dfcu Limited Information MEMORANDUM

Transcription

1 Information MEMORANDUM

2 2 dfcu limited (Incorporated in the Republic of Uganda on 14 May 1964) (Company Registration No.: 2256) dfcu Ordinary Share Code: dfcu ( dfcu or the Company ) Regarding 0.53 for 1 Rights Issue of 263,157,895 ordinary shares at UGX 760 per ordinary share Date of issue: 31 August 2017

3 3 Caution Application has been made to the Capital Markets Authority ( the CMA ) and approval has been granted for this Information Memorandum. As a matter of policy, the CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Information Memorandum. The securities that are the subject of the Information Memorandum have neither been approved nor disapproved by the CMA. Approval of this Information Memorandum and the subsequent listing of the New Shares are not to be taken as an indication of the merits of the Company or of the New Shares. This Information Memorandum is issued by ( dfcu or the Issuer or the Company ) and has been prepared in respect of the issue for subscription of 263,157,895 new ordinary shares ( the New Shares ) in the share capital of the Company (the Rights Issue ) and subsequent listing of the New Shares on the Main Investment Market Segment ( MIMS ) of the Uganda Securities Exchange ( the USE ). This follows approval of the Rights Issue by the Board and shareholders through resolutions dated 24 July 2017 and 08 June 2017, respectively. The USE has given permission for listing of the New Shares on the MIMS. It is anticipated that trading of the New Shares will commence on 10 October The USE assumes no responsibility for the correctness of any of the statements made or opinions or reports expressed in this Information Memorandum. Admission of the New Shares on MIMS is not to be taken as an indication of the merits of the Company or of the New Shares. A copy of this Information Memorandum has been delivered to the Registrar of Companies for registration in accordance with Section 90G of the Capital Markets (Amendment) Act 2011 and Section 60 of the Companies Act This Information Memorandum contains information that is provided in compliance with the requirements of the Companies Act 2012, the requirements of the Capital Markets Authority Act (Cap 84), as amended by the Capital Markets Authority (Amendment) Act 2011 and the Capital Markets Authority (Amendment) Act 2016, the rules and regulations made under the Capital Markets Authority Act and the USE Listing Rules 2003, as amended by the USE Listing Rules (Amendment) Rules Eligible shareholders should carefully consider the matters set forth in this Information Memorandum under the caption Risk Factors in section 11 together with all other information contained in this Information Memorandum and any other information in the public domain. If you are in doubt as to the meaning of the contents of this Information Memorandum or what action to take, consult your investment banker, financial advisor, stockbroker or other professional advisor, duly authorized under the Capital Markets Authority Act to advise on securities. If you wish to exercise your Rights, you must follow the procedure set out in the Terms and Conditions of the Rights Issue in section 12. Prospective allotees shall, before acquiring any of the New Shares, be required to have a securities account with USE.

4 4 Table of contents The definitions and interpretations, set out on pages [10] to [13] of this Information Memorandum shall apply to the following table of contents: CAUTION 3 ADVISORS TO THE ISSUE 5 CORPORATE INFORMATION 6 LETTER FROM THE CHAIRMAN 8 DIRECTORS STATEMENT DEFINITIONS AND INTERPRETATION PARTICULARS OF THE RIGHTS ISSUE COUNTRY AND FINANCIAL SECTOR OVERVIEW OVERVIEW OF DFCU GROUP CORPORATE GOVERNANCE STATUTORY AND GENERAL INFORMATION RISK FACTORS TERMS AND CONDITIONS OF THE RIGHTS ISSUE 59 ANNEXURES 69 i. Legal Opinion 69 ii. Reporting Accountant s Report. 76 iii. 3 Year Profit Forecast of for the Years Ending 31 December 2017, 2018 and iv. Condensed consolidated interim financial statements (unaudited) for the 6 Months period ended 30 June v. Provisional Allotment (Pal) Forms 198 Provisional Allotment Letter 199 Form of Renunciation ( Form R ) 201 Form of Entitlement ( Form E ) 203 Application for Rump Shares (Rump Form) 205 vi. Irrevocable Bank Guarantee 207 vii. Letter of Undertaking 208 viii. Authorised Selling Agents 209

5 5 Advisors to the issue Transaction Advisor and Sponsoring Broker Legal Advisor African Alliance Uganda Limited 1st Floor, Workers House, Pilkington Road P.O Box 70828, Kampala, Uganda Tel: Fax: Website: Sebalu & Lule Advocates S&L Chambers 14, MacKinnon Road, Nakasero, Kampala P.O. Box 2255, Kampala Tel: / sebalulule@sebalulule.co.ug Website: Reporting Accountant Receiving Bank Ernst & Young 18 Clement Hill Road P.O Box 7215, Kampala, Uganda Tel: /4 Fax: info.uganda@ug.ey.com Website: dfcu Bank Limited Plot 26, Kyadondo Road, Kampala P.O. Box 2767, Kampala, Uganda Tel: / : info@dfcugroup.com Website: Share Registrar Deloitte (Uganda) Limited 3rd Floor, Rwenzori House, Lumumba Avenue P.O Box 10314, Kampala, Uganda Tel: shareholders@deloitte.co.ug Website:

6 6 Corporate Information Registered Office: P.O. Box 2767, Kampala dfcu Towers Plot 26, Kyadondo Road Nakasero, Kampala Uganda Auditor: KPMG Certified Public Accountants 3rd Floor, Rwenzori Courts, Plot 2 & 4 Nakasero Tel: Kampala, Uganda Legal Advisors: Kenneth Akampurira Advocate & Commissioner for Oaths Ground Floor, Lourdel Towers Plot 1, Lourdel Road P.O. Box 2658 Kampala, Uganda Karuhanga. Tabaro & Associates Solicitors & Advocates Ground Floor, Esami House Plot 52, Bombo Road P.O. Box Kampala, Uganda Ligomarc Advocates 5th Floor, Western Wing, Social Security House 4 Jinja Road P.O Box 8230 Kampala, Uganda Bowmans (AF Mpanga, Advocates) 4th Floor, dfcu Towers Plot 26, Kyadondo Road Nakasero P.O. Box 1520 Kampala, Uganda

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8 8 Letter from the Chairman On behalf of the Board of dfcu, it is my pleasure to present this Information Memorandum to you and extend our invitation to you to enhance your investment by taking up more shares in your company. Over the last five years our business has grown steadily resulting in a balance sheet size of UGX 1.8 trillion at the end of Similarly, the profit before tax over the period grew by 45% from UGX 40.3 billion in 2012 to UGX 58.4 billion in We have recorded a 52% increase in net loans and advances from UGX 555 billion in 2012 to UGX 842 billion in Customer deposits grew by 86% from UGX 591 billion in 2012 to UGX 1.1 trillion in In January 2017, our wholly owned subsidiary, dfcu Bank Limited, acquired some of the assets and liabilities of Crane Bank Limited (in receivership) ( the Acquisition ). This was a great opportunity for dfcu Group which your Board considered carefully and made a decision to undertake. The key highlights of the transaction were: an increase in branch network from 43 to 67 with over 100 ATMs; growing customer numbers to over half a million; and enhancing of our skills base and capacity as a result of staff integration. Following the Acquisition, the post integration balance sheet as at 31 March 2017 reflects total assets of UGX 3.1 trillion (2016: UGX 1.8 trillion), net advances of UGX 1.3 trillion (2016: UGX 0.8 trillion) and customer deposits of UGX 1.8 trillion (2016: UGX 1.1 trillion). The balance sheet as at 31 March 2017 takes into account the fair valued acquired assets and assumed liabilities. Crane Bank products included corporate and customer loans, savings, VISA debit and credit cards, mortgages and investments. These product lines have successfully been merged into dfcu Bank s existing products lines. It is expected that the Acquisition, which placed dfcu Bank amongst the top three banks in the market in terms of total assets, will accelerate the growth of the group and result in transforming it from a niche to a universal bank with superior financial performance and significantly enhanced shareholder value. Whilst the Acquisition was successfully completed, it required dfcu Bank to remain adequately capitalized for the future. The Company took a decision to provide the additional capital required by the Bank. The capital injection was funded by a short-term bridging loan facility of USD 50 million from our largest shareholder Arise B.V. The Rights Issue is an invitation to existing shareholders to increase their investment in the Company and be a part of the growth of a very vibrant business with anticipated higher earnings from a larger customer base At its meeting on 24 July 2017, the Board, in line with its objective to ensure that the Bank is adequately capitalised, resolved to raise UGX 200 billion through a Rights Issue, to repay the loan. The Rights Issue will be of 263,157,895 ordinary shares at UGX 760 per ordinary share made on the basis of 0.53 new ordinary share for every one existing ordinary share. The Rights Issue is an invitation to existing shareholders to increase their investment in the Company and be a part of the growth of a very vibrant business with anticipated higher earnings from a larger customer base, a stronger liquidity and deposit base and overall enhanced efficiencies.

9 9 The new shares will have the same entitlement to a dividend and voting rights as the existing shares. The existing shareholders have a right to renounce their rights and offer them for purchase on the USE. Any untaken rights will be offered to other interested shareholders. Outlook We remain cautiously optimistic about the economy, whose prospects are underpinned by the implementation of significant infrastructure projects and a renewed momentum in the oil and gas sector. dfcu Bank s increased capital base allows it to effectively compete and take advantage of opportunities presented by the acquisition and the anticipated growth in the Ugandan economy. Our focus for the next three years is to: optimize benefits from the Acquisition; implement a technology upgrade and business process re-engineering; implement our digital channel strategy by re-launching our internet and mobile banking platforms alongside other new offerings; diversify the deposit mix with focus on growing cheap liabilities; grow a diversified quality loan portfolio; and implement the culture change programme to enhance staff productivity and brand equity. Final Remarks I commend management for implementing a very complex integration of the acquired assets and assumed liabilities of Crane Bank in a short period and with minimal impact to customers and depositors. As a Group, we are proud to have been associated with stabilizing the financial sector in Uganda yet again. The quick resolution of Crane Bank s position by Bank of Uganda has also restored market confidence and dfcu Bank is proud to have been part of the solution. On behalf of your Board, I strongly recommend that all shareholders exercise your Rights to take up your entitlement. We expect that Arise B.V., which currently owns 55% of the Company, will exercise its Rights. In that event, a portion of the bridge loan facility equivalent to Arise B.V. s holding in the Company will be converted into equity. Please read in full this Information Memorandum, Provisional Allotment Letter (PAL) and other forms and exercise your rights within the timetable as detailed therein. Elly Karuhanga Chairman, Board of Directors

10 10 Directors Statement The Directors, whose names are given in Section of this Information Memorandum, collectively and individually accept full responsibility for the accuracy of the information given in this Information Memorandum and certify, to the best of their knowledge and belief, that there are no other facts, the omission of which would make any statement false or misleading and that they have made all reasonable enquires to ascertain such facts and that this Information Memorandum contains all information required by law. Signed in Kampala on 31 August 2017 Elly Karuhanga Chairman Albert Jonkergouw Non- Executive Director Dr. Winifred Tarinyeba Kiryabwire Non- Executive Director Kironde Lule Non- Executive Director Deepak Malik Non- Executive Director Michael Alan Turner Non- Executive Director

11 11 Definitions and Interpretation 05 Acquisition The acquisition by dfcu Bank of certain assets and assumption of certain liabilities of Crane Bank Limited as of 27 January 2017; Additional Shares New Shares applied for by an Eligible Shareholder in excess of the Entitlement; AGM Annual General Meeting; AML/CFT Anti-money laundering and countering the financing of terrorism; Applicant An entity or person being a shareholder of as of the Record Date that applies for the Rights; Application Money The amount paid in Uganda Shillings to the Authorized Agent or the Receiving Bank and which is the Rights Issue Price multiplied by each New Share in accordance with the relevant Entitlement and Acceptance Form; Articles The Memorandum and Articles of Association of dfcu; Auditor KPMG Certified Public Accountants; Authorized Agents 1. SCDAs 2. The Receiving Bank Being the persons duly authorized by dfcu to receive entitlement and acceptance forms and the application money; Bank of Uganda or BoU Central Bank of Uganda; Bankers Cheque Refers to the cheque drawn on the account of a licensed commercial bank in Uganda that is a member of the Bank of Uganda Clearing House; Board or the Board of The Board of Directors of ; Directors CAGR Compound annual growth rate; Capital Markets Legislation Refers to (a) the Capital Markets Authority Act (Cap 84 of the Laws of Uganda, as amended by the Capital Markets Authority (Amendment) Act 2011 and the Capital Markets Authority (Amendment) Act 2016 and all subsidiary legislation and regulations, rules and guidelines promulgated thereunder and (b) the regulations, rules and guidelines of the Uganda Securities Exchange and (c) any law applicable to capital markets in Uganda; CEO Chief Executive Officer; CMA or Capital Markets Capital Markets Authority established by the Capital Markets Authority Act Authority (Cap 84 of the Laws of Uganda); Closing Date 25 September 2017;

12 12 Companies Act The Companies Act, Act 1 of 2012; Core Capital or Tier I Capital Company or or dfcu or Issuer Company Secretary/General Manager Crane Bank Limited DCF dfcu Bank or the Bank dfcu Group or Group Directors DPS D-SIB EFT Eligible Shareholder Entitlement Entitlement and Acceptance Form Entitlement Ratio EPS Existing Shares Form A Form E Form R GDP IBG Permanent shareholders equity in the form of issued and fully paid up shares plus all disclosed reserves, less goodwill and any intangible assets; is a listed public limited liability company incorporated in Uganda under the Companies Act with company number 2256 and whose registered office is at Plot 26, Kyadondo Road, Kampala in the Republic of Uganda; The company secretary is responsible for the efficient administration of the company, particularly with regard to ensuring compliance with statutory and regulatory requirements and for ensuring that decisions of the Board of Directors are implemented; The commercial bank which was the subject of the Acquisition; Discounted Cash flow Valuation dfcu Bank Limited, a subsidiary of, licensed by Bank of Uganda to conduct commercial banking business; the Company and dfcu Bank; Members of the Board of Directors; Dividend per share; Domestic Systemically Important Bank; Electronic funds transfer; A shareholder registered as holder of Eligible Shares as of the Record Date who is minimum 18 years of age; The entitlement of New Shares of an Eligible Shareholder (or purchaser of or Renouncee of Rights) pursuant to the Rights Issue at the Entitlement Ratio and the Rights Issue Price; Where the context requires, the Provisional Allotment Letter, and/or Form E and/or Form R (see below); 0.53 New Shares for every 1 Existing Share; Earnings Per Share; Ordinary shares of par value UGX 20 each of dfcu and held by Eligible Shareholders as of the Record Date; Form of Power of Attorney; Form of Entitlement; Form of Renunciation for Provisional Allotment Letter. Additional form to the Provisional Allotment Letter that is to be completed by the Eligible Shareholder on renunciation of the provisional Rights to a third party through direct renunciation; Gross Domestic Product; Irrevocable Bank Guarantee issued by a commercial bank licensed by the Bank of Uganda. A sample letter is contained in Annexure VI of this Information Memorandum and can only be used by any Eligible Shareholder or potential investor who wishes to pay for Additional Shares after the allocation policy has been announced. The IBG can only be used if the payment is equal to or more than UGX 20 million in value

13 13 IBG LOU Payment Date 04 October 2017, the last date for payment of the New Shares that used an IBG or LOU IFRS International Financial Reporting Standards; Issued & Full paid shares The 497,201,822 ordinary shares of UGX 20 per share issued by the Bank as at the date of this Information Memorandum Independent Non-Executive A director not affiliated to an adviser or consultant of the company or a Director member of the company s senior management Information Memorandum This booklet dated 31 August 2017 contains s profile, financials and relevant information to assist with making an informed decision Transaction Advisor African Alliance Uganda Limited Legal Advisor Sebalu & Lule Advocates & Legal Consultants Listing Date 10 October 2017 LOU Letter of Undertaking issued by an institution approved by the Transaction Advisor. A sample letter is contained in Annexure VII of this Information Memorandum and can only be used after the allocation policy has been announced. The LOU can only be used if the payment is equal to or more than UGX 50 million in value; MIMS The Main Investment Market Segment of the USE; NAV Net Asset Value; New Shares 263,157,895 previously un-issued ordinary shares of par value UGX 20 each in the capital of dfcu to be issued pursuant to the Rights Issue; No. Number; Non-Executive Director a director who is not involved in the administrative or managerial operations of the company; Private Transfer Renunciation 15 September 2017; last date for private transfers to be released to Date Authorized Agents; Provisional Allotment Letter The provisional allotment letter issued to Eligible Shareholders indicating (PAL) an Eligible Shareholder s Entitlement and providing for full, additional or partial acceptance in the form or substantially in the form set out in Annexure V; Publish Date 03 October 2017 Receiving Bank dfcu Bank, the appointed licensed commercial bank which will receive all the monies pursuant to this Rights Issue; Record Date 24 August 2017, being the date the register of dfcu will be closed for the purpose of determining entitlement to participate in the Rights Issue; Refund Date The date on which refunds are made to applicants entitled to a refund (if any); Renouncee Any person of at least 18 years of age as at the date of renunciation, in whose favour Rights have been renounced in accordance with this Information Memorandum and the (PAL); Reporting Accountant Ernst & Young Certified Public Accountants

14 14 Rights The right to subscribe for New Shares under the terms of this Information Memorandum and the Provisional Allotment Letter (PAL); Rights Issue The issue of up to 263,157,895 New Shares by dfcu by way of Rights as described in this Information Memorandum and the (PAL); Rights Issue Closure Date 25 September 2017 Rights Issue Price The price at which the New Shares shall be issued RTGS Real Time Gross Settlement SCD The Securities Central Depository maintained by Uganda Securities Exchange SCD Account A securities account opened on behalf of a shareholder with the SCD by an SCDA for purposes of recording the deposit and dealing of immobilized shares at the USE; SCD Forms 1, 2, 5 or 7 Forms issued by SCD. Refer to the Executive Summary of the Rights Issue for more details; SCDA Securities Central Depository Agent appointed by the SCD to be an agent of the SCD; Share Registrar Deloitte (Uganda) Limited; Sponsoring Stockbroker African Alliance Uganda Limited; SWIFT Society for Worldwide Interbank Financial Telecommunication; Untaken Rights The aggregate of New Shares not subscribed for, howsoever that may occur; USD United States Dollars, the lawful currency of the United States of America; USE Uganda Securities Exchange; UGX Ugandan Shillings, the lawful currency of Uganda; Interpretation 1. Unless inconsistent with the context, any reference to: 1.1 one gender includes a reference to the others; 1.2 the singular includes the plural and vice versa; 1.3 natural persons include juristic persons and vice versa; 1.4 any agreement or instrument is a reference to that agreement or instrument as amended, supplemented, varied, novated, restated or replaced from time to time, and amended or amendment will be construed accordingly; and 1.5 a provision of law is a reference to that provision as amended or re-enacted, and includes any subordinate legislation; 2. If any provision in a definition is a substantive provision conferring rights or imposing obligations on any party, effect must be given to it as if it were a substantive provision in the body of the agreement, notwithstanding that it is contained in the interpretation clause. 3. Headings are inserted for the sake of convenience only and do not in any way affect the interpretation of the Terms and Conditions. 4. The rule of construction that an agreement is to be interpreted against the party responsible for the drafting or preparation thereof must not be used in the interpretation of the Terms and Conditions.

15 15 06 Particulars of the Rights Issue

16 16 Important Notice: This section is not intended to provide full information for investors intending to exercise their Rights pursuant to this Information Memorandum. This Information Memorandum should be read and considered in its entirety LEGAL STATUS OF THE COMPANY is a public limited liability company that was incorporated in the Republic of Uganda on 14 May 1964 under the Companies Act and is domiciled in Uganda. It was incorporated in the name of Development Finance Company of Uganda Limited as a specialist development finance company and later changed its name to on 27 June The Company has been a listed entity on the Main Investment Market Segment of the USE since 14 October THE OFFER Principal Terms of the Rights Issue; The Company is offering 263,157,895 New Shares by way of the Rights Issue at UGX 760 per New Share. The New Shares are being offered to Eligible Shareholders. The Rights Issue is expected to raise approximately UGX 200 Billion. The Rights Issue will be made on the basis of 0.53 share for every 1 Existing Share held by an Eligible Shareholder at close of business on the Record Date (being 24 August 2017). Entitlements to New Shares will be rounded down to the next lowest whole number (or to zero in the case of shareholders holding less than one share at close of business at the record date.) Legal Basis of the Rights Issue As at the date of this Information Memorandum, has 752,798,178 unissued shares in its share capital. The share capital of the Company as at the date of this Information Memorandum is as follows: Pre-Rights Issue: Nominal Value Share Total No. of Shares Share Capital UGX Authorized capital UGX 20 1,250,000,000 UGX 25,000,000,000 Issued & Fully Paid Capital UGX ,201,822 UGX 9,944,036,440 Unissued Capital UGX ,798,178 UGX 15,055,963,560 Post Rights Issue: Nominal Value Share Total No. of Shares Share Capital UGX Authorized capital UGX 20 1,250,000,000 UGX 25,000,000,000 Issued & Fully Paid Capital UGX ,359,717 UGX 15,207,194,340 Unissued Capital UGX ,640,283 UGX 9,792,805,660 By a resolution of the members of the Company passed at the Annual General Meeting of the Company held on 08 June 2017, the Directors of the Company were authorised to undertake a rights issue. Pursuant to that members resolution, the Board by a resolution dated 24 July 2017 approved a 0.53 for 1 Rights Issue of 263,157,895 ordinary shares with a nominal value of UGX 20 per ordinary share. The Board submitted this Information Memorandum for approval by CMA and an application for listing of the New Shares on the USE. The Information Memorandum and the listing have been approved by CMA and USE, respectively. The above provide the legal basis for the Rights Issue to the public.

17 Eligibility This Rights Issue is being made to existing shareholders on the register as of the Record Date (24 August 2017). The Eligible Shareholders have a right to renounce their rights in accordance with the procedure prescribed in sections to All Eligible Shareholders will be required to hold a securities account in the Securities Central Depository (SCD) with the Uganda Securities Exchange to be able to acquire the rights Provisional Allotment Eligible Shareholders have been provisionally allotted new shares by way of renounceable Rights at the Rights Issue Price, payable in full on acceptance not later than the Rights Issue Closing Date on the basis of the Entitlement Ratio held on the Record Date, in proportion to the number of ordinary shares then held. The Entitlement Ratio, once declared, will not be altered. Rights are renounceable to third parties subject to the provisions of this Information Memorandum and the PAL Status of New Shares The New Shares will rank pari passu in all respects with the Existing Shares including the right to receive in full all dividends and other distributions (if any) declared, made or paid in respect of dfcu shares after the date of issue. Every New Share will be entitled to one (1) vote at shareholder meetings and all New Shares will be listed at the Uganda Securities Exchange Minimum Success A minimum of 70% of the Rights Issue is required to be accepted for the Rights Issue to be declared successful. This implies that a minimum of 184,210,527 New Shares need to be taken up and fully paid for in the Rights Issue. However, in the event that this minimum amount is not attained, approval may be sought from the Capital Markets Authority and Uganda Securities Exchange to proceed with the listing of the accepted fully paid New Shares under the Rights Issue. dfcu may consider raising capital from other sources in the event that the full subscription is not achieved. In the event of untaken rights, allocation shall be made in accordance with the procedure prescribed in section in the Terms and conditions.

18 Offer Statistics No. Statistics Currency Amount 1. Offer Price per Rights Issue UGX 760* 2. Par Value of each Offer Share UGX Authorized share Capital of UGX 25,000,000, Total Number of issued shares 497,201, Number of the Rights on offer 263,157, Rights Issue Ratio (0.53: 1) 7. Amount to be raised UGX 200,000,000,200 * dfcu commissioned an independent valuation, which was performed by African Alliance, to indicate the fundamental fair valuation. The valuation exercise was based on a variety of valuation methodologies, which included the discounted cash flow and market information on comparable quoted listed banks across the East African region (market approach valuation that included price earnings and price to book multiple valuation methodologies). The exercise concluded a fundamental valuation range of UGX 950 to UGX1,200 per share which represents a discount of approximately 25% to 58% respectively relative to the trading share price of dfcu as at 4 July Use of Proceeds The Rights Issue is part of the Company s broader objective of ensuring that its subsidiary, dfcu Bank, is adequately capitalised to comply with capital adequacy requirements and implement its growth strategy. In line with this, the Company invested UGX 176 billion in additional share capital in dfcu Bank following the Acquisition. The additional capital was financed by a short-term bridge loan facility provided by Arise B.V. It is dfcu s intention to apply the net proceeds of the offer to settle the bridge loan facility and related financing costs. In the event that Arise B.V. takes up its Rights, a portion of the bridge loan facility equivalent to Arise B.V. s holding in the Company will be converted into equity and the balance paid to Arise B.V Performance Statistics No. Performance Indicator Currency 31 March December Net Profits for the period ending UGX Billion 45.3 Billion 2. EPS for the period ending UGX Dividend per share UGX Not Applicable dfcu Share price for the period ending UGX dfcu Gross Dividend Ratio for the period end Not Applicable Historical PE based on the EPS for the 12 months period Not Applicable 8.3

19 Key Events Timetable No. Events Time Dates 1. Record Date 1:00 pm 24 August Uploading rights into the SCD system 3:00 pm 31 August Rights Issue Opens 9:30 am 04 September Last date for immobilization of existing shares 4:00 pm 08 September Last date and time for renunciation by private transfer 4:00 pm 15 September Last date and time for trading in NIL paid dfcu rights. 1:00 pm 15 September Rights issue closes 5:00 pm 25 September Reconciliation 4:00 pm September Announcement of results 10:00 am 03 October Last date of payment of irrevocable bank guarantees 4:00 pm 04 October Electronic Crediting of SCD accounts with fully paid new shares 4:00 pm 04 October Processing of refunds (If applicable) 25 September - 10 October Listing of Rights and commencement of trading 9:30 am 10 October 2017 Notes: 1. All references to the times above and in the Information Memorandum are East African Standard time, except as otherwise stated. 2. If any date above falls on a public holiday suddenly announced, the next working date will take effect. 3. The above dates are subject to change at the discretion of the Board of Directors but subject to the approval of the Capital Markets Authority and Uganda Securities Exchange, as applicable. 4. Any changes will be announced/published in the print and broadcast media. 5. It should be noted that the USE record date will be 3 working days prior to the company s Record Date.

20 Rights Issue Documents The following documentation will be used for the Rights Issue: Information Memorandum Provisional Allotment Letter (PAL) Form R SCD Form 7 Form E Form A SCD Form 5 Irrevocable Bank Guarantee (IBG) Letter of Undertaking (LOU) SCD Form 1 SCD Form 2 This is a booklet that contains information on the company, the rights issue offer, the financial statements, legal, compliance and relevant information to assist the shareholder in making an informed decision. This valuable document is the renounceable (nil paid) provisional allotment letter issued to Eligible Shareholders and includes the Entitlement in the form or substantially in the form set out in Annexure V of this Information Memorandum. Form of Renunciation: A form by dfcu, as set out in Annexure V, to be used by Eligible Shareholders renouncing or transferring their Rights, by way of private transfer and by Renouncees to take up their New Shares. Standard form by the Security Central Depository Limited that is used in connection with a private transfer by Eligible Shareholders with SCD Accounts. Form of Entitlement: A form by dfcu, as set out in Annexure V, to be used by any person and issued in favor of such person, in the case of Rights purchased on the USE or balance Rights in the SCD Account. Form of Power of Attorney: A form by dfcu as set out in Annexure V, to be completed by Eligible Shareholders wishing to appoint third parties as their lawful attorney or agent to act on their behalf in connection with the Rights Issue. Standard form by the Security Central Depository to be used for utilizing loan facilities to subscribe for New Shares. By a commercial bank licensed by the Bank of Uganda. A sample letter is contained in Annexure VI of this Information Memorandum and can only be used by any Eligible Shareholder or potential investor that wishes to pay for Additional Shares after the allocation policy has been announced. The IBG can only be used if the payment is equal to or more than UGX 20 million in value. By an institution approved by the Transaction Advisor. A sample letter is contained in Annexure VII of this Information Memorandum and can only be used after the allocation policy has been announced. The LOU can only be used if the payment is equal to or more than UGX 50 million in value. Is a standard form by the Security Central Depository to be used to open a SCD Account through a SCDA. Is a standard form by the Security Central Depository to be used for immobilization of Existing Shares in Certificate form into the SCD through a SCDA.

21 Application Payment All payments to the Receiving Bank must be made in Uganda Shillings. For any amount, payment for the New Shares and where applicable Additional Shares, should be made through respective broker via Bankers Cheque, EFT or RTGS. For any amount payable by an Authorized Agent to the Receiving Bank, payment for the New Shares and where applicable Additional Shares, for single or multiple Entitlement and Acceptance Forms, can be made via Bankers Cheque drawn on the Authorized Agent or via EFT or RTGS. All Bankers Cheque payments to the Receiving Bank should be drawn in favor of dfcu Rights Issue- PAL No. XXXXXXX and be crossed A/C Payee Only. The form number refers to the Entitlement and Acceptance Form and must be inserted to reduce complications in reconciliation. Where there is non-compliance with these instructions, the application will be rejected. Each Banker s Cheque by the Receiving Bank will be deposited immediately for collection. The main bank account at the Receiving Bank is: No. Issue Statistics The Address Account Name dfcu Rights Issue The address: Account Number Plot 26, Kyadondo Road Nakasero, Bank Name dfcu Bank Limited P.O. Box 2767, Kampala Branch Head Office Plot 26, Kyadondo Road, Nakasero Tel: / ; Swift Code DFCUUGKA Authorized Agents will receive payments on behalf of the shareholders for onward submission to the receiving bank. All EFT and RTGS transfers must include the name of the Eligible Shareholder, Renouncee, potential investor and the Entitlement and Acceptance Form No. for immediate reference. This will reduce complications in reconciliation. Where there is non-compliance with these instructions, the application will be rejected. Irrevocable Bank Guarantees must be authenticated by the guaranteeing bank via a SWIFT message forwarded to the Receiving Bank on or before the Rights Issue Closing Date. This will reduce complications in reconciliation. Where there is non-compliance with these instructions, the application will be rejected. Payment can be made via a loan from a lender. For this refer to Section Loan Facilities below in the Terms and Conditions of the Issue. Any fees payable in securing a Bankers Cheque, EFT or RTGS or other form of payment will be borne by the Eligible Shareholder, Renouncee, potential investor and not dfcu. Any payments made to the Receiving Bank in accordance with the above, will upon receipt by the Receiving Bank of the relevant amount in cleared funds, constitute acceptance of the Rights Issue upon the terms and conditions set out in this Information Memorandum and in the Entitlement and Acceptance Form. There is no additional SCD fee. No interest will be payable by dfcu on any Application Money received for the Rights Issue to any Eligible Shareholder, Renouncee, or purchaser of Rights.

22 22 Country and financial sector overview

23 Economic Overview Economic growth estimates for the first half of Financial Year 2016/17 indicate that Gross Domestic Product (GDP) growth was weaker than expected, largely reflecting temporary adverse weather related factors. Preliminary posting for the first quarter Financial Year 2016/17 indicate contraction of 0.2%. The Treasury has had to revise the GDP downwards to 3.9% from the projected 5% due to the significant drought that affected agricultural production, low commodity prices, weak global trade and diminishing capital flows besides under execution of planned government investment programs. Agriculture contributes 26% to Uganda s GDP compared with the services sector, which contributes 49%. Looking forward improved efficiency and effectiveness in implementation of public investments and a recovery in economic activity through a pickup in private sector investment should drive growth in the medium to long term. The declining interest rates should act as a boost to the pickup in private sector lending. Forecast of real GDP growth of EADC countries 2016/17 3.9% 6% 6.1% 2% 7.2%

24 Inflation Rate Annual headline inflation increased to 7.2% in May 2017 from 6.8% recorded in April 2017.The uptick in headline inflation is due to temporary adverse weather conditions that have pushed up food prices as well as increasing liquid fuel prices. On the other hand, the declining core inflation rate was due to a declining demand for services such as transportation and food and beverage. This had spiked up during the festive season. Real GDP growth and inflation* (Trillion UGX, ) Uganda s economic growth remains heavily dependant on government expenditure and investment Real GDP Growth Inflation Election year 7.3. Interest Rates To date the Bank of Uganda has cut its benchmark rate by 50 bps from 11.50% to 11% in its bid to spur economic activity. With risks of inflation minimal in the short and long run, monetary policy should be able to support economic activity and growth. A recovery in economic activity within the private sector, improved efficiency and effectiveness of the implementation of public infrastructure investments should drive forecasted growth. Economic growth over the medium term is projected to return to potential growth (6-7%). The prospects of rainfall across the country will improve inflation outlook going forward easing inflationary pressure from food crops. However risk of inflation from unwinding base effects and further food crop inflation remain. The monetary policy committee will next review the policy rate this month. The decline in reported headline inflation although above the BOU target of 5% should see the committee hold off on its policy stance. However, the Uganda shilling face pressure then the BOU will opt to reverse their policy stance. Improving liquidity conditions and BOU adherence to fiscal budget (Auction amounts adhered to) have kept yields low over the quarter. However, inflationary risks arising from currency depreciation would quickly lead to an uptick in yields. The lower yields on Uganda government debt make the Uganda fixed income market unattractive to foreign investors and the ripple effect of the investors exiting our markets could affect yields.

