Since 1962 COMMERCIAL BANK OF AFRICA LIMITED MEDIUM TERM NOTE PROGRAMME INFORMATION MEMORANDUM

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1 Since 1962 COMMERCIAL BANK OF AFRICA LIMITED INFORMATION MEMORANDUM CBA is regulated by the Central Bank of Kenya. time for more.

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3 time for more. Commercial Bank of Africa Limited Incorporated in Kenya under the Companies Act (Chapter 486, Laws of Kenya (Registration Number C. 7055) Information Memorandum Dated 21 November 2014 In respect of an Offer of a Medium Term Note Programme Of Up To Kenya Shillings eight billion (Kes 8,000,000,000) with a Greenshoe Option for up to Kenya Shillings two billion (Kes 2,000,000,000) to be Listed on the Fixed Income Securities Market Segment of the Nairobi Securities Exchange Limited and Incorporating a Note Application Form This Information Memorandum is issued in compliance with all applicable laws including the Companies Act (Cap 486), the Capital Markets Act (Cap 485A) and the Nairobi Securities Exchange Listing Manual. This Offer opens on 26 November 2014 and closes on 10 December CBA Medium Term Note Information Memorandum 1

4 TRANSACTION ADVISORS Mandated Lead Arranger and Sole Placement Agent CBA CAPITAL LIMITED Reporting Accountants Legal Advisors Receiving Bank and Paying Agent Registrar and Fiscal Agent time for more. Note Trustee Media & Public Relations 2 Information Memorandum

5 Vision To be a respected and significant financial services business partner in Africa Mission To enhance the wealth and fulfillment of life for our customers Core Values Confident Comfortable Elegant Prestige Information Memorandum time for more. 3

6 IMPORTANT NOTICE AND DISCLAIMERS 1. The Issuer, having made all reasonable inquiries, confirms that this Information Memorandum contains all the information with respect to itself and the Notes to be issued by it, which is material in the context of the Notes, that the information contained in this Information Memorandum is true and accurate in all material respects and is not misleading; that the opinions and intentions expressed in this Information Memorandum are honestly held and that there are no other facts the omission of which would make any of such information or the expression of any such opinions or intentions misleading. The Issuer accepts responsibility accordingly. 2. The Issuer has given an undertaking to the Lead Arranger that if at any time during the duration of the programme there is a significant new factor, material mistake or inaccuracy relating to information contained in this Information Memorandum which is capable of affecting the assessment of the Notes and whose inclusion in or removal from this Information Memorandum is necessary for the purpose of allowing an investor to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer, and the rights attaching to the Notes, the Issuer shall prepare an amendment or supplement to this Information Memorandum or publish a replacement Information Memorandum and shall file such amendment, supplement or replacement Information Memorandum with the Capital Markets Authority ( CMA ) and the Nairobi Securities Exchange ( NSE ) and shall supply to the Placing Agent, the Trustee and the CMA and NSE such number of copies of such supplement hereto as such Placing Agent, the Trustee, CMA and the NSE may reasonably request. 3. The Central Bank of Kenya has given a letter of no objection for the establishment of the Programme by the Issuer. As a matter of policy, the Central Bank of Kenya does not assume responsibility for the accuracy of any statements, opinions, reports or recommendations made in this Information Memorandum. Approval by the Central Bank of Kenya of the Programme should not be taken as an indication of the merit of the Issuer or of the Notes. 4. The Directors of Commercial Bank of Africa Limited, whose names appear on page 10 of this Information Memorandum, accept responsibility for the information contained herein. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained herein is in accordance with facts and does not omit anything likely to affect the importance of such information. 5. The information presented herein was prepared or obtained by the Issuer and is being furnished to the Arranger and the Placing Agent solely for use by prospective investors in connection with the Notes. Neither the Arranger nor the Placing Agent or any of their respective directors, affiliates, advisers or agents has assumed any responsibility for independent verification of the information contained herein or otherwise made available in connection with the Notes and makes no representation or warranty as to the accuracy or completeness of such information. 6. Neither this Information Memorandum nor any other information supplied in connection with the Notes is intended to provide the complete basis of any credit or other evaluation, nor should it be considered as a recommendation by the Arranger or the Placing Agent or any of their respective Directors, affiliates, advisers or agents, that any recipient of this Information Memorandum (or any other information supplied in connection with the Issue) should purchase any Notes. Each investor contemplating purchasing a Note should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Each investor is advised to conduct and rely on their own evaluation of the Issuer and the terms of the offering including the merits and risks involved in making an investment decision with respect to the Notes. Neither this Information Memorandum nor any other information supplied in connection with the Issue constitutes an offer or invitation to any person by or on behalf of the Arranger or the Placing Agent or any of their respective directors, affiliates, advisers or agents to subscribe for or to purchase any Notes. 7. Nothing contained in this Information Memorandum is to be construed as, or shall be relied upon as, a promise, warranty or representation, whether to the past or the future, by the Arranger or the Placing Agent, or any of their respective directors, affiliates, advisers or agents, in any respect. Furthermore, neither the Arranger or the Placing Agent nor any of their 4 Information Memorandum

7 respective directors, affiliates, advisers or agents, makes any representation or warranty or assumes any responsibility, liability or obligation in respect of the legality, validity or enforceability of the Notes, the performance and observance by the Issuer of its obligations in respect of the Notes, or the recoverability of any sums due or to become due from the Issuer under the Notes. 8. The delivery of this Information Memorandum does not at any time imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Notes is correct as of any time subsequent to the date indicated in the document containing the same. 9. No person has been authorised to give any information or make any representation other than that contained in this Information Memorandum and if given or made, such information or representation should not be relied upon as having been authorised by or on behalf of the Issuer, the Arranger or the Placing Agent or any of their respective directors, affiliates, advisers or agents. 10. The Notes will be publicly placed with investors and will be made available to the general public in Kenya through secondary trading on the NSE. Applications for participation may be processed through the Sole Placing Agent, details of which are provided in this Information Memorandum. 11. The Notes may not be offered or sold, directly or indirectly, and neither this document nor any other supplemental information memorandum or any prospectus, form of application, advertisement, other offering material or other information relating to the Issuer or the Notes may be issued, distributed or published in any jurisdiction, other than Kenya. The distribution of this Information Memorandum and the offer or sale of the Notes may be restricted by law in certain jurisdictions. Persons into whose possession this Information Memorandum or any Notes may come must first inform themselves about and observe any such restrictions. 12. The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended ( the Securities Act ). The Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of US persons (as defined in Regulation S under the Securities Act). 13. A copy of this Information Memorandum has been filed with the Registrar of Companies in accordance with the Companies Act (Chapter 486 of the Laws of Kenya). Cautionary Statement Prospective investors should carefully consider the matters set forth under the section Risk Factors of this Information Memorandum. Relevant Approvals The CMA has approved the public offering and listing of the Notes on the Fixed Income Securities Market Segment (the FISMS ) of the NSE. As a matter of policy, the CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Information Memorandum. Approval of the Issue and/or listing is not to be taken as an indication of the merits of the Issuer or of the Notes. The NSE has authorised the Issuer to list the Notes on the FISMS. The FISMS is a segment of the official list of the NSE. Save as disclosed herein, the Notes have not been and will not be registered under any other securities legislation whether in Kenya or any other country. The NSE assumes no responsibility for the correctness of any of the statements made or opinions or reports expressed or referred to in this Information Memorandum. Admission to the FISMS of the NSE is not to be taken as an indication of the merits of the Notes or the Issuer. Selling Restrictions The Placing Agent will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Notes or has in its possession or distributes this Information Memorandum or any such other material, in all cases at its own expense. It will also ensure that no obligations are imposed on the Issuer or any other Placing Agent in any such jurisdiction Information Memorandum 5

8 as a result of any of the foregoing actions. The Issuer and the Placing Agent will have no responsibility for, and each Placing Agent will obtain any consent, approval or permission required by it for, the acquisition, offer, sale or delivery by it of the Notes under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it makes any acquisition, offer, sale or delivery. No Placing Agent is authorised to make any representation or use any information in connection with the issue, subscription and sale of Notes other than as contained in this Information Memorandum. The sale or transfer of Notes by Noteholders will be subject to the rules of the NSE, and where applicable, the CDSC Rules, the Conditions of the Notes and the provisions of the Agency Agreement. The register for the Notes will be the record of depositors maintained by the Central Depository and Settlement Corporation ( CDSC ) in accordance with the Central Depositories Act, There are currently no other restrictions on the sale or transfer of Notes under Kenyan law. In particular, there are no restrictions on the sale or transfer of Notes by or to non-residents of Kenya. Forward-looking Statements Some statements in this Information Memorandum may be deemed to be forward-looking statements. Forward-looking statements include statements concerning the Issuer s plans, objectives, goals, strategies, future operations and performance and the assumptions underlying these forward-looking statements. When used in this Information Memorandum, the words anticipates, estimates, believes, intends, plans, may, should and any similar expressions are used to identify forward-looking statements. The Issuer has based these forward-looking statements on the current view of its management with respect to future events and financial performance. These views reflect the best judgment of the Issuer s management but involve uncertainties and are subject to certain risks the occurrence of which could cause actual results to differ materially from those predicted in the Issuer s forward-looking statements and from past results, performance or achievements. Although the Issuer believes that the estimates and the projections reflected in its forward-looking statements are reasonable, if one or more of the risks or uncertainties materialise or occur, including those which the Issuer has identified in this Information Memorandum, or if any of the Issuer s underlying assumptions prove to be incomplete or incorrect, the Issuer s actual performance may vary from that expected, estimated or projected. These forward-looking statements apply only as at the date of this Information Memorandum. Without prejudice to any requirements under applicable laws and regulations, the Issuer expressly disclaims any obligations or undertaking to disseminate after the date of this Information Memorandum any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based. A prospective purchaser of the Notes should not place undue reliance on these forwardlooking statements. Financial Information Financial information presented in this Information Memorandum is derived from the audited financial statements of this Issuer for the five years up to 31st December 2013 and unaudited summarised financial statements for the 6 months period up to 30th June Rounding Some numerical figures included in this Information Memorandum have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in certain figures may not be an arithmetic aggregation of the figures that preceded them. Incorporation of Documents by Reference This Information Memorandum should be read and construed in conjunction with: a) All supplements to this Information Memorandum circulated by the Issuer from time to time in accordance with the undertakings given by the Issuer in the Trust Deed and as further described in the section below titled Supplemental Information Memorandum ; b) Each Pricing Supplement relating to a Tranche of Notes issued under this Information Memorandum; c) The audited annual financial statements (and notes thereto) and any audited interim financial statements published subsequent to such annual financial statements of the Issuer for the five financial years prior to each issue of Notes under this Information Memorandum. 6 Information Memorandum

9 d) The Trust Deed; and e) The Agency Agreement. The above listed documents shall be deemed to be incorporated in, and form part of, this Information Memorandum and shall be deemed to modify and supersede the contents of this Information Memorandum as appropriate. The Issuer will provide free of charge to any person on request, a copy of any of the documents deemed to be incorporated herein by reference, unless such documents have been modified or superseded. Requests for such documents shall be directed to the Issuer at its specified offices as set out in this Information Memorandum. Supplemental Information Memorandum The issuer hereby gives an undertaking to the Arranger and Placing Agent that, if at any time during the tenor of the Issue there is a significant change affecting any matter contained in this Information Memorandum, the inclusion of which would reasonably be required by investors and their professional advisors and would reasonably be expected by them to be found in this Information Memorandum for the purpose of making an informed assessment of the Notes, the Issuer shall prepare an amendment or supplement to this Information Memorandum or publish a replacement Information Memorandum for use in connection with any subsequent offering of Notes. The Issuer shall seek the prior approval of the CMA and the NSE in connection with any proposed amendment or supplement to this Information Memorandum and the Issuer shall, in addition, supply to the Arranger, the Placing Agent, the CMA, the NSE and the CDSC in Kenya such number of copies of such supplement to this Information Memorandum or replacement Information Memorandum as the Arranger, the Placing Agent, the CMA, the NSE and the CDSC may reasonably require or as may be required to be provided by law. If the terms of the Issue are modified or amended in a manner which would make this Information Memorandum, as supplemented, inaccurate or misleading, a new Information Memorandum will be prepared by the Issuer after seeking the approval of the CMA and NSE. Information Memorandum 7

10 CONTENTS IMPORTANT NOTICE AND DISCLAIMERS 4 1 CORPORATE INFORMATION 9 2 DEFINITIONS AND ABBREVIATIONS 12 3 TIMETABLE 17 4 SUMMARY OF THE PROGRAMME 18 5 USE OF PROCEEDS 21 6 TERMS AND CONDITIONS OF THE NOTES 22 7 ECONOMIC OVERVIEW 33 8 BANKING SECTOR OVERVIEW 45 9 PROFILE OF COMMERCIAL BANK OF AFRICA LIMITED CORPORATE GOVERNANCE SELECTED HISTORICAL FINANCIAL INFORMATION KEY INVESTMENT CONSIDERATIONS RISK FACTORS STATUTORY INFORMATION AND DISCLOSURES GENERAL INFORMATION LEGAL OPINION FORECAST FINANCIAL PERFORMANCE REPORTING ACCOUNTANTS REPORT APPENDICES 165 APPENDIX I SAMPLE NOTES APPLICATION FORM 166 APPENDIX II FORM OF PRICING SUPPLEMENT 169 APPENDIX III BRANCH OUTLETS Information Memorandum

11 1. CORPORATE INFORMATION 1.1 List of Contacts Issuer Commercial Bank of Africa Limited CBA Centre Mara and Ragati Roads, Upper Hill P.O Box GPO Nairobi, KENYA Tel Mandated Lead Arranger and Sole Placement Agent CBA Capital Limited CBA Centre Mara and Ragati Roads, Upper Hill P.O Box GPO Nairobi, KENYA Tel Legal Counsel Coulson Harney Advocates 5th floor, ICEA Lion Centre, West Wing Riverside Park, Chiromo Road P.O Box Nairobi, KENYA Reporting Accountants PricewaterhouseCoopers Limited PwC Tower Waiyaki Way/Chiromo Road, Westlands P.O. Box Nairobi, Kenya Paying Agent Commercial Bank of Africa Limited Mara and Ragati Roads, Upper Hill P.O Box GPO Nairobi, KENYA Tel Registrar and Fiscal Agent Image Registrars Limited Barclays Plaza Loita Street P.O. Box Nairobi, Kenya Note Trustee Ropat Trust Company Limited Kenya-Re Towers, Off Ragati Road P.O Box Nairobi Kenya Mr Isaac Awuondo Group Managing Director Commercial Bank of Africa Limited Ms Kathure Nyamu Chief Executive Officer CBA Capital Limited Tel: Ms Christine Mweti Partner Coulson Harney Advocates Tel: Mr Kang e Saiti Partner PricewaterhouseCoopers Limited Tel: kange.saiti@ke.pwc.com Mr. James Mugo Group Chief Finance Officer Commercial Bank of Africa Limited james.mugo@cbagroup.com Mr Lawrence Kibet Chief Executive Officer Tel: info@image.co.ke Mr Robert K Ndung u Chief Executive Officer Tel: +254 (20) rndungu@africaregistrars.co.ke Information Memorandum 9

12 1.2 Corporate Information Commercial Bank of Africa Limited Mara and Ragati Roads, Upper Hill P.O Box GPO, Nairobi, KENYA Tel Isaac Awuondo Group Managing Director Commercial Bank of Africa Limited Rosemin Bhanji Group Head, Legal Services Commercial Bank of Africa Limited James Mugo Group Chief Finance Officer Commercial Bank of Africa Limited Current Board Name Position Nationality Address Mr Desterio Oyatsi Chairman Kenyan P.O. Box Nairobi Mr Muhoho Kenyatta Deputy Chairman Kenyan P.O. Box Nairobi Mr Isaac Awuondo Group Managing Director Kenyan P.O. Box Nairobi Mr Jeremy Ngunze Chief Executive Officer, Kenya Operations Kenyan P.O. Box Nairobi Mr Stuart John Armitage Non-Executive British P.O. Box Nairobi Mr Nelson Mainnah Non-Executive Kenyan P.O. Box Nairobi Mr Mukesh Shah Non-Executive British P.O. Box Nairobi Hon Abdirahin Abdi Non-Executive Kenyan P.O. Box Nairobi Mr Nicholas Nesbitt Non-Executive Kenyan P.O. Box Nairobi Mrs Rosemin Bhanji Secretary to the Board Kenyan P.O. Box Nairobi 10 Information Memorandum

13 Company Secretary Registered Office Rosemin Bhanji (Mrs) Group Head, Legal Services Commercial Bank of Africa CBA Centre Mara and Ragati Roads, Upper Hill P.O Box GPO, Nairobi, KENYA Tel CBA Centre Mara and Ragati Roads, Upper Hill P.O Box GPO, Nairobi, KENYA Telephone: ; ; Fax; ; Telex: (COMAFBANK) Swift BIC: CBAFKENX; Reuters Dealing: CBAF; Reuters Information: CBAN Web site: Financial Calendar Auditors Principal Legal Advisers Principal Correspondents 31 December PricewaterhouseCoopers PwC Tower Waiyaki Way/Chiromo Road, Westlands P.O. Box Nairobi, Kenya Coulson Harney Hamilton Harrison & Mathews (incorporating Oraro & Co.) Kaplan & Stratton Shapley Barret & Co ABSA Bank Limited Bank of Tokyo-UFJ BHF Bank AG Commerzbank AG Citigroup Pty Limited Credit Suisse AG Emirates NBA HDFC Bank Limited JP Morgan Chase Mauritius Commercial Bank Rand Merchant Bank Standard Chartered Bank plc Standard Bank of South Africa Limited Information Memorandum 11

14 2. DEFINITIONS AND ABBREVIATIONS Unless otherwise stated and as the context allows, the words in the first column have the meaning stated opposite them in the second column, throughout this Information Memorandum, its appendices and enclosures. Words in the singular include the plural and vice versa, words signifying one gender include the other gender and references to a person include references to juristic persons and associations of persons: SUBJECT DEFINITION Agency Agreement means the agreement pursuant to which (a) the Issuer covenants and agrees to perform the functions of a Note Agent as set out in the Agency Agreement and (b) the Note Trustee may appoint a successor Note Agent upon the occurrence of an Event of Default and any other agreement for the time being in force appointing Successor Note Agents, together with any agreement for the time being in force amending or modifying any such agreements; Applicable Laws means any laws or regulations (including any foreign exchange rules or regulations) of any governmental or other regulatory authority which may govern the Issue, the Conditions of the Notes and the Notes issued thereunder in accordance with which the same are to be construed; ALCO means the Bank s Assets and Liabilities Management Committee, whose members are drawn from the Bank s management team; Arranger & Placing Agent means CBA Capital Limited; Banking Act means the Banking Act (Chapter 488 of the Laws of Kenya); Board or Directors means the board of directors CBA as indicated; Business Day means a day which is (i) a business day within the meaning of the NSE Listing Rules, and (ii) (for the purposes of payment or calculation of Interest) a date on which banks are open for general business in Kenya other than Saturdays, Sundays and Public Holidays; Capital Markets Authority or CMA means the Capital Markets Authority set up pursuant to the provisions of Capital Markets Act (Chapter 485A of the Laws of Kenya); CBA or the Bank means Commercial Bank of Africa Limited, a limited liability company incorporated in Kenya under the Companies Act (Chapter 486 of the Laws of Kenya) with Company Number C and licensed under the Banking Act (Chapter 488 of the Laws of Kenya), whose registered office is CBA Centre, Mara and Ragati Road, Upper Hill, Nairobi in the Republic of Kenya and of Post Office Box Number 30437, 00100, Nairobi; CBK means the Central Bank of Kenya; CBR means the Central Bank Rate; CD Act means the Central Depositories Act (Act 4 of 2000) and the rules and regulations issued thereunder; CDS Account means an account opened and maintained with the CDSC in accordance with the Central Depositories Act (Act 4 of 2000) and the rules and regulations issued thereunder; CDS means the central depository system, an electronic system which permits or facilitates the deposit and the settlement or registration of securities transactions or dealings in securities on the NSE; 12 Information Memorandum

15 SUBJECT CDSC CDSC Rules Companies Act Conditions Directors or Board Executive Office Event of Default FISMS Fixed Rate Note Floating Rate Note Interest Interest Rate Interest Determination Date Interest Payment Date IM or Information Memorandum Issue or Programme DEFINITION means the Central Depository and Settlement Corporation Limited; means the operational and procedural rules issued or to be issued by the CDSC with respect to operation of CDS Accounts and trading in immobilised securities; means the Companies Act (Chapter 486 of the Laws of Kenya); means the terms and conditions regulating the Notes in the form set out in section titled "Terms and Conditions of the Notes" of this Information Memorandum and Schedule 1 of the Trust Deed; means the directors of the Issuer whose names are set out under the heading Board of Directors in Section 10.1 of this Information Memorandum; means senior management team in Commercial Bank of Africa Limited; means any of the circumstances described in Condition 6.11 (Events of Default) in the section "Terms and Conditions of the Notes"; means the Fixed Income Securities Market Segment of the Nairobi Securities Exchange; means the Notes in respect of which the interest is to be calculated and paid on a fixed rate basis as provided in Condition 6.6 (Interest) in the section Terms and Conditions of the Notes and the Pricing Supplement; means the Notes in respect of which the interest is to be calculated and paid on a floating rate basis as provided in Condition 6.6 (Interest) in the section Terms and Conditions of the Notes and the Pricing Supplement; means the amount of interest payable in respect of each Principal Amount of the Notes as determined in accordance with Condition 6.6 (Interest); means either the Floating Rate Notes Rate of Interest or the Fixed Rate Notes Rate of Interest determined in accordance with Condition 6.6 (Interest); means the date on which the Floating Rate Notes Rate of Interest or the Fixed Note Rate of Interest is determined by the Paying Agent in accordance with Condition 6.6 (Interest); means the dates on which interest on the Notes will be paid as indicated in the relevant Pricing Supplement; means this Information Memorandum dated 21 November, 2014 together with its Appendices and the enclosed Pricing Supplement and Application Form; means unsecured and subordinated Notes in an aggregate amount of up to Kenya Shillings eight billion (Kes 8,000,000,000) with a Greenshoe Option for up to Kenya Shilling two billion (Kes 2,000,000,000) by Commercial Bank of Africa Limited; Information Memorandum 13

