risk and capital management report for the six months ... basel capital accord (basel) reporting...
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2016Standard Bank Group
Risk and capital managementreport for the six monthsended 30 June
Contents
Report scope and oversight 1Risk management landscape 2
Risk governance 3
Overview and objectives 6Regulatory update 6
Regulatory capital 7Economic capital 14
Risk-adjusted performance measurement 15Cost of equity 15
Governance 16Risk appetite 16
Stress testing 17
Definition 19Approach to managing credit risk 19
Governance 19Approved regulatory capital approaches 20
Credit portfolio characteristics and metrics in terms of Basel 24
Credit portfolio characteristics and metrics in terms of IFRS 38
Definition 46Approach to managing compliance risk 46
Governance 47
Definition 48Approach to managing country risk 48
Governance 48Approved regulatory capital approaches 48
Country risk portfolio characteristics and metrics 49
Definition 51Approach to managing liquidity risk 51
Governance 53Liquidity characteristics and metrics 53
The group’s credit ratings 57Conduits 57
Definition 58Governance 58
Approved regulatory capital approaches 58Trading book market risk 58
Interest rate risk in the banking book 62Equity risk in the banking book 64
Foreign currency risk 64Own equity-linked transactions 65
Post-employment obligation risk 66
Definition 67Approach to managing operational risk 67
Governance 68Approved regulatory capital approach 68
Operational risk subtypes 68
OPERATIONAL RISK
OVERVIEW
CAPITAL MANAGEMENT
RISK APPETITE AND STRESS TESTING
CREDIT RISK
MARKET RISK
FUNDING AND LIQUIDITY RISK
COUNTRY RISK
COMPLIANCE RISK
RESTATEMENTS
ADDITIONALINFORMATION
BUSINESS RISK
REPUTATIONAL RISK 72
71
73
74
1
Report scope and oversight 1
Risk management landscape 2
Risk governance 3
REPORT SCOPE AND OVERSIGHT
ScopeThis risk and capital management report covers the Standard Bank Group’s (SBG) banking activities and other banking interests (group). Certain information includes the group’s interest in Liberty and has been denoted as such.
Effective for the group’s 2016 financial reporting period, the group reports its interests in ICBC Argentina and ICBC Standard Bank Plc as part of its other banking interests. Both ICBC Argentina and ICBC Standard Bank Plc were previously reported as part of the group’s banking activities. Since these interests were previously part of the group’s banking activities and this report includes the group’s other banking interests, no restatements to previously reported financial information for this change in segment reporting were required.
RCMAFS
Refer to the group’s 2015 risk and capital management report and annual fi nancial statements for information regarding the group’s insurance operations.
RCMAFS
Refer to the group’s 2015 risk and capital management report for details on the principal diff erences between International Financial Reporting Standards (IFRS) and Basel Capital Accord (Basel) reporting frameworks.
Overview
Board responsibilityThe group’s board of directors (board) has the ultimate responsibility for the oversight of risk.
As at 30 June 2016, the board is satisfied that:
• the group’s risk, compliance, treasury, capital management and group internal audit (IA) processes generally operated effectively
• the group’s business activities have been managed within the board-approved risk appetite
• the group is adequately funded and capitalised to support the execution of the group’s strategy.
As announced by the group on 23 May 2016 on SENS, the group’s South African banking operations were the victim of a sophisticated, coordinated fraud incident that involved the withdrawal of cash using a number of fictitious cards at various ATMs in Japan. Standard Bank was the target of the fraud and there has been no financial loss for its customers. Swift action was taken to contain the matter and the gross loss (prior to any potential recoveries) is estimated at R300 million. This loss has been recognised in operating expenses within the group’s banking activities. Investigations into the cause of the fraud are at an advanced stage. The group is proactively taking steps to prevent any potential reoccurrence of such an incident.
In instances where the group incurred losses, breached risk appetite or was fined by its regulators, the board is satisfied that management has taken appropriate remedial action.
2 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Each risk is defined within the relevant section, together with:
• an explanation of the application of the group’s risk, compliance and capital management (RCCM) governance framework to the specific risk
• the approved regulatory treatment for capital requirements to be held against the specific risk in terms of Basel
• a description of the relevant portfolio characteristics both in terms of prescribed disclosure and the group’s business model.
Emerging risksIn an ever evolving world, that is interconnected through technology, it is becoming increasingly important for the group to remain forward-looking in its management of the risk environment. Through the continuous assessment of current and emerging risks, the group is better equipped to identify any potential risks and manage and mitigate them effectively. The group is focusing on the development of a more structured assessment process to ensure the consideration and consolidation of all potential risks as part of the combined assurance approach.
Enterprise risk managementThrough the lens of the three lines of defence framework, the group continues to monitor, manage and mitigate its
RISK MANAGEMENT LANDSCAPE
Risk typesThe group’s business activities give rise to various risks, which include:
credit risk compliance risk country risk
funding and liquidity risk market risk operational risk
business risk reputational risk
RISK AND CAPITAL MANAGEMENT REPORT Overview continued
material risks on an enterprise-wide basis. With an increasing focus on consistency and transparency, the group regularly assesses and enhances its risk management framework to ensure it is fit-for-purpose. Risk management efforts are focused on aligning risk reporting with underlying data, governance and the monitoring thereof, education and awareness initiatives, as well as systems’ capabilities, providing the ability to more easily identify and leverage opportunities between the various risk types.
Risk cultureThe group leverages off the three lines of defence model to build and maintain a strong risk culture, where resilience is a priority for effective risk management across the group. The group focuses on multiple drivers to enhance risk culture, emphasising doing the right business, the right way. Through the embedding of its values and ethics, policies, compliance training programmes and a whistleblowing programme, the group empowers its employees to act with confidence, driving meaningful behavioural changes and placing the customer at the centre of everything it does.
ReportingThe group’s risk appetite, risk profile and risk exposures are reported on a regular basis to the board and senior management through various governance committees. Risk management reports originate in the business units
3
and are then escalated through a formalised governance structure as applicable, based on materiality. A group risk management report is tabled at both board and senior management risk committees. These include the group management committee, the group executive committee, the group risk oversight committee (GROC) and the group risk and capital management committee (GRCMC).
Reports to board committees comply with the group’s internal risk reporting standards, which are set out in the group’s risk data aggregation and risk reporting policy.
Three lines of defence modelThe group uses the three lines of defence governance model which promotes transparency, accountability and consistency through the clear identification and segregation of roles.
The first line of defence comprises the management of business lines and legal entities. It is the responsibility of first line management to identify and manage risks. Operationally, this includes the day-to-day effective management of risk in accordance with agreed risk policies, appetite and controls. Effective first line management includes:
• the proactive self-identification of issues and risks, including emerging risks
• the design, implementation and ownership of appropriate controls
• the associated operational control remediation
• a strong control culture of effective and transparent risk partnership.
The second line of defence functions provide independent oversight and assurance. They have resources at the centre and embedded within the business lines. Central resources provide groupwide oversight of risks, while resources embedded within the business lines support management in ensuring that their specific risks are effectively managed as
close to the source as possible. Central and embedded resources jointly oversee risks at a legal entity level.
The second line of defence functions develop, implement and integrate governance standards, frameworks and policies for each material risk type to which the group is exposed. This ensures consistency and an enterprise-wide approach across the group’s business lines and legal entities. Compliance with the standards and frameworks is ensured through annual self-assessments by the second line of defence and reviews by IA.
The third line of defence provides independent and objective assurance to the board and senior management on the effectiveness of the first and second lines of defence. This responsibility lies with the IA function.
All three levels report to the board, either directly or through the GRCMC and the group audit committee (GAC).
RISK GOVERNANCE
Governance frameworkThe group’s approach to managing risk and capital is set out in the group’s RCCM governance framework, that is approved by the GRCMC. The framework has two components:
• governance committees
• governance documents such as standards, frameworks and policies.
Governance committeesGovernance committees that operate within the RCCM governance framework are in place at both a board and management level. These committees have mandates and delegated authorities that are reviewed regularly.
4 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
• considering the quarterly risk management report which includes detailed updates on risk types, as well as the separate updates from legal, compliance, capital and liquidity risk and intragroup exposures
• reporting material risk and capital management matters to the board.
The group IT committeeThe group IT committee’s purpose is to assist the board in fulfilling its corporate governance responsibilities with respect to IT and reports to the board through its chairman. The committee has the authority to review and provide guidance on matters related to the group’s IT strategy, budget, operations, policies and controls, the group’s assessment of risks associated with IT, including disaster recovery, business continuity and IT security (which includes cyber security), as well as oversight of significant IT investments and expenditure.
Board committeesThe board committees that are responsible for the oversight of the group’s RCCM comprise the GRCMC, the GAC, the group IT committee, and the group model approval committee. The key roles and responsibilities of these committees, as they relate to RCCM, are summarised in the sections that follow.
The group risk and capital management committeeThe GRCMC provides independent oversight of RCCM across the group by:
• ensuring adequate and effective implementation of risk governance processes, standards, policies and frameworks
• ensuring that the risk strategy is executed by management in accordance with the board-approved risk appetite and the RCCM governance framework
RISK GOVERNANCE STRUCTURE
STANDARD BANK GROUP BOARD
Management committees
Board committees
Group executive committee
Group risk and capital management committee
Group audit committee
Group IT committee
Group model approval committee
PBB1 model approval committee
CIB2 model approval committee
Group management committee
Group risk oversight committee
Direct reporting line
Indirect reporting line
1 Personal & Business Banking2 Corporate & Investment Banking
RISK AND CAPITAL MANAGEMENT REPORT Overview continued
5
The group audit committeeThe GAC has oversight of the group’s financial position and makes recommendations to the board on all financial matters, financial risks, internal financial controls, fraud, compliance, IT risks and the impact of IT on financial controls. In relation to RCCM, the GAC plays a role in assessing the adequacy and operating effectiveness of the group’s internal financial controls.
In order to ensure the independence of the second line of defence functions, the chairman of the GAC meets individually with the group chief compliance officer (GCCO), the group financial director, the group chief audit officer and the head of operational risk management, who is also responsible for financial crime control, without management being present, on a quarterly basis and as required.
The group model approval committeeThe group model approval committee is designated by the board to discharge the board’s regulatory responsibility of reviewing and approving the group’s material risk models, as well as models used in the calculation of regulatory capital. This committee is supported by the PBB and CIB model approval subcommittees, with the models being assigned to these three committees for approval based on an assessment of the materiality of each model.
Management committeesThe group risk oversight committeeExecutive management responsibility for all material risk types has been delegated by the group management committee to GROC which, in turn, assists the GRCMC in fulfilling its mandate.
As is the case with the GRCMC, GROC calls for and evaluates in-depth investigations and reports based on its assessment of the group’s risk profile and external factors.
GROC delegates authority to various subcommittees which deal with specific risk types or oversight activities. Material matters are escalated to GROC through reports or feedback from each subcommittee chairman.
The GROC subcommittees are as follows:
• CIB credit governance committee, chaired by the CIB chief risk officer (CRO)
• PBB credit governance committee, chaired by the PBB CRO
• group asset and liability committee (ALCO) and its subcommittees, the group capital management committee and the intragroup exposure committee, all chaired by the group financial director
• group compliance committee, chaired by the GCCO
• group country risk management committee, chaired by the group CRO
• group equity risk committee (ERC), chaired by the CIB CRO
• group internal financial control governance committee, chaired by the group financial director
• group operational risk committee, chaired by the group head of operational risk management
• group regulatory and legislative oversight committee, chaired by the group chief executive
• group sanctions review committee, chaired by the group chief executive
• group stress testing and risk appetite committee, chaired by the group CRO
• recovery and resolution planning committee, chaired by the group financial director.
Governance documentsGovernance documents within the RCCM governance framework comprise standards, frameworks and policies which set out the requirements for the identification, assessment, measurement, monitoring, managing and reporting of risks and the effective management of capital.
Governance standards and frameworks are approved by the relevant board committee.
Relevant group policies are approved by the group management committee or subcommittee, relevant GROC subcommittee, GROC itself or, where regulations require board approval, by the board or relevant board committee.
Business line and legal entity policies are aligned to these group policies and are applied within their governance structures.
6 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
REGULATORY UPDATE
The South African Reserve Bank (SARB) adopted the Basel III framework introduced by the Basel Committee on Banking Supervision (BCBS) from 1 January 2013. The group has complied with the minimum requirements from that date. The Basel III capital adequacy requirements are subject to phase-in rules and the group is well positioned to comply with the requirements when they become effective. The South African domestic systemically important banks (D-SIB) framework and the capital conservation buffer requirements came into effect from 1 January 2016 and will be phased in over a three year period with full implementation from 1 January 2019. In addition, from 1 January 2016 a countercyclical buffer (CCyB) requirement has been imposed by regulators when there is deemed to be a risk of excess aggregate credit growth associated with a build-up of system-wide risk. CCyB requirements have not been announced for South Africa but the group is subject to CCyB requirements on exposures in other jurisdictions where these buffers apply from time to time. Currently the group has private sector credit exposure to three jurisdictions that have announced CCyBs greater than zero, namely Hong Kong, Sweden and Norway. These exposures result in risk-weighted assets (RWA) of R46 million, R2 million and R39 million respectively, resulting in a buffer requirement of 0.0001%1.
The graph on the following page reflects the Basel III capital requirements and phase-in periods applicable to South Africa.
OVERVIEW AND OBJECTIVES
The group’s capital management function is designed to ensure that regulatory capital requirements are met at all times, and that the group and its principal subsidiaries are capitalised in line with the group’s risk appetite and target ratios, both of which are approved by the board.
It further aims to facilitate the allocation and use of capital, such that it generates a return that appropriately compensates shareholders for the risks incurred. Capital adequacy is actively managed and forms a key component of the group’s budget and forecasting process. The capital plan is tested under a range of stress scenarios as part of the group’s annual internal capital adequacy assessment process (ICAAP) and recovery plan.
The capital management function is governed by primary management level subcommittees that oversee the risks associated with capital management, namely the group ALCO and one of its subcommittees, the group capital management committee. The principal governance documents are the capital management governance framework and the model risk governance framework.
Subject to compliance with the corporate laws of relevant jurisdictions and appropriate motivation to, and approval by, exchange control authorities, no significant restrictions exist on the transfer of funds and regulatory capital within the group.
Capital management
Economic capital 14
Risk-adjusted performance measurement 15
Cost of equity 15
Overview and objectives 6
Regulatory update 6
Regulatory capital 7
1 Although insignificant, presented in accordance with minimum disclosure requirements.
7
SARB RATIOS1 (%)
16
14
12
10
8
6
4
2
20172016 20192018
Common equity tier (CET) 1 Conservation buffer Additional tier I Tier II
1 Graph excludes CCyB and confidential bank-specific pillar 2b capital requirement, but includes maximum potential D-SIB requirement which is also bank-specific and, therefore, confidential.
6.50
0.63
2.50
6.50
2.50
1.75
6.50
1.88
1.63
6.50
1.25
1.501.38
2.753.00
3.2511.01
12.0013.01
14.00
REGULATORY CAPITAL
The group manages its capital levels to support business growth, maintain depositor and creditor confidence, create value for shareholders and ensure regulatory compliance.
The main regulatory requirements to be complied with are those specified in the South African Banks Act 94 of 1990 (Banks Act) and related regulations, which are aligned with Basel III.
Regulatory capital adequacy is measured through the following three risk-based ratios:
• CET I: ordinary share capital, share premium, retained earnings and qualifying non-controlling interest less impairments divided by total RWA.
• Tier I: CET I and other qualifying non-controlling interest plus perpetual, non-cumulative instruments with either contractual or statutory principal loss absorption features that comply with the Basel III rules divided by total RWA. Perpetual non-cumulative preference shares that comply with Basel I and Basel II rules are included in tier I capital but are currently subject to regulatory phase-out requirements over a ten-year period, which commenced on 1 January 2013.
• Total capital adequacy: tier I plus other items such as the general allowance for credit impairments and subordinated debt with either contractual or statutory principal loss-absorption features that comply with the Basel III rules divided by total RWA. Subordinated debt that complies with under Basel I and Basel II rules is included in total capital but is currently subject to regulatory phase-out requirements, over a ten-year period, which commenced on 1 January 2013.
The ratios are measured against internal targets and regulatory minimum requirements.
CAPITAL ADEQUACY1,2 (%)
18
16
14
12
10
8
6
4
2
2014 201520122011 2013
Tier I Tier II Required capital
1 Basel III was implemented on 1 January 2013. RWA and capital adequacy for 2012 are on a Basel III basis. 2011 is on a Basel II basis.2 Group, including Liberty.
pro forma
June2016
RWA HISTORY (Rm)
2 000
1 600
1 200
800
2014 2015 June2016
2011 20132012
RWA Total assets
8 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
TIER II INSTRUMENT MATURITY PROFILE (Rm)
7 000
6 000
5 000
4 000
3 000
2 000
1 000
Callable date
2019 20202017June2016
20222018 2021
RWA are calculated in terms of the Banks Act and related regulations, which are aligned with Basel III.
The group complied with all regulatory capital requirements during the current and prior year.
The group’s CET I capital, including unappropriated profit, was R120,1 billion as at 30 June 2016 (31 December 2015: R121,6 billion). The group’s tier I capital, including unappropriated profit, was R123,8 billion as at 30 June 2016 (31 December 2015: R125,7 billion) and total capital, including unappropriated profit was R145,6 billion as at 30 June 2016 (31 December 2015: R148 billion).
The group has a balanced tier II subordinated debt maturity profile. During the period under review, the group issued R1,7 billion Basel III compliant tier II instruments (31 December 2015: R3,6 billion).
RISK AND CAPITAL MANAGEMENT REPORT Capital management Regulatory capital continued
BASEL III QUALIFYING CAPITAL EXCLUDING UNAPPROPRIATED PROFITS
June December1
2016 2015
Rm Rm
Ordinary shareholders' equity 149 690 151 069 Qualifying non-controlling interest 5 128 5 896 Less: regulatory adjustments (34 681) (35 394)
Goodwill (3 008) (4 152)Other intangible assets (18 867) (17 773)Shortfall of credit provisions to expected future losses (2 065) (2 186)Investments in financial entities (9 632) (10 358)Other adjustments (1 109) (925)
Less: regulatory exclusions – unappropriated profits (7 311) (9 472)
CET I capital 112 826 112 099 Qualifying perpetual preference shares 3 297 3 846 Qualifying non-controlling interest profit 341 293
Tier I capital 116 464 116 238
Qualifying tier II subordinated debt 19 369 20 118 General allowance for credit impairments 2 425 2 170
Tier II capital 21 794 22 288
Total regulatory capital 138 258 138 526
Total capital requirement 94 705 94 404
Total RWA 912 822 944 039
1 Restated. Refer to page 73.
9
BASEL: RWA AND ASSOCIATED CAPITAL REQUIREMENTS
June December
2016 2015
RWARm
Capital requirement1
RmRWA
Rm
Capital requirement1
Rm
Credit risk 656 145 68 075 686 700 68 670
Portfolios subject to the standardised approach2 251 596 26 103 268 800 26 880
Corporate 99 047 10 276 111 176 11 118 Sovereign 90 688 9 409 85 443 8 544 Banks 11 553 1 199 16 400 1 640 Retail mortgages 12 048 1 250 11 333 1 133 Retail other3 38 260 3 969 44 167 4 417 Securitisation exposures 281 28
Portfolios subject to the advanced internal ratings- based (AIRB) approach 376 935 39 108 388 018 38 802
Corporate 173 090 17 957 166 922 16 692 Sovereign 10 425 1 082 23 926 2 393 Banks 15 424 1 600 24 304 2 430 Retail mortgages 87 538 9 082 84 007 8 401 Qualifying retail revolving exposure (QRRE) 47 140 4 891 47 510 4 751 Retail other3 42 830 4 444 40 874 4 087 Securitisation exposures 488 51 475 48
Other assets 27 614 2 865 29 882 2 988
Counterparty credit risk 24 334 2 525 22 769 2 277
Portfolios subject to the standardised approach2 4 643 482 5 407 541
Corporate 3 169 329 4 259 426 Banks 1 474 153 1 148 115
Portfolios subject to the AIRB approach 19 691 2 043 17 362 1 736
Corporate 5 198 539 6 397 640 Sovereign 800 83 329 33 Banks 13 693 1 421 10 636 1 063
Footnotes on the following page.
10 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
BASEL: RWA AND ASSOCIATED CAPITAL REQUIREMENTS CONTINUED
June December
2016 2015
RWARm
Capital requirement1
RmRWA
Rm
Capital requirement1
Rm
Equity risk in the banking book 13 288 1 379 11 052 1 105
Portfolios subject to the market-based approach 7 129 740 10 645 1 065
Listed 1 Unlisted 7 129 740 10 644 1 065
Portfolios subject to the probability of default (PD)/ loss given default (LGD) approach 6 159 639 407 40
Market risk 44 830 4 650 46 745 4 675
Portfolios subject to the standardised approach2 30 872 3 202 31 658 3 166
Interest rate risk 28 898 2 998 29 697 2 970 Equity position risk 90 9 104 11 Foreign exchange risk 1 854 192 1 813 181 Commodities risk 30 3 44 4
Portfolios subject to the internal models approach 13 958 1 448 15 087 1 509
Value-at-risk (VaR) based 13 958 1 448 15 087 1 509
Interest rate risk 7 729 802 5 527 553 Equity position risk 6 160 639 9 279 928 Foreign exchange risk 9 864 1 023 12 444 1 244 Commodities risk 56 6 37 4 Diversification benefit (9 851) (1 022) (12 200) (1 220)
Operational risk 136 921 14 206 140 163 14 016
Portfolios subject to the standardised approach² 81 544 8 460 86 256 8 625 Portfolios subject to the advanced measurement approach (AMA) 55 377 5 746 53 907 5 391
RWA for investments in financial entities 37 304 3 870 36 610 3 661
Total RWA/capital requirement 912 822 94 705 944 039 94 404
1 Capital requirement at 10.4% (31 December 2015: 10%) excludes confidential bank specific add-ons.2 Portfolios on the standardised approach relate to the group’s rest of Africa operations and portfolios for which the application to adopt the internal models
approach has not been submitted, or for which an application has been submitted but approval has not been granted. 3 Retail other includes retail small and medium enterprises, vehicle and asset finance, and term lending.
RISK AND CAPITAL MANAGEMENT REPORT Capital management Regulatory capital continued
11
TOTAL CAPITAL ADEQUACY RATIO MOVEMENT1 (%)
18.0
16.0
14.0
10.0
8.0
15.7 15.9
(0.04)
1.1 (0.6)
(0.1)
December2015
capital adequacy
ratio
Decreasein
RWA
Profits Foreigncurrencyimpact
on reserves
Dividends Regulatoryphase-outof Basel II
instruments
Intangibleassets
and other
movements
June2016
capital adequacy
ratio
(0.6)0.5
1 Group, including Liberty.
RWA RECONCILIATION (Rbn)
950
900
850
800
750
700
944
913
(60.3)
31.3 0.7 (2.9)
December2015RWA
Foreign currency
movement
Bankingoperations
growth
ThresholdRWA
increase
Othermovements
June2016RWA
CAPITAL ADEQUACY RATIOS1
Internaltarget ratios
includingunappropriated
profits%
2016 SARBminimum
regulatoryrequirement2
%
Includingunappropriated
profits
Excludingunappropriated
profits
June December June December
2016 20152016 2015
% % % %
Total capital adequacy ratio 14.0 – 15.0 10.4 15.9 15.7 15.1 14.7Tier I capital adequacy ratio 11.5 – 12.5 8.1 13.6 13.3 12.8 12.3CET I capital adequacy ratio 10.0 – 11.0 6.9 13.2 12.9 12.4 11.9
1 Group, including Liberty.2 Excludes confidential bank-specific add-ons.
12 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
CAPITAL ADEQUACY RATIOS OF BANKING SUBSIDIARIES
Host tier I regulatory
requirements%
Host total regulatory
requirements%
June December
2016 2015
Tier I capital%
Total capital%
Tier I capital%
Total capital%
Standard Bank Group 8.11 10.41 13.6 15.9 13.3 15.7The Standard Bank of South Africa Group2 8.1 10.4 12.7 15.8 12.1 15.3
Rest of Africa3
CfC Stanbic Bank (Kenya) 10.5 14.5 15.4 17.7 15.4 18.1Stanbic Bank Botswana 7.5 15.0 9.1 18.1 14.0 24.2Stanbic Bank Ghana 6.7 10.0 10.3 12.2 11.8 13.7Stanbic Bank Tanzania 12.5 14.5 20.6 22.6 17.2 19.2Stanbic Bank Uganda 8.0 12.0 14.1 17.7 15.2 16.9Stanbic Bank Zambia 5.0 10.0 13.9 16.7 11.2 13.9Stanbic Bank Zimbabwe 8.0 12.0 21.6 24.6 19.8 22.8Standard Bank de Angola 5.0 10.0 17.2 22.6 15.3 20.1Standard Bank Malawi 10.0 15.0 21.9 24.5 15.9 18.2Standard Bank Mauritius 8.5 10.0 33.7 44.2 29.5 39.0Standard Bank Mozambique 4.0 8.0 13.8 16.0 12.5 15.3Standard Bank Namibia 7.0 10.0 10.3 13.6 11.3 13.6Standard Bank RDC (Democratic Republic
of Congo) 5.0 10.0 16.9 27.1 15.9 24.6Standard Bank Swaziland 4.0 8.0 10.9 13.0 12.3 14.9Standard Lesotho Bank 4.0 8.0 19.1 21.1 11.6 13.3
Outside AfricaStandard Bank Isle of Man 11.0 17.2 19.1 12.3 14.2 Standard Bank Jersey 12.0 11.8 15.9 9.2 13.1
Liberty Group Limited (calculated in terms of the Long-term Insurance Act
52 of 1998) Capital adequacy ratio – times covered 3.0 3.0
1 Represents 2016 SARB Basel III minimum capital requirements. 2 Incorporating – The Standard Bank of South Africa Limited (SBSA). 3 Stanbic IBTC Bank (Nigeria) not disclosed due to the delay in publication of its financial results.
