Standard Bank Group (SBG) Analysis of financial results for the year ended 31 December Group results in. brief. Segmental reporting.

Transcription

1 1 Standard Bank Group (SBG) Analysis of financial results for the year ended 31 December Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Analysis of financial results for the year ended 31 December

2 Table of contents 1 Group results in brief 2 Financial results, ratios and statistics 4 Overview of financial results 10 Summarised group income statement 11 Headline earnings 12 Headline earnings and distributions per share 13 Diluted headline earnings per share 14 Statement of financial position 16 Statement of comprehensive income 16 Statement of changes in equity 18 Explanation of principal differences between normalised and IFRS results 20 Financial results, ratios and statistics - IFRS 21 Summarised group income statement - IFRS 22 Statement of comprehensive income - IFRS 22 Statement of changes in equity - IFRS 24 Broad-based black economic empowerment Segmental reporting 26 Segmental structure for key business units 28 Group executive committee 30 Segmental income statement 32 Segmental statement of financial position 34 Personal & Business Banking 38 Corporate & Investment Banking 42 Wealth Liberty Capital 46 Return on ordinary equity 47 Cost of equity and economic returns 48 Market capitalisation and price-to-book ratio 49 Ordinary shareholders' equity (net asset value) 50 Currency of net asset value 51 Currency translation effects 52 Economic capital 53 Risk-weighted assets 54 Capital adequacy - qualifying regulatory capital 55 Capital adequacy ratios 56 Subordinated debt 58 Net interest income and margin 60 Non-interest revenue 62 Credit impairment charges 66 Operating expenses 68 Taxation 70 Loans and advances 71 Deposit and current accounts 72 Loans and advances performance 74 Banking activities average balance sheet 76 Liquidity 78 Fair value hierarchy The Standard Bank of South Africa Limited 80 Key financial results, ratios and statistics 82 Summarised income statement 83 Statement of financial position 84 Segmental income statement 86 Segmental statement of financial position 88 Credit impairment charges 92 Loans and advances performance 94 Capital adequacy qualifying regulatory capital 95 Risk-weighted assets and capital adequacy ratios 96 Market share 98 Supplementary on a geographic basis 100 Financial and other definitions Shareholder 104 Analysis of shareholders 105 Credit ratings 106 Distribution payment dates 107 Instrument codes 108 Notes ibc Contact details

3 Group results in brief 1 All results in this booklet are presented on a normalised basis, unless otherwise indicated as being on an IFRS (International Financial Reporting Standards) basis. Results are normalised to correct the distortions caused by IFRS s treatment of the Black Economic Empowerment Ownership initiative and group share exposures entered into to facilitate client trading activities or for the benefit of Liberty policyholders, deemed to be treasury shares. Refer to page 18 for principal differences between normalised and IFRS results. Group results in brief Segmental reporting Headline earnings of R million, 17 down Headline earnings per ordinary share 756,9 cents, 20 down Distributions per share 386 cents, unchanged Net asset value per share cents (: cents) Return on equity 13,6 (: 18,2) Credit loss ratio 1,60 (: 1,55) Cost-to-income ratio 52,4 (: 49,2) It was an extremely tough year but one in which our focus on developing markets stood us in good stead. Our profitability remained sound and our strong liquidity and capital position allowed us to continue to invest for growth. We achieved our highest-ever independent customer satisfaction ratings in South Africa. We invested more than we have ever done in developing, training and building the competency of our people, and focused on connecting our customers in Africa to the rest of the world and those in the rest of the world to Africa. Jacko Maree, group chief executive Capital Headline earnings CAGR (2003 ): Headline earnings and distributions per share CAGR (2003 ): Headline earnings per share 8 Distributions per share 17 Cents The Standard Bank of South Africa Limited Distributions per share Headline earnings per share Shareholder Standard Bank Group (SBG) of financial results 31 December 1

4 Financial results, ratios and statistics Standard Bank Group (SBG) Headline earnings contribution by business unit Total headline earnings (17) Banking activities (14) Personal & Business Banking (19) Corporate & Investment Banking (6) Central and other (63) Liberty (89) Profit attributable to ordinary shareholders (18) indicators Headline earnings per ordinary share (EPS) cents (20) 756,9 942,6 Diluted headline EPS cents (20) 750,6 935,6 Basic EPS cents (21) 744,0 937,0 Diluted EPS cents (21) 737,8 930,0 Distribution cover times (17) 2,0 2,4 Distributions per share cents 386,0 386,0 Net asset value per share cents (0) Tangible net asset value per share cents Ordinary shareholders equity Return on equity (ROE) 13,6 18,2 Capital adequacy 14,9 13,3 Tier I capital adequacy ratio 11,8 11,0 Core tier I capital adequacy ratio 10,8 10,1 Number of ordinary shares in issue end of year thousands weighted average thousands diluted weighted average thousands Number of employees Net asset value Opening balance Transaction with ordinary shareholders (2 2) shares issued share buy-backs (503) dividends paid (3 137) (6 081) other Additional shareholder value headline earnings other earnings outside headline earnings (199) (85) currency translation movements including hedging activities (7 509) net cash flow hedges excess of purchase price over net asset value acquired Liberty (1 0) other Closing balance Banking activities Total assets (13) Loans and advances (net of credit impairments) (8) indicators ROE 14,5 18,6 Gearing ratio times 15,3 18,3 Loan-to-deposit ratio 94,1 93,6 Net interest margin 3,21 3,32 Non-interest revenue to total income 49,8 47,8 Credit impairment charges Credit loss ratio 1,60 1,55 Cost-to-income ratio 52,4 49,2 Effective taxation rate 29,5 26,1 Number of employees Standard Bank Group (SBG) of financial results 31 December

5 1 In the group experienced: Globally Depressed global economic conditions with major western economies slipping into recession and international trade slowing further in the first half of the year. Unprecedented monetary and fiscal stimulus programmes implemented in a number of major economies with a slow recovery evident in the latter part of the year. Historically low interest rates. Lack of liquidity and low risk appetite resulted in increased cost of term funding and depressed asset prices, with some improvement towards the end of the year. Industrial production, demand for resources, household consumption expenditure and employment generally under pressure. Resilient economic performance by key emerging markets nations. African economies dependent on commodity exports adversely affected by the global slowdown. Initially weak but subsequently buoyant equity markets. Increased regulatory pressure following the global financial crisis. Share price performance South Africa Sluggish economic activity in the first six months with a gradual recovery from the recession in the third and fourth quarters. Continued increase in unemployment rates. Reduction in consumer spending power and continued high debt to disposable income levels. Significant reduction in contractual savings by individuals. Sharp decline of 500 basis points in the prime interest rate since the first cut in December. Average prime rate 323 basis points lower than. Strengthening of the year end USD/ZAR exchange rate from to, from R9,31 to R7,37 in contrast to slightly weaker average USD/ZAR exchange rates of R8,42 compared to R8,24 for the corresponding year. Continued investment by government in infrastructure. Initially weak equity markets but strong recovery since March. High levels of market volatility and increased client hedging activity. Contraction of borrowing by companies. A gradual slowdown in consumer inflation Group results in brief Segmental reporting Capital January Standard Bank Group JSE Banks Index JSE All Share Index MSCI Emerging Markets Index December 60 economic indicators Market indicators USD/ZAR exchange rate closing (21) 7,37 9,31 average 2 8,42 8,24 SA prime overdraft rate 10,5 15,0 SA average prime overdraft rate 11,9 15,1 SA average CPI 7,1 11,5 JSE All Share Index JSE Banks Index MSCI Emerging Markets Index Share statistics Share price High for the year cents Low for the year cents Closing cents Shares traded Number of shares thousands Value of shares Turnover in shares traded 96,2 92,2 The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 3

6 Overview of financial results Global operating environment The global economic recession of was the most serious since the Great Depression of the 1930s. Trade declined rapidly in the final quarter of and into. The real economy also suffered with industrial production, household consumption expenditure and employment coming under significant pressure. Many countries, except for some in Asia, slipped into recession. In developed countries, the downturn was deeper and more broadly felt than in any period since World War II. Emerging market countries were hit hard by the global slowdown and proved vulnerable to falling international trade. Around half of emerging market exports are destined for developed markets, where there was significant withdrawal of demand. The resilience and swift return to positive growth in key emerging nations, such as China, Brazil, and India seemingly confirms that a structural shift in economic influence remains intact. Emerging markets accounted for two thirds of global growth in, growing their share of global GDP to 31 in from 20 in The sharp fall in commodity prices that accompanied the global slowdown was particularly concerning for African economies, many of which are heavily dependent on commodity exports as their primary source of export revenue. The tightening of global credit as a result of the crisis has also led to a reduction in private investment flows and bank financing, resulting in reduced capital flows and a curtailing of the availability of trade finance. Domestic operating environment While South Africa was able to weather the storm to some degree, the effects of the global recession could not be avoided. In the fourth quarter of, the country entered its first recession in 17 years, which lasted through the next two quarters. No sector evaded the downturn, with mining and manufacturing the hardest hit. By the third quarter of the economy had emerged tentatively from the recession and a contraction in GDP of 1,8 was recorded for the year. Household consumption expenditure and gross fixed capital formation remained subdued, declining 2 and 4 respectively. The inflation outlook during was more benign than in the previous year, with lower petrol prices and decreased food inflation being key drivers. The South African Reserve Bank cut interest rates by 0 basis points in the year, providing much needed relief, but the full benefit to the economy is only expected to be realised in As the recession took its toll, demand for credit in both corporate and retail sectors fell. Company borrowing contracted in the last three quarters of the year. Household debt to disposable income remained elevated in. After peaking at 83 in the first quarter of, the ratio declined only marginally to around 80 over the first three quarters of. Households are generally reducing debt levels after having over-extended themselves in the period of low interest rates from 2004 to Confidence in a sustainable but slow recovery is growing. While credit demand is expected to improve, a resurgence is only likely to follow a more tangible revival of economic activity. Overview of results Headline earnings by business unit change Personal & Business Banking (19) Corporate & Investment Banking (6) Liberty (89) Central and other (63) Total (17) Personal & Business Banking s headline earnings reflect margin pressure due to declining interest rates and high credit impairments. Domestic cost containment initiatives helped offset some of these effects. Corporate & Investment Banking experienced good growth in revenues but absorbed significantly higher credit losses. Liberty returned to profitability for the full year after reporting a loss in the first six months. Lower interest income on surplus capital impacted central earnings. 4 Standard Bank Group (SBG) of financial results 31 December

7 1 Headline earnings by geography change South Africa banking (9) Liberty (89) Central and other (63) South Africa & Central and other (17) Rest of Africa (35) Outside Africa Total (17) Banking operations in South Africa showed resilience, with headline earnings down only 9 on the prior year. Headline earnings from operations in the rest of Africa were impacted by the translation effect of a stronger rand and a very difficult operating environment in Nigeria. Operations outside of Africa grew headline earnings 5 in US dollar terms, despite absorbing a increase in credit impairments. Strong client driven global market revenues were a feature of the year. Year end banking assets of R1 1 billion were 13 lower than the prior year. Lower derivative assets (and liabilities) resulting from a decrease in both the volume and value of client trading positions held at year end across all key desks contributed 8 to the decline. A smaller loan book contributed a further reduction of 5 of which 3 was exchange rate related. The mortgage book, comprising 35 of the bank s gross loans and advances, grew 2. The net growth experienced in mortgage balances was the result of a combination of slowing new business, with registration values down 61, offset by declining prepayment rates and reduced cancellations, and the purchase of a R3,7 billion high quality book from SA Home Loans in the year. Instalment sales and finance leases decreased dramatically by 17, mainly in South Africa, as new car sales declined 24 and consumers shied away from taking on new credit, with the number of applications down 27. Term lending which accounts for 21 of bank lending and is mainly to corporates, was 16 lower. This was as a result of a slowdown in the deal pipelines given the tough operating environment. The translation effect of the strong rand particularly impacted this line item, further decreasing the balance year-on-year. Deposit and current accounts were down 9. Personal & Business Banking held deposits from customers at the same level as the prior year, reflecting increased focus on transactional banking relationships. Call and term deposits in Corporate & Investment Banking both reduced on the back of a slowdown in client activity and less surplus cash at corporate clients. Net asset value grew by 2 for the period, with earnings contributing strongly to the increase, offset by an adverse movement of R7,5 billion on the foreign currency translation reserve caused by the strong rand at year end. The group ROE of 13,6 was slightly below the average cost of equity for the year. Total revenue from banking activities held up well under the difficult operating environment, growing 2. After absorbing credit losses, income was up 1. Operating expenditure increased by 8 to support our continued drive to invest in infrastructure and grow our franchise, particularly in the rest of Africa. As a result net income before tax was 12 lower. Reduced income from associates further reduced headline earnings from banking activities, which resulted in an overall decline of 14. When the result from Liberty is included, group headline earnings declined 17 from the prior year. Net interest income was down 2, as a result of lower net interest margins (3,21 in versus 3,32 in ) and declining loan balances during. The negative endowment impact of a lower average prime rate in South Africa (11,9 in versus 15,1 in ) on capital and transactional balances took the greatest toll on margins. This was somewhat offset by slowly improving client yields as new lending transactions were priced according to the higher cost of term funding. Non-interest revenue grew a healthy 6 during with net fee and commission income up 3, trading revenue up 12 and other revenue up 5. Advisory fee and commission income was affected by a marked slowdown in client activity in structured transactions. However, customer activity in basic transactional banking increased and, helped by an annual inflationary price increase, this revenue line was up 13. Our trading businesses benefited from volatile market conditions and increased client Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 5

8 Overview of financial results continued activity. revenue growth was positively impacted by higher valuations of listed property investments and a solid performance from insurance-related products sold to bank customers in co-operation with Liberty. Credit loss ratio and non-performing loans 2, ,86 1, ,5 1,31 1, ,0 0,84 0, , ,0 0 1H07 2H07 1H08 2H08 1H09 2H09 Credit loss ratio Non-performing loans Net movement in non-performing loans for the year Credit impairment charges, after more than doubling in to R million, were up a further 7 in to R12 0 million. As expected, impairments on non-performing loans (NPLs) rose 26 while portfolio impairments on performing loans fell 84. NPLs continued to rise during the year and at year end comprised 6,2 of the book (: 3,4). The credit loss ratio for the year was 1,60 compared with 1,55 in the prior year. The ratio of 1,60 comprises a charge of 1,84 in the first half of the year and 1,31 in the second half of the year, indicating the improvements in credit experience which started to be felt towards the end of, especially in Personal & Business Banking. Cost discipline was well maintained during the year, restricting overall banking activities cost growth to 8. Proactive cost containment initiatives kept total operating cost growth in line with inflation in South Africa, despite substantially higher depreciation and technology expenses. However, we continued to invest in strategic projects for the longer term benefit of our businesses and our customers, especially in the rest of Africa. Staff costs rose 5 mainly as a result of annual inflationary increases and headcount growth in the rest of Africa compensated by restrained growth in short-term performance related remuneration. operating expenses grew 11, with IT-related expenditure up 18. The group s cost-to-income ratio deteriorated to 52,4, given slower revenue growth. Income from associates and joint ventures decreased during the year. This was largely due to the write down of the carrying value of our investment in RCS Investment Holdings (RCS) by R366 million. RCS provides short-term credit to consumers in South Africa and the impairment was necessitated by the adverse credit experience it faced over the year and was accounted for outside of headline earnings. We remain positive about the longterm future of RCS. Standard Bank s strategic investment in Troika Dialog Group (Troika) in Russia was completed in September and the investment has been recognised as an interest in an associate company. Due to Troika s September year end, Standard Bank Group will recognise earnings from this associate a quarter in arrears, therefore no earnings have been recognised for the fourth quarter of. Standard Bank s share of profits earned in this period were not material at a group level. Overview of business unit performance Personal & Business Banking Personal & Business Banking produced headline earnings of R3 835 million, down 19 on, in an exceptionally tough environment. Margins were impacted by lower interest rates while the lag effect of high interest rates in the prior period continued to put upward pressure on NPLs. ROE was 15,8, down from 19,7 the year before. In mortgage lending, new business registrations declined as a result of subdued demand from customers with new applications down 50 year-on-year and the tightening of certain credit criteria during. This was necessary at the time given the uncertainty in the economic outlook for South Africa and the unknown risks implied by rising unemployment and asset prices. Certain credit criteria were relaxed in line with the easing of these risks during. However, customer demand is not expected to recover significantly in the medium term as households remain focused on repaying existing debt. Of new business written, concessions were reduced by 55 basis points and only 33 of loans were originated through the more expensive mortgage originator channel, compared with 52 in the prior year. These actions helped mitigate the impact on margins of the unavoidable increase in the cost of term funding. NPLs continued to climb, to 10,1 of the book from 6,5 in the prior year. This resulted in the credit loss ratio for mortgages increasing to 1,59 (: 1,49). Although the rate of growth in NPLs started to slow in the second half of the year, we believe the peak in NPLs will only be reached 6 Standard Bank Group (SBG) of financial results 31 December