16 SUBJECT Issue Date Issue Price Issuer or the Company or CBA or the Bank Kenya Kes Note Agents Note Documents Noteholder Notes NSE Paying Agent Payment Account Pricing Supplement Principal Amount Principal Repayment Date Prudential Guidelines/Regulations DEFINITION means the date upon which the relevant Tranche of the Notes is issued and as provided in the relevant Pricing Supplement; means the price at which the Notes are issued by the Issuer (being, at the election of the Issuer, at par or at a discount to, or premium over their nominal amount as specified in the relevant Pricing Supplement); means Commercial Bank of Africa Limited; means the Republic of Kenya and Kenyan shall be construed accordingly; means Kenya Shillings, being the lawful currency of the Republic of Kenya; means the Paying Agent, Registrar and Fiscal Agent or any of them and their respective successors from time to time; means the Trust Deed, the Agency Agreement and the Information Memorandum. means the several persons who are for the time being holders of the Notes (being the several persons whose names are entered in the register of holders of the Notes as the holders thereof) and the words holder and holders and related expressions shall (where applicable) be construed accordingly; means the instrument in registered form, comprising an aggregate amount of up to Kenya Shillings eight billion (Kes 8,000,000,000) with a Greenshoe Option for up to Kenya Shillings two billion (Kes 2,000,000,000) to be issued in up to 2 (Two) tranches through a Medium Term Note Programme issued pursuant to the Trust Agreement and subject to the Conditions and for the time being outstanding; means Nairobi Securities Exchange; means Commercial Bank of Africa Limited; means the account denominated in Kenya Shillings with account number CBA Bond Collection Account No in the name of the Issuer held with the Paying Agent or such other account held with such bank as the Issuer may (with the prior written consent of the Paying Agent) from time to time by notice to the Paying Agent specify for the purpose of making payments to the Noteholders; means, in relation to a Tranche, a Pricing Supplement is supplemental to the Information Memorandum issued for the purpose of specifying the relevant details of the Notes issued within the Tranche; means the nominal amount of each Note mentioned in the Note Certificate in respect of that Note; means the date(s) so specified in the relevant Pricing Supplement as the date(s) on which payment(s) of the Principal Amount shall fall due; means the Prudential Guidelines for banking institutions licensed under the Banking Act (Chapter 488 of the Laws of Kenya) issued by the Central Bank of Kenya pursuant to the provisions of the said Act; 14 Information Memorandum

17 SUBJECT Record Date Record of Noteholders Reference Rate Register Registrar and Fiscal Agent Senior Creditors Specified Office Successor Tier 2 Capital Tranche Trust Deed DEFINITION means 5.00pm Nairobi time, fifteen calendar days prior to each Interest Payment Date until the redemption in full of the Note; means an up-to-date copy of the book entries of the Noteholders in the Register in respect of the Notes as accessed by the Registrar and Fiscal Agent on the Record Date; means the benchmark interest rate as specified in the relevant Pricing Supplement for each Tranche of the Notes to be issued; means the official record of Noteholders in the CDS as maintained by the CDSC pursuant to section 25 of the CD Act; means the institution appointed or acting as Registrar and Fiscal Agent pursuant to the Conditions and the Agency Agreement, or if applicable, any successor Registrar and Fiscal Agent at its Specified Office; a) All such persons who are not expressly stated in any contract, agreement or other arrangement between the Issuer and any such person, to be subordinated creditors of the Issuer and b) all persons who are expressly stated in any contract, agreement or other arrangement between the Issuer any such other person to be subordinated creditors of the Issuer (other than the Noteholders in their capacity as holders of the Notes); means, in relation to any Note Agent, either the office identified with its name in the Conditions or any other office notified to any relevant parties pursuant to the Agency Agreement; means, in relation to any party appointed under the Issue, any successor to any one or more of them which shall become a party pursuant to the provisions of these presents and/ or such other or further agent (as the case may be) in relation to the Notes as may from time to time be appointed as such, and/or, if applicable, such other or further specified offices as may from time to time be nominated, in each case by the Issuer and (except in the case of the initial appointments and specified offices made under and specified in the Conditions) notice of whose appointment or, as the case may be, nomination has been duly given to the Noteholders; means supplementary capital as defined in the Banking Act and the Prudential Regulations; means a series of Notes comprising one or more series, that (except in respect of the first Interest Payment Date and their Issue Price) have the identical terms of issue and are expressed to have the same Tranche number. Details applicable to each Tranche are to be specified in the relevant Pricing Supplement; means the agreement dated 21 November, 2014 appointing the Note Trustee and any other agreements for the time being in force appointing a Successor Note Trustee or in relation to the Notes, or in connection with the Note Trustee s duties, together with any agreement for the time being in force or modifying any such agreement; Information Memorandum 15

18 TZS UGX means Tanzania Shillings, being the lawful currency of the Republic of Tanzania; means Uganda Shillings, being the lawful currency of the Republic of Uganda. 16 Information Memorandum

19 3. TIMETABLE EVENT TIMING DATE 1. Approvals from CMA and Printing of the Pricing Supplement [T] 21 November Offer Opens [T + 5] 9.00 am on 26 November Offer Closes [T + 19] 10 December Announcement Allocation Results 1 [T + 26] 17 December Final Date of Payment against Guarantees/Commitments [T + 28] 19 December Issue Date [T + 31] 22 December Commencement of electronic crediting of CDS accounts [T + 45] 5 January Listing and commencement of trading on the Nairobi Securities Exchange [T + 60] 9.00 am on 20 January This announcement will be made through two English dailies of national circulation Information Memorandum 17

20 4. SUMMARY OF THE PROGRAMME The following overview is qualified in its entirety by the remainder of this Information Memorandum. Capitalised expressions used below in this overview have the definitions ascribed to them in the Terms and Conditions of the Medium Term Note unless otherwise defined in this Information Memorandum. Issuer or Company Description Programme Size Minimum Subscription Amount Currency Mandated Lead Arranger and Sole Placement Agent Paying Agent Registrar and Fiscal Agent Note Trustee Legal Counsel Reporting Accountants/ Auditor Method of Issue Issue Price Form of the Notes Commercial Bank of Africa Limited Medium Term Note ( MTN ) Programme under which Fixed Rate and Floating Rate Notes to be issued. Up to Kenya Shillings eight billion (Kes 8,000,000,000) subject to increase to up to Kenya Shilling ten billion (Kes 10,000,000,000) pursuant to a Greenshoe Option for up to Kenya Shilling two billion (Kes 2,000,000,000). As specified in the relevant Pricing Supplement. The Notes will be denominated in Kenya Shillings ( Kes ) or in other currency as otherwise stated in the relevant Pricing Supplement. CBA Capital Limited. Commercial Bank of Africa Limited. Image Registrars Limited. Ropat Trust Company Limited. Coulson Harney Advocates. PricewaterhouseCoopers. The Notes will be placed on a syndicated or non-syndicated basis. The Notes will be issued in series (each a Series ) having one or more issue dates and on terms otherwise identical (or identical other than in respect of the first payment of interest, issue price, currency denomination and interest rate), the Notes of each Series being intended to be interchangeable with all other Notes of that Series. Each Series may be issued in tranches (each a Tranche ) on the same or different issue dates. The specific terms of each Tranche (which will be completed, where necessary, with the relevant terms and conditions and, save in respect of the issue date, issue price, interest rate, first payment of interest and nominal amount of the Tranche, will be identical to the terms of other Tranches of the same Series) will be completed in the pricing supplement (the Pricing Supplement ). Notes may be issued on a fully paid basis at their nominal amount or at a discount or premium to their nominal amount. Partly paid Notes may be issued, the issue price of which will be payable in instalments. The Notes will be issued as dematerialised notes. 18 Information Memorandum

21 Initial Delivery of the Notes Maturities Specified Denomination Fixed Rate Notes Floating Rate Notes Other Notes The Notes will be uploaded into the CDS accounts on the Issue Date. Unless otherwise permitted by the then current laws, regulations and directives, the Notes will have a maturity of not less than five years. The Notes will be issued as dematerialised notes in denominations of Kes 100,000 or in Kenya Shilling equivalent and integral multiples of Kes 100,000 or in Kenya Shilling equivalent in excess thereof, subject to a minimum subscription amount of Kes 1,000,000 or in Kenya Shilling equivalent. Fixed interest will be payable on the date or dates in each year specified in the relevant Pricing Supplement. Floating Rate Notes will bear interest determined separately for each Series as follows: by reference to 91-day, 182-day or 364-day Treasury Bill (or such other Benchmark as may be specified in the relevant Pricing Supplement) as adjusted for any applicable margin; or In any other manner as may be specified in the relevant Pricing Supplement. Terms applicable to any other type of Notes that the Issuer and any Placing Agent(s) may agree to issue under the Programme will be set out in the relevant Pricing Supplement. Rate of Interest Such rate(s) and whether a fixed or floating interest rate as indicated in the relevant Pricing Supplement. Notes may have a maximum interest rate, a minimum interest rate, or both. All such information will be set out in the relevant Pricing Supplement. Interest Payment Interest will be paid semi-annually in arrears (an Interest Payment- Date ) as per the interest payment schedule as indicated in the relevant Pricing Supplement. Interest will be calculated on the basis of a 364-day year Default Interest Redemption Redemption by Instalments Early Redemption: Status of the Notes The rate per annum, which is the aggregate of the Rate of Interest plus a default margin of 2% for both Fixed Rate Notes and Floating Rate Notes. The relevant Pricing Supplement will specify the basis for calculating the redemption amounts payable. The Pricing Supplement issued in respect of each issue of Notes that are redeemable in two or more instalments will set out the dates on which, and the amounts in which, such Notes may be redeemed. The Pricing Supplement issued in respect of each issue of Notes will state whether such Notes may be redeemed prior to their stated maturity at the option of the Issuer (either in whole or in part) and, if so, the terms applicable to such redemption. The Notes will constitute direct, general, unsecured and subordinated obligations of the Issuer and will rank pari passu among themselves and after all subordinated creditors of the Issuer including depositors and general creditors. Information Memorandum 19

22 Use of Proceeds General corporate purposes and to further strengthen the capital base. The issuer reserves the right, whether the Issue is oversubscribed or not to reject any application in line with the Allotment policy set in the relevant pricing supplement. Applicants as a result may be allotted less than the amount applied for. Allotment Policy Allotment will be done on the following basis in order of priority: a) Applicants subscribing for Notes of a greater value than Kes 100,000,000 or in Kenya Shilling equivalent will obtain priority during allotment and in the event of an over-subscription, applicants under this category will be pro-rated equally; b) Applicants subscribing for Notes of a value less than Kes 100,000,000 or in Kenya Shilling equivalent after a full allotment under (a) above and in the event of an over-subscription allocations under this category will be pro-rated equally. Successful applicants will be notified by the Placing Agent of the amount allotted to them no later than the date and time specified in the relevant Pricing Supplement. Events of Default Taxation Listing The terms and conditions of the Notes will contain events of default provisions as set out in Terms and Conditions. All payments in respect of the Notes will be made subject to withholding or deduction for or on account of any taxes imposed within the Republic of Kenya, where such taxes are applicable. The Notes, if denominated in Kenya Shillings, will be listed on the FISMS of the NSE. As specified in the relevant Pricing Supplement, a series of Notes may be unlisted. Rating Tranches of Notes may be rated or unrated. Where a Tranche of Notes is rated, such rating will be specified in the relevant Pricing Supplement. Whether or not a rating in relation to any Tranche of Notes will be treated as having been issued by a credit rating agency will be disclosed in the relevant Pricing Supplement. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. Compliance The issue, placement and transfer of Notes will comply with the following: a) The Issuer s Memorandum and Articles of Association; b) The requirements of the CMA and NSE for approval of the listing of the Notes; c) The CMA and NSE reporting requirements from time to time; d) The CD Act, 2000 and any applicable rules of the CDSC; and e) Any other applicable provisions of the law in Kenya relating to debt capital markets that is in existence or that may be passed before the Issue or while the Notes are still outstanding. Governing Law The Notes will be governed by, and construed in accordance with, Kenyan law. Guarantee The notes are not secured and no guarantee is provided. The repayment of the debt securities and the payment of interest will be funded from the general earnings of the Issuer. 20 Information Memorandum

23 5. USE OF PROCEEDS The Bank expects substantial growth in its business activities and operations in the coming years. The present issue of Medium Term Notes is being made pursuant to applicable regulations for augmenting the Bank s Tier 2 capital for strengthening its statutory capital adequacy ratios, fund regional expansion and enhance the Bank s Capital to enable it compete more effectively or as may otherwise be described in the Applicable Pricing Supplement. Information Memorandum 21

24 6. TERMS AND CONDITIONS OF THE NOTES The issue of Medium Term Notes of up to an aggregate principal amount of Kenya Shillings Eight Billion (Kes 8,000,000,000) (or Kes 10,000,000,000 including the Greenshoe Option) to be issued in one or more tranches in the Republic of Kenya by Commercial Bank of Africa Limited was duly authorised pursuant to a resolution of the Board of Directors of the Issuer passed on 6th October The first tranche will be issued with an aggregate principal amount as reflected in the relevant Pricing supplement. The Notes are issued with the benefit of, and are subject to, a Trust Deed dated 21 November 2014 between the Issuer and Ropat Trust Company Limited as the Note Trustee and an Agency Agreement dated 21 November 2014 between the Issuer and the Paying Agent, the Registrar and Fiscal Agent and the Issuer. The statements in these Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed and Agency Agreement. The Noteholders, and the Note Trustee on their behalf, are deemed to have notice of, are entitled to the benefit of, and are bound by all the provisions of the Trust Deed and the Agency Agreement, copies of which are available for inspection during normal business hours at the registered office of the Issuer and the Specified Offices of the Trustee, Paying Agent and the Registrar and Fiscal Agent in accordance with the provisions of the Note Documents. The expressions Note Trustee, Paying Agent and Registrar and Fiscal Agent shall include any successor trustee, Paying Agent or Registrar and Fiscal Agent appointed pursuant to the Trust Deed and Agency Agreement. Words and expressions defined in the Transaction Documents shall have the same meanings where used in these Conditions and the relevant Pricing Supplement unless the context otherwise requires or unless otherwise stated. Headings and sub-headings are for ease of reference only and shall not affect construction. 6.1 Constitution and Form The Notes are issued as dematerialised and constitute registered debt obligations of the Issuer constituted by and owing under these Conditions and the Note Documents. The Notes will be registered in the CDSC Account of each Noteholder held with the CDSC in accordance with the CD Act. No physical notes will be issued. Each entry in the CDSC Account of a Noteholder constitutes a separate and individual acknowledgement to the relevant Noteholder of the indebtedness of the Issuer to the relevant Noteholder. 6.2 Currency The Notes will be denominated in Kenya Shillings ( Kes ). 6.3 Denomination The Notes will be issued in the denomination of Kenya Shillings one hundred thousand (Kes 100,000) or integral multiples of Kenya Shillings one hundred thousand (Kes 100,000) in excess thereof ( Specified Denomination ). 6.4 Title and Transfer Title Book entries in the CDSC Account of a Noteholder will constitute conclusive evidence of title of the Notes. The Issuer, the Note Trustees, the Paying Agent and the Registrar and Fiscal Agent may (to the fullest extent permitted 22 Information Memorandum

25 by applicable laws) deem and treat the registered owner of any Note as the absolute owner thereof (whether or not the Note shall be overdue and notwithstanding any notice of ownership or other interest therein) and neither the Issuer, nor any agent of the Issuer, shall be affected by notice to the contrary) Listing The Notes will, upon their issue, be listed on the FISMS in the NSE. The Issuer will take reasonable effort to achieve and maintain such listing as long as the Notes are outstanding, however no longer than up to and including the last day on which trading can reasonably take place before the redemption date Transfer The Notes are freely transferable. A Note may be transferred in whole or in part provided the minimum face value of the Notes to be transferred and the residual value of the Notes which will continue to be held by the relevant transferor (if any) is in a Specified Denomination, and title to such Notes shall pass upon the registration of book-entry transfers in accordance with the CD Act. The transfers will be subject to such charges as may be levied by the CDSC, CMA, NSE, any other regulatory authority or agency and market intermediary through whom the order is made. 6.5 Status of the Notes It is the intention of the Issuer that the Notes should qualify as supplementary capital for purposes of the Prudential Regulations of the Central Bank of Kenya. Accordingly, the Notes and the obligations of the Issuer thereunder constitute direct and unsecured obligations of the Issuer and will rank (a) equally inter se; and (b) fully subordinated to the claims of Senior Creditors, with the further proviso that if at any time an order is made or a resolution is passed for the winding up of the Issuer, then any payment of any amount due hereunder which would fall due for payment while the Issuer is insolvent or in insolvent liquidation will not fall so due and instead, any unpaid amount will become due for payment only if and when to the extent that the Issuer could make such payment in whole or in part and still be solvent thereafter. Nothing in this Condition will preclude or prevent any Noteholder or the Note Trustee from presenting any petition to wind up the Issuer. The Issuer will provide such information, evidence or opinions as the Noteholders (acting through the Note Trustee) might request in the event of any amount due under the Notes being withheld or unpaid pursuant to the application of this Condition. 6.6 Interest Interest Rate The Notes will attract interest at a floating rate ( Floating Rate Notes ) or at a fixed rate ( Fixed Rate Notes ) as specified in the relevant Pricing Supplement Payment of Interest From, but excluding, the Issue date to, and including the Redemption Date, the Notes bear interest at the Interest Rate as determined below. Interest on each Note will be payable semi-annually in arrears on the dates indicated in the applicable Pricing Supplement commencing on the date specified in the applicable Pricing Supplement (each an Interest Payment Date ) until the principal amount is repaid in full. Information Memorandum 23

26 If any Interest Payment Date would otherwise fall on a day, which is not a Business Day, the next following Business Day shall be substituted for such day, unless such Business Day falls in the next calendar month, in which case the immediately preceding Business Day shall be substituted therefor. The period beginning on and including the date of the relevant issue and purchase of the Notes (the Issue Date ) and ending on (but excluding) the first Interest Payment Date, and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next Interest Payment Date is called an Interest Period. In these Conditions, Business Day means any day, other than a Saturday, Sunday or public holiday in Kenya as defined in the Public Holidays Act (Chapter 110 of the Laws of Kenya), and on which commercial banks are open for business and foreign exchange markets settle payments in Nairobi Calculation of Interest The rate of interest from time to time payable in respect of the Notes (the Interest Rate ) shall, in the case of floating rate Notes, be determined by the Paying Agent as follows: a) On the first day of the Interest Period for which such rate will apply (the Interest Determination Date ) the Paying Agent shall determine the latest interest rate, in respect of total amounts accepted, of the most recent 182-days Treasury Bill issued and published by the Central Bank of Kenya on behalf of the Government of Kenya (the Reference Rate ) plus the Margin set out in the relevant pricing supplement. b) If on any Interest Determination Date there are no 182-days Treasury Bill Rates quoted within the 30 days preceding the Interest Determination Date, and/or, such Treasury Bills are no longer issued by the Central Bank of Kenya, then the Interest Rate for the relevant Interest Period shall be the 91-daysTreasury Bill rate and if there are no 91-days Treasury Bill rates quoted within the 30 days preceding the Interest Determination Date, then the interest rate for the preceding interest period shall apply. The Interest Rate for Fixed Rate Notes (if any) shall be as specified in the relevant Pricing Supplement Calculation of Interest Amount The Paying Agent will as soon as practicable, but in any event no later than two (2) Business Days prior to the date on which interest for a particular Interest Payment Date begins to accrue (the Interest Determination Date ), compute the amount of interest payable (the Interest Amount ) for the relevant Interest Period. For each Interest Payment Date, the Interest Amount shall be calculated by applying the Interest Rate to the outstanding principal amount of the Notes, multiplying such sum by the actual number of days in the relevant Interest Period divided by 364 rounding the relevant figure to the nearest Shilling (fifty cents being rounded upwards). The computation of each Interest Amount by the Paying Agent shall (in the absence of manifest error) be final and binding upon all parties Accrual of Interest Interest on each Note will cease to accrue in respect of any redeemed principal, unless payment of principal on the relevant Principal Repayment Date (as defined below) or, where applicable the due date for early redemption, is improperly withheld or refused. In such event, each Note shall continue to bear interest in accordance with the provisions of this Condition and Condition (Payment on Business Days and Late Payments) until whichever is the earlier of; a) the date on which all sums due in respect of such Note have been paid; and b) five days after the date on which the full amount of monies payable has been received by the Paying Agent and notice to that effect has been given to the Noteholders in accordance with Condition 6.15 (Notices). 24 Information Memorandum

