integrated report 2011 · sfs: sasfin financial services (pty) limited sme: small and medium...

sasfin integrated report 2011integrated report 2011

glossary

ALCO Asset and Liability CommitteeBANKSETA Banking Sector Education and Training AuthorityBasel II International Convergence of Capital

Measurement and Capital Standards: A Revised FrameworkBasel III Set of reform measures, in addition to Basel II, to strengthen the

regulation, supervision and risk management of the banking sectorBEE Black Economic EmpowermentCompanies Act Companies Act No 71 of 2008 as amendedCCMA

CIRC

Commission for Conciliation, Mediation and Arbitration

Credit and Investment Review CommitteeERM Enterprise Risk ManagementFAIS Financial Advisory and Intermediary ServicesFICA Financial Intelligence Centre ActFSB Financial Services BoardFSC Financial Sector CharterGACC

GRCMC

Group Audit and Compliance Committee

Group Risk and Capital Management CommitteeGRI Global Reporting InitiativesHIV/Aids Human Immunodeficiency Virus/Acquired Immune Deficiency SyndromeHR Human ResourcesICAAP Internal Capital Adequacy Assessment Process (Basel II)IFC International Finance CorporationIFRS International Financial Reporting StandardsINSETA Insurance sector education and training authorityInnoVent InnoVent Investment Holdings (Pty) LimitedInnoVent Rentals InnoVent Rental and Asset Management Solutions (Pty) LimitedIT Information TechnologyJIBAR Johannesburg Interbank Agreed RateKing III King Report on Corporate Governance for South Africa issued in 2009NCA National Credit ActPremier Premier Freight (Pty) LimitedRemco Group Human Resources and Remuneration CommitteeSAL Sasfin Asia LimitedSAM Sasfin Asset Managers (Pty) LimitedSasCred SasCred Financial Services LimitedSasfin Sasfin Holdings LimitedSASP South Afican Securitisation Programme (Pty) LimitedSasSec

SEMS

Sasfin Securities (Pty) Limited

Social and Environmental Management SystemSENS Securities Exchange News ServiceSFAS Sasfin Financial Advisory Services (Pty) LimitedSFS Sasfin Financial Services (Pty) LimitedSME Small and Medium EnterprisesThe Bank Sasfin Bank LimitedThe Company/ The Group

Sasfin Holdings Limited

The JSE Johannesburg Stock Exchange LimitedThe SARB South African Reserve Bank

contents

PART 1 INTEGRATED SUSTAINABILITY Page

overviewmission, markets and values inside front coverSasfin’s strategy 2business model and value chain 3key strategic focus for 2011 4group salient features 5group structure 6 – 7board of directors 8 – 9executive committee 10

group reportschairman’s report 12 – 15chief executive officer’s report 16 – 17financial report 18 – 26corporate governance 27 – 34remuneration report 35 – 40

risk, governance and compliancerisk management, regulatory review and compliance 41 – 48

sustainability development stakeholder engagement 49 – 52economic sustainability 53environmental and social sustainability 54 – 58cultural sustainability 59 – 63

key strategic drivers 2012 and beyond 64

PART 2 FINANCIAL STATEMENTSdirectors’ responsibility statement 66company secretary’s certificate 66report of the independent auditors 67audit committee report 68 – 69directors’ report 70 – 73consolidated statement of financial position 74consolidated income statement 75consolidated statement of changes in equity 76consolidated cash flow statements 77notes to the annual financial statements 78 –145company financial statements 146notes to the company financial statements 147 – 154

PART 3 SHAREHOLDERS’ AND ADMINISTRATIVE INFORMATIONshareholder and administrative information 155 – 159GRI content index 160 – 163notice of annual general meeting 164 – 169Sasfin Group contact information 170 form of proxy 171 – 172

sasfi n integrated report 2011

our values

our mission

our markets

Sasfi n is an independent and diversifi ed banking and

fi nancial services group, listed on the JSE since 1987.

Sasfi n group is structured into distinct, yet closely

interactive off erings which are directed at its broad

target markets of entrepreneurial corporate and

commercial clients as well as private clients.

Sasfi n partners with each and every client, acting

with respect and integrity, to off er tailor-made

solutions to meet business challenges. Sasfi n

believes that a close relationship and a thorough

understanding of its clients’ needs are absolutely

essential to deliver the correct fi nancial solution. This

enables Sasfi n to be “a partner beyond expectations”.

Each of its fi ve segments, Business Banking, Capital,

Wealth Management, Treasury and Logistics and Risk

Management off er a range of specialised products

and services to assist clients at all stages of their

development.

r

c

u

respect and integrity

close relationship

understanding of client needs

To be the preferred specialist banking and fi nancial services provider in our chosen markets.

Entrepreneurial corporate, commercial and private clients seeking wealth creation, enhancement and preservation.

1

sasfi n’s strategy

Sasfi n’s strategy for sustainable growth is based on the following three fundamental pillars, linked to its mission to be a partner beyond expectation in its chosen markets:

• specialised and integrated off erings

• diversifi ed group

• partnerships with clientsThese pillars synergise to create a robust positioning for Sasfi n which enables the organisation to:

• develop and maintain its core competencies

• remain agile and responsive to changes in the economic and environmental areas, and

• off er a unique value proposition to its clients

These strategic pillars result in key business objectives which we achieve through strategic business enablers.

This is the fi rst integrated report prepared by the Group. The report builds on the comprehensive fi nancial report contained in the prior year’s annual report. The Group has adopted the “Combined” or “One Report” approach in the development of its integrated report.

The motivation to produce an integrated report is based on a number of factors, including:

• Sasfi n’s recognition of the need to align its reporting as closely as possible with best-practice

recommendations, as defi ned by the King III Code of Corporate Governance, on integrated

reporting.

• A greater focus on sustainability reporting across all areas of the business.

• Eliminating the duplication of information, thereby reducing the associated paper usage and costs.

To this end some of the detail contained in previous reports has been excluded from the printed

document and included in the electronic version, which can be accessed on the Group’s website

at www. sasfi n. com. These initiatives reduced the overall volume of printed pages.

Sasfi n acknowledges that integrated reporting, like integrated sustainability implementation, is a journey

and that this report is a step in that journey and not an end in itself.

Scope of reportingThis report covers the period from 1 July 2010 to 30 June 2011 and provides an overview of the strategy,

operations, fi nancial performance and integrated sustainability developments across all segments,

operational areas and majority-owned businesses of the Group. While organisations in which the Group

may hold minority shares are not included in the sustainability scope of this report, the Group works

closely with these companies to provide guidance and assistance with all aspects of their economic,

environmental, social and cultural sustainable development.

In compiling this report, the Group has encompassed requirements of IFRS, King III, the Companies

Act No 71 and GRI guidelines.

Sustainability issues addressed in the integrated report 2011In assessing required disclosures, Sasfi n has adhered to the concepts of materiality and relevance to all its

stakeholders. Reference has been made to the GRI guidelines and Financial Services Sector Supplement.

The board, and in particular the GACC, has maintained overall accountability for the development of the

integrated report.

AssuranceThe consolidated annual fi nancial statements were audited by the Group’s external auditors

KPMG Inc. and PKF (JHB) Inc. The scope of their audit is disclosed in the Independent Auditors’ Report.

Non-fi nancial information

The framework of Sasfi n’s sustainability report was assessed by KPMG Inc. and PKF (JHB) Inc. Certain

sustainability data relating to energy and other resource usage was obtained from independent third

parties. Much of the data generated forms the basis of reports which Sasfi n submits to the IFC. The

IFC reviews Sasfi n’s practices against international benchmarks. We acknowledge that limited assurance

is not ideal but our approach to combined assurance is at an early stage. The combined assurance

model recommended by King III envisages that stakeholders will fi nd assurance in the co-ordination of

information from management, internal assurance providers and external assurance providers.

SASFIN’S STRATEGY

We have benchmarked our sustainability reporting against the guidelines of the GRI, and self-assess our application as a C level.

C


2

business model and value chain

Specialised off erings Diversifi ed Group Partnership with clients

Key

Busi

ness

Obj

ectiv

es

• Focused targets markets - Corporate SME market - Family-owned businesses - Entrepreneurs - High-net-worth individuals

• Focus on clients requiring high touch relationships which larger more bureaucratic institutions fi nd diffi cult to deliver

• Diversifi ed income streams

• Diversifi ed funding base

• Avoidance of concentration risk

• Well balanced asset and liability structure

• Understanding clients’ needs

• Personalised service

• Strong relationships

• Flexibility

• Quick turnaround

Stra

tegi

c En

able

rs • Working capital and equity

• Tailor-made solutions

• Quick processing ability

• Appropriate fl at operating and management structure

• Bespoke IT systems

• Multiple product off erings

• Lending wealth management and advisory services

• Balanced interest and non-interest income

• Debt capital and securitisation market expertise

• Highly experienced and passionate staff

• Dedicated and experienced teams

• Personal guidance

• Innovative client-centric products

• Excellent service

• Regular client interactions

• Exceed client expectations

Sasfi n positions its product off ering around its clients, providing fi nancial solutions for the various stages of the business and personal wealth life cycle.

Typically a client will enter the “Product Wheel”

on the Business Banking side in order to obtain

a debt solution to provide working capital for the

business.

As the business grows, there is a point in time

where equity fi nance is needed to propel the

business into its next growth phase. Ultimately

the business may explore merger and acquisition

opportunities or may wish to list on a bourse.

The Capital division will provide these solutions.

With time, the owner-managers of the business

will begin to accumulate wealth in their own

personal capacity and the Wealth Management

division can assist in growing and protecting

these assets.

Treasury provides money market, debt capital and

other products to optimise yields in the money

market and Sasfi n, being a registered foreign

exchange dealer, off ers products and services for

companies and private clients.

Logistics and Risk services provide complementary

services that can be off ered along the entire life

cycle of the client.


TREASURY WEALTH M

ANAGEMEN

T

LOG

ISTI

CS

& R

ISK

MA

NA

GEM

EN

T

B

USINESS BANKING CA

PITAL

Money Market

Foreign Exchange

Debt Capital Markets

Trade and Debtor Finance

Equipment Finance

Mergers and A

cquisitio

ns

Equity Capital Markets

Sponsor Services

Private and Property Equ

ity

Portfolio Management and Stoc

kbro

king

Financial Plannin

g

Asset Managem

ent

Asset Consulti

ng

Frei

ght

Forw

ardi

ng &

Cle

arin

gH

ealt

hca

re C

onsu

ltin

g

Sho

rt-t

erm

Ins

uran

ce

3


4 key strategic focus for 2011

The Sasfi n Group conducts an annual strategic business planning and budgeting process which incorporates two distinct approaches. First there is the “top-

down” approach where high level objectives and goals are set by the Strategy committee and the board of directors. Thereafter the “bottom-up” approach begins

where the individual business units and senior managers set their goals and targets for their business units. Strategy sessions are scheduled for the directors, all

business units and corporate services departments.

Once this process is complete, a “Gap analysis” is performed to align the “top-down” and “bottom-up” approaches to ensure that all strategic imperatives and

targets that will be set for the future have been robustly examined and critically analysed by the board as well as senior management in the organisation.

The progress of the implementation of the strategic imperatives of the Group and achievement of goals that were agreed upon are monitored and reported

on monthly.

The outcomes of this process identifi ed the following fi ve key strategic objectives for the 2011 fi nancial year:

Strategic objectives Status PerformanceIncrease advances and

lending book

Achieved Total lending grew by 21% to R2,3 billion from R1,9 billion, in particular rental fi nance achieving a record

year through greater market share.

Increase effi ciency Partially achieved Achieved a below-infl ationary cost growth of 3% due to cost containment and streamlining operations.

Synergies have been achieved by combining common fi nance and administration activities within the

Group. Line of business systems are still in the process of being implemented and further effi ciencies will

only come through in the next fi nancial year.

Grow service based

income

Not achieved Expected growth in non-banking activities did not materialise due to tougher market conditions, primarily

the result of a lack of scale and revenue in these businesses. Corporate Finance, however, targeted and

successfully implemented a number of high profi le transactions during the 2011 fi nancial year.

Increase deposit and

funding base

Achieved Deposits and funding showed growth in all channels. Deposits grew from R911 million to R1,2 billion

during the fi nancial year, and refl ecting a lengthening maturity profi le of the deposit base.

Maximising client

relationships

Partially achieved There were improved levels of customer service delivered, as shown by the growth within Business

Banking. This remains the Group’s competitive advantage in our target market. Increased brand awareness

following the launch of new brand equity “a partner beyond expectations”, resulting in some positive

cross-selling initiatives.

In addition to the above, the Group formulated a refi ned growth strategy in response to the relatively slow economic recovery, and changing banking and

regulatory landscape post the global crises, with a view to broadening its franchise value. In this regard, the Group has implemented and embarked on the

following initiatives:

Refi ned strategic objectives Performance Sustainability linkageChanged the leadership in the Wealth

Management division with greater focus

on asset management off ering and more

eff ective mining of its large private client base.

Strengthened the management team and

appointed a new chief executive offi cer.

Funds under management grew by 23% to

R45 billion.

Economic: Creating value for clients thereby

promoting economic stability.

Increased and diversifi ed revenue streams for the

Group.

Consolidated the Business Banking activities

into a single unit, targeting the corporate and

SME market in a client-centric manner.

Growth within business banking to a total lending

book of R2,3 billion.

Profi t from business banking was R80 million for

the current fi nancial year, an increase of 87% over

the 2010 fi nancial year.

Social: Being a leading fi nancier in the SME market

that can lead to job creation.

Environmental: Adhering to the 8 IFC principles,

expanded upon in the “Social and Environmental

sustainability” section of this report.

Refocused and downsized its Private and

Property Equity businesses. In addition, the

Group is seeking to exit from its Property

Private Equity portfolio and also from some of

its mature Private Equity investments, in terms

of a clearly-defi ned realisation strategy.

The Group will continue to address this target

within the next fi nancial year.

Ongoing and satisfactory progress being made

post year-end.

Economic: Revised strategy in more profi table and

sustainable markets and investments, leading to

improved earnings for the Group.

Diversifi cation of funding sources with a more

favourable maturing profi le.

The Bank will launch a Corporate Bond programme

and has also secured a €35 million seven-year

facility from three European Development Funding

Institutions, which is in the process of being

fi nalised.

The Group continues to build its relations with

the “IFC”.

Economic: Sound liquidity management and

diverse funding portfolio to support business

growth.

Regulatory: Compliance with pending Basel III

regulations.

Broaden and expand the Group’s commercial

services and consolidate these activities in a

unifi ed structure and leverage off its enlarged

client base.

Subsequent to 30 June 2011, the Group acquired a

42,9% stake in IQUAD Group Limited, a diversifi ed

group of specialist fi nancial and business services

companies listed on the AltX of the JSE.

Economic: Synergies achieved in combining these

operations and increasing scale and service off ering

in non-banking arena.

People: Providing broader employment

opportunities within the Group.

4


2011 2010 2009 2008 2007

Consolidated statement of fi nancial position

Total assets (Rm) 4 373 3 552 3 181 3 016 2 545

Total gross loans and advances (Rm) 2 429 1 983 1 867 1 850 1 552

Non-performing loans and advances (Rm) 189 147 149 96 71

Gross loans and advances growth (%) 22 6 1 19 27

Income statement

Total income (Rm) 611 626 631 587 525

Profi t attributable to ordinary shareholders (Rm) 98 120 157 156 140

Headline earnings (Rm) 96 107 154 156 140

Financial performance

Return on ordinary shareholders’ average equity (%) 11 16 25 28 31

Return on total average assets (%) 2 4 5 6 6

Leverage ratio (times) 3,9 3,3 3,3 3,6 3,3

Operating performance

Net interest margin on interest-bearing assets (%) 6 7 7 7 7

Non-interest income to total income (%) 69 71 75 74 74

Effi ciency ratio (%) 72 70 63 61 56

Non-performing advances to total gross loans and advances (%) 8 7 8 5 5

Credit loss ratio (%) 1,7 1,4 1,0 0,3 0,7

Share statistics

Share price (cents) 3 450 3 710 2 625 2 639 4 810

Number of shares in issue (‘000) 32 237 32 186 28 001 27 352 27 013

Earnings per ordinary share (cents) 304 396 571 576 524

Headline earnings per ordinary share (cents) 297 355 560 576 523

Diluted earnings per ordinary share (cents) 304 396 570 572 514

Diluted headline earnings per ordinary share (cents) 297 355 559 572 514

Dividends per ordinary share (cents) 118 133 220 228 207

Dividends per preference share (cents) 697 782 1 072 1 068 909

Net asset value per ordinary share (cents) 2 771 2 635 2 405 2 204 1 844

Capital adequacy

Group capital to risk weighted assets (%) 32 32 31 28 34

Sasfi n Bank Limited and its subsidiaries capital to risk weighted assets (%) 36 30 32 22 32

Employees

Permanent staff complement 583 563 573 542 496

group salient features

For the years ended 30 June

5

sasfin integrated report 2011

board of directors

At 30 June 2011

CN Axten (75)Independent Non-Executive ChairmanNorman was appointed as a non-executive director of the Group in 1999 and was subsequently appointed as the Group’s chairman in 2010. In addition to the above, Norman serves as Chairman of the Directors’ Strategy and Review and Directors’ Affairs committees and is a member of the Sasfin Financial Services board.

Prior to fulfilling the above role, Norman served the First National Bank Group (previously Barclays)for 42 years and retired as senior general manager. Norman was also chief executive of the Banking Council and past president of the Institute of Bankers and the Association of Mortgage Lenders.

RDEB Sassoon (65)Chief Executive OfficerRoland was appointed as chief executive officer of the Group in 1979 and serves on the boards of various companies within the Sasfin Group. He is additionally a member of the Sasfin-MDM Private Equity Fund 1 Audit, Directors’ Strategy and Review, Group Risk and Capital Management, Asset and Liability, Transformation, Credit and Investment Review, and Information Technology committees.

In fulfilling his role, Roland also has direct responsibility for the Business Banking and the Treasury divisions, as well as the Freight Services unit and the Compliance and Internal Audit departments.

Prior to fulfilling the above roles, Roland had 10 years experience with factoring, leasing, export shipping and confirming companies.

M Segal (62)Executive Director and head of Sasfin CapitalMalcolm was appointed as an executive director of the Group in 2005 and serves on the boards of various companies within the Sasfin Group. In addition to the above, Malcolm is a member of the Sasfin-MDM Private Equity Fund 1 Audit, Trinitas Private Equity Audit, Directors’ Strategy and Review committees. He additionally acts as an alternate to Roland in the Group Risk and Capital Management and Transformation committees.

Prior to fulfilling the above roles, Malcolm served as national executive chairman of Grant Thornton (Chartered Accountants and Business Advisors) for 10 years before establishing MDM Private Equity Group in 1997. In 2005, Sasfin acquired a controlling

interest in the MDM fund and the fund management company. During the same period as the above acquisition, Sasfin Capital was established and Malcolm joined the Sasfin Group to head up this division. Malcolm is also a past chairman of the South African Private Equity and Venture Capital Association (SAVCA).

Malcolm is a qualified Chartered Accountant and holds a BCom degree from Wits. He is also a Certified Public Accountant.

TD Soondarjee (50)Financial DirectorTyrone was appointed as Sasfin’s Group chief financial officer in 2007 and was subsequently appointed as Group financial director in 2010. Tyrone serves on the boards of various companies within the Sasfin Group, and is additionally a member the Directors’ Strategy and Review committee, and chairman of Premier Freight.

Prior to fulfilling the above roles, Tyrone held numerous executive roles in the Deloitte & Touché group and served as the financial director for TNBS Mutual Bank.

Tyrone is a qualified Chartered Accountant and holds a BCompt

Honours degree from Unisa. He has a 30-year career in the professional services and banking industries.

RC Andersen (63)Independent Non-Executive DirectorRoy was appointed as a non-executive director of the Group in 2011 and serves on the boards of various companies within the Sasfin Group. In addition to the above, Roy is a member of the Group’s Audit and Compliance committee.

Roy started his career at Ernst & Whinney Chartered Accountants in 1966, and subsequently became chairman of Ernst & Young. Thereafter, he went on to the JSE as executive president over the period 1992 to 1997 and oversaw the restructuring of the JSE. He was subsequently chief executive officer of the Liberty Group. Roy has been the chairman of various companies over the years and is currently a board member of several companies and is a member of the King Committee on Corporate Governance.

Roy qualified as a Chartered Accountant (SA) in 1972 and as a Certified Public Accountant (Texas) in 1975.

8


ETB Blight (71)Independent Non-Executive DirectorEddie was appointed as a non-executive director of the Group in 2001 and serves on the boards of various companies within the Sasfin Group. In addition to the above, Eddie is the chairman of the Group’s Risk and Capital Management, Group Audit and Compliance, Asset and Liability as well as the Information Technology committees. He is also a member of the Directors’ Affairs, Directors’ Strategy and Review, Transformation and the Human Resources and Remuneration committees.

Eddie retired from First National Bank (previously Barclays) after 44 years’ service, having been General Manager Internal Audit, Security and Risk Management.

GC Dunnington (51)Independent Non-Executive DirectorGrant was appointed as a non-executive director of the Group in 2010 and serves on the boards of various companies within the Sasfin Group. In addition to the above, Grant is the chairman of the Group’s Credit and Investment Review committee and a member of the Directors’ Strategy and Review, Directors’ Affairs, Human

Resources and Remuneration, and Group Risk and Capital Management committees.

Grant is currently the Group chief executive officer of SBV Services (Pty) Limited, which position he has held since September 2001. In addition to the above, Grant holds various outside directorships and trustee positions. Prior to this, Grant held various senior positions at FirstRand Bank Limited.

Grant has a BCom degree and is a Certified Associate of the Institute of Bankers.

DD Mokgatle (55)Independent Non-Executive DirectorDolly was appointed as a non-executive director of Sasfin Bank Limited in 2006 and of the Group in 2007. She currently serves on the boards of various companies within the Sasfin Group and is chairperson of the Group’s Transformation committee. In addition to the above, Dolly is a member of the Group’s Audit and Compliance, Group Risk and Capital Management, Directors’ Affairs and the Asset and Liability committees.

Dolly, a qualified attorney and business woman, has significant experience in the electricity

industry. She is currently an executive director of the Peotona Group Holdings (Pty) Limited and chairperson of the board of Junior Achievement South Africa. Prior to this, Dolly served as the chairperson of the Electricity Distributing Industry and the deputy chairperson of the National Energy Regulator of South Africa.

J Moses (65)Independent Non-Executive DirectorJohn was appointed as a non-executive director of the Group in 2010 and serves on the boards of various companies within the Sasfin Group. In addition to the above, John is a member of the Group Audit and Compliance, Directors’ Strategy and Review, Directors’ Affairs, Group Risk and Capital Management, Asset and Liability, and Credit and Investment Review committees.

John has a BSc (Honours) degree from the University of the Witwatersrand. He successfully completed the Programme for Management Development from Harvard University and has filled senior positions at various local and international banks over the last 35 years.

MS Rylands (38)Non-Executive DirectorShahied was appointed as a non-executive director of Sasfin Bank Limited in 2006 and of the Group in 2007. He currently serves on the boards of various companies within the Sasfin Group and is the chairperson of the Group’s Human Resources and Remuneration committee. In addition to the above, Shahied is a member of the Group Audit and Compliance, Sasfin-MDM Private Equity Fund 1 Audit, Asset and Liability and Information Technology committees.

Shahied is a director and shareholder of both InnoVent Investment Holdings and Royal Africa Gateway and represents both these investment companies on the boards and executive committees of all their investments.

Shahied worked at Arcus Facilities Management Solutions as Finance Director, at Arcus Gibb as Senior Associate and at Arcus Engineering Consultants as Group Finance Associate between the years 1997 and 2002 before starting Royal Africa Gateway at the beginning of 2003.

Shahied holds an accounting and auditing qualification from the University of South Africa.

Seated from left to right: Malcolm Segal, Roland Sassoon, Dolly Mokgatle Standing from left to right: Norman Axten, John Moses, Tyrone Soondarjee, Roy Andersen, Shahied Rylands, Grant Dunnington, Eddie Blight.

9


executive committee

“Our mission is to be the preferred specialist banking and financial services provider in our chosen markets.”

Roland Sassoon Chief Executive Officer Tyrone Soondarjee Group Financial Director

10


Berdine Truter Chief Information Officer Eileen Smit General Manager Group Finance Linda Fröhlich General Manager Business Banking Louis Dirker Group Treasurer Gary Taylor Managing Director Premier Freight (Pty) Limited Naseema Fakir Group Human Resources Manager Deon van der Westhuizen General Manager Credit Maston Lane Chief Operating Officer David Edwards Chief Executive Officer IQuad Group Limited Jonathan Newfield Head Group Marketing and Business Development and Group Strategy Neil Eppel Head Private Equity Zakhe Khuzwayo Chief Operating Officer InnoVent Rentals and Asset Management Solutions (Pty) Limited Michael Sassoon Chief Executive Officer Sasfin Securities (Pty) Limited and Head of Wealth Management Howard Brown General Manager Legal and Compliance and Group Company Secretary Dale Franklin Head of Asset Management, Asset Consulting and Financial Planning Eleanor Ofori-Adomako Head Risk Gary Patterson Managing Director Sasfin Asia Limited and SasCred Financial Services Limited DJ Kumbula Chief Executive Officer InnoVent Rentals and Asset Management Solutions (Pty) Limited

11


Having been appointed Chairman to succeed Martin Glatt, who retired on 26 November 2010, it

gives me great pleasure to submit my maiden Chairman’s report.

Value propositionSasfi n launched its new logo bi-line, “a partner beyond expectations”, at the beginning of 2011, a

bold claim made possible by its:

• comprehensive off ering of complementary banking and fi nancial products and services to

business and high-net-worth individuals

• entrepreneurial culture, having its origins in the textile industry

• strong personal client relationships

• committed and talented personnel, who subscribe to Sasfi n’s strict code of ethics, and

• state-of-the-art information technology.

BackgroundDue to the onerous requirements and costs associated with the far more intense banking regulatory

environment, which includes increased liquidity ratios and the avoidance of concentration, Sasfi n

plans to increase the critical mass in most of its diverse activities to attain acceptable effi ciency and

return on equity ratios.

In order to achieve this, Sasfi n has over the past two years extensively upgraded its human resources,

premises and information technology, and is investing heavily in promoting brand awareness and

signifi cantly diversifying and lengthening its funding.

ResultsDespite weak lending markets, it is pleasing that Sasfi n has achieved relatively strong year-on-year

growth in gross loans and advances of 22% to R2,4 billion, and an increase in deposits to R1,2 billion

and securitisation funding to R1,3 billion.

However, due to the factors listed below, this growth did not result in a commensurate increase

in headline earnings, which at R96 million (2010: R107 million) represents an 11% decrease on the

2010 fi nancial year:

• Writedowns in some of Sasfi n’s private and property equity investments

• Expenses related to infrastructural upgrading

• Under performance by some of Sasfi n’s fee income units, which is now being aggressively

addressed

chairman’s report

committed talented personnel, who subscribe to Sasfi n’s

strict code of ethics

our value proposition

comprehensive off ering of complementary banking and fi nancial products

and services to business and

high-net-worth individuals

12


• The high costs associated with compliance of new regulations, which are continually being introduced

• Employee severance costs, the benefi t of which will only occur in the current fi nancial year

• Increases in Sasfi n’s cost of funds due to:

– changed methodologies in securitisation ratings by the international rating agencies,

which have resulted in increased enhancement levels, despite the excellent performance

of Sasfi n’s securitised receivables since the inception of its securitisation structure in 1991

– more competition from other banks for term deposits, due to regulatory requirements

– increased use of interbank funding, the cost of which is relatively high, following the

stresses in fi nancial markets.

• The increase in the impairment charge of 37% over the corresponding year and deteriorating

credit loss ratio of 1,7% at a Group level are due to impairments within Private and Property

Equity loan portfolios. At a bank level, notwithstanding the impressive asset growth in Business

Banking, the credit impairment losses in this division continued with a positive downward

trend, indicative of good asset quality. This resulted in the credit loss ratio in the Business

Banking book decreasing to 0,7% from 1,2% in 2010.

Capital adequacyAs a small banking group, Sasfi n deems it prudent to maintain capital ratios well in excess of required

norms. Group capital adequacy ratio at year-end remained at 32%, despite the growth in Sasfi n’s

loans and advances. This still compares very favourably with the minimum required ratio determined

in accordance with Basel ll of 9,5%.

Liquidity Sasfi n successfully refi nanced R351 million of securitisation notes and placed R209 million of

additional notes in the fi nancial year under review, for which it received bids of R1,3 billion. Sasfi n

also sold R125 million of its subordinated securitisation debt bringing its securitisation funding up to

R1,3 billion. Sasfi n is in the process of fi nalising long-term loans of approximately R350 million

from Dutch, French and German Development Financial Institutions and intends entering the

Corporate Bond market for an amount still to be determined. Sasfi n’s deposits, mainly from its wealth

management clients, have grown by 33% to R1,2 billion. Together with its interbank facilities and

strong capital base, Sasfi n has a well diversifi ed and robust funding base, including ample long-term

funding, which represents a healthy war chest for future sustainable growth and should enable it to

comfortably comply with the liquidity requirements of Basel lll, when they are introduced.

strong

personal

client relationships

state-of-the-art information technologykey enabler to support growth

entrepreneurial culture, having its origins in the textile industry

13


chairman’s report > > continued

Economic environmentWhile economic growth has gradually improved across most of the globe, there are numerous

threats of a second recessionary dip, including:

• Excessive sovereign debt, together with stubbornly high unemployment in various developed

economies, that frustrate the introduction of appropriate austerity measures

• Reduced capital adequacy ratios of banks in Europe and elsewhere, arising from the downgrading

of sovereign debt

• Increased global infl ation, particularly in food and fuel, coupled with corrupt and oppressive rule

typical of undemocratic countries, could lead to more instability in the strategic economic oil

producing regions of North Africa, the Middle East and elsewhere

The South African economic growth remains subdued and patchy, with entrenched high

unemployment, partly due to labour’s unrealistic expectations and lack of skills, exacerbating South

Africa’s poor competitiveness. Infl ation, particularly in electricity, fuel and food, is starting to bite and

will accelerate if employers give in to militant demands for increased wages, particularly if the rand

exchange rates continue to drop as a result of portfolio withdrawals.

The banking industryWhilst the dust from the credit crisis of 2008 has settled, the global banking industry is again being

destabilised by threats of sovereign defaults in Europe and elsewhere, which comes on top of far

more intrusive regulation, the main features of which are:

• higher capital adequacy ratios, countercyclical buff ers and the introduction of prescribed

leverage ratios

• restrictions on proprietary trading and investment

• consumer protection on retail lending, and

• challenging liquidity ratios, which will require banks to lengthen the term of their deposits and

other borrowings, and maintain stringent liquidity buff ers

Due to the South African culture of weak savings, preferring call and short-term deposits above

those of a longer term, and its heavy reliance on bank overdraft facilities, the local banking industry

will be hard pressed to meet the Basel lll liquid coverage ratio that requires simulated survival

under stressed conditions. Although these regulations will probably be relaxed following the task

force deliberations taking place under the National Treasury’s lead, competition has increased

for the limited pool of term and retail deposits, and bank lending is becoming more restrained

and expensive.

The overall eff ect of this will be to reduce lending margins and increase overheads in the banking

industry. However, it is expected that over time these extra costs will fi lter through to the market.

ProspectsSasfi n is experiencing relatively strong demand for its loans and advances and provided that this

trend continues, despite compressed margins, an increase in revenue and effi ciency during the

current fi nancial year is anticipated.

14


Over the next few years, Sasfi n aims to get closer to the returns on equity of over 20% that it enjoyed

prior to the 2008 credit crisis. In order to achieve this, the Group plans to increase volumes across

most divisions, whilst reducing its proportionate overhead costs.

As mentioned in the previous Chairman’s report, Sasfi n continues to explore and entertain potential

mergers and acquisitions, and is optimistic that its acquisition for control of Iquad Group Limited,

which is still subject to SARB and Competition Commission approvals, will strengthen its value

proposition and bottom line.

AppreciationOn behalf of Sasfi n and all its stakeholders, I wish to pay tribute to my retired predecessor, Martin

Glatt. Martin served with distinction as Chairman of the Company since 1987, during which time

the Company progressed from a small fi nance company listed on the Development Capital Market

of the JSE with a market capitalisation of R3 million to currently being listed on the main board

with a market capitalisation of over R1 billion. Appreciation is also due to retired non-executive

director, Marius Smith, who added huge value over his decade with Sasfi n. It is also appropriate to

pay tribute to Errol Kruger, who recently retired from his position at the SARB as Registrar of Banks.

Mr Kruger’s term coincided with the most volatile period in world banking in living memory, and

it was partly due to his fortitude and foresight that the South African banking industry emerged

relatively unscathed from the 2008 credit crisis and was ranked in sixth place in the World Economic

Forum Global Competitiveness Report 2009 – 2010 in respect of soundness of banks.

Tyrone Soondarjee is welcomed as fi nancial director, John Moses and Roy Andersen as non-executive

directors and Howard Brown as company secretary, and I look forward to the positive contributions

that I am sure they will make to Sasfi n.

Thanks are due to my fellow executive and non-executive directors, management and staff ,

professional advisors and the SARB for their invaluable guidance, our valued clients for their support

and our shareholders for their faith in Sasfi n.

Norman AxtenChairman

8 September 2011

I WISH TO PAY TRIBUTE TO MY RETIRED PREDECESSOR,

MARTIN GLATT. DURING HIS CHAIRMANSHIP, THE COMPANY

PROGRESSED FROM A SMALL FINANCE COMPANY TO A LISTED ENTITY WITH

A MARKET CAPITALISATION OF OVER R1 BILLION.

15


As this report now forms part of a broader integrated report in terms of King lll, it takes a higher level look at the Group.

During the last three financial years, like most other banks, Sasfin has been managing the fall-out from the credit crisis of 2008, which included dealing with recalcitrant clients, whilst retaining and bringing on new clients, and adapting to the deluge of new bank and other regulation that has affected the entire organisation. Sasfin’s future sustainability depends on it achieving critical mass across most of its activities, for which it has geared itself by investing heavily in infrastructure.

Whilst all of this has taken its toll on profitability, Sasfin is satisfied with its achievements of:

• growing its assets by 23% to R4,4 billion

• reducing its credit losses in its core Business Banking division from a peak of 1,5% in 2009 to 0,7% in 2011

• increasing its capital and lengthening and diversifying its funding

• enhancing its premises, information technology, human resources and brand, and

• restructuring and strengthening management of its Business Banking and Wealth divisions and Corporate Finance unit.

Unfortunately, certain private and property equity investments underperformed in the year under review, which are in the process of being downsized.

Much soul searching has taken place in the banking world since the credit crisis of 2008 and a new banking landscape is starting to emerge, which emphasises the responsibilities of the financial sector with regard to its deployment of national savings.

Regulators are accordingly placing extensive qualitative and quantitative restrictions on the banking industry with regard to assets and liabilities, activities and controls. This risk mitigation has reduced profitability and the attractiveness of equity investment in the global banking industry, which has accordingly continued to consolidate.

The direct and indirect costs of the 2008 credit crisis, including the bail out of various banks previously deemed “too big to fail”, has contributed to fiscal drain, with many governments now concerned that several large banks may have become “too big to save”. So-called globally systemically important financial institutions are thus being asked to hold more capital, ringfence their lending operations and develop living wills, or recovery and resolution plans, which could lead to their break-up, in the event of breaches of capital and liquidity triggers. Thus, more granularity in the banking industry is being encouraged, which could create opportunities for smaller banks which do not pose a threat to the economic system.

However, there is also the danger of banks being “too small to survive” in view of the relatively high compliance and funding costs, as well as diversification of activities requirements. For this reason, Sasfin is scaling up across many of its areas of activity.

Sasfin’s competitive advantage in the growing entrepreneurial banking market is primarily its skill and agility in servicing this market by being “a partner beyond expectations”. The adverse publicity

chief executive officer’s report

growth of 23% in total assets to R4,4 billion

Our achievements during 2010/11

16


surrounding many international banks, which have not always acted in the best interests of their clients, has shaken their allure, resulting in a steady migration of clients to smaller financial institutions, whilst the harsh regulatory environment is flushing out many independent and unbranded financial planners and asset managers.

Sasfin’s recent acquisition of Iquad Group Limited, which is still subject to SARB and Competition Commission approvals, will transform its Logistics and Risk Management division into a fully fledged Commercial Services division, thereby adding considerable weight to its “start-to-finish” value proposition to entrepreneurs.

The following increased costs are, however, impacting on Sasfin’s cost to income and return on equity ratios and thus limiting its profit growth:

• Interest rates, in view of the need to meet the increased liquidity requirements of Basel lll as well as the additional credit enhancement in Sasfin’s securitisation structure

• Staff costs to manage the additional regulatory requirements

• Costs associated with Sasfin’s new information technology systems.

While the economy is still looking patchy, Sasfin is well placed to continue to grow in all its divisions, with the exception of its property and private equity units, at a healthy rate over the next few years, ultimately with a commensurate improvement in profits.

I take this opportunity of thanking Sasfin’s board and management team for their considerable achievements in the year under review. In particular, I would like to thank Martin Glatt and Marius Smith, who recently retired as chairman and non-executive director respectively, for their excellent service to Sasfin over many years. I also thank Norman Axten for taking on the role of non-executive chairman of the Company and the Bank, as well as Tyrone Soondarjee, Howard Brown, Linda Fröhlich and Michael Sassoon for taking up the key positions of financial director, company secretary and heads of Business Banking and Wealth divisions respectively. I also welcome Sasfin’s new non-executive directors, Roy Andersen and John Moses, who bring to Sasfin enormous wealth of knowledge and experience in banking and financial services.

I have every confidence in the ability of Sasfin’s strengthened board and management team to take Sasfin to a far higher level of sustainable growth and prosperity.

Roland SassoonChief Executive Officer

8 September 2011

reducing credit losses in business bankingfrom 1,5% in 2009 to 0,7% in 2011

increasing capitallengthening and diversifying the funding base

enhancing premises, information technology, human resources and brand

growth of 23% in total assets to R4,4 billion

Our achievements during 2010/11

17


fi nancial report

Financial overview• The Group’s operating performance was positively impacted by the strong lending base in the

Business Banking segment, which contributed approximately 70% of the Group’s profi t for the

year. Business Banking achieved a profi t of R80 million for the period, an increase of 87% over 2010

on the back of impressive asset growth and higher margins. All other segments traded profi tably,

although at lower levels when compared to 2010, with Sasfi n Capital showing a sharp drop

in profi ts.

• Headline earnings of R96 million (2010: R107 million) represents an 11% decrease over 2010,

whilst headline earnings per share decreased by 16% due to the increase in the weighted average

number of shares in issue. Consequently, return on equity and return on assets decreased to 11%

and 2% respectively from that of 16% and 4% recorded in 2010.

• The Group’s results were aff ected by lower business volumes in its non-banking activities.

In particular, Private and Property Private Equity results were negatively impacted through a

combination of impairment charges and fair value writedowns in its portfolio where certain of the

material investments failed to achieve their profi t targets and generate the resultant revaluation

surpluses. The higher than expected impairment charges on the loan portfolio in this asset

class contributed materially to the increase in the Group impairment charge of 37% over the

corresponding year and a credit loss ratio of 1,7% (2010: 1,2%) at Group level.

• Notwithstanding the exceptionally strong asset growth in Business Banking, the credit impairment

losses in this division refl ect a positive downward trend in the credit loss ratio to 0,7% from 1,4%

in 2010.

• Net interest income on interest-earning assets increased by 6% primarily due to the larger lending

book, with an average cost of funding in line with the previous year.

• As a result of the various cost-containment initiatives deployed by the Group, a below

infl ationary cost growth of 3% was achieved in the year. Driving cost effi ciencies remains

an important management tool in an environment where the outlook for revenue remains

uncertain. The Group’s cost-to-income ratio is still relatively high at 72% (2010: 70%), which is a

consequence of the lower revenue levels and lack of scale in non-banking activities.

Statement of fi nancial position and capital management review• Deposits and funding showed growth across all channels, with the funding book increasing

to R2,8 billion from R2,1 billion. The deposit mix has improved, refl ecting a lengthening of the

maturity profi le of the deposit book.

• Once again, the Group’s securitisation structure continued to perform exceedingly well, and

remains a leading vehicle in the industry. During the year, the Group successfully refi nanced

a tranche of R351 million of its maturing notes and issued a further R209 million of notes.

This issue was signifi cantly oversubscribed, demonstrating the underlying asset quality and

performance of this class of assets.

• The Group remains well capitalised with a primary tier I equity ratio of 27% (2010: 26%), and a

total capital adequacy ratio of 32% (2010: 32%), well above the South African Reserve Bank’s

(“SARB”) minimum requirements and the Group’s internal targets.

In line with its growth strategies, Sasfi n experienced strong asset growth of 23% year on year, largely underpinned by good business activity and momentum in the Business Banking segment. Total assets grew to R4,4 billion from R3,6 billion in 2010 on the back of a stabilised cost base.

TOTAL ASSETS GREW TO R4,4 BILLION FROM R3,6 BILLION IN 2010. TOTAL FUNDING GREW FROM R2,1 BILLION IN 2010 TO R2,8 BILLION IN 2011.

18


Treasury

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headlineearnings per sharedecreased 16%

headlineearningsdecreased 11%

2011: R96 million

2010: R107million

2011: 297 cents/share

2010: 355 cents/share

total for the year118 cents/share (2010: 133 cents/share)

dividendsfi nal ordinary cashdividend declared69 cents/share

which equates to a cover ratio of

2,5 times in line with the Group’s

dividend policy

DETAILED SEGMENTAL REVIEW OF RESULTS

Segmental analysis of profi ts for the year

2011Rm

2010Rm

Business banking 80 43

Capital 2 38

Treasury 3 15

Wealth management 11 18

Logistics and risk management 6 6

Group 12 19

Total 114 139

2011 2010

19


Equipment rental financeDespite the sluggish economic recovery and its associated challenges, the 2011 financial year was outstanding for the Equipment Finance division. The division achieved an annual turnover in excess of R1 billion for the first time and, in so doing, exceeded its turnover target by 46%. After tax profit in the division was also 21% above budget. The book has grown through increased market share underpinned by our strong service culture and now exceeds R1,8 billion. The division was recently restructured to meet its increased market share and expanded its regional footprint.

Business financeTrade and Debtor Finance had a challenging year. There were a number of staff replacements, as well as a loss of key accounts. The sluggish economic recovery was also evident in this field, as numbers were depressed in the early part of the year. This division has, however, been reinvigorated by a recent restructure. In the last quarter of the year, there was a significant increase in turnover and it has regained lost ground in terms of budgeted figures. The division exceeded its after tax budget by a significant margin (340%), despite reduced turnover and staff numbers. There is also a number of new large accounts being brought on board and the division has budgeted to double its book by the end of the next financial year to approximately R720 million.

financial report

BUSINESS BANKING

R80 million contribution to profit for the year2010: R42,8 million

Sasfin’s Business Banking division represents the core banking activities of the Group with a total lending book of R2,2 billion. Its results represent approximately 70% of the Group’s profits.

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Private and property equity • In the generally difficult trading environment, certain of the material investments in the private

and property equity portfolios failed to achieve their profit growth targets and thus generate the expected mark to market revaluation surpluses.

• Furthermore, having exited certain investments, it became necessary to impair a portion of the balance of the disposal proceeds receivable, due to default on the part of the acquiring parties.

• Growth and development of equity risk finance to smaller businesses remains a core product of the Group, as it complements the Group’s suite of products for this target market.

• The Group will no longer make available property private equity finance on a proprietary basis.

• Trinitas Private Equity Fund did not execute any new investments during the year.

Corporate finance • The majority (70%+) of the revenues earned in the 2011 financial year was in respect of

advisory services, which comprise a new focus area of the division and the pursuit of a diversification strategy following the acquisition of Capital Hill with effect from April 2010. A number of high profile transactions were targeted and successfully implemented during the 2011 financial year, including an equity capital raising exercise of R779 million for Sephaku Cement (Pty) Limited, a subsidiary of JSE-listed parent company Sephaku Holdings Limited and the acquisition by AON of Glenrand MIB Limited, a leading insurance broker and risk advisory company to the South African market. The division has also secured a number of attractive corporate advisory mandates, including two listing mandates which are expected to be implemented by December 2011.

• The 2011 financial year marked a building year, in terms of which the Capital Hill acquisition was bedded down, pipeline was built, increased marketing initiatives were pursued and the size of the advisory team was increased through the addition of two new professional consultants in November 2010.

• The Corporate Finance division has a strategy of increasing the number of bulge bracket transactions it implements over the next 12 months. This is in order to target inward listings in the resources sector, which it believes to be well placed to achieve and to continue to grow market awareness around the Corporate Finance brand. Retaining and attracting highly rated individuals will be challenging and necessary to achieve aggressive growth targets.

• During the previous year, Sasfin’s corporate finance division ranked seventh in the sponsor ranking by deal flow on mergers and acquisitions. It has since, in the current year, improved its position to that of ranking second in the Q1 sponsor rankings.

CAPITAL

R1,5 million contribution to profit for the year2010: R37,8 million

Sasfin Capital conducts the Group’s private equity proprietary and third-party investment activities and also houses the Corporate Finance, and Mergers and Acquisition unit.

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financial report > > continued

Domestic treasuryDomestic treasury, through its various deposit products continued to be a major funding source for Sasfin’s lending businesses. The focus remains on broadening the depositor base. The brand awareness campaigns undertaken during the financial year contributed to the 33% increase in deposits. Given the proposed regulatory requirements in respect of liquidity, the deposit product offering is aimed at individuals and SMMEs. The level of deposits increased from R911,6 million to R1,2 billion.

Debt capital marketsGiven the subdued securitisation issuance levels in South Africa, it is pleasing that Group treasury not only successfully rolled R351 million of securitisation notes falling due in January and May 2011, but also issued new notes to the value of R209 million during May. Credit spread levels declined and, during the May 2011 issuance, credit spreads were on average 35% lower compared to notes issued during 2009. Subscription offers of R1,3 billion were received for R560 million of notes on offer in May, indicating a healthy demand at the time.

Moody’s Investors Service assigned a Baa2. za rating to Sasfin Bank Limited during May 2011 and this was the first step to enable the launch of a corporate bond programme. Sasfin Bank Limited was also accepted as a JSE approved debt sponsor during August 2011.

International treasurySasfin Bank, as an authorised foreign exchange dealer, provides traditional foreign exchange products such as spot and foreign exchange contracts with tenures of up to 12 months. The focus is on growing the current client base via traditional sales, as well as an integrated web platform to ensure critical size is attained and a positive contribution to earnings is made. The division complements the Trade Finance and Freight Services units in fulfilling the needs of Sasfin’s internationally active clients.

TREASURY


Group Treasury consists of the Domestic Treasury, International Treasury and Debt Capital Markets units. This division is responsible for funding the activities of the Group through preference shares, securitisation, deposits and interbank facilities as well as the provision of foreign exchange services as an authorised foreign exchange dealer.

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Portfolio management and stockbrokingThe main business of SasSec is private client portfolio management and stockbroking with total assets under administration and management of approximately R40 billion. SasSec assists clients in the creation and management of tailor-made local and global equity portfolios. Over the last year SasSec has upgraded its management, research, processes, compliance and distribution, which included the appointment of a new chief executive officer, together with a new Head of Research and four strong portfolio managers. Further structural changes have been made within the business to gear for growth.

The benefits of these initiatives are starting to be realised, evidenced by a growth in assets under advisement of approximately 20% for the year. This has not yet translated into improved profitability for the business due to the costs associated with these initiatives.

SasSec is now in a position to grow with little extra fixed cost, and provided markets remain favourable, SasSec’s profitability should significantly improve.

Asset ManagementSAM is recognised as one of the largest growth opportunities for Sasfin Wealth. This entire business has been re-engineered and refocused to realise its potential within Sasfin Wealth.

SAM has innovative new investment strategies which bring together passive and active fund management strategies to bring unique asset management solutions to the market. Following the recruitment of its new chief investment officer to the already experienced team, Sasfin is confident that SAM will continue to provide innovative products and solutions to the market. The new SAM solution is in line with international best practice and is particularly appropriate for Sasfin’s asset consulting clients. SAM will continue to meld the various wealth businesses into a more consolidated Sasfin Wealth offering which allows Sasfin to greatly enhance the earning potential of its various wealth businesses.

Asset consultingAsset consulting had a good year with a 37% increase in revenue and assets under advisement, now just short of R3 billion. The business has also become more process driven and is no longer reliant on a single strong player. This has greatly reduced concentration risk in the area.

Sasfin anticipates further major growth in the asset consulting business in the coming year. This follows the appointment of several strong actuarial resources and a comprehensively revamped solution to clients, which in turn has allowed it to enter the larger pension fund market.

Financial planningOver the past years, Sasfin has invested significantly into the financial planning business. Most importantly Sasfin has strengthened its team of planners by recruiting some of the most established and highly regarded planners in South Africa. This included recruiting the Financial Planner of the year as judged by the Financial Planning Institute of South Africa. This team together with improved branding, systems and solutions has enabled the financial planning division to increase its investment book substantially, resulting in a 21% increase in annuity income. This has resulted in a meaningful turnaround in operating profits. While increasing turnover, Sasfin has been able to improve efficiencies within the financial planning business allowing operating expenses to reduce, in spite of the increase in business and turnover. This channel will continue to be used to enhance distribution of SAM’s retail products. The business unit is now well established and profitable, and in future will continue to show steady growth.

WEALTH MANAGEMENT


The four pillars of the Wealth Management offering collectively hold approximately R45 billion (2010: R37 billion) of assets under management.

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Freight and logisticsFreight achieved a profit of R5,361 million for the year, representing a marginal growth of 7,3% over the previous financial year. The anticipated upturn in the economy did not materialise, which impacted its figures. Existing customer activity remained subdued and acquisition of new business was extremely challenging in a very price-sensitive market.

Freight has adopted various new strategies to fast track the return to pre-2010 financial performance levels. These strategic changes have been fully developed and adopted by the executive management team and include acquisitive opportunities which will add critical mass to the business.

Looking forward, management is optimistic that coupled with these new strategies and the hope that the economy will turn, freight and logistics is ideally positioned to take advantage of increased economic activity.

Short-term insuranceThe short-term insurance unit is looking forward to the next financial year as it continues to grow and leverage off the Sasfin client base, especially rental finance, trade finance and healthcare clients. After the implementation of a new IT system, the division is well positioned to increase its base considerably and continues to seek acquisition opportunities to gain critical mass. Over the past year, this unit increased both the commercial and personal business lines.

HealthcareHealthcare continued their strong performance year on year. Net profit for the division increased by 33% from the prior year. This was mainly due to the increase in new corporate clients that were brought onto the books and that, in turn, increased the total number of lives that Healthcare currently intermediates. Healthcare business continues to be a source of business opportunities for both Sasfin’s short-term insurance and financial planning. Healthcare has also generated income through other product offerings. Healthcare is well positioned to continue this trend but will be dependent on the ever changing healthcare environment including the National Health Insurance and the South African economic landscape.

LOGISTICS AND RISK MANAGEMENT


Despite an uneven economy, profit levels were maintained albeit not at optimal levels. Strong infrastructure is in place to leverage the expected turnaround in the economy.

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CORPORATE SERVICESMarketing and business developmentThis department’s objective is to enhance the Group’s brand awareness in the market as well as to drive new business for the Group’s business units. This includes communicating Sasfin’s unique offering to its target markets; generating good quality opportunities for the business units and assisting them in securing strong relationships with their clients. Success was achieved through numerous initiatives, including TV broadcasting sponsorships, networking programmes and events, advertising, optimisation of Sasfin’s website and various e-marketing platforms. Over the course of the financial year there has been an increase in brand equity and the Group will continue its investment in this regard going forward.

Information technologyThe past year has seen the Group IT department grow into a mature organisation ensuring improved governance through enhanced policies and procedures. The improved governance was recognised by internal audit in the general controls audit. Following the successful stabilisation and streamlining of the IT architecture and infrastructure, the IT department prepared itself for the development and management of a flexible infrastructure planned for the next financial year. An increased focus on information technology strategy allows continued focus on operational and cost efficiency and business alignment and enablement. The service levels continue to be above market benchmarks. Line of Business system delivery and stabilisation continues to be one of the highest priorities. This is supported by the drive towards in-house skills thereby reducing IT third-party dependency.