25 25 Monetary Policy Rate Movement 17% 17% 16% 15% 14% 13% 12% 11.5% 11% Dec 15 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 16 Feb 17 Apr 17 Domestic Bonds 1st Quarter % 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 91 Days 182 Days Dec Mar 2017

26 Exchange Rates The Uganda shilling remained stable during the last two months of the quarter. The shilling depreciated 0.10% on a quarterly basis despite demand from corporate institutions to sure up their position and reduced portfolio inflows. The shilling traded within the same range, floating between UGX 3585 UGX The US federal rate hike did not also affect the Uganda shilling as much as market players earlier priced the effect in. Exchange Rate movement (January 2017 Date) 3, , , , , , , , , , Jan 17 1 Feb 17 1 Mar 17 1 Apr 17 1 May 17 UGX/USD UGX/KES

27 27 08 Overview of dfcu group

28 History of was established in Over the years, dfcu has been associated with many success stories in the Ugandan economy throughout various sectors: agribusiness, communication, education, health, manufacturing, tourism, mining, real estate, construction, trade and commerce and transport. Bought Uganda Leasing Company and renamed it dfcu Leasing was listed on the Uganda Securities Exchange was established 1999 Bought Gold Trust Bank, renamed it dfcu Bank, and started commercial banking 2004 Intergrated the operations of dfcu limited and dfcu bank to form one of Uganda s leading financial institutions 8.2. dfcu Group s Business dfcu Group is primarily engaged in the business of commercial banking conducted through its banking subsidiary, dfcu Bank. In addition, dfcu Group owns and manages a real estate portfolio, which is run by dfcu Limited dfcu Bank The Bank is licensed by BoU to conduct commercial banking business. It is structured into three core business units namely: Consumer Banking (CB) The Consumer Banking business unit focuses on meeting the financial needs of the personal banking and small business customers seeking fast, convenient and affordable banking. The Bank nurtures and grows customers by offering relevant personal banking solutions that support their financial transformation. The Bank is always on hand to help manage clients money with a range of products and services that meet clients savings, transactional and borrowing needs Development and Institutional Banking (DIB) Development and Institutional Banking manages the top tier relationships and has proven experience across a breadth of sectors, including: transport and logistics, manufacturing, agriculture and agroprocessing, communication, education, health, tourism, real estate, mining, construction, trade and commerce, government, parastatal organisations, and non- governmental organisations. The Bank s expertise covers transactional banking, structured products, credit products, loan syndications and agricultural lending.

29 Realignment of shareholders bringing on board a strategic partner Rabobank, with significant experience in agribusiness The acquisition of certain assets and the assets and the assumption of liabilities of Crane Bank Established dfcu Women Business Advisory Council 2013 Consolidated all our key operations into our Head Office, dfcu Towers Transfer of ownership of Rabo Development B.V and NorFinance to arise B.V. Holding 55% (Arise B.V. is owned by Rabo Development B.V, NorFinance, Norfund & FMO) Treasury dfcu Bank facilitates international trade through buying and selling of foreign currency, and issuance of international trade instruments. Treasury also facilitates liquidity management by offering investment vehicles to customers with excess cash to invest in instruments such as government bills Points of Representation dfcu Bank currently has a network of 67 branches countrywide, the second largest footprint. The branches are connected to the Interswitch platform that gives customers access to a network of over 350 ATMs countrywide. Through its membership of the VISA network, dfcu Bank is able to offer its services to users across the world Staffing and Employees The total number of permanent and non-permanent staff employed by dfcu Group as at 31 May 2017 was 1, Products and Services dfcu Group is engaged in the business of banking and provides a wide array of related financial services through its wide and extensive branch network. The Company s objective is to nurture and grow its customers by offering relevant products to support its customers financial transformation.

30 30 Consumer Banking Development & Institutional Banking Current Accounts Savings and Investment Products Personal and Business growth loan Children Accounts Home Loan Women in Business programmes Investment club products Terms Loans Lease Finance Commercial Mortgages Trade Finance Trade Loans Corporate/working capital loans and overdrafts SME capacity building i.e. training Treasury Foreign currency exchanges Acquisition of Government Bills 8.7. Financial Overview and Performance Total income Total income In the quarter ending 31 March 2017, dfcu earned UGX 189 billion in total income, up from UGX 40.2 billion for the same period last year. This is due to higher interest income earned as a result of a diverse portfolio of lending products and the gain on bargain purchase recognized in income resulting from the fair valuation of assets and liabilities taken on from Crane Bank Limited. UGX (Millions) 200, , , , , ,000 80,000 60,000 40,000 20,000 0 Q Q FY Profit Before Tax Profit before tax 160,000 In the quarter ending 31 March 2017, dfcu reported profit before tax of UGX 148 billion up from UGX 15 billion for the same period last year. This is mainly attributable to a gain from the bargain purchase resulting from the fair valuation of certain assets and liabilities acquired from Crane Bank Limited. There was also a noticeable increase in interest income as a result of a diverse portfolio of lending products. UGX (Millions) 140, , ,000 80,000 60,000 40,000 20,000 0 Q Q FY Net Profit In the quarter ending 31 March 2017, dfcu reported profit after tax of UGX 105 billion up from UGX 11 billion for the same period last year. The increase for 120, ,000 Profit after tax Q is mainly attributed to increased interest income as a result of a diverse portfolio of lending products and the gain on bargain purchase resulting from the fair valuation of the assets and liabilities UGX (Millions) 80,000 60,000 40,000 acquired from Crane Bank Limited. There was a 20,000 greater income tax obligation in the quarter as a result of increased profit before tax. 0 Q Q FY 2016

31 Total Assets In the quarter ending 31 March 2017, dfcu reported total assets of UGX 3,102 billion up from UGX 1,572 billion for the same period last year. The rise in the total assets for Q is largely attributable to an increase in liquid assets from UGX 666 billion in Q1 of 2016 to UGX 1,262 billion for Q The advances to customers of UGX 1,309 billion in Q from UGX 795 billion also contributed to the increase in total assets. The other assets mainly comprise of property and equipment, investments in equity shares and intangible assets. 1,400,000 1,200,000 1,000,000 Growth in Assets Millions(UGX) 800, , , ,000 Liquid assets Advances to customers Other assets 0 Mar-17 Mar-16 Dec Total Liabilities Growth in Liabilities In the quarter ending 31 March 2017, dfcu reported total liabilities of UGX 2,748 billion up from UGX 1,346 billion for the same period last year. The rise in the total liabilities for Q is mostly attributable to the large increase in customer deposits that grew from UGX 906 billion in Q to UGX 1,776 billion in Q Millions (UGX) 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 Customer deposits Other payables and liabilities Borrowings 0 Mar-17 Mar-16 Dec-16

32 Performance and Statutory Ratios Performance and Statutory Ratios 31 Mar Net interest margin 10.5% 9.1% 8.1% 9.0% 10.5% 9.9% Interest expense/ interest income 36.4% 38.6% 40.8% 36.7% 36.1% 40.4% Cost to Income Ratio 23.4%* 56.0% 60.4% 53.9% 52.4% 51.2% Overheads/NII 468.9% 243.1% 224.3% 186.1% 241.1% 243.0% Return on Equity 53.9%** 19.5% 17.4% 23.9% 23.3% 24.5% Return on Assets 6.7%** 2.7% 2.3% 3.2% 3.1% 3.1% Growth in interest bearing assets 49.6% 9.4% 17.5% 24.9% 8.3% 2.9% Total capital as a % of risk weighted assets 23.6% 26.9% 22.8% 26.0% 24.0% 17.0% Earnings per share (UGX) N/A Dividends per share (UGX) N/A *This is not annualized and includes the exceptional income. ** ROE and ROA figures have been annualized. The exceptional income has been taken as a one off Capital Adequacy dfcu Group monitors its capital adequacy ratios(car) using the ratios established by the Bank for International Settlement (BIS) as approved by Bank of Uganda. These ratios measure capital adequacy by comparing the Group s eligible capital with its statement of financial position assets, off-statement of financial position commitments and market and other risk positions at weighted amount to reflect their relative risk. As at 31 March 2017, the Group s total capital base was 23.6% (FY2016: 26.9%) of the risk weighted assets, with core capital at 19.7% (FY2016: 20.14%). The capital adequacy remains above the stipulated regulatory minimums of 14.5% and 12.5% for total capital and core capital respectively. The acquisition of assets and the assumption of liabilities of Crane Bank in January 2017 required the Bank to enhance its capital by approximately USD 50 million in order to continue to be compliant with the statutory capital adequacy ratios. The funds necessary to shore up this capital were obtained through a share issue to. in turn obtained the funds by securing a USD 50 million bridge loan facility from Arise B.V Acquisition of Assets and Liabilities Crane Bank Limited. On 20 October 2016, Bank of Uganda took over the management of Crane Bank Limited upon a determination by Bank of Uganda that Crane Bank Limited was a significantly under capitalised institution as defined by law and posed a systemic risk to the stability of the financial system and that the continuation of Crane Bank s activities in its form at the time was detrimental to the interests of its depositors. Prior to the takeover Crane Bank was one of the four Domestic Systemically Important Banks (D-SIB) in Uganda. Following the placement of Crane Bank under statutory management, Bank of Uganda appointed an independent external auditor to take an inventory of the assets and liabilities of Crane Bank. According to a Bank of Uganda notice published on 27 January 2017, that exercise had confirmed that Crane Bank s liabilities, as at the takeover date, grossly exceeded its assets and that Crane Bank was insolvent. Bank of Uganda then invited local and international entities, including dfcu Bank, to bid for the assets and liabilities of Crane Bank and progressed Crane Bank from statutory management to receivership. On 25 January 2017, Bank of Uganda entered into an agreement with dfcu Bank, by which Bank of Uganda transferred certain liabilities (including depositors) of Crane Bank to dfcu Bank and in consideration for that transfer, conveyed to dfcu Bank certain Crane Bank s assets.

33 33 dfcu Bank formally took over the acquired assets and assumed liabilities on 27 January To date, Crane Bank Limited remains in receivership. The acquired assets included physical cash and balances, loans and advances, computer software, listed stocks and bonds, shares in private companies, land and buildings, furniture and fittings and other movable assets. The main liabilities assumed were customer deposits and amounts owed to third party lenders. Claims against shareholders and related parties to Crane Bank as well as insider loans were not acquired by dfcu Bank. Similarly, employee related liabilities and tax liabilities of Crane Bank were not assumed. Of the acquired assets, Crane Bank Rwanda has since been disposed of because it was not within dfcu Group s strategy of growing its business in Uganda. The following table summarises the recognised amounts of assets acquired and liabilities assumed at fair value at the date of the Acquisition. Assets and Liabilities Acquired UGX millions Property, plant and equipment 89,164 Intangible assets* 34,982 Investment in subsidiaries 23,097 Cash and cash balances with BOU 56,355 Government securities 158,931 Deposits & bank balance due 11,960 Net advances to customers 771,230 Other assets 7,560 Investment in shares and corporate bonds 14,395 Customers deposits (674,958) Other liabilities (219,834) Restoration costs (2,126) Fair value of identifiable net assets** 270,756 * Intangible Assets include customer relationships and core deposits. **IFRS 3 regards a bargain purchase as being a business combination in which: the net of the acquisition-date fair values (or other amounts recognised in accordance with the requirements of the standard) of the identifiable assets acquired and the liabilities assumed, exceeds the aggregate of: 1. the consideration transferred (generally measured at acquisition-date fair value); 2. the amount of any non-controlling interest in the acquiree; and 3. the acquisition-date fair value of the acquirer s previously held equity interest in the acquiree [IFRS 3.34]. Refer to Note 22 (a) and (b) of the condensed interim financial statement for the 31 March 2017

34 34 The UGX billion is the fair value of the acquired assets and assumed liabilities as determined in accordance with IFRS. This fair value takes into account the potential benefits accruing from customer relationships, recovery of non-performing assets, the branch network and physical assets. The Acquisition was in line with dfcu Bank s aspirations of: becoming a market leader in Uganda; transforming from a niche player to a universal bank; leveraging technology to deliver digital solutions; and delivering superior financial performance to its shareholders. The Acquisition has positioned dfcu Bank among the top three leading banks in this market in terms of customer numbers, branch network and balance sheet size. Having successfully completed integration of systems, customers and employees into dfcu Bank, the Bank is now well positioned to optimize the benefits of the acquisition and deliver superior returns to shareholders dfcu Share Price USE All Share Index Performance The All share index (ALSI) has experienced growth illustrated below showing gains in index price from UGX as at the end of March 2005 to UGX as 31 March 2017 demonstrating an average annual growth rate of 20%. Significant growth can be seen with-in the periods beginning January 2009 to 2011 and a rally in the ALSI index share price shown from the start of January 2012 with price at UGX 784 to its all-time high in April 2015 at UGX 2,094 representing a growth of over 167% and closed the 2016 year at UGX 1,478. This is mostly attributed to a strong investor sentiment in the domestic listed equities on the Uganda Securities Exchange as well as the cross-listed counterparts from Nairobi Stock Exchange. dfcu adjusted share price & USE ALSI 2,500 2,000 UGX 1,500 1, Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar- 17 adj share price USE All Share Index The adjusted share price has been on an upward trajectory for the past 8 years. The adjustment was made for the 1:1 bonus issue of 2014.

35 dfcu Counter In 2004, was listed on the Uganda Securities Exchange. This enabled Ugandans and Ugandan companies, as well as regional and international investors, to own and be part of this successful institution. The stock was offered at UGX 305, and due to the Company s consistent profitability and dividend yield that has ranged at about 4.7% - 5%, the stock has recorded tremendous growth rising to a high of UGX 1,220 in 2014 (before adjustment of the bonus issue). Investment Metrics Adjusted Highest Share price (June June2017) UGX 982 Adjusted Lowest share price (June 2014 June 2017) UGX 610 Market 30 June FY2017 UGX 377,376M Volume of dfcu shares traded from (June 2016 June 2017) 16,056,607 EPS for the 12 month period ended UGX Dividend per share as at UGX Net Asset Value Per Share as at UGX 502 Dividend Cover 3.69 Historical PE based on the EPS for the 12 months period ended Below is a line graph showing the share price, earnings, and dividends:

36 36 Closing share price of the dfcu Counter Period as at End of Share Price (UGX) Adjusted Share Price (UGX) FY FY FY FY FY FY FY2014* FY FY June FY Bonus Year * Since the bonus issue of FY2014, dfcu s market capitalization has risen 16.7%. The counter has recorded an average Price to Earnings Ratio (PE) of 10 throughout the last 9 years Bonus Issue 1:1 In 2014, the Board of Directors recommended, with the approval of shareholders, the issue of bonus shares in the proportion of one new bonus share for every one ordinary share currently in issue and fully paid up, representing a total of 248,600,911 new bonus shares. It was the Directors recommendation that the payment of a final dividend of UGX per share on the total shares with an additional bonus issue (2014 UGX 4.9 billion 10.0 per share) would be fair remuneration to its shareholders. The bonus issue took effect in August FY14, with the price adjusting from UGX 1,220 to UGX 640. The stock closed at UGX 701, 9.5% up from the split and continued its rise throughout FY15. Effects of the bonus issue 1. Increase in s paid up share capital from UGX 4.97bn to UGX 9.9bn paid through the Company s retained earnings. 2. An increase in the number of shares from approximately 248,600,911 shares to 497,201,822 shares, and this boosted liquidity of the stock Dividend Policy dfcu Group s dividend policy is designed to address multiple objectives. The main considerations are to maximize shareholder wealth, increase market capitalization, ploughing back of additional profits for business expansion and maintaining a consistent stream of dividends to shareholders. On the 31 July 2017, dfcu Group paid a dividend of UGX per share to ordinary shareholders for the year ended 31 December 2016.

37 37 09 Corporate Governance ensures that its corporate operations and structures are governed by clearly defined principles of good corporate governance to ensure proper governance, transparency, full disclosure and accountability to all stakeholders through the existence of effective systems of self-regulation. The Company promotes a high standard of performance from its Board and management in their stewardship responsibility, undertaken on behalf of its shareholders, and the millions of Ugandans who are directly or indirectly impacted by the Company s actions.

38 Information on Directors Board of Directors The Company s Board is led by a non-executive Chairman and consists of six non-executive Directors. The Directors, collectively have vast experience stemming from their varied backgrounds in different disciplines, which include, law, banking, accounting, audit, financial, management, investment, policy and regulation and tax. Elly Karuhanga Chairman Albert Jonkergouw Non-Executive Director The table below contains the details of the Directors of the Company: Appointed as an Independent Non- Executive Director in May Elly is an advocate of the Supreme Court of Uganda and a member of the World Trade Law Association. Previous positions held: Member of Parliament (Uganda)-1989 to 2001, Member of Parliamentary Committees on: Presidential, Foreign Affairs, Legal and Drafting-1989 to 2001, Founder President and Chairman Governing Council Uganda Center for Arbitration and Alternative Dispute Resolution 1998 to Appointed as Director in December He has over 20 years experience in retail and wholesale banking internationally and within Rabobank Netherlands, He is currently the Managing Director for Achmea Africa Insurance in Kenya. He is a member of NOREA (Netherlands Order of Registered IT Auditors) and the South African Institute of Professional Accountants (IPA). He is also a certified member of the Nyenrode Business University Non-Executive Director Board program. Albert holds two university degrees in Accounting & Auditing.

39 39 Dr. Winifred Tarinyeba Kiryabwire Independent Non-Executive Director Kironde Lule Independent Non-Executive Director Deepak Malik Non-Executive Director Appointed as Director in September She has a wide experience in developing legal, policy and regulatory frameworks in Uganda, Rwanda, Malawi, Lesotho as well as on East African Community (EAC) regional projects. She is a lawyer with over 15 years experience of legal practice in the fields of securities and financial markets; corporate law and finance and corporate governance. Other current appointments: She is a board member at Financial Sector Deepening Uganda (FSDU), and Makerere University Holdings Ltd, member of the University Council of Mbarara University of Science and Technology, member of the Public Sector Administration Audit Committee and associate Professor and Head of Department of Commercial Law at Makerere University School of Law. Appointed as Director in He has over 30 years experience in financial management and auditing. He was a Finance Director in the Aga Khan Foundation (USA), ICF (Tanzania); Director Financial Reporting in the Global Fund for Vaccines (USA); Commissioner Internal Audit - Uganda Revenue Authority and an Audit Partner in Deloitte & Touche (Swaziland & Cote d Ivoire) He is a fellow of the Institute of Chartered Accountants in England and Wales and a member of the American Institute of Certified Public Accountants. Appointed as Director in June He is currently the CEO of Arise B.V. and has extensive experience and knowledge in the investment and financial services sector in Africa. He joined Norfund as an Investment Director in 2003, where he was instrumental in promoting Norwegian investments in Southern Africa and the region. He also served as the Head of Department Financial Institutions and was a part of the Management team of Norfund. Prior to joining Norfund, he fulfilled the role of CEO of DBZ (Development Bank of Zambia) and other senior executive positions in ZCCM (Zambia Consolidated Copper Mines Limited). He has over 36 years experience and serves on various local and international boards. He also holds a Bachelor of Commerce (Honours) from the University of Delhi, India and is a qualified Chartered Accountant.

40 40 Michael Alan Turner Non-Executive Director James Mugabi General Manger Appointed as Director in April He has worked for Actis, the leading growth markets PE investor, in various capacities since 1988 mainly in Eastern, Central and Southern Africa. Before Michael joined Actis, he worked in investment banking in London, for Lehman Brothers and Klienwort Benson, having started his carrier in PricewaterhouseCoopers. He is a fellow of Institute of Chartered Accountants in England and Wales. James Is the General Manager/ Company secretary of dfcu. He is a qualified Accountant and a Fellow of the Institute of Chartered Certified Accountants, with a career history in Audit and Taxation from the United Kingdom. He has held senior management positions in his banking career of 17 years as a banker, starting with Financial Reporting, Corporate Banking, Strategy & Innovation and Project management. James Hold a Masters degree in Business Leadership from University of South Africa (UNISA

41 dfcu Bank Board of Directors The Bank s board is led by a non-executive Chairman and consists of seven non-executive Directors and two Executive Directors. The Directors, collectively have vast experience stemming out of their varied backgrounds in different disciplines, which include, banking, general management, law, accounting and investment analysis, apart from hands on experience in various industries. The table below contains the details of the directors of the Bank: 1 2 Jimmy Mugerwa Chairman, dfcu Bank Board/ Appointed as Board Chairman in 2015, Independent Non-Executive Director in dfcu Group/Bank since 2012 He has extensive experience in senior leadership having worked in several African markets and Europe, and possesses over25 years of the Oil & Gas Industry experience gained from a career with Royal Dutch Shell and Tullow Oil. Currently he is the General Manager & Director of Tullow Oil Uganda Operations. Previously held several jobs in Shell including; as a Senior Regional Advisor for Sub Saharan Africa (Netherlands); Africa Retail Marketing & Strategy Manager (South Africa) and General Manager (Shell East Africa). He holds the Financial Times Non- Executive Director Diploma, a formally accredited post graduate qualification for non-executives Directors. Other current appointments: Chairs the Oil & Gas TWG of Presidential Investors Round Table (PIRT V1); Chairman Managing Board - Starehe Boys centre (Kenya);Board Member Uganda Chamber of Mines and Petroleum. Deepak Malik Non-Executive Director Appointed as a Director in June He is currently the CEO of Arise B.V., has extensive experience and knowledge in the investment and financial services sector in Africa. He joined Norfund as an Investment Director in 2003, where he was instrumental in promoting Norwegian investments in Southern Africa and the region. He also served as the Head of Department Financial Institutions and was a part of the Management team of Norfund. Prior to joining Norfund he fulfilled the role of CEO of DBZ (Development Bank of Zambia) and other senior executive positions in ZCCM (Zambia Consolidated Copper Mines Limited). He has over 36 years experience and serves on various local and international boards. He also holds a Bachelor of Commerce (Honours) from the University of Delhi, India and is a qualified Chartered Accountant.

42 42 3 Michael Alan Turner Non-Executive Director 4 Albert Jonkergouw Independent Non-Executive Director 5 Stephen Caley Independent Non-Executive Director Appointed as a director in April He has worked for Actis, the leading growth markets PE investor, in various capacities since 1988 mainly in Eastern, Central and Southern Africa. Before Michael joined Actis, he worked in investment banking in London, for Lehman Brothers and Klienwort Benson, having started his carrier in PricewaterhouseCoopers. He is a fellow of Institute of Chartered Accountants in England and Wales. Appointed as a director in December He has over 20 years experience in retail and wholesale banking internationally and within Rabobank Netherlands, He is currently the Managing Director of Achmea Africa Insurance in Kenya. He is a member of NOREA (Netherlands Order of Registered IT Auditors) and the South African Institute of Professional Accountants (IPA). He is also a certified member of the Nyenrode Business University Non-Executive Director Board program. Albert holds two university degrees in Accounting & Auditing. Joined the Bank board as a Non- Executive Director in June Previously employed in senior positions, including at Executive Director and CEO level, of banks in a number of African and Asian countries. Main employment (27 years) was with Standard Chartered Bank and also with Stanbic Bank (7 years) along with other banks in East, West, South and Central Africa, Hong Kong and Mongolia. An ACIB (UK) since 1970 and an official of the Institute of Bankers and the Bankers Association in Kenya, Nigeria, Botswana and Rwanda. Chairman of the Board Audit Committee and a member of the Board Risk and Credit Committee.

43 43 6 Ola Rinnan Non-Executive Director 7 Willem Cramer Non-Executive Director 8 Juma Kisaame Managing Director (dfcu Bank) Joined the Bank board as a Non- Executive Director in June 2016 Has worked with DnB Bank for 15 years in which he held numerous managerial positions from head of business market, private retail market, bank manager and finally regional director. He served as the CEO of Moelven Indutrier for six years. In 1999, he was appointed CEO of Nordea/ Norgeskreditt where he was responsible for the real estate portfolio and the group s property financing. In 2000, he was appointed CEO of Eidsica Energi and was in charge of the finance responsible for bank and bonds listed on the Oslo Stock Exchange. He was chairman of the board at Eidsiva Energi, Avinor and Enerfi Norge. Has served as a member of the board for Smedvig Capital & Smedvig Eiendom, Storebrand Bank and SN Power Norge. Joined the Bank board as a Non-Executive Director in June He has over 30 years of experience in the financial industry, having worked as a senior Rabobank executive in the Netherlands, the USA, Germany and Brazil. He is the former CEO of Friesland Bank. He is the Chairman of Koopman Logistics Groep, PC Uitvaart, and Doefonds. He is an Non-Executive Director at Garantibank International, Trustee at the International Franz Liszt Piano Competion and Member of the Supervisory Board of Unicef Netherlands. He is a professional non-executive director, investor and trustee at charitable institutions. He joined dfcu in 1992 as Head of Finance and held several positions such as Manager Finance and Administration (Non- Performing Assets Recovery Trust), Commercial Manager (Leasing, General Manager), Mortgages and Executive Director. In 2002, he joined Eurafrican Bank (Tanzania) as Managing Director, a position he held until 2008 when he returned to dfcu Bank as the Managing Director.

44 William Sekabembe Executive Director (dfcu Bank) Agnes Tibayeita Isharaza Company Secretary He was appointed the Executive Director in August Prior to his appointment, he was the Head of Development and Institutional Banking. He has over 18 years of banking experience with extensive Knowledge in Retail and Business Banking, Credit Risk Management and Product Development. He has worked with several leading financial institutions in Uganda, Head of products (Stanbic Bank Uganda) and Head of Distribution (Barclays Bank Uganda) and has had exposure to different markets including; United Arab Emirates, South Africa, Zimbabwe and Kenya. Joined the Bank in June She serves as the Head of Legal and Company Secretary to dfcu Bank Limited. She is an Advocate of the High Court of Uganda and all courts subordinate thereto, with over 15 years extensive experience in the financial services sector. She is the Uganda Bankers Association representative to the Capital Markets Authority Board where she chairs the Committee on Legal and Regulatory Affairs. She is a member of the Uganda Law Society and East African Law Society. Prior to joining the bank, she served as a Legal Intern attached to the Committee on Public Services, Parliament of Uganda, and as a volunteer with the Uganda Women Lawyers Association (FIDA) in 1999

45 dfcu Bank Senior Management Team The details of dfcu Bank s Management Team are set out below: Juma Kisaame. Managing Director Joined: 1992 Previous Roles: Manager Finance and Administration, Commercial Manager Leasing, General Manager Mortgages, Managing Director Eurafrican Bank Tanzania William Sekabembe Chief of Business/ Executive Director Joined: 2012 Previous Roles: Head, Consumer Banking, Head, Development and Institutional Banking Paul van Apeldoorn Chief Transformation Officer Joined: 2013 Previous Roles: Chief of Business / Executive Director - dfcu bank Ltd. Chief Executive Officer & Chief Commercial Officer Banque Populaire du Rwanda, Director Retail Banking BGZ Bank Poland / Rabobank International Kate K. Kiiza Chief Finance Officer Joined: 2015 Previous Roles: Chief Finance Officer at United Bank for Africa, Chief Finance Officer at Shell Uganda Limited (now Vivo Energy), Financial Controller at Shell Uganda Limited (now Vivo Energy Uganda Limited). 5 George Ochom Head of Treasury Denis Kibukamusoke Head, Consumer Banking Agnes Mayanja Head, Credit Agnes Tibayeita Isharaza Head of Legal Joined: 2007 Previous Roles: Chief Manager Treasury at Centenary Bank, Chief Dealer Stanbic Bank Uganda and Treasury Manager at dfcu Bank Joined: 2015 Previous Roles: Head Sales and Distribution (Stanbic Bank Uganda), Head National Sales (Standard Chartered Bank), Head Retail Lending (Standard Chartered Bank), Head Medium Enterprises (Standard Chartered Bank), Head Business Banking (dfcu Bank), Head Personal Credit (dfcu Bank). Joined: 1998 Previous Roles: Head of Risk and Compliance, Manager Leasing, Manager Credit Control, Business Support Manager, Head of Credit and Head of Risk at dfcu Bank. Joined: 2001 Previous Roles: Legal Officer and Manager Legal Service at dfcu Bank.

46 Harriet Musoke Head, Human Resource Joined: 2015 Previous Roles: Head of Human Resource, Marketing Manager and Head of Corporate Affairs at Standard Chartered Bank Uganda Limited, Chris Sserunkuma Head, Risk and Compliance Joined: 1994 Previous Roles: Head, Internal Audit, Head of Development Finance, Head of Business Development at dfcu Bank. Leonard Byambara Head of Internal Audit Joined: 2011 Previous Roles: Audit Manager at dfcu Bank, Audit Manager at Stanbic Bank, Treasury and IT Auditor at Stanbic Bank, Internal Auditor at Stanbic Bank

47 47 10 Statutory and general information

48 48 The information below is additional legal and compliance information Incorporation and Share Capital The issued share capital of dfcu is UGX 25,000,000,0000 which is divided into 1,250,000,000 ordinary shares of UGX 20 per share. The share capital structure of the Company as at the date of this Information Memorandum is as follows: Total Number of Shares Nominal Value Per Share Nominal Value UGX Authorised Share Capital 1,250,000,000 UGX 20 25,000,000,000 Issued & Fully Paid 497,201,822 UGX 20 9,944,036,440 dfcu has 752,798,178 unissued shares with a par value of UGX 20. The Company has not made any other commitments to issue any remaining part of its share capital to any person, nor does any person have preferential subscription rights for dfcu s share capital Shareholders Directors interest in the shares of the company as at 30 June Names Number of shares held Dr. Winifred Tarinyeba Kiryabwire 3, Ownership As at the date of this Information Memorandum, the names of the 20-largest shareholders of the Company and their respective holdings are shown below. On 14 October 2004, 40% of the shares in that were previously held by the International Finance Corporation (IFC) and Uganda Development Corporation (UDC) were listed on the Uganda Securities Exchange in the initial public offering of shares by the Company. In 2015, CDC Group (Actis Management Mauritius Ltd) reduced its holding, paving the way for Rabo Development B.V and an increase in holding by Norfund (which then transferred its interests to NorFinance AS).

49 List of the 20 Largest Shareholders as at 30 June 2017 Name Shareholding after % held Capitalisation Issue ARISE B.V. 273,847, % CDC GROUP PLC 74,580, % NATIONAL SOCIAL SECURITY FUND 29,487, % KIMBERLITE FRONTIER AFRICA NASTER FUND 29,324, % NATIONAL SOCIAL SECURITY FUND-PINEBRIDGE 5,835, % BANQUE PICTET AND CIE SA A/C BLANKENEY L.P 5,024, % VANDERBILT UNIVERSITY 4,810, % SSB-CONRAD N HILTON FOUNDATION 4,741, % BANK OF UGANDA STAFF RETIREMENT BENEFIT SCH-SIMS 2,904, % BANK OF UGANDA STAFF RETIREMENT BENEFIT SCHEME - AIG 2,831, % PARLIAMENTARY PENSION SCHEME 1,911, % URA RETIREMENT BENEFITS SCHEME PINEBRIDGE 1,862, % CENTENARY BANK STAFF DEFINED CONTRIBUTORY SCHEME 1,834, % UAP INSURANCE CO. LIMITED 1,786, % CENTRAL BANK OF KENYA PENSION FUND 1,601, % BANQUE PICTET AND CIE SA A/C - HEVIBEN L. P 1,547, % MAKERERE UNIVERSITY RETIREMENT BENEFITS SCHEME- MU 1,526, % JUBILEE INVESTMENT COMPANY LIMITED 1,444, % RAKESH GADANI 1,292, % PPS-GEN AFRICA ASSET MANAGEMENT 1,274, % OTHERS 47,733, % Total 497,201, % Recent Material Changes in shareholding In December 2016, the directors of the Company approved the consolidation by Rabo Development B.V and NorFinance AS of their respective shareholding in the Company in Arise B.V., a specialist investment and development company that was established by Norfund, Norfinance, FMO and Rabobank under joint ownership. In April 2017, the process of transferring shares into Arise B.V. by Rabo Development B.V (RD) and NorFinance AS was completed. Accordingly, as of the date of this Information Memorandum, the majority shareholder of the Company is Arise B.V., holding a total of 273,847,188 [55.08%] shares in the Company Shareholder Analysis Distribution of Shareholders as at 31 December 2016 Names No. of Investors No. Of Shares Held Percent Holding Between 1 and 1,000 Shares 1, , % Between 1,001 and 5,000 Shares 1,254 3,261, % Between 5,001 and 10,000 Shares 184 1,388, % Between 10,001 and 100,000 Shares ,227, % Above 100,001 Shares ,612, % 3, ,201, %

50 Voting Rights Each Shareholder is entitled to attend general meetings of the company. The holders of the Shares are entitled to one vote per Share at general meetings. The Offer Shares will rank pari passu with each other and with all other Shares with respect to voting rights and distributions Material Litigation There is no material litigation, arbitration, prosecutions and other civil or criminal legal action in which the Company or its directors are involved and which may have a material effect on the business Auditors The current auditors of the company are KPMG Investment Properties The Company is the registered proprietor of the following properties, as independently confirmed by official search statements signed by the Commissioner for Land Registration: Property LRV 175 Folio 15, Plot 26 Kyadondo Road, Kampala, being a lease granted for a term of 99 years with effect from 1 January 1939 LRV 2331 Folio 8 Plot 1 MacKinnon Road, Kampala, being a lease granted for a term of 49 years with effect from 10 January 1995 Ownership The Company has an equitable interest in the following property: Property Grant of lease over Kyaggwe Block 111 Plot 3737, Namanve, Mukono District. Ownership Uganda Investment Authority (UIA). By a lease agreement dated 28 June 2017, the Uganda Investment Authority, the lessor, has granted the Company a lease extension of 30 years with effect from 7 October UIA has granted the Company a leasehold interest. As of the date of this Information Memorandum, the Company is processing the leasehold certificate of title in its name.