27 6.6.6 Notification of Interest Rate and Interest Amounts The Paying Agent will, after an Interest Determination Date, cause each Interest Amount for each Interest Period, the relevant Interest Payment Date and, if required to be calculated, the Final Redemption Amount or Early Redemption Amount to be notified to the Issuer, the Note Trustees and the Noteholders in accordance with the Transaction Documents and Condition 6.15 (Notices) and to the Nairobi Securities Exchange as soon as possible, but in any event no later than the fourth Business Day after the Interest Determination Date. 6.7 Payment Method of Payment a) Payment and settlement of amounts due on the final redemption of the Notes (the Final Redemption Amount(s) ) will be made in accordance with the CD Act. b) Payment and settlement of amounts due on any prepayment of the Notes (the Early Redemption Amount(s) ) will be made in accordance with the CD Act. c) Payment of instalments of principal (other than the Final Redemption Amount(s) and Early Redemption Amount(s)), interest and other amounts due in respect of the Notes will be paid to the holder of the Note thereof as appearing on the CDS as at the Record Date. d) Subject to Condition (a), payment of Interest and principal amounts shall at all times be made by the Paying Agent via electronic funds transfer ( EFT ) or Real Time Gross Settlement ( RTGS ) to the account designated for the purpose by the Noteholder. Payment by EFT or RTGS shall be a valid discharge by the Issuer upon it to pay interest and any principal amount. e) All payments of Principal Amounts and Interest in respect of the Notes are subject in all cases to any Applicable Laws, Paying or otherwise in the place of payment, but without prejudice to the provisions of Condition 6.9 (Taxation). No commissions or expenses shall be charged to the Noteholders in respect of such payments Payments on Business Days and Late Payments a) Where payment is to be made by EFT or RTGS to a Noteholder s account, payment instructions will be initiated on the due date for payment of Interest or the principal amount (in the event of a partial or full redemption) as applicable. b) If any day for payment of any amount of principal or interest in respect of any Note is not a Business Day, then the Noteholder thereof shall not be entitled to payment until the next following Business Day and shall not be entitled to any interest or other sums in respect of such postponed payment. c) If (otherwise than by reason of the application of Condition (a) and (b) above) (i) any payment of principal is withheld or refused when due in respect of any Note, or (ii) any interest is not paid when due (the defaulted amounts mentioned in this condition and (i) above being referred to in this Condition as Defaulted Amounts ) then interest shall accrue on each such Defaulted Amount at the Default Rate to a person who is shown as the Noteholder on the relevant Record Date. Information Memorandum 25

28 Default Rate means the Interest Rate plus a margin of 2.0% per annum Interpretation of Principal Amount Any reference in these Conditions to a Principal Amount in respect of the Notes shall be deemed to include as applicable: (i) The Final Redemption Amount(s) of the Notes; (ii) The Early Redemption Amount(s) of Notes; and (iii) Any premium and any other amount which may be payable by the Issuer under or in respect of the Notes Currency of account and payment The currency of account and for any sum due from the Issuer hereunder is the Kenya Shilling. 6.8 Redemption and purchase Redemption Unless previously redeemed, or purchased and deleted from the relevant Noteholder s CDSC Account, each Note shall be redeemed on the date so specified in the Pricing Supplement, each date for payment being a Principal Repayment Date Early redemption The Issuer may at its option redeem all or part of the principal amount of the Notes earlier than in accordance with Condition (Redemption) (together with interest accrued to the date of redemption in accordance with condition 4) subject to the following conditions: i. the Note Trustee and Paying Agent has received from the Issuer not less than 30 days prior written notice (which such notice shall also have been given to the Noteholders in accordance with Condition 6.15 (Notices)) specifying the date on which the principal amount is to be redeemed, such date to be a Principal Repayment Date or an Interest Payment Date and the Record Date; ii. each partial redemption shall be of an aggregate principal amount of not less than Kenya Shillings one hundred million (Kes 100,000,000) and an integral multiple of Kenya Shillings fifty million (Kes 50,000,000); and iii. no early redemption may be made before the date (if any) stipulated in the applicable pricing supplement. The amount of each early redemption shall be applied to the Instalment Amounts in inverse order of maturity (unless otherwise advised in writing by the Issuer), and pro rata against the Issuer s obligations under the Notes Purchases The Issuer, its subsidiaries, its holding company or subsidiaries of the holding company may at any time purchase Notes at any price in the open market or otherwise. In the event of the Issuer purchasing Notes, such Notes may (subject to any approvals required from the NSE and/or the CMA or to any restrictions under any Applicable Laws) be held, resold or, at the option of the Issuer, cancelled in terms of and in accordance with these Conditions. 26 Information Memorandum

29 6.8.4 Cancellation All Notes which are redeemed or surrendered shall forthwith be cancelled. All Notes so cancelled cannot be reissued or resold. 6.9 Taxation All payments in respect of the Notes are subject to all applicable taxes, including the deduction of withholding tax at the prescribed rate on all interest payments to Noteholders other than any Noteholder who (a) is exempt from such deduction under the provisions of the Income Tax Act (Chapter 470 of the Laws of Kenya) and (b) has provided evidence of such exemption to the reasonable satisfaction of the Issuer Unclaimed Assets Subject to the provisions of the Unclaimed Financial Assets Act (no. 40 of 2011) and the CD Act, the Notes will be presumed abandoned after a period of three (3) years in the case of principal and three years in the case of Interest after the Relevant Date (as defined below) if: i. for more than three years, a Noteholder has not claimed Interest or the Early Redemption Amount or the Final Redemption Amount as applicable, or any other sum payable on the Notes or the Noteholder has not communicated with the Issuer or the Note Trustee regarding the Interest or the Early Redemption Amount or the Final Redemption Amount as applicable, as evidenced by a memorandum or other record on file with the Issuer or the Note Trustee; ii. the Issuer or the Note Trustee does not know the whereabouts of the Noteholder at the end of the three year period. As used herein, the Relevant Date means the date on which such payment first becomes due, except that, if the full amount of the moneys payable has not been duly received by the Paying Agent on or prior to such due date, it means the date on which, the full amount of such moneys having been so received, notice to that effect is duly given to the Noteholders in accordance with Condition 6.15 (Notices) Events of Default If any one or more of the following events (each an Event of Default ) in respect of the Notes or any of them shall have occurred and be continuing: Non-payment There is a failure by the Issuer to pay principal and/or interest on any of the Notes, if and when due and such failure continues for a period of twenty (20) calendar days (provided that the Issuer shall not be in default if, during such period, it satisfies the Paying Agent that the amounts not paid were not paid (i) owing to administrative or technical error or (ii) in order to comply with any Applicable Laws or the Prudential Regulations or order of any court or competent jurisdiction or (iii) in case of doubt as to the validity or applicability of any such law, regulation or order, in accordance with advice as to such validity or acceptability given at any time during such period by independent advisers acceptable to the Paying Agent); or Breach of other obligations A default is made in the performance or observance of any material covenant, condition or provision which is to be performed by the Issuer under the Terms of the Notes and (except where the Note Trustee certifies in writing that, in its opinion, such default is not capable of remedy, when no such notice or continuation as is mentioned below shall be required) such default continues for a period of thirty (30) calendar days (or such longer period as the Note Trustee may in its sole discretion determine)following the service by the Note Trustee on the Issuer, of notice requiring such default to be remedied; or Information Memorandum 27

30 Cross-default (i) any indebtedness of the Issuer, (a) becomes due and payable prior to the due date for payment thereof by reason of any default by the Issuer or (b) is not repaid at maturity as extended by the period of grace, if any, applicable thereto; or (ii) any guarantee given by the Issuer in respect of any indebtedness of any other person is not honoured when due and called, provided that the aggregate principal amount of such financial indebtedness referred to in (i) or (ii) exceeds Kes 1,000,000,000; or Bankruptcy The Issuer institute proceedings under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect to be placed into liquidation or winding up or consent to the filing of a bankruptcy, insolvency or similar proceeding against it or file a petition or answer or consent seeking re-organisation under any such law or consent to the filing of any such petition, or shall consent to the appointment of a receiver, manager, liquidator or trustee or assignee in bankruptcy or liquidation of the Issuer or in respect of its property, or make an assignment for the benefit of its creditors or otherwise be unable or admit its inability to pay its debts generally as they become due or the Issuer commences proceedings with a view to the general adjustment of its indebtedness, which event in any such case is (in the sole opinion of the Note Trustee), materially prejudicial to the interests of the Noteholders; or Substantial Change in Business The Issuer makes or threatens to make any substantial change in the principal nature of its business as presently conducted which is (in the sole opinion of the Note Trustee) materially prejudicial to the interests of the Noteholders; or Maintenance of Business The Issuer fails to take any action as is required of it under the Applicable Laws or the Prudential Regulations or otherwise to maintain in effect its banking license or corporate existence or fails to take any action to maintain any material rights, privileges, titles to property, franchises and the like necessary or desirable in the normal conduct of its business, activities or operations which is (in the sole opinion of the Note Trustee) materially prejudicial to the interests of the Noteholders and such failure (if capable of remedy) is not remedied within thirty (30) Business Days (or such longer period as the Note Trustee may in its sole discretion determine) after notice thereof has been given to the Issuer; or Material compliance with Applicable Laws The Issuer fails to comply in any material respect with any Applicable Laws or the Prudential Regulations to enable it lawfully to exercise its rights or perform or comply with its obligations under the Note Documents; or Invalidity or Unenforceability (i) the validity of the Notes or the Note Documents is contested by the Issuer or the Issuer denies any of its obligations under the Notes or the Note Documents (whether by a general suspension of payments or a moratorium on the payment of debt or otherwise); or (ii) it is or becomes unlawful for the Issuer to perform or comply with all or any of its obligations set out in the Notes or the Note Documents and the Note Trustee is of the opinion (determined on its sole discretion) that such occurrence is materially prejudicial to the interests of the Noteholders; or 28 Information Memorandum

31 Government Intervention (i) (a) all or any substantial part of the undertaking, assets and revenues of the Issuer is condemned, seized or otherwise appropriated by any persons acting under the authority of any national, regional or county government or (b) the Issuer is prevented by any such person from exercising normal control over all or any substantial part of its undertaking, assets, revenues and, following the occurrence of any of the events specified in Condition (a), the Note Trustee is of the opinion (determined on its sole discretion) that such occurrence is materially prejudicial to the interests of the Noteholders; (ii) in which event(s) the holders of Notes may, by Extraordinary Resolution of such holders, direct the Note Trustee to give written notice to the Issuer at the Specified Office of the Issue and Paying Agent, effective upon the date of receipt, declaring the Notes to be forthwith due and payable whereupon the same shall become forthwith due and payable at the Early Redemption amount, together with accrued Interest (if any) to the date of repayment, without presentment, demand, protest or other notice of any kind The Issuer undertakes to inform the Note Trustee without delay if any event mentioned under para through has occurred and to provide the Note Trustee with all necessary documents and information in connection therewith Trustee The Issuer has appointed Ropat Trust Company Limited to act as Trustee for the Noteholders The Issuer and the Trustees have entered into the Trust Deed, inter alia, specifying the powers, authorities and obligations of the Trustees and the Issuer. The Noteholder(s) shall, without further act or deed, be deemed to have irrevocably given their consent to the Trustees or any of their agents or authorized officials to do all such acts, deeds, matters and things in respect of or relating to the Notes as the Trustee may in their absolute discretion deem necessary or require to be done in the interest of the Noteholder(s). Any payment made by the Issuer to the Trustees on behalf of the Noteholder(s) shall discharge the Issuer pro tanto to the Noteholder(s) The Trustees will protect the interest of the Noteholders in the event of default by the Issuer in regard to timely payment of interest and repayment of principal and they will take necessary action at the cost of the Issuer. No Bondholder shall be entitled to proceed directly against the Issuer unless the Trustees, having become so bound to proceed, fail to do so The Registrar and Fiscal Agent, Paying Agents and Specified Office The Registrar and Fiscal Agent shall procure from the CDSC on each Record Date (or at such intervals as may be required) an up-to-date copy of the Register (hereinafter referred to as the Record of Noteholders) and deliver a copy to the Paying Agent for purposes of enabling the Paying Agent to comply with its obligations under the Agency Agreement and these Conditions The Paying Agent shall provide to the Registrar and Fiscal Agent details of all the redeemed or cancelled Notes and the Registrar and Fiscal Agent shall forthwith provide these details to the CDSC and shall ensure that the CDSC and the Register remain updated with respect to any redemptions of principal or cancellation of the Notes The Record of Noteholders shall be open for inspection during the normal business hours of the Registrar and Fiscal Agent to any Noteholder or any person authorized in writing by any Noteholder, the CMA and the NSE on which the Notes will be listed. Information Memorandum 29

32 The names of the initial Paying Agent and Registrar and Fiscal Agent and its initial Specified Office are set out below. Agent Paying Agent Attention: James Mugo Specified Office Commercial Bank of Africa Limited Mara and Ragati Roads, Upper Hill P.O Box GPO, Nairobi, KENYA Tel Registrar and Fiscal Agent Attention: Lawrence Kibet Image Registrars Limited Barclays Plaza Loita Street P.O. Box Nairobi, Kenya The Issuer is entitled to amend or terminate the appointment of the Paying Agent or the Registrar and Fiscal Agent and to appoint another Paying Agent or Registrar and Fiscal Agent provided that it will at all times while any Note is outstanding maintain a Paying Agent and a Registrar and Fiscal Agent having a Specified Office in Nairobi Any variation, termination or appointment shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 or more than 45 days prior notice thereof shall have been given to the Noteholders in accordance with Condition 6.15 (Notices). A copy of the notice to Noteholders shall be sent to the Capital Markets Authority In acting under the Agency Agreement and in connection with the Notes, each of the Agents is acting solely as agent of the Issuer and does not assume any obligation toward or relationship of agency or trust for or with any Noteholder or the owner of any interest therein Further Issues The Issuer may from time to time without the consent of the Noteholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes) or upon such terms as the Issuer may determine at the time of their issue References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the Notes. Any further securities forming a single series with the outstanding securities of any series (including the Notes) constituted by the Trust Deed or any deed supplemental to it shall, and any other securities may (with the consent of the Trustee), be constituted by the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides Notices Notices to the Noteholders will be deemed to be validly given if made by fax, electronic mail, delivered to them, or sent by registered post to them, and: 30 Information Memorandum

33 In the case of notices that are posted to holders of Notes, the notices will be valid if mailed to their registered addresses appearing on the Register. Any such notice shall be deemed to have been given on the seventh Business Day after the day on which it was posted; In the case of any communication made by fax, the notice will be deemed to have been validly given when on the date following transmission (provided that the sender produces, if requested to do so, a fax transmission report showing that the entire communication was received by the intended recipient); or In the case of delivery, the notice will be deemed to have been validly given when such communication or document is left with or delivered to the intended Noteholder at its address as recorded on the Register In case of electronic transmission, the notice will be deemed to have been validly given when such electronic communication is sent to the intended Noteholder provided that a communication or document which is received after 5:00 p.m. on a Business Day, or on a day which is not a full Business Day, in the place of receipt shall be deemed to be delivered on the next full Business Day in that place All notices regarding the Notes shall be published in two leading English language daily newspaper expected to be of general circulation in the Republic of Kenya. Any such notice will be deemed to have been given on the date of the first publication in the newspapers Notices to be given by any holder of the Notes shall be in writing and given by lodging the same, together with the relative Note or Notes, with the Note Agents Meeting of Noteholders, Modification and Waiver The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of modification of the Notes or certain provision of the Trust Deed Force Majeure and Limitation of Liability Neither the Paying Agent nor the Issuer shall be held responsible for any damage arising out of any legal enactment, or any measure taken by a public authority, or war, strike, lockout, boycott, blockade or any other similar circumstance (a Force Majeure Event ). The reservation in respect of strikes, lockouts, boycotts and blockades applies even if the Paying Agent or the Issuer itself takes such measures, or is subject to such measures Should a Force Majeure Event arise which prevents the Agent from taking any action required to comply with these Terms and Conditions, such action may be postponed until the obstacle has been removed Severability If at any time one or more of the provisions of the Terms of the Note is or becomes unlawful, invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not be in any way affected or impaired thereby. Information Memorandum 31

34 6.19 Governing Law and Jurisdiction The Trust Deed, Agency Agreement, Information Memorandum and the Notes are governed by, and shall be construed in accordance with, the laws of the Republic of Kenya The Issuer agrees for the benefit of the Noteholders that the courts of Kenya shall have exclusive jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise out of or in connection with the Transaction Documents or the Notes (respectively, Proceedings and Disputes ) and the High Court of Kenya shall be the court of first instance Service of any summons other notice of legal process shall be received by the Issuer at its Specified Office. 32 Information Memorandum

35 7. ECONOMIC OVERVIEW 7.1 Kenya Macroeconomic Overview Following the statistical rebasement of the economy, Kenya grew by 5.7% in 2013 up from 4.5% growth in Growth was driven by robust consumption spending and public investment in infrastructure, as well as higher industrial and services output. Growth was underpinned by macroeconomic stability, including single-digit inflation and a stable exchange rate. The latest government projections estimate that the economy will grow by between 5.3% and 5.5% down from a previous estimate of 5.8% due to challenges in key sectors such as tourism. The economy grew by a sluggish 4.1% in the first quarter of 2014, mainly as a result of delayed rain in the bread basket areas of the Rift Valley and incidences of insecurity. Chart 1: Comparison in Real GDP growth rate in % Chart 1: Comparison in Real GDP growth rate in % Previous Real GDP Growth Revised Real GDP growth Source: Kenya National Bureau of Statistics (Highlights of the revision of National Account 2014) Information Memorandum 33

36 Table 1: Sectorial GDP Growth 2 Main Sectors 34 Information Memorandum Share of GDP (%) Previous Annual Growth Rate (%) Agriculture and Forestry Fishing Mining and Quarrying Manufacturing Electricity and Water Supply Construction Wholesale and Retail Trade, Repairs Hotel and Restaurants Transport and Communication Financial Intermediation Real Estate, Renting and Business Services Public Administration and Defence Education Health and Social Work Other Services Less: Financial Services Indirectly Measured Taxes less subsidies on Products GDP at constant market prices Source: Kenya National Bureau of Statistics (Economic Survey 2014) Table 2: Revised Sectorial GDP Growth 3 Main Sectors Revised Annual Growth Rate (%) Agriculture and Forestry and Fishing Mining and Quarrying Manufacturing Electricity Supply Water Supply, sewerage, waste management Construction Wholesale and Retail Trade, Repairs Transport and Storage Hotel and Restaurants Information and communication Financial and Insurance Activities Real Estate Professional, scientific and technical activities Administrative and support services activities Public administration and defence Education Human health and social work activities Arts, entertainment and recreation Other service activities Activities of households as employers Financial Industry Services Measured Indirectly All economic activities Taxes on products GDP at market prices Source: Kenya National Bureau of Statistics (Highlights of the revision of National Account 2014) 2 Percentage changes are based on 2001 constant prices 3 Percentage changes are based on 2009 constant prices

37 Transport and Communication sector recorded a growth of 6 percent (rebased 1.3 percent) in 2013, up from a growth of 4.7 percent (rebased 2.8percent) in 2012, mainly on account of an accelerated growth in post and telecommunication, which expanded by 9.3 percent while transport and storage grew by 3.6 percent during the review period. The improved performance in the transport subsector was as a result of the expansion of air and land transport. The growth of the communication sector was supported by continued rapid expansion in mobile telephony and related services. Agriculture and forestry sector expanded by 2.9 percent (rebased 5.1 percent) in 2013 compared with a growth of 4.2 percent (rebased 2.9 percent) in The slowed growth was due to poor rainfall in some ecological zones during the short rains season and unfavourable international prices for key export crops. On the positive side, this sector was boosted by increased production of tea, wheat, vegetables, potatoes and sugarcane. The manufacturing sector expanded by 4.8 percent (rebased 5.9 percent) in 2013, up from a growth of 3.2 percent (rebased -0.5 percent) in Broadly the acceleration in growth was experienced in manufacturing of both food and non-food products. The growth in the manufacture of food, beverages and tobacco was primarily driven by enhanced production of sugar and processed and preserved fruits and vegetables. Manufacturing of non-food products was mainly fuelled by increased manufacture of rubber products, fabricated and basic metals and furniture and pharmaceutical products. The financial intermediation sector grew by 7.2 percent in 2013 (rebased 9.3 percent) compared to 6.5 percent (rebased 6.0 percent) in The growth in the sector was due to the improvement in demand for domestic credit during the year. The construction sector recorded an overall growth of 5.5 percent (rebased 5.5 percent) in 2013 compared to 4.8 percent (rebased 11.2 percent) in This was attributed to increased spending on infrastructural development by the Government and improved private sector construction activities. Electricity and water sector activities expanded by 5.9 percent (rebased 7.4 percent electricity supply and 13.6 percent water supply, sewerage and waste management) in 2013 compared to 10.3 percent growth (rebased 13.6 percent electricity supply and 3.2 percent water supply, sewerage and waste management) in Generation of electricity by hydro and geo-thermal expanded by 10.4 percent and 17.5 percent respectively, while generation of thermal shrank by 1.8 percent in The Hotels and Restaurants sector contracted by 4.5 percent (rebased -4.6 percent) in 2013 compared to a growth of 2.6 percent (rebased 3.1 percent) in This was despite security concerns, arising from negative travel advisories by some governments and a decline in the economic fortunes of major tourists sources among them USA and European countries Inflation Inflation has remained around the CBK upper limit of 7.5% largely driven by higher cost of food and fuel. Chart 2: Inflation Growth Rates of inflation Aug 14Aug 13 July 14July 13 June 14June 13 May 14May 13 Apr 14Apr 13 Mar 14Mar 13 Feb 14Feb 13 Jan 14Jan 13 Dec 13Dec 12 Nov 13Nov 12 Oct 13Oct 12 Sep 13Sep 12 Aug 13Aug 12 Period Source: Kenya National Bureau of Statistics (Leading Economic Indicators 2014) Information Memorandum 35

38 The inflationary pressures are expected to ease once energy prices begin to come down on account of additional power supply from the newly commissioned plants. Furthermore, the prices of essential food items have already started reducing, compared to 2013, reflecting falling international prices and efficient supply chain. On the currency side, the shilling has remained resilient over the past two years despite facing significant pressures from the current account deficit and from underperformance of key foreign exchange earning sectors such as the tourism and tea sectors. Chart 3: Kenya Shilling Exchange Rate with major currencies GDP USD Euro Source: Kenya National Bureau of Statistics (Economic Survey 2014) Interest rates have experienced a steady decline over the last three years and the launch of the Kenya Bankers Reference Rate is expected to usher in a transparent credit pricing framework that could spur competition amongst lenders. Additionally, the successful sale of the debut Kenya Government Eurobond is expected to reduce government borrowing from the domestic market, thereby driving interest rates further down. Chart 4: Treasury bill rates (%) (%) days 182-days 91-days Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug14 Source: Kenya National Bureau of Statistics (Economic Survey 2014) Debt Market Yields on Treasury bills were unchanged at 8.706%, 9% and % for the 91, 182 and 364 days papers respectively for the week ended 24th October Indications from the market underpin a depressed yields outlook supported by the expected near term correction of the tight interbank markets following the approval by the National Assembly of the County Allocations on Revenue Bill that paved the way for County Governments to access funds as soon as the President assents to it. Further, the radical change in the government monetary policy by reducing access to domestic debt augments the case for lower yield going forward. The government announced in early August a plan to reduce domestic debt target to Kes 100 billion from the initial target of Kes 190 billion incorporated in the budget. Indeed, in the period July-to-date, the government has borrowed a net of Kes 28.3 billion substantially lower than Kes 67.2 billion in the same period in last year. 36 Information Memorandum