The SARB adopted the leverage framework that was issued by the BCBS in January 2014, with final calibrations expected by 2017. Formal disclosure requirements commenced from 1 January 2015 and the ratio is expected to transition to a pillar 1 requirement by 2018.
The non-risk-based leverage measure is designed to complement the Basel III risk-based capital framework. The group’s leverage ratio inclusive of unappropriated profit was 6.8% as at 30 June 2016 (31 December 2015: 6.9%), in excess of the SARB minimum requirement of 4%.
RISK AND CAPITAL MANAGEMENT REPORT Capital management Regulatory capital continued
13
TOTAL ASSETS VS LEVERAGE RATIOJune December
2016 2015
Rm Rm
Total consolidated assets as per published financial statements1 1 947 772 1 979 349
Adjustments for investments in banking, financial, insurance and commercial entities (203 733) (199 161)Adjustment for derivative financial instruments (23 820) (59 570)Adjustments for securities financing transactions (SFT) 2 986 1 563 Adjustment for off-balance sheet items 88 822 91 616 Other adjustments 5 361 6 345
Leverage ratio exposure 1 817 388 1 820 142
1 Group, including Liberty.
LEVERAGE RATIO COMMON DISCLOSURE TABLE1 June December
2016 2015
Rm Rm
On-balance sheet exposures (excluding derivatives and SFT) 1 565 400 1 584 992
On-balance sheet items (excluding derivatives and SFT, but including collateral) 1 599 985 1 620 206 Assets amount deducted in determining Basel III tier I capital (34 585) (35 214)
Derivative exposures 56 123 51 520
Replacement cost associated with all derivatives transactions 12 853 12 358 Add-on amounts for potential future exposure associated with all derivative transactions 42 681 41 296 Deductions of receivables assets for cash variation margin provided in derivatives transactions (13 488) (17 424)Exempted central counterparty (CCP) leg of client-cleared trade exposures (11 091) (8 614)Adjusted effective notional amount of written credit derivatives 25 168 23 904
Adjusted effective notional offsets and add-on deductions for written credit derivatives
SFT exposures 107 043 92 014
Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 104 057 90 451 Netted amounts of cash payables and cash receivables of gross SFT assetsCounterparty credit risk exposure for SFT assets 2 986 1 563
Agent transaction exposures
Other off-balance sheet exposures 88 822 91 616
Off-balance sheet exposure at gross notional amount 288 441 293 094 Adjusted for conversion to credit equivalent amounts (199 619) (201 478)
Capital and total exposuresTier I capital 116 464 116 238 Total exposures 1 817 388 1 820 142
Leverage ratioBasel III leverage ratio (%) 6.4 6.4 Basel III leverage ratio (including unappropriated profits) (%) 6.8 6.9
1 Group, including Liberty.
14 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
RECONCILIATION WITH FINANCIAL STATEMENTS1
June December
2016 2015
Rm Rm
Total consolidated asset – financial statements(excluding derivative and SFT assets) 1 763 772 1 777 808
Gross-up for cash management schemes2 39 946 41 558 Adjustment for share of consolidated insurance
assets (203 733) (199 160)
Total on-balance sheet exposure (excluding derivative and SFT assets but including collateral) 1 599 985 1 620 206
1 Group, including Liberty. 2 Regulatory view of set offs as per BA 310.
ECONOMIC CAPITAL
Economic capital adequacy is the internal basis for measuring and reporting all quantifiable risks on a consistent risk-adjusted basis. The group assesses its economic capital adequacy by measuring its risk profile under both normal and stress conditions.
ICAAP considers the qualitative capital management processes within the organisation and includes the organisation’s governance, risk management, capital management and financial planning standards and frameworks. Furthermore, the quantitative internal assessments of the group’s business models are used to assess capital requirements to be held against all risks that the group is or may become exposed to, in order to meet current and future needs, as well as to assess the group’s resilience under stressed conditions.
ECONOMIC CAPITAL BY RISK TYPE
June December
2016 2015
Rm Rm
Credit risk 65 429 68 733 Equity risk 8 320 8 300 Market risk 1 045 1 584 Operational risk 10 797 11 062 Business risk 3 895 3 847 Interest rate risk in the banking book (IRRBB) 3 480 4 486
Economic capital requirement 92 966 98 012
Available financial resources 139 857 143 832
Economic capital coverage ratio (times) 1.50 1.47
Economic capital of R93 billion (31 December 2015: R98 billion) is the internal assessment of the amount of capital that is required to support the group’s economic risk profile. For statistically quantifiable potential losses arising from risk types, economic capital reflects the worst-case loss commensurate with a confidence level of 99.92%.
Available financial resources refer to capital supply as defined by the group for economic capital purposes and includes capital and reserve funds after adjusting for certain non-qualifying items.
RISK AND CAPITAL MANAGEMENT REPORT Capital management Regulatory capital continued
15
RISK-ADJUSTED PERFORMANCE MEASUREMENT
Risk-adjusted performance measurement (RAPM) maximises shareholder value by optimally managing financial resources within the board-approved risk appetite. Capital is centrally monitored and allocated, based on usage and performance in a manner that enhances overall group economic profit and return on equity. Business units are held accountable for achieving their RAPM targets. RAPM is calculated on both regulatory and economic capital measures.
RETURN ON ORDINARY EQUITY1
160 000
140 000
120 000
100 000
80 000
60 000
40 000
20 000
201520122011 June 2016
20142013
Shareholders’ funds (average) Return on equity (%)
30.0
25.0
20.0
15.0
10.0
5.0
(%)(Rm)
1 Group, including Liberty.
COST OF EQUITY
The group’s rand-based cost of equity (CoE) is estimated using the capital asset pricing model. CoE is calibrated twice a year using long-run average estimates of risk-free rate, beta and equity risk premium.
The group applied an average CoE of 13.4% as at 30 June 2016 (31 December 2015: 13.3%) given estimates of the risk free rate of 8.3% (31 December 2015: 8.2%), equity risk premium of 6.6% (31 December 2015: 6.6%) and a beta of 78% (31 December 2015: 78%).
16 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
The group has adopted the following definitions, where entity refers to a business line or legal entity within the group, or the group itself:
• Risk appetite: an expression of the amount or type of risk an entity is generally willing to take in pursuit of its financial and strategic objectives, reflecting its capacity to sustain losses and continue to meet its obligations as they fall due, under both normal and a range of stress conditions. The metric is referred to as a risk appetite trigger.
• Risk tolerance: the maximum amount of risk an entity is prepared to tolerate above risk appetite. The metric is referred to as a risk tolerance limit.
• Risk capacity: the maximum amount of risk the entity is able to support within its available financial resources.
• Risk appetite statement (RAS): the documented expression of risk appetite and risk tolerance which have been approved by the entity’s relevant governance committee. The RAS is reviewed and revised, if necessary, on an annual basis.
• Risk profile: the risk profile is defined in terms of three dimensions, namely current risk profile or forward risk profile unstressed or stressed risk profile pre- or post-management actions.
The current risk profile is the amount or type of risk to which the entity is currently exposed. The unstressed forward risk profile is the forward-looking view of how the entity’s risk profile is expected to evolve under expected conditions. The effectiveness of available management actions can be assessed through an analysis of pre- and post-management action risk profiles against risk appetite triggers and tolerance limits.
The diagram on the following page provides a schematic view of the three levels of risk appetite and the integral role that risk types play in the process of cascading risk appetite from dimensions such as regulatory capital, economic capital, stressed earnings and liquidity to more granular portfolio limits.
Risk appetite is set, and stress testing activities are undertaken, at a group and legal entity level, in business lines and in risk types within the risk appetite and stress testing governance frameworks.
GOVERNANCE
The primary management level governance committee overseeing risk appetite and stress testing is the group stress testing and risk appetite committee. It is chaired by the group CRO and is a subcommittee of GROC.
The principal governance documents are the risk appetite governance framework and the stress testing governance framework.
RISK APPETITE
Risk appetite governance frameworkThe risk appetite governance framework provides guidance on the following:
• setting and cascading of risk appetite by group, business line, risk type and legal entity
• measurement and methodology
• governance
• monitoring and reporting of the risk profile
• escalation and resolution.
Risk appetite andstress testing
Governance 16
Risk appetite 16
Stress testing 17
17
demand (both economic and regulatory) is controlled through triggers and limits.
Level three consists of key metrics used to monitor the portfolio. Portfolio triggers and limits are required to be broadly congruent with level one and level two triggers and limits. These metrics are regularly monitored at a risk type level and ensure proactive risk management.
STRESS TESTING
Stress testing governance frameworkStress testing is a key management tool within the group and is used to evaluate the sensitivity of the current and forward risk profile relative to different levels of risk appetite. Stress testing supports a number of business processes, including:
• strategic planning and financial budgeting
• the ICAAP, including capital planning and management, and the setting of capital buffers
• liquidity planning and management
• informing the setting of risk appetite
Risk appetite statementExecutive management is responsible for recommending the group’s RAS, which is then approved by the GRCMC on behalf of the board. In developing the RAS, executive management considers the group’s strategy and the desired balance between risk and return. The GRCMC reviews the group’s current risk profile on a quarterly basis and forward risk profile (both stressed and unstressed) at least annually.
Level one risk appetite dimensions can be qualitative or quantitative. Quantitative level one risk appetite dimensions relate to available financial resources and earnings volatility. The standardised quantitative dimensions used by the group, as well as legal entities and business lines, are:
• stressed earnings
• economic capital
• regulatory capital
• liquidity (short-term liquidity and term liquidity).
Level two risk appetite represents the allocation of level one risk appetite to risk types. Specifically, the contribution of individual risk types to earnings volatility and overall capital
RISK APPETITE
RISK APPETITE DIMENSIONS
Regulatorycapital
Economiccapital
Stressedearnings
Liquidity
RISK APPETITE DIMENSIONS BY RISK TYPE
Credit and equity risk
Operational risk
Market risk Interest rate risk
Business risk Liquidity risk
Capital demand/earnings at risk utilisation per risk type
PORTFOLIO LIMITS BY RISK TYPE
Credit and equity risk
Operationalrisk
Marketrisk
Interest rate risk
Business risk
Liquidity risk
• credit loss ratio
• non-performing loans (NPL) %
• concentrations
• operational losses % to gross income
• normal and stressed value-at-risk (SVaR) limits
• interest rate sensitivity
• cost-to-income ratio
• net stable funding ratio (NSFR)
• liquidity coverage ratio (LCR)
RAS
1
2
LE
VE
LL
EV
EL
3LEVE
L
18 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Additional stress testingGroupwide macroeconomic stress testing results are supplemented with additional ad hoc stress testing at the group, legal entity, business line, or risk type level that may be required from time-to-time for risk management or planning purposes. The purpose of this stress testing is to inform management of risks that may not yet form part of routine stress testing or where the focus is on a specific portfolio or business unit. Additional stress testing can take the form of either a scenario analysis or sensitivity analysis. This type of stress testing is performed and governed at the appropriate group, legal entity, business line, or risk type level.
Supervisory stress testsFrom time-to-time, a regulator may call for the group or a legal entity to run a supervisory stress test or common scenario with prescribed assumptions and methodologies. The purpose of these stress test requests could be for the regulator to assess the financial stability of the entire financial sector, or targeted stress tests where they may have a specific concern regarding a specific asset class or other potential stress event.
Business model stress testingBusiness model stress testing uses the reverse stress testing technique to explore vulnerabilities in a particular strategy or business model. The outcome does not necessarily target business or bank failure, but rather seeks to inform what could have a severe impact given a plausible, but in most cases highly improbable, event within a given set of circumstances and assumptions.
Stress testing for the recovery planAs part of the annual review of its recovery plan, the group’s procedures require the execution of stress tests in order to test the effectiveness of the recovery options proposed in the recovery plan, and to provide guidance on the selection of early warning indicators. The range of considered scenarios include both systemic, group-specific and combination events, as well as fast- and slow-moving scenarios.
Risk type stress testingRisk type stress tests apply to individual risk types. Risk type stress testing could take the form of scenario or sensitivity analysis.
• identifying and proactively mitigating risks through actions such as reviewing and changing limits, limiting exposures, and hedging
• facilitating the development of risk mitigation or contingency plans, including recovery plans, across a range of stressed conditions
• supporting communication with internal and external stakeholders, including industrywide stress tests performed by the regulator.
Stress testing within the group is subject to the group’s stress testing governance framework which sets out the responsibilities for and approaches to stress testing activities. Stress tests are conducted at group, business line, legal entity and risk type level. Broadly aligned and fit-for-purpose stress testing programmes are implemented for the group to ensure appropriate coverage of the different risks.
Stress testing programmeThe group’s stress testing programme uses one or a combination of stress testing techniques, including scenario analysis, sensitivity analysis and reverse stress testing to perform stress testing for different purposes.
Groupwide macroeconomic stress testingMacroeconomic stress testing is conducted across all major risk types on an integrated basis for a range of economic scenarios varying in severity from mild to very severe but plausible macroeconomic shocks. The impact, after consideration of mitigating actions, on the group’s income statement, statement of financial position (SOFP) and capital demand and supply of the group is measured against risk appetite.
Groupwide macroeconomic stress testing for the group and SBSA is performed, as a minimum, once a year for selected scenarios that are specifically designed by a scenario working group targeting the group’s risk profile, geographical presence and strategy.
The results of the groupwide macroeconomic stress testing are presented at a board level for the group and SBSA in order to consider whether the group’s risk profile is consistent with the group’s risk appetite buffer. Groupwide macroeconomic stress testing results are submitted as part of the annual ICAAP.
RISK AND CAPITAL MANAGEMENT REPORT Risk appetite and stress testing Stress testing continued
19
DEFINITION
Credit risk is the risk of loss arising out of the failure of counterparties to meet their financial or contractual obligations when due.
It is composed of counterparty risk (i.e. obligor risk, as distinct from counterparty credit risk, which is a subset of counterparty risk specific to the bilateral credit risks arising between trading counterparties), concentration risk, and country risk.
APPROACH TO MANAGING CREDIT RISK
The group’s credit risk arises mainly from wholesale and retail loans and advances, underwriting and guarantee commitments as well as from the counterparty credit risk arising from derivative and securities financing contracts entered into with our customers and trading counterparties.
To the extent that equity risk is held on the banking book, it is also managed under the credit risk governance framework.
The group manages credit risk through:
• maintaining a culture of responsible lending and a robust risk policy and control framework
• identifying, assessing and measuring credit risk across the group, from the level of individual facilities up to the total portfolio
• defining, implementing and continually re-evaluating the group’s risk appetite under actual and stressed conditions
• monitoring the group’s credit risk exposure relative to limits
• ensuring that there is expert scrutiny and approval of credit risks and its mitigation, independent from the business functions.
Primary responsibility for credit risk management resides within the group’s business units. This is complemented by
an independent credit risk function embedded within the business units, which is in turn supported with oversight provided through the group risk function.
GOVERNANCE
Credit risk is managed in accordance with the group’s comprehensive risk management and control framework. The principal governance documents are the group credit risk governance standard and the model risk governance framework.
The purpose of the group credit risk governance standard is to establish and define the principles under which the group is prepared to assume credit risk and the overall framework for the consistent and unified governance, identification, measurement, management and reporting of credit risk in the group. The standard is supported by underlying policies and procedures within the business units.
The group’s credit governance process relies on both individual responsibility and collective oversight, supported by comprehensive and independent reporting. This approach balances strong corporate oversight at a group level, with participation by the senior executives of the group in all significant risk matters. The governance committees are a key component of the risk management framework. They have clearly defined mandates and delegated authorities, which are reviewed regularly.
The primary management level governance committees overseeing credit risk are the CIB and PBB credit governance committees, the group ERC and the intragroup exposure committee, which are all GROC subcommittees. These committees are responsible for credit risk and credit concentration risk decision-making, as well as the delegation thereof to credit officers and committees within defined parameters.
Key aspects of rating systems and credit risk models are approved by the PBB, CIB and group model approval committees, all of which are mandated by the board as designated committees.
Credit portfolio characteristics and metrics in terms of Basel 24
Credit portfolio characteristics and metrics in terms of IFRS 38
Creditrisk
Definition 19
Approach to managing credit risk 19
Governance 19
Approved regulatory capital approaches 20
20 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Standardised approachThe calculation of regulatory capital is based on a risk weighting and the net counterparty exposures after recognising a limited set of qualifying collateral. The risk weighting is based on the exposure characteristics and, in the case of corporate, bank and sovereign exposures, the external agency credit rating of the counterparty. The credit rating scale in the next section is used for the alignment with the group’s master rating scale. In the case of counterparties for which there are no credit ratings available, exposures are classified as unrated for determining regulatory capital requirements.
APPROVED REGULATORY CAPITAL APPROACHES
The group has approval from the SARB to adopt the AIRB approach for most credit portfolios in SBSA. The group has adopted the standardised approach for its rest of Africa portfolios and for some of its less material subsidiaries and portfolios. The group has approval from the SARB to adopt either the market-based or the PD/LGD approaches for material equity portfolios, with the latter applied to equity held on the banking book.
BASEL: EXPOSURE SUBJECT TO THE STANDARDISED APPROACH PER RISK WEIGHTING
June December
2016 2015
ExposureRm
Mitigation1
Rm
Exposure after
mitigationRm
Exposure after
mitigationRm
Based on risk weights0% – 35% 48 344 8 352 39 992 38 059 50% 40 394 3 395 36 999 43 417
Rated 3 849 2 170 1 679 3 480Unrated 36 545 1 225 35 320 39 937
75% 57 194 59 57 135 60 502 100% and above 222 352 8 715 213 637 220 688
Rated 5 5 46 Unrated 222 347 8 715 213 632 220 642
Total 368 284 20 521 347 763 362 666
1 Constitutes eligible financial collateral.
Internal ratings-based approachIntroductionUnder the internal ratings-based (IRB) regulatory capital approaches, the calculation of regulatory capital is based on an estimate of exposure at default (EAD) and a risk weighting. The risk weighting is based on asset class, and estimates of PD, LGD, and maturity. Under the AIRB approach all the parameters need to be estimated internally.
IRB models are managed under model development and validation policies that set out the requirements for model governance structures and processes, and the technical framework within which model performance and appropriateness is maintained. The models are developed using internal historical default and recovery data. In low-default portfolios, internal data is supplemented with external benchmarks and studies. Models are assessed frequently to ensure ongoing appropriateness as business environments and strategic objectives change, and are recalibrated annually using the most recent internal data.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk continued
21
IRB risk componentsProbability of defaultThe group uses a 25-point master rating scale to quantify the credit risk for each borrower (corporate asset classes) or facility (specialised lending and retail asset classes), as illustrated in the table below. Ratings are mapped to PDs by means of calibration formulae that use historical default rates and other data from the applicable portfolio. The group
CREDIT RATING SCALES
Group masterrating scale
Grading Credit qualityMoody’s Investor
ServicesStandard& Poor’s
Fitch1
1 – 4
Investmentgrade
Normalmonitoring
Aaa, Aa1, Aa2, Aa3 AAA, AA+, AA, AA- AAA, AA+, AA, AA-
5 – 7 A1, A2 AA-, A+, A A+, A, A-
8 – 12 A3, Baa1, Baa2, Baa3 A-, BBB+, BBB, BBB- A- ,BBB+, BBB, BBB-
13 – 21Sub-investment
grade
Ba1, Ba2, Ba3, B1, B2, B3, Caa1
BBB-, BB+, BB, BB-,B+, B, B-, CCC+
BB+, BB, BB-,B+, B, B-, CCC
22 – 25Close
monitoringCaa2,
Caa3, CaCCC, CCC-,
CC, CCCC
Default Default Default C D D
1 During 2015, Fitch withdrew the Financial Services Board registration of their South African subsidiary. Their grades are retained in this table to cater for exposures that still reference Fitch.
Loss given defaultLGD measures are a function of customer type, product type, seniority of loan, country of risk and level of collateralisation.
LGDs are estimated based on historic recovery data per category of LGD. A downturn LGD is used in the estimation of the capital charge and reflects the anticipated recovery rates in a downturn period.
Exposure at defaultEAD captures the impact of potential drawdowns against unutilised facilities and potential changes in counterparty credit risk positions due to changes in market prices. By using historical data, it is possible to estimate an account’s average utilisation of limits when default occurs, recognising that customers may use more of their facilities as they approach default.
distinguishes between through-the-cycle PDs and point-in-time PDs, and uses both measures in decision- making, managing credit risk exposures and measuring impairments against credit exposures.
The table below describes the internally defined relationship between the group master rating scale, generally accepted defined investment grades, the group’s credit quality definitions and external rating scales.
Expected lossThe expected loss provides a measure of the value of the credit losses that may reasonably be expected to occur in the portfolio. Provisions must be sufficient to cover the expected losses in the credit portfolio. In its most basic form the expected loss can be represented as: PD x EAD x LGD.
Use of internal estimatesThe group’s credit risk rating systems and processes differentiate and quantify credit risk across counterparties and asset classes. Internal risk parameters are used extensively in risk management and business processes, including:
• setting risk appetite
• setting limits for concentration risk and counterparty limits
• credit approval and monitoring
• pricing transactions
• determining portfolio impairment provisions
• calculating economic capital.
22 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
BASEL: ANALYSIS OF PDS, EADS AND LGDS BY RISK GRADE UNDER THE IRB APPROACH
Corporate Sovereign Banks
Average PD
%
Total EAD1
RmEADRm
LGD%
Exposure weighted
average risk
weight2
%EADRm
LGD%
Exposure weighted
average risk
weight2
%EADRm
LGD%
Exposure weighted
average risk
weight2
%
June 2016Non-default 1 023 704 368 139 100 515 75 885
1 – 4 0.01 79 733 664 39.24 10.44 73 785 28.79 2.86 3 396 36.69 9.47 5 – 7 0.07 72 875 12 970 39.04 20.38 53 396 40.02 19.31 8 – 12 0.33 355 621 188 586 24.44 30.16 22 084 21.68 28.07 13 092 43.77 42.97 13 – 21 2.26 480 629 165 758 27.28 65.09 4 603 35.45 75.39 6 001 47.53 94.92 22 – 25 30.67 34 846 161 41.91 213.28 43 52.85 313.33
Default 100.00 32 031 8 245 36.17 142.14 5 38.65 73.81 4 56.02
Total 1 055 735 376 384 26.49 100 520 27.54 75 889 41.11
December2015Non-default 1 027 233 353 921 112 931 88 718
1 – 4 0.02 16 425 576 35.29 8.49 12 210 40.75 3.24 1 570 37.31 10.30 5 – 7 0.06 57 713 12 677 39.43 21.08 7 22.07 15.11 38 132 39.41 16.69 8 – 12 0.30 450 854 184 153 26.16 33.21 90 769 27.26 21.76 43 019 43.12 37.75 13 – 21 2.22 468 870 155 994 27.85 64.99 9 863 21.43 47.12 5 997 48.60 100.00 22 – 25 30.29 33 371 521 45.28 237.07 82 43.75 250.16
Default 100.00 29 605 6 379 37.06 91.23 5 33.85 42.71 5 94.48
Total 1 056 838 360 300 27.59 112 936 28.22 88 723 41.79
1 Excludes equity EAD.2 Exposure weighted average risk weights have been weighted by the sum of the EAD within each of the PD bands.
The group makes use of the following key models for its credit regulatory capital purposes:
• rating models for corporate exposures
• EAD, PD and LGD models
• behaviour scorecards for account management.
PortfoliosCorporate, sovereign and bank portfoliosCorporate entities include large companies, as well as small and medium enterprises that are managed on a relationship basis or have a combined exposure to the group of more than R10 million. Corporate exposures also include specialised lending (project, object and commodity finance, as well as income-producing real estate), public sector entities and CCPs.
