

He sits on a number of notable boards, several of which he chairs.

Abel MkandawireNon Executive DirectorAppointed to the Board on 30 March 1999. He is Chairman and Chief Executive Officer of Behrens Ltd. Previously he was General Manager of Zambia Electricity Supply Corporation Ltd (ZESCO). He is also a fellow of the Institute of Engineering and Technology (IET) UK and served as an international IET representative. He is also a Fellow of the Economic Development Institute.

Michael M. MundashiNon Executive DirectorAppointed to the Board on 1 March, 2005. He is an eminent lawyer at Mulenga Mundashi & Company. He was the first non-executive Chairman of the Revenue Appeals Tribunal. He sits on various boards of Companies and Pension Trusts. He served as Honorary Secretary of the Law Association of Zambia.

Washington MatsairaNon Executive DirectorAppointed to the Board on 31 January 2005. He is currently Chief Executive Officer of Standard Chartered Bank Zimbabwe Ltd as well as Area General Manager for Zambia and Botswana. He is a fellow of the Institute of Bankers (Zimbabwe).

Christopher LowNon Executive DirectorAppointed to the Board on 21 April 2006. He joined Standard Chartered Bank London in 1990. He thereafter held several senior positions in Asia and Africa from 1991 to 2005. He is currently Chief Executive Officer of Standard Chartered Bank South Africa.

Thomas AakerManaging DirectorAppointed to the Board on 1 July 2004. He joined Standard Chartered in 1993 and has held a number of senior positions working in Hong Kong, London and the USA. He is a Board member of Standard Chartered Bank Botswana, Standard Chartered Bank Zimbabwe Ltd and Corpmed Medical Centre.

J. Kweku Bedu-AddoExecutive Director, Wholesale BankingAppointed to the Board on 25 January 2005. He joined Standard Chartered Bank Ghana in the year 2000. He was appointed Head of Client Relationships in Zambia in the year 2004. His career track record includes government, international development and banking. He has worked as an economist in the Ministry of Finance in Ghana and at the World Bank in Washington DC.


Mukwandi ChibesakundaExecutive Director, Consumer BankingAppointed to the Board on 5 September 2006. She joined Standard Chartered Bank Zambia in 1996 and has held several senior positions. As Executive Director for Consumer Banking, she is responsible for managing Small and Medium Enterprises, Wealth Management, Shared Distribution, Consumer Credit and other consumer banking distribution channels.

Celine Meena NairCompany SecretaryAppointed to the Board as Company Secretary on 17 July 2006. She joined Standard Chartered Bank Zambia in July 2006. Previously she worked for the Lusaka Stock Exchange as Legal Counsel and Company Secretary.

Board Committees

Board Audit CommitteeGeorge Sokota (Chairman)Thomas AakerAbel MkandawireMichael M. MundashiJ. Kweku Bedu-AddoMukwandi Chibesakunda

Board Credit CommitteeAbel Mkandwire (Chairman)Thomas AakerMichael M. MundashiJ. Kweku Bedu-AddoMukwandi Chibesakunda

The following table shows the number of Board and Committee meetings held during the year and attendance of individual directors.

Board(Main)

Board(Ad hoc)

AuditCommittee

Credit Committee

Number of meetings in year 6 1 4 4

G Sokota 6 1 4 -

A Mkandawire 6 1 4 4

M M Mundashi 6 1 4 3

T Aaker 6 1 4 4

J K Bedu-Addo 6 1 4 3

M Chibesakunda 2 - 1 2

W Matsaira 5 - - -

C Low 3 - - -


Share CapitalDuring the year 2006, the authorized capital of the company was ZMK3,000,000,000, divided into shares of 50 ngwee each. The issued and fully paid capital of the Company was ZMK2,047,500,000.

ResultsThe results for the year are set out in the Income Statement on page 12.

DividendsAt a Board Meeting held on 12 February 2007, the Directors recommended payment of a final dividend of K8.00 per share to be paid to members appearing on the register as at close of business on Friday 13 April 2007. The Board also declared an interim dividend on 19 September 2006 for the period January to June 2006, at K4.00 per share. The interim dividend was paid to shareholders by 31 December 2006. This brings the total dividend for the year to ZMK12.00 per ordinary share.

DirectorsChristopher Low and Mukwandi Chibesakunda were appointed to the Board on 21 April 2006 and 5 September 2006 respectively. Kelvin Musana was appointed to the Board as Executive Director, Finance and Administartion on 30 January 2007.

SecretariatAmilha Pio Young resigned as Company Secretary in June 2006 and was succeeded by Celine M. Nair on 17 July 2006.

Directors’ interests in ordinary shares The beneficial interest of Directors and their families in the ordinary shares of the Bank were as follows:

Vipya Investments Ltd31 December 20063,123,176

Directors’ Report

EmployeesThe average number of people employed by the Bank during the year was 416.

RegistrationStandard Chartered Bank Zambia Plc is a public company incorporated in the Republic of Zambia on 11 November 1971 to take over the business of Standard Bank Limited, which had operated in Zambia since 1906.

ActivitiesThe company engages principally in the business of commercial banking in its widest aspects and in the provision of related services.

Corporate GovernanceThe Board of Directors conducted its annual review of the effectiveness of the Bank’s system of internal controls during 2006. The Board hereby certifies that the Bank has complied with the internal control aspects of the Principles of Good Governance and Code of Best Practice (known as “The Combined Code”). The Board also certifies that it is striving to achieve full compliance with the Banking and Financial Services (Corporate Governance) Guidelines 2006, and the Lusaka Stock Exchange (LuSE) Corporate Governance Code, 2005.

By Order of the Board

Celine M. NairCompany Secretary12 February 2007


Financial Statements31 December 2006

�0 Standard Chartered Bank Zambia Plc

Directors’ responsibilities in respect of the preparation of financial statements

The Company’s directors are responsible for the preparation and fair presentation of the financial statements, comprising the balance sheet at 31 December 2006, and the income statement, the statement of recognised income and expense and the cash flow statement for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with the International Financial Reporting Standards, the Companies Act, 1994 of Zambia and the Banking and Financial Services Act, 1994.

The directors’ responsibility includes: designing, implementing and monitoring internal controls relevant to the preparation and fair presentation of these financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The directors have made an assessment of the Company’s ability to continue as a going concern and have no reason to believe the business will not be a going concern in the year ahead.

Approval of the financial statements

The financial statements, of the company as indicated above set out on pages 12 to 43 were approved by the Directors on 12 February, 2007 and were signed on its behalf by.

................................... .............................G. Sokota T. AakerChairman Managing Director

................................... K. MusanaExecutive Director – Finance and Administration

Annual Report and Financial Statements �006

Standard Chartered Bank Zambia Plc ��

Report of the independent auditors to the members of Standard Chartered Bank Zambia Plc

Report on the financial statementWe have audited the financial statements of Standard Chartered Bank Zambia Plc which comprise the balance sheet at 31 December 2006, and the income statement, the statement of recognised income and expense and the cash flow statement for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes as set out on pages 12 to 43.

Directors’ responsibility for the financial statementsThe Bank’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, the Banking and Financial Services Act, 1994 and the Companies Act, 1994. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion the financial statements give a true and fair view of the financial position of the Bank at 31 December 2006 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the Banking and Financial Services Act 1994 of Zambia (as amended) and the Companies Act 1994 of Zambia and the required accounting records have been properly kept.

Banking ActIn terms of section 64(2) (a), (b) and (c) of the Banking Financial Services Act, 1994 (as amended), the Company has made available all necessary information to enable us to comply with the requirements of the Act.

KPMGChartered Accountants of Zambia

Hampande Hachongo 12 February, 2007Partner Lusaka, Zambia


�� Standard Chartered Bank Zambia Plc

Standard Chartered Bank Zambia PLCAnnual Report and Financial Statements 2006

Income statementfor the year ended 31 December 2006

Notes2006

K’million2005

K’million

Interest income 7 175,849 144,135Interest expense 8 (26,128) (15,297)

Net interest income 149,721 128,838

Fee and commission income 9 54,428 41,267Fee and commission expense 9 (3,759) (3,069)

Net fee and commission income 50,669 38,198

Net trading income 10 50,343 31,909Other operating income 11 1,204 546

51,547 32,455

Operating income 251,937 199,491

Operating expenses 12 (127,460) (118,754)

Operating profit before impairment losses and taxation 124,477 80,737

Impairment losses on loans and advances 19 (11,731) (6,258)

Profit before taxation 112,746 74,479

Taxation 13 (38,775) (24,193)

Profit attributed to ordinary shareholders 73,971 50,286

Basic and diluted earnings per share (Kwacha) 15 18.06 12.28




Balance sheetas at 31 December 2006

Notes

2006K’million

2005K’million

AssetsCash on hand and balances at Bank of Zambia 29 416,962 308,456Cash and short term funds at group banks 147,106 149,262Cash and short term funds at non – group banks 387 1,302Placements with foreign non – group banks 234,214 126,288Debt securities 22 286,111 233,317Derivative financial instruments 17 1,871 -Loans and advances 18 664,670 343,051Property and equipment 23 25,591 26,577Prepayments, accrued income and other receivables 24 22,339 20,008

Total assets 1,799,251 1,208,261

LiabilitiesBalances due to Bank of Zambia 29 - 29,394Placements by non – group banks - 4,000Amounts payable to non – group banks 511 105Amounts payable to group banks 23,029 10,562Cheques in course of collection 13,930 725Deposits from customers 25 1,447,211 967,324Dividends payable 14 1,754 1,425Derivative financial instruments 17 - 130Interest bearing loans and borrowings 20 1,478 4,324Deferred taxation 13 10,222 9,554Subordinated liabilities 21 17,640 14,090Tax payable 21,405 8,286Accruals and other payables 26 102,727 34,398

Total liabilities 1,639,907 1,084,317

Equity

Share capital 27 2,048 2,048Statutory reserves 28 2,048 2,048Available-for-sale reserves 28 7,589 1,115Property revaluation reserves 28 4,783 5,096Retained earnings 28 142,876 113,637

Total equity attributable to equity holders of the bank 28 159,344 123,944

Total liabilities and equity 1,799,251 1,208,261

These financial statements were approved by the Board of Directors on 12 February, 2007.

