Period ended 30 June 2017

Transcription

1 Ecobank Group reports performance for the six months ended 30 June Gross earnings down 6% to $1.3 billion (up 41% to NGN billion) - Operating profit before impairment losses down 2% to $359.0 milllion (up 47% to NGN billion) - Profit before tax down 26% to $151.3 million (up 11% to NGN 46.2 billion) - Profit after tax down 19% to $123.4 million (up 21% to NGN37.7 billion) - Total assets up 3% to $21.1 billion (up 3% to NGN 6,458.0 billion) - Loans and advances to customers up 2% to $9.5 billion (up 3% to NGN 2,899.7 billion) - Deposits from customers up 3% to $13.8 billion (up 3% to NGN 4,235.2 billion) - Total equity up 12% to $2.0 billion (up 12% to NGN billion) Financial Highlights Income Statement: Period ended 30 June 2017 Period ended 30 June 2016 % Change US$'000 NGN'000 US$'000 NGN'000 US$ NGN Gross Earnings 1,265, ,858,787 1,340, ,445,773-6% 41% Revenue 911, ,714,320 1,021, ,488,291-11% 34% Operating profit before impairment losses 359, ,750, ,980 74,474,169-2% 47% Profit before tax 151,265 46,241, ,722 41,569,474-26% 11% Profit for the period 123,438 37,734, ,324 31,081,712-19% 21% Earnings per share from continuing operations attributable to owners of the parent during the period (expressed in United States cents per share): Basis (cents and kobo) % 21% Diluted (cents and kobo) % 20% Financial Highlights Statement of Financial Position: As at As at % Change 30 June December 2016 US$'000 NGN'000 US$'000 NGN'000 US$ NGN Total assets 21,111,614 6,458,042,722 20,510,974 6,255,847,070 3% 3% Loans and advances to customers 9,479,169 2,899,677,797 9,259,374 2,824,109,070 2% 3% Deposits from customers 13,844,892 4,235,152,463 13,496,720 4,116,499,600 3% 3% Total equity 1,969, ,590,574 1,764, ,043,790 12% 12% Ade Ayeyemi, Group CEO said, our audited half year results demonstrated the benefits of our diversified business model. Despite a fragile macroeconomic backdrop in most of our markets, we still generated a 15.6% return on tangible equity and further improved our cost-toincome ratio to 60.6%, driven by our continued cost reduction initiatives across the network We are also happy with the progress we are making on the digital front, particularly on our strategy to enable millions of unbanked Africans have access to financial solutions using our revolutionary Ecobank App and other digital channels. We have also recently announced the appointment of Eric Odhiambo as Chief Risk Officer, to help drive our risk management objectives and improve our risk culture Our revenues increased 5% in constant currency, and highlighted encouraging growth in our Trade and FICC, businesses, thanks to encouraging client activity and improving foreign-exchange markets. Profit before tax, however, fell 20% in constant currency, due to continued provision building and elevated cost-of-risks as we had earlier communicated. Overall, we are making good progress on our strategy and continue to serve our customers diligently. We look forward to the second half of the year with excitement. Ade Ayeyemi Group Chief Executive Officer Greg Davis Group Chief Financial Officer

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9 Consolidated Income Statement Sep Sep dec Closing rate US$'000 NGN'000 US$'000 NGN'000 US$ NGN Gross Earnings 1,265, ,858,787 1,340, ,445,773-6% 41% Interest Income 791, ,906, , ,057,189-10% 34% Interest Expense (324,395) (99,167,552) (293,791) (59,948,054) 10% 65% Net Interest Income 466, ,738, , ,109,135-21% 19% Fee and commission income 226,616 69,276, ,300 51,685,865-11% 34% Fee and commission expense (29,365) (8,976,917) (24,550) (5,009,428) 20% -79% Net trading income 232,593 71,103, ,639 39,103,938 21% 82% Other operating income 14,957 4,572,372 12,736 2,598,781 17% 76% Non-interest revenue 444, ,975, ,125 88,379,156 3% 54% Operating income 911, ,714,320 1,021, ,488,291-11% 34% Staff expenses (251,886) (77,001,550) (305,315) (62,299,526) -17% 24% Depreciation and amortisation (45,091) (13,784,405) (51,228) (10,453,073) -12% 32% Other operating expenses (255,735) (78,178,190) (300,228) (61,261,523) -15% 28% Operating expenses (552,712) (168,964,145) (656,771) (134,014,122) -16% 26% Operating profit before impairment losses and taxation 359, ,750, ,980 74,474,169-2% 47% Impairment losses on : - loans and advances (160,342) (49,016,549) (155,668) (31,764,055) 3% 54% - other financial assets (47,157) (14,415,909) (5,632) (1,149,210) 737% 1154% Impairment losses on financial assets (207,499) (63,432,458) (161,300) (32,913,265) 29% 93% Operating profit after impairment losses 151,514 46,317, ,680 41,560,904-26% 11% Share of profit