Sovereign and bank borrowers include sovereign government entities, central banks, local and provincial government entities, bank and non-bank financial institutions.
The creditworthiness of corporate (excluding specialised lending), sovereign and bank exposures is assessed based on a detailed individual assessment of the financial strength of the borrower. This quantitative analysis together with a detailed qualitative analysis, expert judgement and external rating agency ratings, leads to an assignment of an internal rating to the entity.
Specialised lending’s creditworthiness is assessed on a transactional level, rather than on the financial strength of the borrower, insofar as the group relies only on repayment from the cash flows generated by the underlying assets that have been financed.
Retail portfolioRetail mortgage exposures relate to mortgage loans to individuals and are a combination of both drawn and undrawn EADs.
QRRE relates to cheque accounts, credit cards and revolving personal loans and products, and includes both drawn and undrawn exposures.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Approved regulatory capital approaches continued
23
Retail mortgages QRRE Retail other Equity
EADRm
LGD%
Exposure weighted
average risk
weight2
%EADRm
LGD%
Exposure weighted
average risk
weight2
%EADRm
LGD%
Exposure weighted
average risk
weight2
%Exposure
RmPD%
311 844 77 484 89 837 2 044
52 12.45 0.99 23 62.46 1.45 1 813 38.41 4.49 1 320 13.12 2.45 2 287 62.91 3.19 2 902 41.69 7.97
108 334 12.73 8.44 7 612 63.09 8.68 15 913 41.62 22.36 96 0.16 179 286 15.38 31.81 61 606 64.96 58.10 63 375 34.42 49.90 1 948 2.16
22 852 17.47 91.27 5 956 64.76 178.84 5 834 43.58 111.87
13 892 19.21 3.41 5 963 64.34 6.95 3 922 44.22 1.48 78
325 736 14.80 83 447 64.67 93 759 36.93 2 122
306 546 76 417 88 700 2 498
34 12.32 0.98 1 63.05 1.47 2 034 38.40 4.40 1 359 13.13 2.48 2 369 62.91 3.18 3 169 41.68 7.97
108 506 12.72 8.50 7 720 63.07 8.01 16 687 41.08 22.30 562 0.29 174 935 15.37 31.18 60 495 64.90 57.41 61 586 34.42 49.05 1 936 1.80
21 712 17.44 90.85 5 832 64.77 177.16 5 224 43.52 109.33
13 886 19.20 3.79 5 672 64.34 39.85 3 658 44.45 1.66 78
320 432 14.77 82 089 64.62 92 358 36.87 2 576
Retail other covers other branch lending and vehicle finance for retail, personal, and small and medium enterprise portfolios. Branch lending includes both drawn and undrawn exposures, while vehicle and asset finance only has drawn exposures.
Internally developed behavioural scorecards are used to measure the anticipated performance for each account. Mapping of the behaviour score to a PD is performed for each portfolio using a statistical calibration of portfolio- specific historical default experience.
The behavioural scorecard PDs are used to determine the portfolio distribution on the master rating scale. Separate LGD models are used for each product portfolio and are based on historical recovery data. EAD is measured as a percentage of the credit facility limit and is based on historical averages. EAD is estimated per portfolio and per portfolio-specific segment, using internal historical data on limit utilisation.
Equity portfolioEquity risk held on the banking book is substantively controlled in accordance with the credit risk governance standard, except insofar as it is approved and overseen under the mandate of the ERC rather than under the normal credit risk delegated authority structures.
Refer to page 64 for more information regarding equity risk on the banking book.
EQUITY EXPOSURES UNDER THE SIMPLE RISK-WEIGHTED METHOD
June December
2016 2015
Rm Rm
Unlisted 1 553 712
Total 1 553 712
24 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
CREDIT PORTFOLIO CHARACTERISTICS AND METRICS IN TERMS OF BASEL
Credit portfolio analysisThe credit portfolio is analysed in the tables that follow in terms of the Basel approach and asset class.
BASEL: EXPOSURE BY APPROACH AND ASSET CLASS
On-balance sheet Off-balance sheet SFT
Standard-ised AIRB
Standard-ised AIRB
Standard-ised AIRB
Rm Rm Rm Rm Rm Rm
June 2016Corporate 101 720 307 595 35 591 111 408 10 879 29 723 Sovereign 111 633 96 870 2 209 6 903 43 10 073 Banks 19 363 44 596 9 913 10 041 1 584 103 254 Retail exposure 47 228 461 363 11 687 81 544
Retail mortgages 16 208 314 225 1 557 27 923 QRRE 64 697 34 140 Other retail 31 020 82 441 10 130 19 481
Total 279 944 910 424 59 400 209 896 12 506 143 050
December 2015Corporate 124 687 287 375 42 415 113 055 6 588 45 541 Sovereign 102 762 108 767 2 402 10 141 1 087 11 556 Banks 29 443 60 087 6 126 10 353 151 82 592 Retail exposure 51 011 450 036 10 922 86 621
Retail mortgages 15 996 308 293 954 29 199 QRRE 62 030 35 705 Other retail 35 015 79 713 9 968 21 717
Total 307 903 906 265 61 865 220 170 7 826 139 689
1 Amount before the application of any applicable offset, mitigation or netting.2 Under IRB, EAD is the estimated amount outstanding, should the customer default. It reflects drawn balances as well as an allowance for undrawn amounts of
commitments and contingent exposures.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk continued
25
Derivative instruments Total by approach1 EAD2 Impairment of exposures
Standard-ised AIRB
Standard-ised AIRB Total AIRB
Gross past due
but not impaired
exposures
Grossdefaulted
expo-sures Specific
Port-folio
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
4 650 18 772 152 840 467 498 620 338 376 384 2 751 12 823 4 691 1 371 2 734 115 256 116 580 231 836 100 520 5 3 1 086 44 358 31 946 202 249 234 195 75 889 4
58 915 542 907 601 822 502 942 35 712 28 055 11 479
17 765 342 148 359 913 325 736 23 008 14 814 4 070 98 837 98 837 83 447 3 612 6 097 3 821
41 150 101 922 143 072 93 759 9 092 7 144 3 588
7 107 65 864 358 957 1 329 234 1 688 191 1 055 735 38 463 40 887 16 173 7 623
2 751 36 288 176 441 482 259 658 700 360 300 2 663 10 512 4 631 111 1 062 106 362 131 526 237 888 112 936 4 2
1 208 65 614 36 928 218 613 255 574 88 723 24 61 933 536 657 598 590 494 879 35 909 27 881 11 229
16 950 337 492 354 442 320 432 22 098 14 777 3 852 97 735 97 735 82 089 3 444 5 798 3 641
44 983 101 430 146 413 92 358 10 367 7 306 3 736
4 070 102 964 381 664 1 369 088 1 750 752 1 056 838 38 582 38 421 15 862 6 790
26 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Standardised June 2016 AIRB June 2016 Standardised December 2015 AIRB December 2015
BASEL: EXPOSURE BY APPROACH AND CLASS (Rbn)
500
400
300
200
100
Corporate Sovereign Banks Retail mortgages QRRE Other retail
Concentration riskConcentration risk is the risk of loss arising from an excessive concentration of exposure to a single counterparty, an industry, a product, a geography, maturity, or collateral. The group’s credit risk portfolio is well diversified. The group’s management approach relies on the reporting of concentration risk along key dimensions, the setting of portfolio limits and stress testing.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
27
BASEL: EXPOSURES BY TYPE OF ASSET AND INDUSTRY1
On-balance
sheetRm
Off-balance
sheetRm
SFTRm
Derivative instru-ments
Rm
Total gross
exposureRm
Impairment of exposures
Gross defaulted
exposuresRm
SpecificRm
PortfolioRm
June 2016Agriculture 25 955 5 285 111 31 351 1 245 436 Mining 41 895 36 144 41 78 080 2 044 1 115 Manufacturing 67 655 25 458 934 94 047 702 244 Electricity 25 144 7 298 8 1 972 34 422 1 653 866 Construction 12 946 8 364 521 21 831 1 066 178 Wholesale 65 215 24 334 999 90 548 5 475 1 830 Transport 34 440 12 760 1 050 48 250 915 610 Finance, real estate and other business services 277 826 49 680 153 920 65 729 547 155 2 475 648 Private households 452 937 65 599 518 536 23 030 9 380 Other 186 355 34 374 1 628 1 614 223 971 2 282 866
Total 1 190 368 269 296 155 556 72 971 1 688 191 40 887 16 173 7 623
December 2015 Agriculture 25 618 5 218 295 31 131 1 106 327 Mining 57 376 42 912 145 100 433 2 559 1 176 Manufacturing 80 292 28 955 1 319 110 566 693 504 Electricity 20 836 6 792 12 235 27 875 1 288 492 Construction 13 998 9 024 1 004 24 026 904 173 Wholesale 75 801 31 396 752 107 949 3 077 1 661 Transport 28 957 15 205 653 44 815 899 619 Finance, real estate and other business services 312 738 60 414 146 265 102 328 621 745 2 380 805 Private households 446 408 67 159 513 567 24 041 9 459 Other 152 144 14 960 1 238 303 168 645 1 417 646
Total 1 214 168 282 035 147 515 107 034 1 750 752 38 421 15 862 6 790
1 Amount before the application of any applicable offset, mitigation or netting.
BASEL: TOTAL GROSS EXPOSURE BY TYPE OF INDUSTRY (%)
June 2016 December 2015
Finance, real estate and other business services 33 36
Private households 31 29
Agriculture, mining, manufacturing, electricity, construction and transport 18 19
Other 13 10
Wholesale 5 6
28 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
BASEL: EXPOSURES BY TYPE OF ASSET AND GEOGRAPHIC REGION1
On-balance
sheetRm
Off-balance
sheetRm
SFTRm
Derivative instru-ments
Rm
Total gross
exposureRm
Gross defaulted
exposuresRm
Impairment of exposures
SpecificRm
PortfolioRm
June 2016South Africa 829 353 190 253 38 797 26 331 1 084 734 29 013 10 837 Other African countries 241 053 55 697 5 826 2 003 304 579 9 201 3 928 Europe 49 551 8 711 106 665 25 584 190 511 Asia 30 975 3 398 3 555 6 441 44 369 2 311 1 145 North America 20 586 7 197 688 12 560 41 031 South America 8 336 172 8 508 Other 10 514 3 868 25 52 14 459 362 263
Total 1 190 368 269 296 155 556 72 971 1 688 191 40 887 16 173 7 623
December 2015 South Africa 809 968 200 162 41 284 28 978 1 080 392 26 486 10 069 Other African countries 268 858 57 110 4 874 2 789 333 631 9 491 4 114 Europe 46 389 13 182 99 300 50 801 209 672 Asia 46 216 3 522 998 10 354 61 090 1 779 1 217 North America 22 848 4 942 561 14 090 42 441 South America 11 498 411 11 909 232 235 Other 8 391 2 706 498 22 11 617 433 227
Total 1 214 168 282 035 147 515 107 034 1 750 752 38 421 15 862 6 790
1 Amount before the application of any applicable offset, mitigation or netting.
BASEL: TOTAL GROSS EXPOSURE BY GEOGRAPHIC REGION (%)
June 2016 December 2015
South Africa 64 62
Rest of Africa 18 19
Outside Africa 18 19
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
29
BASEL: EXPOSURES BY RESIDUAL CONTRACTUAL MATURITY1
Less than 1 year
Rm
1 to 5 years
Rm
Greater than 5 years
Rm
Total gross exposure
Rm
June 2016Corporate 207 882 336 439 76 017 620 388Sovereign 188 516 30 175 13 145 231 836 Banks 192 532 25 005 16 658 234 195 Retail exposure 161 056 53 900 386 866 601 822
Retail mortgages 3 186 6 715 350 012 359 913 QRRE 98 837 98 837 Other retail 59 033 47 185 36 854 143 072
Total 748 896 456 519 492 686 1 688 191
December 2015 Corporate 275 685 322 036 60 979 658 700 Sovereign 189 932 40 036 7 920 237 888 Banks 199 898 37 599 18 077 255 574 Retail exposure 168 776 60 650 369 164 598 590
Retail mortgages 2 621 3 023 348 798 354 442 QRRE 97 735 97 735 Other retail 68 420 57 627 20 366 146 413
Total 834 291 460 321 456 140 1 750 752
1 Amount before the application of any applicable offset, mitigation or netting.
30 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Estimated losses versus actual lossesThe table on the following page provides a comparison of actual PDs, LGDs and EADs to the estimated through-the-cycle PDs, LGDs and EADs.
Note that this comparison is an approximation as the PD, LGD and EAD actual and estimated parameters are different for reasons that include the following:
• Estimated PDs are determined at the beginning of a 12-month horizon using calibrated regulatory models. The models are calibrated to long-run default experience to ensure stable regulatory models over an entire credit cycle and would tend to underestimate actual defaults at the top of the credit cycle and overestimate actual defaults at the bottom of the credit cycle. Actual PDs are the defaults experienced over the 12-month period.
• LGD estimates are determined at the beginning of a 12-month horizon using the regulatory long-run average based models that include downturn adjustments. Actual LGD values can take several years to be determined as defaulted exposures have to reach a write-off stage to allow for accurate LGD calculations. In order to determine comparable actual LGD values, all accounts that reached a write-off stage during the previous three-year period were used to determine the actual LGD values.
• The EAD ratio reflects estimated through-the-cycle EADs, used to derive the regulatory expected loss, as a percentage of EADs derived from the actual losses. In order to be meaningful the calculated EADs are computed as averages over a three-year period.
The analysis is based on the AIRB portfolios only.
The zero or low level of sovereign defaults experienced in the AIRB portfolio during the period did not allow for a meaningful calculation of actual LGD and PD values for sovereign values (bank and sovereign, for the comparative period as applicable) or a meaningful calculation of sovereign or bank’s EAD ratios.
Loss analysisActual lossesThe table below shows the actual losses experienced in the group’s IRB exposure classes for the period ended 30 June 2016, compared to 30 June 2015 and 31 December 2015.
Actual losses comprise impairments as determined by IFRS for IRB exposure class, and exclude post write-off recoveries. The values displayed in the table below exclude all standardised approach portfolios.
BASEL: ANALYSIS OF ACTUAL LOSSES
June June December
2016 2015 2015
Rm Rm Rm
IRB exposure classCorporate 469 641 753 Retail exposure 3 709 3 617 6 591
Retail mortgages 1 124 1 220 1 920 QRRE 1 756 1 650 3 155 Other retail 829 792 1 516
Total 4 179 4 258 7 344
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
31
BASEL: IRB EXPOSURE CLASS1, 2
PD LGD EAD
Estimated%
Actual%
Estimated%
Actual%
Estimate toactual ratio
%
June 2016Corporate 1.15 0.90 29.63 31.59 101.70Sovereign 0.30 27.55Banks 0.52 1.12 41.81 54.40Retail exposure 3.94 3.84 27.40 23.26 102.41
Retail mortgages 3.76 3.23 17.43 14.80 99.85QRRE 5.22 6.21 63.85 52.15 105.19Other retail 3.47 3.87 36.09 35.56 107.10
Total 2.41 2.30 28.20 25.52 102.04
December 2015Corporate 1.22 0.80 30.66 24.70 97.95 Sovereign 0.38 33.64 Banks 0.67 0.50 38.51 55.79 Retail exposure 3.97 4.09 28.36 23.95 102.41
Retail mortgages 3.81 3.56 17.99 15.06 100.00 QRRE 5.18 6.22 64.43 52.66 105.19 Other retail 3.46 3.93 39.88 36.64 106.60
Total 2.47 2.34 28.60 24.04 101.91
December 2014Corporate 1.60 0.62 33.00 21.96 110.10 Sovereign 2.23 29.22 Banks 0.93 40.74 Retail exposure 4.01 4.57 27.10 22.91 102.72
Retail mortgages 3.97 4.21 18.64 15.53 101.11 QRRE 4.91 6.33 63.72 51.21 104.47 Other retail 3.43 4.22 42.25 41.98 106.51
Total 2.56 2.15 27.49 22.79 102.88
1 Excludes all the standardised approach and foundation IRB portfolios.2 No data in the columns headed actual reflects either that no default occurred or, if there was a default, there was no loss incurred.
32 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Swaps and Derivatives Association agreements, with a credit support annexure. Other credit protection terms may be stipulated, such as limitations on the amount of unsecured credit exposure acceptable, collateralisation if the mark-to-market credit exposure exceeds acceptable limits, and termination of the contract if certain credit events occur, for example, downgrade of the counterparty’s public credit rating.
Wrong-way risk arises in transactions where the likelihood of default by a counterparty and the size of credit exposure to that counterparty tend to increase at the same time. This risk is managed both at an individual counterparty level and at an aggregate portfolio level by limiting exposure to such transactions, taking adverse correlation into account in the measurement and mitigation of credit exposure and increasing oversight and approval levels.
Specific wrong-way risk occurs when there is a direct or very strong positive correlation between a counterparty exposure and the PD of the counterparty. The group’s policy is to avoid this risk altogether.
To manage actual or potential portfolio risk concentrations in areas of higher credit risk and credit portfolio growth, the group implements hedging and other strategies from time-to-time. This is done at individual counterparty, sub-portfolio and portfolio levels through the use of syndication, distribution and sale of assets, asset and portfolio limit management, credit derivatives and credit protection.
Gross exposure June 2016 Gross exposure December 2015 Credit risk mitigation June 2016 Credit risk mitigation December 2015
BASEL: EXPOSURE AND MITIGATIONBY ASSET CLASS (Rbn)
700
600
500
400
300
200
100
Corporate Banks Sovereign Retail
Credit risk mitigationWherever warranted, the group will attempt to mitigate credit risk to any counterparty, transaction, sector, or geographic region, so as to achieve the optimal balance between risk, cost, capital utilisation and reward. Risk mitigation may include the use of collateral, the imposition of financial or behavioural covenants, the acceptance of guarantees from a counterparty’s parents or third parties, the recognition of a counterparty’s parental support, and the distribution of risk.
Collateral, guarantees, credit derivatives and on- and off-balance sheet netting are widely used to mitigate credit risk. Credit risk mitigation policies and procedures ensure that risk mitigation techniques are acceptable, used consistently, valued appropriately and regularly, and meet the risk requirements of operational management for legal, practical and timely enforcement. Detailed processes and procedures are in place to guide each type of mitigation used.
In the case of collateral, it is evaluated for the minimum criteria of being firstly readily marketable and liquid both initially and for the foreseeable future; and secondly it should be legally perfected and enforceable, preferably with no material positive correlation to the counterparty.
The main types of collateral obtained by the group for its banking book exposures include:
• mortgage bonds over residential, commercial and industrial properties
• cession of book debts
• pledge and cession of financial assets
• bonds over plant and equipment
• the underlying movable assets financed under leases and instalment sales.
Reverse repurchase agreements and commodity leases to customers are collateralised by the underlying assets.
Guarantees and related legal contracts are often required, particularly in support of credit extension to groups of companies and weaker counterparties. Guarantor counterparties include banks, parent companies, shareholders and associated counterparties. Creditworthiness is established for the guarantor as for other counterparty credit approvals.
For derivative transactions and where collateral support is considered necessary, the group typically uses internationally recognised and enforceable International
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
33
BASEL: CREDIT RISK MITIGATION FOR PORTFOLIOS UNDER THE IRB APPROACH
Eligible financial
collateralRm
Othereligible IRB
collateralRm
Guarantees and credit
derivativesRm
Effects of netting
agreements1
Rm
Totalcredit riskmitigation
Rm
Total exposure
Rm
June 2016Corporate 43 430 88 085 2 202 16 012 149 729 467 498 Sovereign 15 625 796 3 118 1 917 21 456 116 580 Banks 103 872 44 626 148 498 202 249 Retail exposures 388 171 388 171 542 907
Retail mortgages 327 598 327 598 342 148 QRRE 215 215 98 837 Other retail 60 358 60 358 101 922
Total 162 927 477 052 5 320 62 555 707 854 1 329 234
December 2015Corporate 63 790 78 829 868 23 289 166 776 482 259 Sovereign 14 753 890 494 16 137 131 526 Banks 84 269 71 562 155 831 218 646 Retail exposures 391 210 391 210 536 657
Retail mortgages 331 024 331 024 337 492 QRRE 219 219 97 735 Other retail 59 967 59 967 101 430
Total 162 812 470 929 868 95 345 729 954 1 369 088
1 Netting is not equivalent to offsetting in terms of IFRS.
BASEL: CREDIT RISK MITIGATION FOR PORTFOLIOS UNDER THE STANDARDISED APPROACH
Eligible financial
collateralRm
Effects of netting
agreements1
Rm
Totalcredit riskmitigation
Rm
Total exposure
Rm
June 2016Corporate 19 338 154 19 492 152 840 Sovereign 115 256 Banks 1 124 542 1 666 31 946 Retail 59 59 58 915
Total 20 521 696 21 217 358 957
December 2015 Corporate 18 749 4 602 23 351 176 441 Sovereign 106 362 Banks 36 928 Retail 249 249 61 933
Total 18 998 4 602 23 600 381 664
1 Netting is not equivalent to offsetting in terms of IFRS.
34 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
The tables that follow detail the group’s exposure to SFT and derivatives.
BASEL: SFT
June December
2016 2015
Rm Rm
ExposureWith master netting agreement 12 780 13 173 Without master netting agreement 142 776 134 342
Total 155 556 147 515
CollateralCash 37 723 41 980 Debt securities 108 870 97 113 Equities 10 203 12 186
Total 156 796 151 279
EAD 8 736 6 523
Counterparty credit riskThe group is exposed to counterparty credit risk through movements in the fair value of securities financing and derivative contracts. The risk amounts reflect the aggregate replacement costs that would be incurred by the group in the event of counterparties defaulting on their obligations.
The group’s exposure to counterparty credit risk is affected by the nature of the trades, the creditworthiness of the counterparty, and underlying netting and collateral arrangements. Counterparty credit risk is measured in potential future exposure terms and recognised on a net basis where netting agreements are in place and are legally enforceable, or otherwise on a gross basis. Exposures are generally marked-to-market daily. Cash or near cash collateral is posted where contractually provided for.
Counterparty credit risk, reflecting both pre-settlement and settlement risk, is subjected to explicit credit limits which are formulated and approved for each counterparty and economic group, with specific reference to its credit rating and other credit exposures to that counterparty.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
35
BASEL: DERIVATIVES EXPOSURE
June December
2016 2015
Centrally cleared Centrally cleared
Non-centrally
clearedRm
On behalf of clients
Rm
Total exposure to CCPs
Rm
Non-centrally
clearedRm
On behalf of clients
Rm
Total exposure to CCPs
Rm
Notional principal amount1,2
Interest rate products 4 789 858 16 101 327 480 4 956 985 85 192 388 956 Foreign exchange and gold 1 704 325 8 327 9 885 1 717 497 3 121 48 732 Equities 43 186 201 601 279 375 63 183 138 746 196 287 Precious metals 254 87 2 686 64 Other commodities 5 710 37 643 37 698 8 860 58 066 58 136 Credit derivatives 49 238 51 551
Protection bought 49 238 49 216 Protection sold 2 335
Total 6 592 571 263 672 654 525 6 800 762 285 125 692 175
Netted current credit exposure after netting benefitGross positive fair value 79 226 677 2 397 101 621 633 4 780
Interest rate products 22 810 32 1 559 33 091 44 3 937 Foreign exchange and gold 53 910 78 99 64 600 21 107 Equities 1 528 398 587 1 891 211 285 Precious metals 5 1 173 1 Other commodities 510 169 151 1 268 357 450 Credit derivatives 463 598
Protection bought 463 560 Protection sold 38
Netting benefits3 (46 799) (456) (532) (81 651) (385) (489)
Total 32 427 221 1 865 19 970 248 4 291
EAD 30 924 3 171 11 711 33 828 2 800 10 778
CollateralCash 8 240 10 817 Debt securities 2 115 2 579
Total 10 355 13 396
1 Notional principal amount for derivative assets and liabilities.2 The notional principal, or notional amount, of a derivative contract is a hypothetical underlying quantity upon which interest rate or other payment obligations,
are computed. 3 Netting is not equivalent to offsetting in terms of IFRS.
36 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
The group uses SEs to securitise customer loans and advances that it has originated to diversify its sources of funding for asset origination, for capital efficiency purposes and to reduce risk. In addition, the group plays a secondary role as an investor in certain third party securitisation note issuances (SEs established by third parties).
The following SEs have been established by the group:
• Blue Granite Investments No. 1 (RF) Limited (BG 1)
• Blue Granite Investments No. 2 (RF) Limited (BG 2)
• Blue Granite Investments No. 3 (RF) Limited (BG 3)
• Blue Granite Investments No. 4 (RF) Limited (BG 4)
• Siyakha Fund (RF) Limited (Siyakha)
• Blue Titanium Conduit (RF) Limited (BTC).