G. Sokota T. Aaker K. Musana C. NairChairman Managing Director Executive Director – Finance and Administration Company Secretary




Statement of recognised income and expensefor the year ended 31 December 2006

Notes 2006K’million

2005K’million

Revaluation reserve write-down on properties 28 - (988)

Fair value adjustment on available-for-sale government securities 28 10,622 (686)

Deferred tax on fair value adjustment 13, 28 (4,148) 309

Realisation of property revaluation reserves 28 62 -

Deferred tax on realisation of property revaluation reserves 28 (19) -

Revaluation realised on disposal of revalued assets 28 472 -

Deferred tax realised on revaluation reserve writedown 28 (202) (300)

Income and expense recognised directly in equity 6,787 (1,665)

Profit attributed to ordinary shareholders 73,971 50,286

Total recognised income and expense for the year 80,758 48,621


Standard Chartered Bank Zambia Plc �5


Cash flow statementfor the year ended 31 December 2006

Notes 2006K’million

2005K’million

Cash flow from operating activitiesProfit before taxation 112,746 74,479Adjustment for items not involving cash flow or shown separately:Depreciation of property and equipment 23 4,318 9,240Expensed portion leasehold land prepayment 10 163Interest paid on subordinated loan capital 870 786Gain on disposal of property and equipment (770) (63)Impairment of equipment 62 -

117,236 84,605Changes in operating assets and liabilitiesCheques in the course of collection 13,205 (12,749)Loans and advances (321,619) (17,773)Derivative financial instruments (2,001) 1,498Prepayments, accrued income and other receivables (2,331) (1,589)Deposits from customers 479,887 (25,731)Accruals and other payables 68,329 13,128Deferred taxation 668 1,663

Net cash from operating activities before taxation 353,374 43,052

Tax paid (28,357) (11,936)

Net cash flows from operating activities 325,017 31,116

Cash flows from investing activitiesPurchase of property and equipment to maintain operations (3,451) (3,497)Net investment in government securities (42,173) (55,269)Proceeds from disposal of property and equipment 827 67

Net cash used in investing activities (44,797) (58,699)

Cash flows from financing activitiesInterest paid on subordinated loan capital (870) (786)Dividends paid 14 (44,716) (25,042)Repayment of other non-current borrowings (2,846) (31,895)

Net cash flows from financing activities (48,432) (57,723)

Net increase/(decrease) in cash and cash equivalents 231,788 (85,306)Effect of exchange rates fluctuations on subordinated loan capital and long termborrowings 2,094 (5,263)

233,882 (90,569)Cash and cash equivalents at beginning of year 30 541,247 631,816

Cash and cash equivalents at end of year 30 775,129 541,247




Notes to the financial statements

1 Principal activities and registered address

Standard Chartered Bank Zambia PLC (the “Bank”) is a company domiciled in Zambia. The address of the Bank’s registered office isStandard Chartered House, Cairo Road, Lusaka. The Bank is primarily involved in corporate and retail banking.

2 Basis of preparation

2.1 Statement of complianceThe Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs),the requirements of the Banking and Financial Services Act, 1994 (as amended) and the Zambian Companies Act, 1994.

In preparing these financial statements, the Company has not early adopted applicable amendments and interpretations to publishedstandards that are effective on 1 January 2007 or later (note 4).

2.2 Basis of measurementThe financial statements have been prepared on the historical cost basis except for the following:

• Derivative financial instruments are measured at fair value;

• Financial instruments at fair value through profit and loss are measured at fair value; and

• Available-for-sale financial assets are measured at fair value.

2.3 Functional and presentation currencyThese financial statements are presented in Zambian Kwacha, which is the Company’s functional and presentation currency. Exceptwhere indicated, financial information presented in Zambian Kwacha has been rounded off to the nearest million.

2.4 Use of estimates and judgementsThe preparation of financial statements requires management to make judgements, estimates and assumptions that affect theapplication of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ fromthese estimates.

Estimates and underlying assumptions are reviewed on an on going basis. Revisions to accounting estimates are recognised in theperiod in which the estimate is revised and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies thathave the most significant effect on the amount recognised in the financial statements are described in note 5.

3 Significant accounting policiesThe principal accounting policies applied in the preparation of these financial statements are set out below. These policies have beenconsistently applied to all the years presented, unless otherwise stated.

3.1 Interest income and expenseInterest income and expense are recognised in the income statement for all instruments measured at amortised cost using theeffective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocatingthe interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated futurecash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the netcarrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cashflows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider futurecredit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part ofthe effective interest rate, transaction costs and all other premiums or discounts. Transaction costs are incremental costs that aredirectly attributable to the acquisition, issue or disposal of a financial asset or liability. The effective interest rate is established oninitial recognition of the financial asset and liability and is not revised subsequently.

Interest income and expense on all trading assets and liabilities are considered to be incidental to the bank’s trading operations andare presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Interest income and expense presented in the income statement include:

• Interest on financial assets and liabilities at amortised cost on an effective interest rate method.

• Interest on available-for-sale investment securities at fair value.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest incomeis recognised using the original effective interest rate.





3. Significant accounting policies (continued)

3.2 Fees and commissionFees and commissions are recognised on an accrual basis when the service has been provided. Loan syndication fees arerecognised as revenue when the syndication has been completed and the Company retained no part of the loan package for itself orretained a part at the same effective interest rate for the other participants. Portfolio and other management advisory and service feesare recognised based on the applicable service contracts as the service is provided, which is usually on a time-apportionate basis.

Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are includedin the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees, investment management fees, sales commission, placementfees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to resultin a draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period.

Other fees and commission expense relate mainly to transaction and services fees, which are expensed as the services are received.

3.3 Net trading incomeNet trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fairvalue changes, interest, and foreign exchange differences.

3.4 Lease payments madePayments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Leaseincentives received are recognised as an integral part of the total lease expense, over the term of the lease.

3.5 TaxationIncome tax expenseIncome tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to theextent that it relates to items recognised directly in equity, in which case it is recognised in equity.The current tax charge is determined in accordance with the provisions of the Income Tax Act, 1966 (as amended) and is based onthe adjusted profit for the year using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to taxpayable in respect of previous years. The current tax charge is recognised as an expense in the period in which profits arise.

Deferred taxDeferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognised for the followingtemporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not abusiness combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries tothe extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at tax rates that are expected to beapplied to the temporary differences when they reverse on the laws that have been enacted or substantively enacted by the reportingdate.

Deferred tax assets are recognised only where it is probable that future taxable profits will be available against which the asset canbe utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that therelated tax benefit will be realised. Deferred tax related to items which are charged or credited directly to equity, is credited orcharged directly to equity and is subsequently recognised in the income statement together with the deferred gain or loss.

Withholding taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the relateddividend is recognised.

3.6 Financial assets and liabilitiesRecognitionThe bank initially recognises loans and advances, deposits and debt securities issued at fair value plus transaction costs on the datethat they are originated. Financial liabilities at fair value through profit or loss are measured at fair value on initial recognition, andsubsequently at fair value. Financial liabilities not measured at fair value through profit or loss are measured at fair value on initialrecognition, and subsequently at amortised cost using the effective interest rate method. All other financial assets and liabilities(including assets and liabilities designated at fair value through profit and loss) are initially recognised on the trade date at which thebank becomes a party to the contractual provisions of the instrument.

De-recognitionThe bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rightsto receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards ofownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the bank isrecognised as a separate asset or liability.

The bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The bank enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all risks and rewardsof the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets arenot derecognised from the balance sheet. Transfers of assets with retention of all or substantially all risks and rewards would include,for example, repurchase transactions.





3. Significant accounting policies (continued)Sale and repurchase agreementsSecurities sold subject to repurchase agreements (‘repos’) remain on the balance sheet. The counterparty liability is included inamounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchasedunder agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. Thedifference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effectiveinterest method.

Securities lent to counterparties are also retained in the financial statements. Securities borrowed are not recognised in the financialstatements, unless these are sold to third parties, in which case the purchase and sale are recorded with the gain or loss included intrading income.

Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right tooffset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liabilitysimultaneously.

Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arisingfrom a group of similar transactions such as in the banks trading activity.

3.7 Amortised cost measurementThe amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initialrecognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of anydifference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

3.8 Fair value measurementThe determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotationsfor financial instruments traded in active markets. For all other financial instruments fair value is determined by using valuationtechniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similarinstruments for which market observable prices exist, and valuation models. The bank uses widely recognised valuation models fordetermining the fair value of common and simpler financial instruments like options and interest rate and currency swaps. For thesefinancial instruments, inputs into models are market observable.

3.9 Identification and measurement of impairmentThe Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financialassets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired andimpairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events thatoccurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated futurecash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial assetor group of assets is impaired includes observable data that comes to the attention of the Company about the loss events.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individuallysignificant, and individually or collectively for financial assets that are not individually significant. If the Company determines that noobjective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset ina group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that areindividually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collectiveassessment of impairment.

Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan oradvance by the bank on terms that the bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy,the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changesin the payment status of borrowers or debt issuers in the bank, or economic conditions that correlate with defaults in the bank.

In assessing collective impairment the bank uses statistical modelling of historical trends of the probability of default, timing ofrecoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and creditconditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, lossrates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remainappropriate.

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortisedcost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the presentvalue of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’soriginal effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amountof the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discountrate for measuring any impairment loss is the original effective interest rate determined under the contract. Interest on the impairedasset continues to be recognised through the unwinding of the discount.





3. Significant accounting policies (continued)The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows thatmay result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposesof a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on thebasis of the Company’s grading process that considers asset type, industry, collateral type, past-due status and other relevantfactors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of thedebtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of thecontractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar tothose in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of currentconditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in thehistorical period that do not exist currently.

When a loan is uncollectible, it is impaired. Such loans are written off after all the necessary procedures have been completed andthe amount of the loss has been determined. Subsequent recoveries of amounts previously written off are recognised in the incomestatement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to anevent occurring after the impairment was recognised the previously recognised impairment loss is reversed by adjusting theallowance account. The amount of the reversal is recognised in the income statement.

Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity, until thefinancial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in equity should berecognised in income statement. However, interest calculated using the effective interest method is recognised in the incomestatement. Reversals of impairment loss on available-for-sale equity instruments are not recognised through the income statement.

3.10 Cash and cash equivalentsCash and cash equivalents include notes and coins on hand, unrestricted balances held with the central bank and highly liquidfinancial assets with original maturities of less than three months, which are subject to insignificant risk of changes in fair value, andare used by the Bank in the management of its short term commitments, cash and bank balances with group and non – group banks,and overdrafts with these banks.

Cash equivalents are carried at fair value in the balance sheet.

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturityfrom the date of acquisition, including: cash and balances with the Bank of Zambia, loans and advances to banks and amounts due toand from other banks.

3.11 Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. They arise when the Company provides money, goods or services directly to a debtor with no intention of trading thereceivable.

Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at theiramortised cost using the effective interest method less impairment losses, except when the loans and advances are classified oninitial recognition at fair value through profit or loss.

Loans are recognised when cash is advanced to the borrowers.

3.12 Investment securitiesInvestment securities are initially measured at fair value plus direct transaction costs and subsequently accounted for depending ontheir classification as either held-to-maturity, fair value through profit and loss, or available-for-sale. Management determines theclassification of its investments at initial recognition.

(a)Held-to-maturityHeld-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that theBank’s management has the positive intention and ability to hold to maturity, and which are not designated at fair value through profitor loss or available-for-sale.