9 1 in the second quarter of Balances in the early arrears category almost halved, mainly due to the active restructuring of this portfolio a deliberate strategy undertaken to assist good customers to keep their homes in this difficult time. Reduced values received at auction and the debt review process, referred to under the heading helping customers through the cycle below, remain key risks in the mortgage business. Instalment sale and finance leases suffered continued high credit losses (credit loss ratio 3,49 from 2,48 in ) as pressure on the recovery values of used passenger vehicles continued and the business segment felt the impact of the slowdown in the economy. The level of NPLs remained stubbornly high for most of, although the rate of growth in NPLs began to slow in the fourth quarter. Card products recorded a commendable increase in earnings as a result of the non-recurrence of high credit losses in the prior year. The credit loss ratio in this business improved to 5,53 in from 9,53 in the prior year. This was as a result of a continued focus on recoveries and due to post write-off recoveries now being recognised in impairment calculations. The rest of Africa made a meaningful contribution to these results following the rollout of new products and successful marketing campaigns. Transactional and lending product deposit margins came under pressure due to the negative endowment impact of lower interest rates on transactional accounts. Our strategy to grow our deposit base proved effective with the number of current accounts in South Africa growing 11. Branch expansion in Mozambique, Ghana and Kenya assisted in attracting clients. Lower average balances however resulted in a marginal decline in deposit and current account year-end balances. Credit losses rose to 5,07 of the lending book (: 3,92) as a result of increased NPLs in both the personal and business segments. Bancassurance revenues were affected by a reduction in complex product business and an increase in lapse rates. Simple embedded insurance products sales were also lower given slower asset growth in the bank. The short-term insurance business benefited from a better underwriting performance despite pressure on new business volumes. Bancassurance revenues from the rest of Africa provided some uplift following the Kenyan acquisition. Corporate & Investment Banking Corporate & Investment Banking delivered a robust performance in the tough economic conditions, with headline earnings down 6 to R7 507 million and ROE of 18,3 (: 22,1). The global markets business had an excellent year, generating revenues of almost R13 billion, up 11 on the prior year. Throughout the year, we were an active market maker for our clients, particularly during the most volatile conditions. The increase in revenues was most notable in our business outside of Africa where we were well positioned to capitalise on market volatility and offer innovative hedging and risk solutions to our emerging market clients. Credit trading performed particularly well across all regions by taking advantage of higher deal flow, lower interest rates and the introduction of new products. Commodities and foreign exchange reported stronger performances in the first half, partially offset by a slowdown in client activity and a decrease in volatility in the second half. Investment banking had a tough start to the year following the active curtailment of business towards the end of due to market uncertainty. The the second half of showed some promise of increased activity as corporates tentatively became more active and we felt more confident in making our balance sheet available to clients. The year has ended with a healthy pipeline of new business. Credit impairments in investment banking rose substantially during the year due to higher impairments for NPLs across all regions as the impact of the turmoil in credit markets spread into emerging markets. In the South African and international operations, impairment charges were up on the prior year with large charges booked in the first half of the year, slowing in the second half. The full impact of the global slowdown manifested in credit impairments in the rest of Africa rising towards the end of. The highly collateralised nature of many of our more recent corporate NPLs results in a relatively lower gross coverage ratio. Transactional products and services had a subdued year but continued to invest in infrastructure, particularly in the rest of Africa. Income was down primarily as a result of lower current account deposit balances in South Africa partially offset by an increase in transactional volumes in the rest of Africa. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 7

10 Overview of financial results continued Wealth The financial results reported for the wealth business unit are the consolidated results of our 53,7 investment in Liberty Holdings Limited (Liberty). Bancassurance results are included in Personal & Business Banking. Liberty reported normalised headline earnings of R135 million (: R1 3 million) for the year ended 31 December. Of these headline earnings R72 million was attributable to Standard Bank (: R641 million). The year s performance can be best explained in two halves. Liberty reported a half year normalised headline loss of R1 207 million which included three significant and unrelated loss events, namely the estimated R519 million impact of actions to reduce equity market risk, the required strengthening of assumptions in policyholder withdrawals, paid ups and lapses of R685 million and an unrealised loss of R531 million due to the rand s strength at 30 June. The impact of improved investment markets combined with limited additional policyholder persistency assumption changes resulted in Liberty achieving second half normalised headline earnings of R1 342 million. The prevailing recessionary environment impacted to some extent the ability of the insurance operations to attract investment flows and total indexed new business at R4 412 million was 7,7 lower than. Retail risk product sales held up relatively well, increasing by 8 on an indexed basis. The net cash flows of the asset operations benefited from strong money market and dividend income fund flows. One of Stanlib s largest clients, the Public Investment Corporation (PIC), is strategically moving a large component of its portfolio in-house. Excluding the PIC withdrawal, asset net cash inflows totalled R11,1 billion (: R13,4 billion). Earnings from South African asset operations are 3,7 lower than last year reflecting the lower average values of assets under and reduced fee income. Cost discipline partially offset the lower fees. Shareholders are referred to the full Liberty Holdings announcement dated February Overview of strategic progress Group strategy Our vision to be a leading emerging markets financial services organisation remains unchanged. Our resilience in the face of the severe challenges of the past two years confirms that the group is strategically well positioned. In an environment where global growth rates are expected to depend heavily on emerging markets, our strategic focus, strong capital position, risk capability and growing customer base gives us confidence in the future. Helping customers through the cycle During the year we worked actively to find solutions for individual, business and corporate customers unable to repay loans according to the original terms. Standard Bank has assisted some South African customers to keep their homes in the past year without fear of legal action or repossession. We support the debt review initiative recently implemented under the auspices of the National Credit Act and our debt review department, created to address the needs of our customers availing themselves of debt counselling, has seen volumes increase substantially since June The way in which this process has been implemented with many interpretations of the act yet to be clarified has created bottlenecks in the system, resulting in lengthy delays. During the debt counselling process, banks are unable to engage with customers to reschedule payment terms or, where deemed necessary, foreclose on assets to redeem unpaid debts. We continue to work closely with the authorities to improve the efficacy of the process for the good of our customers, the bank and the hitherto strong South African culture of debt repayment. The financial position of corporate clients has been closely monitored through rigorous industry-specific and review. Proactive steps have included providing recapitalisation, funding, renegotiating lending facilities and bridging finance to clients in financial distress. 8 Standard Bank Group (SBG) of financial results 31 December

11 1 Risk appetite Tightening of risk appetite in manifested in lower asset growth in. Risk appetites across the group have been reviewed extensively throughout and have been amended as appropriate to ensure that we remain committed to writing good quality business. We are encouraging relationship managers to remain close to their customers and their prospects to understand their future borrowing needs, so we are able to lend responsibly as their need for credit arises. Capital The group continued to demonstrate its ability to generate capital internally, ending with a capital adequacy ratio of 14,9 and a tier I capital adequacy ratio of 11,8. These strong ratios were achieved despite the deployment of capital in respect of the investment in Troika, and dividends of R3,1 billion paid to shareholders. Liberty s capital adequacy level at December was strong at 2,8 times the required cover. Liquidity The availability of term funding improved gradually during the second half of. Over this period the group continued to manage its liquidity risk exposures proactively within prudent risk parameters. A sound structural liquidity mismatch profile, an adequately diversified funding base and unencumbered surplus liquidity totalling R118,6 billion at 31 December, were maintained. External pressures We recognise the need for politicians and regulators to take the necessary action to avoid the spectacular failures in banking that have marked the global financial crisis. However, we are concerned that the unintended consequence of some of the proposed changes to banking regulations may hinder our ability to service our customers and increase the cost of funding for developing countries. While the crisis appears to be ending, the regulatory consequences for structure, capital, leverage and liquidity are just beginning and increasingly stringent developments in the regulatory universe will therefore remain a key challenge for us. Black economic empowerment Despite the persisting challenges to harmonising the financial sector charter (charter) with the Department of Trade and Industry s Codes of Good Practice for Broad Based Black Economic Empowerment (codes), and converting the former into a sector code, our commitment to measurable progress in the transformation of the sector and of the group remains steadfast. The Standard Bank of South Africa Limited (SBSA) will continue to meet the requirements of the codes while also working toward internally set targets for those aspects of the charter that are not reflected in the codes. During, accredited black economic empowerment (BEE) verification agencies conducted independent assessments of SBSA s BEE performance in terms of the generic codes. SBSA s verified overall score was above 75, qualifying as a level three BEE contributor. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief We are currently evaluating the capital and liquidity requirements proposed by the Basel Committee on Banking Supervision. Standard Bank Group (SBG) of financial results 31 December 9

12 Summarised group income statement Net interest income (2) Non-interest revenue Net fee and commission revenue Trading revenue revenue Total income Credit impairment charges Impairments for non-performing loans Impaired loss Discounting of expected recoveries Impairments for performing loans (84) Income after credit impairment charges Operating expenses Staff costs operating expenses Net income before goodwill (10) Goodwill impairment > Net income before associates and joint ventures (11) Share of (loss)/profit from associates and joint ventures (>100) (34) 234 Net income before taxation (12) Taxation Profit for the year (16) Attributable to minorities (36) Attributable to preference shareholders (13) Attributable to ordinary shareholders banking activities (15) Headline adjustable items banking activities > Headline earnings banking activities (14) Headline earnings Liberty (89) Standard Bank Group headline earnings (17) Standard Bank Group (SBG) of financial results 31 December

13 Headline earnings 1 Headline earnings CAGR (2003 ): Group results in brief Segmental reporting Reconciliation of headline earnings Gross Tax 1 Minorities and preference shareholders Net Gross Tax 1 Minorities and preference shareholders Profit for the year banking activities (3 763) (1 031) (4 093) (1 409) Headline adjustable items banking activities added/ (deducted) (22) (13) (28) 85 Goodwill impairment IFRS Profit on sale of properties and equipment IAS 16 (38) 9 (29) (16) 2 (14) Impairment of properties and equipment IAS (15) (13) () (16) 43 Realised foreign currency translation reserve on foreign operations IAS 21 (18) (18) Gains on the disposal of businesses and divisions IAS (24) (24) Impairment of associates IAS 28 3 (28) Impairment of intangible assets IAS (26) (37) 95 Gains on the disposal of availablefor-sale assets IAS 39 (309) 76 (9) (242) (194) 47 (12) (159) Profit on sale of Visa (51) 7 (44) (123) 18 (105) (8) (9) (198) (71) 29 (12) (54) Headline earnings banking activities (3 747) (1 053) (4 106) (1 437) Headline earnings Liberty 1 1 (877) (248) (612) (1 1) 641 Standard Bank Group headline earnings (4 624) (1 301) (4 718) (2 688) Excluding indirect taxes. Net Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 11

14 Headline earnings and distributions per share Headline earnings per share CAGR (2003 ): 8 Distributions per share CAGR (2003 ): 17 Cents Cents Times covered , ,0 2, ,0 1,5 1,0 0, Distributions per share Distribution cover 0,0 Headline earnings (17) Headline EPS cents (20) 756,9 942,6 Basic EPS cents (21) 744,0 937,0 Total distributions per share cents 386,0 386,0 Distribution paid out of share premium final cents 2,0 193,0 Dividend paid out of distributable reserves interim cents 141,0 193,0 Distribution cover based on normalised headline EPS times 2,0 2,4 Movement in number of ordinary and weighted average shares issued Issued number of shares 000 s Weighted number of shares 000 s Issued number of shares 000 s Weighted number of shares 000 s Beginning of the year Shares issued for share option settlements Shares issued in terms of the ICBC transaction Shares issued through scrip distribution Share buy-backs (6 449) (1 708) End of the year Reconciliation to IFRS shares in issue End of the year normalised Shares held by Tutuwa SPVs (63 4) (63 4) (63 4) (65 376) Total number of shares held initially by Tutuwa SPVs (99 190) (99 190) (99 190) (99 190) Less: number of Tutuwa shares financed by third parties Less: number of Tutuwa shares acquired by ICBC Share exposures held to facilitate client trading activities Shares held for the benefit of Liberty policyholders (deemed treasury shares) ( 723) (32 035) (30 911) (36 884) End of the year IFRS Standard Bank Group (SBG) of financial results 31 December

15 Diluted headline earnings per share 1 Diluted headline earnings per share CAGR (2003 ): 8 Cents Group results in brief Segmental reporting Capital cents Diluted headline EPS (20) 750,6 935,6 Diluted EPS (21) 737,8 930,0 Diluted weighted average number of ordinary shares issued 000 s cents 000 s The Standard Bank of South Africa Limited Shareholder Weighted average shares Dilution from equity compensation plans Share option scheme Equity growth scheme Diluted weighted average shares Reconciliation to diluted weighted average IFRS shares Diluted weighted average shares normalised Shares held by Tutuwa SPVs (63 4) (65 376) Share exposures held to facilitate client trading activities Shares held for the benefit of Liberty policyholders (32 035) (36 884) Tutuwa transaction dilutive shares Diluted weighted average shares IFRS Standard Bank Group (SBG) of financial results 31 December 13

16 Statement of financial position Standard Bank Group Assets Cash and balances with central banks (3) Derivative assets (37) Trading assets Pledged assets (31) Financial investments Loans and advances (8) Loans and advances to banks (5) Loans and advances to customers (9) Investment property assets (42) Interest in associates and joint ventures Goodwill and other intangible assets (8) Property and equipment Total assets (11) Equity and liabilities Equity (1) Equity attributable to ordinary shareholders Preference share capital and premium Minority interest (16) Liabilities (12) Derivative liabilities (38) Trading liabilities Deposit and current accounts (9) Deposits from banks (18) Deposits from customers (7) liabilities (15) Policyholders liabilities Subordinated debt Total equity and liabilities (11) Includes elimination of derivative balances between Liberty and banking activities. 14 Standard Bank Group (SBG) of financial results 31 December

17 1 Banking activities Liberty 1 Group results in brief (3) (37) (19) (37) (4) (0) (8) (5) (9) (44) (37) > (6) (13) (13) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder (6) (9) (34) (4) (14) (38) (>100) (194) (9) (18) (7) (17) (12) (13) Standard Bank Group (SBG) of financial results 31 December 15

18 Statement of comprehensive income Ordinary shareholders equity Minorities and preference shareholders Total equity Profit for the year (23) comprehensive income for the year after tax: (>100) (7 395) (2 0) (9 464) Exchange rate differences on translating equity investment in foreign operations (7 403) (2 164) (9 567) Foreign currency hedge of net investment (106) (106) Cash flow hedges Available-for-sale financial assets Revaluation and other gains/(losses) Total comprehensive income for the year (86) (0) Attributable to minorities (>100) (1 2) (1 2) Attributable to equity holders of the parent (77) Attributable to preference shareholders (13) 4 4 Attributable to ordinary shareholders (78) IAS 1 Presentation of Financial Statements, revised with effect from 1 January, requires total comprehensive income for the year to be presented separately from the changes in equity resulting from transactions with shareholders. Total comprehensive income includes profit for the year and other transactions and events, other than those with shareholders in their capacity as owners. Statement of changes in equity Ordinary share capital and premium Foreign currency translation reserve Foreign currency hedge of net investment reserve Cash flow hedging reserve Balance at 1 January (130) Increase in statutory credit risk reserve Equity-settled share-based payment transactions Transfer of vested equity options Issue of share capital and share premium Share buy-backs (503) Net decrease in treasury shares Transactions with minority shareholders (4) Total comprehensive income for the year Dividends paid Balance at 31 December Balance at 1 January Increase in statutory credit risk reserve Equity-settled share-based payment transactions Tax on share-based payments Transfer of vested equity options Issue of share capital and share premium 200 Total comprehensive income for the year (7 403) (106) 85 Dividends paid Balance at 31 December 17 1 (2 115) All balances are stated net of applicable tax. 16 Standard Bank Group (SBG) of financial results 31 December

19 1 Ordinary shareholders equity Minorities and preference shareholders Total equity Group results in brief Statutory credit risk reserve Availablefor-sale revaluation reserve (181) (31) (212) 8 (29) (21) Treasury shares Sharebased payment reserve Revaluation and other reserves Retained earnings Ordinary shareholders equity Preference share capital and premium Minority interest Total equity (171) (168) (111) (503) (503) 7 (7) (86) (22) (37) (1 182) (1 331) (2 281) (3 612) (181) (6 081) (6 081) (548) (988) (7 617) (202) (132) (10) (14) (1 2) (3 137) (3 137) (4) (955) (4 1) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 17

