BASEL II PILLAR III DISCLOSURE Page 1
1. SCOPE AND APPLICATION Ithala Limited is a wholly owned subsidiary of Ithala Development Finance Corporation Limited. Ithala Development Finance Corporation Limited is not registered as a controlling Company in terms of the Banks Act, and as such Basel II Pillar III disclosure requirements apply only to Ithala Limited. However, the financial results of Ithala Limited are consolidated and presented in the consolidated annual financial statements of Ithala Development Finance Corporation Limited. 2. BASIS OF COMPILATION The following information is compiled in terms of Regulation 43 of the Bank s Act 1990 (as amended) the ( Regulations ) which incorporates Basel II, Pillar III requirements on market discipline. All disclosures presented below are consistent with those disclosed in terms of the Company s accounting policies, unless otherwise stated. 3. PERIOD OF REPORTING This report covers the six months ended. Comparative information is presented for the previous year end to. 4. CAPITAL MANAGEMENT 4.1. Capital adequacy Capital requirements are calculated using the Standardised Approach for credit risk and the Basic Indicator approach for operational risk. Other relates to other assets, which in terms of Regulation 23 of the Banks Act are grouped with credit risk for the purposes of calculating regulatory capital, effectively using the same approach as for credit risk. Regulatory Capital requirements as at Exposure Capital requirements Risk weighted exposure R 000 R 000 R 000 R 000 Credit risk 98 773 90 859 1 013 049 931 889 Operational risk 42 017 42 018 430 949 430 949 Other 9 991 10 054 102 475 103 120 Total 150 781 142 931 1 546 473 1 465 958 Capital Adequacy Ratio as at Actual Minimum Capital requirements Capital Adequacy ratio 10% 11.64% 12.42% Primary share capital and reserve funds adequacy ratio 7% 10.82% 11.63% Total risk weighted assets (R 000) 1 546 473 1 465 958 Page 2
As at the capital adequacy ratio was 11.64% ( : 12.42%) The Company s capital adequacy ratio was above the minimum level required by the South African Reserve Bank of 10%. 4.2. Capital Structure Tier l capital consists of issued ordinary shares, share premium and retained income. Tier ll capital is calculated as 1.25% of credit risk weighted exposures limited to the amount of general allowance for credit impairments. September R'000 R'000 Share capital 190 190 Share premium 189 810 189 810 (Accumulated Loss) / Retained income (16 165) 29 740 Prescribed deductions against capital and reserve funds (6 462) (49 313) Total tier 1 capital 167 363 170 428 1.25% of Credit Risk weighted assets 12 663 11 648 Total Tier II capital 12 663 11 648 Total qualifying capital 180 036 182 076 5. CREDIT RISK EXPOSURES 5.1 Major types of credit risk exposures The aggregate amount of gross credit exposure after the effect of set-off but before the effects of credit risk-mitigation techniques is displayed below: Total Gross Exposure of of R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Commercial Loans 33 274 5 052 28 222 41 578 37 457 3 557 33 900 43 064 Property development loans 17 553 11 070 6 483 16 320 23 292 11 636 11 656 25 862 Housing loans > R500k 240 393 16 923 223 470 234 853 189 466 15 212 174 254 187 459 Sub-total 291 220 33 045 258 175 292 751 250 215 30 405 219 810 256 385 Other loans 968 435 80 065 888 370 1 317 773 936 972 77 383 859 589 1 263 754 Total 1 259 655 113 110 1 146 545 1 610 524 1 187 187 107 788 1 079 399 1 520 139. Page 3