Finance and administrationThis department is responsible for Group accounting and reporting, including taxation and statutory reporting to the SARB, with whom it maintains open and constructive communication channels. It is also responsible for Group administration and continues to discharge its responsibilities with integrity and efficiency.

During the year, this department continued with systems integration and efficiencies and has successfully implemented a seamless reporting environment. This department performed admirably in fulfilling its key deliverables to all stakeholders of the Group.

ComplianceThis independent department, established and operational in terms of Section 47 of the Banks Act, Regulation 49 of the Banking Regulations, as well as King III, continues to act as a key interface with the regulatory authorities and is an essential component of the Group’s risk management framework. Other key legislative requirements adhered to and covering the broader Group, include FAIS, the Securities Services Act, the NCA, the Consumer Protection Act, and FICA. Further details are provided under the regulatory and compliance sections of the integrated report.

Group internal auditGroup Internal Audit is an independent function, whose purpose and responsibilities are governed by standards of the Institute of Internal Auditors, the Banks Act regulations and King III. Its independence is assured through its functional reporting to the Chairman of the Group Audit and Compliance committee. The Head of Internal Audit reports administratively to the Chief Executive Officer.

Stabilising cost base and a below-inflationary cost growth of 3% in 2011.

25



In the year under review, audit procedures were refined to promote consistency and optimise coverage during audits. Group Internal Audit completed their audit procedures to ensure appropriate coverage of all Group activities to give assurance on the overall adequacy and effectiveness of controls defined and implemented by management. This entailed working closely with the external auditors to develop a joint assurance process to ensure that optimal reliance could be placed by the external auditors on the audit work performed by internal audit, without compromising their statutory requirements and independence.

Risk managementSasfin takes pride in the well-established risk management policies, processes and procedures that are operational within the Group. Sasfin has built a culture of honesty, integrity and ethical behaviour that has encouraged and enabled adherence to these policies. In line with this culture, as well as in response to increased regulatory pressures, Sasfin has dedicated additional resources to build on its existing risk management infrastructure. This investment in risk management positions Sasfin well to respond positively to the proposed bank regulations and King III. These resources also enhance Sasfin’s enterprise risk management processes to enable it to have a panoramic view of risks traditionally managed in “silos”. In this way, Sasfin is able to respond quickly and effectively to capitalise on identified opportunities and minimise the impact of any threats.

CreditSasfin’s credit policies are well established with solid principles which have stood the test of time and they are continuously revised and improved. Adherence to these policies is monitored by a Credit and Investment Review committee which meets monthly and a GRCM committee which meets quarterly, both of which report to the Board with recommendations to ensure relevance in an ever-changing financial and regulatory environment.

Policies and standards include presentation of credit proposals, acceptable financial criteria, delegated mandates, security standards, review frequencies, risk monitoring and recovery of accounts in default.

With the tight economic conditions that still prevail, clients showing early signs of financial distress are closely monitored with a view to taking swift action, by providing the necessary financial assistance where the risk remains acceptable, or failing which, the most effective exit strategy. Tools such as asset and financial audits, interim reviews and regular client visits are employed.

Credit decisions are made by credit managers according to a delegated mandate structure, with all facility approvals being debated at daily credit meetings attended by senior executive management.

Where Sasfin incurs a loss on a specific account, an independent analysis is made of the events and circumstances that led to this position, in order to gain full value from the experience and to make any appropriate changes in policy and procedures if required.

Human resourcesThis department is responsible for staff retentions, appointments, training, monitoring and where necessary, terminating staff. It develops, maintains and communicates office policies throughout the Group, and advises and consults with employees while protecting the interests of the organisation. Details of HR functions are discussed in detail under the cultural sustainability section of this report.

Improved skills and highly strengthened team to meet the growth initiatives of the Group.

26


Sasfin recognises that effective and efficient corporate governance practices, which have been constituted upon the inclusive stakeholder approach, will achieve and maintain trust and confidence from stakeholders within the organisation and society as a whole. Sasfin strives to consider the legitimate interests and expectations of stakeholders because this will serve the best interests of a company. To this extent, Sasfin endorses the principles incorporated in King III to facilitate its business imperative to be a “partner beyond expectations”.

Companies ActThe long awaited implementation of the Companies Act No 71 had a profound effect on Sasfin, both in relation to its own structures and processes and in relation to its interaction with its clients. The business rescue provisions of the new Act, which are to be welcomed as an important vehicle for ensuring that jobs are protected, have meant that Sasfin had to re-evaluate its processes to ensure that both it and its clients are adequately protected. Sasfin has conducted extensive training and self evaluation to ensure that its governance processes, board committee charters and secretarial functions are aligned to the Act.

The board of directorsThe overall responsibilities of the Group’s boards of directors include reviewing and guiding corporate strategy, formulating risk appetite, developing and assessing budgets and business plans, all with a view to acting in the best interests of the Company and its stakeholders. Boards meet regularly so as to maintain effective control over executive management and operations. Board dynamics are enhanced through the appointment of chairpersons of the Company, the Bank and its main subsidiaries all of whom are non-executive directors. All non-executive directors are of sufficient calibre, experience and number so as to ensure that they can properly influence business decisions. The various boards are responsible for setting policy, monitoring corporate performance and overseeing major capital expenditure. Where necessary, independent professional advice is sought by the board to facilitate the execution of business decisions. The board has appointed a competent and suitably qualified and experienced company secretary to provide a central source of guidance and advice to the board on matters of good governance and changes in legislation.

Sasfin Holdings Limited and Sasfin Bank Limited board charterIn order to facilitate the boards’ role as the focal point for and custodian of corporate governance, the boards adhere to the requirements of a formulated charter. The boards recognise that a bank- controlling company is primarily governed by the requirements of the Banks Act and as such, are made up of both executive and non-executive directors (including independent directors), to the extent required by that Act. The concept of a unitary board consisting of both executive directors, with their intimate knowledge of the business, and non-executive directors, who bring a broader view to the activities of the business, has been maintained as the favoured board structure. Management of business risk and the exercise of commercial judgement are the essence of this mutual association and exchange of business experience and knowledge.

The boards accept that they have a collective responsibility to provide effective corporate governance that facilitates the management of a set of relationships between management, the boards, shareholders and stakeholders. It is through this process that the boards:

• determine the entity’s purpose and values

• determine the strategies to achieve the entity’s purpose (that is, its strategic intent and objectives as a business enterprise) and to implement its values (that is, its organisational behaviour and norms to achieve its purpose) in order to ensure that it survives and thrives

• exercise leadership, enterprise, integrity and judgement in directing the entity so as to achieve its continued prosperity, and

Sasfin has embraced its role as a corporate citizen under the auspices of King III, which became effective on the 1st of March 2010. Progressive steps have been taken to align Sasfin’s governance structures with the recommendations of King III, whilst enhancing those that already do.

CORPORATE GOVERNANCE

corporate governance 27


corporate governance > > continued

In order to facilitate the boards role as the focal point for and custodian of corporate governance, the board adheres to the requirements of a formulated charter. As a bank-controlling company and a bank, the boards recognise that they are primarily governed by the requirements of the Banks Act and as such, are made up of both executive and non-executive directors (including independent directors), to the extent required by that Act.

• ensure that procedures and practices are in place so as to protect the entity’s assets and reputation

• monitor and evaluate the implementation of strategies, policies, management performance criteria and business plans

• ensure compliance with all relevant laws, regulations and codes of best practice

• ensure that technology and systems used are adequate to run the business properly and for it to compete through efficient use of its assets, processes and human resources

• identify key risk areas and performance indicators in order to generate economic profit, so as to enhance shareholder value in a sustainable manner, which recognises the interests of society

• regularly assess performance and effectiveness as a whole, and that of individual directors, including the chief executive officer and executive directors, and

• ensure that the entity has developed a succession plan for its executive directors and senior management.

The boards understand that their paramount responsibility is the positive performance of the companies in creating value and in doing so they should appropriately consider the legitimate interests and expectations of stakeholders. The boards recognise that enterprise is the disposition to engage in undertakings of risk and focus cannot therefore be limited to conformance. There is a balance which needs to be achieved between enterprise and control wherein the interests of stakeholders must be considered on a case-by-case basis with a view to acting in the best interests of the Company. In doing so, all directors recognise that an ethical foundation is a necessity in the execution of their onerous obligations and responsibilities.

The boards comprise a balance of executive and non-executive directors, with a majority of independent non-executive directors. Non-executive directors are independent of management and this facilitates the protection of the legitimate interests and expectations of minority interests. The combination of executive and non-executive directors is in conformity with the “four eyes” principle required by the SARB as well as with King III. The boards furthermore take cognisance of gender and racial mix so as to incorporate diversity into their decision-making process.

The boards are selected from individuals of integrity who have the necessary knowledge and experience as well as the skills and capacity to discharge their duties. Board members bring a blend of knowledge, skills, objectivity, experience and commitment to the board which operates under the firm and objective leadership of the chairperson. The chairperson is an independent non-executive director. Non-executive directors are appointed for a three-year period and are not automatically reappointed.

The boards strive to exercise objective judgement on the corporate affairs of the business enterprise, independent from management and insist on sufficient management information to enable proper and objective assessment to be made by directors collectively. The boards guide and set the pace of the entity’s operations and future developments. In so doing, the boards regularly review and evaluate the present and future strengths, weaknesses and opportunities, and threats to the entity. Comparisons with competitors, locally and internationally, and best practice, are major ingredients in this process – especially in the era of the global economy and the rapid transmission of information electronically. For this reason, the boards have furthermore aligned IT with the performance and sustainability objectives of the Company.

The boards recognise that transactions between the entity and its stakeholders are rife with potential conflicts of interest. The personal interests of directors or those of close associations do not take precedence over those of the entity or its stakeholders. Directors avoid conflicts of interest through timely disclosure to the board. Once an actual or potential conflict has been disclosed, the chairman will request the affected directors to recuse themselves from discussions and decisions in which they have a conflict, unless they are asked to provide specific input, in which event they will not be party to the decision. If an affected director is requested to provide input upon a matter wherein the director has a conflict, the director will be permitted to participate in the discussion but will not be a party to the ultimate decision.

The boards, in motivating management and employees effectively and productively, promote a culture that supports enterprise and innovation with appropriate short-term and long-term performance related rewards that are fair and achievable. The boards seek to drive the business enterprises proficiently through proper and considered decision-making processes and recognise entrepreneurial endeavour among its management without contravening laws and regulations. However, prudent risk management is the essence of all decision-making.

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The boards acknowledge their role in facilitating the functioning of companies as corporate citizens. Corporate citizenship necessitates that a company functions in a sustainable manner. For this reason, board members acknowledge that nature, society and business are interconnected in complex ways that should be understood by decision makers and that a company’s performance cannot be achieved at the expense of future generations. The boards therefore require that corporate actions be compatible with societal objectives concerning social cohesion, individual welfare and equal opportunities for all. Understandably, at times, a trade-off is considered between short-term social costs and decisions that derive longer-term benefits for the entity and thereby those having an interest in it.

The boards determine a policy for the frequency, purpose, conduct and duration of its meetings and those of its formally established committees. It also adopts efficient and timely methods for informing and briefing members of the boards before meetings. The information needs of the boards are well defined and regularly monitored. Each member is allowed to play a full and constructive role in the boards’ affairs and has a responsibility to be satisfied that the boards have been furnished with all the relevant information before making a decision. The boards meet at least once a quarter and more frequently if necessary, and make use of board-appointed committees to assist with the managing of the business on a more frequent basis. Minutes of meetings are circulated to all board members.

Board committeesThe following committees have been constituted by the board and have been tasked with corresponding responsibilities:

Committee Responsibility

Group Audit and Compliance Responsible for internal audit and external audit functions; accounting policies; internal controls and systems; annual financial statements; and compliance with various statutory and regulatory frameworks.

Group Risk and Capital Management Responsible for Group risk management policies and procedures and their compliance with the approved risk management framework; and the capital management policy and capital planning initiatives of the Group.

Directors’ Affairs Responsible for corporate governance and monitoring directors’ responsibilities; matters relating to their respective fiduciary capacities of directors; and fulfilling the role of a nomination committee.

Human Resources and Remuneration Responsible for all human resources matters; remuneration; and incentives.

Director’s Strategy and Review Responsible for the review, development, implementation and monitoring of strategies; the review of financial performance against budget and strategic initiatives.

Asset and Liability Responsible for asset and liability management; interest rate management; and liquidity management and market risk.

Information Technology Responsible for the information technology strategy and the implementation thereof.

Credit and Investment Review Responsible for the credit risk management policy and procedures; defining credit policy; setting credit guidelines; reviewing compliance with the approved credit and investment policies of the Group; and facilitating the management of large exposures by the board.

Transformation Responsible for the Group’s transformation initiatives; compliance with the FSC; and compliance with the BEE codes of good practice.

The boards are selected from individuals of integrity who have the necessary knowledge and experience as well as the skills and capacity to discharge their duties. Board members bring a blend of knowledge, skills, objectivity, experience and commitment to the board which operates under the firm and objective leadership of the chairperson.

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Further management committees require approval by the board so as to ensure that the board maintains ultimate control of operations.

All board committees are chaired by independent non-executive directors, and the majority of membership is constituted by non-executive directors.

The boards set their own limits regarding the Company’s risk appetite and reserve certain powers while delegating others. Any delegations are executed through written authority by the board and are effected with due regard to the fiduciary and statutory duties of the Group or Bank, while taking into account the need for strategic and operational effectiveness. The boards regularly review risk appetite in the context of changing business environments.

The strategies and policies, mutually agreed management performance criteria and business plans of entities are clearly defined and reliable measures have been put in place. Directors have implemented a risk framework which ensures comprehensive assessments against accurate and relevant financial and non-financial information, which are obtainable from the Group’s internal reporting systems as well as from external sources, so that an informed assessment can be made of all issues facing the boards.

Companies within the GroupThe Company’s board has appointed non-executive directors to the following boards, which meet at appropriate intervals:

• Sasfin Financial Services (Pty) Limited

• Sasfin Securities (Pty) Limited

• Sasfin Financial Advisory Services (Pty) Limited

• Sasfin Asset Managers (Pty) Limited

Non-executive directorsThe boards of the Company and the Bank comprise of three executive directors and seven non-executive directors. The chairman of the board is an independent non-executive director. Non-executive directors offer a measure of independence and save for their fees and in certain instances shareholding, maintain no pecuniary interest which may substantially impact their independence. Non-executive directors are selected through a formal process and when new non-executive directors are appointed, such appointments require confirmation at the next annual general meeting. Non-executive directors are appointed for a specific term and their reappointment is not automatic. SARB approves the appointment of all directors.

Executive directorsThere are three executive directors on the board of the Company and the bank. The executive directors each fulfil their respective roles as chief executive officer, financial director and head of Sasfin Capital. A clear demarcation exists between the functions of the executive directors and the non-executive chairman of the two boards. The Human Resources and Remuneration committee determines the emoluments of executive directors.

Group audit and compliance committeeThe GACC is responsible for considering any matters relating to the financial affairs of the Bank and the Company as well as to the internal and external audits that it determines to be necessary. In addition to its responsibilities relating to internal and external audits, the GACC receives reports relating to compliance risk within Sasfin.

The GACC is chaired by an independent non-executive director and includes a further four independent non-executive directors. The committee members are appointed in terms of the requirements of the Banks Act and the Companies Act.

The executive directors, the chief operating officer, the general manager compliance, the internal auditor and the external auditors attend committee meetings by invitation and have unrestricted access to the committee chairman.

The committee charter caters for all the requirements of the Banks Act, the Companies Act and King Code of Corporate Governance. The members of the GACC are, however, appointed by the board of directors in terms of the Banks Act, which supercedes the Companies Act in that respect.

With agreement of SARB, the mandate of the committee has been extended to cover compliance matters over and above the following responsibilities:

The executive directors each fulfil their respective roles as chief executive officer, financial director and head of Sasfin Capital. A clear demarcation exists between the functions of the executive directors and the non-executive directors.

30


• ensuring the effectiveness of the systems of internal control

• ensuring that appropriate systems exist to validate the integrity of the accounting and financial systems

• assessing the effectiveness of the internal audit, risk and compliance functions

• reviewing the scope and quality of the external audit

• reviewing and recommending the annual financial statements and other financial reports to the board, and

• overseeing the integrated report.

The committee sets principles for recommending the use of external auditors for non-audit services.

The committee has confirmed that the financial director has the appropriate expertise and experience to fulfil his function.

Internal auditInternal audit is an independent, objective assurance and consulting activity designed to add value and improve the organisation’s operations.

It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

The head of internal audit reports functionally to the chairman of GACC and administratively to the chief executive officer. The chairman of the Group Audit and Compliance committee meets separately with the internal auditor on a monthly basis and with the external auditors on a quarterly basis. Furthermore, if required, the internal auditor has direct access to the chairman of the board.

The Sasfin internal audit function utilises risk based audit methodologies and standards that are consistent with the Standards for the Professional Practice of Internal Auditing as advocated by the Institute of Internal Auditors.

Group risk and capital management committeeThe GRCMC is chaired by an independent non-executive director and also includes a further three non-executive directors and the chief executive officer. Its responsibilities are in accordance with the requirements of the Banks Act and include King III principles.

The responsibilities of the GRCMC include reviewing:

• the risk management process implemented by management and the risk capacity of the Group

• the effectiveness of the risk management activities

• the key risks faced by the business and the responses to address these risks

• the capital management policy and framework of the Group, and

• approval and annual review of all risk-related policies for ratification by the board.

Directors’ affairs committee The Directors’ Affairs committee is constituted in terms of the requirements of the Banks Act and King III and is chaired by an independent non-executive director and includes a further four independent non-executive directors. Boards and board committees all undertake a self assessment annually in order to maintain high governance standards. Sasfin is satisfied with the outcome of its independence review, which also considers directors who have been at Sasfin for more than nine years.

The independence of non-executive directors, including the chairman, is considered by the Directors’ Affairs committee annually. The committee considers whether the non-executive director:

• is not a representative of a shareholder who has the ability to control or significantly influence management or the board

• does not have a direct or indirect interest in the Company (including any parent or subsidiary in a consolidated Group with the Company) which exceeds 5% of the Group’s total number of shares in issue

• does not have a direct or indirect interest in the Company which is less than 5% of the Group’s total number of shares in issue, but is material to his personal wealth

• has not been employed by the Company or the Group of which it currently forms part in any executive capacity, or appointed as the designated auditor or partner in the Group’s external audit firm, or senior legal advisor for the preceding three financial years

31



• is not a member of the immediate family of an individual who is, or has during the preceding three financial years, been employed by the Company or the Group in an executive capacity

• is not a professional adviser to the Company or the Group, other than as a director

• is free from any business or other relationship (contractual or statutory) which could be seen by an objective outsider to interfere materially with the individual’s capacity to act in an independent manner, such as being a director of a material customer of or supplier to the Company, or

• does not receive remuneration contingent upon the performance of the Company.

Amongst other functions, this committee is also responsible for corporate governance, monitoring directors performances, as well as the identification and recommendation to the board of suitable candidates for non-executive director positions.

Group HR and remuneration committeeDue to the size of the organisation, the Group has a combined HR and Remuneration committee, which is chaired by a non-executive director and includes two independent non-executive directors. In addition, it includes a nomination committee and functions as a single committee of the Company and the bank boards respectively.

The committee assists the board in providing management with guidance on the adequacy and efficiency of remuneration and HR policies, procedures and practices that are applied within the Group. Such policies and procedures deal with the following:

• Conditionsfortheappointmentofexecutiveandnon-executivedirectorsandtheirrecommended remuneration

• Conditionsfortheappointmentofseniormanagersandtheirremuneration

• Guidelinesfortheappointmentofothermanagementandpersonnel

• ComprehensiveHRpolicies,whichincorporatethosemattersrelatingtoBEEand employment equity

• Compliancewithrelevantemploymentlegislation

• Nomination

Directors’ strategy and review committeeThis committee consists of the chairman of the board, three other non-executive directors and three executive directors.

This committee meets on the months when no board meetings are held to discuss the implementation of strategies, the development of any pending initiatives and the review of the Group’s financial performance and the agreed key result indicators.

Asset and liability committeeThe ALCO is chaired by a non-executive director and includes a further three non-executive directors and the chief executive officer. The committee meets monthly and is responsible for managing and monitoring the followings risks:

• Liquidity risk

• Interest rate risk

• Currency risk

• Funding risk

Group Treasury is responsible for the daily managing of these risk categories, and reports to ALCO on a monthly basis.

IT committeeThe IT committee is chaired by a non-executive director and consists of a further three non-executive directors, the chief executive officer and the chief information officer. It meets quarterly and oversees the strategic development of the Group’s IT requirements. IT reviews the decisions and minutes of IT management committee meetings and ensures that the Group meets the objectives of King III in establishing an IT governance framework.

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Credit and investment review committeeThe CIRC is a committee comprising of board members and senior management. The CIRC is responsible for reviewing credit applications greater than delegated authority values. Any credit applications greater than R18 million are referred to the board for approval.

Transformation committeeThis committee consists of two non-executive directors, of which one is the chairman, as well as the chief executive officer. This committee oversees the development of strategies and the implementation of initiatives aimed at ensuring that Sasfin complies with the targets set by government in the fields of employment equity and broader transformation. With the coming into effect of the new Companies Act, it is envisaged that the mandate of this committee will be expanded so that it fulfills the functions of the Social and Ethics committee contemplated in the Companies Act.

Group executive committeeThe Group executive committee meets monthly and is chaired by the chief executive officer and consists of the executive directors, senior management, and by invitation, all non-executive directors and the head of internal audit.

Adoption of King IIISasfin has endeavoured to apply the principles of King III within the spirit of the “apply or explain” doctrine. Sasfin has undertaken a comprehensive review of King III and has developed a comprehensive monitoring plan to ensure that it is able to apply or reasonably justify its reasons for non-compliance, if applicable, of the recommendations contained therein.

As at 30 June 2011, Sasfin complied in all material respects with King III.

Notably, the Group has implemented the following material recommendations of King III:

• the role of the chairman of the board is formalised and his performance is evaluated annually

• there is an overview of the appraisal process of the board, chairman and peers

• the committees are appropriately constituted and the composition in the main are non-executive directors and the terms of reference of each committee are disclosed

• the board has ensured that there is an effective risk-based internal audit function

• Sasfin’s strategic planning incorporates a formal risk planning process

• the board takes responsibility for information technology governance which is incorporated within management processes, the board IT committee and IT Management committee. The financial component of IT is managed independently by Group Finance

• the majority of the members of the board are independent

• new directors are subject to a formal induction programme

• the board reports to the Registrar of Banks on the effectiveness of the Group’s internal controls, and

• the board has appropriate mechanisms to ensure that directors act in the best interest of the Company and its stakeholders and that any conflict of interest is managed in terms of best governance practice.

OutcomeSasfin is satisfied with the outcome of its King III compliance review. This review also considered the independence of directors who have been at Sasfin for more than nine years, which the board assessed as satisfactory.

Areas of non-complianceThe board has considered the King III recommendation that non-executive directors’ fees consist of a base fee and attendance fee. In light of the satisfactory attendance record of the non-executive directors and increased cost implications, it was decided not to change the policy of a set annual fee. This policy will be reviewed regularly with the consideration of attendance records.

Sasfin is satisfied with the outcome of its King III compliance review. This review also considered the independence of directors who have been at sasfin for more than nine years, which the board has assessed as satisfactory.

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Record of attendance at board and committee meetings:Due to various retirements and appointments of new directors, the membership and attendance of various boards and committees changed during the year.

• TD Soondarjee was appointed as financial director on 1 October 2010

• MB Glatt retired as chairman on 26 November 2010

• CN Axten was appointed as chairman on 26 November 2010

• J Moses was appointed as a non-executive director on 21 December 2010

• RC Andersen was appointed as a non-executive director on 14 February 2011

• ML Smith retired on 31 March 2011

Where no attendance is recorded, the director concerned is not a committee member.

In addition, several changes to committee memberships were made to cater for the above. It is therefore pertinent to mention that attendance at board and board committees meetings may reflect a variance with the number of meetings held. The board is satisfied that members attended meetings as required.

Sasfin Holdings Limited Board

Sasfin Bank

Limited Board

Group Human

Resources and

Remuner-ation

Group Audit and

Compliance

Group Risk and Capital

Management

Credit and Investment

ReviewAsset and Liability

Information Technology

Directors’ Affairs

Directors’ Strategy

and Review

Transfor-mation

Meetings planned 4 4 4 4 4 11 11 5 4 8 4

Meetings held 5 4 7 4 4 11 11 5 4 6 4

Directors

RC Andersen 2 2 1

CN Axten 5 4 2 3 7 7 4 6

ETB Blight 5 4 4 4 11 5 4 6 1

GC Dunnington 5 4 6 1 10 4 1

MB Glatt 2 2 5 2 3

DD Mokgatle 5 4 2 1 7 11 1 3

J Moses 2 2 1 1 4 3 1 1

MS Rylands 4 4 7 3 8 5

RDEB Sassoon 5 4 4 11 10 5 6 3

M Segal 5 4 7 6

ML Smith 4 3 3 3

TD Soondarjee 4 3 1

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Remuneration philosophyThe Group’s HR and Remuneration philosophy rewards individuals who contribute to the success and sustainability of the organisation by being supportive of the organisation’s overall strategy. It provides guidelines which allow for decisions to be made with confidence, integrity and speed.

Remuneration forms an integral element of the greater management processes within the Group HR and Remuneration Policy, which includes performance and talent management, amongst others.

Sasfin’s Remuneration Policy is to:

• benchmark individual roles within the organisation to ensure that executives and employees are fairly compensated and that we are responsive to market pressures in order to remain an employer of choice

• recognise and reward employees for their individual contributions to the Company’s overall performance

• consider and develop a total reward structure which drives exceptional long-term performance by balancing guaranteed and variable pay

• provide meaningful benefits which are clearly communicated and supported by an effective administrative system

• provide benefits that are cost effective from an employee and employer perspective

• reinforce roles and accountabilities

• reward performance not failure

• review the terms and conditions of employment, and

• ensure compliance with the Code of Corporate Practices and Conduct as published in the King Report on Corporate Governance.

Group HR and remuneration committeeThe board is responsible for the Group’s remuneration policy and applies it with the assistance of Remco.

Remco operates in terms of its mandate as defined in its charter as approved by the board. The charter is renewed regularly.

The role of Remco includes the following: • The role of the committee is to work on behalf of the board and be responsible for its

recommendations, and is within these terms of reference:

- determine, agree and develop Sasfin’s general policy on HR

- Group’s remuneration policy

- ensure appropriate levels of monitoring and compliance

- determine any criteria necessary to measure the performance of such executive directors and senior executives in discharging their functions and responsibilities.

• The committee gives the executive directors and senior executives every encouragement to enhance Sasfin’s performance and to ensure that they are fairly, but responsibly, rewarded for their individual contributions and performance.

• The committee reviews (at least annually) the terms and conditions of executive directors’ and senior executives’ service agreements, taking into account information from comparable companies where relevant and other appropriate industry or market trends locally and internationally.

Our remuneration strategy is designed to attract, retain and motivate outstanding and effective individuals to ensure that a consistent and high level of performance is achieved.

REMUNERATION REPORT

remuneration report 35


remuneration report > > continued

Remuneration principlesThe remuneration principles we apply are:

Fair and consistent remuneration decisionsThe Remco has oversight of total remuneration and approves all annual increases in line with Company policy. Any interim remuneration reviews are proposed by the relevant general manager and recommended by the Group HR manager. These reviews are then approved by the Group chief executive officer, and noted by Remco. Deviation from the standard increase policy is made in consultation with the relevant general manager and the Group HR manager, with a view to drive the desired behaviour and achievement of the required outcomes. Remuneration decisions are transparent and objective so as to facilitate honest feedback to employees.

Remuneration reviewsSasfin clearly defines the expected performance through a structured system of performance management – which we use as the basis for compensation decisions. Reward Levels are benchmarked annually and salaries are reviewed following annual performance appraisals.

Bank employees’ salaries are reviewed in March each year, whilst the salaries for Wealth Management are reviewed in September. The review of executive management remuneration occurs in October each year.

When considering annual increases, the Remco considers individual performance, internal equity, scope and complexity of the role, scarcity of skills, inflation, and local market practice.

The Remco approves an average increase percentage for the year, which is communicated to all line managers. The line managers propose individual increases, bearing in mind that the average increase for the division should not exceed the approved percentage increase, excluding extraordinary factors.

Non-executive directors’ increases are presented to and approved at the annual general meeting, by means of a special resolution.

BudgetsEach business unit accounts for total remuneration in its annual budget, which is approved by the board. Average increases, recruitment, employee wellness and training and development are all discussed with the Group HR manager when planning divisional budgets.

Market positionSasfin makes use of HAY reward levels to decide on the total cost-to-company salary for individual roles. The HAY reward level refers to the global pay reference level to peg roles at different levels of complexity once the job has been evaluated. The HAY reward levels in the market data tables are analysed and reported in percentiles and quartiles, defined as:

Lower quartile: 25% Median: 50% Upper quartile: 75%

Sasfin pays its employees at the market median for each reward level. Mitigating factors are accounted for when agreeing individual compensation within each reward level. These factors are explained under “basis of remuneration”, below.

Basis of remunerationRemco accounts for the following when determining fixed remuneration:

• Individual performance as measured by the internal performance appraisal system

• Position benchmarking whereby each job is allocated a reward level which links a specific job to its relative worth in the market

• Internal parity so as to ensure that individuals are paid within the appropriate reward level for the function they perform

• Employee’s alignment with the Sasfin culture and values

• Market scarcity and replacement cost of a position

Performance factors which are linked to variable compensation include individual; divisional and Group performance, as well as the individual’s potential and value to the organisation ie is the individual considered a key employee?

Sasfin aims to pay its employees at the market median for each reward level. Mitigating factors are accounted for when agreeing individual compensation within each reward level.

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Remuneration model for the Group The following factors are taken into account in determining remuneration levels:

Position benchmarkPosition benchmarking is undertaken to objectively determine the relative worth of various jobs within an organisation, whereby the specific roles are assessed, and not the people who perform the roles. Jobs are ranked in order to achieve internal and external parity, by applying a HAY reward level to each position. Aspects such as the know-how required to perform a role; accountability within the role; and problem-solving requirements of the role contribute to the eventual grading of the individual positions.

Market stanceMarket stance is a concept whereby the organisation makes a business decision about where in the market it seeks to remunerate staff. Targeting pay at the 50th percentile (or median) means that the market stance is to pay at “average” levels in the market. Sasfin compares themselves to competitors and other industry players when analysing pay data.

The reward levels assigned to each position ensure that Sasfin is able to attract and retain talent in terms of compensating its employees at competitive and relative levels.

Sasfin also contributes to and participates in remuneration surveys.

Individual valueNotwithstanding that Sasfin pays at the market median for a job, the worth of an individual employee will determine where on the reward level of a specific job he or she will be compensated at. An employee’s individual output is the main determinant of individual remuneration levels. Sustained and consistent outstanding performance will result in high remuneration. Should an employee have valued corporate memory and a specific scarce skill which is required to perform the job, then the total compensation will accommodate this.

Basis of remunerationSasfin’s basis of remuneration as detailed above is outlined below:

totalremuneration

ad hoc

retentiontotal

guaranteed package

short-term incentives

long-term incentives

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Element Type DescriptionGuaranteed pay Fixed cash Fixed remuneration, determined by reward level

Generally paid within range of market medianVariable pay Incentive cash Executive incentive scheme

Divisional incentive schemes paid annuallyDiscretionaryBased on business and Group performance and accomplishment of personal performance objectivesRetentions apply to some schemes

Share Price Appreciation Scheme

Participating employees earning above R300 000 per annumDiscretionaryExtra allocation for key employeesAwards are made annually and each annual grant is divided into three equal tranches

Employee benefits Fixed Employee benefits provided in line with local market practices. Includes medical aid, provident fund, Group Life and Risk benefits and funeral scheme

Fixed remunerationThe guaranteed cost-to-company salaries are reviewed annually in line with the factors listed above, and using as a guideline the average percentage increase recommended by Remco. Cost-to-company remuneration structures are positioned to manage salaries around the relevant market medians, and include all contributions to the Company medical aid, provident fund, Group life, income continuation and severe illness benefit funds. Cost-to-company reward levels are reviewed annually in January and are applicable to all reward levels across the organisation.

Provident fund contribution levelsAs a good corporate citizen, the Group endorses a strong savings culture for retirement and planning. Accordingly contributions to a provident fund are compulsory.

Provident fund contribution levels are reviewed bi-annually in March and October. Employees can elect to contribute between 10% – 20% of their remuneration to the provident fund, should they choose to change their default life-stage portfolio contribution.

Employer contributions Besides the statutory employer contributions, the following employer contributions are also applicable, which are included in the total Cost-to-company rewards.

• 100% of medical aid premium

• Full provident fund contributions at the contribution level selected by the employee (the higher the contribution, the lower the cash component)

• Full contribution to Group life; severe illness and income continuation benefit funds

Contributions to the provident fund, Group life assurance, severe illness and income continuation benefit fund forms part of the employee’s Cost-to-company amount.

AllowancesThe Group provides several allowances to its employees. These include travel allowance, subsistence allowance, cellphone allowance and allowances related to our Relocation Policy.

Interim increases/ad hoc increasesInterim increases would be justified in view of the following:

• Promotion or transfer to another role which is pegged at a higher reward level or

• Evidence of below market salaries or

• An increase in workload that justifies an increase in reward level or

• To establish internal equity or

• To make a counter-offer to a resigning employee, provided the overall Cost-to-company remains within the reward level for the job performed.

The discretionary Executive Incentive Bonus Scheme payment applies to executives of the Group.

The bonus calculation takes into account the Group’s increase in EPS, the performance of the executive’s business unit (where applicable) and the executive’s personal performance.

38


All increases must be within the available salary budget. Interim increases must be proposed by the relevant general manager and recommended by the Group HR manager for approval by the chief executive officer. All interim increases are noted by Remco.

Rewards and recognitionThe annual Sasfin Group function provides an opportunity for Sasfin to recognise and/or reward those employees who have performed well during the year. Employees who have been employed by the company for an extended period of time are recognised and rewarded in terms of our Long Service Award Policy.

Variable remunerationVariable remuneration takes the following forms:

Short-term incentives: Annual performance incentive bonusesThe Group makes use of incentive bonuses, paid annually on approval by Remco, although these bonuses are not guaranteed. The incentive bonuses are governed by the rules as set out in the relevant scheme.

The discretionary Executive Incentive Bonus Scheme payment applies to executives of the Group. The bonus calculation takes into account the Group’s increase in earnings per share, the performance of the executive’s business unit (where applicable) and the executive’s personal performance.

Certain divisions of the Company make use of incentive schemes particular to their division. These bonus payments are based on performance of the division and its individual employees, and are granted at the discretion of the Group HR and Remuneration committee.

Each business unit in the Group may pay an annual discretionary bonus to its employees where the performance of that division or department warrants such a bonus payment. These bonus payments are subject to Group HR and Remuneration committee approval.

Long-term incentivesCurrently the Group has two long-term incentives schemes, as follows:

Share incentive equity scheme – equity settledThe Group has a share incentive scheme which entitles staff to purchase shares in the Company which is operated via a trust.

Share options are granted to staff holding various job levels with the Group at the discretion of the trustees acting on recommendation of executive management. This scheme is in the process of being phased out.

Share price appreciation scheme Employees earning over R300 000 per annum may, on recommendation by their managers, participate in the Sasfin share price appreciation scheme. The number of shares allocated to the employee is calculated based on the annual Cost-to-company salary of the participating employee. The bonus payment is paid annually over three years, starting from the third year after the award has been issued, and is calculated by reference to the share price of the Company on the JSE on the given future date. The incentive is governed by the rules as set out in the scheme, and is discretionary.

Full details on these incentive schemes are provided in note 39 in notes to the annual financial statements.

Non-executive directorsNon-executive directors receive fees for their services on the board and board committees based on a meeting fee structure. The chairman of the board receives an annual flat fee. In addition, non-executive directors may render additional services to the Group, and in these instances are remunerated on a time and material basis at a market-related fixed-hourly rate as approved by Remco. Non-executive directors do not receive any STI or LTI. Remco reviews their fees in line with market benchmarks and recommends fee levels to the board.

39



Details of executive remuneration

Component Type ObjectiveGuaranteed package (“GP”)

Fixed Reflects the scope and nature of the role with the requisite skills and experience required to fulfil the role adequately

Short-term incentive (“STI”)

Variable Motivates and rewards achievement of individual and growth objectives

Long-term incentive (“LTI”)

Variable Retention of key skills by linking performance to long-term value creation

Guaranteed package of executive directors

2011 2010 R’000 R’000 % change

RDEB Sassoon 2 833 700 2 636 000 7,5M Segal 2 542 375 2 365 000 7,5TD Soondarjee 1 900 000 1 670 000 14,0

Remco approved increases in the range of 7,5% which is market related, and included below-inflationary increases awarded in prior years. In the case of TD Soondarjee, the increase included an element of any promotional increase.

Short-term incentives of executive directorsExecutive directors and senior management participate in a yearly STI which is discretionary and based on Group and divisional performances where applicable and individual performance. The STI for executives are based on targets and thresholds as set by Remco. Payments are made in cash in September of each year.

STI are capped at 100% of GP where all targets are met, and where targets are not met a pro-rata bonus is paid only if the performance threshold level has been achieved.

2011R’000

2010R’000 % change % of GP

RDEB Sassoon 730 000 850 000 (14,1) 25,8TD Soondarjee 680 000 500 000 17,2 35,8M Segal – 700 000 (100) –

For the 2011 financial year, Group performance targets were not met and none of the executive directors qualified for this portion of STI. In addition, where divisional targets were not met, no STI awards were made.

Summary of executive directors’ remuneration (actual and accruals):

Guaranteedearnings

R’000

Short-termincentive earnings

R’000

Long-term incentive earnings

R’000

Other earnings

R’000

2011Total

R’000

2010Total

R’000

RDEB Sassoon 2 718 344 730 000* – – 3 448 344 3 341 905

TD Soondarjee 1 793 910 680 000* 40 500 19 166 2 533 576 2 138 881

M Segal 2 458 008 – – – 2 458 008 3 120 969

* Relates to June 2011 financial year but paid in September 2011.

Details on LTI granted to executive directors are fully disclosed in the Directors’ report of the financial statements and in note 39 of the annual financial statements.

Sasfin’s top three earners are disclosed hereunder:

Employee2011

R’0002010

R’000 % change

Employee 1 6 028 531 6 583 318 (8,4)

Employee 2 4 272 733 5 198 041 (17,8)

Employee 3 3 568 344 4 190 296 (14,8)

40


Risk management is fundamental to the Group’s business activities, enabling management to operate more effectively in a changing and highly regulated environment. The Group remains committed to the objectives of increasing shareholder value by developing and growing business that is consistent with the agreed risk appetite and by seeking appropriate balance between risk and reward.

Experience has shown that it is important to understand all risks associated with the business, and to integrate the management of these risks. Thus, the Sasfin Group Enterprise Risk Management policy is based on the understanding that:

• top performing organisations excel at good governance, strategic and competitive positioning, the management of key risks and the implementation of high quality processes and systems

• successful businesses are those who manage their business performance and risks better than their competitors and

• to be successful, a business has to succeed at multiple things while a single factor could cause it to fail.

These concepts underpin the primary objectives of the Group, being the generation of sustainable profits, and compliance with good corporate governance initiatives, leading to the maintenance of Sasfin’s reputation. Sasfin seeks to increase shareholder value by demonstrating management’s willingness to not only identify and understand the risks associated with business, but also to monitor and report thereon.

Risk management frameworkTo ensure that Sasfin fulfils its strategy, the risk management programme arms its staff with the tools and capabilities to overcome the barriers that arise when striving to exceed expectations. By realising that risk and control is the responsibility of all, Sasfin proactively identifies risk in delivering products and services to the market in an efficient and cost effective manner.

Sasfin’s key risk management objectives are to:

• create and maintain a sustainable profitable business model

• manage shareholder value by generating a long-term sustainable return on capital

• ensure that capital and resources are strategically focused on activities that generate the greatest value on a risk adjusted basis

• create a competitive long-term advantage in the management of the business with greater demonstrated responsibility to all stakeholders, and

• meet regulatory requirements.

Risk and capital management is embedded in the Group’s culture and contributes to creating a well managed, stable and economically sustainable Group.

RISK MANAGEMENT

41


risk management, regulatory review and compliance > > continued

Governance structureRisk appetite

The level of risk Sasfi n is willing to take – its risk appetite – is determined by the board, which also assumes

responsibility for ensuring that risks are adequately managed and controlled through the board’s sub-

committees, as described in the section below.

Sasfi n’s risk appetite refl ects the risk management philosophy and is considered by management in

strategy and objective setting. The board has defi ned its risk appetite in both qualitative and quantitative

elements with the following considerations:

Desire for risk – ie the quantum and type of risk the Group specifi cally desires in order to realise its

profi tability and growth objectives

Capacity for risk – ie the absolute limit of risk that can be taken and

Tolerance for risk - ie how much risk the Group is prepared to take (ie what probability it is prepared to

accept that specifi ed objectives will not be met).

Alignment between risk appetite and strategy

In setting risk appetite, the board and management consider not only the organisational and strategic

objectives of the Group, but also the drivers of these objectives, namely:

• Potential risks that may pose a threat to achieving business objectives are identifi ed

• Risk profi les as well as the level of unexpected loss the business is willing to accept in the event of

a risk materialising are measured

• Current risk taking activities are analysed (the extent to which the capital management plans and

the business plan allow for a buff er)

• The buff er between risk taking capacity and risk profi le are considered, including the provision for

unexpected losses, and

• Zero tolerance risk exposures are also identifi ed.

In addition to this, management perform regular stress tests on the capital adequacy of the Sasfi n Group.

These tests form part of the ICAAP. Management applies the results of these tests to the risk profi le of

business to ensure that the resultant risk profi le is in line with the board’s risk appetite.

<

LEV

EL O

F R

ISK

>

Intolerable region

Risk cannot be adjusted

As low as possibleRisk is tolerated only if the cost of mitigation exceeds

the benefi t

Necessary to monitor that risk remains at this level

Broadly accepted region

42


Roles and responsibilities Sasfin recognises that clear accountability is fundamental to the management of risk and the organisational structure encourages risk management practices at all levels. The risk governance model distinguishes between functions owning and managing risks, functions overseeing risks and functions providing independent assurance. The model is depicted below:

Board of directors The board retains ultimate responsibility for ensuring that risks are adequately identified, measured, managed and monitored across the Group. The board delegates to management the responsibility to design and implement risk management frameworks and monitors adherence thereto. This is achieved through the appointment of various committees that are responsible for managing risk as detailed on page 29.

Risk management process The Group has developed a set of policies, procedures and standards for each major risk type. The policies and procedures set out and ensure alignment and consistency in a manner in which the major risk types across the Group are identified, measured, managed and reported on.

All policies and procedures are applied consistently across the Group and are approved by GRCMC. It is the responsibility of business unit management to ensure the requirements of risk policies and procedures are properly implemented and adhered to on a regular basis. Business units and Group risk functions are required to self assess and report on a quarterly basis.

The Group’s strategic and operational risk management approach and methodology are largely based on the principles contained in the Committee of Sponsoring Organisations (COSO) ERM Framework and is consistent with widely accepted standards, guidelines and best practice (Objective Setting, Risk Identification, Risk Assessment, Risk Response, Monitoring).

All major risk policies are reviewed on an annual basis to ensure that they are relative, that all risks have been identified and that mitigating factors are in place.

Risk Appetite and Monitoring Alignment

Enabling Risk Culture

OVERSIGHT

Board and Executive • Establishes risk appetite and strategy • Approves frameworks, methodologies, policies, and roles and responsibilities

3 lines of defence

1ST L

INE O

F DEF

ENCE

Operational Management

2ND

LINE

OF D

EFEN

CE

Group and Divisional Risk and Compliance

3RD

LINE

OF D

EFEN

CE

Internal Audit

• Owner of risk management process • Identifies, manages, mitigates and

reports on risk

• Risk Management – design, interpret and develop overall risk management framework, and monitor business units adherence thereto

• Risk Management – overview of key risks

• Compliance – monitor and report on regulatory issues

• Independent testing and verification of efficacy of corporate standards and business line compliance

• Provides assurance that risk management is functioning as designed

Risk Management Framework and Process Alignment

43



Major risk types

Major risk type Approach

strategic risk

Strategic risk concerns the consequences that occur when the environment in which decisions that are hard to implement quickly result in an unattractive or adverse impact. It ultimately has two elements: one is doing the right thing at the right time and the other is doing it well. This includes risks arising out of changes in the broad environment in which the Group operates. • Formalstrategicriskassessmentsarecompletedannuallywithexecutivemanagementfor

the Group. • Thestrategicriskmanagementprocessisintegratedintothestrategicplanningprocessof

the Group. • Strategicriskarisesfrombadbusinessdecisionsorimproperimplementationofgoodbusiness

decisions. • StrategicriskisafunctionofthecompatibilitybetweentheGroup’sgoals,theapproachand

resources used to meet those goals, and the quality of management’s implementation of the systems and resources to meet those goals.

• StrategicriskfocusesonhowtheplansandtheimplementationofthoseplansaffectaGroup’svalue rather than just on an analysis of a written strategic plan.

• Assessmentofstrategicriskalsoincorporateshowwellmanagementhandlesuncontrollableexternal factors such as changes of a political, socio-economic or legislative nature, or new competition.

financial* risk

• Capital • Market• Credit• Liquidity

Financial risk is an umbrella term for any risk associated with any form of financing. Specialised financial risk management systems and procedures, based on best practice standards, are in place to manage financial risks. • CapitalrisktotheGroupistheriskofnotmaintainingtheminimumcapitallevelsrequiredby

regulators. • Marketriskconsiderschangesinthevaluesofportfoliosoffinancialinstrumentsduetochanges

in market factors such as exchange rates, interest rates, equity prices, commodity prices and market liquidity. Market risk occurs from a Group’s involvement in market-making, dealing and position-taking activities in these products.

• Creditriskisthepotentialthatanobligorwillfailtopayorfailtomeetthetermsoftheircontractwith the Group. Credit risk could result from failure on the part of a borrower, counterparty or an issuer such as a securities firm. Credit risk exists in both on- and off-balance sheet exposures.

• Liquidityriskcanarisefrommanagement’sfailuretorecognisechangingmarketconditionsthatnegatively affect an ability to liquidate assets quickly. It may also include an inability to manage unplanned changes in funding sources.

These risks are discussed and disclosed in more detail in note 37 of the annual financial statements.

operational* risk

Operational risk means the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events, including legal risk such as exposure to fines, penalties, or punitive damages resulting from supervisory actions and private settlements. People:• Transformation• Recruitmentandretention• EmployeerelationsProcess:• Dataintegrity• InternalcontrolsTechnology:• Informationsecurity• Deliveryandsupport• DevelopmentandimplementationOther:• Formalriskassessmentsarecompletedannuallyateachdivisionandgroupsupportfunction.• Operationalrisksarereviewedquarterlybybusinessandsupportunits.• Theidentifiedrisksarereviewedatgrouplevelthroughaconsolidatedriskregister.• RiskratingsguidethelevelofattentionrequiredfromtheGroupexecutiveandGroupriskand

capital management committees. These risks are discussed and disclosed in more detail in note 37 of the annual financial statements.

social and environmental

risks

Social risks include cultural aspects, health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social risks may affect the demand for the Group’s products and how it operates. Environmental risks include weather and climate changes which may be affected by water and energy consumption, waste disposal, carbon emission and paper wastage.Managing these risks:To combat social risks externally, Sasfin is committed to community upliftment and various other social causes. To combat these risks internally, Sasfin is committed to retaining its employees, maintaining a safe and healthy working environment for employees and clients, and creating awareness around responsible social practices amongst all stakeholders. Sasfin strives to reduce its environmental risks by deploying optimal technology to reduce water and energy consumption, waste disposal, carbon emission and paper wastage. In addition, prior to concluding any lending or investment activity, Sasfin requests its clients to affirm that they are not in breach of any environmental or social legislation. Credit applications are also reviewed to ensure that no breaches relating to environmental and/or social laws and global practices arise.

* Detailed Financial Risk Management disclosures are included under the “Financial Risk Management” note 37 to the annual financial statements. See page 116.

44


Although the assurance functions are independent and report to diff erent governance committees, there is cross-functional synergies where they overlap.

Business continuity risk management (“BCRM”) BCRM falls within the scope of ERM. The Sasfi n Group uses holistic management process that

identifi es potential impacts that threaten business, and provides a framework for building resilience

with the capability for an eff ective response that safeguards the interests of its key stakeholders,

reputation, brand and value creating activities.

The Group continually reassesses its business continuity capabilities in order to be adequately

prepared to deal with any crisis. In particular, BCRM deals with how, where, when, and who will be

responsible and what they will do when an abnormal situation occurs, in order to ensure that the

business can continue with little disruption and reputational damage. The Group has a formal annual

testing cycle.

Combined assurance Internal assurance

Although the assurance functions are independent and report to diff erent governance committees,

there is cross functional synergies where they overlap. Internal audit fi ndings and compliance risks

are integrated into risk registers. Group internal audit also worked closely with external auditors

to maintain a joint assurance programme. This enabled Sasfi n’s external auditors to place optimal

reliance on the audit work performed by Group internal audit without compromising their statutory

requirements and independence.

External assurance

In addition to independent assurance by external auditors, the SARB and the JSE also provide

assurance on the Group’s internal controls.

Compliance

Sasfi n’s independent compliance function has been established in terms of Regulation 49 of the

Banks Act as part of its risk management framework. The objective of the function is to ensure that

the Group continuously manages its regulatory risk and complies with applicable laws, regulations

and supervisory requirements. At a strategic level, Sasfi n views compliance as a tool supporting an

eff ective level of corporate governance within the organisation.

Internal auditInternal Audit is an independent, objective assurance and consulting activity designed to add value

and improve the Group’s operations. It helps the Group to accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and improve the eff ectiveness of risk management,

control and governance processes.

As part of an integrated approach to risk management, Internal Audit leverage off the assessments

performed by Group Risk. Internal Audit supports the risk management process by auditing the

business management and risk management practices and processes of the various entities using

a risk-based approach.

risk management

external audit

information technology assurance

forensics

compliance

tax and legal experts

internal audit

45



Regulatory environmentSasfin is regulated by various regulatory bodies as defined hereunder:

• South African Reserve Bank

• Financial Services Board

• National Credit Regulator

• Financial Intelligence Centre

• Johannesburg Stock Exchange

• Consumer Commissioner

Role of SARB and the regulatory frameworkThe SARB in its role as the primary regulator of the Group, is responsible for bank and controlling company regulation and supervision. This function is performed by, amongst other things, monitoring banks’ and controlling companies’ activities in terms of the Banks Act, 1990 (Act No 94 of 1990) and the Regulations relating thereto (“the Regulations”).

The basis of the Regulations is the Basel II Accord which is a framework that aims to strengthen the soundness and stability of the international banking system and promote stronger risk management practices by the banking industry. The framework is based on three pillars: minimum capital requirements, supervisory review and market discipline.

The first pillar deals with maintenance of regulatory capital calculated for major components of risk that a bank faces: credit risk, operational risk, equity investment risk, and market risk.

The second pillar deals with the regulatory response to the first pillar. It also provides a framework for dealing with all the other risks a bank may face, such as systemic risk, concentration risk, strategic risk, reputational risk, liquidity risk, interest rate risk and legal risk, which the accord combines under the title of residual risk. It gives banks the power to review their risk management system.

The third pillar aims to promote greater stability in the financial system. It sets out the public disclosures that banks must make that allow for greater insight into the adequacy of their capitalisation. When potential investors have a sufficient understanding of a bank’s activities and the controls it has in place to manage its exposures, they are better able to distinguish between banking organisations so that they can reward those that manage their risks prudently and penalise those that do not.

Regulatory developmentsFollowing the global financial crisis in 2008, regulators and politicians the world-over, have been pushing for intensified and increased regulations in the financial services industry and in particular the banking sector, so as to ensure the global credit crunch does not repeat itself. The Basel Committee, in response to these demands, introduced far reaching revisions in the form of Basel III rules. The revised Basel III rules were issued by the Basel Committee on Bank Supervision (BCBS) in December 2010.

The requirements will be phased in over a number of years from 2012 through to 2018.

The main challenges to South African banks will be achieving compliance with the liquidity requirements, both in terms of holding sufficient liquid assets and extending funding maturity profiles.