of associates (249) (76,131) 42 8, % -988% Profit before tax 151,265 46,241, ,722 41,569,474-26% 11% Taxation (27,953) (8,545,205) (49,368) (10,073,540) -43% -15% Profit for the period from continuing operations 123,312 37,696, ,354 31,495,934-20% 20% Loss for the year from discontinued operations ,604 (2,030) (414,222) 106% 109% Profit for the period 123,438 37,734, ,324 31,081,712-19% 21% Attributable to: Audited 30 June 2017 Unaudited 30 June 2016 Owners of the parent 105,150 32,144, ,590 25,830,689-17% 24% - Continuing operations 105,082 32,123, ,686 26,054,369-18% 23% - Discontinued operations 68 20,802 (1,096) (223,680) 106% 109% Non-controlling interests 18,288 5,590,631 25,734 5,251,023-29% 6% - Continuing operations 18,230 5,572,915 26,668 5,441,565-32% 2% - Discontinued operations 58 17,716 (934) (190,542) 106% 109% 123,438 37,734, ,324 31,081,712-19% 21% Earnings per share from continuing operations attributable to owners of the parent during the period (expressed in United States cents per share): Basis (cents and kobo) % 21% Diluted (cents and kobo) % 20% Earnings per share from discontinued operations attributable to owners of the parent during the period (expressed in United States cents per share): Basis (cents and kobo) (0.00) (1.00) Diluted (cents and kobo) (0.00) (1.00) % Change Consolidated Statement of Comprehensive Income Profit for the period 123,438 37,734, ,324 31,081,712-19% 21% Other comprehensive income: Items that may be subsequently reclassified to profit or loss: Exchange difference on translation of foreign operations 49,045 14,993,057 (447,789) (91,371,248) 111% 116% Net fair value (loss) / gain on available-for-sale financial assets 102,376 31,296,425 (107,050) (21,843,553) 196% 243% Remeasurements of defined benefit obligations , n/a n/a Taxation relating to components of other comprehensive income that may be subsequently reclassed to profit or loss (2,197) (671,623) 40,692 8,303, % -108% Items that will not be reclassed to profit or loss: Property and equipment - net revaluation gain , n/a n/a Other comprehensive (loss) / income for the period, net of taxation 150,941 46,142,623 (514,147) (104,911,598) 129% 144% Total comprehensive (Loss ) / Profit for the period 274,379 83,877,608 (361,823) (73,829,886) 176% 214% Total comprehensive income/(loss)attributable to: Owners of the parent 258,476 79,016,071 (300,314) (61,279,015) 186% 229% -Continuing operations 258,408 78,995,274 (299,218) (61,055,335) 186% 229% -Discontinued operations 68 20,797 (1,096) (223,680) 106% 109% Non-controlling interests 15,903 4,861,537 (61,509) (12,550,871) 126% 139% -Continuing operations 15,845 4,843,821 (60,575) (12,360,329) 126% 139% -Discontinued operations 58 17,716 (934) (190,542) 106% 109% 274,379 83,877,608 (361,823) (73,829,886)

10 Consolidated Statement of Financial Position Audited 30 June 2017 Unaudited 30 June 2016 Audited 31 December 2016 % Change June 2017 Vs December 2016 US$'000 NGN'000 US$'000 NGN'000 US$'000 NGN'000 US$ NGN Cash and balances with central banks 2,295, ,268,396 2,341, ,604,944 2,462, ,002,110-7% -6% Financial assets held for trading 26,335 8,055,877 83,912 23,598,572 77,408 23,609,440-66% -66% Derivative financial instruments 163,849 50,121,409 77,435 21,777,045 68,204 20,802, % 141% Loans & advances to banks 1,566, ,274,331 1,327, ,223,708 1,413, ,178,195 11% 11% Loans & advances customers 9,479,169 2,899,677,797 10,158,016 2,856,738,840 9,259,374 2,824,109,070 2% 3% Treasury bills and other eligible bills 1,212, ,756,918 1,172, ,837,512 1,228, ,690,060-1% -1% Investment securities available for sale 3,671,069 1,122,980,007 2,941, ,234,108 3,272, ,211,320 12% 12% Pledged assets 522, ,781, , ,853, , ,052,525 1% 1% Other assets 781, ,117, , ,438, , ,500,405-8% -8% Investment in associates 9,926 3,036,363 15,515 4,363,283 10,135 3,091,175-2% -2% Intangible assets 281,475 86,103, ,016 81,842, ,766 85,633, % 1% Property, plant and equipment 894, ,623, , ,151, , ,619,335 4% 4% Investment properties 30,628 9,369, ,849 38,486,044 35,819 10,924,795-14% -14% Deferred income tax assets 102,628 31,393,905 54,673 15,375, ,007 31,112,135 1% 1% 21,038,118 6,435,560,297 20,959,804 5,894,525,680 20,441,103 6,234,536,415 3% 3% Assets held for sale 73,496 22,482,425 78,885 22,184,828 69,871 21,310,655 5% 5% Total Assets 21,111,614 6,458,042,722 21,038,689 5,916,710,508 20,510,974 6,255,847,070 3% 3% Deposits from banks 2,232, ,850,169 1,670, ,829,588 2,022, ,817,360 10% 11% Deposits from customers 13,844,892 4,235,152,463 14,261,187 4,010,673,620 13,496,720 4,116,499,600 3% 3% Derivative financial instruments 13,155 4,024, ,102 7,046,110-43% -43% Borrowed