Average Gross Exposures of of R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Commercial Loans 2 080 316 1 764 2 599 2 341 222 2 119 2 691 Property development loans 2 194 1 384 810 2 040 2 329 1 164 1 165 2 586 Housing loans > R500k 796 56 740 778 842 68 774 833 Sub-total 5 070 1 756 3 314 5 417 5 512 1 454 4 058 6 110 Other loans 45 4 41 62 122 11 111 170 Total 5 115 1 760 3 355 5 479 5 634 1 465 4 169 6 280 The average gross exposures are determined by dividing the period end balance by the number of loan exposures outstanding at the end of the reporting period. 5.2 Geographical distribution of credit exposures Ithala operates solely in the province of Kwa-Zulu Natal and lends mainly to individuals in the housing mortgage sector. All exposures are within Kwa-Zulu Natal, South Africa. 5.3 Sectoral Analysis of Loans and Advances The table below displays the distribution of exposures based on industry: % R 000 % R 000 Sectoral Analysis Real Estate 3 33 274 3 37 457 Construction 1 17 553 2 23 292 Retail-mortgage 75 939 373 72 855 446 Retail-other 21 269 455 23 270 992 Total 100 1 259 655 100 1 187 187 Page 4
Assets that are neither past due nor impaired Assets that are past due but not yet impaired Financial assets that are impaired Total Credit s R 000 R 000 R 000 R 000 R 000 Real Estate 19 813 3 325 10 136 33 274 5 052 Construction 3 661-13 892 17 553 11 070 Retail-Mortgage 813 500 58 202 67 671 939 373 62 728 Retail-Other 231 949 8 430 29 076 269 455 34 260 Total 1 068 923 69 957 120 775 1 259 655 113 110 Assets that are neither past due nor impaired Assets that are past due but not yet impaired Financial assets that are impaired Total Credit s R 000 R 000 R 000 R 000 R 000 Real Estate 23 647 4 560 9 250 37 457 3 557 Construction 4 741-18 551 23 292 11 636 Retail-Mortgage 720 138 72 737 62 571 855 446 60 138 Retail-Other 235 648 9 831 25 513 270 992 32 457 Total 984 174 87 128 115 885 1 187 187 107 788 5.4 Credit Reconciliation Portfolio s s Raised/(Released) R 000 R 000 R 000 R 000 Real Estate 248 - (20) 228 Construction 47 - (11) 36 Retail-Mortgage 18 739-1 791 20 530 Retail-Other 9 398 - (2 273) 7 125 Total 28 432 - (513) 27 919 2010 s Raised/(Released) R 000 R 000 R 000 R 000 Real Estate 422 - (174) 248 Construction 227 - (180) 47 Retail-Mortgage 23 153 - (4 414) 18 739 Retail-Other 7 322-2 076 9 398 Total 31 124 - (2 692) 28 432 Page 5
Specific s s Raised/(Released) t R 000 R 000 R 000 R 000 Real Estate 3 309-1 515 4 824 Construction 11 589 - (555) 11 034 Retail-Mortgage 41 399 (573) 1 372 42 198 Retail-Other 23 059 (79) 4 155 27 135 Total 79 356 (652) 6 487 85 191 2010 s Raised/(Released) R 000 R 000 R 000 R 000 Real Estate 2 047-1 262 3 309 Construction 7 260-4 329 11 589 Retail-Mortgage 45 326 (2 479) (1 448) 41 399 Retail-Other 18 938 (7 629) 11 750 23 059 Total 73 571 (10 108) 15 893 79 356 Total Credit s s Raised/(Released) t R 000 R 000 R 000 R 000 Real Estate 3 557-1 495 5 052 Construction 11 636 - (566) 11 070 Retail-Mortgage 60 138 (573) 2 017 62 728 Retail-Other 32 457 (79) 1 724 34 260 Total 107 788 (652) 4 670 113 110 2010 s Raised/(Released) R 000 R 000 R 000 R 000 Real Estate 2 469-1 088 3 557 Construction 7 487-4 149 11 636 Retail-Mortgage 68 479 ( 2 479) (5 862) 60 138 Retail-Other 26 260 (7 629) 13 826 32 457 Total 104 695 (10 108) 13 201 107 788 5.5 Counterparty credit exposures The table below displays the major types of counterparties that Ithala is exposed to: Type of counterparty credit exposure of of R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Individuals 1 187 758 93 814 1 093 944 1 526 060 1 111 242 90 642 1 020 600 1 430 659 Non individuals 71 897 19 296 52 601 84 465 75 945 17 145 58 800 89 480 Banks 834 432 834 432 834 432 762 119 762 119 762 119 Total 2 094 087 113 110 1 980 977 2 444 957 1 949 306 107 787 1 841 519 2 282 258 Page 6