The core proposals of Basel III include:

• Enhanced quality of capital

• Increased levels of capital

• Countercyclical capital buffers

• Introduction of a leverage ratio

• Enhanced risk coverage particularly in respect of market risk and counterparty credit risk and

• New liquidity standards, including the introduction of two new ratios, the Liquid Coverage Ratio (“LCR”) and the Net Stable Funding Ratio (“NSFR”).

Following the global financial crisis in 2008, regulators and politicians the world-over, have been pushing for intensified and increased regulations in the financial services industry and in particular the banking sector, so as to ensure the global credit crunch does not repeat itself.

46


Potential impact of key Basel III components on Sasfin GroupCapitalThe Basel Committee is raising the resilience of the banking sector by strengthening the regulatory capital framework. The reforms raise both the quality and quantity of the regulatory capital base and enhance the risk coverage of the capital framework.

Quality of capitalThe predominant form of Tier 1 capital must be ordinary shares and retained earnings. Deductions from capital are to be applied at the level of ordinary equity. Innovative hybrid capital instruments are being phased out.

Sasfin Group’s Tier 1 capital is made up mainly of ordinary share capital and premium as well as retained earnings. These components make up 80% of the total Tier 1 capital. The Group does not have hybrid instruments.

In order for an instrument to be eligible for treatment as Tier 1 or Tier 2 capital in the future, it must include a clause that requires it to be written off or converted to common equity on occurrence of a trigger event. This provision will make debt more expensive where an expectation of a possible future bail-out is priced into the cost of funding.

Levels of capitalThe proposed minimum ratio for core Tier 1 capital to risk-weighted assets is 4,5%, while the minimum Tier 1 capital ratio to risk-weighted assets is 6%. SA banks’ regulatory capital rules are already more conservative than the Basel II rules. The core Tier 1 minimum ratio is 5,25% in South Africa, while the Tier 1 minimum is 7%.

Sasfin Group is currently operating at capital ratios significantly above the minimum regulatory ratios.

Capital conservation as well as countercyclical capital buffers are being introduced. The capital buffers are a new component of the regulations, aimed at increasing capital during good times. They do not form part of the minimum requirement. The capital buffer requirements slowly build up capital through imposing restrictions on the distribution of retained earnings by dividends, share buy-backs or discretionary bonuses.

A buffer of 1,5% (Pillar 2a capital) is already in place in South Africa.

A leverage ratio is also being introduced. This ratio implicitly imposes a capital requirement as it establishes a maximum Tier 1 capital to assets ratio. It is used as a backstop, which operates on the assumption that, when the average ratio exceeds 33, there is an unacceptable level of systemic risk in the financial position of the entity.

Sasfin’s ability to meet the revised rules relating to capital is healthy, reflecting the robustness of its existing capital regulations.

Market disciplineTo improve market discipline, the transparency of capital will be improved with all elements of capital required to be disclosed along with a detailed reconciliation to the reported accounts.

LiquidityTwo liquidity standards are being introduced, the LCR and the NSFR.

The LCR ensures that the bank has sufficient high quality liquid assets to survive a severe 30-day stress. It is derived by dividing the total amount of high-quality liquid assets by the total net cash outflows over the next 30 calendar days. The objective of the NSFR is to promote more medium and long-term funding of the assets of banks. It complements the LCR by promoting structural changes in the liquidity risk profiles of banks away from short-term funding mismatches and towards more stable, longer-term funding of assets and business activities.

47



Sasfin Group has performed calculations for the LCR and NSFR from December 2010 through to June 2011 and meets the current requirements. The current stress scenarios applied by the Group as part of its liquidity risk management are far more aggressive than the Basel III worst case scenarios.

A detailed comparison between the significant variances evident in the underlying assumptions of the Group and that of Basel III together with the calculated ratios have been presented to the Bank Supervision Department (“BSD”) as part of its graph discussions.

The structure and mix of its deposits allows Sasfin to meet the liquidity standards:

• 42% of total deposits are Retail deposits from natural persons

• 28% of total deposits are from small-to-medium enterprises and managed as part of the Retail portfolio, and

• 30% of total deposits are from wholesale clients (these attract the most adverse treatment in terms of Basel III).

Pillar III disclosuresAll registered banks and controlling companies are obliged to report certain qualitative and quantitative information with regards to their capital adequacy on a regular basis to the public, which incorporates the Basel II Pillar Three requirements on market discipline. The information is disclosed in note 37 of the annual financial statements.

ComplianceSasfin maintains an independent compliance function, which is under the control of a general manager who reports directly to the chief executive officer. The general manager is furthermore given unrestricted access to the chairman of the Audit and Compliance committee and meets with him on a regular basis. A composite regulatory universe applicable to the Group has been formulated wherein the following regulators have been identified as playing a primary role:

• The SARB, through the BSD and Exchange Control, carries the responsibility for ensuring that a sound and well regulated banking system exists in South Africa and that prudent risk management practices are embedded within the banking environment. Consequently, the directors of a bank are required in terms of the Bank’s Act to report annually to the Registrar of Banks on the efficacy of the systems of internal control and to provide reasonable assurance as to the integrity and reliability of financial statements, as well as on corporate governance. Directors are furthermore required to safeguard, verify and maintain accountability for the Bank’s assets.

• The JSE regulates SasSec through its Surveillance department. The Surveillance department of the JSE maintains an active supervisory and monitoring role with all members of the JSE in its endeavours to inter alia maintain the efficiency and integrity of the secondary market.

• The FSB regulates specific business activities of the Bank as well as the general business activities of SFAS and SAM. Regular reporting is made to the FSB to satisfy the overarching requirement that investors be protected.

The compliance function has a multidisciplined approach to managing the requirements of relevant legislation and regulation in order to assist management with compliance. Directors recognise that they bear the ultimate responsibility for setting and maintaining the Group’s systems of internal controls and protecting its assets and earnings against financial loss whilst complying with legislative and regulatory requirements. Directors are committed to discharging these responsibilities as cost effectively as possible and as such, business risks are assessed on an ongoing basis and risk procedures are modified and implemented as needed. The Group has a comprehensive reporting system, which is monitored and reviewed monthly by management and the directors. The process facilitates budgetary control and risk management control, provides reasonable assurance as to the accuracy of financial statements and safeguards the Group’s assets.

48


Stakeholder engagement considerationsSasfin has interfaced and engaged with various stakeholders with the objective of ensuring that the interests of stakeholders are addressed.

Below is a diagrammatic depiction of stakeholders with whom Sasfin engages to determine key risk management and strategic objectives.

Sasfin endorses the inclusive approach advocated by King III and commits itself to advancing the stakeholder objectives outlined in the aforementioned code. In promoting its stakeholder relations, Sasfin has embraced new and nurtured current relations. It has further extended its engagement levels to include various parties in its internal and external environment, as illustrated above. In furthering its engagement objectives, various avenues, founded on a strong sense of integrity, transparency, transformation and sound risk management processes, have been explored which have culminated in a better positioned entity.

sustainability development

• shareholders • investor relations • interm

ediarie

s •

gov

ernm

ent •

co

mmunity • media • clients • regulatory bodies • board of directors •

empl

oyees • management

external

internal

stakeholders

Sasfin seeks to build an organisation that provides above-market returns to all stakeholders, and to create a sustainable future by adopting an integrated approach combining business, environmental, social and organisational culture.

SUSTAINABILITY DEVELOPMENT

49


sustainability development > > continued

Reasons Types Feedback/resulting actions/outcomes

Clients, funders and depositors

To increase diversity and Sasfin’s funding base

To understand and resolve client complaints and concerns

Marketing and business development

Client surveys

Day-to-day business interaction

Brand awareness

Improved service levels and feedback on latest developments both globally and locally on funding mechanisms and instruments

Financial literacy

Improved brand equity

Shareholders and investment analysts

To keep shareholders and investment community informed

To provide relevant and timeous information to providers of capital

Investor relations

Road shows

Ad hoc communications

AGM and other meetings

SENS announcements

Analyst briefings and presentations

Media releases

Credit ratings from Fitch and Moody’s unchanged

Shareholders and analysts satisfied with level of communication

Informative with open and transparent relationships

Directors’, management and staff

Governance, oversight and strategic direction

Remuneration practices

To remain employer of choice

To understand and respond to staff needs and concerns

To provide staff with pertinent information regarding Sasfin’s strategic focus areas

To develop Sasfin’s people

To increase staff retention levels

Annual benchmarking exercises and review of compensation practices

Climate survey

Email and intranet communications

Quarterly HR magazine

Internal training

Monthly staff meetings

Performance reviews

Staff suggestion box

Management is working on areas of inefficiency and performance barriers, so as to enhance productivity

Introduction of a mentorship programme

In conjunction with INSETA, implemented a graduate programme

Took corrective measures for areas of weakness resulting from performance reviews and climate survey

Study loan scheme to assist with further academic and skills development

Regulatory bodies

To maintain good relationships with regulators and ensure compliance with the legal and regulatory requirements

Regular prudential meetings

Statutory reporting

Ad hoc query responses

Trilateral meetings with the board, external auditors and SARB

Bilateral meetings between the board and SARB

Regular JSE meetings

Clarification obtained on certain requirements

No major concerns raised in meetings held and query responses

Interactive discussions and feedback

JSE relations – open and value adding

STAKEHOLDER ENGAGEMENTSSummary of stakeholder engagements:

50


Reasons Types Feedback/resulting actions/outcomes

Social and environmental communities

To obtain input regarding key focus areas in terms of Sasfin’s environmental and social sustainability

To confirm that Sasfin’s operations are taking place in the most environmentally responsible manner

To create awareness of Sasfin’s sustainability initiatives

To promote social and environmental sustainability in South Africa

Social and environmental due diligence report

Loan officer visits to potential clients premises as part of approval process, as well as subsequent annual visits should the loan be approved

Liaison with the Banking Association of South Africa

Corrective action is taken in line with the summary of recommendations

Responsible financing

Integrate environmental and social considerations into Sasfin’s business processes

Avoid clients with significant adverse environmental and social impacts

Adoption of Equator Principles

Contribute to job creation in the SME market

Manage the potential risk in lending where land held as security is found to be contaminated

Corporate social investment as detailed under the environmental and social sustainability section

Suppliers and contractors

To encourage socially and environmentally responsible practices in the Group’s supply chain and promote the governments transformational objectives

Sasfin contracted with a certified vendor for them to collect paper from Sasfin’s premises on a regular basis for recycling

Preferential procurement in line with value adding/or value-for-money principles

Focus on increased spend with BEE suppliers

Sasfin has engaged with an independent approved verification agency to provide a scorecard and review progress so that appropriate medium and long-term strategies can be implemented aimed at improving Sasfin’s broad contribution to BEE

A certified vendor collected and shredded 9,6 tonnes of paper

Government

To build and strengthen relationships with government, both as a partner in the development of the country and as a client

To provide input into legislative development processes that will affect the activities of the Group

Public sector financing provided

Input into regulatory developments

Promoting economic growth and job creation

Responded to the government’s Climate Change Response Green Paper as well as Carbon tax legislation

51


Stakeholders and material issues Strategy

Clients/fundersMaintaining partnerships with clients – building on our mission “to be a partner beyond expectations in our chosen markets”

To be a leading financier in the SME market

Securing the funding for future growth

To provide a full service offering to the small business and the entrepreneur in terms of a “start-to-finish” solution

Shareholders and investment analystsDeliver above market related returns on a sustainable basis through responsible business management and financial services offering

Sustainable growth as an independent financial services organisation

Ensure that capital and resources are strategically focused on activities that generate the greatest value on a risk adjusted basis

Diversified contribution to Group profits

Limited growth in the cost base relative to earnings growth

Deliver on three to five-year targets that have been set

Directors, management and staffGood governance

Ongoing development of skills of our staff

Attracting, retaining and fairly remunerating the most talented people

Creating an environment with a good work-life balance

Comply with King III and other required legislation appropriately

Continuous investment in training and skills development

Maintain good communication channels with staff

Employer of choice

Market related reward mechanisms

Social and environmentalMinimise impact on environment by waste management initiatives and collaboration with stakeholders to encourage sustainable behaviour changes

Increased provision of finance to the SME sector, our target market, yielding more opportunities for job creation

Increase assets under Wealth Management division with a view to preserving wealth

Community upliftment via corporate social investment

Increased focus on waste management initiatives

Reduce energy consumption

Comply with legislative requirements

Entrench the Equator Principles in the business operations

Continue as a good corporate citizen

SuppliersPromoting preferential procurement aimed at driving economic empowerment

External service provider to determine scorecard

Value for money procurement

RegulatorsCompliance with legislation and regulation

Protecting the interests of investors

Integral and essential in decision making processes

Comply with and participate in the constantly evolving regulatory environment

Summary of the key material issues resulting from this stakeholder engagement linked to the Group’s strategic imperatives:

KEY MATERIAL ISSUES

sustainability development > > continued52


2011R’000

2010R’000

Value added is the wealth created from providing quality services to clients:

Net interest income 190 580 179 604

Impairment losses on loans and advances (37 712) (27 552)

Income from lending activities 152 868 152 052

Non-margin-related income 420 218 446 134

Share of associates income 12 205 8 093

Other expenditure (233 037) (228 458)

Total value added 352 254 377 821

Value allocated:

– Employees (199 259) (185 883)

– Government (taxes) (21 874) (32 159)

– Shareholders (58 077) (73 079)

– Corporate social investment (1 371) (1 386)

– Retentions for growth (71 673) (85 314)

Depreciation and amortisation (15 897) (19 097)

Retained income (55 776) (66 217)

Total value allocated (352 254) (377 821)

As at 30 June 2011

Value creation Value added statement

Value allocated

Employees

Government (taxes)

Shareholders

Corporate social investment

Retentions for growth

The financial performance for 2011, although lower than last year, reflects a solid performance despite tough economic conditions. The Group’s earnings were dragged down by the disappointing contribution by the private and property equity units, and if not for this, the Group would have delivered a positive set of results for 2011.

This statement is supported by the following:

• gaininmarketshareintherentalfinancearea

• demandforSasfin’sproductsandservicesremainstrong

• improvingtrendincreditimpairmentlevels

• cost-containmentinitiativesinplacetosupportfuturerevenuegrowth

• opportunityexiststogrowwealthmanagementprofitability,and

• uniquepositioningtoofferabroadrangeofproductsandservicesaspartofthe“start-to-finish”offering to the SME and entrepreneurial market.

e economic

20102011

53


e environmental

s social

Sasfin recognises that the banking sector has an important role to play in the context of environmental sustainability, both in South Africa and in the global context. Sasfin acknowledges its obligation to effectively manage the environmental and social impacts directly or indirectly through its activities, products and services.

Sasfin recognises the interdependencies between economic growth, social equity and environmental integrity. These concepts are interdependent outcomes of all sustainable development.

The integration of social, economic and environmental factors is essential for planning, implementation and decision-making so as to ensure that development serves present and future business partners.

In order to manage social and environmental risks and impacts, as well as to enhance development opportunities, Sasfin has adopted eight IFC performance standards as set out hereunder:

1. Social and Environmental Assessment and Management Systems2. Labour and Working Conditions3. Pollution Prevention and Abatement4. Community, Health, Safety and Security5. Land Acquisition and Involuntary Resettlement6. Biodiversity Conservation and Sustainable Natural Resource Management7. Indigenous Peoples8. Cultural Heritage

Compliance with legal and other requirements is one of the cornerstones of an effective environmental system.

Sasfin monitors its lending and investment through the implementation of a social and environmental due diligence report, whereby projects at the time of appraisal are evaluated to ensure that a project is meeting and is expected to continue to meet the ‘Applicable Performance’ requirements.

The Social and Environmental Due Diligence is tailored to ensure that:

• The social and environmental aspects of a project are taken into account in accessing potential investment or lending at the time of considering the project.

• Each aspect of the project is considered in the context of legislation and regulatory compliance, including environmental permits and the IFC exclusion list.

• Specific issues raised and financing covenants or conditions together with corrective action plans and a summary of recommendations are implemented.

Sasfin has an environmental co-ordinator who manages the Group’s environmental impact by overseeing the screening of corporate clients against the SEMS risk framework. The environmental co-ordinator is mandated to create a consistent approach to environmental and social management by facilitating appropriate systems, policies, performance standards, monitoring and assurance within the Group’s operations and responsible financing.

sustainability development > > continued54


The environmental co-ordinator’s responsibilities are represented at the Group Risk and Capital Management committee, a board committee, which in turn provides oversight and guidance in managing the strategic direction of environmental systems, addressing issues associated with occupational health and safety in the building maintenance and employee occupational health and safety awareness.

SEMS was developed and approved by the board of directors during 2010, which aims to align the Company’s objectives to develop and maintain appropriate systems and controls to the social and environmental requirements and standards set out by the IFC. The policy provides employees with an improved tool for identifying and managing risks, thereby reducing the direct environmental footprint in the context of the financial and non-financial opportunities.

To assist in the evaluation of the risks, Sasfin adopted a SEMS and a number of standards. Sasfin adopted the principles applied by the IFC in 2010 and aligned its policies and guidelines to all business relationships entered into with corporate clients. Sasfin ensures that all projects are reviewed and evaluated against the Social and Environmental requirements annually and are reported on in line with the requirements of King III. SEMS assists to monitor both direct and indirect risks presented by environmental and social issues in Sasfin’s portfolio. SEMS is a systematic framework to integrate environmental and social considerations into Sasfin’s business processes.

Sasfin is committed to continually ensuring effective social and environmental management practices in all its activities, products and services, with special focus on:

• Ensuring that all lending and investment activities undertaken and reviewed by Sasfin are consistent with the applicable requirements outlined in the SEMS risk framework and standards

• Financing projects only when they are expected to be designed, built, operated and maintained in a manner consistent with Sasfin’s framework

• Making best efforts to ensure that all projects are operated in compliance with the requirements on an ongoing basis, during the currency of Sasfin’s financing

• Ensuring transparency in its activities, and

• Ensuring that the management and the shareholders of the client companies understand the social and environmental commitments made by Sasfin in this area.

Sasfin has a dedicated team of loan officers who visit potential clients’ business premises on application of a loan or investment. The loan officer compiles a report on the business activities and completes a social and environmental checklist, a tool developed whereby the environmental risk is analysed. Once the application is successful, the loan officer will visit the client at least annually to review the account. Sasfin also employs field officers to perform a range of product and other audits at the client’s premises on a quarterly basis. The field officers’ report on any social and environmental transgressions.

Sasfin adopted the ‘Equator Principles in’ 2010. The principles are a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions. These principles are based on the IFC’s performance standards on social and environmental sustainability. The principles and guidelines are intended to serve as a common baseline and framework for the implementation of Sasfin’s internal social and environmental policies, procedures and standards related to project finance activities.

Sasfin honours the commitment by not approving loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures.

Sasfin provides financial solutions to various types of sectors around the world. Approximately 30% of its total lending focuses on trade and accommodation. 35% of its total lending is to finance financial, real estate and business services, and a further 8% of its total lending focuses on manufacturing. Sasfin endeavours to continue South Africa’s growth by providing financing in the trade sector in assisting with the transition to more efficient and suitable uses in this industry.

The environmental process is currently being maintained manually. An IT solution to incorporate the necessary frameworks is still under development.

Being a good corporate citizen means being there for the communities that Sasfin operates in across the globe. Sasfin’s framework therefore takes into account the environmental, ethical and social risks of the way it does business and establishes a key element of being sustainable.

When Sasfin provides financial solutions to clients, it has a responsibility to ensure its clients’ activities are not creating undue social and environmental impacts. Sasfin therefore needs to consider environmental and social risks in its business decisions and activities, particularly in higher-risk industry sectors.

Principle 1 Review and categorisation

Principle 2 Social and environmental assessment

Principle 3 Applicable social and environmental standards

Principle 4 Action plan and management system

Principle 5 Consultation and disclosure

Principle 6 Grievance mechanism

Principle 7 Independent review

Principle 8 Covenants

Principle 9 Independent monitoring and reporting

Principle 10 Equator principles financial institutions reporting

55



Climate change riskSome risks associated with climate change include the costs of complying with legislative and regulatory requirements and natural disasters that could potentially damage property, amongst others. Climate change will also alter the manner in which risks are managed making it necessary that the Group re-evaluates its risk assessment models to include potential climate change risks and their monetary value.

Environmental legislationSasfin’s approach to the management of developing environmental legislative regulation, is to develop compliance risk management plans to assess the regulatory risk and introduce appropriate mitigating controls where required. Sasfin monitors the developing environmental and social codes of industry best practice through the public consultation processes such as South African government’s Climate Change Response Green Paper.

In South Africa, under the National Environmental Management – Waste Act No 59 of 2008, Sasfin could potentially face a risk in lending where land held as security is found to be contaminated. The Bank continues to manage this potential risk by implementing risk mitigation control measures to ensure that its position is duly protected. Sasfin worked with the Banking Association of South Africa as part of its continuous engagement with relevant authorities. Furthermore, the banking industry is drafting an industry code of conduct on managing environmental and social risk.

Working in partnership with the JSE and King IIIThe main drivers of sustainability reporting are corporate governance requirements and the JSE Socially Responsible Investment Index (SRI Index). An emerging driver is the new Public Investment Corporation (PIC) Corporate Governance Rating Matrix, with a strong emphasis on disclosure of social and environmental performance. King III emphasises the importance of integrated reporting whereby the board should ensure that the positive and negative impacts of the Company’s operations and plans to improve the positives and eradicate or ameliorate the negatives in the financial year ahead are conveyed in the integrated report (refer “Adoption of King III” page 32). In addition, the JSE SRI Index encourages companies in the JSE all share index that choose to participate to report publicly on sustainability related issues. The SRI Index was the first of its kind in an emerging market, and the first ever to be launched by a securities exchange. The PIC Matrix was developed in 2008 – as the single biggest investor on the JSE and one of the largest investment managers in Africa, the PIC’s commitment to transparency and disclosure is likely to have a big impact on reporting practices over the next few years.

EnergySasfin recognises its role in the consumption of energy that meets the needs of the present without compromising the ability of future generations to meet their needs. In this regard, Sasfin manages and reduces its energy consumption, both as part of climate change mitigation efforts and in response to rising electricity costs and energy supply concerns in South Africa.

The largest demands of energy for Sasfin are water heating, lighting and air-conditioning. During 2009, Sasfin moved to new premises and constructed the building in such a manner as to be as environmentally efficient as possible by installing large windows to allow natural light into the offices.

During 2010, Sasfin further installed a solar hybrid efficiency water heating system and early in 2011, Sasfin fitted occupancy sensors in all the offices, meeting rooms and basement parking areas.

The air-conditioning system is centrally controlled and managed.

The biggest consumer of electricity remains the IT system where air-conditioning and air-handling unit fans are essential. Sasfin is currently reviewing a suitable and sustainable solution to reduce the energy level in this division.

PERCENTAGE OF CORPORATE PORTFOLIO

35financial,

real estate and business services

30trade and

accommodation

15community,

social, personal

8manufacturing

5transport,

communication

3construction

2mining

1electricity, water

1agriculture

as per the SARB category requirements

56


Sasfin historically had reported its progress to the FSC Secretariat. Regrettably the FSC has not been gazetted into law as had been expected and Sasfin has had to re-evaluate its progress in terms of the generic codes published by the Department of Trade and Industry.

WaterWater covers approximately 70% of the earth’s surface and is vital for all known forms of life. Clean drinking water is essential to humans and other life forms. Access to safe drinking water has improved steadily and sustainable over the last decades in almost every part of the world. However, some observers have estimated that by 2025 more than half of the world population will be facing water-based vulnerability. Water plays an important role in the world economy, as it functions as a solvent for a wide variety of chemical substances and facilitates industrial cooling and transportation. Companies will increasingly be required to manage and report on their water usage. In order to be a global partner, Sasfin is investigating ways to reduce its operational water footprint. Water accounts are checked monthly and discrepancies managed on an ongoing basis. Water efficiency will be a key factor when considering technologies and equipment in future.

Waste managementSasfin is mindful on waste management techniques to improve its disposal and monitoring of waste materials. The management of waste is a key component in its business ability. Sasfin values procurement that minimises environmental impacts, for example, through proactive measures against waste, proper waste disposal and effective recycling initiatives.

Sasfin contracted with a certified vendor to collect paper from its premises on a regular basis for recycling. Proactive measures were further implemented to monitor printing by providing staff with unique personal identification numbers (“PIN”) on all printers. This technique monitors staff printing within their respective business areas.

Sasfin played an integral role in assisting to reduce the environmental impacts through the utilisation of technology solutions instead of preparing meeting packs for management and certain board meetings. Sasfin endeavours to improve its environmental efficiencies each year with new recycling services.

During the current financial period, a certified vendor collected and shredded 9,6 tonnes of paper.

This paper was recycled during the period into a variety of paper-based products. Based upon official calculations, coupled with statistics from the US Environmental Protection Agency from wholesale suppliers of paper, electricity and water, and information obtained from landfill companies, the recycling effort translates into savings.

Increasing environmental awareness

Sasfin’s suppliersSasfin is analysing how best to engage with suppliers on their environmental management practices and will develop and roll out standards and tools in this regard during 2011.

Broad-based black economic empowermentFor the last number of years, Sasfin has recognised the importance of ensuring that the socio-economic inequalities which pervade South Africa need to be addressed and it had regarded the FSC as an excellent model upon which it based its targets and strategies for the achievement of greater equity within its field of influence. To this end, Sasfin has constituted a committee of the board to specifically address transformation.

In order to ensure objective validation of the process, it has engaged with an independent approved verification agency to not only provide a scorecard but also to review progress so that appropriate medium and long-term strategies can be implemented aimed at improving Sasfin’s broad contribution to BEE. The ownership requirements of the generic code remain a challenge because of the requirements of the Banks Act which require regulatory approval for any significant shareholding. Sasfin, however, continues to make good progress in ensuring that its employee demographic profile, its procurement practices and enterprise development initiatives bring real benefits to its stakeholders.

Sasfin has been awarded a SANAS accredited level 4 score, which translates into a BBBEE procurement recognition level of 100%, as per table below. Sasfin has also been recognised as a value-added supplier.

57



Department of Trade and Industry summarised scorecard

Ownership

Voting rights Economic interestEmployee schemes/

broad-based schemes, etc.

Net equity value

Sasfin total score

DTI target scoreBlack people Black women Black people Black women

Designated groups

7,26% 1,51% 7,26% 1,51% 0,01% 0,00% 7,26% 5,67% 20,00%

Management Black board

Black executive directors

Black senior top

management Black top other management Black independent directors

25,00% 16,67% 25,00% N/A 20,00% 5,79% 10,00%

Employment equity

Black senior management

Black middle management

Black junior management Black disabled as % of total

32,14% 29,91% 57,85% 0,00% 9,04% 15,00%

Skills development

Black skills spend Black disabled skills spend Category B, C, D black learners

1,00% 0,01% 5,09% 8,08% 15,00%

Preferential procurement

% spend % spend on QSEs and EMEs % spend on black-owned % spend on BWO

49,96% 20,32% 10,23% 0,07% 18,01% 20,00%

Enterprise development

Contributions

3,29% 15,00% 15,00%

Socioeconomic development

Contributions

0,76% 3,80% 5,00%

Total BEE score DTI level 4 65,39% 100,00%

Corporate social responsibility In the community Sasfin is involved in a variety of corporate social initiatives “CSI” and other sponsorships and donations. Sasfin has been awarded a SANAS accredited level 4 score which translates into a BBBEE procurement recognition level of 100%. Sasfin has also been recognised as a value-added supplier. The total donations and sponsorships spend for the year was over R1,3 million with CSI spend being approximately R850, 000 for the year.

The Group endeavours to uplift poverty, improve the quality of life and promote education and development for all South Africans. The following are some of the organisations which have benefited from our support:

MaAfrika Tikkun: a NGO that provides education, health and social services to children and their families through centres of excellence in South African townships. Their aim is to empower communities to develop a new generation of productive citizens.

Business Against Crime South Africa (BACSA): established in a response to a call from the then President Mandela, for the business community to become involved in the fight against crime.

Junior Achievement SA (JSAS): an organisation designed to prepare young people for life after school by raising their awareness of economic issues, teaching them entrepreneurial and lifeskills, providing them with an understanding of the business world and enhancing their sense of personal responsibility through practical business experience.

ORT South Africa (ORT SA): a non-profit developmental organisation that believes in its philosophy of “Educating for Life”. They are locally and internationally recognised by governments and large corporations. ORT helps to build South Africans through education, learning skills and being placed in jobs, growing or starting up a successful business or receiving cutting edge training and support in the areas of Maths, Science, Technology and IT. ORT SA works closely with the Department of Education and currently runs projects in Alexandra, Cosmo City, Diepsloot, Soweto, Orange Farm, Springs and North Eastern Johannesburg.

JNF: supports, amongst other initiatives, the Walter Sisulu Environmental Centre in Mamelodi, which is an environmental education centre that aims to create a culture of community conservation. The aim of developing awareness amongst the youth is to inspire and motivate them to preserve and utilise the wealth of our natural heritage. The JNF has raised R3,3 million for the development of the centre, its outdoor living classroom and the internal displays, furniture and fittings from a range of funders, one of which is Sasfin.

The Buffelshoek Trust: was constituted in July 2001 with the aim of uplifting the rural communities in the Mpumalanga region. The trust addresses the essential needs of this poverty-stricken rural community focusing on education. The Trust works in conjunction with the community to establish relationships with government and donors.

CAP (Community Active Protection): is an initiative which emanated from concerned residents that it was “time to take back our suburbs”. Crime in South Africa is a major problem and has reached epic proportions in Johannesburg and it is safe to say that everyone will become a victim of crime unless something is done to prevent crime. The organisation is entirely dependent on receiving voluntary contributions from residents and businesses in the community to sustain the project in the future which strives to increase safety and security in the areas it operates in.

58


c cultural

Sasfin has a strong and experienced management team in place, as depicted in the management structure on page 10 to 11. The Group has demonstrated a proven organisational capability to succeed in tough times.

A culture of governance, compliance and sustainability is evident in controls and processes, and integrated in the business as illustrated by the early adoption of the principles of King III. Independent and diverse management committees are in place as listed below.

Management committeesGroup ExecutiveGroup StrategySasfin Capital ReviewIT MancoCapital Division Investment Liquidity

Sasfin’s peopleEmployees are not only a key stakeholder group, but they are also central to Sasfin’s engagement with various other internal and external stakeholders, such as clients and regulatory bodies. Sasfin’s Code of Ethics governs corporate conduct in order to ensure high levels of sustainable performance across the Group.

The HR department, in conjunction with line management, is responsible for all employee engagement within the Group. This includes attracting and employing the most suitable employees, keeping them motivated in their positions and ensuring that they perform to expectation. To this end, HR is engaged in a number of interventions, among which are the following:

Employee satisfactionSasfin values the benefits derived from regular and honest interaction with its employees. Employee satisfaction is gauged by regular climate surveys, which enable employees to raise their concerns and areas of satisfaction to management. The results of these climate surveys are communicated to all staff and management, with management identifying and acting on areas of inefficiency and performance barriers, so as to enhance productivity. The latest climate survey findings, completed in April 2011, reflect that employees feel positive about the organisation irrespective of age, tenure or race. Sasfin was voted “The Best Bank to Work For” in the Deloitte Best Companies to Work for Survey in 2009, when the Company last participated in the survey. This great working environment is the reason why many of our staff develop their careers over a long period of time while at Sasfin.

Across all levels, employees are involved in various community and sustainability initiatives, which include skills development, community upliftment, transformation and HIV/Aids.

59



Sasfin is compliant with the relevant legislation that impacts employee relations, and uses these as the basis for internal policies and guidelines. Remco reviews employee policies and strategies, and has oversight and monitoring responsibility in terms of all senior appointments, succession planning, compensation practices and performance management. With regard to hiring practices, the first priority is to employ the best person for the job, but where there are equal applicants for a position, the job will be offered to the applicant from a previously disadvantaged background.

The Transformation committee tracks the progress made against internal targets for transformation. Sasfin is an equal opportunity employer, advertising all vacancies first internally with a view to staff development, and then through the relevant media. This committee considers the employment equity and employee movement reports and works with the Group HR Manager to drive the desired action throughout the organisation.

People developmentSkills development remains a priority, with both functional and external training being provided to staff. Learning interventions include soft skills training, coaching and mentorship, workshops, degrees, diplomas, on-the-job training, management training and learnerships.

One of the measures introduced to assist with succession planning is the Sasfin Mentorship programme. Of the three mentees who graduated in December 2010, one has been promoted and another transferred to a different division within the Group. Five mentees are currently enrolled on the programme for 2011. This programme helps create a pipeline of talent within the Company, and assists with the retention of talented staff.

Another measure introduced, in conjunction with Inseta, was the graduate programme. This programme aims to train high-potential candidates in the area of Wealth Management where, historically, a barrier of entry has been the shortage of adequately skilled and qualified personnel from disadvantaged backgrounds. Once these candidates have successfully completed their learnership year, they will be employed permanently within the Wealth division. The Bankseta Letsema learnership programme has been very successful, and Sasfin continues with its annual intake of learners for this learnership.

Sasfin also has a study loan scheme which encourages employees to pursue further learning.

Sasfin’s Workplace Skills Plan and Implementation Report met the requirements of the relevant authorities, from whom a rebate of Skills Development Levies was received.

A total training spend of R1,7 million was invested in 184 employees across the Group.

Performance managementSasfin believes in partnering with employees to ensure they attain their performance objectives, which benefits both the individual and the organisation. To this end, the HR department plays an active role in determining performance criteria, measuring performance and addressing poor performance. Sasfin’s proactive approach is intended to correct areas of weakness before they impact on business performance.

Employee engagementSasfin has an active and participative board, who are represented at the various board sub-committee meetings and appropriate experienced employees serve or are invited to attend these committee meetings. They provide significant input into the proceedings as identified by the annual committee surveys completed by each member and invitee. These committees provide the platform for relevant recommendations and direction to be discussed and debated.

Group policies and procedures are available to all employees on the intranet, and employees are encouraged to make use of the staff suggestion box to address concerns and lodge complaints anonymously in need.

A HR newsletter is distributed quarterly.

The HR department facilitates discussions regarding employee-employer issues, and attends all disciplinary and grievance processes.

Skills development remains a priority, with both functional and external training being provided to staff. Learning interventions include soft skills training, coaching and mentorship, workshops, degrees, diplomas, on-the-job training, management training and learnerships.

60


Employee wellnessAnnual wellness days are offered to employees, where standard medical testing and HIV/Aids counselling and testing services are provided. A holistic range of counselling is made available to Sasfin’s staff. These range from trauma to debt counselling.

The HIV and workplace discrimination policies are included in the employee handbook, which is available to all employees via the intranet.

DiscriminationThere were no incidents of discrimination during the year under review.

Human capitalWorkforce breakdown of permanent staff by occupational level, gender and race:

Industrial sector (as per the SARB category requirements)

Male Female

Occupational level African Coloured Indian White Foreign African Coloured Indian White Foreign Total % Black

Top management 0 0 1 12 0 1 0 1 3 0 18 17

Senior management 0 0 3 20 0 0 0 0 11 0 34 9

Professionals 9 4 9 76 0 5 5 19 45 0 172 30

Skilled employees 24 11 21 23 1 41 41 23 115 1 301 54

Semi-skilled employees 12 8 0 2 0 8 5 3 9 0 47 77

Unskilled employees 3 0 0 0 0 8 0 0 0 0 11 100

Total employees 48 23 34 133 1 63 51 46 183 1 583 46

The ratio of male to female employees is 0,7 : 1,0

The ratio of total cost of employment of male to female employees is 0,8 : 1,0.

Employee turnoverA total number of nine employees referred disputes to the CCMA. Of these referrals, six were for allegedly unfair dismissals. All disputes were settled at conciliation stage, with the exception of two cases which progressed to arbitration, and were dismissed by the CCMA. The amount spent on CCMA settlements amounted to R995,316. This is indicative of the fair and sound HR policies and processes which are practised by management.

61



by gender and average age

Female Male Total Average age

appointments

57

38

95 31

terminations

52

34

86 37

transfers

13

6

19 32promotions 7 9 16 35

EMPLOYEE MOVEMENTS

14,75%annualised staff turnover

62


EMPLOYEE MOVEMENTS

583 employees

TOTAL WORKFORCETotal workforce

top management 18senior management

34

professionals

172

skilled employees

301

semi-skilled employees

47unskilled employees 11

63


key strategic drivers for 2012 and beyond

The board and management have identified the following key strategic drivers going forward:

• Sustainablegrowthasanindependentfinancialservicesorganisation.

– Growth in business in the Business Banking division, in particular trade finance in our targetmarket.

– Broadenour franchiseofferingand implement a total financial solution to theSMEandentrepreneurialmarketintermsof“start-to-finish”service.

– Expandthewealthmanagementofferingandleverageoftheembeddedvalueinitslargeprivateclientbasewhich isuntappedandunderserviced.Seekopportunities toconvertstockbrokingclientsintomanagedportfoliosandimprovingyieldonassets.

• SecureanddiversifythefundingbaseoftheGrouptosupportfuturegrowthandtomeettheliquidityrequirementsofthenewBasilIIIregulations.

• Growthenon-bankingactivitiesoftheGroupintermsofscaleandserviceoffering,andexpandtheGroup’s commercial services following theacquisitionof the IquadGroupofCompaniesandconsolidatetheseactivitiesintoaunifiedstructureandleverageofitsenlargedclientbase.Inparticular,thesynergiesbetweenSasfinandIquadshouldincreaseSasfin’sbusinessbanking,internationaltreasuryvolumesandGroupfeeincome.

• Shareholder value creation throughprudent andprofitablemanagement. Limitedgrowth incostbaserelativetoearningsgrowthtoyieldadropincost-to-incomeratios.Driveefficienciesand profitability by optimising on higher-yielding businesses and cross-sell into existing clientbases.

• Embedtalentmanagementtoenhancethevaluepropositionandincreasethestaffretention.Developanintegratedcultureandalignrewardandperformancemeasures.

• Buildandmaintaingoodrelationshipswithallregulatorsthroughproactiveengagementinatransparentandopenmanner.

Sasfiniswellpositionedtobroadenitsfranchise,focusingontheentrepreneurialmarket andprivateclientbase.Itsgrowth trajectory is indeed sustainableonthebackofitsstrongcapitalposition,improvedliquiditylevelsanddiversifiedfunding andactivitybase.

return on assets in the range of 5%

return on equity above 20%

Accordingly, the board has set the following key targets for the Group to obtain over the next three to five-year period:

cost-to-income ratio below 60%

KEY STRATEGIC DRIVERS for 2012 and beyond

64


annual financial statements – contents

directors’ responsibility statement 66

company secretary’s certificate 66

report of the independent auditors 67

audit committee report 68 – 69

directors’ report 70 – 73

consolidated statement of financial position 74

consolidated income statement 75

consolidated statement of comprehensive income 75

consolidated statement of changes in equity 76

consolidated cash flow statements 77

notes to the annual financial statements 78 – 145

company financial statements 146 – 148

notes to the company financial statements 149 – 154

IntermsofSection29(1)(e)(ii)oftheCompaniesAct,itisconfirmedthatthepreparationofthesefinancialstatementsistheresponsibilityof MrTyroneSoondarjeeCA(SA),financialdirectoroftheGroup.

ThesefinancialstatementshavebeenauditedincompliancewiththerequirementsofSection29(1)(e)(i)oftheCompaniesAct.

PART 2 FINANCIAL STATEMENTS

65


directors’ responsibility statement

InaccordancewiththerequirementsoftheCompaniesAct,thedirectorsareresponsibleforthepreparationoftheannualfinancialstatementswhichconformwithIFRSandAC500standardsasissuedbytheInternationalAccountingStandardsBoard,which,inaccordancewiththosestandards,fairlypresentthestateofaffairsoftheCompanyandtheGroupasattheendofthefinancialyear,andthenetincomeandcashflowsforthatperiod.

Itistheresponsibilityoftheindependentauditorstoreportonthefairpresentationofthefinancialstatements.

The directors are ultimately responsible for the internal controls.Management enables the directors tomeet these responsibilities. Standards andsystemsof internalcontrolaredesignedandimplementedbymanagementtoprovidereasonableassuranceastotheintegrityandreliabilityofthefinancialstatementsintermsofIFRSandtoadequatelysafeguard,verifyandmaintainaccountabilityforgroupassets.Accountingpoliciessupportedbyjudgements,estimatesandassumptionswhichcomplywithIFRS,areappliedonaconsistentandgoing-concernbasis.Systemsandcontrolsincludetheproperdelegationofresponsibilitieswithinaclearlydefinedframework,effectiveaccountingproceduresandadequatesegregationofduties.

SystemsandcontrolsaremonitoredthroughouttheGroup.Greaterdetailofsuch,includingtheoperationoftheinternalauditfunction,isprovidedinthecorporategovernancesectionandtheriskmanagementsection.

Based on the information and explanations given bymanagement and the internal auditors, the directors are of the opinion that the accountingcontrolsareadequateandthatthefinancialrecordsmayberelieduponforpreparingthefinancialstatementsinaccordancewithIFRSandmaintainingaccountabilityfortheGroup’sassetsandliabilities.Nothinghascometotheattentionofthedirectorstoindicatethatanybreakdowninthefunctioningofthesecontrols,resultinginmateriallosstotheGroup,hasoccurredduringtheyearanduptothedateofthisreport.

ThedirectorshaveareasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Forthisreason,theycontinuetoadoptthegoing-concernbasisinpreparingthefinancialstatements.

TheCompanyandGroupfinancialstatementspreparedinaccordancewithIFRS,theCompaniesAct,JSESecuritiesExchangelistingrequirementsandtheAC500standardsissuedbytheInternationalAccountingStandardsBoard,whichappearonpages68to154wereapprovedbytheboardofdirectorson8September2011andsignedonitsbehalfby

CN Axten RDEB SassoonNon–ExecutiveChairman ChiefExecutiveOfficer

8September2011 8September2011

company secretary’s certificate

In termsofSection88(2)(e)of theCompaniesAct, Iherebycertify that theCompanyhas lodgedwith theRegistrarofCompanies, for thefinancial yearended30June2011,allsuchreturnsasarerequiredofapubliccompanyintermsoftheCompaniesActandthatallsuchreturnsaretrue,correctanduptodate.

H BrownGroupCompanySecretary

8September2011

66


report of the independent auditors

To the members of Sasfin Holdings Limited

WehaveauditedtheconsolidatedandseparatefinancialstatementsofSasfinHoldingsLimitedwhichcomprisethestatementsoffinancialpositionat 30June2011andtheincomestatements,thestatementsofcomprehensiveincome,thestatementsofchangesinequityandcashflowstatementsfortheyearthenended,andthenotestothefinancialstatements,whichincludeasummaryofsignificantaccountingpoliciesandotherexplanatorynotesandthedirectors’reportassetoutonpages68to154.

Directors’ responsibility for the financial statementsThecompany’sdirectorsareresponsibleforthepreparationandfairpresentationoftheseannualfinancialstatementsinaccordancewithInternationalFinancial Reporting Standards and in the manner required by the Companies Act. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the group 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 arereasonableinthecircumstances.

Auditors’ responsibilityOurresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhetherthefinancialstatementsarefreefrommaterialmisstatement.

An audit involvesperformingprocedures toobtain audit evidence about the amounts anddisclosures in the financial statements.Theproceduresselecteddependontheauditors’judgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorsconsiderinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

OpinionInouropinion,thesefinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedandseparatefinancialpositionofSasfinHoldingsLimitedat30June2011,itsconsolidatedandseparateincomestatements,itsconsolidatedandseparatestatementsofcomprehensiveincome,consolidatedandseparatestatementsofchangesinequityandconsolidatedandseparatecashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards,andinthemannerrequiredbytheCompaniesAct.

KPMG Inc. PKF (Jhb) Inc.RegisteredAuditor RegisteredAuditorPerRichardWarren-Tangney PerGarronChaitowitzCharteredAccountant(SA) CharteredAccountant(SA)RegisteredAuditor RegisteredAuditorDirector Director

8September2011 8September2011

85EmpireRoad 42WierdaRoadWestParktown Wierda Valley2122 2196

67


audit committee report

TheresponsibilitiesoftheGACCaresetoutintheCompaniesAct,andtheBanksAct.Theseresponsibilitiesandcompliancewithappropriategovernanceandbestpractice,arereviewedannuallyandapprovedbytheboard.ThemembersareappointedbytheboardofdirectorsintermsoftheBanksActandtheCompaniesActacknowledgesthisaspect.Thereisthereforenoneedtoobtainshareholdersapproval.

Composition of the committeeNon-executivedirectors areeligible to serveon the committee.The committeehasfivenon-executivedirectors and is chairedby an independent non-executivedirector.Themembersare:

ETBBlight(Chairman)MSRylandsDDMokgatleRCAndersenJMoses

Thechiefexecutiveofficer,financialdirectorandexternalauditorsareinvitedtoattendthecommitteemeetings.Theexternalauditorsattendseparatemeetingswiththecommittee,withoutexecutivemanagementpresent.Theheadofinternalauditattendsallcommitteemeetingsandisalsoinvitedtoattendseparatemeetingswiththecommittee.Internalauditoperatesintermsofacharterapprovedbytheauditcommittee.

Internal auditInternalAuditisanindependentassurancefunctionthatassiststheauditcommitteeinfulfillingit’srequirements.ThereportinglinesaredisclosedintheCorporateGovernancesectionoftheIntegratedReport.Theheadofinternalaudithasadirectreportinglinetothechairmanofthecommittee.

External auditTheGroup’sexternalauditorsareKPMGInc.andPKF(Jhb)Inc.FeespaidforauditandotherservicesareapprovedbytheCommittee.

Key functions of the committeeThekeyfunctionsofthecommitteeassetoutinthecharterareto:

• assisttheboardofdirectorswithitsevaluationoftheadequacyandefficiencyoftheinternalcontrolsystems,accountingpractices,informationsystemsandauditingprocessesappliedwithintheGroupinthedaytodaymanagementofitsbusiness

• facilitateandpromotecommunicationbetweentheboard,management,theexternalauditorsandtheheadofinternalaudit

• introducemeasuresthatmayservetoenhancethecredibilityandobjectivityoffinancialstatementsandreportspreparedwithreferencetotheaffairsoftheGroup

• nominateindependentauditorsfortheGroup

• authorisetheauditfeesintermsoftheauditengagement

• ensurethattheappointmentoftheauditorscomplieswiththeCompaniesAct

• determinethenatureandextentofthenon-auditservices

• fulfilregulatoryrequirementsasrequiredbytheBanksActandBankingRegulations

• performanyotherfunctionsasmaybeprescribed,and

• monitorandreportontheeffectivenessoftheGroup’sinternalcontrols.

Specific functionsFinancial control, accounting and reporting • Monitoringtheadequacyandreliabilityofmanagementinformationandtheefficiencyofthemanagementinformationsystems

• DelegatingtotheGroupITcommitteethemonitoringoftheadequacyofandefficiencyoftheGroup’sinformationsystems

• Satisfyingitselfoftheexpertise,resourcesandexperienceofthefinancefunction

• Reviewinginterimandfinalfinancialresultsstatements,andreportingforproperandcompletedisclosureoftimely,reliable and consistent information

• Evaluatingonanongoingbasistheappropriateness,adequacyandefficiencyofaccountingpoliciesandprocedures,compliancewithgenerallyacceptedaccountingpracticeandoverallaccountingstandardsandchangesthereto

• Discussingandresolvinganysignificantorunusualaccountingissues

• ReviewingandmonitoringcapitalexpenditureoftheGroupforadequatecontrol,monitoringandreporting

• ReviewingreportsfromtheGroupCreditandInvesmentReviewcommitteeregardingtheeffectivenessandefficiencyofthecredit monitoring process

• Reviewingandmonitoringtheeffectivenessandefficiencyofmanagementandreportingoftax-relatedmatters

• Reviewingandmonitoringallkeyperformanceindicatorstoensuretheappropriatedecision-makingcapabilitiesaremaintained,and

• ReportingannuallytotheboardontheeffectivenessoftheGroup’sinternalcontrolsoverfinancialreporting.

68


Internal audit • Theheadofinternalaudithasadirectreportinglinetothechairmanofthecommittee

• Approvingoftheinternalauditplan

• Monitoringtheeffectivenessoftheinternalauditfunction

• Monitoringandchallengingmanagementwithregardtoadverseauditfindings,and

• Formingaviewontheadequacyandeffectivenessofthecontrolenvironment.

External audit • Recommendingtotheboardtheselectionofexternalauditorsandapprovaloftheirfees

• Approvingoftheexternalauditors’plan,and

• Monitoringtheeffectivenessoftheexternalauditorsintermsofskill,independence,executionoftheauditplan,reporting andoverallperformance.

Regulatory reporting • Reviewingtheadequacyoftheregulatoryreportingprocess,and

• PerformingfunctionsintermsoftheBanksActasencapsulatedinsection64.

Theauditcommitteecanconfirmthat:

• theinternalcontrolshavebeeneffectiveinallmaterialaspectsthroughouttheyearunderreview;

• controlshaveensuredthattheGroup’sassetsareadequatelysafeguarded

• properaccountingrecordshavebeenmaintained

• resourceshavebeenutilisedefficiently,and

• theskills,independence,auditplan,reportingandoverallperformanceoftheexternalauditorsareacceptableanditrecommendstheirnextappointmentin2012.

Companies ActIntermsoftheCompaniesAct,thecommitteeisresponsibleforallsubsidiarieswithouttheirownauditcommittee, whichinclude:

• reviewingtheformalisedprocesstoperformfunctionsonbehalfofsubsidiaries,and

• ratifyingannuallythelistofsubsidiariesforwhichitisresponsible.

Appropriateness of the expertise and experience of the Group financial directorIntermsoftheJSEListingsRequirements,theauditcommitteehad,atitsmeetingheldon31August2011,satisfieditselfastotheappropriatenessoftheexpertiseandskillsoftheGroupfinancialdirector.

Annual financial statementsThe committee has:

• reviewedanddiscussedtheauditedfinancialstatementsincludedintheintegratedreportwiththeexternalauditors,thechiefexecutiveofficer and the financial director

• reviewedtheexternalauditors’managementletterandmanagement’sresponsethereto

• reviewedsignificantadjustmentsresultingfromexternalauditqueriesandacceptedanyunadjustedauditdifferences,and

• receivedandconsideredreportsfromtheinternalauditors.

Thecommitteeconcurswithandacceptstheexternalauditors’reportontheannualfinancialstatementsandhasrecommendedtheapprovalthereoftotheboard.Theboardhassubsequentlyapprovedthefinancialstatements,whichwillbeopenfordiscussionattheforthcomingannualgeneralmeeting.

ETB BlightChairman–GroupAuditandCompliancecommittee

8September2011

69


Nature of businessTheCompany isabank-controllingcompany listedunderthe“Financials:SpecialityandOtherFinance”sectoroftheJSE,whosesubsidiariesprovide awiderangeofcomplementarybanking,financialandrelatedservicestoitstargetmarketofentrepreneurialcommercial,corporateandprivateclients.

Financial resultsTheresultsoftheCompanyandtheGrouparesetoutintheannualfinancialstatementsandaccompanyingnotes.

DirectorsThedirectorsoftheCompanyare:

Non-executive directorsCNAxten* Chairman ETBBlight* DDMokgatle* GCDunnington* JMoses* RCAndersen* MSRylands

*Independent

Executive directorsRDEBSassoon ChiefExecutiveOfficerTDSoondarjee FinancialDirectorMSegal

Directorate and changes to the boardTyroneSoondarjeewasappointedanexcecutivedirectoroftheCompanyandtheBank,witheffectfrom1October2010.

MartinGlattretiredasnon-executivechairmananddirectoroftheCompanyandtheBank,witheffectfrom26November2010.

NormanAxtenwasappointedasnon-executivechairmanoftheCompanyandtheBank,witheffect26November2010.

JohnMosesandRoyAndersenwereappointedasnon-executivedirectorsoftheCompanyandtheBank,witheffectfrom14February2011 and25February2011respectively.

MauriusSmithretiredasnon-executivedirectoroftheCompanyandtheBankwitheffectfrom31March2011.

MalcolmSegalwillretireasexecutivedirectoroftheCompanyandtheBankwitheffectfrom31October2011.Malcolmwill,however, remainontheboardsoftheCompanyandtheBankasanon-executivedirector.

Company secretaryHowardBrownwasappointedasGroupcompanysecretarywitheffectfrom24August2011,followingtheresignationofMrsHannetjieBoshoff ascompanysecretaryduetoanextendedperiodofillness.Hisbusinessandpostaladdressareshownonpage169.

directors’ report70


Share capitalOrdinary share capitalAuthorisedsharecapitalincreasedto100000000ordinaryshareof1centeach(2010:40000000).