20 Explanation of principal differences between normalised and IFRS results Description of normalised adjustments The group s consolidated financial statements are prepared in accordance with, and comply with IFRS as issued by both the International Accounting Standards Board (IASB) and the Accounting Practices Board of South Africa. This document is prepared on a basis which normalises or adjusts the IFRS results for three specific accounting circumstances where IFRS does not reflect the underlying economic and legal substance of the following transactions (the normalised adjustments): the group s Black Economic Empowerment Ownership (Tutuwa) initiative; group shares held by Liberty for the benefit of policyholders; and group share exposures entered into to facilitate client trading activities. A common element in these transactions relates to shares in issue deemed by IFRS to be treasury shares. Consequently, the net value of the shares is recognised as a deduction against equity; and the number of shares used for per share calculation purposes is materially lower than the economic substance, resulting in inflated per share ratios. With regard to segmental and product reporting, the normalising adjustments have been made within Liberty, and central and other. The results of the other business units are unaffected. Black Economic Empowerment Ownership ("Tutuwa") initiative The group concluded its Black Economic Empowerment Ownership initiative in October 2004 when it sold an effective 10 interest in its South African banking operations to a broadbased grouping of black entities. The group obtained financing through the issue of perpetual preference shares. These funds were used to subscribe for 8,5 redeemable, cumulative preference shares issued by special purpose vehicles (SPVs) controlled by the Standard Bank Group (SBG). These SPVs purchased SBG shares. Subsequently, the SPVs containing these shares were sold to black participants. The capital and dividends on the redeemable preference shares issued by the SPVs are repayable from future ordinary dividends received on the SBG shares held. As a result of SBG s right to receive its own dividends back in the form of yield and capital on the redeemable preference shares, the subsequent sale of the SPVs and consequent delivery of the SBG shares to the black participants, although legally effected, is not accounted for as a sale. As a consequence, the IFRS accounting treatment followed until full redemption, or third party financing is obtained, is: the redeemable preference shares issued by the SPVs and subscribed for by SBG are not recognised as financial assets, but eliminated against equity as a negative empowerment reserve; the negative empowerment reserve represents SBG shares held by the SPVs that are deemed to be treasury shares in terms of accounting conventions; the preference dividends received from the SPVs are eliminated against the ordinary dividends paid on the SBG shares held by the SPVs; for purposes of the calculation of earnings per share, the weighted average number of shares in issue is reduced by the number of shares held by those SPVs that have been sold to the black participants. The shares will be restored on full redemption of the preference shares, or to the extent that the preference share capital is financed by a third party; and perpetual preference shares issued by SBG for the purposes of financing the transaction, are classified as equity. Dividends paid on the perpetual preference shares are accounted on declaration and not on an accrual basis. The normalised adjustment: recognises a loan asset by reversing the elimination of the redeemable preference shares against equity; accrues for preference dividends receivable on the loan asset within interest income; adds back the number of shares held by the black participants to the weighted number of shares in issue, for purposes of calculating normalised per share ratios; and adjusts dividends declared on perpetual preference shares to an accrual basis. In December 2007 the group obtained financing external to SBG for a portion of the financing provided to the SPVs. As a result, the negative empowerment reserve has been reduced by the value of the external financing obtained of R1 billion and a proportion of the SBG shares held by the SPVs (24,7 million shares) are no longer deemed to be treasury shares for accounting purposes. In March 11,1 of the Tutuwa participants shares were sold to ICBC with the proceeds being partly utilised for the repayment of their preference share liability, thereby releasing a further 11,0 million ordinary shares previously deemed by IFRS to be treasury shares. Group shares held for the benefit of policyholders or to facilitate client trading activities The group acquires or sells short its own shares for two distinct business reasons: group companies shares held by Liberty are invested for the risk and reward of its policyholders, not its shareholders, and consequently the group s shareholders are exposed to an insignificant portion of the fair value changes on these shares; and Tutuwa initiative Partial external funding by the market Dividends on SBG shares are used to repay capital and interest on funding or flow through to participants SPVs owning SBG shares Tutuwa participants Funding through 8,5 redeemable cumulative preference shares (not recognised as an asset in SBG in terms of IFRS) Standard Bank Group (SBG) Investment in SBG shares (deemed by IFRS to be treasury shares in SBG) 18 Standard Bank Group (SBG) of financial results 31 December

21 1 the group enters into transactions on its own shares to facilitate client trading activities. As part of the normal trading operations, the group offers to its clients trading positions of listed shares, including its own shares. In order to hedge the risk on these trades, the group buys or sells short its own shares in the market. The group s shareholders are therefore exposed to an insignificant portion of fair value changes on these shares. In terms of IAS 32 Financial Instruments: Presentation (IAS 32), trades by subsidiaries in the group s shares held on behalf of policyholders and group share exposures to facilitate client trading activities are deemed to be treasury shares for accounting purposes. The accounting consequences in the consolidated IFRS group financial statements are: the cost price of shares purchased by subsidiaries as well as any funds received by subsidiaries from selling the group s shares short are set off against or added to ordinary shareholders equity and minority interest in the group financial statements; all the fair value movements are eliminated from the income statement, reserves and minority interests where applicable; and dividends received on group shares are eliminated against dividends paid. Group shares held for the benefit of policyholders or to facilitate client trading activities Policyholder liabilities and client trading positions relating to SBG shares recognised in full Policyholder benefits offered to clients Financial instruments offered to clients linked to an index or share price Adjustments to IFRS results Standard Bank Group (SBG) SBG subsidiaries Banking activities No corresponding adjustment is made to the policyholder liabilities or trading positions with customers. As a result, the application of IAS 32 gives rise to a mismatch in the overall equity and income statement of the group. The liability to policyholders and client trading position, along with the change in policyholders liabilities and profit or loss recognised on the client trading position is therefore not eliminated even though the corresponding interest in the group s shares is eliminated and treated as treasury shares acquired or issued. With regards to the group shares held for the benefit of Liberty policyholders, the weighted average number of shares in issue for per share figures is calculated by deducting the full number of group shares held (100), not the IFRS effective 54 owned by the group, as IFRS (IAS 33 Earnings per share) does not contemplate minority portions of treasury shares. This treatment exaggerates the reduction in the weighted average number of shares used to calculate per share ratios. For purposes of calculating the normalised results, the adjustments described above are reversed and the group shares held on behalf of policyholders and to facilitate client trading activities are treated as issued to parties external to the group. The impact of the normalised adjustments on the issued and weighted number of shares is provided on page 12. Client transactions Exposure to client transactions Offsetting transaction resulting in position in SBG shares Liberty Liability to policyholders linked to returns on portfolios that include SBG shares Subsidiaries in banking operations Exposure to movements in share price or index resulting from client trading activities Headline earnings Liberty Cost of SBG shares deducted from equity in terms of IFRS. Fair value movement in SBG share price removed from the IFRS income statement Investment in a portfolio of shares, including SBG shares, on behalf of policyholders Investment in shares that offset client trading position, including SBG shares sold short or held long Standard Bank Group Ordinary shareholders equity Standard Bank Group IFRS (376) Tutuwa initiative Share exposures held to facilitate client trading activities (212) (212) (537) Group shares held for the benefit of Liberty policyholders Normalised IFRS Tutuwa initiative Group shares held for the benefit of Liberty policyholders (94) (94) Normalised Group results in brief Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 19

22 Financial results, ratios and statistics IFRS Standard Bank Group Headline earnings contribution by business unit Total headline earnings (20) Banking activities (13) Personal & Business Banking (19) Corporate & Investment Banking (6) Central and other (55) Liberty (>100) (376) 688 Profit attributable to ordinary shareholders (21) indicators Headline EPS cents (23) 771, ,0 Diluted headline EPS cents (23) 744,7 968,1 Basic EPS cents (24) 7,5 995,9 Diluted EPS cents (24) 731,6 962,2 Distribution cover times 2,0 2,6 Distributions per share cents 386,0 386,0 Net asset value per share cents (1) Tangible net asset value per share cents Ordinary shareholders equity ROE 13,7 19,1 Capital adequacy 14,9 13,3 Tier I capital adequacy ratio 11,8 11,0 Core tier I capital adequacy ratio 10,8 10,1 Number of ordinary shares in issue end of year thousands weighted average thousands diluted weighted average thousands Banking activities Total assets (13) Loans and advances (net of credit impairments) (8) indicators ROE 14,9 19,0 Gearing ratio times 15,6 18,8 Loan-to-deposit ratio 93,9 93,4 Net interest margin 3,19 3,31 Non-interest revenue to total income 50,2 48,0 Credit impairment charges Credit loss ratio 1,60 1,55 Cost-to-income ratio 52,3 49,3 Effective taxation rate 29,8 26,3 20 Standard Bank Group (SBG) of financial results 31 December

23 Summarised group income statement IFRS 1 Net interest income (2) Non-interest revenue Net fee and commission revenue Trading revenue revenue Group results in brief Total income Credit impairment charges Impairments for non-performing loans Impaired loss Discounting of expected recoveries Impairments for performing loans (84) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Income after credit impairment charges Operating expenses Staff costs operating expenses Net income before goodwill (9) Goodwill impairment > Net income before associates and joint ventures (9) Share of (loss)/profit from associates and joint ventures (>100) (34) 234 Net income before taxation (10) Taxation Profit for the year (14) Attributable to minorities (36) Attributable to preference shareholders Attributable to ordinary shareholders banking activities (14) Headline adjustable items banking activities > Headline earnings banking activities (13) Headline (loss)/earnings Liberty (>100) (376) 688 Standard Bank Group headline earnings (20) Standard Bank Group (SBG) of financial results 31 December 21

24 Statement of comprehensive income IFRS Ordinary shareholders equity Minorities and preference shareholders Total equity Profit for the year (28) comprehensive income for the year after tax: (>100) (7 395) (2 0) (9 464) Exchange rate differences on translating equity investment in foreign operations (7 403) (2 164) (9 567) Foreign currency hedge of net investment (106) (106) Cash flow hedges Available-for-sale financial assets Revaluation and other gains/(losses) Total comprehensive income for the year (89) (1 127) Attributable to minorities (>100) (1 658) (1 658) Attributable to equity holders of the parent (78) Attributable to preference shareholders Attributable to ordinary shareholders (81) IAS 1 Presentation of Financial Statements, revised with effect from 1 January, requires total comprehensive income for the year to be presented separately from the changes in equity resulting from transactions with shareholders. Total comprehensive income includes profit for the year and other transactions and events, other than those with shareholders in their capacity as owners. Statement of changes in equity IFRS Ordinary share capital and premium Empowerment reserve Treasury shares Foreign currency translation reserve Foreign currency hedge of net investment reserve Balance at 1 January (3 235) (960) Increase in statutory credit risk reserve Transfer of unrealised profit on sale of subsidiary shares (118) Equity-settled share-based payment transactions Transfer of vested equity options Issue of share capital and share premium Share buy-backs (503) Net decrease in treasury shares Transactions with minority shareholders (286) (260) (4) Total comprehensive income for the year Dividends paid Balance at 31 December 16 9 (2 653) (758) Balance at 1 January 16 9 (2 653) (758) Increase in statutory credit risk reserve Equity-settled share-based payment transactions Tax on share-based payments Transfer of vested equity options Issue of share capital and share premium 200 Net decrease in treasury shares 617 Total comprehensive income for the year (7 403) (106) Dividends paid Balance at 31 December 17 1 (2 653) (141) (2 115) 774 All balances are stated net of applicable tax. 22 Standard Bank Group (SBG) of financial results 31 December

25 1 Ordinary shareholders equity Minorities and preference shareholders Total equity Group results in brief Cash flow hedging reserve Statutory credit risk reserve (181) (31) (212) 8 (29) (21) Availablefor-sale revaluation reserve Share-based payment reserve Revaluation and other reserves Retained earnings Ordinary shareholders equity Preference share capital and premium Minority interest Total equity (130) (168) (111) (503) (503) (22) (37) (1 589) (2 198) (982) (3 180) 932 (181) (5 778) (5 778) (529) (814) (7 121) (202) (132) (10) (14) (1 658) (2 846) (2 846) (531) (886) (4 263) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 23

26 Broad-based black economic empowerment dti generic codes scorecard Target Ownership 20 11, Control 10 8,47 Employment equity 15 9,43 Skills development 15 8,94 Preferential procurement 20 17,15 Enterprise development 15 15,00 Socioeconomic development 5 5,00 Total score ,56 Black Black senior Black middle Black junior Human resource development dti target 2011 FSC target Black senior Black women senior Black middle Black women middle Black junior Black women junior Total black Total black women Procurement - dti codes dti target 2011 of TMPS of TMPS 1 weighted of TMPS 1 weighted Supplier classification All suppliers - Level 1 to Qualifying small enterprises (QSE) and exempted micro-enterprises (EME) - Level 1 to Black owned (>50) Black women owned (>30) Total measured procurement spend (TMPS) This is BEE spend per supplier classification calculated as a percentage of TMPS. TMPS is based on actual calculated procurement spend and certain inclusions and exclusions per dti guidelines. 2 Procurement spend on all suppliers represents total BEE spend weighted for supplier BEE levels. The other supplier classifications are required to ensure procurement from black small entities and black women-owned entities. The Financial Sector Charter (FSC) has not yet been gazetted as a sector code. The bank s empowerment assessment is now governed by the Department: Trade and Industry (dti) generic codes published in terms of the Broad-based Black Economic Empowerment Act. In terms of the dti codes the bank was rated as a level 3 BEE contributor at 31 December, which is achieved by a score of more than 75. By comparison, an A level rating in terms of the FSC was achieved previously by having a score greater than 80. As negotiations continue in the process to gazette the FSC as sector code, we remained committed to the FSC empowerment elements that are not specified in the dti codes. Standard Bank extended R1 638 million in loans to the affordable housing market during. Standard Bank invested R99 million in towards socioeconomic development initiatives in support of community development, education, health and consumer education. Standard Bank received the Eric Molobi Most Progressive Company Award at the 7th Association of Black Securities and Investment Professionals (ABSIP) Financial Sector Awards. The award recognises the bank s contribution and commitment to empowerment and transformation within the bank and to the national economy. 24 Standard Bank Group (SBG) of financial results 31 December

27 Segmental reporting 1 26 Segmental structure for key business units 28 Group executive committee 30 Segmental income statement 32 Segmental statement of financial position 34 Personal & Business Banking 38 Corporate & Investment Banking 42 Wealth Liberty Group results in brief Capital Segmental reporting The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December

28 Segmental structure for key business units Standard Bank Group Limited Personal & Business Banking Banking and other financial services to individual customers and small- to medium-sized enterprises in South Africa, rest of Africa and Argentina Corporate & Investment Banking Corporate and investment banking services to larger corporates, financial institutions and international counterparties, in South Africa and other emerging markets Wealth Liberty Investment and life insurance activities of companies in the Liberty Holdings group Mortgage lending Residential accommodation loans to mainly personal market customers Instalment sale and finance leases Instalment finance to personal market customers Finance of vehicles and equipment in the business market Card products Credit card facilities to individuals and businesses (credit card issuing) and merchant transaction acquiring services (card acquiring) Transactional and lending products Transactions in products associated with the various point of contact channels such as ATMs, internet, telephone banking and branches. This includes deposit taking activities, electronic banking, cheque accounts and other lending products, coupled with debit card facilities to both personal and business market customers Global markets Foreign exchange Commodities Credit and interest rates Equities trading Transactional products and services Transactional banking Investor services Investment banking Advisory Project finance Structured finance Structured trade finance Corporate lending Primary markets Acquisition and BEE finance Property finance Equity investment Asset and wealth Long-term investment Long-term risk life and disability Pension fund Endowment and retirement annuities Corporate benefits Health care and health insurance Investment-related advice and solutions Central and other Includes the impact of the Tutuwa initiative, group capital instruments and group surplus capital, together with certain group overheads not recoverable from business segments, including the Global Leadership Centre, activities and taxes not allocated to business segments, strategic acquisition costs and intersegment eliminations Bancassurance Short-term and long-term insurance products Financial planning 26 Standard Bank Group (SBG) of financial results 31 December

29 1 Personal & Business Banking Headline earnings R3 835 million (: R4 739 million) Headline earnings decline 19 (: 16) Headline earnings contribution 33 (: 33) Return on equity 15,8 (: 19,7) of group headline earnings 33 Group results in brief Cost-to-income ratio 54,2 (: 51,5) Credit loss ratio 2,56 (: 2,47) External net loans and advances R3 billion (: R380 billion) Personal & Business Banking Segmental reporting Corporate & Investment Banking Headline earnings R7 507 million (: R7 948 million) of group headline earnings Capital The Standard Bank of South Africa Limited Shareholder Headline earnings decline 6 (: Growth 19) Headline earnings contribution 64 (: 56) Return on equity 18,3 (: 22,1) Cost-to-income ratio 52,3 (: 50,6) Credit loss ratio 0,73 (: 0,46) 64 External net loans and advances R3 billion (: R408 billion) Liberty Corporate & Investment Banking Headline earnings R72 million (: R641 million) Headline earnings decline 89 (: 34) Headline earnings contribution 1 (: 5) Return on equity 1,2 (: 12,8) Normalised embedded value R24 billion (: R27 billion) Third party funds under R200 billion (: R186 billion) Standard Bank Group (SBG) of financial results 31 December 27

30 Group executive committee Craig Bond (48) Chief executive Standard Bank ICBC Strategic Partnership BCom, LLB, HDip Tax (Wits), SEP (Harvard) Joined the group 2000, appointed to exco 2006 Kennedy Bungane (35) Chief executive Corporate & Investment Banking SBSA BCom (Natal), MBA (University of Pretoria GIBS Campus), AMP (Harvard) Joined the group 1996, appointed to exco David Duffy (48) Chief executive Corporate & Investment Banking International BBS (Hons) (Trinity College Dublin), MA (Trinity College Dublin) Joined the group 2006, appointed to exco Tina Eboka (50) Corporate Affairs BS Applied Mathematics (New York), BS Textile Engineering (Philadelphia), MBA (Philadelphia), SEP (Harvard) Joined the group 2005, appointed to exco 2005 Arnold Gain (55) Credit BCom (Hons) (Cape Town) Joined the group 1994, appointed to exco 2005 Bruce Hemphill (46) Chief executive Liberty BSoc (Cape Town), CPE (College of Law, London) Joined the group 1993, appointed to exco 2006 Ben Kruger (50) Group deputy chief executive BCom (Hons) (Pretoria), CA(SA), AMP (Harvard) Joined the group 1985, appointed to exco 2000 Rob Leith (47) Chief executive Corporate & Investment Banking BCom (Hons) (Cape Town), CA(SA) Joined the group 1991, appointed to exco 2003 Jacko Maree (54) Group chief executive BCom (Stellenbosch), MA (Oxford), PMD (Harvard) Joined the group 1980, appointed to exco 1995 David Munro (39) Global head: Investment Banking BCom (PGDA) (Cape Town), CA(SA), AMP (Harvard) Joined the group 1996, appointed to exco Standard Bank Group (SBG) of financial results 31 December