39 Table 3: Indicative Yields for the week ending 24 October 2014 Tenor (Years) Indicative Yields Tenor (Years) Indicative Yields Source: Nairobi Securities Exchange The appealing Africa story has sustained appetite for corporate bonds from both the local and foreign investors seeking high yields has been exceptionally busy in the corporate bond market. Britam, UAP Insurance and NIC Bank have already tapped into the market at a coupon rate of 13%, 12.75% and 12.5% respectively. The foregoing issuances have seen lower rates as the market adjusts to the above influencing factors with sentiments in the market pointing to appetite for more competitively priced papers. Yields on corporate bonds have declined in 2014 relative to 2013 as the premium above government bonds with similar tenors tightened. Corporate bonds/notes are more popular with fund managers who mostly hold to maturity. Banks participation has been limited by the need to mark the bonds to market. Pricing of the bonds is a challenge given their somehow illiquid nature. However, a few banks have been taking up the papers on their corporate books as a form of credit extension to the corporates. Chart 5: NSE Yield Curve as at 26 July 2013, 20 June 2014 and 29 August 2014 Yield to maturity (%) july jun Aug Tenor in Years Source: Nairobi Securities Exchange Information Memorandum 37

40 Current debt market conditions i) CBK has held a neutral position on the monetary policy by holding the CBR at 8.5% citing stable currency and within target inflation. ii) However, rising inflation and the unexpected high debt appetite by the government in June triggered a sharp increase in yields. The increase, viewed largely as temporary, prompted a shift to the primary market as investor chased the yields. iii) Activity in the secondary market shrunk on poor valuations as yields adjusted across the curve. Bonds turnover declined by 24% in the first half of the year compared to same period in iv) The automation of Over the Counter (OTC) trading for T-bills is expected to increase participation in the short term debt instruments Expectations on the debt market i) Maintaining CBR at 8.5% in September 2014 by the Monetary Policy committee signalled expectations of sustained stability in the macroeconomic environment. ii) The stable outlook was compounded by the successful Government Eurobond sale. The proceeds are expected to contain domestic government borrowing in the near term, potentially pushing down interest rates. iii) Moreover, there has been a concerted effort by the government to reduce domestic borrowing rates to accelerate credit supply to the private sector. iv) In the second of the year, the expected decline in returns on treasuries should see increased trading in the secondary market with marked interest on primaries as investors seek to take advantage of the traditional discounts. v) Lower interest rates should attract more companies looking for capital. Britam, UAP and NIC Bank are in the market for up to KES 6.0bn, KES 2.0bn and KES 8bn respectively through medium term notes. All bonds carry a coupon of between 13.0% and 12.5%. vi) Separately, the anticipated introduction of primary dealers towards end of 2014 will facilitate a hybrid market with 2-way pricing module. This is another positive for the market given the attention the country has received following the successful issue of the Euro bond. The increased number of market players requires a response in making our market more sophisticated Nairobi Securities Exchange Activity in the stock market has been vibrant since the recovery following the 2007/2008 post-election violence. The NSE 20 share index improved from 3,866 points in August 2013 to 5,139 points in August 2014, representing an increase of 32.9 percent. Market capitalisation, being a measure of shareholders wealth, improved from Kes 1,681.7 billion in August 2013 to Kes 2,216.6 billion in August 2014, representing an increase of 31.8 percent. 38 Information Memorandum

41 Chart 6: Performance of the capital markets Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 NSE 20 Share index Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Source: Nairobi Securities Exchange Vision 2030 The Kenya Vision 2030 is the national long-term development blue-print that aims to transform Kenya into a newly industrialising, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment. The Vision comprises three key pillars, that is, Economic; Social; and Political. The Economic Pillar aims to achieve an average economic growth rate of 10 per cent per annum and sustaining the same until The Social Pillar seeks to engender just, cohesive and equitable social development in a clean and secure environment, while the Political Pillar aims to realise an issuebased, people-centred, result-oriented and accountable democratic system. The three pillars are anchored on the foundations of macroeconomic stability; infrastructural development; Science, Technology and Innovation ( STI ); Land Reforms; Human Resources Development; Security and Public Sector Reforms. Of significant importance, have been key energy and infrastructure projects that promise to unlock the full economic potential of the economy. These include: Table 4: Key energy and infrastructure projects Project Name Energy Generation of 23,000 MW and distribution Development of Dongo Kundu Freeport Dredging of Mombasa Port JKIA Expansion and Modernization LAPSSET Standard Gauge Railway Ministry Ministry of Energy and Petroleum Ministry of East African Affairs Commerce and Tourism Ministry of Transport and Infrastructure Ministry of Transport and Infrastructure Ministry of Transport and Infrastructure Ministry of Transport and Infrastructure Indeed, the additional of 140MW of power to the national grid following the recent commissioning of the geothermal plants is expected to result in a 30% decrease in the cost of energy as the more expensive thermal power is retired. This is expected to impact consumers positively as manufacturers transfer the benefits of the reduced costs of production. Information Memorandum 39

42 7.2 Tanzania s Economy Macroeconomic and Fiscal Overview True to its performance over the past decade, Tanzania s economic growth has continued on sound footing. With GDP growth anchored at 7%, inflation in the range of 6%, and a much improved current account balance, the country s economy has outperformed those of many other developing and industrialized countries. However, some clouds have recently appeared on the horizon. In 2013, Tanzania reported its weakest export growth since the late 1990s. While this slowdown is principally the result of lower commodity prices on the international markets (particularly gold), it is a stark reminder that Tanzania remains vulnerable to external shocks. Of greater concern is the deterioration of the overall fiscal deficit which reached 6.8% in of GDP one % more than initially targeted in 2012/13. Over the first three quarters of the current year, the fiscal situation has remained fragile. The ambitious revenue targets were missed by almost USD 1 billion resulting in cuts in the purchase of goods and services as well as much needed investment projections. The composition of public expenditure is thus increasingly biased towards wages and debt-service payments at the expense of development spending. The government has also continued to accumulate arrears with suppliers and pension funds, which reached almost 5% of GDP at end-march Although, fiscal developments warrant concern, recent history shows that Tanzanian policymakers have been able to navigate through stormy skies before, notably during the agitated times of the global financial crisis in 2008/9. Nonetheless, the stakes are high this time around because public-debt and debt-service payments have increased rapidly, while the fiscal space has been reduced forcing expenditure adjustments. This is taking place not too long before the November 2015 national elections, which may limit the scope for fiscal adjustment. Table 5: Macro-economic projections (% of GDP unless otherwise indicated) 2010/ / /2013 (estimates) 2013/14 (estimates) 2014/15 (estimates) 2015/16 (estimates) Real GDP Growth Inflation (CPI %) Broad money (M3) Revenue (excluding gains) Total Expenditure Overall Balance (including grants) (6.6) (5.0) (6.8) (5.2) (4.9) (4.0) Investment Current Account Balance (9.4) (18.4) (14.3) (14.5) (13.3) (12.3) Gross Official Reserve (US$ million) 3,610 3,797 4,351 4,633 5,153 5,641 Source: World Bank s Tanzania Economic Update June 2014, Tanzania 2013 Statistical Abstract 40 Information Memorandum

43 7.2.2 Tanzania Inflation Tanzania inflation has moderated and trended downwards toward the 5% target by the Bank of Tanzania. Chart 7: Tanzania Inflation Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Source: Bank of Tanzania (website The largest drivers of inflation remain food and fuel, which costs suffuse through the entire economy. The prices of key foods in June 2014 recorded a sharp decline in prices ranging from 5% for rice to a marked 37% by sorghum compared to the same period in The fuel component is expected to trend downwards due to easing of international oil prices. Going forward, it is expected that inflation will remain contained within the mid-single digits although there remains some upside risk owing to unreliable electricity generation and high food cost due to drought or external shocks Interest Rates/Debt Market There remains a strong appetite for short term government paper as evidenced by the auctions in July 2014 that were oversubscribed by 18% although the yield ticked up slightly. Chart 8: Tanzania Treasury Bill Rates Movement Days 182 Days 364 Days Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Source: Bank of Tanzania website This was in contrast to the banking sector where interest rates on deposits and loans by commercial banks generally declined in July 2014 from preceding month. The overall time deposit rate decreased to 7.99% from 8.10% and the overall lending rate slightly declined to 16.21% from 16.31%. Information Memorandum 41

44 7.2.4 Dar es Salaam Stock Exchange Activity at the stock exchange has been brisk especially driven by increased foreign investor participation that accounted for 55.2% of total market turnover in the April-June Chart 9: DSE All Share Index 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1, Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Source: Dar es Salaam Stock Exchange - Shareholders wealth has expanded from Tzs 16, billion in September 2013 to Tzs 22, billion in September 2014, a 37% jump. 7.3 Uganda s Economy Macroeconomic Overview The Ugandan economy has continued in the process of recovery that began in FY 2012/13 growing by 5.9% during the first half of FY 2013/14. This rate is still lower than recent historical averages, which were in excess of 7%. However, with eight consecutive quarters of positive growth since the slump in FY 2011/12, the economy has clearly returned to its previous strong growth path. Growth was supported by a sustained increase in public investment from a value equivalent to 5.7% of GDP in FY 2011/12 to 6.1% of GDP in FY 2012/13 and eventually to a projected value equivalent to 6.8% in the current year. Consequently, the construction subsector recorded a good rate of growth due to increased public investment in infrastructure. As has been the case in the recent past, growth during the current year has been mostly driven by increased economic activity within the services sector, which employs an increasingly larger population of the labour force. The manufacturing sector is also growing fast, benefitting from improved electricity supplies, lower interest rates and increased domestic and regional demand. However, both private investment and consumption have been slow in recovering, partly because commercial banks took longer to adjust to the easier monetary conditions during 2012/ Information Memorandum

45 Table 6: Macro-economic projections (% of GDP unless otherwise indicated) Variable 2005/6 2006/7 2007/8 2008/9 2009/ / / /13 Current Account (including Transfer) Export of goods Import of goods Services (net) Trade imbalance Income (net) Current transfer (net) Capital and Financial Account Capital account Financial account o/w direct investment Overall Balance Gross International Reserves (million USD) 1, , , , , ,044 2, Gross International Reserves in months of imports Source: Bank of Uganda, Balance of Payment Statement Uganda Inflation Uganda has experienced a sustained decline in inflation since the fuel and food prices shock of Chart 10 : Uganda Inflation Movement Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Source: Uganda Bureau of Statistics Core inflation has remained below the Bank of Uganda (BoU) target of 5% in the last two quarters driven my declining food inflation. In the medium term, we expect a marginal pickup in inflation towards the BoU target driven by a weakening currency and increased taxes. Information Memorandum 43

46 7.3.3 Interest Rates/Debt Market Interest rates in Uganda have generally trended down from a high 23% -25% range in early 2012 to a more moderate 10% - 11% range for short term government paper Chart 11: Uganda T Bills Rate Movement 91-days 182-days 364-days 0 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Source: Bank of Uganda The Treasury Bills rate has evolved along the same trend as inflation. Given this, we expect the interest rates to remain within a 10% -13% range in the medium term. This view is shared by the monetary policy committee of the BoU that retained the central bank rate at 11% Uganda Securities Exchange The Ugandan Securities Exchange has enjoyed brisk trading buoyed by increased cross-listing and foreign investor activity Chart 12: Uganda Securities Exchange Movement (in UGX Billions) All Share Index Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Source: Uganda Stock Exchange Shareholders wealth has expanded from UGX 19 trillion in February 2012 to UGX 23.6 trillion, a 23% jump. While there has been noise emanating from the economic and political fronts, it is expected that these should dissipate in the short to medium term, and the upward trend to hold in the long term. 44 Information Memorandum

47 8 BANKING SECTOR OVERVIEW Despite recent economic and financial challenges in developed markets, the fast evolving banking sector in Kenya has remained stable. This has largely been due to sustained and strong appetite for credit within the context of an arguably very prudent regulatory environment. For the better part of 2012 to 2014, monetary policy has been consistent and predictable, thus enhancing strategy implementation and growth in the financial intermediation sector. Moreover, significant innovations geared towards efficiency and convenience, have increased the sector s impact on economic development. In Africa, Kenya is second to South Africa in financial inclusion as measured by the proportion of the unbanked population. 67% of the Kenyan population was banked. South Africa leads at 79% with Tanzania, Rwanda and Uganda trailing at 58%, 42% and 28% respectively according to the 2013 Financial Access Survey. The fast growth in the banked population in Kenya has largely been driven by the revolutionary mobile banking services, such as M-Shwari. Launched on 27th November 2012, M-Shwari is a mobile-centric banking solution offering both savings and emergency loan products, with the objective of availing simple and affordable financial services closer to the customers, thereby supporting the financial inclusion agenda in Kenya. It is an innovative and visionary product of CBA in partnership with Safaricom Limited and is accessed through Safaricom s M-PESA platform. M-Shwari is coined from a Swahili word Shwari that means smoothen or make something better or good. The M signifies mobile centric as this product is operated entirely from the mobile phone. Table 7: Growth in Financial Inclusion in Kenya Year Formal 18.9% 22.6% 35.2% Formal Other 7.5% 17.9% 31.7% Sub - Total 26.4% 40.50% 66.9% Informal 35.2% 26.8% 7.8% Excluded 38.4% 32.7% 25.3% Total 100% 100% 100% Source: Financial Access Surveys Formal financial access in Kenya has improved over time from 18.9% in 2006 to 22.6% in 2009 and 35% in The proportion of excluded population has declined to 25% in 2013 from 38.4% in Players and Peer Review The sector has remained competitive with notable movement towards convenient banking, away from the traditional brick and mortar arrangements. As at 31st December 2013, the Kenyan banking sector comprised 43 commercial banks, 1 mortgage finance company, 9 deposit taking institutions, 7 representative offices of foreign banks, 105 exchange bureaus and 2 credit reference bureaus. The key banking sector statistics for the period 2008 to 2013 are summarised in the table below. These analyses are based on banks Kenya balance sheets only and not the consolidated or group balance sheets. Information Memorandum 45

48 Table 8: Kenya Banking Sector Statistics Year CAGR Deposit Accounts million % In Kes billions CAGR Customer Deposits 864 1,006 1, , , , % Total Net Assets 1,183 1,354 1,678 2,000 2,330 2, % Total Net Loans ,200 1,297 1, % Profit before tax % Shareholders Funds % Gross NPL % Source: Central Bank of Kenya Net Assets In 2013, the banking sector s aggregate balance sheet increased by 16.0% to Kes 2,703 billion from Kes 2,330 billion in The growth has in the recent past been driven largely by the sector s expansion both locally and into the region amid growing appetite for capital from the private sector. Over the past six years, the assets have been growing at a compounded annual growth rate of 15.08%. In the period, CBA was ranked 7th, in the industry with net assets of Kes 125 billion as shown in the graph below. Chart 13: Net Assets (in Kes Billions) KCB Equity Coop SCBK BBK CFC stanbic CBA DTB I&M NIC NBK Citibank Source: Central Bank Supervisory Report Loans and Advances Loans and Advanced to customers grew by 18.1% year-on-year to Kes 1,532 billion in 2013 from Kes 1,297 billion in The enhanced stability in the macroeconomic environment has seen a general increase in demand for credit with the extension in investment horizons and spending by companies and individual alike. Notable was the marked growth in lending to households (+25%), trade (+20%), real estate (+26%) and manufacturing sector (+13.7%). The sectors collectively account for 73% of the sector s loan book. Loans and advances constituted 56.7% of total assets, a slight increase from 55.7% in Information Memorandum

49 In the period CBA was placed 10th with net loans and advances of Kes 57 billion. Chart 14: 2013 Loans and Advances (in Kes Billions) KCB Equity Coop SCBK BBK CFC stanbic CBA DTB I&M NIC NBK Citibank Source: Central Bank Supervisory Report Asset Quality Gross non-performing loans increased by 32.3% to Kes 81.9 billion from Kes 61.9 billion in The growth in NPLS was attributed to high interest rates and increased perceived risk in the run up to and after the March 2013 general elections. Further, delayed disbursement of payments to county government following the realignment of the national and county government operations contributed significantly to the increase in NPLs. The ratio of non-performing loans to gross loans increased from 5.2% from 4.7% in Customer Deposits Customer deposits remain the largest source of funding for commercial banks in Kenya and accounted for 72.5% of total funding liabilities. In 2013, the sector s deposit base expanded by 13.3% to Kes 1,936 billion from Kes 1,708 billion in The growth was underpinned by branch expansion and enhanced deposits mobilisation strategies in a bid to manage the cost of funding. As shown in the graph below, CBA was also ranked 7th with a deposit base of Kes 91 billion. Chart 15: Deposits (in Kes Billions) KCB Equity Coop SCBK BBK CFC stanbic CBA DTB I&M NIC NBK Citibank Source: Central Bank Supervisory Report 2013 Information Memorandum 47

50 8.1.5 Capital and Reserves The banking sector recorded strong capital levels as of December Total capital increased by 19.3% from Kes billion as at end of December 2012 to Kes 432 billion as at 30 December The growth was funded by increase in retained earnings and the injection of new capital in some banks. During the same period, the ratios of core and total capital to total risk-weighted assets decreased from 20% and 23% to 18% and 21% respectively. The decline was attributable to a more than proportionate increase in total risk weighted assets at 32.1% compared to a 17.3% and 18.5% increase in core and total capital respectively. However, the ratio remains strongly above the minimum requirements of 12% and 8% respectively. Effective 1st January 2015, banks have to create a capital conservation buffer of 2.5% on the statutory capital adequacy ratios in line with Basel II and III. The buffer incorporates Market Risk and Operational Risk adjustment factors on Risk Weighted Assets and Contingents ( RIWAC ) resulting in the following new prudential capital ratios. a) Core Capital to RIWAC ratio to increase to 10.5% from the current 8% b) Total Capital to RIWAC to increase to 14.5% from the current 12% c) Core Capital to Deposits to increase to 10.5% from the current 8% Chart 16 : Total Capital (in Kes Billions) KCB Equity Coop SCBK BBK CFC stanbic CBA DTB I&M NIC NBK Citibank Source: Central Bank Supervisory Report 2013 CBA was ranked 11th in terms of shareholders funds as shown in the graph above. 48 Information Memorandum

51 8.1.6 Profitability Riding on the strong balance sheet growth, profitability growth has been consistent over the years with the challenges in lending being offset by the increase in non-funded income and cost rationalisation by the lenders. In 2013, pre-tax profit increased by 15.8% to Kes billion from Kes billion in Chart 17: Profitability (in Kes Billions) KCB Equity Coop SCBK BBK CFC stanbic CBA DTB I&M NIC NBK Citibank Source: Central Bank Supervisory Report Factors driving banking growth The strong growth and opportunities in the banking sector and the increasing attractiveness of Nairobi as a regional hub has enhanced interest of the global banking sector in Kenya. Global brands have set up representative offices in Kenya as they scout for opportunities in the country and the region at large. CBK has licensed Bank of Kigali, Central Bank of China, Rabobank Nederland and First Rand Bank to operate representative offices. The entry of the multinational banks is expected to promote competition and diversity of financial products and services. Regional integration should see more entrants into the Kenyan space Prudent Policy action After the spike in inflation in 2011, monetary policy took charge in maintaining a targeted level of inflation 5% in the medium term, which coupled with stable international oil and food prices has seen stability in inflation. Barring any inflation risks that could weaken asset quality, the CBK is expected to maintain the current policy stance going forward. The Monetary Policy Committee of the Central Bank has for the past one year adopted a neutral policy stance to enhance credit supply to the private sector. Information Memorandum 49

52 8.2.2 Regional Expansion Expansion of Kenyan banks in the region continues to provide new business opportunities and markets diversification. Kenya has become a regional hub for financial services. Kenyan Banks have subsidiaries in the East African Community region as well as other countries in Sub-Saharan Africa with branch network outside of Kenya currently standing at 288 branches for 11 Kenyan banks. Table 9: Branches of Kenyan Banks Subsidiaries in the region Institution Uganda Tanzania Rwanda Burundi South Sudan Total KCB Diamond Trust Bank CBA Bank of Africa Guaranty Trust Bank (Formally Fina Bank) Equity Bank I&M Bank Imperial Bank ABC NIC Bank Co-operative Bank Total Source: Central Bank Supervisory Report Innovation New products and innovations have been largely geared towards enhancing efficiency in banking operations and bringing convenience to customers. This includes technology led delivery channels aimed at increasing access to financial services. It would seem the banking/ict confluence still provides nascent if not un-ending ideation opportunities that is not about to end Agency Banking Agency banking has propelled the levels of formal financial inclusion at minimal costs. As at 30th June 2014, 15 commercial banks had contracted 26,750 active agents facilitating over million transactions valued at Kes billion in the quarter. Agency banking will continue to drive banking services to the 25.3% unbanked population in Kenya. Transactions include mainly cash deposits, withdrawals and payment of services Mobile Banking There has been increased convergence of banking and mobile phone platforms as banks explore more convenient and cost effective delivery channels. The number of banks leveraging on mobile phone technology has increased significantly. The successful launch and operation of M-Shwari has been a key achievement to this front, with over 8 million customers and Kes 564 million in daily transactions value. Equity Bank recently announced the plan and strategy for its Mobile Transfer system under the Mobile Virtual Network Operator. This will be piloted over one year to review effectiveness and address any regulatory and / or legal issues that may arise. Mobile phone money transactions were valued at an average of Kes 6.2 billion per day (4.4 percent of annual GDP) in February The growth has been phenomenal. It has become an important platform for financial services. 50 Information Memorandum