51 Expenses The costs of the Rights Issue are as follows: Item UGX (Millions) Transaction Advisor fees 191 Sponsoring Stockbroker fees 0 Legal Advisor fees 110 Reporting Accountant fees 150 Share Registrar fees 55 Receiving Bank fees 80 Marketing and Communication expenses* 180 CMA approval and listing fees 45 USE application fees and listing fees 254 Placement Commission to Authorised Agents** 1,370 Other Expenses* 26 TOTAL 2,461 Figures are exclusive of VAT (where applicable). * Marketing, Communication and Other Expenses are indicative and subject to change. **Placing commission shall be set by the issuer at a rate of up to 1.5%. The placing commission shall be payable to members of the USE (subject where necessary to a minimum of UGX 1000 per application) appointed as Authorized Agents. Placing commission shall be computed on the value of each successful application accepted in respect of the Entitlement and Acceptance Forms completed and signed by Eligible Shareholders, Renouncees, purchasers of Rights, bearing the stamp of a single Authorized Agent or the Sponsoring Stockbroker Documents Available for Inspection Copies of the following documents may be inspected at the registered offices of dfcu Group or the Sponsoring Broker s offices during normal working hours on any weekday (Saturday, Sundays, and public holidays excluded) from the date of this Information Memorandum up to and including the Rights Issue closure Date: 1. A copy of this information Memorandum; 2. The consolidated audited accounts of dfcu Group for the financial years ended 2013, 2014, 2015 and 2016, reviewed consolidated interim financial statements as at 31 March 2017 and an audited consolidated interim financial statements as at 31 June 2017; 3. Copies of shareholder and board resolutions approving the Rights Issue; 4. A copy of the Certificate of Incorporation and Memorandum and Articles of Association of ; and 5. Copies of the Provisional Allotment Letter, Form R, Form E and all the SCD forms.

52 52 11 Risk factors

53 53 An investment in the Company comes with a certain level of risk based on the sector in which it and its subsidiary operates, the macro-economic environment, the capital markets and the nature of the business conducted by the Company and its subsidiary. Prospective investors should carefully consider, among other things, the risks set forth in this section and other information contained in this Information Memorandum prior to making investment decisions with respect to the offer. Prospective investors should note that the risks described in this section are not the only risks the Company faces but are the risks that the Company considers to be material. As such, prospective investors should exercise due care in evaluating all the risks involved in investing and decide for themselves whether, in light of those risks, their investment is appropriate. Although dfcu has in place systems, controls and procedures designed to mitigate the risks to which it is exposed, there can be no assurance that such risks will not occur Company Risks The risks facing the Company arise from the fact that over 90% of its earnings emanate from its banking subsidiary. Accordingly, the risks inherent in the subsidiary s business affect the Company and its prospects significantly Strategic Risk Strategic risk relates to the future business plans and strategies, including the risks associated with the macro environment in which the company operates. The Company s growth is subject to economic and political risks, local economic environments, including inflation, recession, currency volatility and actual or anticipated defaults. Political changes, some of which may be disruptive, can interfere with the Company supply chain or customers and all the activities in a particular location. The success of the business depends on achieving the Company s strategic objectives, including through acquisitions and restructurings. The recent acquisition of certain assets and assumption of certain liabilities of Crane Bank, which resulted in dfcu Bank becoming one of the three top banks in Uganda, presents a heightened strategic risk in terms of dfcu Bank s ability to realize the anticipated benefits of the acquisition. dfcu Bank may not achieve the expected returns and other benefits as a result of various factors, including integration and collaboration challenges such as personnel and technology. dfcu Bank has completed the integration of the acquired assets and assumed liabilities into its business. The employees taken over from Crane Bank have also been integrated. The fact that the acquisition was in line with dfcu Bank s strategy and the customer profile was similar should enable dfcu Bank to realize the benefits of the transaction. In addition, the management of dfcu Bank is of sufficient capacity to manage a bigger entity effectively Credit Risk Credit risk is the risk to earnings or capital arising from the obligor s failure to meet the terms of any contract with the Company or dfcu Bank or otherwise to perform as agreed or to meet a commitment as it falls due. The dfcu Group s credit risk arises mainly from its lending activities to customers but also from interbank lending, guarantees and investment in securities. However, has a robust framework of policies and processes in place including a strong appraisal process to measure, manage and mitigate credit risks emanating from the various counterparties. The Group s credit policy is to maintain a diversified portfolio, avoiding large risk concentrations while maintaining stringent internal risk/return guidelines and controls. Other than in the case of very strong, creditworthy clients with an undisputed credit history, all substantial credit risks are normally covered by means of credit insurance, bank guarantees and/or advance payments, and other forms of collaterals like landed property, machine and equipment, debentures, personal guarantees, etc.

54 Operational Risk Operational risk is the risk of loss arising from inadequate controls and procedures, unauthorized activities, outsourcing, human error, systems failure and business continuity. It is inherent in every business organization and covers a wide spectrum of issues. dfcu s management of its exposure to operational risk is governed by policies and procedures. In line with policy, dfcu operates such measures of risk identification, assessment, monitoring and management as are necessary to ensure that operational risk management is consistent with the strategic goals of the company. The policy is designed to safeguard dfcu s assets while allowing sufficient operational freedom to conduct business. The policy document also sets out the responsibilities of senior management, the requirement for reporting of operational risk incidents and the role of Internal Audit in providing independent assurance. For effective management of operational risk, dfcu has categorized the operational risk event types as follows: a. Internal Fraud: The risk resulting from dishonesty of personnel within the company, such as forgery of documents, embezzlement, bribery, etc.; b. External Fraud: The risk resulting from dishonesty of individuals outside the company such as forgery of financial documents, fraud, etc.; c. Clients, Products and Business Practices: The risk resulting from business practice, the introduction of a product, and the accessing of a customer s information that is inappropriate or noncompliant with regulations or rules, such as unauthorized transactions, unapproved dealings, money laundering activities, or the misuse of confidential customer information, etc.; d. Business Disruption and System Failures: The risk resulting from anomalies in the system or the failure of the system in various aspects, such as inconsistency, disparity arising from combining operations, defects in the computer system or network system, or the usage of outdated or substandard technological tools; e. Information security is the practice of defending information from unauthorized access, use, disclosure, disruption, modification, perusal, inspection, recording or destruction. It is a general term that can be used regardless of the form the data may take (electronic, physical, etc.); f. Information Assurance: the company has put in place systems to ensure information integrity including but not limited to Disaster Recovery programs, database monitoring systems, etc.; and g. Employment Practices and Workplace Safety: The risk resulting from the inappropriate hiring of employees, unjust practices and compensation, exposure to unhealthy or unsafe work conditions or the mistreatment of employees, producing workplace consequences such as litigation, resignation, or demonstration. This risk is ably handled by dfcu staff teams through a robust human resource management policies, processes and monitoring mechanisms. Recognizing that operational risk cannot be entirely eliminated, dfcu implements risk mitigation controls, including fraud prevention, contingency planning, information security and incident management. Where appropriate, this strategy is further supported by risk transfer mechanisms such as insurance. The operational risk management framework is also being used to track and manage non-traditional risks like Compliance, Regulatory and Reputational.

55 Environmental and Social Risk Environmental and social risks arise as a result of negative impact during the execution of some projects financed by dfcu Group. The impact may be on the environment, work force or the inhabitants of the places where the projects are located. The management of environmental and social risks is a key component of dfcu Group s lending policy. Customer projects are assessed for environmental and social risks and customers required to implement plans to address any identified risks in line with international standards such as the Equator Principles and International Finance Corporation Performance Standards on Environmental and Social Sustainability. Similarly, dfcu Group s own projects are subjected to the same rigour. This approach to environmental and social risk is over and above the requirements of local regulations Reputational Risk This risk emanates from an adverse perception of the Company on the part of any stakeholder arising from an event or transaction of, or related to, the organization. It may arise as a result of an external event or the Company s own actions can adversely affect perceptions about dfcu held by the public including its customers, shareholders, investors or regulators. Damage to the company s reputation may have wide-ranging impacts, including adverse effects on profitability, capacity and cost of sourcing funding and availability of new business opportunities. The risk department regularly monitors and reports to management and the Board any acts that may lead to reputation damage for appropriate redress. Directors and employees are made aware of their role in maintaining the company s reputation, and of their responsibilities and duties from a customer service, regulatory and ethical perspective. New products are critically reviewed to ensure that they are clear, transparent and comply with both duties of care to customers and regulatory requirements. A comprehensive and timely procedure is in place to deal with customer complaints Bribery and Corruption Risks Bribery and corruptions risks stem from unethical conduct of business affairs that encourages corrupt practices or tendencies in order to obtain service or unfair advantage in dealings within the markets and communities the dfcu Group operates. These acts deter potential investors, development partners and customers and may lead to criminal and regulatory investigations, impair the reputation of the dfcu Group and result in loss of market share. The Company has zero tolerance to acts of bribery and corruption in all its dealings with the staff, customers and suppliers, among others. The anti-bribery and corruption (ABC) program embodies this principle; the program includes oversight and governance, risk management processes, communication and training, reviews, due diligence, preapproval processes for third party relationships, confidential reporting, financial control and record keeping, independent testing and processes. dfcu Group conducts business in accordance with the highest ethical standards and full compliance with all applicable anti-bribery and corruption laws and regulations. Any breaches or attempted breaches of the bribery and corruption policies by an employee, is regarded as an act of gross misconduct and results into consequence management that may lead termination. dfcu encourages staff and all other stakeholders to use its whistleblowing channels to report any such acts of bribery /corruption for management s further action.

56 Compliance Risk Compliance risk is the risk of legal or regulatory sanctions, material financial loss or loss to reputation dfcu Group may suffer as a result of its failure (or perceived failure) to comply with its internal standards, policies and rules of conduct, applicable laws, rules and regulations of the Uganda Securities Exchange, prudential guidelines, supervisory recommendations and directives. Following the Acquisition, dfcu Bank became one of the top three banks in Uganda and potentially a D-SIB. This position exposes dfcu Bank to enhanced regulatory requirements and scrutiny. dfcu Bank maintains a robust compliance and regulatory risk management framework which will enable it to manage the heightened compliance risk. dfcu Bank continues to review and strengthen its compliance procedures including enhanced customer due diligence and risk profiling as well as sanctions screening in line with local and international AML/CFT requirements Market Risk Market risk is the risk of a potential adverse change in the Company s income or financial position arising from movements in interest rates, exchange rates or other market prices. The risk arises from the structure of the balance sheet, the execution of customer and interbank business and from trading activities. The Company recognizes that the effective management of market risk is essential to the maintenance of stable earnings and the preservation of shareholder value. dfcu s financial assets and liabilities are based on a combination of variable and fixed short term / long-term interest rates, as such their exposure to interest rate fluctuations are managed by matching the resultant interest rates on such assets and liabilities. The above is governed by policies updated and approved by the Board of Directors who also determine the overall market risk appetite Risks Associated with Shares Macro-economic Environment Risk Investors in the securities of issuers in markets such as Uganda should be aware that these investments are generally subject to greater risk than investments in the securities of issuers from more developed countries and carry risks that are not typically associated with investing in more mature markets. These risks include, but are not limited to, greater political risk, higher volatility and more limited liquidity, a narrow export base, budget deficits, lack of adequate infrastructure necessary to sustain economic growth and changes in the political and economic environment. Prospective investors should also note that economies such as Uganda s are subject to rapid change and that the information set out in this Information Memorandum may become outdated relatively quickly. Potential political, social and economic instability in the Uganda and East African regions may adversely affect dfcu s business, financial condition and results of operations.

57 Suitability of Investment Each potential investor must determine the suitability of investing in the rights of in light of their own circumstances. In particular, each potential investor should, if in doubt consult their investment bank, financial advisor, stockbroker or other professional advisor, duly authorized under the Capital Markets Authority Act, who specializes in advising on the acquisition of rights and other securities. Have sufficient knowledge and experience to make a meaningful evaluation of the shares, the merits and risks of investing in the shares and the information contained or incorporated by reference in this Information Memorandum Have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of their overall investment portfolio; Have sufficient financial resources and liquidity to bear all of the risks of an investment in the shares; Understand thoroughly and be familiar with the performance of any relevant financial markets; and Be able to evaluate possible scenarios for economic, interest rate and other factors that may affect their investment in the Bank and their ability to bear the applicable risks Volatility of Price The market value of dfcu shares may fluctuate and may not reflect the company s underlying asset value or, following consummation of the Acquisition, the underlying asset value of the Group. The value of an investment in dfcu shares may decrease or increase depending on performance, market information or perception, amongst other factors. The market value of the Company shares can fluctuate and may not always reflect the underlying asset value. A number of factors outside the Company s control may impact their performance and the price of their shares. Such factors include a change in sentiment in the market regarding dfcu shares or the Acquisition, the operating and share price performance of other companies in the industry and markets in which dfcu operates, speculation about the business in the press, media or investment community, changes to company profit estimates, the publication of research reports by analysts and general market conditions Dividend Risk Ugandan law provides that any declaration of dividends is by shareholders in a general meeting. Dividends may only be declared to the extent that the company has distributable funds and provided that the declaration is prudent taking into consideration the size, nature, scope and risks associated with the company s operations, and their need to strengthen their statement of financial position, liquidity and financial position. As the ability to pay dividends is dependent on the availability of distributable reserves, the Company among other things is dependent upon receipt of dividends and other distributions of value from its subsidiary. The Company s dividend policy is designed to address multiple objectives. The main considerations are to maximize shareholder wealth, increase market capitalization, ploughing back of additional profits for business expansion and maintaining consistent stream of dividend to shareholders. The Board of Directors determines the level of the dividend after taking account of the outlook of earnings growth, capital expenditure projections and the Company s cash requirements. Payment of any dividend in cash will be made in Ugandan Shillings and will, in the case of a final dividend, be subject to declaration at the AGM and applicable taxes.

58 Exercise of Voting Rights for Nominee Shareholders Beneficial owners of dfcu shares that are registered in a nominee account (held by SCD agents and custodians) may not be able to vote such shares unless their ownership is reregistered in their names with the SCD prior to the Company s general meetings. The Company cannot guarantee that beneficial owners of its shares will receive the notice for an AGM in time to instruct their nominees to either effect a re-registration of their shares or otherwise vote their shares in the manner desired by such beneficial owners Dilution Risk With the corporate action of raising capital internally through a rights issue, shareholders who do not take up their rights face the risk of dilution. The dilution would in turn affect the shareholder s ownership percentage and earnings per share. It is important to note that a Rights Issue is not similar to that of a stock split. In a stock split, all shareholders receive additional shares allotted to them by virtue of the ratio and this in turn preserves their ownership percentage and investment value. In a Right Issue, shareholders will be required to follow their rights to avoid this risk.

59 59 12 Terms and conditions of the rights issue

60 60 This section states the documentation and the terms and conditions of the Issue Documents Availability SCD Account: dfcu shall post to and Eligible Shareholders with a SCD Account, a package that will contain the Information Memorandum, PAL, a Form A, and a Form R Share Certificate: dfcu shall post to and Eligible Shareholders with share certificates, a package that will contain the Information Memorandum, PAL, a Form A and a Form R Risks associated with posting of the Rights Issue documents rests with the Eligible Shareholder, and no late acceptances, whether resulting from postal delays, return to sender by post office or otherwise, will be permitted SCD Form 1, SCD Form 2, SCD Form 5,Form E and SCD Form 7 are available from Authorized Securities Central Depository Agents (SCDAs) Eligible Shareholders who do not receive the Rights Issue documents by post and should contact the Shares Registrar immediately in order to receive a replacement PAL along with the other documents Entitlement Details Persons who are not Eligible Shareholders as of the Record Date 24 August 2017 will not be entitled to participate in the Rights Issue as a recipient of a PAL The number of New Shares that an Eligible Shareholder is entitled to (i.e. your Entitlement or your number of Rights) is shown on the PAL. Eligible Shareholders are required to verify the correctness of the Entitlement The number of New Shares offered to Eligible Shareholders has been calculated on the basis of the Entitlement Ratio and no restrictions are placed on the number of Existing Shares to be held before your Entitlement accrues. However, mathematically, this might result in fractional entitlements to New Shares and in such an event, fractions will be rounded downwards to the nearest whole number. Kindly note that where this occurs, the Eligible Shareholder will be allowed the number of New Shares after rounding down Fractions of New Shares that result from applying the Entitlement Ratio will form part of the Untaken Rights. Where this occurs, the Eligible Shareholder will be allowed the number of New Shares after rounding down Eligible Shareholders with SCD Accounts will have such accounts credited with New Shares Eligible Shareholders with share certificates will receive a PAL. In order to trade in nil paid Rights at the USE, certificated shareholders must first open an SCD account and immobilize their share certificate(s) within the deadline provided for in the Timetable above. These shareholders can renounce their rights by private transfer renounciation date. Certificated shareholders who wish to take up all or part of their rights will only receive their New Shares into an SCD account therefore in order to trade the New Shares on Listing Date they must immobilize their Existing Shares by the deadline provide in the Timetable above Investors who wish to become shareholders in dfcu via this Rights Issue can purchase Rights being sold on the USE by Eligible Shareholders. Such investors will be issued with a Form E from their Authorized Agent which must be duly completed, accepted and fully paid for as per Acceptance below. These investors can apply for Additional Shares provided they take up their Entitlement in full.

61 Options The following actions are possible by an Eligible Sharer in the Rights Issue: Actions by Eligible Shareholder(s) No. Action Reference 1 Take up the Entitlement in full; Refer to Acceptance below; 2 Renounce all the Rights to a close relation; Refer to Renunciation by Private Transfer below; 3 Sell all of the Entitlement on the USE; Refer to Renunciation by Trading of Rights & Dealing in Rights below; 4 Accept part of the Entitlement and sell the balance on the USE; Refer to Acceptance and Renunciation by Trading of Rights & Dealing in Rights below; 5 Accept part of the Entitlement and renounce the balance to a close relation; Refer to (1) Acceptance and (2) Renunciation by Private Transfer below; 6 Accept part of the Entitlement and allow the Refer to Acceptance and Untaken Rights below; balance to lapse; 7 Accept Additional Shares i.e. in addition to the Entitlement, provided the Entitlement has been Refer to (1) Acceptance and (2) Additional Shares below; and accepted in full; and 8 Allow the Entitlement to lapse by doing nothing. Refer to Untaken Rights below. Other Actions No. Action Reference 1 Purchase Rights on the USE and take-up the Entitlement Refer to (1) Renunciation by Trading of Rights & Dealing in Rights and (2) Acceptance below 2 Purchase and sell all the Rights on the USE Refer to Renunciation by Trading of Rights & Dealing in Rights below 3 Purchase and sell some Rights on the USE and take up the balance Entitlement Refer to (1) Renunciation by Trading of Rights & Dealing in Rights and (2) Acceptance below 4 Take-up Additional Shares i.e. in addition to the Entitlement provided the Entitlement has been Refer to (1) Acceptance and (2) Additional Shares below accepted in full 5 Purchase Rights on the USE and allow the Entitlement to lapse by doing nothing, which is not recommended Refer to (1) Acceptance and (2) Untaken Rights below

62 Acceptance Acceptance of the Rights Issue, once given is irrevocable Acceptance may only be communicated by submitting a duly completed Entitlement and Acceptance Form, together with Application Money for the number of New Shares (including where applicable any Additional Shares) specified in the Entitlement and Acceptance Form on the terms set out in this Information Memorandum The Entitlement and Acceptance Form must be correctly executed so as to be binding, while the Application Money must be cleared funds The Entitlement and Acceptance Form, once duly completed and executed, must be returned to any Authorized Agent, together with the Application Money for the number of New Shares (including where applicable for any Additional Shares) The Entitlement and Acceptance Forms are the PAL, Form R, and Form E PAL: Eligible Shareholders who wish to take up their full Entitlement are required to duly complete the section entitled Acceptance in Full (Part 1A) together with other relevant sections of the PAL. Eligible Shareholders wishing to accept only part of their Entitlement are required to duly complete the section of the PAL entitled Partial Acceptance of New Shares (Part 2) as well as other relevant sections of the PAL. Note that partial acceptance will not be permitted for less than 100 New Shares The Entitlement and Acceptance Form and Application Money should be received by the Authorized Agent by 4.00 p.m. on Rights Issue Closure Date If the Entitlement and Acceptance Form is not completed correctly, dfcu may in its sole and absolute discretion reject it or treat it as valid, and dfcu s decision as to whether to accept or reject, or how to construe, amend or complete an Entitlement and Acceptance Form shall be final Entitlement and Acceptance Forms can be rejected as per Section Rejection Policy below: Acceptance is subject to regulatory restrictions and obligations under Section Regulatory Restrictions below Additional Shares Eligible Shareholders shall use the PAL to apply for Additional Shares. Renouncees shall use Form R and others use Form E Eligible Shareholders can only apply for Additional Shares if they have accepted their Entitlement in full. Similarly, Renouncees and purchasers of Rights can only apply for Additional Shares if they have accepted the Entitlement on their Forms in full Eligible Shareholders may apply for Additional Shares by completing the section for Application for Additional Shares (Part 1B) on their PAL and signing and returning the duly completed and signed PAL Form, together with the Application Money. It should be noted that such applications should be received by the relevant Authorized Agent not later than the Rights Issue Closure Date Applications for Additional Shares should be in multiples of The fully completed IBG/LOU can be used in payment of Entitlement and Additional Shares and is to be attached to the Entitlement and Acceptance Form. The Receiving Bank will execute the IBG/LOU immediately after the allocation policy has been announced and receive cleared funds from the remitting bank/investor, not later than 4:00 p.m. on the IBG-LOU Payment Date Acceptance of Additional Shares is subject to regulatory restrictions and obligations under Section 12.9 Regulatory Restrictions below.

63 Renunciation by Private Transfer Eligible Shareholders are advised to contact an Authorized Agent for the purposes of effecting the renunciation by private transfer Eligible Shareholders wishing to transfer their nil paid Rights to a particular Renouncee, may do so by way of private transfer, subject to the USE Rules Rule 85 (2) SCD Account: In order to effect a private transfer, an Eligible Shareholder with an SCD account must duly complete a SCD Form 7 and can only transfer nil paid Rights in favor of a Renouncee with an SCD Account Share certificate: These shareholders can renounce their rights using the options in Part 3 of the PAL. Contact an Authorized Agent If an Eligible Shareholder accepts some Rights and renounces the remainder by private transfer in the manner specified above in - Renunciation by Private Transfer, and where such renunciation is done via SCD Form 7, such Eligible Shareholder shall be required to submit the PAL Form, in addition to the resulting Form E, both duly completed and executed and accompanied with the Application Money in connection with the accepted Rights to the relevant Authorized Agent or Receiving Agent, not later than 4.00 p.m. on Rights Issue Closure Date Eligible Shareholders with share certificates who wish to accept a partial number of Rights and renounce the remainder by private transfer, or who wish to renounce to more than one person are advised to immobilize their Existing Share certificates into an SCD Account and thereafter use multiple SCD Form The last date and time for renunciation by way of private transfer is 4.00 p.m. on Private Transfer Renunciation Date Any costs or USE fees associated with renunciation by private transfer shall be borne by the renouncee Renunciation by private transfer of nil paid Rights is subject to regulatory restrictions and obligations under Section Regulatory Restrictions below Renunciation by Trading of Rights and Dealing in Rights The CMA and USE have approved the trading of nil paid Rights on the USE Eligible Shareholders are advised to contact an Authorized Agent for the purposes of effecting the renunciation by trading of Rights Only Eligible Shareholders with SCD Accounts who have their accounts credited with the nil paid Rights can renounce by trading of the nil paid Rights The nil paid Rights constitute a security in the form of an option and are tradable on the Main Investment Market Segment of the USE for a value. The price of the nil paid Rights is determined by demand and supply on the USE Eligible Shareholders with share certificates will receive a PAL. In order to trade in nil paid Rights at the USE, certificated shareholders must first open an SCD account and immobilize their share certificate(s) within the deadline according to the Timetable above Nil paid Rights may be traded on the USE from 09:30 a.m. on Rights Issue Open Day to 1:00 p.m. on Last Rights Trading Date Trading of nil paid Rights on the USE will attract the following transaction costs based on the trade consideration.

64 64 Trading Costs Consideration UGX Brokerage Commission USE Fees CMA Fees Comp. Fund SCD Levy Total to Customer First 200 Million 1.7% 0.14% 0.14% 0.02% 0.1% 2.1% Next 800 Million 1.5% 0.14% 0.14% 0.02% 0.1% 1.9% 1 Billion 0.8% 0.14% 0.14% 0.02% 0.1% 1.2% Source: USE Purchasers of nil paid Rights are issued with a completed Form E by the Authorized Agent for further action. This Entitlement can subsequently be sold, (partially or wholly) on the USE or be accepted (partially or wholly) or, a combination of sale and acceptance Renunciation by Declining No action is required of Eligible Shareholders who wish to decline their Rights. The Rights not taken up by such Eligible Shareholders will form part of the Untaken Rights Regulatory Restrictions As a listed company, is subject to the provisions of the Capital Markets Legislation. dfcu is also subject to banking regulations to the extent that it is the majority shareholder of a licenced financial institution. Individual shareholders and investors may be subject to provisions in other legislation in Uganda or elsewhere. It is the responsibility of the Eligible Shareholder or investor to comply with any provisions under any legislation and should consult the Authorized Agent, the Sponsoring Stockbroker or other independent professionals for advice in connection with these matters. Where approvals are required, it is the responsibility of the Eligible Shareholder or investor to obtain the required approvals in writing and attached to the Entitlement and Acceptance Form on or before the Rights Issue Closure Date. The Board of Directors will take the said provisions into account and any other when determining the allocation of any Additional Shares from Untaken Rights Rejection Policy An Entitlement and Acceptance Form will be rejected for the following reasons: Incomplete, inconsistent or inaccurate with the instructions as provided in the Information Memorandum and on each of the forms; No signature as required; Insufficient Application Money received by Authorized Agent or Receiving Bank; Inappropriate IBG and LOU; Any private transfer rejected or where any regulatory approval is delayed by any regulator; Multiple Authorized Agent stamps on the Entitlement and Acceptance Form; Triggered Section 12.9-Regulatory Restrictions above and the relevant regulatory approvals were not obtained before Rights Issue Closure Date; and Application Money was correctly received but the Entitlement and Acceptance Form is incorrect or missing or received late and its transaction advisors shall be under no liability whatsoever, should any Entitlement and Acceptance Form be rejected as per the Rejection Policy under section

65 Untaken Rights New Shares not taken up shall form the Untaken Rights Shares applied for but not paid for, shall form the Untaken Rights The Untaken Rights may be allocated as Additional Shares in accordance with the Allocation Policy set out in Section below Allocation Policy Subject to Section Regulatory Restrictions and Section Rejection Policy above, all Eligible Shareholders who accept Entitlement in full, or in part, accompanied by Application Money, shall receive the full number of New Shares indicated in their PAL Subject to Section Regulatory Restrictions and Section Rejection Policy above, all Renouncees who apply for their Entitlement in full or in part, accompanied by Application Money, shall receive the full number of New Shares indicated in their Form R Subject to Section Regulatory Restrictions and Section Rejection Policy above, all purchasers of Rights who apply for their Entitlement in full, or in part, accompanied by Application Money, could receive the full number of New Shares indicated in their Form E The balance of New Shares not successfully applied for, including Untaken Rights, will be available for allocation to the applicants for Additional Shares Any Untaken Rights will be allocated to shareholders who have applied for Additional Shares on a pro rata basis with priority given to Ugandan individuals. Any rights remaining untaken thereafter will be allocated on a pro rata basis to all other shareholders who have applied and paid for Additional Shares If any person purchases Rights which might trigger the regulatory restrictions and obligations set out in Section Regulatory Restrictions above, the Board of Directors reserve the right, at their sole discretion, not to allocate any Entitlement or Additional Shares to any such person, unless all required regulatory approvals are duly obtained and attached with the Entitlement and Acceptance Form on or before the Rights Issue Closure Date The Board of Directors will make allotment to the applicants for New Shares as they deem fit and their decision shall be final. The announcement of allocation results is subject to the approval of the CMA The press announcements publishing the results of the Rights Issue will include the basis of allocation of any Additional Shares applied for and issued (if at all) and will be published on Publish Date in one daily newspaper with wide circulation Loan Facilities Eligible Shareholders, Renouncees and purchasers of Rights may approach a Lender for loan facilities to facilitate participation and payment of the full amount due in respect of the Rights Issue. The extension of loan facilities by any Lender is a decision to be made by such Lender, at its sole and absolute discretion Eligible Shareholders, Renouncees, purchasers of Rights, who intend to acquire the Rights through loan facilities shall ensure that the following is complied with: Using a duly completed and signed Securities Pledge Form SCD 5 the Lender shall through an Authorized Agent inform the SCD that it requires the New Shares to be pledged as security, until such time as the SCD is instructed using a duly completed and signed Securities Pledge Release/ Foreclosure form SCD 6, through an Authorized Agent, to lift such pledge;

66 Upon completion of SCD Form 5 (available from an Authorized Agent), all pledges will be elected through entries in the Securities Central Depository maintained by the SCD. The pledging of such shares will, at all times, be subject to Rule H. 65 Use of Securities as Collateral and Pledging of Securities of the Securities Central Depository Rules 2009; Surcharges: For each Securities Pledge Form 5 and/or Securities Release/Foreclosure Form 6, the USE shall levy a charge of 2 currency points or UGX 40,000 to be paid via an Electronic Funds Transfer, Bank Cheque or a cheque issued by an Authorized Agent, payable to Uganda Securities Exchange SCD - [insert SCD no. of pledgor/releasor] Lenders extending finance to an Eligible Shareholder, Renouncee or purchaser of Rights must submit payment for the full amount due and attach the duly completed and executed Entitlement and Acceptance Form, together with a letter signed by Authorized representatives of the Lender, addressed to the Shares Registrar, requesting the shares to be frozen in the SCD, to reach the Authorized Agent by Rights Issue Closure Date Refunds There is no option for making a refund on the Entitlement and Acceptance Form. SCD Account holders with proper bank details at the SCD will receive their refunds via an electronic transfer. It is the responsibility of the investor to verify the accuracy of their bank account details in the SCD with their SCDA. Share certificate holders will receive their refunds via Banker s Cheque. However, if the electronic transfer is declared unsuccessful, a Banker s Cheque or bank draft may be issued Where a Lender has advanced money to an investor to subscribe for New Shares, refunds will be made to or for the account of such Lender as the case may be will make refunds on Refund Date and will comply with Capital Markets Legislation Refund cheques should be collected from the relevant Authorized Agent against proof of identity and other documentation to the satisfaction of the Authorized Agent Payment of refunds to foreign/nonresident investors, shall be made having regard to the prevailing exchange rates and any fluctuations shall be for the Eligible Shareholder s or investor s account Neither, the Receiving Bank nor any transaction advisors to the Rights Issue will be responsible or liable for any refund not received or not received in time, once the refund has been made by Trading in fully paid New Shares Eligible Shareholders, Renouncees, purchasers of Rights with SCD Accounts who comply with the procedures for acceptance as set out in this Information Memorandum, will receive their fully paid New Shares in electronic form, by way of credit to their respective SCD Accounts. It is the responsibility of Eligible Shareholders, Renouncees and purchasers of Rights to ensure that their SCD Account details set out in the Entitlement and Acceptance Form are correct Eligible Shareholders with paper share certificates who comply with the procedures for acceptance as set out in this Information Memorandum may participate in the Rights Issue. However, certificated shareholders who wish to take up their rights will only receive their New Shares into an SCD account therefore in order to trade the New Shares on Listing Date they must open an SCD account and immobilize their Existing Shares by private transfer and renounciation date the deadline provided in the timetable above. Trading in fully paid New Shares may only take place with a SCD Account Fully paid New Shares will be admitted on the Main Investment Market Segment of the USE on Listing Date with dealings of fully paid New Shares commencing at 9:30 a.m. on the same date.