31 Sipho Ngidi (54) Human Resources SBSA BAdmin (Zululand), BCom (Hons) (Natal) Joined the group 2001, appointed to exco 2001 Sarah-Anne Orphanides (41) Marketing and Communications BSocSci (Hons) (Cape Town), MBA (London) Joined the group 2002, appointed to exco Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Simon Ridley (54) Group financial director BCom (Natal), CA(SA), AMP (Oxford) Joined the group 1999, appointed to exco 2002 Paul Smith (55) Chief risk officer BCom (Natal), CA(SA), AMP (Wharton) Joined the group 19, appointed to exco 1999 Peter Schlebusch (43) Chief executive Personal & Business Banking SBSA BCom (Hons) (Wits), CA(SA), HDip Tax (RAU) Joined the group 2002, appointed to exco Clive Tasker (54) Chief executive Standard Bank Africa BA LLB (Natal), AMP (Wharton) Joined the group 2000, appointed to exco Casper Troskie (46) Chief financial officer BCom (Hons) (Cape Town), CA(SA) Joined the group, appointed to exco Elizabeth Warren (53) Human Resources BSc (Hons) (Bath), Fellow of the Chartered Institute of Personnel and Development Joined the group, appointed to exco Sim Tshabalala (42) Group deputy chief executive and chief executive SBSA BA LLB (Rhodes), LLM (University of Notre Dame USA), HDip Tax (Wits), AMP (Harvard) Joined the group 2000, appointed to exco 2001 Peter Wharton-Hood (44) Group deputy chief executive BCom (Hons) (Wits), CA(SA), AMP (Harvard) Joined the group 19, appointed to exco 1999 Standard Bank Group (SBG) of financial results 31 December 29

32 Segmental income statement Personal & Business Banking Corporate & Investment Banking Central and other Income from banking activities (50) Net interest income (2) () Interest income (16) (22) (4 981) (6 441) Interest expense (24) (28) (6 175) (8 027) Non-interest revenue (>100) (287) 246 Net fee and commission revenue (6) (1) (159) Fee and commission revenue (9) (9) (1) (133) Fee and commission expense (30) (100) 26 Trading revenue (>100) (143) 261 revenue (2) (99) Income from investment and life insurance activities Net insurance premiums Investment income and gains Management and service fee income Total income (50) Credit impairment charges (201) (502) 499 Impairments for non-performing loans (3) Impaired loss (3) Discounting of expected recoveries Impairments for performing loans (29) (61) (200) (502) 502 Benefits due to policyholders Net insurance benefits and claims Fair value adjustment to policyholders liabilities under investment contracts Fair value adjustment on third party fund interests Income after credit impairment charges and policyholders benefits (0) Operating expenses in banking activities (144) (281) Staff costs (17) operating expenses (518) (734) Operating expenses in investment and life insurance activities Acquisition costs insurance and investment contracts operating expenses Net income before goodwill (17) (7) (4) Goodwill impairment > Net income before associates and joint ventures (17) (8) (4) Share of (loss)/profit from associates and joint ventures (>100) (217) (75) 1 4 Net income before indirect taxation (21) (7) (4) Indirect taxation (2) > Profit before direct taxation (23) (8) () Direct taxation (14) (15) > Profit for the year (26) (6) (44) Attributable to minorities (68) (30) (100) (2) (1) Attributable to preference shareholders (13) Attributable to ordinary shareholders () (3) (62) Headline adjustable items > (>100) (142) (49) (118) Headline earnings (19) (6) (63) ROE () 15,8 19,7 18,3 22,1 Net interest margin () 4,96 5,15 1,84 1,83 Credit loss ratio () 2,56 2,47 0,73 0,46 Cost-to-income ratio () 54,2 51,5 52,3 50,6 Number of employees Standard Bank Group (SBG) of financial results 31 December

33 1 Banking activities Liberty Normalised Standard Bank Group IFRS adjustments IFRS Standard Bank Group (199) (2) ( 2) (177) (199) (2) (19) (19) (177) (199) (19) (27) (27) (27) (4) (4) (4) (880) (1) (1) (1) > (1 114) > (1 114) (880) 223 > (891) (762) (84) (84) (84) > > > > > > > (1 0) > (1 0) > (1 0) > > > Group results in brief Segmental reporting Capital (6) (1) (762) 24 (2) (10) (50) (15) (762) 24 (19) (>100) 42 5 > > (11) (50) (15) (762) 24 (19) (>100) (34) (88) (88) (12) (48) (16) (762) 24 (19) (2) (14) (52) (19) (762) 24 (22) (8) (1) (1) (16) (83) (23) (802) 24 (28) (36) (80) (62) (389) 176 (82) (13) ( 13) (19) (15) (89) (18) (465) (133) (21) > > > (14) (89) (17) (465) (133) (20) ,5 18,6 1,2 12,8 13,6 18,2 13,7 19,1 3,21 3,32 3,21 3,32 3,19 3,31 1,60 1,55 1,60 1,55 1,60 1,55 52,4 49,2 52,4 49,2 52,3 49, The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 31

34 Segmental statement of financial position Personal & Business Banking Corporate & Investment Banking Central and other Assets Cash and balances with central banks (9) Financial investments, trading and pledged assets (82) (1) > (2 514) Loans and advances (3) (13) (>100) (2 336) Loans and advances to banks (6) ( 635) Loans and advances to customers (3) (16) (>100) (1 701) Investment property Derivative and other assets (9) (38) (18) Interest in associates and joint ventures (24) > Goodwill and other intangible assets (4) (10) Property and equipment > Total assets (3) (18) Equity and liabilities Equity (7) Equity attributable to ordinary shareholders (7) Preference share capital and premium Minority interest (31) (88) Liabilities (2) (19) (3) (18 0) (17 786) Deposit and current accounts (2) (13) (72) (13 022) (7 580) Deposits from banks 1 (18) (208) Deposits from customers (3) (11) () (12 814) (7 580) Derivative, trading and other liabilities (3) (2 526) (2 3) (30) (6 182) (10 631) Policyholders liabilities Subordinated debt > Total equity and liabilities (3) (18) Average assets banking activities excluding trading derivatives Average loans and advances (gross) Average ordinary shareholders equity Standard Bank Group (SBG) of financial results 31 December

35 1 Banking activities Liberty Normalised Standard Bank Group IFRS adjustments IFRS Standard Bank Group (3) (3) (3) (3 164) (3 653) (8) (8) (2 118) (2 153) (8) (5) (5) (5) (9) (9) (2 118) (2 153) (9) (38) (38) (38) (38) > (6) (13) (8) (8) (13) (11) (5 282) (5 806) (11) (6) (1) (5 129) (5 642) (0) (9) (3 432) (3 949) (34) (4) (16) (1 6) (1 3) (18) (14) (12) (153) (164) (12) (9) (9) (9) (18) (18) (18) (7) (7) (7) (30) (13) (29) (153) (164) (29) (13) (11) (5 282) (5 806) (11) (1 899) (2 638) (1 941) (2 638) (4 054) (4 046) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 33

36 Personal & Business Banking Headline earnings CAGR (2003 ): 6 Cost-to-income ratio ,9 62,5 56,6 53,8 52,0 51,5 54, Net interest income (2) Non-interest revenue Total income Credit impairment charges Operating expenses Taxation (11) Headline earnings (19) Headline earnings change (19) (16) Headline earnings contribution to the group ROE 15,8 19,7 Net interest margin 4,96 5,15 Cost-to-income ratio 54,2 51,5 Credit loss ratio 2,56 2,47 Effective taxation rate 37,9 33,6 Total assets (3) External net loans and advances (3) Number of employees Favourable Improved customer service ratings. Continued growth in customer base, transactional volumes, and value per transaction, particularly account transaction fees and card-based fees and commission. Benefits of South African cost containment initiatives, including headcount reduction through headcount freezes and natural attrition. Significant reduction in mortgage lending prepayment rates. Growth in average retail deposits, excluding securitisation. Adverse Net interest income reduced due to the negative endowment impact of lower average interest rates coupled with reduced loan balances, primarily instalment sale and finance leases and card debtors. The reduction was partially offset by the benefit of the unwinding of the discount on expected nonperforming loan recoveries. High credit impairments in South Africa across all portfolios, excluding card products, driven by increased non-performing loans, partially offset by a decline in the early arrears portfolio. Increase in non-performing loans exacerbated by accounts under debt review in terms of the National Credit Act implemented in Accounts under debt review remain within non-performing loans until resolution by the courts. Higher operating expenses due to continued investment in business expansion in the rest of Africa and outside Africa, and sustained investment in electronic channel systems. Impairment of investment in the associate RCS and intangible software asset (outside headline earnings). 34 Standard Bank Group (SBG) of financial results 31 December

37 1 Total income and headline earnings by product Total income Headline earnings Mortgage lending (490) (895) Instalment sale and finance leases (66) (464) (2) Card products (7) Transactional and lending products (2) (30) Bancassurance Personal & Business Banking (19) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Mortgage lending Net interest income assisted by the unwinding of the discount of non-performing loan recoveries, coupled with balance growth through SA Home Loans acquisitions and a sharp slowdown in the level of prepayments. High credit impairment charges driven by increased default rates and a growing number of accounts under debt review, partially offset by a decline in the early arrears portfolio. New business registrations declined due to the overall slowdown in the residential property market in South Africa, a review of the bank s mortgage origination channels strategy and the tightening of credit granting criteria. Income growth in the rest of Africa was driven by the full year benefit from the acquisition of CfC Kenya in, branch roll-outs within some countries towards the latter part of the year, and the successful implementation of mortgage lending in Uganda. Instalment sale and finance leases Higher credit impairments driven by increased nonperforming loans in the business portfolio. New business volumes reduced due to the continued decline in demand in all asset classes, a decline in the real purchasing power of consumers and lower economic activity. Successful partnership with motor dealers in Uganda and branch network expansion within several countries. Card products Net interest income unfavourably affected by lower average card holder balances coupled with the impact of the Usury Act and NCA pricing limits. Improved acquiring merchant turnover, partly offset by reduced fee and commission income due to a decline in customer spending and the customer base. Decreased credit impairments resulting from an improvement in delinquency rates, increased recoveries and a change in the provisioning methodology to account for post write-off recoveries. Revenue growth in the rest of Africa as a result of successful marketing campaigns and increased roll-out of products. Increased margin within Argentina. Transactional and lending products Income growth driven by an increase in the transactional account base, combined with inflation-related price increases. Deposit margins impacted by the negative endowment effect of lower average interest rates, compounded by a shift in product mix towards higher priced investment deposits. Margin on term advances improved due to proactive repricing. Increased credit impairments due to an increase in the nonperforming loans portfolio on both the personal and business segments due to adverse macro economic conditions and customers in debt review. Reduced income within the rest of Africa following lower transactional volumes and customer bases and a negative endowment impact of lower average interest rates in certain countries. Bancassurance Simple embedded insurance products benefited from a higher average premium per policy offset by slightly lower joint venture income as a result of increased claims loss ratios. Short-term insurance broking income up largely due to pricing adjustments despite pressure on new policy volumes. Short-term insurance profit increased as a result of improved underwriting performance due to the optimisation of the reinsurance programme and pricing adjustments, coupled with the non-recurrence of prior year fair value write offs. Significantly lower complex product embedded value profits due to a reduction in case counts, decreased commission following new commission regulations and high policy lapses, as well as adjustments by Liberty to a number of long-term calculation assumptions. The rest of Africa provided a solid performance as the relationship with Liberty gained traction off a small base, coupled with benefits from the Kenya acquisition. Standard Bank Group (SBG) of financial results 31 December 35

38 Personal & Business Banking continued External loans and advances by product Loans and advances to banks Call loans 844 Balances with banks 482 Loans and advances to customers (3) Gross loans and advances to customers (2) Mortgage loans Instalment sale and finance leases (15) Card debtors (4) Overdraft and other demand loans (7) term loans (4) loans and advances (74) Credit impairments for loans and advances (38) (13 484) (9 750) Credit impairments for non-performing loans (46) (10 239) (7 035) Credit impairments for performing loans (20) (3 2) (2 715) Net loans and advances (3) Comprising: Gross loans and advances (2) Less: credit impairments (38) (13 484) (9 750) Net loans and advances (3) Securitised assets consolidated above: Mortgage loans (8) Instalment sale and finance leases (68) Securitised assets (12) Deposit and current accounts by product Wholesale priced deposit and current accounts (4) Call deposits (0) Securitisation issuances (13) Retail priced deposit and current accounts (1) Current accounts Cash deposits Call deposits (2) Savings accounts (5) Term deposits (5) funding Interdivisional funding (4) Total deposit and current accounts (2) Standard Bank Group (SBG) of financial results 31 December

39 1 Points of representation global Group results in brief Key business statistics South Africa Mortgage loans Number of loan applications received thousands (50) in value of new business registered (61) (32) Average loan to value (LTV) of new business registered Average balance to original value (BTV) of portfolio Average instalment to income (ITI) of new business Proportion of new business referred by independent mortgage originators and estate agents Instalment sale and finance leases Growth in value of new loans motor (34) (30) non-motor (43) (1) Number of accounts at year end Credit card accounts thousands (9) Current accounts thousands Mzansi accounts (excluding nil balance accounts) thousands transaction and savings accounts (excluding nil balance accounts) thousands (4) Distribution in internet users in ATM transactions 2 (4) Points of representation Branches (2) ATMs Rest of Africa Points of representation Branches ATMs in ATM transactions 8 48 Outside Africa 1 Points of representation Branches ATMs Argentina Branches ATMs Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 37

40 Corporate & Investment Banking Headline earnings CAGR (2003 ): 14 Cost-to-income ratio ,0 52,3 53,2 52,6 53,1 50,6 52, Net interest income Non-interest revenue Total income Credit impairment charges Operating expenses Taxation (13) Headline earnings (6) Headline earnings growth (6) 19 Headline earnings contribution to the group ROE 18,3 22,1 Net interest margin 1,84 1,83 Cost-to-income ratio 52,3 50,6 Credit loss ratio 0,73 0,46 Effective taxation rate 22,6 23,9 Total assets (18) External net loans and advances (13) Number of employees Standard Bank Group (SBG) of financial results 31 December

41 1 Income contribution Group results in brief Segmental reporting Fees and other revenue Trading revenue Net interest income Trading income as a percentage of non-interest revenue Favourable Net interest income up, driven by increased interest earning assets from excess liquidity buffers. Non-interest revenue up with increased trading income recorded across all regions, most notably outside Africa. Strong equities trading performance on the back of increased client flows from new product developments, as well as the non-recurrence of prior year losses. Good forex trading performance in the rest of Africa and outside Africa due to increased client flows as a result of market volatility. Strong interest rate trading performance, particularly in South Africa. income benefited from favourable fair value adjustments on unlisted equity portfolios and listed property portfolio. Adverse Impairment charges up across all regions with large charges in the first half of the year. The rest of Africa continued to incur non-performing loan impairment charges in the second half of the year. Net interest income negatively impacted by the endowment impact of lower average interest rates. Reduced net fees and commissions due to lower client activity and advisory flow, most notably in the rest of Africa and outside Africa, and non-recurrence of favourable items enjoyed in. Increased investment in premises and in technology. Strategic partnerships ICBC Strategic partnership bearing fruit. Related revenues totalling USD78 million generated from the relationship. ICBC led USD1 billion five-year term facility for Standard Bank from a consortium of Chinese banks. Troika Dialog Strong partnership with a market leader in Russia. Opportunity to establish a substantial domestic and cross-border franchise. Earnings equity accounted from Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 39

42 Corporate & Investment Banking continued Total income and headline earnings by product Total income Headline earnings Global markets Investment banking (36) Transactional products and services (5) (21) Corporate & Investment Banking (6) Global markets Strong income performance off a high base in. Benefited from a diversified product mix with robust performances across all regions, particularly outside Africa. Higher client-related foreign exchange trading and increased market volatility in the rest of Africa and outside Africa. Interest rate trading in South Africa benefited from higher deal flow and decreasing interest rates coupled with the introduction of new products. Growth in credit trading driven by strong performance in structured credit and structured products trading businesses. Commodity income was down off a high base following reduced client activity outside Africa. Strong equity derivatives performance due to higher client flows and non-recurrence of prior year losses. Net interest income benefited from liquidity shortages in the market that drove interest rates on call loans higher, coupled with the group s strategy to hold excess liquidity buffers and use the surplus cash to invest in short-term marketable assets. Transactional products and services Lower income on call accounts in South Africa, offset partially by an increase in transactional volumes in the rest of Africa. Net interest income was down due to lower current account deposit balances and margins following the negative endowment impact. Income in the rest of Africa benefited from the roll-out of a new online banking system that resulted in increased transaction volumes and fees. Investment banking Robust performance despite continuing turmoil in the credit market with income up on. Fee income lower following restricted pipeline growth. Increased client appetite and activity in the latter half of. Favourable fair value adjustments on unlisted equity portfolios and listed property portfolio. Increased impairment charges across all regions but slowing in the latter half of. 40 Standard Bank Group (SBG) of financial results 31 December

43 1 External loans and advances by product Loans and advances to banks (6) Call loans (56) Loans granted under resale agreements Balances with banks Loans and advances to customers (16) Gross loans and advances to customers (15) Overdraft and other demand loans (6) Term loans (18) Loans granted under resale agreements (19) Commercial property finance (2) Foreign currency loans (39) Mortgage loans (1) loans and advances > Credit impairments for loans and advances (41) (4 899) (3 483) Credit impairments for non-performing loans (82) (2 838) (1 560) Credit impairments for performing loans (7) (2 061) (1 923) Net loans and advances (13) Comprising: Gross loans and advances (12) Less: credit impairments (41) (4 899) (3 483) Net loans and advances (13) Exchange rate impact (37 681) Net loans and advances excluding foreign exchange rate impact (4) Group results in brief Segmental reporting Capital Deposit and current accounts by product Wholesale priced deposit and current accounts (11) Current accounts (5) Cash deposits Call deposits (21) Term deposits (11) Negotiable certificates of deposits (0) Repurchase agreements (58) funding (18) Interdivisional funding 7 ( ) ( ) The Standard Bank of South Africa Limited Total deposit and current accounts (13) Shareholder Exchange rate impact (32 050) Total deposit and current accounts excluding foreign exchange rate impact (6) Standard Bank Group (SBG) of financial results 31 December 41