Preference share capitalTherewerenochangestotheauthorisedandissuedpreferencesharecapital.

Analysis of shareholdersTheanalysisofordinaryandpreferenceshareholdersisgivenonpages156–159.

Subsidiaries, special purpose entities, associated and joint venture companiesThe interests insubsidiaries, specialpurposeentities,associatedand jointventurecompanies thatwereconsideredmaterial to theGroup’sfinancialpositionandresults,aresetoutinnote38onpage140.

TheinterestoftheCompanyintheaggregatenetincomeandlossesaftertaxation(beforeinter-groupdividends)ofsubsidiaries,specialpurposeentities,associatedandjointventurecompaniesis:

2011R’000

2010R’000

Netincome 105 095 122 538

Netlosses 7 082 2 964

Special resolutions passed SpecialresolutionspassedaredisclosedinPart3Shareholders’Informationoftheintegratedreport.

Post-balance sheet eventsSubsequentto30June2011,theGroupacquireda42,9%interest in IQuadGroupLimited, forR30948824. IQuadisadiversifiedgroupofspecialistfinancialandbusinessservicescompanieslistedontheAltxoftheJSE.TheobjectiveofthisacquisitionistobroadenandexpandtheGroup’scommercialactivitiesandconsolidatetheseservicesintoaunifiedstructureandleverageoffitsexpandedclientbase.

Dividends Ordinary share dividends On11October2010,afinalordinarydividendof87centspersharewaspaidtoordinaryshareholders.On4April2011,aninterimordinarydividendof49centspersharewaspaidtoordinaryshareholders.

Preference share dividends On4October2010,adividendof380,55centspersharewaspaidtopreferenceshareholders.On28March2011,adividendof362,05centspersharewaspaidtopreferenceshareholders.

71


directors’ report > > continued

Directors’ interestsAtthefinancialyear-end,thedirectorsindirectlyheld,interestsintheCompany’sissuedordinarysharecapitalasreflectedbelow:

2011 2010Indirect

beneficialnumber

Totalnumber

Indirectbeneficial

numberTotal

number

MBGlatt 2 900 577 2 900 577

RDEBSassoon 12 459 332 12 459 332 12 459 332 12 459 332

MSegal 100 000 100 000 86 400 86 400

MSRylands 263 352 263 352 263 352 263 352

12 822 684 12 822 684 15 709 661 15 709 661

Atthefinancialyear-end,thedirectorsindirectlyheld,interestsintheCompany’snon-redeemable,non-cumulative,non-participatingpreferenceshares:

2011 2010Indirect

non-beneficialnumber

Totalnumber

Indirectnon-beneficial

numberTotal

number

MBGlatt 10 000 10 000

Therehavebeennochangestotheaboveholdingssincetheyearendtothedateofthisreport.

MSegalhasoptionsover50000ordinarysharesatastrikepriceof3325cents,vestingin2012.

Detailsofshareoptionsheldbyexecutivedirectorsaregivenonpage141.

Refertonote35–Relatedpartytransactions–forfurtherdisclosureoftransactionswithkeymanagementpersonnel.

Directors’ emolumentsTheemolumentsofthedirectorsoftheCompanyfortheyearended30June2011areasfollows:

Services asdirectors

R

Cashpackage *

R

Otherbenefits **

R

Incentivebonus ***

R

Total2011

R

Executive directors

RDEBSassoon – 2 407 084 311 260 850 000 3 568 344

MSegal – 2 084 864 373 144 700 000 3 158 008

TDSoondarjee**** – 1 524 725 328 851 500 000 2 353 576

Non-executive directors

MBGlatt 257 800 – – – 257 800

MSRylands 357 338 – – – 357 338

Independent non-executive directors

CNAxten 409 843 – – – 409 843

RCAndersen 56 919 – – – 56 919

ETBBlight 422 150 – – – 422 150

GCDunnington 276 550 – – – 276 550

DDMokgatle 257 800 – – – 257 800

JMoses 102 700 – – – 102 700

MLSmith 122 175 – – – 122 175

2 263 275 6 016 673 1 013 255 2 050 000 11 343 203

72


TheemolumentsofthedirectorsoftheCompanyfortheyearended30June2010wereasfollows:

Services asdirectors

R

Cashpackage *

R

Otherbenefits **

R

Incentivebonus ***

R

Total2010

R

Executive directors

RDEBSassoon – 2 093 333 428 574 1 668 389 4 190 296

MSegal – 1 935 125 485 844 1 000 000 3 420 969

Non-executive directors

MBGlatt 479 600 – – – 479 600

MSRylands 305 550 – – – 305 550

Independent non-executive directors

CNAxten 285 041 – – – 285 041

ETBBlight 385 450 – – – 385 450

MLSmith 151 500 – – – 151 500

DDMokgatle 239 800 – – – 239 800

GCDunnington***** 58 400 – – – 58 400

1 905 341 4 028 458 914 418 2 668 389 9 516 606

* TheemolumentsoftheexecutivedirectorsarepaidbysubsidiariesoftheCompany.** Otherbenefitscomprise:providentfund,medicalaid,Grouplife,Companycarandequitysettledshareoptions.*** Theincentivebonusespaidrelatetoperformancesinthepriorfinancialyear. **** TDSoondarjee’sannualsalaryisreflected,althoughtheappointmentasfinancialdirectorwaseffective1October2010. *****GCDunningtonwasappointedasanon-executivedirectoreffective25February2010.

Remunerationdetailsoftheprescribedofficersisdisclosedinnote31ofthefinancialstatements.InformationonoptionsgrantedtoemployeesandexecutivedirectorsundertheGroupshareappreciationschemeisgivenonpage142.

TD SoondarjeeGroupFinancialDirector

8September2011

73


consolidated statement of financial position

Notes

2011R’000

2010R’000

AssetsCashandcashbalances 3 805 233 533 447

Short-termnegotiablesecurities 4 72 405 58 000

Loansandadvancestocustomers 5 2 332 986 1 902 500

Otherreceivables 6 370 925 292 989

Investmentsecurities 7 405 176 396 017

Investmentinassociatedcompanies 8 77 932 65 334

Property,plantandequipment 9 175 379 184 406

Investmentproperty 10 51 038 51 038

Taxation 4 534 2 928

Intangibleassetsandgoodwill 11 69 244 55 217

Deferredtaxasset 12 8 412 9 646

Total assets 4 373 264 3 551 522

LiabilitiesInterbankfunding 13 60 453 52 094

Depositsfromcustomers 14 1 215 446 911 559

Long-termfunding 15 242 897 182 450

Otherpayables 16 374 922 338 187

Debtsecuritiesissued 17 1 297 614 924 436

Taxation 9 246 9 784

Deferredtaxliability 12 63 815 69 112

Total liabilities 3 264 393 2 487 622

EquityOrdinarysharecapital 18 322 321

Ordinarysharepremium 19 162 410 161 020

Reserves 730 425 686 848

Preference share capital 20 19 19

Preferencesharepremium 21 199 259 199 259

Total equity attributable to equity holders of the parent 1 092 435 1 047 467

Non-controllinginterest 16 436 16 433

Total equity 1 108 871 1 063 900

Total liabilities and equity 4 373 264 3 551 522

Commitmentsandcontingentliabilities 22 67 711 61 283

At30June2011

74


consolidated income statement

Notes

2011R’000

2010R’000

Interestincome 27 359 256 352 052

Interestexpense 28 168 676 172 448


Non-interestincome 29 420 218 446 134

Total income 610 798 625 738

Impairmentchargesonloansandadvances 30 37 712 27 552

Net income after impairments 573 086 598 186

Operatingcosts 451 277 436 393

Staffcosts 31.1 199 259 185 883

Otheroperatingexpenses 31.3 252 018 250 510

Profit from operations 121 809 161 793

Shareofassociatedcompanies’income 12 205 8 093

Profit before income tax 134 014 169 886

Incometaxexpense 32 20 161 30 590

Profit for the year 113 853 139 296

Profit attributable to:


Preference shareholders 14 147 16 947

Equityholdersoftheparent 98 013 119 574


Weightedaveragenumberofsharesinissue(‘000) 32 224 30 203

Earningsperordinaryshare(cents) 33.4 304 396

Dilutedearningsperordinaryshare(cents) 33.6 304 396

consolidated statement of comprehensive incomeFortheyearended30June2011


Other comprehensive (loss)/income for the year, net of income tax (10 396) 625

Foreign currency translation reserve (25 163) (853)

Net gains on remeasurement of available-for-sale financial assets 335 198

Gainsonremeasurementofavailable-for-salefinancialassets 575 230

Incometaxeffect (129) (32)

Non-controllinginterest (111) –

Net gain on hedge of net investment in foreign operation 14 432 1 280

Gain on hedge of net investment in foreign operation 20 044 1 778

Incometaxeffect (5 612) (498)

Total comprehensive income for the year 103 457 139 921

Attributable to:



Equityholdersoftheparent 87 506 120 199


Fortheyearended30June2011

75


consolidated statement of changes in equity

All figures in R’000

Ordinaryshare

capitaland

premiumR’000

Distri-butable

reservesR’000

Share-based

paymentreserve

R’000

Foreign currency

trans-lation

reserveR’000

Hedgingreserve

R’000

Available-for-salereserve

R’000

Propertyvaluation

reserveR’000

Totalordinary

share-holders’

equityR’000

Preferenceshare

capitaland

premiumR’000

Non-controlling

interestR’000

Total share-

holders’equityR’000

Balance at 30 June 2009 43 476 663 198 995 (38 677) – 2 212 2 097 673 301 199 278 58 155 930 734

Total comprehensive income for the year – 136 521 – (853) 1 280 198 – 137 146 – 2 775 139 921

Profit for the year – 136 521 – – – – – 136 521 – 2 775 139 296

Other comprehensive income/(loss) net of income tax for the year – – – (853) 1 280 198 – 625 – – 625

Foreigncurrencytranslationreserve – – – (853) – – – (853) – – (853)

Gainonremeasurementofavailable-for-salefinancial assets – – – – – 198 – 198 – – 198

Gain on hedge of net investment in foreign operation – – – – 1 280 – – 1 280 – – 1 280

Transactions with owners recorded directly in equity

Issueofshares 117 865 – – – – – – 117 865 – – 117 865

Changeinnon-controllinginterest – (8 319) – 1 686 – – – (6 633) – (40 518) (47 151)

Share-basedpaymentsreservemovements – – (411) – – – – (411) – – (411)

Dividendstopreferenceshareholders – (16 947) – – – – – (16 947) – – (16 947)

Dividendstoordinaryshareholders – (56 132) – – – – – (56 132) – (3 979) (60 111)

Balance at 30 June 2010 161 341 718 321 584 (37 844) 1 280 2 410 2 097 848 189 199 278 16 433 1 063 900

Balanceat30June2010 161 341 718 321 584 (37 844) 1 280 2 410 2 097 848 189 199 278 16 433 1 063 900

Total comprehensive income for the year – 112 160 – (25 163) 14 432 446 – 101 875 – 1 582 103 457

Profit for the year – 112 160 – – – – – 112 160 – 1 693 113 853

Other comprehensive (loss)/income net of income tax for the year – – – (25 163) 14 432 446 – (10 285) – (111) (10 396)

Foreigncurrencytranslationreserve – – – (25 163) – – – (25 163) – – (25 163)

Gainonremeasurementofavailable-for-salefinancial assets – – – – – 446 – 446 – (111) 335

Gain on hedge of net investment in foreign operation – – – – 14 432 – – 14 432 – – 14 432

Transactions with owners recorded directly in

equity

Issueofshares 1 391 – – – – – – 1 391 – – 1 391

Share-basedpaymentsreservemovements – – (221) – – – – (221) – – (221)

Dividendstopreferenceshareholders – (14 147) – – – – – (14 147) – – (14 147)

Dividendstoordinaryshareholders – (43 930) – – – – – (43 930) – (1 579) (45 509)

Balance at 30 June 2011 162 732 772 404 363 (63 007) 15 712 2 856 2 097 893 157 199 278 16 436 1 108 871

Share-based payment reserve Thisrepresentsthefairvalueofequity-settledoptionsgrantedintermsoftheGroup’sshare-basedcompensationplans.

Foreign currency translation reserveThetranslationreservecomprisesallforeignexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignoperationsaswellasfromthetranslationofliabilitiesthathedgetheBank’snetinvestmentinforeignoperations.

Hedging reserve Thisrepresentsthefairvaluegainonthenetinvestmenthedge,refertonote37.7.

Available-for-sale reserve Thefairvaluereserveincludesthecumulativenetchangeinthefairvalueofavailable-for-saleinvestmentsuntiltheinvestmentisderecognisedorimpaired.

Property revaluation reserveThisrevaluationreservearoseonthetransferofowner-occupiedpropertytoinvestmentproperty.

Dividends ThefollowingdividendsweredeclaredbytheGrouprelatingtoprofitfortheyearunderreview:• 118centsperordinaryshare(2010:133cents) • 697centsperpreferenceshare(2010:782cents)

After30June2011,thefollowingdividendswereproposedbythedirectorsinrespectof2011.Thedividendshavenotbeenprovidedforandwillattractsecondarytaxoncompaniesat10%whenpaid:• 69centsperordinaryshare(2010:87centsperordinaryshare) • 334,73centsperpreferenceshare(2010:380,55centsperpreferenceshare)


76


consolidated cash flow statements


Notes2011

R’0002010

R’000

Cash flows from operating activities

Cashreceiptsfromcustomers 34.1 741 860 726 091

Cashpaidtocustomers,employeesandsuppliers 34.1 (605 147) (587 045)

Cash inflow from operating activities 34.1 136 713 139 046

Dividendsreceived 9 052 30 272

Taxationpaid 34.2 (26 368) (6 970)

Dividendspaid 34.3 (58 077) (73 079)

Cash flows from operating activities before changes in operating assets and liabilities 61 320 89 269

Changes in operating assets and liabilities (200 395) (14 299)

Changeinloansandadvances (468 198) (128 567)

Changeinotherreceivables (71 728) 21 513

Changeindeposits 303 887 30 179

Changeinotherpayables 35 644 62 576

Net cash (outflows)/inflows from operating activities (139 075) 74 970

Cash flows from investing activities (30 628) (160 444)

Proceedsfromthedisposalofproperty,plantandequipment 970 392

Acquisitionofproperty,plantandequipment (5 786) (14 915)

Additionstoinvestmentproperty – (5 807)

Acquisitionofintangibleassetsandgoodwill (16 096) (22 793)

Proceedsfromdisposalininvestmentsecurities 2 882 (108 694)

Increaseininvestmentinassociatedcompanies (12 598) (8 627)

Net cash flows from financing activities 435 019 217 613

Issueofshares 1 391 117 865

Proceedsfromissueofdebtsecurities 704 376 478 219

Repaymentofdebtsecurities (331 198) (427 518)

Proceedsfromlong-termfunding 60 447 82 450

Changeinnon-controllinginterest 3 (33 403)

Net increase in cash and cash equivalents 265 316 132 139

Cashandcashequivalentsatbeginningoftheyear 539 353 403 583

Effectofexchangeratefluctuationsoncashheld 12 516 3 631

Cash and cash equivalents at end of the year 34.4 817 185 539 353

77


notes to the annual financial statements

1. Accounting policiesTheCompanyisacompanydomiciledinSouthAfrica.TheconsolidatedannualfinancialstatementsoftheCompanyfortheyearended30June2011comprisetheCompanyanditssubsidiaries,togetherreferredtoasthe“Group”,andtheGroup’sinterestinassociatesandjointlycontrolledentities.TheGroupisprimarilyinvolvedinfinancialservices.

Theprincipalaccountingpoliciesadoptedinthepreparationoftheconsolidatedandseparatefinancialstatementsaresetoutbelow.

1.1 Statement of complianceThefinancialstatementsarepreparedinaccordancewith,andcomplywithIFRSasissuedbytheInternationalAccountingStandardsBoard (IASB), theAC500standards issuedbytheAccountingPracticesBoardandtherequirementsof theSouthAfricanCompanies ActNo71.Thefinancialstatementsarepreparedinaccordancewiththegoing-concernprincipleunderthehistoricalcostbasisexceptforthefollowingwhicharemeasuredatfairvalue:

• Available-for-salefinancialassets

• Investmentproperty

• Derivativefinancialinstruments

Thesearediscussedindetailbelow.

1.2 Basis of preparationTheaccountingpoliciesareconsistentwiththoseappliedinthepreviousyear,withtheexceptionoftheearlyadoptionofIAS12,prioryearnumberswerenotrestatedasthevaluewasnotmaterial.

ThefinancialstatementsarepresentedinSouthAfricanrands,whichisSasfinHoldingsLimited’sfunctionalcurrency,roundedtothenearestthousand,andwereapprovedbytheboardofdirectorson8 September2011.

ThepreparationoffinancialstatementsinconformitywithIFRSrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofpoliciesandreportedamountsofassetsandliabilities,incomeandexpenses.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandvariousotherfactorsandarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmakingthejudgementsaboutcarryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimates.

Theestimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.(Refertonote2.)

1.3 Basis of consolidation1.3.1 Subsidiaries

SubsidiariesarethoseentitiesoverwhosefinancialandoperatingpoliciestheGrouphasthepowertoexercisecontrol,soastoobtainbenefitsfromtheiractivities.Inassessingcontrol,potentialvotingrightsthatpresentlyareexercisableorconvertiblearetakenintoaccount.

TheGroupfinancialstatementsincorporatetheassets,liabilitiesandresultsoftheCompanyanditssubsidiaries.Theresultsofthesubsidiariesareincludedfromtheeffectivedatethatcontrolcommencesuntilcontrolceases.

SpecialpurposeentitiesSpecialpurposeentitiesareentitiesthatarecreatedtoaccomplishanarrowandwell-definedobjectivesuchasthesecuritisationofparticularassets,ortheexecutionofaspecificborrowingorlendingtransaction.Aspecialpurposeentityisconsolidatedif,basedonanevaluationofthesubstanceofitsrelationshipwiththeGroupandthespecialpurposeentity’srisksandrewards,theGroupconcludesthatitcontrolsthespecialpurposeentity.Thefollowingcircumstancesmayindicatearelationshipinwhich,insubstance,theGroupcontrolsandconsequentlyconsolidatesaspecialpurposeentity:

• TheactivitiesofthespecialpurposeentityarebeingconductedonbehalfoftheGroupaccordingtoitsspecificbusinessneedssothattheGroupobtainsbenefitsfromthespecialpurposeentity’soperation.

• TheGrouphasthedecision-makingpowerstoobtainthemajorityofthebenefitsoftheactivitiesofthespecialpurposeentityor,bysettingupan‘autopilot’mechanism,theGrouphasdelegatedthesedecision-makingpowers.

• TheGrouphasrightstoobtainthemajorityofthebenefitsofthespecialpurposeentityandthereforemaybeexposedtorisksincidentaltotheactivitiesofthespecialpurposeentity.

• TheGroupretainsthemajorityoftheresidualownershiprisksrelatedtothespecialpurposeentityoritsassetsinordertoobtainbenefitsfromitsactivities.


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1. Accounting policies >>continued1.3 Basis of consolidation >>continued

1.3.1 Subsidiaries >>continuedTheassessmentofwhether theGrouphascontrolovera specialpurposeentity iscarriedoutat inceptionandnormallynofurtherreassessmentofcontroliscarriedoutintheabsenceofchangesinthestructureortermsofthespecialpurposeentity,oradditionaltransactionsbetweentheGroupandthespecialpurposeentity.Day-to-daychangesinmarketconditionsnormallydonot leadtoareassessmentofcontrol.However,sometimeschanges inmarketconditionsmayalterthesubstanceoftherelationshipbetweentheGroupandthespecialpurposeentityandinsuchinstancestheGroupdetermineswhetherthechangewarrantsareassessmentofcontrolbasedonthespecificfactsandcircumstances.WheretheGroup’svoluntaryactions,suchaslendingamountsinexcessofexistingliquidityfacilitiesorextendingtermsbeyondthoseestablishedoriginally,changetherelationshipbetweentheGroupandthespecialpurposeentity,theGroupperformsareassessmentofcontroloverthespecialpurposeentity.

Intheseparatefinancialstatements,investmentsinsubsidiariesarecarriedatcostlessimpairment.

1.3.2 AssociatesAnassociateisanentityoverwhichtheGrouphassignificantinfluencebutnotcontroloverthefinancialandoperatingactivities.Investments inassociatedcompaniesareequityaccounted in theGroupfinancial statements, fromthedate that significantinfluencecommencesuntilsignificantinfluenceceases.EquityaccountedincomerepresentstheGroup’sproportionateshareofprofitsorlossesoftheseentities.TheGroup’sinvestmentinanassociateiswrittendownwhenitisconsideredtobeimpaired.WhentheGroup’sshareoflossesexceedsthecarryingamountoftheassociate,thecarryingamountisreducedtonil(inclusiveofdebtoutstanding) and recognitionof further losses isdiscontinuedexcept to theextent that theGrouphasguaranteedobligationsinrespectoftheassociate.Goodwillisincludedintheinvestmentbalance.

Intheseparatefinancialstatements,investmentsinassociatesarecarriedatcostlessimpairment.

1.3.3 Joint venturesAjointventureisanentitycontrolledjointlybytheGroupandoneormoreotherventurersintermsofacontractualarrangement.InvestmentsinjointventuresareproportionatelyconsolidatedintheGroupfinancialstatements,fromthedatethatjointcontrolcommencesuntilthedatethatjointcontrolceases.

Intheseparatefinancialstatements,investmentsinjointventuresarecarriedatcostlessimpairment.

1.3.4 Transactions with non-controlling shareholdersTheGroupappliesapolicyoftreatingtransactionswithnon-controllingshareholdersthatdonotresult inthegainorlossofcontrol,astransactionswithequityownersoftheGroup,andtheseareaccountedfordirectly inequity.Lossesapplicabletonon-controllableinterestinasubsidiaryarealloactedtothenon-controllinginterestsevenifdoingsocausesthenon-controllingintereststohaveadeficitbalance.

1.3.5 Transactions eliminated on consolidationIntergroupbalances and any unrealised gains and losses or income and expenses arising from intergroup transactions, areeliminated inpreparingtheconsolidatedfinancialstatements.UnrealisedgainsarisingfromtransactionswithassociatesandjointlycontrolledentitiesareeliminatedtotheextentoftheGroup’sinterestintheentity.Unrealisedlossesareeliminatedinthesamewayasunrealisedgains,butonlytotheextentthereisnoevidenceofimpairment.

1.4 Intangible assets1.4.1 Goodwill

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. Goodwill ismeasured at cost lessaccumulatedimpairmentlosses.Referto1.24fortheinitialmeasurementofgoodwill.

Acquisitionsofnon-controllinginterestsAcquisitionsofnon-controllinginterestsareaccountedforastransactionswithequityholdersintheircapacityasequityholdersandthereforenogoodwillisrecognisedasaresultofsuchtransactions.

SubsequentmeasurementGoodwillismeasuredatcostlessaccumulatedimpairmentlosses.

1.4.2 Software developmentExpenditureoninternallydevelopedsoftwareisrecognisedasanassetwhentheGroupisabletodemonstrateitsintentionandabilitytocompletethedevelopmentandusethesoftwareinamannerthatwillgeneratefutureeconomicbenefits,andcanreliablymeasurethecoststocompletethedevelopment.

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1. Accounting policies >>continued1.4 Intangible assets >>continued

1.4.2 Software development >>continuedDirectsoftwaredevelopmentcoststhatareclearlyassociatedwithanidentifiableanduniquesystem,whichwillbecontrolledbytheGroupandhaveaprobableeconomicbenefitexceedingoneyear,arerecognisedasintangibleassets.Directcostsincludesoftwaredevelopment,employeecostsandanappropriateportionofoverheads.Subsequentexpenditureiscapitalisedonlywhenitincreasesfutureeconomicbenefitsembodiedintheasset.

Directsoftwaredevelopmentcostsrecognisedasintangibleassetsareamortisedonthestraight-linebasisovertheexpectedusefullivesoftheassets,beingbetweentwoandfiveyearsfromthedatethatitisavailableforuse.Amortisationisrecognisedinprofitorlossfortheperiod.Capitalisedcomputersoftwareiscarriedatcostlessaccumulatedamortisationandlessaccumulatedimpairmentlosses.Computersoftwareistestedannuallyforimpairment.

Amortisationmethods,usefullivesandresidualvaluesarereviewedateachfinancialyearendandadjustedaccordingly.

1.5 Financial instrumentsFinancial instruments,as reflectedonthestatementoffinancialposition, includeallfinancialassetsandfinancial liabilities, includingderivative instruments, but exclude investments in subsidiaries, associated companies and joint ventures. Financial instruments areaccountedforintermsoftheprinciplesofIAS32FinancialInstruments:PresentationandIAS39FinancialInstruments:RecognitionandMeasurement.

Initial recognitionFinancial instruments are recognised on the statement of financial positionwhen theGroup or Company becomes a party to thecontractualprovisionsofafinancialinstrument.Allpurchasesoffinancialassetsthatrequiredeliverywithinthetimeframeestablishedbyregulationormarketconvention (‘regularway’purchases)are recognisedat tradedate,which is thedateonwhichtheGrouporCompanycommitstothepurchaseoftheasset.Financialliabilitiesarerecognisedontradedate,whichiswhentheGrouporCompanybecomesapartytothecontractualprovisionsofthefinancialinstrument.

Initial measurementFinancial instruments are initially recognised at fair value, plus, in the case of a financial asset or financial liability not at fair valuethroughprofitorloss,transactioncoststhatareincrementalanddirectlyattributabletotheacquisitionorissueofthefinancialassetor financialliability.

Subsequent measurementSubsequent to initial measurement, financial instruments are eithermeasured at fair value or amortised cost, depending on theirclassification:

FinancialassetsandfinancialliabilitiesatfairvaluethroughprofitorlossFinancial instruments at fair value throughprofit or loss consist of held for trading instruments and instruments that theGrouporCompanyhaveelected,oninitialrecognition,todesignateatfairvaluethroughprofitorloss.(Seenote7).

TheGrouphasdesignatedfinancialassetsandliabilitiesatfairvaluethroughprofitorlossinthefollowingcircumstances:

• Theassetsorliabilitiesaremanaged,evaluatedandreportedinternallyonafairvaluebasis.

• Thedesignationeliminatesorsignificantlyreducesanaccountingmismatchwhichwouldotherwisearise.

• Theassetorliabilitycontainsanembeddedderivativethatsignificantlymodifiesthecashflowsthatwouldotherwiseberequiredunderthecontract.

Financial assetsandfinancial liabilitiesat fair value throughprofitor lossaremeasuredat fair value,with fair-valuegainsand losses(excludingimpairmentlosses, interest incomeandinterestexpensecalculatedontheamortised-costbasisrelatingtothoseinterest-bearinginstrumentsthathavebeendesignatedasatfairvaluethroughprofitorloss)reportedinnon-interestincomeastheyarise.

Non-tradingfinancialliabilitiesAllfinancialliabilities,otherthanthoseatfairvaluethroughprofitorloss,areclassifiedasnon-tradingfinancialliabilitiesandaremeasuredatamortisedcostusingtheeffectiveinterestmethod.

TheGrouphasthreesourcesofdebtfunding:

• AfacilityofR60millionutilisedfortheCapitalEquimentFinancebusinessunit,and

• Amortgageloanontheowner-occupiedpropertyofR100million,and

• AsubordinatedloanfromtheInternationalFinanceCorporationofR82,45million.

Seenote15formoredetails.

notes to the annual financial statements > > continued


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1. Accounting policies >>continued1.5 Financial instruments>>continued

Held-to-maturityfinancialassetsHeld-to-maturityfinancialassetsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturity that theGrouporCompanyhastheintentandabilitytoholdtomaturity,otherthanthosethatmeetthedefinitionofloansandreceivablesorthosethatweredesignatedasatfairvaluethroughprofitorlossoravailable-for-sale.Held-to-maturityfinancialassetsaremeasuredatamortisedcostusingtheeffectiveinterestmethod,withinterestincomeandimpairmentlossesrecognisedintheincomestatement.

Anysaleorreclassificationofmorethananinsignificantamountofheld-to-maturityinvestmentsnotclosetothatmaturitywouldresultinthereclassificationofallheld-to-maturityinvestmentsasavailable-for-sale,andpreventtheGroupfromclassifyingfinancialassetsasheld-to-maturityforthecurrentandfollowingtwofinancialyears.

LoansandreceivablesLoansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket,otherthanthoseclassifiedasatfairvaluethroughprofitorlossoravailable-for-sale.Financialassetsclassifiedasloansandreceivablesarecarriedatamortisedcostusingtheeffectiveinterestmethod,withinterestincomeandimpairmentlossesrecognisedinprofitorloss.Themajorityofadvancesareincludedintheloansandreceivablescategory.

Available-for-salefinancialassetsFinancialassetsareclassifiedasavailable-for-sale, ifdesignatedassuch,orwheretheintentionwithregardtotheinstrumentanditsoriginationanddesignationdoesnotfallwithintheambitoftheotherfinancialassetclassifications.Available-for-saleinstrumentsaretypicallyassetsthatareheldforalongerperiodandinrespectofwhichshort-termfluctuationsinvaluedonotaffecttheGroup’sorCompany’sholdorselldecision.

Available-for-salefinancialassetsaremeasuredatfairvalue,withfair-valuegainsandlossesrecogniseddirectlyinothercomprehensiveincome and presentedwithin equity in the fair value reserve alongwith the associated deferred taxation.When an investment isderecognised,thecumulativegainorlossinothercomprehensiveincomeistransferredtoprofitorlossasareclassificationadjustment.Impairmentlosses,interestcalculatedontheeffectiveinterestmethod,foreignexchangegainsorlossesanddividendsarerecognisedinprofitor loss.Whenavailable-for-saleequity instrumentsaredeterminedtobeimpairedtotheextentthatthefairvaluedeclineisprolongedandsignificant,theresultantlossesarerecognisedinprofitorloss.

Measurement basis of financial instrumentsAmortisedcostAmortised-costfinancialassetsandfinancialliabilitiesaremeasuredattheamountdeterminedoninitialrecognition,minusprincipalrepaymentsplusorminusthecumulativeamortisationusingtheeffectiveinterestmethoddeterminedoninitialrecognitionandanydifferencebetweenthatinitialamountandthematurityamount,lessanycumulativeimpairmentlossesoruncollectability.

BorrowingsBorrowings are recognised initially at fair value, generally being their issue proceeds, net of directly attributable transaction costs incurred,andaresubsequentlystatedatamortisedcostandinterestisrecognisedovertheperiodoftheborrowingusingtheeffectiveinterestmethod.

Preferencesharesareclassifiedasequity.(Refertonote1.22.)

FairvalueFairvalueistheamountforwhichanassetcouldbeexchanged,oraliabilitysettled,betweenknowledgeable,willingpartiesinanarm’slengthtransaction.

Directandincrementaltransactioncostsareincludedintheinitialfairvalueoffinancialassetsandfinancialliabilities,otherthanthoseatfairvaluethroughprofitorloss.Thebestevidenceofthefairvalueofafinancialassetorfinancialliabilityatinitialrecognitionisthetransactionprice,unlessthefairvalueoftheinstrumentisevidencedbycomparisonwithothercurrentobservablemarkettransactionsinthesameinstrumentorbasedonavaluationtechniquewhosevariablesincludeonlymarketobservabledata.

Ifquotedbidpricesareunavailable,thefairvalueoffinancialassetsandfinancialliabilitiesisestimatedusingpricingmodelsordiscountedcashflowtechniques.Wherediscountedcashflowtechniquesareused,estimatedfuturecashflowsarebasedonmanagement’sbestestimatesandthediscountrateusedisamarket-relatedrateatthereportingdateforaninstrumentwithsimilartermsandconditions.Wherepricingmodelsareused,inputsarebasedonmarket-relatedmeasuresatthereportingdate.

Thefairvalueofafinancialliabilitywithademandfeatureisnotlessthantheamountpayableondemand,discountedfromthefirstdateonwhichtheamountcouldberequiredtobepaid.

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1. Accounting policies >>continued1.5 Financial instruments >>continued

Investmentsinequityinstrumentsthatdonothaveaquotedmarketpriceinanactivemarketandwhosefairvaluecannotbereliablymeasured,andderivativesthatarelinkedtoandhavetobesettledbydeliveryofsuchunquotedequityinstruments,arenotmeasuredatfairvaluebutatcostlessimpairmentlosses.Fairvalueisconsideredreliablymeasurableif:

• thevariabilityintherangeofreasonablefairvalueestimatesisnotsignificantforthatinstrument;or

• theprobabilitiesofthevariousestimateswithintherangecanbereasonablyassessedandusedinestimatingfairvalue.

DerecognitionAllfinancialassetsandfinancialliabilitiesarederecognisedontradedate,whichiswhentheGrouporCompanycommitstosellingafinancialassetorredeemingafinancialliability.

TheGrouporCompanyderecognisesafinancialassetwhenandonlywhen:

• thecontractualrightstothecashflowsarisingfromthefinancialassethaveexpiredorhavebeenforfeited;or

• ittransfersthefinancialasset,includingsubstantiallyalltherisksandrewardsofownershipoftheasset;or

• itneithertransfersnorretainssubstantiallyalltherisksandrewardsofownershipoftheasset,butnolongerretainscontrolof theasset.

Afinancialliabilityisderecognisedwhenandonlywhentheliabilityisextinguished,iewhentheobligationspecifiedinthecontractisdischarged,cancelledorhasexpired.

Thedifferencebetween the carrying amount of a financial asset or financial liability (or part thereof ) that is derecognised and theconsideration paid or received, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss for theperiod.

Offsetting financial instruments and related incomeFinancialassetsandliabilitiesareoffsetandthenetamountreportedinthestatementoffinancialpositiononlywhenthereisalegallyenforceablerighttosetoffandthereisanintentionofsettlingonanetbasisorrealisingtheassetandsettlingtheliabilitysimultaneously.Incomeandexpenseitemsareoffsetonlywhenpermittedbytheaccountingstandards,orforgainsandlossesarisingfromagroupofsimilartransactions.

1.6 Derivative financial instruments and hedge accountingAderivativeisafinancialinstrumentwhosevaluechangesinresponsetoanunderlyingvariable,requireslittleornoinitialnetinvestmentandissettledatafuturedate.Derivativesareinitiallyrecognisedatfairvalueonthedateonwhichthederivativesareenteredintoandsubsequentlyremeasuredatfairvalue.

Allderivativeinstrumentsarecarriedasassetswhenthefairvalueispositiveandasliabilitieswhenthefairvalueisnegative,subjecttooffsettingprinciples.(Refertonote1.5.)

Themethodofrecognisingfairvaluegainsorlossesdependsonwhetherderivativesareheldfortradingoraredesignatedashedginginstruments,andifso,thenatureofthehedgeditem.Allgainsandlossesfromchangesinthefairvalueofderivativesthatareclassifiedasheldfortradingarerecognisedinprofitorloss.Whenderivativesaredesignatedinahedgingrelationship,theGroupdesignatesthemas either:

• hedgesofthefairvalueofrecognisedfinancialassetsorliabilitiesorfirmcommitments(fairvaluehedge);

• hedgesofhighlyprobablefuturecashflowsattributabletoarecognisedassetorliability,aforecasttransaction,orahighlyprobableforecastintergrouptransactionintheconsolidatedfinancialstatements(cashflowhedge);or

• hedgesofanetinvestmentinaforeignoperation(netinvestmenthedge).

Hedgeaccountingisappliedtoderivativesdesignatedinthiswayprovidedthehedgingcriteriaaremet.TheGroupformallydocuments,at the inception of the hedging relationship, the relationship between hedged items and hedging instruments, as well as its riskmanagementobjectiveandstrategyforundertakingvarioushedgingrelationships.TheGroupalsodocumentsitsassessment,bothattheinceptionofthehedgeandonanongoingbasis,ofwhetherthederivativesthatareusedinhedgingrelationshipsarehighlyeffectiveinoffsettingchangesinfairvaluesorcashflowsofhedgeditemsduringtheperiodforwhichthehedgeisdesignated,andwhethertheresultsofthehedgearewithinarangeof80%–125%.TheGroupmakesanassessmentforacashflowhedgeofaforecasttransaction,astowhethertheforecasttransactionishighlyprobabletooccurandpresentsanexposuretovariationsincashflowsthatcouldultimatelyaffectprofitorloss.

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1. Accounting policies >>continued1.6 Derivative financial instruments and hedge accounting>>continued

1.6.1 Fair value hedgesWhere a hedging relationship is designated as a fair valuehedge, thehedged item is adjusted for the change in fair valuein respectof the riskbeinghedged.Gainsor losseson the remeasurementofboth thederivativeand thehedged itemarerecognisedimmediatelyinprofitorloss.Fairvalueadjustmentsrelatingtothehedginginstrumentareallocatedtothesameprofitorlosscategoryastherelatedhedgeditem.Anyineffectivenessisalsorecognisedinthesameprofitorlosscategoryastherelatedhedgeditem.

If the derivative expires, is sold, terminated, exercised, no longermeets the criteria for fair value hedge accounting, or thedesignation is revoked,hedgeaccounting isdiscontinuedprospectively.Anyadjustmentuptothatpoint, toahedged itemforwhichtheeffectiveinterestmethodisused,isamortisedtotheincomestatementaspartofthehedgeditem’srecalculatedeffectiveinterestrateovertheperiodtomaturity.

1.6.2 Cash flow hedgesTheeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesarerecognisedinother comprehensive incomeandpresented in the cashflowhedging reserve.The ineffectivepart of anygainor loss isrecognisedimmediatelyinprofitorloss.

Amounts accumulated inother comprehensive incomeare transferred toprofitor loss in theperiods inwhich thehedgedcashflowsaffectsprofitorlossasareclassificationadjustment.However,whentheforecasttransactionthatishedgedresultsintherecognitionofanon-financialassetoranon-financialliability,thecumulativegainsorlossespreviouslydeferredinothercomprehensiveincomearetransferredfromothercomprehensiveincomeandincludedintheinitialmeasurementofthecostoftheassetorliability.

Whenahedging instrumentexpiresor is sold,orwhenahedgeno longermeets thecriteria forhedgeaccounting,hedgeaccountingisprospectivelydiscontinuedandthecumulativegainsorlossesrecognisedinothercomprehensiveincomeremaininothercomprehensiveincomeuntiltheforecasttransactionisrecognisedinthecaseofanon-financialassetoranon-financialliability,oruntiltheforecasttransactionaffectsprofitorlossinthecaseofafinancialassetorafinancialliability.Iftheforecasttransaction is no longer expected to occur, the cumulative gains or losses recognised in other comprehensive income areimmediatelytransferredtoprofitorloss.

1.6.3 Net investment hedgesWhere considered appropriate, theGroup hedges net investments in foreign operations using derivative instruments in itsconsolidatedfinancialstatements.Forsuchhedges,thedesignatedcomponentofthehedginginstrumentthatrelatestotheeffectiveportionofthehedgeisrecogniseddirectlyinothercomprehensiveincomeintheforeigncurrencytranslationreserve.Anyineffectiveportionisimmediatelyrecognisedinprofitorloss.Onthepartialdisposalofaforeignoperation,aproportionateshareofthosedeferredgainsandlossesisrecogniseddirectlyinprofitorloss.Ondisposalofaforeignoperation,allremainingdeferredgainsandlossesarerecogniseddirectlyinprofitorloss.

1.6.4 Derivatives that do not qualify for hedge accountingAll gains and losses fromchanges in the fair values of derivatives that donot qualify for hedge accounting are recognisedimmediatelyintheincomestatement.

EmbeddedderivativesEmbeddedderivativesincludedinhybridinstrumentsaretreatedanddisclosedasseparatederivativeswhentheireconomiccharacteristicsandrisksarenotcloselyrelatedtothoseofthehostcontract,thetermsoftheembeddedderivativearethesameasthoseofastandalonederivativeandthecombinedcontractisnotrecognisedatfairvaluewithanygainsorlossesfromthechangeinfairvaluerecognisedintheincomestatement.Thehostcontractsareaccountedforandmeasuredapplyingtherulesoftherelevantcategoryofthatfinancialinstrument.Ifitisnotpossibletodeterminethefairvalueofanembeddedderivative,thehybridinstrumentismeasuredatfairvaluewithchangesinprofitorloss.

Certainderivativesembeddedinotherfinancialandnon-financialinstruments,suchastheconversionoptioninaconvertiblebond,aretreatedasseparatederivativesandrecognisedonastandalonebasis,whentheirrisksandcharacteristicsarenotcloselyrelatedtothoseofthehostcontractandthehostcontractisnotcarriedatfairvalue,withunrealisedgainsandlossesreportedinthecomprehensiveincomestatementandtheinstrumentwouldmeetthedefinitionofaderivativeifitwascontainedinaseparatecontract.

Ifitisnotpossibletodeterminethefairvalueoftheembeddedderivative,theentirehybridinstrumentiscategorisedasatfairvaluethroughprofitorlossandmeasuredatfairvalue,withchangesinfairvaluebeingrecognisedinprofitorloss.

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1. Accounting policies >>continued1.7 Property, plant and equipment

1.7.1 Owned assetsProperty,plantandequipmentisstatedatcostlessaccumulateddepreciationandimpairmentlosses.Thecostofproperty,plantandequipmentincludesexpendituredirectlyattributabletotheacquisitionofproperty,plantandequipment.Subsequentcostsareincludedinthecarryingamountoftheasset,orrecognisedasaseparateasset,whenitisprobablethatfutureeconomicbenefitsareexpected toflow to theGroupand its cost canbemeasured reliably.Whenpartsof an itemofproperty,plantand equipmenthavedifferent useful lives, they are accounted for as separate items (major components) of property, plant andequipment.

Freehold buildings, comprisingmainly offices, are generally owner-occupied properties and accounted for in terms of thecostmethod.Thebuildingsaredepreciatedonastraightlinebasisovertheestimatedusefullivestothecurrentvalueoftheirestimatedresidualvalue.Thefreeholdlandportionisnotdepreciated.Owner-occupiedpropertiesareheldforuseinthesupplyofservicesorforadministrationservices.

Repairsandmaintenanceofproperty,plantandequipmentarerecogniseddirectlyintheincomestatement.Gainsorlossesondisposalofproperty,plantandequipmentareincludedintheincomestatement.

1.7.2 Leased assetsLeases in termsofwhichtheGroupassumessubstantiallyall therisksandrewardsofownershipofanassetareclassifiedasfinanceleases.Assetswhichareleasedintermsoffinancialleaseagreementsarecapitalisedattheloweroffairvalueandthepresentvalueofminimumleasepaymentsatinceptionofthelease.Thecapitalelementoffutureobligationsundertheleasesisincludedasaliabilityinthestatementoffinancialposition.Leasepaymentsareallocatedbetweenfinancechargesandcapitalrepaymentusingtheeffectiveinterestmethod.

Subsequenttoinitialrecognition,theassetisaccountedforinaccordancewiththeaccountingpolicyapplicabletothatasset.

Otherleasesareclassifiedasoperatingleases(Refertonote1.11.)

1.7.3 DepreciationDepreciation is calculatedon the straight-linebasis, at rateswhichareestimated toamortise theassets to their anticipatedresidualvaluesovertheirusefullives.Theassets’depreciationmethods,residualvaluesandusefullivesarereviewedandadjustedannually if appropriate. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is notdepreciated.Thedepreciationexpenseisrecognisedinprofitorlossunderotheroperatingexpenses.

Theestimatedusefullivesforthecurrentandcomparativeyearsareasfollows:

Computerequipment 3years

Computersoftware 2-5years

Furnitureandfittings 6-10years

Motorvehicles 5years

1.8 Investment propertyInvestmentpropertiesareheldtoearnrentalincomeorforcapitalappreciationorboth.Investmentpropertyincludesthecostofinitialpurchase,developmentstransferredfrompropertyunderdevelopment,subsequentcostofdevelopmentandfairvalueadjustments.

Investmentpropertyisreflectedatvaluationbasedonfairvalueatthereportingdate.Ifthevaluationcannotbereliablydetermined,theGroupusesalternativevaluationmethodssuchasdiscountedcashflowprojectionsorrecentpricesonactivemarkets.Thefairvaluesaretheestimatedamountsforwhichapropertycouldbeexchangedonthedateofvaluationbetweenawillingbuyerandawillingsellerinanarm’slengthtransaction.Thefairvalueisdeterminedannuallybyindependentprofessionalvaluators.

Fairvalueadjustmentsoninvestmentpropertyareincludedintheincomestatementasinvestmentgainsorlossesintheperiodinwhichthesegainsorlossesariseandareadjustedforanydoublecountingarisingfromtherecognitionofleaseincomeonastraight-linebasisascomparedtothecashbasisasthiseffectisnormallyassumedinthefairvaluedetermination.

When the use of a property changes such that it is reclassified, its fair value at the date of reclassification becomes its cost for subsequentaccounting.

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1. Accounting policies >>continued1.9 Foreign currencies

1.9.1 Functional and presentation currencyItems included in the financial statements of each of the Group’s entities aremeasured using the currency of the primaryeconomic environment inwhich the entity operates (functional currency).The functional andpresentation currency of theCompanyandtheGroupisZARandallamountsunlessotherwiseindicated,arestatedinthousandsofZAR(R’000).

1.9.2 Group companiesTheresultsandfinancialpositionofallforeignoperationsthathaveafunctionalcurrencydifferentfromtheGroup’spresentationcurrencyaretranslatedintothepresentationcurrencyasfollows:

• Assetsandliabilitiesaretranslatedattheclosingrateonthereportingdate;

• Incomeandexpensesaretranslatedataverageexchangeratesfortheyear,totheextentthatsuchaverageratesapproximateactualrates;

• Equityistranslatedintothepresentationcurrencyatthespotrateonthedateofissueoftheequityinstruments;and

• Reservesaretranslatedattheaverageexchangeratefortheyear,totheextentthatsuchaverageratesapproximate actualrates.

On consolidation, exchangedifferences arising from the translationof theGroup’s net investment in foreignoperations areaccountedfordirectlyinothercomprehensiveincome,beingtheforeigncurrencytranslationreserve.Onthepartialdisposalofaforeignoperation,thatisasubsidiary,wherecontrolisnotlost,aproportionateshareofthebalanceoftheforeigncurrencytranslationreserve istransferredtothenon-controlling interest.Ondisposalofaforeignoperation,anygainsandlossesthatremaindeferredinequityarerecognisedintheincomestatementatthetimeatwhichtheprofitorlossondisposaloftheforeignoperationisrecognised.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofforeignoperationsaretreatedasassetsandliabilitiesoftheforeignoperationandaretranslatedatclosingratesatthereportingdate.

Foreigncurrencygainsandlossesonintergrouploansarerecognisedinprofitorlossunlesssettlementoftheloanisneitherplannednorlikelytooccurintheforeseeablefuture,inwhichcasetheforeigncurrencygainsandlossesareinitiallyrecognisedinothercomprehensiveincomeandpresentedintheforeigncurrencytranslationreserveintheconsolidatedfinancialstatements.Those gains and losses are recognised in profit or loss at the earlier of settling the loan or at the time at which the foreign operationisdisposed.

1.9.3 Transactions and balancesForeign currency transactions are translated into the functional currencyusing theexchange ratesprevailing at thedateof thetransactions.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationof monetary assets and liabilities denominated in foreign currencies at year end exchange rates, are recognised in theincomestatementexceptwhendeferred inothercomprehensive incomeasqualifyingcashflowhedgesandqualifyingnet investmenthedges.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translatedto the functional currencyusing theexchange rate at the transactiondate, and thosemeasuredat fair value are translatedto the functional currency at the exchange rate at the date that the fair value was determined. Exchange differences on non-monetaryitemsareaccountedforbasedontheclassificationoftheunderlyingitems.Foreignexchangegainsandlossesonequities classifiedas available-for-salefinancial assets are included in theavailable-for-sale reserve inequitywhereas the exchangedifferencesonequitiesheldatfairvaluethroughprofitorlossarereportedaspartofthefairvaluegainorlossintheincomestatement.

1.10 ProvisionsAprovisionisrecognisedinthestatementoffinancialpositionwhentheGrouphasapresentlegalorconstructiveobligationasaresultofapastevent,itisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation,andareliableestimateoftheamountoftheobligationcanbemade.Iftheeffectismaterial,provisionsaredeterminedbydiscountingtheexpectedfuturecashflowsatapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.

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1. Accounting policies>>continued1.11 Instalment finance

1.11.1 Group as the lessorRental,leaseandinstalmentsalecontractsareregardedasfinancingtransactions,withrentalsandinstalmentsreceivable,lessunearned finance charges, being included in loans and advances to customers on the statement of financial position.Thedifferencebetweenthegrossreceivableandthepresentvalueofthereceivableisrecognisedasunearnedfinancecharges.

WheretheGroupisthelessorinaleaseagreementthattransferssubstantiallyalloftherisksandrewardsofownershipoftheassettothelessee,thearrangementisclassifiedasafinancelease.

Finance income is recognisedover the termof the leaseusing thenet investmentmethod,which reflects theperiodic rate ofreturn.

Allotherleasesareoperatingleasesandoperatingleaseincomeisrecognisedintheincomestatementonastraight-linebasisoverthetermofthelease.

1.11.2 Group as the lesseePaymentsmadeunderoperatingleasesarerecognisedintheincomestatementonastraight-linebasisoverthetermofthelease.Penaltiesforearlyterminationofoperatingleasecontractsarerecognisedasanexpenseintheperiodinwhichterminationtookplace.

Paymentsmadeunderfinanceleasesareapportionedbetweenthefinancechargeandthereductionoftheoutstandingliability.Thefinancechargeisallocatedtoeachperiodduringtheleasetermsoastoproduceaconsistentperiodicrateofinterestontheliabilityoutstanding.

1.12 Revenue and expenditureBanking and financial services activitiesRevenueisderivedsubstantiallyfromthebusinessbankingandrelatedfinancialservicesactivitiesandcomprisesnetinterestincomeandnon-interestincomeandisrecognisedassetoutbelow.

1.12.1 Interest income and interest expenseInterestisrecognisedonatime-proportionbasis,takingintoaccountthecarryingamountofthefinancialinstrumentandtheeffective interestrate.Theeffective interestrate istheratethatexactlydiscountsestimatedfuturecashpaymentsorreceiptsthroughtheexpectedlifeofthefinancialinstrumenttothecarryingamountonthefinancialstatements.Whencalculatingtheeffectiveinterestrate,theCompanyestimatescashflowsconsideringallcontractualtermsofthefinancialinstrumentbutdoesnotconsiderfuturecreditlosses.Thecalculationincludesallfeespaidorreceivedbetweenpartiestothecontractthatareanintegralpartoftheeffectiveinterestrate,transactioncostsandallotherpremiumsordiscounts.

Wherefinancialassetshavebeenimpaired,theaccrualofinterestincomebasedontheoriginaltermsoftheloanisdiscounted,anyincreaseofthepresentvalueofimpairedloanstothepassageoftimeisrecordedasinterestincome.Theeffectiveinterestrateisestablishedoninitialrecognitionofthefinancialinstrumentandisnotsubsequentlyrevised.

1.12.2 Fees and commissionFeeandcommissionincomeisrecognisedintheincomestatementastheservicesareperformedinaccordancewiththetermsoftherelevantagreements.

Feeandcommissionincomeisearnedmainlyfrombankingrelatedactivities,provisionoffinancialservices,wealthmanagementservicesandcorporatefinancerelatedservices.

1.12.3 Agency revenueAgencyrevenuerepresents incomeandcommissionsinvoicedforservicesrenderedinrespectofclearingandforwardingofgoodsexcludingamountsrechargedtocustomersandvalueaddedtax.

1.12.4 Net brokerage income and asset management feesNetbrokerage incomeandassetmanagement fees isbrought intoaccount inproportiontothestageofcompletionof thetransactionatthereportingdate.

1.12.5 OtherIncome,otherthaninterest,feesandcommission,whichincludesfairvaluegainsorlosses,foreignexchangegainsanddividendsfrominvestments,isrecognisedinprofitorlosswhentheamountofincomefromthetransactionorserviceisearnedandcanbemeasuredreliably.Dividendincomeisrecognisedwhentherighttoreceivethedividendisestablished.

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1. Accounting policies >>continued1.13 Commitments and contingencies

ItemsareclassifiedascommitmentswheretheGroupcommitsitselftofuturetransactionsoriftheitemswillresultintheacquisition ofassets.

Transactions are classified as contingencies where the Group’s obligations depend on uncertain future events or the amount ofthe obligation can not be measured with sufficient reliability and principally consists of third-party obligations underwritten by bankingsubsidiaries.