67 Treatment of Local, East African and Foreign Investors for purposes of allocation in the SCD Under the SCD regulations, a local investor means (a) an individual being a natural person who is a citizen of an East African Community Partner State or (b) a body corporate being a company incorporated under the Companies Act or such other similar statute or an East African Community Partner State in which the citizen or the Government of an East African Community Partner State have beneficial interest in 100% of its ordinary shares or any other body corporate established or incorporated in an East African Community Partner State, under the provisions of any written law. An East African Community Partner State means States that are members of the East African Community Under the SCD regulations, a foreign investor ( Foreign Investor ) is any person who is not a local investor Subject to the provisions in this Section, there are no known restrictions on Foreign Investor ownership of publicly listed companies in Uganda Foreign Investors wishing to apply for New Shares must satisfy themselves as to the full observance of the laws of the relevant territory and governmental and other consents, to ensure that all requisite formalities are adhered to, and pay any issue costs, transfer costs or other taxes due in such territory. Before applying for and purchasing New Shares, foreign investors are advised to consult their own professional advisers on any applicable laws and regulations This Information Memorandum and accompanying PAL do not, and are not intended to constitute an offer for the New Shares in any place outside Uganda or in any circumstances where such offer or solicitation is not Authorized or is unlawful. In that regard, this Information Memorandum and accompanying PAL may not be used for or in connection with any offer to, or solicitation by anyone in any jurisdiction or in any circumstances where such offer or solicitation is not authorized, or is unlawful. The distribution of this Information Memorandum and the accompanying PAL outside of Uganda may be restricted by law and persons who come into possession of this Information Memorandum and the accompanying PAL should seek advice on and observe those restrictions. Any failure to comply with those restrictions may constitute a violation of applicable securities laws. Any such recipient must not treat this Information Memorandum and accompanying PAL as constituting an offer to him, unless it is received in the relevant jurisdiction, such invitation or offer could be made lawfully to him/her without contravention of any unfulfilled registration or legal requirements. Without limitation, neither this Information Memorandum nor the accompanying PAL may be sent or otherwise distributed outside Uganda In particular, the Rights Issue has not been and will not be, registered under the United States Securities Act, 1933 or the securities laws of any state in the United States of America and is not being made in the United States of America or to persons resident in the United States of America. Without limitation, neither this Information Memorandum nor the accompanying PAL, may be sent or otherwise distributed to investors in the United States of America. Eligible Shareholders with a registered address in Uganda holding Existing Shares on behalf of persons who are resident in a jurisdiction outside Uganda, are responsible for ensuring that taking up New Shares under the Rights Issue does not breach securities laws in that other jurisdiction. The return of a duly completed Entitlement and Acceptance Form in accordance with this Information Memorandum will not be deemed as a representation that there has been no breach of such laws.

68 Tax Implications Eligible Shareholders interested in participating in the Rights Issue should consult their tax advisor of any possible tax implication connected with the Rights Issue. The Board of Directors have not provided detailed advice in respect of taxation consequences in connection with the Rights Issue, save for what is expressly set out in this Information Memorandum Neither dfcu nor any of the Directors of dfcu Group or any of dfcu officers or transaction advisors will accept any liability for any taxation implications, in connection with the Rights Issue Residents are subject to withholding tax on dividends at the rate of 10%. Non-resident Investors will be subject to a withholding tax rate of 15% Underwriting The Rights issue is not underwritten as a result of the allotment policy for untaken rights in sections Authorized Agents Members of the Uganda Securities Exchange as shown in Annexure VIII dfcu Bank Limited, which has been appointed as the receiving bank for the Rights Issue Governing Law The Rights Issue documents and any contract resulting from the acceptance of an application to purchase the New Shares shall be governed by and construed in accordance with the Laws of Uganda and it shall be a term of each such contract that the parties thereto and all other interested parties submit to the exclusive jurisdiction of the Courts of Uganda Dispute Resolution Any dispute difference or question which may arise at any time touching upon the construction or validity of this Information Memorandum on the rights and liabilities of the parties with respect thereto shall be referred to the decision of a single arbitrator to be agreed upon between the parties or in default of agreement within fourteen (14) calendar days (holidays excluded) to be appointed at the request of any party by the Chairman for the time being of the Uganda Branch of the Chartered Institute of Arbitrators. Such arbitration shall be conducted in Kampala, Uganda in accordance with and subject to the provisions of The Arbitration and Conciliation Act or any statutory modification or re-enactment thereof for the time being in force. The decisions of the arbitrator shall be final and binding upon the parties to the fullest extent permissible by law. No person shall be entitled to seek or obtain any relief the effect of which would be to stop, halt or otherwise interfere, temporarily or otherwise, with the Rights Issue. Any party, other than dfcu Group seeking to enforce or assert any rights pursuant or as a result of the Rights Issue accepts and acknowledges that damages will be an adequate remedy for any claim that they may have and any loss they may suffer.

69 69 ANNEXURES I. Legal Opinion 31 August 2017 African Alliance Uganda Limited (the Transaction Advisor) 1st Floor, Workers House, Pilkington Road P.O Box KAMPALA. Dear Sirs, LEGAL OPINION ON THE RIGHTS ISSUE AND SUBSEQUENT LISTING OF SHARES BY dfcu LIMITED 1. Background 1.1 We have acted as legal advisors in relation to the offer for subscription to existing shareholders, by way of a rights issue, of previously unissued share capital of ( the Issuer ) being a 0.53 for 1 rights issue of 263,157,895 ordinary shares with a par value of UGX 20 each in the authorized share capital of the Issuer ( the New Shares ) at an offer price of UGX 760 per share and subsequent listing of the newly-subscribed shares on the Main Investment Market Segment of the Uganda Securities Exchange ( the Rights Issue ) upon the Terms and Conditions of the Rights Issue set out in the Information Memorandum. 1.2 Terms defined in the Information Memorandum have the same meaning in this opinion unless otherwise stated or the context requires. 2. Documents This opinion ( this Opinion ) is based on our examination of originals, photocopies and, where applicable, copies certified to our satisfaction of the following documents: a). the certificate of incorporation of the Issuer issued on 14th May 1964 under certificate number 2256; b). the memorandum of association and articles of association of the Issuer in force as at the date of the Information Memorandum; c). a registered special resolution in which the shareholders of the Issuer approved the change of name of the Issuer from Development Finance Company of Uganda Limited to dated 22nd June 2000; d). a certificate of change of name dated 27th June 2000; e). a registered special resolution dated 8th June 2017 in which the shareholders of the Issuer authorize the directors of the Issuer to: i. offer for subscription the unissued shares of the Company by way of a rights issue to shareholders of the Company on such terms and conditions and at such times, price and proportions to current shareholding as the directors shall in their sole discretion decide; ii. issue and allot those unissued shares of the Company that are subscribed for by way of the rights issue to eligible applicants; iii. apply to the Capital Markets Authority for approval of the rights issue;

70 70 iv. apply to the Capital Markets Authority and Uganda Securities Exchange for the listing of the shares subscribed for; and v. do all such things and take all such actions as are necessary for the achievement of the mandates in (i), (ii), (iii) and (iv) above. f). a registered resolution of the directors of the Issuer dated 24th July 2017 in which the directors of the Issuer approved the Rights Issue; g). duplicate certificates of title for property comprised in Leasehold Register Volume 175 Folio 15, Plot 26 Kyadondo Road, Kampala and Leasehold Register Volume 2331 Folio 8 Plot 1 MacKinnon Road, Kampala, with the Issuer listed as the registered proprietor; h). lease agreement dated 28th June 2017 between Uganda Investment Authority and the Issuer in respect of property comprised in Kyaggwe Block 111 Plot 3737, situated at Namanve; i). trade license (No TLC: ) issued by the Kampala Capital City Authority to the Issuer and valid until 8th August 2018; j). a letter of the Capital Markets Authority dated 11th August 2017 approving the Rights Issue in the manner prescribed in the Information Memorandum; k). a letter of the Uganda Securities Exchange dated 15th August 2017 approving the listing of the New Shares that are to be issued; i. the Information Memorandum; and ii. such other records and documents as we have considered necessary and appropriate for the purposes of this Opinion. (the documents listed in this clause being referred to collectively as the Documents ). 3. Assumptions For the purposes of this Opinion, we have assumed that: 3.1 all documents submitted to us as originals are authentic and complete, all signatures, stamps and seals on the documents submitted to us are genuine and all documents submitted to us as copies are complete and conform to the original documents; 3.2 all Documents, agreements and other memoranda have been duly authorized and duly executed; 3.3 all copies of the Documents supplied to us are authentic; 3.4 with respect to matters of fact, we have relied on the representations of the Issuer and its officers and advisors and information contained in the Documents; 3.5 the governmental or regulatory bodies which granted approval of the Rights Issue were properly constituted in accordance with applicable laws, regulations and rules, were duly authorized to grant the approvals and acted within the bounds of that authority; 3.6 all approvals relevant to the Rights Issue have not been amended or withdrawn and are in full force and effect; 3.7 the obligations of all parties (other than the obligations of the Issuer) to the Documents, are binding on such parties; 3.8 the resolutions referred to in paragraphs 2(e) and 2(f) above have been validly passed and have not been amended or rescinded; that they are complete and accurate and remain in full force and effect and that all signatures on the originals of such resolutions are genuine and were not fraudulently obtained; 3.9 the memorandum and articles of association of the Issuer provided to us for purposes of this opinion have not been amended since 22nd June 2016; and 3.10 no law or regulation of a jurisdiction other than Uganda affects the opinions given below.

71 71 4. Opinion This Opinion is confined to matters of Ugandan law as at the date of this opinion and is governed by and should be construed in accordance with the laws of Uganda. In addition, the opinions expressed herein are based on; a). the information contained in the Documents and that provided by the Issuer s officers and advisors; b). a search at the Registry of Companies at the Uganda Registration Services Bureau conducted by ourselves on 28 th August 2017; c). a search at court registries conducted by ourselves on 28 th August 2017; d). a search at the Intellectual Property Registry at the Uganda Registration Services Bureau conducted by ourselves on 7 th June 2017; and e). a due diligence conducted by us on the affairs of the Issuer as of 31 st August Subject to the assumptions set out above and the qualifications set out below, we are of the following opinion. 4.1 Status of the Issuer The Issuer is a public company limited by shares incorporated in Uganda under the Companies Act under registration number 2256 and is listed on the Main Investment Market Segment of the Uganda Securities Exchange The Issuer has power to execute, deliver and exercise and perform its obligations pursuant to the Rights Issue and such execution, delivery and performance does not and will not result in any violation by the Issuer of any provision of its memorandum of association or articles of association or the provision of any law or regulation having the force of law in Uganda and applicable to the Issuer The company search did not reveal any resolution for the winding-up of the Issuer and no notice of or appointment of a liquidator or receiver of the Issuer was sighted at the court registries. 4.2 The Rights Issue The Issuer has the power to issue and allot the New Shares and the offer for subscription and subsequent listing of the New Shares on the Main Investment Market Segment of the Uganda Securities Exchange has been duly authorized by the Issuer pursuant to approvals from the Issuer s members, its directors, the Capital Markets Authority and the Uganda Securities Exchange Once the allotment of the New Shares to the eligible applicants has been completed, the allotments will constitute valid, legally binding and unconditional obligations of the Issuer in accordance with their terms except as the obligations may be limited by insolvency or other similar laws affecting creditors rights generally and by general principles of equity No consents, licenses, approvals, authorizations of any governmental or other authority or agency in Uganda are required by law in connection with the execution, delivery and performance of the Rights Issue by the Issuer, except as indicated in paragraph of this Opinion.

72 Share capital and shareholding The authorized share capital of the Issuer is Uganda Shillings Twenty Five Billion (UGX 25,000,000,000) divided into 1,250,000,000 ordinary shares of Uganda Shillings Twenty (UGX 20) each. This authorized share capital is compliant with the requirements of the Uganda Securities Exchange Listing Rules 2003 (as amended) The issued and paid up share capital of the Issuer is Uganda Shillings Nine Billion Nine Hundred and Forty Four Million Thirty Six Thousand Four Hundred and Forty (UGX 9,944,036,440) divided into 497,201,822 ordinary shares of Uganda Shillings Twenty (UGX 20) each. As at the date of the Information Memorandum, 752,798,178 ordinary shares are unissued The largest shareholding of the Issuer as at 30th June 2017 is as follows; Name Shareholding after Capitalisation Issue % held ARISE B.V. 273,847, % CDC GROUP PLC 74,580, % NATIONAL SOCIAL SECURITY FUND 29,487, % KIMBERLITE FRONTIER AFRICA NASTER FUND 29,324, % NATIONAL SOCIAL SECURITY FUND-PINEBRIDGE 5,835, % BANQUE PICTET AND CIE SA A/C BLANKENEY L.P 5,024, % VANDERBILT UNIVERSITY 4,810, % SSB-CONRAD N HILTON FOUNDATION 4,741, % BANK OF UGANDA STAFF RETIREMENT BENEFIT SCH-SIMS 2,904, % BANK OF UGANDA STAFF RETIREMENT BENEFIT SCHEME AIG 2,831, % PARLIAMENTARY PENSION SCHEME 1,911, % URA RETIREMENT BENEFITS SCHEME PINEBRIDGE 1,862, % CENTENARY BANK STAFF DEFINED CONTRIBUTORY SCHEME 1,834, % UAP INSURANCE CO. LIMITED 1,786, % CENTRAL BANK OF KENYA PENSION FUND 1,601, % BANQUE PICTET AND CIE SA A/C - HEVIBEN L. P 1,547, % MAKERERE UNIVERSITY RETIREMENT BENEFITS SCHEME- MU 1,526, % JUBILEE INVESTMENT COMPANY LIMITED 1,444, % RAKESH GADANI 1,292, % PPS-GEN AFRICA ASSET MANAGEMENT 1,274, % OTHERS 47,733, % Total 497,201, % The New Shares shall rank pari passu in all respects with the Existing Shares in the issued share capital of the Issuer, including the right to participate in full in all dividends and other distributions declared or made in respect of such share capital.

73 Licenses Other than trade license (No TLC: ) issued by the Kampala Capital City Authority to the Issuer, no other license is required for the conduct of the Issuer s business. 4.5 Ownership of assets and interests in land The Issuer is the registered proprietor of the following property: a). LRV 175 Folio 15, Plot 26 Kyadondo Road, Kampala, being a lease granted for a term of 99 years with effect from 1 January 1939; and b). LRV 2331 Folio 8 Plot 1 MacKinnon Road, Kampala, being a lease granted for a term of 49 years with effect from 10 January The Issuer has an equitable interest in property comprised in Kyaggwe Block 111 Plot 3737, situated at Namanve. By a lease agreement dated 28 June 2017 between the Uganda Investment Authority and the Issuer, the Uganda Investment Authority has granted the Issuer a lease extension of 30 years over the property [Kyaggwe Block 111 Plot 3737] with effect from 7th October The Issuer s assets (with the exception of the property described in paragraphs and above) comprise of moveable assets, which are not registrable under the laws of Uganda The Issuer does not own any registered intellectual property other than the trademark registered under number ( dfcu LIMITED [word and device]) at the Uganda Registration Services Bureau. 4.6 Material Litigation The Issuer is not involved in any material litigation nor has it been threatened with any litigation. In four cases where the Issuer is listed as a litigating party, legal and financial responsibility for the litigation lies with dfcu Bank Limited following the transfer of the Issuer s assets and liabilities to dfcu Bank Limited by a board of directors resolution dated 6th December 2007 and a transfer agreement dated 31st December 2017 as part of a group restructuring. The transfer agreement provides that all pending, threatened or subsequent litigation by or against the Issuer is to be conducted by dfcu Bank Limited with effect from 1st January The Issuer is not the subject of any investigation or prosecution The Issuer s directors are not subject to any material litigation, bankruptcy proceedings or criminal legal action. 4.7 Compliance The Information Memorandum: a). complies with the Capital Markets Authority Act, Cap. 84, as amended by the Capital Markets Authority (Amendment) Act, 2011; b). complies with the Capital Markets Authority (Prospectus Requirements) Regulations S.I. 84-2, as amended by the Capital Markets Authority (Prospectus Requirements) (Amendment) Regulations, 1999, the Capital Markets Authority (Prospectus Requirements) (Amendment) (No. 2) Regulations, 2001 and the Capital Markets Authority (Prospectus Requirements) (Amendment) Regulations, 2008; c). complies with the Uganda Securities Exchange Listing Rules, 2003, as amended by the Uganda Securities Exchange Listing Rules (Amendment) Rules, 2005 and the Uganda Securities Exchange Equity Trading Rules, 2015; and d). has been approved by the Capital Markets Authority in accordance with the Capital Markets Authority Act, Cap. 84 (as amended by the Capital Markets Authority (Amendment) Act, 2011) and section 60 (a) of the Companies Act 2012.

74 A copy of the Information Memorandum is to be delivered to the Registrar of Companies at Kampala for registration as provided under section 60 (b) of the Companies Act 2012 and section 90G (1) (c) of the Capital Markets Authority Act Cap. 84 (as amended the Capital Markets Authority (Amendment) Act 2011), duly signed by every person named in the Information Memorandum as a director of the Issuer, or by the Issuer s agent, duly authorized in writing The Information Memorandum includes statements made by Ernst & Young as the Reporting Accountants and by ourselves as the Legal Advisors, as experts for purposes of section 90M (1) (h) of the Capital Markets Authority Act Cap. 84 (as amended by the Capital Markets Authority (Amendment) Act 2011). Ernst & Young and ourselves have given and have not, prior to the date of the Information Memorandum, withdrawn our consent to the issue of the Information Memorandum containing the statements by us in the form and context in which they are included We are of the opinion that the Issuer is in material compliance with the provisions of the Companies Act 2012 and the Capital Markets Authority Act Cap 84 as amended by Capital Markets Authority (Amendment) Act 2011, Capital Markets Authority (Amendment) Act 2016 and the Uganda Securities Exchange Listing Rules, 2003 (as amended). 4.8 Subsidiaries The Issuer owns 249,999,999 shares in dfcu Bank Limited being 99.9% of the issued share capital of dfcu Bank Limited. dfcu Bank Limited is licensed by Bank of Uganda to conduct financial institution business as a commercial bank. 4.9 Material borrowings The Issuer has entered into financing transactions with its subsidiary and its largest shareholder as well as third parties. In February 2017, the Issuer borrowed United States Dollars Fifty Million (US$ 50,000,000) from its largest shareholder Arise B.V. for purposes of shoring up its subsidiary s regulatory capital. The borrowings, as particularised in the Information Memorandum, do not exceed the limits set out in the Issuer s articles of association As at the date of this Opinion, the Issuer is not in breach of any of the terms of its loan agreements Material contracts The Issuer has not entered into any material contracts, which are not disclosed in the Information Memorandum. 5. Qualifications The opinions expressed herein are subject to the qualifications below. 5.1 We are not liable for any inaccuracies in this opinion resulting from the actions and/or omissions and/or willful statements or representations on the part of the Issuer and/or any of its officers, representatives or agents in the Documents which may have taken place or which may have been made in connection with the preparation and/or rendering of this opinion. 5.2 Any views which are expressed in respect of, or on the basis of, any law, statute, regulation or similar rules, are expressed in respect of the relevant law, statute, regulation or similar rules as in force, and on the basis of the provisions thereof, at the date of this opinion. 5.3 The opinions expressed herein relate to the laws of Uganda as currently applied and interpreted by the Ugandan courts and are limited to questions arising under the laws of Uganda. We do not purport to have investigated the laws of any jurisdiction outside Uganda, or to express any opinion on any question arising under the laws of any other jurisdiction. 5.4 Except as explicitly stated herein, we express no opinion on matters of fact.

75 75 6. Conclusion Subject to the above, we are of the opinion that there are no other material facts with regard to the legal status of the Issuer and the Rights Issue. We are of the opinion that the Rights Issue is in compliance with all applicable laws of Uganda and has received all necessary authorizations. 7. Benefit and Reliance This Opinion is given solely for the benefit of the addressees for the purpose of the offer for subscription of shares by the Issuer and may not be relied upon, quoted or referred to by any other person or used for any other purpose. Yours faithfully, SEBALU & LULE ADVOCATES

76 76 II. Reporting Accountant s Report. The Directors Plot 26 Kyadondo P. O. Box 2767 Kampala, Uganda 24 August 2017 Reporting Accountant s report on compilation and review of the financial information of for the period ended 31 March 2017 and the years ended 31 December 2012, 2013, 2014, 2015 and Introduction We hereby submit our Reporting Accountant s Report in accordance with the requirements of Section 6 and Part 3 of the Third Schedule to the Capital Markets (Prospectus Requirements) Regulations of Uganda. We have examined the reviewed interim financial information for the 3 months period ended 31 March We have also examined the audited financial statements of (the Company ) for the following periods; 1. Year ended 31 December Year ended 31 December Year ended 31 December Year ended 31 December Year ended 31 December 2012 We have compiled the accompanying financial information of the Company based on audited and unaudited financial statements and information you have provided. This financial information comprises the statements of financial position of as at 31 March 2017, and as at 31 December 2012, 2013, 2014, 2015 and 2016; the statement of comprehensive income, statement of changes in equity and statement of cash flows for the periods then ended, and a summary of significant accounting policies and other explanatory information. The financial statements as at 31 March 2017 are condensed interim financial statements. We performed this compilation engagement in accordance with International Standard on Related Services 4410 (Revised), Compilation Engagements. PricewaterhouseCoopers (PwC) acted as the auditor of the Company for the years 2012 to 2015 and KPMG acted as the auditor for the periods 2016 to 2017, and issued unqualified audit reports. Responsibilities of the directors The directors of the Company are responsible for the preparation of the information Memorandum and all the information contained therein and for the preparation of the financial statements and the financial information to which this Accountants Report relates and from which it has been prepared. Our responsibility You required us to prepare an Accountants Report to be included in the Information Memorandum for the purposes of a rights issue. Our responsibility is detailed in our letter of engagement. The objective of the engagement was to enable us to state whether, on the basis of our review procedures which do not provide all the evidence that would be required in an audit, anything has come to our attention that causes us to believe that the financial statements were not prepared, in all material respects, in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 2012 of Uganda.

77 77 Basis of conclusion The financial information set out in this report was prepared in accordance with International Standard on Related Services Engagement to compile Financial Statements (ISRS 4410) and is based on the audited financial statements of the Company, after making the adjustments considered appropriate to make all the financial statements compliant with International Financial Reporting Standards. Further to enable us prepare an Accountants Report, we carried out procedures to satisfy ourselves that the information presented in the financial statements was in accordance with the Regulations. In compiling the financial information, we have effected the following adjustment to the information presented in the audited financial statements as set out below; Previously stated 2012 Restated 2012 Net profit attributable to equity holders of the Company (Shs M) 30,617 30,617 Weighted average number of ordinary shares in issue 248,600, ,201,822 Basic earnings per share (Shs) Diluted earnings per share (Shs) During the financial year 2014, there was a bonus issue, therefore the number of ordinary shares outstanding increased without an increase in resources. As per IAS 33, Earnings per share, the number of ordinary shares outstanding before the event should be adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented. This was effected in the financial year 2013 but was not effected in 2012, which is the earliest period presented. We have restated the 2012 figures to that effect and the change has impacted note 12, Earnings per share and the face of the Statement of Comprehensive Income under the heading, Earnings per share. In addition to our compilation engagement, we have reviewed the financial information of as set out above. We conducted our review in accordance with the International Standard on Review Engagements 2400, Engagements to Review Historical Financial Statements ( ISRE 2400 ). This standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial information is free of material misstatement. A review is limited primarily to inquiries of management and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention to indicate that the accompanying financial information of is not presented fairly, in all material respects, in accordance with International Financial Reporting Standards. We consent to the inclusion of this report in the Information memorandum to be issued on or about 24 August 2017 in the form and context in which it appears. Certified Public Accountants KAMPALA

78 78 Condensed consolidated interim financial statements (unaudited) 31 March 2017

79 79 Condensed consolidated statement of profit or loss and other comprehensive income Note Unaudited 3 months to 31 March 2017 Unaudited 3 months to 31 March 2016 Unaudited 12 months to 31 December 2016 Shs M Shs M Shs M Total income 8 & ,803 40, ,093 Operating expenses 9 (44,103) (22,933) (96,900) Allowance for impairment of loans and advances 2,815 (2,716) (17,830) Profit before income tax 147,515 14,562 58,363 Income tax expense (42,840) (3,543) (13,038) Profit for the period 104,675 11,019 45,325 Profit attributable to : Owners of the Company 104,675 11,019 45, ,675 11,019 45,325 Earnings per share for the profit attributable to the owners of the Company during the period basic and diluted (Shs) Unaudited 3 months to 31 March 2017 Unaudited 3 months to 31 March 2016 Audited 12 months to 31 December 2016 Shs M Shs M Shs M Profit for the year 104,675 11,019 45,325 Other comprehensive income Total comprehensive income 104,675 11,019 45,325 Attributable to: Owners of the Company 104,675 11,019 45, ,675 11,019 45,325

80 80 Condensed consolidated statement of financial position Note Unaudited Unaudited Audited As at 31 March 2017 As at 31 March 2016 As at 31 December 2016 Shs M Shs M Shs M Assets Liquid assets 11 1,262, , ,219 Advances to customers 12 1,309, , ,360 Other assets , , ,146 Total assets 3,102,650 1,572,250 1,757,725 Liabilities Customer deposits 1,776, ,291 1,134,731 Other payables and liabilities ,334 32,211 28,758 Borrowings , , ,584 Total liabilities 2,748,323 1,346,100 1,508,073 Equity Shareholders equity 354, , ,652 Total equity and liabilities 3,102,650 1,572,250 1,757,725

81 81 Condensed consolidated sstatement of changes in equity Share capital Share premium Distributable Reserves Non Distributable Reserves Regulatory Reserves Proposed dividend Attributable Total to equity holders of the parent Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M At 1 January ,464 2, ,669 12,113 24,203 10, , ,131 Profit for the year , ,325 45,325 Total comprehensive income for the , ,325 45,325 year Transfer from regulatory reserve ,130 - (20,130) Dividend paid (10,804) (10,804) (10,804) Dividend proposed - - (12,510) , At 31 December ,464 2, ,614 12,113 4,073 12, , ,652 Three months ended 31 March 2017 At 1 January ,464 2, ,614 12,113 4,073 12, , ,652 Profit for the three months ended , , ,675 March 2017 Transfer from regulatory reserve - - 4, (4,073) - At 31 March ,464 2, ,362 12,113-12, , ,327 Three months ended 31 March 2016 At 1 January ,464 2, ,669 12,113 24,203 10, , ,131 Profit for the three months ended , ,019 11,019 March 2016 Transfer from regulatory reserve - - 4,074 - (4,074) At 31 March ,464 2, ,762 12,113 20,129 10, , ,150

82 82 Condensed consolidated statement of cash flows Unaudited 3 months to 31 Mar 2017 Unaudited 3 months to 31 March 2016 Audited As at 31 December 2016 Shs M Shs M Shs M Cash flows from operating activities Profit before income tax 147,515 14,561 58,363 Non-cash items included in profit before 3,832 2,481 10,013 income tax Change in operating assets (1,160,200) (146,007) (153,514) Change in operating liabilities 943, , ,148 Current income tax paid (49,378) (306) (15,730) Net cash (used)/generated from operating activities (114,620) (3,973) 56,280 Investment activities Purchase of property and equipment, (46,556) (631) (9,070) investment property and intangible assets Proceeds from sale of property and equipment Net cash used in investing activities (46,376) (631) (9,070) Financing activities Net change in borrowings 420,220 (18,163) (60,740) Dividends paid to shareholders - - (10,804) Net cash used in financing activities 420,220 (18,163) (71,544) Net increase/(decrease) in cash and cash equivalents 259,224 (22,767) (24,334) Cash and cash equivalents at start of period 227, , ,280 Cash and cash equivalents at end of period 487, , ,946

83 83 The cash and cash equivalents reconciliation is as follows: Unaudited 3 months to 31 Mar 2017 Unaudited 3 months to 31 March 2016 Audited As at 31 December 2016 Shs M Shs M Shs M Cash on hand 86,709 56,796 80,738 Balance with Bank of Uganda 284, ,808 95,827 Less: Cash reserve requirement (134,120) (71,590) (88,090) Due from commercial banks 249,870 96, , , , ,946 Notes 1. General information, a company registered in Uganda, and its subsidiaries (hereafter the Group ) provides commercial banking, lease and mortgage finance for the development of people and businesses in Uganda. The company is a public limited company, which is listed on the Uganda Securities Exchange and incorporated and domiciled in Uganda. These condensed interim financial statements have been reviewed, but not audited. 2. Basis of preparation These condensed consolidated interim financial statements for the three months period ended 31 March 2017 have been prepared in accordance with IAS 34, lnterim financial reporting and should be read in conjunction with the Group s last annual consolidated financial statements as at end of the year ended 31 December They do not contain all the information required for a complete set of IFRS financial statements. A detailed breakdown of the Condensed Interim Financial Statements showing the financial statement line items as presented in the annual financial statements has been shown as an appendix to these financial statements. The Group operates in an industry where significant seasonal or cyclical variations in interest rates are experienced during the financial year. These condensed consolidated interim financial statements were authorised for issue by the Board of Directors on 10 July Accounting policies The accounting policies adopted are consistent with those of the previous financial year.

84 84 4. Use of judgements and estimates The preparation of condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group s accounting policies and key sources of estimation uncertainty were the same as those applied in the financial statements for the year ended 31 December Business combination The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Notes (continued) 6. Financial risk management and financial instruments a. Financial risk factors The Group s activities expose it to a variety of financial risks: market risk (including currency risk, interest rate risk, and price risk), credit risk and liquidity risk. The condensed consolidated interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group s annual financial statements as at 31 December There have been no changes in any risk management policies since the year end. b. Liquidity risk Compared to year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities.

85 85 c. Fair value estimation As at 31 March 2017, the Bank had treasury bills and treasury bonds that are held-for-trading and are measured at fair value. Held-for-trading treasury bills fair values are derived from quoted market prices and held-for-trading treasury bonds fair values are derived from discounting expected future cash flows. The discounting rates used for the valuation of treasury bonds are derived from observable market data. The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly from the market. The sources of input parameters like government treasury bills yield curve or counterparty credit risk are the Bank of Uganda website, Reuters and comparison with similar financial institutions. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. 7. Segment information For management purposes, the Group is organised into business units based on their products and services, and has two reportable operating segments as follows:, which is the holding company that is listed on the Uganda Stock Exchange. dfcu Bank Limited; this is the commercial banking segment which provides innovative products and superior service levels catering for customer needs in the areas of savings and investment products, personal and current accounts, personal credit, corporate credit, trade finance, foreign exchange trading, money market transfers, etc. It also consists of a development finance segment which provides medium and long term finance to private sectors in Uganda. The sectors include agro processing, education, health, manufacturing, transport, hospitality industry, tourism and construction. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Statement of comprehensive income: The segment results for the three month period ended 31 March 2017 were as follows: dfcu Bank Intra-segment Group items Shs M Shs M Shs M Shs M Total income 15, ,949 (19,330) 188,803 Profit/(loss) before income tax 14, ,649 (18,509) 147,515 Income tax expense 1,240 (44,080) - (42,840) Profit for the period 15, ,569 (18,509) 104,675

86 86 The segment results for the three month period ended 31 March 2016 were as follows: dfcu Bank Intra-segment Group items Shs M Shs M Shs M Shs M Total income 4,112 40,822 (4,723) 40,211 Profit/(loss) before income tax 3,246 15,316 (4,000) 14,562 Income tax expense 64 (3,607) - (3,543) Profit for the period 3,310 11,709 (4,000) 11,019 The segment results for the year ended 31 December 2016 were as follows: dfcu Bank Intra-segment Group items Shs M Shs M Shs M Shs M Total income 17, ,051 (18,595) 173,093 Profit/(loss) before income tax 13,452 59,713 (14,802) 58,363 Income tax expense 405 (13,443) - (13,038) Profit for the period 13,857 46,270 (14,802) 45,325 Statement of financial position: As at 31 March 2017 dfcu Bank Intra-segment Group items Shs M Shs M Shs M Shs M Total Assets 281,666 3,076,423 (255,439) 3,102,650 Total Liabilities 213,205 2,587,721 (52,603) 2,748,323 Capital expenditure 685 8,256-8,941 As at 31 March 2016 dfcu Bank Intra-segment Group items Shs M Shs M Shs M Shs M Total Assets 71,951 1,541,815 (41,516) 1,572,250 Total Liabilities 18,846 1,342,433 (15,179) 1,346,100 Capital expenditure

87 87 As at 31 December 2016 dfcu Bank Intra-segment Group items Shs M Shs M Shs M Shs M Total Assets 75,227 1,727,341 (44,843) 1,757,725 Total Liabilities 22,380 1,504,200 (18,507) 1,508,073 Capital expenditure 3,976 5,094-9, Total income Unaudited 3 months to March 17 Audited 3 months to March 16 Audited Year ended 31 Dec 2016 Shs M Shs M Shs M Net interest income 57,547 31, ,241 Fees and commission income 8,233 6,850 29,305 Net trading and other income 1,172 2,315 10,547 Gain on bargain purchase 121, Total income 188,803 40, , Operating expenses Unaudited 3 months to March 17 Audited 3 months to March 16 Audited Year ended 31 Dec 2016 Shs M Shs M Shs M Operating expenses (36,563) (22,933) (96,900) Amortisation of intangible assets (7,540) - - Amortisation of intangible assets (44,103) (22,933) (96,900) 10. Income taxes The Group is subject to various government taxes under the Ugandan tax laws. Significant estimates and judgments are required in determining the provision for taxes on certain transactions. For these transactions, the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences impact profit or loss.