44 Wealth Liberty Headline earnings Normalised embedded value CAGR (2003 ): Net insurance premiums 1 (1) Investment income and gains 2 > (1 114) Benefits due to policyholders 2 > Management and service fee income Operating expenses BEE normalised headline earnings 1 (89) Headline earnings attributable to Standard Bank Group (89) Headline earnings decline (>100) (89) (34) Headline earnings contribution to the group 1 5 Effective interest in Liberty at year end 53,7 53,7 ROE 1,2 12,8 Return on normalised embedded value 1 (6,5) 3,7 Indexed new business (excluding contractual increases) 1 (8) New business margin 1 1,3 2,6 Net cash inflows/(outflows) in insurance operations 1 > (2 861) Normalised total embedded value 1 (11) Capital adequacy requirement cover (times covered) 2,81 2,66 1 Liberty as published. 2 Includes adjustments on consolidation of Liberty Holdings into the Standard Bank Group. Favourable The business returned to profitability in the second half of, due mostly to the recovery of the financial markets. Persistency did not deteriorate further in the second half of the year. The capital adequacy cover of Liberty Group Limited remains robust at 2,8 times the statutory requirement. Various operational retention initiatives implemented started to produce positive results. Risk claims experience remains positive within the retail insurance operation. No significant changes to cost assumptions were required due to effective cost control. Progress continued in terms of diversifying the business, with the group s product and service offerings now extending into eight African countries outside South Africa. Adverse Negative persistency experience variances were recorded across most retail products which resulted in the strengthening of related assumptions in the first half of the year. Equity stop loss levels were triggered in the first half of the year resulting in a once off R519 million loss. The strong rand during the first half of the year resulted in approximately R400 million unrealised loss on the group s foreign currency investments. The prevailing recessionary environment impacted the ability of the insurance operations to attract investment flows. Total indexed new business is 8 lower than. Average assets under were impacted by lower opening values arising from the market declines and the loss of institutional mandates. 42 Standard Bank Group (SBG) of financial results 31 December

45 1 Policyholder liabilities CAGR (2003 ): BEE normalised summarised income statement Liberty Holdings as published Insurance premium revenue (2) Reinsurance premiums 13 (632) (727) Net insurance premiums (1) Investment income and gains/(losses) > (1 093) Management and service fee income Defined benefit pension fund employer surplus 13 Total revenue Benefits due to policyholders > Net insurance benefits and claims > Fair value adjustment to policyholders liabilities under investment contracts > (1 0) Fair value adjustment on third party mutual fund interests > Income after policyholders benefits (6) Operating expenses Acquisition costs General marketing and administration expenses Finance costs (4) Preference dividend in subsidiary Equity accounted earnings from joint ventures Profit before taxation (52) Taxation Total earnings (83) Preference share dividend (2) (2) Attributable to minorities (74) BEE normalised headline earnings (89) Minority interest consolidated into Standard Bank Group. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 43

46 Wealth Liberty continued BEE normalised headline earnings - Liberty Holdings Retail insurance (86) Liberty Corporate (7) 152 LibFin (248) (67) Stanlib (9) Liberty Properties Liberty Africa 29 (1) Liberty Health (65) (185) (2) Headline earnings (91) Attributable to minority shareholders in Liberty Group 1 (398) BEE normalised headline earnings (89) Until 1 December, Liberty Holdings Limited owned approximately 51 of Liberty Group Limited. External assets under Asset assets under (22) Segregated funds (23) Properties 3 3 Wealth funds under administration Single manager unit trust Institutional marketing Linked and structured life products Multi-manager Rest of Africa Total external assets under Rbn Rbn 44 Standard Bank Group (SBG) of financial results 31 December

47 Capital 1 46 Return on ordinary equity 47 Cost of equity and economic returns 48 Market capitalisation and price-to-book ratio 49 Ordinary shareholders' equity (net asset value) 50 Currency of net asset value 51 Currency translation effects 52 Economic capital 53 Risk-weighted assets 54 Capital adequacy - qualifying regulatory capital 55 Capital adequacy ratios 56 Subordinated debt Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December

48 Return on ordinary equity Return on ordinary equity Group ROE declined mainly due to the higher level of average equity in and the reduction in headline earnings across all business units. Personal & Business Banking s reduced ROE resulted from marginally higher equity and a decline in headline earnings. Corporate & Investment Banking s ROE was lower as a result of the higher level of average capital deployed to improve capital adequacy outside Africa, partly offset by the translation impact of a stronger ZAR exchange rate. Central and other s average equity increased due to growth in the capital held centrally by the group. Liberty s lower ROE was attributable to its higher equity combined with its decline in headline earnings Shareholders funds (average) ROE 5 0 Average equity ROE Average equity ROE Personal & Business Banking , ,7 Corporate & Investment Banking , ,1 Central and other Banking activities , ,6 Liberty 6 8 1, ,8 Standard Bank Group , ,2 Reconciliation to IFRS Normalised average equity Empowerment reserve impairment (Tutuwa SPVs preference shares and dividends receivable) (2 520) (2 638) Central and other (1 941) (2 309) Liberty (5) (329) Deemed treasury shares (excluding Tutuwa) (1 534) (1 408) SBG IFRS , ,1 46 Standard Bank Group (SBG) of financial results 31 December

49 Cost of equity and economic returns 1 Cost of equity estimates Average Average Personal & Business Banking 16,6 17,8 Corporate & Investment Banking 18,8 20,3 Central and other 14,6 15,2 Banking activities 14,9 16,1 Liberty 12,1 14,4 Standard Bank Group 14,6 15,2 Economic returns Average ordinary equity Headline earnings (17) Cost of equity charge (7) (12 5) (11 813) Economic (losses)/profits on headline earnings (>100) (8) changes in net asset value (>100) (7 153) Net currency translation (losses)/gains (7 509) Cash flow hedge gains Fair value gains/(losses) on available-for-sale assets 249 (22) Transactions with minority shareholders 9 changes in equity 22 (119) Total economic returns (>100) (8 032) 7 8 Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 47

50 Market capitalisation and price-to-book ratio Market capitalisation CAGR (2003 ): 20 Price-to-book and net asset value per share Rbn Cents Times Net asset value per share Price-to-book 0 Number of shares at the end of the year thousands Net asset value Tangible net asset value Net asset value per share cents (0) Tangible net asset value per share cents Share price at the end of the year cents Market capitalisation at the end of the year Price-to-book ratio at the end of the year times 1,8 1,5 48 Standard Bank Group (SBG) of financial results 31 December

51 Ordinary shareholders equity (net asset value) 1 Analysis of net asset value (ZAR) Analysis of net asset value (USD) USDm Group results in brief Segmental reporting Net asset value Net asset value NAV growth Personal & Business Banking (7) Corporate & Investment Banking Central and other Banking activities Liberty (9) Standard Bank Group Analysis of changes in net asset value Net asset value NAV growth Beginning of the year Transactions with shareholders (>100) (2 2) Dividends paid 48 (3 137) (6 081) Issue of ordinary share capital and share premium (99) Equity-settled share-based payments Share buy-backs (503) Tax on share-based payments 58 Transactions with minority shareholders (1 331) Excess of purchase price over net asset value Liberty (1 0) transactions with minorities 9 Additional shareholder value (78) Headline earnings for the year attributable to ordinary shareholders (17) earnings attributable to ordinary shareholders (>100) (199) (85) Currency translation movements, including hedging activities (>100) (7 509) Net cash flow hedges (91) Net available-for-sale movement >100 7 (181) Fair value adjustments on available-for-sale instruments > (22) Realised fair value adjustments transferred to the income statement (52) (242) (159) direct movements > End of the year Capital The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 49

52 Currency of net asset value Closing GBP/USD exchange rate Closing USD/ZAR exchange rate 2, ,0 9 1, ,0 January December 6 January December Total Rand Dollar Sterling Euro ZAR linked Naira Underlying exposures s due to hedging strategies (8 8) (183) (2 350) Actual exposures Underlying exposures s due to hedging strategies (3 786) (226) (3 5) Actual exposures In response to the weakening of the Euro, the group s exposure to Euro was reduced significantly to approximately R2,9 billion in early January 2010, with a concomitant increase in exposure to the USD. Closing currency profile of NAV Total Rand Dollar Sterling Euro ZAR linked Naira before hedging after hedging before hedging after hedging Standard Bank Group (SBG) of financial results 31 December

53 Currency translation effects 1 Currency translation effects Translation reserve USD/ZAR appreciation/(depreciation) closing USD/ZAR appreciation/(depreciation) average Movement in group foreign currency translation and net investment hedging reserve Balance at the beginning of the year: credit Translation reserve (decrease)/increase for the year (7 509) Translation reserve (decrease)/increase (7 403) Rest of Africa (2 600) Outside Africa (4 1) Liberty (12) (30) Currency hedge (losses)/gains (106) 447 Balance at the end of the year: (debit)/credit (1 341) Exchange rates Average Closing USD/ZAR 2 8,42 8,24 (21) 7,37 9,31 ZAR/NGN 24 17,99 14, ,28 14,74 GBP/USD (15) 1,55 1, ,61 1,46 Euro/USD (5) 1,39 1,46 3 1,44 1,40 Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 51

54 Economic capital Economic capital by risk type at the end of the year Credit risk (2) Equity risk Market risk Operational risk Business risk Interest rate risk in the banking book (35) Banking activities economic capital requirement Available financial resources (AFR) (1) Capital coverage ratio (times) 1,82 1,93 Economic capital by business unit at the end of the year Personal & Business Banking (9) Corporate & Investment Banking Central and other Banking activities Economic capital is the amount of permanent capital that is required to support the economic risk profile. For potential losses arising from risk types that are statistically quantifiable, economic capital reflects the worst case loss commensurate with confidence levels implied by the group s target credit rating. Credit risk represents the largest source of risk to which the banking entities in the group are exposed and accounts for the majority of total economic capital. Credit risk reduced due to lower credit exposures across all portfolios and a reduction in the average maturity of the portfolio. This was offset by an increase in capital arising from downgrades of counterparties. Increase in market risk mainly due to higher commodities and debt securities trading activity. Increase in operational risk mainly attributable to the inclusion of income figures in the calculation of the standardised approach capital for operational risk. Business risk increase was attributable to a revision in the methodology. Capital in respect of interest rate risk in the banking book reduced due to a decline in the prime interest rate in. The economic capital requirement of R44,8 billion for the group is reflective of the capital requirement to cover the risk profile of the group. AFR is the capital supply defined on an economic basis, which essentially comprises permanent capital, and is broadly equivalent to equity capital. AFR of R81,5 billion covers the minimum economic capital requirement of R44,8 billion by a factor of 1,82 times, indicating a substantially higher capital position relative to risks assumed in banking activities. 52 Standard Bank Group (SBG) of financial results 31 December

55 Risk-weighted assets 1 Risk-weighted assets (closing balances) 1 Rbn Capital adequacy ,5 0,5 14 3,1 3, ,7 11,0 0,2 0,3 3,8 3,4 10,5 10,8 0,3 2,6 0,4 1,9 11,0 0,2 2,9 11,8 Group results in brief Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Total assets (banking activities) Risk-weighted assets 1 Basel II implemented 1 January. Risk-weighted assets and capital adequacy for and are on a Basel II basis. All other historical comparatives are on a Basel I basis. Risk-weighted assets by business unit Personal & Business Banking Credit risk (8) Operational risk Equity risk in the banking book (26) Corporate & Investment Banking (4) Credit risk (12) Market risk Operational risk Equity risk in the banking book Central and other Credit risk (18) Operational risk Equity risk in the banking book (20) Banking activities (2) Risk-weighted assets by risk class Tier I capital Tier II capital Tier III capital Required capital Credit risk (10) Market risk Operational risk Equity risk in the banking book Banking activities (2) ,7 Standard Bank Group (SBG) of financial results 31 December 53

56 Capital adequacy qualifying regulatory capital Normalised ordinary shareholders equity Net IFRS adjustments 13 (3 432) (3 949) IFRS ordinary shareholders equity Minority interests (18) Less: regulatory deductions (18) (16 988) (14 432) Investment in insurance entities (50) (1) (3 880) (3 851) Investment in financial entities (50) (74) (1 2) (906) Future expected losses exceeding provisions on incurred loss basis (50) 5 (921) (0) Loans to SPVs (first loss credit enhancement) (50) (23) (284) (231) Investment in regulated non-banking entities (23) (135) (110) Investment in banks (2 3) Goodwill and other intangible assets 6 (7 827) (8 364) Less: regulatory exclusions 34 (11 9) (16 991) Non-qualifying entities retained earnings 0 (3 631) (3 642) Non-qualifying foreign currency translation reserve >100 (6 168) Non-qualifying other reserves (>100) (1 503) (752) Non-qualifying minority interest 5 (6 1) (6 429) Less: reserves included under Tier II capital (59) (546) (344) Perpetual preference shares Tier l capital Preference share capital 8 8 Tier ll subordinated debt Impairments for performing loans (20) Revaluation reserve (100) 236 Less: regulatory deductions (12) (6 6) (5 958) Investment in insurance entities (50) (1) (3 880) (3 851) Investment in financial entities (50) (74) (1 2) (906) Future expected losses exceeding provisions on incurred loss basis (50) 5 (921) (0) Loans to SPVs (first loss credit enhancement) (50) (23) (284) (231) Tier ll capital Tier lll capital (43) Total regulatory capital Standard Bank Group capital adequacy ratios Minimum regulatory requirement Target ratios Total capital adequacy ratio 9, ,9 13,3 Tier I capital adequacy ratio 7,0 9 11,8 11,0 Core tier I capital adequacy ratio 5, 10,8 10,1 Perpetual preference shares as of tier I <,0 7,8 8,1 Tier II and III as of tier I <100,0 26,3 20,5 Subordinated tier II debt as of tier I <50,0 32,5 23,7 54 Standard Bank Group (SBG) of financial results 31 December

57 Capital adequacy ratios 1 Host regulatory Tier I capital Total capital Tier I capital Total capital requirement Standard Bank Group 11,8 14,9 11,0 13,3 9,75 The Standard Bank of South Africa (SBSA) 10,6 14,1 9,3 12,2 9,75 Rest of Africa CfC Stanbic Bank Kenya 10,6 16,4 10,0 13,0 12 Stanbic Bank Botswana 10,8 18,6 9,1 18,2 15 Stanbic Bank Ghana 19,4 22,5 15,2 18,4 10 Stanbic Bank Tanzania 17,4 18,9 12,3 14,0 12 Stanbic Bank Uganda 13,1 16,3 13,2 13,2 12 Stanbic Bank Zambia 14,1 18,0 11,5 15,5 10 Stanbic Bank Zimbabwe 17,5 18,8 30,8 58,5 10 Stanbic IBTC Bank Nigeria 27,6 28,1 29,2 29,9 10 Standard Bank Malawi 19,8,7 15,3 22,1 10 Standard Bank Mauritius 12,0 18,1 16,1 23,9 10 Standard Bank Mozambique 12,0 14,7 7,8 11,1 8 Standard Bank Namibia 11,2 14,1 11,5 14,5 10 Standard Bank RDC 10,1 16,2 10,8 10,8 10 Standard Bank Swaziland 12,0 17,9 13,8 17,5 8 Standard Lesotho Bank 9,1 10,6 7,9 8,9 8 Standard International Holdings, consolidated 1 9,9 16,5 10,0 13,7 10,48 2 Standard Bank Isle of Man 8,8 12,5 8,0 11,2 10 Standard Bank Jersey 10,0 13,0 7,8 11,1 10 Aggregate regulatory capital requirement for banking operations 10,1 10,4 Liberty (calculated in terms of the Long-term Insurance Act) CAR times covered 2,8 2,7 1 Incorporating: Banco Standard de Investimentos (Brazil); Standard Bank Argentina; Standard Bank Asia (Hong Kong); Standard Bank Plc (United Kingdom); Standard Merchant Bank (Asia) (Singapore); and ZAO Standard Bank (Russia), deconsolidated from the group in. 2 Plus an additional USD100 million. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 55

58 Subordinated debt Redeemable/ repayable date Callable date Notional value 1 LC m Carrying value 1 Notional value 1 Carrying value 1 Notional value 1 Subordinated bonds 2 SBSA SBK 10 (Tier III) 19 Nov 2012 ZAR SBK 5 17 Nov Nov 2011 ZAR Jul Jul 2012 USD SBK 8 10 Apr Apr 2013 ZAR SBK 11 9 Apr Apr 2014 ZAR SBK 7 24 May May 2015 ZAR SBK Nov Nov 2016 ZAR SBK Nov Nov 2016 ZAR SBK 9 10 Apr Apr 2018 ZAR Standard Bank Swaziland Sep Sep 2010 E Feb Sep 2010 E Dec Dec 2014 E Standard Bank Namibia 20 Nov Nov 2011 NAD Stanbic Botswana Jun May 2011 BWP Jun Jun 2013 BWP Aug Aug 2013 BWP Dec Dec 2013 BWP Standard Bank Mozambique 29 Jun Jun 2012 MT CfC Stanbic Bank Kenya Oct 2012 KES Jul 2016 KES Stanbic Bank Uganda 10 Aug Aug 2014 USHS Standard International Holdings Tier III 13 Dec USD Tier III 27 Dec USD Tier III 28 Dec Dec EUR Jul Jul USD Oct Oct 2010 USD Jul Jul 2016 USD Dec 2019 USD Total bonds qualifying as regulatory banking capital Liberty (qualifying as regulatory insurance capital) 12 Sep Sep 2012 ZAR Total subordinated bonds Subordinated loans 2 Stanbic Bank Ghana 30 Sep Sep 2011 USD Stanbic Bank Tanzania 15 Sep Jan 2012 USD Stanbic Bank Zambia 15 Sep Sep 2016 USD Standard Bank Mauritius 15 Sep Sep 2013 USD Standard Bank RDC 15 Sep Sep 2013 USD CfC Stanbic Bank Kenya 15 Jun Jun 2014 USD Total subordinated loans Total subordinated debt Total subordinated debt banking activities Total subordinated bonds banking activities Total subordinated loans banking activities The difference between the carrying and notional value represents accrued interest together with the unamortised fair value adjustments relating to bonds hedged for interest rate risk. 2 Tier II, unless otherwise stated. 56 Standard Bank Group (SBG) of financial results 31 December