Held-to-maturity investments are initially measured at fair value plus transaction costs, and subsequently carried at amortised costusing the effective interest method less impairment losses. Any sale or reclassification of a significant amount of held-to-maturityinvestments not close to their maturity would result in the classification of all held-to-maturity investments as available-for-sale, andprevent the Bank from classifying investment securities as held-to-maturity for the current and following two financial years.

(b)Financial assets at fair value through profit or lossThis category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss atinception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if sodesignated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Financialassets at fair value through profit or loss are initially and subsequently measured at fair value.





3. Significant accounting policies (continued)Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category areincluded in the income statement in the period in which they arise.

(c)Available-for-saleAvailable-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needsfor liquidity or changes in interest rates, exchange rates or equity prices.

Purchases and sales of financial assets at fair value through profit or loss, held to maturity and available for sale are recognised ontrade-date – the date on which the Company commits to purchase or sell the asset. On initial recognition, available-for-sale financialassets are recognised at fair value plus transaction costs. Subsequently, available-for-sale instruments are carried at fair value. Fairvalue changes on available-for-sale financial assets are recognised directly in equity until the investment is sold or impaired and thebalance in equity is recognised in profit or loss.

The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active(and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm’slength transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by marketparticipants. Where these are not available such investments are stated at cost net of impairment.

Interest income is recognised in profit or loss using the effective interest method. Foreign exchange gains and losses on available-for-sale debt security investments are recognised in the income statement.

Derivative financial instruments and hedge accountingDerivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequentlyremeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent markettransactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. Allderivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are treated asseparate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the hostcontract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fairvalue recognised in the income statement. Separated embedded derivatives are accounted for depending on their classification andpresented in the balance sheet together with the host contract.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedginginstrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either: (1) hedges of thefair value of recognised assets or liabilities or firm commitments (fair value hedge); or, (2) hedges of highly probable future cash flowsattributable to a recognised asset or liability, or a forecasted transaction (cash flow hedge). Hedge accounting is used for derivativesdesignated in this way provided certain criteria are met.

The Company documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, aswell as its risk management objective and strategy for undertaking various hedge transactions. The Company also documents itsassessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions arehighly effective in offsetting changes in fair values or cash flows of hedged items.

Fair value hedgeChanges in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge nolonger meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interestmethod is used is amortised to profit or loss over the period to maturity. The adjustment to the carrying amount of a hedged equitysecurity remains in retained earnings until the disposal of the equity security.

3.13 Borrowings

Borrowings are recognised initially at fair value, being the issue proceeds (fair value of consideration received) net of transactioncosts incurred. Borrowings are subsequently stated at amortised cost, any difference net of transaction costs and the redemptionvalue is recognised in the income statement over the period of the borrowings using the effective interest rate method.

3.14 Deposits, debt securities and subordinated liabilitiesDeposits, debt securities and subordinated liabilities are the Bank’s sources of debt financing. When the Bank sells a financial assetand simultaneously enters a “repo” agreement to repurchase the asset (or similar asset) at a fixed or on a future date, thearrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements.

Deposits, debt securities and subordinated liabilities are initially measure at fair value plus transaction costs, subsequently measureat amortised cost using the effective interest method, except where the Bank carries the liabilities at fair value through profit or loss.

3.15 Financial guaranteesFinancial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incursbecause a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.


Standard Chartered Bank Zambia Plc ��




3.16 Property and equipmentRecognition and measurementProperty comprises offices and residential buildings. Property and equipment is stated at historical cost less accumulateddepreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Whenparts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) ofproperty and equipment.

Subsequent costsSubsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it isprobable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measuredreliably. The costs of day-to-day servicing of property and equipment are charged to the income statement during the financial periodin which they are incurred.

DepreciationDepreciation is recognised in the income statement on a straight line basis over the estimated useful lives of each part of an item ofproperty and equipment. The useful lives are currently as follows:

Properties up to 50 yearsImprovements to properties life of lease, up to 50 yearsEquipment 3 to 15 yearsMotor vehicles 5 years

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each balance sheetdate.

Capital work-in-progress

Capital work-in-progress represents assets in the course of development which at balance sheet date would not have been broughtto use.

Intangible assets – computer softwareAcquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specificsoftware. Computer software costs are amortised through the profit and loss account on a straight line basis over the estimateduseful lives of the software, from the date that it is available for use. The current estimated useful life of software is three years. Allother expenditure is expensed as incurred.

3.17 LandLand is held on lease from the Government of the Republic of Zambia for a maximum period of 99 years. The cost of the land isaccounted for as a prepayment of an operating lease and is amortised over the period of the lease up to a maximum of 50 years.

Revaluation reservesAny revaluation reserves standing to the credit of the revaluation reserves are amortised to retained earnings as the related assetsare depreciated or disposed of.

3.18 Impairment of non-financial assetsAssets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverableamount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of theasset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current assessment of time value of money and risks specific to the asset.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the incomestatement.

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased orno longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverableamount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount thatwould have been determined, net of depreciation or amortisation if no impairment loss had been recognised.

3.19 ProvisionsA provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimatedreliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,where appropriate, the risks specific to the liability.


�� Standard Chartered Bank Zambia Plc




3.20 Retirement benefitsRetirement benefits for members of staff are provided through a defined contribution fund. In 1996 the Company decided to do awaywith the defined benefit scheme. At that point all staff on the defined benefit scheme converted to the defined contribution scheme orwere paid off. At the year end only one individual was on the defined benefit plan. The defined benefit pension fund was last subjectto an actuarial valuation as at 31 December 2001. The valuation was performed by Watson Wyatt International Limited (Actuariesand Consultants) using the projected unit method. The valuation concluded that the scheme was in surplus by K808 million. Nofurther valuations have been undertaken as the fund is considered immaterial.

The Company contributes 6% of employees’ basic pay to the defined contribution pension fund. Obligations for contributions todefined contribution pension plans are recognised as an expense in the income statement when they are due.

3.21 Termination benefitsTermination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic possibility ofwithdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntaryredundancies are recognised if the Bank has made an offer encouraging voluntary redundancy, it is probable that the offer will beaccepted, and the number of acceptances can be estimated reliably.

3.22 Cash bonusesAn accrual is recognised for the amount expected to be paid under short-term cash bonuses or profit sharing plans if the Bank has apresent legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation canbe estimated reliably.

3.23 Earnings per shareThe Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing theprofit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding duringthe period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted averagenumber of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which may comprise convertible notesand share options granted to employees.

3.24 Share issue costsIncremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

3.25 DividendsDividends are recognised as a liability in the period in which they are approved by the shareholders.

3.26 Fiduciary activitiesThe Company acts in a fiduciary capacity that results in the holding or placing of assets on behalf of individuals, trusts and otherinstitutions. These assets are excluded from these financial statements, as they are not assets of the Company.

4 New standards and interpretations not yet adoptedA number of standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2006,and have not been applied in preparing these financial statements. All standards and interpretations issued but not yet effective up to12 February, 2007 have been considered. Only the following standards and interpretations are expected to have an impact:

• IFRS 7 Financial Instruments: Disclosures, IFRS 7, which becomes mandatory for the Bank’s 2007 financial statements, willrequire the bank to increase disclosures in terms of the banks risk management procedures but will not impact on thereported profits or the financial position of the bank.

• IAS 1 Capital Disclosures, IAS 1, which becomes mandatory for the Bank’s 2007 financial statements. Implementation ofthe standard will require additional disclosures.

• IFRIC 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognised in a previousinterim period in respect of an investment in an equity instrument or a financial asset carried at cost. IFRIC 10 will becomemandatory for the Bank’s 2007 financial statements and will apply to investments in equity instruments, and financial assetscarried at cost prospectively from the date that the Bank first applied the measurement criteria of IAS 36 and IAS 39respectively. This will have an impact on the Bank to the extent that any impairment losses are recognised before halfyear.

5 Use of estimates and judgementsThe Company makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financialyear. Estimates and judgements are continually evaluated and are based on historical experience and other factors, includingexpectations of future events that are believed to be reasonable under the circumstances.





5. Use of estimates and judgements (continued)

Key sources of estimation of uncertaintyImpairment losses on loans and advancesThe Company reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairmentloss should be recorded in the income statement, the Company makes judgements as to whether there is any observable dataindicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can beidentified with an individual loan portfolio. This evidence may include observable data that there has been an adverse change in thepayment status of borrowers in a group, or local economic conditions that correlates with defaults on assets in the group.Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence ofimpairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used forestimating both the amount and timing of cash flows are reviewed regularly to reduce any differences between loss estimates andactual loss experience.

Fair value of derivativesThe fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques. Wherevaluation techniques are used to determine fair values, they are validated and periodically reviewed by qualified personnelindependent of the area that created them. All models are certified before they are used, and models are calibrated to ensure theoutputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however areassuch as credit risk, volatilities and correlations require management to make estimates. Changes in assumptions about these factorscould affect the reported fair value of financial instruments. For financial instruments that trade infrequently and have little pricetransparency, fair values are less objective and require varying degrees of judgement depending on liquidity, concentration,uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Held-to-maturity investmentsThe Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixedmaturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Bank evaluates itsintention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than selling aninsignificant amount close to maturity, it will reclassify the entire class as available-for-sale. The investment would therefore bemeasured at amortised cost.

Impairment of non financial assetsThe carrying amount of the Company’s assets other than financial assets is reviewed at each balance sheet date to determinewhether there is an indication of impairment. If any such exists, the asset’s recoverable amount is estimated. This estimation requiressignificant judgement. An impairment loss is recognised in the income statement whenever the carrying amount exceeds therecoverable amount.

Income taxesThe tax charged to the accounts is subject to agreement with the Zambia Revenue Authority. When the final tax outcome uponagreement of assessments differs from the amounts initially recorded, such differences are adjusted in subsequent periods. Wherethe actual assessment differs by 10% from management’s estimates, the Bank would need to increase or decrease the tax charge toincome statement by K4,148 million.





6 Financial assets and liabilitiesAccounting classification and fair valuesThe table below sets out the Bank’s classification of each class of financial assets and liabilities, and their fair values (excludingaccrued interest).