Contingentliabilities,whichincludecertainguaranteesotherthanfinancialguarantees,andlettersofcreditpledgedascollateralsecurity,arepossibleobligationsthatarisefrompasteventswhoseexistencewillbeconfirmedonlybytheoccurrenceornon-occurrence,ofoneormoreuncertain futureeventsnotwhollywithin theGroup’scontrol.Contingent liabilitiesarenot recognised in thefinancialstatementsbutaredisclosedinthenotestothefinancialstatementsunlesstheyareremote.

1.14 Funds under administrationWhereGroupcompaniesholdandinvestfundsonbehalfofclientsandactastrusteesinanyfiduciarycapacity,theassetsandliabilitiesrepresentingtheseactivitiesarenotreflectedonthestatementoffinancialposition.Incomerelatingtotheseactivitiesisrecognisedintheincomestatementintheperiodinwhichtheservicesarerendered.(Refertonote26.)

1.15 Cash and cash equivalentsForthepurposeofthecashflowstatement,cashandcashequivalentscomprisecashonhand,short-termnegotiablesecurities,short-terminterbankfundsnetofinterbankfundingandbalanceswiththecentralbank,allofwhichareavailableforusebytheGroupunlessotherwisestated.Cashandcashequivalentsarecarriedatamortisedcostinthestatementoffinancialposition.

1.16 Impairment1.16.1. Impairment of financial assets

TheGrouporCompanyassesses at each reportingdatewhether there isobjectiveevidence that afinancial assetorgroupoffinancialassets(notcarriedatfairvaluethroughprofitorloss)is impaired.Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentlossesareincurredif,andonlyif,thereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset(alossevent)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.Foraninvestmentinanequitysecurity,asignificantorprolongeddeclineinitsfairvaluebelowthecostisobjectiveevidenceofimpairment.Objectiveevidencethatafinancialassetorgroupofassets is impairedincludesobservabledatathathascometotheattentionoftheGrouporCompanyaboutthefollowinglossevents:

• abreachofcontract,suchasadefaultordelinquencyininterestorprincipalpayments;

• theGrouporCompany,foreconomicorlegalreasonsrelatingtotheborrower’sfinancialdifficulty,grantingtotheborroweraconcessionthattheGrouporCompanywouldnototherwiseconsider;

• itbecomingprobablethattheborrowerwillenterbankruptcyorotherfinancialreorganisation;

• thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties;or

• observabledataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsfromagroupoffinancialassetssincetheinitialrecognitionofthoseassets,althoughthedecreasecannotyetbeidentifiedwiththeindividualfinancialassetsintheGroup,including:

–adversechangesinthepaymentstatusofborrowersintheGroup;or –nationalorlocaleconomicconditionsthatcorrelatewithdefaultsontheassetsintheGroup.

AssetscarriedatamortisedcostIf there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried atamortisedcosthasbeenincurred,theamountofthelossismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows(excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccountandtheamountofthelossisrecognisedintheincomestatement.

TheGrouporCompanyfirstassesseswhether there isobjectiveevidenceof impairment individually forfinancialassets thatare individuallysignificant,andindividuallyorcollectivelyforfinancialassetsthatarenot individuallysignificant. If theGrouporCompanydeterminesthatthereisnoobjectiveevidenceofimpairmentforanindividuallyassessedfinancialasset,whethersignificantornot,itincludestheassetinagroupoffinancialassetswithsimilarcreditriskcharacteristicsandcollectivelyassessesthemforimpairment.

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1. Accounting policies >>continued1.16 Impairment >>continued

1.16.1 Impairment of financial assets >> continuedIf, in a subsequentperiod, the amountof the impairment lossdecreases and thedecrease canbe relatedobjectively to aneventoccurringafter the impairmentwas recognised (suchasan improvement in thedebtor’scredit rating), thepreviouslyrecognisedimpairmentlossisreversedbyadjustingtheallowanceaccount.Thereversaldoesnotresultinacarryingamountofthefinancialassetthatexceedswhattheamortisedcostwouldhavebeenatthedateonwhichtheimpairmentisreversed,hadtheimpairmentnotbeenrecognised.Theamountofthereversalisrecognisedintheincomestatementfortheperiod.

FinancialassetscarriedatcostIfthereisobjectiveevidencethatanimpairmentlosshasbeenincurredonanunquotedequityinstrumentthatisnotcarriedatfairvalue,becauseitsfairvaluecannotbereliablymeasured,oronaderivativeassetthatislinkedtoandhastobesettledbydeliveryofsuchanunquotedequityinstrument,theamountoftheimpairmentlossismeasuredasthedifferencebetweenthecarryingamountofthefinancialassetandthepresentvalueofestimatedfuturecashflowsdiscountedatthecurrentmarketrateofreturnforasimilarfinancialasset.Suchimpairmentlossesarenotreversed.

Available-for-salefinancialassetsWhenadecline in the fairvalueofanavailable-for-salefinancialassethasbeen recogniseddirectly inothercomprehensiveincomeandthereisobjectiveevidencethattheassetisimpaired,thecumulativenetlossthathasbeenaccumulatedwithinothercomprehensiveincomeisremovedfromothercomprehensiveincomeandrecognisedinprofitorlosseventhoughthefinancialassethasnotbeenderecognised.Theamountofthecumulativelossthatisremovedfromothercomprehensiveincomeandrecognisedinprofitorlossisthedifferencebetweentheacquisitioncost(netofanyprincipalrepaymentandamortisation)andcurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedinprofitorloss.

If, inasubsequentperiod, thefairvalueofdebt instrumentsclassifiedasavailable-for-sale increasesandthe increasecanbeobjectively related to an event occurring after the impairment losswas recognised in profit or loss, the impairment loss isreversed,withtheamountofthereversalrecognisedinprofitorlossfortheperiod.Impairmentlossesrecognisedinprofitorlossforaninvestmentinanequityinstrumentclassifiedasavailable-for-salearenotreversedthroughprofitorloss,butrecognisedinothercomprehensiveincome.

1.16.2 Impairment of non-financial assetsThecarryingamountsoftheGroup’sassets,otherthandeferredtaxassets(seeaccountingpolicy1.19)andfinancialinstruments(seeaccountingpolicy1.5),arereviewedateachreportingdatetodeterminewhetherthereisanyindicationofimpairment.Ifanysuchindicationexists,theasset’srecoverableamountisestimated.Goodwillistestedannuallyforimpairmentirrespectiveofwhetherimpairmentindicatorsareidentified.

Animpairmentlossisrecognisedwheneverthecarryingamountofanassetoritscash-generatingunitexceedsitsrecoverableamount.Impairmentlossesarerecognisedintheincomestatement.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of anygoodwillallocatedtocash-generatingunits(Groupofunits)andthen,toreducethecarryingamountoftheotherassetsintheunit(Groupofunits)onaproratabasis.

CalculationofrecoverableamountTherecoverableamountofnon-financialassetsisthegreateroftheirfairvaluelesscoststosell,andvalueinuse.In assessingvalue inuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Foranassetthatdoesnotgeneratelargelyindependentcashinflows,therecoverableamountisdeterminedforthecash-generatingunittowhichtheassetbelongs.

ReversalsofimpairmentInrespectofnon-financialassets,animpairmentlossisreversediftherehasbeenachangeintheestimatesusedtodeterminetherecoverableamount.Animpairmentlossisreversedonlytotheextentthattheassets’carryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminednetofdepreciationoramortisation, ifno impairment losshadbeenrecognised.Reversalsofimpairmentarenotrecognisedforgoodwill.

1.17 Capitalisation of borrowing costsBorrowingcoststhatrelatetoqualifyingassets,ieassetsthatnecessarilytakeasubstantialperiodoftimetogetreadyfortheirintendeduseorsaleandarenotmeasuredatfairvalue,arecapitalised.

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1. Accounting policies >>continued1.18 Employee benefits

1.18.1 Defined contribution planA defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separateentityandwillhavenolegalorconstructiveobligationtopayfurtheramounts.TheprovidentplanisgovernedbythePensionFundsAct.

Payments todefinedcontributionplansare recognisedasanemployeebenefitexpense inprofitor lossas they falldue.Allemployeesarerequiredtobemembersofthedefinedcontributionprovidentfund.

1.18.2 Equity compensation plansTheGroupandCompanyoperatesequity-settledandcash-settledshare-basedcompensationplans.

TheGrouphasapplied the requirementsof IFRS2 toshare-basedpayments . Inaccordancewith the transitionalprovisions, IFRS2hasbeenappliedtoallgrantsofshareoptionsafter7November2002thatwerenotvestedasof1July2004,theeffectivedateoftransitiontoIFRS.

Share-basedpaymenttransactionsThegrantdatefairvalueofequity-settledshare-basedpaymentawards(ieshareoptions)grantedtoemployeesisrecognisedas anemployeeexpense,witha corresponding increase inequity,over theperiod inwhich theemployeesunconditionallybecomeentitledtotheawards.Theamountrecognisedasanexpenseisadjustedtoreflectthenumberofshareawardsforwhichtherelatedserviceandnon-marketperformancevestingconditionsareexpectedtobemetsuchthattheamountultimatelyrecognisedasanexpenseisbasedonthenumberofshareawardsthatdomeettherelatedserviceandnon-marketperformanceconditionsatthevestingdate.

Thefairvalueoftheamountpayabletoemployeesinrespectofshareappreciationrightsthataresettledincashisrecognisedasanexpensewithacorrespondingincreaseinliabilitiesovertheperiodinwhichtheemployeesunconditionallybecomeentitledtopayment.Theliabilityisremeasuredateachreportingdateandatsettlementdate.Anychangesinthefairvalueoftheliabilityarerecognisedasstaffexpenseinprofitorloss.

The fair value of share appreciation rights ismeasured using the Black-Scholes formula.Measurement inputs include sharepriceonmeasurementdate,exercisepriceoftheinstrument,expectedvolatility(basedonweightedaveragehistoricvolatilityadjustedforchangesexpectedduetopubliclyavailableinformation),weightedaverageexpectedlifeoftheinstruments(basedonhistoricalexperienceandgeneraloptionholderbehaviour), expecteddividends, and the risk-free interest rate (basedongovernmentbonds).Serviceandnon-marketperformanceconditionsattachedtothetransactionsarenottakenintoaccountindeterminingfairvalue.

1.18.3 Short-term benefitsShort-termbenefitscompriseofsalaries,accumulatedleavepay,providentfund,medicalaid,Grouplife,companycar,equitysettled shareoptions and share appreciation awards. Short-termbenefits are expensedas the related service isprovided.AliabilityisrecognisedfortheamountexpectedtobepaidbyshareappreciationawardsandaccumulatedleaveiftheGrouphasapresentandlegalobligationtopaythisamountandtheamountcanbeestimatedreliably.

1.19 Income taxIncometaxandcapitalgainstaxontheprofitorlossfortheyearcomprisescurrentanddeferredtaxation.Incometaxandcapitalgainstaxarerecognisedinprofitorlossexcepttotheextentthattheyrelatetoitemsrecogniseddirectlyinothercomprehensiveincome,inwhichcasetheyarerecognisedinothercomprehensiveincome.

1.19.1 Current taxCurrenttaxcomprisesincometaxpayable,calculatedonthebasisofexpectedtaxableincomefortheyearusingthetaxratesenactedatthereportingdate,andanyadjustmentoftaxpayableforprioryears.

1.19.2 Deferred taxationDeferredincometaxanddeferredcapitalgainstaxareprovidedforonthecomprehensivebasisusingthestatementoffinancialpositionmethod,basedontemporarydifferencesattaxratesenactedatthereportingdate.Theamountofdeferredtaxprovidedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountoftheassetorliabilityandisnotdiscounted.Deferredtaxassetsarereviewedateachreportingdateandarereducedtotheextentthat it isno longerprobablethattherelatedtaxbenefitwillberealised.Currentanddeferredtaxrelatingtoitemswhicharechargedorcrediteddirectlytoequityandothercomprehensiveincome,arealsochargedtoequityandothercomprehensiveincomeandaresubsequentlyrecognisedinprofitorlosswhentherelateddeferredgainorlossisrecognised.

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1. Accounting policies >>continued1.19 Income tax >>continued

1.19.2 Deferred taxation >>continuedDeferredtaxisnotrecognisedforthefollowingtemporarydifferences:theinitialrecognitionofgoodwill,theinitialrecognitionofassetsandliabilitiesinatransactionthatisnotabusinesscombination,whichaffectsneitheraccountingnortaxableprofitsand losses, investments in subsidiariesand jointventureswhere theGroupcontrols the timingof the reversalof temporarydifferencesanditisprobablethatthesedifferenceswillnotreverseintheforeseeablefuture.

Deferredtaxassetsarerecognisedtotheextentthatitisprobablethatfutureprofitswillbeavailableagainstwhichtheassociatedunusedtaxlossesanddeductibletemporarydifferencescanbeutilised.Deferredtaxassetsarereducedtotheextentthatitisnolongerprobablethattherelatedtaxbenefitwillberealised.

1.19.3 Secondary tax on companies Secondarytaxationoncompanies(“STC”)thatarisesfromthedistributionofdividendsisrecognisedatthesametimeastheliability topay the relateddividend.To theextent that it is probable thatdividendswill bedeclared, againstwhichunused STCcreditscanbeutilised,adeferredtaxassetisrecognisedforSTCcredits.

1.20 Segment reportingAnoperatingsegment isacomponentof theGroupthatengages inbusinessactivities fromwhich itmayearn revenuesand incurexpenses, includingrevenuesandexpensesthatrelatetotransactionswithanyoftheGroup’scomponents,whoseoperatingresultsarereviewedregularlybytheGroup’schiefoperatingdecisionmaker,RolandSassoon,tomakedecisionsaboutresourcesallocatedtothesegmentandassessitsperformance,andforwhichdiscretefinancialinformationisavailable.SegmentresultsthatarereportedtotheGroup’schiefoperatingdecisionmakerincludeitemsdirectlyattributabletoasegmentaswellasthosethatcanbeallocatedonareasonablebasis.Unallocateditemscomprisemainlycorporateassets(primarilytheGroup’sheadquarters),headofficeexpenses,andincometaxassetsandliabilities.

Segmentcapitalexpenditureisthetotalcostincurredduringtheperiodtoacquirepropertyandequipment,andintangibleassetsotherthangoodwill.

1.21 Financial guarantee contractsAfinancialguaranteecontractisacontractthatrequirestheissuertomakespecifiedpaymentstoreimbursetheholderforalossitincursbecauseaspecifieddebtorfailstomakepaymentwhendueinaccordancewiththeoriginalormodifiedtermsofadebtinstrument.

ThesefinancialguaranteecontractsareclassifiedasinsurancecontractsasdefinedinIFRS4InsuranceContracts.Aliabilityisrecognisedwhenit isprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettlethecontractandareliableestimatecanbemadeoftheamountoftheobligation.Theamountrecognisedisthebestestimateoftheexpenditurerequiredtosettlethecontractatthereportingdate.Wheretheeffectofdiscountingismaterial,theliabilityisdiscounted.Thediscountrateusedisapre-taxratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyand,whereappropriate,therisksspecifictotheliability.

TheGroupandCompanyperformsliabilityadequacytestsonfinancialguaranteecontractliabilitiestoensurethatthecarryingamountoftheliabilitiesissufficientinviewofestimatedfuturecashflows.Whenperformingtheliabilityadequacytest,theGroupandCompanydiscounts all expected contractual cash flows and compares this amount to the carrying value of the liability. Where a shortfall isidentified,anadditionalprovisionismade.

1.22 Share capitalOrdinary share capitalOrdinary shares are classifiedas equity. Incremental costsdirectly attributable to the issueofordinary shares and shareoptions arerecognisedasadeductionfromequity,netofanytaxeffects.

Dividendsarerecognisedasdistributionswithinequityintheperiodinwhichtheyarepayabletoshareholders.

Whensharecapitalrecognisedasequityisrepurchased,theamountoftheconsiderationpaid,includingdirectlyattributablecosts,netoftaxeffects,isrecognisedasadeductionfromequity.Repurchasedsharesareclassifiedastreasurysharesandpresentedasadeductionfromtotalequityunlesscancelled.

Preference share capitalPreferencesharecapitalisclassifiedasequityifitisnon-redeemableandanydividendsarediscretionary,oritisredeemableonlyattheCompany’soption.

1.23 Earnings per shareTheGrouppresentsbasicanddilutedearningspershare(EPS)dataforitsordinaryshares.BasicEPSiscalculatedbydividingtheprofitorlossattributabletoordinaryshareholdersoftheparentbytheweightedaveragenumberofordinarysharesoutstandingduringtheperiod.DilutedEPSisdeterminedbyadjustingtheprofitorlossattributabletoordinaryshareholdersandtheweightedaveragenumberofsharesoutstandingfortheeffectsofalldilutivepotentialordinaryshares,whichcompriseshareoptionsgrantedtoemployees.

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1. Accounting policies >>continued1.24 Accounting for business combinations

Businesscombinationsareaccountedforusingtheacquisitionmethodasattheacquisitiondate,whichisthedateatwhichcontrolistransferredtotheGroup.Controlisthepowertogovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Inassessingcontrol,theGrouptakesintoconsiderationpotentialvotingrightsthatcurrentlyareexercisable.

Acquisitions on or after 1 July 2009Foracquisitionsonorafter1July2009,theGroupmeasuresgoodwillasthefairvalueoftheconsiderationtransferred includingtherecognisedamountofanynon-controllinginterestintheacquiree,lessthenetrecognisedamount(generallyfairvalue)oftheidentifiableassetsacquiredandliabilitiesassumed,allmeasuredasoftheacquisitiondate.Whentheexcessisnegative,abargainpurchasegainisrecognisedimmediatelyinprofitorloss.

TheGroupelectsonatransaction-by-transactionbasiswhethertomeasurenon-controllinginterestatitsfairvalue,oratitsproportionateshareoftherecognisedamountoftheidentifiablenetassets,attheacquisitiondate.

Transactioncosts,otherthanthoseassociatedwiththeissueofdebtorequitysecurities,thattheGroupincurs inconnectionwithabusinesscombinationareexpensedasincurred.

Acquisitions between 1 January 2003 and 1 July 2009Foracquisitionsbetween1January2003and1January2009,goodwillrepresentstheexcessofthecostoftheacquisitionovertheGroup’sinterestintherecognisedamount(generallyfairvalue)oftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheacquiree.Whentheexcesswasnegative,abargainpurchasewasrecognisedimmediatelyinprofitorloss.

Transactioncosts,otherthanthoseassociatedwiththeissueofdebtorequitysecurities,thattheGroupincurredinconnectionwithbusinesscombinationswerecapitalisedaspartofthecostoftheacquisitions.

Acquisitions prior to 1 January 2003Aspartof its transition to IFRS, theGroupelected to restateonly thosebusiness combinations thatoccurredonor after 1 January2003. In respect of acquisitions prior to 1 January 2003, goodwill represents the amount recognised under the Group’s previous accountingframework.

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2. Key assumptions and estimates applied by managementInpreparing thefinancial statements, estimates andassumptions are continually evaluatedbasedonhistorical andother factors, includingexpectationsofuncertainfutureeventsthatarebelievedtobereasonableunderthecircumstances.Theresultsofestimatesandassumptionsformthebasisofmakingjudgementsaboutthecarryingvalueofassetsandliabilities.Actualresultsmaydifferfromtheestimatesmadethatcouldaffectthereportedamountsofassetsandliabilitiesinfutureyears.

2.1 Credit impairment of loans and advancesPerforming loansTheGroupassessesitsloanportfolioforimpairmentonayearlybasisoratleastateachreportingdate.

The Group adopts an incurred-loss approach to impairment. Impairment losses are incurred, only if there is objective evidence ofimpairmentasaresultofoneormorepasteventsthathaveoccurredsinceinitialrecognition.Thisnecessitatestheestablishmentof‘impairmenttriggers’ontheoccurrenceofwhichanimpairmentlossisrecognised.

Creditimpairmentisbasedondiscountedestimatedfuturecashflowsonanassetorgroupofassets,wheresuchobjectiveevidenceofimpairmentexists.Thediscountrateusedtocalculatetherecoverableamountexcludesconsiderationofanyanticipatedfuturecreditlosses.The impairment forperforming loans is calculatedonaportfoliobasis,basedonhistorical loss ratios, including industryandspecificeconomicconditionsandotherindicationspresentatthereportingdate.

TheGrouphascreatedanallowanceforincurredbutnotreported(IBNR)losses.ThepurposeoftheIBNRallowanceistoallowforlatentlossesonaportfolioofloansandadvancesthathavenotyetbeenindividuallyevidenced.Generally,aperiodoftimewillelapsebetweentheincurrenceofanimpairmenteventandobjectiveevidenceoftheimpairmentbecomingevident,whichisknownasthe‘emergenceperiod’.TheIBNRprovisionisbasedontheprobabilitythatloansthatareostensiblyperformingatthecalculationdateareimpaired,andobjectiveevidenceofthatimpairmentbecomesevidentduringtheemergenceperiod.

Non-performing loansLoansandadvancesareindividuallyimpairediftheamountsaredueandremainunpaidandalsotakesintoaccountbreachesofkeyloancovenants.

Management’sestimatesoffuturecashflowsonindividuallyimpairedloansarebasedonhistoricallossexperienceforassetswithsimilarcreditriskcharacteristics,andtherecoverabilityofsecurityorcollateralintheGroup’spossession.

Themethodologyandassumptionsusedforestimatingboththetimingandamountoffuturecashflowsisbasedonthepresentvalueofestimatedfuturecashflowsandthesalvagevalueofsecuritiesheld.(Refertonote30.)Refertonote5.2forsensitivityanalysisofthecreditimpairmentsforloansandadvances.

2.2 Intangible assets and goodwillTheGroup tests annuallywhether goodwill has suffered any impairment, in accordancewith the accounting policy disclosed.Therecoverableamountsofcash-generatingunits (CGU)havebeenbasedon thehigherof fairvalue lesscosts to sell andvalue-in-usecalculations. The assumptions applied for these variablesmatch those applied in the preparation of group budgets and forecasts.Assumptionsaresupportedbypastexperience.TheestimatedimpairmentofintangiblesandgoodwillisRNil(2010:RNil).Pleaserefertonote11.

2.3 Deferred taxation assetThedeferredtaxationassetisrecognisedbasedontheprobabilitythatsufficientfuturetaxableprofitswillbeavailabletorealisetheassetcarriedforassessedlosseswithinathreetofive-yearhorizon.Pleaserefertonote12.

2.4 Private equity investment valuationsPrivateequityinvestmentsarebasedontheunderlyingvalueofthenetassetsandunrecognisedintangibleassetswithintheinvestmentvehiclesconcerned.Thesevaluesareestablishedbythedirectorsand/orthetrusteesofthosevehiclesorprevailingmarketconditions.ThebasisofvaluationisreviewedbytheInvestmentcommitteeoftheGroup.

TheGroupfollowstheprinciplesrecommendedintheInternationalPrivateEquityandVentureCapitalValuationGuidelines.Fairvaluerepresentstheamountatwhichanassetcouldbeexchangedbetweenknowledgeable,willingpartiesatarm’slength.

Due touncertainties inestimating thevalueofprivateequity investments, theGroupexercisesduecaution inapplying thevariousmethodologies.Thesemethodologiesincludethefollowing:

• Multiplesvaluationmethodology

• Recenttransactionprices

• Netassetvalue

• Discountedcashfloworearningsmodels.

TheGrouphasadoptedtheMultiplesValuationMethodologyasitsprimaryvaluationmodelforitsprivateequityinvestments.

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2. Key assumptions and estimates applied by management >>continued2.5 Fair value of financial instruments

TheGroupuseswidelyrecognisedvaluationmodelsfordeterminingthefairvalueofcommonandmoresimplefinancialinstruments,likeinterestrateandcurrencyswapsthatuseonlyobservablemarketdataandrequirelittlemanagementjudgementandestimation.Observablepricesandmodelinputsareusuallyavailableinthemarketforlisteddebtandequitysecurities,exchangetradedderivativesandsimpleoverthecounterderivativeslikeinterestrateswaps.Availabilityofobservablemarketpricesandmodelinputsreducestheuncertaintyassociatedwithdeterminationoffairvalues.Availabilityofobservablemarketpricesandinputsvariesdependingontheproductmarketsandispronetochangesbasedonspecificeventsandgeneralconditionsinthefinancialmarkets.

Thefairvalueoffinancialinstrumentsthatarenotquotedinactivemarketsisdeterminedbyusingvaluationtechniques.Wherevaluationtechniquesormodelsareusedtodeterminefairvalues,theyarevalidatedandperiodicallyindependentlyreviewedbyqualifiedseniorpersonnel.Allmodelsareauthorisedbeforetheyareused,andmodelsarecalibratedandbacktestedtoensurethatoutputsreflectactualdataandcomparativemarketprices.Totheextentpractical,modelsuseonlyobservabledata,howeverareassuchascreditrisk(bothownandcounterparty),volatilitiesandcorrelationsrequiremanagementtomakeestimates.

2.6 Financial asset and liability classificationTheGroup’saccountingpoliciesprovidescopeforassetsandliabilitiestobedesignatedatinceptionintodifferentaccountingcategoriesincertaincircumstance.

Indesignatingfinancialassetsorliabilitiesatfairvaluethroughprofitorloss,theGrouphasdeterminedthatithasmetoneofthecriteriaforthisdesignationsetoutintheaccountingpolicies.

DetailsoftheGroup’sclassificationoffinancialassetsandliabilitiesaregiveninnote23.

2.7 SecuritisationInapplyingitspoliciesonsecuritisedfinancialassets,theGrouphasconsideredboththedegreeoftransferofrisksandrewardsonassetstransferredtoanotherentityandthedegreeofcontrolexercisedbytheGroupovertheotherentity.

When the Group, in substance, controls the entity to which financial assets have been transferred, the entity is included in theseconsolidatedfinancialstatementsandthetransferredassetsarerecognisedintheGroup’sstatementoffinancialposition.

DetailsoftheGroup’ssecuritisationactivitiesaregiveninnote25.

2.8 Qualifying hedge relationshipsIndesignatingfinancialinstrumentsinqualifyinghedgerelationships,theGrouphasdeterminedthatitexpectsthehedgestobehighlyeffectiveovertheperiodofthehedgingrelationship.

2.9 Investment propertyThevaluationofinvestmentpropertyhasbeencarriedoutbyMillsFitchet(memberoftheSouthAfricanInstituteofValuers)basedonacapitalisationofincomeapproachwherebytheestimatednetannualincomefromthepropertyhasbeencapitalisedataninvestmentrateconsideredsuitableforthepremises,takingintoaccountitspositionandcondition.Thefollowingaretakenintoaccount:

• The location of the property in relation to the highway and all amenities

• The age and overall condition of the premises

• Thedesignofthebuilding

• Thegeneralappearanceifthebuilding,and

• Theexistingleasestructure.

Theinvestmentyieldofthepropertyhasbeendeterminedusingamarketrelatedcapitalisationrate.

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2011R'000

2010R'000

3. Cash and cash balancesMoneyoncall 638 540 480 960

Fixeddepositsmaturingwithinthreemonths 135 107 30 000

BalancewiththeSouthAfricanReserveBank 31 586 22 487

805 233 533 447

Depositsareplacedwiththecentralbankforthepurposeofreserverequirementsandarethereforenotavailableforuse.

Thematurityanalysisofthefixeddepositsisbasedontheremainingperiodtocontractualmaturityfromyear-end(refertonote37.3)

InterbankdepositsofSouthAfricanSecuritisationProgramme(Pty)Limitedarecededassecurityforthedebtsecuritiesaspernote17. 192 185 148 202

4. Short-term negotiable securities

Held-to-maturityassets

Treasurybillsmaturingwithinthreemonths 72 405 58 000

Thematurityanalysisisbasedontheremainingperiodtocontractualmaturityfrom year-end.(Refertonote37.3.)

5. Loans and advances to customers Originatedloansandadvancesatamortisedcost

5.1 Gross loans and advances Instalmentfinance 1 808 458 1 423 168

Capitalequipmentfinance 194 659 156 203

Debtorfinance 61 112 61 535

Trade finance 225 977 248 557

Othersecuredloans 138 837 93 305

Investmentinloansandadvances 2 429 043 1 982 768

Creditimpairmentsforloansandadvances (96 057) (80 268)

Impairmentsfornon-performingloansandadvances 81 592 67 590

Impairmentsforperformingloansandadvances 14 465 12 678

Net loans and advances 2 332 986 1 902 500

Comprising:

Gross investment in loans and advances 2 952 485 2 432 260

Less:Unearnedfinancecharges (523 442) (449 492)

Investment in loans and advances 2 429 043 1 982 768

Loansandadvancesarereflectedatamortisedcostwhichisareasonableapproximationoffairvalueasthefairvaluecalculationiscloselyalignedtoamortisedcostandtherecoverableamountrepresentstheloanvalueoutstanding.

Tradefinanceloansareprovidedassecurityfortradefinancerelatedfacilitiestotheextentthatfacilitiesareutilised.

Includedininstalmentfinanceloansaresecuritisedassetscededassecurityfordebtsecuritiesissuedpernote17.

1 318 224 978 501

94


2011R'000

2010R'000

5. Loans and advances to customers >>continued

5.1 Gross loans and advances >>continued

Maturity analysis

Maturingwithin1year 511 312 464 219

Maturingafter1yearbutwithin5years 1 917 731 1 515 360

Maturingafter5years – 3 189

2 429 043 1 982 768

Thematurityanalysisisbasedontheremainingperiodstocontractualmaturityfromyear-end.

Sectorial analysis

Agriculture 28 122 18 773

Community,socialandpersonalservices 596 133 444 231

Construction 105 182 79 914

Electricityandwater 20 795 17 461

Finance,realestateandbusinessservices 448 627 395 128

Manufacturing 337 027 276 893

Mining 50 289 46 730

Trade and accommodation 729 374 521 430

Transportandcommunication 113 494 182 208

2 429 043 1 982 768

Geographic analysis

SouthAfrica 2 423 885 1 978 838

RestofAfrica 5 158 3 930

2 429 043 1 982 768

95




5. Loans and advances to customers >>continued5.2 Credit impairments for loans and advances

A reconciliation of the allowance for impairment losses on loans and advances by class

Instalment finance

R'000

Capital equipment

financeR'000

Debtor finance

R'000

Trade finance

R'000

Other secured

loans R'000

Total R'000

2011

Non-performing loans

Balanceatbeginningofyear 39 975 6 221 1 680 14 384 5 330 67 590

Netimpairmentsraisedandreleased 8 483 (2 958) (1 664) (11 661) 21 802 14 002

Balance at end of year 48 458 3 263 16 2 723 27 132 81 592

Performing loans

Balanceatbeginningofyear 7 394 2 001 – 3 283 – 12 678

Netimpairmentsraisedandreleased 2 054 (243) – (24) – 1 787

Balance at end of year 9 448 1 758 – 3 259 – 14 465

Total credit impairments 57 906 5 021 16 5 982 27 132 96 057

2010

Non-performing loans

Balanceatbeginningofyear 35 609 5 130 2 112 13 215 – 56 066

Netimpairmentsraisedandreleased 4 366 1 091 (432) 1 169 5 330 11 524

Balance at end of year 39 975 6 221 1 680 14 384 5 330 67 590

Performing loans

Balanceatbeginningofyear 7 104 696 – 1 877 – 9 677

Netimpairmentsraisedandreleased 290 1 305 – 1 406 – 3 001

Balance at end of year 7 394 2 001 – 3 283 – 12 678

Total credit impairments 47 369 8 222 1 680 17 667 5 330 80 268

A5%(2010:5%)increaseordecreasetotheprobabilityofdefaultandlossgivendefault,resultsinaR1,38million(2010:R1,18million)increaseandR1,36million(2010:R1,2million)decreaserespectively,totheimpairmentofperformingloans.*

* Limited reclassifications were made to improve disclosure.

2011R'000

2010R'000

Sectorial analysis of impairments for non-performing loans and advances

Agriculture 263 130

Community,socialandpersonalservices 12 478 10 895

Construction 2 067 4 089

Electricityandwater 580 526

Finance,realestateandbusinessservices 28 602 9 483

Manufacturing 6 786 14 980

Mining 1 995 2 084

Trade and accommodation 24 650 22 172

Transportandcommunication 4 171 3 231

81 592 67 590

96


2011R'000

2010R'000

6. Other receivablesDerivativesatfairvalue 27 311 10 755

Freightforwardingandcustomsclearing 75 448 71 923

Stockbrokingclients 157 998 117 393

Loanstoassociates 6 299 1 688

Otherreceivables 103 869 91 230

370 925 292 989

Whereotherreceivablesarenotreflectedatfairvalue,duetotheshort-termtenure,thecarryingvalueisareasonableapproximateforfairvalue.Forfurtherdetailsonamountsduefromthestockbrokingclientsrefertonote16.PremierFreight(Pty)LimitedaccountsreceivableofR75,8million(2010:R73,8million)havebeencededtoFirstNationalBank,adivisionofFirstRandBankLimited,tosecurebankingfacilitiesgrantedtothecompany.Inadditiontothis,theCreditGuaranteeInsurancepolicyoverPremierFreight(Pty)Limited’saccountsreceivablehasbeencededtotheBank.Thisequatesto85%oftheinsuredcreditlimit.

7. Investment securitiesAvailable-for-saleportfolio 7 054 11 946

Financialinstrumentsheldatfairvaluethroughprofitorloss 6 635 7 212

Designatedatfairvaluethroughprofitorloss 391 487 376 859

405 176 396 017

Available-for-sale portfolio

Equitysecuritieswithreadilydeterminablefairvalues 6 900 11 792

Unquotedequities 154 154

7 054 11 946

Financial instruments held at fair value through profit and loss

Asset-backedsecurities 6 635 7 212

6 635 7 212

Designated at fair value through profit and loss

PrivateandPropertyEquityInvestments 391 487 376 859

391 487 376 859

Equitysecuritieswithreadilydeterminablefairvaluesarecalculatedonthebasisofquotedmarketprices.IncludedininvestmentsecuritiesthathavebeendesignatedatfairvaluethroughprofitorlossaretheGroup’sequityinvestmentsincertainentitiesheldbyitsprivateequitysubsidiary.TheseinvestmentsofR391,4million(2010:R376,8million)representequityholdingsininvesteecompaniesthatgivetheGroupbetween20%and49%ofthevotingrightsoftheseprivateequityventures.TheprivateequitysubsidiaryismanagedonafairvaluebasisbytheGroup.Therehasbeennoindicationof impairment and therefore no provision for impairment has been made on thisportfolio.

Sectoral analysis:

Distribution 162 335 115 035

Electronicsandelectrical/technology 29 386 21 861

Finance,retailandtelecommunications 38 086 20 204

Healthcare – 24 112

Realestate 161 680 157 616

Security – 38 031

391 487 376 859

DetailedinformationofallinvestmentsareobtainablefromtheCompanySecretary.

97




2011R'000

2010R'000

8. Investments in associated companies 8.1 Investments in associated companies

Sharesatbookvalue 37 932 36 541

Equityaccountedearnings 40 000 28 793

77 932 65 334

Loansreceivablearenotincludedinthenetinvestmentabove.

Summarised financial information of associated companies equity accounted:

NVest Financial Holdings (Pty) Limited

InnoVent Investment Holdings (Pty) Limited

Ownershipstructure Associate Associate

Natureofbusiness Securities Leasing

Year-end February June

Datetowhichequityaccounted June2011 June2011

2011R’000

2010R’000

2011R’000

2010R’000

Effectiveholding(%) 20 20 33,6 33,6

Carryingvalue 10 813 8 752 32 900 23 757

Statement of financial position

Total assets 52 000 39 002 204 573 131 309

Total liabilities 14 865 8 971 105 220 58 001

Group'sproportionateshareoftotalliabilities 2 973 1 794 35 354 19 488

Equity 51 896 42 110 99 353 73 308

Income statement

Totalrevenue 66 872 60 212 58 243 39 077

Totalexpenses 45 287 41 813 27 762 20 021

Totalnetprofitaftertax 14 988 12 913 27 082 16 349

Shareofincome-currentyear 3 062 2 600 9 143 5 493

Shareofdividenddistribution 1 000 600 – –

Equityaccountedearnings 8 782 5 720 32 819 23 675

8.2 Investments in joint ventures proportionately consolidatedHecny Transportation South Africa (Pty) Limited

Effectiveshareholdinginthejointventure(%) 34 34

Group’sproportionateshareofassetsandliabilitieswhichisincludedinthefiguresoftheconsolidated financial statements:


Non-currentassets 47 24

Currentassets 3 804 3 924

Currentliabilities 1 291 1 281

Income statement

Income 2 401 2 294

Expenses 1 918 1 669

98


9. Property, plant and equipment

Computerequipment

R’000

Computersoftware

R’000

Furniture and

fittingsR’000

Motor vehicles

R’000

Land andbuildings

R’000 Total R'000

2011

Movement

Costatthebeginningoftheyear 70 121 7 392 28 820 6 039 151 142 263 514

Additions 2 555 – 2 545 686 – 5 786

Disposals (741) – (1 366) (724) – (2 831)

Cost at the end of the year 71 935 7 392 29 999 6 001 151 142 266 469

Accumulateddepreciationandimpairmentlosses at the beginning of the year 52 679

7 392 15 977 3 060

– 79 108

Depreciationchargefortheyear 10 294 – 2 917 617 – 13 828

Disposals (711) – (687) (448) – (1 846)

Accumulated depreciation at the end of the year 62 262 7 392 18 207 3 229 – 91 090

Carrying amount at the beginning of the year 17 442 – 12 843 2 979 151 142 184 406

Carrying amount at the end of the year 9 673 – 11 792 2 772 151 142 175 379

2010

Movement

Costatthebeginningoftheyear 69 730 10 736 25 329 6 401 146 219 258 415

Additions 3 015 452 5 799 726 4 923 14 915

Disposals (2 624) (3 796) (2 308) (1 088) – (9 816)

Cost at the end of the year 70 121 7 392 28 820 6 039 151 142 263 514

Accumulateddepreciationandimpairmentlossesat the beginning of the year 41 408 10 671 15 480 3 218 – 70 777

Depreciationchargefortheyear 13 742 534 2 712 725 – 17 713

Disposals (2 471) (3 813) (2 215) (883) – (9 382)

Accumulated depreciation at the end of the year 52 679 7 392 15 977 3 060 – 79 108

Carrying amount at the beginning of the year 28 322 65 9 849 3 183 146 219 187 638

Carrying amount at the end of the year 17 442 – 12 843 2 979 151 142 184 406

Thelandandbuildingsat29ScottStreet,Waverley,Johannesburg,areencumberedfortheNedbankmortgageloanfacilityofR100million,seenote15.ThevaluationofthepropertyisR158million(2010:R152million)andwasperformedbyMillsFitchet,amemberoftheSouthAfricanInstituteofValuers.

99



2011R'000

2010R'000

10. Investment property Fair value at beginning of the year 51 038 27 999

Additions – 5 807

Fairvalueadjustments – 17 232

Fair value at the end of the year 51 038 51 038

Thesepremisesareencumbered forunutilised interbank facilitiesprovided toSasfinBankLimited.ThevaluationofinvestmentpropertywasperformedbyMillsFitchet,amemberoftheSouthAfricanInstituteofValuers.

TheGroup'sinvestmentpropertyissituatedat13–15ScottStreet,Waverley,Johannesburg.

The following amounts relating to the investment property are included in profit for the year:

Rentalincome 3 187 1 150

Directoperatingexpenses 1 926 1 852

Operating leases – Group as lessor

Futureminimumleasereceivablesundernon-cancellableoperatingleasesofbusinesspremises:

– not later than one year 2 724 3 091

– later than one year and not later than five years 1 206 4 069

11. Intangible assets and goodwillIntangible assets

Software development

Carryingvalueatthebeginningoftheyear 41 489 30 079

Amortisationofsoftware (2 069) (1 384)

Additionsatcost 16 096 12 794

Carrying value at the end of the year 55 516 41 489

Grosscarryingamounts 58 969 42 873

Accumulatedamortisation (3 453) (1 384)


During2011and2010theGroupidentifiednoeventsorcircumstancesthatwouldindicate thattheGroup'sintangibleassetsmayneedtobeimpaired.

GoodwillCarryingvalueatthebeginningoftheyear 13 728 3 729

Goodwillacquiredduringtheyear – 9 999


Total 69 244 55217

GoodwillrepresentstheexcessofthefairvalueofcertainassetsandliabilitiesacquiredbytheGroup.

Impairmenttestingofgoodwillisdoneannually,ormorefrequentlyifrequired,bycomparingthe netcarryingvalueofthecash-generatingunitstotheestimatedvalueinuse.Thevalue-in-use representsestimatedfuturecashflowsofunderlyingannuityincome.Accountingestimatesand assumptionsappliedintestingforimpairmentofgoodwillaredetailedinnote2.Noimpairment lossesongoodwillwererecognisedduring2011(2010:Rnil).


100


12. Deferred tax assets and liabilitiesRecognised deferred tax assets and liabilitiesDeferredtaxassetsandliabilitiesareattributabletothefollowing:

2011 2010

AssetsR’000

LiabilitiesR’000

NetR’000

AssetsR’000

LiabilitiesR’000

NetR’000

Instalmentfinance (402) 48 797 (49 199) – 48 419 (48 419)

Taxlosses 5 517 (1 703) 7 220 7 382 (1 134) 8 516

Fairvalueadjustments – 25 137 (25 137) – 33 677 (33 677)

Prepayments (3) 1 735 (1 738) (10) (194) 184

Impairments 382 (5 367) 5 749 – (11 930) 11 930

STCcredits 1 477 – 1 477 – – –

Provisions 1 441 (4 701) 6 142 1 464 (5 443) 6 907

Other – (83) 83 810 5 717 (4 907)

Net tax assets/(liabilities) 8 412 63 815 (55 403) 9 646 69 112 (59 466)

Movements in temporary differences during the year

Balance at 1 JulyR’000

Recognised in profit or loss

R’000

Recognised in other

comprehensive income

R’000

Balance at 30 June

R’000

2011

Instalmentfinance (48 419) (780) – (49 199)

Taxlosses 8 516 (1 296) – 7 220

Fairvalueadjustments (33 677) 14 281 (5 741) (25 137)

Prepayments 184 (1 922) – (1 738)

Impairments 11 930 (6 181) – 5 749

STCcredits – 1 477 – 1 477

Provisions 6 907 (765) – 6 142

Other (4 907) 4 990 – 83

(59 466) 9 804 (5 741) (55 403)

2010

Instalmentfinance (44 601) (3 818) – (48 419)

Taxlosses 5 737 2 779 – 8 516

Fairvalueadjustments (22 461) (11 746) 530 (33 677)

Prepayments 40 144 – 184

Impairments 8 829 3 101 – 11 930

Provisions 4 315 2 592 – 6 907

Other (5 270) 363 – (4 907)

(53 411) (6 585) 530 (59 466)

101



2011R’000

2010R’000

13. Interbank fundingShort-terminterbankloansanddeposits 60 453 52094

60 453 52094

14. Deposits from customersFinancial liabilities at amortised costDemanddeposits 806 861 716 608

Noticedeposits 91 907 82 295

Fixeddeposits 316 678 112 656

1 215 446 911 559

Geographic analysisSouthAfrica 1 215 158 911 092

UnitedKingdom 106 116

NorthAmerica 22 204

AustraliaandNewZealand 15 –

Israel 145 147

1 215 446 911 559

Maturity analysisWithdrawable on demand 806 861 716 608

Maturingwithinonemonth 168 038 63 721

Maturingafteronemonthbutwithinsixmonths 236 695 126 798

Maturingaftersixmonthsbutwithin12months 3 852 4 432

1 215 446 911559

Thematurityanalysisisbasedontheremainingperiodtocontractualmaturityfromyear-end.

15. Long-term fundingBalanceatbeginningoftheyear 182 450 100 000

Advancesduringtheyear 60 447 82 450

Balance at end of the year 242 897 182 450

TheGroupprocuredaR60millionlong-termfacilityfromNedbankLimitedwithinterestpayable monthlyatrateslinkedtotheapplicableprimerate.Thefacilityisavailableforaperiodofthreeyears, endingDecember2013.

TheGroupobtainedasubordinatedloanofR82,45millionfromtheIFC,withinterestispayable quarterlyatJIBARplus4,2%.Theloanisrepayablebetween2014and2016.

TheGroupobtainedamortgageloanofR100millionfromNedbankLimited,securedoverproperty pernote9.Theloanbearsinterestatafixedrateof10,9%perannumandisrepayableoveraperiod of10years.Thefixedrateisforaperiodof60months.Repaymentswillbemadebywayofinterest onlyforthefirst30months.Thecapitaltogetherwithinterestthereonwillberepaidinequalmonthly instalmentsovertheremainderoftheloanterm.


102


2011R’000

2010R’000

16. Other payablesDerivativeliabilities 25 132 5 447

Auditfeesandotherservices 6 002 6 169

Accountspayable 173 781 187 546

Leavepay 8 249 7 236

Cash-settledshare-basedpaymentliability 2 141 3 422

Provisions

ManagementIncentives 9 856 11 743

Openingbalance 11 743 9 799

Paid/reversedduringtheyear (10 263) (9 799)

Chargetotheincomestatement 8 376 11 743

Stockbrokingclients 149 761 116 624

69 395 59 508

Amountsduetoclients 1 814 157 1 573 010

Less: JSEtrustees (889 478) (796 501)

Borrowerscontrol (836 356) (692 172)

JSEtrustees-financialrand (18 928) (24 829)

Overseasbrokersonmarketdeals – 617

Brokersonmarketdeals 80 035 37 377

Marketableanduncertifiedsecuritiestaxes 46 25

Dividendspayable 285 19 097

374 922 338 187

Whereotherpayablesarenotreflectedatfairvalue,duetotheirshort-termnature,thecarrying valueisareasonableapproximateforfairvalue.

Allunsettledtransactionssettleonthetradingrulesapplicableforthespecificexchangewhere thedealwasbooked.Includedinamountspayableinrespectofstockbrokingactivitiesisanamount dueinsettlementofthesetransactions.

TheamountsreceivablefromJSETrustees(Pty)Limitedandmoneymarketdepositsarefundsmanaged forclients.Anamountpayabletosettlethesetransactionsisincludedunderamountspayablein respectofstockbrokingactivities.

103



2011R’000

2010R’000

17. Debt securities issuedFinancial liabilities at amortised cost

Category analysisRated

ClassAnotes(BESAcodeERS3A2)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each. Thesenotesbearinterestat3monthJIBARplus1,50%.Scheduledmaturitydatewas17November2010,andrepaidonthatdate. – 152 474

ClassAnotes(BESAcodeERS3A3)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each.Thesenotesbearinterestat3-monthJIBARplus1,80%.Scheduledmaturitydateis17November2011. 203 796 204 045

ClassAnotes(BESAcodeERS3A5)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each. Thesenotesbearinterestat3-monthJIBARplus1,50%.Scheduledmaturitydatewas 17November2010,andrepaidonthatdate. – 136 318

ClassAnotes(BESAcodeERS3A6)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each. Thesenotesbearinterestat3-monthJIBARplus1,25%.Scheduledmaturitydatewas 17November2010,andrepaidonthatdate. – 42 406



ClassAnotes(BESAcodeERS3A10)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each.Thesenotesbearinterestat3-monthJIBARplus1,05%.Scheduledmaturitydateis17August2013. 161 278 –



ClassBnotes(BESAcodeERS3B)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each.Thesenotesbearinterestat3-monthJIBARplus3,10%.Scheduledmaturitydateis17November2011. 86 899 87 006

ClassBnotes(BESAcodeERS3B1)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each.Thesenotesbearinterestat3-monthJIBARplus3,30%.Scheduledmaturitydateis17November2012. 5 053 –

ClassCnotes(BESAcodeERS3C)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each.Thesenotesbearinterestat3-monthJIBARplus3,60%.Scheduledmaturitydateis17November2011. 29 321 17 206

ClassCnotes(BESAcodeERS3C1)Unsubordinated,secured,compulsoryredeemable,asset-backednotesofR1000000each.Thesenotesbearinterestat3-monthJIBARplus3,80%.Scheduledmaturitydateis17November2012. 3 034 –

Unrated

Subordinated,secured,repayableonthematuritydateofthefinancingnotes.Thisloanbearsinterestat3-monthJIBARplus6,5%.Scheduledmaturitydateis22June2016. 75 223 –

Subordinated,secured,repayableonthematuritydateofthefinancingnotes.Thisloanbearsinterestat3-monthJIBARplus5%.Scheduledmaturitydateis20June2014. 45 013 –

1 297 614 924436

Thefloatingratenotesaresecuredbyacessionofrentalsandequipmentunderlyingthe instalmentfinanceassetsaswellasthebankaccountsownedbySouthAfricanSecuritisationProgramme(Pty)Limited–refertonotes3and5. 1 297 614 924436


104


2011R’000

2010R’000

17. Debt securities issuedGeographic analysisSouthAfrica 1 297 614 924 436

1 297 614 924 436

Maturity analysisMaturingwithinoneyear 327 614 331 199

Maturingafteroneyearbutwithintwoyears 400 000 308 257

Maturingaftertwoyearsbutwithinthreeyears 570 000 284 980

1 297 614 924 436

Thematurityanalysisisbasedontheremainingperiodtocontractualmaturityfromyear-end.

TheGrouphasnothadanydefaultsofprincipal,interestorotherbreacheswithrespectto itsdebtsecuritiesduringtheyear.

18. Ordinary share capital

Authorised

100000000(2010:40000000)ordinarysharesof1centeach 1 000 400

Theauthorisedsharecapitalwasincreasedduringtheyearbyafurther60000000ordinaryshares of1centeach.

Issued

32236051(2010:32185851)ordinarysharesof1centeach

Balanceatthebeginningoftheyear 321 280

Issuedduringtheyear/ReleasebytheShareIncentiveTrust 1 41

Balance at the end of the year 322 321

Reconciliation of the number of shares issued

Totalsharesinissue(number) 32 301 441 32 301 441

Less:SharesheldbytheSasfinShareIncentiveTrust(number) (64 926) (115 590)

32 236 515 32 185 851

TheGrouphasashareincentivetrustintermsofwhichsharesareissuedandoptionsaregranted. Detailsoftheshareincentivetrustaresetoutinnote39asrequiredbytheJSE.TheShareIncentive TrusthasbeenconsolidatedintotheGroup'sannualfinancialstatements.TheGroupissuedno shares(2010:186263)totheSasfinShareIncentiveTrust.ThenumberofsharesheldbytheSasfin ShareIncentiveTrustamountsto64926(2010:115590)orR956143(2010:R1747724)atyear-end.

Theunissuedsharesareunderthecontrolofthedirectorsuntilthenextannualgeneralmeeting.

19. Ordinary share premiumBalanceatthebeginningoftheyear 161 020 43 196

Premiumonnewsharesissuedduringtheyear 1 390 117 824

Balance at the end of the year 162 410 161 020

105



2011R’000

2010R’000

20. Preference share capitalAuthorised

5000000(2010:5000000)non-redeemable,non-cumulative,non-participatingpreference shares of 1 cent each 50 50

Issued

1905000(2010:1905000)preferencesharesof1centeach 19 19

ThepreferencesharesarelistedundertheSpecialistSecurities–PreferenceSharessectoroftheJSELimited.Dividendsarepaidsemi-annuallyatarateof75%oftherulingprimeratefromtimetotime.

21. Preference share premiumBalanceatthebeginningandendoftheyear 199 259 199 259

22. Commitments and contingent liabilitiesCommitments Capitalexpenditureauthorisedandcontractedfor – 473

Non-cancellableoperatingleaserentalsforpremisesarepayableasfollows: 16 511 8 662

Oneyear 4 835 5 129

Onetofiveyears 11 676 3 533

FundstomeetthesecommitmentswillbeprovidedfrominternalGroupresourcesor externalfundingarrangementsasdeemednecessary.

ContingenciesUnutilisedlettersofcreditestablishedandconfirmedordersplacedonbehalfofclients 35 746 32 967

Guarantees 15 454 19 181

67 711 61 283

Legal proceedingsTheGroupisexposedtocertainactualandpotentialclaimsinitsordinarycourseofbusiness.Basedoninformationpresentlyavailableandanassessmentoftheprobabilityoftheseclaims,thedirectorsaresatisfiedthattheGrouphasadequateprovisionsandinsurancecovertomeetsuchclaimsiftheyarise.