53 8.2.6 Improved efficiency Various measures have been introduced to lower the cost of doing business in the banking sector, including: Introduction of value capping and cheque truncation has enhanced efficiency in payments and clearing systems currently one day after delivery of the cheque to the bank. The roll-out of East African Payment Systems has facilitated faster cross-border transfers in the region and boosting trade. Access to credit has been enhanced by credit information sharing by dealing with information asymmetry and lack of physical collateral which had previously given rise to default risks. Currency in transit risks and related costs has been minimized by the establishment of Currency Centres Transparency in loan pricing On 8th July 2014, The Central Bank of Kenya introduced the Kenya Bank s Reference Rate (KBRR) to replace banks base rates. This was done to increase transparency in credit lending and enhance the transmission between the Central Bank Rate and banks lending rates. It will be calculated as the weighted average of the Central Bank Rate and the weighted 2 month moving average of the 91-day Treasury bill rates and will be adjusted every six months barring any extreme conditions in the markets. The current rate is 9.13% effective from 8th July 2014 to January So this will be the base rate for banks and mortgage finance companies to charge their customers and they will add their own premium. In addition to KBRR, commercial banks in Kenya have to disclose to loan applicants the components of credit known as the Annual Percentage Rate ( APR ). APR is comprises an interest rate component that is derived from KBRR, plus individual banks administrative costs and product related fees, a risk premium and the banks profit margin; as well as related third party costs. 8.3 Outlook Potential for growth in financial services remains high given the significant proportion of population excluded from banking and those in the informal finance segment. Growth will be largely driven by sustained branch expansion as banks revamp their infrastructure to meet market needs at the counties. Regional integration is also expected to impact the strategic positioning of both local and international banks as they seek a wider regional footprint. As earlier alluded, the banking sector and ICT confluence still offers nascent opportunities in ideation as banks bring service to the customer. This will be the main driver of efficiency in banking operations. The rollout of full file credit information sharing which will have banks provide both positive and negative credit information to bureau will be crucial in instilling financial discipline and rewarding good borrowers by offering lower lending rates. The massive infrastructure projects in the region particularly in the transport, oil, gas, minerals and the general energy sector offers long-term financing opportunities to local banks. The strong growth and opportunities in the banking sector coupled with the increasing attractiveness of Nairobi as a regional hub has enhanced interest of the global banking sector in Kenya. International players have set up representative offices in Kenya as they scout for opportunities in the country and the region at large. Information Memorandum 51

54 9 PROFILE OF COMMERCIAL BANK OF AFRICA LIMITED 9.1 Historical Background Commercial Bank of Africa Limited ( CBA or the Bank ) originally commenced business as a subsidiary of Societe Financiere pour les pays D Outre Mer ( SFOM ), a Swiss-based consortium bank with interests in financial institutions throughout Africa. The Bank was incorporated in 1962, in Tanzania when a consortium of International Banks including Bank of America ( BOA ), Banque National de Paris, Banque Bruxelles Lambert and Dresdner Bank acquired the shares of all the other SFOM partners. Following nationalization in Tanzania in 1967, CBA moved its headquarters to Kenya. In 1981, CBA became a wholly owned subsidiary of BOA, when the latter acquired the shares from the other shareholders with 16% of the shares held by Kenyan investors. Between 1984 and 1991, BOA re-organised CBA, developing and installing Bank of America`s global systems and disciplines before selling its majority shares to local Kenyan investors. Bank of America continued to provide management to the bank via a management agreement before eventually selling the rest of its shares in Since then, CBA became a wholly owned Kenyan bank recognised for operational efficiency and quality service delivery. In 2005, CBA acquired First American Bank of Kenya Limited and also acquired a shareholding in the United Bank of Africa ( UBA ), a licensed bank located in Dar-es-salaam, Tanzania. These amalgamations positioned the Bank as East Africa s largest privately owned bank with operations currently in Kenya, Tanzania and Uganda. Key Milestones YEAR MILESTONES 2014 CBA sets up operations in Uganda through its wholly owned subsidiary, Commercial Bank of Africa Uganda Limited 2007 CBA Tanzania becomes a wholly owned subsidiary of CBA 2006 CBA acquires a 331/3 equity interest in AIG Kenya Insurance Company Ltd 2005 CBA acquires First American Bank of Kenya Ltd together with its associate United Bank of Africa, Tanzania 2003 CBA enters the banc-assurance market through its wholly owned subsidiary CBA Insurance Agency Limited 1992 Becomes wholly Kenyan owned and managed 1984 BOA sells majority shareholding to Kenyan investors but retains management 1980 BOA acquires majority shareholding and CBA becomes a subsidiary of BOA with 16% of its shares held by Kenyan investors 1971 Exits Uganda and Kampala branch sold to Barclays 1967 Nationalized in Tanzania 1962 CBA registered in Tanzania with operations in Dar es Salaam, Nairobi, Mombasa and Kampala CBA s business model focuses on providing a full range of financial products to corporate, institutional and high end personal banking customers. In addition to this, through M-Shwari a mobile-centric banking solution offering both savings and loan products, CBA is supporting the financial inclusion agenda in Kenya. Through CBA Capital Limited, its wholly owned investment banking subsidiary, CBA provides value add services in the areas of corporate finance advisory, securities brokerage and wealth management targeting the High Net Worth Individuals and select Institutional clients. 52 Information Memorandum

55 As at 30 June 2014, the Group had an asset base of Kes 164 billion, shareholders funds of Kes 16 billion and employs more than 800 people in Kenya, Tanzania and Uganda. 9.2 The CBA Brand In 2011, CBA underwent a rebranding exercise that saw, among other things, the introduction of a new corporate identity as CBA sought to reposition itself in the market in Kenya and Tanzania and also launch into to the greater Sub-Saharan region. CBA wants to help its customers get more out of life. To this end CBA follows a forward thinking, innovative and reliable strategy, adhering to principles of good banking - strong capitalization, liquidity, risk diversification, conservative lending policies, investment in service delivery channels and customer experience orientation The Core Values Confident: CBA services the best achievers in the market. Its clients are well respected by their peers and communities. Their confidence stems from CBA s ability to handle their wealth. Comfortable: CBA offers its clients peace-of-mind through its seamless and professional services. With CBA as their financial partner, customers can relax into comfort, safe in the knowledge that they are able to provide for their families a secured future. Prestige: CBA s customers have a very high standing in society and are well respected. They appreciate being associated with a bank that values their achievements and is equipped to cater to their every need. Elegant: CBA s customers find self-expression in the combination of subtlety, power and a certain ineffable grace. CBA strives to delight its customers by giving them the assurance that they are understood and surrounded by like-minded people. 9.3 Awards and Recognitions CBA has received the following awards and recognitions in the recent past: (i) Computerworld Honours Program (Washington DC), CBA s M-Shwari project won the 21st Century Achievement Award in emerging technology (ii) MSK Awards, Best Corporate Identity Campaign (Private Sector) CBA new brand unveil (iii) MSK Awards, Best Integrated Marketing Communications Campaign (Private Sector) CBA new brand communications campaign (iv) Banking Awards, 2011 Best Bank in Kenya in the Corporate Banking Category Information Memorandum 53

56 9.5 CBA Country Offices These are summarized in the table below: Country City Address Kenya Upper Hill Nairobi CBA Head Office CBA Centre Mara / Ragati Roads Upper Hill P.O. Box (GPO) Nairobi, Tel Mobile / Tanzania Dar es Salaam Head Office Amani Place, Ohio Street, P. O. Box 9640, Dar es Salaam Tel Uganda Kampala Head Office Twed Towers Plot 10 Kafu Road, Nakasero, P.O Box 74827, Kampala Tel: / CBA Country and Branch Network 54 Information Memorandum

57 9.8 CBA Subsidiaries CBA s subsidiaries are listed below Table 10: List of CBA Subsidiaries Company Name Function Country of Incorporation Effective interest ( % ) CBA Capital Limited Investment Bank Kenya 100 Syndicate Nominees Limited Investments Kenya 100 CBA Insurance Agency Limited Insurance Agency Kenya 100 CBA Property Holdings Limited Property Holding Kenya 100 CBA (Tanzania) Limited Commercial Bank Tanzania 100 CBA (Uganda) Limited Commercial Bank Uganda 100 First American Bank of Kenya Limited Commercial Bank Kenya 100 First American Finance Company Limited Investment Company Kenya 100 First Investment Limited Investment Company Kenya 100 The investments in wholly owned companies listed above are stated at cost. First American Bank of Kenya Limited, First American Finance Company Limited and First Investment Limited are dormant. 9.9 Share capital and shareholding As at 31 October 2014, CBA s authorised share capital is Kes 6,000,000,000 divided into 300,000,000 ordinary shares of Kes 20 each. The issued share capital is Kes 5,297,766,140 divided into 264,888,307 ordinary shares of Kes 20 each. The Bank s principal shareholders as at 30 June 2014 are listed in the table below Table 11: CBA Shareholding Structure Name of Shareholder Shareholding Percentage Enke Investments Limited 66,019, % Ropat Nominees Limited 59,635, % Livingstone Registrars Limited 52,744, % Yana Investments Limited 29,528, % Ropat Trust Company Limited 14,222, % Livingstone Registrars Limited A/C 2 12,557, % CBA Employees Share Scheme 6,626, % Others 23,554, % Total 264,888, % Information Memorandum 55

58 9.11 Board of Directors The Bank s board consists of 2 executive directors, 7 non-executive directors and the secretary to the board as detailed below: Table 12: Board of Directors Name Mr Desterio Oyatsi Mr Muhoho Kenyatta Mr Isaac Awuondo Mr Jeremy Ngunze Mr Stuart John Armitage Hon Abdirahin Abdi Mr Mukesh Shah Mr Nelson Mainnah Mr Nicholas Nesbitt Ms Rosemin Bhanji Title Chairman (Non-Executive, Independent) Deputy Chairman (Non-Executive, Independent) Group Managing Director (Executive, Non-Independent) Chief Executive Officer, Kenya (Executive, Non-Independent) Director (Non-executive, Independent) Director (Non-executive, Independent) Director (Non-executive, Independent) Director (Non-executive, Independent) Director (Non-executive, Independent) Secretary to the Board (Executive, Non-Independent) Profiles of the directors are provided in section 10.1 of this Information Memorandum 9.12 Products and services CBA has developed a wide array of products so at to provide quick and easy access to banking. CBA offers products for every day money management needs, expert financial advice as well as a host of other financial solutions. CBA s efficient and focused personnel are backed by a broad range of products and services that cater for all personal banking, corporate and business banking needs. CBA offers various products in banking and finance as shown below Personal/Retail Banking Products These are listed below. Transaction Solutions Investment Solutions Lending Solutions Bancassurance Other Services Current Account Prosaver Savings Overdrafts Motor insurance Safe Custody Internet Banking account Loans Home contents Freedom Account Nufaika Savings Insurance insurance Mobile Banking Account premium Travel Insurance Be more (Youth) Term Deposits financing Personal accident Account Unit Trusts Mortgages insurance Gold Visa Card Motor loans Credit protection Classic Visa Card Home loans insurance 56 Information Memorandum

59 Corporate and Business Banking Products These are listed below. Transaction Solutions Investment Solutions Lending Solutions Bancassurance Business Current Account Term Deposits Working Capital Finance Foreign Exchange Internet banking Term Loans Currency Spot Dealing Savings Account Insurance Premium Currency Forwards Supply Chain Finance Financing Currency Options Cash Account Vehicle and Asset Trade Finance Finance Bundled Account Cash Management Solutions Premium Account Business Visa Credit Card Value Add Services Value-add services comprising Corporate Finance Advisory, Capital Raising Solutions, Securities Brokerage Services and Wealth Management Services are provided through CBA s wholly owned investment banking subsidiary, CBA Capital Limited. CBA Capital is a licensee of the Capital Markets Authority M-Shwari M-Shwari is the revolutionary new banking product for M-Pesa customers that allow them to save money while earning them interest on money saved. The M-Shwari deposit product is a micro-savings product with the following features: No minimum balance, customers can save as little as a shilling a day; No charges levied on the account; No charges for moving money from M-PESA to M-Shwari account and vice versa; and Earns up to 6% per annum interest. The M-Shwari loan is a micro-credit product which allows a customer to borrow emergency loans, repayable within one month. A one-time flat fee of 7.5% is levied for each loan Other Services These include provision of safe custody services and branch mailboxes. The Bank offers its customers private and secure deposit lockers where they can store valuable documents and articles. These lockers are available in different sizes (small, medium and large) and with flexible rental periods to suit the various needs of a customer. Safe Custody services are available in the Westlands, the Junction and Upper Hill branches. Information Memorandum 57

60 10 CORPORATE GOVERNANCE Corporate governance is the process by which companies are directed and controlled. The CBA group board of directors is responsible for the governance of the bank and the group while the shareholders are responsible for the appointment of the directors and auditors Board of Directors and the Management Team Board of Directors Nationality: Kenyan Chairman (Non-Executive, Independent) Mr Desterio A. Oyatsi Mr Oyatsi is an advocate of the High Court of Kenya and Managing Partner of Shapely, Barret & Company, Advocates. He is currently a non-executive director of KenolKobil Limited and chairman of Metropolitan Life Insurance Kenya Ltd. He was a non-executive director of Capital Market Authority between 1999 and 2002 and of Telkom Kenya Ltd between 1999 and DOB: 1955 Deputy Chairman (Non-Executive, Independent) Mr Muhoho Kenyatta Mr Kenyatta is a leading entrepreneur, businessman and director of several companies within the Eastern Africa region including Brookside Dairy Ltd, Heritage Holdings Ltd, Kenya Dairy Board and Timsales Holding Ltd. He is a graduate of Williams College, Massachusetts, in the USA holding an Economics and Political Science degree. DOB: 1964 Nationality: Kenyan DOB: 1957 Nationality: Kenyan Group Managing Director (Executive, Non-Independent) Mr Isaac Awuondo Mr Awuondo has over 32 years experience in the finance and banking sectors spanning Europe and Eastern Africa having previously worked with BDO Binder Hamlyn in London, Nation Media Group and Standard Chartered Bank in various senior executive roles. Mr Awuondo is chairman of the Financial Sector Board of KEPSA, chairman of the Council of Riara University and director of Bata Shoes Company Kenya Limited and Nairobi Java House Limited. He is also chairman of the Kenya Conservatoire of Music and the Kenya Hospital Association (Nairobi Hospital) and a trustee of the Rhino Trust and Zawadi Africa Education Fund. He holds a Bachelor of Commerce degree in accounting and finance from University of Nairobi and is a member of the Institute of Chartered Accountants in England and Wales, the Institute of Certified Public Accountants of Kenya and Kenya Institute of Management. DOB: 1966 Nationality: Kenyan Chief Executive Officer Kenya (Executive, Non-Independent) Mr Jeremy Ngunze Mr Ngunze has wide experience in banking having worked with the Standard Chartered Bank for 18 years, where he held various top management positions in Africa and Asia regions, prior to joining CBA. Mr. Ngunze is a board member of PACT Kenya. He holds an MBA in Financial Management (University of Wales and Manchester Business School) and a Bachelor of Commerce degree from University of Nairobi. 58 Information Memorandum

61 Director (Non-Executive, Independent) Mr Stuart J Armitage Mr Armitage is a Chartered Accountant with considerable experience in agricultural finance and property development. He is a director of several companies operating in Kenya including Brookside Dairy Limited, Heritage Holdings Ltd and Green Park Investments Ltd. DOB: 1949 Nationality: Kenyan DOB: 1969 Nationality: Kenyan Director (Non-Executive, Independent) Hon. Abdirahin Haithar Abdi Hon. Abdi served as the speaker of the East African Legislative Assembly (2007 to 2012), having been a member of the assembly from He was instrumental in significantly influencing legislative, oversight and representation activities of the assembly charged with fostering regional integration. Hon. Abdi holds a BSc degree in Business Administration (Finance), has been accorded presidential awards and international appointments in legislative roles for his distinguished service to the nation and region. He is a seasoned businessman with multi sectoral experience gained from the private and public sectors and holds directorships in various companies. DOB: 1954 Nationality: Kenyan Director (Non-Executive, Independent) Mr Mukesh K. R. Shah Mr Shah is a Fellow of the Association of Chartered and Certified Accountants (FCCA), member of the Institute of Certified Public Accountants of Kenya (CPA K) and the Institute of Certified Public Secretaries of Kenya (ICPS K). Mr. Shah is a former partner of Price Waterhouse and served in various senior executive capacities within the region and in the UK. He has in-depth professional experience and knowledge of family business management, strategic planning and mergers and acquisitions gained over a period of 39 years. DOB: 1949 Nationality: Kenyan Director (Non-Executive, Independent) Mr Nelson J.M Mainnah Mr Mainnah holds a Bachelor of Commerce (Accounting) degree from the University of Nairobi. He is a member of Kenya Institute of Management and is an alumnus of INSEAD, France, where he obtained qualifications on Risk Management in Banking. He retired from CBA as Group Head of Enterprise Risk in April, 2012 after working at the bank for thirty eight years. Mr. Mainnah has considerable expertise in business management, credit and enterprise risk, and treasury operations. Nelson holds various board positions in the educational sector and offers financial leadership in various charitable organisations. He is currently involved in strategic leadership and risk management through consultancy services. DOB: 1962 Nationality: Kenyan Director (Non-Executive, Independent) Mr Nicholas A. Nesbitt Mr Nesbitt is the Country General Manager, IBM East Africa. Until recently, he was the Chief Executive of KenCall, a leading international BPO/call centre outsourcing company in East Africa. He also held senior executive positions in the United States at Qwest Communications, Rhythms, US WEST and Square D. He began his career as a management consultant at The Boston Consulting Group. Mr. Nesbitt has served as a member of the Board of several corporate and public sector boards including AMREF Flying Doctors, Kenya School of Monetary Studies, Multimedia University and Gateway insurance and is an active member of the World Economic Forum and other business-related organizations. He received his MBA from Stanford University and both his Masters and Bachelors engineering degrees from Dartmouth College. He is a member of the Young Presidents Organization (YPO) in Nairobi. Information Memorandum 59

62 DOB: 1965 Nationality: Kenyan Secretary to the Board (Executive, Non-Independent) Ms Rosemin Bhanji Ms Bhanji is the Group Head of Legal and also serves as the Company Secretary to CBA and its group companies. She has vast experience in legal profession emanating from her stint with the Judiciary as a District Magistrate and having worked as Legal Unit at Diamond Trust Bank of Kenya amongst others. Ms Bhanji holds a Bachelor of Laws (LLB) degree from the University of Nairobi, is an Advocate of the High Court of Kenya, a Certified Public Secretary and an Associate of the Chartered Institute of Arbitrators. She is also an accredited Mediator by the Centre of Effective Dispute Resolution of UK. Ms. Bhanji actively volunteers in community projects, more particularly in the arena of alternate dispute resolution. All members of the board have extensive business, banking and financial experience that is applied in the overall management of the group. Under prevailing legislation, Central Bank of Kenya must approve the appointment of directors and this requirement has been fulfilled. Board meetings are held quarterly to review the Group s performance against business plans as well as to formulate and implement strategy. Various sub-committees, whose chairpersons report to the board, supplement the functions of the Board. These are: Executive Committee This committee has overall responsibility for implementation of the Group strategy. This includes annual strategy review and budgeting, Assets and Liabilities Committee (ALCO) strategies, periodic reviews of the group s key performance measures as defined in the strategic and operational plans and also management of key risks and strategic opportunities. Board Audit and Risk Committee The responsibilities of this Committee are the review of financial information and the monitoring of the effectiveness of management information and internal control systems. In addition, the Committee deliberates on the significant findings arising from internal and external audit reviews and from inspections by the Supervision Department of Central Bank. Board Credit Committee This committee has overall responsibility for credit risk management in the Group including regular review of the group credit risk management policy, ensuring proper implementation of the policy, credit facility approvals, oversight on delegated credit approval authority and periodic quality reviews of the group credit portfolio. Assets and Liabilities Management Committee ( ALCO ) The committee is responsible for the monitoring and management of the Bank s balance sheet including liquidity risk, interest rate risk and exchange rate risk. The committee monitors compliance with statutory requirements governing liquidity, cash ratio and foreign exchange exposure and also the internal policies governing funding of business operations, investment portfolio management and related activities. Other Committees Other management support structures revolve around committees set up to support the Group Managing Director in the dayto-day management of the Bank and the Group and include the Group Management Committee ( MANCO ), Management Credit Committee (MCC), Operational Risk Committee ( ORCO ) and the Human Resources Committee ( HRCO ) all of which ultimately report to the Board through the Board Executive Committee ( EXCO ). These committees meet at least monthly, with MANCO, MCC and HRCO being chaired by the Group Managing Director. 60 Information Memorandum