2006Designatedat fair value

K’million

Loans andreceivablesK’million

Available-for-sale

K’million

Otheramortised

costK’million

TotalcarryingamountK’million

Fair valueK’million

31 December 2006Cash on hand and at Bank of Zambia 416,962 - - - 416,962 416,962Loans and advances to banks - 381,707 - - 381,707 381,707Loans and advances to customers - 664,501 - - 664,501 664,501Investment securities - - 273,353 - 273,353 286,111

Total 416,962 1,046,208 273,353 - 1,736,523 1,749,281

Deposits from banks - 23,540 - - 23,540 23,540Deposits from customers - 1,447,211 - - 1,447,211 1,447,211Subordinated liabilities - - - 17,640 17,640 17,640

Total - 1,470,751 - 17,640 1,488,391 1,488,391

2005Designatedat fair value

K’million

Loans andreceivablesK’million

Available-for-sale

K’million

Otheramortised

costK’million

TotalcarryingamountK’million

Fair valueK’million

31 December 2005Cash on hand and at Bank of Zambia 308,456 - - - 308,456 308,456Loans and advances to banks - 276,852 - - 276,852 276,852Loans and advances to customers - 343,051 - - 343,051 343,051Investment securities - - 231,290 - 231,290 233,317

Total 308,456 619,903 231,290 - 1,159,649 1,161,676

Deposits from banks - 44,061 - - 44,061 44,061Deposits from customers - 967,324 - - 967,324 967,324Subordinated liabilities - - - 14,090 14,090 14,090

Total - 1,011,385 - 14,090 1,025,475 1,025,475

7 Interest income2006

K’million2005

K’million

Cash and short term funds 23,975 25,355Investment securities 45,610 41,783Loans and advances 106,264 76,997

Total interest income 175,849 144,135

Interest income does not include accrued income (interest in suspense) in respect of impaired loans and advances amounting toK5,455 million (2005: K3,198 million).

8 Interest expense2006

K’million2005

K’million

Deposits from customers 18,944 8,794Placements 6,314 5,717Subordinated loan capital and other borrowed funds 870 786

Total interest expense 26,128 15,297





9 Net fee and commission income2006

K’million2005

K’million

Retail banking customer fees 39,888 28,051Corporate banking credit related fees 11,348 9,943Other 3,192 3,273

Total fee and commission income 54,428 41,267Fee and commission expense (3,759) (3,069)

Net fee and commission income 50,669 38,198

10 Net trading income2006

K’million2005

K’million

Foreign currency transaction gains less losses 47,203 29,538Gains less losses arising from dealing securities 1,115 255Other dealing profits 2,025 2,116

50,343 31,909

11 Other operating income2006

K’million2005

K’million

Gain on disposal of property and equipment 770 63Other 434 483

Total 1,204 546

12 Operating expenses2006

K’million2005

K’million

Staff costs:Wages and salaries 58,227 46,436Compulsory social security obligations (NAPSA) 1,080 590Other pension costs 4,125 2,983Other staff costs 8,027 9,948

71,459 59,957

Premises and equipment expenses:Depreciation of property and equipment 3,974 5,509Release of lease prepayment for leasehold land 10 10Amortisation of intangible assets 334 3,731Other premises and equipment 22,328 19,725

Communication expenses 4,847 4,781Other operating expenses 24,508 25,041

56,001 58,797

Total 127,460 118,754Other operating expenses include K368 million (2005: K461 million) in respect of auditor’s remuneration for the Company. Theauditors of the Company, KPMG, also received K90 million (2005: K 91million) in respect of non-audit services provided to theCompany. Details of non-audit services are reflected below.

2006K’million

2005K’million

Tax compliance 90 91

In addition to the above services, the Company’s auditors acted as auditor to the Company’s staff pension plan. The appointment ofauditors to the Company’s pension scheme and the fees paid in respect of these audits are agreed by the Trustees of the Scheme,who act independently from the management of the Company. The aggregate fees paid to the Company’s auditors for audit servicesto the pension scheme during the year were K25 million (2005: K19 million).





12 Operating costs (continued)

Directors emolumentsDetails of directors’ pay and benefits, and transactions with directors and other senior officers are disclosed under related parties innote 34.

13 TaxationAnalysis of income tax expense for the year:

2006K’million

2005K’million

The charge for taxation for the year comprises:Current tax on income for the year at 40% (2005: 45%) 41,476 22,221Deferred tax charge to income statement (2,701) 1,972

Total income tax expense in income statement 38,775 24,193

The income tax expense for the current year is subject to agreement with the Zambia Revenue Authority.

The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the basic tax rate, as follows:2006

K’million2005

K’million

Profit before tax 112,746 74,479

Tax calculated at the tax rate of 40% (2005: 45%) 45,098 33,516Effect of temporary differences arising from capital allowances (2,180) (3,844)Effect of temporary differences arising from impairment 144 766Non – deductible expenses 1,667 1,131Income taxed separately (5,634) (7,301)Gain on disposal of property and equipment (308) (63)Differences in tax rates over the first K250m of taxable profit (12) (12)

Tax on profits on ordinary activities 38,775 24,193

Deferred taxationDeferred taxation is calculated on all temporary differences under the balance sheet method using an effective tax rate of 40% (2005:45%).

2006K’million

2005K’million

Changes in deferred taxation balances during the year comprised:At 1 January 9,554 7,891Realised on disposal of revalued assets (779) -On fair value revaluation 4,148 (309)

12,923 7,582Charge to income statement (2,701) 1,972

At 31 December 10,222 9,554

Deferred tax liabilities are attributable to the following:2006

K’million2005

K’million

Property, equipment and software 5,451 8,808Available-for-sale securities 5,060 912Allowance for loan losses (289) (166)

At 31 December 10,222 9,554





14 Dividends2006

K’million2005

K’million

Balance at 1 January 1,425 1,897Approved dividend for 2005 at K7.00 per share (2005: approved dividend for 2004 at K5.00 per share) 28,665 12,285Interim dividends declared at K4.00 per share (2005: K3.00 per share) 16,380 12,285

46,470 26,467Less dividends paid during the year (44,716) (25,042)

Balance at 31 December 1,754 1,425

Dividends are recorded in the period in which they are declared. Accordingly, the final dividends set out above relate to the respectiveprior periods. A 2006 final dividend of K8.00 per share will be paid to shareholders on the register of members at the close ofbusiness on 13 April 2007.

15 Earnings per share2006 2005

ProfitK’million

Weightedaverage number

of shares(millions)

Pershare

amountKwacha

ProfitK’million

Weightedaverage number

of shares(millions)

Pershare

amountKwacha

Basic and diluted earnings per share 73,971 4,096 18.06 50,286 4,096 12.28

The calculation of the basic earnings per share is based on the net profit attributable to ordinary shareholders (profit after taxation)divided by the weighted average number of ordinary shares in issue during the year. There were no dilutive potential ordinary sharesat 31 December 2006 (2005: nil) and basic earnings per share equals to diluted earnings per share.

16 Equity investmentsThe Company owns 100% of the issued share capital of Standard Chartered Bank Nominees Limited, a company incorporated in theRepublic of Zambia. The investment was at a cost of K49,800 and has been impaired to K1. Standard Chartered Bank NomineesLimited has remained dormant since 2000. Due to the immaterial size of Standard Chartered Bank Nominees Limited, consolidatedfinancial statements have not been prepared. The Company has another investment in the Zambia Electronic Clearing House at acost of K586,200 which has been fully impaired. The investment in the Zambia Electronic Clearing House represents 5.86% of theequity of the investee company. The investment is disclosed at cost because there is no market for these investments that providesevidence of their current fair values. No dividends are expected from this investment in the foreseeable future and consequently thereare no determinable future cash in flows. It is not possible to determine a possible range of estimates within which the fair value ofthese investments is likely to lie.

17 Derivative financial instrumentsThe table below analyses the notional principal amounts and the positive and negative fair values of the Company’s derivativefinancial instruments. Positive and negative fair values are the mark-to-market values of the derivative contracts adjusted for anyamounts recognised in the income statement for non-trading items. Notional principal amounts are the amount of principal underlyingthe contract at the reporting date. Fair values at the year end are representative of the Company’s typical position during the year.Trading activities are defined as positions held in financial instruments with the intention of benefiting from short-term rates or pricemovements.

2006 2005

NotionalprincipalamountsK’million

AssetsK’million

LiabilitiesK’million

NotionalprincipalamountsK’million

AssetsK’million

LiabilitiesK’million

Derivative financial instrumentsForward foreign exchange contracts 1,047 1,871 - (2,499) - (130)





18 Loans and advances2006

K’million2005

K’million

Obligations from retail customers 221,463 151,839Obligations from corporate customers 443,207 191,212

664,670 343,051

Repayable on demand 82,536 22,921With a residual maturity of:Three months or less 96,046 7,513Between three months and one year 229,264 134,475Between one and five years 158,227 129,955Over five years 132,463 71,652

698,536 366,516Allowances for impairment on loans and advances and other credit risks (note 19) (33,866) (23,465)

Loans and advances net of allowances for impairment 664,670 343,051

The loans and advances are stated net of interest in suspense of K14,128 million (2005: K8,673 million). Included in loans andadvances are loans and advances to related parties amounting to K2,544 million (2005: K653m).

19 Allowances for impairment on loans and advances and other credit risks2006 2005

K’million K’million

Accumulated allowance for impairment held at beginning of year 23,465 25,089Amount utilised (28) (7,132)Discount unwinding (1,302) (750)

Impairment loss for the year 14,216 19,912Recoveries/allowances no longer required (2,485) (13,654)

Net charge against profit 11,731 6,258

Accumulated allowance for impairment held at end of year 33,866 23,465

20 Interest bearing loans and borrowings2006

K’million2005

K’million

European Investment Bank 1,301 2,017Enterprise Development Programme 177 2,307

Total 1,478 4,324

Repayable:Within one year 1,478 2,846Between one and five years - 1,478

1,478 4,324

European Investment Bank (EIB)

In 2000 the Company entered into a financing agreement with EIB to borrow funds up to a maximum of Euro 16.5 million, for on-lending to qualifying projects by small and medium sized enterprises. The amounts on-lent are included in loans and advances.The EIB loans are in two categories namely industrial and capital. The interest charge is 3% on the outstanding balance of the loans,and interest is payable annually in arrears on a day specified. The loan is repayable by six equal annual instalments and repaymentcommenced on 15 September 2000 for industrial loans and on 31 October 2000 for capital loans. The outstanding amounts reflectedon the balance sheet are the Kwacha equivalent of Euro 224,190 (2005 – Euro 485,428).





20 Interest bearing loans and borrowings (continued)

Enterprise Development Programme (EDP)In 2000 the Company entered into a credit agreement for USD18.3 million with the World Bank/International DevelopmentAssociation (IDA) Multi Purpose Credit Facility (MCF) to finance investments by the Company’s customers in plant and equipmentand to help stimulate exports. The amounts on-lent are included in loans and advances (note 18).The pricing of the Investment Lineof Credit and the Pre-shipment Export Line of Credit is a floating rate 12 months LIBOR + 1% and a floating rate of 6 months LIBOR+ 0.5% respectively. The loan is repayable by three equal annual instalments commencing one year from the date the loan isextended. The outstanding amounts reflected on the balance sheet are the Kwacha equivalent of USD40,136 (2005 – USD 655,000).

21 Subordinated liabilities2006

K’million2005

K’million

Subordinated liabilities repayable after five years 17,640 14,090

The Company received USD4 million in 2004 as subordinated debt from Standard Chartered Bank PLC. The interest charge is 1%above 3 months LIBOR and is payable on a quarterly basis. The loan is to be fully repaid by 31 December, 2013. The outstandingamounts reflected on the balance sheet are the Kwacha equivalent of USD4 million.