Operating leasesLeases as lessee

Non-cancellableoperatingleaserentalsforpremisesarepayableasfollows:

Oneyear 4 835 5 129

Onetofiveyears 11 676 3 533

16 511 8 662

Less:Straightliningofleaseaccrual (504) (541)

16 007 8 121

TheGroupleasesanumberofofficesandwarehousefacilitiesunderoperatingleases.Theleases typicallyrunforaperiodofthreetofiveyears,withanoptiontorenewafterthatdate.Leases generallycontainanannualincrease,toreflectmarketrentals,butnocontingentrentsareincluded.


106


23. Classification of assets and liabilities Accounting classifications and fair valuesThetablebelowsetsouttheGroup'sclassificationofeachclassoffinancialassetsandliabilities,theirfairvaluesandcarryingamounts.

Desig-nated at

fair valueR'000

Held at fair value

R'000

Held-to-maturity

R'000

Loans and

receivablesR'000

Availablefor-sale

R'000

Other amortised

costR'000

Other non-

financialassets and

liabilitiesR'000

Total carryingamount

R'000Fair value

R'000

2011

Assets

Cashandcashbalances 1 – – – 805 233 – – – 805 233 805 233

Short-termnegotiablesecurities 2 – – 72 405 – – – – 72 405 72 405

Loansandadvancestocustomers 3 – – – 2 332 986 – – – 2 332 986 2 332 986

Otherreceivables – 27 311 – 343 614 – – – 370 925 370 925

Investmentsecurities 4 391 487 6 635 – – 7 054 – – 405 176 405 176

Investmentsinassociatedcompanies – – – – – – 77 932 77 932 77 932

Othernon-financialassets – – – – – – 308 607 308 607

391 487 33 946 72 405 3 481 833 7 054 – 386 539 4 373 264

Liabilities

Interbankfunding – – – – – 60 453 – 60 453 60 453

Depositsfromcustomers – – – – – 1 215 446 – 1 215 446 1 215 446

Long-termfunding – – – – – 242 897 – 242 897 242 897

Debtsecuritiesissued – – – – – 1 297 614 – 1 297 614 1 303 504

Otherpayables – 25 132 – – – 149 761 200 029 374 922 374 922

Othernon-financialliabilities – – – – – 19 867 53 194 73 061

– 25 132 – – – 2 986 038 253 223 3 264 393

2010

Assets

Cashandcashbalances 1 – – – 533 447 – – – 533 447 533 447

Short-termnegotiablesecurities 2 – – 58 000 – – – – 58 000 58 000

Loansandadvancestocustomers 3 – – – 1 902 500 – – – 1 902 500 1 913 507

Otherreceivables – 10 755 – 282 234 – – – 292 989 292 989

Investmentsecurities 4 376 859 7 212 – – 11 946 – – 396 017 396 017

Investmentsinassociatedcompanies – – – – – – 65 334 65 334 65 334

Othernon-financialassets – – – – – – 303 235 303 235

376 859 17 967 58 000 2 718 181 11 946 – 368 569 3 551 522

Liabilities

Interbankfunding – – – – – 52 094 – 52 094 52 094

Depositsfromcustomers – – – – – 911 559 – 911 559 911 630

Long-termloans – – – – – 182 450 – 182 450 182 450

Debtsecuritiesissued – – – – – 924 436 – 924 436 975 841

Otherpayables – 5 447 – – – 116 624 216 116 338 187 338 187

Othernon-financialliabilities – – – – – – 78 896 78 896

– 5 447 – – – 2 187 163 295 012 2 487 622

107



23. Classification of assets and liabilities > > continued

Carryingvaluehasbeenusedwhereitcloselyapproximatesfairvalues.Fairvalueestimatesaregenerallysubjectiveinnature,andaremadeat a specificpoint in timebasedon the characteristics of the financial instruments and relevantmarket information.Where available themost suitablemeasure for fair value is thequotedmarketprice. In the absenceof organised secondarymarkets for financial instrumentssuchasloandepositsandunlistedderivatives,directmarketpricesarenotalwaysavailable.Thefairvalueofsuchinstrumentswasthereforecalculatedonthebasisofwellestablishedvaluationtechniquesusingcurrentmarketparameters.Changesinassumptionscouldaffecttheseestimatesandtheresultingfairvalues.Derivedfairvalueestimatescannotnecessarilybesubstantiatedbycomparisontoindependentmarkets andmaynotberealisedinanimmediatesaleoftheinstruments.ThediscountratesusedaretheapplicableJIBARratesfortheappropriate timebuckets.

Assumptions applied 1 The carrying value of cash and cash equivalents approximates fair value as it can be realised within a short period of time. 2 Short-term negotiable securities mature within three months, therefore the carrying value approximates fair value. 3 Loans and advances to customers are carried at amortised cost and are tested for impairment at the reporting date. The carrying value at the reporting date is equal to the recoverable amount and thus approximates fair value. 4 Investment securities consists of both listed and unlisted securities. The listed securities are carried at their quoted market price (fair value). The fair values of the unlisted securities are determined using valuation techniques based on the conditions of the agreements in place. See note 24.

24. Financial instruments measured at fair valueThetablebelowanalysesfinancialinstrumentscarriedatfairvalue,byleveloffairvaluehierarchy.Thedifferentlevelsarebasedontheextentthatquotedmarketpricesareusedinthecalculationofthefairvalueofthefinancialinstrumentsandthelevelshavebeendefinedasfollows:

Level 1 –fairvalueisbasedonquotedmarketprices(unadjusted)inactivemarketsforidenticalinstruments.

Level 2 –fairvalueisdeterminedthroughvaluationtechniquesbasedonobservableinputs,eitherdirectly,suchasprices,orindirectly,suchasderivedfromprices.Thiscategoryincludesinstrumentsvaluedusingquotedmarketpricesinactivemarketsforsimilarinstruments,quotedpricesfor identicalorsimilar instrumentsinmarketsthatareconsideredlessthanactiveorothervaluationtechniqueswhereallsignificantinputsaredirectlyorindirectlyobservablefrommarketdata.

Level 3 –fairvalueisdeterminedthroughvaluationtechniquesusingsignificantunobservableinputs.Thiscategoryincludesallinstrumentswherethevaluationtechniqueincludesinputsnotbasedonobservabledataandtheunobservableinputshaveasignificanteffectontheinstrument’svaluation.Thiscategoryincludesinstrumentsthatarevaluedbasedonquotedpricesforsimilar instrumentswheresignificantunobservableadjustmentsorassumptionsarerequiredtoreflectdifferencesbetweentheinstruments.

Fairvaluesoffinancialassetsandliabilitiesthataretradedinactivemarketsarebasedonquotedmarketpricesordealerpricequotations.ForallotherfinancialinstrumentstheGroupdeterminesfairvaluesusingvaluationtechniques.

Level 1 R'000

Level 2 R'000

Level 3 R'000

Total R'000

2011

Assets

Investmentsecurities 6 900 – 391 641 398 541

Otherreceivables – 27 311 – 27 311

6 900 27 311 391 641 425 852

Comprising:

Heldatfairvalue – 27 311 – 27 311

Designatedatfairvalue – – 391 487 391 487

Available-for-sale 6 900 – 154 7 054

6 900 27 311 391 641 425 852

Liabilities

Otherpayables – 25 132 – 25 132

– 25 132 – 25 132

Comprising:


– 25 132 – 25 132


108


24. Financial instruments measured at fair value > > continued

Level 1 R'000

Level 2 R'000

Level 3 R'000

Total R'000

2010

Assets

Investmentsecurities 11 792 – 377 013 388 805

Otherreceivables – 10 755 – 10 755

11 792 10 755 377 013 399 560

Comprising:


Designatedatfairvalue – – 376 859 376 859

Available-for-sale 11 792 – 154 11 946

11 792 10 755 377 013 399 560

Liabilities

Otherpayables – 5 447 – 5 447

– 5 447 – 5 447

Comprising:


– 5 447 – 5 447

ThefollowingtableshowsareconciliationfromthebeginningbalancestotheendingbalancesforfairvaluemeasurementsinLevel3ofthefairvaluehierarchy.

2011 R'000

2010 R'000

Investment securities

Balanceatthebeginningoftheyear 377 013 238 495

Total gains or losses in profit and loss 11 020 26 223

Netpurchases/(settlements) 3 608 112 295

Balance at the end of the year 391 641 377 013

Totalgainsorlossesincludedinprofitorlossfortheperiodarepresentedinthestatementofcomprehensiveincomeasfollows:


R'000

Other receivables

R'000

Other payables

R'000 Total R'000

2011

Fairvalueadjustmentsonfinancialinstrumentsheldatfairvaluethroughprofitorloss

Impactongainsandlossesrecognisedinprofitandloss for the year – (2 004) – (2 004)

Fairvalueadjustmentsonavailableforsaleinstruments

Impactongainsandlossesrecogniseddirectlyinothercomprehensive income for the year 920 – – 920

Fairvalueadjustmentsonfinancialinstrumentsdesignatedatfairvaluethroughprofitandloss

Impactongainsandlossesrecognisedinprofitandloss for the year 11 020 – – 11 020

Includedinnetgainsandlossesonderivativeinstrumentsandforeignexchangegainsandlosses – 29 315 (25 132) 4 183

Total gains or losses on assets and liabilities held at fair value 11 940 27 311 (25 132) 14 119

109



24. Financial instruments measured at fair value > > continued


R'000

Other receivables

R'000

Other payables

R'000 Total R'000

2010

Fairvalueadjustmentsonfinancialinstrumentsheldatfairvaluethroughprofitandloss

Impactongainsandlossesrecognisedinprofitandloss for the year – 2 847 – 2 847

Fairvalueadjustmentsonavailableforsaleinstruments

Impactongainsandlossesrecogniseddirectlyinother comprehensive income for the year 230 – – 230

Fairvalueadjustmentsonfinancialinstrumentsdesignatedatfairvaluethroughprofitandloss

Impactongainsandlossesrecognisedinprofitandloss for the year 23 035 – – 23 035

Includedinnetgainsandlossesonderivativeinstrumentsandforeignexchangegainsandlosses – 7 908 (5 447) 2 461

Total gains or losses on assets and liabilities held atfairvalue

23 265 10 755 (5 447) 28 573

Pleaserefertonote37.4forthesensitivityanalysis.

2011R’000

2010R’000

25. SecuritisationIn theordinarycourseofbusiness, theGroupenters into transactions that result in the transferoffinancialassetstothirdpartiesorspecialpurposevehicles.Theinformationbelowsetsouttheextentofsuchtransfers,andtheGroup'sretainedinterestintransferredassets.

Transferred assetsSouthAfricanSecuritisationProgramme(Pty)Limited(SASP) 1 318 224 978 501

TheGrouphas transferredofficeautomation rental instalment contracts toSASPbuthas retainedresidualownershipofthevehicle,andcontinuestorecognisetheseassetswithinloansandadvancestocustomers.TheGroupsecuritisedafurtherR393million(2010:R58million)worthoffinanceleasesduringtheyear.

26. Funds under administration

SasfinSecurities(Pty)Limited,inafiduciarycapacityonbehalfofclients,administersclientfunds in respect of the following:

Unlistedequities 39 715 71 630

Listedequities 38 517 509 32 029 165

Gilts 52 564 93 059

Fundsheldinmoneymarketaccounts 1 685 721 1 468 256

40 295 509 33 662 110

IncludedinfundsunderadministrationisanamountofR464million(2010:R520million)inrespectofrelatedpartiesasdefinedinnote36.


110


2011R’000

2010R’000

27. Interest incomeInterbank 24 206 38 068

Short-termnegotiablesecurities 3 586 3 934

Instalmentfinance 242 030 208 174

Capitalequipment 23 934 25 412

Debtorfinance 8 481 10 075

Trade finance 26 486 31 372

Othersecuredloans 25 345 21 216

Other 5 188 13 801

Interest earned on financial assets 359 256 352 052

Includedwithinthevariouslineitemsunderinterestincomefortheyearended30June2011isatotalofR4,6million(2010:R3,7million)accruedonimpairedfinancialassets.

28. Interest expenseInterbankfunding 6 046 5 763

Demanddeposits 36 306 47 597

Noticedeposits 6 284 1 163

Fixeddeposits 17 093 14 494

Debtsecurities 76 961 81 246

Long-termfunding 14 637 10 901

Subordinateddebt 8 574 7 359

Other 2 775 3 925

Interest paid on financial liabilities 168 676 172 448

29. Non-interest incomeFeeandcommissionincome 200 412 194 883

Agencyrevenue 54 191 50 657

Netbrokerageincomeandassetmanagementfees 111 888 109 508

Confirmingfees 16 424 14 529

Dividendincome 9 052 30 272

–onsecuritiesheldatfairvaluethroughprofitorloss 345 900

–oninvestmentsdesignatedatfairvalue 8 707 29 372

Fairvalueadjustmentsonfinancialinstrumentsheldatfairvaluethroughprofitorloss (2 004) 2 847

Fairvalueadjustmentsonfinancialinstrumentsdesignatedatfairvalue 11 020 23 035

Netgainsandlossesonderivativeinstrumentsandforeignexchangegainsandlosses 19 250 3 213

Lossondisposalofproperty,plantandequipment (15) (42)

Gainsonrevaluationofinvestmentproperty – 17 232

420 218 446 134

30. Impairment charges on loans and advancesNetimpairmentsraisedandreleasedfornon-performingloans 35 925 24 551

Netimpairmentsraisedandreleasedforperformingloans 1 787 3 001

37 712 27 552

111



2011R’000

2010R’000

31. Operating costs31.1 Staff costs

Salariesandwages 163 640 149 597

Executivedirectorsandprescribedofficers 17 191 16 071

Non-executivedirectors 2 263 1 905

Contributionstodefinedcontributionplans 17 256 15 611

Cashsettledshare-basedpayments(refertonote39) (870) 2 772

Equitysettledshare-basedpayments(refertonote39) (221) (73)

199 259 185 883

31.2 Executive directors and prescribed officers

Includedintheabovestaffcostsisremunerationandbenefitspaidtothefollowingexecutivedirectorsandprescribedofficers:


Cashpackage

R'000

Otherbenefits

R'000

IncentivebonusR'000

Total2011

R'000

Total2010

R'000

RDEBSassoon 2 407 311 850 3 568 4 190

MSegal 2 085 373 700 3 158 3 421

TDSoondarjee 1 525 329 500 2 354 2 094

MGLane 1 317 471 500 2 288 1 958

LRFrohlich 662 302 942 1 906 1 179

LMDirker 1 381 213 300 1 894 1 862

HBrown 904 269 350 1 523 1 367

MESassoon* 437 63 – 500 –

10 718 2 331 4 142 17 191 16 071 * ME Sassoon was appointed as chief executive officer of SasSec with effect from 1 January 2011.

31.3 Other operating expenses

Auditors’remuneration 7 719 9 522

Auditfees–Currentyear 6 524 6 482

–Underprovisionprioryear 816 2 146

–Otherservices 379 894

Consultingfees 3 889 3 941

Depreciation 13 828 17 713

Amortisationofsoftware 2 069 1 384

Operatingleasecharges 6 456 5 876

– Premises 6 420 5 865

–Plantandequipment 36 11

Other 218 057 212 074

252 018 250 510

112


2011R’000

2010R’000

32. Income tax expenseCurrent tax expense 23 979 18 836

Currentyear 18 533 20 175

Capitalgains 5 657 1 527

Overprovisioninprioryears (211) (2 866)

Deferred tax expense (8 327) 8 105

Currentyear (7 783) 9 115

Overprovisioninprioryears 1 442 (1 010)

Capitalgains 427 –

Ratechange (2 413) –

Secondarytaxoncompanies 5 986 3 649

DeferredtaxonSTCcredits (1 477) –

20 161 30 590

Reconciliation of rate of taxation % %

SouthAfricannormaltaxrate 28,0 28,0

Adjustedfor: (11,5) (10,2)

FairvalueofinvestmentsatCapitalgainsrate (2,9) 3,7

Exemptincome (2,9) (6,4)

Non-deductibleexpenses 0,4 0,8

Capitalgains 3,5 (2,0)

Effectoftaxratesinforeignentity (8,3) (3,8)

Taxlossesutilised – (0,9)

Overprovisioninprioryears (2,3) (1,4)

Secondarytaxoncompanies 3,7 2,1

Changeintaxrate (2,0) (1,9)

Other (0,7) (0,4)

Effective rate 16,5 17,8

Income tax recognised directly in other comprehensive income

Available-for-saleinvestmentsecurities 129 32

Netgainonhedgeofnetinvestmentinforeignoperation 5 612 498

5 741 530

Losses, balance of allowances and credits for which a deferred tax asset has been raised:

Estimatedtaxlossesavailabletooffsetfuturetaxableincome 25 562 33 076

AccumulatedSTCcreditswhichhavearisenasaresultofdividends receivedexceedingdividendsdeclared 1 477 –

113



Gross R’000

Direct tax R’000

Non-controlling and preference

shareholdersR’000

Profit attributable to ordinary

shareholders R’000

33. Earnings per share33.1 Headline earnings

2011

Profitbeforedirecttaxation 134 014 20 161 15 840 98 013

Headlineadjustableitemsreversed 15 2 417 – (2 402)

Profitonsaleofpropertyandequipment–IAS16 15 4 – 11

Taxratechangeoninvestmentproperty–IAS12 – 2 413 – (2 413)

134 029 22 578 15 840 95 611

2010

Profitbeforedirecttaxation 169 886 30 590 19 722 119 574

Headlineadjustableitemsreversed (17 190) (4 813) – (12 377)

Profitonsaleofpropertyandequipment–IAS16 42 12 – 30

Revaluationofinvestmentproperty–IAS40 (17 232) (4 825) – (12 407)

152 696 25 777 19 722 107 197

2011R’000

2010R’000

33.2 Weighted average number of ordinary sharesWeightedaveragenumberofordinarysharesduringtheyear 32 224 27 519

Weightedaverageordinarysharesissuedduringtheyear – 2 684

Weightedaveragenumberofordinaryshares 32 224 30 203

Effectofshareoptions 5 30

Weightedaveragenumberofordinaryshares(diluted) 32 229 30 233

Cents Cents

33.3 Headline earnings per ordinary shareThecalculationofheadlineearningsperordinaryshareisbasedonheadlineearningsofR95,6million(2010:R107,1million)andtheweightedaverageof32224204(2010:30203093)ordinarysharesinissuefortheyear. 297 355

33.4 Earnings per ordinary shareThecalculationofearningsperordinaryshareisbasedonearningsof R98million(2010:R119,5million)andtheweightedaverageof 32224204(2010:30203093)ordinarysharesinissuefortheyear. 304 396

33.5 Diluted headline earnings per ordinary shareThecalculationofdilutedheadlineearningsperordinaryshareisbasedonheadlineearningsofR95,6million(2010:R107,1million)anddilutedsharesof32229177(2010:30233245). 297 355

33.6 Diluted earnings per ordinary shareThecalculationofdilutedearningsperordinaryshareisbasedon earningsofR98million(2010:R119,5million)anddilutedsharesof 32229177(2010:30233245). 304 396


114


2011R’000

2010R’000

34. Cash receipts from customers34.1 Cash receipts from costumers

Interestincome 359 256 352 052

Otherincome 382 604 374 039

741 860 726 091

Cash paid to customers, employees and suppliers

Interestexpense 168 676 172 448

Totaloperatingexpenses 436 471 414 597

605 147 587 045

Cash inflow from operating activities 136 713 139 046

Reconciliation of operating profit to cash flows from operating activities

Profitbeforeincometax 134 014 169 886

Lossondisposalofproperty,plantandequipment 15 42

Dividendsreceived (9 052) (30 272)

Impairmentchargesonloansandadvances 37 712 27 552

Exchangeratefluctuationsoncashheld (12 516) (3 631)

Increaseinforeigncurrencytranslation (19 250) (3 213)

Cash-settledshare-basedpayments (870) 2 772

Equity-settledshare-basedpayments (221) (73)

Fairvalueadjustmentsonfinancialinstrumentsheldatfairvaluethroughprofitandloss 2 004 (2 847)

Fairvalueadjustmentsonfinancialinstrumentsdesignatedatfairvalue (11 020) (23 035)

Fairvaluegains/(losses)oninvestmentproperty – (17 232)

Depreciation 13 828 17 713

Amortisationofsoftware 2 069 1 384

136 713 139 046

34.2 Taxation paid

Unpaidatthebeginningoftheyear 66 322 42 702


Unpaidattheendoftheyear (60 115) (66 322)

26 368 6 970

34.3 Dividends paidChargetodistributablereserves 58 077 73 079

58 077 73 079

34.4 Cash and cash equivalents at end of the yearCashandcashbalances 805 233 533 447

Short-termnegotiablesecurities 72 405 58 000

Interbankfunding (60 453) (52 094)

817 185 539 353

115



35. Related party transactionsThefollowingaredefinedasrelatedpartiesoftheGroup:

•Subsidiaries(refertonote38)•Associatedundertakingsandjointventures(refertonote8)•Keymanagementpersonnel

IAS24-relatedparties,requirestheidentificationof"keymanagementpersonnel".Accordingly,theGrouphasdefinedkeymanagementpersonnelasthosepersonshavingauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheCompany,directlyorindirectly,includinganydirector(whetherexecutiveorotherwise)oftheCompany,aswellasclosemembersofthefamilyofanyoftheseindividuals.KeymanagementpersonnelareconsideredtobethedirectorsoftheCompany.

DetailsofdirectorsemolumentsandshareholdingaredisclosedintheDirectors’Reportonpages72and73.

2011R’000

2010R’000

36. Transactions with key managementKeymanagementpersonnelandtheirimmediaterelativeshavebalanceswiththe Groupatyear-endasfollows:

Depositsfromcustomers 60 125 59 199*

Fundsundermanagement 464 070 520 573

Transactionsaremadeontermsequivalenttothoseonanarm’slengthbasisasofferedto theGroup’sclients.

TheGrouptransactswithInnoVentRentalandAssetManagementSolutions(Pty)Limited,anassociateoftheGroup.Alltransactionareonanarmslengthbasis.

Refertonote38forintergrouprelatedpartytransactions.


37. Financial risk management37.1 Introduction and overview

RiskmanagementisfundamentaltotheGroup’sbusinessactivities,enablingmanagementtooperatemoreeffectivelyinachangingandhighlyregulatedenvironment.TheGroupremainscommittedtotheobjectivesofincreasingshareholdervaluebydevelopingandgrowingbusinessthatisconsistentwiththeagreedriskappetite,byseekingappropriatebalancebetweenriskandreward.

ThisnotepresentsinformationabouttheGroup’sexposuretothevariousclassesofrisks,theGroup’sobjectives,policiesandprocessesformeasuringandmanagingrisk,andtheGroup’smanagementofcapital.

Risk management frameworkGovernancestructureTheresponsibilityforriskmanagementresidesatalllevels,frommembersoftheboardofdirectorstoindividualsthroughouttheGroup.Theboardhasoverall responsibility for theestablishmentandoversightof theGroup’s riskmanagement framework.TheboardhasestablishedtheALCOandGRCMcommittees,whichareresponsiblefordevelopingandmonitoringGroupriskmanagementpoliciesin their specified areas. All board committeeshaveboth executive andnon-executivedirectors asmembers includingmembers ofexecutivemanagement,andreportregularlytotheboardofdirectorsontheiractivities.

TheGroup’sriskmanagementpoliciesareestablishedtoidentifyandanalysetherisksfacedbytheGroup,tosetappropriaterisklimitsandcontrols,andtomonitorrisksandadherencetolimits.Riskmanagementpoliciesandsystemsarereviewedregularlytoreflectchangesinmarketconditions,productsandservicesoffered.TheGroup,throughitstrainingandmanagementstandardsandprocedures,aimstodevelopadisciplinedandconstructivecontrolenvironment,inwhichallemployeesunderstandtheirrolesandobligations.


116


37. Financial risk management >>continued37.1 Introduction and overview >>continued

TheGroupusesa“3linesofdefence”model:

• Inthefirstlineofdefence,businessunitmanagementisprimarilyresponsibleforriskmanagement.Theirassessment,evaluationandmeasurementofriskisintegratedwiththeday-to-dayactivitiesofthebusiness.ThisprocessincludestheimplementationoftheGroup’sriskmanagementpolicies,identificationofkeyareasofriskandimplementationofcorrectiveactionwhererequired.BusinessunitmanagementisalsoaccountableforappropriatereportingtothegovernancebodieswithintheGroup.

• ThesecondlineofdefenceconsistsoftheGroupriskmanagementunitwhichisindependentoflinemanagement.TheGroupfunctionisprimarilyresponsibleforsettingtheGroup’sriskmanagementframeworkandpolicy,andprovidingoversightandindependentreportingtoExecutiveManagementandtotheBoardandRiskandCapitalcommitteesrespectively.

• ThethirdlineofdefenceconsistsoftheGroupInternalAuditfunctionwhichprovidesanindependentassessmentoftheadequacyandeffectivenessoftheoverallriskmanagementframeworkandreportsdirectlytotheGACC.TheGACCisresponsibleformonitoringcompliancewiththeGroup’sriskmanagementpoliciesandprocedures,andforreviewingtheadequacyoftheriskmanagementframeworkinrelationtotherisksfacedbytheGroup.TheGACCisassistedinthesefunctionsbyGroupInternalAudit.GroupInternalAuditundertakesbothregularandadhocreviewsofriskmanagementcontrolsandprocedures,theresultsofwhicharereportedtotheGACC.

Risk governance standards, policies and procedures TheGrouphasdevelopedasetofpolicies,proceduresandstandardsforeachmajorrisktype.ThepoliciesandproceduressetoutandensurealignmentandconsistencyinthemannerinwhichthemajorrisktypesacrosstheGroupareidentified,measured,managedandreportedon.

AllpoliciesandproceduresareappliedconsistentlyacrosstheGroupandareapprovedbyGRCM.Itistheresponsibilityofbusinessunitmanagementtoensuretherequirementsofriskpoliciesandproceduresareproperlyimplementedandadheredtoonaregularbasis.BusinessunitsandGroupriskfunctionsarerequiredtoself-assessandreportonaquarterlybasistotheGroupComplianceOfficer.

Risk categoriesTheprincipleriskstowhichtheGroupisexposedandwhichitmanagesarelistedhereunder:

Credit risk –CreditriskistheriskoflosstotheGroupasaresultoffailurebyaclientorcounterpartytomeetitscontractualobligationstotheGroup.

Market risk –Marketriskisdefinedastheriskofchangeintheactualoreffectivemarketvalueorearningsofaportfoliooffinancialinstrumentscausedbyadversemovementsinmarketvariablessuchasequity,currencyexchangerates,interestrates,creditspreadsandtheimpliedvolatilitiesinalloftheabove.

Liquidity risk–LiquidityriskariseswhentheGroupisunabletomakeitspaymentobligationswhentheyfalldue.ThisisasaresultoftheGroup’sinabilitytoliquifyassetsortoobtainfundingtimeouslytomeetitsliquidityneeds.

Operational risk –Operationalriskisdefinedastheriskoflossresultingfrominadequateorfailedbusinessoperationscausedthroughprocess,peopleorsystems,oralternativelythroughexternalevents.

Business risk –Businessriskistheriskoflossduetoadverseoperatingconditionscausedbymarket-drivenpressuressuchasdecreaseddemand,increasedcompetition,costincreasesorbyGroup’sspecificcausessuchaspoorchoiceofstrategy,reputationaldamageorlossesincurredtoprotectreputation.Theselossesmaybeincreasedthroughinflexiblecoststructuresorinefficiencies.

Theriskgovernanceprinciplesinrespectofmarket,creditandliquidityriskhaveremainedrelativelyunchangedfromthe prioryear.

37.2 Credit risk Creditriskistheriskoffinancial losstotheGroupifacustomerorcounterpartytoafinancial instrumentfailstomeetitscontractualobligations,andarisesprincipallyfromtheGroup’sloansandadvancestocustomers,depositswithotherbanksandinvestmentsecurities.Forriskmanagementreportingpurposes,theGroupconsidersandconsolidatesallelementsofcreditriskexposure(suchasindividualobligordefaultrisk,countryandsectorrisk).

117



37. Financial risk management >>continued37.2 Credit risk >>continued

Management of credit risk Theboard of directors has delegated responsibility for themanagement of credit risk to theCredit Investment ReviewCommittee(“CIRC”)of theGroup.A separateGroupCreditdepartment,which reports to thechiefoperatingofficer, is responsible foroversight oftheGroup’screditrisk,including:

• Formulatingcreditpoliciesinconsultationwithbusinessunits,coveringcollateralrequirements,creditassessment,riskgradingandreporting,documentaryandlegalprocedures,andcompliancewithregulatoryandstatutoryrequirements.

• Establishingtheauthorisationstructurefortheapprovalandrenewalofcreditfacilities.Authorisationlimitsareallocatedtobusinessunitcreditofficers.LargerfacilitiesrequireapprovalbyGroupCredit,HeadofGroupCredit,CIRCoftheGrouportheBoardofDirectorsasappropriate.

• Reviewingandassessingcreditrisk.GroupCreditassessesallcreditexposuresinexcessofdesignatedlimits,priortofacilitiesbeingcommittedtocustomersbythebusinessunitconcerned.Renewalsandreviewsoffacilitiesaresubjecttothesamereviewprocess.

• Limitingconcentrationsofexposuretocounterparties,geographiesandindustriesforloansandadvances,depositswithbanksandinvestmentsecurities.

• DevelopingandmaintainingtheGroup’sriskindicatorsinordertocategoriseexposuresaccordingtothedegreeofriskoffinanciallossfacedandtofocusmanagementontheattendantrisks.Therisksystemisusedindeterminingwhereimpairmentprovisionsmayberequiredagainstspecificcreditexposures.ThecurrentriskframeworkconsistsoffourBtoEgradesreflectingvaryingdegreesofriskofdefaultandtheavailabilityofcollateralorothercreditriskmitigation.Theresponsibilityforsettingriskgradeslieswiththefinalapprovingexecutive/committeeasappropriate.RiskgradesaresubjecttoregularreviewsbyGroupRisk.

• Reviewingcomplianceofbusinessunitswithagreedexposurelimits,includingthoseforselectedindustries,countryriskandproducttypes.RegularreportsareprovidedtoGroupCreditonthecreditqualityoflocalportfoliosandappropriatecorrectiveactionistaken.

• Providingadvice,guidanceandspecialistskillstobusinessunitstopromotebestpracticethroughouttheGroupinthemanagementofcreditrisk.

EachbusinessunitisrequiredtoimplementGroupcreditpoliciesandprocedures,withcreditapprovalauthoritiesdelegatedfromtheGroupCIRC.Eachbusinessunitisresponsibleforthequalityandperformanceofitscreditportfolioandformonitoringandcontrollingallcreditrisksinitsportfolios,includingthosesubjecttoGroupapproval.

RegularauditsofbusinessunitsandGroupcreditprocessesareundertakenbyGroupInternalAudit.

Securitisation TheGroupusessecuritisationprimarilyasanalternativesourceof fundingfor it’s instalmentfinanceoperations,byaddingflexibilitytostructural liquidity riskanddiversifying the fundingbase.All securitisableassetsaresubject to theGroup’scredit riskpoliciesandprocedures.

TheGroupfulfilsanumberofrolesintheprocessofsecuritisingtheseassetsincludingthatoforiginator,sponsor,hedgecounterpartyandadministrator,andappliesitsGroupcreditriskpoliciesandprocedurestothesefunctions.

Deposits with other banks TheGroupplacesfundsonadailybasiswithotherbanks.Thesedepositsaregenerallyheldonovernightcalloronashort-termtenureandareavailableondemandoratmaturity.ThedepositsaremadeinaccordancewiththemandatesanddirectivesprovidedbytheALCOandRiskandCapitalManagementcommittees.Intermsofthesepolicies,depositscanonlybemadewithbankinginstitutionsthathaveaAAAorAAratingsasprovidedbytheaccreditedglobalratingagencies,andmaynotexceedthedefinedinternalbenchmarksoftheGroup.DepositswithotherbanksarereportedonadailybasistoexecutivemanagementandtoALCOonamonthlybasistoensurecompliancewithGroup’sALCOpolicy.Collateralisgenerallynotheldfordepositwithotherbanks.

Other receivables Includedinotherreceivables,istheGroup’sexposuretoitsFreight&forwardingcustomers.ThemajorityofthesecustomersareGautengbased.Thissubsidiaryhasdefinedcreditriskmanagementpoliciesandprocedures.Clientsaregrantedcreditlimitsintermsofthispolicyandexposuresandutilisationlevelsaremonitoredonamonthlybasisbymanagement.TheGroupinsuresitsreceivableswithamajorinsuranceunderwritertomitigateitsexposuretoanylosses.Detailsofimpairmentandcollateralareprovidedinthenotesthatfollow.

Impaired loans and securities ImpairedloansandsecuritiesareloansandsecuritiesforwhichtheGroupdeterminesthatitisprobablethatitwillbeunabletocollectallprincipalandinterestdueaccordingtothecontractualtermsoftheloan/securitiesagreement(s).TheseloansaregradedintheGroup’sinternalcreditriskgradingsystem.


118



Past due but not impaired loans Loans and securitieswhere contractual interest or principal payments are past due but theGroupbelieves that impairment is notappropriateonthebasisofthelevelofsecurity/collateralavailableand/orthestageofcollectionofamountsowedtotheGroup.

Loans with renegotiated terms Loanswith renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position andwheretheGrouphasmadeconcessionsthatitwouldnototherwiseconsider.Oncetheloanisrestructureditremainsinthiscategoryindependentofsatisfactoryperformanceafterrestructuring.Therewerenorenegotiatedloansin2011(2010:Rnil).

Credit impairment TheGroupestablishesanallowanceforimpairmentlossesthatrepresentsitsestimateofincurredlossesinitsloanportfolio.Themaincomponentsofthisallowanceareaspecificlosscomponentthatrelatestoindividuallysignificantexposures,andaportfolioloanlossallowanceestablishedforGroupsofhomogeneousassetsinrespectoflossesthathavebeenincurredbuthavenotbeenidentifiedonloanssubjecttoindividualassessmentforimpairment.

Write-off policy TheGroupwritesoffa loan/securitybalance(andanyrelatedallowancesfor impairment losses)whenGroupCreditdeterminesthattheloans/securitiesareuncollectible.Thisdeterminationisreachedafterconsideringinformationsuchastheoccurrenceofsignificantchangesintheborrower/issuer’sfinancialpositionsuchthattheborrower/issuercannolongerpaytheobligation,orthatproceedsfromcollateralwillnotbesufficienttopaybacktheentireexposure.

Credit risk measurement and determination TheGroupusesitsinternallydevelopedmodelsandpracticestomeasureandmanagecreditrisk,byutilisingskilledresourcestoensureit isproperlymanagedandcontrolled.TheGrouphasadoptedthestandardisedapproach in termsofBasel II tomeasurecredit riskthroughthemajorityofitsbusiness,andusestheregulatoryriskbucketsperSARBasameasurementcriteriaforassessingperformingcounterpartiesasfollows:

Categorisation of counterparty SARB risk bucket

–Performingloansandadvances A

–Non-performingloansandadvances

–Specialmention B

–Substandard C

–Doubtful D

–Loss E

119




Group maximum on-balance sheet exposure to credit risk by credit quality

Performing loans and advances

R’000

Past due but not

impairedR’000

ImpairedR’000

Gross maximum exposure

R’000

Security against

impairedR’000

Net impaired exposure

R’000

2011

Cashandcashbalances 773 647 – – 773 647 – –

Short-termnegotiablesecurities 72 405 – – 72 405 – –

Loanandadvances 2 228 809 11 667 188 567 2 429 043 106 975 81 592

Instalmentfinance 1 741 295 310 66 853 1 808 458 18 395 48 458

Capitalequipmentfinance 184 159 890 9 610 194 659 6 347 3 263

Debtorfinance 60 872 – 240 61 112 224 16

Trade finance 201 648 10 467 13 862 225 977 11 139 2 723

Othersecuredloans 40 835 – 98 002 138 837 70 870 27 132

Otherreceivables 346 496 23 871 558 370 925 558 –

Derivativesatfairvalue 27 311 – – 27 311 – –

Freightforwardingandcustomsclearing 51 019 23 871 558 75 448 558 –

Stockbrokingclients 157 998 – – 157 998 – –

Otherreceivables 110 168 – – 110 168 – –

Investmentsecurities 405 176 – – 405 176 – –

3 826 533 35 538 189 125 4 051 196 107 533 81 592

Add:Financialinstrumentsnotexposedtocreditrisk 31 586

Less:Creditimpairmentsforloansandadvances (96 057)

3 986 725

Representedbythefollowingstatementoffinancialpositionitems:

Cashandcashbalances 805 233

Short-termnegotiablesecurities 72 405

Loansandadvances 2 332 986

Investmentsecurities 405 176

Otherreceivables 370 925

3 986 725


120



Performing loans and advances

R’000

Past due but not

impairedR’000

ImpairedR’000

Gross maximum exposure

R’000

Security against

impairedR’000


R’000

2010

Cashandcashbalances 510 960 – – 510 960 – –

Short-termnegotiablesecurities 58 000 – – 58 000 – –

Loanandadvances 1 834 336 2 461 145 971 1 982 768 78 379 67 591

Instalmentfinance 1 368 841 507 53 820 1 423 168 13 844 39 975

Capitalequipmentfinance 138 297 15 17 891 156 203 11 670 6 221

Debtorfinance 56 456 – 5 079 61 535 3 399 1 680

Trade finance 213 707 1 939 32 911 248 557 18 527 14 384

Othersecuredloans 57 035 – 36 270 93 305 30 939 5 331

Otherreceivables 281 964 10 454 571 292 989 571 –

Derivativesatfairvalue 10 755 – – 10 755 – –

Freightforwardingandcustomsclearing 60 898 10 454 571 71 923 571 –

Stockbrokingclients 117 393 – – 117 393 – –

Otherreceivables 92 918 – – 92 918 – –

Investmentsecurities 396 017 – – 396 017 – –

3 081 277 12 915 146 542 3 240 734 78 950 67 591

Add:Financialinstrumentsnotexposedtocreditrisk 22 487

Less:Creditimpairmentsforloansandadvances (80 268)

3 182 953

Representedbythefollowingstatementoffinancialpositionitems:

Cashandcashbalances 533 447

Short-termnegotiablesecurities 58 000

Loansandadvances 1 902 500

Investmentsecurities 396 017

Otherreceivables 292 989

3 182 953

Maximum off-balance sheet exposure to credit risk

2011R’000

2010R’000

Unutilisedlettersofcreditestablishedandconfirmedordersonbehalfofclients 35 746 32 967

Guaranteesissued 15 454 19 181

51 200 52 148

121




Past due but not impaired loans and advances

Between 1 and 30 days

R’00031 - 60 days

R’00061 - 90 days

R’000> 90 days

R’000Total

R’000

2011

Ageingofloansandadvancespastduebutnotimpaired

Loansandadvances 9 186 2 130 351 – 11 667

Freightforwardingandcustomsclearing 14 085 5 621 1 142 3 023 23 871

23 271 7 751 1 493 3 023 35 538

2010

Ageingofloansandadvancespastduebutnotimpaired

Loansandadvances 1 971 490 – – 2 461

Freightforwardingandcustomsclearing 5 773 952 854 2 875 10 454

7 744 1 442 854 2 875 12 915

Impaired exposure of non-performing loans and advances

Specialmention

R’000Substandard

R’000Doubtful

R’000

Expected loss

R’000


R’000

2011

Trade finance 66 – 313 2 344 2 723

Debtorfinance – – – 16 16

Capitalequipmentfinance – – – 3 263 3 263

Instalmentfinance 65 – 2 848 45 545 48 458

Othersecuredloans – – – 27 132 27 132

131 – 3 161 78 300 81 592

2010

Trade finance 213 – – 14 171 14 384

Debtorfinance – – – 1 680 1 680

Capitalequipmentfinance 10 – 238 5 973 6 221

Instalmentfinance 85 – 2 606 37 284 39 975

Othersecuredloans – – – 5 331 5 331

308 – 2 844 64 439 67 591


122



Collateral for loans and advancesCollateral TheGroupholdscollateralagainstloansandadvancestocustomersinordertoreducecreditrisk.Althoughcollateralisheld,theGroup’spolicyistoestablishthatloansandadvanceswhicharegrantedarewithinthecustomer’scapacitytorepay,ratherthantorelyonthecollateralheldagainstthem.Estimatesoffairvaluearebasedonthevalueofcollateralassessedatthetimeofborrowingandareupdatedannually, ifapplicable,and ifanaccount is individuallyassessedfor impairment.Thedifferentcategoriesofcollateral includegeneralnotorialbondsovertheclient’sstockandotherassets,cessionofdebtorbookandcontinuouscoveringmortgagebondsoverproperty.Insurancetakenoutonloansandadvancesisalsoviewedascollateral.

2011R’000

2010R’000

1. Trade finance

AnestimateofthefairvalueofcollateralandothersecurityenhancementsheldagainstfinancialassetsisshownbelowfortheTradeFinancedivision.

Total exposure

Exposure 225 977 248 557

Totalsecuritiesheld 189 594 230 323

Breakdown of securities held: 189 594 230 323

Stock 105 784 122 312

Fixedassets 34 689 16 875

Receivables 34 807 67 550

Property 12 929 22 046

Pledges/deposits 1 385 1 540

Against individually impaired assets

Exposure 13 862 32 911



Stock 6 550 7 669

Fixedassets – 2 624

Receivables – 1 028

Property 3 248 6 545

Pledges/deposits 1 341 661

2. Debtor financeTheGroup’sDebtor Financedivisiondoesnot allowanadvancewhichexceeds thedebtorsbookof thecounterparty.TheGroup,whichhascontroloverthedebtorsbooks,isthereforecoveredregardingitsexposure,usingprimarilyitscounterparty’sreceivablesasitssecurity.Dependingonthecreditratingandtheindustryathand,theGroupalsoholdsamarginof20%–30%onthefundabledebtorsbookofthecounterpartyasanextrabufferforsecurity.

Additionalsecurities,suchasassetsandpropertyarealsoheldas furthercollateralagainstcustomers.WhereaclientenjoysotherfacilitieswithintheGroup,duetodebtorsbeingprimarysecurityonDebtorFinancefacilities,theremainingcollateralisapportionedtootherGroupfacilities.

123



2011R’000

2010R’000


2. Debtor finance >>continued

Total debtor finance exposure 61 096 59 855

Receivables 61 112 61 535

Specificimpairment 16 1 680

Forthepurposeofthisdisclosure,thecollateralisvaluedatthelowerofexposuretoclient and receivablesheldassecurity.

Againstindividuallyimpairedassets

Exposure 240 5 079

Totalsecuritiesheld 224 3 399

Breakdown of securities held: 224 3 399

Stock – –

Fixedassets 224 –

Receivables – 3 049

Property – 350

3. Instalment finance3.1 Rentals

WhilsttheGroupretainsfullownershipoftheassetsandequipmentfinanced throughoutthedurationofthecontract,itgenerallydoesnottakethevalueofthe assetsandequipmentforcollateralpurposes.

Gross loans and advances 1 808 458 1 423 168

Forthepurposeofthisdisclosure,theassetvalueisthelowerofexposuretoclientandthedepreciatedvalueoftheassetsbeingfinanced.

Inadditiontothedepreciatedvalueoftheassetbeingfinanced,whichcanbevalued,clientsmayberequiredtosignpersonalsuretyonthecontract,dependingontheircredit rating and the industry inwhich they operate.This is a furthermeasure toreducetheGroup'screditriskalthoughafairvalueishardtoattainforthesesureties,andassuchnofinancialvaluesareallocated.

3.2 Capital equipment finance

Theprimarycollateralforcapitalequipmentfinanceistheplantorequipmentbeingfinanced.Howeverother security suchasgeneralnotorialbondsoverotherassetsand continuous coveringmortgage bonds over property are sometimes taken toincreasethecollateralcover.

Total exposure 194 659 156 203


Totalexposure 9 610 17 891

Recoverableamountfromplant 6 347 11 670

Collateral repossessed

Recoverableamountfromplant 6 347 11 670

Thecollateralisvaluedatthelowerofexposuretotheclientandthesalvageable valueoftheassetbeingfinanced.

Inadditiontothedepreciatedvalueoftheassetbeingfinanced,whichcanbevalued, clientsmayberequiredtosignpersonalsuretyonthecontract,dependingontheir creditratingandtheindustryinwhichtheyoperate.Thisisafurthermeasuretoreduce theGroup’screditriskalthoughafairvalueishardtoattainforthesesureties,andas suchnofinancialvaluesareallocated.


124


2011R’000

2010R’000


4. Other secured loans

Theprimarycollateralheldforothersecuredloanscomprisesmainlyfirstandsecondcovering mortgage bonds, and in some instances suretyships. The collateral ismeasuredintermsofmarketrelatedpropertyvaluations.

Totalexposure 138 837 93 305

Recoverableamountfromcollateral 111 705 92 000


Property 65 255 53 000



Exposure 98 002 36 270



Property 24 420 6 939


37.3 Liquidity risk LiquidityriskistheriskthattheGroupwillencounterdifficultyinmeetingobligationstorepaydepositors/investorsandotherfinancialliabilities,whentheyfalldue,andtofulfilcommitmentstolendandreplacefundswhentheyarewithdrawn.

Thisriskisinherentinallbankingandfinancialserviceoperationsandcanbeimpactedbyarangeofinstitutionalspecificandmarket-wideevents.

Management of liquidity riskTheGroup’sapproachtomanagingliquidityistoensure,asfaraspossible,thatitwillalwayshavesufficientliquiditytomeetitsliabilitieswhendue,underbothnormalandstressedconditions,withoutincurringunacceptablelossesorriskingdamagetotheGroup’sreputation.TheGroupALCOsetslimitsandmandatesfortheGroupTreasurydepartmenttomanagetheliquidityriskwithinthisframework.

GroupTreasuryreceivesinformationfromotherbusinessunitsregardingtheliquidityprofileoftheirfinancialassetsandliabilitiesanddetailsofotherprojectedcashflowsarising fromprojected futurebusiness.GroupTreasury thenmaintainsaportfolioofshort-termliquidassets, largelymadeupofshort-termliquid investmentsecurities, interbank loansandother interbankfacilities, toensurethatsufficient liquidity ismaintainedwithin theGroupas awhole.The liquidity requirementsofbusinessunits and subsidiaries aremetthroughshort-termloansfromGroupTreasurytocoveranyshort-termfluctuationsandlongertermfundingtoaddressanystructuralliquidityrequirements.TheGroupbelievesthatthemanagementofliquidityshouldencompassanoverallstatementoffinancialpositionapproachwhichconsolidatesallsourcesandusesofliquiditywhilstmaintainingabalancebetweenliquidity,profitabilityandinterestrateconsiderations.

Liquidity risk measurement Thedailyliquiditypositionismonitored,reportedintheformofcashflowmeasurementandprojectionsintermsofkeyperiodsrangingfromdemandtolong-termperiods.Regularliquiditystresstestingisconductedunderavarietyofscenarioscoveringbothnormalandmoreseveremarketconditions.AllliquiditypoliciesandproceduresaresubjecttoreviewandapprovalbyALCO.DailyreportscovertheliquiditypositionofboththeGroupandoperatingsubsidiariesandforeignbranches.Asummaryreport,includinganyexceptionsandremedialactiontaken,issubmittedregularlytoALCO.Sourcesofliquidityareregularlyreviewedtomaintainawidediversificationbyfinancial,productandform.

Exposure to liquidity riskThekeymeasureusedby theGroup formanaging liquidity risk is the ratioofnet liquidassets todeposits fromcustomers. For thispurpose,netliquidassetsareconsideredasincludingcashandcashequivalentsandinvestmentgradedebtsecuritiesforwhichthereisanactiveandliquidmarketlessanydepositsfrombanks,debtsecuritiesissued,otherborrowingsandcommitmentsmaturingwithinthenextmonth.TheGroupALCOmonitorstheexposuretoliquidityriskintermsofinternalbenchmarksithassetanddefinedforGroupTreasurytomaintain.Asimilar,butnotidentical,calculationisusedtomeasuretheGroup’scompliancewiththeliquiditylimitestablishedbytheGroup’sleadregulator,SouthAfricanReserveBank.

125



37. Financial risk management >>continued37.3 Liquidity risk >>continued

Carrying amount

R’000

Gross uutflow

R’000

Less than 1 month

R’000

1 – 3 months

R’000

4 – 12 months

R’000

1 – 5yearsR’000

6 – 10 yearsR’000

Non- contractual

R’000Total

R’000

2011

Interbankfunding 60 453 60 453 47 801 12 652 – – – – 60 453

Depositsfromcustomers 1 215 446 1 215 446 941 004 195 703 73 239 – 5 500 – 1 215 446

Debtsecuritiesissued 1 297 614 1 517 564 – 21 699 379 520 1 116 345 – – 1 517 564

Long-termfunding 242 897 338 185 448 1 958 13 445 260 520 61 814 – 338 185

Otherpayables 374 922 375 146 179 897 168 343 6 716 1 873 – 18 317 375 146

3 191 332 3 506 794 1 169 150 400 355 472 920 1 378 738 67 314 18 317 3 506 794

Loancommitments 35 746 35 746 7 558 17 276 10 912 – – – 35 746

Total 3 227 078 3 542 540 1 176 708 417 631 483 832 1 378 736 67 314 18 317 3 542 540

2010

Interbankfunding 52 094 52 094 24 759 27 335 – – – – 52 094

Depositsfromcustomers 911 559 938 353 861 267 46 433 30 653 – – – 938 353

Debtsecuritiesissued 924 436 1 088 282 – 20 751 398 513 669 018 – – 1 088 282

Long-termfunding 182 450 292 239 896 4 950 13 954 145 451 126 988 – 292 239

Otherpayables 338 187 338 187 240 069 32 270 5 828 60 020 – – 338 187

2 408 726 2 709 155 1 126 991 131 739 448 948 874 489 126 988 – 2 709 155

Loancommitments 32 967 32 967 8 261 15 769 8 937 – – – 32 967

Total 2 441 693 2 742 122 1 135 252 147 508 457 885 874 489 126 988 – 2 742 122

Theabove table shows theundiscountedcashflowson theGroup’s financial liabilities andunrecognised loancommitmentson thebasisof theirearliestpossiblecontractualmaturity.TheGroup’sexpectedcashflowsonthese instrumentsvarysignificantly fromthisanalysis.Forexample,demanddepositsfromcustomersareexpectedtomaintainastableorincreasingbalance;andunrecognisedloancommitmentsarenotallexpectedtobedrawndownimmediately.Forthisreasonbehaviouralprofilingisappliedtoassets,liabilitiesandoff-balancesheetcommitmentswithanundeterminablematurityordrawdownperiod.

Tomanagetheliquidityriskarisingfromfinancialliabilities,theGroupholdsliquidassetscomprisingcashandcashequivalentsforwhichthereisanactiveliquidmarket.Theseassetscanbereadilysoldtomeetliquidityrequirements.HencetheGroupbelievesthatitisnotnecessarytodiscloseamaturityanalysisinrespectoftheseassetstoenableuserstoevaluatethenatureandextentofliquidityrisk.

37.4 Market risks Market risk is therisk thatchanges inmarketvariables,suchas interest rates,equityprices, foreignexchangeratesandcreditspreads(notrelatingtochangesintheobligor’s/issuer’screditstanding)willaffecttheGroup’s incomeorthevalueof itsholdingsoffinancialinstruments.Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimisingthereturnonrisk.

Settlement risk TheGroupisexposedtomarketpriceriskthroughitsstockbrokertradingactivitiesonbehalfofclients;andcreditriskifcounterpartiesfailtoperformascontracted.

Therisksaremitigatedbythefactthatthebroker’sclientbasecomprisesmostlycontrolledclients(iecashandscripheldbeforetrading).Appropriateclientacceptanceandmonitoringproceduresareenforcedby theCompany.Credit limitsaredeterminedandset forallcontrolledclients.Thelimitismonitoredregularlytoensurethattheclientdoesnotexceedthelimitsetandisunabletopayforpurchasetransactionsenteredinto.


126


37. Financial risk management >>continued

37.4 Market risks >>continuedManagement of market risks TheGrouphasnotradingportfoliosandthereforenoexposure inthisregard.Non-tradingportfoliosareheldbytheGroupTreasuryandareassociatedwithfluctuationsinthemarketpricesofassetsandliabilities.Accordingly,theGrouphasexposuretointerestrateriskandcurrencyriskinrespectofnon-tradingportfolios.OverallauthorityformarketriskisvestedinALCO.GroupRiskisresponsibleforthedevelopmentofdetailedriskmanagementpolicies(subjecttoreviewandapprovalbyALCO)andfortheday-to-dayreviewof theirimplementation.