63 10.2 Senior Management Team CBA is led by a team of competent professionals comprising of a highly experienced and knowledgeable senior management personnel. The Bank s cross-functional senior management team brings different perspectives to the decision-making process enabling for richer, well thought out and deliberated decisions. Key members of CBA s senior management are as follows: Mr Isaac Awuondo, Group Managing Director, DOB: 1957 Nationality: Kenyan Mr Awuondo has over 32 years experience in the finance and banking sectors spanning Europe and Eastern Africa having previously worked with BDO Binder Hamlyn in London, Nation Media Group and Standard Chartered Bank in various senior executive roles. Mr. Awuondo is chairman of the Financial Sector Board of KEPSA, chairman of the Council of Riara University and director of Bata Shoes Company Kenya Limited and Nairobi Java House Limited. He is also chairman of the Kenya Conservatoire of Music and the Kenya Hospital Association (Nairobi Hospital) and a trustee of the Rhino Trust and Zawadi Africa Education Fund. He holds a Bachelor of Commerce degree in accounting and finance from University of Nairobi and is a member of the Institute of Chartered Accountants in England and Wales, the Institute of Certified Public Accountants of Kenya and Kenya Institute of Management. Mr Jeremy Ngunze, Chief Executive Officer Kenya DOB: 1966 Nationality: Kenyan Mr Ngunze has wide experience in banking having worked with the Standard Chartered Bank for 18 years, where he held various top management positions in Africa and Asia regions, prior to joining CBA. Mr Ngunze is a board member of PACT Kenya. He holds an MBA in Financial Management (University of Wales and Manchester Business School) and a Bachelor of Commerce degree from University of Nairobi. Mr Julius Mcharo, Acting Chief Executive Officer Tanzania DOB: 1969 Nationality: Tanzanian Mr Mcharo is the current the Acting Chief Executive of Commercial Bank of Africa (Tanzania) Ltd. He has over 18 years experience in banking and financial markets. He holds a Bachelor of Commerce (Hons) from University of Dar es Salaam and an MBA from Eastern and Southern Management Institute (ESAMI). Mr Mcharo is a Certified Public Accountant of Tanzania and a member of the National Board of Accountants and Auditors in Tanzania. He started his career at Standard Charted Bank and later moved to Citi Bank and Tanzania Investment Bank before joining Commercial Bank of Africa and is also a Director at the Institute of Directors in Tanzania and a Member of the Executive Committee for East African Community Financial Sector Regionalization and Development Project Phase I. Mr Samuel Odeke, Chief Executive Officer Uganda DOB: 1962 Nationality: Ugandan Mr Odeke is a Financial Management Professional with over 26 years experience in the Banking sector. He has experience in Corporate Treasury Management having worked as Head of Treasury for Barclays Bank of Uganda Limited, Bank of Africa Uganda Limited, United Bank for Africa Uganda Limited and Orient Bank Limited. Mr Odeke holds a Bachelor of Commerce Degree majoring in Finance and a Master of Science Degree in Accounting and Finance from Makerere University. He is also an Accredited ACI Financial Markets Dealer. He has extensively training and experience in Asset and Liability Management in the Banking Industry within and outside Uganda. Information Memorandum 61

64 Mr Geoffrey Githinji, Group Chief Operating Officer DOB: 1960 Nationality: Kenyan Mr Githinji is the Group Chief Operating Officer of CBA with overall responsibility for the Group s operations and support functions in in Kenya, Tanzania and Uganda. He is an experienced general management professional with a 30-year career spanning the public service, telecommunications and financial services sectors. Mr Githinji has previously worked in the Kenya Ministry of Transport and Communications Directorate of Civil Aviation; Societe Internationale de Telecommunications Aeronautiques (SITA); and Standard Chartered Bank in positions of increasing responsibility at Kenya, East Africa and Africa regional levels before taking on the current role at CBA. He holds a Bachelor of Science (Hons) degree in Electronic and Electrical Engineering; and a Diploma in Industrial Studies, from Loughborough University of Technology UK. Mr Githinji has attended various executive and leadership programmes at distinguished colleges and is an alumnus of INSEAD, France; Templeton College, Oxford University; and Darden Business School, University of Virginia, USA. Mr. Githinji sits on the boards of Kenswitch Limited and Alliance High School. Mr James Mugo, Group Chief Finance Officer DOB: 1971 Nationality: Kenyan Mr Mugo is the Group Chief Finance officer for the CBA Group with responsibility over the group s financial performance and strategic development and management. He holds an MBA in Strategic Management from United States International University (USIU), Nairobi Campus, as well as a Bachelor of Commerce (Banking & Finance) from Kenyatta University. He is a member of Institute of Certified Public Accountants of Kenya. Mr Mugo has over 16 years experience in Finance, Strategy and Commercial Finance, having worked with East African Breweries Limited for 5 years, where he held various top management positions, and Safaricom Limited. He is an Alumnus of Strathmore Business School & IESE (Instituto de Estudios Superiores de la Empresa) Business School, having taken their one year Executive Management Course, the Advanced Management Program (AMP) and Darden Business School, University of Virginia, USA. Mr. Mugo also holds directorships in Monjo Holdings Ltd, Metrius (K) Ltd, Chalbi Court Management Ltd, Safarimate Ltd, Amerucans Ltd and Beyond Business Basics Ltd. Mr Robert Muigai, Group Head of Audit DOB: 1970 Nationality: Kenyan Mr Muigai is the Group Head of Audit for the CBA Group with overall responsibility for the independent internal audit services for the bank. He has significant experience in audit and finance in the financial services industry having worked with PricewaterhouseCoopers for 11 years and Standard Chartered Bank for 3 years, where he held senior management positions in Africa and Europe prior to joining CBA in Mr Muigai was the Chief Internal Auditor for CBA until 2012 when he assumed responsibility for the Group. His role carries the overall responsibility for the Internal Audit services for CBA Group which currently includes subsidiaries in Tanzania and Uganda. Mr Muigai holds a Bachelor of Commerce degree from the University of Nairobi, is a Certified Public Accountant and a Certified Information Systems Auditor. Mr Chris Pasha, Group Head Marketing and Communications DOB: 1971 Nationality: Kenyan Mr Pasha is the Group Head of Marketing and Communications, CBA with overall responsibility for the Corporate Communications and Brand Management functions within the Group. He is a seasoned marketing professional with over 18 years experience acquired through various the marketing management roles he has held with reputable multi-nationals and Kenyan-owned companies that he has worked for. In particular, Mr Pasha possesses a rare combination of marketing skills acquired and horned through working in both the Food, Manufacturing and Consumer Goods (FMCG) sector and the Banking and Financial Services sector. Mr Pasha holds a Masters in International Business Administration, in Strategic Management from the United States International University in Nairobi and a Bachelor of Commerce degree (Marketing option) from Kenyatta University. 62 Information Memorandum

65 Mr Peter Njenga, Group Head, Enterprise Risk Management & Compliance DOB: 1961 Nationality: Kenyan Mr Njenga is the Group Head of Enterprise Risk Management & Compliance with the overall responsibility for developing and monitoring implementation of the CBA Group Enterprise Risk Management framework, providing the necessary risk management enablers (methodology, policies and systems) and monitoring risk trends in the Group. He has wide experience in financial services sector having worked as an external auditor for 8 years with a number of banking and insurance companies under his portfolio before joining CBA where he has worked for almost 17 years. At CBA, Mr Njenga has headed various functions including Internal Audit, Operations and Enterprise Risk Management. Mr Njenga holds a Bachelor of Commerce degree from the University of Nairobi and is also a Certified Public Accountant. Mrs Pauline Ndote, Group Head Credit Risk Management DOB: 1978 Nationality: Kenyan Mrs Ndote is the Group Head of Credit Risk Management at CBA and has the overall responsibility for the Group s Credit Risk Management process which includes lending, credit administration, portfolio management and remedial management. Prior to joining CBA, Mrs Ndote worked with Housing Finance Company of Kenya as the Chief Risk Officer and CfCStanbic Bank as Head of Credit. She holds a Bachelor of Commerce degree with double majors in Accounting and Business Administration and Management from the Daystar University and is an Associate of the Kenya Institute of Bankers. Mrs Rosemin Bhanji, Group Head Legal Services DOB: 1965 Nationality: Kenyan Ms Bhanji is the Group Head of Legal and also serves as the Company Secretary to CBA and its group companies. She has vast experience in the legal profession emanating from her stint with the Judiciary as a District Magistrate and having worked as Legal Unit at Diamond Trust Bank of Kenya amongst others. Ms Bhanji holds a Bachelor of Laws (LLB) degree from the University of Nairobi, is an Advocate of the High Court of Kenya, a Certified Public Secretary and an Associate of the Chartered Institute of Arbitrators. She is also an accredited Mediator by the Centre of Effective Dispute Resolution of UK. Ms. Bhanji actively volunteers in community projects, more particularly in the arena of alternate dispute resolution. Ms Irene Kamau, Group Head Human Resources DOB: 1968 Nationality: Kenyan Ms Kamau is the Group Head of Human Resources at CBA. She is responsible for the overall development and implementation of Human Resources Management strategies that ensure effective human capital management for the Group. Ms Kamau is mainly charged with the responsibility of designing and managing the organisation development process, which addresses issues such as succession planning, workforce development, employee retention, organisation design and change management. Prior to joining CBA, Ms Kamau worked in various Human Resource Management capacities at Barclays Bank where she served for six (6) years in roles covering the East & West Africa Region; and prior to that at Caltex Oil Limited and Diamond Trust Bank of Kenya in HR Management roles. Mrs Rose Nkonge, Group Head Treasury DOB: 1955 Nationality: Kenyan Mrs Nkonge has over 35 years experience in banking in various senior roles spanning Operations, Audit, Credit Administration and Treasury. She is a member of the Financial Markets Association (Association Cambiste Internationale), and a founding member of Home Afrika Ltd a real estate company quoted on the Nairobi Securities Exchange. She holds a Bachelor of Arts degree from the University of Nairobi. Information Memorandum 63

66 10.3 Organisation structure Top Level Group Structure The CBA Organisation Structure is guided by the following principles: a) lean and flexible structure to ensure fast turnaround time and efficient customer service delivery standards; b) structure that ensures adequate internal controls, checks and balances in place to minimize operational risks. Given below is the top level organization structure for the Bank. Board of Directors Group Head Internal Audit Group Head Enterprise Risk Management Core Responsibilities Overall Bank Controls Systems Audit Core Responsibilities Overall Risk Management Operations Risk,markert Risk Compliance Group Managing Director Core Responsibilities Group Strategic Direction Oversight of Country Operations Stewardship of Governance and Group Policies PA CBA Kenya Group Head Marketing Core Responsibilities Implementation of strategic and annual business plan for CBAK Governance & regulatory compliance Core Responsibilities Business Planning & Monitoring Financial Managment & Reporting Reconciliations & Asset Management Core Responsibilities Marketing, Production Promotion Brand Management CSR Core Responsibilities Operations, IT, Enterprise Project Security & Commercial Services Group Head Legal Group Head Credit Risk Group Head Treasury Group Head Human Resources Core Responsibilities Legal Advisory Sevices Company Secretarial Core Responsibilities Credit Approvals Credit Administration Recoveries Core Responsibilities Dealing- FX & MM Treasury management & ALCO Correspondent Banking Core Responsibilities HR Development, Employee Relations HR Policy Management Compensation Management CBA Tanzania CBA Uganda Core Responsibilities Implementation of strategic and annual business plans for CBAT Governance & regulatory compliance Core Responsibilities Implementation of strategic and annual business plans for CBAU Governance & regulatory compliance 64 Information Memorandum

67 10.4 Human Resources CBA endeavours to ensure that employees at all levels are appropriately recruited, remunerated, promoted, trained, managed and well treated in order to facilitate proper performance contributing towards the achievement of the Group s business objectives in pursuit of being the employer of choice. Deliberate talent management, succession planning, performance management, training and development is undertaken by Business Units in liaison with Group Human Resources Department. The underlying premise is to achieve the following: Safeguard and continuously improve the competence, capability and quality of all employees; Ensure employees are treated fairly and consistently across the Bank; Create loyalty and commitment; Motivate people to deliver optimally against CBA Group objectives; Protect the Bank from significant risk. To achieve this: The Group ensures that future human resource needs are met by adopting forward looking and strategic approach to human resource management including but not limited to the enhancement of productivity of resources; CBA is an equal opportunity employer and ensures that all terms and conditions of employment are maintained and applied to all employees equally without regard to race, religion, age, physical challenges, marital status or genders. CBA will ensure that staff are recruited, selected and promoted on the basis of an objective and non-discriminatory criteria; The Bank fosters the setting of performance objectives at the individual staff level, departmental and organisational level with periodic reviews to measure and manage performance through an open appraisal process; Training and development of Group employees is based on the view that the knowledge, attitude and skills of staff is critical in the achievement of the Group s strategic objectives and goals; It is the Banks s policy to reward performance and in this regard, CBA maintains competitive staff salaries as a way of recognizing good, outstanding, and exceptional performance in line with our performance management policy; CBA is committed to a work environment that encourages cordial relationship between employees and their managers to ensure that questions, problems, and/or grievances arising during the course of employment can be aired and resolved quickly, fairly and consistently throughout the Group to the satisfaction of all concerned. All CBA Group entities ensure full compliance with the local labour laws and regulations particularly those related to child labour, forced labour, freedom of association, collective bargaining and working conditions Employees The Bank s total workforce has been steadily growing as shown below: Year End Kenya Operations Tanzania Operations Uganda Operations Total December December December December December Information Memorandum 65

68 10.6 Corporate Social Responsibility The CBA Corporate Social Responsibility approach is to help create positive impact by giving back to the community. CBA has remained true to its heritage through the years by consistently giving back to the community through various CSR initiatives. Through CBA s expertise and various partnerships, the Bank provides support to Education, Health, Arts, and Sports. Each year, CBA continues the tradition of investing in communities. CBA believes that one of the key measures of their success is how they contribute to the quality of life of its communities. For several years CBA has been keen on ensuring that underprivileged students have access to a decent education through partnership programs with both Palmhouse Foundation and Zawadi Africa Education Fund. The group continues its long standing support for Palmhouse Foundation - an Education Trust founded in 2002 that finances secondary education for talented but disadvantaged children across the country as well as provision of mentorship opportunities which enable the students to develop a wholesome approach to life. CBA have also enhanced partnership with Zawadi Africa Education Fund, which is a program designed to provide scholarships to academically gifted girls from disadvantaged backgrounds in Africa to pursue higher education in universities worldwide. 66 Information Memorandum

69 11 SELECTED HISTORICAL FINANCIAL INFORMATION 11.1 Historical Financial Performance The following tables summarises the Bank s financial statements for the financial periods ended 31 December 2009 to 2013 (audited) and 6 months unaudited accounts to 30 June Table 13: Summary of CBA s historical financial performance INCOME (Kes millions) 2009A 2010A 2011A 2012A 2013A CAGR 2014 unaudited Interest income 4,791 5,324 6,618 10,802 11,859 25% 6,555 Interest expense (1,960) (1,568) (2,475) (5,498) (5,486) 29% (3,305) Net interest income 2,831 3,756 4,142 5,304 6,373 22% 3,250 Loan loss provision (263) (799) (311) (173) (488) 17% (789) Income from lending activities 2,567 2,957 3,832 5,131 5,885 23% 2,461 Net fee and commission income 1,788 1,971 2,449 2,938 3,907 22% 2,421 Other operating income 209 1, % 175 Total income 4,565 6,009 6,799 8,706 10,246 22% 5,057 Operating expenses (2,639) (3,121) (3,917) (4,485) (5,584) 21% (3,216) Profit before tax & other income 1,926 2,888 2,882 4,221 4,662 25% 1,840 Other income % - Profit before tax 1,964 2,971 3,004 4,335 4,771 25% 1,840 Tax for the year (554) (898) (1,332) (1,212) (1,030) (603) Profit for the year 1,411 2,073 1,672 3,123 3,741 28% 1,238 Other comprehensive income Total comprehensive income for the year 1,983 2,127 1,690 3,355 3,760 28% 1,267 Source: CBA audited financial statements BALANCE SHEET A 2010A 2011A 2012A 2013A CAGR (in Kes millions) unaudited Assets Loans and advances 33,540 36,930 45,559 51,487 68,640 20% 86,375 Cash and cash equivalents 9,230 17,992 25,740 26,591 29,713 34% 28,207 Other interest earning assets 18,596 15,482 17,174 32,705 39,248 21% 39,592 Investments % 835 Operating assets 3,804 4,496 5,637 6,781 7,495 18% 8,967 Total assets 65,688 75,459 94, , ,998 22% 163,976 Liabilities Customer deposits 49,227 60,277 76,492 91, ,716 21% 122,095 Interest bearing liabilities 8,266 5,079 5,733 11,519 25,013 32% 24,227 Other operating liabilities 1,313 1,828 1,863 2, ,127 Total liabilities 58,805 67,184 84, , ,660 22% 148,449 Share capital and reserves Share capital 4,515 4,515 4,915 4,915 4,915 4,915 Retained earnings and other reserves 2,367 3,759 5,768 7,959 10,423 45% 10,612 Total equity 6,882 8,275 10,684 12,874 15,339 22% 15,527 Total equity and liabilities 65,687 75,459 94, , ,998 22% 163,976 Information Memorandum 67

70 11.2 Profitability The Bank s profitability as measured by profit before tax ( PBT ) has been on an upward trend during the entire period of review, registering a compounded annual growth rate of 25% between 2009 and Net interest income is a significant driver of profitability underpinned by the growth in income generating assets. Growth in income gener een achieved on the back of improved deposit mobilisation and deployment initiatives. In addition, profitability has been driven by growth in fee based income, which registered a 22% compounded annual growth rate over the period Chart 18: Profit before tax (In Kes Millions) 4,335 4,771 2,971 3,004 1,964 1, A 2010A 2011A 2012A 2013A 2014UA Source: Commercial Bank of Africa Limited Financial Statement We expect the momentum of growth in profitability to continue Balance Sheet Strength The strength of the balance sheet as measured by the value of total assets continues to register significant gains through organic growth as the Bank implements its expansion strategy despite intense competition in the industry. Between 2009 and 2013, the Bank realised a 22% compounded annual growth rate in total assets. We expect CBA s balance sheet to strengthen further underpinned by the Bank s strategic plan, which incorporates local and regional expansion. Chart 19: Total Assets (In Kes Millions) 145, ,976 65,688 75,459 94, , A 2010A 2011A 2012A 2013A 2014UA Source: Commercial Bank of Africa Limited Financial Statement Information Memorandum

71 11.4 Customer Deposits Customer deposits, a key determinant of a Bank s capacity to generate earnings have also registered significant growth over the period of review registering a compounded annual growth rate ( CAGR ) of 21% between 2009 and This is in line with the Bank s strategic plan to generate deposits by tapping more effectively into the Bank s existing customer base, developing new products, which meet the needs of the emerging customer base and utilising technology more effectively to increase transaction volumes and thus retentions within the Bank. Chart 20: Customer Deposits (In Kes Millions) 49,227 60,227 76,492 91, , , A 2010A 2011A 2012A 2013A 2014UA Source: Commercial Bank of Africa Limited Financial Statement Shareholder Funds Shareholders funds have grown by a compounded annual growth rate of 22% between 2009 and The growth has largely been as a result of retained earnings although in 2011, there was a rights issue that saw existing shareholders inject Kes 1.5 billion into the Bank. Based on recent business growth and the strategic initiatives which have been developed, there is need to increase the Bank s capital base by a substantial amount. Chart 21: Shareholder Funds (In Kes Millions) 6,882 8,275 10, ,339 15, A 2010A 2011A 2012A 2013A 2014UA Source: Commercial Bank of Africa Limited Financial Statement Information Memorandum 69

72 12 KEY INVESTMENT CONSIDERATIONS 12.1 Fund Regional Expansion One of CBA s key strategic objectives is to acquire, maintain and grow market share, so as to become an integrated regional financial services provider. CBA intends to extend its presence (through a branch expansion programme) in Kenya, Uganda and Tanzania in which it already has operations. The Bank is also evaluating opportunities in other countries within the East African region which have business and trade relations with the East Africa Community such us Rwanda, Burundi, Democratic Republic of Congo, South Sudan, Ethiopia, Malawi and Zambia. In addition, CBA is pursuing strategic partnerships with other institutions to enable it serve its customers through a regional financial services platform. Additional capital is necessary to sustain this planned growth momentum Compliance with Statutory Prudential Guidelines CBA requires new Tier I and Tier II capital in order to meet and create a buffer on the increased statutory capital adequacy ratios introduced by the CBK in line with Basel II and III, and which have incorporated Market Risk and Operational Risk adjustment factors on Risk Weighted Assets and Contingents ( RIWAC ). These take effect on 1st January This capital injection will enable CBA start building its capital base towards the desired buffer of at least 2.5% above the minimum capital requirements. The new prudential capital ratios are: a) Core Capital to RIWAC ratio to increase to 10.5% from the current 8% b) Total Capital to RIWAC to increase to 14.5% from the current 12% c) Core Capital to Deposits to increase to 10.5% from the current 8% This additional Tier II capital sought through this MTN will enable the Bank to meet the revised capital adequacy ratios. Based on the 30 June 2014 half year results, the outcome of the additional capital on the statutory capital ratios will be as presented in the table below. Table 14: Core Capital Ratios Legislated Up to 31st Dec 2014 CBA Current 30 June 2014 Projected Legislated Effective 1st Jan 2015 Core Capital to deposits 8% 10.1% 11.2% 10.5% Core Capital to RIWAC 8% 10.5% 11.7% 10.5% Total Capital to RIWAC 12% 11.1% 14.7% 14.5% 12.6 Enhance the Bank s Capital CBA remains one of the top local and regional players in the banking industry. However, with increasing competition from its peer banks, there is need to boost the Bank s Capital to enable it compete more effectively and defend its market position in its chosen markets. 70 Information Memorandum

73 13 RISK FACTORS Prospective investors should read the entire Information Memorandum (including any documents available for inspection) and reach their own views prior to making any investment decision. In this section, the term Group means Commercial Bank of Africa Limited together with its subsidiaries. The term Bank refers to Commercial Bank of Africa Limited. Unless otherwise indicated, words and expressions defined elsewhere in this Information Memorandum have the same meanings in this section. Investing in Debt Instruments involves certain risks. The Issuer believes that the factors described below represent the principal risks inherent in investing in Debt Instruments issued under the Programme, but additional risks and uncertainties not presently known to the Issuer or that the Issuer currently believes to be immaterial could also have a material impact on its respective business operations or the Debt Instruments. The Issuer does not represent that the statements below regarding the risks of holding any Debt Instruments are exhaustive. An investment in Debt Instruments linked to one or more reference items may involve a number of risks, some of which are referred to below and are not associated with investment in a conventional debt security. The Supplement in respect of an issue of Debt Instruments may contain additional risk factors in respect of such Debt Instruments. Potential investors should ensure that they fully understand all the risks relating to the relevant Debt Instruments prior to making any investment decision. Potential investors should seek independent financial advice prior to investing in Debt Instruments Approach to Risk Management The Bank follows a risk management approach that balances strong corporate oversight with independent risk management structures within the business units. The risk management framework is based on four main building blocks: risk governance and ownership; risk management culture and capability; risk assurance; and risk reporting: a) Risk governance and ownership A risk governance structure is in place to ensure independent oversight of all business activities. It begins with the Board of Directors (the Board). The Board reviews and agrees on the type and level of risk that the Bank is willing to take in the pursuit of business. Risk ownership and the roles played by the business units and risk functions are clearly defined. b) Risk management culture and capability Continuous training, development and awareness programmes are followed by the Bank. Policies are formally documented and approved by the Board; and. Risk identification and measurement is performed across the Bank using defined methodologies and, where appropriate, specific to the requirements of the individual business units. c) Risk assurance In addition to the assurance provided by management, through various reports tabled at risk committees and the Board, the internal audit department gives the Board independent assurance that risk is appropriately managed through regular audits of risk areas in the Bank. d) Risk reporting The group risk management committees (Assets and Liabilities Committee, Management Credit Committee and Operational Risk Management Committee) and the Board Audit and Risk Committee receives regular reports from management covering its assessment of the significant risks and the effectiveness of the systems and controls used to manage these risks. The effective management of risk in a diverse organisation such as CBA requires a strong risk management culture. This culture ensures that sound commercial decisions are taken to adequately balance risk and reward. Information Memorandum 71