22 Debt securities2006 Available-for-sale

Governmentbonds

K’million

Treasurybills

K’million

Total bookamountK’million

TotalvaluationK’million

Government securities 110,223 163,130 273,353 286,111

Of which mature:Within one year 25,879 163,130 189,009 206,643Within one to five years 84,344 - 84,344 79,468

Total 110,223 163,130 273,353 286,111

2005 Available-for-sale

Governmentbonds

K’million

Treasurybills

K’million

Total bookamountK’million

TotalvaluationK’million

Government securities 109,263 122,027 231,290 233,317

Of which mature:Within one year 48,255 122,027 170,282 171,447Within one to five years 61,008 - 61,008 61,870

Total 109,263 122,027 231,290 233,317





23 Property and equipment

PropertyK’million

EquipmentK’million

Capital work inprogressK’million

TotalK’million

Cost/valuation

At 1 January 2006 16,230 46,478 735 63,443Additions - 2,290 1,161 3,451Capitalised work- in- progress - 1,724 (1,724) -Disposals (703) - - (703)Write off of fully depreciated assets - (20,745) - (20,745)Impairments - - (62) (62)

At 31 December 2006 15,527 29,747 110 45,384

DepreciationAt 1 January 2006 895 35,971 - 36,866Charge for the year 123 4,195 - 4,318Disposals (646) - - (646)Write off of fully depreciated assets - (20,745) - (20,745)

At 31 December 2006 372 19,421 - 19,793

Net book value 15,155 10,326 110 25,591

Cost/valuationPropertyK’million

EquipmentK’million

Capital work inprogressK’million

TotalK’million

At 1 January 2005 17,218 43,849 - 61,067Additions - 2,762 735 3,497Disposals - (133) - (133)Write off of fully depreciated assets (988) - - (988)

At 31 December 2005 16,230 46,478 735 63,443

DepreciationAt 1 January 2005 535 27,220 - 27,755Charge for the year 360 8,880 - 9,240Disposals - (129) - (129)

At 31 December 2005 895 35,971 - 36,866

Net book value 15,335 10,507 735 26,577

A register of properties is maintained by the Company at its registered office and is available for inspection by the members. Includedin equipment is capitalised software of K72 million (2005: K406 million).

24 Prepayments, accrued income and other receivables2006

K’million2005

K’million

Accrued interest income 11,793 13,319Operating lease prepayments 153 164Prepayments and other receivables 10,393 6,525

Total 22,339 20,008





25 Deposits from customers2006

K’million2005

K’million

Customer accounts 1,447,211 967,324

Retail customers:Savings accounts 196,462 159,529Term deposits 56,228 15,208Current deposits 285,278 103,013Corporate customers:Term deposits 231,323 201,167Current deposits 677,920 488,407

Total 1,447,211 967,324

2006K’million

2005K’million

Repayable on demand 963,198 591,411Repayable with agreed maturity dates or periods of notice, by residual maturity:Three months or less 408,145 365,786Between three months and one year 75,868 10,127

Total 1,447,211 967,324

Included in customer accounts were deposits of K2,547 million (2005:K3,931million) held as collateral for irrevocable commitmentsunder import letters of credit. Liabilities under sale and repurchase agreements all mature at various dates within one year.

26 Accruals and other payables2006

K’million2005

K’million

Accrued interest 1,843 989Bank cheques 6,296 2,640Margin – trade finance 55,043 4,945Accruals and other payables 39,545 25,824

Total 102,727 34,398

27 Share capitalNumber ofordinaryshares

(millions)

Ordinarysharecapital

K’million

Number ofordinaryshares

(millions)

Ordinarysharecapital

K’million2006 2006 2005 2005

AuthorisedOrdinary shares of K0.50 each 6,000 3,000 6,000 3,000

Issued and fully paidOrdinary shares of K0.50 each 4,096 2,048 4,096 2,048





28 Reserves and retained earnings

Sharecapital

K’million

StatutoryreservesK’million

Available-for-salereservesK’million

PropertyrevaluationreservesK’million

RetainedearningsK’million

TotalK’million

At 1 January 2005 2,048 2,048 1,492 5,784 88,530 99,902Final dividend for 2004 - - - - (12,285) (12,285)Interim dividend for 2005 (12,285) (12,285)Revaluation reserves write down on premises - - - (988) - (988)Deferred tax realised on revaluation reserve write-down - - - 300 (300) -Revaluation reserve – available-for-sale investments - - (686) - - (686)Deferred tax realised on available for sale fair value - - 309 - (309) -Retained earnings - - - - 50,286 50,286

At 31 December 2005 2,048 2,048 1,115 5,096 113,637 123,944Final dividend for 2005 - - - - (28,665) (28,665)Interim dividend for 2006 - - - - (16,380) (16,380)Realisation of property revaluation reserves - - - (62) 62 -Deferred tax on realisation of revaluation reserves - - - 19 (19) -Revaluation realised on disposal of revalued assets - - - (472) 472 -Deferred tax realised on disposal of revalued assets - - - 202 (202) -Revaluation reserve – available-for-sale investments - - 10,622 - - 10,622Deferred tax effect on available for sale fair value - - (4,148) - - (4,148)Retained earnings - - - - 73,971 73,971

At 31 December 2006 2,048 2,048 7,589 4,783 142,876 159,344

Available-for-sale reserves are the fair value movement of financial assets classified as available-for-sale. Gains and losses aredeferred to this reserve until such time as the underlying asset is sold or matures. Retained earnings are the carried forwardrecognised income net of expenses of the Company plus current period profit attributable to shareholders. Statutory reservescomprise transfers out of net profits prior to dividends, of amounts prescribed under statutory instrument No. 21 of 1995: TheBanking and Financial Services (Reserve Account) Regulations 1995. Premises revaluation reserves arose from the revaluation ofproperties in prior years. The revaluation reserves are being written off to revenue reserves as the related properties are beingdisposed of. Distributions are not made from the revaluation reserves.

29 Cash on hand and balances at Bank of Zambia2006

K’million2005

K’million

Cash on hand 60,827 33,690Balances with Bank of Zambia:Statutory deposit 201,892 139,766Open market operations placements 144,392 135,000

Total cash on hand and bank balances at Bank of Zambia 407,111 308,456Clearing account with Bank of Zambia 9,851 (29,394)

Total 416,962 279,062

The statutory deposit held with Bank of Zambia, as a minimum reserve requirement, is not available for the Company’s daily business.The reserve represents a requirement by the Central Bank and is a percentage of the Company’s local currency and foreign currencyliabilities to the public. At 31 December 2006 the percentage was 14% (2005: 14%).





30 Cash and cash equivalents at end of year

At 1.1.2006 Cash flow At 31.12.2006

K’million K’million K’million

Cash on hand and balances at Bank of Zambia 279,062 137,900 416,962Cash and short term funds at group banks 149,262 (2,156) 147,106Cash and short term funds at non – group banks 1,302 (915) 387Placements with foreign banks 126,288 107,926 234,214Amounts payable to non - group banks (4,105) 3,594 (511)Amounts payable to group banks (10,562) (12,467) (23,029)Total 541,247 233,882 775,129

Cash on hand and balances at Bank of Zambia 311,504 (32,442) 279,062Cash and short term funds at group banks 239,491 (90,229) 149,262Cash and short term funds at non – group banks - 1,302 1,302Placements with foreign banks 143,250 (16,962) 126,288Amounts payable to non - group banks (48,117) 44,012 (4,105)Amounts payable to group banks (14,312) 3,750 (10,562)Total 631,816 (90,569) 541,247

31 Contingent liabilities and commitments

Contingent liabilitiesThe Company provides letters of credit and financial guarantees for performance of customers to third parties. These agreementshave fixed limits and are generally renewable annually. Expirations are not concentrated in any period. The amounts reflected in thetable for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the balance sheet date ifcounterparties failed completely to perform as contracted. These liabilities have off-balance sheet credit risk. Only fees and accrualsfor probable losses are recognised in the balance sheet until the commitments are fulfilled or expire. Many of the contingent liabilitieswill expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash out flows.

2006K’million

2005K’million

Guarantees 104,388 20,126Letters of credit 121,021 23,343

Total 225,409 43,469

Capital commitments2006

K’million2005

K’million

Contracted for and authorised - 735

There were no capital commitments as at 31 December, 2006. Capital commitments contracted for and authorised in 2005 related tothe Desktop Renewal Project. All expenditure was financed from the Company’s own resources.

Legal proceedingsThere were some legal proceedings outstanding against the Company at 31 December 2006. No provisions have been made in thefinancial statements in respective of these, as based on professional advice, management estimates that it is unlikely that anysignificant loss will arise.

32 Risk managementThrough its risk management structure, the Company seeks to manage efficiently the core risks: credit, market, liquidity andoperational risk. These arise directly through the Company’s commercial activities whilst business, regulatory, operational andreputational risks are normal consequences of any business undertaking. The key element of risk management philosophy is for therisk functions to operate as an independent control working in partnership with the business units to provide a competitive advantageto the Company.

The basic principles of risk management followed by the Company include:• ensuring that business activities are controlled on the basis of risk adjusted return;• managing risk within agreed parameters with risk quantified wherever possible;• assessing risk at the outset and throughout the time that the Company continues to be exposed to it;• abiding by all applicable laws, regulations, and governance standards;





32 Risk management (continued)

• applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and• undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning,

monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation.

Group Risk Management StructureUltimate responsibility for the effective management of risk rests with the Group’s Board of Directors. The Group’s Audit and RiskCommittee reviews specific risk areas and monitors the activities of the Group Risk Committee and the Group Asset and LiabilityCommittee.

The Group Head of Risk manages an independent risk function which:• recommends the Standard Chartered Bank Group standards and policies for risk measurement and management;• monitors and reports specific risk exposures for country, credit, market and operational risk;• approves market risk limits and monitors exposure;• sets country risk limits and monitors exposure;• chairs the credit committee and delegates credit authorities subject to oversight;• validates risk models; and• recommends risk appetite and strategy.

Individual Group Executive Directors are accountable for risk management in their businesses and support functions and forcountries where they have governance responsibilities. This includes:

• implementing the policies and standards as agreed by the Group Risk Committee across all business activity;• managing risk in line with appetite levels agreed by the Group Risk Committee; and• developing and maintaining appropriate risk management infrastructure and systems to facilitate compliance with risk policy.The Group Head of Risk, together with Group Internal Audit, provides independent assurance that risk is being measured andmanaged in accordance with the Group’s standards and policies.The Company’s policy is to require suitable collateral to be provided by certain customers prior to the disbursement of approvedloans. Collateral for loans, guarantees, and letters of credit is usually in the form of cash, inventory or property.

