leading the way in asia, africa and the middle east here

Standard Chartered Bank Zambia Plc Annual Report 2012

Leading the way in Asia, Africa and the Middle East Here for good

2 Standard Chartered Bank Zambia Plc Annual Report 2012

Standard Chartered Bank Zambia Plc has again delivered a strong performance.

The Bank is integral to the development of the country and our performance clearly demontrates our powerful brand promise, Here for good.

Financial highlights

Revenue

ZMK620,417m2011: ZMK479,317m / 2010: ZMK451,138m

Total assets

ZMK5,163,618m2011: ZMK4,585,674m / 2010: ZMK4,572,218m

Normalised return on equity

37%2011: 41% / 2009: 30%

Non-financial highlights

Profit before taxation

ZMK339,618m2011: ZMK226,087 / 2010: ZMK229,744m

Normalised earnings per share

ZMK132.572011: ZMK79.46 / 2010: ZMK5.42

Dividend per share

ZMK0.002011: ZMK0.00 / 2010: ZMK20.00

Employees

696 2011: 650

Outlets

24 2011: 20

Standard Chartered Bank Zambia Plc Annual Report 2012

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What’s inside this report

Supplementary information79- 86Additional information for shareholders

Financial statements and notes19 - 78Detailed financial information forthe year ended 31 December 2012

Corporate governance10 - 18An explanation of our approachto corporate governance with keydevelopments during the year, togetherwith profiles of our Board Directors

Operating and financial review7 - 9A review of our businesses, theirfinancial performance and outlookfor 2013

Overview2 - 6Performance highlights andan introduction to our business structures and strategy

Financial highlights2 Chairman’s statement4 Chief Executive Officer’s statement

7 Consumer banking8 Wholesale banking

10 Board of directors13 Directors’ report14 Statement on corporate governance17 Senior Management Committee18 Making a difference in our community

79 Five year summary 80 Principal addresses and senior management81 Branch management83 Dividend84 Notice of annual general meeting and agenda85 Form of proxy

20 Directors’ responsibilities in respect of the preparations of financial statements

21 Independent auditor’s report23 Statement of comprehensive income25 Statement of financial position 26 Statement of changes in equity28 Statement of cash flows29 Notes to the financial statements

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Chairman’s statement

It gives me great pleasure to present Standard Chartered Bank Zambia Plc’s annual report and financial statements for the year ended 31st December 2012. The Bank continued its custom of achieving a good performance and putting in place strategies focusing on its client service delivery objectives. Our performance in 2012 once again demonstrates our ability to deliver substantial, sustained value for our shareholders. Despite our sterling performance, the 2012 financial year has been another challenging one for financial institutions in general, and for the Group in particular. The macroeconomic environment has again been dominated by uncertainty and volatility in global financial markets. The economic and regulatory pressures were unrelenting. Competition was intense. The New York State Department of Financial Services ‘event’ was particularly challenging to the Group. But we have proved our resilience. Once again we have outperformed our competitors on so many levels, notwithstanding the challenges and difficulties we encountered.

Locally in Zambia, the Government in 2012 introduced a number of new regulations that affected the Bank directly. Being the right partner to the Central Bank, the Bank ensured 100 per cent compliance to all new regulations and through them all still achieved a superb financial performance.

Financial HighlightsRevenue increased by 29 per cent to ZMK620bn and Profit before taxation increased by 50 per cent to ZMK340bn. Basic and diluted earnings per share were 67 per cent higher at ZMK132.57 per share.

The Board is recommending that all profits after tax be retained. Bank of Zambia had in early 2012 revised the minimum primary capital requirement for Banks in Zambia, with a requirement to maintain a minimum Tier 1 capital of ZMK520bn for international banks and ZMK104bn for local banks. A further stipulation was that of the Tier 1 capital, at least 80% should be kept in nominal paid-up common shares and the balance may be held only in any one or more categories including share premium, revenue reserves, general reserves and other statutory reserves. All Banks were required to comply with this new directive by 31 December 2012.

The board is pleased to announce that the retention of profits for the year 2012 and the resultant capitalization of the Bank meant that the Bank was able to meet the Bank of Zambia requirements as at 31st December 2012. Standard Chartered Bank Zambia Plc is therefore fully compliant with the recapitalization requirements.

The Domestic EconomyFollowing the achievement of its maiden USD 750mn Eurobond issuance (the USD 11.9bn order book reflected strong appetite) in 2012, Zambia has entered a new chapter. We saw rising copper output, agriculture gains, government

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spending (especially on transport infrastructure), and power generation capacity all contributing to the growth of GDP.

Despite concerns about capacity for higher spending, infrastructure shortcomings was less of a constraint on economic activity. Zambia’s ability to keep inflation at 6-7% will be closely watched as the Zambian Kwacha (ZMK) was rebased to remove three zeros on 1 January 2013.

The rebasing aims to cement macroeconomic stability by committing to low and stable inflation in the future, and to boost economic activity by aiding pricing transparency. This follows earlier measures to reverse dollarisation in the economy. However, with the old and new kwacha notes existing side-by-side for six months, higher money supply to facilitate the rebasing, potential pressure on the FX rate, and sequencing with other reforms (including bank capitalization), inflation will need to be carefully monitored.

Following a doubling of mining-sector royalties in 2012, efforts to boost mining revenue will continue, with the 2013 budget streamlining the sector’s tax concessions. Zambia has been criticized for its generous fiscal legislation, that allows mining companies to carry forward losses for 10 years. However, under new legislation, capex deductions can be made only when equipment is put to use, and capital allowances are reduced to 25% from 100%. Furthermore, new mine operators may have to start paying taxes before recovering all their investment. However the new fiscal regime is unlikely to discourage existing operators.

Outlook Standard Chartered Bank Zambia Plc remains a core part of the Bank’s Africa strategic footprint and has consistently been among the top five revenue contributors for the Africa region. With 24 outlets,45 ATMs and close to 700 staff,

the Bank’s economic contribution to Zambia has been the culmination of 107 years of sustained and increased investment in the country.

Ten years ago we launched our strategic intent: to be the world’s best international bank, leading the way in Asia, Africa and the Middle East. The time is right for us to re-engage and recommit to our strategic intent. We have re-examined the strategy and resolved to remain strong and committed to continuity and commitment.

Our business and strategy is long term and enduring. We want to be the best. We will remain focused and continue to be the quintessential ‘international’ bank. ‘Leading the way in Asia, Africa and the Middle East’ captures what we want to achieve: Leadership across multiple dimensions in the markets we know best.

Summary I am proud of what we achieved in the year 2012. I am particularly proud of how we have turned our thinking and ambition to be a force for good into tangible business opportunities. I would like to thank the Board, the management team and the Banks’ employees for their dedication and hard work. The Bank has had an extremely strong 2012, and I believe the positive momentum will continue in 2013.

Michael M. Mundashi, SCChairman 21 February 2013


Chief Executive Officer’s statement

Standard Chartered Bank Zambia Plc’s great performance in 2012 represents a very positive start to 2013. Amidst the turbulence of the global economy and the never ending turmoil in the world of banking, we remain consistent in delivering strong performance yet again. The Bank delivered a progressive performance leveraging on its deep local knowledge and international network. Despite the challenge of increased competition, the Bank continues to deliver financial solutions to clients and customers – helping their businesses to grow and making a difference in their lives.

2012 has been a very testing year for the global Bank. Notably the New York State Department of Financial Services ‘event’ was particularly challenging. But we have proved our resilience and our Brand Promise – ‘Here for good’ couldn’t be more right. Locally in Zambia, we had an avalanche of new regulatory changes but we proved that we are the right partner of the Zambian Government and it’s people by guaranteeing total compliance to these new regulations.

Our 2012 performance once again demonstrates the robustness of our strategy and the resilience of our business model. A positive performance trajectory in the Bank’s core business and sound growth in share of market revenue pools confirm the Bank’s solid position. We believe that our focus on the basics of banking, drive for service excellence, and disciplined approach in managing risk and prudent cost management were the reasons for the excellent results delivered over the past year.

Notwithstanding the difficult market conditions, the Bank’s businesses, both Wholesale and Consumer Banking, continued to grow throughout the year 2012.

Consumer Banking In Consumer Banking our aim is to be the Bank of choice for personal customers’ and deliver superb services that are rooted in a deep knowledge and understanding of our customers increasingly sophisticated needs.

Consumer Banking had yet another outstanding record breaking year in 2012 despite the hurdles experienced during the year. Income grew by 19 percent while profit before tax grew by 12 percent. This was an outstanding performance by any measure.

Among the many products, services and solutions launched by the business in 2012, a highlight solution is the extended branch opening times with all branches closing at 17:00hrs (22:00hrs for Manda Hill Branch only) during weekdays. This is yet another first to be seen on the Zambian market as the Bank continues to cement its position as the market leader. Our focus on Small and Medium Enterprises (SMEs) has been another key differentiator for our franchise. We are committed to the growth of our SME customers and we

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have remained the market leader in promoting business and trade between Africa and Asia in general, and China and Zambia in particular. These are markets in which we have operated for over 150 years. In 2013, we will continue to focus on providing our customers with ground-breaking solutions for their businesses.

We will continue to strengthen our ability to compete effectively in the retail market by expanding our alternate distribution channels to drive deposit growth.

Wholesale Banking Our WB business is made up of two units namely Origination and Client Coverage (OCC) and Global Markets (GM), which focus on delivering a broad range of solutions to our corporate and institutional clients in support of their operating activities.

In our Wholesale Banking business, we aim to be the leader in corporate banking through our world class solutions in treasury products, cash management and trade finance. We will deepen our client relationships by adding value to their businesses.

Wholesale Banking year on year revenue grew by 29% to ZMK322 billion, largely due to good performance on trade products in the Global Corporates and Agriculture & Commodity traders customer segments. Rates trading also contributed positively.

Wholesale Banking continues to focus on mainstay products of cash, trade, lending, terms loans, structured arrangements and foreign exchange, where our historical know-how enables us to compete and have unique capabilities around customers, products and delivery. We will continue to bring to our local market the dimension of “international” which means for us, the highest global standards of customer segmentation, marketing, staff quality, risk management and, mordern and innovative products.

Risk Management The management of risk lies at the heart of Standard Chartered Bank’s business model. We are aware that successful risk management is essential to being able to produce profits consistently and sustainably and is, as a result, vital to the financial and operational management of the Bank.

Although we are continually investing to enhance our risk management infrastructure and capabilities, our fundamental approach to risk has stayed consistent over many years. Through our risk management framework we manage business wide risk with the objective of maximizing risk adjusted returns while remaining within our risk appetite.

It is with great pleasure that we announce that we had no failed audits in the year 2012. As part of our continuous improvement strategy, we will continue to manage our risks to build a sustainable franchise in the interests of all stakeholders.

Our People We are convinced that the secret to our accomplishment is our people. More than any other challenge, we are focused on attracting and retaining the right people to continue our success. We have recruited and are developing the best talent from across the globe to accomplish this. This dedication to skills extends to creating a performance culture within the Bank. We have gone to great lengths to develop a performance management system for all staff to ensure that their goals are aligned with those of the Bank. We are also committed to making the Bank the best place to work by creating an environment where all staff are able to excel and achieve their full potential.

Outlook for 2013 Much of what drives the Standard Chartered Bank story remains constant. Our strategy remains unchanged, and our aspiration remains the same – we want to be the world’s best international Bank, leading the way in Asia, Africa and the Middle East. We are putting even greater focus on our clients and customers, on building deep and long–standing relationships, on improving the quality of our service and solutions. We continue to be obsessed with the basics of banking – balancing the pursuit of growth with disciplined management of costs and risks, keeping a firm grip on liquidity and capital. We are continuing to focus on culture and values, on the way we work together across multiple geographies, products and segments, combining deep local knowledge with global capability. These fundamentals underscore everything the Bank does, and everything we as a Bank stand for.

We should have no illusions about the scale of the challenges ahead in 2013. Firstly, a turbulent global economy; the markets have greeted 2013 with enthusiasm, but we should not get carried away. We should expect bumps. Secondly, sustained political and public hostility towards banks; this is not going to go away any time soon. Thirdly, the continuing avalanche of regulatory change. Fourthly, rapid technology change; the digitisation of banking has only just begun, and it will erode margins and put intense pressure on our cost structures. Finally, intense competition; we face profound challenges to our business model. The economics of some of our businesses are changing fundamentally. Inspite of all these challenges our markets continue to grow strongly. Rapid evolution has been our recipe for success, but now we may have to be even more rapid and perhaps more revolutionary than evolutionary. This is an overview of the Bank’s 2013 priorities:

• Build stronger relationships with our clients and customers. When every bank claims to be focused on client relationships, we need to be just that much better.

• Prove we are Here for good. We can not shy away from Here for good. We must redouble our commitment to it.

• Innovate and digitise. Technology based innovation is the key to improving productivity, the key to customer differentiation.


• Intensify collaboration across the network. Our ability to collaborate across geographies, businesses and functions sets us apart. We need to play to these strengths and make them even stronger.

• Get fitter and more flexible in the way we work. More efficient. More disciplined in our deployment of scarce resources. More adaptable and agile.

• Accelerate the next generation of leaders. Leadership capacity remains one of our biggest constraints. We continue to attract great talent and will continue developing people.

• Deliver superior financial performance. A non-negotiable outcome and a prerequisite for everything else we do.

Summary 2012 has been a very good year as we have delivered a great financial performance and this is largely because we have the right staff working for the Bank. I would like to thank them for their unwavering professionalism and commitment. I would also like to thank my Chairman, Mr. Michael Mundashi SC, fellow directors, the shareholders and all the other stakeholders for their support during 2012.

Mizinga Melu (Mrs)

Managing Director 21 February 2013

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2012 review 2012 was a breakthrough year for the Consumer Banking business despite the headwinds experienced during the year. Income grew by 19 percent while operating profit grew by 12 percent. This was a remarkable growth by any standard.

Despite the drop in interest rates and the shrinkage of margins on foreign currency income, the business remained resilient and delivered on its commitments.

In line with our transformation strategy and our participation model, we expanded our integrated distribution network by opening four new branches in Lusaka and relocating one on the Copperbelt. As a leading Bank in innovation, our new Branches include Express Banking Centres which are the only ones of their kind in the country.

Branch opening times were extended and this was another ‘first’ we recorded in the market. We currently have the longest banking hours in the country and this is yielding positive results. Our balance sheet grew by 24 percent with loans and advances to personal customers growing by 105 percent.

Outlook Building on the momentum established in 2012, we are entering 2013 with a lot of confidence and boldness. We will remain committed to our strategy as we continue to focus on balance sheet momentum and expanding our digital capabilities.

From our experience in 2012, we have learnt to timely adapt to sudden change and to deliver superior financial performance despite the turbulence. We do not expect 2013 to be any different. However, despite any future changes, we are confident that we will deliver expectation and seize every opportunity.

Our customers will always be the centre of focus and we will continue to deepen relationships as we offer needs based solutions.

Our staff are clear that it’s not what we sell, but it’s the experience and how we meet the customer needs that will make a difference.

Consumer Banking

“We have continued to demonstrate superior financial performance amidst increasing economic and regulatory changes, a clear indication of an engaged, focused and resilient team.”

Our Objectives To be the best Consumer Bank in the market and the most desired Bank for our high value client coverage. We will continue to offer exceptional solutions and service to our customers and to recognise our staff for their dedication to ensuring our Brand stands tall in the market.

Our Strategy In 2012, we remained committed to our strategy and this is not about to change. We believe we are playing to our strength and we participating in the right segments in our chosen local markets. We will therefore continue to focus and fine tune the key drivers on the three pillars of strategy by: • Accelerating our shift to a “customer-centric”

organisation “

• Reinforcing basics and standardisation”, focused on simplification and enhancing efficiencies and the Customer experience

• Implementing country “participation models” to gain market share in our chosen segments or markets

Sonny ZuluHead of Consumer Banking


Wholesale BankingFocused execution and consistent client-led strategy delivering growth

Arjuna BalasinghamHead of Origination & Client CoverageCo-Head, Wholesale Banking

Stanley TamaleHead of Global MarketsCo-Head, Wholesale Banking

“Our success criteria has been anchored on risk management across the Board. The continued focus is a key enabler of our growth and it differentiates our value proposition in the market”

Wholesale Banking will keep focusing on our core products of cash, trade, lending, terms loans, structured arrangements and foreign exchange, where our historical experience enables us to compete and have distinctive capabilities around customers, products and delivery. We will continue to bring to our local market the dimension of “international” which means for us, high standards of customer segmentation, marketing, staff quality, risk management, modern and innovative products.”