88 Liquid assets Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Assets Cash and balances with Bank of Uganda 371, , ,565 Government and other securities 641, , ,183 Deposits and balances due from other banks 249,870 96, ,471 1,262, , , Loans and advances to customers Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Gross loans 1,139, , ,724 Gross overdrafts 212,948 52,987 55,288 1,352, , ,012 Allowance for impairment of loans and advances: Individually assessed (29,730) (8,075) (21,492) Collectively assessed (12,738) (6,306) (7,160) Net loans and advances to customers 1,309, , , Other assets Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Investment in equity shares 36, Other assets 292,426 21,741 19,364 Deferred income tax asset - 1,394 3,290 Property and equipment (Note 13) 159,998 79,777 78,629 Intangible assets 41,206 7,490 8,863 Total assets 529, , ,146

89 Property, plant and equipment and intangible assets PPE Other intangible assets Shs M Shs M Three months ended 31 March 2017 Opening net book amount as at 1 January ,629 8,863 Additions 7,054 32,829 Transfers from Crane Bank 76,642 - Disposals (456) - Depreciation and amortization (1,871) (486) Closing net book amount as at 31 March ,998 41,206 Three months ended 31 March 2016 Opening net book amount as at 1 January ,387 7,791 Additions Disposals - - Depreciation and amortization (2,274) (301) Closing net book amount as at 31 March ,777 7,490 Year ended 31 March 2016 Opening net book amount as at 1 January ,387 7,791 Additions 6,649 2,421 Disposals (195) - Depreciation and amortization (9,212) (1,349) Closing net book amount as at 31 December ,629 8, Other payables and Liabilities Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Other liabilities 105,941 22,741 25,962 Deferred income tax liability 16, Current income tax payable 21,842 9,470 2, ,334 32,211 28,758

90 Borrowings Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Deposits due to other banks 80,758 30,003 11,505 Borrowed funds (Note 16) 747, , ,079 Total liabilities 827, , , Borrowed funds The movement in borrowings are analysed as follows: Unaudited Unaudited Audited 31 March March December 2016 Shs M Shs M Shs M At start of the period 333, , ,818 Proceeds from new borrowings 332, ,528 Transfers from crane bank 108, Repayment of borrowings (27,354) (16,673) (62,267) At end of the period 747, , , Share capital Number of shares (millions) Ordinary shares Shs M At 31 December 2016, 31 March 2016 and 2017 Issued and fully paid shares of Shs 20 each 497 9,464 Number of shares Ordinary share Share premium capital (million) Shs M Shs M At 31 December 2016, 31 March 2016 & ,464 2,878

91 Dividends There were no dividends proposed during the period ended 31 March 2017 (31 March 2016: Nil and 31 December 2016: Shs 12.5 billion). 20. Related party disclosures The Group has several companies that are related to through common shareholdings or common directorships. The following transactions were carried out with related parties: (a) Amounts due to Group companies Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Jubilee Insurance Company Limited-Fixed and 9,044 7,195 6,649 demand deposits Umeme Limited-Demand deposits 1,932 1,635 2,738 National Social Security Fund (NSSF)-Fixed and demand deposits 48,111 5, These include borrowings and deposits held with and dfcu Bank Limited which both accrue interest at the prevailing market prices. (b) Borrowings due to shareholders Unaudited Unaudited Audited 31 March March December 2016 Shs M Shs M Shs M Norwegian Investment Fund for Developing 5,272 10,543 5,272 Countries (NORFUND) CDC Group Plc (CDC) 36,150 8,785 36,150 Arise B.V 182, The Norwegian Investment Fund for Developing Countries (NORFUND), CDC Group Plc (CDC) and Arise B.V hold shareholding in. As at 31 March 2017, there were outstanding borrowings due to NORFUND and CDC as shown above. During the year, concluded an agreement with Arise B.V (an entity owned by Norfund, Norfinance, Rabo Bank and FMO) for a USD 50 million bridging facility to support the enhanced capital adequacy requirements of dfcu Bank Limited, a wholly owned subsidiary.

92 92 c) Key management compensation Unaudited 31 March 2017 Unaudited 31 March 2016 Audited 31 December 2016 Shs M Shs M Shs M Salaries and other short-term employment benefits 1,185 1,217 5,079 Post-employment benefits ,244 1,283 5,658 (d) Directors remuneration Fees for services as directors Other emoluments: short-term benefits (included in key management compensation) , Contingent liabilities and commitments One of the subsidiaries of the Company, dfcu Bank Limited (the Bank) conducts business involving acceptances, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties. In addition, there are other commitments including undrawn standby facilities, the nominal amounts for which are not reflected in the statement of financial position. Nature of contingent liabilities An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Bank expects most acceptances to be presented, and reimbursement by the customer is normally immediate. Amounts committed under acceptances are accounted for as off-statement of financial position items and are disclosed as contingent liabilities and commitments. Letters of credit commit the Bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers. Guarantees are generally written by the Bank to support performance by a customer to third parties. The Bank will only be required to meet these obligations in the event of the customer s default. Unaudited Unaudited Audited 31 March March December 2016 Shs M Shs M Shs M Acceptances and letters of credit Guarantee and performance bonds 100,300 70,707 92,081 Undrawn formal stand-by facilities, credit lines and 65,858 19,154 27,434 other commitments to lend 166,158 89, ,515

93 93 22.Acquisition of Crane Bank Limited On 27th January 2017, Bank of Uganda in exercise of its powers as Receiver, under Section 95(1)(b) of the Financial Institutions Act transferred some of the liabilities (including the deposits) of Crane Bank Limited to dfcu Bank Limited and in consideration of that transfer of liabilities conveyed to dfcu Bank Limited, Crane Bank Limited s assets. All customers of Crane Bank Limited now have their accounts operated by dfcu Bank Limited through the wide spread branch network, which now includes some branches that were formerly operated by Crane Bank Limited. As a result, the bank s branch network has increased from 42 to 67 branches country wide. took a loan from Arise B.V. and used that to inject an additional capital of Shs billion in dfcu Bank Limited, to meet capital requirements. a.identifiable assets acquired and liabilities assumed The following table summarises the recognised amounts of assets acquired and liabilities at fair value assumed at the date of acquisition. Ushs M Property, plant and equipment 89,164 Intangible assets 34,982 Investment in subsidiaries 23,097 Cash and cash balances with BOU 56,355 Government securities 158,931 Deposits & bank balance due 11,960 Net advances to customers 771,230 Other assets 7,560 Investment in shares and corporate bonds 14,395 Customers deposits (674,958) Other liabilities (219,834) Restoration costs (2,126) Fair value of identifiable net assets 270,756 Deferred obligation (148,905) Bargain purchase recognised in income 121,851 b. Bargain purchase The transaction resulted in a gain because the net identifiable assets were fair valued and the fair value was in excess of the deferred obligation. This amount has been recorded under Total income in the condensed consolidated statement of profit or loss and other comprehensive income. c.acquisition related costs. The acquisition related costs incurred to effect the business combination e.g. legal costs, advisory costs, valuation costs among others are accounted for as expenses in the condensed consolidated statement of profit or loss account and recorded under operating expenses.

94 Standards issued but not yet effective A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2017 and earlier application is permitted; however, the Group has not early adopted the following new or amended standards in preparing these condensed consolidated interim financial statements. The Group has the following updates to information provided in the last annual financial statements about the standards issued but not yet effective that may have a significant impact on the Group s consolidated financial statements. IFRS 9 Financial Instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group currently plans to apply IFRS 9 initially on 1 January The actual impact of adopting IFRS 9 on the Group s consolidated financial statements in 2018 is not known and cannot be reasonably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time, as well as accounting elections and judgements that it will make in the future. The new standard will require the Group to revise its accounting processes and internal controls related to reporting financial instruments and these changes are not yet complete. However, the Group is performing a preliminary assessment of the potential impact of the adoption of IFRS 9 based on its positions at 30 June IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group is assessing the potential impact of the adoption of IFRS 15 on its consolidated financial statements. IFRS 16 Leases IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a rightof-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January Early adoption is permitted for entities that apply IFRS 15 at or before the date of initial application of IFRS 16. The Group has started an initial assessment of the potential impact on its consolidated financial statements. So far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating leases of warehouse and factory facilities. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. The Group has not yet decided whether it will use the optional exemptions. The Group is assessing the potential impact of the adoption of IFRS 16 on its consolidated financial statements.

95 95 Appendix I: Presentation of comprehensive income Consolidated statement of profit or loss Unaudited 3 months to March 17 Unaudited 3 months to March 16 Audited Year ended 31 Dec 2016 Shs M Shs M Shs M Interest Interest income 90,418 54, ,155 Interest expense (32,871) (23,136) (83,914) Net interest income 57,547 31, ,241 Fees and commission income 8,233 6,850 29,305 Net trading and other income 1,172 2,315 10,547 Gain on bargain purchase 121, Net income 188,803 40, ,093 Operating expenses (36,563) (22,933) (96,900) Amortisation of intangible assets (7,540) - - Allowance for impairment of loans and advances 2,815 (2,716) (17,830) Profit before income tax 147,515 14,562 58,363 Income tax expense (42,840) (3,543) (13,038) Profit for the period 104,675 11,019 45,325 Attributable to: Owners of the Company 104,675 11,019 45,325 Non-controlling interest ,675 11,019 45,325 Earnings per share attributable to owners of the Company - basic and diluted (Shs)

96 96 Appendix I: Presentation of comprehensive income (continued) Consolidated statement of profit or loss and other comprehensive income Unaudited 3 months to March 17 Unaudited 3 months to March 16 Audited Year ended 31 Dec 2016 Profit for the period 104,675 11,019 45,325 Other comprehensive income Total comprehensive income for the year, net of taxes 104,675 11,019 45,325 Attributable to: Equity holders of the Company 104,675 11,019 45,325 Non-controlling interest ,675 11,019 45,325

97 97 Appendix II: Presentation of consolidated statement of financial position Unaudited 3 months to March 17 Unaudited 3 months to March 16 Audited Year ended 31 Dec 2016 Shs M Shs M Shs M Assets Cash and balances with Bank of Uganda 371, , ,565 Government and other securities 641, , ,183 Deposits and balances due from other banks 249,870 96, ,471 Loans and advances to customers 1,309, , ,360 Investment in equity shares 36, Other assets 292,426 21,741 19,364 Deferred income tax asset - 1,394 3,290 Property and equipment 159,998 79,777 78,629 Intangible assets 41,206 7,490 8,863 Total assets 3,102,650 1,572,250 1,757,725 Liabilities Customer deposits 1,776, ,291 1,134,731 Deposits due to other banks 80,758 30,003 11,505 Other liabilities 105,941 22,741 25,962 Borrowed funds 747, , ,079 Deferred income tax liability 16, Current income tax payable 21,842 9,470 2,796 Total liabilities 2,748,323 1,346,100 1,508,073 Equity Issued capital 9,464 9,464 9,464 Share premium 2,878 2,878 2,878 Other reserves 12,113 12,113 12,113 Retained earnings 317, , ,614 Regulatory reserve - 20,129 4,073 Proposed dividend 12,510 10,804 12,510 Total equity attributable to the Company s shareholders 354, , ,652 Non-controlling interest Total equity 354, , ,652 Total equity and liabilities 3,102,650 1,572,250 1,757,725

98 98 Consolidated audited financial statements for the 5 years ended 31 December 2016

99 99 Financial Statements: Consolidated Statement of comprehensive income as at 31 December Note Shs M Shs M Shs M Shs M Shs M Interest and similar income 7 217, , , , ,066 Interest and similar expenses 8 (83,914) (74,742) (59,989) (54,441) (56,561) Net interest income 133, , ,289 96,163 83,505 Fees and commission income 9 29,305 25,002 20,852 20,116 14, , , , ,279 97,560 Net trading and other income 10 10,547 14,909 21,219 6,586 8,210 Total income 173, , , , ,770 Operating expenses 11 (96,900) (89,531) (78,309) (64,381) (54,108) Impairment of loans and advances 18 (17,830) (11,690) (10,490) (13,414) (11,336) Profit before tax 58,363 46,922 56,561 45,070 40,326 Income tax expense 14 (13,038) (11,632) (14,452) (10,469) (9,709) Profit after tax for the year 45,325 35,290 42,109 34,601 30,617 Other comprehensive income Total comprehensive income for the year 45,325 35,290 42,109 34,601 30,617 Attributable to: Equity holders of the Company 45,325 35,290 42,109 34,610 30,617 Non-controlling interest ,325 35,290 42,109 34,610 30,617 Earnings per share: Basic earnings per share Diluted earnings per share

100 100 Note Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with Bank of , , , , ,050 Uganda Government securities , , , , ,438 Deposits and balances due from , , ,165 83,103 61,706 banks Loans and advances to , , , , ,411 customers Other assets 20 19,364 21,128 17,603 24,015 13,295 Deferred income tax asset 24 3,290 1, Property and equipment 21 67,069 69,301 68,686 57,116 36,065 Investment property 22 11,560 12,086 11, Intangible assets 23 8,863 7,791 4,626 4,875 6,374 1,757,725 1,651,408 1,424,742 1,226,062 1,001,339 Liabilities Customer deposits 26 1,134, , , , ,280 Deposits due to other banks 27 11,505 98,096 54,021 56,050 17,204 Other liabilities 28 25,962 25,564 22,275 22,932 11,422 Current income tax payable 14 2,796 3,848 4,026 1,196 1,504 Borrowed funds , , , , ,505 Special funds 30 1,708 1,708 1,708 1,708 1,230 Deferred income tax liability ,413 Total liabilities 1,508,073 1,436,277 1,233,201 1,064, ,558 Share capital 32 9,464 9,464 9,464 4,972 4,972 Share premium 32 2,878 2,878 2,878 2,878 2,878 Revaluation reserves ,380 2,380 Retained earnings 208, , , ,759 94,587 Other reserves 12,113 12,113 12,113 12,113 12,113 Currency translation reserve Regulatory reserve 33 4,073 24,203 11,435 8,218 9,626 Proposed dividends 15 12,510 10,804 11,700 13,840 9,222 Total equity 249, , , , ,781 Total equity and liabilities 1,757,725 1,651,408 1,424,742 1,226,062 1,001,339

101 Noncontrolling Total interest Attributable to equity holders of the parent Proposed dividends Currency translation reserve Regulatory reserve Revaluation reserve Other reserves Retained earnings Share premium Notes Share capital Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M At 1 January ,972 2,878 76,828 12,113 2,380 5, , , ,399 Total comprehensive income , ,617-30,617 for the year Increase in regulatory - - (3,636) - - (3,636) ,636 reserve Write off of non-controlling (13) (13) interest share of results Transactions with shareholders Dividends paid (9,222) (9,222) - (9,222) Dividends proposed (9,222) , At 31 December ,972 2,878 94,587 12,113 2,380 9, , , ,781 At 1 January ,972 2,878 94,587 12,113 2,380 9, , , ,781 Total comprehensive income , ,601-34,601 for the year Write off of currency (3) translation reserve Transactions with shareholders Transfers from the regulatory , (1,408) reserve Dividends paid (9,222) (9,222) - (9,222) Dividends proposed (13,840) , At 31 December ,972 2, ,759 12,113 2,380 8,218-13, , ,

102 102 Total Noncontrolling interest Attributable to equity holders of the parent Proposed dividends Regulatory reserve Revaluation reserve Other reserves Retained earnings Share premium Notes Share capital Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M At 1 January ,972 2, ,759 12,113 2,380 8,218 13, , , , ,109-42, (2,380) - (2,380) Total comprehensive income for the year Reversal of revaluation reserve Transactions with shareholders Increase in share capital 32 4, (4,972) Bonus issue costs (480) (480) - (480) Increase in regulatory reserve - - (3,217) - - 3, Dividends paid (8,868) (8,868) - (8,868) Dividends proposed (11,700) , At 31 December ,464 2, ,951 12,113-11,435 11, , ,541 At 1 January ,464 2, ,951 12,113-11,435 11, , , , ,290-35,290 Total comprehensive income for the year Transactions with shareholders (12,768) , Transfers from the regulatory reserve Dividends paid (11,700) (11,700) - (11,700) Dividends proposed (10,804) , At 31 December ,464 2, ,669 12,113-24,203 10, , ,131

103 Noncontrolling Total interest Attributable to equity holders of the parent Proposed dividends Regulatory reserve Other reserves Retained earnings Share premium Notes Share capital Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M At 1 January ,464 2, ,669 12,113 24,203 10, , ,131 Total comprehensive income , ,325-45,325 for the year Transactions with shareholders Transfers from the regulatory ,130 - (20,130) reserve Dividends paid (10,804) (10,804) - (10,804) Dividends proposed (12,510) , At 31 December ,464 2, ,614 12,113 4,073 12, , ,

104 104 Note Shs M Shs M Shs M Shs M Shs M Operating activities Interest receipts 217, , , , ,066 Interest payments (83,914) (74,742) (57,193) (54,441) (56,561) Fee and commission receipts 24,163 19,656 22,766 24,227 14,711 Net foreign exchange and other income received 7,540 13,281 12,016 7,273 7,454 Recoveries on loans previously written off , Cash payments to employees and suppliers (92,094) (81,569) (60,061) (63,540) (48,111) Income tax paid 14 (15,730) (13,285) (10,494) (12,479) (9,615) Cash from operating activities before changes in operating assets and liabilities 58,028 47,353 60,552 52,180 48,749 Changes in operating assets and liabilities Increase in government and other securities (81,488) (75,601) (124,404) (6,026) (34,491) Increase in Bank of Uganda cash reserve (16,660) (7,060) (13,460) (5,870) (4,300) requirement Increase in loans and advances to customers (53,050) (141,085) (63,450) (82,135) (71,126) Increase/(decrease) in other assets (2,316) (207) 1,045 (3,756) (353) Increase in customer deposits 219,780 97, , ,006 65,889 Increase in other liabilities 18,576 5,460 1,507 5, (Decrease)/increase in balances due to other (86,591) 44,075 (2,029) 38,846 (26) banks Decrease in managed funds (32) Net cash flows from operating activities 56,279 29,501 (20,617) 107,699 4,487 Investing activities Purchase of property and equipment 21 (6,627) (11,152) (30,300) (25,573) (13,201) Purchase of intangible assets 23 (2,421) (2,343) (2,243) (747) (229) Purchase of investment property 22 (22) (771) Proceeds from sale of property and equipment Net cash flows used in investing activities (9,070) (14,256) (32,476) (26,297) (13,390) Financing activities Net increase in borrowings (60,739) 60,931 45,737 41,704 (39,296) Bonus issue costs - - (480) - - Dividends paid to shareholders (10,804) (11,700) (8,868) (9,222) (9,222) Net cash flows generated from financing activities (71,543) 49,231 36,389 32,482 (48,518) Net increase in cash and cash equivalents (24,334) 5,474 (16,704) 113,884 (57,421) Cash and cash equivalents at start of year 252, , , , ,738 Unrealised exchange gain (1,316) - - Cash and cash equivalents at end of year , , , , ,317

105 General information ( the Company ) is incorporated in Uganda under the Ugandan Companies Act, 2012 as a public limited liability company and is domiciled in Uganda. Some of the company s shares are listed on the Uganda Securities Exchange (USE). It is domiciled in Uganda and the address of its registered office is: Plot 26 Kyadondo Road P.O. Box 2767 Kampala Uganda. For the Ugandan Companies Act reporting purposes, the balance sheet is represented by the consolidated statement of financial position and the profit and loss account is represented by the consolidated statement of comprehensive income in these financial statements. 2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. A. Basis of preparation The consolidated financial statements have been prepared in accordance with and comply with the International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The consolidated financial statements are presented in Uganda Shillings (Shs), rounded to the nearest million (Shs M). The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 4. B. Changes in accounting policies and disclosures i) New and amended standards adopted by the Group The following standards have been adopted by the Group for the first time for the financial year beginning on or after 1 January 2016: Amendments to IFRS 11: Accounting for acquisitions of interests in Joint Operations. This amendment requires the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3 Business Combinations, to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs except for those principles that conflict with the guidance of IFRS 11. In addition, the acquirer shall disclose the information required by IFRS 3 and other IFRSs for business combinations. The amendment did not have a significant effect on the Group s financial statements. Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The objective of the amendments is to ensure that preparers do not use revenue-based methods to calculate charges for the depreciation or amortisation of items of property, plant and equipment or intangible assets.

106 Summary of significant accounting policies (continued) B. Changes in accounting policies and disclosures (Continued) i) New and amended standards adopted by the Group (Continued) Amendments to IAS 16 and IAS 38: Clarification of acceptable methods of depreciation and amortisation (Continued) This is because a revenue-based method reflects a pattern of economic benefits being generated from the asset, rather than the expected pattern of consumption of the future economic benefits embodied in the asset. The Group has applied the amendment and there has been no significant impact on the Group s financial statements as a result. Amendments to IAS 16 and IAS 41: Bearer plants IAS 41 currently requires all biological plants related to agricultural activity to be measured at fair value less costs to sell. This is based on the principle that the biological transformation that these assets undergo during their lifespan is best reflected by fair value measurement. A subset of biological assets known as Bearer plants are used solely to grow produce over several periods. The IASB have decided that bearer plants should be accounted for in the same way as property, plant and equipment in IAS 16, because their operation is similar to that of manufacturing. While bearer plants will be accounted for under IAS 16, the produce that grows on them will continue to be accounted for under IAS 41. The amendment has no impact on the Group as it has no biological assets. Amendments to IAS 27: Equity Method in Separate Financial Statements The amendments to IAS 27 permit the use of the equity method in separate financial statements, and apply to the accounting for subsidiaries, joint ventures and associates. When an entity prepares separate financial statements, it shall now account for subsidiaries, joint ventures and associates using either of the three following methods: which must be applied by the entity for each category of investment: i. Cost; ii. In accordance with IFRS 9 / IAS 39; or iii. Using the equity method as described in IAS 28. The entity must apply the same accounting treatment for each category of investment Other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2016 are not material to the Group. The Group has applied the amendment and there has been no significant impact on the Group s financial statements as a result. Amendments to IAS 1: Disclosure Initiative The following narrow scope amendments have been made to IAS 1 under the Disclosure Initiative: Materiality and aggregation: clarifies that an entity should not obscure useful information by aggregating or disaggregating information. It also clarifies that materiality considerations apply to the primary financial statements, notes and any other specific requirements in IFRS so that disclosures specifically required by IFRSs are only required where the information is material. Consolidated and separate statement of financial position, consolidated and separate statement of profit or loss, consolidated and separate statement of other comprehensive income: clarifies that the line items specified by IAS 1 for these statements can be aggregated or disaggregated as relevant. Presentation of items of other comprehensive income: clarifies that an entity s share of other comprehensive income of equity accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not the item will subsequently be reclassified to profit or loss The Group has applied the amendment and there has been no significant impact on the Group s financial statements as a result.

107 107 Amendments to IFRS 10, IFRS 12 and IAS 28: Investment entities: exception to consolidation The amendments to IFRS 10, IFRS 12 and IAS 28 clarify that the exemption from preparing consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value through profit or loss. The amendments also clarify that only a subsidiary that is not an investment entity itself and provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 allow an investor, when applying the equity method to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. The consequential amendments to IFRS 12 clarify that investment entities that measure their subsidiaries at fair value through profit or loss shall present the disclosures relating to investment entities required by IFRS 12. The Group has applied the amendment and there has been no impact on the Group s financial statements as a result. ii) Standards issued but not yet effective A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017 and earlier application is permitted, however, the Group has not early adopted the following new or amended standards in preparing these financial statements. Disclosure Initiative (Amendments to IAS 7) The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities including, both changes arising from cash flow and non-cash changes. The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. To satisfy the new disclosure requirements, the Group intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities. Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. This is regardless of whether the instrument is recovered through sale or by holding it to maturity or whether it is probable that the issuer will pay all contractual cash flows. Entities are therefore required to recognise deferred taxes for temporary differences from unrealised losses of debt instruments measured at fair value if all other recognition criteria for deferred taxes are met. The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. The Group is assessing the potential impact on its financial statements resulting from the amendments. So far, the Group does not expect any significant impact. IFRS 9 Financial Instruments (2014) IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB s replacement of IAS 39 s Financial Instruments: Recognition and Measurement. The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting.

108 108 Recognition and measurement The recognition and measurement of financial assets under IFRS 9 is built on a single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. The recognition of financial liabilities under IFRS 9 carries forward the treatment of IAS 39, except that IFRS 9 does introduce new requirements for the accounting for and presentation of changes in the fair value of an entity s own debt when the entity has chosen to measure the debt at fair value using the fair value option. IFRS 9 requires that the changes in the fair value of an entity s own credit risk should be recognised in other comprehensive income rather than the profit or loss. In addition, the IFRS 9 impairment model has been changed from an incurred loss model in IAS 39 to an expected credit loss model. Hedge accounting IFRS 9 introduces a substantial revision to hedge accounting requirements which will allow entities better reflect their risk management activities in their financial statements. The revision was issued in a response to concerns of preparers of financial statements about the difficulty of appropriately reflecting management activities in financial statements, the changes also address concerns raised by users of the financial statements about the difficulty of understanding hedge accounting. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after 1 January 2018 with early adoption permitted (subject to local endorsement requirements). For a Limited period, previous versions of IFRS 9 may be adopted early if not already done so provided the relevant date of initial application is before 1 February In addition, the own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The Group is assessing the potential impact on its financial statements the application of this standard. Clarifications to IFRS 15: Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. These amendments to the Revenue Standard, which was issued in 2014, do not change the underlying principles of the Standard but clarify how those principles should be applied. The amendments clarify how to: identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential impact on its financial statements resulting from the amendments. So far, the Group does not expect any significant impact.

109 109 Amendments to IFRS 2: Classification and measurement of share-based payment transactions The Amendments to IFRS 2: Classification and measurement of share-based payment transactions clarify how to account for certain types of share-based payment transactions. They specifically provide requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Once the amendments are applied, the timing and amount of expense recognised for new and outstanding awards could change. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential impact on its financial statements resulting from the amendments. So far, the Group does not expect any significant impact. Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts The Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts address concerns arising from implementing IFRS 9 before implementing the replacement IFRS 4 standard that is being currently developed by the Board. The amendments: permit companies that issue insurance contracts, the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new IFRS 4 id issued; and give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until The entities that defer application of IFRS 9 will continue to apply the existing financial instruments standard IAS 39. The amendments are effective for annual periods beginning on or after 1 January The Group is assessing the potential impact on its financial statements resulting from the amendments. So far, the Group does not expect any significant impact. IFRS 16: Leases The changes under IFRS 16 are significant and will predominantly affect lessees, the accounting for which is substantially reformed. The lessor accounting requirements contained in IFRS 16 s predecessor, IAS 17 will remain largely unchanged. The main impact on lessees is that almost all leases will go on balance sheet. This is because the balance sheet distinction between operating and finance leases is removed for lessees. Instead, under IFRS 16, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exemptions are short-term and low-value leases. The standard introduces new estimates and judgemental thresholds that affect the identification, classification and measurement of lease transactions. More extensive disclosures, both qualitative and quantitative, are also required. The amendments are effective for annual periods beginning on or after 1 January 2019, with early adoption permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of this Standard. The Group is assessing the potential impact on its financial statements resulting from the amendments.

110 Summary of significant accounting policies (continued) Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture The amendments to IFRS 10 and IAS 28 address an inconsistency between the two standards in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if those assets are housed in a subsidiary. The amendments were deferred indefinitely (pending outcome of research project on the equity method of accounting). C. Consolidation The consolidated financial statements comprise the financial statements of and its subsidiary Dfcu Bank Limited. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such remeasurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

111 111 The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. When group acquires or disposes any interest in an existing subsidiary and there is no change in control, all transactions with non-controlling interests are recorded in equity. Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. D. Borrowing costs General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Specific borrowings are funds borrowed specifically for the purpose of obtaining a qualifying asset. For specific borrowings, the actual costs incurred are capitalised. If the entity temporarily reinvests some funds, investment income earned should be deducted from the borrowing costs eligible for capitalisation. All borrowings that are not specific represent general borrowings. Costs eligible for capitalisation are calculated by applying a capitalisation rate to the expenditures on qualifying assets. The capitalisation rate is the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period. The amount of borrowing costs eligible for capitalisation is always limited to the amount of actual borrowing costs incurred during the period. Where the parent company finances the construction of a qualifying asset using an intra-group loan, the capitalisation rate is adjusted to reflect how the qualifying asset was financed from the perspective of the group as a whole. E. Operating income i. Interest income and expense Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be measured reliably. Interest income and expense are recognised in profit or loss for all interest bearing instruments at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

112 112 When loans and advances become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount. ii. Fees and commission The Group earns fees and commission income from a diverse range of services it provides to its customers. These are earned from services that are provided over a certain period of time. Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. When it is unlikely that the loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis. F. Foreign currency translation Items included in the consolidated and separate financial statements are measured using the currency of the primary economic environment in which the entity operates (`the functional currency ). The consolidated and separate financial statements are presented in Ugandan Shillings which is the Group s functional currency. Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within `net foreign exchange income. Changes in the fair value of monetary securities denominated in foreign currency classified as available-forsale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income. G. Financial assets and liabilities i. Recognition A financial instrument is a contract that gives rise to both a financial asset of one enterprise and a financial liability of another enterprise. Financial instruments held by the Group include balances with Bank of Uganda, loans and advances, investments in government securities, balances with banks, deposits, derivatives and group balances. The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are originated. All other financial instruments (including regular-way purchases and sales of financial assets) are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

113 113 ii. Classification Management determines the appropriate classification of its financial instruments at the time of purchase and re-evaluates its portfolio on a regular basis to ensure that all financial instruments are appropriately classified. The classification of financial instruments at initial recognition depends on the purpose and the management s intention for which the financial instruments were acquired and their characteristics. Held for trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking. Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale. Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Available for sale assets are recognised on the date they are transferred to the Group. There are no available-for-sale financial assets in the Group. Loans and advances and amounts due from banks are recognised when cash is advanced to borrowers. Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Financial liabilities: The Group classifies its financial liabilities other than guarantees and loan commitments as measured at amortised cost or fair value through profit and loss. iii. Measurement Initial measurement of financial instruments All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss, which are recorded at fair value. Subsequent measurement of financial instruments a. Amortised cost measurement The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment b. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its nonperformance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

114 114 The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. i. De-recognition of financial instruments a. Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: The rights to receive cash flows from the asset have expired; or The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either: The Group has transferred substantially all the risks and rewards of the asset; or The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

115 115 b. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. ii. Identification and measurement of impairment At each reporting date the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably. The Group considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that may have incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events: a). significant financial difficulty of the issuer or obligor; b). a breach of contract, such as default or delinquency in interest or principal repayments; c). the Group granting to the borrower, for economic or legal reasons relating to the borrower s financial difficulty, a concession that the lender would not otherwise consider; d). it becomes probable that the borrower will enter bankruptcy or other financial difficulty; e). the disappearance of an active market for that financial asset because of financial difficulties. f). observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including: vii. adverse changes in the payment status of borrowers in the group; or viii. National or local economic conditions that correlate with defaults on the assets in the group. The Group first assesses whether objective evidence of impairment exists individually for all financial assets. If the Group determines no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans, advances and receivables or held-to-maturity assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

116 116 The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Group s business and product segments). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Ugandan Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016 requirements In addition to the measurement of impairment losses on loans and advances in accordance with International Financial Reporting Standards as set out above, the Group is also required by the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016 to estimate losses on loans and advances as follows: i) A specific provision for those loans and advances considered to be non-performing based on criteria and classification of such loans and advances established by the Financial Institutions Credit Classification Regulations, 2005, as follows: a). substandard assets with arrears period between 90 and 179 days 20%; b). doubtful assets with arrears period between 180 days and 359 days 50%; c). loss assets with arrears period over 360 days 100%. In addition to the arrears period, banks must follow subjective criteria in arriving at the classification attributable to the assets. ii) A general provision of at least 1% of their total outstanding credit facilities net of specific provisions. Where provisions for impairment of loans and advances determined in accordance with the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016 exceed amounts determined in accordance with IFRS, the excess is taken to a regulatory reserve as an appropriation of retained earnings. Otherwise, the regulatory reserve is reduced to the extent that the provision for impairment determined in accordance with IFRS exceeds that determined in accordance with the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016 and the amount taken back to retained earnings. When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the charge for loan impairment in profit or loss.