Credit RiskCredit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractualobligations. The Bank is subject to credit risk through its trading, lending, and investing activities and in cases where it acts as anintermediary on behalf of customers or other third parties or issues guarantees. The Company’s primary exposure to credit riskarises through its loans and advances. The amount of credit exposure in this regard is represented by the carrying amounts of theassets on the balance sheet. For risk management reporting purposes, the Bank considers all elements of credit risk exposure (suchas individual obligor default risk, country and sector risk).

Management of credit riskPolicies and procedures for managing credit risk are determined by the Company’s Board Credit Committee monitored by the Groupin London. The Group Risk Committee defines the procedures and limits for accepting credit risk.• Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading andreporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

• Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated tobusiness unit Credit Officers.

• Reviewing and assessing credit risk. Group Credit assesses all credit exposures in excess of designated limits, prior to facilitiesbeing committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same reviewprocess.

• Limiting concentration of exposure to counterparties and industries (for loans and advances), and by user, credit rating band,market liquidity.

• Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk andproduct types. Regular reports are provided to Group Credit on the credit quality of local portfolios and appropriate correctiveaction is taken.

• Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in themanagement of credit risk.

Audits of business units and Group Credit processes are undertaken by Internal Audit.

Credit risk associated with trading and investing activities is managed through the Company’s market risk management process.






Impaired loans and securitiesImpaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collectall principal and interest due according to the contractual terms of the loan/securities agreement(s). These loans are graded 12 to 14in the Bank’s internal credit risk grading system.

Past due but not impaired loansLoans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is notappropriate on the basis of the level of security/collateral available and / or the stage of collection of amounts owed to the bank.

Loans with renegotiated termsLoans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position andwhere the Bank has made concessions that it would not other wise consider. Once the loan is restructured it remains in this categoryindependent of satisfactory performance after restructuring.

Allowances for impairmentThe Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. Themain components of this allowance are a specific loss component that relates individually significant exposures, and a collective loanloss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not beenidentified on loans subject to individual assessment for impairment.

Write off policy.The Bank writes off a loan balance (and any related allowances for impairment losses) when Bank Credit determines that the loansare uncollectible. This determination is reached after considering information such as the occurrence of significant changes in theborrower‘s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not besufficient to pay back the entire exposure. For smaller balances and standardised loans, charge off decisions generally are based ona product specific past due status.

The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property, other registeredsecurities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time ofborrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not heldover loans and advances to banks.

Concentration of credit riskConcentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of counterpartieswhen they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affectedby changes in economic or other conditions. The major concentrations of credit risk arise by industry and type of customer in relationto the Bank’s investments, loans and advances, commitments to extend credit and guarantees issued.

On balance sheetTotal on balance sheet economic sector credit risk concentrations are presented in the table below:

2006 2005

K’million % K’million %

Agriculture 139,357 21 114,215 33Mining and quarrying 1,965 - 940 -Manufacturing 30,044 5 13,494 4Energy 16,763 2 5,486 2Commerce 111,062 17 52,491 15Retail 221,463 33 135,294 39Financial services 112,313 17 16,313 6Other 31,703 5 4,818 1

Total 664,670 100 343,051 100

The amounts reflected in the table above represent the maximum accounting loss that would have been recognised at the balancesheet date if counterparties had failed completely to perform as contracted and any collateral or security proved to be of no value.The amounts, therefore, greatly exceed expected losses, which are included in the allowance for impairments of loans and advances.

Off balance sheetOff balance sheet exposure includes K40,962 million (2005: K8,948 million) in respect of the mining sector.

Settlement riskThe Bank’s activities may give rise, at the time of settlement of transactions and trades, to settlement risk, which is the risk of lossdue to the failure of a Company to honour its obligations to deliver cash, securities or other assets as contractually agreed.






Liquidity riskLiquidity risk arises in the general funding of the Company’s activities and in the management of positions. It includes both the riskof being unable to fund liabilities at appropriate maturities and rates and the risk of being unable to liquidate an asset at areasonable price and in an appropriate time frame. Liquidity management is directed towards ensuring that all the Company’soperations can meet their funding needs, whether this is to replace existing funding as it matures, or is withdrawn, or to satisfy thedemands of customers for additional borrowings.

Management of liquidity riskThe Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet itsliabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to theBank’s reputation.

Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities anddetails of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquidassets, largely made up of short term liquid investment securities, loans and advances to banks and other inter-bank facilities, toensure that sufficient liquidity is maintained within the Bank as a whole.

The Bank further has to comply with the liquidity requirements set by the Central Bank which monitors compliance with localregulatory limits on a regular basis.

The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering bothnormal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by GALCO. Asummary report, including any exceptions and remedial action taken, is submitted regularly to ALCO.

Exposure to liquidity riskThe key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For thispurpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is anactive and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month.

The concentration of funding requirements at any one date or from any one source is managed continuously. A substantialproportion of the Company’s deposit base is made up of current and savings accounts and other short term customer deposits.





32 Risk management (continued)The following table provides an analysis of the financial assets and liabilities of the Company into relevant maturity groupings:

2006 Carryingamount

Less thanone month

One tothree

months

Threemonthsto oneyear

One tofive years

Morethan fiveyears

K’million K’million K’million K’million K’million

AssetsCash on hand and balances at Bank of

Zambia416,962 355,070 61,892 - - -

Cash and short term funds at group banks 147,106 147,106 - - - -Cash and short term funds at non-group banks 387 387 - - - -Placements with foreign non-group banks 234,214 234,214 - - - -Debt securities 286,111 22,104 97,461 87,078 79,468 -Derivative financial instruments 1,871 1,871 - - - -Loans and advances 664,670 46,536 96,046 229,264 158,227 134,597Property and equipment 25,591 - - - - 25,591Prepayments, accrued income and otherreceivables

22,339 - 22,339 - - -

Total assets 1,799,251 807,288 277,738 316,342 237,695 160,188

LiabilitiesPlacements by non - group banks - - - - - -Amounts payable to non-group banks 511 511 - - - -Amounts payable to group banks 23,029 23,029 - - - -Cheques in course of collection 13,930 13,930 - - - -Deposits from customers 1,447,211 963,198 408,145 75,868 - -Dividends payable 1,754 1,754 - - - -Derivative financial instruments - - - - - -Interest bearing loans and borrowings 1,478 - - 1,478 - -Deferred taxation 10,222 - - - 10,222 -Subordinated liabilities 17,640 - - - - 17,640Tax payable 21,405 10,703 10,702 - - -Accruals and other payables 102,727 102,727 - - - -Share capital 2,048 - - - - 2,048Statutory reserves 2,048 - - - - 2,048Available-for-sale reserves 7,589 - - - - 7,589Property revaluation reserves 4,783 - - - - 4,783Retained earnings 142,876 - - - - 142,876

Total liabilities and equity 1,799,251 1,115,852 418,847 77,346 10,222 176,984

Gap - (308,564) (141,109) 238,996 227,473 (16,796)





32 Risk Management (continued)

2005 Carryingamount

Less thanone month

One andthree

months

Threemonthsand one

yearOne andfive years

Morethan fiveyears

Assets K’million K’million K’million K’million K’million K’million

Cash on hand and balances at Bank of Zambia 308,456 308,456 - - - -Cash and short term funds at group banks 149,262 - 149,262 - -Cash and short term funds at non-group banks 1,302 - 1,302 - - -Placements with foreign non-group banks 126,288 - 126,288 - - -Debt securities 233,317 - 111,700 59,747 61,870 -Loans and advances 343,051 1,582 5,812 134,475 129,956 71,226Derivative financial instruments - - - - - -Property and equipment 26,577 - - - - 26,577Prepayments, accrued income and other

receivables20,008 4,674 655 12,916 - 1,763

Total assets 1,208,261 314,712 395,019 207,138 191,826 99,566

Liabilities

Balances due to Bank of Zambia 29,394 29,394 - - - -

Placements by non-group banks 4,000 4,000 - - - -Amounts payable to non-group banks 105 105 - - - -Amounts payable to group banks 10,562 - 10,562 - - -Cheques in course of collection 725 725 - - - -Deposits from customers 967,324 591,411 365,786 10,127 - -Dividends payable 1,425 1,425 - - - -Derivative financial instruments 130 130 - - - -Interest bearing loans and borrowings 4,324 - - - 4,324 -Deferred taxation 9,554 - - - - 9,554Subordinated liabilities 14,090 - - - - 14,090Tax payable 8,286 8,286 - - - -Accruals and other liabilities 34,398 2,741 15,690 8,232 7,735 -Share capital 2,048 - - - - 2,048Statutory reserves 2,048 - - - - 2,048Available-for-sale reserves 1,115 - - - - 1,115Property revaluation reserves 5,096 - - - - 5,096Retained earnings 113,637 - - - - 113,637

Total liabilities and equity 1,208,261 638,217 392,038 18,359 12,059 147,588

Gap - (323,505) 2,981 188,779 179,767 (48,022)

The table shows the undiscounted cash flows on the Bank’s financial liabilities and unrecognised loan commitments on the basisof their earliest possible contractual maturity. The Bank’s expected cash flows may vary from this analysis. For example, demanddeposits from customers are expected to maintain a stable or increasing balance.

Operational risk managementOperational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s processes,personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arisingfrom legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risk arises from all theBank’s operations and is faced by all business entities.The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank’sreputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.





32 Risk Management (continued)The primary responsibility for the development and implementation of controls to address operational risk is assigned to seniormanagement within each business unit. This responsibility is supported by the development of overall Group standards for themanagement of operational risk in the following areas:

• Requirements for appropriate segregation of duties, including the independent authorisation of transactions• Requirements for the reconciliation and monitoring of transactions• Compliance with regulatory and other legal requirements• Documentation of controls and procedures• Requirement for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to

address the risks identified• Requirements for the reporting of operational losses and proposed remedial action• Development of contingency plans• Training and professional development• Ethical and business standards• Risk mitigation, including insurance where this is effective

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results ofInternal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to theAudit Committee and senior management of the Bank.Operational risks are managed within a policy framework set by the Standard Chartered Group directors through the Group RiskCommittee in London. The policy sets minimum standards and requires the Company to identify and address potential and actualoperational risks on a continuing basis. The Group Head of Risk and selected members of the senior Group’s management team,receive regular updates on all critical operational risk issues. A summary report is also presented periodically to the Group’s Auditand Risk Committee. The implementation of operational risk policy is subject to regular audit and underpins corporate governance.The Group Operational Risk department is primarily responsible for ensuring that policies encompass all operational risk exposuresand that best practice is migrated.

Market riskMarket risk is the risk that changes in the market prices, such as interest rates, equity prices, foreign exchange rates and creditspreads (not relating to changes in the obligor’s / issuer’s credit standing) will affect the Bank’s income or the value of its holdings offinancial instruments. The objective of market risk management is to manage and control market risk exposure within acceptableparameters, while optimising the return on risk. The Bank faces two main risks in this category; interest and exchange rate risk.

Management of market risksAll businesses in the Standard Chartered Group operate within market risk management policies that are set by the Group RiskCommittee. Limits have been set to control the Company’s exposure to movements in prices and volatilities arising from trading,lending, deposit taking and investment decisions.