Our Objectives• To become the strategic financial partner of choice to

our clients, deepening and building relationships and delivering seamless solutions to our clients

• To be Zambia’s best bank, connecting Zambia to the world through our international network and cross border product capabilities

Our Strategy• Strategically leverage on our balance sheet strength

and create capacity to support our clients through disciplined portfolio management

• Strengthen our support to grow trade and investment corridors between Zambia, Asia, the Middle East, and the rest of Africa

• Nurturing the Bank’s corporate culture, values and “Here for good” brand promise as the Bank continues to grow

Our Priorities • Build stronger relationships with our clients and

customers

• Prove we are here for good by supporting and benefiting the communities in which we operate

• Innovate and digitise in order to match customer needs, enhance quality and speed of delivery of e-solutions to our customers

• Intensify collaboration across the network in order to leverage on the international network and expertise of the Bank and ensure consistency of service quality

• Get more fitter and flexible in the way we work, in order to efficiently and effectively serve our customers

• Maintaining the right balance in pursuing growth opportunities in tandem with appropriate governance, systems, controls, processes and information flows

Our 2013 business endeavour • Meeting clients business needs – We shall endeavour

to understand and anticipate clients’ requirements and provide the right products to meet those specific business needs

• Cross selling/Product Partners – We shall endeavour to provide a ‘one stop shop’ offering and complete suite of products to meet client needs

• Leverage Our Client Base – We bank many blue chip companies in emerging markets and we shall continue to leverage our position while increasing

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our share of customers ‘wallets and forging lasting business relationships

• Client Working Capital management – We shall continue to support client operations through our ability to manage cash, execute foreign exchange, support network payments and finance trade

Financial Markets The year saw many changes in financial market regulation which resulted in the further development of the derivatives market with clients increasingly hedging their interest and exchange rate exposures. Continued discipline and balance sheet management over the years has helped us maintain our strong liquidity and capital positions.

Increased use of instruments such as interest rate swaps, cross currency swaps, yield enhancing deposits, commodity derivatives, swaps and fx forwards characterised 2012 Wholesale Banking year on year revenue grew 37%, mainly on account of good performance on trade products, in the Global Corporates and Agriculture & Commodity traders customer segments. Rates trading also contributed positively.

Below is a summary of assets and customer deposits –

Wholesale Banking Graphs

LOANS AND ADVANCES (ZMK billion) CUSTOMER DEPOSITS (ZMK billion)

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Board of directors

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1. MICHAEL M. MUNDASHI, SC Independent Non Executive Director

/ Chairman Appointed to the board on 1 March

2005 and Chairman in March 2009.He is an eminent lawyer, enjoying the rank and dignity of State Counsel and Principal Partner of Messrs Mulenga Mundashi & Company.

Mr. Mundashi was the first non Executive Chairman of the Revenue Appeals Tribunal and has worked on a number of Zambia Government teams on negotiation of double taxation agreements with other countries. He also sits on a few other boards and pension funds, notably African Life Assurance Limited of which he is the Chairman. He is also a member of the Konkola Copper Mines Plc Advisory Council.

2. EDSON HAMAKOWA Independent Non Executive Director Appointed to the board on 27 July

2009. Mr. Hamakowa is an eminent Accountant with an illustrious career in the BP Plc Group both within and outside Zambia.

Mr. Hamakowa has served on the Boards of Zambia National Commercial Bank, Zambia Centre for Accountancy Studies, Saturnia Regna Pension Fund, Zesco Ltd, Zambia Airways and Dunrobin Gold Mine, among others. He is also currently a member of CEC Board. He chairs the Board Risk Committee and Board Audit Committee.

3. ROBIN MILLER Independent Non Executive Director Appointed to the board on 7

August 2012. He was appointed the Managing Director of Farmers House Plc in 1996, renamed to Real Estate Investments Zambia PLC in 2012.

Robin has been a member of the Board of the Zambian Wildlife Authority, a past Chairman of Zambia’s leading independent newspaper “The Post”, a member of the Government of the Republic of Zambia/European Union Trade Enterprise Support Facility and was the founding Chairman of The Tourism Council of Zambia. Robin is a member of several boards including Madison General Insurance Company Ltd and City Investments Ltd. He chairs the Board Credit Committee.

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4. EBENEZER ESSOKA Non Executive Director Appointed to the Board on 27

March 2012 . He joined SCB in 1986 and is currently Chief Executive Officer, South Africa and Area General Manager Southern Africa. Prior to this appointment, he was Chief Executive Officer of Standard Chartered Bank, Central and West Africa.

He has served on twelve SCB subsidiary Boards, currently as chairman of SCB Cameroon, Chairman of SCB Securities, South Africa and previously Chairman of SCB Côte d’Ivoire and Non Executive Director of ten others including Nigeria and Pakistan. In South Africa (SA), he currently serves as Director on the Main Board of the Banking Association, is Vice Chairman of the International Bankers’ Association and Council Member of Business Leadership SA. In addition he serves on the Global Advisory Council of the London Business School and a founding member and trustee of the Global Reach Network Foundation – an organisation focused on bridging opportunity gaps for individuals and communities worldwide.

5. MIZINGA MELU (MRS.) Managing Director Appointed to the Board as

Managing Director on 1 January, 2008. Mrs. Melu joined Standard Chartered Bank Zambia in 1993 and has worked in many markets of the Group. Prior to her appointment as Managing Director, she was Group Head for Development Organizations based in London. She has held various senior positions including Treasurer and Head of Financial Institutions, and has worked in over five countries.

Mrs. Melu, a Zambian national, is a qualified Banker and an MBA holder from Henley Management in the UK.

6. KELVIN MUSANA Executive Director Finance &

Administration Appointed to the Board on 30

January, 2007. He joined Standard Chartered Bank Zambia Plc in1998, as Financial Controller and was appointed Chief Financial Officer in February, 2005. He has undertaken assignments within the Group in Uganda, UK and Nigeria.He is a Fellow of the ACCA and ZICA, a holder of a Bachelors Degree in Accountancy from the Copperbelt University and an MBA in Finance from Manchester Business School. He is a member of the Institute of Directors.

7. CELINE MEENA NAIR Company Secretary Appointed to the Board as

Company Secretary on 17 July, 2006. She joined Standard Chartered Bank Zambia Plc on 17 July 2006. Previously she worked for the Lusaka Stock Exchange as Legal Counsel and Company Secretary. Ms. Nair is a vastly experienced practitioner with over 14 years at the Zambian Bar and holds a Bachelors Degree in Law (UNZA) and a Masters Degree in

Banking and Commercial Law (UNISA). She is a member of the Institute of Directors and Director Training Committee. She is also a trained trainer in Corporate Governance under the International Finance Corporation (IFC/World Bank).

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Activities The company engages principally in the business of commercial banking in its widest aspects and in the provision of related services. The company also runs a successful securities services business.

Share Capital During the year 2012, the paid up primary capital of the company was increased from ZMK12,285,500,000 to ZMK 416,745,000.000. The authorized share capital of the company increased from ZMK 30,000,000,000 to ZMK 900,000,000,000 This increase was as a result of two successful bonus issues in June 2012 and October 2012 awarded to all eligible shareholders. In November 2012, there was a consolidation of the authorised and issued share capital of the Company on the basis of 1 new SCBZ Consolidated Share of par value ZMK250 for every 500 SCBZ ordinary shares of ZMK 0.50 par value each held as at the record date. This resulted in 1,800,000,000 authorised shares and 1,666,980,000 issued and fully paid shares valued at ZMK 250 per share.

Results The results for the year are set out in the statement of comprehensive income on Page 23.

Dividends At the Board Meeting held on 21 February 2013 the Directors recommended that there would be no payment of a dividend for the year ended 31 December 2012 (2011: Nil).

Directors Details of the Board of Directors are on page 10.

Secretariat There was no change to the Secretariat during 2012.

Directors’ Interests in ordinary shares The only director’s interest recorded are those in a company called Namulundu Investments, in which the Board Chairman and his wife, Mildred Mundashi have 50,933 shares in Standard Chartered Bank Zambia Plc.

Gifts and DonationsDuring the year, the bank made donations of ZMK430m (2011: ZMK483m) to charitable organisations and events.

Number of Employees and remunerationThe total remuneration of employees during the year amounted to ZMK125,500m (2011: ZMK107,930m ) and the average number of employees was as follows:

Month Number Month Number

January 639 July 660

February 655 August 656

March 651 September 658

April 656 October 661

May 654 November 671

June 654 December 696

Directors’ Report

Property, Plant and EquipmentThe Bank purchased property and equipment amounting to ZMK7,272m (2011: ZMK8,404m) during the year. In the opinion of the Directors, the carrying value of property, plant and equipment is not less than their recoverable value.

Research and DevelopmentDuring the year, the Bank did not incur any research and development cost (2011: Nil).

Related Party TransactionsRelated party transactions are disclosed in Note 36 to the financial statements.

Directors’ Emoluments and InterestsDirectors’ Emoluments and Interests are disclosed in Note 36 to the financial statements.

Prohibited Borrowing or LendingThere was no prohibited borrowings or lending as defined under Sections 72 and 73 of the Banking and Financial Services Act, 1994 (as amended).

Heath and SafetyThe Bank has policies and procedures to safeguard the occupational health, safety and welfare of its employees. In addition the Bank has a dedicated Health, Safety and Environment Manager.

AuditorsThe Bank’s Auditors, Messers KPMG, have indicated their willingness to continue in office. A resolution proposing their reappointment and authorising the directors to fix their remuneration will be put to the Annual General Meeting.

By Order of the Board

Celine M. Nair Company Secretary

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Standard Chartered Bank Zambia Plc acknowledges that as we continue our journey to becoming the world’s best international bank, it is important that we continue to conduct our business to the highest standards to deliver on our promise to build a sustainable business over the long term, to be trusted worldwide for upholding the highest standards of corporate governance and to demonstrate that we are Here for good.

“Governance” is the framework of systems, processes and controls used to ensure the effective management of the Group. The Group has an integrated approach to governance. This ensures that the Group is effectively managed and controlled, in line with our strategy; in keeping with our values and culture, and with regard to the requirements of our key stakeholders. In addition to customers and clients, these key stakeholders include governments, regulators, shareholders, employees and the communities in which we operate. Our robust approach combines formal structures applied consistently across the Group’s multiple businesses, functions and legal entities (subject only to variations in local laws and regulations), delivered within a culture of transparency, accountability and collaboration.

As a locally listed bank we believe that exemplary standards of governance are crucial to our success and ultimately depend as much on behaviour as on structure and process. It is the responsibility of all employees to be responsive and vigilant to ensure compliance with our governance framework. We take care to ensure that all employees have and demonstrate the necessary skills, values and experience commensurate with their responsibilities. We place as much emphasis on the way employees behave as on what they deliver.

Statement on corporate governance

Further, the Group’s approach to governance is underpinned by the legal and regulatory framework in each of the countries in which we operate

Standard Chartered Bank Zambia Plc recognizes that strong corporate governance is essential for delivering sustainable shareholder value and as a leading international bank, we are at the forefront of corporate governance. We believe that simply complying with written corporate governance standards is not enough. It is vital for companies to have an underlying culture with behaviours and values that support effective corporate governance. At Standard Chartered Bank Zambia Plc, each and every one of us is expected to live our brand promise and to build on a culture which is open, challenging yet cohesive and collaborative.

Regulatory Compliance: The bank has continued to perform very well in all aspects while ensuring regulatory compliance and exemplary governance at all times. To this end we have yet again achieved great success in demonstrating compliance to the banking laws and regulations. The Managing Director and the senior management team have set the right tone and messaging that non compliance is not an option, but an integral part of doing business in a sustainable way.

2012 has been a busy year in as far as new regulations are concerned. A number of regulatory pronouncements were made, among which were the regulation on recapitalization of banks, Cheque truncation , Basel II, Statutory Instrument no. 33 (Currency regulations), Rebasing of the Kwacha. As a bank we have a robust process of interpreting and communicating these new regulations throughout the bank to ensure a seamless implementation and adoption with no disruptions to the business operations.

Our relationship with the regulators has continued to be very cordial; however we have continued to focus on further enhancing the regulatory engagement especially in light of the new regulatory changes.

Standard Chartered Bank remains committed to the Zambian market. It is our brand promise to be here for good and we are confident that with our focus on regulatory compliance and strong corporate governance standards, we will continue to be seen as a leading bank that operates with great integrity and trust.

Risk Management The Bank adds value to customers and generates returns for shareholders by taking and managing risk in line with strategy and within risk appetite. Risk management is the set of end-to-end activities through which we make risk-taking decisions and we control and optimize the risk-return profile of the bank. The management of risk lies at the heart of business, as a central role of a Bank is to ‘warehouse’ risk by extending credit to selected clients and to provide products which enable clients to off-lay their price and liquidity risks to the Bank. Effective risk management is a central part of the financial and operational management of the bank and fundamental to our ability to generate profits consistently and maximize the interests of our shareholders

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and other stakeholders. Our risk agenda addresses the following issues:

• Embedding a risk management framework, whose core components are risk classification, risk principles and standards, definitions of roles and responsibilities, governance structure.

• Improving knowledge and data management and discipline through our lessons learned, business risk review and portfolio review processes.

• Streamlining facilitation of day to day activities by locating experienced risk practitioners within the businesses, capable of drawing on the centres of excellence established within Risk.

• Ensuring the bank has appropriate systems, controls

and standards in place to accommodate the bank’s expanding product capabilities.

• Investing in our people, building bench strength and identifying succession plans.

• Risk limit setting aims to support the strategic growth of the business, but within risk appetite.

• Enhanced vigilance of the risks and identify potential adverse changes in the operating environment for early mitigation.

We are committed to grow a sustainable business and focus very strongly on exemplary risk management and the concept of zero tolerance towards regulatory breaches. We are continuously improving the way we work, balancing the pursuit of growth with control of cost and risk. The bank has a very robust risk governance structure. It is through this process that we strive to always achieve exemplary governance and ethical behavior where ever we are and to meet the regulatory standards. In this regard risk management at all levels continues to be a primary goal of the bank.”

Technology and Operations ProjectsCurrency Rebasing: The Government of the Republic of Zambia, on January 23, 2012, approved the recommendation of the Bank of Zambia to rebase the Zambian Currency. The rebased currency became legal tender on January 1, 2013. SCB Zambia set aside about ZMK 5bn for the smooth preparation and implementation. Months of strategizing and planning culminated in a successful cut-over on 1 January 2013.

The Cheque Truncation System (CTS) is an efficient method of clearing cheques using images between banks as opposed to sending physical cheques presented for payment in a bank by individuals or corporate bodies. Implementation of the cheque truncation will benefit banks and the public in a number of ways including;

- It will shorten and standardize the clearing period across the country to one clearing day (T+1),meaning value

to the cheque will be given a day after the cheque is deposited and thus facilitate early access to funds by customers.

- It will eliminate the cumbersome physical presentation of cheques by banks to the Clearing house saving time and costs associated with physical handling of cheques.

- It will reduce risks associated with manual handling and physical movement of cheques.

- It will reduce frauds and encourage wider usage and acceptance of cheques as a payment instrument.

The Bankers Association of Zambia (BAZ) has introduced new cheques with enhanced security features which are consistent with the operational requirements of the CTS. The new cheque will have the following distinct features; Watermark, a translucent image in the cheque that is seen when the cheque is held against a light source. Check digital value (CDV),representing the last two digits on the MICR code line after the space. This is a security feature generated by special algorithm and appended to the MICR code line.

Effective February 1, 2013 customers are not allowed to issue non CTS cheques as they will not be accepted for deposit. However, non-CTS cheque issued prior to cut over date of 1 February, 2013 will be accepted for clearing up to 31 July 2013 after which non CTS cheque will be completely phased out of the system. Prior to cross-over which was achieved on the 1 February 2013, SCB set aside ZMK 3.8bn for the smooth implementation of this regulatory project.

eTax this project is aimed at automating Tax payments to The Zambia Revenue Authority (ZRA) by use of online banking platforms. Currently a handful of banks which include Citi & Zanaco have already linked their systems to ZRA. This project is spearheaded by Transaction Banking and supported by GTO. We are currently engaged in talks with ZRA and reviewing proposals from vendors. Roll-out date will be advised as soon as talks are exhausted. National switch This project involves the creation of a local settlement switch for all ATM and POS systems. This is a Government initiated project aimed at eliminating the dependency on VISA. The project was first conceptualized in 2007 but was pushed back. We now expect to implement this in quarter three (Q3) of 2013.

Board Evaluation Annually, the bank conducts an independent annual online Board evaluation the results of which are shared with the Institute of Directors Zambia and the Lusaka Stock Exchange. Areas of strength and improvement are discussed in the Board meeting and an action plan is put in place to ensure the issues are tracked until closure.

Environment The bank has continued with its Environmental sustainability agenda and in the year under review undertook a number of projects such as the tree planting exercise at the Levy Mwanawasa General Hospital, participated in the 2012 Earth-hour, in which power was switched off for a full hour

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at Standard Chartered House and North-end buildings, thereby joining several other Countries in this massive energy saving initiative and statement. In the same year, Standard Chartered Bank Zambia Plc under took a clearing of mosquito-infested areas in Garden compound and distributed 2000 treated mosquito nets to the local community.This last effort led to Zambia being awarded the Outstanding Employee Volunteering Achievement, a global recognition for a noteworthy intervention in a local community. What made this even more outstanding was the fact that it was arranged in such a way that it coincided with the World Malaria Day activities and thus enabled the bank to join the rest of the Country in supporting the fight against Malaria.