funds 1,442, ,381,275 1,619, ,414,863 1,608, ,612,020-10% -10% Other liabilities 1,355, ,588,105 1,097, ,622,364 1,342, ,503,675 1% 1% Provisions 36,405 11,136,290 40,618 11,423,000 28,782 8,778,510 26% 27% Current tax liabilities 39,159 11,978,738 42,601 11,980,679 54,539 16,634,395-28% -28% Deferred income tax liabilities 58,610 17,928,799 52,479 14,758,669 60,169 18,351,545-3% -2% Retirement benefit obligations 17,219 5,267,292 29,135 8,193,636 15,731 4,797,955 9% 10% 19,039,906 5,824,307,246 18,813,414 5,290,896,419 18,652,594 5,689,041,170 2% 2% Liabilities held for sale 101,814 31,144,902 97,374 27,384,490 94,302 28,762,110 8% 8% Total Liabilities 19,141,720 5,855,452,148 18,910,788 5,318,280,909 18,746,896 5,717,803,280 2% 2% Equity Capital and reserves attributable to the equity holders of the parent entity Share capital and premium 2,113, ,626,651 2,029, ,905,968 2,114, ,626,651 n/a n/a Retained earnings and reserves (325,763) 193,381,893 (77,670) 217,062,867 (536,408) 127,640,169-39% 52% Shareholders Equity 1,788, ,008,544 1,952, ,968,835 1,577, ,266,820 13% 14% Non-controlling interests 181,700 55,582, ,873 49,460, ,154 56,776,970-2% -2% Total Equity 1,969, ,590,574 2,127, ,429,599 1,764, ,043,790 12% 12% Total Liabilities and Equity 21,111,614 6,458,042,722 21,038,689 5,916,710,508 20,510,974 6,255,847,070 3% 3% The financials statements were approved for issue by the board of directors on 22 August 2017 and signed on his behalf by : Ade Ayeyemi Group Chief Executive Officer Greg Davis Group Chief Financial Officer

11 Closing rate Average rate Audited Consolidated Statement of Changes in Equity in US$'000 Share Capital PPE Revaluation Surplus Available for Sale Fin. Assets reserves Currency Translation Reserve Other Reserves Retained Earnings Total equity and reserves attributable Non-Controlling Interest Total Equity At 1 January ,029, ,937 (5,175) (1,086,227) 740, ,427 2,346, ,236 2,523,245 Changes in Equity for 2016: Foreign currency translation differences (621,490) - - (621,490) (3,307) (624,797) Net changes in available for sale investments, net of taxes - - (31,477) (31,477) - (31,477) Net gains on revaluation of property Remeasurements of post-employment benefit obligations (6,153) - (6,153) - (6,153) Profit for the year (249,898) (249,898) 44,940 (204,958) Total comprehensive income for the year (31,477) (621,490) (6,153) (249,898) (908,501) 41,633 (866,868) Dividend relating to (48,200) (48,200) (32,715) (80,915) Transfer to other group reserve , , ,281 Treasury shares Transfer to share option reserve (12,037) 12, Transfer to general banking reserves (6,827) 6, Transfer to statutory reserve ,346 (19,346) Conversion of preference shares 84, ,564-84,564 Convertible loans - equity component (299) - (299) - (299) At 31 December 2016 / 1 January ,114, ,454 (36,652) (1,707,717) 838, ,847 1,577, ,154 1,764,078 Changes in Equity for 2017 : Foreign currency translation differences , ,045-49,045 Net changes in available for sale investments, net of taxes , , ,179 Net gains on revaluation of property Remeasurements of post-employment benefit obligations Profit for the period , ,150 18, ,438 Total comprehensive income for the period ,179 49, , ,091 18, ,379 Transfer to other group reserve (45,446) - (45,446) - (45,446) Dividend relating to (22,742) (22,742) Share option exercised (172) Treasury shares (375) (375) - (375) Transfer to general banking reserves ,601 (129,601) Transfer to statutory reserve ,940 (30,940) At 30 June ,113, ,190 63,527 (1,658,672) 954, ,284 1,788, ,700 1,969,894

12 Closing rate Average rate Consolidated Statement of Changes in Equity in LCY'000 Share Capital PPE Revaluation Surplus Available for Sale Fin. Assets reserves Currency Translation Reserve Other Reserves Retained Earnings Total equity and reserves attributable Non-Controlling Interest Total Equity At 1 January ,905,968 22,027,663 3,004,677 (86,905,392) 123,934,440 73,592, ,559,563 35,323, ,882,698 Changes in Equity for 2016: Foreign currency translation differences ,329, ,329,646 18,316,397 69,646,043 Net changes in available for sale investments, net of taxes - - (8,078,323) (8,078,323) - (8,078,323) Net gains on revaluation of property - 132, , ,573 Remeasurements of post-employment benefit obligations (1,579,070) - (1,579,070) - (1,579,070) Profit for the year (64,134,390) (64,134,390) 11,533,496.9 (52,600,893) Total comprehensive income for the year - 132,573 (8,078,323) 51,329,646 (1,579,070) (64,134,390) (22,329,564) 29,849,894 7,520,330 Dividend relating to (12,370,156) (12,370,156) (8,396,058) (20,766,215) Transfer to other group reserve ,763,031-26,763,031 