74 13.2 Risks Relating to the Bank Strategic Risk Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation of decisions or lack of responsiveness to industry changes. The group has a mature strategy development and implementation methodology. The strategic direction is clear and well communicated. The Bank manages strategic risk as follows: The Board approved a Corporate and Strategic Planning policy that is reviewed periodically and whose implementation is monitored by the Executive Office. A business strategy that covers a 6 year planning cycle which is well defined and documented and covers each area of product development, growth, marketing, sales, human resource development and information and communication technology. Implementation of well-defined annual budgets and corporate objectives. The Bank has in place internal systems to ensure regular monitoring and analysis of its external and internal environment so as to gather relevant management information and ensure that it is not unduly exposed to strategic risk. Additionally the Bank is exposed to risks arising out of the operating environment characterized by increased competition in the banking industry, retention of key staff, continued development of financial and management controls and information technology systems and their implementation, and maintaining if not growing the profit margins. Appropriate proactive response mechanisms are in place to effectively manage exposures of this nature Credit risk This risk arises from customer or counterparty non-performance or default. In lending transactions, credit risk arises through potential non-performance by counterparties for facilities utilised. These facilities typically take the form of loans and advances, the advancement of securities and contracts to support customer obligations such as letters of credit and guarantees. In trading activities, credit losses arise due to non-performance by counterparties on trading-related financial obligations. There are three components to credit risk: Settlement risk the risk arises in transactions involving the exchange of values when the counterparty must honour its obligations to deliver without first being able to determine that the other counterparty has received the countervalue; Pre-settlement risk the risk arises from the potential non-performance by a counterparty to a derivative obligation. The Bank is exposed to the loss of value through the cost of replacing the transaction which is no longer at market rates; and Issuer risk the risk that the issuer of a debt instrument defaults on a particular principal payment or set of payments due under the instrument. Market risk and credit risk overlap in traded credit products, including debt instruments and credit derivatives. CBA manages issuer concentration and default risks through the credit and country risk processes and market price sensitivity through market risk processes. Credit risk is managed through a robust credit risk management policy and related credit processing and management procedures of which compliance is monitored monthly through the Group Management Credit Committee ( MCC ) and the Group Board Credit Committee ( BCC ). 72 Information Memorandum

75 Operational risk This risk results from inadequate or failed internal processes, people and systems or from external events. The Board approves policies that guide management on appropriate practices of operational risk mitigation. An independent Risk Manager assures the Board Audit and Risk Committee of the implementation of the said policies. The following are key measures that the Bank undertakes in managing operational risk: Documentation of procedures and controls, including regular review and updates to reflect changes in the dynamic business environment; Appropriate segregation of duties, including the independent authorization of transactions; Reconciliation and monitoring of transactions; Compliance with regulatory and other legal requirements; Reporting of operational losses and ensuring appropriate remedial action to avoid recurrence; Development and implementation of Business Continuity and Disaster Recovery Plans; Training and professional development of employees to ensure they are well equipped to identify and mitigate operational risks in a timely manner; Establishment of ethical practices at business and individual employee s level; and Implementation of Risk mitigation parameters, including insurance where this is considered effective. The entire operational risk management framework is subjected to periodic independent internal audits in order for the Bank to obtain an independent opinion on the effectiveness and efficiency of the framework. Further, the findings of the Internal Audit department are reviewed by the Board Audit and Risk Committee and recommendations made implemented in line with the agreed timeframe Liquidity risk This is the risk that the Bank will have insufficient funds or marketable assets available to fulfil its future cash flow obligations on time. The nature of banking, investment and trading activities results in a continuous exposure to liquidity risks. Liquidity obligations arise from requirements to repay deposits, advance committed funds, and make interest and other expense payments. Sound liquidity management is crucial in protecting the Bank s depositor base, maintaining market confidence and ensuring future growth. Liquidity risk is managed closely and proactively by the Group Assets and Liabilities Management Committee ( ALCO ) strictly within the standards of the approved Assets and Liabilities Management Policy with monthly briefing to Group Board EXCO on key risk elements. In addition, the Bank holds a portfolio of liquid assets as part of its liquidity risk management strategy Market risk This is the risk of a decrease in the market value of a portfolio of financial instruments caused by an adverse movement in market variables such as equity, bond prices, currency exchange rates, interest rates, credit spreads and implied volatilities on all of the above. Market risk exists wherever the Bank has trading or investment positions as principal. These exposures arise from customerdriven business and from proprietary positions. Information Memorandum 73

76 The Board of Directors has delegated responsibility for management of Market Risk to the Board Executive Committee (EXCO) and the ALCO. Exposure to market risk is formally managed within Risk Limits and Policy Guidelines issued by the Board, on recommendation of Group EXCO. ALCO, a Management Committee, is charged with the responsibility of ensuring implementation and monitoring of the Risk Management framework in line with Policy Guidelines. The Bank is primarily exposed to Interest Rate and Foreign Exchange Risk. The policy guidelines and procedures in place are adequate to effectively manage these risks Regulatory risk This is the risk of non-compliance with laws, rules, regulations, prescribed practice or ethical standards issued from time to time. Regulatory risk may arise in instances where the laws and rules governing the conduct of business may be ambiguous or change drastically. There is zero tolerance on non-compliance in the Bank and the Group and 100% compliance is enforced. Independent monitoring is performed by the group compliance unit and the AML risk management unit working independently as they are within the independent risk and compliance function; a monthly summary position on key regulatory compliance elements reported to the relevant management committees then tabled in scheduled quarterly Group BARC meetings Reputational risk This is the risk of damaging the Bank s image, which may impair its ability to retain and generate business. The Bank has put in place mechanisms including legal measures where necessary to prevent and/or proactively intervene in any situation that may potentially damage the institutional image. A detailed reputational risk self-assessment process is conducted and regularly updated and appropriate actions put in place to remain very pro-active in managing all aspects of reputational risk. In addition, there is an open communication culture that allows for all issues to be appropriately dealt with in a timely manner. 74 Information Memorandum

77 14 STATUTORY INFORMATION AND DISCLOSURES 14.1 Board Authorisation The establishment of the Issue and the issue of Notes hereunder have been duly authorised by a resolution of the Board of Directors of the Issuer passed on 6th October Identity of the Issuer The Issuer was incorporated in Kenya as the Commercial Bank of Kenya and Uganda Limited on13 February The Issuer subsequently changed its name to Commercial Bank of Africa Limited and was issued with a change of name certificate dated 11 June The Issuer s registration number is C The Issuer s subsidiaries are listed in paragraph 9.7 above Authorised and issued capital The authorized share capital is Kes 6,000,000,000 divided into 300,000,000 ordinary shares of Kes 20 each. The issued share capital is Kes 5,297,766,140 divided into 264,888,307 ordinary shares of Kes 20 each Regulatory and licensing The Issuer and its subsidiary companies are subject to regulation and have been issued with licences by the following regulatory authorities: Legislation Regulator Regulated Companies Licence Number Banking Act Central Bank of Kenya Commercial Bank of Africa CBK/BSD/01/10/2014 Limited Insurance Act (Cap 487 of the laws Insurance Regulatory Authority CBA Insurance Agency IRA/05/13661/2014 of Kenya) Limited Capital Markets Act (Cap 485A of the laws of Kenya) Capital Markets Authority CBA Capital Limited 003 Banking and Financial Institutions Act, 2006 Bank of Tanzania Commercial Bank of Africa Tanzania Limited Financial Institutions Act, 2004 Bank of Uganda Commercial Bank of Africa (Uganda) Limited CBA A The Issuer has also procured business permits from the relevant county governments for the operation of its various offices, branches and ATM locations. There are no disputes with any regulatory authorities Statutory Accountability The Issuer observes all the laws and regulations governing its operation as set out in the prudential guidelines issued by the CBK which inter alia address matters of corporate governance. Additionally, the prudential guidelines have provisions that mirror the Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya (Corporate Governance Guidelines) issued by the CMA. Consequently, whilst CBA is not a listed company and therefore not obligated to follow the guidelines, it is in all respects compliant with the Corporate Governance Guidelines. Information Memorandum 75

78 14.6 Principal objects The principal objects of the Company are contained the Memorandum of Association of the Company and include: a) To establish, carry on extend and develop the business of a banker in Kenya and Uganda and in all other parts of Africa in which it may for the time being be lawful for the Company to carry on such business and to establish such branches or agencies as may from time to time be determined. b) To acquire in any mode and take over the whole or any part of the business property goodwill and liabilities of any other bank or banks. c) To carry on the business of banking in all its branches and departments including the trading, endorsing, accepting, discounting, negotiating, buying, selling and dealing in bills of exchange, promissory notes, coupons, drafts, bills of lading, debentures, bonds, certificates, warrants, scrip and other securities and instruments, whether negotiable, or transferable or not; the granting and issuing of letters of credit and circular notes, the borrowing, raising or taking up of money; the lending or advancing of money and the negotiating of loans and advances whether with or without security; the. guaranteeing of contracts and other obligations and the depositing of money in connection therewith and with tenders therefor or in connection with statutory or other obligations, conditions or privileges; the buying selling and dealing in any foreign or other exchanges or currencies, bullion and specie and dealing in assaying and refining of precious metals,. the receiving of money and valuables on deposit or for safe custody or otherwise and the collecting and transmitting of money and securities; and the managing of property and transacting of all kinds of agency business commonly transacted by bankers. d) To subscribe conditionally or unconditionally for, and to acquire, hold, underwrite; place, issue on commission or otherwise take and deal in stocks, shares, funds, debentures, debenture stock, bonds, obligations and securities of all kinds. e) To carry on business as merchant bankers, capitalists, financiers, concessionaires and merchants and to undertake and carry on and execute all kinds of financial commercial, trading and other operations and to carry on any other business provided that such operations and business are usually associated with the business of banking. f) To enter into partnership or into any arrangement for sharing profits, union of interests, reciprocal concession or any other arrangements with any person, partnership or company carrying on or engaged in or about to carry on or engage in any business or transaction which the Company is authorised to carry on or engage in. g) To form or assist in forming any company for the purpose of carrying on any business which the Company is authorised to carry on or any other business which may seem conducive to any of the interests of the Company or to acquire by purchase or otherwise the business of any such company or the whole or any part of the shares or stock of any such company and to hold shares, stock, debentures, debenture stock or any interest in any such company and to dispose of such shares; stock, debentures, debenture stock or interest and to make or carry out arrangements for giving the Company the entire.or partial control and management or benefit of the business of any such company and to guarantee dividends and interest on shares, stock, debentures, debenture stock, mortgages, bonds or securities of any such company. h) To undertake and execute, either by the Bank or by an authorised officer thereof, and either alone or with any other person, any trusts the undertaking whereof may seem desirable and also to undertake, either by the Bank, or by an authorised officer thereof, and either alone or with any other person, the office of executor, administrator, receiver, treasurer, registrar or auditor and to keep for any company, government authority or body any register relating to any stocks, funds, shares or securities or to undertake any duties in relation to the registration of transfers the issue of certificates or otherwise. 76 Information Memorandum

79 i) To guarantee the payment of money secured by or payable under or in respect of or the performance of any bonds, debentures, debenture stock, shares, contracts, mortgages, charges, obligations and Securities of any company of whatsoever nationality or of any authority, supreme, municipal, local or otherwise or of any person whomsoever whether corporate or unincorporate. j) To enter into and implement any guarantee indemnity surety or similar obligations as may seem expedient. k) To carry on the business of hire purchase finance and to do all things necessary or incidental thereto. l) To take or concur in taking all such steps and proceedings as may seem best calculated to uphold and support the credit of the Bank and to obtain and justify public confidence and to avert or minimise financial disturbances which may affect the Bank. m) To lend money either with or without security and if with security upon such security and upon such terms as may from time to time seem expedient, and to realize and turn to account any property whether real or personal movable or immovable held by the Company on mortgage or other security Borrowing powers Object 3(o) of the Company s Memorandum of Association provides that the Company has the power: To borrow or raise or secure the payment of money for the purposes of the Bank s business and with a view thereto mortgage and charge the undertaking and all or any of the real and personal property, present or future, and all or any of the uncalled capital for the time being of the Bank and to issue at par or at a premium or discount debentures or debenture stock, payable to bearer or otherwise, and either permanent or redeemable, and collaterally or further to secure any securities of the Bank by trust deed or other assurance. Article 96 of the Company s Articles provides that: The Directors may exercise all the powers of the Company to borrow or raise money and to mortgage or charge its undertaking, property and uncalled capital and to issue debentures, debenture stock, legal and equitable mortgages and charges and other securities whether outright or as security (principal or collateral) for any debt, liability or obligation of the Company or any third party. There have been no circumstances where the borrowing powers have been exceeded during the past two years. There are no exchange controls or other restrictions on the borrowing powers of the issuer or any of its subsidiaries. The Issuer does not have any loan capital. The Issuer does not have any material loans Voting Rights and Control All shareholders have equal voting rights and no preferential voting rights attach to any shares. The list of the top shareholders of the Issuer are provided in paragraph 9.9 above. There has been no significant change in the percentage ownership held by any major shareholder during the past three financial years. The Banking Act prohibits investors other than Government of Kenya or the Government of a foreign sovereign state, a state corporation, a foreign licensed institution, a non-operating holding company approved by the CBK from holding directly or indirectly or otherwise having a beneficial interest in more than twenty five percent (25%) of the issued share capital of a bank. Consequently, the Issuer has a diverse shareholder base and is not directly or indirectly owned or controlled by any shareholder. As at the date of this Information Memorandum, there are no arrangements known to the Issuer the operation of which may result in change of control of the Issuer. There are no contractual arrangements with any controlling shareholder which limit or impede on the ability of the Issuer to carry its business independently of the controlling shareholder. Information Memorandum 77

80 14.9 Directors interest None of the Directors have a direct interest in excess of 3% in the issued share capital of the Issuer Material Contracts There have been no material contracts entered into outside the ordinary course of business by the Issuer within the two years immediately preceding the publication of this Information Memorandum Principal investments The Issuer is evaluating opportunities in other countries within the East African region which have business and trade relations with the East Africa Community such us the Rwanda, Burundi, Democratic Republic of Congo, South Sudan, Ethiopia, Malawi and Zambia. In addition, the Issuer is pursuing strategic partnerships with other institutions to enable it serve its customers through a regional financial services platform. No firm commitments have been made as at the date of this Information Memorandum Significant or Material Change There has been no material change in the business of the Issuer during the past five (5) years Interruptions in Issuer s business There have been no interruptions in the Issuer s business, which may have or have had during the recent past (covering at least the previous four months) a significant effect on the Issuer s financial position Related party financing The following is a summary of the dues to and from the Issuer s subsidiaries: Company Due from subsidiary Due to subsidiary (Kes 000 ) (Kes 000 ) CBA Capital Limited 330,353 18,570 CBA Property Holdings Limited 1,750,659 34,498 CBA Insurance Agency Limited 240 5,177 Syndicate Nominees - 163,328 Commercial Bank of Africa (Uganda) 105,630 - Commercial Bank of Africa (Tanzania) 221,060 - Fixed Deposit Balances CBA Property Limited - 206,800 CBA Capital Limited - 252,095 CBA Insurance Limited - 62,040 First Investment Limited - 23,000 CBA Property Holdings Limited - 23,000 Total 2,407, ,508 The Issuer has provided loans to several of its directors and key management personnel as follows: Directors Aggregate amount (Kes 000 ) At 1 January ,847 Advanced during the year 1,877 Repaid during the year 11, Information Memorandum

81 Amount outstanding as at 30 June ,419 Average interest rate 9.1% Advances to other key management and personnel 1,485,197 The Issuer has provided loans to companies controlled by directors, common shareholders and their associates as follows: Company As at 30 June 2014 (Kes 000 ) On balance sheet 3,714,763 Off balance sheet 1,451,264 Provisions for impaired - Interest income earned 122,059 Commissions earned 73,411 These facilities have been made in the normal course of business and on terms similar and applicable to those of third parties. The Issuer has also made advances to its employees. All such advances made subject to the applicable prohibitions on insider lending in the Banking Act Accounts and Auditors The annual accounts of the Issuer for the last three financial years have been audited. None of the audit reports contain qualifications. The auditors of the Issuer are currently PricewaterhouseCoopers, who have audited the Issuer s financial statements, prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Boards, for each of the financial periods ending on 31st December and issued an unqualified opinion thereon Changes in Senior Management At the date of this Information Memorandum, the Issuer has no planned changes in its managing director or other senior management Material litigation The Issuer is party to several litigious matters arising in the ordinary course of its business. Save as disclosed below, none of the proceedings which are pending or threatened (of which the Issuer is aware) which may have or have had in the recent past (covering at least the previous four months) a significant effect on the group s financial position. The Issuer is party to the following material litigation: Stirling Civil Engineering Limited & Others V Commercial Bank of Africa Limited (HCC 593 of 2008). The suit arises from a loan of USD 2,000,000 made to Stirling International Civil Engineering Limited which was a holding company for the plaintiff. The Issuer and the Plaintiff entered into a settlement agreement dated 1 March 2006 with respect to the payment of the amount of USD1,930,000 outstanding under the facility. However, the plaintiff disputes that the loan of USD 2,000,000 was advanced by the Issuer and also contests the validity of the settlement agreement. The plaintiff has sued the Issuer for the sum of USD 845,000 as special damages, USD 127,700,000 as general damages (arising from missed/lost business opportunities), USD 12,000,000 and unspecified exemplary damages with interest (on all of the above mentioned sums). The Issuer has denied the Plaintiff s allegations and has countersued for the sum of USD 1,795,000 with interest (being the sum outstanding under the facility) and has separately sued the second and third plaintiffs who were guarantors of the facility. Information Memorandum 79

82 At present, the plaintiffs in this case are yet to file their statements of evidence and the case cannot progress until these are filed Directors statement as to liquidity requirement In the opinion of the Directors, the Company has sufficient working capital for its present requirements. The funding obligations will be met by cash flows and profitability from the operations of the Issuer s business. The Directors of the Issuer confirm that as at the date of this Information Memorandum, the Issuer is in compliance with the liquidity ratios required under the prudential guidelines issued by the CBK Directors declaration The Directors of the Issuer whose names appear on page 10 of this Information Memorandum accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with facts and does not omit anything likely to affect the import of such information Documents available for Inspection For a period of not less than five working days from the date of the Information Memorandum or as long as the Issue remains in effect or Notes remain outstanding, copies of the following documents will, from the date of the Information Memorandum, be available at the headquarters of the Issuer and at the Specified Office of the Paying Agent in Nairobi: i. The Memorandum and Articles of Association of the Issuer; ii. The financial statements of the Issuer in respect of the financial years ended 31st December 2013, 2012, 2011, 2010 and 2009; iii. The most recently available published interim financial statements of the Issuer; iv. The Reporting Accountants report as reproduced in this Information Memorandum and their written consent to the issue of this Information Memorandum with their report included herein in the form and context in which it is so included; v. The legal opinion of the legal advisers to the Issuer as reproduced in this Information Memorandum and their written consent of to the issue of this Information Memorandum with their legal opinions included herein in the form and context in which they are so included; vi. Copies of the Trust Agreement and the Agency Agreement; vii. A copy of this Information Memorandum; viii. The approvals of the CMA and the NSE in respect of the Issue; and ix. The latest certified appraisals or valuations relative to movable and immovable property and items of a similar nature. 80 Information Memorandum

83 15 GENERAL INFORMATION 15.1 Expenses of the Issue Professional fees and related costs Rate Kes Arrangement fees & Placement Commission 40,000,000 Legal fees 4,000,000 Reporting Accountant s fees 3,500,000 Note Trustee * 300,000 Marketing expenses 10,444,500 Registrar and fiscal agent fees * 350,000 Regulatory Fees NSE Listing fees 0.01% 800,000 CMA Approval fees 0.10% 8,000,000 Total 67,394,500 Total Issue Costs as a % of Total Issue 0.674% * per annum 15.2 Minimum Subscription Level As specified in the relevant pricing supplement Allotment procedure The issuer reserves the right, whether the Issue is oversubscribed or not to reject any application in line with the Allotment policy set in the relevant pricing supplement. Applicants as a result may be allotted less than the amount applied for. Allotment will be done on the following basis in order of priority: a) Applicants subscribing for Notes of a greater value than Kes 100,000,000 or in Kenya Shilling equivalent will obtain priority during allotment and in the event of an over-subscription, applicants under this category will be pro-rated equally; b) Applicants subscribing for Notes of a value less than Kes 100,000,000 or in Kenya Shilling equivalent after a full allotment under (a) above and in the event of an over-subscription allocations under this category will be pro-rated equally. Successful applicants will be notified by the Placing Agent of the amount allotted to them no later than the date and time specified in the relevant Pricing Supplement. Information Memorandum 81