Human Resources: Staff Composition The Bank ended the year with 696 staff broken down as follows: Consumer Banking : 488 Wholesale Banking : 50 Support Functions : 158

In 2012, we remained committed and focused to support the developmental needs of our staff and have strived to be the employer of choice in the Zambian Market. Owing to the Banks reputation and stability, Standard Chartered has had and still has the ability to retain our close to 700 staff.

Share based payments The Banks’ employees participate in a number of share based payment schemes operated by Standard Chartered Plc, the ultimate holding company of Standard Chartered Bank Zambia Plc. Participating employees are awarded ordinary shares in Standard Chartered Plc in accordance with the terms and conditions of the relevant scheme. In addition, employees have the choice of opening a three-year savings contract. Within a period of six months after the third anniversary, as appropriate, employees may purchase ordinary shares of Standard Chartered Bank Plc. The price at which they may purchase shares is at a discount of up to twenty per cent on the share price at the date of invitation. There are no performance conditions attached to options granted under all employee share save schemes. Equity settled options or share awards are calculated at the time of grant based on the fair value of the equity instruments

granted and that grant date fair value is not subject to change the fair value of equity instruments.

HIV/AIDS Programmes The Bank’s response to HIV/AIDS stems from a desire to protect basic human rights, preserve the integrity of its labour force, reduce costs associated with HIV/AIDS, and respond to what the company recognises as a global challenge.

In a continued effort to work with partners, awareness sessions were held to educate our community on the pandemic and a total of 600 people were reached through the sessions.

Standard Chartered Bank Zambia limited donated dell desktop computers to the Network of Zambian People Living with HIV and Aids (NZP+) in Lusaka on 4th December 2012.

The desktop computers will be used in the NZP+ Resource Centres and information hubs in Lusaka, Livingstone, Mongu and Mufulira. Some of the computers will be allocated to NZP+ district Chapters, where they will be used for information processing and generation of programme and financial reports. The donation will have a multiplier effect because the computers will be used to reach other infected members of the public in those districts.

In terms of social responsibility various departments in the bank have participated in several initiatives to sensitize local communities on HIV/AIDS through employee volunteering activities. The Bank provides its staff members 3 days of volunteering leave in addition to their annual leave, in which they can work on such initiatives in the communities we operate in.


Celine M. Nair Company Secretary 21 February 2013

17

Senior Management Committee

Back Row (L-R): Sonny Zulu – Head of Consumer Banking, Peter Zulu – Head of Compliance, Ruth Simuyemba – Head of Human Resources, Mizinga Melu – Managing Director, Celine Nair – Head of Legal & Company Secretary, Anthony Katepa – Country Chief Risk Officer & Senior Credit Officer – Wholesale Banking, Stanley Tamele – Head of Global Markets.

Front Row (L-R): Kelvin Musana – Executive Director – Finance and Administration, Musonda Musakanya – Chief Information Officer, Arjuna Balasingham – Head of Origination and Client Coverage, Chanda Chime-Katongo – Acting Head Corporate Affairs.

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Making a difference in our communities

Staff planting trees

We consider the environmental challenges across the countries where we operate and proactively manage the direct impact of our operations. In 2012, we improved the energy efficiency of our offices and branches and decreased our paper consumption per full time employee (FTE). Standard Chartered Bank Zambia Plc has continued with its Environmental sustainability agenda and in the year under review undertook a number of projects such as the tree planting exercises at the Levy Mwanawasa General Hospital and the SOS children’s village in Lusaka, The Bank was awarded the Outstanding Employee Volunteering Achievement, a global recognition for a noteworthy intervention in a local community.

Seeing is believing

Eye screening at the market place Seeing is Believing is a global collaboration between Standard Chartered Bank and leading international eye care NGOs, to tackle preventable blindness. Standard Chartered Bank has raised USD20m, as at 2012, to provide 20 million people in impoverished urban areas with access to comprehensive eye-care services worldwide. In Zambia, the SiB project has changed lives of more than 1 million people. In 2012 we invested a further USD1m into this project as we partnered with ORBIS Africa, an NGO with a history of 30 years of sight saving. The Bank has also partnered with Sight Savers International since 2009 and in 2012 this particular partnership saw close to 65,000 adults and children screened, 2,000 cataracts and trichiasis operations performed, 7,000 spectacles dispensed, and, 400,000 trachoma drugs disbursed.

Volunteering at UTH

A few years ago, the Bank carried out a complete refurbishment of three paediatrics wards because we believe in making a sustainable difference in the community.

It is for this reason that in July 2012 we painted the three paediatrics wards and donated blankets for the children. Our contribution did not end in monetary form as our members of staff, volunteered by way of participating in the painting.

19

Annual financial statements

for the year ended 31 December 2012

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KPMG Chartered Accountants Telephone + 260 211 372 900 First Floor, Elunda Two Website www.kpmg.com Addis Ababa Roundabout Rhodes Park P O Box 31282

Lusaka, Zambia

KPMG Chartered Accountants, a Zambian partnership, is a member firm of the partners: A list of the Partners is available KPMG network of independent member firms affiliated with KPMG International at the above mentioned address Cooperative ("KPMG International"), a Swiss entity. All rights reserved

17

Directors’ responsibilities in respect of the preparation of financial statements

The Bank’s directors are responsible for the preparation and fair presentation of the financial statements of Standard Chartered Bank Zambia Plc, comprising the statements of financial position as at 31 December 2012, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes in accordance with International Financial Reporting Standards, the Banking and Financial Services Act and in the manner required by the Companies Act of Zambia. In addition, the directors are responsible for preparing the director’s report.

The directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error and for maintaining adequate accounting records and an effective system of risk management as well as the preparation of the supplementary schedules included in these financial statements.

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

The auditor is responsible for reporting on whether the annual financial statements are fairly presented in accordance with International Financial Reporting Standards.

Approval of the financial statements The financial statements, of the Bank as indicated above and set out on pages 23 to 78 were approved by the Directors on 21 February 2013 and were signed on their behalf by:

M. Mundashi M. MeluChairman Managing Director

K. MusanaExecutive Director - Finance and Administration

21

KPMG Chartered Accountants Telephone + 260 211 372 900 First Floor, Elunda Two Website www.kpmg.com Addis Ababa Roundabout Rhodes Park P O Box 31282

Lusaka, Zambia

KPMG Chartered Accountants, a Zambian partnership, is a member firm of the partners: A list of the Partners is available KPMG network of independent member firms affiliated with KPMG International at the above mentioned address Cooperative ("KPMG International"), a Swiss entity. All rights reserved

17

Independent Auditor’s Report to the Members of Standard Chartered Bank Zambia Plc

Report on the Financial Statements We have audited the annual financial statements of Standard Chartered Bank Zambia Plc which comprises the statement of financial position as at 31 December 2012, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting principles and other explanatory notes, as set out on pages 23 to 78.

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

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

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

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

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Standard Chartered Bank Zambia Plc as at 31 December 2012 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Banking and Financial Services Act and the, Companies Act of Zambia.

KPMG

Other matter Supplementary information set out on page 79 does not form part of the annual financial statements and is presented as additional information. We have not audited this schedule and accordingly we do not express an opinion on it.

Report on Other Legal and Regulatory Requirements In accordance with Section 173 (3) of the Companies Act of Zambia, we report that, in our opinion the required accounting records, other records and registers have been properly kept in accordance with the Act.

In accordance with Section 64 (2) of the Banking and Financial Services Act we report that in our opinion:

• the Bank made available all necessary information to enable us to comply with the requirements of this Act;

• the Bank has complied in all material respects with the provisions of this Act and the regulations, guidelines and prescriptions under this Act.

• there were no non-performing or restructured loans owing to the Bank whose principal amount exceeds 5% of the regulatory capital.

KPMG Chartered Accountants

Dumi Tshuma 04 March 2013

Partner Lusaka, Zambia

KPMG

23

Statement of comprehensive incomefor the year ended 31 December 2012

Notes 2012 2011

K’million K’million

Interest income 9 405,617 314,540

Interest expense 10 (83,921) (57,127)

Net interest income 321,696 257,413

Fee and commission income 11 173,815 139,613

Fee and commission expense 11 (18,183) (14,033)

Net fee and commission income 155,632 125,580

Net trading income 12 114,055 86,212

Net income from financial instruments at fair value through profit or loss 13 22,452 9,318

Other income 14 6,582 794

143,089 96,324

Revenue 620,417 479,317

Personnel expenses 15 (169,155) (143,389)

Depreciation, amortisation, premises and equipment expenses 15 (38,202) (33,709)

Other expenses 15 (70,164) (68,813)

Impairment on loans and advances 25 (3,278) (7,319)

Profit before income tax 339,618 226,087

Income tax expense 17 (118,625) (93,634)

Profit for the year 220,993 132,453

Other comprehensive income, net of income tax

Net changes in fair value reserve on available for sale securities 2,071 (379)

Net amount transferred to profit and loss on available for sale securities (1,850) (2,737)

Other comprehensive income for the year, net of income tax 221 (3,116)

Total comprehensive income for the year 221,214 129,337

The notes on pages 29 to 78 are an integral part of these financial statements.

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Statement of comprehensive income (continued)for the year ended 31 December 2012

Notes

2012 2011


Profits attributable to:

Equity holders of the banks 220,993 132,453

Profit for the year 220,993 132,453

Total comprehensive income attributable:

Equity holders of the banks 221,214 129,337

Total comprehensive income for the year 221,214 129,337

Earnings per share

Basic and diluted earnings per share (Kwacha) 18 132.57 79.46



25

Statement of financial positionAs at 31 December 2012

Notes 2012 K’million

2011 K’million

Assets

Cash on hand and balances at Bank of Zambia 20 680,535 335,956

Cash and cash equivalents 21 921,312 1,226,863

Pledged assets 22 50,000 106,000

Investment securities 23 1,104,442 954,110

Derivative financial instruments 24 8,624 11,980

Loans and advances to customers 25 2,233,265 1,797,251

Operating lease prepayments 28 545 660

Prepayments and other receivables 29 101,134 86,342

Property and equipment 26 28,449 25,872

Intangible assets 27 35,312 40,640

Total assets 5,163,618 4,585,674

Liabilities

Amounts payable to group banks 21 525,033 357,943

Amounts payable to non-group banks 21 40,139 10,405

Deposits from customers 30 3,681,026 3,573,822

Dividends payable 19 1,329 1,329

Derivative financial instruments 24 5,625 1,717

Accruals and other payables 33 240,818 177,724

Provisions 32 14,061 15,457

Current tax liabilities 17 35,263 43,050

Subordinated liabilities 31 20,710 20,480

Deferred tax liabilities 17 5,324 10,799

Total liabilities 4,569,328 4,212,726

Equity

Share capital 34 416,745 12,285

Statutory reserves 12,285 12,285

Fair value reserves 6,479 6,258

Credit reserves 4,194 7,220

Capital contribution 17,312 17,312

Retained earnings 137,275 317,588

Total equity attributable to equity holders of the Bank 594,290 372,948

Total liabilities and equity 5,163,618 4,585,674

These financial statements were approved by the Board of Directors on 21 February 2013 and were signed on its behalf by;

M. Mundashi M. Melu K. Musana C. NairChairman Managing Director Executive Director Finance and

AdministrationCompany Secretary


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Statement of changes in equityAs at 31 December 2012

2011 Share capital

Statutory reserves

Fair value reserves

Credit reserves

Share-based

payment reserves

Capital Contribution

Retained earnings

Total

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

Balance at 1 January 2011 2,048 2,048 9,374 1,634 - 17,312 293,095 325,511

Total comprehensive income for the year

Profit for the year - - - - - - 132,453 132,453 Other comprehensive income net of income taxFair value reserve on available-for-sale investment securities

- Net change in fair value - - (379) - - - - (379)- Net amount transferred to profit and

loss- - (2,737) - - - - (2,737)


-- (3,116) - - 132,453 129,337

Transfer from retained earnings 5,586 (5,586) -

Transactions with owners, recognised directly in equity

Dividend to equity holders - - - - - - (81,900) (81,900)

Bonus issue

10,237 10,237 - - - - (20,474) -Share based payment transactions - - - - 1,038 - (1,038) -

Distribution - - - - (1,038) - 1,038 -

Total contributions by and distributions to owners

10,237 10,237 - - - - (102,374) (81,900)

Balance at 31 December 2011 12,285 12,285 6,258 7,220 - 17,312 317,588 372,948

2012 Share capital Statutory reserves

Fair value reserves

Credit reserves

Share-based

payment reserves

Capital Contribution

Retained earnings Total


Balance at 1 January 2012 12,285 12,285 6,258 7,220 - 17,312 317,588 372,948


Profit for the year - - - - - - 220,993 220,993

Other comprehensive income net of income tax - - - - - - - -

Fair value reserve on available-for-sale investment securities - - - - - - - -

- Net change in fair value - - 2,071 - - - - 2,071

- Net amount transferred to profit and loss - - (1,850) - - - - (1,850)

Total comprehensive income for the year - - 221 - - - 220,993 221,214

Transfer from retained earningsUnclaimed dividends written back

--

--

--

(3,026)-

--

--

3,026 128

- 128

Transactions with owners, recognised directly in equity

Bonus issue 404,460 - - - - - (404,460) -

Share based payment transactions - - - - 1,617 - (1,617) -

Distribution - - - - (1,617) - 1,617 -

Total contributions by and distributions toowners

404,460 - - - - - (404,460) -

Balance at 31 December 2012 416,745 12,285 6,479 4,194 - 17,312 137,275 594,290


27

Statement of changes in equity (continued)As at 31 December 2012

Fair value reserve

The fair value reserve comprises the fair value movement of financial assets classified as available-for-sale. Gains and losses

are deferred to this reserve until such time as the underlying asset is sold or matures.

Credit reserve

The credit reserve is a loan loss reserve that relates to the excess of impairment provision as required by the Banking and

Financial Services Act of Zambia over the impairment provision computed in terms of International Financial Reporting Stan-

dards.

Share based payment reserves

This relates to the equity settled share based payment transactions the Bank employees have with the Standard Chartered

Holdings (Africa) BV.

Capital contribution

The capital contribution reserve relates to the franchise value arising from the acquisition of the Security Services business.

The franchise value is the amount paid on behalf of the Bank by Standard Chartered Plc (there after referred to as the group)

for the acquisition of the Security Services business.

Retained earnings

Retained earnings are the carried forward recognised income net of expenses of the Bank plus current period profit

attributable to shareholders less distribution to shareholders.

Statutory reserves

Statutory reserves comprise transfers out of net profits prior to dividends, of amounts prescribed under statutory instrument

No. 21 of 1995: The Banking and Financial Services (Reserve Account) Regulations 1995.

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Statement of cash flowsfor the year ended 31 December 2012

Note 2012

K’million2011

K’million

Cash flow from operating activities

Profit before tax 339,618 226,087

Adjustment for items not involving cash or shown separately

Depreciation of property and equipment 26 4,331 5,194

Amortisation of intangible assets 27 5,328 5,809

Expensed work in progress 26 - 3,435

Equity-settled share-based payments transaction 15 1,617 1,038

Expensed portion of leasehold land prepayment 15 13 17

Impairment losses 25 3,278 7,319

Gain on disposal of property and equipment 14 (6,235) (201)

Net interest income (322,519) (269,943)

Effect of exchanges rate fluctuations on subordinated loan capital 230 1,360

25,661 (19,885)

Change in operating assets and liabilities

Pledged assets 56,000 (106,000)

Loans and advances to banks - 83,101

Loans and advances to customers (436,014) (645,866)

Derivative financial instruments 7,264 (10,175)

Prepayments and other receivables (14,792) (58,485)

Deposits from customers 107,204 409,235

Provisions (1,396) (287)

Accruals and other payables 63,095 64,717

(218,639) (263,760)

Interest received 406,440 314,540

Interest paid (83,921) (57,127)

322,519 257,413

Net cash generated from operating activities before taxation Income tax paid 17

129,541

(132,006)

(26,232)

(89,327)

Net cash used in operating activities (2,465) (115,559)

Cash flows from investing activities

Aquisition of property and equipment to maintain operations 26 (7,272) (8,404)

Investment in government securities (150,332) 25,074

Proceeds from disposal of property and equipment 6,316 201

Net cash used in investing activities (151,288) 16,871

Cash flows from financing activities

Dividends paid 19 - (81,926)

Net cash used in financing activities - (81,826)

Net decrease in cash and cash equivalents (153,753) (180,614)

Cash and cash equivalents at beginning of year 1,194,471 1,376,908

Effect of exchange rate fluctuation on cash held (4,043) (1,823)

Cash and cash equivalents at end of year21

1,036,675 1,194,471



29

Notes to the financial statements for the year ended 31 December 2012

1 Reporting entity

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

2 Basis of preparation

2.1 Statement of compliance The Bank’s financial statements have been prepared in accordance with International Financial Reporting Standards

(IFRSs) as issued by the International Accounting Standards Board (IASB), the requirements of the Banking and Financial Services Act and the Companies Act of Zambia.