SecuritisationSecuritisation is a transaction whereby the credit risk associated with an exposure, or pool of exposures, is tranched, typically through loan notes, and where payments to investors via the loan notes in the transaction are dependent upon the performance of the exposure or pool of exposures.
A traditional securitisation involves the transfer of the exposures being securitised to a structured entity (SE) that issues securities. In a synthetic securitisation, the tranching is achieved by the use of credit derivatives and the underlying exposures are not removed from the SOFP.
BASEL: ROLES FULFILLED IN SECURITISING ASSETS
Securitisation transactions Originator Investor ServicerLiquidityprovider
Creditenhancement
providerSwap
counterparty
Traditional securitisationsBG 1BG 2BG 3BG 4Siyakha
Asset-backed commercial paper programmeBTC
Third party transactions
BASEL: ANALYSIS OF SECURITISATION ACTIVITY
June December
2016 2015
Rm Rm
As investorRetail mortgages 2 273 2 987 Retail loans 1 209 924
Total activity 3 482 3 911
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
37
For local securitisations in South Africa, Moody’s Investor Services and/or Fitch act as rating agencies. R3,5 billion of securitisation activities took place during the period under review (31 December 2015: R3,9 billion) (relates to the facilitation of the securitisation of third-party assets into an SE that is not consolidated by the group).
The transfer of assets by the group to an SE may give rise to the full or partial derecognition of the financial assets concerned. Only in the event that derecognition is achieved are sales and any resultant gains or losses on disposals recognised in the financial statements. Where the SEs are consolidated at group level, such gains or losses are eliminated
BASEL: SECURITISATION TRANSACTIONS
Assettype
Year initiated
Expected close
Assetssecuritised
Rbn
Assets outstanding
Notes outstanding1
Retainedexposure1,2
June December June December June December
2016 2015 2016 2015 2016 2015
Rbn Rbn Rbn Rbn Rbn Rbn
Traditional securitisations 17,9 7,3 7,8 7,9 8,5 4,3 4,5
BG 13 Retail mortgages 2005 2032 4,6 0,8 0,8 0,8 0,9 0,7 0,7
BG 23 Retail mortgages 2006 2041 2,8 1,7 1,8 1,8 2,0 1,0 1,1
BG 33 Retail mortgages 2006 2032 3,0 1,3 1,4 1,5 1,6 0,9 0,9
BG 43 Retail mortgages 2007 2037 5,1 2,1 2,3 2,4 2,5 0,8 0,9
Siyakha4,5 Retail mortgages 2007 2043 2,4 1,4 1,5 1,4 1,5 0,9 0,9
Asset-backed commercial paper programmeBTC4,5 Various 2002 N/A N/A 3,4 3,2 3,4 3,2 0,4 0,2
Total 17,9 10,7 11,0 11,3 11,7 4,7 4,7
1 Capital plus accrued interest.2 Includes notes, first and second loss subordinated and notes held by BTC.3 Rating agency: Moody’s.4 Rating agency: Fitch/Global Credit Rating Co.5 Global Credit Rating Co. was appointed as a rating agency during the first half of 2016.
For originated and sponsored or administered securitisations consolidated under IFRS (that is, BG1 – 4, Siyakha and BTC), intragroup exposures to and between these securitisations have been eliminated and the underlying assets consolidated in the relevant sections and classes (that is, primarily retail mortgages) of the risk disclosure. Only exposures to securitisations of assets originated by third parties are disclosed on the following page. The approach applied in the calculation of RWA depends on the group’s approved model for the underlying assets and the existence of a rating from an eligible external credit assessment institution. To date, the group has applied the standardised approach, ratings-based approach and standard formula approach, where relevant, in the calculation of RWA.
38 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
monitoring loans are generally rated 22 to 25 using the
group’s master rating scale.
• early arrears but not specifically impaired loans: these
include those loans where the counterparty has failed to
make contractual payments and payments are less than
90 days past due, but it is expected that the full carrying
value will be recovered when considering future cash
flows, including collateral. Ultimate loss is unlikely but
could occur if the adverse conditions persist.
Non-performing loansNon-performing loans are those loans for which:
• the group has identified objective evidence of default,
such as a breach of a material loan covenant or condition
• instalments are due and unpaid for 90 days or more.
Non-performing but not specifically impaired loans are not
specifically impaired due to the expected recoverability of
BASEL: SECURITISED ON-BALANCE SHEET EXPOSURES
June December
2016 2015
Retail mortgages
Rm
Retail loans
RmTotal
RmTotal
Rm
Standardised – unrated1 150IRB 590 776 1 366 1 267
Unrated1 367 367 269Investment grade 223 776 999 998
Total 590 776 1 366 1 417
1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.
BASEL: SECURITISED OFF-BALANCE SHEET EXPOSURES
June December
2016 2015
Retail mortgages
Rm
Retail loans
RmTotal
RmTotal
Rm
Standardised – unrated1 350 IRB 3 117 175 3 292 3 538
Unrated1 2 514 2 514 2 720 Investment grade 603 175 778 818
Total 3 117 175 3 292 3 888
1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.
CREDIT PORTFOLIO CHARACTERISTICS AND METRICS IN TERMS OF IFRS
Analysis of loans and advancesThe tables on the pages that follow analyse the credit quality of loans and advances measured in terms of IFRS.
Maximum exposure to credit riskLoans and advances are analysed and categorised based on credit quality using the following definitions.
Performing loansPerforming loans are classified into two categories, namely:
• neither past due nor specifically impaired loans: these loans are current and fully compliant with all contractual terms and conditions. Normal monitoring loans within this category are generally rated 1 to 21, and close
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of Basel continued
39
• sub-standard: items that show underlying well-defined weaknesses and are considered to be specifically impaired.
• doubtful: items that are not yet considered final losses due to some pending factors that may strengthen the quality of the items.
• loss: items that are considered to be uncollectible in whole or in part. The group provides fully for its anticipated loss, after taking collateral into account.
the full carrying value when considering the recoverability of future cash flows, including collateral.
Non-performing specifically impaired loans are those loans that are regarded as non-performing and for which there has been a measurable decrease in estimated future cash flows.
Specifically impaired loans are further analysed into the following categories:
June 2016Rm
December 2015Rm
Non-performing but not specifically impaired loans 1 454 67
Specifically impaired loans 36 344 35 061
Sub-standard 9 614 8 105
Doubtful 19 772 20 664
Loss 6 958 6 292
June 2016Rm
December 2015Rm
Neither past due nor specifically impaired loans 1 018 969 1 026 337
Early arrears but not specifically impaired loans 38 463 38 582
Normal monitoring 996 480 1 008 010
Close monitoring 22 489 18 077
Performing loans
Non-performing loans
LOANS
Portfolio credit impairments recognised for these exposures
Specific credit impairments recognised for these exposures
40 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY
Performing loans
Neither past due nor specifically impaired
Not specifically impaired
Gross advances
totalRm
Normal monitoring
Rm
Close monitoring
Rm
Early arrears
Rm
Non-performing1
Rm
June 2016Personal & Business Banking 637 415 551 562 21 152 36 422
Mortgage loans 332 782 285 214 9 520 23 045 Vehicle and asset finance 80 929 69 771 3 009 4 802 Card debtors 31 683 26 027 1 470 1 907 Other loans and advances 192 021 170 550 7 153 6 668
Personal unsecured lending 54 866 41 716 4 213 4 183 Business lending and other 137 155 128 834 2 940 2 485
Corporate & Investment Banking 520 251 507 356 1 337 2 041 1 454
Corporate loans 456 410 443 810 1 337 2 041 1 450 Commercial property finance 63 841 63 546 4
Central and other (62 436) (62 438)
Gross loans and advances 1 095 230 996 480 22 489 38 463 1 454
Less:Impairments for loans and advances (23 796)
Net loans and advances 1 071 434 1 Includes loans of R37 million that are past due but not specifically impaired.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of IFRS continued
41
Non-performing loans
Specifically impaired loans
Sub-standard
RmDoubtful
RmLoss
RmTotal
Rm
Securities and
expected recoveries
on specifically
impaired loans
Rm
Net after securities
and expected
recoveries on
specifically impaired
loansRm
Balance sheet
impair-ments
for non-performing specifically
impaired loans
Rm
Gross specific
impairment coverage
%
Total non-
performing loans
Rm
Non-performing
loans%
6 440 16 139 5 700 28 279 16 158 12 121 12 121 43 28 279 4.4
3 975 10 522 506 15 003 10 927 4 076 4 076 27 15 003 4.5 461 1 385 1 501 3 347 1 701 1 646 1 646 49 3 347 4.1 671 531 1 077 2 279 711 1 568 1 568 69 2 279 7.2
1 333 3 701 2 616 7 650 2 819 4 831 4 831 63 7 650 4.0
488 3 318 948 4 754 1 255 3 499 3 499 74 4 754 8.7 845 383 1 668 2 896 1 564 1 332 1 332 46 2 896 2.1
3 174 3 633 1 256 8 063 4 013 4 050 4 050 50 9 517 1.8
3 075 3 444 1 253 7 772 3 880 3 892 3 892 50 9 222 2.0 99 189 3 291 133 158 158 54 295 0.5
2 2 2 2 2
9 614 19 772 6 958 36 344 20 171 16 173 16 173 44 37 798 3.5
42 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
IFRS: MAXIMUM EXPOSURE TO CREDIT RISK BY CREDIT QUALITY CONTINUED
Performing loans
Neither past due nor specifically impaired Not specifically impaired
Gross advances
totalRm
Normal monitoring
Rm
Close monitoring
Rm
Early arrears
Rm
Non-performing1
Rm
December 20152
Personal & Business Banking 645 475 564 911 16 396 36 482
Mortgage loans 325 867 280 713 8 203 22 163 Vehicle and asset finance 80 278 69 825 2 337 5 008 Card debtors 31 174 25 757 1 444 1 926 Other loans and advances 208 156 188 616 4 412 7 385
Personal unsecured lending 56 194 44 883 2 218 4 323 Business lending and other 151 962 143 733 2 194 3 062
Corporate & Investment Banking 526 333 515 112 1 681 2 100 67
Corporate loans 470 283 459 349 1 681 2 100 57 Commercial property finance 56 050 55 763 10
Central and other (72 011) (72 013)
Gross loans and advances 1 099 797 1 008 010 18 077 38 582 67
Less:Impairments for loans and advances (22 652)
Net loans and advances 1 077 145
1 Includes loans of R56 million that are past due but not specifically impaired.2 Restated. Refer to page 73.
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of IFRS continued
43
Non-performing loans
Specifically impaired loans
Sub-standard
RmDoubtful
RmLoss
RmTotal
Rm
Securities and
expected recoveries
on specifically
impaired loans
Rm
Net after securities
and expected
recoveries on
specifically impaired
loansRm
Balance sheet
impair-ments
for non-performing specifically
impaired loans
Rm
Gross specific
impairment coverage
%
Total non-
performing loans
Rm
Non-performing
loans%
6 735 15 890 5 061 27 686 15 921 11 765 11 765 42 27 686 4.3
4 257 10 066 465 14 788 10 896 3 892 3 892 26 14 788 4.5 557 1 437 1 114 3 108 1 547 1 561 1 561 50 3 108 3.9 596 481 970 2 047 644 1 403 1 403 69 2 047 6.6
1 325 3 906 2 512 7 743 2 834 4 909 4 909 63 7 743 3.7
441 3 381 948 4 770 1 265 3 505 3 505 73 4 770 8.5 884 525 1 564 2 973 1 569 1 404 1 404 47 2 973 2.0
1 370 4 774 1 229 7 373 3 278 4 095 4 095 56 7 440 1.4
1 310 4 570 1 216 7 096 3 166 3 930 3 930 55 7 153 1.5 60 204 13 277 112 165 165 60 287 0.5
2 2 2 2 2
8 105 20 664 6 292 35 061 19 199 15 862 15 862 45 35 128 3.2
44 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
IFRS: Movement in group loans and advances impairmentJune December
2016 2015
CorporateRm
Retailsecured
Rm
Retailunsecured
RmTotal
RmTotal
Rm
Specific impairmentsBalance at beginning of the period 4 095 5 453 6 314 15 862 13 392 Net impairment raised 756 1 783 2 489 5 028 9 153 Impaired accounts written off (503) (1 134) (1 944) (3 581) (6 920)Discount element recognised in interest income (1) (259) (146) (406) (869)Exchange and other movements (297) (121) (312) (730) 1 105
Balance at end of the period 4 050 5 722 6 401 16 173 15 862
Portfolio impairmentsBalance at beginning of the period 1 424 1 896 3 470 6 790 5 315 Net impairment raised 549 123 567 1 239 1 273 Exchange and other movements (283) (23) (100) (406) 202
Balance at end of the period 1 690 1 996 3 937 7 623 6 790
Total 5 740 7 718 10 338 23 796 22 652
RISK AND CAPITAL MANAGEMENT REPORT Credit risk Credit portfolio characteristics and metrics in terms of IFRS continued
45
IFRS: AGEING OF LOANS AND ADVANCES PAST DUE BUT NOT IMPAIRED
Less than 31 days
Rm
31 to 60 days
Rm
61 to 90 days
Rm
91 to 180 days
Rm
More than 180 days
RmTotal
Rm
June 2016Personal & Business Banking 21 851 9 221 5 350 36 422
Mortgage loans 13 036 6 237 3 772 23 045 Instalment sale and finance leases 3 192 1 154 456 4 802 Card debtors 1 111 462 334 1 907 Other loans and advances 4 512 1 368 788 6 668
Personal unsecured lending 2 616 977 590 4 183 Business term lending and other 1 896 391 198 2 485
Corporate & Investment Banking 818 990 233 37 2 078
Corporate loans 818 990 233 37 2 078
Total 22 669 10 211 5 583 37 38 500
December 2015Personal & Business Banking 22 859 8 820 4 803 36 482
Mortgage loans 13 172 5 818 3 172 22 162 Instalment sale and finance leases 3 364 1 135 510 5 009 Card debtors 1 100 488 338 1 926 Other loans and advances 5 223 1 379 783 7 385
Personal unsecured lending 2 946 827 550 4 323 Business term lending 2 277 552 233 3 062
Corporate & Investment Banking 915 1 179 6 37 20 2 157
Corporate loans 915 1 179 6 37 20 2 157
Total 23 774 9 999 4 809 37 20 38 639
Restructured (or renegotiated)loans and advancesRestructured loans and advances are exposures that, on meeting certain eligibility criteria, have been rescheduled, rolled over or otherwise modified following weaknesses in the counterparty’s financial position, and where it has been judged that contractual repayment under the revised conditions will likely continue after the restructure. All restructured exposures are assessed for impairment at the time of the restructure and continue to be assessed for impairment thereafter in accordance with the group’s accounting policies.
The adherence by restructured exposures to the revised terms and conditions is closely monitored. The performance monitoring period is the greater of three months, the
in-country regulatory requirement (where applicable) or the minimum period deemed appropriate by the relevant credit function. The minimum monitoring period for the group’s South African banking operations is six months as stipulated by the SARB directive 7 of 2015. Exposures are required to perform against the revised terms and conditions for the minimum performance monitoring period prior to reclassification from an arrears to a performing status. Subsequently these exposures, together with all other exposures, continue to be monitored to assess whether they are either past due or impaired, with impairments recognised in accordance with the group’s accounting policies. In addition, the group monitors the effectiveness of its restructure policies through, for example, monitoring the re-default rates of restructured exposures.
46 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
DEFINITION
Compliance risk is the risk of legal or regulatory sanction, financial loss or damage to reputation that the group may suffer as a result of its failure to comply with laws, regulations, codes of conduct and standards of good practice applicable to its financial services activities.
APPROACH TO MANAGING COMPLIANCE RISK
General approachIn terms of its mandate, the compliance function operates independently of business as a second line of defence function. The mandate is approved annually by the GAC and is drawn primarily from regulation 49 of the Banks Act.
The group’s proactive approach to managing compliance risk is standardised across the group and is premised on internationally accepted principles of compliance risk management and supervisory expectations.
Compliance risk management is a core risk management activity overseen by the GCCO. The GCCO has unrestricted access to the group chief executives and the chairman of the GAC, thereby supporting the function’s independence.
A comprehensive risk management reporting and escalation procedure requires business unit and functional area
compliance executives to report on the status of compliance risk management in the group to the GCCO, who escalates significant matters to group management, executive and independent board committees. These matters relate to key regulatory interaction and legislative developments, as well as significant compliance initiatives, current and developing compliance risks and exposures.
Attention to the group’s compliance technological capability and coverage in all jurisdictions continues to support both regulatory requirements and supervisory expectations.
The relationship with our primary regulator, the SARB, is based on mutual trust with an emphasis on regular and transparent communication.
Approach to conduct riskThe group seeks to create long-term sustainable returns for stakeholders within those jurisdictions where it operates. This value depends substantially upon the way in which the group conducts its business with clients and regulators, and how vendors conduct themselves. The group aspires to the highest standards of conduct, and has implemented a culture and conduct strategy to further develop and embed its focus on client outcomes and market integrity. As part of this strategy, the group has expanded culture and conduct governance at group and business unit level, and is further embedding the group values and code of ethics through a structured program of training, communication, and personal commitment. This process of embedding conduct in strategy, decision-making, and operational processes will position the group favourably to evolve with the developing regulatory landscape, thereby establishing credibility and trust with global regulators, and mitigating future conduct risk.
Compliancerisk
Definition 46
Approach to managing compliance risk 46
Governance 47
47
regulatory developments identify business model changes that will ensure the most efficient and effective approach to adoption and continued excellence in customer service. An integrated regulatory change management strategy ensures agility in a dynamic business and regulatory environment across multiple jurisdictions.
The group regulatory and legislative oversight committee enhances regulatory risk management by proactively considering the impacts of regulatory developments on the group. The governance structure for regulatory change ensures that clear active board-level sponsorship provides the appropriate ownership and accountability.
Approach to occupational health and safetyAny risks to the health and safety of employees and stakeholders resulting from hazards in the workplace and/or potential exposure to occupational illness are managed by the occupational health and safety team and are supported by executive management accountability structures.
GOVERNANCE
The primary management level governance committee overseeing compliance risk is the group compliance committee. It is chaired by the GCCO and is a subcommittee of GROC. Compliance is also represented on, and submits reports to, various group management and board committees, all of which facilitate awareness of compliance risk-related matters.
The principal governance document is the group compliance risk governance standard.
Approach to managing money laundering and terrorist financingLegislation pertaining to money laundering and terrorist financing control imposes significant requirements in terms of client due diligence, record keeping, staff training and the obligation to detect, prevent and report suspected money laundering and terrorist financing. Additional requirements are anticipated with the implementation of the Financial Intellegence Centre Amendment Bill. These obligations will include the requirement to be able to quantify, understand and mitigate the anti-money laundering and combating the financing of terrrorism risks inherent to the customer base. The group subscribes to the principles of the Financial Action Task Force, an intergovernmental body that develops and promotes policies to combat money laundering and terrorist financing. An integrated systems approach is being followed to support surveillance and reporting responsibilities.
Approach to sanctions managementThe group actively manages the legal, regulatory and reputational risk presented by persons and entities subject to embargoes or sanctions imposed by competent authorities. The sanctions surveillance capability staff complement continues to be enhanced to meet supervisory expectations. The group sanctions review committee, supported by the group sanctions desk, is responsible for providing advice and decisions on sanctions-related matters in a fluid sanctions environment.
Approach to managing regulatory changeThe group operates in a highly regulated industry across multiple jurisdictions and is increasingly subject to international legislation with extra-territorial reach.
The group aims to embed regulatory best-practice in its operations in a way that balances the interests of various stakeholders, while supporting the group’s strategic intent in the markets where the group has a presence.
The group’s regulatory advocacy and regulatory impact and strategy units assess the impact that emerging policy and regulation will have on the business and our stakeholder relationships. The group’s approach to regulatory advocacy is to engage with government policymakers, legislators, regulators and standard and policy setters in a proactive and constructive manner. The businesses impacted by new
48 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
DEFINITION
Country risk, also referred to as cross-border country risk, is the uncertainty that obligors (including the relevant sovereign, and including the obligations of group branches and subsidiaries in a country) will be able to fulfil obligations to the group given political or economic conditions in the host country.
APPROACH TO MANAGING COUNTRY RISK
All countries to which the group is exposed are reviewed at least annually. Internal rating models are used to determine ratings for jurisdiction, sovereign and transfer and convertibility risk. In determining the ratings, extensive use is made of the group’s network of operations, country visits and external information sources. These ratings are also a key input into the group’s credit rating models.
The model inputs are continuously updated to reflect economic and political changes in countries. The model outputs are internal risk grades that are calibrated to a jurisdiction risk grade from aaa to d, as well as sovereign risk grade and transfer and convertibility risk grade (SB) from SB01 to SB25. Countries with sovereign/jurisdiction risk ratings of SB07/a and weaker, referred to as medium- and high-risk countries, are subject to more detailed analysis and monitoring.
Country risk is mitigated through a number of methods, including:
• political and commercial risk insurance
• co-financing with multilateral institutions
• structures to mitigate transferability and convertibility risk such as collection, collateral and margining deposits outside the jurisdiction in question.
GOVERNANCE
The primary management level governance committee overseeing this risk type is the group country risk management committee. It is chaired by the group CRO and is a subcommittee of GROC.
The principal governance document is the country risk governance standard.
APPROVED REGULATORY CAPITAL APPROACHES
There are no regulatory capital requirements for country risk. Country risk is, however, incorporated into regulatory capital for credit in the IRB approaches through the jurisdiction risk and transfer and convertibility risk ratings’ impact on credit grades.
Approved regulatory capital approaches 48
Country risk portfolio characteristics and metrics 49
Countryrisk
Definition 48
Approach to managing country risk 48
Governance 48
49
COUNTRY RISK PORTFOLIO CHARACTERISTICS AND METRICS
The risk distribution of cross-border country risk exposures is weighted towards European and North American low-risk countries, as well as sub-Saharan African medium- and high-risk countries.
COUNTRY RISK EXPOSURE BY REGION AND RISK GRADE
Sub-Saharan
Africa%
Asia%
Australasia%
Europe%
LatinAmerica
%
Middle Eastand North
Africa%
NorthAmerica
%
June 2016Risk grade
SB01 – SB07 1.0 13.7 2.0 33.0 1.2 7.1 SB08 – SB11 4.6 0.1 0.3 2.2 SB12 – SB14 9.4 0.4 SB15 – SB17 17.5 0.7 SB18 – SB21 5.9 SB22+ 0.9
December 20151
Risk grade
SB01 – SB07 0.7 10.1 1.8 35.7 1.0 9.5 SB08 – SB11 4.6 0.4 0.5 2.6 SB12 – SB14 8.2 0.6 SB15 – SB17 22.6 0.4 SB18 – SB21 0.5 SB22+ 0.8
1 Restated. Refer to page 73.
Total medium- and high-risk country risk exposures and total low-risk exposures for the period ended 30 June 2016 amounted to USD6,5 billion and USD8 billion, respectively.
50 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Sub-Saharan Africa Asia Europe Latin America Middle East and North Africa
MEDIUM- AND HIGH-RISK COUNTRY EXPOSURE BY REGION (%): JUNE 2016
20
15
10
5
SB08 – SB11 SB12 – SB14 SB15 – SB17 SB18 – SB21 SB22+
Exposure to the top five medium- and high-risk countries is shown together with the comparatives in the graph below. These exposures are in line with the group’s growth strategy, which is focused on Africa and selected emerging markets.
In October 2015, China’s sovereign rating was changed from SB08 to SB07. The group’s exposure to China, totalling USD2,5 billion as at June 2016, is therefore not included in the graph below.
TOP FIVE MEDIUM- AND HIGH-RISK COUNTRY RISK EAD (USDm)
1 800
1 600
1 400
1 200
1 000
800
600
400
200
June 2016 December 2015
Nigeria Kenya Ghana Zambia Mozambique
SB08
MEDIUM- AND HIGH-RISK COUNTRY EAD CONCENTRATION BY COUNTRY RATING (%)
25
20
15
10
5
June 2016 December 20151
SB09 SB10 SB11 SB12 SB13 SB14 SB15 SB16 SB17 SB18 SB19 SB20 SB21 SB22+
1 Restated. Refer to page 73.
RISK AND CAPITAL MANAGEMENT REPORT Country risk continued
51
DEFINITION
Liquidity risk is defined as the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms.
The group’s liquidity risk framework is designed to ensure the comprehensive management of liquidity risks within the group in all geographies and that regulatory, prudential, as well as internal minimum requirements, are met at all times. This is achieved through a combination of maintaining adequate liquidity buffers to ensure that cash flow requirements can be met and ensuring that the group’s SOFP is structurally sound and supports its strategy. Liquidity risk is managed on a consistent basis across the group, allowing for local requirements.
Information relating to the period ended 30 June 2016 is based on Basel III principles, including behavioural profiling methods and assumptions, as well as phasing-in requirements where applicable.