Value at risk (VAR)The Company measures the risk of losses arising as a result of potential adverse movements in interest and exchange rates. Inaddition to the close supervision of trading activities by senior management, there are limits on the size of positions andconcentrations of instruments as well as stress testing of certain product groups and currencies. The Company regularly stresstests its main portfolios to identify any exposure to low-probability events that may not be highlighted by other measures.

Interest rate riskThe Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets (includinginvestments) and interest-bearing liabilities mature or reprice at different times and/or in differing amounts. In the case of floatingrate assets and liabilities the Bank is also exposed to basis risk, which is the difference in repricing characteristics of the variousfloating rate indices. Asset-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest ratechanges. The table below indicates the effective interest rates at the balance sheet date and the periods in which financialassets and liabilities reprice respectively.

The effective interest rates for principal financial assets and liabilities averaged as follows:

2006 2005

ZMK (%) USD (%) ZMK (%) USD(%)Government bonds 12.36 - 21.70 -Treasury bills 12.90 - 16.09 -Loans and advances 28.00 5.50 34.39 5.56Staff mortgages and other loans 12.00 - 12.00 -Placements with other banks 10.00 5.22 20.36 2.00Customer deposits 01.50 - 01.50 -






Fixed rate instruments

2006

TotalZero rate

instruments

Floatingrate

instruments

Less thanthree

months

Threemonthsand one

year

Betweenone andfive years

K’million K’million K’million K’million K’million K’million

AssetsCash on hand and balances at Bank of

Zambia416,962 272,570 - 144,392 - -

Cash and short term funds at group banks 147,106 8,742 - 138,364 - -Cash and short term funds at non-group banks 387 387 - - - -Placement with foreign non-group banks 234,214 - - 234,214 - -Debt securities 286,111 - - 119,565 87,078 79,468Derivative financial instruments 1,871 1,871 - - - -Loans and advances 664,670 - 578,641 155 7,840 78,034Property and equipment 25,591 25,591 - - - -Prepayments, accrued income and other

receivables22,339 22,339 - - - -

Total assets 1,799,251 331,500 578,641 636,690 94,918 157,502

LiabilitiesPlacements by non - group banks - - - - - -Amounts payable to non-group banks 511 511 - - - -Amounts payable to group banks 23,029 23,029 - - - -Cheques in course of collection 13,930 13,930 - - - -Deposits from customers 1,447,211 963,198 - 408,145 75,868 -Dividends payable 1,754 1,754 - - - -Derivative financial instruments - - - - - -Interest bearing loans and borrowings 1,478 - 1,478 - - -Deferred taxation 10,222 10,222 - - - -Subordinated liabilities 17,640 - 17,640 - - -Tax payable 21,405 21,405 - - - -Accruals and other payables 102,727 102,727 - - - -Share capital 2,048 2,048 - - - -Statutory reserves 2,048 2,048 - - - -Available-for-sale reserves 7,589 7,589 - - - -Property revaluation reserves 4,783 4,783 - - - -Retained earnings 142,876 142,876 - - - -

Total liabilities and shareholders’ funds 1,799,251 1,296,120 19,118 408,145 75,868 -

Gap - (964,620) 559,523 228,545 19,050 157,502






Fixed rate instruments

2005

TotalZero rate

instruments

Floatingrate

instruments

Less thanthree

months

Betweenthree

monthsand one

year

Betweenone andfive years

K’million K’million K’million K’million K’million K’million

AssetsCash on hand and balances at Bank of Zambia 308,456 173,456 - 135,000 - -Cash and short term funds at group banks 149,262 4,051 - 145,211 - -Cash and short term funds at non-group banks 1,302 1,302 - - - -Placement with foreign non-group banks 126,288 - - 126,288 - -Debt securities 233,317 - - 111,700 59,747 61,870Loans and advances 343,051 - 177,288 7,597 9,816 148,350Property and equipment 26,577 26,577 - - - -Prepayments, accrued income and other

receivables 20,008 20,008 - - - -

Total assets 1,208,261 225,394 177,288 525,796 69,563 210,220

LiabilitiesBalances due to Bank of Zambia 29,394 29,394 - - - -Placements by non - group banks 4,000 - - 4,000 - -Amounts payable to non-group banks 105 105 - - - -Amounts payable to group banks 10,562 10,562 - - - -Cheques in course of collection 725 725 - - - -Deposits from customers 967,324 721,218 - 229,289 16,817Dividends payable 1,425 1,425 - - - -Derivative financial instruments 130 130 - - - -Interest bearing loans and borrowings 4,324 - 4,324 - - -Deferred taxation 9,554 9,554 - - - -Subordinated liabilities 14,090 - 14,090 - - -Tax payable 8,286 8,286 - - - -Accruals and other payables 34,398 34,398 - - - -Share capital 2,048 2,048 - - - -Statutory reserves 2,048 2,048 - - - -Available-for-sale reserves 1,115 1,115Property revaluation reserves 5,096 5,096 - - - -Retained earnings 113,637 113,637 - - - -

Total liabilities and equity 1,208,261 939,741 18,414 233,289 16,817 -

Gap - (714,347) 158,874 292,507 52,746 210,220

Currency riskThe Company is exposed to currency risk through transactions in foreign currencies. The Company’s transactional exposures giverise to foreign currency gains and losses that are recognised in the income statement. These exposures comprise the monetaryassets and monetary liabilities of the Company, as follows (in Zambian Kwacha terms):2006 ZMK USD GBP ZAR Euro Others Total

K’million K’million K’million K’million K’million K’million K’million

Monetary assets 999,190 709,805 8,530 11,191 25,206 5,310 1,759,232Monetary liabilities (738,089) (754,509) (10,566) (6,355) (23,202) (2,420) (1,535,141)

Net position 261,101 (44,704) (2,036) 4,836 2,004 2,890 224,091





32 Risk Management (continued)2005 ZMK USD GBP ZAR Euro Others Total

K’million K’million K’million K’million K’million K’million K’million

Monetary assets 696,788 372,143 40,049 1,417 50,746 533 1,161,676Monetary liabilities (682,710) (361,337) (7,730) (2,542) (19,499) (945) (1,074,763)

Net position 14,078 10,806 32,319 (1,125) 31,247 (412) 86,913

In respect of monetary assets and liabilities in foreign currencies that are not economically hedged, the Company ensures that itsnet exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.

33 Fair value of financial assets and liabilities

The following sets out the Company’s basis of establishing fair values of the financial instruments, derivatives and available for saleassets.

Cash and balances at Bank of ZambiaThe fair value of cash and balances at the Bank of Zambia is their carrying amounts.

Loans and advances to customersLoans and advances are stated net of impairment losses. The estimated fair value of loans and advances represents the discountedamount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates todetermine fair value.

Loans and advances to banksThe estimated fair value of fixed interest bearing deposits is based on discounted cash flows using the prevailing money-market ratesfor debts with a similar credit risk and remaining maturity.

Government securities – available for saleInvestment securities, including debt and equity securities, with observable market prices are fair valued using that information. Debtand equity securities that do not have observable market data are fair valued by either discounting cash flows using the prevailingmarket rates for debts with a similar credit risk and remaining maturity or using quoted market prices for securities with similar credit,maturity and yield characteristics.

Deposits and borrowingsThe estimated fair value of deposits with no stated maturity is the amount repayable on demand.

34 Related party transactionsThe Company is controlled by Standard Chartered Holdings (Africa) BV (incorporated in The Netherlands) which owns 90% of theshares. The other shares are widely held. The ultimate parent of the bank is Standard Chartered Plc (incorporated in the UnitedKingdom). The Company has a related party relationship with its holding company, fellow subsidiaries, non-executive directors,executive directors and key management personnel.

A number of banking and other transactions are entered into with related parties in the normal course of business. These includeloans, deposits, foreign currency and other transactions for services.

The volumes of related party transactions, outstanding balances at the year end, and the related interest expense and income for theyear are as follows:

Loans2006 2005

DirectorsK’million

Connectedentities todirectorsK’million

Keymanagement

staffK’million

TotalK’million



Keymanagement

staffK’million

TotalK’million

Loans outstanding at 1 January 148 504 2,397 3,049 734 383 1,566 2,683Loans issued during the year 2,831 22 3,647 6,500 176 1,149 1,444 2,769Loan repayments during the year (961) - (772) (1,733) (761) (1,028) (613) (2,402)

Loans outstanding at 31 December 2,018 526 5,272 7,816 149 504 2,397 3,050

Of which:Executive directors 2,018 - - 2,018 149 - - 149Non executive directors - 526 - 526 - 504 - 504

2,018 526 - 2,544 149 504 - 653

Interest income earned 107 193 497 797 65 107 147 319





34 Related party transactions (continued)

Loans to non-executive directors are made under commercial terms in the ordinary course of the Company’s business. Loans toexecutive directors are made on the same terms as those of other employees of the Company. No impairment provisions have beenrecognised in respect of loans given to related parties (2005: nil).

Deposits2006 2005



Keymanagement

staffK’million

TotalK’million



Keymanagement

staffK’million

TotalK’million

Deposits at 1 January 1,227 - 119 1,346 660 - 89 749Deposits received during the year 15,635 - 6,014 21,649 5,305 - 5,727 11,032Deposits withdrawn during the year (15,205) - (5,067) (20,272) (4,738) - (5,697) (10,435)

Deposits at 31 December 1,657 - 1,066 2,723 1,227 - 119 1,346

Interest expense on deposits 1 - 3 4 2 - 2 4

Goods and servicesPurchase of good and services - 781 - 781 - 14 - 14

Key management compensation2006

K’million2005

K’million

Salaries and allowances 13,165 11,679Pension contributions 468 347

Total 13,633 12,026

Directors’ remuneration2006

K’million2005

K’million

Executive directorsSalaries 3,247 3,093Pension contributions 67 117Non – executive directors’ fees and benefits 385 345

Total 3,699 3,555

Balances with group companiesBalances with group companies which include the holding company, fellow subsidiaries and associates are disclosed in notes 21 and30.

Disposal of assetsThere were no Company assets sold to the directors (2005: nil).

Directors’ interests in ordinary sharesDirectors’ beneficial interests in the ordinary shares of the Company at 31 December 2006 were 3,123,176 shares held by VipyaInvestments Limited.

35 Post balance sheet eventsThere were no material post balance sheet events that would require disclosure or adjustment to the balance sheet at 31 December2006.

36 Comparative figuresComparative figures have been reclassified at note numbers 8, 9, 12, 13, 17, 25, 26, 28, 30 and 32 to afford a meaningful comparisonwith current year. The tax payable balance has been reclassified from note 24 and reflected on the face of the balance sheet in orderto comply with International Accounting Standard (IAS) 1.