Includedinmarketrisk,isequityinvestmentriskarisingfromequitypricechangesinrespectoflistedandunlistedinvestmentsheldbytheGroupasapprovedbytheGroup’sInvestmentandALCOcommitteesrespectively.

Exposure to interest rate risk – non-trading portfolios Theprincipalrisktowhichnon-tradingportfoliosareexposedistheriskoflossfromfluctuationsinthefuturecashflowsorfairvaluesoffinancialinstrumentsbecauseofachangeinmarketinterestrates.Interestrateriskismanagedprincipallythroughmonitoringinterestrategapsandbyhavingpre-approved limits for repricingbands.TheALCO is themonitoringbody forcompliancewiththese limitsandisassistedbyRiskManagementinitsday-to-daymonitoringactivities.AsummaryoftheGroup’sinterestrategappositiononnon-tradingportfoliosisasfollows,andassumesthataportionofthetradefinanceportfoliorepricesonaverageovera30-dayperiodandtheremaining loans and advances book is price sensitive:

Up to 1month

R’000

1 – 3months

R’000

4 – 12months

R’000

1 – 5years R’000

TotalR’000

2011

Assets

Cashandcashbalances 638 540 135 107 – – 773 647

Short-termnegotiablesecurities 45 757 19 894 6 754 – 72 405

Loansandadvances 812 854 134 299 130 338 1 351 552 2 429 043

Total assets 1 497 151 289 300 137 092 1 351 552 3 275 095

Liabilities

Interbankfunding 60 453 – – – 60 453

Depositsfromcustomers 941 004 196 531 72 411 5 500 1 215 446

Debtsecuritiesissued – 1 297 614 – – 1 297 614

Long-termfunding 60 477 82 450 – 100 000 242 927

Total liabilities 1 061 934 1 576 595 72 411 105 500 2 816 440

Net repricing gap 435 217 (1 287 295) 64 681 1 246 052 458 655

Cumulative repricing gap 435 217 (852 078) (787 397) 458 655 458 655

200 bp parallel shock interest rate increase 8 704 (12 781) (3 937) 2 293 2 293

200 bp parallel shock interest rate decrease (8 704) 12 781 3 937 (2 293) (2 293)

127



37. Financial risk management >>continued37.4 Market risks >>continued

Up to 1month

R’000

1 – 3months

R’000

4 – 12months

R’000

1 – 5years R’000

TotalR’000

2010

Assets

Cashandcashbalances 480 960 30 000 – – 510 960

Short-termnegotiablesecurities 58 000 – – – 58 000

Loansandadvances 1 721 633 161 381 44 646 55 108 1 982 768

Total assets 2 260 593 191 381 44 646 55 108 2 551 728

Liabilities

Interbankfunding 52 094 – – – 52 094

Depositsfromcustomers 727 974 153 854 25 299 4 432 911 559

Debtsecuritiesissued – 924 436 – – 924 436

Long-termfunding – 82 450 – 100 000 182 450

Total liabilities 780 068 1 160 740 25 299 104 432 2 070 539

Net repricing gap 1 480 525 (969 359) 19 347 (49 324) 481 189

Cumulative repricing gap 1 480 525 511 166 530 513 481 189 481 189

200 bp parallel shock interest rate increase 29 611 7 667 2 653 2 406 2 406

200 bp parallel shock interest rate decrease (29 611) (7 667) (2 653) (2 406) (2 406)

ThetablessummarisetheGroup'sexposuretointerestrateriskthroughcategorisationofassetsandliabilitiesintotimebuckets,determinedasbeingtheearlierofthecontractualrepricingdateormaturity.

ThemanagementofinterestrateriskagainstinterestrategaplimitsissupplementedbymonitoringthesensitivityoftheGroup’sfinancialassetsandliabilitiestovariousstandardandnon-standardinterestratescenarios.Standardscenariosthatareconsideredonamonthlybasisincludea200basispoint(bp)parallelfallorriseinallyieldcurves.AnanalysisoftheGroup’ssensitivitytoacumulativeincreaseordecreaseinmarketinterestrateswhichwouldaffectprofitorlossisasfollows:

2011 R’000

2010R’000

200 bp parallel shock interest rate increase 2 293 2 406

200 bp parallel shock interest rate decrease (2 293) (2 406)

Overall non-trading interest rate risk positions are managed by Group Treasury, which uses advances to banks, deposits from banksandderivativeinstrumentstomanagetheoverallpositionarisingfromtheGroup’snon-tradingactivities.

Market risk on equity investmentsSasfinCapitaldivisionentersintoprivateequityinvestmentsinunlistedentitiesinaccordancewithdelegatedauthoritylimitsasdefinedbytheGroup'sInvestmentCommittee.MarketriskontheseinvestmentsismanagedinaccordancewithpurposeandstrategicbenefitstotheGroup,andnotonlyoninvestmentreturnsandmark-to-marketconsiderations.Periodicreviewsandassessmentsareundertakenontheperformanceoftheinvestments.

ThetablebelowillustratesthemarketrisksensitivityforallinvestmentsecuritiesfinancialassetsheldbytheGroupassuminga10%shiftintherelevantsharepriceorproxy-shareprice.


128


37. Financial risk management >>continued37.4 Market risks >>continued Market risk sensitivity on investment securities

10% reduction in fair value

R’0002011

R’000

10% increase in fair value

R’000

2011

Listed

Equitysecuritiesatfairvalue 6 210 6 900 7 590

Impactongainsandlossesrecognisedinprofitorlossfortheyear 1 031 1 146 1 261

Impactongainsandlossesrecogniseddirectlyinother comprehensive income for the year 828 920 1 012

Unlisted



2010

Listed


Impactongainsandlossesrecognisedinprofitorlossfortheyear 555 617 679

Impactongainsand losses recogniseddirectly inother comprehensiveincome for the year 207 230 253

Unlisted



37.5 Currency risk TheGroupincurscurrencyriskasaresultofservicesandsuppliesacquiredfromforeignsuppliers.ThecurrenciesinwhichthecompanyprimarilydealsareUSdollars,PoundsterlingandEuros.TheGrouputilisesforwardexchangecontractstohedgetheirestimatedfutureforeigncurrencyexposurefrompurchases.

Foreign currency risk sensitivity analysis

US dollars ‘000

Euro ‘000

Japanese yen

‘000

British pound

‘000 Other

‘000 Total

‘000

2011

Forwardexchangecontracts (89 066) 3 674 7 257 1 020 23 522 (53 593)

Importbills 12 515 – – – – 12 515

Bankbalances 16 055 7 339 9 18 1 695 25 116

Bankoverdrafts (46 563) – – (132) (2) (46 697)

Importsuppliers (5 550) (3 569) (2) (966) (2 068) (12 155)

Usancecreditors (12 321) (330) – – – (12 651)

Investments 921 – – – – 921

Otherpayables (16 262) (13 668) (13 287) (5 972) (8 935) (58 124)

Total net (short)/long position (140 271) (6 554) (6 023) (6 032) 14 212 (144 668)

Sensitivity – 5% (7 014) (328) (301) (302) 711 (7 233)

129



37. Financial risk management >>continued37.5 Currency risk >>continued

Foreign currency risk sensitivity analysis >>continued

US dollars ‘000

Euro ‘000

Japanese yen

‘000

British pound

‘000 Other

‘000 Total

‘000

2010

Forwardexchangecontracts 1 218 239 – 810 69 2 336

Importbills 5 069 8 655 – – – 13 724

Bankbalances 27 369 8 087 16 191 6 951 101 58 699

Bankoverdrafts (23 360) – (1) (1) (29) (23 391)

Importsuppliers (5 251) (591) (2) (1 448) (88) (7 380)

Usancecreditors (9 939) (258) (2 693) – – (12 890)

Investments 5 497 – – – – 5 497

Loans (25 049) (15 352) (16 222) (7 046) – (63 669)

Total net (short)/long position (24 446) 780 (2 727) (734) 53 (27 074)

Sensitivity – 5% (1 222) 39 (136) (37) 3 (1 354)

2011 2010

The foreign exchange rates prevailing at reporting date are:

UnitedStatesdollars 6,77 7,68

Euro 9,80 9,35

Japaneseyen 0,08 0,08

Britishpound 10,85 11,57

The average foreign exchange rates used for the financial year are:

UnitedStatesdollars 6,80 7,65


130



Analysis of assets and liabilities by currency

US dollars ‘000

Euro ‘000

British pound

‘000

South African

rand‘000

Other ‘000

Total ‘000

2011

Assets

Cashandcashbalances 16 055 7 339 18 780 117 1 704 805 233

Short-termnegotiablesecurities – – – 72 405 – 72 405

Loansandadvancestocustomers 12 515 – – 2 320 471 – 2 332 986

Otherreceivables – – – 370 925 – 370 925

Investmentsecurities 921 – – 404 255 – 405 176

Investmentinassociatedcompanies – – – 77 932 – 77 932

Property,plantandequipment – – – 175 379 – 175 379

Investmentproperty – – – 51 038 – 51 038

Taxation – – – 4 534 – 4 534

Intangibleassetsandgoodwill – – – 69 244 – 69 244

Deferredtaxasset – – – 8 412 – 8 412

Total assets 29 491 7 339 18 4 334 712 1 704 4 373 264

Liabilities

Interbankfunding 46 563 – 132 13 756 2 60 453

Depositsfromcustomers – – – 1 215 446 – 1 215 446

Long-termfunding – – – 242 897 – 242 897

Otherpayables 34 133 17 567 6 938 291 992 24 292 374 922

Debtsecuritiesissued – – – 1 297 614 – 1 297 614

Taxation – – – 9 246 – 9 246

Deferredtaxliability – – – 63 815 – 63 815

Total liabilities 80 696 17 567 7 070 3 134 766 24 294 3 264 393

131




Analysis of assets and liabilities by currency >>continued

US dollars

‘000 Euro ‘000

British pound

‘000

South African

rand‘000

Other ‘000

Total ‘000

2010

Assets

Cashandcashbalances 27 369 8 087 6 951 474 748 16 292 533 447

Short-termnegotiablesecurities – – – 58 000 – 58 000

Loansandadvancestocustomers 5 069 8 655 – 1 888 776 – 1 902 500

Otherreceivables – – – 292 989 – 292 989

Investmentsecurities 5 497 – – 390 520 – 396 017

Investmentinassociatedcompanies – – – 65 334 – 65 334

Property,plantandequipment – – – 184 406 – 184 406

Investmentproperty – – – 51 038 – 51 038

Taxation – – – 2 928 – 2 928

Intangibleassetsandgoodwill – – – 55 217 – 55 217

Deferredtaxasset – – – 9 646 – 9 646

Total assets 37 935 16 742 6 951 3 473 602 16 292 3 551 522

Liabilities

Interbankfunding 33 298 258 1 15 813 2 724 52 094

Depositsfromcustomers – – – 911 559 – 911 559

Long-termfunding – – – 182 450 – 182 450

Otherpayables 30 300 15 943 8 494 267 138 16 312 338 187

Debtsecuritiesissued – – – 924 436 – 924 436

Taxation – – – 9 784 – 9 784

Deferredtaxliability – – – 69 112 – 69 112

Total liabilities 63 598 16 201 8 495 2 380 292 19 036 2 487 622


132


37. Financial risk management >>continued37.6 Derivitive financial instruments

Within 1 yearR’000

After 1 year but

within 5 years

R’000

Net fair valueR’000

Positive fair value

R’000

Negative fair value

R’000

Notional principal

R’000

2011

Exchangeratecontracts 95 485 – 6 520 4 384 2 136 95 485

Netinvestmenthedge 20 065 – 20 065 20 065 – 171 621

Currencyhedge (20 065) – (20 065) – 20 065 171 621

Equityderivatives 429 2 433 2 862 2 862 – –

Total derivatives 95 914 2 433 9 382 27 311 22 201 438 727

2010

Exchangeratecontracts 75 625 – 448 4 147 3 699 75 625

Netinvestmenthedge 1 778 – 1778 1 778 – 154 400

Currencyhedge (1 778)* – (1778) – 1 778 154 400

Equityderivatives – 4 866 4 866 4 866 – –

Total derivatives 75 625* 4 866 5 314 10 791 5 477 384 425

* Limited reclassifications were made to improve disclosures.

Derivative instrumentsThesetransactionshavebeenenteredintointhenormalcourseofbusinessandnomateriallossesareanticipatedotherthanthoseforwhichprovisionhasbeenmade inthe incomestatement.Therearenocommitmentsorcontingentcommitmentsunderderivativefinancialinstrumentsthataresettledotherthanwithcash.

Notional principalRepresentsthegrossnotionalvalueofalloutstandingcontractsasatyear-end.Thegrossnotionalvalueisthesumoftheabsolutevalueofallpurchasesandsalesofderivativeinstruments.Thisvaluewillnotaffecttheamountreceivableorpayableunderaderivativecontractduetothecash-settlednatureofthevariouscontracts.Thegrossnotionalvaluerepresentsonlythemeasureof involvementbytheGroupinderivativecontractsandnotitsexposuretomarketorcreditrisksarisingfromsuchcontracts.

Exchange rate contractsForwardexchangecontractsareenteredintoasfairvaluehedgesforforeigncurrencyassetsandliabilities.

Equity derivativesAnequityderivativeisinplacetohedgetheGroup'sexposureintheshareappreciationschemetosharepricefluctuations.

37.7 Net investment hedgeTheGroupusesarangeforwardcollarcontracttohedgetheforeigncurrencytranslationriskonitsnetinvestmentinitsforeignsubsidiary.

TheobjectiveofthenetinvestmenthedgeistolimittheriskofadeclineinthenetassetvalueoftheGroup’sinvestmentinaforeignoperationbroughtaboutbychangesinexchangerates.

Thefairvalueofthederivativedesignatedasanetinvestmenthedgeisasfollows:

2011 2010

AssetsR'000

LiabilitiesR'000

AssetsR'000

LiabilitiesR'000

Range forward foreign collar option 20 065 20 065 1 778 1 778

ThisrangeforwardcollarisusedtohedgethenetinvestmentintheGroup's subsidiaryinHongKongwithaUSdollarfunctionalcurrencyandhasafair valueofUS$2960939(2010:US$232327)atthereportingdate.

Thehedginginstrumentremainedeffectiveduringtheperiodunderreview.

133



37. Financial risk management >>continued37.8 Capital management

TheGroupmanagesitscapitaltoachieveaprudentbalancebetweenmaintainingappropriatecapitallevelstosupportbusinessgrowthanddepositors’confidence,andtoprovideshareholderswithabovemarket-relatedreturnsonasustainablebasis.

The key fundamentals of the Group’s capital management policy are to ensure that the Group is adequately capitalised tosupport its risk profile and to develop risk management techniques and internal controls to manage and monitor the risks oftheGroup.

Keyobjectivesofcapitalmanagementareto:

• ensuretheGrouphassufficientqualifyingcapitalresourcestomeettheminimumregulatorycapitalrequirementsassetbytheSARBinaccordancewiththeBasel II AccordandtheGroup’sboardofdirectors;

• ensuretheavailablecapitalresourcesoftheGrouparesufficienttosupporttheeconomiccapitalrequirements oftheGroup;

• optimisereturnonregulatoryandeconomiccapitalbyprovidinginvestorswithabovemarket-relatedreturnsonasustainablebasis;

• generatesufficientcapitaltosupportorganicandnewbusinessgrowthobjectivesoftheGroup;

• allocatecapitaltobusinessestosupportthestrategicandgrowthobjectivesoftheGroup;and

• ensuretheGroupissufficientlycapitalisedtowithstandtheimpactofpotentialstresseventswithintheparametersofanappropriatecapitalbuffer.

TheboardofdirectorsareresponsibleforassessingandapprovingtheGroup’scapitalmanagementframework,capitalplansandcapitalbuffer.Thecapitalplansandbufferaresetannuallyandreviewedquarterlyorwhentheeconomyshowsignsofstress.TheboardofdirectorshastaskedtheGRCMCtoensuretheGroupisincompliancewiththecapitalmanagementobjectives.TheGRCMCmeetsonaquarterlybasistoreviewtheregulatoryandeconomiccapitaladequacyoftheGroup.ThecapitaladequacyoftheGroupisreportedtotheboardofdirectorsonaquarterlybasis.

Inaddition,theboardofdirectorshasestablishedthefollowingboardcommitteestoassistitinthedischargeofitsresponsibilities:

• GroupRiskandCapitalManagementcommittee

• GroupCreditandInvestmentReviewcommittee

• GroupAssetandLiabilitycommittee,and

• GroupAuditandCompliancecommittee.

Thecommitteesareeachchairedbyindependentnon-executivedirectorsandcomposedofmembersthataremajoritynon-executivedirectors.Theboardcommitteesmeeteitheronamonthlyorquarterlybasis.Eachboardcommittee’sperformanceismeasuredannuallyviaself-assessmentprocesses.Boardcommitteemandatesarereviewedannuallyandamendedaccordinglybytheboardofdirectors.

ThefollowingframeworkshavebeenestablishedtoassisttheGroupwithcapitalmanagement:

• Riskmanagementframework

• Riskappetiteframework

• Capitalmanagementframework,and

• ICAAPframework.

Capital adequacyTheGrouphasdevelopedandimplementedacapitalmanagementframeworkwhichensurethattheGroupisadequatelycapitalisedin terms of its regulatory and economic capital requirements taking into account its risk profile, internal target ratios and stresstesting.

The capital management framework and processes ensures the Group maintains adequate capital levels for legal and regulatorycompliancepurposes.TheGroupensuresthatitsactionsdonotcompromisesoundcorporategovernanceandappropriatebusinesspractices.

TheGrouphasadoptedtheaggregationapproachforconsolidationintermsoftheBaselIIregulationswherethecapitalresourcesandrequirementsofthebankingandfinancialentitieswithintheGroupareconsolidated.Undertheaggregationapproach,therespectiveinvestmentsaredeductedfromtheconsolidatedcapitalandintergroupassetsareexcludedindeterminingthecapitalrequirementsoftheGroup.

There are currently no material, practical or legal restrictions that would impede the transfer of funds or capital within theGroup.


134


37. Financial risk management >>continued37.8 Capital management >> continued

37.8.1 Regulatory capitalIntermsoftherequirementsoftheBanksActandRegulationsrelatingtoBanks,theGrouphascompliedwiththeminimumcapitalrequirementsfortheperiodunderreview.

TheGroup’sregulatorycapitalissplitintotwotiers:

• TierIcapital,whichincludesordinarysharecapital,sharepremium,appropriatedearnings,aportionofperpetualnon-cumulativenon-redeemablepreferencesharesthatqualifyasTierIcapitalafterregulatorydeductions(suchasgoodwillandintangibleassets)andimpairmentsrelatingtosecuritisation

• TierIIcapital,whichincludesaportionofperpetualnon-cumulativenon-redeemablepreferencesharesthatdidnotqualifyasTierIcapital,subordinatedtermdebtafterregulatoryimpairmentsrelatingtosecuritisation

Theminimumcapitalrequirementsaredefinedbytworatios:

• TierIcapitalasapercentageofrisk-weightedasset,and

• Totalqualifyingcapitalasapercentageofriskweightedassets.

2011%

2010*%

Minimum capital requirements

–PillarI(Baserisk) 8,00 8,00

–PillarIIa(Bankingindustrysystemicrisk) 1,50 1,50

Total regulatory capital requirement (CAR) 9,50 9,50

37.8.2 Capital structure and regulatory capital adequacy (unaudited)

2011R’000

2010R’000

Tier I: primary capital 825 971 784 143

Sharecapitalandpremium 163 686 163 686

Primaryunimpairedreserves1 and 3 886 566 799 756

Non-redeemablepreferencesharecapitalandpremium 152 931 157 043

Prescribeddeductions (377 212) (336 342)

Tier II: secondary capital 150 864 165 027

Non-redeemablepreferencesharecapitalandpremium 46 347 42 235

Subordinatedtermloan 82 450 82 450

Secondaryunimpairedreserves 45 898 45 898

General allowance for credit impairment 6 524 5 792

Prescribeddeductions (30 355) (11 348)

Total qualifying capital 976 835 949 170

Total risk-weighted assets 3 078 916 2 996 983

Minimum regulatory

requirement%

Target ratio

%2011

%2010*

%

Tier I* 7,00 15,00 26,83 26,16

Total 9,50 20,00 31,73 31,67

R’000 R’000

*Minimum regulatory capital requirement 292 497 284 713

1 Limited reclassifications have been made to improve disclosures.2 Includes the share based payments reserve, available for sale reserve, revaluation reserve, foreign

currency translation reserve and fair value hedging reserve3 Includes unappropriated profits

135




37.8.3 Reconciliation of accounting capital to regulatory capital (unaudited)

2011R’000

2010*R’000

Accounting capital – as reported per IFRS 1 108 871 1063900

Ordinary share capital and premium 162 732 161341

Preference share capital and premium 199 278 199278

Other reserves2 (41 979) (31473)

Distributable reserves4 772 404 718321

Non-controlling interest 16 436 16433

Less:Capitalofentitiesthatisnotconsideredforregulatorypurposes (90 096) (97 578)

Add:Accountingconsolidationentriesaddedback 362 694 249 849

1 381 469 1 216 171

Add:Subordinatedtermdebt(tierii) 82 450 82 450

Add: General allowance for credit impairments 6 524 5 792

1 470 443 1 304 413

Less:Nonqualifyingcapitalandreservefunds1 42 395 31 980

Less:Impairmentsinrespectofsecuritisationscheme (60 710) (22 696)

Less:Intangibleassetsandother (87 834) (58 574)

Less:Non-controllinginterest (16 436) (16 433)

Less:Groupinvestments&crossholdingsperaggregrationmethod (371 023) (266 626)

Total eligible capital 976 835 972 064

1 Limited reclassifications have been made to improve disclosures2 Includes the share-based payments reserve, available for sale reserve, revaluation reserve, foreign

currency translation reserve and fair value hedging reserve3 Includes unappropriated profits4 Included in distributable reserves is unappropriated profits. Profits are appropriated

by the board of directors subsequent to year-end. Distributable reserves of the securitisation vehicle are excluded.

37.8.4 Credit risk (unaudited)

Capitalrequirement 101 491 106 481

Analysis of capital requirement by asset class

Corporate 971 8 440

CorporateSME* 52 167 72 480

Publicsectorentities 9 373

Localgovernmentandmunicipalities 401 299

Sovereign – 56

Banks* 11 864 7 458

RetailSME 36 079 17 375

101 491 106481

Credit counterparty risk

Capitalrequirement 121 1531


136



37.8.4 Credit risk (unaudited) >>continued

2011 R'000

2010* R'000

Includedintheregulatorycapitalforcreditriskistheregulatorycapitalrequirementforcreditcounterpartyrisk.Creditcounterpartyriskisbasedonthecurrentexposureapproach,wherethecapitalrequirementisbasedonthegrosspositivefairvalue.Creditcounterpartyriskoccursasaresultofforeigncurrencytransactionsenteredintowiththirdparties.TheGroupdoesnotapplynettingindeterminingcreditcounterpartyrisk.

37.8.5 Operational risk (unaudited)

Capital requirement 82 623 63 504

TheGrouphasadoptedthebasicindicatorapproachtocalculatetheregulatorycapitalrequirementforoperationalriskwheretheaveragegrossincomeachievedinthepreviousthreeyearsismultipliedbybetatoarriveattheriskweightedassetonwhichthecapitalrequirementiscalculated.

37.8.6 Market risk (unaudited)


TheGrouphasadoptedthestandardisedapproachtocalculatetheregulatorycapitalrequirementformarketrisk.MarketriskisbasedontheGroup’sexposuretocurrencyrisk.TheGroupisanauthorisedforeigncurrencyexchangedealer.Marketriskarisesfromfluctuationsinexchangerates.TheGroupdoesnotengageinproprietarytradinginitsforeigncurrencyactivities,thereforeithasnotradingportfolio.

37.8.7 Equity risk (unaudited)


TheGrouphasadoptedthestandardisedapproachtocalculatetheregulatorycapitalforequityrisk.Underthisapproachariskweightingof100%isappliedtounlistedandlistedinvestmentsand150%inrespectofprivateequityandventurecapital.Themainfocusofmanagementwasontheperformanceoftheexistingportfolioasopposedtooriginatingandexecutingnewinvestmentsduringtheperiodreported.

37.8.8 Other risk (unaudited)


TheGrouphasadoptedthestandardisedapproachtocalculatetheregulatorycapitalforotherrisk.Underthisapproachariskweightingof100%isappliedtootherassets,includingproperty,plantandequipmentaswellassundrydebtors.

37.8.9 Securitisation (unaudited)

Capital requirement – 2124

TheGrouphasadoptedthestandardisedapproachtocalculatetheregulatorycapitalforsecuritisationrisk.

137




37.8.10 Economic capital (unaudited) >>continued

Economic capital by risk type

37. Financial risk management >>continued

37.8 Capital management >> continued

37.8.9 Securitisation (unaudited) >> continued

TheGroup’ssecuritisationiscategorisedasatraditionalsecuritisationstructure,wherebyassetsaresoldtoaspecialpurposevehicle in thenameofSASP.SASPfinances thepurchaseof theseassetsby issuing, in tranches,noteswhichhavedifferingmaturitydatesaswellasriskandreturnprofiles.CashflowsemanatingfromtherentaloftheseassetsareusedbySASPtoserviceitsdebtobligations.

TotheextentthattheBankisinvestedinSASP,includinganyrequiredovercollaterisationlevels,itappliesadirectimpairmentagainstitsqualifyingcapitalandreservefunds.

TheGroup complieswith IFRS in recognising and accounting for securitisation transactions.The special purpose vehicle isconsolidatedintotheGroupasrequiredbyIFRSwhichismorefullydescribedintheGroup'saccountingpolicynotes.

InaccordancewithIAS39,nogainorlossonsaleisrecognisedastheseassetsaresoldatcarryingvalue.Securitisedassetsarefullyderecognisedwhenrequiredtoreflecttheelementofriskandrewardtransfer.

Fitchhasbeenappointedasratingagencyfornotesofthesecuritisationvehicle.

37.8.10 Economic capital (unaudited)

EconomiccapitalisthecapitalrequiredtosupportthequantifiableeconomicandfinancialrisksfacedbytheGroup.Economiccapital isusedforriskmanagement,capitalmanagement,capitalplanningandallocation,evaluationofnewbusinessesandperformancemeasurementacrosstheGroup.

Theboardofdirectorshas taskedtheGRCMCtodevelopan internalcapitaladequacyassessmentprocess (ICAAP) thatwillensuretheGroupisadequatelycapitalisedintermsofitsriskprofile.TheGRCMChasdevelopedanICAAPpolicyandmodeltofulfilltheobjectivesofICAAP.TheICAAPpolicyandmodelreflectstheboardofdirectorsandGRCMCinternalidentificationandassessmentofrisksfacedbytheGroup.

IntermsofthegovernanceprocesstheboardofdirectorsretainsultimateresponsibilitytoensurethattheGroupisadequatelycapitalised in termsof economic capital.The ICAAPpolicy andmodel is reviewedannually as aminimumby theboardofdirectorsdulyassistedbytheGRCMC.

The board of directors has formulated a risk appetite framework to provide a basis for reviewing and controlling businessactivities inalignmentwithstakeholders'expectationsandofanappropriatescale in relation to riskand reward.The ICAAPprocessensuresthattheGroupisappropriatelycapitalisedandalignedintermsofitsriskappetite.

TheICAAPpolicyadoptedbytheGrouphasidentifiedthefollowingrisksforwhicheconomiccapitalmustbeheldviz.creditrisk, equity risk,market risk, operational risk, business risk, interest rate risk, liquidity risk, strategic and reputational risk andsecuritisationrisk. ICAAPisperformedataGrouplevelonaquarterlybasis.TheICAAPmodelcoversaperiodof5years.TheGRCMCmeetsonaquarterlybasistodiscusstheICAAPfindingsandresultsthereof.

The ICAAPmethodology adoptedby theGroup incorporates stress testing and scenario analysis to ensure that theGroupis adequately capitalised tomeet the demands under a severely stressed scenario.The stress testing and scenario analysisperformedbytheGrouphasassistedindeterminingtheinternalcapitalbufferoftheGroup.


138



37.8.10 Economic capital (unaudited) >>continued

Economic capital by risk type

2011R’000

2010*R’000

Creditrisk 153 487 113 902

Operationalrisk 120 022 78 210

Marketrisk 33 323 40 492

Equityrisk 186 181 150 814

Businessrisk 7 025 14 998

Interestraterisk 433 1 049

Strategicandreputationalrisk 11 995 9 519

Securitisationrisk 24 000 24 000

Otherrisk 49 535 38 613

Economiccapitalrequired 586 001 471 597

Internalbuffer 104 308 97 632

Total 690 309 569 229

* Limited reclassifications were made to improve disclosures.

37.9 Operational riskOperationalriskistheriskofdirectorindirectlossarisingfromawidevarietyofcausesassociatedwiththeGroup’sprocesses,personnel,technologyand infrastructure,andfromexternal factorsotherthancredit,marketand liquidity riskssuchasthosearisingfromlegalandregulatoryrequirementsandgenerallyacceptedstandardsofcorporatebehaviour.OperationalrisksarisefromalloftheGroup’soperationsandarefacedbyallbusinessentities.

TheGroup’s objective is tomanage operational risk so as to balance the avoidance of financial losses and damage to theGroup’sreputationwithoverallcosteffectivenessandtoavoidcontrolproceduresthatrestrictinitiativeandcreativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for themanagement of operational risk in the following areas:

• requirementsforappropriatesegregationofduties,includingtheindependentauthorisationoftransactions

• requirementsforthereconciliationandmonitoringoftransactionscompliancewithregulatoryandotherlegalrequirements

• documentationofcontrolsandprocedures

• requirementsfortheperiodicassessmentofoperationalrisksfaced,andtheadequacyofcontrolsandprocedurestoaddresstherisks identified

• requirementsforthereportingofoperationallossesandproposedremedialactiondevelopmentofcontingencyplans

• training and professional development

• ethicalandbusinessstandards,and

• riskmitigation,includinginsurancewherethisiseffective.

In termsof the JSE rules, should severalbrokers simultaneouslybe affectedbyoperational risk, it is at thediscretionof themarketcontrollertodetermineifafairandvalidmarketexistsornot.

TheGrouphasaformallydefinedanddevelopedbusinesscontinuityplan(“BCP”)thatisanintegralpartofitsriskmitigationinrespectofbusinesscontinuityrisk.Aspartofaregularreviewofit’splan,theGroupconductedanoff-sitesimulationtotesttheeffectivenessandresponsivenessofitsBCP,whichincludedconnectivitytoITinfrastructure,datarecovery,communication,managementofscarceresourcesandpotentialdown-timeandrecoverytherefrom.

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Group Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summariessubmittedtotheGACCandseniormanagementoftheGroup.

TheGroupRiskdepartmentconductedERMassessmentsacross thevariousdivisionsonaperiodicbasis todetermine the levelsofoperationalriskthroughouttheorganisation.TheresultsthereofarereportedtotheGRCMonaregularbasis.

139



38. Subsidiary, special purpose entities and associated companies

Nature of business

Issued ordinary

capital/ stated capital

Issued preference

capital

Effective holdingShares at book

value Indebtedness

2011%

2010%

2011%

2010%

2011%

2010%

Of Sasfin Holdings Limited

SubsidiariesSasfinBankLimited Bank R1 500 000 R600 000 100 100 263 134 151 134* (107 537) (36 290)

PremierFreight(Pty)Limited Freightforwardingandcustomsclearing R317 – 68,42 68,42 16 985 16 985 – –

SasfinProperties(Pty)Limited Property holding company R100 – 100 100 – – – –

SasfinPropertiesII(Pty)Limited Property holding company R1 – 100 100 – – – –

SasfinPropertiesIII(Pty)Limited Property holding company R100 – 100 100 – – – –

SasfinFinancialServices (Pty)Limited

Investmentholdingcompany R12 494 – 100 100 22 045 22 045 (11 011) (11 011)

SasfinPrivateEquityInvestment Holdings(Pty)Limited

Investmentholdingcompany R100 000 – 100 100 150 150 250 502 231 846

Associated companiesInnoVentInvestmentHoldings (Pty)Limited Asset-basedfinance R1 000 – 33,6 33,6 82 82 – –

OtherTheSasfinShareIncentiveTrust Groupshareincentive

scheme – – – – 363 583 1 252 2 154

InnoVentSPV1(Pty)Limited Investmentholding R100 R26 666 – – 34 218 32 827 – –

336 977 223806 133 206 186 699

Of Sasfin Bank LimitedQuorumLeasingServices (Pty)Limited Instalmentsalefinance 100 100 100

SasfinAsiaLimited(incorporatedinHongKong) Overseastradefinance HK$1500000 100 100

Of Sasfin Asia Limited

SasCredFinancialServicesLimited(incorporatedinJersey)

Internationaltradefinance and wealth management

GBP50000R653226 100 100

Of Sasfin Financial Services (Pty) Limited

SasfinSecurities(Pty)Limited MemberoftheJSE R23 013 732 – 100 100 SasfinPrivateEquityFundManagers(Pty)Limited Privateequity R400 000 – 100 100 SasfinFinancialAdvisoryServices(Pty)Limited

Financialadvisoryservices R1 000 – 100 100

SasfinAssetManagers(Pty)Limited Assetmanagement R100 – 100 100

Special purpose entities of Sasfin Bank LimitedSouthAfricanSecuritisationProgram(Pty)Limited Securitisationvehicle R100 000 R0,01 100 100

Associated companies of Sasfin Financial Services (Pty) LimitedNVestFinancialHoldings (Pty)Ltd

Financialandintermediary services R500 – 20 20

Joint venture companies of Premier Freight (Pty) LimitedHecnyTransportationSouthAfrica(Pty)Limited

Internationalfreightforwarder R3750 – 34 34

ThefinancialpositionofthecompanieslistedaboveismaterialforaproperappreciationoftheaffairsoftheGroup.Detailedinformationinrespectofallnon-materialsubsidiariesareobtainablefromtheGroupSecretary.LoansadvancedbytheCompanytoGroupcompaniesareunsecured, interestischargedatprimeless2%,therearenospecifictermsofrepayment.



140


38. Subsidiary, special purpose entities and associated companies

Nature of business

Issued ordinary

capital/ stated capital

Issued preference

capital

Effective holdingShares at book

value Indebtedness

2011%

2010%

2011%

2010%

2011%

2010%

Of Sasfin Holdings Limited

SubsidiariesSasfinBankLimited Bank R1 500 000 R600 000 100 100 263 134 151 134* (107 537) (36 290)

PremierFreight(Pty)Limited Freightforwardingandcustomsclearing R317 – 68,42 68,42 16 985 16 985 – –

SasfinProperties(Pty)Limited Property holding company R100 – 100 100 – – – –

SasfinPropertiesII(Pty)Limited Property holding company R1 – 100 100 – – – –

SasfinPropertiesIII(Pty)Limited Property holding company R100 – 100 100 – – – –

SasfinFinancialServices (Pty)Limited

Investmentholdingcompany R12 494 – 100 100 22 045 22 045 (11 011) (11 011)

SasfinPrivateEquityInvestment Holdings(Pty)Limited

Investmentholdingcompany R100 000 – 100 100 150 150 250 502 231 846

Associated companiesInnoVentInvestmentHoldings (Pty)Limited Asset-basedfinance R1 000 – 33,6 33,6 82 82 – –

OtherTheSasfinShareIncentiveTrust Groupshareincentive

scheme – – – – 363 583 1 252 2 154

InnoVentSPV1(Pty)Limited Investmentholding R100 R26 666 – – 34 218 32 827 – –

336 977 223806 133 206 186 699

Of Sasfin Bank LimitedQuorumLeasingServices (Pty)Limited Instalmentsalefinance 100 100 100

SasfinAsiaLimited(incorporatedinHongKong) Overseastradefinance HK$1500000 100 100

Of Sasfin Asia Limited

SasCredFinancialServicesLimited(incorporatedinJersey)

Internationaltradefinance and wealth management

GBP50000R653226 100 100

Of Sasfin Financial Services (Pty) Limited

SasfinSecurities(Pty)Limited MemberoftheJSE R23 013 732 – 100 100 SasfinPrivateEquityFundManagers(Pty)Limited Privateequity R400 000 – 100 100 SasfinFinancialAdvisoryServices(Pty)Limited

Financialadvisoryservices R1 000 – 100 100

SasfinAssetManagers(Pty)Limited Assetmanagement R100 – 100 100

Special purpose entities of Sasfin Bank LimitedSouthAfricanSecuritisationProgram(Pty)Limited Securitisationvehicle R100 000 R0,01 100 100

Associated companies of Sasfin Financial Services (Pty) LimitedNVestFinancialHoldings (Pty)Ltd

Financialandintermediary services R500 – 20 20

Joint venture companies of Premier Freight (Pty) LimitedHecnyTransportationSouthAfrica(Pty)Limited

Internationalfreightforwarder R3750 – 34 34

ThefinancialpositionofthecompanieslistedaboveismaterialforaproperappreciationoftheaffairsoftheGroup.Detailedinformationinrespectofallnon-materialsubsidiariesareobtainablefromtheGroupSecretary.LoansadvancedbytheCompanytoGroupcompaniesareunsecured, interestischargedatprimeless2%,therearenospecifictermsofrepayment.


39. Share-based payments 39.1 The Sasfin Share Incentive Scheme – Equity settled

TheGrouphasanestablishedshareoptionschemewhichentitlesstaff topurchaseshares in theCompany. Inaccordancewith theschemeoptionsareexercisableatthemarketpriceofthesharesatthedateofthegrant.

The recognition andmeasurement principles in IFRS 2 have not been applied to these grants in accordancewith the transitionalprovisionsofIFRS1andIFRS2.

TrustTheSasfinShareIncentiveTrust

Description of the arrangement:Shareoptionsaregrantedtostaffholdingvarious job levelswiththeGroup,thegrantingofshareoptions isatthediscretionofthetrustees,actingonrecommendationofexecutivemanagement.Thegrantingofshareoptionsisbasedonjoblevelandperformance.Grantdatesaredeterminedbythetrustees.

Vesting requirements and contractual life of optionsThe terms and conditions of the grants are three years of service, thereafter share options vest over three consecutive years. Thecontractuallifeoftheoptionsisthreeyears.ThismeetsthedefinitionofavestingconditionasdefinedintheamendmenttoIFRS2.

Thefairvalueofservicesreceivedinreturnforshareoptionsgrantedisbasedonthefairvalueoftheoptionsgranted,measuredusingtheBlack-Scholesmodel:

2011 2010

Fairvalueatmeasurementdate R'000 363 583

Weightedaverageexerciseprice cents 3 325 2613

VolatilityisdeterminedusingexpectedvolatilityoftheCompany’sordinaryshareslistedontheJSE.

The number and weighted average exercise prices of the equity based share options are as follows:

Number ofordinary shares

Optionprice range(Cents)

Weightedaverage price(Cents)

optionExpiry period

50000* 3325 3325 Yearto30June2012

* Included in the outstanding options is the following to executive director: M Segal has options over 50 000 ordinary shares at a strike price of 3325 cents, vesting in 2012.

Group equity-settled share incentive scheme reconciliation

2011 2010

Weightedaverage

exercise price(cents)

Number ofoptions

Weightedaverage


Number ofoptions

Optionsoutstandingatbeginningoftheyear 2 613 100 000 2834 281697

Exercised 1 900 (50 000) 1900 (181697)

Options exercisable at end of the year 3 325 50 000 2613 100 000

141



39. Share-based payments >>continued39.1 The Sasfin Share Incentive Scheme – Equity settled >>continued

Thefairvaluereceivedinreturnforshareoptionsgrantedismeasuredbyreferencetothefairvalueofshareoptionsgranted.TheestimateofthefairvalueoftheservicesreceivedismeasuredbasedontheBlackScholesmodel.Thecontractuallifeoftheoption(threeyears)isusedasaninputintothismodel.ExpectationsofearlyexerciseareincorporatedintotheBlackScholesmodelwhichtakesintoaccountthesharepricevolatilityandthedividendyieldandanappropriateriskfreereturn.

2011R'000

2010R'000

Cash flow received from proceeds on options exercised 950 1 914

39.2 The Sasfin Share Appreciation Scheme – Cash settled

TheGrouphasdevisedashareschemewherebyemployeeswillbeawardedacashbonusbasedonthemovementsintheCompany'sshareprice.TheamountofthebonusisbasedontheCompany’slistedsharepricemovementontheJSE.

Themarketpricemovementsoftheordinarysharesrangedfrom3201(2010:2625)centsto4200(2010:3710)centsandthesubscriptionbenchmarkpricesrangedfrom3200(2010:2800)centsto6000cents(2010:4810)cents.

Thefairvalueofservicesreceivedinreturnforshareoptionsgrantedisbasedonthefairvalueoftheoptionsgranted,measuredusingtheBlack-Scholesmodel,withthefollowingassumptions:

2011 2010

Fairvalueatmeasurementdate R'000 2 142 4 187

Weightedaverageexerciseprice cents 4 557 4158

Averageexpectedvolatility % 30 30

Averagedividendyieldrate % 4 6

Averageriskfreerate % 7,5 8

VolatilityisdeterminedusingexpectedvolatilityofSasfinHoldingsLimitedordinaryshareslistedontheJSELimited.

Group equity-settled share incentive scheme reconciliation

2011 2010

Weightedaverage


Number ofoptions

Weightedaverage


Number ofoptions

Shareappreciationrightsoutstandingatbeginningof the year 4 158 851 640 3177 776180

Granted 5 300 84 999 5136 366800

Vested/Forfeited 3 200 (150 106) 3 200 (291340)

Shareappreciationrightsexercisableatend of the year

4 557 786 533* 4158

851640*

* Included in the outstanding options are the following to executive directors: • RDEB Sassoon – 150 000 options at a strike price of 4 600 cents, 5 300 cents and 6 000 cents which vests in 2012, 2013 and 2014 respectively.• M Segal – 50 000 options at a strike price of 4 600 cents, 5 300 cents and 6 000 cents which vests in 2012, 2013 and 2014 respectively.• TD Soondarjee – 68 334 options at a strike price of 3 400 cents, 4 000 cents, 4 600 cents, 5 300 cents and 6 000 cents which vests in 2011, 2012, 2013, 2014, 2015 and

2016 respectively.


142


2011R’000

2010R’000

39. Share-based payments >>continued39.3 The Sasfin Share Incentive Trust


Assets 1 612 2 283

Liabilities 10 15

LoanfromSasfinHoldingsLimited 1 252 2 172

Equity 350 96

1 612 2 283

Income statement

Income 285 122

Operatingexpenses (11) (17)

Netprofitfortheyear 274 105

Atyearend,thetrustheld64926(2010:115590)sharesinSasfinHoldingsLimited.

40. Segment reportingSegment information is presented in respect of the Group's operating segments, as determined by the Group's chief executive officer andmanagement. The primary format which is business segments, is based on the Group’s management and internal reportingstructure.

BusinesssegmentspayinteresttotheTreasurydivisionatvariablerateslinkedtoprime,toreflecttheallocationoffundingcosts.

Segment capital expenditure is the total cost incurred during the period to acquire property and equipment, and intangible assets otherthangoodwill.

Business SegmentsTheGroupcomprisesthefollowingmainbusinesssegments:

Business Banking–includestheGroup'sequipmentrentalfinanceandbusinessfinanceunits,comprisingdebtorfinance,tradefinanceandcapitalequipmentfinance.

Capital–includesprivateequity,propertyprivateequity andcorporatefinanceactivitiessuchasacquisitions,mergersandbuy-outs.

Logistics and Risk Management – international freight forwarding and clearing as well as healthcare consulting, employee benefits administrationandshort-terminsurancearehousedwithinthisdivision.

Wealth Management – thisdivisioncomprises threeunits,privateclientportfoliomanagementandstockbroking;financialand investmentplanning andassetmanagement.

Treasury – comprises domestic treasury and money market operation, exchange control services, and international treasury and foreignexchangeservicesandsecuritisationcommercialpaper,andsecuritisationfundingstructures.

TheGroupalsohascentralcorporateservices,andtheseincludeinformationtechnology,humanresources,financeandadministration,marketing,riskandcredit,legalandcomplianceandinternalaudit.Thesecostsareallocatedtothebusinesssegmentsonadirectabsorptioncostbasis.

143



40. Segment reporting >>continuedGeographicalTheGroupoperatesintwogeographicregionsbeing:•SouthAfrica•AsiaPacific


Business segments 2011

Business Banking

R’000Capital

R’000

Logistics and Risk

ManagementR’000

Wealth Management

R’000Treasury

R’000

Group and elimination

of intergroup

itemsR’000

TotalR’000

Interest income 314 740 23 678 1 713 4 419 126 771 (112 065) 359 256

Interestexpense 168 810 22 376 1 196 161 100 898 (124 765) 168 676

Net interest income 145 930 1 302 517 4 258 25 873 12 700 190 580

Non-interestincome 120 824 51 797 68 076 171 849 6 481 1 191 420 218

Total income 266 754 53 099 68 593 176 107 32 354 13 891 610 798

Impairmentchargesonloansandadvances 15 150 22 274 87 201 – – 37 712

Net income after impairments 251 604 30 825 68 506 175 906 32 354 13 891 573 086

Operatingcosts 167 142 36 368 59 466 165 607 27 975 (5 281) 451 277

Staffcosts 43 837 21 831 34 887 33 870 10 264 54 570 199 259

Otheroperatingexpenses 123 305 14 537 24 579 131 737 17 711 (59 851) 252 018

Profit from operations 84 462 (5 543) 9 040 10 299 4 379 19 172 121 809

Shareofassociatedcompanies’income 9 143 – – 3 062 – – 12 205

Profit before income tax 93 605 (5 543) 9 040 13 361 4 379 19 172 134 014

Incometaxexpense 13 569 (7 115) 2 866 2 261 1 207 7 373 20 161

Profit for the year 80 036 1 572 6 174 11 100 3 172 11 799 113 853

Segmentassets 2 740 910 145 874 104 407 248 346 742 590 391 137 4 373 264

Segmentliabilities 1 549 247 32 288 51 215 169 242 1 268 084 194 317 3 264 393

Depreciationandamoritisation 5 323 122 979 889 2 965 5 619 15 897

2011 2010

Geographical segmentsSouth Africa

R’000Asia Pacific

R’000Total

R’000South Africa

R’000Asia Pacific

R’000Total

R’000

Externalrevenue 708 797 70 677 779 474 747 818 50 368 798 186

Segmentassets 4 065 417 307 847 4 373 264 3 255 063 296 459 3 551 522

Capitalexpenditure 21 882 – 21 882 27 709 – 27 709

144


40. Segment reporting >>continued

Business segments 2010

Business Banking

R’000Capital

R’000

Logistics and Risk

ManagementR’000

Wealth Management

R’000Treasury

R’000

Group and elimination

of intergroup

itemsR’000

TotalR’000

Interest income 280332 24 323 1 622 6 306 135 356 (95 887) 352 052

Interestexpense 155998 19 629 831 414 95 580 (100 004) 172 448

Net interest income 124334 4 694 791 5 892 39 776 4 117 179 604

Non-interestincome 116863 72 932 64 149 164 949 7 144 20 097 446 134

Total income 241197 77 626 64 940 170 841 46 920 24 214 625 738

Impairmentchargesonloansandadvances 22422 4 674 100 356 – – 27 552

Net income after impairments 218775 72 952 64 840 170 485 46 920 24 214 598 186

Operatingcosts 176884 31 812 55 456 150 243 25 421 (3 423) 436 393

Staffcosts 43400 19 961 33 344 29 289 9 606 50 283 185 883

Otheroperatingexpenses 133484 11 851 22 112 120 954 15 815 (53 706) 250 510

Profit from operations 41891 41 140 9 384 20 242 21 499 27 637 161 793

Shareofassociatedcompanies’income 5493 – – 2 600 – – 8 093

Profit before income tax 47384 41 140 9 384 22 842 21 499 27 637 169 886

Incometaxexpense 4582 3 315 3 179 5 114 6 019 8 381 30 590

Profit for the year 42802 37 825 6 205 17 728 15 480 19 256 139 296

Segmentassets 2208088 174 372 104 118 237 211 528 010 299723 3551527

Segmentliabilities 1137603 30 246 52 082 141 536 1 070 107 56048 2487622

Depreciationandamoritisation 7725 195 973 1 952 3 060 4308 17713

145


company financial statements


Notes2011

R’0002010

R’000

AssetsCashandcashbalances 41.1 5 021 5 025

Otherreceivables 41.2 114 220

Investmentsinassociatedcompanies 41.3 34 300 32 909

Subsidiarycompanies 41.4 554 431 424 896

Taxation 714 –

Deferredtaxasset 41.5 1 477 2 142

Total assets 596 057 465 192

LiabilitiesOtherpayables 41.6 1 455 1 370

Loansfromsubsidiarycompanies 118 548 47 301

Total liabilities 120 003 48 671

EquityOrdinarysharecapital 41.7 323 323

Ordinarysharepremium 41.8 163 363 163 363

Reserves 113 090 53 557

Preference share capital 41.9 19 19

Preferencesharepremium 41.10 199 259 199 259

Total equity 476 054 416 521

Total liabilities and equity 596 057 465 192

Commitmentsandcontingentliabilities 41.11 – 14 446

Income statementInterestincome 41.12 24 843 30 216

Interestexpense 41.13 13 581 19 957


Otherincome 41.14 112 956 114 316

Total income 124 218 124 575

Operatingcosts 3 033 3 295

Staffcosts 41.15 1 132 953

Otheroperatingexpenses 41.16 1 901 2 342

Profit before income tax 121 185 121 280

Incometaxexpense 41.17 3 354 4 121




Ordinaryshareholders 103 684 100 212



146


Statement of comprehensive income

2011

R’0002010

R’000


Othercomprehensiveincomefortheyear,netofincometax – –




Ordinaryshareholders 103 684 100 212


Statement of changes in equity

Ordinary share capital

and premiumR’000

Distributablereserves

R’000

Share-based payment

reserveR’000

Total ordinaryshareholders

equityR’000

Preferenceshare

capital andpremium

R’000

Totalshareholders

equityR’000

30 June 2009 44 069 8 893 995 53 957 199 278 253 235

Total comprehensive income for the year – 117 159 – 117 159 – 117 159

Profit for the year – 117 159 – 117 159 – 117 159

Issueofshares 119 617 – – 119 617 – 119 617

Share-basedpaymentsreservemovements – – (411) (411) – (411)

Dividendstopreferenceshareholders – (16 947) – (16 947) – (16 947)

Dividendstoordinaryshareholders – (56 132) – (56 132) – (56 132)

30 June 2010 163 686 52 973 584 217 243 199 278 416 521

Total comprehensive income for the year – 117 831 – 117 831 – 117 831

Profit for the year – 117 831 – 117 831 – 117 831

Share-basedpaymentsreservemovements – – (221) (221) – (221)

Dividendstopreferenceshareholders – (14 147) – (14 147) – (14 147)

Dividendstoordinaryshareholders – (43 930) – (43 930) – (43 930)

30 June 2011 163 686 112 727 363 276 776 199 278 476 054

147


company financial statements > > continued

Cash flow statement Note 2011

R’0002010

R’000

Cash flows from operating activities

Cashreceiptsfromcustomers 41.18.1 26 878 32 772

Cashpaidtocustomers,employeesandsuppliers 41.18.2 (16 614) (23 252)



Taxationpaid 41.18.3 (3 403) (2 949)

Dividendspaid 41.18.4 (58 077) (73 079)

Cash flows from operating activities before changes in operating assets and liabilities 59 705 45 252

Changes in operating assets and liabilities 191 6 910

Changeinotherreceivables 106 6 661

Changeinotherpayablesandprovisions 85 249

Net cash from operating activities 59 896 52 162

Cash flows from investing activities (131 147) 25 250

Changeininvestmentsecurities (111 100) (61 983)

Changeininvestmentsinassociates (1 391) (1 136)

Changeinloanstosubsidiarycompanies (18 656) 88 369

Net cash flows from financing activities 71 247 (77 416)

Changeinloansfromsubsidiarycompanies 71 247 (197 033)

Issueofshares – 119 617

Net decrease in cash and cash equivalents (4) (4)

Cashandcashequivalentsatbeginningoftheyear 5 025 5 029

Cash and cash equivalents at end of the year 5 021 5 025


148


41. Notes to the financial statements2011

R’0002010

R’000

41.1 Cash and cash balancesMoneyoncall 5 021 5 025

5 021 5 025

41.2 Other receivablesSundrydebtors 114 220

114 220

41.3 Investments in associated companiesSharesatbookvalue 34 300 32 909

41.4 Subsidiary companiesUnlistedinvestments

Sharesatcarryingvalue–ordinaryshares 242 677 130 896

Sharesatcarryingvalue–preferenceshares 60 000 60 000

Loans 250 502 231 846

Share-basedpaymentreserve 1 252 2 154

554 431 424 896

Theloanstosubsidiariesareunsecured,bearinginterestrelatingtoprime,havenofixedtermsofrepaymentandarenotrepayableinthenext12months.