APPROACH TO MANAGING LIQUIDITY RISK
The nature of the group’s banking and trading activities gives rise to continuous exposure to liquidity risk. Liquidity risk arises when the group, despite being solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations as they fall due, or can only do so at materially disadvantageous terms. This type of event may arise where counterparties, who provide the group with short-term funding, withdraw or do not roll over that funding, or normally liquid assets become illiquid as a result of a generalised disruption in asset markets.
The group manages liquidity in accordance with applicable regulations and within the group’s risk appetite framework. The group’s liquidity risk management governance framework supports the measurement and management of liquidity across both the corporate and retail sectors to ensure that payment obligations can be met by the group’s legal entities, under both normal and stressed conditions. Liquidity risk management ensures that the group has the appropriate amount, diversification and tenor of funding and liquidity to support its asset base at all times.
Liquidity characteristics and metrics 53
The group’s credit ratings 57
Conduits 57
Funding andliquidity risk
Definition 51
Approach to managing liquidity risk 51
Governance 53
52 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
The group manages liquidity risk as three interrelated pillars, which are aligned to Basel III liquidity requirements.
LIQUIDITY MANAGEMENT CATEGORIES
manage intra-day liquidity positions
monitor interbank and repo shortage levels
monitor daily cash flow requirements
manage short-term cash flows
manage daily foreign currency liquidity
set deposit rates in accordance with structural and contingent liquidity requirements as informed by ALCO.
TACTICAL (SHORTER-TERM)LIQUIDITY RISK MANAGEMENT
ensure a structurally sound SOFP
identify and manage structural liquidity mismatches
determine and apply behavioural profiling
manage long-term cash flows
preserve a diversified funding base
inform term funding requirements
assess foreign currency liquidity exposures
establish liquidity risk appetite
ensure appropriate transfer pricing of liquidity costs
ensure Basel III NSFR readiness by 1 January 2018.
STRUCTURAL (LONG-TERM) LIQUIDITY RISK MANAGEMENT
monitor and manage early warning liquidity indicators
establish and maintain contingency funding plans
undertake regular liquidity stress testing and scenario analysis
convene liquidity crisis management committees, if needed
set liquidity buffer levels in accordance with anticipated stress events
advise on the diversification of liquidity buffer portfolios
ensure compliance with Basel III LCR.
CONTINGENCY LIQUIDITYRISK MANAGEMENT
The LCR is a metric introduced by the BCBS to measure a bank’s ability to manage a sustained outflow of customer funds in an acute stress event over a 30-day period. The ratio is calculated by taking the group’s high-quality liquid assets (HQLA) and dividing it by net cash outflows. The minimum regulatory LCR requirement for 2016 is 70%, increasing by 10% annually to reach 100% by 1 January 2019.
The group has exceeded the 70% minimum phase-in requirement for the period ended 30 June 2016.
From 2018, the group will also be required to comply with the Basel III NSFR. This is a metric designed to ensure that the
majority of term assets are funded by stable sources, such as capital, term borrowings or other stable funds.
The group continues to evaluate the funding impact relating to the Basel III NSFR. In August 2016, the SARB issued a final directive confirming that the funding received from financial corporates, excluding banks, maturing within six months receives an available stable funding factor of 35%. The group, together with the local banking industry, continues to engage through the Banking Assocation South Africa with the SARB to explore further market-based solutions to ensure that the NSFR framework aligns to local industry conditions and requirements.
BASEL III IMPLEMENTATION TIMELINE
2016 2017 2018 2019
70% minimum standard 80% minimum standard 90% minimum standard 100%
100% 100%
LCR
NSFRLiq
uid
ity
RISK AND CAPITAL MANAGEMENT REPORT Funding and liquidity risk continued
53
The group, in line with the SARB’s requirements, updates and submits its recovery and resolution plans to the SARB annually. The group’s recovery plan incorporates the contingent liquidity funding plan in addition to the focus given to capital planning and business continuity planning.
Liquidity stress testing and scenario analysisStress testing and scenario analysis are based on both hypothetical as well as historical events. These are conducted on the group’s funding profiles and liquidity positions. The crisis impact is typically measured over a 30 calendar day period as this is considered the most crucial time horizon for a liquidity event. This measurement period is also consistent with the Basel III LCR requirements.
Anticipated on- and off-balance sheet cash flows are subjected to a variety of bank-specific and systemic stresses and scenarios to evaluate the impact of unlikely but plausible events on liquidity positions. The results are assessed against the liquidity buffer and contingency funding plans to provide assurance as to the group’s ability to maintain sufficient liquidity under adverse conditions.
Internal stress testing metrics are supplemented with the regulatory Basel III LCR in monitoring the group’s ability to survive severe stress scenarios.
The Basel III LCR analysis that follows includes banking and/ or deposit taking entities and represents an aggregation of the relevant individual net cash outflows and HQLA portfolios. These results reflect the simple average for the quarters ended 30 June 2016 and 31 December 2015.
GOVERNANCE
The primary governance committee overseeing liquidity risk is the group ALCO, which is chaired by the group financial director and is a subcommittee of GROC. ALCOs have been established in each of the banking subsidiaries of the group and manage in-country liquidity risk.
The principal governance documents are the liquidity risk governance standard and model risk governance framework.
LIQUIDITY CHARACTERISTICS AND METRICS
Contingency liquidity risk managementContingency funding plansContingency funding plans are designed to protect stakeholder interests and maintain market confidence in the event of a liquidity crisis. The plans incorporate an early warning indicator process supported by clear crisis response strategies. Early warning indicators cover bank-specific and systemic crises and are monitored according to assigned frequencies and tolerance levels.
Crisis response strategies are formulated for the relevant crisis management structures and address internal and external communications and escalation processes, liquidity generation management actions and operations, and heightened and supplementary information requirements to address the crisis event. The updating of contingency funding plans while considering budget forecasting continues to be a focus for the asset and liability management teams across the group.
54 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
RISK AND CAPITAL MANAGEMENT REPORT Funding and liquidity risk continued
LCR (AVERAGE)June December
20161 20152
Total unweighted3
value (average)
Rm
Total weighted4
value (average)
Rm
Total unweighted3
value (average)
Rm
Total weighted4
value (average)
Rm
HQLA Total HQLA 187 333 160 476
Cash outflows 1 076 163 355 202 1 054 100 319 939
Retail deposits and deposits from small business customers, of which: 294 550 29 455 294 340 29 434
Stable deposits5 Less stable deposits 294 550 29 455 294 340 29 434
Unsecured wholesale funding, of which: 559 455 288 021 488 888 247 249
Operational deposits (all counterparties) and deposits in networks of cooperative banks 152 990 38 247 144 786 41 626 Non-operational deposits (all counterparties) 406 199 249 508 343 274 204 795 Unsecured debt 266 266 828 828
Secured wholesale funding 8 706 12 789 Additional requirements 94 584 21 154 94 386 19 821
Outflows related to derivative exposures and other collateral requirements 13 202 10 243 9 405 8 324 Outflows related to loss of funding on debt products 2 640 2 640 2 694 2 694 Credit and liquidity facilities 78 742 8 271 82 287 8 803
Other contractual funding obligations 3 257 3 257 3 625 3 625 Other contingent funding obligations 124 317 4 609 172 861 7 021
Cash inflows 221 332 176 370 190 561 148 692
Secured lending 38 955 30 266 32 150 28 556 Inflows from fully performing exposures 165 077 132 225 140 435 110 422 Other cash inflows 17 300 13 879 17 976 9 714
Totaladjusted
value6 Rm
Totaladjusted
value6 Rm
Total HQLA 187 333 160 476
Total net cash outflows 178 832 171 247
LCR (%) 104.8 93.7
1 The simple average of the month-end values at 30 April 2016, 31 May 2016 and 30 June 2016. 2 The simple average of the month-end values at 31 October 2015, 30 November 2015 and 31 December 2015. 3 Unweighted value represents the outstanding balances maturing or callable within 30 days (for inflows and outflows).4 Total weighted value is calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).5 Restated. Refer to page 73.6 Adjusted value calculated after the application of both (i) haircuts and inflow and outflow rates and (ii) any applicable caps (i.e. cap on level 2B and level 2
assets for HQLA and cap on inflows).
The group seeks to exceed the minimum LCR requirement with a sufficient buffer to allow for funding flow volatility as determined by its internal liquidity risk appetite. A buffer is maintained above the minimum regulatory requirement to cater for balance sheet and market volatility.
55
certain liquid assets. Behavioural profiling assigns probable maturities based on historical customer behaviour. This is used to identify significant additional sources of structural liquidity in the form of core deposits, such as current and savings accounts, which exhibit stable behaviour despite being repayable on demand or at short notice.
In order to highlight potential risks within the group’s defined liquidity risk thresholds, structural liquidity mismatch analyses are performed regularly to anticipate the mismatch between payment profiles of SOFP items.
The graph below shows the group’s cumulative maturity mismatch between assets and liabilities for the 0 to 12 months bucket after applying behavioural profiling. The cumulative maturity is expressed as a percentage of the group’s total funding-related liabilities.
Expected aggregate cash outflows are subtracted from expected aggregate cash inflows. Guidelines are set internally to restrict the cumulative liquidity mismatch between expected inflows and outflows of funds in different time buckets. These mismatches are monitored regularly with active management intervention if potential limit breaches are evidenced. Liquidity transfer restrictions across the group are considered as part of the prudent liquidity risk management assumptions that are followed.
The behaviourally adjusted cumulative liquidity mismatch remains within the group’s liquidity risk appetite.
While following a consistent approach to liquidity risk management in respect of the foreign currency component of the SOFP, specific indicators are observed in order to monitor changes in market liquidity, as well as the impacts on liquidity as a result of movements in exchange rates.
BEHAVIOURALLY ADJUSTED CUMULATIVELIQUIDITY MISMATCH1 (%)
10
5
0
(5)
(10)
(15)
(20)0 – 7days
0 – 1month
0 – 3months
0 – 6months
0 – 12months
June 2016 December 2015 Internal limit
1 % of funding-related liabilities.
Total contingent liquidityPortfolios of highly marketable liquid instruments to meet prudential, regulatory and internal stress testing requirements are maintained as protection against unforeseen disruptions in cash flows.
These portfolios are managed within ALCO-defined limits on the basis of diversification and liquidity.
The table below provides a breakdown of the group’s liquid and marketable instruments as at 30 June 2016 and 31 December 2015. Eligible Basel III LCR HQLA are defined according to the BCBS January 2013 LCR and liquidity risk monitoring tools framework. Managed liquidity represents unencumbered marketable instruments other than eligible Basel III LCR HQLA (excluding trading assets), which would be able to provide significant sources of liquidity in a stress scenario.
TOTAL CONTINGENT LIQUIDITY
June December
2016 20151
Rbn Rbn
Eligible LCR HQLA2
comprising: 182,7 172,7
Notes and coins 14,2 20,0 Balances with central banks 36,7 33,1 Government bonds and bills 110,5 103,0 Other eligible assets 21,3 16,6
Managed liquidity 146,6 140,0
Total contingent liquidity 329,3 312,7
Total contingent liquidity as a % of funding-related liabilities (%) 26.6 25.5
1 Restated. Refer to page 73. 2 Eligible LCR HQLA considers any liquidity transfer restrictions that will
inhibit the transfer of HQLA across jurisdictions.
Liquid assets held remain adequate to meet all internal stress testing, prudential and regulatory requirements.
Structural liquidity mismatchMaturity analysis of financial liabilities using behavioural profilingWith actual cash flows typically varying significantly from the contractual position, behavioural profiling is applied to assets, liabilities and off-balance sheet commitments, as well as to
56 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
FUNDING-RELATED LIABILITIES COMPOSITION1
June December2
2016 2015
Rbn Rbn
Corporate funding 366 385 Retail deposits3 324 332 Institutional funding 257 227 Deposits from banks 85 95 Government and parastatals 78 65 Senior debt 51 49 Term loan funding 49 42 Subordinated debt issued 26 24 Other liabilities to the public 4 7
Total funding-related liabilities 1 240 1 226
1 Composition aligned to Basel III liquidity classification.2 Restated. Refer to page 73.3 Comprises individual and small business customers.
Concentration risk limits are used within the group to ensure that funding diversification is maintained across products, sectors, geographic regions and counterparties.
DEPOSITOR CONCENTRATION
June December
2016 2015
% %
Single depositor 1.9 1.5Top 10 depositors 8.8 8.4
A component of the group’s funding strategy is to ensure that sufficient contractual term funding is raised in support of term lending and to ensure adherence to the structural mismatch tolerance limits and appetite guidelines.
The group successfully accessed the longer-term funding market during the first half of 2016 raising R21 billion (31 December 2015: R17 billion) in the form of senior and subordinated debt, as well as syndicated loans. SBSA issued R1,7 billion Basel III compliant tier II capital instruments for the period ended 30 June 2016 (31 December 2015: R3,6 billion).
The graph on the following page is a representation of the market cost of liquidity, which is measured as the spread
Funding activitiesFunding markets are continually evaluated to ensure appropriate group funding strategies are executed depending on the market, competitive and regulatory environment. The group continued to focus on building its deposit base as a key component of the group’s funding mix. Deposits sourced from South Africa and other major jurisdictions in the rest of Africa, Isle of Man and Jersey provide a diversity of stable sources of funding for the group.
Primary funding sources are in the form of deposits across a spectrum of retail and wholesale clients, as well as loan and debt capital markets across the group. Total funding-related liabilities grew from R1 226 billion as at 31 December 2015 to R 1 240 billion as at 30 June 2016.
FUNDING DIVERSIFICATION BY PRODUCT (%)
June 2016 December 2015
Call deposits 24 24
Term deposits 21 20
Current accounts 16 17
Cash management deposits 11 11
Deposits from banksand central banks 11 11
Negotiable certificates of deposits 9 9
Senior and subordinated debt 6 6
Savings accounts 2 2
RISK AND CAPITAL MANAGEMENT REPORT Funding and liquidity risk continued
57
credit risk governance framework and funding diversification. These parameters and their possible impact on the borrowing entity’s credit rating are monitored closely and incorporated into the group’s liquidity risk management and contingency planning considerations.
A downgrade in these ratings could have an adverse effect on the group’s access to liquidity sources and funding costs, may trigger collateral calls or lead to the activation of downgrade clauses and early termination associated with certain structured deposits. The group has implemented plans to mitigate the impact that a potential sovereign ratings downgrade could have on the group’s liquidity position and accompanying funding costs. Notwithstanding this mitigation, a ratings downgrade could likely have an impact on the cost and availability of foreign currency funding for the group.
Rating downgrades will reduce thresholds above which collateral must be posted with counterparties to cover the group’s negative mark-to-market on derivative contracts. These are managed within the liquidity management pillar. The potential cumulative impact on additional collateral requirements is as follows:
1, 2 AND 3 NOTCH RATING DOWNGRADES
June December
2016 2015
Rm Rm
Impact on the group's liquidity of a collateral call linked to downgrading by 1 notch 424 1652 notch 570 3313 notch 570 331
CONDUITS
The group provides standby liquidity facilities to two conduits, namely BTC and Thekwini Warehouse Conduit. These facilities, which totalled R5,8 billion as at 30 June 2016 (31 December 2015: R5,7 billion), had not been drawn on.
The liquidity risk associated with these facilities is managed in accordance with the group’s overall liquidity position and represents less than 2% of the group’s total liquidity (31 December 2015: 2%). The liquidity facilities are included in both the group’s structural liquidity mismatch, as well as in liquidity risk stress testing.
paid on the negotiable certificates of deposits (NCDs) relative to the prevailing swap curve for that tenor. The graph is based on actively-issued money market instruments by banks, namely 12- and 60-month NCDs. For the period under review, term funding costs continued to widen due to negative market risk sentiments arising from local economic conditions.
12- AND 60-MONTH LIQUIDITY SPREAD (basis points)
150
120
90
60
30
June2016
12-month NCD 60-month NCD
December2010
(Jan – Jun 2016)
THE GROUP’S CREDIT RATINGS
The group’s ability to access funding at cost-effective levels is dependent on maintaining or improving the borrowing entity’s credit rating.
The following table provides a summary of the major credit ratings for the group and its principal operating subsidiary, SBSA.
CREDIT RATINGS
Long-term Fitch
Group foreign currency issuer default rating BBB-SBSA foreign currency issuer default rating BBB-RSA sovereign foreign currency issuer default rating BBB-
Moody’s
Group issuer rating Baa3SBSA foreign currency deposit rating Baa2RSA sovereign foreign currency rating Baa2
Credit ratings for SBSA are dependent on multiple factors, including the South African sovereign rating, capital adequacy levels, quality of earnings, credit exposure, the
58 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
DEFINITION
Market risk is the risk of a change in the market value, actual or effective earnings, or future cash flows of a portfolio of financial instruments, including commodities, caused by adverse movements in market variables such as equity, bond and commodity prices, currency exchange and interest rates, credit spreads, recovery rates, correlations and implied volatilities in all of these variables.
The group’s key market risks are:
• trading book market risk
• IRRBB
• equity risk in the banking book
• foreign currency risk
• own equity-linked transactions
• post-employment obligation risk.
GOVERNANCE
The governance management level committees overseeing market risk are group ALCO, which is chaired by the group financial director, and the group equity risk committee, which is chaired by the CIB CRO. Both are subcommittees of GROC.
The principal governance documents are the market risk governance standard and the model risk governance framework.
APPROVED REGULATORY CAPITAL APPROACHES
The group has approval from the SARB to adopt the internal models approach for most asset classes and across most market variables in SBSA with the balance on the standardised model.
For material equity portfolios, the group has approval from the SARB to adopt either the market-based or PD/LGD approach.
There are no regulatory capital requirements for IRRBB, structural foreign exchange exposures or own equity-linked transactions.
TRADING BOOK MARKET RISK
DefinitionTrading book market risk is represented by financial instruments, including commodities, held in the trading book, arising out of normal global market’s trading activity.
Approach to managing market risk in the trading bookThe group’s policy is that all trading activities are undertaken within the group’s global markets’ operations.
The market risk functions are independent of the group’s trading operations and are accountable to the relevant legal entity ALCOs. ALCOs have a reporting line into group ALCO, a subcommittee of GROC.
Equity risk in the banking book 64
Foreign currency risk 64
Own equity-linked transactions 65
Post-employment obligation risk 66
Marketrisk
Definition 58
Governance 58
Approved regulatory capital approaches 58
Trading book market risk 58
Interest rate risk in the banking book 62
59
Where the group has received internal model approval, the market risk regulatory capital requirement is based on VaR and SVaR, both of which use a confidence level of 99% and a ten-day holding period.
Limitations of historical VaR are acknowledged globally and include:
• the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature
• the use of a one-day holding period assumes that all positions can be liquidated or the risk offset in one day. This will usually not fully reflect the market risk arising at times of severe illiquidity, when a one-day holding period may be insufficient to liquidate or hedge all positions fully
• the use of a 95% confidence level, by definition, does not take into account losses that might occur beyond this level of confidence.
VaR is calculated on the basis of exposures outstanding at the close of business and, therefore, does not necessarily reflect intra-day exposures. VaR is unlikely to reflect loss potential on exposures that only arise under significant market moves.
Trading book credit riskCredit issuer risk is assumed in the trading book by virtue of normal trading activity, and managed according to the market risk governance standard. These exposures arise from, among other things, trading in debt securities issued by corporate and government entities, as well as trading derivative transactions with other banks and corporate clients.
The credit spread risk is incorporated into the daily price movements used to compute VaR and SVaR mentioned above.
The VaR models used for credit risk are only intended to capture the risk presented by historical day-to-day market movements, and, therefore, do not take into account instantaneous or jump to default risk. Issuer risk is incorporated in the standardised approach interest rate risk charge for SBSA.
Stop-loss triggersStop-loss triggers are used to protect the profitability of the trading desks, and are monitored by market risk on a daily basis. The triggers constrain cumulative or daily trading losses through acting as prompt to a review or close-out positions.
All VaR and SVaR limits require prior approval from the respective entity ALCOs. The market risk functions have the authority to set these limits at a lower level.
Market risk teams are responsible for identifying, measuring, managing, monitoring and reporting market risk as outlined in the market risk governance standard.
Exposures and excesses are monitored and reported daily. Where breaches in limits and triggers occur, actions are taken by market risk functions to bring exposures back in line with approved market risk appetite, with such breaches being reported to management and entity ALCOs.
MeasurementThe techniques used to measure and control trading book market risk and trading volatility include VaR and SVaR, stop-loss triggers, stress tests, backtesting and specific business unit and product controls.
VaR and SVaRThe group uses the historical VaR and SVaR approach to quantify market risk under normal and stressed conditions.
For risk management purposes VaR is based on 251 days of unweighted recent historical data, a holding period of one day and a confidence level of 95%. The historical VaR results are calculated in the following four steps:
• calculate 250 daily market price movements based on 251 days’ historical data. Absolute movements are used for interest rates and volatility movements; relative for spot, equities, credit spreads, and commodity prices.
• calculate hypothetical daily profit or loss for each day using these daily market price movements
• aggregate all hypothetical profits or losses for day one across all positions, giving daily hypothetical profit or loss, and then repeat for all other days
• VaR is the 95th percentile selected from the 250 days of daily hypothetical total profit or loss.
Daily losses exceeding the VaR are likely to occur, on average, 13 times in every 250 days.
SVaR uses a similar methodology to VaR, but is based on a 251 day period of financial stress which is reviewed quarterly and assumes a ten-day holding period and a worst case loss. The ten-day period is based on the average expected time to reduce positions. The period of stress for SBSA is currently the 2008/2009 financial crises while for other markets more recent stress periods are used.
60 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Specific business unit and product controlsOther market risk limits and controls specific to individual business units include permissible instruments, concentration of exposures, gap limits, maximum tenor, stop-loss triggers, price validation and balance sheet substantiation.
RISK AND CAPITAL MANAGEMENT REPORT Market risk continued
Hypothetical income 95% VaR (including diversification benefits) 99% VaR (including diversification benefits)
BACKTESTING: HYPOTHETICAL PROFIT/LOSS AND VAR (Rm)
250
200
150
100
50
0
(50)
(100)January 2016 June 2016
Stress testsStress testing provides an indication of the potential losses that could occur under extreme but plausible market conditions, including where longer holding periods may be required to exit positions. Stress tests comprise individual market risk factor testing, combinations of market factors per trading desk and combinations of trading desks using a range of historical, hypothetical and Monte Carlo simulations. Daily losses experienced during the period ended 30 June 2016 did not exceed the maximum tolerable losses as represented by the group’s stress scenario limits.
BacktestingThe group backtests its VaR models to verify the predictive ability of the VaR calculations and ensure the appropriateness of the models within the inherent limitations of VaR. Backtesting compares the daily hypothetical profit and losses under the one-day buy and hold assumption to the prior day’s calculated VaR. In addition, VaR is tested by changing various model parameters, such as confidence
intervals and observation periods to test the effectiveness of hedges and risk-mitigation instruments.
Refer to the graph below for the results of the group’s backtesting for the period ended 30 June 2016. The hypothetical profit on 20 June 2016 is largely as a result of market volatility following the devaluation of the Nigerian Naira.
Regulators categorise a VaR model as green, amber or red and assign regulatory capital multipliers based on this categorisation. A green model is consistent with a satisfactory VaR model and is achieved for models that have four or less backtesting exceptions in a 12-month period at 99% VaR. All of the group’s approved models were assigned green status for the period under review (31 December 2015: green). Five exceptions occurred during the period ended 30 June 2016 (31 December 2015: 7) for 95% VaR and two exceptions (31 December 2015: zero) for 99% VaR.
61
Trading book portfolio characteristicsVaR for the period under reviewTrading book market risk exposures arise mainly from residual exposures from client transactions and limited trading for the group’s own account. In general, the group’s trading desks have run marginally lower levels of market risk throughout the year when compared to 2015.
TRADING BOOK NORMAL VAR ANALYSIS BY MARKET VARIABLE
Normal VaR
Maximum1
RmMinimum1
RmAverage
RmClosing
Rm
June 2016Commodities risk2 0,8 0,2 0,3 Foreign exchange risk 26,8 16,8 20,2 20,0 Equity position risk 18,4 3,8 8,7 17,6 Debt securities 31,7 15,8 23,5 19,2 Diversification benefits3 (21,9) (25,3)
Aggregate 41,6 22,8 30,7 31,8
December 2015 Commodities risk2 16,8 0,1 1,3 0,1 Foreign exchange risk 35,5 12,7 21,0 21,8 Equity position risk 24,8 3,5 9,4 12,1 Debt securities 38,8 16,5 27,3 26,5 Diversification benefits3 (24,2) (23,2)
Aggregate 52,4 23,7 35,0 37,2
1 The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different dates.
2 Commodity risk movement was due to Standard Bank Plc being included in the results for 2015 for one month prior to its disposal.3 Diversification benefits arise as a result of measuring the VaR of the trading portfolio as a whole, that is, the difference between the sum of the individual VaRs
and the VaR of the whole trading portfolio.