84 16 LEGAL OPINION [CH Letterhead] The Directors Commercial Bank of Africa Limited Mara and Ragati Roads, Upper Hill P.O Box GPO Nairobi, Kenya Dear Sirs Legal opinion in relation to the proposed issue of a Medium Term Note Programme of up to Kenya Shillings eight billion (KES 8 billion) with a Greenshoe option for up to Kenya Shilling two billion (KES 2,000,000,000) to be Listed On the Fixed Income Securities Market Segment of the Nairobi Securities Exchange Limited We have acted as legal advisers to Commercial Bank of Africa Limited (the Company ) in respect of the Medium Term Note Programme of up to Kenya Shillings eight billion (KES 8 billion) with a Greenshoe option for up to Kenya Shilling two billion (KES 2,000,000,000) (the Notes ) by the Company. The terms and conditions of the offer to the public are contained in the information memorandum (the Information Memorandum ) issued by the Company and dated on or about the date of this opinion. The terms defined in the Information Memorandum have the same meaning in this opinion. The Information Memorandum includes particulars given in compliance with the requirements of the Companies Act (Chapter 486 of the Laws of Kenya), the requirements of the Capital Markets Act (Chapter 485A of the Laws of Kenya), The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations 2002, as well as the applicable rules and regulations made thereunder. 1. DOCUMENTS 1.1 In arriving at the opinions expressed below, we have examined and relied on the following documents: the agency agreement (the Agency Agreement ); and the trust deed (the Trust Deed ), collectively the Note Documents 1.2 We have also examined: a final proof of the Information Memorandum; and such other documents and made such investigation, as we have considered necessary for the purposes of giving this opinion. 2. ASSUMPTIONS 2.1 For the purpose of this opinion we have assumed: the authenticity of documents submitted as originals, the conformity with the original of each document submitted as a copy and the authenticity of the original of such latter documents; the genuineness of all signatures on all documents; that all information contained in the Information Memorandum and all information supplied to us by the Company, its officers and advisers is true, accurate and is up to date. 82 Information Memorandum

85 2.2 This opinion is given on the basis of all documents provided to us by the Company and its subsidiaries. 3. OPINION 3.1 Based upon the information supplied to us and upon due enquiry, subject to the assumptions and qualifications set out herein, we are of the following opinion: the Company is duly incorporated in Kenya under the Companies Act (Chapter 486 of the Laws of Kenya) with registration number C The Company s registered office is at CBA Centre, Mara and Ragati Roads, Upper Hill, P.O Box , Nairobi, Kenya; the nominal share capital of the Company is Kes 6,000,000,000 divided into 300,000,000 ordinary shares of Kes 20 each. The issued share capital is Kes 5,297,766,140 divided into 264,888,307 ordinary shares of Kes 20 each; all material licenses and material consents required by the Company and its subsidiaries to carry on their respective businesses have been duly obtained and are in full force and effect; the Company does not own any land directly. There is valid ownership of land owned by CBA Property Holdings Limited, one of the Company s subsidiaries the Company has also entered into leases and license agreements for the occupation and use of various other premises used as offices, branches and ATM locations the Agency Agreement and Trust Deed have been duly authorised, executed and delivered by the Company and are valid and legally binding upon the Company in accordance with their terms except as the same may be limited by bankruptcy, insolvency or other similar laws affecting creditors rights generally and by general principles of equity; the Notes and the Agency Agreement and Trust Deed are in proper legal form for enforcement against the Company and contain no provision which is contrary to law or public policy in Kenya or, which would not for any reason be upheld by the Kenyan courts; the issue of the Notes has been duly authorised and when the Notes have been duly issued to and paid for by Noteholders in accordance with the terms and conditions of issue, the Notes will constitute valid, legally binding, direct and unconditional obligations of the Company in accordance with their terms except as the same may be limited by bankruptcy, insolvency or other similar laws affecting creditors rights generally and by general principles of equity; neither the execution and delivery of the Agency Agreement and Trust Deed or the Notes nor the consummation of the transactions therein contemplated nor compliance with their terms and conditions will contravene any existing law, governmental rule, regulation or order of Kenya; interest (including any commission or discount) payable in respect of the Notes is subject to income tax in Kenya. Unless the payee enjoys specific exemption, payments of interest are subject to withholding tax at the rates from time to time in force. At present, the applicable rate is 15%. The rate of withholding tax may be limited by applicable double taxation treaties, which may also permit the payee to obtain relief outside Kenya. The Notes do not provide for interest to be grossed up where withholding tax applies. Capital gains tax has been suspended in Kenya, accordingly, any capital gain or loss, which accrues on a disposal of the Notes, will not constitute a chargeable gain or an allowable loss under present Kenyan taxation laws; the Issuer is party to several litigious matters arising in the ordinary course of its business. Save as disclosed below, none of the proceedings which are pending or threatened (of which the Issuer is aware) which may have or have had in the recent past (covering at least the previous four months) a significant effect on the group s financial position. The Issuer is party to the following material litigation: Information Memorandum 83

86 Stirling Civil Engineering Limited & Others V Commercial Bank of Africa Limited (HCC 593 of 2008). The suit arises from a loan of USD 2,000,000 made to Stirling International Civil Engineering Limited which was a holding company for the plaintiff. The Issuer and the Plaintiff entered into a settlement agreement dated 1 March 2006 with respect to the payment of the amount of USD1,930,000 outstanding under the facility. However, the plaintiff disputes that the loan of USD 2,000,000 was advanced by the Issuer and also contests the validity of the settlement agreement. The plaintiff has sued the Issuer for the sum of USD 845,000 as special damages, USD 127,700,000 as general damages (arising from missed/lost business opportunities), USD 12,000,000 and unspecified exemplary damages with interest (on all of the above mentioned sums). The Issuer has denied the Plaintiff s allegations and has countersued for the sum of USD 1,795,000 with interest (being the sum outstanding under the facility) and has separately sued the second and third plaintiffs who were guarantors of the facility. At present, the plaintiffs in this case are yet to file their statements of evidence and the case cannot progress until these are filed to the best of our knowledge, information and belief and after due enquiry, we can confirm that no bankruptcy, receivership or similar proceedings have been brought against the Company or any of its Directors in Kenya in the preceding three years; except as noted below it is not necessary under Kenyan law (a) in order to enable any person to exercise or enforce its rights under any of the Agency Agreement and Trust Deed or the Notes or (b) by reason of any such person being or becoming the holder of any of the Notes or a party to the Agency Agreement and Trust Deed, or the performance by any such person of its obligations there under, that any such person should be licensed, qualified or otherwise entitled to carry on business in Kenya, nor will any such performance violate any law applicable in Kenya. Brokers, dealers and investment advisers carrying on business as such in Kenya require a license from the Capital Markets Authority; and the issue of the Notes has been duly authorised by the Board of Directors of the Company; the information memorandum and the public offer of the Notes have been approved by the Capital Markets Authority through the issue of a letter of approval dated 21 November QUALIFICATIONS 4.1 Any provision requiring any party to pay default interest may be unenforceable in the Kenyan courts on the grounds (i) that such default interest would constitute a penalty and (ii) that penalties are not generally enforceable under common law. We consider it likely that the Kenyan courts would now follow the decision by the High Court in England in Lordsvale Finance plc v. Issuer of Zambia [1996] Q.B. 752, permitting recovery by a creditor of default interest, such decision being of persuasive value in Kenya. 4.2 If any provision of any Issue Documents is held to be illegal, invalid or unenforceable by the Kenyan courts, severance of such provision from the remaining provisions of the Issue Documents would be subject to the exercise of the discretion of the Kenyan courts. 4.3 Any provision to the effect that certain calculations or certificates will be conclusive and binding will not be effective if such calculations or certificates are fraudulent or erroneous on their face and will not prevent judicial enquiry by the Kenyan courts into the merits of any claim by an aggrieved party. 4.4 If any party is vested with any discretion or may determine a matter in its opinion, the Kenyan courts may require that such discretion be exercised reasonably or that such opinion be based on reasonable grounds. 4.5 A Kenyan court may refuse to give effect to a provision to pay the costs of another party in respect of any successful action brought against that party before a Kenyan court and the Kenyan court may not award by way of costs all of the expenditure incurred by a successful litigant in proceedings brought before that court. 4.6 Service of legal process on the Company by post in connection with any proceedings in the Kenyan courts would be 84 Information Memorandum

87 effective only if made in accordance with the applicable court rules or with the leave of the court. 4.7 Payments between residents and non-residents of Kenya must be made through authorised banks in Kenya in accordance with the provisions of the Central Bank of Kenya Act (Chapter 491 of the Laws of Kenya). 5. MISCELLANEOUS 5.1 As legal advisers to the Company, we have issued and have not withdrawn our consent to the inclusion in the information memorandum of this legal opinion in the form and context in which it appears. 5.2 This opinion relates to the laws of Kenya in force at the date hereof. No opinion is expressed as to the laws of any other jurisdiction. 5.3 This opinion is given to the Directors of the Company for the purposes of the public offer and not for any other purpose. It may not be relied upon by any other person or used for any other purpose. Yours faithfully Information Memorandum 85

88 86 Information Memorandum

89 17 FORECAST FINANCIAL PERFORMANCE Projected group statement of comprehensive income Forecast 31 December 2015 Forecast 31 December 2014 Actual 31 December 2013 Interest income 17,408,183 14,231,537 11,858,906 Interest expense (9,646,296) (7,527,228) (5,485,918) Net interest income 7,761,887 6,704,309 6,372,988 Loan impairment charges (1,368,431) (1,073,157) (488,003) Net interest income after loan impairment charges 6,393,456 5,631,152 5,884,985 Fee and commission income 4,395,366 3,433,880 2,313,110 Fee and commission expense Net fee and commission income 4,395,366 3,433,880 2,313,110 Foreign exchange income 2,155,675 1,995,995 1,593,452 Net gain on disposal of financial instruments 235, , ,984 Other income 442, , ,549 Non-funded income 7,228,339 5,903,490 4,361,095 Operating income 13,621,795 11,534,642 10,246,080 Operating expenses (7,961,725) (6,732,795) (5,583,847) Profit before share of associate s profit 5,660,070 4,801,847 4,662,233 Share of associate s profit 108, , ,800 Profit before income tax 5,768,870 4,910,647 4,771,033 Income tax expense (1,698,021) (1,440,554) (1,030,333) Profit for the year 4,070,849 3,470,093 3,740,700 Other comprehensive income net of income tax Items that will not be reclassified to profit or loss Gain on revaluation of land and buildings ,750 Items that may be subsequently reclassified to profit or loss Gain/(Loss) on revaluation of available-for-sale financial instruments (619) 69,527 (46,820) Foreign currency translation reserve (10,889) (80,137) 1,258 Total other comprehensive income net of income tax (11,508) (10,610) 19,188 Total comprehensive income for the year 4,059,341 3,459,483 3,759,888 Information Memorandum 87

90 Projected group statement of financial position ASSETS Forecast 31 December 2015 Forecast 31 December 2014 Actual 31 December 2013 Cash and balances with Central Banks 12,844,809 9,539,691 12,805,663 Due from banking institutions 26,224,550 20,172,731 16,907,323 Government securities 44,684,872 45,082,496 39,029,695 Investment securities 739, , ,524 Customer loans and advances 125,113,695 97,745,075 68,640,329 Other assets 2,412,601 2,719,401 1,869,227 Current income tax 277, ,763 85,198 Prepaid operating lease rentals 15,538 15,538 15,538 Intangible assets 1,913,100 1,319,100 1,340,699 Property and equipment 4,357,133 4,159,133 3,710,028 Investment in associate 873, , ,955 Deferred income tax 169, , ,589 Goodwill 362, , ,610 Total assets 219,988, ,951, ,998,378 LIABILITIES Customer deposits 158,295, ,772, ,036,133 Due to banking institutions 26,610,940 25,067,693 25,012,752 Borrowed Funds 10,000,000 3,000,000 - Other liabilities 2,597,991 2,069,875 1,500,413 Current income tax 141, ,549 23,237 Deferred income tax 142,984 98,452 87,268 Total liabilities 197,788, ,129, ,659,803 SHAREHOLDERS EQUITY Share capital 5,300,924 5,300,924 4,915,402 Share premium 2,991,193 2,991,193 1,275,622 Revaluation reserve 1,168,823 1,169,442 1,100,247 Revenue reserve 9,276,478 7,494,668 6,326,067 Statutory loan loss reserve 1,482,114 1,184, ,949 Proposed dividend 1,981,025 1,680,647 1,077,288 Total shareholder s equity 22,200,557 19,821,863 15,338,575 Total liabilities and shareholders equity 219,988, ,951, ,998, Information Memorandum

91 Projected group statement of changes in equity Share capital Share premium Revaluation reserve Revenue reserve Statutory loan loss reserve Proposed dividend Total equity Year ending 31 December 2015 At start of year 5,300,924 2,991,193 1,169,442 7,494,668 1,184,989 1,680,647 19,821,863 Total comprehensive income for the year Profit for the year ,070, ,070,849 Other comprehensive income net of tax Gain on revaluation of land and buildings Loss on revaluation of available-for-sale financial assets - - (619) (619) Currency translation differences (8,014) (2,875) - (10,889) Total other comprehensive income - - (619) (8,014) (2,875) - (11,508) Appropriation to statutory reserve (300,000) 300, Total comprehensive income - - (619) 3,762, ,125-4,059,341 Transactions with owners recorded directly in equity Dividends: Final 2014 Paid (1,680,647) (1,680,647) Proposed final (1,981,025) - 1,981,025 - Total contributions by and distributions to owners (1,981,025) - 300,378 (1,680,647) At end of year 5,300,924 2,991,193 1,168,823 9,276,478 1,482,114 1,981,025 22,200,557 Information Memorandum 89

92 Projected group statement of cash flows Forecast 31 December 2015 Forecast 31 December 2014 Interest receipts 17,408,183 14,231,537 Interest payments (9,646,295) (7,527,228) Net fee, commission and other receipts 7,228,339 5,895,186 Bad and doubtful debts recoveries - 4,431 Payments to employees and suppliers (7,543,655) (6,438,078) Income tax paid (1,698,021) (1,447,951) Cash flows from operating activities before changes in operating assets and liabilities 5,748,551 4,717,897 Changes in operating assets and liabilities: Cash reserve requirement (1,248,368) (1,086,743) Government securities _ AFS (4,388,148) (3,638,387) Investment securities (839,430) (279,382) Customer loans and advances (27,368,621) (30,177,903) Other assets (850,174) 306,800 Customer deposits 25,522,061 28,736,820 Other liabilities 528, ,462 Net cash flow from operating activities (1,739,039) (2,008,410) Cash flows from investing activities - 66,600 Investment in associates - dividends received (1,515,869) (2,414,414) Government securities_htm (198,000) (149,040) Purchase of property and equipment (300,052) (272,349) Purchase of intangible assets Net cash used in investing activities (2,013,921) (2,769,203) Cash flows from financing activities Proceeds from borrowed funds and debt securities 3,000,000 7,000,000 Rights Issue - 2,101,093 Dividends paid (1,680,647) (1,077,288) Net Cash from investing activities 5,319,353 4,023,805 Increase / (decrease) in cash and cash equivalents 1,566,393 (753,808) Cash and cash equivalents at start of year 6,162,691 5,809,349 Effect of exchange rate fluctuations on cash and cash equivalent (276,636) 123,830 Cash and cash equivalents at end of year 7,099,106 5,532, Information Memorandum

93 Key assumptions The assumptions underlying the forecasts for 2015 and 2014 are based on expectations for the two years being derived from the group s average growth rate over the last three years, of 25% (based on total assets) and group s half year results. Specific assumptions are as below: 1. The group has experienced growth of 26% in net loans and advances as at June 2014 compared to December We expect this growth to continue in the second half of the year and an overall growth rate of 42% is projected to be achieved by the end of the year 2014 as compared to December In light of the positive economic sentiments and internal business plans to grow the loan book, we expect to grow loans and advances by 28% in 2015 when compared to the 2014 forecast. 2. A growth of 17% has also been experienced in the customer deposits as at June 2014 compared to December We expect this growth to continue in the second half of the year and an overall growth rate of 28% is projected as at the end of the year as compared to December Given a positive outlook in the economy and managing deposits in relation to funding costs, we expect an average growth rate of 19% in 2015 compared to the 2014 forecast. 3. The group expects to raise additional capital of Kes 5.1 billion by the end of the This will be raised through a rights issue of Kes 2.1 billion (Tier I capital) and Kes 3 billion from the bond issue (Tier II capital). The first tranche of additional capital (Tier I and Tier II) is expected to be received by the end of the second half of the year. The bond will be issued in two tranches of Kes 3 billion by December 2014 and Kes 5 billion with a green shoe option of Kes 2 billion by June It is expected that additional capital raised and growth in the deposits will fund the growth in assets, specifically loans and advances, government securities and cash and balances held with CBK and this growth has been reflected in the specific balances. 5. We expect that the growth in the balances sheet, will result to growth in the profit and loss accounts, with the major income lines expected to grow as below: Interest income in 2014 is expected to grow by 20% compared to December 2013, while in 2015 we have made an assumption of 22% growth mainly driven by the increased volume on loans and advances. This is in line with the growth in loans and advances and also putting into consideration the timing of the loans and advances. Interest expense in 2014 is expected to grow by 37% compared to December 2013 due to the high cost of funding as the group seeks alternative sources of funds. This is this is expected to grow by 28% in The decline in 2015 is attributed to a drop in the market rates on the back of market forces and government efforts to bring rates down. Finance costs on the bonds have been included within interest expense. Non-funded income in 2014 is expected to grow by about 35% mainly as a result of growth in fees and commissions on loans and advances as well as foreign exchange (FX) trades. In 2015 we expect to grow in fees by 30% but FX trades will grow at a declining rate and we anticipate to grow by 8% over 2014 forecast. Operating expenses are expected to increase by 18% to support the growth in the business and also in line with the overall average growth in the business for the last three years. The 33.3% shareholding in the Associate, AIG Kenya will contribute towards the group profits. While we expect continued growth in the insurance company, we have maintained the share of income earned in 2013 for 2014 and The ratio of impairment provisions on loans and advances to total loans is expected to remain significantly the same as that forecast in 2014 and this is expected to lead to an increase in the impairment charge to the income statement with the increase in the group s loans and advances balances. Information Memorandum 91

94 18 REPORTING ACCOUNTANTS REPORT Financial The Directors CBA Centre Mara & Ragati Roads, Upper Hill The Directors P O Box , CBA Centre Nairobi, Kenya Mara & Ragati Roads, Upper Hill P O Box , Nairobi, Kenya 21 November November 2014 Reporting Accountant s report Commercial Bank of Africa Limited Dear Sirs Reporting Accountant s report Commercial Bank of Africa Limited We are pleased Dear to submit Sirs our Accountant s Report in accordance with Section 19 of the Third Schedule of the Companies Act 486, and Part C of the Third Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, We are pleased to submit our Accountant s Report in accordance with Section 19 of the Third Schedule of 2002 (hereafter the referred Companies to as the Act Regulations ). 486, and Part C of the Third Schedule of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002 (hereafter referred to as the Regulations ). Responsibility of the directors Responsibility of the directors As directors of Commercial Bank of Africa Limited (the Bank or the Group ), you are responsible for the Information Memorandum to Asbe directors issued of on Commercial or about 21 Bank November of Africa2014 Limited and (the for all Bank information the Group ), contained you therein, are responsible and for the for financial the Information Memorandum to be issued on or about 21 November 2014 and for all information contained statements and therein, information and for to which the financial this Accountant s statementsreport and information relates and tofrom which which thisit Accountant s has been prepared. Report relates and from which it has been prepared. For the purposes of this report, the Group refers to CBA Bank Limited and its subsidiaries which are: For the purposes of this report, the Group refers to CBA Bank Limited and its subsidiaries which are: Company name Country of Incorporation % ownership CBA Capital Limited Company name Country Kenya of Incorporation % 100 ownership Syndicate Nominees CBA Capital Limited Limited Kenya Kenya CBA Insurance Syndicate Agency Limited Nominees Limited Kenya Kenya CBA Property CBA Holdings Insurance Limited Agency Limited Kenya Kenya CBA Property Holdings Limited Kenya 100 Commercial Bank of Africa (Tanzania) Limited Tanzania 100 Commercial Bank of Africa (Tanzania) Limited Tanzania 100 CBA (Uganda) Limited Uganda 100 CBA (Uganda) Limited Uganda 100 First American Bank of Kenya Limited Kenya 100 First American Bank of Kenya Limited Kenya 100 First American First Finance American Company Finance Limited Company Limited Kenya Kenya First Investment FirstLimited Investment Limited Kenya Kenya First Holdings First Limited Holdings Limited Kenya Kenya Our responsibility Our responsibility You required us to prepare and produce an Accountant s Report to be included in the Information Memorandum to be issued to You required us to prepare and produce an Accountant s Report to be included in the Information support the bond Memorandum issue for Commercial to be issued Bank to of support Africa the Limited. bond issue for Commercial Bank of Africa Limited. Our responsibility is detailed in our letter of engagement dated 19 August The objective of the engagement was to enable Our responsibility is detailed in our letter of engagement dated 19 August The objective of the us to state whether, engagement on the basis was toof enable our review us to state procedures whether, which on the do not basisprovide of our all review the evidence procedures that which would do be notrequired provide in an all the evidence that would be required in an audit, anything has come to our attention that causes us to audit, anything believe has come that to the our financial attention statements that causes were us to not believe prepared, that the in all financial material statements respects, were in accordance not prepared, with in all material respects, International in accordance Financial with International Reporting Standards. Financial Reporting Standards. Criteria and procedures used PricewaterhouseCoopers CPA. PwC Tower, Waiyaki Way/Chiromo Road, Westlands The financial information P O Boxset out in this Nairobi, report has Kenya been compiled in accordance with the International Standard on Related T: +254 (20) F: +254 (20) Services 4410 Engagements to Compile Financial Statements ( ISRS 4410 ) and the International Standard on Review Partners: A Eriksson P Kinisu K Muchiru M Mugasa F Muriu P Ngahu A Njeru R Njoroge B Okundi K Saiti R Shah Engagements 2410 Review of interim financial information performed by the independent auditor of the entity conforming amendments ( ISRE 2410 ). 92 Information Memorandum