59 1 58 Net interest income and margin 60 Non-interest revenue 62 Credit impairment charges 66 Operating expenses 68 Taxation Group results in brief Capital Segmental reporting The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December

60 Net interest income and margin Net interest income and net interest margin CAGR (2003 ): 18 South African prime interest rate ,0 3, ,0 2,5 2,0 1, , , , Net interest income After impairment charges Before impairment charges 10 January December Movement in average assets, net interest income and margin per business unit Average assets Personal & Business Banking Net interest income Net interest margin as reported ,15 Reclassifications 10 restated ,15 Net non-interest earning assets (20 042) ,62 Interest earning assets ,77 Impact of volume changes Impact of calendar variance (49) Impact of rate changes (677) (0,18) Lending margin (156) (0,04) Client yield ,21 Cost of funding 2 (920) (0,) Unwinding of discount on credit impairments IAS ,20 Funding margin (237) (0,06) Endowment funding (1 504) (0,41) Endowment capital and reserves (537) (0,15) Assets held for liquidity purposes 348 0,09 treasury and banking activities 665 0,19 in composition of balance sheet (0,04) Interest earning assets ,55 Net non-interest earning assets (1 184) (0,59) ,96 Net interest income change (2) Average assets change 3 1 Client yield changes refer to the difference in movement between average client rates and base lending rates. 2 Cost of funding changes refer to the difference in movement between base lending rates and an allocated cost of funding based on the term nature of the asset. 58 Standard Bank Group (SBG) of financial results 31 December

61 1 Favourable Decreased trading assets and other non-interest earning assets reduced the dilutive impact on margins. Increased lending margins in South Africa and outside Africa due to widening credit spreads and increased pricing for term lending. Average customer concession rates decreasing on new mortgage loans from 1,34 to 0,, and on new instalment sale and finance leases from 0,43 to a premium of 0,32. Increase in the unwinding of the IAS 39 discount on expected recoveries of non-performing loans to interest income. Higher proportion of retail-based deposits positively affecting margins. Adverse Negative endowment impact of lower interest rates on capital and reserves R2 355 million (33 basis points), and funding R1 7 million ( basis points) primarily resulting from a decline of 323 basis points in the average SA prime interest rate. Increase in average non-performing loans, no longer generating interest income. Negative impact of increased term financing. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Corporate & Investment Banking Average assets Net interest income Net interest margin Average assets Banking activities Net interest income Net interest margin , , , ,32 (226 4) 1 0 1,50 (3 204) , , , (28) (84) (855) (0,) (2 341) (0,33) 414 0, , , ,30 (1 036) (0,30) (1 9) (0,27) 55 0,02 9 0, , ,03 (9) (0,07) (1 7) (0,) (924) (0,27) (2 355) (0,33) 129 0, ,07 (812) (0,) 50 0,01 (0,17) (0,20) , , (1 007) (1,07) (3 020) (1,24) , ,21 1 (2) 1 2 Standard Bank Group (SBG) of financial results 31 December 59

62 Non-interest revenue Non-interest revenue CAGR (2003 ): 17 Analysis of non-interest revenue Non-interest revenue Non-interest revenue to total income Fee and commission revenue Trading revenue revenue Net fee and commission revenue Fee and commission revenue Account transaction fees Electronic banking Knowledge-based fees and commission (24) Card-based commission Bancassurance (3) Documentation and administration fees Foreign currency service fees (7) Fee and commission expense 4 (2 732) (2 8) Trading revenue Commodities (8) Forex (1) Credit Interest rates Equities > (20) revenue Banking and other (15) Banking and other (excluding Visa profit) (10) Realised Visa profit (excluded from headline earnings) (59) Property-related revenue > Insurance bancassurance income Total non-interest revenue Standard Bank Group (SBG) of financial results 31 December

63 1 Distribution of daily trading units Frequency of trading days 50 Group results in brief Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder < > Daily trading revenue () Favourable Good growth in account transaction fees and card based commission resulting from growth in customer base and increased volumes. Reduction in interchange expenses. Strong equities trading performance on the back of increased client flows as a result of new product developments as well as the non-recurrence of prior year losses. Good forex trading performance in the rest of Africa and outside Africa due to increased client flows as a result of market volatility. Growth in credit trading driven by strong performance in structured credit and structured products trading businesses. Strong interest rate trading performance, particularly in South Africa. income benefited from favourable fair value adjustments on unlisted equity portfolios and listed property portfolio. Adverse Lower knowledge-based fees in all regions due to a slowdown in capital market activity. Non-recurrence of gains on currency hedging. Lower interest rate trading outside Africa following reduced market activity. Standard Bank Group (SBG) of financial results 31 December 61

64 Credit impairment charges Credit impairment charges , , , , ,0 Credit impairment charges on NPLs Credit impairment charges on PLs Credit loss ratio Credit loss history as a percentage of gross loans and advances NPLs impairments Credit loss ratio impairment charges (net of recoveries) Non-performing loans Per- Impaired loss IAS 39 discount 1 Total forming loans impairment charges Total impairment charges Credit loss ratio Personal & Business Banking ,56 Mortgage loans ,59 Instalment sale and finance leases ,49 Card debtors (44) (180) ,53 loans and advances ,07 Corporate & Investment Banking ,73 Corporate loans ,72 Commercial property finance ,82 Central and other 2 (201) (502) (502) Total banking activities ,60 1 Discounting of expected recoveries in terms of IAS Incurred but not reported (IBNR) provision reversed from central and other as lagged impairments evident in business units in the current year, mainly in Corporate & Investment Banking. 62 Standard Bank Group (SBG) of financial results 31 December

65 1 Adverse Increased defaults due to high household debt to income ratios, increased job losses and company failures, as the benefit of reduced interest rates is not yet evident. Continued increase in non-performing loans, albeit at a slower rate, resulting in continued high credit impairments especially in secured lending portfolios. Continued pressure on recovery values of assets and increase in time to realise security. Increased stress in the business banking portfolios as a result of the slowdown in economic activity and the deteriorating trading environment. Increased specific impairments in Corporate & Investment Banking, due to higher client default rates given difficult economic conditions and the slowdown in economic activity. Non-performing loans Per- Impaired loss IAS 39 discount 1 Total forming loans impairment charges Total impairment charges Credit loss ratio , , (17) , , , , , ,08 (3) (3) ,55 Favourable Significant reduction in impairment charges in the second half of, compared to the first half of and the second half of. Decrease in card portfolio credit impairment charge due to increased focus on early delinquencies, better limit control, improved authorisation policies and a change in the provisioning methodology to recognise post write-off recoveries. Adverse impact of debt review on Personal & Business Banking portfolios. Collection capability improvements, including collection optimisation strategies and dynamic rehabilitation processes. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 63

66 Credit impairment charges continued impairment roll forward from Opening balance IAS 39 discount in opening balance Impairments of non-performing loans Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors 732 loans and advances Corporate & Investment Banking Corporate lending Property finance 37 Central and other Impairments of performing loans Personal & Business Banking Mortgage loans 776 Instalment sale and finance leases 507 Card debtors 852 loans and advances 580 Corporate & Investment Banking Corporate lending Property finance 183 Central and other Total impairments Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors loans and advances Corporate & Investment Banking Corporate lending Property finance 220 Central and other Total balance sheet impairments as a of gross loans and advances 1,74 1 New provisions raised less recoveries of amounts written off in previous years equals income statement credit impairment charge ( R million R512 million = R12 0 million). 64 Standard Bank Group (SBG) of financial results 31 December

67 1 Net provisions raised and released IAS 39 discount in new impairments raised Impaired accounts written off IAS 39 discount recycled to net interest income Currency translation and other movements Closing balance IAS 39 discount in closing balance Recoveries of amounts written off in previous years (4 871) (1 5) () (946) (1 351) (9) (1 447) (155) (24) (1 099) (43) (1 3) (146) (77) (2) (90) (598) (448) (90) (598) (4) (5 323) (1 785) (701) (4) (4) 7 (180) (12) (4) (159) (159) (502) (4) (148) (4 875) (1 5) (92) (946) (1 351) (4) (1 447) (155) (28) (1 099) (43) (5) (1 383) (146) (55) (2) (90) (7) (448) (90) (7) (4) 492 (502) (5 327) (1 785) (849) ,52 Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 65

68 Operating expenses Operating expenses CAGR (2003 ): 16 Cost and income growth () Growth Ratio Total income growth Total cost growth Cost-to-income ratio Operating expenses Staff costs Fixed remuneration Variable remuneration staff costs Total staff costs Variable remuneration as a of total staff costs 19,5 19,5 operating expenses Information technology Depreciation, amortisation and impairments Communication Premises Total other operating expenses Total operating expenses Cost-to-income ratio 52,4 49,2 Analysis of total technology function spend IT staff costs Information technology Depreciation and amortisation Total Standard Bank Group (SBG) of financial results 31 December

69 1 Headline earnings per employee (banking activities) R 000 Number of employees Group results in brief Segmental reporting Headline earnings per employee 0 Number of employees Headcount by business unit Personal & Business Banking Corporate & Investment Banking Central and other Banking activities Headcount by geography South Africa (1) Rest of Africa Outside Africa Banking activities Capital Staff costs and headcount Staff costs in the rest of Africa up 14 due to new branches and other points of representation requiring additional client facing and support staff. Higher permanent headcount requirements mainly in credit debt as a result of higher collection volumes. Increased IT headcount. Partly offset by: decrease in direct cost due to headcount freeze in South Africa; and decrease in bonus and incentive provisions across most areas of the group. Variable remuneration includes a 1 reduction in the cost of short-term incentives, offset by increased charges relating to long-term incentives driven by upward share price movements. operating expenses Substantially higher IT and depreciation costs attributable to increased investment in the group s global trading platform and core banking system in South Africa. Enhancements to the overall network to increase capacity and meet business requirements, including customer focused channel improvements, enhancements to the regulatory and risk systems and improved workflow and imaging. Increased credit collection activities driving administrative and communication costs. Premises cost growth resulting from roll out of branches in the rest of Africa, rental escalations and relocation costs outside Africa, and new disaster recovery site in South Africa. Impact of a weaker average USD/ZAR exchange rate. costs impacted by: increased professional fees due to utilisation of consultants on various projects, due diligence assessments, legal fees, post acquisition integration costs and relocations; and increase in security costs within the rest of Africa. The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 67

70 Taxation Taxation charge and effective taxation rate Total taxation charge Effective taxation rate Taxation rate reconciliation Effective taxation rate 29,5 26,1 Indirect taxation (8,3) (5,7) Direct taxation current and prior years 21,2 20,4 Prior year tax 0,4 Direct taxation current year 21,6 20,4 Adjustments to direct taxation 0,3 (0,8) Capital gains tax (0,2) (0,1) Foreign tax (0,4) (0,5) Secondary tax benefit/(cost) on companies 0,9 (0,7) Deferred tax release rate adjustment 0,5 Direct taxation current year normal 21,9 19,6 Permanent differences 6,1 8,4 Non-taxable income 6,6 7,7 Deductible indirect tax 1,8 1,6 (2,3) (0,9) Direct taxation statutory rate 28,0 28,0 Favourable Significant decrease in secondary tax on companies (STC), mainly due to the declaration of a scrip distribution which does not attract STC, compounded by a lower interim dividend declaration. Prior year tax adjustment in the current year mainly outside Africa. Increase in deductible indirect taxes, mainly outside Africa and the rest of Africa. Increase in non-taxable dividends received, mainly in South Africa. Adverse Decrease in non-taxable income, mainly in South Africa and the rest of Africa. Non-recurrence of a favourable rate-related deferred tax release in South Africa. 68 Standard Bank Group (SBG) of financial results 31 December

71 1 70 Loans and advances 71 Deposit and current accounts 72 Loans and advances performance 74 Banking activities average balance sheet 76 Liquidity 78 Fair value hierarchy Group results in brief Capital Segmental reporting The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December

72 Loans and advances Loans and advances CAGR (2003 ): 21 Composition of gross loans and advances Rbn Mortgage loans (: 31) Instalment sale and finance leases (: 8) Card debtors (: 3) Term loans (: 23) Overdrafts and other demand loans (: 11) Loans granted under resale agreements (: 4) term loans (: 20) By advance type Loans and advances to banks (5) Call loans (55) Loans granted under resale agreements Balances with banks Loans and advances to customers (9) Gross loans and advances to customers (8) Mortgage loans Instalment sale and finance leases (17) Card debtors (4) Overdrafts and other demand loans (6) term loans (16) Loans granted under resale agreements (19) Commercial property finance (1) Foreign currency loans (39) loans and advances (46) Credit impairments for loans and advances (33) (18 666) (14 018) Credit impairments for non-performing loans (52) (13 078) (8 596) Credit impairments for performing loans (3) (5 588) (5 422) Net loans and advances (8) Comprising: Gross loans and advances (8) Less: credit impairments (33) (18 666) (14 018) Net loans and advances (8) Exchange rate impact (39 548) Net loans and advances excluding exchange rate impact (4) Securitised assets consolidated above: Mortgage loans (8) Instalment sale and finance leases (68) Securitised assets (12) Standard Bank Group (SBG) of financial results 31 December

73 Deposit and current accounts 1 Deposit and current accounts CAGR (2003 ): 19 Rbn Composition of deposit and current accounts Group results in brief Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Current accounts (: 11) Cash deposits (: 8) Call deposits (: 21) Term deposits (: 26) Negotiable certificates of deposits (: 12) Securitisation issuances (: 2) deposits (: 20) By deposit type Deposits from banks (18) Deposits from banks and central banks (17) Deposits from banks under repurchase agreements () Deposits from customers (7) Current accounts (2) Cash deposits Call deposits (12) Savings accounts Term deposits (10) Negotiable certificates of deposit (0) Repurchase agreements (81) Securitised issuances (16) funding (30) Total deposit and current accounts (9) Comprising: Retail priced deposit and current accounts (1) Wholesale priced deposit and current accounts (11) Total deposit and current accounts (9) Impact of stronger year end exchange rates (34 531) Total deposit and current accounts excluding exchange rate impact (5) Standard Bank Group (SBG) of financial results 31 December 71

74 Loans and advances performance Gross advances Performing loans Total Current Early arrears Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors loans and advances Corporate & Investment Banking Corporate loans Commercial property finance Central and other (2 053) (2 054) (2 054) Banking activities Percentage of total book () 100,0 92,4 1,4 93,8 Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors loans and advances Corporate & Investment Banking Corporate loans Commercial property finance Central and other Banking activities Percentage of total book () 100,0 95,0 1,6 96,6 Total Criteria for classification of loans and advances Current Items that are current and the full repayment of the contractual principal and interest amounts is expected. Early arrears Sub-standard Items where the loan is performing but evidence exists that the borrower is experiencing difficulties. Ultimate loss is not expected but could occur if adverse conditions persist. Items that show underlying well-defined weaknesses that could lead to probable loss if not corrected. The risk that these items may be impaired is probable and the group relies to a large extent on any available security. 72 Standard Bank Group (SBG) of financial results 31 December

75 1 Substandard Impaired loans Doubtful Loss Total Securities and expected recoveries Net after securities and expected recoveries impairments for nonperforming loans Gross impairment coverage Group results in brief Doubtful Loss Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder ,9 2,6 0,7 6,2 4,4 1,8 1, ,2 0,8 0,4 3,4 2,3 1,1 1,1 Items which are considered to be impaired, but are not yet considered final losses because of some pending factors which may strengthen the quality of the items. Items which are considered to be uncollectable. The group provides fully for its anticipated loss, after taking securities into account. Standard Bank Group (SBG) of financial results 31 December 73

76 Banking activities average balance sheet Trading book Non-interest earning Interest earning Total average balance Assets Cash and balances with central banks Trading assets Financial investments Net loans and advances Loans and advances to banks Loans and advances to customers Mortgage loans Instalment sale and finance leases Card debtors Overdrafts and other demand loans term loans Loans granted under resale agreements Commercial property finance Foreign currency loans loans and advances Gross loans and advances Credit impairment for loans and advances (18 024) (18 024) assets Interest in associates and joint ventures Goodwill and other intangible assets Property and equipment Total average assets and interest excluding trading derivative assets Trading derivative assets Total average assets and interest Equity and liabilities Equity Liabilities Trading liabilities Deposit and current accounts Deposits from banks Deposits from customers Current accounts Cash deposits Call deposits Savings accounts Term deposits Negotiable certificates of deposit Repurchase agreements Securitisation issuances funding liabilities and provisions Subordinated bonds Total average equity, liabilities and interest excluding trading derivative liabilities Trading derivative liabilities Total average equity, liabilities and interest Margin on total average assets excluding trading derivatives Margin on total average loans and advances Margin on average interest-earning assets Interest received and paid on trading derivative financial instruments has been netted with interest received on derivative asset instruments used for hedging purposes. The interest split between assets and liabilities will therefore not equate to interest income and interest expense as per the income statement. 2 Included within interest-earning cash and balances with central banks is the SARB interest-free deposit. This is utilised to meet liquidity requirements and is reflected in the margin as part of interest-earning assets to reflect the cost of liquidity. 74 Standard Bank Group (SBG) of financial results 31 December