26,763,031 Treasury shares 17, ,965-17,965.2 Transfer from share option reserve (3,089,288) 3,089, Transfer to general banking reserves (1,751,974) 1,751, Transfer to statutory reserve ,964,965 (4,964,965) Conversion of preference shares 21,702, ,702,717-21,702,717 Convertible loans - equity component (76,736) - (76,736) - (76,736) At 31 December 2015 / 1 January ,626,651 22,160,236 (5,073,646) (35,575,746) 149,165,368 (3,036,043) 481,266,820 56,776, ,043,790 Changes in Equity for 2017 : Foreign currency translation differences ,447, ,447, ,658 2,614,462 Net changes in available for sale investments, net of taxes ,624, ,624,802-30,624,802 Net gains on revaluation of property - 224, , ,995 Remeasurements of post-employment benefit obligations , , ,768.9 Profit for the period ,144,354 32,144,354 5,590,631 37,734,985 Total comprehensive income for the year - 224,995 30,624,802 2,447, ,769 32,144,354 65,741,724 5,757,289 71,499,014 Transfer to other group reserve (13,892,842) - (13,892,842) - (13,892,842) Dividend relating to (6,952,229) (6,952,229) Share option exercised ,542 (52,542) Treasury shares (114,638) (114,638) - (114,638) Transfer to general banking reserves ,619,042 (39,619,042) Transfer to statutory reserve ,458,398 (9,458,398) At 30 June ,626,651 22,385,231 25,551,156 (33,127,942) 149,465,137 29,108, ,008,544 55,582, ,590,574

13 Audited Consolidated Statement of Cash Flows Period ended 30 June 2017 Year ended 31 December 2016 % Change US$'000 NGN'000 US$'000 NGN'000 US$ NGN Cash flows from operating activities Profit before tax 151,265 46,241,677 (131,341) (33,707,558) 215% 237% Net trading income - foreign exchange 27,268 8,335,917 (82,938) (21,285,425) -133% -139% Net loss from investment securities ,384 (26,381) (6,770,543) 101% 102% Fair value loss on investment properties ,664 29,672 7,615,061-97% -97% Impairment losses on loans and advances 160,342 49,016, , ,683,484-79% -75% Impairment losses on other financial assets 47,157 14,416,031 93,583 24,017,373-50% -40% Depreciation of property and equipment 38,703 11,831,654 85,112 21,843,394-55% -46% Net interest income (466,924) (142,738,667) (1,106,446) (283,960,938) -58% -50% Amortisation of software and other intangibles 6,388 1,952,751 14,084 3,614,621-55% -46% Profit on sale of property and equipment 2, ,747 (938) (240,857) -344% -391% Share of loss of associates ,131 2, ,344-90% -88% Income taxes paid (46,790) (14,303,717) (121,712) (31,236,570) -62% -54% Changes in operating assets and liabilities Trading assets 51,073 15,613,016 93,926 24,105,401-46% -35% Derivative financial assets (95,645) (29,238,677) 76,021 19,510, % -250% Other treasury bills (756) (231,241) (30,695) (7,877,590) 98% 97% Loans and advances to banks (459,534) (140,479,466) 371,394 95,315, % -247% Loans and advances to customers (248,519) (75,972,269) 1,988, ,351, % -115% Pledged assets (69,136) (21,134,875) 240,881 61,820, % -134% Other assets (70,459) (21,539,418) (337,193) (86,537,924) 79% 75% Mandatory reserve deposits (26,145) (7,992,539) 440, ,941, % -107% Due to customers 348, ,436,180 (2,930,833) (752,176,228) 112% 114% Derivative liabilities (9,947) (3,040,798) 21,766 5,586, % -154% Other liabilities 13,244 4,048, ,576 75,344,071-95% -95% Other provisions 7,623 2,330, , % 10218% Interest received 791, ,906,218 1,672, ,324,874-53% -44% Interest paid (324,395) (99,167,552) (566,406) (145,363,836) -43% -32% Net cashflow from /( used in) operating activities (171,967) (52,570,258) 859, ,590, % -124% Cash flows from investing activities Purchase of software (14,105) (4,311,905) (31,321) (8,038,338) -55% -46% Purchase of property and equipment (97,840) (29,909,694) (227,390) (58,357,982) Purchase of investment securities 38,676 11,823,253 20,860 5,353,562 Purchase of investment properties (566,214) (173,091,621) (1,513,241) (388,361,818) Purchase of property and equipment (689) (210,631) (1,101) (282,581) -37% -25% Proceeds from sale and redemption of securities 462, ,531, ,046 99,332,504 20% 42% Net cashflow used in investing activities (177,196) (54,168,803) (1,365,147) (350,354,653) -87% -85% Cash flows from financing activities Repayment of borrowed funds (165,670) (50,645,319) (505,938) (129,845,230) -67% -61% Proceeds from borrowed funds , ,198, % -100% Dividends paid to non-controlling shareholders (20,824) (6,365,897) (32,715) (8,396,058) -36% -24% Dividends paid to owners of the parent - - (48,200) (12,370,182) n/a n/a Net cashflow from / (used in) from financing activities (186,494) (57,011,216) 158,146 40,586, % -240% Net decrease in cash and cash equivalents (535,657) (163,750,277) (347,477) (89,177,398) 54% 84% Cash and cash equivalents at start of year / period 2,020, ,355,567 2,610, ,182,927-23% 18% Effects of exchange differences on cash and cash equivalents 132,741 42,317,210 (241,734) 185,350, % -77% Cash and cash equivalents at end of year / period 1,617, ,922,500 2,020, ,355,567-20% -20%