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

• derivative financial instruments are measured at fair value; • available-for-sale financial assets are measured at fair value; and • financial instruments at fair value through profit or loss are measured at fair value.

2.3 Functional and presentation currency These financial statements are presented in Zambian Kwacha (“Kwacha”), which is the Bank’s functional currency. All

financial information presented in Kwacha has been rounded to the nearest million, except when otherwise indicated.

2.4 Use of estimates and judgments The preparation of financial statements requires management to make judgements, estimates and assumptions that

affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 6.

3 Significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.1 Interest income and expense Interest income and expense are recognised in statement of comprehensive income using the effective interest

method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate ,a shorter period to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument (for example, repayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.

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Notes to the financial statements (continued)for the year ended 31 December 2012

3 Significant accounting policies (continued)

3.1 Interest income and expense (continued)Interest income and expense presented in the statement of comprehensive income includes:

• interest on financial assets and financial liabilities at amortised cost on an effective interest basis; • interest on available-for-sale investment securities on an effective interest basis; and • Interest on financial assets at fair value through profit or loss on an effective interest basis.

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

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

3.2 Fees and commissions Fees and commissions income is recognised on an accrual basis when the service has been provided. Loan

syndication fees are recognised as revenue when the syndication has been completed and the Bank retained no part of the loan package for itself or retained a part at the same effective interest rate as the other participants. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided, which is usually on a time basis.

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

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

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

3.3 Net trading income Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and

unrealised fair value changes, interest and foreign exchange differences.

3.4 Net income from financial instruments at fair value through profit or loss Net income from other financial instruments at fair value through profit or loss relates to gains and loss arising

from changes in the fair value of the financial assets at fair value through profit or loss, financial assets mandatorily measured at fair value through profit or loss other than those held for trading, and financial assets and liabilities designated at fair value through profit or loss.

3.5 Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the

lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

3.6 Income tax Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to

the extent that it relates to items recognised directly in equity or in other comprehensive income.

The current tax charge is determined in accordance with the provisions of the Income Tax Act 1966 (as amended) (Chapter 323 of the laws of Zambia), and is based on the adjusted profit for the year using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The current tax charge is recognised as an expense in the period in which profits arise.


31



3.6 Income tax (continued)

Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities

for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax that arises on distribution of dividends by the Bank is recognized at the same time the liability to pay the related dividend is recognized.

3.7 Financial assets and financial liabilities

Recognition The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on

the date at which they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Bank commits to purchase or sell the asset. All other financial assets and financial liabilities (including assets and liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability is initially measured at fair value including (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.

De-recognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset

expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

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

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3.7 Financial assets and financial liabilities (continued)

De-recognition (continued) The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but

retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, repurchase transactions.

Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) remain on the statement of financial position. The

counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recognised as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

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

Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position

when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

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

Amortised cost measurement The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability

is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment (for financial assets only).

Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing

parties in an arm’s length transaction.

The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The Bank uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options, interest rate and currency swaps.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, that is, the fair value of the consideration given or received. However, in some cases, the fair value of a financial instrument on initial recognition may be different from its transaction price. If such fair value is evidenced by comparison with other observable current market transactions in the same instrument (that is, without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in profit or loss on initial recognition of the instrument. In other cases the difference is not recognised in the profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or fair value becomes observable.


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Fair value measurement (continued) Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price.

Where the Bank has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Bank believes a third-party market participant would take them into account in pricing a transaction.

Identification and measurement of impairment The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of

financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the loss events.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the financial asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

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

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

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments measured at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in statement of comprehensive income. Interest on the impaired asset continues to be recognised through the unwinding of the discount.

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

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

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Identification and measurement of impairment (continued) When a loan is uncollectible, it is impaired. Such loans are written off after all the necessary procedures have been

completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss.

Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the financial asset is derecognised or impaired at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified to profit or loss. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Interest calculated using the effective interest method is recognised in profit or loss. Reversals of impairment loss on available-for-sale debt instruments are recognised in profit or loss, however any subsequent recovery of the fair value of an impaired available-for-sale equity instrument is recognised in other comprehensive income.

3.8 Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, balances held with the central bank and group banks and highly

liquid financial assets with original maturities of less than three months. Cash and cash equivalents are subject to insignificant risk of changes in fair value, and are used by the Bank in the management of its short term commitments.

Cash and cash equivalents are measured at amortised cost in the statement of financial position.

3.9 Loans and advances Loans and advances are non-derivative financial instruments with fixed or determinable payments that are not quoted

in an active market and the Bank does not intend to sell immediately or in the near future. Loans and advances include Mortgage, Term loans, Personal loans and Overdrafts.

Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method less impairment losses.

Loans are recognised when cash is advanced to the borrowers.

3.10 Collateral The Bank obtains collateral in respect of customer liabilities where this is considered appropriate. The collateral normally

takes the form of a lien over the customer’s assets and gives the Bank a claim on these assets for both existing and future liabilities.

The Bank receives collateral in the form of cash or debt securities in respect of other financial instruments in order to reduce credit risk. Collateral received in the form of debt securities is not recognised on the statement of financial position. Collateral received in the form of cash is recognised on the statement of financial position with a corresponding liability. These items are assigned to deposits received from banks or other counterparties. Any interest payable or receivable arising is recognised as interest expense or interest income respectively.

3.11 Investment securities Investment securities are initially measured at fair value and subsequently measured depending on their classification

as either held-to-maturity, fair value through profit and loss, or available-for-sale. Management determines the classification of its investments at initial recognition.


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3.11 Investment securities (continued)(a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through

profit or loss at inception. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss are initially and subsequently measured at fair value.

Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the profit or loss in the period in which they arise.

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of the derivatives are recognised in profit or loss. Transaction costs are recognised in profit or loss as incurred. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

(b) Available-for-sale Available-for-sale investments are non-derivative investments that are designated as available-for-sale or are not

classified as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are initially and subsequently measured at fair value.

Interest income is recognised in profit or loss using the effective interest method. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in the profit or loss. The fair value movement for Available-for-sale investments is recorded in other comprehensive income until the financial asset is derecoginsed or impaired at which time the cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss.

3.12 Borrowings Borrowings are recognised initially at fair value, being the issue proceeds (fair value of consideration received) net of

transaction costs incurred. Borrowings are subsequently measured at amortised cost, any difference net of transaction costs and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

3.13 Deposits, debt securities and subordinated liabilities Deposits, debt securities and subordinated liabilities are the Bank’s sources of debt financing. When the Bank sells a

financial asset and simultaneously enters a “repo” agreement to repurchase the asset (or similar asset) at a fixed or on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements.

Deposits, debt securities and subordinated liabilities are initially measured at fair value plus directly attributable transaction costs, and subsequently measured at amortised cost using the effective interest method.

3.14 Non Derivatives Financial Liabilities The Bank classifies non derivative financial liabilities into other financial liabilities category. Such financial liabilities are

recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amoritsed cost using the effective interest method. Other financial liabilities include accruals, dividends payable and other payables.

3.15 Property and equipment

Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation. Cost includes expenditures that

are directly attributable to the acquisition of the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Property comprises offices and residential buildings.

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3.15 Property and equipment (continued) The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from

disposal with the carrying amount of the item of property and equipment, and is recognised in other income/other expenses in the profit or loss.

Subsequent costs The cost of replacing a part of an item of property and equipment is recognised in the carrying amount of the item if it is

probable that the future economic benefits embodied within the part will flow to the Bank, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

Depreciation Depreciation is recognised in profit or loss on a straight line basis over the estimated useful lives of each part of an item of

property and equipment. The useful lives are as follows:

Properties up to 50 years Improvements to properties life of lease, up to 50 years Equipment and motor vehicles 3 to 10 years

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each reporting date. There has been no significant change in the useful lives from prior period.

Capital work-in-progress Capital work-in-progress represents assets in the course of development which at reporting date would not have been

brought to use.

3.16 Intangible assets The assets that are classified as intangible assets include customer relationships and goodwill relating to the Security

Services business. The customer relationships are amortised over the expected customer lives, initially estimated at 8 -10 years. They are initially measured at cost and subsequent to initial measurement; they are carried at cost less accumulated amortisation and impairment.

Goodwill is initially measured at cost and subsequently reviewed annually for impairment.

Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

3.17 Leased assets

Leases of land Leases of land are classified as operating leases on the basis that significant risks and rewards of ownership are not

transferred to the Bank. The leases are for 99 years which is significantly less than the useful economic life of the land. Upfront payments made to obtain the right to use the land are capitalised as a lease prepayment and recognised on a straight line basis over the unexpired portion of the lease term as an operating lease expense.

Ownership of land ultimately vests in the Government of the Republic of Zambia and title does not transfer to the lessee.

3.18 Impairment of non-financial assets The carrying amounts of the Bank’s non-financial assets, other than deferred tax assets and prepayments, are reviewed

at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount of an asset is the greater of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.


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3.18 Impairment of non-financial assets (continued) For the purposes of impairment testing, assets that cannot be tested individually are grouped together into the smallest

group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash-generating unit” or “CGU”). Impairment losses are recognised in profit or loss. Impairment on goodwill never reverses.

Non-financial assets that have been impaired are reviewed for possible reversal of the impairment at each reporting date. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.

3.19 Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be

estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

3.20 Foreign currency Transactions in foreign currencies are translated to Kwacha at exchange rates at the dates of the transactions. Monetary

assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss.

Non-monetary assets and liabilities that are measured at fair value in foreign currency are translated to the functional currency at the spot exchange rate at the date the fair value was determined. Non-monetary items that are measured based on historical costs in a foreign currency are translated using the spot rate at the date of the transaction.

3.21 Segment reporting An operating segment is a component of the Bank that engages in business activities from which it may earn revenues

and incur expenses, including revenues and expenses that relate to transactions with any of the Bank’s other components. All operating segments’ operating results are reviewed regularly by the Bank’s CEO (who is the chief operating decision maker) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 8).

3.22 Financial guarantees and loan commitments Financial guarantees are contracts that require the Bank to make specific payments to reimburse the holder for a loss it incurs

because a specified debtors fails to make payment when due in accordance with the terms of the debt instrument. Loan commitments are firm commitments to provide credit under pre specified terms and conditions.

3.23 Employee benefits

(a) Defined contribution plan A defined contribution plan is a post - employment benefit plan under which an entity pays fixed contributions

into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as expense in profit or loss when they are due in respect of service rendered before the end of the reporting period. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

Retirement benefits for members of staff are provided through a defined contribution fund. The Bank contributes 6% of employees’ basic pay to the defined contribution pension fund. Obligations for

contributions to the defined contribution pension plans are due in respect of services rendered before the end of the reporting period.

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3.23 Employee benefits (continued)

(b) Termination benefits Termination benefits are recognised as an expense when the Bank is demonstrably committed, without realistic

possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the Bank has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

(c) Short – term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the

related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

3.24 Earnings per share The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by

dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.

3.25 Share capital and reserves - share issue costs Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the

proceeds.

3.26 Dividends payable Dividends are recognised as a liability in the period in which the dividends are approved by the shareholders.

3.27 Fiduciary activities The Bank acts in a fiduciary capacity which results in the holding or placing of assets on behalf of individuals, trusts

and other institutions. These assets are excluded from these financial statements, as they are not assets of the Bank.

3.28 Share based payments The Bank’s employees participate in a number of share based payment schemes operated by Standard Chartered Plc, the

ultimate holding company of Standard Chartered Bank Zambia Plc. Participating employees are awarded ordinary shares in Standard Chartered Plc in accordance with the terms and conditions of the relevant scheme.

In addition, employees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares of Standard Chartered Bank Plc. The price at which they may purchase shares is at a discount of up to twenty per cent on the share price at the date of invitation. There are no performance conditions attached to options granted under all employee share save schemes.

Equity settled options or share awards are calculated at the time of grant based on the fair value of the equity instruments granted and that grant date fair value is not subject to change the fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instrument is estimated using an appropriate valuation technique, such as a binomial option pricing model.


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4 New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2012, and have not been applied in preparing theses financial statements. The following standards and interpretations will have an impact on the financial statements of the Bank:

Effective date Standard, Amendment or Interpretation Summary of Requirements

1 January 2015

1 January 2015

IFRS 9 (2009): Financial Instruments

IFRS 9 (2011): Financial Instruments

IFRS 9 addresses the initial measurement and classification of financial assets and will replace the relevant sections of IAS 39.

Under IFRS 9 there are two options in respect of classification of financial assets, namely, financial assets measured at amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to col-lect contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. Embedded derivatives are no longer separated from hybrid con-tracts that have a financial asset host.

The impact of the adoption of the standard on the financial statements for the Bank has not yet been quantified.

IFRS 9 (2011) addresses the measurement and classification of financial liabilities and will replace the relevant sections of IAS 39.

Under IFRS 9 (2011), the classification and measurement requirements of financial liabilities are the same as per IAS 39, except for the following two aspects:

fair value changes for financial liabilities (other than financial guarantees and loan commitments) designated at fair value through profit or loss, that are attributable to the changes in the credit risk of the liability will be presented in other comprehensive income (OCI). The remaining amount of the fair value change is recognised in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. The determination as to whether such presentation would create or enlarge an accounting mismatch is made on initial recognition and is not subsequently reassessed.

Under IFRS 9 (2011) derivative liabilities that are linked to and must be settled by delivery of an unquoted equity in-strument whose fair value cannot be reliably measured, are measured at fair value.

IFRS 9 (2011) incorporates the guidance in IAS 39 dealing with fair value measurement and accounting for derivatives embedded in a host contract that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Em-bedded Derivatives.

The impact on the financial statements for the Bank has not yet been quantified.

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4 New standards and interpretations not yet adopted (continued)

Effective date Standard, Amendment or Interpretation Summary of Requirements

1 January 2013 IFRS 13: Fair Value Measurement IFRS 13 introduces a single source of guidance on fair value measurement for both financial and non-financial assets and liabilities by defining fair value, establishing a framework for measuring fair value and setting out disclo-sures requirements for fair value measurements. The key principles in I are as follows:

• Fair value is an exit price• Measurement considers characteristics of the asset

or liability and not entity-specific characteristics• Measurement assumes a transaction in the entity’s

principle (or most advantageous) market between market participants

• Price is not adjusted for transaction costs• Measurement maximises the use of relevant observ-

able inputs and minimises the use of unobservable inputs

• The three-level fair value hierarchy is extended to all fair value measurements

The impact on the financial statements for the Bank has not yet been quantified.

1 January 2013 IFRS 7 Financial Instruments: Disclosures: Offsetting Financial Assets and Financial Liabilities

The amendments contain new disclosure requirements for financial assets and financial liabilities that are offset in the statement of financial position; or are subject to enforceable master netting arrangements or similar agreements. The Bank applies offsetting in the financial statements and will be required to provide additional disclosures in this regard.

The impact on the financial statements for the Bank has not yet been quantified

5 Risk Management

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

The basic principles of risk management followed by the Bank include:

• ensuring that business activities are controlled on the basis of risk adjusted return;• managing risk within agreed parameters with risk quantified wherever possible;• assessing risk at the outset and throughout the time that the Bank continues to be exposed to it;• abiding by all applicable laws, regulations, and governance standards;• applying high and consistent ethical standards to our relationships with all customers, employees and other

stakeholders; and• undertaking activities in accordance with fundamental control standards. These controls include the disciplines

of planning, monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and

valuation.


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5 Risk Management (continued)

Group Risk Management Structure The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management

framework.

The Group has established the Asset and Liability Committee (ALCO) which ensures that the country’s statement of financial position is managed in accordance with group policy as well as other applicable regulatory requirements.

The Group Operational Risk Committee (GORC) has established the Country Operational Risk Committee (CORC), which is responsible for providing a forum for the identification, assessment, mitigation and subsequent monitoring of country level Operational Risk trends and issues. CORC ensures that there is full compliance with internal policies and relevant regulations, as well as the Bank’s Operational Risk Management and Assurance Framework.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group through its training and management standards and procedures aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Board Audit Committee is supported in these functions by the Internal Audit Department, who undertake both regular and ad-hoc reviews of risk management controls and procedures, the results of which are then reported to the Board Audit Committee.

The Board Risk Committee is responsible for considering the Bank’s appetite for risk, review of the appropriateness and effectiveness of the Bank’s risk management system and controls and to consider the implications of changes proposed to regulations and legislation that are material to the Bank’s risk appetite, risk exposure and management of risk.

Credit Risk

Management of credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its

contractual obligations and arises principally from the loans and advances to customers and other banks and investments in debt securities. The amount of credit exposure in this regard is represented by the carrying amounts of the financial assets on the statement of financial position and financial assets that are not recognised in the statement of financial position. For risk management reporting purposes, the Bank considers all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral against loans and advances in the form of mortgage interests over property, other registered securities over assets and guarantees.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments.