117 117 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in profit or loss. iii. Renegotiated loans Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the original effective interest rate as calculated before the modification of terms and the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan s original effective interest rate. iv. Offsetting Financial assets and liabilities are offset and the net amount reported in the consolidated and separate statement of financial position when and only when, there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Income and expense are presented on a net basis only when permitted under IFRS or from gains and losses arising from a group of similar transactions such as the Group s trading activity. v. Staff loans In the normal course of business, the Group advances loans to employees at below market rate. These loans are measured initially at fair value. The favourable loan term offered to employees are dependent on the continued employment and therefore relate to services to be rendered in future periods. The interest benefit is forfeited if the employee leaves the Group. The benefit is a long term benefit to the employees and the discount arising from the difference between the nominal value and the market value is treated as a prepayment and expensed in profit or loss in the period in which the services are rendered. I. Property and equipment i. Recognition and measurement Equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of selfconstructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. If significant parts of an item of property or equipment have different useful lives, then they are accounted for as separate items (major components) of property and equipment. Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revaluation. Valuations are performed frequently to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is credited to the asset revaluation reserve in equity through other comprehensive income, except to the extent

118 118 that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in the profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve. An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the assets original cost. Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. ii. Subsequent cost Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the expenditure will flow to the Group. Ongoing repairs and maintenance are expensed as incurred. iii. Depreciation Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated. The estimated useful lives of significant items of property and equipment are as follows: Buildings 40 years Furniture, fittings and equipment 6 7 years Computer equipment 3 4 years Motor vehicles 4 years Work-in-progress Not depreciated Leasehold improvements are amortised over the shorter of the estimated useful life of the improvements, and the remaining lease term. Management and directors review the residual value and useful life of an asset at the year end and any change considered to be appropriate in accounting estimate is prospectively recorded through profit or loss. I.Intangible assets Recognition and measurement i. Goodwill Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. ii. Other intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalised development costs, are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite.

119 119 iii. Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred. iv. Amortisation Intangible assets with finite lives are amortized over their useful economic lives using the straight line method and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible assets. Amortisation methods, residual values and useful lives are reviewed at each reporting period and adjusted if appropriate. Goodwill is not amortised. v. Derecognition An item of intangible assets is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized profit or loss when the asset is derecognized. J. Income tax Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in OCI. i. Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. ii. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for the Group and the reversal of temporary differences. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.

120 120 Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Additional taxes that arise from the distribution of dividends by the Group are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss because they generally relate to income arising from transactions that were originally recognised in profit or loss. iii. Tax exposures In determining the amount of current and deferred tax, the Group considers the impact of tax exposures, including whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities would impact tax expense in the period in which such a determination is made. K. Cash and cash equivalents For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise balances with less than 90 days to maturity from the consolidated statement of financial position date and include: cash and balances with the Central Bank, treasury bills and other eligible bills. Cash and cash equivalents excludes the cash reserves requirement held with Bank of Uganda. Cash and cash equivalents are carried at amortised cost in the consolidated statement of financial position. L. Employee benefits i. Retirement benefit obligations The Group operates a defined contribution pension scheme for all its eligible employees in and dfcu Bank Limited. The scheme is administered by a Board of Trustees and is funded from contributions from both the Group companies and employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group and all its employees also contribute to the National Social Security Fund, which is a defined contribution scheme. The Group s contributions to the defined contribution pension scheme are charged to profit or loss in the year to which they relate.

121 121 ii. Other entitlements Short-term benefits consist of salaries, bonuses and any non-monetary benefits such as medical aid contributions and free services; they exclude termination benefits. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under a short-term cash bonus only if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and if the obligation can be measured reliably. The estimated monetary liability for employees accrued annual leave entitlement at the reporting date is recognised as an expense accrual. M. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Leases where the lessee assumes substantially all the risks and rewards incidental to ownership are classified as finance leases. Similarly leases of assets under which the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. i. With the Group Company as lessee To date, all leases entered into by the Bank are operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. ii. With the Group Company as lessor When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method (before income tax), which reflects a constant periodic rate of return. N. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Management Board. O. Offsetting Financial assets and liabilities are offset and the net amount reported in the consolidated and separate statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. P. Dividends Dividends on ordinary shares are recognised as a liability and charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared. Q. Dividend income Dividends are recognised as income in the period in which the right to receive payment is established.

122 122 R. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all any potentially dilutive ordinary shares which comprise share options granted to employees S. Financial guarantees and loan commitments Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other facilities. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions. Financial guarantee liabilities or loan commitments to provide a loan at below market interest rate are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee or commitment. The liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment to settle the liability when a payment under the guarantee has become probable. Financial guarantees and loan commitments are included within other liabilities. T. Contingent liabilities Letters of credit, acceptances, guarantees and performance bonds are accounted for as off consolidated statement of financial position transactions and disclosed as contingent liabilities. Estimates of the outcome and financial effect of contingent liabilities is made by management based on the information available up to the date the consolidated financial statements are approved for issue by the directors. Any expected loss is charged to profit or loss. U. Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking. Trading assets and liabilities are initially recognised and subsequently measured at fair value in the consolidated statement of financial position, with transaction costs recognised in profit or loss. All changes in fair value are recognised as part of net trading income in profit or loss. Trading assets and liabilities are not reclassified subsequent to their initial recognition, except that non-derivative trading assets, other than those designated at fair value through profit or loss on initial recognition, may be reclassified out of the fair value through profit or loss i.e. trading category if they are no longer held for the purpose of being sold or repurchased in the near term and the following conditions are met. If the financial asset would have met the definition of loans and receivables (if the financial asset had not been required to be classified as held-for-trading at initial recognition), then it may be reclassified if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the trading category only in rare circumstances.

123 123 V. Impairment of non-financial assets At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. The Group s corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the corporate assets are allocated. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. W. Other reserves, fair value reserves and currency translation reserves In accordance with the terms and conditions of certain grants received by the Group, amounts are recognised in profit or loss and then appropriated from retained earnings to non-distributable reserves. The nondistributable reserve is set aside by the directors for the purpose of meeting any future deficit in Capital. Revaluation reserves include gains or losses from the revaluation of property. Fair value gains and/or losses on property are recognised in other comprehensive income and only transferred to retained earnings when realised. Currency translation differences arising from translation of investments in subsidiaries are recognised in other comprehensive income. X. Special funds Special funds represent liabilities created under the terms of borrowing agreements with various international lending organisations. The Group holds these funds, utilizing and disbursing them as directed by the Government of Uganda. The unutilized balances on these funds are presented as liabilities on the statement of financial position. Y. Managed funds Managed funds represent amounts received from the Government of Uganda for on-lending to specific third parties in accordance ith the terms and conditions of each managed fund. The Group does not bear the credit risk related to the lent funds. The liability related to such funds is presented in the statement of financial position net of the carrying value of the respective managed assets.

124 124 Z. Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. i.restructuring A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating losses are not provided for. ii. Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. iii. Bank levies A provision for bank levies is recognised when the condition that triggers the payment of the levy is met. If a levy obligation is subject to a minimum activity threshold so that the obligating event is reaching a minimum activity, then a provision is recognised when that minimum activity threshold is reached. AA. Contract lease disbursements Contract lease disbursements represent payments that are made under finance lease agreements prior to delivery of the leased asset(s) to the borrower. Interest is accrued on these payments and recognised as income. Once the equipment is delivered, the lessee has the option to pay cash for the interest accrued or to add the interest onto the finance lease as part of the gross amount due. AB. Investment property Property held for long term rental yields and not occupied by the Group is classified as investment property. A portion of the property at Plot 26 Kyadondo is occupied by the Company s subsidiary, dfcu Bank Limited, and is classified as property, plant and equipment in the consolidated financial statements. The remaining portion is held for long term rental yields and is accounted for as investment property. An investment property is defined under IAS 40, Investment property, as a property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: use in the production or supply of goods or services or for administrative purposes; or sale in the ordinary course of business. Investment property is measured at cost less accumulated depreciation.

125 Financial risk management The Group s financial assets are classified as held-for-trading, held-to-maturity or loans, advances and other receivables, and all financial liabilities are measured at amortised cost. The carrying amounts for each class of financial assets and financial liabilities are included in the table below Financial assets Shs M Shs M Shs M Shs M Shs M Held-for-trading: Government securities 102,214 72,441 57,994 16,144 22,535 Held-to-maturity: Government and other securities 386, , ,464 93, ,230 Loans and advances and other receivables/ financial assets: Deposits and balances due from other Banks 139, , ,165 83,103 61,706 Balances with Bank of Uganda 95, , , ,653 58,697 Loans and advances to customers (Net of impairment) 842, , , , ,411 Other financial assets 14,275 13,568 11,363 12,410 Cash in hand 80,738 62,668 71,182 57,012 41,353 1,172,671 1,145,325 1,002, , ,819 Financial liabilities Measured at amortised cost: Customer deposits 1,134, , , , ,280 Balances due to other banks 11,505 98,096 54,021 56,050 17,204 Borrowed funds 331, , , , ,505 Special Funds 1,708 1,708 1,708 1,708 1,230 Other financial liabilities 10,831 10,870 9,366 7,645 6,311 1,490,146 1,417,735 1,216,266 1,048, ,530

126 126 3A Strategy in using financial instruments By their nature, the Group s activities are principally related to the use of financial instruments. The Group accepts deposits from customers at both fixed and floating rates, and for various periods, and seeks to earn above-average interest margins by investing these funds in high-quality assets. The Group seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates, while maintaining sufficient liquidity to meet all claims that might fall due. The Group also seeks to raise its interest margins by obtaining above-average margins, net of allowances, through lending to commercial and retail borrowers with a range of credit standings. Such exposures involve not just on-consolidated statement of financial position loans and advances; the Group also enters into guarantees and other commitments such as letters of credit, and performance and other bonds. The Group also trades in financial instruments. The Board places trading limits on the level of exposure that can be taken in relation to both overnight and intra-day market positions. The fair value gains or losses arising from trading in financial instruments are recognised in profit or loss under interest and similar income. Foreign exchange and interest rate exposures and associated derivatives are normally economically hedged by entering into counterbalancing positions, thereby controlling the variability in the net cash amounts required to liquidate market positions. 3B Credit risk The Group takes on exposure to credit risk, which is the risk that a counter party will cause a financial loss to the Group by failing to pay amounts in full when due. Impairment allowances are provided for losses that have been incurred at the reporting date. Credit risk is the most important risk for the Group s business. Therefore management carefully manages the exposure to credit risk. Credit exposures arise principally in lending and investment activities. There is also credit risk in off-consolidated statement of financial position financial instruments, such as loan commitments. Credit risk management and control is centralised in the credit risk management team, which reports regularly to management and the Board. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Such risks are monitored on a revolving basis and subject to annual or more frequent review. Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but a portion is personal lending where no such facilities can be obtained. Credit related commitments: The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties. The Group s policy is to hold cash cover for most of the commitments and hence the credit risk arising from such commitments is less than for direct borrowing. Documentary and commercial letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than for direct borrowing.

127 127 Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. The Group makes such commitments at market rates. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Maximum exposure to credit risk before collateral held Shs M Shs M Shs M Shs M Shs M Deposits & balances due from banks (note 17) 139, , ,165 83,103 61,706 Loans and advances to customers (note 18) 842, , , , ,411 Government and other securities (note 19) 489, , , , ,438 Other assets (note 20) 19,364 21,128 17,603 24,015 13,295 Credit risk exposures on off-consolidated statement of financial position items (note 34) - Acceptances and letters of credit , Guarantee and performance bonds 92,081 67,573 51,305 71,250 29,965 - Commitments to lend 27,434 20,572 21,690 23,019 27,747 1,609,893 1,453,748 1,234,549 1,035, ,046 The above represents the worst case scenario of the Group s credit risk exposure at year end, without taking account collateral held or other credit enhancements attached. For on-consolidated statement of financial position assets, the exposures set out above are based on carrying amounts as reported in the consolidated statement of financial position. Loans and advances to major corporate borrowers and to individuals borrowing more than Shs 30 million are secured by collateral in the form of charges over land and buildings and / or plant and machinery or corporate guarantees. Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Group resulting from both its loan and advances portfolio and debt securities based on the following: The Group exercises stringent controls over the granting of new loans; 85% of the loans and advances portfolio are neither past due nor impaired; 96% of the loans and advances portfolio are backed by collateral; and 99% of investments in debt securities are government securities and only 1% in a high quality corporate bond.

128 128 Loans and advances are summarised as follows: Shs M Shs M Shs M Shs M Shs M Neither past due nor impaired 740, , , , ,598 Past due but not impaired 71,254 60,965 90,378 88, ,138 Impaired 58,956 73,119 48,035 25,450 29,508 Gross 871, , , , ,244 Less: Allowance for impairment (note 17) (28,652) (14,921) (13,612) (15,124) (16,833) Net carrying amount 842, , , , ,411 No other assets are either past due or impaired. Loans and advances neither past due nor impaired The credit quality of loans and advances that were neither past due nor impaired can be analysed by reference to the internal rating system adopted by the Group: Shs M Shs M Shs M Shs M Shs M Standard 740, , , , ,598 Loans and advances past due but not impaired Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows: Shs M Shs M Shs M Shs M Shs M Past due up to 30 days 35,406 30,294 32,665 72, ,179 Past due days 19,934 17,056 34,715 9,706 22,538 Past due days 15,914 13,615 22,998 6,096 11,421 71,254 60,965 90,378 88, ,138 Loans and advances individually impaired The general credit worthiness of a customer tends to be the most relevant indicator of credit quality of a loan extended to it. However, collateral provides additional security and the Group generally requests that borrowers provide it. The Group may take collateral in the form of a first charge over real estate, machinery and equipment, automobiles and other liens and guarantees. Because of the Group s focus on customers credit worthiness, the Group does not routinely update the valuation of collateral held against all loans to customers. Valuation of collateral is updated when the credit risk of a loan deteriorates significantly and the loan is monitored more closely. For impaired loans, the Group obtains appraisals of collateral because the current value of the collateral is an input to the impairment measurement.

129 129 Below is a summary of the impaired loans with the respective value of security; Shs M Shs M Shs M Shs M Shs M Loans and advances 58,956 73,119 48,035 25,450 29,508 Fair value of collateral 41, ,700 64,723 28,618 45,432 The fair value of the collaterals were determined using either the market approach or the depreciated replacement cost method. The valuations have been performed by valuers and are based on proprietary databases of prices of transactions for collateral or properties of similar nature, location and condition. For the financial year 2016, though the fair value of the collateral is less than the loans and advances, the credit risk has been managed through the thorough credit worthiness analyses of the bank s loans and advances to ensure that creditors are in position to pay through the cash flow generated in the day to day activities of their trade. Concentration of credit risk Economic sector credit risk concentrations within the customer loans and advances portfolio were as follows: As at 31 December Agriculture 16% 13% 12% 9% 7% Manufacturing 7% 9% 10% 8% 7% Trade and commerce 14% 19% 18% 22% 22% Transport and communications 3% 6% 6% 7% 5% Mining and quarrying 2% 2% 0% 0% 0% Building and construction 14% 11% 9% 11% 9% Leisure, hotels and accommodation 8% 6% 4% 4% 5% Home loans 7% 8% 8% 8% 12% Non-bank financial institutions 0% 0% 1% 0% 0% Private individual 8% 7% 9% 8% 4% Real estate 11% 9% 12% 14% 18% Schools 9% 9% 10% 8% 7% Other 1% 1% 1% 1% 4% 100% 100% 100% 100% 100% As at 31 December 2016, 2015, 2014, 2013 and 2012, the Group had no exposures to a single borrower or group of related borrowers exceeding 25% of the core capital of the Group.

130 130 3C Liquidity risk Liquidity risk is the risk that the Group is unable to meet payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn. The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash settled contingencies. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand. The Group s objective to managing liquidity is to ensure that there will always be sufficient liquidity to meet its liabilities and other obligations when they fall due under both normal and stressed conditions in line with the Group s Assets and Liabilities Management (ALM) policies without incurring unacceptable losses or risking damage to the Group s reputation. ALM policies are approved by the Group s Assets and Liabilities Board Committee (ALCO) and the Board of Directors. The purpose of ALCO is to stipulate and monitor the business philosophy of the Group as to the cost, structure and mix of assets and liabilities to maximise profitability within acceptable set risk limits. Net position as at 31 December 2016 Up to >1 Months 1 month months months years Shs M Shs M Shs M Shs M Long / (short) Gap (351,382) (69,968) 120, ,660 Long / (short) Cumulative Gap (351,382) (421,350) (301,135) 37,525 Cumulative Gap / Total Assets (20%) (24%) (17%) 2% Net position as at 31 December 2015 Up to >1 Months 1 month Months months years Shs M Shs M Shs M Shs M Long / (short) Gap (201,469) (31,629) 41, ,625 Long / (short) Cumulative Gap (201,469) (233,098) (191,569) 31,056 Cumulative Gap / Total Assets (12%) (14%) (12%) 2% Net position as at 31 December 2014 Up to >1 Months 1 month Months months years Shs M Shs M Shs M Shs M Long / (short) Gap (223,525) 4,770 79, ,033 Long / (short) Cumulative Gap (223,525) (218,755) (139,613) 113,420 Cumulative Gap / Total Assets (16%) (15%) (10%) 8%

131 131 Net position as at 31 December 2013 Up to >1 Months 1 month months months years Shs M Shs M Shs M Shs M Long / (short) Gap (89,979) (95,116) 107, ,711 Long / (short) Cumulative Gap (89,979) (185,095) (77,947) 103,764 Cumulative Gap / Total Assets (7%) (15%) (6%) 8% Net position as at 31 December 2012 Up to >1 Months 1 month months months years Shs M Shs M Shs M Shs M Long / (short) Gap (112,340) (6,518) 56, ,246 Long / (short) Cumulative Gap (112,340) (118,858) (61,987) 96,259 Cumulative Gap / Total Assets (11%) (12%) (6%) 8%

132 132 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) The table below analyses assets and liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. All figures are in millions of Uganda Shillings. As at 31 December 2016 Up to Over Non Nonfinancial Total 1 month months months 1 year -liquid items items Shs M Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with 176, ,565 Bank of Uganda Loans and advances to other 139, ,471 banks Government and other 73,364 51, , , ,183 securities Other assets 5,848 1,253 3,719 3,918 4,626-19,364 Loans and advances to 111,600 81, , , ,360 customers Deferred income tax asset ,290 3,290 Property and equipment ,069 67,069 Investment Property ,560 11,560 Intangible assets ,863 8,863 Total assets 506, , , ,276 4,626 90,782 1,757,725 Liabilities Customer deposits 764, , ,248 16, ,134,731 Other liabilities 16,814 4,325 1,661 3, ,962 Balances due to other banks 11, ,505 Borrowed funds 29,373 2,522 85, , ,371 Special funds 1, ,708 Current income tax payable ,796 2,796 Total liabilities 823, , , ,164-2,796 1,508,073 Net liquidity gap (316,732) (44,637) 177, ,112 4,626 87, ,652 Net off-consolidated statement of financial position (34,650) (25,331) (57,082) (2,452) - - (119,515) Overall liquidity position (351,282) (69,968) 120, ,660 4,626 87, ,137

133 133 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) As at 31 December 2015 Up to Over 1 Non Nonfinancial Total month Months months year liquid items items Shs M Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with Bank 194, ,977 of Uganda Loans and advances to other 128, ,733 banks Government and other 60,175 82, ,258 83, ,695 securities Other assets 2,784 1,404 4,732 1,367 10,841-21,128 Loans and advances to 106,463 82, , , ,047 customers Deferred income tax asset ,650 1,650 Property and equipment ,301 69,301 Investment Property ,086 12,086 Intangible assets ,791 7,791 Total assets 493, , , ,634 10,841 90,828 1,651,408 Liabilities Customer deposits 558, , ,297 2, ,951 Other liabilities 2,760 1,817 16,878 3,839-25,564 Balances due to other banks 98, ,096 Borrowed funds 3,948 4,262 81, ,406 5, ,110 Special funds 1, ,708 Current income tax payable - - 3, ,848 Total liabilities 665, , , ,868 5,739-1,436,277 Net liquidity gap (172,056) (9,056) 72, ,766 5,102 90, ,131 Net off-consolidated statement of financial position (29,413) (22,573) (31,018) (5,141) - - (88,145) Overall liquidity position (201,469) (31,629) 41, ,625 5,102 90, ,986

134 134 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Up to 1 month 1-3 months Over 5 Non Total months Years years liquid items As at 31 December 2014 Shs M Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with 178, ,386 Bank of Uganda Government and other 48,908 64, ,381 88,190 12, ,107 securities Deposits and balances due 132, ,165 from banks Loans and advances 91,695 69, , ,948 55, ,679 Other assets ,016 5,208 4,610 4,661 17,603 Deferred tax asset Property and equipment ,686 68,686 Investment property ,315 11,315 Intangible assets ,626 4,626 Total assets 451, , , ,346 72,471 89,463 1,424,742 Liabilities Customer deposits 583, , , ,877 Deposits due to other banks 54, ,021 Interest payable and other 6,939 4,186 2,017 1, ,316 22,275 payables Borrowed funds 29, , ,891 80, ,294 Special funds 1, ,708 Current income tax payable ,026 4,026 Total liabilities 675, , , ,501 81,283 11,342 1,233,201 Net liquidity gap (223,525) 4,770 79, ,845 (8,812) 78, ,541

135 135 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) As at 31 December 2013 Assets Cash and balances with 223, ,665 Bank of Uganda Government and other 11,496 20, ,138 58,755 11, ,205 securities Deposits and balances due 83, ,103 from banks Loans and advances 129,498 23, , ,514 69, ,800 Other assets 8, , ,605 24,015 Deferred income tax asset Property and equipment ,116 57,116 Intangible assets ,875 4,875 Total assets 456,006 45, , ,269 80,469 73,879 1,226,062 Liabilities Customer deposits 477, ,711 82,915 3, ,285 Deposits due to other banks 56, ,050 Interest payable and other 7, ,287 22,932 payables Borrowed funds 2,947 3,795 37, , , ,731 Special funds 1, ,708 Current income tax payable ,196 1,196 Total liabilities 545, , , , ,959 16,483 1,064,902 Net liquidity gap (89,979) (95,116) 107, ,201 (30,490) 57, ,160

136 136 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Group Up to Over 5 Nonliquid Total month months months Years years items As at 31 December 2012 Shs M Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash at hand 41, ,353 Government and other 15,890 30, ,238 41,058 11, ,438 securities Deposits and balances due 120, ,403 from banks Loans and advances 137,170 19,446 95, ,278 72, ,411 Other assets 4,612 1,164 2,964 4, ,295 Property and equipment ,065 36,065 Intangible assets ,374 6,374 Total assets 319,428 51, , ,763 84,289 42,439 1,001,339 Liabilities Customer deposits 406,910 50, ,653 13, ,280 Interest payable and other 8,389-3, ,422 payables Borrowed funds 15,239 7,524 47, ,314 77, ,709 Special funds 1, ,230 Current income tax payable ,504 1,504 Deferred income tax payable ,413 1,413 Total liabilities 431,768 57, , ,557 77,249 2, ,558 Net liquidity gap (112,340) (6,518) 56, ,206 7,040 39, ,781

137 137 3D Market risk Market risk is the risk that changes in market prices, which include currency exchange rates, interest rates and equity prices will affect the fair value or future cash flows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimizing the return on risk. Overall responsibility for managing market risks rests with the ALCO. The Treasury Department is responsible for the detailed risk management policies (subject to review and approval by ALCO) and for the day to day implementation of those policies. The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, counter party limits and stop loss limits, which are monitored daily by treasury with senior management oversight. The Group s ALCO reviews on a monthly basis the net foreign exchange position of the Group. The Group s profit before income tax and equity would decrease/ increase by the following were the US$ foreign exchange rate to change by the percentages below. This variation in profitability is measured by reference to foreign currency exposures existing at year end. Year % Change Impact on profit before tax and equity (Shs M) The variations in other currencies do not have a material impact on the Group s profit.

138 138 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Foreign exchange risk The table below summarises the Group s exposure to foreign currency risk as at 31 December Included in the table are the Group s assets and liabilities categorized by currency. All figures are in millions of Uganda Shillings As at 31 December 2016 USD GBP EURO USHS Nonfinancial TOTAL items Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with Bank of 57,848 2,000 2, , ,565 Uganda Loans and advances to other 125,010 1,098 11,146 2, ,471 banks Government and other securities , ,183 Other assets ,696-19,364 Loans and advances to customers 411, , ,360 Deferred income tax asset ,290 3,290 Property and equipment ,069 67,069 Investment Property ,560 11,560 Intangible assets ,863 8,863 Total assets 594,913 3,102 14,020 1,054,908 90,782 1,757,725 Liabilities Customer deposits 340,688 3,092 10, ,327-1,134,731 Balance due to other banks ,505-11,505 Other liabilities 7, ,154 14,825-25,962 Borrowed funds 246, , ,371 Special funds ,708-1,708 Current income tax payable ,796 2,796 Total liabilities 595,127 3,099 13, ,273 2,796 1,508,073 Net on-consolidated statement of financial position items (214) ,635 87, ,652 Net off-consolidated statement of financial position items (31,405) - - (88,110) - (119,515) Overall open position (31,619) ,525 87, ,137

139 139 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) As at 31 December 2015 USD GBP EURO USHS Nonfinancial TOTAL items Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with Bank of 41,905 1,343 7, , ,977 Uganda Loans and advances to other banks 114, ,369 4, ,733 Government and other securities , ,695 Other assets ,297-21,128 Loans and advances to customers 388, , ,047 Deferred income tax asset ,650 1,650 Property and equipment ,301 69,301 Investment Property ,086 12,086 Intangible assets ,791 7,791 Total assets 544,918 1,909 17, ,659 90,828 1,651,408 Liabilities Customer deposits 256,097 1,463 11, , ,951 Balance due to other banks ,096-98,096 Other liabilities 3, ,516 17,603-25,564 Borrowed funds 282, , ,110 Special funds ,708-1,708 Current income tax payable ,848 3,848 Total liabilities 541,612 1,901 15, ,045 3,848 1,436,277 Net on-consolidated statement of financial position items 3, , ,614 86, ,131 Net off-consolidated statement of financial position items (24,849) - - (63,296) - (88,145) Overall open position (21,543) 8 1,223 60,318 86, ,986

140 140 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Group USD GBP EURO USHS Nonfinancial Total items As at 31 December 2014 Assets Cash at hand 57,766 1,542 5, , ,386 Government and other securities , ,107 Deposits and balances due from banks 125,506 1,664 1,998 2, ,165 Loans and advances 271, , ,679 Other assets ,149-17,603 Deferred income tax asset Property and equipment ,686 68,686 Investment property ,315 11,315 Intangible assets ,626 4,626 Total assets 455,025 3,207 7, ,937 84,802 1,424,742 Liabilities Customer deposits 230,076 3,074 6, , ,877 Deposits due to other banks ,021-54,021 Other liabilities 3, ,034-22,275 Borrowed funds 218, , ,294 Special funds ,708-1,708 Current income tax payable ,026 4,026 4,026 Total liabilities 452,586 3,199 7, ,867 4,026 1,233,201 Net on-statement of financial position 2, ,070 80, ,541 As at 31 December 2013 Assets Cash at hand 39, , , ,665 Government and other securities , ,205 Deposits and balances due from banks 72, ,344 3,161 83,103 Loans and advances 234, , ,800 Other assets 511 (1) 28 23,477 24,015 Deferred income tax asset Property and equipment ,116 57,116 Intangible assets ,875 4,875 Total assets 347,421 1,662 7, ,110 62,274 1,226,062

141 141 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Liabilities Customer deposits 173,117 1,697 7, , ,285 Deposits due to other banks ,050-56,050 Other liabilities (2,853) (41) ,598-22,932 Borrowed funds 174, , ,731 Special funds ,708-1,708 Current income tax payable ,196 1,196 Total liabilities 344,924 1,656 7, ,557 1,196 1,064,902 Net on-statement of financial position 2, ,553 61, ,160

142 142 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Group USD GBP EURO USHS Nonfinancial Total items As at 31 December 2012 Assets Cash at hand 24,143 1,302 3,980 11,928-41,353 Government and other securities , ,438 Deposits and balances due from banks 48, ,649 69, ,403 Loans and advances 214, , ,411 Other assets ,199-13,295 Property and equipment ,065 36,065 Intangible assets ,374 6,374 Total assets 288,060 1,354 5, ,856 42,439 1,001,339 Liabilities Customer deposits 148,344 1,332 5, , ,280 Deposits due to other banks ,204-17,204 Other payables 1, ,338-11,422 Borrowed funds 139, , ,709 Special funds ,230-1,230 Current income tax liability ,504 1,504 Deferred income tax liability ,413 1,413 Total liabilities 289,461 1,349 5, ,243 2, ,558 Net on-statement of financial position (1,401) ,613 39, ,781 Interest rate risk The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board of Directors sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored monthly. The Group faces fair value interest rate risk on its fixed interest financial assets that are measured at fair value. In addition, the Group faces cash flow interest rate risk on its variable rate financial instruments measured at amortised cost. Financial instruments with fair value interest rate risk comprise solely the heldfor-trading portfolio of Government securities. Financial instruments with cash flow interest rate risk comprise deposits and balances due from other banks, loans and advances receivable/payable, customer deposits and amounts due to other group companies.

143 143 The table below summarises the Group s fair value and cash flow interest rate risks at 31 December 2016, 2015, 2014, 2013 and 2012 assuming a market interest rate decrease of 3% from the rates ruling at year-end. The variance has increased to 3% in the current year due to increased volatility of the rates in the period. This would have an impact on the profit before income tax of the Group as follows: Shs M Shs M Shs M Shs M Shs M Fair value interest rate risk Cash flow interest rate risk 18,816 12,248 12,171 5,941 5,724 19,398 12,627 12,547 6,062 5,841 The tables below summarise the Group s exposure to interest rate risk as at 31 December 2016, 2015, 2014, 2013 and Included in the table is the Group s interest bearing assets and liabilities at carrying amounts categorised by the earlier of contractual re-pricing or maturity dates. The Group does not bear any interest rate risk on off-consolidated statement of financial position items like commitments to lend, guarantees and letters of credit. All figures are in millions of Uganda Shillings. As at 31 December 2016 Up to Over 1 Non- Nonfinancial Total month months months year interest bearing items Interest bearing assets Shs M Shs M Shs M Shs M Shs M Shs M Shs M Cash and balances with Bank of Uganda , ,565 Government and other 73,364 51, , , ,183 securities Loans and advances to 111,600 81, , ,386 (28,652) - 842,360 customers Loans and advances to other 92, , ,471 banks Deferred income tax asset ,290 3,290 Property and equipment ,069 67,069 Investment Property ,560 11,560 Intangible assets ,863 8,863 Other assets ,364-19,364 Total interest bearing assets 277, , , , ,239 90,782 1,757,725 Interest bearing liabilities Customer deposits 385, , ,248 16, ,063-1,134,731 Balances due to other banks 11, ,505 Borrowed funds 1,529 2,002 81, ,258 31, ,371

144 144 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) As at 31 December 2016 Up to Over 1 Non- Nonfinancial Total month Months Months year interest bearing items Shs M Shs M Shs M Shs M Shs M Shs M Shs M Other liabilities ,962-25,962 Current income tax payable ,796 2,796 Special funds ,708-1,708 Total interest bearing liabilities 398, , , , ,504 2,796 1,508,073 Interest re-pricing gap (120,933) (41,790) 179, ,436 (223,265) 87, ,652

145 145 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) As at 31 December 2015 Up to Over 1 Non- Nonfinancial Total month months months year interest bearing items Interest bearing assets Shs M Shs M Shs M Shs M Shs M Shs M Shs M Cash and balances with , ,977 Bank of Uganda Government and other 60,175 82, ,258 83, ,695 securities Loans and advances to 106,384 82, , ,919 (14,621) - 808,047 customers Loans and advances to 46, , ,733 other banks Deferred income tax asset ,650 1,650 Property and equipment ,301 69,301 Investment Property ,086 12,086 Intangible assets ,791 7,791 Other assets ,128-21,128 Total interest bearing assets 213, , , , ,278 90,828 1,651,408 Interest bearing liabilities Customer deposits 226, , ,297 2, , ,951 Balances due to other 98, ,096 banks Borrowed funds 603 4,262 81, ,542 35, ,110 Other liabilities ,564-25,564 Current income tax ,848 3,848 payable Special funds ,708-1,708 Total interest bearing liabilities 325, , , , ,379 3,848 1,436,277 Interest re-pricing gap (112,032) (9,329) 88, ,072 (111,101) 86, ,131

146 146 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Group Up to Over 5 Noninterest Nonfinancial Total month months Months years years bearing items As at 31 December 2014 Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances , ,386 with Bank of Uganda Government and 48,908 64, ,381 88,190 12, ,107 other securities Deposits and 122, , ,165 balances due from banks Loans and advances 90,091 69, , ,305 55,206 (13,612) - 680,679 Other assets ,603-17,603 Deferred tax asset Property and ,686 68,686 equipment Investment property ,315 11,315 Intangible assets ,626 4,626 Total assets 261, , , ,495 67, ,225 84,802 1,424,742 Liabilities Customer deposits 278, , , , ,877 Deposits due to 54, ,021 other banks Other liabilities ,275-22,275 Borrowed funds 12, , ,771 80,751 38, ,294 Special funds ,708-1,708 Current income tax payable ,026 4,026 Total liabilities 345, , , ,097 80, ,497 4,026 1,233,201 Interest sensitivity gap (83,939) 8,337 75, ,398 (13,031) (171,272) 80, ,541

147 147 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) As at 31 December 2013 Assets Cash and balances , ,665 with Bank of Uganda Government and 11,496 20, ,138 58,755 11, ,205 other securities Deposits and 36, ,855-83,103 balances due from banks Loans and advances 129,674 23, , ,756 69,053 (18,417) - 623,800 Other assets ,015-24,015 Deferred income tax asset Property and ,116 57,116 equipment Intangible assets ,875 4,875 Total assets 177,418 44, , ,511 80, ,118 62,274 1,226,062 Liabilities Customer deposits 211, ,711 82,915 3, , ,285 Deposits due to 56, ,050 other banks Other liabilities ,932-22,932 Borrowed funds 1,345 3,795 37, , ,959 1, ,731 Special funds ,708-1,708 Current income tax payable ,196 1,196 Total liabilities 268, , , , , ,639 1,196 1,064,902 Interest sensitivity gap (91,215) (96,112) 103, ,443 (30,491) (16,521) 61, ,160

148 148 3 Financial risk management (Continued) 3D Market risk (Continued) Foreign exchange risk (Continued) Group Up to 1 month 1-3 months 3-12 Months 1-5 years Over 5 years Noninterest bearing Nonfinancial Total items As at 31 December 2012 Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M Assets Cash and balances with Bank of Uganda ,353-41,353 Government and other securities 15,890 30, ,238 41,058 11, ,438 Deposits and balances due from banks 38, , ,403 Loans and advances 138,514 19,447 95, ,195 71,465 (23,059) - 555,411 Other assets ,295-13,295 Deferred tax asset Property and equipment ,065 36,065 Investment property Intangible assets ,374 6,374 Total assets 192,602 50, , ,253 82, ,794 42,439 1,001,339 Liabilities Customer deposits 169,796 50, ,476 13, , ,280 Deposits due to other banks 17, ,204 Other liabilities ,422-11,422 Borrowed funds 3,456 7,524 47, ,314 60,045 11, ,505 Special funds ,230-1,230 Current income tax payable ,504 1,504 Deferred income tax liability ,413 1,413 Total liabilities 190,456 57, , ,557 60, ,726 2, ,558 Interest sensitivity gap 2,146 (7,681) 71, ,696 22,802 (161,932) 39, ,781

149 149 3E Fair values of financial assets and liabilities As at 31 December 2016, 2015, 2014, 2013 and 2012, the Group had treasury bills and treasury bonds that are held-for-trading and are measured at fair value. Held-for-trading treasury bills fair values are derived from quoted market prices and held-for-trading treasury bonds fair values are derived from discounting expected future cash flows. The discounting rates used for the valuation of treasury bonds are derived from observable market data. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly from the market. The sources of input parameters like government treasury bills yield curve or counterparty credit risk are the Group of Uganda website, Reuters and comparison with similar financial institutions. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The following are the financial assets measured at fair value: Hierarchy Shs M Shs M Shs M Shs M Shs M Level 2-Treasury bills and bonds held-fortrading 102,214 72,441 57,994 16,144 22,535 During the year ended 31 December 2016, 2015, 2014, 2013 and 2012 there were no transfers into or out of Level 2 fair value measurements. The fair values of the Group s other financial assets and liabilities that are measured at amortised cost approximate the respective carrying amounts, due to the generally short periods to contractual re-pricing or maturity dates.