14 Notes 1 General information Ecobank Transnational Incorporated (ETI) and its subsidiaries (together, 'the group') provide retail, corporate and investment banking services throughout sub Saharan Africa outside South Africa. The Group had operations in 40 countries and employed over 16,743 people (31 December 2016: 17,343) as at 30 June Ecobank Transnational Incorporated is a limited liability company and is incorporated and domiciled in the Republic of Togo. The address of its registered office is as follows: 2365 Boulevard du Mono, Lomé, Togo. The company has a primary listing on the Ghana Stock Exchange, the Nigerian Stock Exchange and the Bourse Regionale Des Valeurs Mobilieres (Abidjan) Cote D'Ivoire. The consolidated financial statements for the period ended 30 June 2017 have been approved by the Board of Directors on 22 August Summary of significant accounting policies This note provides a list of the significant accounting policies applied in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the group consisting of Ecobank Transnational Incorporated and its subsidiaries. 2.1 Basis of presentation The Group's consolidated financial statements for the period ended 30 June 2017 have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB). The consolidated financial statements have been prepared under the historical cost convention, except for the following: - available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments), investment properties measured at fair value - assets held for sale - measured at fair value less cost of disposal; and - defined benefit pension plans - plan assets measured at fair value The consolidated financial statements are presented in US Dollars, which is the group s presentation currency. The figures shown in the consolidated financial statements are stated in US Dollar thousands. The consolidated financial statements comprise the consolidated statement of comprehensive income (shown as two statements), the statement of financial position, the statement of changes in equity, the statement of cash flows and the accompanying notes. The consolidated statement of cash flows shows the changes in cash and cash equivalents arising during the period from operating activities, investing activities and financing activities. Included in cash and cash equivalents are highly liquid investments. The cash flows from operating activities are determined by using the indirect method. The Group s assignment of the cash flows to operating, investing and financing category depends on the Group's business model. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires Directors to exercise judgment in the process of applying the Group's accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. Management believes that the underlying assumptions are appropriate and that the Group s financial statements therefore present the financial position and results fairly. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4. (a) New and amended standards adopted by the group The Group has applied a number of amendments to IFRS issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2017 I) Amendments to IAS 12 - Income Taxes The IASB issued the amendments to IAS 12 Income Taxes to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The amendments are intended to remove existing divergence in practice in recognising deferred tax assets for unrealised losses. The amendment does not impact the bank. II) Amendments to IAS 7 - Statement of Cash Flows The amendments to IAS 7 Statement of Cash Flows are part of the IASB s Disclosure Initiative and help users of financial statements better understand changes in an entity s debt. The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The amendments are intended to provide information to help investors better understand changes in an entity s debt. The amendment results in additional disclosures being made by the Group in its financial statements. III) Amendments to IFRS 12 - Disclosure of Interests in Other Entities The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10 B16, apply to an entity s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. The amendment has been adopted by the bank. Page 7