Within the Wholesale Banking business, a numerical grading system (Grades 1 to 14) is used for quantifying the risk associated with counterparty. The grading is based on a probability of default measure with customers analysed against a range of quantitative and qualitative measures.

For Consumer Banking, approval processes are in places that are appropriate for the customer type or the market.

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Management of credit risk (continued)

Consumer Banking An account is considered to be in default when payment is not received on the due date. Accounts that are overdue

by more than 30 days are considered delinquent. These accounts are closely monitored and subject to a collection process.

The process used for raising impairment allowances is dependent on the product. For mortgages, personal and other SME loans, individual impairment allowances (“IIP”) are generally raised at 150 days past due based on the difference between the outstanding amount of the loan and the present value of the estimated future cash flows. For unsecured products, individual allowances are recognised for the entire outstanding amount at 150 days past due. For all products there are certain accounts, such as cases involving bankruptcy, fraud and death, where the loss recognition process is accelerated.

A collective impairment allowance is held to cover the inherent risk of losses, which although not identified, are known through experience to be present in any loan portfolio. In Consumer Banking, the collective impairment allowance is set with reference to past experience using loss rates and judgmental factors such as the economic environment and the trends in key portfolio indicators.

Wholesale Banking In Wholesale Banking, accounts or portfolios are placed on Early Alert when they display signs of weakness. Such

accounts and portfolios are subject to a dedicated process with oversight involving Group Special Asset Management (“GSAM”). Account plans are re-evaluated and remedial actions are agreed and monitored until complete. Remedial actions include, but are not limited to, exposure reduction, security enhancement, and exit of the account or immediate movement of the account into the control of GSAM, the specialist recovery unit.

Loans are designated as impaired and considered non-performing where recognised weakness indicate that full payment of either interest or principal becomes questionable or as soon as payment of interest or principal is 90 days or more overdue. Impaired accounts are managed by GSAM, which is independent of the main businesses of the Bank. Where any amount is considered uncollectable, an individual impairment allowance is recognised, being the difference between the loan carrying amount and the present value of estimated future cash flows. In any decision relating to the raising of allowances, the Bank attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews. Where it is considered that there is no realistic prospect of recovering an element of an account against which an impairment allowance has been raised, then that amount will be written off.

A collective impairment allowance is held to cover the inherent risk of losses, which, although not identified, are known through experience to be present in any loan portfolio. In Wholesale Banking, the collective impairment allowance is set with reference to past experience using loss rates, and judgmental factors such as the economic environment and the trends in key portfolio indicators. Management of credit risk (continued)


43




The Bank’s maximum exposure to credit risk is as follows:

2012K’million

2011K’million

Cash on hand and balances at Bank of Zambia 680,535 335,956

Cash and cash equivalents 921,312 1,226,863

Investment securities 1,104,442 954,110

Derivative financial instruments 8,624 11,980

Loans and advances to customers 2,233,265 1,797,251

Total assets 4,948,178 4,326,160

Loans and advances

Loans and advances to customers Investment securities

2012 2011 2012 2011

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

Carrying amount 2,233,265 1,797,251 1,104,442 954,110

Assets at amortised costs

Individually Impaired:

Wholesale loans

Grade 13 4,033 8,769 - -

Grade 14 23,231 24,128 - -

Consumer loans

More than 150 days 1,584 1,255 - -

Gross amounts 28,848 34,152 - -

Allowance for impairment (9,349) (10,435) - -

Net carrying amount 19,499 23,717 - -

Past due but not impairedWholesale Grade 12 31,139 51,428 - -

Consumer over 150 days 14,817 58,013 - -

Carrying amount 45,956 109,441 - -Past due comprises01 – 30 days 31,139 47,095 - -30 – 60 days 6,720 3,432 - -60 – 90 days 1,708 2,789 - -90 - 180 days 5,900 1,607 - -Over 180 days 489 54,518 - -

Carrying amount 45,956 109,441 - -

Neither past due nor impairedWholesale loans 1 – 11 1,200,977 1,067,782 1,104,442 954,110

Consumer loans 988,711 609,450 - -

Gross amount 2,235,644 1,786,673 1,104,442 954,110

Collective impairment (21,878) (13,139) - -

Carrying amount 2,233,265 1,797,251 - -

Carrying amount – amortised cost 2,233,265 1,797,251 1,104,442 954,110

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The credit quality of the financial assets is a follows:

Cash and cash equivalents 2012 2011 K’million K’million

Cash on hand and balances at Bank of Zambia 680,535 335,956

Cash and cash equivalents 921,312 1,226,863

Investment securities 1,104,442 954,110

2,706,289 2,516,929

The investments are held with Bank of Zambia which is not rated externally.2012 2011


Derivative financial instruments 8,624 11,980

The derivatives are entered into with counterparties that are vetted internally and are not rated externally.

2012 2011K’million K’million

Loans and advances to customers 2,233,265 1,797,251

Loans and advances are given customers that have undergone credit vetting internally and have a good credit rating with the credit reference bureau.

Impaired loans

Impaired loans are loans for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). These loans are graded 13 to 14 in the Bank’s internal credit risk grading system.

Past due but not impaired loans Past due but not impaired loans are loans and securities where contractual interest or principal payments are past due

but the Bank believes that impairment is not appropriate on the basis of the level of security/collateral available and / or the stage of collection of amounts owed to the Bank. These loans are graded 12 in the Bank’s internal credit risk grading system.

Allowances for impairment The Bank establishes an allowance for impairment losses that represents its estimate to incurred losses in its loan portfolio.

The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.

Write off policy The Bank writes off a loan balance (and any related allowances for impairment losses) when the Bank Credit determines

that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances and standardised loans, charge write off decisions generally are based on a product specific past due status.


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Management of credit risk (continued) The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property,

other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except where securities are held as part of reverse repurchase and securities borrowing activity. Collateral is not usually held against investment securities, and no such collateral was held at 31 December 2012.

Details of financial and non-financial assets obtained by the Bank during the year by taking possession of collateral held as security against loans and advances as well as calls made on credit enhancements and held at the year end are shown below:

2012 2011 K’million K’million

Property 2,510 700

The Bank’s policy is to pursue timely realisation of the collateral in an orderly manner. The Bank does not use the non-cash collateral for its own operations.

Concentration of credit risk The Bank monitors concentrations of credit risk by sector and an analysis of concentrations of credit risk from loans

and advances and investment securities at the reporting date is shown below:

Loans and advances to customers Investment securities

2012 2011 2012 2011


Carrying amount 2,233,265 1,797,251 1,104,442 954,110

Agriculture 374,387 347,036 - -

Mining and quarrying 181,213 134,282 - -

Manufacturing 581,488 403,301 - -

Energy 6,633 1,022 - -

Commerce 48,103 130,484 - -

Financial services 35,761 39,715 - -

Government 5 5 1,104,442 954,110

Other 7,131 83,045 - -

Consumer:

Mortgages 57,482 66,295 - -

Unsecured lending 941,062 592,066 - -

Total 2,233,265 1,797,251 1,104,442 954,110

Settlement risk The Bank’s activities may give rise at the time of settlement of transactions and trades to settlement risk, which is the risk

of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.

To mitigate against this risk, settlement limits form part of the credit approval and monitoring processes. In situations where the Bank is not confident with the accounts, then deals may be done on Delivery Versus Payment basis (DVP).

Liquidity risk Liquidity risk arises in the general funding of the Bank’s activities and in the management of positions. It includes both the

risk of being unable to fund liabilities at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame. Liquidity management is directed towards ensuring that all the Bank’s operations can meet their funding needs, whether this is to replace existing funding as it matures, or is withdrawn, or to satisfy the demands of customers for additional borrowings.

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Management of liquidity risk The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity

to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.

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

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

The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by the Standard Chartered Bank Group Assets and Liabilities Committee (GALCO). A summary report, including any exceptions and remedial action taken, is submitted regularly to Assets and Liabilities Committee (ALCO).

Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from

customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month. A similar, but not identical calculation is used to measure the Bank’s compliance with the liquidity limit established by the Bank of Zambia. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:

2012 2011


At 31 December 60.00% 42.60%

Average for the period 49.52% 59.64%

Maximum for the period 64.91% 78.99%

Minimum for the period 39.52% 39.80%

The minimum required by Bank of Zambia for core liquid assets is 6% (2011: 6%)

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


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The following table provides an analysis of the financial liabilities of the Bank into relevant contractual maturity groupings:

CarryingGross

NominalLess than

One month to

three

Three months to

One to five

More than five

amount outflow one month months one year years years

2012

Non derivative liabilities

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

Amounts payable to group banks

525,033 (540,330) (227,548) (248,623) (27,212) (36,947) -

Amounts payable to non-group banks

40,139 (40,374) (40,374) - - - -

Deposits from customers

3,681,026 (3,742,011) (3,338,271) (243,720) (153,141) (6,879) -Accruals and other payables

240,818 (240,818) (240,818) - - - -

Subordinated liabilities 20,710 (24,832) - - - - (24,832)

Total non derivative liabilities

4,507,726 (4,588,365) (3,847,011) (492,343) (180,353) (43,826) (24,832)

Derivative liabilities

Derivative financial instruments

5,625 (7,606) (7,606) - - - -

Total derivative liabilities

5,625 (7,606) (7,606) - -

Unrecognised financial liabilitiesLoan Commitments 310,361 310,361 - - 310,361 - -Guarantees 328,435 328,435 - 77,530 162,318 88,587 -Letters of credit 100,792 100,792 - 13,811 13,323 73,658 -Unrecognised financial liabilities

739,588 739,588 - 91,341 486,002 162,245 -

2011

Carryingamount

K’million

GrossNominaloutflow

K’million

Less thanone month

K’million

One month to

threemonths

Three months toone year K’million

One to five

years

K’millio

More than five

years

K’million

Non derivative liabilities


357,943 (360,779) (360,779) - - - -


10,405 (11,405) (11,405) - - - -

Deposits from customers 3,573,822 (3,630,802) (3,265,687) (112,475) (116,944) (135,696) -Accruals and other payables

177,724 (177,724) (177,724) - - - -

Subordinated liabilities 20,480 (25,138) - - - - (25,138)Total non derivative liabilities

4,140,374 (4,205,848) (3,815,595) (112,475) (116,944) (135,696) (25,138)

Derivative liabilities

Derivative financial instruments

1,717 (2,917) (2,917) - - - -

Total derivative liabilities 1,717 (2,917) (2,917) - - - -

Unrecognised financial liabilities

Loan Commitments 129,507 129,507 - - 129,507 - -

Guarantees 420,447 420,447 - - 311,773 108,674 -

Letters of credit 48,056 48,056 - - 48,056 - -

Unrecognised financial liabilities 598,010 598,010 - - 489,336 108,674 -

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Market risk Market risk is the risk that changes in the market prices, such as interest rates and foreign exchange rates will affect

the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk. The Bank faces two main risks in this category; interest and foreign exchange rate risk.

Interest rate risk All businesses in the Standard Chartered Group operate within market risk management policies that are set by the

Group Risk Committee. Limits have been set to control the Bank’s exposure to movements in prices and volatilities arising from trading, lending, deposit taking and investment decisions.

Exposure to interest rate risk - non-trading portfolios The Bank’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets

(including investments) and interest-bearing liabilities mature or reprice at different times and/or in differing amounts. In the case of floating rate assets and liabilities the Bank is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices. Asset-liability risk management activities are conducted in the context of the Bank’s sensitivity to interest rate changes.

The table below indicates the effective interest rates at the reporting date and the periods in which financial assets and liabilities reprice respectively.

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

2012 2011Financial assets ZMK (%) USD (%) ZMK (%) USD (%)

Government bonds 12.09 - 13.71 -

Treasury bills 10.66 - 6.98 -

Loans and advances 16.17 5.7% 17.36 6.72

Staff mortgages and other loans 9.00 - 9.00 -

Financial liabilities

Placements with other banks 11.73 0.66 8.96 0.47

Customer deposits 2.24 0.00 1.59 0.04

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and financial liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 5% and 10% parallel rise in all yield curves and a 2.5% and 7.5% parallel fall in all yield curves. An analysis of the Bank’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial statement position, is as shown on page 49:

Interest rate movements affect reported equity in the following ways: • Retained earnings arising from increases or decreases in net interest income and the fair value changes

reported in profit or loss.

• Fair value reserves arising from increases or decreases in fair values of available-for-sale financial instruments reported directly in other comprehensive income.

Overall non-trading interest rate risk positions are managed by Global markets, which use investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Bank’s non-trading activities.


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Interest rate risk (continued)

Exposure to interest rate risk - non-trading portfolios (continued)

TotalZero rate

instrumentFloating rate instruments

Less than three

months

Three months to

one year

Between one and

five years

2012 K’million K’million K’million K’million K’million K’million

Assets

Cash on hand and balances at Bank of Zambia

680,535 680,535 - - - -

Cash and cash equivalents

921,312 162,146 - 759,907 - -

Investment securities 1,104,442 - - 162,807 609,680 331,955

Derivative financial instruments 8,624 - - 8,624 - -Loans and advances to customers 2,233,265 -

2,233,265 - - -

Total assets 4,948,178 842,681 2,233,265 931,338 609,680 331,955

Liabilities


525,033 230,707 -

294,326 - -


40,139 5,101 - 35,038 - -

Deposits from customers 3,681,026 2,808,061 469,225 243,720 153,141 6,879

Derivative financial instruments 5,625 - - 5,625 - -

Subordinated liabilities 20,710 - 20,710 - - -

Total liabilities 4,272,533 3,043,869 489,935 578,709 153,141 6,879

Gap 675,645 (2,201,188) 1,743,330 352,629 456,539 325,076

Impact of increase in interest rate

5% 33,782 - 87,167 - - -

10% 67,565 - 174,333 - - -

Impact of decrease in interest rate 2.5% (16,891) - (43,583) - - -

7.5% (50,673) - (130,750) - - -

On impact positive means increase in the profit and negative means reduction in the profit. Fair value changes arising from increase or decrease in fair value of available for sale instruments are recorded in equity.

Fixed rate instruments




Interest rate risk (continued)

Exposure to interest rate risk - non-trading portfolios (continued)

Fixed rate instruments

TotalZero rate

instrumentFloating rate instruments

Less than three

months

Three months to

one year

Between one and

five years

2011 K’million K’million K’million K’million K’million K’million

Assets


335,956 335,956 - - - -

Cash and cash equivalents 1,226,863 5,695 - 738,788 67,380 415,000

Investment securities 954,110 - - 138,975 437,968 377,167

Derivative financial instruments 11,980 11,980 - - - -

Loans and advances to customers

1,797,251 - 1,730,956 - - 66,295

Total assets 4,326,160 353,631 1,730,956 877,763 505,348 858,462

Liabilities


357,943 - - 71,503 276,200 10,240


10,405 10,405 - - - -

Deposits from customers 3,573,822 2,789,031 419,676 112,475 116,944 135,696

Derivative financial instruments 1,717 1,717 - - - -

Subordinated liabilities 20,480 - 20,480 - -

Total liabilities 3,964,367 2,801,153 440,156 183,978 393,144 145,936

Gap 361,793 (2,447,522) 1,290,800 693,785 112,204 712,526

Impact of increase in interest rate 5% 64,540 - 64,540 - - -

10% 129,080 - 129,080 - - -

Impact of decrease in interest rate 2.5% (32,270) - (32,270) - - -

7.5% (96,810) - (96,810) - - -

On impact positive means increase in the profit and negative means reduction in the profit. Fair value changes arising from increase or decrease in fair value of available for sale instruments are recorded in equity.


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Currency risk

The Bank is exposed to currency risk through transactions in foreign currencies. The Bank’s transactional exposures give rise to foreign currency gains and losses that are recognised in the profit or loss. These exposures comprise the monetary assets and monetary liabilities of the Bank, as follows (in Zambian Kwacha terms):

2012 ZMK USD GBP ZAR Euro Others Total

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

Monetary assets 3,266,127 1,664,363 59,433 28,175 125,108 386 5,143,592

Monetary liabilities (3,196,614) (1,581,665) (59,848) (26,975) (57,880) (386) (4,923,368)

Net position 69,513 82,698 (415) 1,200 67,228 - 220,224

2011 ZMK USD GBP ZAR Euro Others Total K’million K’million K’million K’million K’million K’million K’million

Monetary assets 2,655,802 1,681,000 71,786 9,404 148,510 2,868 4,569,370

Monetary liabilities (2,535,452) (1,662,470) (71,276) (29,939) (148,032) (119) (4,447,288)

Net position 120,350 18,530 510 (20,535) 478 2,749 122,082

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

Capital management

Regulatory capital The Bank’s main objectives when managing capital are:

• to comply with the capital requirements set by the Banking and Financial Services Act; • to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for

shareholders and benefits for other stakeholders; and • to maintain a strong capital base to support the development of its business.

Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques based on the guidelines developed and maintained by the Bank of Zambia for supervisory purposes. The required information is filed with the Bank of Zambia on a monthly basis.