150 150 3F Capital management The Group s objectives when managing capital, which is a broader concept than the equity on the consolidated statement of financial positions, are: To comply with the capital requirements set by Bank of Uganda; To safeguard the Group s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and To maintain a strong capital base to support the development of its business. Capital adequacy and use of regulatory capital are monitored regularly by management employing techniques based on the guidelines developed by the Basel Committee, as adapted and implemented by Bank of Uganda for supervisory purposes under the Financial Institutions Act, 2004 (FIA) as amended by the Financial Institutions (Amendment) Act, The required information on capital adequacy is filed with Bank of Uganda on a quarterly basis. As of 31 December 2016, 2015, 2014, 2013 and 2012, Bank of Uganda regulations require each bank to: a). have a minimum paid up capital; b). maintain core capital of not less than 8% of risk weighted assets and off-consolidated statement of financial position items; and c). maintain total capital of not less than 12% of risk weighted assets plus risk weighted off-consolidated statement of financial position items. The Group s total regulatory capital is divided into two tiers: Tier 1 capital (core capital): share capital, share premium, plus retained earnings less goodwill and Tier 2 capital (supplementary capital): revaluation reserves, general provisions for losses not exceeding 1.25% of risk weighted assets, subordinated debt not exceeding 50% of Tier 1 capital and hybrid capital instruments. Qualifying Tier 2 capital is Limited to 100% of Tier 1 capital. The risk weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of and reflecting an estimate of the credit risk associated with - each asset and counterparty. A similar treatment is adopted for off-consolidated statement of financial position exposure, with some adjustments to reflect the more contingent nature of the potential losses. The table below summarises the composition of regulatory capital and the ratios of the Group:

151 151 3 Financial risk management (Continued) 3F Capital management (Continued) Shs M Shs M Shs M Shs M Shs M Before dividend declaration Tier 1 capital 245, , , , ,581 Tier 1 + Tier 2 capital 305, , , , ,208 After dividend declaration Tier 1 capital 233, , , , ,359 Tier 1 + Tier 2 capital 292, , , , ,985 Risk weighted assets On-consolidated statement of financial position 982, , , , ,028 items Off-consolidated statement of financial position items 105,798 77,862 62,150 82,759 43,839 Total risk weighted assets 1,088,159 1,039, , , ,867 The analysis of the subordinated debt recognized as Tier 2 capital for regulatory capital adequacy purposes of the Bank in accordance with Bank of Uganda (BOU) prudential regulations is summarised below. The debt from CDC was discounted by 20% in 2016 and the debt from DEG was discounted by 20% in 2015 in compliance with the BOU prudential regulations Shs M Shs M Shs M Shs M Shs M CDC Group Plc 36,150 33,580 27,650 25,200 - Deutsche Investitions-Und Entwicklungsgesellschaft mbh (DEG) 28,920 26,864 27,650 25,200 65,070 60,444 55,300 50,400 -

152 152 3 Financial risk management (Continued) 3F Capital management (Continued) Risk weighted assets comprise of the following: Statement of financial position/nominal Amount Risk Weight Risk weighted amount Shs M Shs M % Shs M Shs M On-consolidated statement of financial position Cash and balances with Bank of Uganda 176, ,977 0% - - Due from commercial banks in Uganda 92,509 45,779 20% 18,502 9,156 Due from banks outside Uganda; Rated AAA to AA % - - Rated A+ to A- 46,912 82,899 50% 23,456 41,450 Rated A- and non-rated % Government and other securities 489, ,695 0% - - Other assets 19,364 21, % 19,364 21,128 Loans and advances to customers 842, , % 842, ,047 Deferred income tax asset 3,290 1,650 0% - - Property, plant and equipment 67,069 69, % 67,069 69,301 Investment Property 11,560 12, % 11,560 12,086 Intangible assets 8,863 7,791 0% - - Total assets 1,757,725 1,651, , ,223 Off-consolidated statement of financial position items Letters of credit secured by cash collateral 0% Guarantees and acceptances 92,081 67, % 92,081 67,573 Undrawn facilities 27,434 20,572 50% 13,717 10,289 Total 119,515 88, ,798 77,862 Total 1,088,159 1,039,085 Basel Ratio (before dividend declaration) Core capital 21.29% 17.28% Total capital 28.06% 23.87% Basel Ratio (after dividend declaration) Core capital 20.14% 16.24% Total capital 26.91% 22.83% Included in the total capital computation is the subordinated debt from Deutche Investitions-Und Entwicklungsgesellschanft mbh (DEG) and CDC Group Plc (CDC).

153 153 3 Financial risk management (Continued) 3F Capital management (Continued) Risk weighted assets comprise of the following; Statement of financial position/ Nominal Risk Weight Risk weighted amount On-statement of financial Shs M Shs M Shs M Shs M Shs M Shs M position: Cash and balances with Bank 178, , ,050 0% of Uganda Due from commercial banks in 122,122 36,053 2,097 20% 24,424 7, Uganda Due from banks outside Uganda; Rated AAA and AA- - 11,840 3,413 20% - 2, Rated A+ and A- 9,730 34,993 20,081 50% 4,865 17,497 10,040 Rated A- and non-rated , % ,114 Government and other 331, , ,438 0% securities Other assets 17,603 24,015 13, % 17,603 24,015 13,295 Loans and advances to 680, , , % 680, , ,411 customers Property, plant and equipment 68,686 57,116 36, % 68,686 57,116 36,065 Investment property 11, % 11, ,419,941 1,220, , , , ,028 Off-statement of financial position; Letters of credit secured by - 1, % cash collateral Guarantees and acceptances 51,305 71,250 29, % 51,305 71,250 29,965 Undrawn facilities 21,690 23,019 27,747 50% 10,845 11,509 13,874 72,995 95,317 58,196 62,150 82,759 43,839 Basel Ratio (after dividend declaration) Core capital 19% 16% 16% Total capital 26% 24% 17% Basel Ratio (before dividend declaration) Core capital 19% 18% 17% Total capital 27% 25% 19% Included in the total capital computation is the subordinated debt from Deutsche Investitions-Und Entwicklungsgesellschanft mbh (DEG) and CDC Group Plc (CDC)

154 Critical accounting estimates and judgements in applying accounting policies The preparation of financial statements in conformity with International Financial Reporting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of financial statements and reported amounts of revenues and expenses during the reported period. The estimates and associated assumptions are based on historical experiences, the results of which form the basis of making the judgments about the carrying values and liabilities that are not readily apparent from other sources. Actual results ultimately may differ from these estimates. The Group makes estimates and assumptions that could materially affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a). Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Refer to note 17 for more information. (b). Held-to-maturity investments The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such assets to maturity. If the Group fails to keep these assets to maturity other than for the specific circumstances for example, selling an insignificant amount close to maturity it will be required to classify the entire class as available-for-sale. Refer to note 18 for more information. (c). Income taxes The Group is subject to various government taxes under the Ugandan tax laws. Significant estimates and judgments are required in determining the provision for taxes on certain transactions. For these transactions, the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact profit or loss. Refer to note 13 for more information.

155 155 (d). Fair value of financial instruments Where the fair value of the financial assets and financial liabilities recorded in the consolidated and separate statement of financial position cannot be determined from active markets, they are determined using valuation techniques including discounted cash flows models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to note 3E for more information. (e). Going concern The Group s directors have made an assessment of the Group s ability to continue as a going concern and are satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the directors are not aware of any material uncertainties that may cast significant doubt upon the Group s ability to continue as a going concern. Therefore, the consolidated and separate financial statements continue to be prepared on the going concern basis. 5. Segment information For management purposes, the Group is organised into business units based on their products and services, and has two reportable operating as follows:, which is the holding company that is listed on the Uganda Stock Exchange. dfcu Bank Limited; this is the commercial banking segment which provides innovative products and superior service levels catering for customer needs in the areas of savings and investment products, personal and current accounts, personal credit, corporate credit, trade finance, foreign exchange trading, money market transfers, etc. It also consists of a development finance segment which provides medium and long term finance to private sectors in Uganda. The sectors include agro processing, education, health, manufacturing, transport, hospitality industry, tourism and construction. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which is measured the same as the operating profit or loss in the consolidated financial statements.

156 156 The segment results for the year ended 31 December 2016, 2015, 2014, 2013 and 2012 were as follows: dfcu dfcu Intrasegment Group Limited Bank items Shs M Shs M Shs M Shs M 31 December 2016 Fees and commission income and other operating income 5,631 38,013 (3,792) 39,852 Income from transactions with operating segments of the 14,804 (14,804) same entity Interest income ,310 (2,500) 217,155 Interest expense (3,143) (83,272) 2,501 (83,914) Other operating expenses (4,185) (114,338) 3,793 (114,730) Profit before income tax 13,452 59,713 (14,802) 58,363 Income tax expense 405 (13,443) - (13,038) Profit for the year 13,857 46,270 (14,802) 45,325

157 Segment information (Continued) 31 December 2015 dfcu dfcu Bank Intrasegment Group Limited items Shs M Shs M Shs M Shs M Fees and commission income and other operating 3,422 39,382 (2,893) 39,911 income Income from transactions with operating segments of 12,628 - (12,628) - the same entity Interest income ,729 (2,048) 182,974 Interest expense (3,161) (73,629) 2,048 (74,742) Other operating expenses (2,895) (101,219) 2,893 (101,221) Profit before income tax 10,287 49,263 (12,628) 46,922 Income tax expense 622 (12,253) - (11,632) Profit for the year 10,909 37,010 (12,628) 35, December 2014 Income from external customers 1,325 41,630 (884) 42,071 Income from transactions with operating segments of 17,840 - (17,840) - the same entity Interest income ,230 (307) 163,278 Interest expense - (60,296) 307 (59,989) Other operating expenses (911) (88,772) 884 (88,799) Profit/(loss) before tax 18,609 55,792 (17,840) 56,561 Income tax expense (231) (14,221) - (14,452) Profit/(loss) after tax 18,378 41,571 (17,840) 42, December 2013 Income from external customers (105) 26,842 (35) 26,702 Income from transactions with operating segments of 12,247 - (12,247) - the same entity Interest income ,537 (235) 150,604 Interest expense - (54,676) 235 (54,441) Other operating expenses (492) (77,338) 35 (77,795) Profit before income tax 11,952 45,365 (12,247) 45,070 Income tax expense 95 (10,564) - (10,469) Profit/(loss) after tax 12,047 34,801 (12,247) 34,601

158 December 2012 Income from external customers 1,091 21,174-22,265 Income from transactions with operating segments of 12,259 - (12,259) - the same entity Interest income ,917 (97) 140,066 Interest expense - (56,658) 97 (56,561) Depreciation and amortisation - (6,094) - (6,094) Other operating expenses (311) (59,039) - (59,350) Profit/(loss) before tax 13,285 39,300 (12,259) 40,326 Income tax expense (308) (9,401) - (9,709) Profit/(loss) after tax 12,977 29,899 (12,259) 30,617 Statement of financial position dfcu dfcu Bank Intrasegment Group Limited items At 31 December 2016 Shs M Shs M Shs M Shs M Total assets 75,227 1,727,341 (44,843) 1,757,725 Total liabilities 22,380 1,504,200 (18,507) 1,508,073 Capital expenditure 3,976 5,094-9,070 At 31 December 2015 Total assets 72,344 1,622,083 (43,019) 1,651,408 Total liabilities 22,550 1,430,408 (16,681) 1,436,277 Capital expenditure 4,131 10,135-14,266 At 31 December 2014 Total assets 71,509 1,396,249 (43,016) 1,424,742 Total liabilities 20,924 1,228,956 (16,679) 1,233,201 Capital expenditure 5,172 25,128-30,300 At 31 December 2013 Total assets 67,598 1,196,720 (38,256) 1,226,062 Total liabilities 23,663 1,053,158 (11,919) 1,064,602 Capital expenditure 17,716 7,857-25,573 At 31 December 2012 Total assets 51, ,119 (31,538) 1,001,339 Total liabilities 10, ,111 (5,201) 865,558 Capital expenditure 9,919 3,511-13,430

159 159 The Group s operations are all attributed to Uganda, the Company s country of domicile. The table below indicates the Group s interest income for each group of similar products: dfcu Bank Group Shs M Shs M Shs M Year ended 31 December , ,155 Year ended 31 December , ,974 Year ended 31 December , ,278 Year ended 31 December , ,604 Year ended 31 December , ,066 6 Business combinations Following the takeover of Global Trust Bank ( GTB ) by Bank of Uganda ( BoU ), on 25 July 2014, BoU entered into a Purchase and Assumption Agreement with dfcu Bank Limited for the acquisition of certain assets and assumption of specific liabilities of GTB. These assets included cash and balances with BoU, certain loans and advances to customers, all customer deposits and government securities. The following table summarises the amounts identified assets acquired and liabilities assumed at the acquisition date Fair value of consideration transferred Shs M Shs M Recognised amounts of separately identified assets acquired and liabilities assumed Cash and balances with Bank of Uganda - 8,302 Government securities - 40,044 Loans and advances to customers - 27,307 Receivables under managed assets portfolio - 1,487 Customer relationships - 1,939 Fixed deposits - (40,241) Savings accounts - (14,796) Current accounts - (15,770) Written off loan recovery costs - (169) Negative good will - 8,103 The transaction was designed to ensure that the book values of assets acquired and liabilities assumed were equal at the date of acquisition hence the nil consideration paid by dfcu Bank. In accordance with IFRS 3: Business combinations, the Bank has recognised a separately identifiable intangible asset in respect of customer relationships details of which are disclosed in Note 20, as well as estimated net receivables under the managed assets portfolio. Furthermore, the Bank measured net assets acquired at fair value resulting in an excess of the value of assets acquired over liabilities assumed. This excess has been recognised as negative goodwill and recorded within other income in the statement of comprehensive income. The negative goodwill is mainly attributed to receivables under managed assets portfolio and customer relationships which had nil book values at the date of acquisition in addition to loans and advances to customers that were acquired at a discount.

160 160 The acquired business contributed revenues of Shs Nil (2014: Shs 4,802 million) and profit of Shs Nil (2014: Shs 2,573 million), in addition to negative goodwill that was recognised in other income, to the bank for the period from 25 July 2014 to 31 December The following pro forma summary presents consolidated information of the bank as if the business combination had occurred on 1 January Shs M Shs M Revenue - 11,525 Profit - 6,175 These amounts have been calculated after applying the bank s accounting policies and including necessary adjustments to reflect the additional amortisation that would have been charged assuming the fair value adjustments to intangible assets had been applied from 1 January 2014, together with the consequential tax effects. The bank also incurred Shs Nil (2014: Shs 72 million) of acquisition related costs. These expenses are included in general and administrative expenses in the bank s statement of comprehensive income for the year ended 31 December Interest and similar income Shs M Shs M Shs M Shs M Shs M Loans and advances 141, , , , ,082 Government and other securities 72,288 43,628 35,906 29,903 27,963 Other interest income 3, ,415 3,873 7, , , , , ,066 8 Interest and similar expenses Shs M Shs M Shs M Shs M Shs M Borrowed funds 27,863 30,104 23,111 19,600 23,634 Customer deposits 56,051 44,638 36,878 34,841 32,927 83,914 74,742 59,989 54,441 56,561 9 Fee and commission income Shs M Shs M Shs M Shs M Shs M Fees and commission income 29,305 25,002 20,852 20,116 14,055 Fee and commission income includes fees and commissions from ledger fees, money transfers, low balance fees, statement fees, unpaid cheques charges, URA licensing, ATM commissions, letters of credit fees, letters of guarantee, telegraphic transfer fees, and other fees and commissions.

161 Net trading & other income Shs M Shs M Shs M Shs M Shs M Fair value gains/(losses) on held-for-trading - - 1,465 (745) 1,851 securities Net foreign exchange income 7,540 14,544 10,700 7,273 5,604 Rental income 1, Other 1, , ,547 14,909 21,219 6,586 8, Operating Expenses Shs M Shs M Shs M Shs M Shs M Profit before income tax is stated after charging the following items: Employee benefits expenses (note 12) 35,391 31,835 27,602 24,645 23,091 Professional services 7,597 6,272 4,747 1,841 2,154 Advertising and marketing 2,476 2,611 2,742 2,165 2,154 Office and residential occupancy expenses 11,405 10,491 8,902 8,005 2,654 Communication expenses 10,728 11,923 8,863 8,246 5,772 Depreciation of property and equipment (note 21) 8,664 6,869 3,765 3,785 3,961 Amortisation of intangible assets (note 23) 1,349 2,322 2,492 2,246 2,133 Auditors remuneration Travel expenses 1,182 1,263 1,218 1,083 1,144 Printing and stationery 1,296 1,882 2,110 1,424 1,195 Other administrative expenses 12,308 4,130 10,302 5,559 5,132 Operating lease expenses 3,896 9,465 5,172 5,070 4,402 96,900 89,531 78,309 64,381 54, Employee benefits expenses Shs M Shs M Shs M Shs M Shs M The following are included in employee benefits expenses: Wages and salaries 30,951 27,525 24,229 21,577 18,837 Retirement benefit costs 1,413 1,115 1, ,389 National Social Security Fund contributions 3,027 3,195 2,338 2,115 1,865 35,391 31,835 27,602 24,645 23,091

162 Earnings per share Basic earnings per share is calculated by dividing the profit for the year attributable to shareholders by the weighted average number of ordinary shares in issue during the year Net profit attributable to equity 45,324 35,290 42,109 34,601 30,617 holders of the Company (Shs M) Weighted average number of 497,201, ,201, ,201, ,201, ,201,822 ordinary shares in issue Basic earnings per share (Shs) Diluted earnings per share (Shs) There were no potentially dilutive shares outstanding at 31 December 2016, 2015, 2014, 2013 and Income tax a) Income tax expense Shs M Shs M Shs M Shs M Shs M Current income tax 14,678 13,107 13,324 12,165 9,810 Deferred income tax credit (note 24) (1,640) (1,475) 1,128 (1,696) (101) Income tax expense 13,038 11,632 14,452 10,469 9,709 The tax on the Group s profit before income tax differs from the theoretical amount that would arise using the basic tax rate of 30% as follows: Shs M Shs M Shs M Shs M Shs M Profit before income tax 58,363 46,922 56,561 45,070 40,326 Tax calculated at a tax rate of 30% 17,509 14,077 16,968 13,521 12,098 Prior year over provision of corporation tax (18) - Tax effect of: - Expenses not deductible for tax purposes 1,324 1,110 1, Income taxed at other rates (5,954) (3,636) (2,783) (3,401) (8,894) - Income not taxable - - (755) (481) (550) - Final tax on treasury bills and bonds ,384 Income tax expense 13,038 11,632 14,452 10,469 9,709

163 163 b) Current income tax payable/(recoverable) The movements in current tax payable during the year are as follows: Shs M Shs M Shs M Shs M Shs M At 1 January 3,848 4,026 1,196 1,504 1,309 Prior year over provision Current income tax charge for the year 14,678 13,107 13,324 12,165 9,810 Income tax paid during year (15,730) (13,285) (10,494) (12,479) (9,615) At 31 December 2,796 3,848 4,026 1,196 1, Dividends At the annual general meetings of dfcu limited for the years below; the board recommended a cash dividend after deduction of withholding tax as shown below; Per Total Per Total Per Total Per Total Per Total share share share share share Shs Shs M Shs Shs M Shs Shs M Shs Shs M Shs Shs M , , , , ,222 Payment of dividends is subject to withholding tax at rates depending on the tax residence of the shareholder. 16 Cash at hand and balances with Bank of Uganda Shs M Shs M Shs M Shs M Shs M Cash at hand 80,738 62,668 71,182 57,012 41,353 Balances with Bank of Uganda 95, , , ,653 58, , , , , , Deposits and balances due from banks Shs M Shs M Shs M Shs M Shs M Deposits with other banks 46,962 82,954 10,008 47,016 50,358 Placements with other banks 92,509 45, ,157 36,087 11, , , ,165 83,103 61,706 Loans and advances to other banks are short-term deposits made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The weighted average effective interest rate on loans and advances to other banks was as follows;

164 Shs M Shs M Shs M Shs M Shs M Weighted average effective rate 1.16% 1.85% 1.02% 0.6% 0.9% 18 Loans and advances to customers Shs M Shs M Shs M Shs M Shs M Gross advances to customers by type Overdrafts 55,288 53,553 59, ,679 77,583 Commercial loans 815, , , , ,661 Gross loans and advances 871, , , , ,244 Less: Allowance for impairment of loans and advances Individually assessed (21,492) (8,615) (9,110) (8,859) (10,359) Collectively assessed (7,160) (6,306) (4,502) (6,265) (6,474) Net loans and advances 842, , , , ,411 The weighted average effective interest rate on loans and advances was as follows; Shs M Shs M Shs M Shs M Shs M Weighted average effective rate 23.64% 23.17% 17.22% 17.50% 23.0%

165 165 Analysis of loans and advances to Customers Movements in allowance for impairment of loans and advances are as follows: Individually Collectively Total assessed assessed Shs M Shs M Shs M At 1 January ,100 5,731 13,831 Increase in allowances for impairment 11, ,394 Recoveries and allowances no longer required (253) - (253) Net increase in allowances 11, ,141 Debts written off during the year (9,139 - (9,139 At 31 December ,359 6,474 16,833 Charge to profit Net increase in allowances above 11, ,141 Recoveries of amounts previously written off (805) - (805) Net charge to profit or loss 10, ,336 At 1 January ,359 6,474 16,833 Increase in allowances for impairment 14,571 (209) 14,362 Recoveries and allowances no longer required (412) - (412) Net increase in allowances 14,159 (209) 13,950 Debts written off during the year (15,659) - (15,659) At 31 December ,859 6,265 15,124 Charge to profit Net increase in allowances above 14,159 (209) 13,950 Recoveries of amounts previously written off (536) - (536) Net charge to profit or loss 13,623 (209) 13,414 At 1 January ,859 6,265 15,124 Increase/(decrease) in allowances for impairment 15,325 (1,763) 13,562 Recoveries and allowances no longer required (2,828) - (2,828) Net increase in allowances 12,497 (1,763) 10,734 Debts written off during the year (12,246) - (12,246) At 31 December ,110 4,502 13,612 Charge to profit Net increase in allowances above 12,497 (1,763) 10,734 Recoveries of amounts previously written off (244) - (244) Net charge to profit or loss 12,253 (1,763) 10,490

166 Loans and advances to customers (Continued) Individually Collectively Total assessed assessed Shs M Shs M Shs M At 1 January ,110 4,502 13,612 Increase in allowances for impairment 11,667 1,804 13,471 Recoveries and allowances no longer required Net increase in allowances 11,775 1,804 13,579 Debts written off during the year (12,270) - (12,270) At 31 December ,615 6,306 14,921 Charge to consolidated statement of comprehensive income (2015) Net increase in allowances above 11,775 1,804 13,579 Recoveries of amounts previously written off (1,889) - (1,889) Net charge to profit or loss 9,886 1,804 11,690 At 1 January ,615 6,306 14,921 Increase in allowances for impairment 18, ,725 Recoveries and allowances no longer required (987) - (987) Net increase in allowances 17, ,738 Debts written off during the year (5,007) - (5,007) At 31 December ,492 7,160 28,652 Charge to consolidated statement of comprehensive income (2016) Net increase in allowances above 17, ,738 Recoveries of amounts previously written off (908) - (908) Net charge to profit or loss 16, ,830 Loans and advances to customers include finance lease receivables, which may be analysed as follows: Shs M Shs M Shs M Shs M Shs M Gross investment in finance leases: Not later than 1 year 36,717 39,739 24,246 24,111 29,413 Later than 1 year and not later than 5 29,866 48,958 31,686 32,446 20,126 years Later than 5 years ,799 88,797 56,094 57,438 49,892 Unearned future finance income on (12,213) (12,451) (10,329) (10,073) (8,508) finance leases Net investment in finance leases 54,586 76,346 45,765 47,365 41,384

167 167 The net investment in finance leases may be analysed as follows: Shs M Shs M Shs M Shs M Shs M Not later than 1 year 30,004 34,167 19,811 19,883 25,657 Later than 1 year and not later than 5 years 24,406 42,093 25,822 26,756 13,881 Later than 5 years ,846 54,586 76,346 45,765 47,365 41, Government and other securities (Group) Shs M Shs M Shs M Shs M Shs M Treasury bills: Held-for-trading Maturing within 90 days from the date of reporting 18,170 20,698 16,719 7,950 7,099 Maturing after 90 days from the date of reporting 52,508 37,159 25,347 1,785 13,214 Held-to-maturity Maturing within 90 days from the date of reporting 100,734 92,683 59,669 20,118 14,224 Maturing after 90 days from the date of reporting 146, ,056 79,795 73, ,006 Total treasury bills 318, , , , ,543 Treasury and other bonds : Held-for-trading Maturing after 90 days from the date of reporting 31,536 14,584 15,928 6,409 2,222 Held-to-maturity Maturing within 90 days from the date of reporting 2 29,009 7,082 3,188 12,279 Maturing after 90 days from the date of reporting 138, , ,567 96,457 65, , , ,649 99,645 77,673 Other bonds Total treasury and other bonds 170, , , ,054 79, , , , , ,438 Treasury bills are debt securities issued by the Government of Uganda, and administered by the Bank of Uganda, for a term of three months, six months, nine months or a year. Treasury bonds are debt securities issued by the Government of Uganda and administered by the Bank of Uganda, for terms of two years, three years, five years and ten years. The weighted average effective interest rate on government securities was; % 16.03% 12.67% 12.38% 15.94%

168 Other assets Shs M Shs M Shs M Shs M Shs M Prepaid expenses 5,206 7,288 6,240 11,605 4,643 Sundry receivables 2,982 2, ,809 2,097 Front-end fees paid on borrowings 4,552 3,869 3,379 3,416 3,395 VAT Receivable Other assets 6,353 7,508 7,188 5,185 3,160 19,364 21,128 17,603 24,015 13,295 Items in the course of collection relate to cheques, Electronic Fund Transfers (EFTs) and Real Time Gross Settlements (RTGS) that had not cleared by the end of the year. 21 Property and Equipment Land and Furniture Motor Work-in- Total buildings and vehicles progress equipment Shs M Shs M Shs M Shs M Shs M Year ended 31 December 2012 Opening net carrying amount 3,399 11, ,689 26,856 Transfer from work in progress 5,520 1,014 - (6,534) - Additions - 1, ,450 13,201 Disposals at cost - (77) (29) - (106) Disposal:- accumulated depreciation Write off - (71) - - (71) Depreciation charge for the year (4) (3,750) (137) - (3,891) Net carrying amount 8,915 10, ,605 36,065 At 31 December 2012 Cost or valuation 9,443 35,443 1,078 16,904 62,868 Accumulated depreciation (528) (25,286) (6900 (299) (26,8030 Net carrying amount 8,915 10, ,605 36,065 Year ended 31 December 2013 Opening net carrying amount 8,915 10, ,605 36,065 Additions - 1, ,643 25,573 Disposals at cost - (1) (52) - (53) Disposals:- accumulated depreciation Transfers from work in progress - 2, (2,834) (736) Write off - (10,195) (42) - (10,237) Write off:- accumulated depreciation - 10, ,237 Depreciation charge for the year (10) (3,575) (200) - (3,785) Net carrying amount 8,905 10, ,414 57,116

169 Property and Equipment (Continued) At 31 December 2013 Cost or valuation 9,443 36,931 1,467 37,414 85,285 Accumulated depreciation (538 (26,839) (762) - (28,169) Net carrying amount 8,905 10, ,414 57,116 Year ended 31 December 2014 Opening net carrying amount 8,905 10, ,414 57,116 Additions 78 3, ,770 30,300 Disposals at cost - (73) (252) - (325) Disposals:- accumulated depreciation Transfers from work in progress 32, (32,362) - Transfer to investment property (11,315) (11,315) Write off (3,400) (1,562) - - (4,962) Write off:- accumulated depreciation - 1, ,336 Depreciation charge for the year (10) (3,426) (329) - (3,765) Net carrying amount 26,281 9, ,822 68,686 At 31 December 2014 Cost or valuation 26,829 38,822 1,510 31,822 97,939 Accumulated depreciation (548 (28,856) (893) - (30,297) Net carrying amount 26,281 9, ,822 68,686

170 Property and Equipment (Continued) Freehold Motor Furniture, Computer Work-in- Total Land and Buildings vehicle Fittings & Equipment equipment Progress Shs M Shs M Shs M Shs M Shs M Shs M Year ended 31 December 2015 Cost At 1 January ,306 1,513 25,792 7,532 24,904 86,047 Reclassification adjustment (188) 65 - (20) Additions ,791 11,152 Transfers from work in progress 3, , (29,880) - Write offs (477) (477) Disposals - (65) (12) - - (77) At 31 December ,627 2,369 53,825 8,466 2,338 96,625 Depreciation At 1 January ,506 Reclassification adjustment - 74 (89) (3) - (18) Charge for the year , ,910 Disposals - (65) (9) - - (74) At 31 December ,324 Net carrying amount 28,786 1,128 35,783 1,266 2,338 69,301 Year ended 31 December 2016 At 1 January ,627 2,369 53,825 8,466 2,338 96,625 Additions ,870 6,627 Transfers from work in progress , (3,849) - Write offs - (3) (2,246) (779) (60) (3,088) Disposals - - (135) - - (135) At 31 December ,627 2,452 55,101 8,550 4, ,029 Depreciation At 1 January ,241 18,042 7,200-27,324 Charge for the year , ,664 Write offs - (3) (2,246) (779) - (3,028) At 31 December ,122 1,663 22,852 7,323-32,960 Net carrying amount 28, ,249 1,227 4,299 67,069 Work-in-progress relates to ongoing works in respect of various projects.