15 Notes Basis of preparation (continued) (b) New standards and interpretations not yet adopted The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. I) IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for the financial instruments project: classification and measurement; impairment; and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required, but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group's project for the adoption of the new standard remains on track. Based on a high-level impact assessment performed by the Group in 2016 and the work done to date based on currently available information, the Group expects no significant impact on its balance sheet and equity except for the effect of applying the impairment requirements of IFRS 9. This may however be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. Overall, the Group expects a higher loss allowance resulting in a negative impact on equity. Further disclosures will be made in the year end financial statements. Classification and measurement IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only three classification categories: amortised cost, fair value through OCI and fair value through profit or loss. It includes the guidance on accounting for and presentation of financial liabilities and derecognition of financial instruments which was previously in IAS 39. Furthermore for non-derivative financial liabilities designated at fair value through profit or loss, it requires that the credit risk component of fair value gains and losses be separated and included in OCI rather than in the income statement. The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. Impairment IFRS 9 also requires that credit losses expected at the balance sheet date (rather than only losses incurred in the year) on loans, debt securities and loan commitments not held at fair value through profit or loss be reflected in impairment allowances. The bank is in the process of quantify the impact of this change, it is however expected to lead to an increased impairment charge than recognised under IAS 39. The bank is currently performing a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact. Hedge accounting The Group believes that all existing hedge relationships that are currently designated in effective hedging relationships will still qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, the Group does not expect a significant impact as a result of applying IFRS 9. The Group is assessing possible changes related to the accounting for the time value of options, forward points or the currency basis spread in more detail in the future. The Group is currently at the design and model build phase of the project. This phase will involves obtaining information from current systems, adjusting the IT systems to capture the additional data requirements, designing and building impairment models (including definition of what assumptions to use in the models) and determination of what constitutes a default and significant credit loss. By fourth quarter of 2017, the Group will be ready for a parallel run of the IFRS 9 and IAS 39 standards. II) IFRS 15 Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, effective for periods beginning on 1 January 2018 with early adoption permitted. IFRS 15 defines principles for recognising revenue and will be applicable to all contracts with customers. However, interest and fee income integral to financial instruments and leases will continue to fall outside the scope of IFRS 15 and will be regulated by the other applicable standards (e.g., IFRS 9, and IFRS 16 Leases). Revenue under IFRS 15 will need to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard also specifies a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and the corresponding cash flows with customers. The Group does not anticipate early adopting IFRS 15 and is currently evaluating its impact. III) Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective. Page 8

16 Notes Basis of preparation (continued) (b) New standards and interpretations not yet adopted (continue) IV) IFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential effect of the amendments on its consolidated financial statements. V) IFRS 16 Leases IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees leases of low-value assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard s transition provisions permit certain reliefs. In 2017, the Group plans to assess the potential effect of IFRS 16 on its consolidated financial statements. VI) IAS 7 Statement of Cash Flows Effective 1 January Amends IAS 7 to include disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment specifies that the following changes arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. VII) IAS 40 Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management s intentions for the use of a property does not provide evidence of a change in use. Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IAS 8 is only permitted if that is possible without the use of hindsight. Early application of the amendments is permitted and must be disclosed. The amendments will eliminate diversity in practice. The impact of this standard is currently being assessed. VIII) IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. The amendments are intended to eliminate diversity in practice, when recognising the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or nonmonetary liability relating to advance consideration received or paid in foreign currency. The impact of this standard is currently being assessed. Page 9

17 Notes Basis of preparation (continued) 2.2 Principles of Consolidation and Equity Accounting (a) Subsidiaries Subsidiaries are all entities (including structured entities) over which the group has control. The Group controls and hence consolidates an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The Group will only consider potential voting rights that are substantive when assessing whether it controls another entity. In order for the right to be substantive, the holder must have the practical ability to exercise the right. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The consolidation of structured entities is considered at inception, based on the arrangements in place and the assessed risk exposures at the time. The assessment of controls is based on the consideration of all facts and circumstances. The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the noncontrolling interest s proportionate share of the acquired entity s net identifiable assets. Acquisition-related costs are expensed as incurred. The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When necessary amounts reported by subsidiaries have been adjusted to conform with the group s accounting policies. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (b) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (c) Disposal of subsidiaries When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. Page 10

18 Notes 2.2 Consolidation (continued) (d) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. Under the equity method, the investment is initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in the income statement, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment. The Group s investment in associates includes goodwill identified on acquisition. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to the income statement where appropriate. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The Group determines at each reporting date whether there is any objective evidence that the investment in associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to share of profit/(loss) of associates in the income statement. 2.3 Foreign currency translation a) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in United States dollars, which is the Group s presentation currency. b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement. All other foreign exchange gains and losses are presented in the income statement on a net basis within other income and other expenses. Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in the income statement as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income. c) Group companies The results and financial position of all group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: i) ii) Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; Income and expenses for each income statement are translated at average exchange rates; (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions) and iii) All resulting exchange differences are recognised in other comprehensive income. Exchange differences arising from the above process are reported in shareholders equity as Foreign currency translation differences. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 2.4 Sale and repurchase agreements Securities sold subject to repurchase agreements ( repos ) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in deposits from banks or deposits from customers, as appropriate. Securities purchased under agreements to resell ( reverse repos ) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. 2.5 Financial assets and liabilities All financial assets and liabilities which include derivative financial instruments have to be recognised in the consolidated statement of financial position and measured in accordance with their assigned category. Page 11