77 1 Interest 1 Average rate Trading book Non-interest earning Interest earning Total average balance Interest 1 Average rate , , , , , , , , , , , , , , , , , , , , , , , , , , , ,19 (9 886) (9 886) , , , ,84 Group results in brief Segmental reporting Capital , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,98 The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December 75

78 Liquidity Group behaviourally adjusted cumulative liquidity mismatch Long-term funding ratio Standard Bank Group days 0-1 month Internal limit 0-3 months 0-6 months 0-12 months 15 January December Liquidity buffer Portfolios of highly marketable securities over and above prudential requirements are maintained as protection against unexpected disruptions in cash flows. These portfolios are managed on the basis of diversification, liquidity and yield. To this extent, pooled funds are at times invested in the triparty market. These portfolios are managed within limits. In addition to minimum requirements, surplus liquidity holdings are informed by the results from liquidity stress testing as per Basel principles and in certain instances, incountry regulations. Group unencumbered surplus liquidity increased to R118,6 billion as at 31 December (R96,8 billion as at 31 December ), reflecting the group's prudent liquidity approach as informed by stress testing requirements and prevailing market conditions. Group unencumbered surplus liquidity December Rbn June Rbn December Rbn Marketable assets 65,4 88,7 53,2 Short-term foreign currency placements 47,0 35,5 30,2 Structural requirements Behavioural profiling is applied to assets, liabilities and off-balance sheet commitments with an indeterminable maturity or drawdown period, as well as to certain liquid assets to identify and manage liquidity mismatches. Behavioural profiling assigns probable maturities based on actual customer behaviour. This process is used to identify significant additional sources of structural liquidity in the form of liquid assets and core deposits, such as current and savings accounts that although repayable on demand or at short notice, exhibit stable behaviour. Limits are set internally to restrict the cumulative liquidity mismatch between expected inflows and outflows of funds in different time buckets. One of the mechanisms employed to ensure adherence to these limits is the active of the long-term funding ratio. The ratio is defined as those funding-related liabilities with a remaining maturity of greater than six months as a percentage of total funding-related liabilities. The increase in the ratio is attributed to the increased percentage of term funding required to support term lending. At 31 December the long-term funding ratio was,2 (: 22,9). Total unencumbered marketable assets 112,4 124,2 83,4 readily accessible liquidity 6,2 12,0 13,4 Total group unencumbered surplus liquidity 118,6 136,2 96,8 76 Standard Bank Group (SBG) of financial results 31 December

79 1 Funding-related liabilities composition SBSA Rbn 180 Group results in brief Corporate funding Funding Financial institutions Government and parastatals Interbank funding Retail Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder rand and foreign currency deposits Senior and subordinated debt Foreign currency funding liabilities to the public The group s wholesale funding strategy is derived from the projected balance sheet growth which includes consideration of Personal & Business Banking and Corporate & Investment Banking asset classes, capital requirements, the maturity profile of existing wholesale funding and anticipated changes in the retail deposit base. Funding requirements and initiatives are assessed in accordance with Alco requirements for diversification, tenor and currency exposure as well as the availability and pricing of alternative liquidity sources. An active presence is maintained in professional markets, supported by relationship efforts among corporate and institutional clients. Concentration risk limits are used within the group to ensure that funding diversification is maintained across products, sectors, geographic regions and counterparties. In terms of the latter, limits are internally set to restrict single and top 10 depositor exposures within the sight to three-month tenors to below 10 and 20 of total funding-related liabilities respectively. Group funding-related liabilities were R813 billion at 31 December compared with R7 billion at 31 December. Primary sources of funding are in the form of deposits across a spectrum of retail and wholesale clients, as well as long-term capital market funding. Liquidity stress testing and scenario Anticipated on- and off-balance sheet cash flows are subjected to a variety of bank-specific and systemic stresses and scenarios in order to evaluate the impact of unlikely but plausible events on liquidity positions. Contingency funding plans Contingency funding plans incorporate an extensive early warning indicator methodology supported by clear and decisive crisis response strategies. Crisis response strategies are formulated around the relevant crisis structures and address internal and external communications, liquidity generation, operations, as well as heightened and supplementary requirements. Standard Bank Group (SBG) of financial results 31 December 77

80 Fair value hierarchy Composition Assets Composition Liabilities Level Level Level Financial instruments at fair value Reconciled as follows: Held for trading Designated at fair value Available-for-sale 12 9 Financial instruments at fair value Level Level Level Financial instruments at fair value Reconciled as follows: Held for trading Designated at fair value Available-for-sale Financial instruments at fair value In accordance with the group s accounting policies, certain financial assets and liabilities are measured at fair value using either quoted market prices or valuation techniques. Financial assets and liabilities that are measured at fair value have been categorised into the following levels: Level 1: Financial instruments for which fair value is determined using quoted market prices (unadjusted) in active markets for identical instruments. Level 2: Financial instruments for which fair value is determined using valuation techniques based on observable inputs, either directly, as prices or indirectly, derived from prices. Level 3: Financial instruments for which fair value is determined using valuation techniques based on significant unobservable inputs. 78 Standard Bank Group (SBG) of financial results 31 December

81 The Standard Bank of South Africa Limited 1 80 Key financial results, ratios and statistics 82 Summarised income statement 83 Statement of financial position 84 Segmental income statement 86 Segmental statement of financial position 88 Credit impairment charges 92 Loans and advances performance 94 Capital adequacy qualifying regulatory capital 95 Risk-weighted assets and capital adequacy ratios 96 Market share Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December

82 Key financial results, ratios and statistics The Standard Bank of South Africa Loans and advances - SBSA Group CAGR (2003 ): 23 Total capital to risk-weighted assets - SBSA Company 1 Rbn ,5 13,4 12,5 12,3 11,7 12,2 14, Basel II implemented 1 January and and are on a Basel II basis. All other historical comparatives are on a Basel I basis. SBSA Group Headline earnings (4) Profit attributable to the ordinary shareholder (7) Ordinary shareholder's equity Total assets (8) Loans and advances (0) Financial performance ROE 20,3 24,4 Non-interest revenue to total income,1 43,0 Gearing ratio times 20,3 24,5 Loan-to-deposit ratio 91,0 86,7 Credit loss ratio 1,87 2,02 Cost-to-income ratio 46,9 44,5 Effective taxation rate,0 22,8 Number of employees (1) SBSA Company Headline earnings (7) Total assets (8) ROE 19,9 24,7 Capital adequacy Total risk-weighted assets Tier I capital Total capital Tier I capital adequacy ratio 10,6 9,3 Capital adequacy ratio 14,1 12,2 80 Standard Bank Group (SBG) of financial results 31 December

83 1 Personal & Business Banking Continued high credit impairments did not reflect the impact of reduced interest rates, due to lag between interest rate reductions and a notable recovery in customers disposable income. Increased levels of job losses and company failures contributed to the continued high levels of credit impairments. Decreased credit impairments for card products resulting from an improvement in delinquency rates, increased recoveries and a change in the provisioning methodology to account for post write-off recoveries. Mortgage loans growth of 2 despite a weaker property market, tightening of credit granting criteria and a review of the bank s mortgage origination channels strategy. Net interest income declined due to the negative endowment impact of lower average interest rates and increased term funding costs for mortgage lending, partly offset by the benefit from widening of the lending margins and the unwinding of the discount on expected non-performing loan recoveries. Continued focus on better pricing for risk. Growth in the customer base, transactional volumes and value per transaction. Staff costs well controlled following a headcount freeze and natural attrition. Investment in electronic channel systems in line with strategic focus. Corporate & Investment Banking Higher credit impairment charges driven by an increase in non-performing loans as default rates rose, together with additional performing portfolio provisioning. Net interest income benefited from liquidity shortages in the market that drove interest rates on call loans higher, coupled with the group s strategy to hold excess liquidity buffers and use the surplus cash to invest in short-term marketable assets. Net interest income negatively impacted by the endowment impact of lower average interest rates. Strong and diversified trading performance on the back of continued volatility with notable performances from the interest rate trading desk. Decreased fee income due to lower levels of advisory deal flow. Lower incentive-based remuneration. Increased other operating expenditure due to continued investment in the group s global trading platform and core banking system. services Benefited from the release of December impairment provision created centrally for credit losses in the group s credit portfolios that have now become evident in the impairments raised in the underlying business units, mainly Corporate & Investment Banking. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 81

84 Summarised income statement The Standard Bank of South Africa Group Company Net interest income (2) (2) Non-interest revenue Net fee and commission revenue Trading revenue operating income Total income Credit impairment charges (2) (0) Impairments for non-performing loans Impaired loss Discounting of expected recoveries Impairments for performing loans (91) (90) Income after credit impairment charges Operating expenses Staff costs operating expenses Net income before associates and joint ventures Share of (loss)/profit from associates and joint ventures (2) (6) (>100) (104) 165 Net income before indirect taxation (4) (6) Indirect taxation (3) (3) Profit before direct taxation (4) (7) Direct taxation Attributable to the ordinary shareholder (7) (8) Headline adjustable items > > (44) Headline earnings (4) (7) Standard Bank Group (SBG) of financial results 31 December

85 Statement of financial position The Standard Bank of South Africa 1 Group Company Assets Cash and balances with the central bank Derivative assets (26) (26) Trading assets (6) Pledged assets (53) (53) Financial investments Loans and advances (0) (0) Loans and advances to banks Loans and advances to customers (2) (2) assets (44) (44) Interest in group companies, associates and (26) () joint ventures Intangible assets Property and equipment Total assets (8) (8) Equity and liabilities Equity Equity attributable to the ordinary shareholder Ordinary share capital Ordinary share premium Reserves Liabilities (9) (8) Derivative liabilities (30) (30) Trading liabilities (29) (15) Deposit and current accounts (5) (5) Deposits from banks (12) (12) Deposits from customers (4) (4) liabilities (0) (2) Subordinated debt Liabilities to group companies Total equity and liabilities (8) (8) Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 83

86 Segmental income statement The Standard Bank of South Africa Personal & Business Banking Net interest income (3) Interest income (17) Interest expense (23) Non-interest revenue Net fee and commission revenue Fee and commission revenue Fee and commission expense Trading revenue revenue (30) Total income Credit impairment charges Impairments charges on non-performing loans Impairments charges on performing loans (31) Income after credit impairment charges (1) Operating expenses Staff costs operating expenses Net income before associates and joint ventures (17) Share of (loss)/profit from associates and joint ventures (>100) (6) 19 Net income before indirect taxation (22) Indirect taxation (1) Profit before direct taxation (24) Direct taxation (20) Attributable to the ordinary shareholder () Headline adjustable items > SBSA Group headline earnings (18) ROE 17,4 20,7 Credit loss ratio 2,61 2,63 Cost-to-income ratio 48,9,8 Number of employees (0) Standard Bank Group (SBG) of financial results 31 December

87 1 Corporate & Investment Banking services The Standard Bank of South Africa Group (0) (2) (22) (5 9) (6 143) (20) (26) (5 818) (6 602) (26) (6) (1) (33) (114) (86) (1) (29) (120) (93) (6) (7) (2) (493) 500 (2) > (36) (65) (500) 500 (91) > (31) (31) (32) (120) (176) (9) (382) (2) (>100) (104) 165 (9) (382) (4) (27) (3) (9) (2) (4) (24) (496) (6) (7) (77) (62) (44) (116) > (7) (72) (4) ,3 46,3 20,3 24,4 0,54 0,30 1,87 2,02 41,2 37,9 46,9 44, Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 85

88 Segmental statement of financial position The Standard Bank of South Africa Personal & Business Banking Assets Cash and balances with central banks Financial investments, trading and pledged assets (42) Loans and advances (2) Loans and advances to banks (44) Loans and advances to customers (2) Derivative and other assets (18) Interest in group companies, associates and joint ventures (62) Intangible assets Property and equipment SBSA Group total assets (2) Equity and liabilities Equity Equity attributable to the ordinary shareholder (2) Ordinary share capital Ordinary share premium 4 4 Reserves (2) Liabilities (2) Deposit and current accounts (2) Deposits from banks Deposits from customers (2) Derivative, trading and other liabilities (22) Subordinated debt Liabilities to group companies (>100) (175) 234 SBSA Group total equity and liabilities (2) Standard Bank Group (SBG) of financial results 31 December

89 1 Corporate & Investment Banking services Standard Bank of South Africa Group Group results in brief Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder (6) > (3 208) (1) (73) (2 189) (1 268) (0) >100 3 (6) (1) (>100) (2 192) (2) (2) (27) (24) (26) (28) > (134) (26) (13) > (2 818) (8) (11 581) (13 360) (14) (8 788) (12 223) (9) (7) (50) (12 049) (8 030) (5) (12) > (173) (12) (6) (54) (12 0) (7 8) (4) (30) (47) (4 613) (28) > > () (13) > (2 818) (8) Standard Bank Group (SBG) of financial results 31 December 87

90 Credit impairment charges The Standard Bank of South Africa Credit impairment charges Credit impairment charges on NPLs Credit impairment charges on PLs impairment charges (net of recoveries) Non-performing loans Performing loans impairment Impaired IAS 39 loss discount 1 Total charges Total impairment charges Credit loss ratio Personal & Business Banking ,61 Mortgage loans ,61 Instalment sale and finance leases ,80 Card debtors (47) (199) ,49 loans and advances ,63 Corporate & Investment Banking ,54 Corporate loans ,41 Commercial property finance > ,12 services (>100) 7 7 (500) (493) Total SBSA Group (2) ,87 1 Discounting of expected recoveries in terms of IAS Standard Bank Group (SBG) of financial results 31 December

91 1 Adverse Debt servicing ability of consumers remained under pressure following the economic downturn. Higher specific impairment and time value requirement due to increased non-performing loans across all portfolios, particularly in mortgage loans portfolio. Continued pressure on recovery values of assets and increase in time to realise security. Increased impairment requirements against instalment sale and finance lease business segment high care accounts. Increased stress evident in the SME market and high midcorporate accounts due to the turn in the credit cycle and tough trading environment. Favourable Decrease in card portfolio credit impairment charge due to increased focus on early delinquencies, better limit control, improved authorisation policies and a change in the provisioning methodology to account for post write-off recoveries. Targeted strategies to manage increased risk, including tightening of credit extension in high-risk grades (increased scorecard cut-offs across various portfolios). Collection capability improvements, including collections strategy alignment to risk and dynamic rehabilitation processes. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Non-performing loans Per- Impaired loss IAS 39 discount 1 Total forming loans impairment charges Total impairment charges Credit loss ratio , , (19) , , ,1 (36) (36) ,35 (63) (63) , , ,02 Standard Bank Group (SBG) of financial results 31 December 89

92 Credit impairment charges continued The Standard Bank of South Africa impairment roll forward from Opening balance IAS 39 discount in opening balance Impairments of non-performing loans Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors 708 loans and advances Corporate & Investment Banking 1 Corporate lending 88 Property finance 37 services (9) Impairments of performing loans Personal & Business Banking Mortgage loans 775 Instalment sale and finance leases 4 Card debtors 817 loans and advances 471 Corporate & Investment Banking Corporate loans Commercial property finance 173 services Total impairments Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors 1 5 loans and advances Corporate & Investment Banking 1 8 Corporate loans Commercial property finance 210 services Total balance sheet impairments as a of gross loans and advances 2,11 1 New provisions raised less recoveries of amounts written off in previous years equals income statement credit impairment charge (: R million R468 million = R9 831 million). 90 Standard Bank Group (SBG) of financial results 31 December

93 1 New impairments raised/ (released) 1 IAS 39 discount in new impairments raised Impaired accounts written off IAS 39 discount recycled to net interest income Currency translation and other movements Closing balance IAS 39 discount in closing balance Recoveries of amounts written off in previous years (4 462) (1 654) (922) (1 351) (1 361) (144) (1 053) (43) (1 126) (116) (59) (1) (16) (55) (10) (4) (1) (6) 365 (1) (4 521) (1 655) (16) (199) (7) (7) (500) (1) (8) (4 462) (1 654) (922) (1 351) (1 361) (144) (1 053) (43) (1 126) (116) (59) (1) (23) (55) (17) (4) (1) (6) 538 (1) (491) (1) (4 521) (1 655) (24) ,86 Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 91

94 Loans and advances performance The Standard Bank of South Africa Gross advances Performing loans Total Current Early arrears Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors loans and advances Corporate & Investment Banking Corporate loans Commercial property finance services (1 905) (1 905) (1 905) Gross loans and advances Percentage of total book () 100,0 92,1 1,2 93,3 Personal & Business Banking Mortgage loans Instalment sale and finance leases Card debtors loans and advances Corporate & Investment Banking Corporate loans Commercial property finance services (492) (492) (492) Gross loans and advances Percentage of total book () 100,0 93,8 2,2 96,0 Total Criteria for classification of loans and advances Current Items that are current and the full repayment of the contractual principal and interest amounts is expected. Early arrears Items where the loan is performing but evidence exists that the borrower is experiencing difficulties. Ultimate loss is not expected but could occur if adverse conditions persist. Sub-standard Items that show underlying well defined weaknesses that could lead to probable loss if not corrected. The risk that these items may be impaired is probable and the group relies to a large extent on any available security. 92 Standard Bank Group (SBG) of financial results 31 December

95 1 Substandard Doubtful Impaired loans Loss Total Securities and expected recoveries Net after securities and expected recoveries Balance sheet impairments for nonperforming loans Gross impairment coverage ,0 2,9 0,8 6,7 4,7 2,0 2, (9) (9) ,6 1,1 0,3 4,0 2,7 1,2 1,2 Group results in brief Segmental reporting Capital The Standard Bank of South Africa Limited Doubtful Loss Shareholder Items which are considered to be impaired, but are not yet considered final losses because of some pending factors which may strengthen the quality of the items. Items which are considered to be uncollectable. The group provides fully for its anticipated loss, after taking securities into account. Standard Bank Group (SBG) of financial results 31 December 93