TRADING BOOK SVAR ANALYSIS BY MARKET VARIABLE
SVaR
MaximumRm
MinimumRm
AverageRm
ClosingRm
June 2016Pre-diversification 472,5 296,8 Aggregate 507,2 143,5 339,1 220,7
December 2015 Pre-diversification 541,6 616,3 Aggregate 516,7 244,9 381,2 440,0
62 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Approach to managing IRRBBBanking book-related market risk exposure principally involves managing the potential adverse effect of interest rate movements on banking book earnings (net interest income and banking book mark-to-market profit or loss) and the economic value of equity.
The group’s approach to managing IRRBB is governed by applicable regulations and influenced by the competitive environment in which the group operates. The group’s treasury and capital management team monitors banking book interest rate risk on a monthly basis operating under the oversight of group ALCO.
MeasurementThe analytical techniques used to quantify IRRBB include both earnings- and valuation-based measures. The analysis takes into account embedded optionality such as loan prepayments and accounts where the account behaviour differs from the contractual position.
The results obtained from forward-looking dynamic scenario analyses, as well as Monte Carlo simulations, assist in developing optimal hedging strategies on a risk-adjusted return basis.
Desired changes to a particular interest rate risk profile are achieved through restructuring on-balance sheet repricing or maturity profiles, or through derivative overlays.
INTEREST RATE RISK IN THE BANKING BOOK
DefinitionThis risk results from the different repricing characteristics of banking book assets and liabilities.
IRRBB is further divided into the following sub-risk types:
• repricing risk: timing differences in the maturity (fixed rate) and repricing (floating rate) of assets and liabilities.
• yield curve risk: shifts in the yield curve that have an adverse impact on the group’s income or underlying economic value.
• basis risk: hedge price not moving in line with the price of the hedged position. Examples include bonds/swap basis, futures/underlying basis and prime/Johannesburg Interbank Agreed Rate (JIBAR) basis.
• optionality risk: options embedded in asset and liability portfolios, providing the holder with the right, but not the obligation, to buy, sell, or in some manner alter the cash flow of an instrument or financial contract.
• endowment risk: exposure arising from the net differential between interest rate insensitive assets such as non-earning assets and interest rate insensitive liabilities such as non-interest paying liabilities and equity.
Analysis of trading profitThe graph below shows the distribution of daily profit and losses for the period. It captures trading volatility and shows the number of days in which the group’s trading-related profit or loss fell within particular ranges. The distribution is skewed favourably to the profit side.
For the period ended 30 June 2016, trading profit was positive for 127 out of 129 days (June 2015: 126 out of 128 days) on an aggregated global basis.
DISTRIBUTION OF DAILY TRADING PROFIT OR LOSS (Rm)
80
70
60
50
40
30
20
10
June 2016 June 2015
<0 30 60 90 >90
FR
EQ
UE
NC
Y O
F D
AY
S
RISK AND CAPITAL MANAGEMENT REPORT Market risk continued
63
Non-endowment IRRBB (repricing, yield curve, basis and optionality) is managed within the treasury and the global markets portfolios.
Banking book interest rate exposure characteristicsThe table below indicates the rand equivalent sensitivity of the group’s banking book earnings (net interest income and banking book mark-to-market profit or loss) and other comprehensive income (OCI) given a parallel yield curve shock. A floor of 0% is applied to all interest rates under the decreasing interest rate scenario resulting in asymmetric rate shocks in low-rate environments. Hedging transactions are taken into account while other variables are kept constant.
Assuming no management intervention, an upward 100 basis point parallel interest rate shock across all foreign currency yield curves and a 200 basis point parallel interest rate shock across rand yield curves would, based on the 30 June 2016 SOFP, increase the forecast 12-month net interest income by R2,9 billion (31 December 2015: R3,1 billion).
The group is well positioned for a rising interest rate environment.
LimitsInterest rate risk limits are set in relation to changes in forecast banking book earnings and the economic value of equity. The economic value of equity sensitivity is calculated as the net present value of aggregate asset cash flows less the net present value of aggregate liability cash flows.
All assets, liabilities and derivative instruments are allocated to gap intervals based on either their repricing or maturity characteristics. Assets and liabilities for which no identifiable contractual repricing or maturity dates exist are allocated to gap intervals based on behavioural profiling.
Hedging of endowment riskIRRBB is predominantly the consequence of endowment exposures, being the net exposure of non-rate sensitive liabilities and equity less non-rate sensitive assets.
The endowment risk is hedged using liquid instruments as and when it is considered opportune. Where permissible, hedge accounting (in terms of IFRS) is adopted using the derivatives designated as hedging instruments. Following meetings of the monetary policy committees, or notable market developments, the interest rate view is formulated through ALCO processes.
INTEREST RATE SENSITIVITY ANALYSIS1
ZAR USD GBP EUR Other Total
June 2016Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm 2 288 329 (9) (27) 321 2 902 Sensitivity of OCI Rm 5 (21) (233) (249)Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income Rm (2 335) (281) 4 (358) (2 970)Sensitivity of OCI Rm (5) 14 233 242
December 2015Increase in basis points 200 100 100 100 100 Sensitivity of annual net interest income2 Rm 2 417 335 5 (25) 383 3 115 Sensitivity of OCI Rm (3) (51) (136) (190)Decrease in basis points 200 100 100 100 100 Sensitivity of annual net interest income2 Rm (2 486) (245) (4) (429) (3 164)Sensitivity of OCI Rm 3 32 136 171
1 Before tax.2 Restated. Refer to page 73.
64 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Banking book equity portfolio characteristicsBASEL EQUITY POSITIONS IN THE BANKING BOOK1
June December
2016 2015
Rm Rm
Fair valueListed 116 147 Unlisted 2 246 2 805
Total 2 362 2 952
1 Banking book equity exposures are equity investments which comprise listed and unlisted private equity and strategic investments, and do not form part of the trading book.
FOREIGN CURRENCY RISK
DefinitionThe group’s primary non-trading related exposures to foreign currency risk arise as a result of:
• intragroup foreign-denominated debt
• foreign-denominated cash exposures
• foreign-denominated forecasted receipts, payments and accruals (transaction foreign currency risk).
In addition, from a group perspective, the group also manages the foreign currency translation effect on the group’s net assets in foreign operations including the realisation through dividends and other capital flows (NAV foreign currency risk).
Approach to managing foreign currency riskThe group foreign currency management committee, a sub-committee of the group ALCO, ensures that there is suitable governance in place for the protection of the group against foreign currency risks arising from the impact of foreign currency exchange rate fluctuations on the group’s SOFP and financial performance. More specifically, the group foreign currency management committee is responsible for the following:
• managing transaction foreign currency risk at an SBSA level
• overseeing the management of transaction foreign currency risk by each of the group’s other subsidiaries
• managing the group’s NAV currency risk.
EQUITY RISK IN THE BANKING BOOK
DefinitionEquity risk is defined as the risk of loss arising from a decline in the value of an equity or equity-type instrument held on the banking book, whether caused by deterioration in the underlying operating asset performance, net asset value (NAV), enterprise value of the issuing entity, or by a decline in the market price of the equity or instrument itself.
Though issuer risk in respect of tradable equity instruments constitutes equity risk, such traded issuer risk is managed under the trading book market risk framework.
Approach to managing equity risk in the banking bookEquity risk relates to all transactions and investments subject to approval by the group ERC, in terms of that committee’s mandate, and includes debt, quasi-debt and other instruments that are considered to be of an equity nature.
For the avoidance of doubt, equity risk in the banking book excludes strategic investments by the group in subsidiaries, associates and joint ventures deployed in delivering the group’s business and service offerings unless the group financial director and group CRO deem such investments to be subject to the consideration and approval by the group ERC.
GovernanceThe group ERC is constituted as a subcommittee of GROC and operates under delegated authority from that committee, with additional reporting accountability to the CIB equity governance committee.
GROC grants the group ERC authority to approve equity risk transactions to be held on the banking book and to manage such equity risk. This includes the authority to:
• exercise such powers as are necessary to discharge its responsibilities in terms of this mandate
• seek independent advice at the group’s expense, and investigate matters within its mandate
• delegate authority to a combination of group ERC voting members based on the investment size.
To the extent equity exposures approved by the group ERC are held on the banking book, they are substantively managed and reviewed according to the credit risk governance standard.
RISK AND CAPITAL MANAGEMENT REPORT Market risk continued
65
OWN EQUITY-LINKED TRANSACTIONS
DefinitionThe group has exposure to changes in its share price arising from its equity-linked remuneration contractual commitments.
Depending on the nature of the group’s equity-linked share schemes, the group is exposed to either income statement risk or NAV risk through equity risk due to changes in its own share price as follows:
• Income statement risk arises as a result of losses being recognised in the group’s income statement as a result of increases in the price of the group’s share price on cash-settled share schemes above the award grant price.
• NAV risk arises as a result of the group settling an equity-linked share incentive scheme at a price higher than the price at which the share incentive was granted to the group’s employees.
The following table summarises the group’s most material share schemes together with an explanation of which risk (where applicable) the share scheme exposes the group to, and why, and an indication as to whether the share schemes are hedged.
Transaction foreign currency risk is managed by taking into account naturally offsetting risk positions and, where deemed appropriate and cost effective, hedges the residual risk by means of derivatives such as forward exchange contracts, currency swaps and option contracts. The management of such risk takes into account applicable legislation and accounting parameters. Where required, hedging is undertaken in such a way that it does not constrain normal operating activities.
The group’s NAV foreign currency risk is managed taking into consideration existing legislation, South African exchange control regulations and accounting parameters. The repositioning of the group’s NAV by currency is a controlled process based on underlying economic views and forecasts of the relative strength of currencies. In particular, for banking entities outside of the South African common monetary area, the need for capital to fluctuate with RWA is taken into account. Where deemed appropriate and cost effective, the committee hedges the NAV foreign currency risk by means of forward exchange contracts and currency swaps.
Gains or losses on derivatives that have been designated as either net investment or cash flow hedging relationships in terms of IFRS, are reported directly in OCI, with all other gains and losses on derivatives being reported in profit or loss.
SHARE SCHEME RISK TO THE GROUP EXPLANATION HEDGED
Equity growth scheme and the group share incentive scheme
N/A The equity growth scheme and the group share incentive scheme equity-settled share schemes that are settled through the issuance of new shares. Accordingly, the group does not incur any cash flow in settling the share schemes and hence is not exposed to any risk as a result of changes in its own share price.
No
Quanto stock unit scheme
Income statement risk The Quanto stock unit scheme is a cash-settled share scheme. Increases in the group’s share price result in losses being recognised in the income statement.
Yes
Deferred bonus scheme and performance reward plan
NAV risk The deferred bonus scheme and performance reward plan are equity-settled share schemes that are settled through the purchase of shares from the external market. Accordingly, increases in the group’s share price above the grant price will result in losses being recognised in the group’s equity.
Yes
66 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
POST-EMPLOYMENT OBLIGATION RISK
The group operates both defined contribution plans and defined benefit plans, with the majority of its employees participating in defined contribution plans. The group’s defined benefit pension and healthcare provider schemes for past and certain current employees create post-employment obligations. Post-employment obligation risk arises from the requirement to contribute as an employer to an under- funded defined benefit plan.
The group mitigates these risks through independent asset managers and independent asset and liability management advisors for material funds. Potential residual risks which may impact the group are managed within the group asset and liability management process.
AFSRefer to the group’s 2015 annual fi nancial statements for more detail on the post-employment obligation risk.
Approach to managing own equity-linked transactionsThe ALCOs of the respective group entities, materially that of SBSA, that issue the equity linked transactions approve hedges of the group’s share price risk with quarterly reporting to group ALCO which is chaired by the group financial director. Hedging is undertaken taking into account a number of considerations which include:
• expected share price levels based on investment analyst reports
• the value of the issued share scheme awards
• the cost of hedging
• the ability to hedge taking into account the nature of the share scheme and applicable legislative requirements.
Hedging instruments typically include equity forwards and equity options. Hedge accounting in terms of IFRS is applied to the extent that the hedge accounting requirements are complied with.
In terms of the JSE’s Listing Requirements, hedges are only permitted to be transacted outside of the group’s closed periods which are in effect from 1 January and 1 July to the publication of the group’s year end and interim results respectively and where the group is trading under a cautionary announcement.
RISK AND CAPITAL MANAGEMENT REPORT Market risk continued
67
DEFINITION
Operational risk is defined as the risk of loss suffered as a result of the inadequacy or failure of internal processes, people and/or systems or from external events.
Operational risk subtypes are managed and overseen by specialist functions. These subtypes include:
• model risk
• tax risk
• legal risk
• environmental and social risk
• IT risk and IT change risk
• information risk
• cyber risk
• compliance risk (more information on page 46)
• financial crime risk
• physical commodities risk.
The following risk types are part of the extended operational risk taxonomy and are necessary for capital allocation purposes in the ICAAP process:
• physical assets risk
• human capital risk
• accounting and financial risk.
APPROACH TO MANAGING OPERATIONAL RISK
Operational risk exists in the natural course of business activity. The group operational risk governance standard sets out the minimum standards for operational risk management to be adopted across the group. The governance standard seeks to ensure adequate and consistent governance, identification, assessment, monitoring, managing and reporting of operational risk to support the group’s business areas. In addition, it ensures that the relevant regulatory criteria can be met by those banking entities adopting the AMA, and those adopting the basic indicator approach or the standardised approach for regulatory capital purposes.
The objective is not to eliminate all exposure to operational risk, as this would be neither commercially viable nor possible. The group’s approach to managing operational risk is to adopt fit-for-purpose operational risk practices that assist business line management in understanding their inherent risk and reducing their risk profile while maximising their operational performance and efficiency.
The operational risk management function is independent from business line management and is part of the second line of defence reporting to the group CRO. The core capabilities of operational risk ensure alignment and integration across:
• developing and maintaining the operational risk governance framework
• facilitating the business’s adoption of the framework
• regulatory oversight
• monitoring and assurance
• reporting
• challenging the risk profile.
Approved regulatory capital approach 68
Operational risk subtypes 68
Operationalrisk
Definition 67
Approach to managing operational risk 67
Governance 68
68 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
GOVERNANCE
The primary management level governance committees overseeing operational risk are GROC and the group operational risk committee. The primary governance documents are the operational risk governance standard and the operational risk governance framework.
Operational risk subtypes report to various governance committees and have governance standards which are aligned to overall operational risk governance and are applicable to each risk subtype.
APPROVED REGULATORY CAPITAL APPROACH
The group has approval from the SARB to use the AMA for SBSA and the standardised approach for all other legal entities.
The group has noted the developments regarding the Basel consultation process announced in March 2016, which seeks to remove internal modelling for operational risk from the Basel framework. This proposal entails replacing the AMA with the standardised measurement approach, a simplified formula-based capital calculation and is likely to materially impact the approaches used to estimate operational risk capital demand under both pillar 1 and pillar 2 of the Basel framework.
The group does not include insurance as a mitigant in the calculation of regulatory capital. However, the potential capital-mitigating impact of insurance is monitored to assist in identifying opportunities to further improve the effectiveness of the group’s insurance program.
OPERATIONAL RISK SUBTYPES
Operational risk subtype: model riskModel risk arises from potential weaknesses in a model that is used in the measurement, pricing and management of risk. These weaknesses include incorrect assumptions, incomplete information, inaccurate implementation, limited model understanding, inappropriate use or inappropriate methodologies leading to incorrect conclusions by the user.
Operational risk analyses root causes, trends and emerging threats, advises on the remediation of potential control weaknesses and recommends best practice solutions. Through the use of self-assessments and risk focused reviews, an independent monitoring and assurance team provides objective monitoring and assessment of the adequacy and effectiveness of implementing the operational risk governance framework. To ensure regulatory compliance, assessment of regulatory requirements to be implemented within embedded operational risk management functions is also provided.
Individual teams are dedicated to each business line and report to the business unit CRO with a functional reporting line to the group head of operational risk management. Operational risk provides dedicated teams to enabling functions such as finance, IT and human capital who work alongside the business areas and facilitate the adoption of the operational risk governance framework. As part of the second line of defence, they also monitor and challenge the business units’ and enabling functions’ management in respect of their operational risk profile.
Business continuity management is a process that identifies potential operational disruptions and provides a basis for planning for the mitigation of the negative impact from such disruptions. In addition, it promotes operational resilience and ensures an effective response that safeguards the interests of both the group and its stakeholders. The group’s business continuity management framework encompasses emergency response preparedness and crisis management capabilities to manage the business through a crisis to full recovery. The group’s business continuity capabilities are evaluated by testing business continuity plans and conducting crisis simulations.
Insurance coverThe group buys insurance to mitigate operational risk. This cover is reviewed on an annual basis. The group insurance committee, which is a subcommittee of GROC, oversees a substantial insurance programme designed to protect the group against loss resulting from its business activities.
The principal insurance policies in place are the group crime, professional indemnity, and group directors’ and officers’ liability policies. In addition, the group has fixed assets and liabilities coverage in respect of office premises and business contents, third-party liability for visitors to the group’s premises, and employer’s liability. The group’s business travel policy provides cover for group staff while travelling on behalf of the group.
RISK AND CAPITAL MANAGEMENT REPORT Operational risk Operational risk subtypes continued
69
Operational risk subtype: environmental and social riskEnvironmental risk is described as a measure of the potential threats to the environment. It combines the probability that events will cause or lead to the degradation of the environment and the magnitude of such degradation. Environmental risk includes risks related to or resulting from climate change, human activities or from natural processes that are disturbed by changes in natural cycles.
Social risk is described as risks to people, their livelihoods, health and welfare, socioeconomic development, social cohesion and the ability to adapt to changing circumstances.
Environmental and social risk assessment and management deals with two aspects:
• indirect risk: the environmental and social risks which occur as a result of our lending or financial service activities.
• direct risk: these include our direct environmental and social impact, such as our waste management and the use of energy and water within group facilities.
The environmental and social risk and finance team is responsible for the identification, management, monitoring and reporting of financing risks. Group policy, advocacy and sustainability is responsible for policy development, sustainability reporting and stakeholder engagement.
Operational risk subtype: IT risk and IT change riskIT risk encompasses both IT risk and IT change risk. The group’s IT risk refers to the risk associated with the use, ownership, operation, involvement, influence and adoption of IT within the group. It consists of IT-related events and conditions that could potentially impact the business. IT change risk refers to the risk arising from changes, updates or alterations made to the IT infrastructure, systems or applications that could affect service reliability and availability.
The group’s approach to managing model risk is based on fit-for-purpose governance, which includes:
• an approved model risk governance framework
• a three lines of defence governance structure comprising independent model development, model validation and IA oversight functions
• technical forums that challenge and recommend models for approval to model approval committees
• model approval committees with board and executive management membership based on model materiality and regulatory requirements
• policies that define minimum standards, materiality, validation criteria, approval criteria, validation frequency, and roles and responsibilities
• a skilled and experienced pool of technically competent staff is employed in the development, validation and audit functions.
Operational risk subtype: tax riskTax risk is the possibility of suffering unexpected loss, financial or otherwise, as a result of the application of tax systems, whether in legislative systems, rulings or practices, applicable to the entire spectrum of taxes and other fiscal imposts to which the group is subject.
The group’s approach to tax risk is governed by the GAC-approved tax risk control framework which, in turn, is supported by policies dealing with specific aspects of tax risk such as, for example, transfer pricing, indirect taxes, withholding taxes and remuneration taxes.
Operational risk subtype: legal riskLegal risk is defined as the exposure to adverse consequences, penalties or losses attendant upon non-compliance with contractual or statutory responsibilities and/or contractual or statutory rights being enforceable. This can rise from exposure to new laws, as well as changes in interpretations of existing law by appropriate authorities and contracts not being valid or incomplete or not recording the true intentions of the parties. This applies to the full scope of group activities and may also include others acting on behalf of the group.
The group has processes and controls in place to identify, manage and mitigate its legal risks.
70 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
The group manages this risk by identifying and managing malicious activity that poses a threat to the confidentiality, integrity and availability of the group’s information and technology assets. Identification and mitigation of cyber threats includes services to deliver both the proactive immobilisation of threats that are active in the group, and the identification, investigation, resolution and reporting of threats that have materialised into cyber incidents.
Operational risk subtype: financial crime riskFinancial crime risk is defined as the risk of economic loss, reputational risk and regulatory sanction arising from any type of financial crime against the group. It includes fraud, bribery, corruption, theft and integrity misconduct by staff, clients, suppliers, business partners, stakeholders and third parties. The group financial crime control function combats financial crime risk through the prevention, detection of, and response to, all financial crime incidents to mitigate economic loss, reputational risk and regulatory sanction. As is the case with the other functions within operational risk, group financial crime control maintains close working relationships with other risk functions, specifically compliance, legal risk and credit risk, and with other group functions such as legal, IA, IT, human capital, and finance.
Operational risk subtype: physical commodities riskThe group does not currently trade commodities that could arise in physical commodity inventory or collateral exposure with the exception of precious metals. In the normal course of its precious metal trading operations the bank does not hold allocated physical metal, however this may occur from time-to-time. Where this does occur, appropriate risk and business approval is required to ensure that the minimum requirements are satisfied, including but not limited to approval of risk limits and insurance cover.
As technology becomes increasingly important and integrated into business processes, the need for adequate and effective governance and management of IT resources, risks and any constraints becomes imperative.
The group IT committee has been delegated the authority to ensure the implementation of the IT governance framework. It delegates this responsibility to management. The group IT architecture governance committee and a group IT risk and compliance committee assists the group IT executive committee in the fulfilment of its architecture and risk obligations.
IT, as it relates to financial reporting and the going concern aspects of the organisation, is the responsibility of the GAC.
The group’s main IT risks include the failure or interruption of critical systems, cybercrime, unauthorised access to systems and the inability to serve its clients’ needs in a timely manner. These risks are mitigated through various controls which are implemented and closely monitored by management. The group continuously reviews and invests in its security systems and processes to ensure that its clients are well protected. Actions to reduce the likelihood of risks materialising are identified and accountabilities for remediation are allocated to management.
Operational risk subtype: information riskInformation risk is the risk of accidental or intentional unauthorised use, modification, disclosure or destruction of information resources, which would compromise the confidentiality, integrity or availability of information assets and which would potentially harm the group. Information risk relies on the Promotion of Access to Information Act 2 of 2000 which gives effect to the constitutional right of access to information that is held by a private or public body. The group privacy office has adopted a process in terms of this act to manage requests.
Operational risk subtype: cyber riskCyber risk encompasses the risk associated with any risk of financial loss, disruption or damage to the reputation of the organisation due to failures in its information technology systems through internal or external events.
RISK AND CAPITAL MANAGEMENT REPORT Operational risk Operational risk subtypes continued
71
Business risk is the risk of loss due to operating revenues not covering operating costs after excluding the effects of market risk, credit risk, structural interest rate risk and operational risk.
Business risk is, therefore, not directly attributable to internal operational failures or external market price events, but nevertheless covers a host of internal and external factors.
Business risk includes strategic risk. Strategic risk is the risk that the group’s future business plans and strategies may be inadequate to prevent financial loss or protect the group’s competitive position and shareholder returns. The group’s business plans and strategies are discussed and approved by executive management and the board and, where appropriate, subjected to stress tests.
Business risk is usually caused by the following:
• inflexible cost structures
• market-driven pressures, such as decreased demand, increased competition or cost increases
• group-specific causes, such as a poor choice of strategy, reputational damage or the decision to absorb costs or losses to preserve reputation.
The group mitigates business risk in a number of ways, including:
• performing extensive due diligence during the investment appraisal process, in particular for new acquisitions and joint ventures
• detailed analysis of the business case for, and financial, operational and reputational risk associated with, disposals
• the application of new product processes per business line through which the risks and mitigating controls for new and amended products and services are evaluated
• stakeholder management to ensure favourable outcomes from external factors beyond the group’s control
• monitoring the profitability of product lines and customer segments
• maintaining tight control over the group’s cost base, including the management of its cost-to-income ratio, which allows for early intervention and management action to reduce costs
• being alert and responsive to changes in market forces
• a strong focus in the budgeting process on achieving headline earnings growth while containing cost growth; and building contingency plans into the budget that allow for costs to be significantly reduced in the event that expected revenues do not materialise
• increasing the ratio of variable costs to fixed costs which creates flexibility to reduce costs during an economic downturn.
The primary governance committee for overseeing this risk is the group ALCO which is chaired by the group financial director. The primary governance document is the business risk governance standard.
Businessrisk
72 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Reputational risk is the risk of potential or actual damage to the group’s image that may impair the profitability and/or sustainability of its business.
Such damage may result from a breakdown of trust, confidence or business relationships on the part of clients, counterparties, shareholders, investors or regulators that can adversely affect the group’s ability to maintain existing business or generate new business relationships and continued access to sources of funding. The breakdown may arise from a number of factors or incidents such as a poor business model, continued losses and failures in risk management.