5.5 Counterparty credit exposures (Continued) Counterparty credit exposure includes amounts held at the South African Reserve Bank (SARB) of R108 million ( : R104 million), banks, individual and non-individual. Exposures in banks are invested in fixed deposit, call and money market accounts 6. Maturity Analysis of Credit Risk Exposures Residual maturity analysis for credit risk exposures is as follows: Credit Risk Exposure relating to on statement of financial position assets: Up to 1 Month From 1 to 6 months From 6 months to 1 year From 1 year to 5 years After 5 year TOTAL R 000 R 000 R 000 R 000 R 000 R 000 Statutory Liquidity Assets 108 281 - - - - 108 281 Deposits with Banks 205 012 624 704 4 718 - - 834 434 Loans and Advances to Customers 7 455 34 514 40 592 295 963 881 131 1 259 655 Receivables and Prepayment 22 972 176 - - - 23 148 InterCompany Loan Account with Holding Company (4 621) - - - - (4 621) Total Assets subject to credit risk 339 099 659 394 45 310 295 963 881 131 2 220 897 Credit Risk Exposure relating to off statement of financial position assets: Letters of Undertaking Issued 28 608 - - - - 28 608 Credit Risk Exposure relating to on statement of financial position assets: Up to 1 Month From 1 to 6 months From 6 months to 1 year From 1 year to 5 years After 5 year TOTAL R 000 R 000 R 000 R 000 R 000 R 000 Statutory Liquidity Assets 104 473 - - - - 104 473 Deposits with Banks 152 205 453 621 51 820 - - 657 646 Loans and Advances to Customers 7 536 34 472 40 695 292 854 811 728 1 187 187 Receivables and Prepayment 4 898 1 184 232 392-6 706 InterCompany Loan Account with Holding Company (2 868) - - - - (2 868) Total Assets subject to credit risk 266 246 489 177 92 947 293 246 811 728 1 953 144 Credit Risk Exposure relating to off statement of financial position assets: Letters of Undertaking Issued 14 796 - - - - 14 796 Page 7
Age analysis of assets past due but not impaired R 000 Less than 30 days 31 to 60 days 61 to 90 days More than 90 days Total of Housing loans 16 525 9 938 10 783 28 507 65 753 82 522 Personal Loans 879 - - - 879 Commercial property loans 3 016-189 120 3 325 4 878 Total 20 420 9 938 10 972 28 627 69 957 87 400 Less than 31 to 60 61 to 90 More than Total R 000 30 days days days 90 days of Housing loans 26 543 13 377 9 506 31 686 81 112 96 524 Personal Loans 1 456 - - - 1 456 - Commercial property loans - 1 151-3 409 4 560 5 217 Total 27 999 14 528 9 506 35 095 87 128 101 741 7. INTEREST RATE RISK IN THE BANKING BOOK The table below demonstrates the re-pricing gap between The Company's assets and liabilities upon the application of a change in market interest rates. The table shows the impact of a 2% increase / decrease in interest rates on the net interest income of the Company. The scenario analysis is limited to the impact on interest income and expenditure over the period of 12 months. The application of the change in interest rates is applied to a static balance sheet and is in accordance with Regulation 30 of the Banks Act, 1990. The sensitivity analysis below has been presented on a net interest income basis to reflect the operations of the entity: Increase: At R'000 At R'000 Impact of increase in yield on assets on comprehensive income 41 324 35 879 Increased net interest income percentage 41% 32% Impact of increase in cost of funds on comprehensive income (27 187) (23 220) Decreased net interest income percentage (27%) (21%) Decrease: Impact of decrease in yield on assets on comprehensive income (42 014) (36 825) Decreased net interest income percentage (41%) (33%) Impact of decrease in cost of funds on comprehensive income 25 735 21 948 Increased net interest income percentage 25% 19% Page 8
8. QUALITATIVE DISCLOSURES AND ACCOUNTING POLICIES The regulations require that certain qualitative disclosures and statements on accounting policy be made. These disclosures and statements on accounting policy were made in the annual report for the financial year ended. The above disclosures should be read in conjunction with these qualitative disclosures. Page 9