In implementing current capital requirements, Bank of Zambia requires banks:

• Maintain primary or Tier 1 capital of not less than 5% of total risk weighted assets plus risk-weighted items not recognised in the statement of financial position; and

• To maintain a minimum 10% ratio of total capital to total risk-weighted assets plus risk-weighted items not recognised in the statement of financial position or hold a minimum of K520,000 million whichever is higher;

There was no change in the capital regulation during the year under review.

The Bank’s regulatory capital is analysed into two tiers: • Primary (Tier 1) capital, which includes paid-up common shares, retained earnings, statutory reserves less

adjustment of assets of little or no realisable value. • Secondary (Tier 2) capital, which includes qualifying subordinated term debt and revaluation reserves limited to

a maximum of 40%. The maximum amount of total secondary capital is limited to 100% of primary capital.

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5 Risk Management (continued) Computation of capital position

2012 2011I Primary (Tier 1) Capital K’million K’million

(a) Paid-up common shares 416,745 12,285

(b) Eligible preferred shares - -

(c) Capital contributed 17,312 17,312

(d) Retained earnings 137,275 317,588

(e) General reserves - -

(f) Statutory reserves 12,285 12,285

(g) Minority interests (common shareholders’ equity) - -

(h) Sub-total A (items a to g) 583,617 359,470

Less:

(i) Goodwill and other intangible assets (35,312) (40,640)

(j) Investments in unconsolidated subsidiaries and associates - (10,018)

(k) Lending of a capital nature to subsidiaries and associates - -

(l) Holding of other banks’ or financial institutions’ capital instruments - -

(m) Assets pledged to secure liabilities - -

(n) Sub-total B (items i to m) (35,312) (50,658)

Other adjustments - -

Provisions - -

Assets of little or no realised value - -

Statutory stocks sundry debtors, cash advances, profit project accounts - -

Other adjustments (prepayment) (2,480) (2,136)

(o) Sub-total C (other adjustments) (2,480) (2,136)

(p) Total primary capital [ h – ( n to o)] 545,825 306,676

II Secondary (tier 2) capital

(a) Eligible preferred shares - -

(b) Eligible subordinated term debt 20,710 20,480

(c) Eligible loan stock / capital - -

(d) Revaluation reserves. (Maximum is 40% of revaluation reserves) - -

(e Other - -

(f) Total secondary capital 20,710 20,480

III Eligible secondary capital 20,710 20,480

(The maximum amount of secondary capital is limited to 100% of primary capital)

IV Eligible total capital (I(p) + III) (Regulatory capital) 566,535 327,156

V Minimum total capital requirement (10% of total on and off balance sheet risk weighted assets)

274,511 201,263

VI Excess (IV minus V) 292,024 125,893


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6 Use of estimates and judgments

The preparation of financial statements in accordance with IFRS requires that the Bank make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Key sources of estimation uncertainty and or judgments

Impairment losses on loans and advances The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an

impairment loss should be recognised in profit or loss, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan portfolio. This evidence may include observable data that there has been an adverse change in the payment status of borrowers in a group, or local economic conditions that correlates with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Fair value of financial instruments The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in

making the measurements:

• Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

• Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Bank determines fair values using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premiums used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected prices volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.

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6 Use of estimates and judgments (continued)

Valuation of financial instruments The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in

the fair value hierarchy into which the fair value measurement is categories:

31 December 2012 Note

Level 1K’million

Level 2K’million

Level 3K’million

TotalK’million

Assets

Pledged assets 22 - 50,000 - 50,000

Derivative financial assets 24 - 8,624 - 8,624

Investment securities 23 - 1,104,442 - 1,104,442

- 1,163,066 - 1,163,066

Liabilities

Derivative financial instruments 24 - 5,625 - 5,625

Level 1 Level 2 Level 3 Total

31 December 2011 Note K’million K’million K’million K’millionAssets

Pledged assets 22 - 106,000 - 106,000

Derivative financial assets 24 - 11,980 - 11,980

Investment securities 23 - 954,110 - 954,110

- 1,072,090 - 1,072,090

Liabilities

Derivative financial instruments 24 - 1,717 - 1,717

Level 2: the fair value is determined using valuation models with directly or indirectly market observable inputs. Major groups of assets and liabilities classified as level 2: corporate and other government bonds and debt

instruments, over the counter derivates and Asset Backed Securities which are included in the Liquid Assets List of the Bank of Zambia.

Investment securities: The investment securities designated as Available for sale are carried at Fair Value. The Fair Value is determined based on a Mark-to-Market (MTM) approach, which involves revaluation of cash flows based on the market yield curve maintained by Group Market Risk.

Derivative financial instruments: Derivative financial instruments are carried at fair value which is determined based on a discounted cash flow approach. The cash flows are discounted at a discount factor that is based on observable market data maintained by Market Risk

Impairment of non financial assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount

may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and


55

Notes to the financial statements (continued) for the year ended 31 December 2012

6 Use of estimates and judgments (continued)

value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. An assessment as to whether an asset is impaired may be complex and in making such assessments the Bank considers the following factors:

• the obsolescence or physical damage of an asset;

• significant change in the manner or extent an assets will be used that will have an adverse effect on the entity;

• plan to dispose of an asset before the previously expected date of disposal; • indications that performance of an assets will be worse than expected; • perform being below than budget; and • net cash outflows or operating losses.

Taxes Determining income tax provisions includes judgement on the tax treatments of certain transactions. Deferred tax is

recognised on temporary differences where it is probable that there will be taxable profits against which these can be offset.

Provisions for legal claims and charges The Bank receives legal claims against the normal course of business. Management has made judgements as to the

likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depend on the due legal process.

Share based payments Equity settled share awards are recognised as an expense based on their fair value at the grant date. The fair value

of equity settled share options is estimated through the use of option valuation models - which require inputs such as risk-free interest rate, expected dividends, expected volatility and the expected option life and is expensed over the vesting period. Some of the inputs used are based on estimates derived from available data, such as employee exercise behaviour.

7 Financial assets and financial liabilities

Accounting classification and fair values The Bank’s accounting policies provide scope for assets and liabilities to be designated at inception into different

accounting categories in certain circumstances:

In classifying financial assets or liabilities as trading, the Bank has determined that it meets the description of trading assets and liabilities set out in accounting policy 3.11(a).

In designating financial assets or liabilities at fair value through profit or loss, the Bank has determined that it has met one of the criteria for this designation set out in accounting policy 3.11 (a).

In classifying financial assets as held-to-maturity, the Bank has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy.

Details of the Bank’s classification of financial assets and liabilities are given on page 56.

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7 Financial assets and financial liabilities (continued)

The table below sets out the carrying amounts and fair values of the Bank’s financial assets and financial liabilities:

Trading

Loans and receivables

Available for-sale

Other amortised

cost

Total carrying amount

Fair value

2012 Note K’million K’million K’million K’million K’million K’million

Financial Assets

Cash and cash equivalents21 - 921,312 - - 921,312 921,312

Pledged assets 22 - - 50,000 - 50,000 50,000

Investment securities 23 30,095 - 1,074,347 - 1,104,442 1,104,442

Derivative financial instruments 24 8,624 - - - 8,624 8,624

Loans and advances to customers 25 - 2,233,265 - - 2,233,265 2,233,265

Total 38,719 3,154,577 1,124,347 4,317,643 4,317,643

Financial Liabilities

Amounts payable to group banks 21 - 525,033 - - 525,033 525,033

Amounts payable to non group banks

21 - 40,139 - - 40,139 40,139

Deposits from customers 30 - - - 3,681,026 3,681,026 3,681,026


Subordinated liabilities 31 - - - 20,710 20,710 20,710

Total 5,625 565,172 3,701,736 4,272,533 4,272,533

For some instruments their carrying amounts approximate their fair values due to the short term nature of the investments

Trading

Loans and receivables

Available for-sale

Other amortised

cost

Total carrying amount

Fair value

2011 Note K’million K’million K’million K’million K’million K’million

Financial Assets

Cash and cash equivalents 21 - 1,226,863 - - 1,226,863 1,226,863

Pledged assets 22 - - 106,000 - 106,000 106,000

Investment securities 23 289,069 - 665,041 - 954,110 954,110


Loans and advances to customers 25 - 1,797,251 - - 1,797,251 1,797,251

Total 301,049 3,024,114 771,041 - 4,096,204 4,096,204

Financial Liabilities

Amounts payable to group banks21 - 357,943

- - 357,943

357,943

Amounts payable to non group banks 21 - 10,405

- - 10,405

10,405

Deposits from customers30 - -

- 3,573,822 3,573,822

3,573,822

Derivative financial instruments24 1,717 - - - 1,717

1,717

Subordinated liabilities 31 - - - 20,480 20,480 20,480

Total 1,717 368,348 - 3,594,302 3,964,367 3,964,367

For some instruments their carrying amounts approximate their fair values due to the short term nature of the investments


57


8 Operating segments

The Bank manages and reports its business through three main strategic business units. These operating units offer different products and services and are managed as separate segments of the business for purposes of internal reporting. The results of the units segments are reviewed on a monthly basis by the Chief Executive Officer. The following summary describes the operations of each of the Bank’s reportable segments:

Origination client coverage Includes the Bank’s trading, corporate finance activities, loans, trade finance, cash management, deposits and other transactions with corporate customers.

Global markets The Treasury unit undertakes the Bank’s management and centralised risk management activities through borrowings, issue of debt securities, use of derivatives for risk

management purposes and investing in liquid assets such as short-term placements and corporate and government securities.

Consumer banking Includes loans, deposits and other transactions with retail customers.

Wholesale Banking comprises of Origination client coverage and Global markets.

Operating segments pay and receive interest from Treasury on an arm’s length basis to reflect the allocation of capital and funding costs.

Segment capital expenditure is the total cost incurred during the period to acquire property and equipment.

The Bank operates in one geographical segment.

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8 Operating segments (continued)

Origination Client

CoverageGlobal

marketConsumer

Banking Unallocated Total

2012 Note K’millions K’millions K’millions K’millions K’millions

External revenue

Net interest income 85,503 90,375 145,818 - 321,696

Net fee and commission income 11 53,838 (6,687) 108,481 - 155,632

Net trading income 12 39,625 37,302 37,128 - 114,055

Net income from financial assets at fair value through profit or loss

13 878 21,574 - - 22,452

Other operating income 14 - - - 6,582 6,582

Total segment income 179,844 142,564 291,427 6,582 620,417

Other material non-cash items:

Recovery/(impairment) losses on loans and advances

25 4,747 - (8,025) - (3,278)

Reportable segment operatingprofit before tax

57,576 174,105 101,355 6,582 339,618

Reportable segment assets 1,230,299 2,619,517 1,219,373 94,428 5,163,618

Reportable segment liabilities and equity

(1,686,954) (903,520) (1,920,919) (652,225) (5,163,618)

Origination Client

CoverageGlobal market

Consumer Banking Unallocated Total

2011 Note K’millions K’millions K’millions K’millions K’millions

External revenue

Net interest income 84,180 69,016

104,196

21

257,413

Net fee and commission income 11

45,680 (4,416)

84,316

-

125,580

Net trading income 12 45,827 855 39,530 - 86,212

Net income from financial assets at fair value through profit or loss 13 436

8,882

-

-

9,318

Other operating income 14 - - - 794 794

Total segment income 176,123 74,337 228,042 815 479,317

Other material non-cash items:

Impairment losses on loans and advances 25 (3,796) - (3,523) - (7,319)

Reportable segment operatingprofit/ (loss) before tax

114,088 23,239

90,554

(1,794)

226,087

Reportable segment assets 1,544,501 2,173,210 782,113 85,850 4,585,674

Reportable segment liabilities and equity (2,002,208) (233,712) (1,813,486) (536,268) (4,585,674)


59


8 Operating segments (continued)

Reconciliation of reportable segment revenues, profit or loss and assets and liabilities

2012K’million

2011K’million

Revenues

Total revenues for reportable segments 613,835 478,502

Unallocated amounts 6,582 815

Consolidated revenue 620,417 479,317

Profit or loss

Total profit or loss for reportable segments 332,756 227,881

Unallocated amounts 6,862 (1,794)

Profit before income tax 339,618 226,087

Assets

Total assets for reportable segments 5,069,190 4,499,824

Unallocated amounts 94,428 85,850

Total assets 5,163,618 4,585,674

Liabilities

Total liabilities for reportable segments 4,511,393 4,049,406

Unallocated amounts 652,225 536,268

Total liabilities 5,163,618 4,585,674

9 Interest income

2012 2011


Cash and short term funds 79,068 43,069

Debt securities 122,799 117,351

Loans and advances 203,750 154,120

Total interest income 405,617 314,540

Interest income includes interest on impaired loans and advances of ZMK 102 million (2011: ZMK 616 million).

10 Interest expense

2012 2011


Deposits from customers 52,692 36,599

Placements 30,652 19,995

Subordinated loan capital 577 533

Total interest expense 83,921 57,127

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11 Net fee and commission income


Consumer banking customer fees 117,573 89,142

Wholesale banking credit related fees 36,891 38,683

Trade finance fees 19,351 11,788

Total fee and commission income 173,815 139,613

Consumer banking fees and commission expenses (10,684) (6,855)

Wholesale banking fees and commission expenses (7,499) (7,178)

Total fee and commission expenses (18,183) (14,033)

Net fee and commission income 155,632 125,580

12 Net trading income

2012 2011


Foreign currency transaction gains less losses 96,849 101,392

Losses arising from dealing securities (6,404) (19,729)

Dealing profits 1,773 26

Profit on sale of corporate bond 4 -

Gain on disposal of investment securities 21,833 4,523

Net trading income 114,055 86,212

13 Net income from financial instruments at fair value through profit or loss

2012 2011


Treasury bills 20,104 4,878

Government bonds 2,348 4,440

Net trading income 22,452 9,318

14 Other income 2012 2011

K’million K’millionGain on disposal of property, plant and equipment 6,235 201Rent received 347 593

Net trading income 6,582 794


61


15 Operating expenses2012 2011


Personnel expenses:

Wages and salaries 125,500 107,930

Compulsory social security obligations (NAPSA) 3,431 3,289

Contribution to defined contribution pension plan 6,383 5,992

Other staff costs 31,248 23,748

Equity settled share-based payment transactions 1,617 1,038

Redundancy and severance 976 1,392

Total 169,155 143,389

Depreciation, amortisation, premises and equipment expenses:

Depreciation of property and equipment 4,333 5,194

Amortisation of intangible assets 5,328 5,809

Other premises and equipment expenses 28,541 22,706

Total 38,202 33,709

Other expenses:

Release of lease prepayment for leasehold land 13 17

Communication expenses 14,380 14,531

(Recoveries)/ recharges from group companies (7,738) 6,444

Other operating expenses 63,509 47,821

Total 70,164 68,813

Other operating expenses include ZMK965m (2011: ZMK1,053m) in respect of auditor’s remuneration for the Bank. The auditors of the Bank, KPMG, did not receive any payments in respect of non-audit services.

In addition to the above services, the Bank’s auditors acted as auditor to the Bank’s staff pension plan. The appointment of auditors to the Bank’s pension scheme and the fees paid in respect of these audits are agreed by the Trustees of the Scheme, who act independently from the management of the Bank. The aggregate fees paid to the Bank’s auditors for audit services to the pension scheme during the year were ZMK66m (2011: ZMK65m).

16 Directors’ emoluments

Details of Directors’ pay and benefits, and transactions with directors and other senior officers are disclosed under related parties in note 36.

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17 Income tax expense2012

K’million2011

K’millionCurrent tax expenseCurrent year

124,219 98,538

Over provision in prior year - (940)

124,219 97,598

Deferred tax

Origination and reversal of temporary difference (5,594) (3,964)

Total income tax expense 118,625 93,634

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

Reconciliation of effective tax rate:

2012 2011 K’million K’million

Profit before tax % 339,618 % 226,087

Tax calculated at the tax rate of 35% (2011: 40%): 35.00 118,866 40.00 90,435

Non - deductible expenses (0.07) (241) 3.44 7,769

Tax exempt income - - (1.60) (3,618)

Effect of the first ZMK250 million at 35% - - (0.01) (12)

Under provision of income tax in prior year - - (0.42) (940)

Total income tax expense in profit or loss 34.93 118,625 41.41 93,634

Income tax recognised in other comprehensive income

2012 2011


Tax Net Tax Net Before tax (expense) of tax Before tax (expense) of tax

Available-for-sale investment securities 340 (119) 221 5,996 (2,880) 3,116

Current income tax movement in the statement of financial position

2012 2011


Current tax liabilities at the beginning of the year 43,050 34,779

Current income tax charge 124,219 98,538

Payments made during the year (132,006) (89,327)

Over provision of prior period - (940)

Current tax liabilities 35,263 43,050


2012 2011

63


17 Income tax expense (continued)

Deferred taxation Deferred taxation is calculated on all temporary differences using an effective tax rate of 35% (2011: 35%). Deferred

tax assets and liabilities are attributable to the following:

2012 2011

Assets Liabilities Net Assets Liabilities Net


Property, Plant and equipment - (1,694) (1,694) - (2,044) (2,044)

Available-for-sale securities - (3,488) (3,488) - (3,369) (3,369)

Allowance for loan losses 7,656 - 7,656 4,598 - 4,598

Intangible Asset - (7,798) (7,798) - (9,984) (9,984)

7,656 (12,980) (5,324) 4,598 (15,397) (10,799)

2012 Opening Recognised Recognised in Closing

Balance in profit or loss equity Balance


Property, Plant and equipment (2,044) 350 - (1,694)

Available-for-sale securities (3,369) - (119) (3,488)

Allowance for loan losses 4,598 3,058 - 7,656

Intangible Asset (9,984) 2,186 - (7,798)

(10,799) 5,594 (119) (5,324)

2011

Opening Recognised Recognised in Closing

Balance in profit or loss equity BalanceK’million K’million K’million K’million

Property, Plant and equipment (2,631) 587 - (2,044)

Available-for-sale securities (6,249) - 2,880 (3,369)

Allowance for loan losses 4,573 25 - 4,598

Intangible Asset (13,336) 3,352 - (9,984)

(17,643) 3,964 2,880 (10,799)

In the opinion of the Directors, the deferred tax assets are recoverable.