Safeguarding the group’s reputation is of paramount importance. There is growing emphasis on reputational risks arising from compliance breaches, as well as from ethical considerations linked to countries, clients and sectors, and environmental considerations.
The breakdown may be triggered by an event or may occur gradually over time. The group’s crisis management processes are designed to minimise the reputational impact of such events or developments. Crisis management teams are in place both at executive and business line level. This includes ensuring that the group’s perspective is fairly represented in the media.
The principal governance document is the reputational risk governance standard.
The group’s code of ethics is an important reference point for all staff. The group ethics officer and group chief executives are the formal custodians of the code of ethics.
Reputationalrisk
73
Restatements
NORMALISED TO IFRS REPORTING
For financial periods up to the end of December 2015, the group normalised its results to reflect the group’s view of the economics of its Tutuwa initiative and the group’s share exposures entered into to facilitate client trading activities and for the benefit of Liberty policyholders that are deemed to be treasury shares. The group’s comparative financial results have been restated to be presented on an IFRS basis.
Refer to page 8 and 42.
COUNTRY RISK
Country risk exposures have been grouped by country ceiling (which is a proxy for transfer and convertibility risk) rather than by country risk rating.
Refer to pages 49 and 50.
LCR (AVERAGE) – SBG AND SBSA
The previously reported stable deposits have been restated as the result of an incorrect classification.
Refer to pages 54 and 83.
TOTAL CONTINGENT LIQUIDITY
The internal stress methodology for liquidity has been updated and the comparative results have accordingly been restated.
Refer to page 55.
FUNDING-RELATED LIABILITIES COMPOSITION
Certain amounts in the comparative period have been reclassified in order to align with the classification of funding-related liabilities in the current period.
Refer to page 56.
INTEREST RATE SENSITIVITY
The comparative ZAR net interest income sensitivity has been restated as a result of previously including certain trading book loans in the interest rate sensitivity analysis. The sensitivity of such loans is included in the group’s VaR disclosures.
Refer to page 63.
Terms and conditions of capital instruments issued – SBG
June December
2016 2015
Rm Rm
Authorised 2 000 000 000 (31 December 2015: 2 000 000 000) ordinary shares of 10 cents each 200 2008 000 000 (31 December 2015: 8 000 000) 6,5% first cumulative preference shares of R1 each 8 81 000 000 000 (31 December 2015: 1 000 000 000) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each 10 10
218 218
IssuedOrdinary share capital1
1 618 175 588 (31 December 2015: 1 618 252 182) ordinary shares of 10 cents each 162 162
Ordinary share premium 17 778 17 784A premium of 155 million (31 December 2015: R309 million) was raised on the allotment and issue during the year of 1 309 717 ordinary shares (31 December 2015: 2 188 716).
During the period January to June 2016 there was a share buyback of 1 386 311 shares by the group (31 December 2015: R3 923 373). R161 million was reduced from ordinary share premium (31 December 2015: R399 million).
Preference share capital and premium 5 503 5 503
8 000 000 (31 December 2015: 8 000 000) 6,5% first cumulative preference shares of R1 each – first preference shares 8 8
52 982 248 (31 December 2013: 52 982 248) non-redeemable, non-cumulative, non-participating preference shares of 1 cent each – second preference shares 1 1
Preference share premium – non-redeemable, non-cumulative, non-participating preference shares – second preference shares 5 494 5 494
The non-redeemable, non-cumulative, non-participating preference shares are entitled to an annual dividend, if declared, payable in two semi-annual instalments of not less than 77%
of the prime interest rate multiplied by the subscription price of R100 per share. All classes of preference shares in issue are non-redeemable.
23 443 23 449
1 The number of issued shares differs from the IFRS number of issued shares due to the group's treasury share transactions.
74 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Capital instruments – main features disclosure template
84
Acronyms, abbreviations and other financial definitions
91
Terms and conditions of capital instruments issued – SBG
74
Composition of capital – SBG 75
Composition of capital – SBSA 79
LCR (average) – SBSA 83
Additional information
June December
2016 2015 Basel III
Rm Basel III
Rm
CET I capital 112 826 112 099
Instruments and reservesCET I capital before regulatory adjustments 142 379 141 597
Directly issued qualifying common share capital plus related stock surplus 17 940 17 946Retained earnings 119 707 112 657Accumulated other comprehensive income (and other reserves) 4 732 10 994Directly issued capital subject to phase out from CET I (only applicable to non-joint stock companies)
Public sector capital injections grandfathered until 1 January 2018Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET I) 5 128 5 896
Regulatory adjustmentsLess: total regulatory adjustments to CET I (34 681) (35 394)
Prudential valuation adjustments (52)Goodwill (net of related tax liability) (3 008) (4 152)Other intangibles other than mortgage-servicing rights (net of related tax liability) (18 867) (17 773)Deferred tax assets that rely on future profitability, excluding those arising from temporary differences (net of related tax liability) (696) (399)Cash flow hedge reserve 220 252Shortfall of provisions to expected losses (2 065) (2 186)Securitisation gain on saleGains and losses due to changes in own credit risk on fair valued liabilities (45) (179)Defined benefit pension fund net assets (285) (355)Investments in own shares (if not already netted of paid-in capital on reported balance sheet) (252) (244)Reciprocal cross-holdings in common equityInvestments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short
positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) (9 632) (10 358)Mortgage servicing rights (amount above 10% threshold) Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) Amount exceeding the 15% threshold, relating to:
Significant investments in the common stock of financials Mortgage servicing rights Deferred tax assets arising from temporary differences
National specific regulatory adjustments (3)
Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to CET I due to insufficient additional tier I and tier II to cover deductions
1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2016 and 31 December 2015.2 Group, including Liberty.
75
Composition of capital – SBG1,2
76 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
June December
2016 2015
Basel III Rm
Basel III Rm
Additional tier I capital 3 638 4 139
InstrumentsAdditional tier I capital before regulatory adjustments 3 638 4 139
Directly issued qualifying additional tier I instruments plus related stock surplus, classified as: 3 297 3 846
Equity under applicable accounting standards 3 297 3 846
Liabilities under applicable accounting standards
Directly issued capital instruments subject to phase out from additional tier I 5 495 5 495
Additional tier I instruments (and CET I instruments not included in common share capital) issued by subsidiaries and held by third parties (amount allowed in group
additional tier I), including: 341 293
Instruments issued by subsidiaries subject to phase out
Regulatory adjustmentsTotal regulatory adjustments to additional tier I capital
Investments in own additional tier I instrumentsReciprocal cross-holdings in additional tier I instrumentsInvestments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the
bank does not own more than 10% of the issued share capital(amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)National specific regulatory adjustments:
Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to additional tier I due to insufficient additional tier I due to insufficient tier II to cover deductions
Tier I capital 116 464 116 238
RISK AND CAPITAL MANAGEMENT REPORT Additional information Composition of capital – SBG continued
77
June December
2016 2015
Basel III Rm
Basel III Rm
Capital and provisions Tier II capital before regulatory adjustments 21 794 22 288
Directly issued qualifying tier II instruments plus related stock surplus
Directly issued capital instruments subject to phase out from tier II
Tier II instruments (and CET I and additional tier I instruments not included in common share capital and additional tier I instruments) issued
by subsidiaries and held by third parties (amount allowed in group tier II), including: 19 369 20 118
Instruments issued by subsidiaries subject to phase out 15 457 15 457
Provisions 2 425 2 170
Regulatory adjustments Total regulatory adjustments to tier II capital
Investments in own tier II instruments Reciprocal cross-holdings in tier II instruments Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions,
where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of
eligible short positions) National specific regulatory adjustments
Regulatory adjustments applied to tier II in respect of amounts subject to pre-Basel III treatment
Tier II capital 21 794 22 288
Total capital 138 258 138 526
Total RWA 912 822 944 039
RWA in respect of amounts subject to pre-Basel III treatment
Capital ratios and buffers CET I (as a percentage of RWA) % 12.4 11.9Tier I (as a percentage of RWA) % 12.8 12.3Total capital (as a percentage of RWA) % 15.1 14.7Institution specific buffer requirement (minimum CET I requirement plus capital conservation buffer plus CCyB requirements plus global systemically
important banks’ (G-SIB) buffer requirement, expressed as a percentage of RWA) % 6.9 6.5
Capital conservation buffer requirement % 0.6 Bank specific CCyB requirement % 0.0 G-SIB buffer requirement %
Common equity tier I available to meet buffers (as a percentage of RWA) % 5.2 5.3
78 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
June December
2016 2015
Basel III Rm
Basel III Rm
National minima (if different from Basel III) National CET I minimum ratio (if different from Basel III minimum) – excluding individual capital requirement (ICR) and D-SIBs % 6.9 6.5National tier I minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 8.1 8.0National total capital minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 10.4 10.0
Amounts below the threshold for deductions(before risk weighting)
Non-significant investments in the capital of other financials 391 423
Significant investments in the common stock of financials 12 246 12 246
Mortgage servicing rights (net of related tax liability) Deferred tax assets arising from temporary differences (net of related tax liability) 2 676 2 398
Applicable caps on the inclusion of provisions in tier II Provisions eligible for inclusion in tier II in respect of exposures subject to standardised approach (prior to application of cap) 2 425 2 170
Cap on inclusion of provisions in tier II under standardised approach 3 194 3 428Provisions eligible for inclusion in tier II in respect of exposures subject to internal ratings-based approach (prior to application of cap) Cap for inclusion of provisions in tier II under internal ratings-based approach 2 411 2 432
Capital instruments subject to phase-out arrangements(only applicable between 1 January 2018 and 1 January 2022)
Current cap on CET I instruments subject to phase out arrangements Amount excluded from CET I due to cap (excess over cap after redemptions and maturities) Current cap on additional tier I instruments subject to phase out arrangements Amount excluded from additional tier I due to cap (excess over cap after redemptions and maturities) Current cap on tier II instruments subject to phase out arrangements Amount excluded from tier II due to cap (excess over cap after redemptions and maturities)
RISK AND CAPITAL MANAGEMENT REPORT Additional information Composition of capital – SBG continued
June December
2016 2015 Basel III
Rm Basel III
Rm
CET I capital 68 387 66 717
Instruments and reservesCET I capital before regulatory adjustments 87 666 86 881
Directly issued qualifying common share capital plus related stock surplus 41 198 40 198Retained earnings 45 424 45 467Accumulated other comprehensive income (and other reserves) 1 044 1 216Directly issued capital subject to phase out from CET I (only applicable to non-joint stock companies)
Public sector capital injections grandfathered until 1 January 2018Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET I)
Regulatory adjustmentsLess: total regulatory adjustments to CET I (19 279) (20 164)
Prudential valuation adjustments (52)Goodwill (net of related tax liability) (42) (36)Other intangibles other than mortgage-servicing rights (net of related tax liability) (16 800) (17 494)Deferred tax assets that rely on future profitability, excluding those arising from temporary differences (net of related tax liability) (3) (4)Cash flow hedge reserve 24 92Shortfall of provisions to expected losses (2 076) (2 188)Securitisation gain on saleGains and losses due to changes in own credit risk on fair valued liabilities (45) (179)Defined benefit pension fund net assets (285) (355)Investments in own shares (if not already netted of paid-in capital on reported balance sheet)Reciprocal cross-holdings in common equityInvestments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short
positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)Mortgage servicing rights (amount above 10% threshold) Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) Amount exceeding the 15% threshold, relating to:
Significant investments in the common stock of financials Mortgage servicing rights Deferred tax assets arising from temporary differences
National specific regulatory adjustments
Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to CET I due to insufficient additional tier I and tier II to cover deductions
1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2016 and 31 December 2015.
Composition of capital – SBSA1
79
June December
2016 2015
Basel III Rm
Basel III Rm
Additional tier I capital
InstrumentsAdditional tier I capital before regulatory adjustments
Directly issued qualifying additional tier I instruments plus related stock surplus, classified as:
Equity under applicable accounting standards
Liabilities under applicable accounting standards
Directly issued capital instruments subject to phase out from additional tier I
Additional tier I instruments (and CET I instruments not included in common share capital) issued by subsidiaries and held by third parties (amount allowed in group
additional tier I), including:
Instruments issued by subsidiaries subject to phase out
Regulatory adjustmentsTotal regulatory adjustments to additional tier I capital
Investments in own additional tier I instrumentsReciprocal cross-holdings in additional tier I instrumentsInvestments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the
bank does not own more than 10% of the issued share capital(amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)National specific regulatory adjustments:
Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to additional tier I due to insufficient additional tier I due to insufficient tier II to cover deductions
Tier I capital 68 387 66 718
80 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
RISK AND CAPITAL MANAGEMENT REPORT Additional information Composition of capital – SBSA continued
81
June December
2016 2015
Basel III Rm
Basel III Rm
Capital and provisions Tier II capital before regulatory adjustments 20 861 21 316
Directly issued qualifying tier II instruments plus related stock surplus 20 510 20 965
Directly issued capital instruments subject to phase out from tier II 15 250 15 250
Tier II instruments (and CET I and additional tier I instruments not included in common share capital and additional tier I instruments) issued
by subsidiaries and held by third parties (amount allowed in group tier II), including:
Instruments issued by subsidiaries subject to phase out
Provisions 351 351
Regulatory adjustments Total regulatory adjustments to tier II capital (3 049) (2 923)
Investments in own tier II instruments Reciprocal cross-holdings in tier II instruments Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions,
where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) (3 049) (2 923)
Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of
eligible short positions) National specific regulatory adjustments
Regulatory adjustments applied to tier II in respect of amounts subject to pre-Basel III treatment
Tier II capital 17 812 18 393
Total capital 86 199 85 110
Total RWA 572 910 580 944
RWA in respect of amounts subject to pre-Basel III treatment 572 910 580 944
Capital ratios and buffers CET I (as a percentage of RWA) % 11.9 11.5Tier I (as a percentage of RWA) % 11.9 11.5Total capital (as a percentage of RWA) % 15.0 14.7Institution specific buffer requirement (minimum CET I requirement plus capital conservation buffer plus CCyB requirements plus G-SIBs buffer
requirement, expressed as a percentage of RWA) % 6.9 6.5
Capital conservation buffer requirement % 0.6 Bank specific CCyB requirement % 0.0 G-SIB buffer requirement %
Common equity tier I available to meet buffers (as a percentage of RWA) % 4.5 4.1
1 Disclosure based on prescribed SARB template. All blank line items are not applicable as at 31 December 2015.
82 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
June December
2016 2015
Basel III Rm
Basel III Rm
National minima (if different from Basel III) National CET I minimum ratio (if different from Basel III minimum) – excluding individual capital requirement (ICR) and D-SIBs % 6.9 6.5National tier I minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 8.1 8.0National total capital minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIBs % 10.4 10.0
Amounts below the threshold for deductions(before risk weighting)
Non-significant investments in the capital of other financials 537 756
Significant investments in the common stock of financials 509 490
Mortgage servicing rights (net of related tax liability) Deferred tax assets arising from temporary differences (net of related tax liability) 2 581 1 435
Applicable caps on the inclusion of provisions in tier II Provisions eligible for inclusion in tier II in respect of exposures subject to standardised approach (prior to application of cap) 687 507
Cap on inclusion of provisions in tier II under standardised approach 326 351Provisions eligible for inclusion in tier II in respect of exposures subject to internal ratings-based approach (prior to application of cap) Cap for inclusion of provisions in tier II under internal ratings-based approach 2 503 2 432
Capital instruments subject to phase-out arrangements(only applicable between 1 January 2018 and 1 January 2022)
Current cap on CET I instruments subject to phase out arrangements Amount excluded from CET I due to cap (excess over cap after redemptions and maturities) Current cap on additional tier I instruments subject to phase out arrangements Amount excluded from additional tier I due to cap (excess over cap after redemptions and maturities) Current cap on tier II instruments subject to phase out arrangements Amount excluded from tier II due to cap (excess over cap after redemptions and maturities)
RISK AND CAPITAL MANAGEMENT REPORT Additional information Composition of capital – SBSA continued
83
LCR (AVERAGE) – SBSA June December
20161 20152
Total unweighted3
value (average)
Rm
Total weighted4
value (average)
Rm
Total unweighted3
value (average)
Rm
Total weighted4
value (average)
Rm
HQLA Total HQLA 120 409 121 150
Cash outflows 825 252 307 364 927 684 301 234
Retail deposits and deposits from small business customers, of which: 185 072 18 507 273 599 19 572
Stable deposits5 Less stable deposits 185 072 18 507 273 599 19 572
Unsecured wholesale funding, of which: 437 496 254 397 403 746 242 785
Operational deposits (all counterparties) and deposits in networks of cooperative banks 153 361 38 340 144 786 41 626 Non-operational deposits (all counterparties) 284 118 216 040 258 924 201 123 Unsecured debt 17 17 36 36
Secured wholesale funding 7 409 12 789 Additional requirements 89 509 19 006 87 420 18 288
Outflows related to derivative exposures and other collateral requirements 10 359 8 558 7 196 7 150 Outflows related to loss of funding on debt products 2 558 2 558 2 694 2 694 Credit and liquidity facilities 76 592 7 890 77 530 8 444
Other contractual funding obligations 3 984 3 984 3 508 3 508 Other contingent funding obligations 109 191 4 061 159 411 4 292
Cash inflows 192 562 154 948 188 891 153 711
Secured lending 39 611 25 991 27 909 24 314 Inflows from fully performing exposures 135 136 116 055 140 301 121 206 Other cash inflows 17 815 12 902 20 681 8 191
Totaladjusted
value6 Rm
Totaladjusted
value6 Rm
Total HQLA 120 409 121 150
Total net cash outflows 152 416 147 523
LCR (%) 79.0 82.1
1 The simple average of the month-end values at 30 April 2016, 31 May 2016 and 30 June 2016. 2 The simple average of the month-end values at 31 October 2015, 30 November 2015 and 31 December 2015. 3 Unweighted value represents the outstanding balances maturing or callable within 30 days (for inflows and outflows).4 Total weighted value is calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).5 Restated. Refer to page 73.6 Adjusted value calculated after the application of both (i) haircuts and inflow and outflow rates and (ii) any applicable caps (i.e. cap on level 2B and level 2
assets for HQLA and cap on inflows).