Adetailedscheduleofsubsidiarycompaniesappearsinnote38.

41.5 Deferred tax Deferredtaxontemporarydifferencesarisingfrom:

STCcredits 1 477 –

Taxlosses – 2 142

Deferredtaxationasset 1 477 2 142

41.6 Other payablesAuditfeesandotherservices 890 837

Accountspayable 565 533

1 455 1370

41.7 Ordinary share capitalAuthorised

100000000(2010:40000000)ordinarysharesof1centeach 1 000 400

Theauthorisedsharecapitalwasincreasedduringtheyearbyafurther60000000ordinarysharesof1centeach.

Issued

32301441(2010:32301441)ordinarysharesof1centeach

Balanceatthebeginningoftheyear 323 280

Issuedduringtheyear – 43

Balanceattheendoftheyear 323 323

TheGrouphasashareincentivetrustintermsofwhichsharesareissuedandoptionsare granted.Detailsoftheshareincentivetrustaresetoutinnote39asrequiredbytheJSE.

TheShareIncentiveTrusthasbeenconsolidatedintotheGroup'sannualfinancialstatements. TheGroupissuedno(2010:186263)sharestotheSasfinShareIncentiveTrust.Thenumber ofsharesheldbytheSasfinShareIncentiveTrustamountsto64926(2010:115590)or R957793(2010:R1747724)atyear-end.

Theunissuedsharesareunderthecontrolofthedirectorsuntilthenextannual generalmeeting.

notes to the company financial statements 149


notes to the company financial statements > > continued

41. Notes to the financial statements > > continued2011

R’0002010

R’000

41.8 Ordinary share premiumBalanceatthebeginningoftheyear 163 363 43 789

Issuedduringtheyear – 119 574

Balanceattheendoftheyear 163 363 163 363

41.9 Preference share capital

Authorised

5000000(2010:5000000)non-redeemable,non-cumulative,non-participatingpreferenceshares of 1 cent each 50 50

Issued

1905000(2010:1905000)preferencesharesof1centeach 19 19

Thepreferenceshareswerelistedunderthespecialistsecurities–preferencesharessectoroftheJSE.Dividendsarepaidsemi-annuallyatarateof75%oftheprimerate.

41.10 Preference share premiumBalanceatthebeginningandendoftheyear 199 259 199 259

41.11 Commitments and contingent liabilitiesGuarantees – 14 446

41.12 Interest incomeIntercompanyloans 22 243 25 430

Other 2 600 4 786

Interestearnedonfinancialassets 24 843 30 216

41.13 Interest expenseIntercompanyloans 13 581 19 957

Interestpaidonfinancialliabilities 13 581 19 957

41.14 Other incomeFeeincome 2 000 2 556

Dividendincome 110 921 111 760

Otherincome 35 –

112 956 114316

41.15 Staff costsThefollowingdisclosableitemsareincludedinstaffcosts:

Directors’emoluments

–Directors’feespaidbytheCompany 1 132 953

1 132 953

41.16 Other operating expenses

Thefollowingdisclosableitemsareincludedinoperatingexpenses:

Auditors’remuneration 935 1 173

Auditfees–currentyear 928 1 087

Auditfees–underprovisionprioryear – (3)

Otherservices 7 89

Other 966 1 169

1 901 2 342


150


41. Notes to the financial statements > > continued

2011R’000

2010R’000

41.17 Income tax expenseSouthAfricannormaltax 2 238 1 172

Currenttaxexpense 96 –

Deferredtax–currentyear 2 142 1 422

–prioryearunderprovision – (250)

Secondarytaxoncompanies 2 593 2 949

DeferredtaxonSTCcredits (1 477) –

3 354 4 121

Reconciliation of rate of taxation % %

SouthAfricannormaltaxrate 28,0 28,0

Adjustedfor: (25,3) (24,6)

Exemptincome (26,2) (26,8)

Overprovisioninprioryears – (0,2)

Secondarytaxoncompanies 0,9 2,4

Effective rate 2,7 3,4

41.18 Cash flow notes41.18.1 Cash receipts from customers

Interestincome 24 843 30 216

Otherincome 2 035 2 556

26 878 32 772

41.18.2 Cash paid to customers, employees and suppliers

Interestexpense 13 581 19 957

Totaloperatingexpenses 3 033 3 295

16 614 23 252


Reconciliation of operating profit to cash flows from operating activities

Profitbeforeincometax 121 185 121 280

Dividendsreceived (110 921) (111 760)

10 264 9 520

41.18.3 Taxation paid

Unpaidatthebeginningoftheyear (2 142) (3 314)


Unpaidattheendoftheyear 2 191 2 142

3 403 2 949

41.18.4 Dividends paid

Chargetodistributablereserves 58 077 73 079

58 077 73 079

151


notes to the company financial statements > > continued

41 Notes to the financial statements >>continued41.19 Related party transactions

ThefollowingaredefinedasrelatedpartiesoftheGroup:

•Subsidiaries(refertonote38)

•Associatedundertakingsandjointventures(refertonote8)

•Keymanagementpersonnel

Transactions between Group companies comprise:

2011R’000

2010R’000

Interestonfundingaccountsreceived 22 243 25 430

Interestonfundingaccountspaid 13 581 19 957


Administrationfees 2 000 2 556

IAS24–relatedparties,requirestheidentificationof"keymanagementpersonnel".Accordingly,theGrouphasdefinedkeymanagementpersonnelasthosepersonshavingauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheCompany,directlyorindirectly,includinganydirector(whetherexecutiveorotherwise)ofthecompanyaswellasclosemembersofthefamilyofanyoftheseindividuals.KeymanagementpersonnelareconsideredtobethedirectorsoftheCompany.

Detailsofdirectors’emolumentsandshareholdingaredisclosedintheDirectors’Report onpages72and73.

41.20 Classification of assets and liabilitiesAccountingclassificationsandfairvalues.

ThetablebelowsetsouttheCompany’sclassificationofeachclassoffinancialassetsandliabilities,andtheirfairvalues.

Loans and receivables

R’000

Other non-financial

assets and liabilities

R’000

Total carrying amount

R’000Fair value

R’000

2011

Assets

Cashandcashbalances 5 021 – 5 021 5 021

Otherreceivables 114 – 114 114

Investmentsinsubsidiarycompaniesandassociated companies – 588 731 588 731 588 731

Othernon-financialassets – 1 477 1 477 1 477

5 135 590 208 595 343

Liabilities

Otherpayables – 1 455 1 455 1 455

Othernon-financialliabilities – 118 548 118 548 118 548

– 120 003 120 003

Carryingvaluehasbeenusedasitcloselyapproximatesfairvalue.


152


41. Notes to the financial statements >>continued41.20 Classification of assets and liabilitiess >>continued

Loans and receivables

R’000

Other non-financial

assets and liabilities

R’000

Total carrying amount

R’000Fair value

R’000

2010

Assets

Cashandcashbalances 5 025 – 5 025 5 025

Otherreceivables 220 – 220 220

Investmentsinsubsidiarycompaniesandassociated companies – 457 805 457 805 –

Othernon-financialassets – 2 142 2 142 2 142

5 245 459 947 465 192

Liabilities

Otherpayables – 1 370 1 370 1 370

Othernon-financialliabilities – 47 301 47 301 47 301

– 48 671 48 671

Carryingvaluehasbeenusedwhereitcloselyapproximatesfairvalue.

41.21 Liquidity, credit and market risk informationOtherassetsandliabilitiesconsistmainlyofnon-financialassetsandliabilitiesorfinancialassetsandliabilitiesatamortisedcostwhicharenotsubjecttoliquidity,creditandmarketriskforIFRS7purposes.Theseinvestmentsaresubjecttomarketriskbeingthelistedmarketpricesoftheinstruments.

153


42. Relevantstandardsandinterpretationsbecomingeffectiveforyearsendingafter30June2011

Standard/Interpretation Effective date

IFRIC 14 (AC 447) amendment Prepayments of a Minimum Funding Requirement

Annual periods commencing on or after 1 January 2011

IAS 24 (revised) Related Party Disclosures Annual periods commencing on or after 1 January 2011

IFRS 9 Financial Instruments Annual periods commencing on or after 1 January 2013

IFRS 10 Consolidated Financial Statements Annual periods commencing on or after 1 January 2013

IFRS 11 Joint Arrangements Annual periods commencing on or after 1 January 2013

IFRS 12 Disclosure of Interests in Other Entities Annual periods commencing on or after 1 January 2013

IFRS 13 Fair Value Measurement Annual periods commencing on or after 1 January 2013

IFRS 7 amendment Financial instruments disclosures and additional disclosure on transfer transactions of financial assets

Annual periods commencing on or after 1 January 2011 and 1 July 2011 respectively

IAS 1 amendment Presentation of Financial Statements Annual periods commencing on or after 1 January 2011

11 individual amendments to 6 standards Improvements to International Financial Reporting Standards 2010

Annual periods commencing on or after 1 January 2011

Note: The adoption of these accounting statements should not have a significant impact on the Group’s results. The adoption of the new standards will increase the level of disclosure provided for the entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The impact of IFRS 9 has not been measured by the Group.

notestothecompanyfinancialstatements> > continued

For the year ended 30 June 2011

154


shareholders’andadministrativeinformation 156–159

GRIcontentindex 160–163

noticeofannualgeneralmeeting 164

SasfinGroupcontactinformation 170

formofproxy 171

PART 3 SHAREHOLDERS’ AND ADMINISTRATIVE INFORMATION’

shareholders’andadministrativeinformation–contents 155


shareholders’andadministrativeinformation

Ordinaryshares

Shareholders Shares held

Shareholderspread Number % Number %

1 – 1 000 shares 773 51,36 317 597 0,98

1 001 – 10 000 shares 587 39,00 1 902 491 5,89

10 001 – 100 000 shares 114 7,58 3 315 095 10,27

100 001 – 1 000 000 shares 26 1,73 8 725 840 27,01

1 000 001 shares and over 5 0,33 18 040 418 55,85

Total 1 505 100 32 301 441 100


Distributionofshareholders Number % Number %

Banks 5 0,33 3 058 300 9,47

Brokers 5 0,33 354 932 1,10

Close corporations 26 1,73 135 281 0,42

Endowment funds 5 0,33 2 880 733 8,92

Individuals 1 171 77,81 3 735 173 11,56

Insurance companies 7 0,47 266 218 0,82

Investment companies 3 0,20 169 960 0,52

Mutual funds 28 1,86 3 230 915 10,00

Nominees and trusts 174 11,56 2 842 250 8,80

Other corporations 27 1,79 28 240 0,09

Pension funds 7 0,47 1 165 313 3,61

Private companies 38 2,52 3 700 732 11,46

Public companies 8 0,53 10 668 468 33,03

Share trusts 1 0,07 64 926 0,20

Total 1 505 100 32 301 441 100


Public/non-publicshareholders Number % Number %

Non-public shareholders 5 0,33 12 624 258 39,08

Directors and associates of the company 4 0,27 12 559 332 38,88

Share trust 1 0,06 64 926 0,20

Public shareholders 1 500 99,67 19 677 183 60,92

Total 1 505 100 32 301 441 100

as at 30 June 2011

156


Shares

Beneficialshareholdersholdings5%ormore Number %

Unitas Enterprises Limited 9 648 487 29,87

International Finance Corporation 3 005 894 9,31

The Sassoon Children's Trust 2 810 845 8,70

Marsas Holdings (Pty) Limited and Glattfin Trust 2 843 778 8,81

Shares

Directors’shareholding Number %

RDEB Sassoon 12 459 332 38,57

Unitas Enterprises Limited 9 648 487 29,87

The Sassoon Children’s Trust 2 810 845 8,70

M Segal 100 000 0,31

Total 12 559 332 38,88

Shares

Sharetrust Number %

Sasfin Share Incentive Trust 64 926 0,20

Total 64 926 0,20

157


shareholders’andadministrativeinformation> > continued

Preferenceshares Shareholders Shares held

Shareholderspread Number % Number %

1 – 1 000 shares 552 62,30 308 543 16,20

1 001 – 10 000 shares 301 33,97 871 146 45,73

10 001 – 100 000 shares 33 3,73 725 311 38,07

Total 886 100 1 905 000 100


Distributionofshareholders Number % Number %

Brokers 1 0,11 382 0,02

Close corporations 14 1,58 39 266 2,06

Endowment funds 2 0,23 1 400 0,07

Individuals 685 77,31 1 119 900 58,79

Mutual funds 6 0,68 81 040 4,25

Nominees and trusts 147 16,59 479 834 25,19

Other corporations 6 0,68 37 547 1,97

Private companies 24 2,71 144 631 7,59

Public companies 1 0,11 1 000 0,06

Total 886 100 1 905 000 100


Public/non-publicshareholders Number % Number %

Non-public shareholders – – – –

Public shareholders 886 100 1 905 000 100

Total 886 100 1 905 000 100

158


Shareholders’diary 2011

Year-end 30 June

Published interim report for six months to December 2010 2 March

Interim ordinary share dividend paid 4 April

Preliminary announcement of annual results 14 September

Preference share dividend number 14 paid 10 October

Final ordinary share dividend paid 17 October

Integrated report posted to shareholders 26 October

Annual general meeting 24 November

PerformanceofordinarysharesontheJSE–30June2011 2011 2010

Shares traded (number) 3 056 838 2 645 250

Price (cents)

Highest 4 200 4 385

Lowest 3 201 2 615

Year-end 3 450 3 710

Market capitalisation (R'000) 1 114 400 1 198 383

SasfinHoldingsLimitedshareprice–3450centspershareat30June2011

Jul Aug Sept Oct Nov Dec

2010 2011

JunMayAprilMarFebJan

cents

4 400

4 200

4 000

3 800

3 600

3 400

3 200

3 000

cents

4 400

4 200

4 000

3 800

3 600

3 400

3 200

3 000

159


GRIcontentindex

G3 indicator Description Section

Strategy and analysis

1.1 Statement from senior decision-maker about the relevance and importance of sustainability to Sasfin, the overall vision and strategy for the short term, medium term and long term, particularly with regard to managing the key challenges associated with economic, environmental and social performance

Chief Executive Officer’s Report Part 1 ✓

1.2 Description of key impacts, risks and opportunities Stakeholder engagement Part 1 ✓Organisational profile

2.1 Name of the organisation Front cover ✓2.2 Primary products, brands and/or services Business Model and “Value Chain” Part 1 ✓2.3 Operational structure of the organisation Group structure Part 1 ✓2.4 Head office location Contact information Back cover ✓2.5 Number of countries where Sasfin operates, and names of countries with

major operations relevant to the sustainability issues covered in this reportContact information Sustainability issues – introduction

Back coverPart 1

✓✓

2.6 Nature of ownership and legal form Directors Report Part 2 ✓2.7 Markets served Mission, Markets, Values Part 1 ✓2.8 Scale of reporting organisation including:

• number of employees• net sales• total capitalisation broken down in terms of debt and equity• quantity of products or services provided

Group salient features

Percentage of corporate portfolio

Part 1

Part 1

✓

✓

2.9 Significant changes in the reporting organisation during the period under review

Chairman’s Report Chief Executive Officer’s Report

Part 1Part 1

✓✓

2.10 Awards received during the reporting period Financial Report Part 1 ✓Report parameters

3.1 Reporting period Scope of reporting Part 1 ✓3.2 Date of most recent previous report Introduction – first integrated report Part 1 ✓3.3 Reporting cycle Introduction – scope of reporting

3.4 Contact details for further information about this report Contact information Back cover ✓3.5 Process for:

• determining materiality• process for prioritising topics in the report• identifying stakeholders expected to use this report

Introduction – sustainability issues addressed in the IR 2011

Part 1 ✓

3.6 Report boundary Introduction – sustainability issues addressed in the IR 2011

Part 1 ✓

3.7 Limitations on the scope or boundary of the report Introduction – sustainability issues addressed in the IR 2011

Part 1 ✓

3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities and outsourced operations

Consolidated financial statements – Accounting policies

Part 2 ✓

3.9 Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the indicators and other information in the report covered under each material issue

Incorporated within relevant sections of the IR

3.10 Explanation of the effect of any restatements of information provided in earlier reports, and the reasons for such restatement

There were no material restatements

3.11 Significant changes from previous reporting periods in the scope, boundary or measurement methods applied in the report

First time integrated report disclosure – no change in methods

3.12 GRI table Part 3 ✓3.13 Policy and current practice with regard to seeking external assurance

for the report. If not included in the assurance report accompanying the sustainability report, explain the scope and basis of any external assurance provided. Also explain the relationship between the reporting organisation and the assurance provider(s)

Introduction – Assurance Part 1 ✓

160



Governance, commitments and engagement

4.1 Governance structure of the organisation Executive committee Part 1 ✓4.2 Indicate whether the chairman is also an executive officer and, if so, reasons

for this arrangementNot applicable

4.3 Number of independent and/or non-executive members Corporate Governance Report Part 1 ✓4.4 Mechanisms for shareholders and employees to provide recommendations

or direction to the boardEmployee engagement Part 1 ✓

4.5 Linkage between compensation for members of the highest governance body, senior managers and executives

Remuneration Report Part 1 ✓

4.6 Processes in place for the highest governance body to ensure conflicts of interest are avoided

Corporate Governance Report Part 1 ✓

4.7 Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organisation’s strategy on economic, environmental and social topics

Corporate Governance Report Part 1 ✓

4.8 Internally developed statements of mission or values, codes of conduct and principles relevant to economic, environmental and social performance, and the status of their implementation

SEMS risk frameworkAdoption of Equator Principles

Part 1Part 1

✓✓

4.9 Procedures of the highest governance body for overseeing the organisation’s identification and management of economic, environmental and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct and principles

Corporate Governance Report - various board committees

Part 1 ✓

4.10 Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, environmental and social performance

Corporate Governance Report – Directors’ Affairs and, Human resources and Remuneration committees

Part 1 ✓

4.11 Explanation of whether and how the precautionary approach or principle is addressed by the organisation

Corporate Governance – Directors’ Affairs committee

Part 1 ✓

4.12 Externally developed economic, environmental and social charters, principles or other initiatives to which the organisation subscribes or endorses

Eight IFC principles

IFC exclusion list

Part 1

Part 1

✓

✓4.13 Memberships of associations (such as industry associations) and/or

national/international advocacy organisations in which the organisation:• has positions in governance bodies• participates in projects or committees• provides substantive funding beyond routine membership dues or• views membership as strategic

Not applicable

4.14 List of stakeholder groups engaged by the organisation Stakeholder engagement Part 1 ✓4.15 Basis for identification and selection of stakeholders with whom to engage Stakeholder engagement considerations Part 1 ✓4.16 Approaches to stakeholder engagement, including frequency and type of

stakeholdersStakeholder engagement Part 1 ✓

Management approach and performance Indicators

FS1 Description of policies with specific environmental and social components applied to business lines

Eight IFC principlesAdoption of Equator Principles

Part 1Part 1

✓✓

FS2 Description of procedures for assessing and screening environmental and social risks in business lines

SEMS risk frameworkIFC exclusion list

Part 1Part 1

✓✓

FS3 Description of processes for monitoring clients’ implementation of and compliance with environmental and social requirements included in agreements or transactions

SEMS risk framework Part 1 ✓

FS4 Description of processes for improving staff competency to implement the environmental and social policies and procedures as applied to business lines

SEMS risk framework Part 1 ✓

FS5 Interactions with clients/investors/business partners regarding environmental and social risk and opportunities

SEMS risk frameworkIFC exclusion list Increasing environmental awareness

Part 1Part 1Part 1

✓✓✓

161


GRIcontentindex> > continued


Management approach and performance Indicators (continued)

FS6 Percentage of the portfolio for business lines by specific region, size and sector

Percentage of corporate portfolio Part 1 ✓

FS7 Monetary value of products and services designed to deliver a specific social benefit for each business

2011 Preferential Procurement report Value added statement

Part 1Part 1

✓

FS8 Monetary value of products and services designed to deliver a specific environmental benefit for each business line, broken down by purpose

Value added statement Part 1 ✓

FS9 Coverage and frequency of audits to assess implementation of environmental and social policies and risk assessment procedures

Introduction: Assurance Part 1 ✓

FS10 Percentage and number of companies held in the institution’s portfolio with which the reporting organisation has interacted on environmental and social issues

Introduction: scope of reporting Part 1 ✓

FS11 Percentage of assets subject to positive and negative environmental and social screening

Not stated

FS12 Voting policies applied to environmental and social issues for shares over which the reporting organisation holds the right to vote shares or advises on voting

Not applicable. No organisations over which Sasfin holds the right to vote shares or advises on voting

FS13 Access points in the low populated or economically disadvantaged areas by type

In the community Part 1 ✓

FS14 Initiatives to improve access to financial services for disadvantaged people Not stated

FS15 Policies for the fair design and the sale of financial products and services Not stated

FS16 Initiatives to enhance financial literacy by type of beneficiary In the community Part 1 ✓Economic performance

EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments

Value added statement Part 1 ✓

EC2 Financial implications and other risks and opportunities for the organisation’s activities due to climate change

Value added statement

EC2 Financial implications and other risks and opportunities for the organisation’s activities due to climate change

Risk and regulatory review Part 1 ✓

EC3 Coverage of the organisation’s defined benefit plan obligations Not applicable – Defined contribution plan

EC4 Significant financial assistance received from government Not applicable

EC6 Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation

100% locally based suppliers

EC7 Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation

Hiring practices Part 1 ✓

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement

Not applicable

EnvironmentalEN5 Energy saved due to conservation and efficiency improvements. Part 1 ✓EN6 Initiatives to provide energy-efficient or renewable energy based products

and services, and reductions in energy requirements as a result of these initiatives.

Part 1 ✓

EN22 Total weight of waste by type and disposal method. Part 1 ✓EN28 Monetary value of significant fines and total number of non-monetary

sanctions for non-compliance with environmental laws and regulations.Part 1 ✓

162



Human rightsHR1 Percentage and total number of significant investment agreements that

include human rights clauses or that have undergone human rights screening

Not stated

HR2 Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken

Not stated

HR4 Total number of incidents of discrimination and actions taken No incidents of discrimination Part 1 ✓HR5 Operations identified in which the right to exercise freedom of association

and collective bargaining may be at significant risk, and actions taken to support these rights

Not applicable

HR6 Operations identified as having significant risk for incidents of child labour, and measures taken to contribute to the elimination of child labour

Not applicable

HR7 Operations identified as having significant risk for incidents of forced or compulsory labour, and measures taken to contribute to the elimination of forced or compulsory labour

Not applicable

Labour practices and decent work

LA1 Total workforce by employment type, employment contract, and region Workforce breakdown Part 1 ✓LA2 Total number and rate of employee turnover by age group, gender, and

regionEmployee movements Part 1 ✓

LA4 Percentage of employees covered by collective bargaining agreements Not applicable

LA5 Minimum notice period(s) regarding significant operational changes, including whether it is specified in collective agreements

Not applicable

LA7 Rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities by region

Not stated

LA8 Education, training, counselling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases

Employee wellness Part 1 ✓

LA10 Average hours of training per year per employee by employee category Not statedDisclosed total amount spent on training

Part 1 ✓

LA13 Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity

Workforce breakdown Part 1 ✓

LA14 Ratio of basic salary of men to women by employee category Human capital Part 1 ✓Society

SO1 Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting

SO2 Percentage and total number of business units analysed for risks related to corruption

Not stated

SO3 Percentage of employees trained in organisation’s anti-corruption policies and procedures

Employees make use of a whistle-blowing mechanism which is controlled by Sasfin’s Compliance department

SO4 Actions taken in response to incidents of corruption Not applicable

SO5 Public policy positions and participation in public policy development and lobbying

Not applicable

SO8 Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with laws and regulations

No fines or sanctions Part 1 ✓

163


noticeofannualgeneralmeeting

SasfinHoldingsLimited(Incorporated in the Republic of South Africa)

Registration number 1987/002097/06

Ordinary share code: SFN ISIN: ZAE000006565

Preference share code: SFNP ISIN: ZAE000060273

(“Sasfin” or “the Company”)

Notice is hereby given that the 24th annual general meeting of shareholders of the Company will be held at, 29 Scott Street, Waverley, Johannesburg on Thursday, 24 November 2011 at 14:00.

Last date to trade to be eligible to participate and to vote at the annual general meeting: Friday, 11 November 2011. Record date to be eligible to vote: Friday, 18 November 2011. Forms of proxy to be lodged: Tuesday, 22 November 2011 at 14:00.

AttendingtheannualgeneralmeetingAll holders of the issued ordinary shares are entitled to attend and vote at the annual general meeting. Holders of preference shares are only entitled to attend the annual general meeting, they will not be entitled to vote.

Ordinary shareholders who hold their shares in certificated form or who are own name registered dematerialised shareholders who are unable to attend the annual general meeting but who wish to be represented thereat, are required to complete and return the attached form of proxy so as to be received at the registered office of the Company by not later than 14:00 on Tuesday 22 November 2011. Ordinary shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker, other than by own name registration who wish to attend the annual general meeting must instruct their CSDP or broker to issue them with the necessary authority to attend the meeting, in terms of the custody agreement entered into between such shareholders and their CSDP or broker. Ordinary shareholders who have dematerialised their shares through a CSDP or broker, other than by own name registration who wish to vote by way of proxy, must provide their CSDP or broker with their voting instructions, in terms of the custody agreement entered into between such shareholders and their CSDP or broker. These instructions must be provided to their CSDP or broker by the cut-off time or date advised by their CSDP or broker for instructions of this nature.

Explanatory note: Memorandum of Incorporation (“MoI”)

Until the Companies Act, No 71 (“Companies Act”) came into effect on 1 May 2011, the MoI of the Company comprised its MoI and articles of association. On the date that the Companies Act came into effect, the MoI and articles of association of the Company automatically converted into the Company’s MoI. Accordingly, for consistency of reference in this notice of annual general meeting, the term “MoI” is used throughout to refer to the Company’s memorandum of incorporation (which comprised the Company’s MoI and its articles of association, as aforesaid).

PurposeofthemeetingThe purpose of the meeting is to transact the business set out below:

1. The consideration and acceptance of the matter outlined below.1.1 The audited annual financial statements, including the directors’ report and the Group Audit and Compliance committee report.

2. To note the following dividends:2.1 Interim ordinary dividend of 49 cents per ordinary share declared by the board of directors on 24 February 2011

2.2 Interim preference dividend of 362,05 cents per preference share declared by the board of directors on 24 February 2011

2.3 Final ordinary dividend of 69 cents per ordinary share declared by the board of directors on 8 September 2011, and

2.4 Final preference dividend of 334,73 cents per preferance share declared by the board of directors on 8 September 2011.

3. To consider and, if deemed fit, approve the following ordinary and special resolutions with or without modification:3.1 Ordinary resolutions

Ordinary resolution number 1: Reappointment of directors

Resolved that Mr RDEB Sassoon, who retires by rotation in terms the MoI of the Company and, being eligible, offers himself for re-appointment, as an executive director of the Company.

Mr Sassoon’s brief curriculum vitae is included under the board of directors section on page 8 of the integrated report.

The election of each director who, among other things, retires by rotation is required at the Company’s annual general meeting. The election will be conducted by a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy as required under Section of 68(2) of the Companies Act.

The minimum percentage of voting rights that is required for this resolution to be adopted is 50% of the voting rights plus one vote to be cast on the resolution.

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3. To consider and, if deemed fit, approve the following ordinary and special resolutions with or without modification: > > continued

3.1 Ordinary resolutions > > continued

Ordinary resolution number 2: Re-appointment of directors

Resolved that the following directors, appointed by the board of directors on 1 October 2010, 21 December 2010 and 14 February 2011 respectively, having retired in terms of the Company’s MoI and being eligible, have offered themselves for re-appointment.

• Mr TD Soondarjee (executive director)

• Mr J Moses (independent non-executive director), and

• Mr RC Andersen (independent non-executive director)

Brief curriculum vitaes of the aforementioned directors’ are included on pages 8 and 9 of the integrated report.

Accordingly, shareholders are requested to consider and, if deemed fit, to re-appoint the directors named above by way of passing the separate ordinary resolutions set out below:

Ordinary resolution number 2.1

Appointment of Mr TD Soondarjee as a director

“Resolved that Mr TD Soondarjee be and is hereby re-appointed as a director of the Company.”


Appointment of Mr J Moses as a director

“Resolved that Mr J Moses be and is hereby re-appointed as a director of the Company.”


Appointment of Mr RC Andersen as a director

“Resolved that Mr RC Andersen be and is hereby re-appointed as a director of the Company.”

The re-appointment of each director who, among other things, retires by rotation is required at the Company’s annual general meeting. The re-appointment will be conducted by a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy as required under section of 68(2) of the Companies Act.


Ordinary resolution number 3: Re-appointment of independent auditors and designated auditors

“Resolved that, subsequent to the recommendation of the Group Audit and Compliance committee, KPMG Inc. and PKF (Jhb) Inc. be re-appointed as joint independent auditors of the Company and that Mr R Warren-Tangney and Mr GM Chaitowitz be respectively appointed as the individual designated auditors of the Company for the next financial year.”

Explanatory note:

In compliance with Section 90(1) of the Companies Act, a public company must each year at its annual general meeting appoint an auditor.


Ordinary resolution number 4: Remuneration of auditors

“Resolved that the Group Audit and Compliance committee be authorised to determine the remuneration and the terms of engagement of the Company’s auditors.”


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noticeofannualgeneralmeeting> > continued

3. To consider and, if deemed fit, approve the following ordinary and special resolutions with or without modification:> > continued

3.1 Ordinary resolutions > > continued

Ordinary resolution number 5: Unissued ordinary shares“Resolved that the unissued ordinary shares in the authorised ordinary share capital of the Company be and are hereby placed under the control of the directors of the Company who are authorised to allot and issue the ordinary shares at their discretion, and on such terms and conditions and at such times as they deem fit until the next annual general meeting of the Company, subject to the provisions of the Banks Act No 94 of 1990, as amended and the Listings Requirements of JSE Limited (“JSE”).”


Ordinary resolution number 6: Unissued preference shares“Resolved that the unissued non-redeemable, non-cumulative, non-participating, variable rate preference shares in the authorised preference share capital of the Company be and are hereby placed under the control of the directors of the Company who are hereby authorised, as a general approval, to allot and issue the preference shares at their discretion, and on such terms and conditions and at such times as they deem fit until the next annual general meeting of the Company, subject to the provisions of the JSE.”


Ordinary resolution number 7: General authority to issue shares for cash“Resolved that the board of directors be and are hereby authorised, as a general approval, to allot and issue ordinary shares, securities that are convertible into an existing class of equity securities, options or rights exercisable for securities for cash without restriction, as they may deem fit, subject to compliance with the Companies Act, the MoI of the Company and the JSE, provided that:

• This general authority shall not endure beyond the earlier of the next annual general meeting of the Company or beyond 15 (fifteen) months from the date of this meeting;

• Any such issue will only be securities of a class already in issue, or limited to such securities or rights that are convertible into a class already in issue;

• The securities will be issued only to public shareholders as defined in the Listings Requirements of the JSE and not to related parties;

• During the period permitted in terms of this general approval:

– the general issues of securities of a specific class will, in any financial year, not exceed, in the aggregate, 15% (fifteen) of the Company’s issued share capital in that class at the date of the first such issue;

– the securities of a particular class will be aggregated with the securities that are compulsorily convertible into securities of that class and, in the case of the issue of compulsorily convertible securities, aggregated with the securities of that class into which they are compulsorily convertible;

– the number of securities which may be issued, shall be based on the number of securities of that class in issue, added to those that may be issued in future at the date of such application;

• less any securities of the class issued or to be issued in future arising from options/convertible securities issued during the current financial year;

• plus any securities of that class to be issued pursuant to:

i. a rights issue, which has been announced, is irrevocable and is fully underwritten; or

ii. acquisition (which has had final terms announced) which may be included as though they were securities in issue at the date of application.

In determining the price at which an issue of equity securities may be made in terms of this general authority, the maximum discount permitted will be 10% of the weighted average traded price of the equity securities as measured over the 30 business days prior to the date that the price of the issue is agreed between the Company and the party subscribing for the securities. The JSE will be consulted for a ruling if the Company’s securities have not traded in such 30-business day period.

In terms of the JSE, a 75%, (seventy-five percent) majority of votes cast by the ordinary shareholders present or represented by proxy at the Annual General Meeting is required to approve this resolution.”

Ordinary resolution number 8: Receive, consider and adopt remuneration policy“Resolved that the remuneration policy of the Company, as defined in the Remuneration Report on page 35 of the integrated report be received, considered and approved.”

The minimum percentage of voting rights that is required for this non-binding resolution to be adopted is 50% of the voting rights plus one vote to be cast on the resolution.

166



3.2 Special resolutions*

Special resolution 1: Approval of amendments to MoI“Resolved that clause 24.4 of the MoI be amended to allow the company to adjust its preference share dividend in accordance with the change in tax legislation pertaining to the phasing out of secondary tax on companies and the introduction of a withholding tax on all company distributions received by a shareholder, including dividends received in respect of preference shares.”

Reason and effectTo provide preference shareholders with the same rate of return following the withholding of dividend tax, which has no effect on the Group’s profitability. The gross up will be the lower of the net benefit the Company will gain as a result of the abolition of STC or a sufficient increase in the preference share dividend such that the preference shareholders receive the same dividend after tax as they currently receive, immediately after the introduction of the withholding tax.


Special resolution number 2: General authority to repurchase shares“Resolved that the Company and/or its subsidiaries be and are hereby authorised as a general approval contemplated in sections 46 and 48 of the Companies Act, to acquire the Company’s issued shares when required, according to such terms and conditions and in such amounts as the directors of the Company may deem fit, subject to the necessary approval, the provisions of the Companies Act No 71 , the Banks Act No 94 of 1990, as amended and the JSE subject to the following limitations:

• The repurchase of securities shall be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counter party (reported trades are prohibited)

• This general approval shall be valid until the next annual general meeting or for 15 (fifteen) months from the date of the resolution, whichever period is shorter

• Repurchases shall not be made at a price greater than 10% above the weighted average of the market value for the securities for the 5 (five) business days immediately preceding the date on which the transaction is effected. The JSE will be consulted for a ruling if the applicant’s securities have not traded in such 5 (five) business day period

• At any point in time, only one agent shall be appointed to effect any repurchase(s) on the Company’s behalf

• Prior to any repurchase, the board of directors shall resolve that the Company passed the solvency and liquidity test and that since the test was done there have been no material changes to the financial position of the Group, and

• The Company or any of its subsidiaries shall not repurchase securities during a prohibited period as defined in paragraph 3.67 of the Listings Requirements of the JSE until a repurchase programme has been put in place in respect of which the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period.”

Reason and effectThe reason for this special resolution is to grant the Company a general authority in terms of the Act for the repurchase by the Company or any of its subsidiaries of shares issued by the Company, which authority shall be valid until the earlier of the next annual general meeting of the Company or the variation or revocation of such general authority by special resolution by any subsequent general meeting of the Company, provided that the general authority shall not extend beyond fifteen months from the date of this annual general meeting. The effect of the special resolution will be to reduce the number of shares in issue. In terms of the JSE, any general repurchase by the Company must, inter alia, be limited to a maximum of 20% of the Company’s issued share capital in any one financial year of that class at the time the authority is granted.

Statement by the board of directors of the CompanyPursuant to and in terms of the JSE, the board of directors of the Company hereby state that:

• the intention of the directors of the Company is to utilise the general authority to repurchase shares in the Company if at some future date the cash resources of the Company are in excess of its requirements or there are other good grounds for doing so. In this regard the directors will take account of, inter alia, an appropriate capitalisation structure for the Company, the long-term cash needs of the Company, and the interest of the Company

• In determining the method by which the Company intends to repurchase its shares, the maximum number of shares to be repurchased and the date on which such repurchase will take place, the directors of the Company will only make the repurchase if they are of the opinion that:

− the Company and its subsidiaries will, after the repurchase of the shares, be able to pay their debts as they become due in the ordinary course of the business for the next 12 months

− the consolidated assets of the Company and its subsidiaries, fairly valued in accordance with IFRS and recognised and measured in accordance with the accounting policies used in the latest audited financial statements will, after the repurchase, be in excess of the consolidated liabilities of the Company and its subsidiaries for the next 12 months after the date of this notice of the annual general meeting

167


noticeofannualgeneralmeeting> > continued


3.2 Special resolutions > > continued

− the issued share capital and reserves of the Company and its subsidiaries will, after the repurchase of the shares, be adequate for ordinary business purposes of the Company or any acquiring subsidiary for the next 12 months

− the working capital available to the Company and its or any acquiring subsidiaries will, after the repurchase, be sufficient for ordinary business requirements for the next 12 months, and

− The Company may not enter the market to proceed with the repurchase until the Company’s sponsor has confirmed the adequacy of the Company’s working capital for the purposes of undertaking a repurchase of shares in writing to the JSE as required in terms of Schedule 25 of the JSE Listings Requirements.

The JSE requires the following disclosure, some of which is stated elsewhere in the integrated report to which this notice forms part:

• general information in respect of directors and management (pages 8 – 11), major shareholders (page 156), directors’ interests in securities (page 72) and the share capital of the Company (page 105);

• there has been no material change to the financial or trading position of the Company since the signature of the audit report and up to the date of this notice;

• the Company is not involved in any legal or arbitration proceedings, nor are any proceedings pending or threatened of which the Company is aware that may have or have had in the previous 12 months, a material effect on the Group’s financial position; and

• the directors, whose names are given on pages 8 and 9 of the annual report to which this notice is attached, collectively and individually accept full responsibility for the accuracy of the information given and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts that have been made and that the notice contains all the information required by law and the JSE.


Special resolution number 3: Approval of directors’ fees

“Resolved that the non-executive directors’ fees for the previous financial year and the proposed fees for the coming financial year, as outlined below be approved.”

Type of fee (per meeting)Current fee – 2010/2011

Rand per annumProposed fee – 2011/2012

Rand per annum

The Company and the Bank boards

Chairman

Other members

515 600

128 900

554 270

138 568

Monthly board committee meetings 34 000 36 550

Quarterly board committee meetings 17 000 18 275

Bi-annual board committee meetings 8 500 9 138

Annual board committee meetings 4 250 4 569

The reason for special resolution number 3 is to request shareholders to approve the directors’ fees payable to directors for the 2012 financial year and thereafter until the shareholders are again approached for subsequent approvals. The effect of this will be that the remuneration of non-executive directors as contained in special resolution 3, will be approved.

Explanatory note:

In terms of sections 66(8) and (9) of the Companies Act, remuneration may only be paid to directors for their service as directors in accordance with a special resolution approved by shareholders within the previous two years.

It is noted that the remuneration payable to directors is in their capacities as such and does not include salaries and other benefits payable to directors in other capacities.


168


GeneralinstructionsandinformationShareholders who hold their shares in certificated form or who are own name registered dematerialised shareholders who are unable to attend the annual general meeting, which is to be held on Thursday, 24 November 2011 at 14h00, but wish to be represented thereat, are required to complete and return the attached form of proxy so as to be received by the transfer secretaries, Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), by not later than 14:00 on Tuesday, 22 November 2011.

A member entitled to attend and vote at the annual general meeting is entitled to appoint a proxy to attend, speak and, on a poll, vote in his stead. A proxy need not be a member of the Company. Proxy forms must reach the transfer secretaries, Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by not less than 48 hours prior to the scheduled commencement of the annual general meeting (excluding Saturdays, Sundays and public holidays).

Shareholders who have dematerialised their shares through a CSDP or broker, other than with own name registration who wish to attend the annual general meeting should instruct their CSDP or broker to issue them with the necessary Letters of representation to attend the meeting, in terms of the custody agreement entered into between such shareholders and their CSDP or broker.

Shareholders who have dematerialised their shares through a CSDP or broker, other than with own name registration who wish to vote by way of proxy, should provide their CSDP or broker with their voting instructions, in terms of the custody agreement entered into between such shareholders and their CSDP or broker. These instructions must be provided to their CSDP or broker by the cut-off time or date advised by their CSDP or broker for instructions of this nature.

In respect of dematerialised shares, it is important to ensure that the person or entity (such as a nominee) whose name has been entered into the relevant sub-register maintained by the CSDP or broker completes the form of proxy in terms of which he appoints a proxy to vote at the annual general meeting.

Shareholders of the Company that are companies, that wish to participate in the annual general meeting, may authorise any person to act as its representative at the annual general meeting.

In terms of Section 63(1) of the Companies Act No 71 of 2008, before any person may attend or participate in a shareholders meeting such as the meeting convened in terms of this notice of annual general meeting, that person must present reasonably satisfactory identification and the person presiding at the meeting must be reasonably satisfied that the right of that person to participate and vote, either as a shareholder, or as a proxy for a shareholder, has been reasonably verified.

Equity securities held by a share trust or scheme will not have their votes at general/annual general meetings taken into account for the purposes of resolutions proposed in terms of the JSE Listings Requirements.

Unlisted securities (if applicable) and shares held as treasury shares may not vote.

H BrownGroup Company Secretary

Registered office Transfer secretaries29 Scott Street Computershare Investor Services (Proprietary) LimitedWaverley PO Box 610512090 MarshalltownPO Box 95104 2107Grant Park 2051

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SasfinGroupcontactinformation

SASFIN BANK LIMITEDJOHANNESBURG 29 Scott StreetWaverley 2090PO Box 95104 Grant Park 2051Tel: +27 11 809 7500Fax: +27 11 887 2489/6167

CAPE TOWN21st Floor, Telkom Towers Standard Bank Centre2 Hertzog Boulevard ForeshoreCape Town 8001PO Box 7520 Roggebaai 8012Tel: +27 21 443 6800Fax: +27 21 443 6886

DURBAN1st Floor, Sasfin House7 The BoulevardWestway Office ParkSpine RoadWestville 3630PO Box 2771 Westway Office Park 3635Tel: +27 31 265 1385Fax: +27 31 265 1296/1297

SASFIN ASIA LIMITEDSuites 29-30, 24th floorSun Hung Kai Centre30 Harbour Road Wan ChaiHong KongTel: +852 3107 3067 Fax: +852 3107 0198

SASCRED FINANCIAL SERVICES LIMITEDSuites 29-30, 24th floorSun Hung Kai Centre30 Harbour RoadWan ChaiHong KongTel: +852 3107 3067 Fax: +852 3107 0198

SASFIN SECURITIES (PTY) LIMITEDJOHANNESBURG29 Scott StreetWaverley 2090PO Box 299 Johannesburg 2000Tel: +27 11 809 7500Fax: +2786 575 3829

CAPE TOWN21st Floor, Telkom Towers Standard Bank Centre2 Hertzog BoulevardForeshoreCape Town 8001PO Box 7520 Roggebaai 8012Tel: +27 21 443 6800Fax: +27 21 443 6882

DURBAN1st Floor, Sasfin House7 The BoulevardWestway Office ParkSpine RoadWestville 3630PO Box 2707, Westway Office Park, 3635Tel: +27 31 265 1332Fax: +27 31 265 1350

PLETTENBERG BAY2 Village SquareMain StreetPlettenberg Bay 6600PO Box 494 Plettenberg Bay 6600Tel: +27 44 533 0897Fax: +27 44 533 0909

PORT ELIZABETHGround Floor, Greyville HouseRing RoadGreenacres 6045PO Box 27401 Greenacres 6057Tel: +27 41 363 5989Fax: +27 41 363 1692

PRETORIABuilding A, Ground Floor, South WingLord Charles Office Park337 Brooklyn RoadBrooklyn 0181PO Box 36002, Menlo Park, 0102Tel: +27 12 425 6000Fax: +27 12 425 6060

SCRIP ADMINISTRATION29 Scott StreetWaverley 2090PO Box 299 Johannesburg 2000Tel: +27 11 809 7500Fax: +27 11 887 6110

SASFIN FINANCIAL ADVISORY SERVICES (PTY) LIMITEDJOHANNESBURG29 Scott StreetWaverley 2090PO Box 95104 Grant Park 2051Tel: +27 11 809 7500Fax: +27 11 809 7794

CAPE TOWN21st Floor, Telkom Towers Standard Bank Centre2 Hertzog BoulevardForeshoreCape Town 8001PO Box 7520 Roggebaai 8012Tel: +27 21 443 6800Fax: +27 21 443 6882/6886

PRETORIABuilding A, Ground Floor South WingLord Charles Office Park337 Brooklyn RoadBrooklyn 0181PO Box 1761 Brooklyn Square 0075Tel: +27 12 425 6251Fax: +27 12 425 6200

INNOVENT RENTAL AND ASSET MANAGEMENT SOLUTIONS (PTY) LIMITED2nd FloorBlock D Upper Grayston Office Park152 Ann CrescentSandton2196PO Box 782005, Sandton, 2146Tel: +27 11 884 8274Fax: +27 11 784 6599

PREMIER FREIGHT (PTY) LIMITEDJOHANNESBURG90 Electron AvenueIsando 1620PO Box 11288 Aston Manor 1630Tel: +27 11 573 9000Fax: +27 11 573 9599

CAPE TOWN13th Floor, Norton Rose House8 Riebeeck StreetCape Town 8001PO Box 6455 Roggebaai 8012Tel: +27 21 421 5836Fax: +27 21 419 3896

DURBAN22 Keswick RoadMorningsideDurban 4001PO Box 47669 Greyville 4023Tel: +27 31 312 9352Fax: +27 31 312 0088

PORT ELIZABETH1st Floor, Mercantile Plaza, Ring RoadPO Box 1192 Port Elizabeth 6000Tel: +27 41 363 7660Fax: +27 41 363 5384

NVEST FINANCIAL HOLDINGS (PTY) LIMITEDNFB House, 42 Beach Road Nahoon 5241PO Box 8132 Nahoon 5210Tel: +27 43 735 2000Fax: +27 43 735 2001

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formofproxy

I/We (Names in capital letters)

of (address)

being a member(s) of Sasfin and entitled, on a poll, to votes hereby

appoint of or failing him / her

of or failing them,

the chairman of the annual general meeting as my/our proxy to vote for me/us and on my/our behalf at the annual general meeting of the Company to be held on Thursday, 24 November 2011, or and at any adjournment thereof.

Please indicate with an “X” in the appropriate spaces how you wish your votes to be cast. Unless this is done, the proxy will be deemed to have been authorised as he/she thinks fit.

Number Item In favour Against Abstain

1. To consider and accept the annual financial statements

2. To note the interim and final dividends

3. To consider the following ordinary resolutions:

1. To re-appoint, as an executive director, Mr RDEB Sassoon

2. To re-appoint the following directors:

2.1 Mr TD Soondarjee (executive director)

2.2 Mr J Moses (independent non-executive director)

2.3 Mr RC Andersen (independent non-executive director)

3. To re-appoint the independent and designated auditors for the next financial year

4. To authorise the directors to determine the auditors’ remuneration and the terms of engagement of the Company’s auditors

5. To place the unissued preference shares under the control of the directors

6. General authority of the board of directors to allot and issue ordinary shares, convertible securities, options or rights exercisable for securities for cash

7. General authority to issue shares for cash

8. To receive, consider and adopt the Company’s remuneration policy (non-binding vote)

To consider the following special resolutions:

1. To approve the amendments to the Company’s MoI

2. General authority of the Company and/or its subsidiaries to repurchase shares issued by the Company

3. To approve the directors’ fees for the coming financial year

Signature Date

Please read the notes on the reverse side hereof.

SasfinHoldingsLimited(Incorporated in the Republic of South Africa)Registration number 1987/002097/06Ordinary share code: SFN ISIN: ZAE000006565Preference share code: SFNP ISIN: ZAE000060273(“Sasfin” or “the Company”)

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formofproxy> > continued

notestoformofproxy

For use only by certificated ordinary shareholders and own name registered dematerialised ordinary shareholders at the annual general meeting of Sasfin shareholders to be held at 29 Scott Street, Waverley, Johannesburg on Thursday, 24 November 2011, at 14h00 or such later time that may be applicable (“the annual general meeting”).

Not to be used by beneficial owners of shares who have dematerialised their shares (“dematerialised shares”) through a Central Securities Depository Participant (“CSDP’’) or broker, as the case may, unless they are recorded on the sub-register as “own name” dematerialised shareholders). Generally, you will not be an own name dematerialised shareholder unless you have specifically requested the CSDP to record you as the holder of the shares in your own name in the Company’s sub-register.

Only for use by certificated, own name dematerialised shareholders and CSDPs or brokers (or their nominees) registered in the company’s sub-register as the holders of dematerialised shares.

Each shareholder entitled to attend and vote at the Annual General Meeting, is entitled to appoint one or more proxies (none of whom need be a shareholder of the Company) to attend, speak, and vote in place of that shareholder at the annual general meeting and any adjournment or postponement thereof.

Please note the following:

• the appointment of your proxy may be suspended at any time and to the extent that the shareholder chooses to act directly and in person in the exercise of any rights as a shareholder at the annual general meeting

• the appointment of the proxy is revocable and

• you may revoke the proxy appointment by (i) cancelling it in writing, or making a later inconsistent appointment of a proxy; and (ii) delivering a copy of the revocation instrument to the proxy, and to the Company.

Please note that any shareholder of the Company that is a company may authorise any person to act as its representative at the annual general meeting.

Please also note that Section 63(1) of the Companies Act 71 of 2008, requires that persons wishing to participate in the Annual General Meeting (including the aforementioned representative) provide satisfactory identification before they may so participate.

Note that voting will be performed by way of a poll so that each shareholder present or represented by way of a poll so that each shareholder present or represented by way of proxy will be entitled to vote the number of shares held or represented by them.

1. A Sasfin ordinary shareholder may insert the name of a proxy or the names of two alternative proxies of the Sasfin shareholder’s choice in the space/s provided, with or without deleting “the Chairman of the annual general meeting”, but any such deletion must be initialled by the Sasfin ordinary shareholder concerned. The person whose name appears first on the form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2. A proxy is entitled to attend, speak and vote at the Annual General Meeting in place of the shareholder whom he or she is representing. A proxy need not be a member of the Company.

3. Please insert an “X” in the relevant spaces according to how you wish your votes to be cast. However, if you wish to cast your votes in respect of a lesser number of ordinary shares than you own in Sasfin, insert the number of ordinary shares held in respect of which you desire to vote. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she deems fit in respect of all the shareholder’s votes exercisable thereat. A Sasfin shareholder or his/her proxy is not obliged to use all the votes exercisable by the Sasfin shareholder or by his/her proxy, but the total of the votes cast and in respect whereof abstentions are recorded may not exceed the total of the votes exercisable by the shareholder or by his/her proxy.

4. The date must be filled in on this form of proxy when it is signed.

5. The completion and lodging of this form of proxy will not preclude the relevant Sasfin shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof. Where there are joint holders of shares, the vote of the senior joint holder who tenders a vote, as determined by the order in which the names stand in the register of members, will be accepted.

6. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the transfer secretaries of Sasfin or waived by the Chairman of the annual general meeting of Sasfin shareholders.

7. Any alterations or corrections made to this form of proxy must be initialled by the signatory/ies.

8. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretaries of Sasfin.

9. Forms of proxy must be received by the Company, Sasfin Holdings Limited at 29 Scott Street, Waverley, 2090 (PO Box 95104, Grant Park, 2051) by not later than 14:00 on Tuesday, 22 November 2011.

10. The Chairman of the annual general meeting may in his absolute discretion, accept or reject any form of proxy which is completed other than in accordance with these notes.

11. If required, additional forms of proxy are available from the transfer secretaries of Sasfin.

12. Dematerialised shareholders, other than by own name registration, must NOT complete this form of proxy but must provide their CSDP or broker with their voting instructions in terms of the custody agreement entered into between such shareholders and their CSDP or broker.

13. The appointment of a proxy shall remain valid until the end of the meeting contemplated in this appointment. The appointment of a proxy is revocable unless the proxy appointment expressly states otherwise. If the appointment of a proxy is revocable, a shareholder may revoke the proxy appointment by cancelling it in writing, or making a later inconsistent appointment of a proxy; and delivering a copy of the revocation instrument to the proxy, and to the Company. The revocation will take effect on the later of (i) the date stated in the revocation instrument; or (ii) the date on which the revocation instrument was delivered to the proxy and the Company.

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