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18 Earnings per share

2012Weighted

averageNumber of

shares(millions)

1,666.98

2011Weighted

averageNumber of

shares restated(millions)

1,666.98

Per

shareamountKwacha

132.57

Pershare

amountKwacha

79.46

Profit

K’million

132,453Basic and diluted earnings per share 220,993

The calculation of the basic earnings per share is based on the net profit attributable to ordinary shareholders (profit after taxation) divided by the weighted average number of ordinary shares in issue during the year. There were no dilutive potential ordinary shares at 31 December 2012 (2011: nil) and basic earnings per share equals diluted earnings per share.

During the year, the Bank issued 808,920,000,000 new bonus shares with a par value of ZMK0.50. This was followed by a consolidation of both the authorized and issued share capital of the company on the basis of 1 share of par value ZMK250.00 for every 500 shares of par value ZMK0.50. As a result the earnings per share for 2011 has been restated in accordance with IAS 33.

19 Dividends payable 2012 2011


Balance at 1 January 1,329 1,355

Approved dividends for 2012 at nil per share (2011: approved final dividends for 2011 at K20.00 per share)

- 81,900

1,329 83,255

Less dividends paid during the year - (81,926)

Balance at 31 December 1,329 1,329

Dividends are recognised in the period in which they are declared. The directors recommended that no dividend will be paid for year ended 31 December 2012(2011: ZMK 20.00).

20 Cash on hand and balances at Bank of Zambia


Cash on hand 180,262 119,731

Statutory Deposit 222,596 180,536

Total cash on hand and bank balances at Bank of Zambia 402,858 300,267

Clearing account with Bank of Zambia 277,677 35,689

Total 680,535 335,956

The statutory deposit held with Bank of Zambia, as a minimum reserve requirement, is not available for the Bank’s daily business. The reserve represents a requirement by the Central Bank and is a percentage of the Bank’s local currency and foreign currency liabilities to the public. At 31 December 2012 the percentage was 5% (2011: 5%).


ProfitK’million

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21 Cash and cash equivalents

At 1 At 31

2012

January

K’million

Cash flow

K’million

December

K’million

Cash and short term funds at group Banks

Cash and short term funds at non group Banks

Placements with foreign non group banks

902,126

43,195

281,542

(180,413)

(24,799)

(100,339)

721,713

18,396

181,203

Cash and cash equivalents representing assets 1,226,863 (305,551) 921,312

Amounts payable to group Banks

Amounts payable to non group Banks


(357,943)

(10,405)

335,956

(167,090)

(29,734)

344,579

(525,033)

(40,139)

680,535

Total Per Cash flow 1,194,471 (157,796) 1,036,675

2011

At 1

January

K’million

Cash flow

K’million

At 31

December

K’million

Cash and short term funds at group Banks

Cash and short term funds at non group Banks

Placements with foreign non group banks

366,446

56,415

119,850

535,680

(13,220)

161,692

902,126

43,195

281,542

Cash and cash equivalents representing assets 542,711 684,152 1,226,863

Amounts payable to group BanksAmounts payable to non group BanksCash on hand and balances at Bank of Zambia

(497,637)(387)

1,332,221

139,694(10,018)

(996,265)

(357,943)(10,405)335,956

Total Per Cash flow 1,376,908 (182,437) 1,194,471

22 Pledged assets

2012

K’million

2011

K’million

Treasury bills 50,000 106,000

The pledged assets presented in the table above are those financial assets that may be repledged or resold by counterparties. These transactions are conducted under terms that are usual and customary to standard lending, and securities borrowing and lending activities. These treasury bills are held as collateral at the Zambia Electronic Clearing House.

23 Investment securities

2012K’million

2011K’million

Investment securities at fair value through profit or loss 30,095 289,069

Available-for-sale investment securities 1,074,347 665,041

Total 1,104,442 954,110

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23 Investment securities (continued)

Investment securities at fair value through profit or loss

2012 2011 Treasury Government Treasury Government

bills bonds Total bills bonds TotalK’million K’million K’million K’million K’million K’million

Of which mature

Within one year - - - 100,791 85,566 186,357

Within one to five years - 30,095 30,095 - 102,712 102,712

Total 30,095 30,095 100,791 188,278 289,069

These investment securities are held for trading.

Available - for- sale

2012 2011

Treasury Government Treasury Government

bills bonds Total bills bonds TotalK’million K’million K’million K’million K’million K’million

Of which mature

Within one year690,542 81,790 772,332 366,360 24,226 390,586

Within one to five years - 302,015 302,015 - 274,455 274,455

More than five years690,542 383,805 1,074,347 - - -

Total 690,542 413,900 1,104,442 366,360 298,681 665,041

24 Derivative financial instruments

The table below analyses the positive and negative fair values of the Bank’s derivative financial instruments. All fair value movements on derivative financial instruments are recognised in the profit or loss.

2012 2011

2012 Assets Liabilities Assets Liabilities


Interest rate swap7,884 3,159 - -

Cross currency swap- 928 11,503 1,717

Commodity derivative740 - - -

Forward foreign exchange contracts- 1,538 477 -

Total 8,624 5,625 11,980 1,717


67


25 Loans and advances to customers

2012 2011

Gross amount

Impairment allowance

Carrying amount

Gross amount

Impairment allowance

Carrying amount


Consumer loans:

Mortgage lending 57,482 (1,246) 56,236 68,417 (2,122)

66,295

Personal loans889,417 (1,406) 888,011 566,838

(7,447)559,391

Overdrafts 54,562 (265) 54,297 33,463 (788) 32,675

1,001,461 (2,917) 998,544 668,718 (10,357) 658,361

Wholesale loans:

Term loans 971,888 (19,442) 952,446 850,890 (11,608) 839,282

Overdrafts 291,144 (8,869) 282,275 301,217 (1,609) 299,608

1,263,032 (28,311) 1,234,721 1,152,107 (13,217) 1,138,890

Total 2,264,493 (31,228) 2,233,265 1,820,825 (23,574) 1,797,251

Maturity analysis of gross loans and advances

The maturity analysis is based on the remaining periods to contracted maturity.

2012K’million

2011K’million

Redeemable on demand 345,706 1,249,032

Maturity within one year 751,703 58,131

Maturity after 12 months 1,167,084 513,662

Total 2,264,493 1,820,825

Included in loans and advances are loans to related parties amounting to ZMK20,300m (2011: ZMK19, 117 million) (see note 36). Loans and advances to customers are measured at amortised cost.

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25 Loans and advances to customers (continued)

Allowances for impairment

Specific allowances for impairment 2012

K’million 2011

K’million


Charge for the year 10,286 21,211

Impairment (reversal)/recognised on associate (8,146) 10,018

Recoveries (7,601) (25,616)

Net (credit)/charge against profit (5,461) 5,613

Effect of foreign currency movements (533) (2,211)

Discount unwind (818) (616)

Impairment reversal/(recognised) on associate 8,146 (10,018)

Provision no longer required (2,420) (18,102)


Collective allowances for impairment2012

K’million 2011

K’million


Increase in collective impairment 8,739 1,706


Total specific and collective impairment at 31 December 31,227 23,574

Impairment losses on loans and advances in the statement of comprehensive income

2012K’million

2011K’million

(Recovery of) /specific allowances for impairment (5,461) 5,613

Collective allowances for impairment 8,739 1,706

Total allowances for year 3,278 7,319


69


26 Property and equipment

Property and improvements

Equipment and motor vehicles

Capital work-in-progress Total


Cost

At 1 January 2011 15,572 31,895 4,394 51,861

Additions - 2,406 5,998 8,404

Expensed work- in- progress - - (3,435) (3,435)

Capitalised work- in- progress 3,132 3,825 (6,957) -

Disposals - (516) - (516)

At 31 December 2011 18,704 37,610 - 56,314

At 1 January 2012 18,704 37,610 - 56,314

Additions - 1,797 5,475 7,272

Disposals (448) - - (448)

Write offs - (19,265) - (19,265)

At 31 December 2012 18,256 20,142 5,475 43,873

Accumulated depreciation and impairment losses

At 1 January 2011 2,645 23,119 - 25,764

Depreciation charge for the year 386 4,808 - 5,194

Disposals - (516) - (516)

At 31 December 2011 3,031 27,411 - 30,442

At 1 January 2012 3,031 27,411 - 30,442

Depreciation charge for the year 420 3,911 - 4,331

Disposals (84) - (84)

Write offs - (19,265) - (19,265)

At 31 December 2012 3,367 12,057 - 15,424

Carrying amounts

At 1 January 2011 12,927 8,776 4,394 26,097

At 31 December 2011 15,673 10,199 - 25,872

At 31 December 2012 14,887 8,087 5,475 28,449

A register of properties is maintained by the Bank at its registered office and is available for inspection by the members.

Fully depreciated equipment and motor vehicles are included in the above at cost amounting to ZMK 3,732 million (2011: ZMK 1,546m). During the year, fully depreciated equipment amounting to K19,265m was written off from the asset register.

The work in progress expensed in prior year relates to items that are of a non capital nature but were recorded in work in progress.

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27 Intangible assetsCustomer

Relationship Goodwill Total

Cost K’million K’million K’million

At 1 January 2011 33,691 13,476 47,167

At 31 December 2011 33,691 13,476 47,167

At 1 January 2012 33,691 13,476 47,167

At 31 December 2012 33,691 13,476 47,167

Accumulated amortisation and impairment losses

At 1 January 2011 718 - 718

Charge for the year 5,809 - 5,809

At 31 December 2011 6,527 - 6,527

At 1 January 2012 6,527 - 6,527

Charge for the year 5,328 - 5,328

At 31 December 2012 11,855 - 11,855

Carrying amounts

At 1 January 2011 32,973 13,476 46,449

At 31 December 2011 27,164 13,476 40,640

At 31 December 2012 21,836 13,476 35,312

Impairment testing for cash-generating units (CGU) containing goodwill For the purposes of impairment testing, the entire goodwill is allocated to the Wholesale Banking unit. No impairment

losses on goodwill were recognised during the year (2011: nil).

The recoverable amounts for the Wholesale Banking CGU has been calculated based on their value in use, determined by discounting the future cash flows to be generated from the continuing use of the CGU. Value in use was determined in a similar manner as in 2011.

Key assumptions used in the calculation of the value in use were the following: Cash flows were projected based on forecasts and budgets for short/medium term growth (one to five years) using budgets compiled in November of the current year through to the end of November for the following year. The cash flows for a further 20 years are extrapolated using a constant growth rate. The long term growth rate management used is based on a forecast for a ten year average GDP for country specific units; or global GDP for business specific units, and is applied after the latest approved budget (one to five years) up to twenty years. The forecast period is based on the Bank’s long term perspective with respect to the operations of this CGU.

Management uses post tax cash flows hence applies a post-tax discount rate to the cash flows to nullify the double effect of tax from the impairment calculation in determining the recoverable amount of CGU. The resultant net present value derived based on this methodology will be similar to that, had pre-tax discount rates been applied to pre-tax cash flows. Since the CGU is a business unit then SCB Plc’s Weighted Average Cost of Capital is used and is adjusted for systemic risk of the specific GCU.

The assumptions described above may change as the economic and market condition change. The Bank estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of the CGU to decline below the carrying amount.

The intangible customer relationships will be amortised over the expected customer life initially estimated at 8 -10 years.


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28 Operating lease prepayments

2012 2011


Opening balance 660 677

Disposals (102) -

Amortisation (13) (17)

Carrying amount 545 660

Land is leased from the Government of the Republic of Zambia (GRZ) for a fixed 99 year term (or the unexpired portion thereof). The land has been classified as an operating lease. IAS 17 Leases requires all amounts paid upfront at the signing of the lease to be amortised on a straight line basis over the unexpired portion of the lease term. The lease is armotised as follows:

2012 2011


Less than one year 19 21

Between one and five years 75 85

More than five years 451 554

Carrying amount 545 660

There are no contingent rentals or sub-lease payments expected to be received.

29 Prepayments and other receivables

2012 2011


Letter of credit - Acceptance 75,964 66,338

Prepayments and other receivables 25,170 20,004

Total 101,134 86,342

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30 Deposits from customers2012 2011


Consumer customers:

Savings accounts 463,486 414,747

Term deposits 156,667 219,765

Current deposits 1,286,945 1,124,752

Wholesale customers:

Savings accounts 5,738 4,930

Term deposits 341,997 453,334

Current deposits 1,426,193 1,356,294

Total 3,681,026 3,573,822

2012 2011


Repayable on demand 3,277,286 3,208,707

Repayable with agreed maturity dates or periods of notice, by residual maturity:

Three months or less 243,720 112,475

Between three months and one year 153,141 116,944

After one year 6,879 135,696

Total 3,681,026 3,573,822

Included in deposits from customers were deposits amounting to ZMK154,715 million (2011: ZMK193,965 million) held as collateral for irrevocable commitments under import letters of credit.

31 Subordinated liabilities2012 2011


At 1 January 2012 20,480 19,120

Exchange difference 230 1,360

Total 20,710 20,480

The terms and conditions of the subordinated loan are as follows:

The interest charge is 2.3% above 3 months LIBOR and is payable on a quarterly basis. The loan is to be fully repaid in one installment on 31 December, 2019. The outstanding amounts reflected on the statement of financial position are the Kwacha equivalent of USD4 million.

The Bank has not had any defaults of interest or other breaches with respect to its subordinated loan during the years ended 31 December 2012 and 2011.


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32 Provisions2012 2011



Provisions used during the year (1,396) (287)

Total 14,061 15,457

Legal proceedings There were some legal proceedings outstanding against the Bank at 31 December 2012. Provisions have been made in

the financial statements in respect of such claims, based on professional advice and management’s best estimates of the settlement amount. The timing of any outflows in the form of any settlement is uncertain.

33 Accruals and other payables2012 2011


Bank cheques 7,415 8,577

Loan suspense 21,445 12,637

Deposit clearing 31,374 5

Letter of credit - acceptance 75,762 66,338

Accruals and other payables 104,822 90,167

Total 240,818 177,724

34 Share capitalNumber of

ordinary shares

Ordinary shares

Number of ordinary

shares

Ordinary Shares capital

(million) K’million (million) K’million

Authorised 2012 2012 2011 2011

At 1 January - ordinary shares of K0.50 (2011: K0.50 each) 30,000 15,000 30,000 15,000

Issued during the year 870,000 435,000 - -

Share consolidation (898,200) - - -

At 31 December - ordinary shares of K250 (2011: K0.50 each)

1,800 450,000 30,000 15,000

Issued and fully paid

At 1 January Ordinary shares of K0.50 (2011: K0.50 each) 24,570 12,285 24,570 12,285

Issued during the year 808,920 404,460 - -

Share consolidation (831,823) - - -

At 31 December - ordinary shares of K250 (2011: K0.50 each)

1,667 416,745 24,570 12,285

808,920,000,000 new bonus shares with a par value of ZMK0.50 were issued during the year, this was followed by a consolidation of both the authorized and issued share capital of the company on the basis of 1 share of par value ZMK250.00 for every 500 shares of par value ZMK0.50.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank.

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35 Contingent liabilities and commitments

The Bank provides loan commitments, letters of credit and financial guarantees for performance of customers to third parties. These agreements have fixed limits and are generally renewable annually. Expirations are not concentrated in any period. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the reporting date if counterparties failed completely to perform as contracted. Only fees and accruals for probable losses are recognised in the statement of financial position until the commitments are fulfilled or expire. Many of the contingent liabilities will expire without being advanced in whole or in part. Therefore, the amounts do not represent expected future cash out flows.