84 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Ordinary share capital (including
share premium)Subordinated bond – SBK9
Subordinatedbond – SBK12
Subordinated bond – SBK13
Subordinated bond – SBK14
Subordinatedbond – SBK15
June 2016 Issuer SBSA SBSA SBSA SBSA SBSA SBSA
Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) ZAG000029687 ZAG000073388 ZAG000073396 ZAG000091018 ZAG000092339
Governing law(s) of the instrument SA SA SA SA SA SA
Regulatory treatmentTransitional Basel III rules CET I Tier II Tier II Tier II Tier II Tier II
Post-transitional Basel III rules CET I Tier II Tier II Tier II Tier II Tier II
Eligible at solo/group/group & solo Solo Group & solo Group & solo Group & solo Group & solo Group & solo
Instrument type (types to be specified by each jurisdiction)Ordinary share
capital and premium Subordinated debt Subordinated debt Subordinated debt Subordinated debt Subordinated debt
Amount recognised in regulatory capital (currency in Rm, as of most recent reporting date) ZAR 41 198 ZAR 900 ZAR 960 ZAR 690 ZAR 1 068 ZAR 732
Par value of instrument ZAR 1 ZAR 1 500 ZAR 1 600 ZAR 1 150 ZAR 1 780 ZAR 1 220
Accounting classification
Equity attributableto ordinary
shareholders Subordinated debt Subordinated debt Subordinated debt Subordinated debt Subordinated debt
Original date of issuance Ongoing 2006/04/10 2009/11/24 2009/11/24 2011/12/01 2012/01/23
Perpetual or dated Perpetual Dated Dated Dated Dated Dated
Original maturity date N/A 2023/04/10 2021/11/24 2021/11/24 2022/12/01 2022/01/23
Issuer call subject to prior supervisory approval No Yes Yes Yes Yes Yes
Optional call date, contingent call dates and redemption amount (currency in Rm) N/A
2018/04/10 ZAR 1 500
2016/11/24 ZAR 1 600
2016/11/24 ZAR 1 150
2017/12/01ZAR 1 780
2017/01/23 ZAR 1 220
Subsequent call dates, if applicable N/A
2018/04/10or any subsequent
interest paymentdate
2016/11/24 or any subsequent
interest paymentdate
2016/11/24or any subsequent
interest paymentdate
2017/12/01or any subsequent
interest paymentdate
2017/01/23or any subsequent
interest paymentdate
Coupons/dividendsFixed or floating dividend/coupon N/A Fixed Fixed Floating Fixed Floating
Coupon rate and any related index N/A 8.40% semi annual 10.82% semi annual JIBAR + 2.20 9.66% semi annual JIBAR + 2.00
Existence of a dividend stopper No No No No No No
Fully discretionary, partially discretionary or mandatory Full discretionary Mandatory Mandatory Mandatory Mandatory Mandatory
Existence of step up or other incentive to redeem No Yes Yes Yes No No
Non-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative
Convertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible
If convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A
If convertible, fully or partially N/A N/A N/A N/A N/A N/A
If convertible, conversion rate N/A N/A N/A N/A N/A N/A
If convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A
If convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A
If convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A
Write-down feature N/A N/A N/A N/A N/A N/A
If write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A
If write-down, full or partial N/A N/A N/A N/A N/A N/A
If write-down, permanent or temporary N/A N/A N/A N/A N/A N/A
If temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A
Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Most subordinated Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured
Non-compliant transitioned features No Yes Yes Yes Yes Yes
If yes, specify non-compliant features N/A
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(H)(ii)
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(H)(ii)
Capital instruments – main features disclosure template
RISK AND CAPITAL MANAGEMENT REPORT Additional information continued
85
Subordinated bond – SBK16
Subordinated bond – SBK17
Subordinated bond – SBK18
Subordinatedbond – SBK19
Subordinated bond – SBK20
Subordinated bond – SBK21
Subordinated bond – SBK22
Subordinated bond – SBK23
Subordinated bond – SBK24
SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA SBSA
ZAG000093741 ZAG000097619 ZAG000100827 ZAG000100835 ZAG00121781 ZAG000123258 ZAG000126442 ZAG000126434 ZAG000130584
SA SA SA SA SA SA SA SA SA
Tier II Tier II Tier II Tier II N/A N/A N/A N/A N/A
Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II Tier II
Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo Group & solo
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
ZAR 1 200 ZAR 1 200 ZAR 2 100 ZAR 300 ZAR 2 250 ZAR 750 ZAR 1 000 ZAR 1 000 ZAR 880
ZAR 2 000 ZAR 2 000 ZAR 3 500 ZAR 500 ZAR 2 250 ZAR 750 ZAR 1 000 ZAR 1 000 ZAR 880
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
2012/03/15 2012/07/30 2012/10/24 2012/10/24 2014/12/02 2015/01/28 2015/05/28 2015/05/28 2015/10/19
Dated Dated Dated Dated Dated Dated Dated Dated Dated
2023/03/15 2024/07/30 2025/10/24 2024/10/24 2024/12/02 2025/01/28 2025/05/28 2027/05/28 2025/10/19
Yes Yes Yes Yes Yes Yes Yes Yes Yes
2018/03/15 ZAR 2 000
2019/07/30 ZAR 2 000
2020/10/24 ZAR 3 500
2019/10/24 ZAR 500
2019/12/02 ZAR 2 250
2020/01/28 ZAR 750
2020/05/28 ZAR 1 000
2022/05/28 ZAR 1 000
2020/10/19ZAR 880
2018/03/15or any subsequent
interest paymentdate
2019/07/30or any subsequent
interest paymentdate
2020/10/24or any subsequent
interest paymentdate
2019/10/24or any subsequent
interest paymentdate
2019/12/02 or any interest payment date
thereafter
2020/01/28 or any interest payment date
thereafter
2020/05/28 or any interest payment date
thereafter
2022/05/28 or any interest payment date
thereafter
2020/10/19 or any interest payment date
thereafter
Floating Floating Floating Floating Floating Floating Floating Fixed Floating
JIBAR + 2.10 JIBAR + 2.20 JIBAR + 2.35 JIBAR + 2.20 JIBAR + 3.50 JIBAR + 330 JIBAR + 35011.56%
semi-annual JIBAR + 350
No No No No No No No No No
Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory
No No No No No No No No No
Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative
Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A Yes Yes Yes Yes Yes
N/A N/A N/A N/APoint of
non-viabilityPoint of
non-viability Point of
non-viability Point of
non-viability Point of
non-viability
N/A N/A N/A N/ARegulatorydiscretion
Regulatory discretion
Regulatory discretion
Regulatory discretion
Regulatory discretion
N/A N/A N/A N/A Permanent Permanent Permanent Permanent Permanent
N/A N/A N/A N/A N/A N/A N/A N/A N/A
Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured
Yes Yes Yes Yes No No No No No
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(H)(ii) N/A N/A N/A N/A N/A
86 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Subordinatedbond – SBK25
Subordinatedbond – SBK26
Ordinary share capital
(including share premium)
Cumulativepreference
share capital
Non-cumulativepreference
share capital
Subordinated bond –
Standard Bank Swaziland 1
June 2016
Issuer SBSA SBSA SBG SBG SBGStandard Bank
Swaziland LimitedUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) ZAG000135781 ZAG000135799
SBKZAE 000109815
SBKPZAE000038881
SBPP ZAE000056339 SZD000551465
Governing law(s) of the instrument SA SA SA SA SA SwazilandRegulatory treatment Transitional Basel III rules N/A N/A CET I Tier II Additional tier I N/APost-transitional Basel III rules Tier II Tier II CET I Tier II Additional tier I N/AEligible at solo/group/group & solo Group & solo Group & solo Group Group Group Solo
Instrument type (types to be specified by each jurisdiction)Subordinated
debtSubordinated
debt
Ordinary share capital and
premium
Preference share capital and
share premium
Preference share capital and share
premiumSubordinated
debtAmount recognised in regulatory capital (currency in Rm, as of most recent reporting date) ZAR 1 200 ZAR 500 ZAR 17 940 ZAR 4.8 ZAR 3 297 E 50
Par value of instrument ZAR 1 200 ZAR 500 10c ZAR 1 1c E 50
Accounting classificationSubordinated
debtSubordinated
debt
Equity attributable to ordinary
shareholders
Preference share capital and share
premium
Preference share capital and
share premiumSubordinated
debt
Original date of issuance 2016/04/25 2016/04/25 Ongoing 1969/11/25
2004/07/07, 2006/05/23, 2006/08/12 2014/12/14
Perpetual or dated Dated Dated Perpetual Perpetual Perpetual DatedOriginal maturity date 2026/04/25 2026/04/25 N/A N/A N/A 2024/12/14Issuer call subject to prior supervisory approval Yes Yes No No No YesOptional call date, contingent call dates and redemption amount (currency in Rm)
2021/04/25ZAR 1 200
2021/04/25ZAR 500 N/A N/A N/A
2019/12/14E 50
Subsequent call dates, if applicable
2021/04/25or any interestpayment date
thereafter
2021/04/25or any interestpayment date
thereafter N/A N/A N/A
15 December 2019 or any interest payment date
thereafter
Coupons/dividends
Fixed or floating dividend/coupon Floating Fixed N/A Fixed Floating Fixed
Coupon rate and any related index JIBAR + 40012.25%
semi annual N/A 6.50%77% of prime interest rate 8.75%
Existence of a dividend stopper No No No No No NoFully discretionary, partially discretionary or mandatory Mandatory Mandatory Full discretionary Full discretionary Full discretionary MandatoryExistence of step up or other incentive to redeem No No No No No YesNon-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/AWrite-down feature Yes Yes N/A N/A N/A N/A
If write-down, write-down trigger (s)Point of
non-viabilityPoint of
non-viability N/A N/A N/A N/A
If write-down, full or partialRegulatorydiscretion
Regulatorydiscretion N/A N/A N/A N/A
If write-down, permanent or temporary Permanent Permanent N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)
Seniorunsecured
Seniorunsecured
Non-cumulative preference shares
Subordinated debt
Cumulative preference shares Senior unsecured
Non-compliant transitioned features No No No Yes Yes N/A
If yes, specify non-compliant features N/A N/A N/ARegulation
38(13) (b)(i)Regulation
38(13) (b)(i) N/A
RISK AND CAPITAL MANAGEMENT REPORT Additional information Main features disclosure template continued
87
Subordinatedbond –
Stanbic Bank Botswana 1
Subordinated bond –
Stanbic Bank Botswana 5
Subordinated bond –
Standard Bank Mozambique
Subordinated bond –
Standard Bank Mozambique
Subordinated bond –
Standard Bank Mozambique
Subordinated bond –
Standard Bank Mozambique
Subordinated bond –
CfC Stanbic Bank Kenya 3
Subordinated bond –
CfC Stanbic Bank Kenya 3
Subordinated bond –
CfC Stanbic Bank Kenya
Stanbic Bank
Botswana LimitedStanbic Bank
Botswana LimitedStandard Bank
MozambiqueStandard Bank
MozambiqueStandard Bank
MozambiqueStandard Bank
MozambiqueCFC Stanbic
Bank LimitedCFC Stanbic
Bank LimitedCFC Stanbic
Bank Limited
SBBL056 SBBL057 MZSTB0OC07S6 MZSTB0OC1516 MZSTB0OC1524 MZSTBOC1532 KE1000001684 KE1000001672 KE4000002438Botswana Botswana Mozambique Mozambique Mozambique Mozambique Kenya Kenya Kenya
Tier II Tier II Tier II N/A N/A N/A Tier II Tier II N/ATier II Tier II Tier II N/A N/A N/A Tier II Tier II N/A
Group & solo Group & solo Group & solo Solo Solo Solo Group & solo Group & solo Solo
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated debt
Subordinated debt
Subordinated debt
ZAR 40 BWP 50
ZAR 64BWP 80
ZAR 7MT 260 MT 300 MT 381 MT 320
ZAR 42KES2 402
ZAR 2KES 98 KES 4 000
ZAR 67BWP 50
ZAR 107BWP 80
ZAR 60MT 260 MT 300 MT 381 MT 320
ZAR 347KES 2 402
ZAR 14KES 98 KES 4 000
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated debt
Subordinated debt
Subordinated debt
2011/06/13 2012/05/23 2007/06/29 2015/08/07 2015/09/04 2015/10/29 2009/07/07 2009/07/07 2014/12/15Dated Dated Dated Dated Dated Dated Dated Dated Dated
2021/06/13 2022/05/23 2017/06/29 2025/09/04 2025/09/04 2025/10/29 2016/07/07 2016/07/07 2021/12/08Yes Yes Yes Yes Yes Yes Yes Yes Yes
2016/06/13BWP50
2017/05/23BWP 80 N/A
2020/09/04MT 300
2020/09/04MT 381
2020/10/29MT 320 N/A N/A
June 2020KES 4 000
On or after 13 June 2016
On or after 23 May 2017 N/A
4 September 2020 or any
interest payment date thereafter
4 September 2020 or any
interest payment date thereafter
29 October 2020 or any
interest payment date thereafter N/A N/A
June 2020 or any interest payment date
thereafter
Fixed margin linked to a
floating base rate
Fixed margin linked
to a floating base rate
Fixed margin linked
to a floating base rate
First coupon fixed rate,
thereafter fixed margin linked
to a floating base rate
First coupon fixed rate,
thereafter fixed margin linked
to a floating base rate
First coupon fixed rate,
thereafter fixed margin linked
to a floating base rate Fixed
Fixed margin linked to a
floating base rate Fixed
91 day BoBC + 130bps
91 day BoBC + 150bps WA + 50bps
12%SLF + 450bps
12%SLF + 450bps
12%SLF + 450bps 12.5%
182 day T-bill + 175 bps 12.95%
No No No No No No No No NoMandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory
Yes Yes Yes Yes Yes No Yes Yes NoNon-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeNon-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible
N/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/A
Senior unsecured Senior unsecured Senior unsecured Senior debt Senior debt Senior debt Senior unsecured Senior unsecured Senior unsecuredYes Yes Yes N/A N/A N/A Yes Yes N/A
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii) N/A N/A N/A
Regulation 38(14) (a)(i)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii) N/A
88 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Subordinated bond –
Stanbic Bank Ghana 1
Subordinated loan –
Standard Bank Mauritius
Subordinated loan –
Standard BankTanzania
Subordinated loan –
Stanbic Bank Uganda
Subordinatedloan –
Standard Bank Angola
Subordinated loan –
Stanbic Bank IBTC
June 2016
IssuerStanbic Bank
Ghana LimitedStandard Bank
MauritiusStandard Bank
TanzaniaStanbic Bank
UgandaStandard Bank
AngolaStanbic Bank
IBTCUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement) SBG001
Standard Bank South Africa
Standard Bank South Africa
Standard Bank South Africa
Standard Bank South Africa
Standard Bank South Africa
Governing law(s) of the instrument Ghana Mauritius Tanzania Uganda Angola Nigeria
Regulatory treatment Transitional Basel III rules Tier II Tier II Tier II Tier II N/A N/APost-transitional Basel III rules Tier II Tier II Tier II Tier II N/A N/AEligible at solo/group/group & solo Group & solo Solo Solo Solo Solo Solo
Instrument type (types to be specified by each jurisdiction)Subordinated
debtSubordinated
loanSubordinated
loanSubordinated
loanSubordinated
loanSubordinated
loanAmount recognised in regulatory capital (currency in Rm, as of most recent reporting date)
ZAR 16GHS 7 USD 25 TZS 10 938 UGX 23 796 AOA 4 973 NGN 11 274
Par value of instrumentZAR 28GHS 7 USD 25 TZS 10 938 UGX 23 796 AOA 4 973 NGN 11 274
Accounting classificationSubordinated
debtSubordinated
loanSubordinated
loanSubordinated
loanSubordinated
loanSubordinated
loanOriginal date of issuance 2012/01/23 2012/12/03 2011/12/15 2011/10/31 2013/05/23 2013/04/30Perpetual or dated Dated Dated Dated Dated Dated DatedOriginal maturity date 2022/01/23 2022/12/04 2021/12/15 2021/10/31 2023/05/23 2025/05/31Issuer call subject to prior supervisory approval Yes Yes Yes Yes Yes YesOptional call date, contingent call dates and redemption amount (currency in Rm)
2017/01/23GHS 7
2017/12/04USD 25
2016/12/15TZS 10 938
2016/10/31UGX 23 796
2018/05/23AOA 4 973
2020/05/31NGN 11 274
Subsequent call dates, if applicable
23 January 2017 or any
interest payment date
thereafter
5 December 2017 or any
interest payment date
thereafter
16 December 2016 or any
interest payment date
thereafter
31 October 2016 or any
interest payment date
thereafter
23 May 2018 or any
interest payment date
thereafter
31 May 2020 or any
interest payment date
thereafter
Coupons/dividends
Fixed or floating dividend/coupon
Fixed margin linked to a
floating base rate
Fixed margin linked to a
floating base rate
Fixed margin linked
to a floating base rate
Fixed margin linked
to a floating base rate
Fixed margin linked
to a floating base rate
Fixed margin linked
to a floating base rate
Coupon rate and any related index365 T-bill+ 350bps LIBOR + 300bps LIBOR + 395bps LIBOR + 376bps LIBOR + 360bps LIBOR + 360bps
Existence of a dividend stopper No No No No No NoFully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem Yes Yes Yes Yes Yes YesNon-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument) Senior unsecured Senior debt Senior debt Senior debt Senior debt Senior debtNon-compliant transitioned features Yes Yes Yes Yes N/A N/A
If yes, specify non-compliant features
Regulation 38(14)(a)(i)
Regulation 38(14)(a)(iv)(D)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14)(a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14)(a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii)
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii) N/A N/A
RISK AND CAPITAL MANAGEMENT REPORT Additional information Main features disclosure template continued
89
Subordinatedloan –
Standard Bank Zambia
Subordinated loan –
Stanbic Bank DRC
Subordinated bond –
Stanbic Bank IBTC
Subordinated bond –
Standard Bank Namibia
Subordinated loan –
Stanbic Bank Botswana
Subordinated bond –
Stanbic Bank Zambia
Subordinated loan –
Standard Bank Namibia
Subordinated loan –
Standard Bank Lesotho
Subordinated loan –
Stanbic Bank Ghana
Standard Bank
ZambiaStanbic Bank
DRCStanbic Bank
IBTCStandard Bank
NamibiaStanbic Bank
BotswanaStanbic Bank
ZambiaStandard Bank
NamibiaStandard Bank
LesothoStanbic Bank
GhanaStandard Bank
South AfricaStandard Bank
South Africa NGSB20245181 NA000A1ZRK11Standard Bank
South Africa ZM2000000272Standard Bank
South AfricaStandard Bank
South AfricaStandard Bank
South AfricaZambia DRC Congo Nigeria Namibia Botswana Zambia Namibia Lesotho Ghana
Tier II N/A N/A N/A N/A N/A N/A N/A N/ATier II N/A N/A N/A N/A N/A N/A N/A N/A
Solo Solo Solo Solo Solo Solo Solo Solo SoloSubordinated
loanSubordinated
loanSubordinated
debtSubordinated
debtSubordinated
loanSubordinated
debtSubordinated
loanSubordinated
loanSubordinated
loan
ZMK145 CDF 2 805 NGN 15 440 NAD 100 BWP 300 ZMK 36.7 NAD 100 LES 50 GHS 49
ZMK145 CDF 2 805 NGN 15 440 NAD 100 BWP 300 ZMK 36.7 NAD 100 LES 50 GHS 49Subordinated
loanSubordinated
loanSubordinated
debtSubordinated
debtSubordinated
loanSubordinated
debtSubordinated
loanSubordinated
loanSubordinated
loan13/12/2011 2014/05/20 2014/09/30 2014/10/23 2014/11/28 2014/10/31 2015/04/30 2015/08/03 2015/11/17
Dated Dated Dated Dated Dated Dated Dated Dated Dated13/12/2021 2024/05/20 2024/09/30 2024/10/24 2024/11/28 2024/10/31 2025/04/30 2025/08/03 2025/11/17
Yes Yes Yes Yes Yes Yes Yes Yes Yes2016/12/13
ZMK1452019/05/20
CDF 2 8052019/10/01NGN 15 440
2019/10/24NAD 100
2019/11/28 BWP 300
2019/11/01ZMK 36.7
2020/04/30NAD 100
2020/08/03LES 50
2020/11/17GHS 49
13 December 2016 or any
interest payment date
thereafter
20 May 2019 or any interest payment date
thereafter
1 October 2019 or any
interest payment date thereafter
24 October 2019 or any
interest payment date thereafter
29 November 2019 or any
interest payment date thereafter
1 November 2019 or any
interest payment date thereafter
1 May 2020 or any interest payment date
thereafter
4 August 2020 or any interest payment date
thereafter
18 November 2020 or any
interest payment date
thereafter
Fixed margin linked
to a floating base rate
Fixed margin linked to a
floating base rate Fixed Fixed Fixed
Fixed margin linked to a
floating base rate
Fixed margin linked to a
floating base rate Fixed
Fixed margin linked to a
floating base rate
LIBOR + 385bps LIBOR + 975bps 13.25% 9.00% 10.25%182-day T-bill
+ 275 bps JIBAR + 350bps 11.89% LIBOR + 430bpsNo No No No No No No No No
Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryYes Yes No Yes No No Yes Yes Yes
Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeNon-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible
N/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/AN/A N/A N/A N/A N/A N/A N/A N/A N/A
Senior debt Senior debt Senior unsecured Senior unsecured Senior debt Senior unsecured Senior debt Senior debt Senior debtYes N/A N/A N/A N/A N/A N/A N/A N/A
Regulation 38(14) (a)(i)
Regulation 38(14) (a)(iv)(D)
Regulation 38(14) (a)(iv)(H)(ii) N/A N/A N/A N/A N/A N/A N/A N/A
90 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
Subordinated loan –
Stanbic Bank Uganda
Subordinated loan –
Standard Bank Offshore Group
Subordinated loan –
Standard Bank Offshore Group
Subordinated loan –
Standard Bank Offshore Group
Subordinated loan –
Standard Bank Offshore Group
Subordinated loan –
Standard Bank Offshore Group
Subordinatedloan –
Standard Bank Offshore Group
June 2016
IssuerStanbic Bank
Uganda SBOG SBOG SBOG SBOG SBOG SBOGUnique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)
Standard Bank South Africa
Standard Bank Offshore Group
Standard Bank Offshore Group
Standard Bank South Africa
Standard Bank Group
International LtdStandard Bank
Offshore GroupStandard Bank
Offshore GroupGoverning law(s) of the instrument Uganda IOM Ltd IOM Ltd Jersey Jersey Jersey Jersey
Regulatory treatment Transitional Basel III rules N/A Tier II Tier II Tier II Tier II Tier II Tier IIPost-transitional Basel III rules N/A Tier II Tier II Tier II Tier II Tier II Tier IIEligible at solo/group/group & solo Solo Solo Solo Solo Solo Solo SoloInstrument type (types to be specified by each jurisdiction)
Subordinated loan
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Subordinated debt
Amount recognised in regulatory capital (currency in Rm, as of most recent reporting date) UGX 67 989 GBP 8 GBP 3 GBP 10 GBP 6 GBP 10 GBP 11Par value of instrument UGX 67 989 GBP 8 GBP 3 GBP 10 GBP 6 GBP 10 GBP 11
Accounting classificationSubordinated
loanSubordinated
debtSubordinated
debtSubordinated
debtSubordinated
debtSubordinated
debtSubordinated
debtOriginal date of issuance 2016/03/31 2011/06/09 2011/06/09 2010/06/10 2011/06/15 2011/06/15 2011/06/29Perpetual or dated Dated Dated Dated Dated Dated Dated DatedOriginal maturity date 2026/03/31 2021/06/30 2025/06/30 2025/06/30 2021/06/30 2025/06/30 2021/06/30Issuer call subject to prior supervisory approval Yes N/A N/A N/A N/A N/A N/AOptional call date, contingent call dates and redemption amount (currency in Rm)
2021/04/01UGX 67 989 N/A N/A N/A N/A N/A N/A
Subsequent call dates, if applicable
1 April 2021 orany interest
payment datethereafter N/A N/A N/A N/A N/A N/A
Coupons/dividends Fixed margin linked to a
floating base rate Floating Floating
Floating
Floating
Floating
FloatingFixed or floating dividend/coupon
Coupon rate and any related index LIBOR + 590bps
25bps over LIBOR,
payable 6 monthly
25bps over LIBOR,
payable 3 monthly
390bps over LIBOR,
payable 3 monthly
25bps over LIBOR,
payable 3 monthly
LIBOR + 390bps,payable 3
monthly
25bps over LIBOR,
payable 3 monthly
Existence of a dividend stopper No No No No No No NoFully discretionary, partially discretionary or mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory MandatoryExistence of step up or other incentive to redeem Yes No No No No No NoNon-cumulative or cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulativeConvertible or non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertible Non-convertibleIf convertible, conversion trigger (s) N/A N/A N/A N/A N/A N/A N/AIf convertible, fully or partially N/A N/A N/A N/A N/A N/A N/AIf convertible, conversion rate N/A N/A N/A N/A N/A N/A N/AIf convertible, mandatory or optional conversion N/A N/A N/A N/A N/A N/A N/AIf convertible, specify instrument type convertible into N/A N/A N/A N/A N/A N/A N/AIf convertible, specify issuer of instrument it converts into N/A N/A N/A N/A N/A N/A N/AWrite-down feature N/A N/A N/A N/A N/A N/A N/AIf write-down, write-down trigger (s) N/A N/A N/A N/A N/A N/A N/AIf write-down, full or partial N/A N/A N/A N/A N/A N/A N/AIf write-down, permanent or temporary N/A N/A N/A N/A N/A N/A N/AIf temporary write-down, description of write-up mechanism N/A N/A N/A N/A N/A N/A N/APosition in subordination hierarchy in liquidation (specify instrument type
immediately senior to instrument) Senior debt Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Senior unsecured Non-compliant transitioned features N/A Yes Yes Yes Yes Yes Yes
If yes, specify non-compliant features N/ARegulation38(14)(a)(i)
Regulation38(14)(a)(i)
Regulation38(14)(a)(i)
Regulation38(14)(a)(i)
Regulation38(14)(a)(i)
Regulation 38(14)(a)(i)
RISK AND CAPITAL MANAGEMENT REPORT Additional information Main features disclosure template continued
91
A
AIRB Advanced internal ratings-based
ALCO Asset and liability committee
AMA Advanced measurement approach
AOA Angolan kwanza
ATM Automated teller machine
B
Banks Act South African Banks Act 94 of 1990
Basel Basel Capital Accord
BCBS Basel Committee on Banking Supervision
BG1 Blue Granite Investments No. 1 (RF) Limited
BG2 Blue Granite Investments No. 2 (RF) Limited
BG3 Blue Granite Investments No. 3 (RF) Limited
BG4 Blue Granite Investments No. 4 (RF) Limited
Board Standard Bank Group board of directors
BoBC Bank of Botswana certificate
BTC Blue Titanium Conduit (RF) Limited
BWP Botswana Pula
C
CCP Central counterparty
CCyB Countercyclical buffer
CET Common equity tier
CIB Corporate & Investment Banking
CoE Cost of equity
CRO Chief risk officer
D
DRC Democratic Republic of Congo
D-SIB Domestic systemically important banks
E
E Swazi emalangeni
EAD Exposure at default
ERC Equity risk committee
EUR Euro
G
GAC Group audit committee
GBP British pound sterling
GCCO Group chief compliance officer
GHS Ghana cedi
GRCMC Group risk and capital management committee
GROC Group risk oversight committee
G-SIB Global systemically important banks
The group Standard Bank Group banking activities and other banking interests
H
HQLA High-quality liquid assets
I
IA Internal audit
ICAAP Internal capital adequacy assessment process
ICR Individual capital requirement
IFRS International Financial Reporting Standards
IRB Internal ratings-based
IRRBB Interest rate risk in the banking book
IT Information technology
J
JIBAR Johannesburg interbank agreed rate
K
KES Kenyan shilling
L
LCR Liquidity coverage ratio
LES Lesotho loti
LGD Loss given default
LIBOR London interbank offered rate
M
MT Mozambican metical
Acronyms and abbreviations
92 Standard Bank Group risk and capital management report for the six months ended 30 June 2016
SBSA The Standard Bank of South Africa Limited
SE Structured entity
SENS Stock exchange news service
SFT Securities financing transactions
Siyakha Siyakha Fund (RF) Limited
SLF Standard lending facility
SOFP Statement of financial position
SVaR Stressed value-at-risk
T
T-bill Treasury Bill
Tier I Primary capital
Tier II Secondary capital
Tier III Tertiary capital
Tutuwa Black economic empowerment ownership initiative
TZS Tanzanian shilling
U
UGX Ugandan shilling
USD United States dollar
V
VaR Value-at-risk
W
WA Weighted average of the last six issues of T-Bills
Z
ZAR South African rand
ZMK Zambian kwacha
N
NAD Namibian dollar
NAV Net asset value
NCDs Negotiable certificates of deposit
NGN Nigerian naira
NPL Non-performing loans
NSFR Net stable funding ratio
O
OCI Other comprehensive income
P
PBB Personal & Business Banking
PD Probability of default
Q
QRRE Qualifying retail revolving exposure
R
R South African rand
Rbn Billions of rand
RAPM Risk-adjusted performance measurement
RAS Risk appetite statement
RCCM Risk, compliance and capital management
Rm Millions of rand
RWA Risk-weighted assets
S
SARB The South African Reserve Bank
SB Sovereign risk grade and transfer and convertibility risk grade
SBG Standard Bank Group
OTHER FINANCIAL DEFINITIONS – ROLES FULFILLED IN SECURITISING ASSETS
Credit enhancement provider The group provides credit enhancements to the SEs which include financial guarantees and loans that are subordinated in favour of third party investors.
Investor In order to fund the purchase of the assets, the SEs issue funding notes and commercial paper to investors, which includes the group
Liquidity provider The commercial paper issued by BTC has a shorter maturity than the assets it holds. The group provides liquidity stand-by facilities to BTC to enable BTC to settle the commercial paper as it becomes due in the event that BTC is unable to refinance the paper through the maturity of its assets.
Originator The group originates term assets and sells these assets to the SEs.
Servicer The group provides administrative services to the SE.
Swap counterparty In order to align the cash flows between the underlying securitised assets and the issued loan notes and commercial paper, the SEs may enter into interest rate swap agreements with counterparties which include the group.
ADDITIONAL INFORMATION Acronyms and abbreviations continued
Standard Bank Group LimitedRegistration number 1969/017128/06Incorporated in the Republic of South Africa
Group secretaryZola StephenTel: +27 11 631 [email protected]
Head: investor relationsSarah Rivett-CarnacTel: +27 11 631 [email protected]
Group financial directorArno DaehnkeTel: +27 11 636 [email protected]
Chief risk officerNeil SurgeyTel: +27 11 344 [email protected]
Registered address9th Floor, Standard Bank Centre5 Simmonds StreetJohannesburg 2001PO Box 7725Johannesburg 2000
Head office switchboardTel: +27 11 636 9111
Website: www.standardbank.com
Please direct all customer-related queries and comments to: [email protected] Please direct all shareholder queries and comments to: [email protected]
DisclaimerThis document contains certain statements that are ’forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance, results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results, strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are beyond the group’s control, including but not limited to, domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of changes in domestic and global legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied, that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon.
Contact details
standardbank.com
The Standard Bank Group is a leading African integrated financial services group, offering a full range of banking and related financial services. Pictured on
the cover is Dar es Salaam in Tanzania, one of the 20 countries in which the group operates in sub-Saharan Africa.