171 Investment property Investment property comprises land and buildings at Plot 26 Kyadondo Road, Kampala. This property is held for its rental and capital appreciation. The investment property has been stated on the historical cost basis. During 2015, the Company resolved to make available for rent to third parties, that part of the property that is not utilised by dfcu Bank Limited. Consequently, that part of the property is held for rental purposes and has been reclassified to investment property in the consolidated financial statements as shown below. In the stand alone financial statements of the Company, the entire property is held for rental purposes and is therefore retained as investment property in those financial statements Shs M Shs M Shs M Shs M Shs M At 1 January 12,086 11, Reclassified from property and equipment , Additions at cost Accumulated depreciation (548) At 31 December ,560 12,086 11, Amount allocated to investment property 11,560 12,086 11, Amount allocated to property and equipment 33,202 30,576 28,300 35,600 - Total property and equipment 44,762 42,662 39,615 35,600 -

172 Intangible assets Year ended 31 December 2012 Goodwill Customer r/ Other Total ships intangible assets Shs M Shs M Shs M Shs M Cost At 1 January ,574 11,037 Additions At 31 December ,803 11,266 Amortisation At 1 January (2,759) (2,759) Charge for the year - - (2,133) (2,133) At 31 December (4,892) (4,892) Net carrying amount 463-5,911 6,374 At 1 January ,803 11,266 Additions At 31 December ,550 12,013 Amortisation At 1 January (4,892) (4,892) Charge for the year - - (2,246) (2,246) At 31 December (7,138) (7,138) Net carrying amount 463-4,412 4,875

173 173 Year ended 31 December 2014 Goodwill Other Customer Work in Total intangible assets r/ships progress Shs M Shs M Shs M Shs M Shs M Cost At 1 January , ,013 Additions ,939-2,243 - At 31 December ,854 1,939-14,256 Amortisation At 1 January (7,138) - - (7,138) Charge for the year - (2,330) (162) - (2,492) - At 31 December (9,468) (162) - (9,630) - Net carrying amount 463 2,386 1,777-4,626 At 1 January ,854 1,939 3,144 17,400 Additions ,058 2,343 Transfers from work in progress - 1,645 - (1,645) - At 31 December ,784 1,939 3,557 19,743 Amortisation At 1 January , ,630 Charge for the year - 1, ,322 At 31 December , ,952 Net carrying amount 463 2,382 1,389 3,557 7,791 Year ended 31 December 2016 Cost At 1 January ,784 1,939 3,557 19,743 Additions ,851 2,421 Transfers from work in progress - 3,910 - (3,910) - At 31 December ,264 1,939 1,498 22,164 Amortisation At 1 January , ,952 Charge for the year ,349 At 31 December , ,301 Net carrying amount 463 5,901 1,001 1,498 8,863

174 174 Goodwill is reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. There was no impairment of goodwill identified in Other intangible assets comprise of software for the Group s core banking systems and fair valuations of customer relationships acquired from Bank of Uganda relating to Global Trust Bank. Work-in-progress relates to ongoing works in respect of the software upgrade. 24 Deferred income tax Deferred tax is calculated on all temporary differences under the liability method using the principal tax rate of 30%), except for interest receivable on treasury bills and bonds where the enacted rate is 15%. Deferred tax assets and liabilities and the deferred tax credit as at 31 December 2016 are attributed to the following items: Shs M Shs M Shs M Shs M Shs M At 1 January (1,650) (175) (283) 1,413 1,514 Credit to income statement (note 14) (1,640) (1,475) 108 (1,696) (101) Deferred tax asset (3,290) (1,650) (175) (283) 1, At 1 January 2016 (Credit)/ Charge to SOCI At 31 December 2016 Shs M Shs M Shs M Deferred tax liabilities Property and equipment 2, ,025 Deferred tax assets Allowance for impairment of loans and advances (1,891) (257) (2,148) Tax losses carried forward (1,276) (1,462) (2,738) Deferred fees and commissions income (1,821) (439) (2,260) Unrealised foreign exchange gain/(loss) (25) Fair value of treasury bills and bonds Fair value of customer relationships 417 (116) 301 (4,216) (2,099) (6,315) Net deferred tax asset (1,650) (1,640) (3,290)

175 At 1 January (Credit)/ Charge At 31 December 2015 to SOCI 2015 Shs M Shs M Shs M Deferred tax liabilities Property and equipment 1, ,566 Deferred tax assets Allowance for impairment of loans and advances (1,349) (542) (1,891) Tax losses carried forward 83 (1,359) (1,276) Unrealised foreign exchange gain/(loss) - (25) (25) Deferred fees and commissions income (1,565) (256) (1,821) Fair value of treasury bills and bonds 441 (61) 380 Fair value of customer relationships 532 (115) 417 (1,858) (2,358) (4,216) Net deferred tax assets (174) (1,476) (1,650)

176 Deferred income tax (Continued) At start of year Charged/ (credited) Charged through At end of year to income statement equity Shs M Shs M Shs M Shs M As at 31 December 2014 Deferred income tax liabilities Property and equipment 450 (314) Accelerated tax depreciation 1, ,554 Land revaluation surplus 1,020 - (1,020) - 3,024 (314) (1,020) 1,690 Deferred income tax assets Provisions for loan impairment (1,846) (1,317) Asset and investment revaluations (33) - - (33) Other temporary differences (168) - - (168) Deferred income (937) (514) - (1,451) Tax losses carried forward (179) Revaluation of securities held for trading (144) Fair value of customer relations (3,307) 1,442 - (1,865) Net deferred income tax (asset)/liability (283) 1,128 (1,020) (175) As at 31 December 2013 Deferred income tax liabilities Property and equipment 845 (395) Accelerated tax depreciation 1, ,554 Land revaluation surplus 1, ,020 3,419 (395) - 3,024 Deferred income tax assets Provisions for loan impairment (1,909) 63 - (1,846) Asset and investment revaluations (33) - - (33) Other temporary differences (168) - - (168) Deferred income (361) (576) - (937) Tax losses carried forward (91) (88) - (179) Revaluation of securities held for trading 556 (700) - (144) (2,006) (1,301) - (3,307) Net deferred income tax (asset)/liability 1,413 (1,696) - (283)

177 Deferred income tax (Continued) At start of year Charged/ (credited) Charged to other At end of year to income statement Group: Shs M Shs M Shs M Shs M As at 31 December 2012 Deferred income tax liabilities Property and equipment Accelerated tax depreciation 2,229 (675) - 1,554 Revaluation on land 1, ,020 4,094 (675) - 3,419 Deferred income tax assets Provisions for loan impairment (1,675) (234) - (1,909) Asset and investment revaluations (33) - - (33) Other temporary differences (168) - - (168) Deferred income (163) (198) - (361) Tax losses carried forward (401) (91) Revaluation of securities held for trading (140) (2,580) (2,006) Net deferred income tax (asset)/liability 1,514 (101) - 1, Investment in subsidiaries Shareholding Company Shs M Shs M Shs M Shs M Shs M dfcu Bank Limited 100% 26,793 26,793 26,793 26,793 26,793 dfcu Bank Limited is incorporated in Uganda under the Ugandan Companies Act as a limited liability company and licensed by Bank of Uganda to operate as a commercial bank. It is domiciled in Uganda and the address of its registered office is: Plot 26 Kyadondo Road P.O. Box 70 Kampala Uganda. The Bank is engaged in the business of banking and the provision of related services and is licensed under the Financial Institutions Act.

178 Customer deposits Shs M Shs M Shs M Shs M Shs M Demand deposits 365, , , , ,324 Savings deposits 238, , , ,671 92,011 Fixed deposits 531, , , , ,945 1,134, , , , , Deposits due to other banks Shs M Shs M Shs M Shs M Shs M Balances due to other banks within 90 days 11,505 98,096 54,021 56,050 17,204 Balances due to other banks are short-term deposits made by other banks for varying periods of between one day and three months, and earn interest at the respective short-term deposit rates. 28. Other liabilities Shs M Shs M Shs M Shs M Shs M Bills payable Unclaimed balances 2,152 2,275 1,877 1,398 1,314 Other liabilities 7,490 8,381 6,966 5,694 4,079 Deferred fees and commission income 7,721 8,897 10,279 9,659 1,583 Accrued expenses and payables 8,281 5,526 2,630 5,628 3,528 25,962 25,564 22,275 22,932 11,422 Other liabilities are non-interest bearing and normally settled within days. The Group gives no collateral in respect to these payables. 29. Managed funds manages a number of funds on behalf of the Government of Uganda ( GoU ) under which GoU provides financing for on-lending to specified third party beneficiaries under the terms and conditions of each fund. The related loans and advances are not maintained on the statement of financial position of to reflect the fact that the Group has neither rights to future economic benefits beyond management fees nor obligations to transfer economic benefits under the management agreements of the funds. These funds are due on demand. During the year, the Group had the GoU/CDO Fund, Commercial Flower Fund (CFF) and Gomba Daals Fund (GDF) under management. The un-disbursed balances on these funds are as follows: a). CDO/ GOU Fund During 2004, entered into a tripartite agreement with the Government of Uganda and Cotton Development Organisation (CDO) to set up a revolving fund of Shs 2.5 billion in cash, Shs 720 million worth of tractors and US$ 300,000 to finance leases for cotton farmers in Uganda. Under the terms of the agreement, provides leasing administration and management services only and receives fees in this respect of up to 4% of each lease facility. Interest on the facilities is chargeable to a maximum of 10% and is credited to the fund. No time limit was set for the fund under the terms of the agreement.

179 179 b). Commercial Flowers Fund The Commercial Flowers Fund was created by the Government of Uganda in July 2005 in a bid to promote commercial flower growing. On the due dates for KfW (I, II and III) loan repayments, remitted Shs 2,928 million to Pearl Flowers Limited and accordingly set up a revolving fund c). Gomba Daals Fund During 2007, entered into a tripartite agreement with the Government of Uganda and Gomba Daals Spices (U) Limited to set up a revolving fund of Shs 221 million. Under the terms of the agreement, provides leasing administration and management services only and receives fees in this respect of up to 2% of the lease facility. Interest on the facility is charged at 4% and is credited to the fund. No time limit was set for the fund under the terms of the agreement. 30. Special funds Special funds represent liabilities created under the terms of borrowing agreements with Kreditanstalt Fur Wiederaufbau (KFW). These agreements stipulate that upon maturity of loans extended to (and subsequently transferred to dfcu Bank Limited), is to remit principal and interest amounts due into special funds, under the control of the Government of Uganda. These special funds are intended to support development in defined sectors of the economy. The special funds are summarised in the table below: Shs M Shs M Shs M Shs M Shs M At 1 January 1,708 1,708 1,708 1,230 13,191 Disbursements (11,961) Additions At 31 December 1,708 1,708 1,708 1,708 1,230 a). The Kreditanstalt Fur Wiederaufbau (KFW) I, II and III special fund is to be used to finance qualifying development projects and to support capacity development at dfcu. b). Under the terms of agreement for KFW IV and V loans, principal and interest repayments are reserved in a fund to support the financing of SME and microfinance businesses.

180 Borrowed funds Shs M Shs M Shs M Shs M Shs M European Investment Bank Apex IV ,293 5,484 European Investment Bank Global Loan II ,837 Uganda Government (KFW II loan) Uganda Government (KFW III loan) 1,984 1,984 1,984 1,984 1,984 Uganda Government (KFW V loan) 17,255 17,831 17,196 16,721 17,221 Bank of Uganda (ACF loan) 9,256 10,830 12,109 10,097 6,576 Societe De Promotion Et De Participation Pour La Cooperation Economique (PROPARCO) 70,891 81,546 47,400 25,200 34,521 International Finance Corporation - - 1,975 5,400 12,811 The OPEC Fund for International Development 27,650 1,220 Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO) 9,113 11,544 13,974 16,404 FMO USD 43,380 61,700 70,620 72,342 33,895 National Social Security Fund ,000 2,000 European Investment Bank PEFF 24,663 33,664 43,156 54,802 43,233 European Investment Bank-Microfinance 10,785 13,481 16, Norwegian Investment Fund for Developing Countries (NORFUND) 5,272 8,786 12,300 16,830 20,469 East African Development Bank 20,724 21,782 7,825 8,330 8,423 Deutsche Investitions-Und Entwicklungsgesellschaft mbh (DEG) Senior loan 50,610 60, Deutsche Investitions-Und Entwicklungsgesellschaft mbh (DEG) 36,150 33,580 27,650 25,200 26, Shs M Shs M Shs M Shs M Shs M CDC Group Plc Subordinated debt 36,150 33,580 27,650 25,200 - NORFUND Subordinated debt ,890 6,041 UN Habitat ,034 Jubilee Insurance 2,852 2, , , , , ,505

181 181 Included in borrowings is a subordinated debt from Deutsche Investitions-Und EntwicklungsgesellschaftmbH (DEG) whose tenure is 7 years and is due to mature in The interest rate on this debt is variable at an aggregate interest rate of 6.6% per annum plus the USD swap rate prevailing at the interest determination date. The other subordinated debt is from CDC Group Plc (CDC) whose tenure is 7 years and is due to mature in The interest rate on this debt is variable at Libor 6 months plus 4.5%. The debts are subordinated to ordinary liabilities of the bank and recognized by the Bank as Tier 2 Capital. The terms and conditions relating to borrowings are tabulated below: Tenure Interest Fixed / Currency (years) rate variable European Investment Bank Apex III None 6.605% Fixed Shs European Investment Bank Apex IV % Fixed Shs European Investment Bank Global Loan II % Fixed Shs Uganda Government (KFW II loan) % Fixed Shs Uganda Government (KFW III loan) % Fixed Shs Uganda Government (KFW V loan) % Fixed Shs Bank of Uganda (ACF loan) % Fixed Shs Societe De Promotion Et De Participation Pour La Cooperation Economique (PROPARCO) % Variable USD Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO) % Variable Shs FMO USD % Variable USD National Social Security Fund % Variable Shs European Investment Bank-PEFF USD % Fixed USD European Investment Bank-PEFF UGX % Fixed Shs NORFUND Senior loan % Variable Shs East African Development Bank % Fixed Shs Deutsche Investitions-Und Entwicklungsgesellschaft mbh % Variable USD (DEG) Subordinated debt Deutsche Investitions-Und Entwicklungsgesellschaft mbh % Variable USD (DEG) Senior loan CDC Group Plc % Variable USD UN Habitat % Fixed Shs East African Development Bank % Fixed Shs Jubilee Insurance Company Limited % Variable USD

182 Share capital and share premium Number of issued Share Share Total ordinary shares Capital premium Shs M Shs M Shs M At 31 December ,201,822 9,464 2,878 12,342 At 31 December ,201,822 9,464 2,878 12,342 At 31 December ,201,822 9,464 2,878 12,342 At 31 December ,600,911 4,972 2,878 7,850 At 31 December ,600,911 4,972 2,878 7,850 The total authorised number of ordinary shares is 1,250,000,000 with a par value of Shs 20 per share. All issued shares are fully paid. 33. Regulatory reserve Shs M Shs M Shs M Shs M Shs M At 1 January 24,203 11,435 8,218 9,626 5,990 Transfer (to)/from retained earnings during the year (20,130) 12,768 3,217 (1,408) 3,636 At 31 December 4,073 24,203 11,435 8,218 9,626 The regulatory credit risk reserve represents amounts by which allowances for impairment of loans and advances determined in accordance with the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016 exceed those determined in accordance with International Financial Reporting Standards. These amounts are appropriated from retained earnings in accordance with accounting policy 2E. The reserve is not distributable. 34. Off-consolidated statement of financial position financial instruments, contingent liabilities and commitments In common with other banks, the subsidiary of the Company, dfcu Bank Limited (the Bank), conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties Shs M Shs M Shs M Shs M Shs M Contingent liabilities and commitments Acceptances and letters of credit , Guarantee and performance bonds 92,081 67,573 51,305 71,250 29,965 Undrawn formal stand-by facilities, credit lines and other commitments to lend 27,434 20,572 21,690 23,019 27, ,515 88,145 72,995 95,317 58,196

183 Operating lease commitments The Group has commitments under operating leases in respect of rented property. The minimum future lease payments were as follows: Shs M Shs M Shs M Shs M Shs M Not later than one year 5,116 7,718 3,564 2,103 3,630 Later than 1 year and not later than 5 years 806 4,992 7,726 3,092 5,019 5,922 12,710 11,290 5,195 8, Other contingent liabilities The Group is a defendant in various legal actions in the normal course of business. The total estimated exposure arising from these cases for the following years was as follows; Shs B Shs B Shs B Shs B Shs B Through legal advice management, the group determined that total expected losses to the Group for the following years was as follows. A provision was made in the consolidated financial statements for each of the years. In the opinion of directors and after taking appropriate legal advice, no significant additional losses are expected to arise from these cases Shs M Shs M Shs M Shs M Shs M 1,841 1, Cash and cash equivalents Analysis of cash and cash equivalents as shown in the consolidated statement of cash flows Shs M Shs M Shs M Shs M Shs M Cash at hand (note 16) 80,738 62,668 71,182 57,012 41,353 Balances with Bank of Uganda (note 16) 95, , , ,653 58,697 Less: Cash reserve requirement (88,090) (71,430) (64,370) (50,910) (45,041) Treasury bills and bonds maturing within 90 days Deposits and balances due from banks (note 17) ,343 33, , , ,165 83,103 61, , , , , ,317

184 184 For purposes of the statement of cash flows, cash equivalents include short- term liquid investments which are readily convertible into known amounts of cash and which were less than 90 days to maturity from the statement of financial position date. Bank of Uganda requires banks to maintain a prescribed minimum cash balance. This balance is available to finance the Bank s day-to-day activities; however there are restrictions as to its use and sanctions for noncompliance. The amount is determined as a percentage of the average outstanding customer deposits held by dfcu Bank Limited over a cash reserve cycle period of fourteen days. 38. Related party disclosures There are other companies that are related to through common shareholdings or common directorships. Transactions and balances with related parties are shown below: a). Amounts due to related companies Shs M Shs M Shs M Shs M Shs M Jubilee Insurance Company Limited Fixed 6,649 5, and Demand deposits dfcu Bank Limited- Overdraft and term finance - - 7,160 7,302 5,208 Umeme Limited Demand deposits 2,738 2,497 3,304 1,856 2,278 National Social Security Fund- Fixed deposits ,309 65,069 78,100 77,531 Amounts due to dfcu Bank Limited relate to an overdraft which earns interest at the prevailing market rates. Amounts due to other related companies include borrowings and deposits held with and dfcu Bank Limited which both accrue interest at the prevailing market rates. b). Amounts due from related companies Shs M Shs M Shs M Shs M Shs M dfcu Bank Limited - - 4,292 3,661 - These include deposits held in dfcu Bank Limited which are due on demand and earn interest at the prevailing market rates. c). Borrowings due to shareholders Shs M Shs M Shs M Shs M Shs M Norwegian Investment Fund for Developing 5,272 8,786 12,300 18,720 26,511 Countries (NORFUND CDC Group Plc (CDC) 36,150 33,580 27,650 25,200 - The Norwegian Investment Fund for Developing Countries (NORFUND) and CDC Group Plc (CDC) held a 27.54% and a 15.00% shareholding respectively in between 2013 and In 2012, NORFUND held 10.06% in.

185 185 d). Loans to directors and connected persons Shs M Shs M Shs M Shs M Shs M At 1 January ,986 Repaid during year - (95) (88) (147) (2,656) At 31 December e). Deposit to directors Shs M Shs M Shs M Shs M Shs M At 1 January 121 1, Net increase/(decrease) 613 (981) At 31 December , f). Key management compensation Shs M Shs M Shs M Shs M Shs M Salaries and other short-term 5,079 5,043 4,219 4,490 4,443 employment benefits Post-employment benefits ,658 5,593 4,716 5,008 4,952 g). Directors remuneration Shs M Shs M Shs M Shs M Shs M Fees for services as directors Other emoluments: short-term benefits (included in key management compensation) 1, ,022

186 Retirement benefit obligations The Group participates in a defined contribution retirement benefit scheme and substantially all of the Group s employees are eligible to participate in this scheme. The Group is required to make annual contributions to the scheme at a rate of 7.5% of basic pay. Employees contribute 7.5% of their basic salary. The Group has no other material obligation for the payment of retirement benefits beyond the annual contributions under this scheme. The Group also makes contributions to the statutory retirement benefit scheme, the National Social Security Fund. Contributions are determined by local statute and are shared between the employer and employee. 40. Capital Commitments During 2016, the Company entered into a contract to complete works on the proposed Namanve Financial Centre for Ushs 3.7 billion. The Group s subsidiary is committed to incur capital expenditure of Ushs 3.3 billion for the upgrade the Bank s core banking system. These commitments are expected to be settled in 2017 and Ushs M Ushs M Ushs M Ushs M Ushs M Authorised and contracted 6, , Subsequent events a). Acquisition of Crane Bank Limited On 27th January 2017, Bank of Uganda in exercise of its powers as Receiver, under Section 95(1)(b) of the Financial Institutions Act transferred the liabilities (including the deposits) of Crane Bank Limited to dfcu Bank Limited and in consideration of that transfer of liabilities conveyed to dfcu Bank Limited, Crane Bank Limited s assets. All customers and depositors of Crane Bank Limited have their accounts operated by dfcu Bank Limited through the wide spread branch network, which includes some which were formerly branches of Crane Bank Limited. As a result, the Group s branch network increased from 42 to 68 branches country wide. As at the issue date of the financial statements for the year ended 31 December 2016, the integration of the two businesses was still in progress and the full financial impact of the transaction was still being determined. No adjustment relating to this transaction has been recorded in the consolidated financial statements. b). Borrowing from Arise B.V Subsequent to 31 December 2016, concluded an agreement with Arise B.V (an entity owned by Norfund, Norfinance, Rabobank, and FMO) and gave USD 50 million (about Shs billion) bridging facility to the Company to support the enhanced capital adequacy requirements of dfcu Bank Limited, the Company s wholly owned subsidiary and the funds were received on 24th February 2017.

187 187 The major shareholders of together with their shareholdings are; Number of shares % Number of shares % Rabo Development B.V 136,923, ,923, NORFINANCE AS 136,923, ,923, CDC Group Plc 74,580, ,580, National Social Security Fund 29,487, ,487, Kimberlite Frontier Africa Naster Fund 29,324, ,685, National Social Security Fund-Pinebridge 5,435, ,435, SCBM PICTET AND CIE (EUROPE) S.A BLAKENEY LP. 5,169, ,094, SSB-Conrad N Hilton Foundation 4,741, ,503, Vanderbilt University 4,427, ,691, Bank of Uganda Staff Retirement Benefit Scheme-SIMS 2,904, ,904, Bank of Uganda Staff Retirement Benefit Scheme-AIG 2,831, ,831, Parliamentary Pension Scheme 1,911, ,185, URA Retirement Benefit Scheme-Pinebridge 1,862, ,062, Centenary Bank Staff Defined Contributory Scheme 1,834, ,934, UAP Insurance Co. Ltd 1,786, ,786, SCBM PICTET AND CIE (EUROPE) S.A HEVIBEN LP. 1,640, ,300, Central Bank of Kenya Pension Fund 1,601, ,601, Makerere University Retirement Benefit Scheme 1,526, ,526, Crane Bank Limited 1,444, Gadani 1,292, SCBM PICTET AND CIE (EUROPE) S.A. BLAKENEY - - 2,700, INVESTORS SCBM PICTET AND CIE (EUROPE) S.A.-AUSTIN ALPHA LP - - 1,800, Others 49,552, ,242, ,201, ,201,

188 188 The major shareholders of together with their shareholdings are; Number of % Number of % Number of % shares shares shares Rabo Development B.V 136,923, ,923, NORFINANCE AS 136,923, ,923, ,000, CDC Group Plc 74,580, ,580, ,213, National Social Security Fund 29,487, ,487, ,743, Investec Asset Management Africa 21,573, ,573, ,786, Investec Asset Management Pan 13,575, ,575, ,787, Investec Asset Management 5,650, ,650, ,825, Central Bank of Kenya Pension Fund 5,062, ,062, ,531, Bank of Uganda Staff Retirement Benefits Scheme 4,555, ,555, ,277, Pinebridge Sub-SaharanAfrica 2,719, ,719, ,359, Kenya Airways Limited Staff Provident Fund 1,914, ,914, , UAP Insurance Company Limited 1,694, ,694, , Stanbic Bank Uganda Limited Staff 1,640, ,640, , UAP Retirement Benefits 1,462, ,462, , Crane Bank Limited 1,444, ,444, , National Social Security Fund-SIMS 1,438, ,438, , Mr. Rakesh Gadani 1,292, ,292, , MTN Uganda Staff Contributory Fund 1,245, ,245, , Jubilee Investments Limited 1,200, ,200, , Alexander Forbes Retirement Fund 1,089, ,089, , Others 51,728, ,728, ,864, ,201, ,201, ,600,

189 189 III. 3 Year Profit Forecast of for the Years Ending 31 December 2017, 2018 and 2019

190 190 The Directors Dfcu Limited Plot 26 Kyadondo P. O. Box 2767 Kampala, Uganda Report on the 3 year profit forecast of for the years ending 31 December 2017, 2018 and 2019 Dear Sirs, We have examined the accompanying financial projections of in accordance with the International Standard on Assurance Engagements applicable to the examination of prospective financial information. Management is responsible for the preparation and fair presentation of the financial projections including the accuracy of the assumptions set out in below on which they are based. Our responsibility is to issue a report on the financial projections based on our review. Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the financial projections. Further, in our opinion the financial projections are properly prepared on the basis of the assumptions and are presented in accordance with the accounting policies normally used by. Actual results are likely to be different from the financial projections since anticipated events frequently do not occur as expected and the variation may be material. Ernst & Young Certified Public Accountants Kampala, Uganda Date: 24 August 2017

191 191 Key assumptions to the Profit forecast for the years ending 31 December 2017, 2018 and 2019 The following are the key assumptions used in the profit forecast for the years ending 31 December 2017, 2018 and 2019 a). The group s accounting policies as disclosed in the historical financial information are used in preparing the projected financial information. b). Uganda is expected to continue to have stable and predictable macroeconomic conditions supporting business growth. Real GDP growth is expected to be at least 5.7% in 2017, and 6.0% in 2018 and 2019 whereas single-digit inflation rate is expected to be at least 5% in 2017 and 2018, and 6% in The exchange rates against major currencies are expected to be stable. c). The banking industry deposit growth is expected to be 12%, 13% and 14% in 2017, 2018 and 2019 respectively (2016: 11%) whereas the industry loan growth rate is expected to be 16%, 13% and 19% in 2017, 2018 and 2019 respectively (2016: 6%). d). The central bank rate is expected to average 11.5% over the years (2016: 14.5%) whereas the government securities are expected to average 15.3%, 13.4% and 13.7% in 2017, 2018 and 2019 respectively (2016: 13.8%) for treasury bills and 15.3%, 14.0%, 14.7% in 2017, 2018 and 2019 respectively (2016: 14.2%) for treasury bonds. e). The bank s average lending rate for local currency based retail loans and advances will be 25.3% for the years 2017 to 2019 (2016: 27%) whereas foreign currency based will be 13.7% for the years 2017 to 2019 (2016: 14%). f). The bank s average lending rate for local currency based corporate loans and advances will be 22.3% for the year 2017, and 23% for the years 2018 and 2019 (2016: 24%) whereas foreign currency based will be 10.5%, 11% and 11.6% for the years 2017, 2018 and 2019 respectively (2016: 12%). g). The effective tax rate for 2017, 2018 and 2019 are expected to be 24%, 23% and 23% (2016: 23%). h). It is unlikely that there will be a new entrant into the Ugandan banking sector. Any new player in the market should not pose a significant competitive challenge in the years because of market penetration and lead time to setting up a competitive bank. i). No new legal, regulatory and/or fiscal requirements are expected to cause significant change in the group s operations, financial performance and position. j). No material cash out flows are expected from the open litigations. The group should be able to successfully defend the material open litigations for which no provision is made in the historical financial statements.

192 192 Dec-17 Dec-18 Dec-19 Shs M Shs M Shs M Interest and similar income Loans and advances 199, , ,299 Government and other securities 115, , ,326 Other interest income 9,347 9,237 11,987 Total interest and similar income 324, , ,612 Interest and similar expenses Borrowed funds (43,281) (48,354) (42,560) Customer deposits (89,470) (113,976) (132,236) Total interest and similar expenses (132,751) (162,330) (174,796) Net interest income 191, , ,816 Fees and commission income 40,373 46,767 60,471 Net trading and other income 153,880 38,074 41,379 Total income 386, , ,666 Operating expenses (164,805) (190,467) (225,341) Impairment loans and advances (23,897) (21,739) (43,826) Profit before tax 197, , ,499 Tax expense (47,920) (32,796) (41,916) Profit after tax 149, , ,583

193 193 IV. Condensed consolidated interim financial statements (unaudited) for the 6 Months period ended 30 June 2017

194 194 Condensed consolidated statement of profit or loss and other comprehensive income Unaudited 6 months to 30 June 2017 Unaudited 6 months to 30 June 2016 Audited 12 months to 31 December 2016 Shs M Shs M Shs M Total income 255,001 83, ,093 Operating expenses (91,439) (48,078) (96,900) Allowance for impairment of loans and advances (11,892) (5,285) (17,830) Profit before income tax 151,670 30,427 58,363 Income tax expense (37,620) (7,108) (13,038) Profit for the period 114,050 23,319 45,325 Profit attributable to : Owners of the Company 114,050 23,319 45, ,050 23,319 45,325 Earnings per share for the profit attributable to the owners of the Company during the period basic and diluted (Shs) Annualized Earning per Share (Shs)

195 195 Condensed consolidated statement of financial position Unaudited As at 30 June 2017 Unaudited 6 months to 30 June 2016 Audited 12 months to 31 December 201 Shs M Shs M Shs M Assets Liquid assets 1,220, , ,219 Advances to customers 1,310, , ,360 Other assets 522, , ,146 Total assets 3,053,133 1,623,298 1,757,725 Liabilities Customer deposits 1,838, ,004 1,134,731 Other payables and liabilities 98,876 33,066 28,758 Borrowings 751, , ,584 Total liabilities 2,689,431 1,384,848 1,508,073 Equity Shareholders equity 363, , ,652 Total equity and liabilities 3,053,133 1,623,298 1,757,725

196 196 Condensed consolidated statement of cash flows Unaudited 6 months to 30 June 2017 Unaudited 6 months to 30 June 2016 Audited As at 31 December 2016 Shs M Shs M Shs M Cash flows from operating activities Profit before income tax 151,670 30,427 58,363 Non-cash items included in profit before income tax 9,370 4,946 10,013 Change in operating assets (1,215,741) 5,247 (153,514) Change in operating liabilities 905,692 70, ,148 Current income tax paid (15,775) (3,423) (15,730) Net cash (used)/generated from operating activities (164,784) 107,682 56,280 Investment activities Purchase of property and equipment, investment property (13,747) (12,518) (9,070) and intangible assets Acquisition of CBL deposits and balances with BOU 56, Acquisition of CBL deposits and balances due from other 11, banks Proceeds from sale of property and equipment Net cash used in investing activities 54,748 (12,518) (9,070) Financing activities Net change in borrowings 381,851 (122,136) (60,740) Dividends paid to shareholders - - (10,804) Net cash used in financing activities 381,851 (122,136) (71,544) Net increase/(decrease) in cash and cash equivalents 271,815 (26,972) (24,334) Cash and cash equivalents at start of period 235, , ,280 Cash and cash equivalents at end of period 506, , ,946

197 197 Share Capital Share premium Distributable Reserves Non Distributable Reserves Regulatory reserves Proposed dividend Attributable Total to equity holders of the parent Shs M Shs M Shs M Shs M Shs M Shs M Shs M Shs M At 1 January ,464 2, ,669 12,113 24,203 10, , ,131 Profit for the year , ,325 45,325 Transfer from regulatory reserve ,130 - (20,130) Dividend paid (10,804) (10,804) (10,804) Dividend proposed - - (12,510) , At 31 December ,464 2, ,614 12,113 4,073 12, , ,652 Six months ended 30 June 2016 At 1 January ,464 2, ,669 12,113 24,203 10, , ,131 Profit for the six months ended , ,319 23, June Transfer from regulatory reserve - - 6,184 - (6,184) At 30 June ,464 2, ,172 12,113 18,019 10, , ,450 Six months ended 30 June 2017 At 1 January ,464 2, ,614 12,113 4,073 12, , ,652 Profit for the six months ended , , , June Transfer from regulatory reserve - - (803) At 30 June ,464 2, ,861 12,113 4,876 12, , ,702 N.B The financial statements were approved by the directors on 14 August A copy of the condensed Interim Financial Statements can be obtained at Head Office. Dividends The board does not recommend the payment of an interim dividend. Chairman: Company Secretary:

198 198 V. Provisional Allotment (Pal) Forms

199 199 Provisional Allotment Letter

200 200

201 201 Form of Renunciation ( Form R )

202 202

203 203 Form of Entitlement ( Form E )

204 204

205 205 Application for Rump Shares (Rump Form)

206 206