96 Capital adequacy - qualifying regulatory capital The Standard Bank of South Africa Capital adequacy ,6 3,4 8,5 0,5 3,8 9,1 0,3 0,2 3,6 3,8 0,1 3,1 8,6 8,4 8,5 0,1 2,8 9,3 0,1 3,4 10, Tier I capital Tier II capital Tier III capital Required capital 1 Basel II implemented 1 January and and are on a Basel II basis. All other historical comparatives are on a Basel I basis. Ordinary shareholders equity Less: regulatory deductions (6) (3 508) (3 303) Expected losses exceeding eligible provisions (50) 78 (212) (6) Loans to SPVs (first loss credit enhancement) (50) (23) (284) (231) Investment in regulated non-banking entities (99) (99) Intangible assets (46) (2 913) (1 9) Less: regulatory exclusions 54 (753) (1 641) Non-qualifying foreign currency translation reserve (37) (177) Non-qualifying other reserves 51 (716) (1 464) Tier l capital Tier ll subordinated debt Impairments for performing loans (66) Revaluation reserve (100) 182 Less: regulatory deductions (>100) (2 714) (1 207) Expected losses exceeding eligible provisions (50) 78 (212) (6) Loans to SPVs (first loss credit enhancement) (50) (23) (284) (231) Investment in Tier II instruments in banks (2 218) Tier ll capital Tier lll capital Total qualifying regulatory capital Standard Bank Group (SBG) of financial results 31 December

97 Risk-weighted assets and capital adequacy ratios The Standard Bank of South Africa 1 Risk-weighted assets Credit risk (2) Market risk (10) Operational risk Equity risk in the banking book Total risk-weighted assets SBSA company capital adequacy ratios Minimum regulatory requirement Target ratios Total capital adequacy ratio 9, ,1 12,2 Tier I capital adequacy ratio 7,0 9 10,6 9,3 Core tier I capital adequacy ratio 5, 10,6 9,3 Tier II and III as of tier I <100,0 33,1 31,4 Subordinated tier II debt as of tier I <50,0 38,8 31,6 Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 95

98 Market share The Standard Bank of South Africa South African market share SBSA s market share movement Mortgage loans Instalment finance Card debtors loans and advances Deposits SBSA Absa FirstRand Nedbank Card debtors Mortgage loans Deposits loans and advances Instalment finance Retail-based deposits (denominated in rands) 30 Corporate-based deposits (denominated in rands) SBSA Nedbank Absa FirstRand SBSA Nedbank Absa FirstRand 96 Standard Bank Group (SBG) of financial results 31 December

99 1 98 Supplementary on a geographic basis 100 Financial and other definitions Group results in brief Capital Segmental reporting The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December

100 Supplementary on a geographic basis South Africa Personal & Business Banking Corporate & Investment Banking Total income Headline earnings (16) (3) Loans and advances (2) Total assets (2) (14) Average ordinary shareholders equity ROE 16,7 20,8 39,9 44,0 Number of employees (2) Rest of Africa Personal & Business Banking Corporate & Investment Banking Total income (1) (1) Headline earnings (44) (29) Loans and advances (6) (29) Total assets (4) (8) Average ordinary shareholders equity (22) ROE 14,0 19,5 9,0 14,6 Number of employees Outside Africa Personal & Business Banking Corporate & Investment Banking Total income Headline earnings 90 (5) (52) Loans and advances (31) (24) Total assets (28) (30) Average ordinary shareholders equity (6) ROE (0,6) (6,1) 8,0 9,2 Number of employees (9) Standard Bank Group (SBG) of financial results 31 December

101 1 domestic operations Liberty Total South Africa (20) (89) (14) (>100) (2 336) (2) > (6) ,9 13,4 1,2 12,8 18,9, Group results in brief Segmental reporting Total rest of Africa (1) (35) (21) (7) ,0 16, Total outside Africa Central funding and eliminations Standard Bank Group Capital The Standard Bank of South Africa Limited Shareholder (362) (6) (17) () (8) (29) (93 564) ( ) (11) ,6 8,4 13,6 18, Standard Bank Group (SBG) of financial results 31 December 99

102 Financial and other definitions Standard Bank Group Basic earnings per share (EPS) (cents) CAGR () Capital adequacy ratio () Diluted headline earnings per share (cents) Distribution cover (times) Distributions per share (cents) Headline earnings () Headline earnings per share (HEPS) (cents) Net asset value () Net asset value per share (cents) Price-to-book (times) Profit attributable to ordinary shareholders Profit for the year () Return on equity (ROE) () Shares in issue (number) Tangible net asset value () Tangible net asset value per share (cents) Turnover in shares traded () Weighted average number of shares (number) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue. Compound annual growth rate. Regulatory capital divided by risk-weighted assets. Diluted headline earnings divided by the weighted average number of shares, adjusted for potential dilutive ordinary shares resulting from share-based payments. Headline earnings per share divided by distributions per share. Total distributions to ordinary shareholders including dividends and scrip distributions declared per share in respect of the year. Earnings attributable to ordinary shareholders excluding goodwill gain or impairment, capital profits and losses, and realised profits or losses on availablefor-sale financial instruments. Headline earnings divided by the weighted average number of ordinary shares in issue. Equity attributable to ordinary shareholders. Net asset value divided by the number of ordinary shares in issue at the end of the year. Market capitalisation divided by net asset value. Profit for the year attributable to ordinary shareholders, calculated as profit for the year less dividends on non-redeemable, non-cumulative, non-participating preference shares declared before year end, less minority interests. profit attributable to ordinary shareholders, minorities and preference shareholders for the year. Headline earnings as a percentage of monthly average ordinary shareholders funds. Number of ordinary shares in issue as listed on the JSE Limited (JSE). Equity attributable to ordinary shareholders excluding goodwill and other intangible assets. Tangible net asset value divided by the number of ordinary shares in issue at year end. Number of shares traded during the year as a percentage of the weighted average number of shares. The weighted average number of ordinary shares in issue during the year as recorded on the JSE. 100 Standard Bank Group (SBG) of financial results 31 December

103 1 Standard Bank Group continued Banking activities Available financial resources (AFR) () Capital cover ratio (times) Cost-to-income ratio () Credit loss ratio () Effective taxation rate () Gearing ratio (times) Gross impairment coverage () Impairment of non-performing loans () Impairment of performing loans () Net interest margin () Non-interest-earning assets () Non-interest revenue to total income () Return on equity (ROE) () The amount of permanent capital that is available to the group to absorb potential losses. Available financial resources divided by minimum economic capital requirements. Operating expenses as a percentage of total income including share of profit from associates and joint ventures. Total impairment charges on loans and advances per the income statement as a percentage of average daily and monthly gross loans and advances. Direct and indirect taxation as a percentage of income before taxation. Total assets divided by tangible net asset value. Non-performing loan impairments as a percentage of gross non-performing loans. Impairment for specific identified credit losses, net of the present value of estimated recoveries. Impairment for incurred credit losses inherent in the performing loan book. Net interest income as a percentage of daily and monthly average total assets, excluding trading derivative assets. Includes total trading book assets and rate insensitive banking book assets, such as cash and cash equivalents, fixed assets, goodwill and other intangible assets, investment property, other assets, and current and deferred taxes. Cash balances with central banks are specifically excluded as they are utilised to meet liquidity requirements and are reflected as part of the interest earning assets to reflect the cost of liquidity. Derivative assets are also excluded. Non-interest revenue as a percentage of total income. Headline earnings, excluding Liberty, as a percentage of monthly average ordinary shareholders funds, after deducting capital relating to Liberty. Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 101

104 Financial and other definitions continued Standard Bank Group continued definitions Black Black small and medium enterprise (BSME) Broad-based black economic empowerment CPI DTI International Financial Reporting Standards (IFRS) Junior Liberty Middle Normalised results SBG SBSA Senior Special Purpose Vehicle (SPV) Tutuwa African, Coloured and Indian South African citizens. These are enterprises that are classified as either black empowered or black-owned enterprises whose annual revenue is between R and R20 million. Socio-economic term concerning formalised initiatives and programmes to enable historically disadvantaged black individuals and groups to participate gainfully and equitably in the mainstream economy. A South African index of prices used to measure the change in the cost of basic goods and services. Department: Trade and Industry. International Financial Reporting Standards issued by the International Accounting Standards Board (IASB). Employees whose salaries are in excess of R but less than or equal to R358 7 per annum (increasing each year by CPI). Investment and life insurance activities of companies in the Liberty Holdings group. Employees whose salaries are in excess of R358 7 but less than or equal to R6 743 per annum (increasing each year by CPI). The financial results and ratios restated on an economic substance basis as explained on page 18. Standard Bank Group. The Standard Bank of South Africa Limited. Employees whose salaries are in excess of R6 743 per annum (increasing each year by CPI). An entity created to accomplish a narrow and well-defined objective. Tutuwa is the group s black economic empowerment ownership initiative entered into in terms of the Financial Sector Charter. 102 Standard Bank Group (SBG) of financial results 31 December

105 Shareholder Analysis of shareholders 105 Credit ratings 106 Distribution payment dates 107 Instrument codes 108 Notes ibc Contact details Group results in brief Capital Segmental reporting The Standard Bank of South Africa Limited Shareholder Standard Bank Group (SBG) of financial results 31 December

106 Ten major shareholders 1 Analysis of shareholders Number of shares (million) holding Number of shares (million) holding Industrial and Commercial Bank of China 313,0 20,1 305,0 20,0 Public Investment Corporation 189,7 12,2 190,4 12,5 Tutuwa participants 89,7 5,7 91,0 6,0 Staff 36,0 2,3 37,3 2,4 Strategic partners 35,8 2,3 35,8 2,4 Communities and regional businesses 17,9 1,1 17,9 1,2 Old Mutual Group 52,3 3,3,8 3,8 Dodge & Cox 46,9 3,0,7 4,6 Investment Solutions 31,0 2,0 29,8 1,9 Liberty Group 2,7 1,6 30,9 2,0 Sanlam Group 26,0 1,7 31,5 2,1 Lazard Emerging Markets Fund 15,1 1,0 0,0 0,0 Ishares MSCI Emerging Markets Index Fund 15,1 1,0 13,6 0,9 804,5 51,6 819,7 53,8 Spread of ordinary shareholders Public 3 951,1 61,0 928,6 60,9 Non-public 3 607,2 39,0 596,4 39,1 Directors of Standard Bank, its subsidiaries and embargoed employees 4 10,2 0,7 3,6 0,2 Industrial and Commercial Bank of China 313,0 20,1 305,0 20,0 Public Investment Corporation 189,7 12,2 190,4 12,5 Standard Bank Group and Liberty Group retirement funds 4,6 0,3 5,7 0,4 Tutuwa participants 5 89,7 5,7 91,0 6,0 Associates of directors 0, ,3 100,0 1 5,0 100,0 1 Beneficial holdings determined from the share register and investigations conducted on our behalf in terms of S140A of the Companies Act. 2 Policyholders funds. 3 As per S4. of the JSE Limited Listings Requirements. Total number of public shareholders is (: 62 2) and of non-public shareholders is 682 (: 320). 4 Excludes indirect holdings of strategic partners which are included in the Tutuwa participants. 5 Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1, 2 and 3, Tutuwa Community and General Staff Share Trust. Geographic spread of shareholders Number of shares (million) holding Number of shares (million) holding South Africa 844,9 54,2 875,7,4 Foreign shareholders 713,4,8 649,3 42,6 China 313,0 20,1 305,0 20,0 United States of America 234,8 15,1 1,0 12,9 United Kingdom 39,7 2,6 35,1 2,3 Namibia 16,9 1,1 14,2 0,9 Luxembourg 14,4 0,9 15,0 1,0 Netherlands 12,9 0,8 16,4 1,1 Singapore 12,7 0,8 17,0 1,1 United Arab Emirates 11,0 0,7 9,3 0,6 Norway 9,9 0,6 7,2 0,5 48,1 3,1 33,1 2, ,3 100,0 1 5,0 100,0 104 Standard Bank Group (SBG) of financial results 31 December

107 Credit ratings 1 Ratings as at 3 March 2010 for entities within Standard Bank Group are detailed below: Short-term Long-term Outlook Fitch Ratings The Standard Bank of South Africa Issuer default rating F2 BBB+ Stable Local currency issuer default rating BBB+ Stable National rating F1+ (ZAF) AA (ZAF) Stable RSA Sovereign ratings Foreign currency issuer default rating BBB+ Negative Local currency issuer default rating A Negative Standard International Holdings Issuer default rating F2 BBB+ Stable Standard Bank Plc Issuer default rating F2 BBB+ Stable Banco Standard de Investimentos SA (Brazil) National rating F1+ (BRA) AA+ (BRA) Stable Standard Bank Argentina SA National rating AA (ARG) Stable Stanbic IBTC Bank Plc (Nigeria) National rating F1+ (NGA) AAA (NGA) CfC Stanbic Bank (Kenya) Issuer default rating B BB- Stable Liberty Group National rating AA- (ZAF) Negative National Insurer Financial Strength AA (ZAF) Negative Moody s Investor Services The Standard Bank of South Africa Foreign currency deposit rating P-2 A3 Stable Local currency deposit rating P-1 A1 Stable RSA Sovereign ratings: Foreign currency A3 Stable RSA Sovereign ratings: Local currency A3 Stable Standard International Holdings Issuer rating Baa3 Negative Standard Bank Plc Foreign and local currency deposit rating P-2 Baa2 Negative Standard Bank Argentina SA Foreign currency deposit rating Caa1 Stable Local currency deposit rating Ba1 Stable Standard & Poor s The Standard Bank of South Africa Local currency BBBpi RSA Sovereign ratings: Foreign currency A-2 BBB+ Negative RSA Sovereign ratings: Local currency A-1 A+ Negative Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 105

108 Distribution payment dates The relevant dates for the scrip distribution or dividends are as follows: Ordinary shares 6,5 cumulative preference shares (First preference shares) Non-redeemable, non-cumulative, non-participating preference shares (Second preference shares) JSE Limited (JSE) Share code SBK SBKP SBPP ISIN ZAE ZAE ZAE Namibian Stock Exchange (NSX) Share code SNB ISIN ZAE Distribution number Distribution/dividend per share (cents) 2 3, 374,76 Circular and form of election posted to ordinary shareholders Monday, 8 March 2010 Announcement of the ratio applicable to the scrip distribution, based on the fiveday trading period ending Thursday, 8 April 2010, released on SENS Friday, 9 April 2010 Announcement of the ratio applicable to the scrip distribution published in the South African and Namibian press Monday, 12 April 2010 Last day to trade in order to be eligible for the scrip distribution/cash dividend ( CUM distribution) Friday, 16 April 2010 Friday, 9 April 2010 Friday, 9 April 2010 Shares trade EX the scrip distribution/ dividend Monday, 19 April 2010 Monday, 12 April 2010 Monday, 12 April 2010 Listing of the maximum possible number of ordinary shares that could be issued in terms of the scrip distribution Monday, 19 April 2010 Last day to elect a cash dividend instead of the scrip distribution by 12:00 Friday, 23 April 2010 Record date in respect of the scrip distribution/cash dividend Friday, 23 April 2010 Friday, 16 April 2010 Friday, 16 April 2010 Share certificates and dividend cheques posted and CSDP/broker accounts credited/updated (Payment date) Monday, 26 April 2010 Monday, 19 April 2010 Monday, 19 April 2010 Maximum number of new ordinary shares listed adjusted to reflect the actual number of ordinary shares issued Wednesday, 28 April 2010 Ordinary share certificates may not be dematerialised or rematerialised between Monday, 19 April 2010, and Friday, 23 April 2010, both days inclusive. Preference share certificates (first and second) may not be dematerialised or rematerialised between Monday, 12 April 2010 and Friday 16 April 2010, both days inclusive. All times provided in this announcement are South African local time. The above dates and times are subject to change. Any changes will be released on SENS and published in the South African and Namibian press. 106 Standard Bank Group (SBG) of financial results 31 December

109 Instrument codes 1 Instrument codes JSE Limited Deposit notes SBR002: ZAE SBR003: ZAE Bond Exchange of South Africa Subordinated debt SBK 5: ZAG SBK 7: ZAG SBK 8: ZAG SBK 9: ZAG SBK 10: ZAG SBK 11: ZAG SBK 12: ZAG SBK 13: ZAG SBS 1: ZAG SBS 3: ZAG SBS 4: ZAG SBS 5: ZAG SBS 6: ZAG SBS 7: ZAG SBS 8: ZAG SBS 9: ZAG SBSI 10: ZAG SBSI 11: ZAG Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Standard Bank Group (SBG) of financial results 31 December 107

110 Notes 108 Standard Bank Group (SBG) of financial results 31 December

111 Contact details 1 Segmental reporting Capital The Standard Bank of South Africa Limited Shareholder Group results in brief Chief financial officer Casper Troskie Tel: Casper.Troskie@standardbank.co.za Director, investor relations Linda Dodgen Tel: Linda.Dodgen@standardbank.co.za Group secretary Loren Wulfsohn Tel: Loren.Wulfsohn@standardbank.co.za Registered address 9th Floor Standard Bank Centre 5 Simmonds Street Johannesburg 2001 PO Box 77 Johannesburg 2000 Group financial director Simon Ridley Tel: Simon.Ridley@standardbank.co.za Contact details Tel: Fax: shareholder queries: InvestorRelations@standardbank.co.za customer BASTION GRAPHICS