37 Ultimate holding companyThe Company, which is a registered commercial bank under the Zambian Banking and Financial Services Act 1994 (as amended), isowned 90% by Standard Chartered Holdings (Africa) BV, a company incorporated in The Netherlands, which is in turn wholly ownedby Standard Chartered Plc, a company incorporated in the United Kingdom.





Regulatory capitalThe Bank’s regulator, the Bank of Zambia sets and monitors capital requirements for the Bank.

I Primary (Tier 1) capital

2006K’million

2005K’million

(a) Paid-up common shares 2,048 2,048(b) Eligible preferred shares - -(c) Contributed surplus - -(d) Retained earnings 142,876 113,637(e) General reserve - -(f) Statutory reserve 2,048 2,048(g) Minority interest (common shareholders’ equity) - -(h) Sub-total A (items a to g) 146,972 117,733

Less(i) Goodwill and other intangible assets - -(j) Investments in unconsolidated subsidiaries and associates - -(k) Lending of a capital nature to subsidiaries and associates - -(l) Holding of other banks' or financial institutions' capital instruments - -(m) Assets pledged to secure liabilities - -(n) Sub-total B (items i to m) - -

Other adjustmentsProvisions - -Assets of little or no realised value - -Stationery stocks, sundry debtors, cash advances, product project accounts (706) (2,396)Other adjustments (prepayments) (2,732) (2,232)

(o) Sub-total C (other adjustments) (3,438) (4,628)

(p) Total primary capital [h – (n to o)] 143,534 113,105


Appendix I (continued)

Computation of capital position (continued)

II Secondary (Tier 2) capital

2006K’million

2005K’million

(a) Eligible preferred shares -

(b) Eligible subordinated term debt 17,640 14,090

(c) Eligible loan stock/capital - -

(d) Revaluation reserves (Maximum is 40% of revaluation reserves) 1,913 2,038

(e) Other -

(f) Total secondary capital 19,553 16,128

III Eligible secondary capital 19,553 16,128(The maximum amount of secondary capital is limited to 100% of primary capital)

IV Eligible total capital (I (p) + III) (Regulatory capital) 163,087 129,233

V Minimum total capital requirement 89,569 50,398(10% of total on and off balance sheet risk - weighted assets)

VI Excess (IV minus V) 73,518 78,835




Appendix I (continued)

Computation of capital position (continued)

II Secondary (Tier 2) capital

2006K’million

2005K’million

(a) Eligible preferred shares -

(b) Eligible subordinated term debt 17,640 14,090

(c) Eligible loan stock/capital - -

(d) Revaluation reserves (Maximum is 40% of revaluation reserves) 1,913 2,038

(e) Other -

(f) Total secondary capital 19,553 16,128

III Eligible secondary capital 19,553 16,128(The maximum amount of secondary capital is limited to 100% of primary capital)

IV Eligible total capital (I (p) + III) (Regulatory capital) 163,087 129,233

V Minimum total capital requirement 89,569 50,398(10% of total on and off balance sheet risk - weighted assets)

VI Excess (IV minus V) 73,518 78,835



Standard Chartered Bank Zambia PLCAnnual Report and Accounts 2006

Appendix II

Five year summary

2006K’million

2005K’million

2004K’million

2003K’million

2002K’million

Operating income before impairment provisions 124,477 80,737 64,979 56,768 63,937

Net(impairment provisions)/reversal against loans and advances (11,731) (6,258) (24,449) 12,581 (6,367)

Profit before taxation 112,746 74,479 40,530 69,349 57,570

Profit attributable to shareholders 73,971 50,286 26,025 52,923 45,246

Loans and advances to customers 664,670 343,051 325,278 284,145 201,925

Total assets 1,799,251 1,208,261 1,252,832 888,012 783,406

Deposits from customers 1,447,211 967,324 993,055 682,866 609,410

Shareholders’ funds 159,344 123,944 99,902 109,981 101,509

Information per ordinary shareBasic earnings per share (Kwacha) 18.06 12.28 6.36 12.92 11.05

Dividends per share (Kwacha) 12.00 10.00 6.00 9.00 7.00

RatiosPost-tax return on ordinary shareholders’ funds 46% 41% 26% 48% 42%

Basic cost/income ratio 51% 60% 63% 65% 55%





Head OfficeStandard Chartered Bank Zambia PlcStandard Chartered HouseCairo RoadP.O. Box 32238 Lusaka 10101, ZambiaTel: +260 1 229242-50Fax: +260 1 222092

Senior Management

Thomas AakerManaging Director Standard Chartered Bank Zambia Plc4th Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: +260 1 222046Fax: +260 1 225148

J. Kweku Bedu-AddoExecutive Director - Wholesale BankingStandard Chartered Bank Zambia Plc2nd Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: + 260 1 222983Fax: + 260 1 227805

Mukwandi ChibesakundaExecutive Director - Consumer BankingStandard Chartered Bank Zambia Plc1st Floor Northend, Cairo RoadP.O. Box 32238, LusakaTel: +260 1 225257Fax: +260 1 228353

Kelvin MusanaExecutive Director – Finance and AdministrationStandard Chartered Bank Zambia Plc1st Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: + 260 1 225252Fax: +260 1 225337

Peter MwaleHead of Global MarketsStandard Chartered Bank Zambia Plc2nd Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: +260 1 221235Fax: +260 1 222090

Oliver GondweChief Information Officer Standard Chartered Bank Zambia Plc1st Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: + 260 1 225138Fax: + 260 1 222092

Mutale ChiselaHead of Human ResourcesStandard Chartered Bank Zambia Plc1st Floor Standard Chartered House Cairo RoadP.O. Box 32238, LusakaTel: +260 1 224838 Fax: + 260 1 225337

Celine NairHead of Legal & Compliance/Company SecretaryStandard Chartered Bank Zambia Plc5th Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: +260 1 221518Fax: +260 1 225148

Sonny ZuluHead of Corporate AffairsStandard Chartered Bank Zambia Plc4th Floor Standard Chartered HouseCairo RoadP.O. Box 32238, LusakaTel: +260 1 227616Fax: +260 1 225148

Branch Management

Kaumba KapakuBranch ManagerLusaka Branch P.O. Box 31934, LusakaTel: +260 1 229242/59Fax: +260 1 220106/227679

Dennis MulengaBranch ManagerNorth End BranchP.O. Box 31353, LusakaTel: +260 1 2285114/5Fax: +260 1 221857

Larry AndersonBranch ManagerManda Hill BranchP.O. Box 31934, LusakaTel: +260 01 255484Fax: +260 01 255485

Euphrasia NsofuBranch ManagerKabulonga BranchP.O. Box 31934, LusakaTel: +260 1 261339Fax: +260 1 262593

Jurecca DakaBranch ManagerZambia Way BranchP.O. Box 20061, KitweTel: +260 2 224431Fax: +260 2 224269

Lillian MwaleBranch ManagerButeko BranchP.O. Box 71665, NdolaTel: +260 2 613225Fax: +260 2 620943

Principal Office Address:



Violet SachikolaBranch ManagerNdola South BranchP.O. Box SK 230021, NdolaTel: +260 2 651015Fax: +260 2 650583

Chola ChibuyeBranch ManagerChingola BranchP.O. Box 71665, ChingolaTel: +260 2 613225Fax: +260 2 620943

Austin MwiingaBranch ManagerLuanshya BranchP.O. Box 90097, LuanshyaTel: +260 2 512229Fax: +260 2 510407

Charity NtalashaBranch ManagerChililabombwe BranchP.O. Box 210119, ChililabombweTel: +260 2 382209Fax: +260 2 382213

Peter MwanazianiBranch ManagerLivingstone BranchP.O. Box 60592, LivingstoneTel: +260 3 321745Fax: +260 3 321721

Charles NkunikaBranch ManagerMazabuka BranchP.O. Box 670002, MazabukaTel: +260 32 30688Fax: +260 32 30727/30162

Patrick KanyumbuBranch ManagerChoma BranchP.O. Box 630070, ChomaTel: +260 32 20199Fax: +260 32 20784

Christopher MalamboBranch ManagerMongu BranchP.O. Box 910090, MonguTel: +260 7 221281Fax: +260 7 221281

Ispha MapulangaBranch ManagerKasama BranchP.O. Box 410060, KasamaTel: + 260 4 222051Fax: + 260 4 221316

Tabu CheweExcel Banking Centre Lusaka Main BranchTel: +260 1 227673Fax: +260 1 237966

Lwiindi LumbweExcel Banking Centre Northend BranchTel: +260 1 228551Fax: +260 1 228553

Jordan BandaExcel Banking CentreZambia Way Branch, KitweTel: +260 2 224431Fax: +260 2 224269

Cecilia MundiaExcel Banking CentreChingola BranchTel: +260 2 313827Fax: +260 2 312636



NOTICE TO SHAREHOLDERS

�� February �007

NOTICE is hereby given that the Thirty-Sixth General Meeting of Standard Chartered Bank Zambia Plc will be held in the Amalila Room of the Pamodzi Hotel on 29 March 2007 at 9.00 hours. �. To confirm and sign the Minutes of the AGM of 29 March 2006.

�. To receive and adopt the Financial Statements to 31st December 2006 and the reports of the Chairman, Directors and Auditors.

3. To declare a final dividend of K8.00 per Share – if approved, will be declared payable to members registered in the books of the company at the close of business on 13 April 2007 being the date of accrual.

Warrants in payment will be posted on or before 15 June 2007

The transfer of books and register of members will be closed from 16 April to 20 April 2007 – both days inclusive.

4. To re-elect directors retiring by rotation in accordance with the provision of the Company’s Articles of Association.

5. To appoint auditors from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorize the Directors to fix their remuneration.

6. To transact any other business that may properly be transacted at the Annual General Meeting.

A member entitled to attend and vote is entitled to appoint a proxy to attend, speak and, on a poll, vote in lieu of him/her.

In order to be valid, the proxy must be deposited at the Registered Office of the company not later than 48 hours before the time appointed for the holding of the meeting.

By order of the Board

CELINE M. NAIRCOMPANY SECRETARY


Standard Chartered Bank Zambia Plc 5�

FORM OF PROXY

12 February 2007

I/We, ………………………………………………… (full names in block letters) of

………………………………………………………………………………………………

member/members of Standard Chartered Bank Zambia Plc, hereby appoint

………………………………………………………………………………………………

of …………………………………………………………………………………………..

as my/our proxy to attend, and speak, on poll, vote instead of me/us at the Thirty-Sixth Annual General Meeting of the Company, to be held on 28 March 2007 and at every adjournment thereof.

Signature(s) ……………………………………………………………

Certificate Number(s)……..............………………………………………

NOTE:

The Form of Proxy shall be:

a) In the case of an individual, signed by the appointer or by his Attorney

b) In the case of a corporation, signed either by an Attorney or Officer of the Corporation on its behalf or be given under its common seal.

An instrument of proxy must be deposited at the Registered Office of the Company not later than 48 hours before the time of the meeting.


5� Standard Chartered Bank Zambia Plc

Documents

Standard Chartered Bank Zambia Plc - 2006