2012 1 year 1 – 5 years Total

K’million K’million K’million

Loans commitments 310,361 - 310,361

Guarantees 239,848 88,587 328,435

Letters of credit 27,134 73,658 100,792

Total 577,343 162,245 739,588

2011 1 year 1 – 5 years Total

K’million K’million K’million

Loans commitments 129,507 - 129,507

Guarantees 311,773 108,674 420,447

Letters of credit 48,056 - 48,056

Total 489,336 108,674 598,010

Capital commitments

The bank had capital commitment of ZMK1,872 million as at 31 December 2012 (2011: ZMK1,500million).

36 Related party transactions

The Bank is controlled by Standard Chartered Holdings (Africa) BV (incorporated in The Netherlands) which owns 90% of the shares. The other shares are widely held. The ultimate parent of the Bank is Standard Chartered Plc (incorporated in the United Kingdom). The Bank has a related party relationship with its holding company, fellow subsidiaries, non-executive directors, executive directors and key management personnel. Key management personnel include all Management Committee Members and Unit Heads.

A number of banking and other transactions are entered into with related parties in the normal course of business. These include loans, deposits, foreign currency and other transactions for services, such as consulting services that the parent and other related companies provide from time to time and which are charged at market rate. The volumes of related party transactions, outstanding balances at the year end, and the related interest expense and income for the year are as follows:

Group transactions

Note 2012 2011


Amounts due from Group Companies 21 721,713 902,126

Amounts due to Group Companies 21 (525,033) (378,423)

Total 196,680 523,703


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36 Related party transactions (continued)

Group transactions (continued) Included in group transactions are placements made and received from group related entities. These are entered into

at fixed interest rates and maturity periods. Income and expenditure

2012 2011


Recharges and other expenses (17,564) (27,062)

Commissions and net interest income 30,335 23,720

Total 12,771 (3,342)

Loans

2012 2011

Connected Entities to Key Key

Directors Directors Management staff Total Directors Management

staff Total

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

Loans outstanding at 1 January 1,532 - 17,585 19,117 1,772 9,823 11,595

Loans issued during the year 183 2,250 12,630 15,063 - 11,499 11,499

Relocated/ Resigned / Promoted - - (3,300) (3,300) - (133) (133)

Loan repayments during the year (264) - (10,316) (10,580) (240) (3,604) (3,844)

Loans outstanding at31 December

1,451 2,250 16,599 20,300 1,532 17,585 19,117

Of which: Executive directors 1,451 - -

Non executive directors - 2,250 - - 1,532 1,532

Total outstanding at31 December

1,451 2,250 16,599 20,300 1,532 17,585 19,117

Interest and fee income earned 135 - 2,397 2,532 148 2,145 2,293

Non executive directors - - - - 6 - 6

Loans to non-executive directors and connected entities are made under commercial terms in the ordinary course of the Bank’s business. Loans to executive directors are made on the same terms as those of other employees of the Bank.

No impairment allowances have arisen against loans to directors, entities connected to directors and key management staff during the period.

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36 Related party transactions (continued)

Deposits

2012 2011

Connected Entities to Management Connected

entities to Management

Directors directors staff Total Directors directors staff Total


Deposit at 1 January 505 - 1,306 1,811 768 377 1,013 2,158

Deposit received during the year

11,001 78,348 46,270 135,6197,513 8,420 32,252 48,185

Retired/resigned/promoted

- - (244) (244) (50) (391) (376) (817)

Deposit withdrawn (10,355) (76,860) (44,830) (132,045) (7,726) (8,406) (31,583) (47,715)

Deposits at 31 December

1,151 1,488 2,502 5,141 505 - 1,306 1,811

Interest expense on deposits

7 - 1 817 18

Goods and services

Purchase of goods and services - 163 - 163 47 - - 47

Key management compensation

2012 2011


Salaries and allowances and short term benefits 28,378 26,533

Pension contributions 1,345 1,195

Total 29,723 27,728

Directors’ remuneration

2012 2011


Executive directors

Salaries and allowances 3,263 3,034

Pension contributions 145 136

Non-executive directors’ fees and benefits 438 322

Total 3,846 3,492

Disposal of assets

There were no Bank assets sold to the Directors (2011: nil).


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37 Share-based payment transactions The holding company (Standard Chartered Plc) operates a number of share based payments schemes for its

directors and employees in which employees of Standard Chartered Bank Zambia Plc participate. These schemes are as outlined below. Through a recharge arrangement Standard Chartered Bank Zambia Plc reimburses the group for grant date fair value. The amount charged to the statement of comprehensive income during the year was ZMK 1,617 million (2011: ZMK1, 038 million) and the corresponding amount is in liabilities. The holding company has the obligation to deliver to the respective participants the Standard Chartered Plc’s ordinary shares under the various schemes.

Employee expenses for share based payments transactions 2012 2011


Restricted share scheme 838 519

Performance share plan 279 112

Share save scheme 500 407

Total expense recognised as personnel expenses1,617 1,038

(a) Restricted share schemeThe restricted share scheme (RSS) is used as an incentive plan to motivate and retain high performing staff at any level of the organisation. It is also used as a vehicle for deferring part of bonuses of certain employees. 50% of the award vests two years after the date of grant and the balance after three years. The awards can be exercised within seven years of the grant date. The value of shares awarded in any year to any individual may not exceed two times their basic annual salary. The remaining life of the scheme is eight years. For awards, the fair value is based on the market value less an adjustment to take into account the expected dividends over the vesting period.

The number and weighted average exercise price of share options is as follows:

Number of options

Number of options

2012 2011

Outstanding at the beginning of the reporting period 29,336 33,468

Exercised during the year (10,563) ( 7,806)

Expired during the year (4,455)

(1,309)

Granted during the year 5,437 4,983

Outstanding at 31 December 19,755 29,336

Exercisable at 31 December 7,270 9,358

(b) Performance share plan The performance share plan is designed to be an intrinsic part of total remuneration for executive directors and a

small number of the most senior executives. It is an incentive plan that focuses executives on meeting and exceeding the long - term performance targets of the group. Awards of nil price options to acquire shares are granted to the executives and will normally be exercisable between three and ten years after the date of grant if the individual is still employed in the group. There is provision for earlier exercise in certain limited circumstances. The remaining life of the scheme is three years.

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37 Share-based payment transactions


Number of options

Number of options

2012 2011

Outstanding at the beginning of the reporting period 74,183 68,913

Exercised during the year (4,157) -

Expired during the year (64,508) (248)

Granted during the year 4,122 5,518

Outstanding at 31 December 9,640 74,183

Exercisable at 31 December - 62,856

(c) Share save scheme Under the sharesave scheme, employees have the choice of opening a three-year or five-year savings

contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares in the holding company or take all their money in cash. The price at which they may purchase shares is at a discount of up to 20 percent of the share price at the date of invitation. There are no performance conditions attached to options granted under the employee sharesave scheme. Options are valued using a binomial option-pricing model.


Weighted average exercise

priceNumber

of options

Weighted average exercise

price

Number of options

2012 2012 2011 2011

GBP GBP

Outstanding at the beginning of the reporting period 11.51 49,651 11.69 45,550

Exercised during the year 10.56 (5,411) 9.88 (7,728)

Expired during the year 11.79 (12,760) 11.68 (10,082)

Granted during the year 11.40 16,434 10.65 21,911

Outstanding at 31 December 11.51 47,914 11.51 49,651

Exercisable at 31 December 10.76 4,638 9.80 2,250

38 Ultimate holding company

The Bank, which is a registered commercial bank under the Zambian Banking and Financial Services Act 1994, is owned 90% by Standard Chartered Holdings (Africa) BV, a company incorporated in the Netherlands, which in turn is wholly owned by Standard Chartered Plc, a company incorporated in the United Kingdom.


79

Appendix I

Five year summary

2012 2011 2010 2009 2008

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

Operating profit before impairment provisions 342,896 233,406 221,735 140,063 83,339

Net impairment provisions against loans and advances (3,278) (7,319) 8,009 (25,039) (28,694)

Profit before taxation 339,618 226,087 229,744 115,024 54,645

Profit attributable to shareholders 220,993 132,453 133,292 66,967 25,540

Loans and advances to customers 2,233,265 1,797,251 1,151,385 948,087 1,006,137

Total assets 5,163,618 4,585,674 4,572,218 2,976,606 2,449,263

Deposits from customers 3,681,026 3,573,822 3,164,587 2,347,127 2,115,768

Shareholders’ funds 594,290 372,948 325,511 223,512 161,446

Earnings per ordinary share

Basic earnings per share (Kwacha)

132.57 79.46 5.42 16.35 6.24

Dividends per share (Kwacha) 0.00 0.00 20.00 10.00 5.00

Ratios

Post-tax return on ordinary shareholders’ funds

37% 36% 41% 30% 16%

Basic cost/income ratio 45% 51% 51% 63% 74%

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Principal addresses

Head OfficeStandard Chartered Bank Zambia PlcStandard Chartered House, Cairo RoadP.O. Box 32238 Lusaka 10101, ZambiaTel: +260 (211) 229242-50Fax: +260 (211) 222092

Senior Management

Mizinga MeluManaging Director Standard Chartered Bank Zambia Plc4th Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 222046Fax: +260 (211) 225148

Arjuna BalasinghamHead of Origination and Client Coverage Standard Chartered Bank Zambia Plc2nd Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: + 260 (211) 222983Fax: + 260 (211) 227805

Sonny ZuluHead of Consumer BankingStandard Chartered Bank Zambia Plc1st Floor Northend, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 225257Fax: +260 (211) 228353

Stanley TameleHead of Global MarketsStandard Chartered Bank Zambia Plc2nd Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 221235Fax: +260 (211) 222090

Aniq Islam Head of Transaction BankingStandard Chartered Bank Zambia Plc2nd Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 225244Fax: +260 (211) 221176

Kelvin MusanaExecutive Director – Finance and AdministrationStandard Chartered Bank Zambia Plc1st Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: + 260 (211) 225252Fax: +260 (211) 225337

Musonda MusakanyaChief Information Officer Standard Chartered Bank Zambia Plc1st Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: + 260 (211) 225138Fax: + 260 (211) 222092

Ruth SimuyembaHead of Human ResourcesStandard Chartered Bank Zambia Plc1st Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 224838 Fax: + 260 (211) 225337

Celine NairHead of Legal & Company SecretaryStandard Chartered Bank Zambia Plc5th Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 221518Fax: +260 (211) 225148

Chanda Chime-KatongoActing Head of Corporate Affairs, ZambiaStandard Chartered Bank Zambia Plc4th Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 227616Fax: +260 (211) 225148

Peter ZuluHead of ComplianceStandard Chartered Bank Zambia Plc5th Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 224825Fax: +260 (211) 235007

Anthony KatepaCountry Chief Risk Officer & Senior Credit Officer – Wholesale BankingStandard Chartered Bank Zambia Plc2nd Floor Standard Chartered House, Cairo RoadP.O. Box 32238, LusakaTel: +260 (211) 229242 - 59

81

Branch management

Leah MunzeleRegional Branch Manager SouthLusaka Branch P.O. Box 32238, LusakaTel: +260 (211) 229242 - 59Fax: +260 (211) 220106/227679

Jurecca DakaRegional Branch Manager NorthNorth End BranchP.O. Box 31353, LusakaTel: +260 (211) 2285114/5Fax: +260 (211) 221857

Tabu Chewe /Rita MweetwaBranch ManagersManda Hill BranchP.O. Box 31934, LusakaTel: +260 (211) 255484Fax: +260 (211) 255485

Mwaka MunthaliBranch ManagerKabulonga BranchP.O. Box 31934, LusakaTel: +260 (211) 261339Fax: +260 (211) 262593

Theresa MwangoCentre ManagerCrossroads BranchP.O. Box 31934, LusakaTel: +260 (211) 264080Fax: +260 (211) 262593

Katongo MupundaRegional Branch Manager -CopperbeltZambia Way BranchP.O. Box 20061, KitweTel: +260 (212) 224944Fax: +260 (212) 224269

Singi MbokoshiBranch ManagerLuanshya BranchP.O. Box 71665, NdolaTel: +260 (212) 613225Fax: +260 (212) 620943

Karen MwambaBranch ManagerJacaranda Mall BranchP.O. Box 230021, NdolaTel: +260 (212) 651013Fax: +260 (212) 650583

Isaiah ChaikatishaBranch ManagerChingola BranchP.O. Box 71665, ChingolaTel: +260 (212) 613225Fax: +260 (212) 620943

June ChalongwaButeko BranchP.O. Box 90097, LuanshyaTel: +260 (212) 512229Fax: +260 (212) 510407

Victor ChikafyaBranch ManagerChililabombwe BranchP.O. Box 210119, ChililabombweTel: +260 (212) 382209Fax: +260 (212) 382213

Maxwell MudendaBranch ManagerLivingstone BranchP.O. Box 60592, LivingstoneTel: +260 (213) 321745Fax: +260 (213) 321721

Maxmillian MatongoBranch ManagerMazabuka BranchP.O. Box 670002, MazabukaTel: +260 (213) 230727 / 230688 / 230031Fax: +260 (213) 230727 / 230162

Thomas NgomaBranch ManagerChoma BranchP.O. Box 630070, ChomaTel: +260 (213) 220199/20489/20784Fax: +260 (213) 220784

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Peter MwanazianiBranch ManagerMongu BranchP.O. Box 910090, MonguTel: +260 (217) 221456Fax: +260 (217) 221281

Charles NkunikaBranch ManagerKasama BranchP.O. Box 410060, KasamaTel: + 260 (214) 222051Fax: + 260 (214) 221316

Sharon ChibweRelationship ManagerPreferred Banking Centre Lusaka Main BranchTel: +260 (211) 227673Fax: +260 (211) 227774

Annie Kabombo-NyirendaRelationship ManagerPreferred Banking Centre Northend BranchTel: +260 (211) 228551Fax: +260 (211) 228553

Muziya NambaoRelationship ManagerPreferred Banking CentreZambia Way Branch, KitweTel: +260 (212) 224485Fax: +260 (212) 224269

Webster MusondaRelationship ManagerPreferred Banking CentreChingola BranchTel: +260 (212) 313827Fax: +260 (212) 312636

Bumba BwembeloRelationship ManagerIntercontinental Preferred Centre, P.O. Box 32238, LusakaTel: +260 (211) 252357/256595Fax: +260 (211) 256713

Christine WillisRelationship ManagerOdy’s Preferred Centre, ArcadesP.O. Box 32238, LusakaTel: +260 (211) 292876 - 79Fax: +260 (211) 292868

Emmy ShanziRelationship ManagerPriority BankingOdy’s Centre, ArcadesP.O. Box 32238, LusakaTel: +260 (211) 292876 - 79Fax: +260 (211) 292868

Normia LumpumaRelationship ManagerPriority BankingNorthend BranchTel: +260 (211) 228551Fax: +260 (211) 228553

Annie Kambombo NyirendaRelationship ManagerPriority BankingLusaka Branch P.O. Box 32238, LusakaTel: +260 (211) 229242 - 59Fax: +260 (211) 220106/227679

Malcom LunguRelationship ManagerPriority BankingZambia Way BranchP.O. Box 20061, KitweTel: +260 (212) 224944Fax: +260 (212) 224269

83

Dividend

At the Board Meeting held on 21 February 2013, the Directors recommended that no dividend be paid to shareholders for

the year ended 31st December 2012.

This is to allow for the retention of profits to build up capital in order to comply with revised Central Bank primary capital

requirements.


Celine M. Nair

Company Secretary

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Notice of annual general meeting and agenda

Notice is hereby given that the Annual General Meeting of Standard Chartered Bank Zambia Plc in respect of the period ended 31 December 2012, will be held at the Taj Pamodzi Hotel, in the Amalila Room, in Lusaka, Zambia on Wednesday 27 March 2013 at 14:30 hours for the following purposes:

• To confirm and sign the Minutes of the AGM held on 28th March 2012 and the Extra Ordinary Meeting (EGM) of 16th November 2012.

• To receive and adopt the Financial Statements as at 31st December 2012 and the reports of the Chairman, Directors and Auditors.

• Standard Chartered Bank Zambia Plc Bonus Issue of Shares.

• To approve the Dividend recommendation of the Directors for the year ended 31st December 2012.

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

• To authorize the Board to fix the remuneration of the Directors.

• To ratify the appointment of new directors and to re-elect Directors retiring by rotation in accordance with the provision of the Company’s Articles of Association.

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

A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend, speak, and, on a poll, vote in his/her stead. Proxy forms are available from the Company Secretary and must be lodged at the Registered Office of the Company not less than 48 hours before the commencement of the meeting.


Celine M. NairCompany Secretary

85

FORM OF PROXY

………........…………. 2013

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

………………………………………………………............................………………………………………

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

……………………………………………….............................………………………………………………

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

as my/our proxy to attend, and speak, on poll, vote instead of me/us at the forty-second

Annual General Meeting of the Company, to be held on 27 March 2013 and at every

Adjournment thereof:

Signature(s) ……………………………………………………………

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

NOTE:

The Form of Proxy shall be:

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

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

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


Notes

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Notes

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Notes


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